UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission File Number: 0-19285
ALLIED WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 88-0228636
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
7201 East Camelback Road, Suite 375, Scottsdale, Arizona 85251
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (602) 423-2946
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of the issuer's class of common
stock, as of the latest practicable date.
Class Outstanding as of March 31, 1996
Common Stock 50,392,777
ALLIED WASTE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
Page
Part I Financial Information
Item 1-Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2-Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II Other Information
Item 1-Legal Proceedings 18
Item 2-Changes in Securities 18
Item 3-Defaults Upon Senior Securities 18
Item 4-Submission of Matters to a Vote of Securing Holders 18
Item 5-Other Information 18
Item 6-Exhibits and Reports on Form 8-K 18
Signature 19
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, March 31,
1995 1996
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,588 $ 4,345
Accounts receivable, net of allowance of
$2,398 and $2,373 26,326 25,878
Prepaid and other current assets 5,103 4,046
Current portion of landfills 7,103 7,103
Inventories 1,467 1,717
Deferred income taxes 2,669 2,149
Total current assets 46,256 45,238
Property and equipment, net 285,538 296,647
Goodwill, net 85,230 93,353
Other assets 12,593 12,551
Total assets $429,617 $447,789
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt to
related parties $ 121 $ 121
Current portion of long-term debt to
unrelated parties 22,423 14,417
Accounts payable 18,704 12,439
Accured interest 5,995 2,529
Other accured liabilities 12,577 13,721
Unearned income 7,287 6,953
Total current liabilities 67,107 50,180
Long-term debt to related parties, less
current portion 1,862 1,833
Long-term debt to unrelated parties,
less current portion 174,415 155,709
Convertible subordinated debt, net
of discount 7,779 7,788
Deferred income taxes 25,649 25,516
Accured closure and post closure costs 10,530 10,098
Deferred royalties and other long-term
obligations 9,131 8,741
Commitments and contingencies
Stockholders' Equity --
Preferred stock, aggregate liquidation
preference of $15,052 and $14,934
at December 31, 1995 and
March 31, 1996, respectively 2 2
Common stock 411 504
Additional paid in capital 132,731 185,145
Retained earnings -- 2,273
Total stockholders' equity 133,144 187,924
Total liabilities and stockholders' equity $429,617 $447,789
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these balance sheets.
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for per share amounts and number of shares; unaudited)
Three Months Ended March 31,
1995 1996
Revenues $ 39,951 $ 46,437
Cost of operations 21,305 24,365
Selling, general and administrative expenses 6,978 8,284
Depreciation and amortization 5,278 6,601
Operating income before pooling costs 6,390 7,187
Pooling costs -- 928
Operating income 6,390 6,259
Interest Income (279) (42)
Interest Expense 2,561 1,634
Income before income taxes 4,108 4,667
Income tax expense 1,912 2,100
Income before minority interest 2,196 2,567
Minority interest 6 6
Net income 2,190 2,561
Dividends on preferred stock (1,144) (288)
Net income to common shareholders $ 1,046 $ 2,273
Income per share $ 0.04 $ 0.05
Weighted average common and common
equivalent shares 27,593,871 50,453,644
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Three Months Ended March 31,
1995 1996
Operating Activities --
Net income $ 2,190 $ 2,561
Adjustments to reconcile net income to cash
provided by (used for)
operating activities --
Provisions for:
Depreciation and amortization 5,278 6,601
Closure and post-closure costs 402 239
Doubtful accounts 254 360
Deferred income taxes 1,903 555
(Gain) on sale of fixed assets (17) (14)
Change in operating assets and liabilities,
excluding the effects of
purchase acquisitions --
Accounts receivable, prepaid expenses,
inventories and other (1,205) (437)
Accounts payable, accrued liabilities,
unearned income, closure and post-closure
costs and other (8,221) (14,484)
Cash provided by (used for) operating activities 584 (4,619)
Investing Activities --
Cost of acquisitions, net of cash acquired (1,154) (2,945)
Capital expenditures (9,807) (5,980)
Proceeds from sale of fixed assets 231 52
Change in deferred acquisition costs and notes
receivable (537) (66)
Cash used for investing activities (11,267) (8,939)
Financing activities --
Net proceeds from sale of common stock,
stock options and warrants 29,407 48,217
Proceeds from long-term debt, net of
issuance costs 814 11,900
Payments of long-term debt (15,476) (45,430)
Other long-term obligations (259) (197)
Dividends paid (877) (327)
Equity transactions of pooled companies (189) 152
Cash provided by financing activities 13,420 14,315
Increase in cash and cash equivalents 2,737 757
Cash and cash equivalents, beginning of period 5,142 3,588
Cash and cash equivalents, end of period $ 7,879 $ 4,345
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Allied Waste Industries, Inc. ("Allied" or the "Company") is incorporated
under the laws of the state of Delaware. Allied is a solid waste management
company providing non-hazardous waste collection, transfer, recycling and
disposal services in selected markets.
The condensed consolidated financial statements include the accounts of
Allied and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. The condensed consolidated
balance sheet as of December 31, 1995, which has been derived from audited
consolidated financial statements, and the unaudited interim condensed
consolidated financial statements included herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"SEC"). As applicable under such regulations, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The Company believes that the presentations and disclosures herein
are adequate to make the information not misleading when read in connection
with the Company's Annual Report on Form 10-K. The condensed consolidated
financial statements as of March 31, 1996 and for the three months ended March
31, 1995 and 1996 reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for such periods. The condensed
consolidated financial statements and accompanying notes have also been
restated to reflect acquisitions accounted for as poolings-of-interests (See
Note 2).
Operating results for interim periods are not necessarily indicative of
the results for full years. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements of Allied Waste Industries, Inc. and subsidiaries for the year ended
December 31, 1995 and the related notes thereto included in the Company's
Annual Report on Form 10-K filed with the SEC on March 27, 1996.
There have been no significant additions to or changes in accounting
policies of the Company since December 31, 1995. For a description of these
policies, see Note 1 of Notes to Consolidated Financial Statements for the year
ended December 31, 1995 in the Company's Annual Report on Form 10-K.
Certain reclassifications have been made in prior period financial
statements to conform to the current presentation.
Statements of cash flows --
The supplemental cash flow disclosures and non-cash transactions for the
three months ended March 31, 1995 and 1996 are as follows (in thousands;
unaudited):
Three Months Ended March 31,
1995 1996
Supplemental Disclosures --
Interest paid $ 7,046 $ 8,542
Income taxes paid 172 1,927
Non Cash Transactions --
Common or preferred stock issued in acquisitions 269 3,093
Capital leases 2,722 4,603
Debt and liabilities incurred or assumed in
acquisitions 8,693 3,364
Capitalized interest 2,183 3,634
2. Business Combinations
Acquisitions accounted for as purchases are reflected in the results of
operations since the date of purchase in Allied's condensed consolidated
financial statements. The results of operations for acquisitions accounted for
as poolings-of-interests are included in Allied's condensed consolidated
financial statements for all periods presented. Often the final determination
of the cost of certain of the Company's acquisitions is subject to resolution
of certain contingencies. Once such contingencies are achieved, the purchase
price is adjusted. Shares issued in connection with business acquisitions have
been valued taking into consideration certain restrictions placed on the stock.
The following table summarizes acquisitions for the three months ended
March 31, 1995 and 1996 (unaudited):
Three Months Ended March 31,
1995 1996
Number of businesses acquired accounted for as:
Poolings-of-interests 1 3
Purchases 4 6
Total consideration (in millions) $ 3.4 $23.4
Shares of common stock issued 146,539 1,906,493(1)
(1) Includes 103,590 shares of contingently issuable common stock.
The following table shows the effect on reported revenue and net income of
using the pooling-of-interests method of accounting for business combinations
during the three months ended March 31, 1996:
Before Effect After
Pooling of Pooling
Effects Poolings Effects
Three months ended March 31, 1996 (unaudited)
Revenues $ 44,418 $ 2,019 $ 46,437
Net income 2,340 221 2,561
Three months ended March 31, 1995 (unaudited)
Revenues 38,045 1,906 39,951
Net income 2,000 190 2,190
Year ended December 31, 1995
Revenues 169,865 8,716 178,581
Net income 11,584 330 11,914
Year ended December 31, 1994
Revenues 114,814 7,562 122,376
Net (loss) (6,731) 337 (6,394)
Year ended December 31, 1993
Revenues 69,206 6,375 75,581
Net income 2,319 174 2,493
Pooling costs of $928,000 related to the 1996 poolings-of-interests were
charged to expense during 1996. The after-tax impact of these expenses on
earnings per share was ($0.01) in 1996. Pooling costs include legal,
accounting and consulting fees, stock registration costs, and integration and
other costs of business consolidation.
Unaudited pro forma income statement data --
The following unaudited pro forma consolidated data for the year ended
December 31, 1995 presents the results of operations of Allied as if the
companies acquired using the purchase method of accounting for business
combinations in 1995 and through March 31, 1996, had all occurred as of
January 1, 1995 (in thousands, except per share data):
December 31, 1995
(unaudited)
Revenues $ 190,035
Operating income 32,432
Net income 12,430
Net income to common shareholders 6,209
Net income per common share 0.18
EBITDA (1) 58,023
The following unaudited pro forma consolidated data for the three months
ended March 31, 1996 present the results of operations of Allied as if the
companies acquired using the purchase method of accounting for business
combinations in 1996 were acquired as of January 1, 1996 (in thousands, except
per share data):
March 31,1996
(unaudited)
Revenues $ 47,768
Operating income 6,423
Net income 2,656
Net income to common shareholders 2,368
Net income per common share 0.05
EBITDA (1) 13,141
(1) EBITDA represents operating income plus depreciation and amortization.
The Company has included EBITDA data (which are not a measure of financial
performance under generally accepted accounting principles) because it
understands such data are used by certain investors and creditors to determine
the Company's historical ability to service its indebtedness.
This data does not purport to be indicative of the results of operations
of Allied that might have occurred nor which might occur in the future.
3. Property and Equipment
Property and equipment at December 31, 1995 and March 31, 1996 was as
follows (in thousands):
1995 1996
(unaudited)
Land and improvements $ 15,786 $ 16,058
Land held for permitting as landfills(1) 5,640 5,640
Landfills 179,463 186,397
Buildings and improvements 19,931 22,714
Vehicles and equipment 74,181 79,923
Containers and compactors 30,134 31,632
Furniture and office equipment 5,642 5,250
330,777 347,614
Accumulated depreciation and amortization (45,239) (50,967)
$285,538 $ 296,647
(1) These properties have been approved for use as a landfill, and the
Company is currently in the process of obtaining the necessary permits.
4. Net Income per Common Share
Net income per common share is calculated by dividing net income per
common share less dividend requirements on preferred stock by the weighted
average number of common shares and common share equivalents outstanding during
each period, as restated to reflect acquisitions accounted for as poolings-of-
interests. The computation of weighted average common and common equivalent
shares used in the calculation of income per common share is as follows
(unaudited):
Three Months Ended March 31,
1995 1996
Common shares outstanding 30,950,443 50,392,777
Effect of using weighted average common shares
outstanding during the period (3,903,201) (2,397,487)
Effect of stock options and warrants
assumed exercisable -- 2,314,668
Effect of Series C preferred stock
assumed converted 234,820 --
Effect of shares assumed issued pursuant
to earn-out 311,809 143,686
27,593,871 50,453,644
Conversion has not been assumed for Series D preferred stock, 9% preferred
stock, 7% preferred stock and convertible subordinated notes in 1995 and 1996,
as the effect would not be dilutive. Additionally, conversion has not been
assumed for Series E preferred stock, $90 preferred stock and stock options and
warrants in 1995, as the effects would not be dilutive.
5. Subsequent Events
Subsequent to March 31, 1996, the Company entered into an agreement with
SWS Management Company ("SWS") whereby SWS purchased 300,000 shares of common
stock of a subsidiary with a book value of $300,000. In exchange for the
shares, SWS issued a $300,000 promissory note bearing interest at 7%, due
April 1, 2001, collateralized by the 300,000 shares. SWS will assume certain
management responsibilities for this subsidiary.
Subsequent to March 31, 1996, approximately $1.9 million of unsecured
convertible debentures were converted into 320,833 shares of common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and the notes thereto, included
elsewhere herein.
Introduction
The Company has experienced significant growth, a substantial portion of
which has resulted from the acquisition of solid waste businesses. Since
January 1, 1992, the Company has completed 84 acquisitions. In 1995 the
Company acquired 18 businesses and it has acquired 12 businesses subsequent to
1995. See Note 2 to the Company's Condensed Consolidated Financial
Statements. The Company's Condensed Consolidated Financial Statements have
been restated to reflect the acquisition of companies accounted for using the
pooling-of-interests method for business combinations. The majority of the
acquisitions were accounted for under the purchase method for business
combinations and, accordingly, the results of operations for such acquired
businesses are included in the Company's financial statements only from the
applicable date of acquisition. As a result, the Company believes its
historical results of operations for the periods presented are not directly
comparable.
General
Revenues. The Company's revenues are attributable primarily to fees
charged to customers for waste collection, transfer, recycling and disposal
services. The Company's collection services are generally provided under direct
agreements with its customers or pursuant to contracts with municipalities.
Commercial and municipal contract terms, where used, generally range from 1 to
5 years and commonly have automatic renewal options. The Company's landfill
operations include both Company-owned landfills and those operated for
municipalities for a fee. The Company is vertically integrated in each
geographic region in which it is located as it provides collection, transfer
and disposal services. The tables below show for the periods indicated the
percentage of the Company's total revenues attributable to services provided
and to geographic region (unaudited):
Year Ended December 31, Three Months Ended
1993 1994 1995 March 31, 1996
Collection (1) 64.4% 61.7% 57.0% 57.7%
Transfer 4.1 10.9 11.6 9.3
Landfill (1) 17.5 18.8 22.3 23.6
Other 14.0 8.6 9.1 9.4
Total revenues 100.0% 100.0% 100.0% 100.0%
Midwest 68.3% 61.7% 62.8% 59.8%
Southeast -- 11.1 13.1 15.2
Southwest 31.7 27.2 24.1 25.0
Total revenues 100.0% 100.0% 100.0% 100.0%
(1) The portion of collection revenues attributable to disposal charges for
waste collected by the Company and disposed at the Company's landfills have
been excluded from collection revenues and included in landfill revenues.
The Company's strategy is to develop vertically integrated operations to
ensure internalization of waste it collects and thus realize higher margins
from its operations. By disposing waste at Company-owned and/or operated
landfills, the Company eliminates third-party disposal costs and retains the
margin generated through disposal operations that would otherwise be earned by
third-party landfills. Approximately 79.7% of Company-collected waste is
disposed of at Company-owned and/or operated landfills as measured using
disposal costs in 1996. In addition, transfer stations are an integral part of
the disposal process. The Company locates its transfer stations in areas where
its landfills are outside of the population centers in which it collects waste.
Such waste is transloaded and economically transported to its landfills.
Transfer and landfill revenues as a percentage of total revenues increased from
4.1% and 17.5% in 1993 to 9.3% and 23.6% in 1996, respectively, which reflects
the continued implementation of the Company's strategy. Although transfer
revenues typically generate lower operating margins, the increase in transfer
revenues as a percentage of total revenues is not expected to have an adverse
effect on the profitability of the Company.
Expenses. Cost of operations includes labor, maintenance and repairs,
equipment and facility rent, utilities and taxes, the costs of ongoing
environmental compliance, safety and insurance, disposal costs and costs of
independent haulers transporting Company waste to the disposal sites. Disposal
costs include certain landfill taxes, host community fees, payments under
agreements with respect to landfill sites that are not owned, landfill site
maintenance, fuel and other equipment operating expenses and accruals for
closure and post-closure monitoring expenses anticipated to be incurred in the
future.
Selling, general and administrative expenses include management, clerical
and administrative compensation and overhead, sales costs, community relations
expenses and provisions for estimated uncollectible accounts receivable and
potentially unrealizable acquisition costs.
Depreciation and amortization includes depreciation of fixed assets and
amortization of landfill airspace, goodwill and other tangible assets.
In connection with potential acquisitions, the Company incurs certain
transaction and integration costs which include stock registration, legal,
accounting, consulting, engineering and other direct costs. When an
acquisition is accounted for using the pooling-of-interests method for business
combinations, these costs are charged to the statement of operations as pooling
costs. When potential acquisitions are accounted for using the purchase method
for business combinations, these costs are capitalized. The Company routinely
evaluates such capitalized costs and expenses those costs which have no further
value. Indirect acquisition costs, such as executive salaries, general
corporate overhead and other corporate services, are expensed as incurred.
Direct landfill development costs, such as engineering, upgrading,
construction and permitting costs, are capitalized and amortized based on
consumed airspace. The Company believes that the costs associated with the
engineering, owning and operating landfills will increase in the future as a
result of federal, state and local regulation and a growing community awareness
of the landfill permitting process. Although there can be no assurance, the
Company believes, that it will be able to implement price increases sufficient
to offset these increased expenses. All indirect landfill development costs,
such as executive salaries, general corporate overhead, public affairs and
other corporate services, are expensed as incurred.
Accrued closure and post-closure costs represent an estimate of the
current value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned and/or
operated by the Company. Site specific closure and post-closure engineering
cost estimates are prepared annually for landfills owned and/or operated by the
Company for which it is responsible for closure and post-closure. Estimated
costs are accrued based on accepted tonnage as landfill airspace is consumed.
Effective January 1, 1994 the Company changed its accounting policy to discount
its future closure and post-closure obligations where the Company believes that
both the amounts and timing of related payments are reliably determinable. The
Company periodically updates its estimates of future closure and post-closure
costs. The impact of changes which are determined to be changes in estimates
are accounted for on a prospective basis.
The net present value of the closure and post-closure commitment is
calculated assuming inflation of 3.5% and a risk-free capital rate of 7.0%.
Discounted amounts previously recorded are accreted to reflect the effects of
the passage of time. Based on these assumptions, the Company's current
estimate of total future payments for closure and post-closure is $165 million
while the present value of such estimate is $55 million. At December 31, 1995,
and March 31, 1996, respectively, accruals for landfill closure and post-
closure costs (including costs assumed through acquisitions) were approximately
$10.5 million and $10.1 million. The accruals reflect relatively young
landfills with estimated remaining lives, based on current waste flows, that
range from 3 to over 75 years, with an estimated average remaining life of
greater than 25 years.
During 1994, the Company's landfills became subject to the closure and
post-closure requirements of Subtitle D. Previously, the Company's landfills
were subject to local requirements. The principle changes under Subtitle D are
an extension of the post-closure monitoring period to 30 years and a
requirement to use clay or synthetic liners as capping materials. The Company
updated its estimates of future closure and post-closure costs in accordance
with its interpretations of Subtitle D.
Results of Operations
Three Months Ended March 31, 1995 and 1996
The following table sets forth the percentage relationship that the various
items bear to revenues and the percentage change in dollar amounts for the
periods indicated. The statement of operations data have been restated to give
effect to transactions completed in 1995 and 1996, that were accounted for using
the pooling-of -interests method for business combinations. See Note 2 to the
Company's Condensed Consolidated Financial Statements.
Three Months Ended March 31,
1995 1996 1996 Compared to 1995
% Change in Amounts
(unaudited)
Statement of Operations Data:
100.0% 100.0% 16.2%
Cost of operations 53.3 52.5 14.4
Selling, general and
administrative expenses 17.5 17.8 18.7
Depreciation and amortization 13.2 14.2 25.1
Operating income before pooling costs 16.0 15.5 12.5
Pooling costs - - 2.0 N/A
Operating income 16.0 13.5 (2.1)
Interest expense, net 5.7 3.4 (30.2)
Income tax expense 4.8 4.5 9.8
Minority interest - - - - - -
Net income 5.5% 5.6% 16.9
Other Data:
EBITDA (1) before pooling costs 29.2% 29.7% 18.2%
EBITDA (1) after pooling costs 29.2% 27.7% 10.2%
(1) EBITDA represents operating income plus depreciation and amortization.
The Company has included EBITDA data (which are not a measure of financial
performance under generally accepted accounting principles) because it
understands such data are used by certain investors and creditors to determine
the Company's historical ability to service its indebtedness.
Revenues. Revenues in 1996 were $46.4 million compared to $40.0 million
in 1995, an increase of 16.2%. The increase in revenues is due primarily to
the effects of acquisitions as well as price and volume increases attributable
to existing operations. Revenues of $2.2 million in the first quarter of 1996
were generated from companies acquired since January 1995, while increases in
revenues attributable to existing operations amounted to $4.2 million.
Average price increases as a percentage of revenue were approximately 4%.
Cost of Operations. Cost of operations in 1996 was $24.4 million compared
to $21.3 million in 1995, an increase of 14.4%. The increase in costs was
attributable primarily to the increase in revenues described previously. As a
percentage of revenues, cost of operations decreased to 52.5% in 1996 from
53.3% in 1995. The resulting increase in margins was due primarily to better
internalization of waste flows in 1996 as compared to 1995 during which,
Company-collected waste disposed at Company-owned and/or operated landfills, as
measured using disposal costs, was 72.2% of revenue compared to 79.7% during
1996. The gross margin also increased because of increased operating
efficiencies resulting from improvements made to vehicles and equipment through
capital expenditures in 1994 and 1995. This increase in gross margins was
partially offset because the integration of the operations of recently acquired
businesses is not yet fully complete. The gross margin increase was further
hindered because of extremely cold temperatures that occurred in midwest
markets during the first quarter of 1996 which reduced operating efficiencies.
Selling, General and Administrative Expenses. SG&A expenses increased to
$8.3 million in 1996 compared to $7.0 million in 1995, an increase of 18.7%.
As a percentage of revenues, SG&A increased to 17.8% in 1996 compared to 17.5%
in 1995. The increase in SG&A expenses resulted from expenses associated with
acquired companies and expenses incurred in connection with the Company's
increase in personnel and other expenses related to the anticipated growth of
the Company as it continues to acquire companies.
Depreciation and Amortization Expense. Depreciation and amortization
expense in 1996 was $6.6 million compared to $5.3 million in 1995, an increase
of 25.1%. The increase in depreciation and amortization expense is due to
acquisitions and capital expenditures. Fixed assets increased to $347.6
million at March 31, 1996 from $240.3 million at March 31, 1995 and goodwill
increased to $93.4 million at March 31, 1996 from $85.2 million at March
31, 1995. As a percentage of revenues, depreciation and amortization
increased to 14.2% in 1996 from 13.2% in 1995. This increase is primarily
because amortization of landfill airspace as a percentage of revenue increased
to 3.6% in 1996 from 2.9% in 1995 resulting from an increase in the rate of
waste internalization.
Pooling Costs. Costs of $928,000 were incurred in 1996 for transaction
and integration costs related to acquisitions accounted for using the pooling-
of-interests method for business combinations. During the first quarter of
1995, no material pooling costs were incurred.
Net Interest Expense. Net interest expense was $1.6 million in 1996
compared to $2.3 million in 1995, a decrease of 30.2%. The decrease is
because of an increase in the amount of capitalized interest to $3.6 million in
1996 compared to $2.2 million in 1995. The amount of interest capitalized
increased in 1996 because of an increase in transfer stations under
construction and landfill airspace under development or under application for
development compared to 1995. The decrease in net interest expense was offset
by an increase in interest bearing debt to approximately $179.9 million at
March 31, 1996 from approximately $160.2 million at March 31, 1995, due
primarily to acquisitions and capital expenditures.
Income Taxes. Income taxes reflect a 45.0% effective income tax rate in
1996 as compared to a 46.5% rate in 1995. The Company's effective tax rate in
1996 and 1995 deviates from the federal statutory rate of 35%, due primarily to
the effects of differences in the treatment of goodwill for book and tax
purposes, state income taxes, and other permanent differences.
Liquidity and Capital Resources
Because of the capital intensive nature of the solid-waste industry, the
Company has used, and during periods of rapid growth expects to continue using,
amounts in excess of the cash generated from operations to fund acquisitions,
capital expenditures and landfill development. In connection with
acquisitions, the Company has assumed or incurred indebtedness with relatively
short-term repayment schedules, thereby increasing its current and medium-term
liabilities. Additionally, operating equipment has been acquired using
financing leases which have short and medium-term maturities. As a result, the
Company has periodically had low levels of working capital or working capital
deficits. Historically, the Company has satisfied its acquisition, capital
expenditure and working capital needs primarily through bank financing, public
offerings and private placements of debt and equity securities, which raised
(net of offering costs) over $348 million since January 1992. Between January
1, 1994 and April 1, 1996, the Company completed a $100 million public
offering of the Senior Subordinated Notes (define below), a $50 million private
placement of common stock, the $80 million Credit Agreement (define below) and
a $48 millon public equity offering.
During the three months ended March 31, 1995 and 1996, the Company's cash
flows from operating, investing and financing activities were as follows
(dollars in millions; unaudited):
Three Months Ended March 31,
1995 1996
Operating Activities: $ 2.2 $ 2.6
Net income 7.8 7.7
Non-cash operating expenses (1)
Increase in operating assets and liabilities, net (9.4) (14.9)
Cash provided by (used in) operating activities 0.6 (4.6)
Investing Activities:
Cost of acquisitions, net of cash acquired (1.2) (2.9)
Capital expenditures (9.8) (6.0)
Proceeds from sale of fixed assets 0.2 - -
(Increase) in landfill deposits (1.2) - -
Other 0.7 - -
Cash used for investing activities (11.3) (8.9)
Financing Activities:
Net proceeds from sale and redemption of
preferred stock, common stock, stock options
and warrants 29.4 48.2
Net proceeds from long-term debt 0.8 11.9
Payments of long-term debt (15.5) (45.4)
Other (1.3) (0.4)
Cash provided by financing activities 13.4 14.3
Increase in cash $ 2.7 $ 0.8
(1) Consists principally of provisions for depreciation and amortization,
landfill closure and post-closure costs, doubtful accounts, potentially
unrealizable acquisition costs and deferred income taxes.
The Company's capital expenditure and working capital requirements have
increased significantly, reflecting the Company's rapid growth by acquisition
and development of revenue producing assets, and will increase further as the
Company continues to pursue its business strategy. During 1995 the Company
acquired 18 businesses in 6 states for approximately $45.3 million of which
approximately $24.3 million of such consideration was paid in common stock and
$7.8 million was paid in seller notes. Total annualized revenues of those
operations are approximately $33 million. These amounts include one landfill
acquired for approximately $9.9 million with estimated annual revenues of
$3.7 million. Subsequent to December 31, 1995 the Company purchased 12
operating solid waste businesses with estimated annual revenues of $18.6
million for an aggregate purchase price of approximately $25.4 million of
which approximately $14.7 million of such consideration was paid in common
stock. For the calendar year 1996, the Company estimates it will have an
annual cash requirement of approximately $1.2 million for preferred stock
dividends and $23.2 million for interest costs. For the calendar year ended
1996, the Company expects to acquire waste businesses with annual revenues
approximating $60 million, using a combination of common stock, cash and
seller notes to acquire these businesses. For the calendar year 1996, the
Company expects to spend approximately $58 million for capital expenditures,
$40 million of which is expected to relate to existing operations in order to
maintain current revenue streams and $18 million of which is expected to relate
to operations anticipated to result in growth in revenue streams. As the
Company continues to acquire waste operations, additional capital amounts will
be required during 1996 for the capital expenditure requirements related to
those acquired businesses.
The Company is also required to provide financial assurances to
governmental agencies under applicable environmental regulations relating to
its landfill operations. These financial assurances include the use of a
captive insurance subsidiary, performance bonds, letters-of-credit and trust
deposits required principally to secure the Company's estimated landfill
closure and post-closure obligations and collection contracts. At March 31,
1996, the Company had outstanding approximately $2.4 million in captive
insurance contracts, $24.0 million of performance bonds, approximately $22.4
million in letters-of-credit and approximately $0.2 million of trust deposits.
The Company expects that financial assurance obligations will increase in the
future as it acquires and expands its activities and that a greater percentage
of financial assurances will be provided through the captive insurance
subsidiary and letters-of-credit.
In January 1994, the Company issued the Senior Subordinated Notes. The
net proceeds from the sale of the Senior Subordinated Notes after underwriting
discount and other expenses, were approximately $95 million. The Senior
Subordinated Notes cannot be redeemed until February 1, 1999, are guaranteed
by substantially all of the Company's subsidiaries and contain a number of
covenants, the most restrictive of which limits the ability of the Company and
subsidiaries to incur additional indebtedness without complying with a fixed
charge coverage ratio test. Other covenants contain limitations on payment of
dividends except on certain preferred stock, issuance of redeemable preferred
stock, transactions with affiliates, granting of liens and security interests,
sales of assets and the use of proceeds from sales of assets, engaging in any
business other than as presently conducted by the Company and changes in
control of the Company. The covenants do permit the Company to incur secured
bank debt up to $80 million, of which $30 million may be only in the form of
letters-of-credit to secure landfill closure and post-closure obligations, and
to incur indebtedness under lease facilities for capital equipment of up to $40
million.
In March 1995 an $80 million credit agreement was executed between the
Company and NatWest Bank N.A., as agent, (the "Credit Agreement"). The Credit
Agreement, subject to certain limitations, provides for revolving loans up to
$50 million based on certain financial ratios of the Company and for a standby
letter-of-credit of up to $30 million. Permitted levels of borrowings under
the Credit Agreement will depend on the Company's future EBITDA and levels of
outstanding debt. The revolving credit facility may be used to repay existing
debt, make acquisitions of solid waste companies and for general corporate
purposes. The letter-of-credit facility may be used to provide financial
assurances of landfill closure and post-closure obligations. Loans
outstanding under the revolving credit facility are payable in March 1998,
whereas letters-of-credit may expire no later than five years from the date of
issuance. The Credit Agreement contains a number of covenants that, among
other things, require the Company to maintain certain financial ratios, and
limit the Company's ability to make acquisitions and purchase fixed assets
above certain amounts, incur additional secured indebtedness, transfer or sell
assets, create liens, pay dividends except on certain preferred stock, make
optional payments on certain subordinated indebtedness including the Senior
Subordinated Notes, enter into certain transactions with affiliates or enter
into a merger, consolidation or sale of substantially all its assets. The
Credit Agreement is secured by a pledge of the stock of substantially all of
the Company's subsidiaries and a lien on substantially all of the Company's
assets. The Company intends to use the Credit Agreement to make strategic
acquisitions and for general corporate purposes. As of March 31, 1996, the
Company had $34.2 million of additional borrowings available under the
revolving credit facility and $6.8 million of additional borrowings under the
letter-of-credit facility.
During 1995, the Company offered to holders of all of its Series D, 9%
and $90 convertible preferred stock and its 6% Convertible Subordinated notes
an inducement to exercise their conversion option to receive Allied common
stock. The inducement consisted of the payment of dividends and interest that
the holders of these securities would have received from the date of conversion
through the first call or redemption date of each security. In total,
7,757,056 shares of common stock were issued upon conversion. Substantially
all of the Series D preferred stock and 6% Convertible Subordinated notes were
converted, all but 5,029 shares of the 9% preferred stock was converted and
all of the $90 preferred stock was converted. Accordingly, the Company's
annual dividend and interest requirements decreased by approximately $2.7
million and $0.8 million, respectively. The inducement resulted in a 1995
conversion fee charge of approximately $2.2 million paid in 284,696 shares of
common stock which was charged to the 1995 statement of operations.
On January 24, 1996, the Company completed a public offering of 7.6
million shares of common stock for approximately $48 million net of $5.2
million in underwriter discounts, commissions and offering costs. The net
proceeds from the offering were used to repay amounts outstanding under the
Credit Agreement and for other general corporate purposes.
The Company has lease facilities (the "Lease Facilities") that allow it to
enter into equipment leases at rates ranging from similar term treasury note
rates plus 2.5% to 3.5% for terms of 36 to 84 months. At March 31, 1996
the Company had equipment leases outstanding of $34.7 million and available
lease commitments of $3.0 million.
The Company expects that Subtitle D and other regulations that apply to
the non-hazardous waste disposal industry will require the Company, as well as
others in the industry, to alter operations and to modify or replace existing
facilities. Such expenditures have been and will continue to be substantial.
Further regulatory changes could accelerate expenditures for closure and post-
closure monitoring and obligate the Company to spend sums in addition to those
presently reserved for such purposes. These factors, together with the other
factors discussed above, could substantially increase the Company's operating
costs and impair the Company's ability to invest in its facilities.
The Company intends to satisfy its obligations under the Senior
Subordinated Notes and dividends on its preferred stock, as well as future
capital expenditures and working capital requirements, with cash flow from
operations, borrowings under the Credit Agreement and the Lease Facilities.
The Company may need to raise additional capital to fund the acquisition and
integration of additional waste businesses. The Company may raise such funds
through lease financings, bank financings or public or private offerings of its
debt and equity securities. There can be no assurance that the Company will be
able to secure such funding, if necessary on favorable terms, if at all. If
the Company is not successful in securing such funding, the Company's ability
to pursue its business strategy may be impaired and results of operations for
future periods may be negatively affected.
Disclosure Regarding Forward Looking Statements
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" includes "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this section, are forward looking
statements. Although the Company believes that the expectations reflected in
such forward looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Generally, these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of such plans or strategies, number of
acquisitions and projected or anticipated benefits from acquisitions made by or
to be made by the Company, or projections involving anticipated revenues,
earnings, levels of capital expenditures or other aspects of operating results.
All phases of the Company's operations are subject to a number of
uncertainties, risks and other influences, many of which are outside the
control of the Company and any one of which, or a combination of which, could
materially affect the results of the Company's operations and whether forward-
looking statements made by the Company ultimately prove to be accurate. Such
important factors ("Important Factors") that could cause actual results to
differ materially from the Company's expectations are disclosed in this section
and elsewhere in this report. All subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Important Factors described below
that could cause actual results to differ from the Company's expectations.
Competition: The solid waste collection and disposal business is highly
competitive and requires substantial amounts of capital. The Company competes
with numerous waste management companies, a number of which have significantly
larger operations and greater resources than the Company. The Company also
competes with those counties and municipalities that maintain their own waste
collection and disposal operations.
Availability of Acquisition Targets: The Company's ongoing acquisition
program is a key element of its expansion strategy. In addition, obtaining
landfill permits has become increasingly difficult, time consuming and
expensive. There can be no assurance, however, that the Company will succeed
in obtaining landfill permits or locating appropriate acquisition candidates
that can be acquired at price levels that the Company considers appropriate and
that reflects historical prices.
Integration: The Company's financial position and results of operations
depend to a large extent on the integration of recently acquired businesses.
Failure to acheive effective integration in the anticipated time period or at
all could have an adverse effect on the Company's future results of operations.
Ongoing Capital Requirements: To the extent that internally generated
cash and cash available under the Company's existing credit facilities are not
sufficient to provide the cash required for future operations, capital
expenditures, acquisitions, debt repayment obligations and/or financial
assurance obligations, the Company will require additional equity and/or debt
financing in order to provide such cash. The Company has incurred significant
debt obligations in the last two years, which entail substantial debt service
costs. There can be no assurance, however, that such financing will be
available or, if available, will be available on terms satisfactory to the
Company.
Economic Conditions: The Company's business is affected by general
economic conditions. There can be no assurance that an economic downturn will
not result in a reduction in the volume of waste being disposed of at the
Company's operations and/or the price that the Company can charge for its
services.
Weather Conditions: Protracted periods of inclement weather may
adversely affect the Company's operations by interfering with collection and
landfill operations, delaying the development of landfill capacity and/or
reducing the volume of waste generated by the Company's customers. In
addition, particularly harsh weather conditions may result in the temporary
suspension of certain of the Company's operations.
Dependence on Senior Management: The Company is highly dependent upon
its senior management team. The loss of the services of any member of senior
management may have a material adverse effect on the Company.
Influence of Government Regulation: The Company's operations are subject
to and substantially affected by extensive federal, state and local laws,
regulations, orders and permits, which govern environmental protection, health
and safety, zoning and other matters. These regulations may impose
restrictions on operations that could adversely affect the Company's results,
such as limitations on the expansion of disposal facilities, limitations on or
the banning of disposal of out-of-state waste or certain categories of waste or
mandates regarding the disposal of solid waste. Because of heightened public
concern, companies in the waste management business may become subject to
judicial and administrative proceedings involving federal, state or local
agencies. These governmental agencies may seek to impose fines or to revoke
or deny renewal of operating permits or licenses for violations of
environmental laws or regulations or to require remediation of environmental
problems at sites or nearby properties, or resulting from transportation or
predecessors' transpiration and collection operations, all of which could have
a material adverse effect on the Company. Liability may also arise from
actions brought by individuals or community groups in connection with the
permitting or licensing of operations, any alleged violations of such permits
and licenses or other matters.
Potential Environmental Liability: The Company may incur liabilities for
the deterioration of the environment as a result of its operations. Any
substantial liability for environmental damage could materially adversely
affect the operating results and financial condition of the Company. Due to the
limited nature of the Company's insurance coverage for environmental liability,
if the Company were to incur liability for environmental damage, its business
and financial condition could be materially adversely affected.
Inflation and Prevailing Economic Conditions
To date, inflation has not had a significant impact on the Company's
operations. Consistent with industry practice, most of the Company's contracts
provide for a pass through of certain costs, including increases in landfill
tipping fees and, in some cases, fuel costs. The Company therefore believes it
should be able to implement price increases sufficient to offset most cost
increases resulting from inflation. However, competitive factors may require
the Company to absorb at least a portion of these cost increases, particularly
during periods of high inflation. The Company is unable to determine the
future impact of a sustained economic slowdown.
Seasonality
The Company believes that its collection and landfill operations can be
adversely affected by protracted periods of inclement weather which could delay
the development of landfill capacity or transfer of waste and/or reduce the
volume of waste generated.
P A R T II
OTHER INFORMATION
Item 1. Legal Proceedings
No changes to previously reported information.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit
11.1 Statement regarding the computation of per share
earnings - primary
11.2 Statement regarding the computation of per share
earnings - fully diluted
12 Ratio of earnings to fixed charges
27 Financial data schedule
(b) Reports on Form 8-K
January 23, 1996 The Company's Current Report on Form 8-K reports
the Fourth Supplemental Indenture to the Indenture between the Company and
First Trust National Association, as trustee.
February 19, 1996 The Company's Current Report on Form 8-K
reports the acquisition of L&M Disposal Inc., Sun Services & Liquid Waste,
Empire Disposal Service, Inc., A&W Disposal Services, Inc., Service Waste,
Inc., Clayco Sanitation Co, Inc., Hustlers Sanitary Service, Inc. and United
Sanitary, Inc..
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/H. STEVEN UTHOFF
H. Steven Uthoff
Vice President and Controller
(Principal Financial Officer)
By: /s/PETER S. HATHAWAY
Peter S. Hathaway
Vice President, Chief Accounting
Officer and Treasurer
(Principal Accounting Officer)
Date: July 23, 1996
EXHIBIT 11.1
ALLIED WASTE INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - PRIMARY
(in thousands except for per share amounts and number of shares; unaudited)
Three Months Ended March 31,
1995 1996
Net income $ 2,190 $ 2,561
Dividends on preferred stock (1,144) (288)
Adjusted net income $ 1,046 $ 2,273
Historical weighted average common
shares outstanding 27,047,242 47,995,290
Common stock equivalents -
Stock options and warrants -- (*) 2,314,668
Series C preferred 234,820 --
Issuable pursuant to earn-out agreements 311,809 143,686
Weighted average common and common
equivalent shares 27,593,871 50,453,644
Primary net income per share $ 0.04 $ 0.05
(*) Assumed conversion of each of these securities, on an individual basis
has an anti-dilutive effect on earnings per share.
EXHIBIT 11.2
ALLIED WASTE INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - FULLY DILUTED
(in thousands except for per share amounts and number of shares; unaudited)
Three Months Ended March 31,
1995 1996
Net income $ 2,190 $ 2,561
Dividends on preferred stock (1,144) (288)
Adjusted net income $ 1,046 $ 2,273
Historical weighted average common shares
outstanding 27,047,242 47,995,290
Common stock equivalents -
Stock options and warrants -- (*) 2,314,668
Series C preferred 234,820 --
Assumed conversions -
Series D preferred -- (*) --
9% cumulative convertible preferred -- (*) -- (*)
$90 cumulative convertible preferred -- (*) --
7% cumulative convertible preferred -- (*) -- (*)
Convertible notes -- (*) -- (*)
Issuable pursuant to earn-out agreements 311,809 143,686
Weighted average common and common
equivalent shares 27,593,871 50,453,644
Fully diluted net income per share $ 0.04 $ 0.05
(*) Assumed conversion of each of these securities, on an individual basis,
has an anti-dilutive effect on earnings per share.
EXHIBIT 12
ALLIED WASTE INDUSTRIES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands except for ratios; unaudited)
Three Months Ended March 31,
1995 1996
Fixed Charges:
Interest expensed $ 4,665 $ 1,420
Interest capitalized 2,183 3,634
Total interest expense 6,848 5,054
Interest component of rent expense 190 251
Amortization / write-off of debt issuance cost 141 213
Total Fixed Charges $ 7,179 5,518
Earnings:
Income from continuing operations before income
taxes $ 4,108 $ 4,667
Plus fixed charges 7,179 5,518
Less interest capitalized (2,183) (3,634)
Total Earnings $ 9,104 $ 6,551
Ratio of earnings to fixed charges 1.3x 1.2x
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