<PAGE> 1
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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: JUNE 30, 1997
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.)
15880 NORTH GREENWAY-HAYDEN LOOP, SUITE 100, SCOTTSDALE, ARIZONA 85260
(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.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AS OF JUNE 30, 1997
----- -------------------------------
<S> <C>
COMMON STOCK............................ 77,689,646
</TABLE>
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<PAGE> 2
ALLIED WASTE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
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.......................... 13
Item 3 -- Quantitative and Qualitative Disclosures About Market Risk... 27
PART II OTHER INFORMATION
Item 1-- Legal Proceedings............................................. 28
Item 2-- Changes in Securities......................................... 28
Item 3-- Defaults Upon Senior Securities............................... 28
Item 4-- Submission of Matters to a Vote of Securing Holders........... 28
Item 5-- Other Information............................................. 28
Item 6-- Exhibits and Reports on Form 8-K.............................. 29
Signature ............................................................. 30
2
<PAGE> 3
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets --
Cash and cash equivalents ........................ $ 50,094 $ 14,641
Accounts receivable, net of allowance of
$5,806 and $5,618 .............................. 88,522 118,735
Prepaid and other current assets ................. 9,860 21,140
Inventories ...................................... 6,941 7,327
Assets held for sale ............................. 524,716 --
Deferred income taxes ............................ 5,809 5,809
----------- -----------
Total current assets ........................... 685,942 167,652
Property and equipment, net ......................... 730,572 897,086
Goodwill, net ....................................... 856,108 854,491
Other assets ........................................ 44,927 89,608
----------- -----------
Total assets ................................... $ 2,317,549 $ 2,008,837
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt ................ $ 532,947 $ 50,486
Accounts payable ................................. 56,186 41,033
Accrued interest ................................. 4,910 7,319
Other accrued liabilities ........................ 60,458 74,595
Unearned income .................................. 11,185 29,817
----------- -----------
Total current liabilities ...................... 665,686 203,250
Long-term debt, less current portion ................ 1,146,803 1,387,522
Convertible subordinated debt, net of discount,
less current portion ............................. 1,706 1,684
Deferred income taxes ............................... 53,095 21,359
Accrued closure, post-closure and environmental costs 152,604 154,704
Deferred royalties and other long-term obligations .. 22,097 32,106
Commitments and contingencies
Stockholders' Equity --
Preferred stock, aggregate liquidation preference
of $9,907 and $9,496 at December 31, 1996
and June 30, 1997, respectively .................. 1 1
Common stock ..................................... 747 777
Additional paid-in capital ....................... 352,589 319,028
Retained deficit ................................. (77,779) (111,594)
----------- -----------
Total stockholders' equity ..................... 275,558 208,212
----------- -----------
Total liabilities and stockholders' equity ....... $ 2,317,549 $ 2,008,837
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these balance sheets.
3
<PAGE> 4
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND NUMBER OF SHARES; UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ......................... $ 118,958 $ 395,184 $ 62,012 $ 211,119
Cost of operations ............... 65,699 218,282 33,842 113,360
Selling, general
and administrative expenses .... 18,464 46,512 8,779 23,877
Depreciation and amortization .... 15,408 52,161 7,996 27,298
Acquisition related costs ........ 6,690 -- 5,762 --
------------ ------------ ------------ ------------
Operating income ............... 12,697 78,229 5,633 46,584
Interest income .................. (142) (1,104) (61) (386)
Interest expense ................. 4,567 46,707 2,528 24,638
------------ ------------ ------------ ------------
Income before income taxes ..... 8,272 32,626 3,166 22,332
Income tax expense ............... 4,035 14,029 1,735 9,603
------------ ------------ ------------ ------------
Income before extraordinary loss 4,237 18,597 1,431 12,729
Extraordinary loss due to early
extinguishment of debt,
net of income tax benefit
of $34,942 ..................... -- 52,412 -- 52,412
------------ ------------ ------------ ------------
Net income (loss) ................ 4,237 (33,815) 1,431 (39,683)
Dividends on preferred stock ..... (575) (337) (287) (166)
------------ ------------ ------------ ------------
Net income (loss) to common
shareholders .................. $ 3,662 $ (34,152) $ 1,144 $ (39,849)
============ ============ ============ ============
Net income (loss) per share:
Income before extraordinary loss $ 0.06 $ 0.21 $ 0.02 $ 0.15
Extraordinary loss ............. -- (0.60) -- (0.60)
------------ ------------ ------------ ------------
Net income (loss) ................ $ 0.06 $ (0.39) $ 0.02 $ (0.45)
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding .... 58,873,215 88,375,927 60,451,959 87,871,611
============ ============ ============ ============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE> 5
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Operating Activities --
Net income (loss) ............................................ $ 4,237 $ (33,815)
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities --
Write off of deferred debt issuance costs .................... -- 17,252
Provisions for:
Depreciation and amortization .............................. 15,408 52,161
Closure and post-closure costs ............................. 522 4,159
Doubtful accounts .......................................... 1,175 1,552
Accretion of debentures .................................... -- 9,204
Deferred income taxes ...................................... (637) (31,102)
(Gain) loss on sale of fixed assets ........................ 1,972 (531)
Change in operating assets and liabilities,
excluding the effects of purchase acquisitions --
Accounts receivable, prepaid expenses, inventories and other (11,710) (56,071)
Accounts payable, accrued liabilities, unearned income,
closure and post-closure costs and other ................... (10,491) 6,955
----------- -----------
Cash provided by (used for) operating activities ................ 476 (30,236)
----------- -----------
Investing Activities --
Cost of acquisitions, net of cash acquired ................... (3,852) (100,500)
Capital expenditures ......................................... (15,105) (53,773)
Capitalized interest ......................................... (6,893) (15,223)
Proceeds from sale of fixed assets and subsidiaries .......... 243 526,853
Change in deferred acquisition costs and notes receivable .... 695 (23,285)
----------- -----------
Cash provided by (used for) investing activities ................ (24,912) 334,072
----------- -----------
Financing activities --
Net proceeds from sale of common stock,
stock options and warrants ................................. 48,330 1,873
Proceeds from long-term debt, net of issuance costs .......... 25,431 876,149
Repayments of long-term debt ................................. (51,165) (1,174,665)
Repurchase of warrant ........................................ -- (49,000)
Other long-term obligations .................................. 486 6,706
Dividends paid ............................................... (614) (352)
Equity transactions of pooled companies ...................... 387 --
----------- -----------
Cash provided by (used for) financing activities ................ 22,855 (339,289)
----------- -----------
Decrease in cash and cash equivalents ........................... (1,581) (35,453)
Cash and cash equivalents, beginning of period .................. 4,016 50,094
----------- -----------
Cash and cash equivalents, end of period ........................ $ 2,435 $ 14,641
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
<PAGE> 6
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, 1996, 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 June 30, 1997 and
for the six months ended June 30, 1996 and 1997 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, 1996 and the related notes thereto included in the Company's Annual
Report on Form 10-K filed with the SEC on March 27, 1997 and amended on August
8, 1997.
There have been no significant additions to or changes in accounting
policies of the Company since December 31, 1996. For a description of these
policies, see Note 1 of Notes to Consolidated Financial Statements for the year
ended December 31, 1996 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.
FINANCIAL INSTRUMENTS
In June 1997, the Company entered into an Amended and Restated Credit
Agreement (the "Credit Agreement") with Credit Suisse First Boston, as
administrative and collateral agent, Citibank, N.A. as documentation agent and
Goldman Sachs Credit Partners, LP, as syndication agent. The Credit Agreement
provides a six and one-half year senior secured $500 million term loan facility
(the "Term Loan Facility") and a six and one-half year senior secured $400
million revolving credit facility (the "Revolving Credit Facility" and together
with the Term Loan Facility, the "Senior Credit Facility"). Principal payments
on the Term Loan Facility are payable quarterly, beginning in September 1997 and
increase from $10 million to $100 million per annum through maturity in December
2003. Principal under the Revolving Credit Facility is due upon maturity.
6
<PAGE> 7
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Senior Credit Facility bears interest, at the Company's option, at
either (a) a Base Rate, or (b) a Eurodollar Rate, both terms as defined in the
Credit Agreement, plus, in either case, an agreed upon applicable margin. The
applicable margin will be adjusted from time to time pursuant to a pricing grid
based upon the Company's Leverage Ratio, as defined in the Credit Agreement, and
varies between zero percent and 0.75% for Base Rate loans, and 0.75% and 1.75%
for Eurodollar loans. In addition, if at any time the Company's Senior Debt
Ratio is greater than 2.5 to 1.0, the applicable margin for all loans will be
increased by 0.25%.
The Credit Agreement contains certain financial covenants including,
but not limited to, a Total Debt to EBITDA ratio, a Senior Debt to EBITDA ratio,
a Fixed Charge Coverage ratio and an Interest Expense Coverage ratio, all terms
as defined in the Credit Agreement. In addition, the Credit Agreement also
limits the Company's ability to make acquisitions, purchase fixed assets above
certain amounts, pay dividends, incur additional indebtedness and liens, make
optional prepayments on certain subordinated indebtedness, make investments,
loans or advances, enter into certain transactions with affiliates or enter into
a merger, consolidation or sale of all or a substantial portion of the Company's
assets.
The Company has entered into interest rate protection agreements (the
"Agreements"), with reputable national banks and investment banking institutions
to reduce its exposure to fluctuations in variable interest rates. A summary of
the Agreements outstanding as of June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Notional Amount Fixed Rate
(dollars in millions)
<S> <C>
$ 50 5.76%
50 5.81
130 6.27
</TABLE>
The Agreements effectively change the Company's interest rate paid on
$230 million of its floating rate long-term debt ($576 million at June 30, 1997)
to a weighted average fixed rate ceiling of approximately 6.06% plus applicable
margins imposed by the terms of the Credit Agreement at June 30, 1997.
As the Company utilizes the Agreements for hedging purposes, amounts
paid to obtain the Agreements, if any, are capitalized into deferred financing
charges in the accompanying consolidated balance sheets and amortized over the
life of the specific Agreement.
ACCOUNTING PRONOUNCEMENTS NOT YET REQUIRED TO BE ADOPTED
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
No. 128"), which specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997 and requires retroactive restatement of prior
periods earnings per share. The statement replaces the "primary earnings per
share" calculation with a "basic earnings per share" and redefines the "dilutive
earnings per share" computation. Management does not expect the adoption of the
statement to have a material effect on the Company's reported income per common
share.
7
<PAGE> 8
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EXTRAORDINARY LOSS, NET
On May 15, 1997, the Company repurchased (the "Repurchase") from
Laidlaw Inc. ("Laidlaw") and Laidlaw Transportation, Inc. (collectively, the
"Laidlaw Group") for $230 million in cash, the $150 million 7% Junior
Subordinated Debenture ($81.6 million book value), the $168.3 million Zero
Coupon Debenture ($34.9 million book value, collectively the "Allied
Debentures") and the warrant to purchase 20.4 million shares of common stock
($49.0 million book value, the "Warrant"), issued as partial consideration for
the purchase of Laidlaw's solid waste business in 1996 (the "Laidlaw
Acquisition"). An extraordinary charge of approximately $65.7 million ($39.4
million net of income tax benefit) related to the Repurchase was recorded in the
second quarter of 1997. In addition, on June 5, 1997, the Company replaced its
1996 Bank Agreement (as defined herein) with the Senior Credit Facility and
recognized an extraordinary charge of approximately $21.6 million
($13.0 million net of income tax benefit) related to prepayment penalties and
the write off of previous deferred debt issuance costs in the second quarter
of 1997.
STATEMENTS OF CASH FLOWS
The supplemental cash flow disclosures and non-cash transactions for
the six months ended June 30, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1997
------- -------
(unaudited)
<S> <C> <C>
Supplemental Disclosures
Interest paid .......................................... $10,599 $58,539
Income taxes paid ...................................... 5,641 10,083
Non Cash Transactions
Common stock, preferred stock or warrants issued in
acquisitions or contributed to 401(k) plan .......... $ 5,716 $12,730
Capital leases and debt obligations for the purchase of
property and equipment .............................. 8,020 6,701
Debt and liabilities incurred or assumed in acquisitions 4,659 47,246
Debt converted to common stock ......................... 3,595 535
Non cash purchase and sale of operating assets ......... -- 61,300
</TABLE>
2. BUSINESS COMBINATIONS AND DIVESTITURES
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, and the allocation thereof, 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.
8
<PAGE> 9
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In April 1997, the Company completed the sale of certain non-core
medical waste assets for approximately $6.7 million. In addition, the Company
sold five collection operations, one recycling facility and one landfill to USA
Waste and Browning-Ferris Industries ("BFI") during the second quarter of 1997
for approximately $68.4 million. No gain or loss was recorded in connection with
these sales.
The following table summarizes acquisitions for the six months ended
June 30, 1996 and 1997. In May 1997, the Company acquired a collection company
in a transaction accounted for as a pooling-of-interests. As the effect of this
business combination was not significant, prior period financial statements were
not restated to include historical operating results of the acquired company.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------------
1996 1997
---------- ---------
(unaudited)
<S> <C> <C>
Number of businesses acquired and accounted for as:
Poolings-of-interests ........................... 5 1
Purchases ....................................... 9 11
Total consideration (in millions) ................. $ 101.3 $ 226.4
Shares of common stock issued ..................... 8,805,278(1) 1,675,470
</TABLE>
- ----------
(1) Includes 779,005 shares of contingently issuable common stock.
The following table presents revenues and net income restated from
amounts originally reported for the cumulative effect of acquisitions accounted
for as poolings-of-interests, (in thousands):
<TABLE>
<CAPTION>
Before After
Pooling Effect of Pooling
Effects Poolings Effects
------- -------- -------
<S> <C> <C> <C>
Three months ended June 30, 1996 (unaudited)
Revenues ................................ $ 48,914 $ 13,107 $ 62,021
Net income .............................. 3,715 (2,284) 1,431
Six months ended June 30, 1996 (unaudited)
Revenues ................................ 93,544 25,414 118,958
Net income .............................. 6,532 (2,295) 4,237
Year ended December 31, 1996
Revenues ................................ 221,265 25,414 246,679
Net loss ................................ (77,132) (2,295) (79,427)
Year ended December 31, 1995
Revenues ................................ 169,865 47,679 217,544
Net income .............................. 11,584 797 12,381
Year ended December 31, 1994
Revenues ................................. 114,814 43,540 158,354
Net loss ................................. (6,731) 696 (6,035)
</TABLE>
9
<PAGE> 10
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED PRO FORMA INCOME STATEMENT DATA
The following unaudited pro forma consolidated data for the year ended
December 31, 1996 and the six months ended June 30, 1997 presents the results of
operations of Allied as if the companies acquired using the purchase method of
accounting for business combinations in 1996 and through June 30, 1997 (giving
effect to the Canadian Sale), had all occurred as of January 1, 1996 (in
thousands, except per share data). 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.
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
--------- ---------
(unaudited)
<S> <C> <C>
Revenues ............................... $ 856,368 $ 428,043
Operating income ....................... 10,648 82,870
Net loss ............................... (96,150) (31,219)
Net loss to common shareholders ........ (97,223) (31,556)
Net loss per common share .............. (1.30) (0.36)
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and June 30, 1997 was as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(unaudited)
<S> <C> <C>
Land and improvements .................... $ 39,858 $ 56,763
Land held for permitting as landfills(1) . 66,070 104,678
Landfills ................................ 320,763 412,812
Buildings and improvements ............... 59,896 75,274
Vehicles and equipment ................... 156,444 168,458
Containers and compactors ................ 159,032 169,728
Furniture and office equipment ........... 17,724 17,223
----------- -----------
819,787 1,004,936
Accumulated depreciation and amortization (89,215) (107,850)
----------- -----------
$ 730,572 $ 897,086
=========== ===========
</TABLE>
- ----------
(1) These properties have been approved for use as landfills, and the
Company is currently in the process of obtaining the necessary permits.
10
<PAGE> 11
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is calculated by dividing net income
(loss) 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 net income (loss) per common share
is as follows (unaudited):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1997
----------- -----------
<S> <C> <C>
Common shares outstanding .................... 58,466,227 77,689,646
Effect of using weighted average common shares
outstanding during the period .............. (2,554,392) (1,502,502)
Effect of stock options and warrants
assumed exercisable ........................ 2,166,106 11,279,994
Effect of convertible debt assumed converted . -- 162,500
Effect of shares assumed issued pursuant
to earn-out ................................ 795,274 746,289
----------- -----------
58,873,215 88,375,927
</TABLE>
Conversion has not been assumed for 7% preferred stock in 1996 and
1997, as the effect would not be dilutive. Additionally, conversion has not been
assumed for Series D preferred stock, 9% preferred stock and convertible debt in
1996, as the effects would not be dilutive.
5. SUMMARIZED FINANCIAL INFORMATION OF ALLIED WASTE NORTH AMERICA, INC.
As discussed in Note 5 of the Company's 10-K, the $525 million of
10.25% Senior Subordinated Notes due 2006 (the "1996 Notes") issued by Allied
Waste North America, Inc. ("Allied NA"; a consolidated subsidiary of the
Company) are guaranteed by Allied. The separate complete financial statements of
Allied NA have not been included herein as management has determined that such
disclosure is not material. However, summarized financial information for Allied
NA and subsidiaries as of December 31, 1996 and June 30, 1997 is as follows (in
thousands):
SUMMARIZED CONSOLIDATED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
(unaudited)
<S> <C> <C>
Current assets ........................... $ 685,942 $ 167,651
Property and equipment, net .............. 730,572 897,086
Goodwill ................................. 856,108 854,491
Other non-current assets ................. 44,927 89,608
Current liabilities ...................... 682,686 193,482
Long-term debt, net of current portion ... 1,037,762 1,149,206
Due to parent ............................ 355,348 379,979
Due to Allied Canada Finance, Ltd. ....... 110,747 152,825
Other long-term obligations .............. 210,796 206,710
Retained deficit ......................... (79,790) (73,366)
</TABLE>
On November 25, 1996, substantially all of the operating assets and
liabilities of Allied were contributed from Allied to Allied NA. The results of
operations for Allied NA from inception to December 31, 1996 were not material
except for the acquisition related costs and unusual items (see Note 1).
11
<PAGE> 12
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SUMMARIZED STATEMENT OF OPERATIONS INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
(unaudited)
<S> <C>
Total revenue ........................................... $ 395,184
Total operating costs and expenses ...................... 316,955
Operating income ........................................ 78,229
Net income before extraordinary loss .................... 19,462
Extraordinary loss, net.................................. (13,038)
Net income .............................................. 6,424
</TABLE>
6. SUBSEQUENT EVENTS
Subsequent to June 30, 1997, the Company completed the acquisition of 4
privately-held solid waste companies representing approximately $2.9 million in
annual revenue. Total consideration of approximately $3.3 million, comprised of
cash, notes and Common Stock, was paid in the separate transactions.
Subsequent to June 30, 1997, all of the 7% preferred stock outstanding
was converted into 1,356,573 shares of Common Stock and approximately $755,000
of convertible debt was converted into 75,494 shares of Common Stock in
accordance with the original terms of each of the agreements.
On August 12, 1997, the Company executed a definitive agreement to
assume ownership and operation of the active solid waste disposal system for San
Diego County, California. The completion of this transaction is subject to
normal regulatory approvals, the transfer of operating permits and certain other
conditions as well as consents, if required, of the Company's existing lenders.
Allied will purchase or assume operations of four landfills, one transfer
station, and one material recovery facility for $160 million in cash paid
directly to San Diego County, and make certain agreed upon future capital
expenditures for approximately $7 million. Completion of this transaction is
expected to occur before December 31, 1997.
12
<PAGE> 13
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 112 acquisitions including the
Laidlaw Acquisition (as described below). In 1996, the Company acquired
22 businesses including the Laidlaw Acquisition and subsequent to 1996
it has acquired 15 businesses, excluding the assets acquired in the USA
Waste transactions (see below). See Note 2 to the Company's Consolidated
Financial Statements. The Company's 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.
On December 30, 1996, the Company completed the acquisition (the
"Laidlaw Acquisition") of substantially all of the non-hazardous solid waste
management business conducted by Laidlaw Inc. ("Laidlaw") in the United States
and Canada, for total consideration of approximately $1.5 billion comprised of
$1.2 billion cash, 14.6 million shares of Common Stock, a warrant (the
"Warrant") to acquire 20.4 million shares of the Company's Common Stock, par
value $0.01 per share (the "Common Stock"), and two junior subordinated
debentures with an aggregate face amount of $318.3 million comprised of a $150
million 7% Junior Subordinated Debenture and a $168.3 million Zero Coupon
Debenture (collectively, the "Allied Debentures"). The cash consideration was
financed from the proceeds of the 1996 Bank Agreement and the sale of the
1996 Notes.
On March 16, 1997, pursuant to a share purchase agreement with USA
Waste Services, Inc. ("USA Waste"), the Company sold to USA Waste all of the
Canadian non-hazardous solid waste management operations of the Company for
approximately $518 million (the "Canadian Sale"). The Company used the proceeds
from the Canadian Sale to pay down approximately $517 million in debt under the
1996 Bank Agreement. The Company acquired the Canadian operations in connection
with the Laidlaw Acquisition.
On May 15, 1997, the Company, pursuant to a Securities Purchase
Agreement (the "Laidlaw Securities Purchase Agreement") with Laidlaw and Laidlaw
Transportation, Inc. (collectively, the "Laidlaw Group") and certain private
securities investment funds affiliated with either (i) Apollo Advisors II, L.P.
or (ii) the Blackstone Group, repurchased from the Laidlaw Group the Allied
Debentures and the Warrant for an aggregate purchase price of $230 million in
cash (the "Repurchase"). The net proceeds of $240 million related to the $418
million face value 11.3% senior discount notes, (the "Senior Discount Notes")
were used to fund the Repurchase. The offering of the Senior Discount Notes
closed on May 15, 1997. Also pursuant to the Laidlaw Securities Purchase
Agreement, the private securities investment funds purchased all of the Common
Stock of Allied held by Laidlaw.
In June 1997, the Company entered into an Amended and Restated Credit
Agreement (the "Credit Agreement") with Credit Suisse First Boston, as
administrative and collateral agent, Citibank, N.A. as documentation agent and
Goldman Sachs Credit Partners, LP, as syndication agent. The Credit Agreement
provides a six and one-half year senior secured $500 million term loan facility
(the "Term Loan Facility") and a six and one-half year senior secured $400
million revolving credit facility (the "Revolving Credit Facility" and together
with the Term Loan Facility, the "Senior Credit Facility").
13
<PAGE> 14
On June 12, 1997, the Company completed a series of transactions with
USA Waste (the "USA Waste Transactions") pursuant to which the Company acquired
eight landfills (two of which were consummated in July 1997 after completion of
certain permitting and regulatory matters), eight collection operations, five
transfer stations and one recycling facility with an annual aggregate revenue of
$58.0 million for consideration of $87.5 million. Also pursuant to the USA Waste
Transactions, the Company sold to USA Waste one landfill, two collection
operations and one recycling facility with an aggregate of approximately $33.6
million in annual revenue for which it received consideration of approximately
$61.3 million.
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 fully 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 reported revenues attributable to services provided and to
geographic region:
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
1994 1995 1996 June 30, 1997
----- ----- ----- -------------
<S> <C> <C> <C> <C>
Collection(1) .................. 69.9% 64.7% 61.9% 57.8%
Transfer ....................... 8.4 9.5 8.5 7.5
Landfill(1) .................... 14.5 18.3 22.0 24.4
Other .......................... 7.2 7.5 7.6 10.3
----- ----- ----- -----
Total Revenues 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, Six Months
Ended
1994 1995 1996 June 30, 1997
----- ----- ----- -------------
<S> <C> <C> <C> <C>
Central States ................. -- % -- % -- % 9.0%
Great Lakes .................... 31.9 33.2 31.3 21.9
Midwest ........................ 16.8 19.0 18.7 16.2
Northeast ...................... -- -- -- 11.9
Southeast ...................... 30.2 28.0 30.6 12.1
West ........................... 21.1 19.8 19.4 28.9
----- ----- ----- -----
Total Revenues 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
- ---------
(1) The portion of collection and third-party transfer revenues
attributable to disposal charges for waste collected by the Company and
disposed at the Company's landfills have been excluded from collection
and transfer 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 of waste at Company-owned and/or operated
landfills, the Company retains the margin generated through disposal operations
that would otherwise be earned by third-party landfills. Approximately 57% of
Company-collected waste is disposed of at Company-owned and/or operated
landfills as measured using disposal costs in the first six months of 1997. 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 transferred
to long-haul trailers and economically transported to its landfills.
14
<PAGE> 15
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 site. 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
estimated 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 expense includes depreciation of fixed
assets and amortization of landfill airspace, goodwill and other intangible
assets.
In connection with potential acquisitions, the Company incurs and
capitalizes certain transaction and integration costs which include stock
registration, legal, accounting, consulting, engineering and other direct costs.
When an acquisition is completed and is accounted for using the
pooling-of-interests method for business combinations, these costs are charged
to the statement of operations as acquisition related costs. When a completed
acquisition is accounted for using the purchase method for business
combinations, these costs are capitalized. The Company routinely evaluates
capitalized transaction and integration costs and expenses those costs related
to acquisitions not likely to occur. Indirect acquisition costs, such as
executive salaries, general corporate overhead and other corporate services, are
expensed as incurred.
Certain 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
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. The present
value of estimated future costs are accrued based on accepted tonnage as
landfill airspace is consumed. Discounting of future costs is applied 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.
Currently, the net present value of the closure and post-closure
commitment is calculated assuming inflation of 2.5% and a risk-free capital rate
of 7.0%. Discounted amounts previously recorded are accreted to reflect the
effects of the passage of time. The Company's current estimate of total future
payments for closure and post-closure is $623.6 million while the present value
of such estimate is $190.5 million. At December 31, 1996 and June 30, 1997,
accruals for landfill closure and post-closure costs (including costs assumed
through acquisitions) were approximately $107.5 million and $109.7 million. The
accruals reflect relatively young landfills with estimated remaining lives,
based on current waste flows, that range from 1 to over 75 years, and an
estimated average remaining life of greater than 30 years.
15
<PAGE> 16
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1997
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 acquisitions that were accounted for using the
pooling-of-interests method for business combinations. See Note 2 to the
Company's Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------------
1997
Compared
to 1996
% Change
1996 1997 in Amounts
------- ------- ----------
(unaudited)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues ................................... 100.0% 100.0% 240.4%
Cost of operations ......................... 54.6 53.7 235.0
Selling, general and administrative expenses 14.1 11.3 172.0
Depreciation and amortization .............. 12.9 12.9 241.4
Acquisition related costs .................. 9.3 -- (100.0)
------- -------
Operating income ........................... 9.1 22.1 727.0
Interest expense, net ...................... 4.0 11.5 883.1
Income tax provision ....................... 2.8 4.6 453.5
Extraordinary loss, net .................... -- 24.8 100.0
------- -------
Net income (loss) ........................ 2.3% (18.8)% (2,873.1)
======= =======
</TABLE>
Revenues. Revenues in 1997 were $211.1 million compared to $62.0
million in 1996, an increase of 240.4%. Revenues of approximately $143.0 million
in the second quarter of 1997 were generated from companies acquired subsequent
to March 1996, while increases in revenues attributable to existing operations
("Internal Growth") amounted to $6.1 million. If the Laidlaw Acquisition, net of
the Canadian Sale, is included as of March 1996, Internal Growth would have
approximated 11% with 7% attributable to net volume increases and 4%
attributable to price increases.
Cost of Operations. Cost of operations in 1997 was $113.4 million
compared to $33.8 million in 1996, an increase of 235.0%. The increase in cost
of operations was primarily attributable to the increase in revenues described
above. As a percentage of revenues, cost of operations decreased to 53.7% in
1997 from 54.6% in 1996. Operating cost margins were favorably impacted by
financial benefits and operational efficiencies associated with the Laidlaw
Acquisition and the significant increase in revenues.
Selling, General and Administrative Expenses. SG&A expenses increased
to $23.9 million in 1997 compared to $8.8 million in 1996, an increase of
172.0%. As a percentage of revenues, SG&A decreased to 11.3% in 1997 compared to
14.1% in 1996. The increase in SG&A expense 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 growth of the Company.
The decrease in SG&A as a percentage of revenues can be attributed to the
substantial increase in the revenues of the Company resulting principally from
the Laidlaw Acquisition while SG&A expenses of the combined companies were
significantly reduced.
16
<PAGE> 17
Depreciation and amortization. Depreciation and amortization in 1997
was $27.3 million compared to $8.0 million in 1996, an increase of 241.4%. The
increase in depreciation and amortization expense is due to acquisitions and
capital expenditures. As a percentage of revenues, depreciation and amortization
has remained constant at 12.9%.
Acquisition related costs. Costs of $5.8 million were incurred in 1996
for transaction and integration costs directly related to acquisitions accounted
for using the pooling-of-interests method for business combinations. Transaction
costs include stock registration, legal, accounting, consulting, engineering and
other direct third-party costs incurred to complete the acquisitions.
Integration costs include uncollectible accounts receivable write-offs, employee
termination and relocation, write down of fixed assets, lease termination, and
deferred repairs and maintenance of vehicles and equipment. During the second
quarter of 1997, no material acquisition related costs were incurred.
Net interest expense. Net interest expense was $24.3 million in 1997
compared to $2.5 million in 1996, an increase of 883.1%. The increase in
interest expense is due to the increase in debt from $205.7 million at June 30,
1996 compared to $1.4 billion at June 30, 1997. This increase in debt
outstanding is primarily the result of debt incurred in connection with the
Laidlaw Acquisition net of the application of the net proceeds received in
connection with the Canadian Sale.
Income taxes. Income taxes reflect a 43% effective income tax rate in
1997 as compared to a 55% rate in 1996. The Company's effective tax rate in 1997
and 1996 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.
Extraordinary loss, net. On May 15, 1997, the Company repurchased from
the Laidlaw Group the Allied Debentures and the Warrant, used as partial
consideration for the Laidlaw Acquisition, for an aggregate purchase price of
$230 million in cash. An extraordinary charge to earnings related to the
Repurchase of approximately $65.7 million ($39.4 million net of income tax
benefit) was recorded in the second quarter of 1997. In addition, the Company
replaced its $1.275 billion senior credit facility (the "Bank Agreement") with
the $900 million Senior Credit Facility on June 5, 1997 and recognized an
extraordinary charge of approximately $21.6 million ($13.0 million net of income
tax benefit) in the second quarter of 1997.
17
<PAGE> 18
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
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.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
1997
Compared
to 1996
% Change
1996 1997 in Amounts
----- ----- -----------
(unaudited)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues ................................... 100.0% 100.0% 232.2%
Cost of operations ......................... 55.2 55.2 232.2
Selling, general and administrative expenses 15.5 11.8 151.9
Depreciation and amortization .............. 13.0 13.2 238.5
Acquisition related costs .................. 5.6 -- (100.0)
----- -----
Operating income ........................... 10.7 19.8 516.1
Interest expense, net ...................... 3.7 11.5 930.6
Income tax provision ....................... 3.4 3.6 247.7
Extraordinary loss, net .................... -- 13.3 100.0
----- -----
Net income (loss)....................... 3.6% (8.6%) (898.1%)
===== =====
</TABLE>
Revenues. Revenues in 1997 were $395.2 million compared to $119.0
million in 1996, an increase of 232.2%. Revenues of approximately $265.4 million
in the first six months of 1997 were generated from companies acquired
subsequent to December 1995, while increases in revenues attributable to
existing operations amounted to $10.8 million. If the Laidlaw Acquisition, net
of the Canadian Sale, is included as of December 1995, Internal Growth would
have approximated 9% with 5% attributable to net volume increases and 4%
attributable to price increases.
Cost of Operations. Cost of operations in 1997 was $218.3 million
compared to $65.7 million in 1996, an increase of 232.2%. The increase in cost
of operations was primarily attributable to the increase in revenues described
above. As a percentage of revenues, cost of operations remained constant at
55.2%. Operating cost margins were favorably impacted by financial benefits and
operational efficiencies associated with the Laidlaw Acquisition and the
significant increase in revenues.
Selling, General and Administrative Expenses. SG&A expenses increased
to $46.5 million in 1997 compared to $18.5 million in 1996, an increase of
151.9%. As a percentage of revenues, SG&A decreased to 11.8% in 1997 compared to
15.5% in 1996. The increase in SG&A expense 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 growth of the Company.
The decrease in SG&A as a percentage of revenues can be attributed to the
substantial increase in the revenues of the Company resulting principally from
the Laidlaw Acquisition while SG&A expenses of the combined companies were
significantly reduced.
Depreciation and amortization. Depreciation and amortization in 1997
was $52.2 million compared to $15.4 million in 1996, an increase of 238.5%. The
increase in depreciation and amortization expense is due to acquisitions and
capital expenditures. Fixed assets have increased from $414.3 million at June
30, 1996 to $1,004.9 million at June 30, 1997 and goodwill has increased from
$98.0 million at June 30, 1996 to $877.6 million at June 30, 1997. As a
percentage of revenues, depreciation and amortization increased to 13.2% in 1997
from 13.0% in 1996. This is primarily the result of an increase in amortization
of goodwill as a percentage of revenues to 2.8% in 1997 from 1.9% in 1996
partially offset by a decrease in landfill amortization as a percentage of
revenues to 2.7% in 1997 from 3.2% in 1996 related to increased goodwill and
decreased internalization in connection with the Laidlaw Acquisition.
18
<PAGE> 19
Acquisition related costs. Costs of $6.7 million were incurred in 1996
transaction and integration costs directly related to acquisitions accounted for
using the pooling-of-interests method for business combinations. Transaction
costs include stock registration, legal, accounting, consulting, engineering and
other direct third-party costs incurred to complete the acquisitions.
Integration costs include uncollectible accounts receivable write-offs, employee
termination and relocation, write down of fixed assets, lease termination, and
deferred repairs and maintenance of vehicles and equipment. During the first six
months of 1997, no material acquisition related costs were incurred.
Net interest expense. Net interest expense was $45.6 million in 1997
compared to $4.4 million in 1996, an increase of 930.6%. The increase in
interest expense is due to the increase in debt from $205.7 million at June 30,
1996 compared to $1.4 billion at June 30, 1997. This increase in debt
outstanding is primarily the result of debt incurred in connection with the
Laidlaw Acquisition net of the application of the net proceeds received in
connection with the Canadian Sale.
Income taxes. Income taxes reflect a 43% effective income tax rate in
1997 as compared to a 49% rate in 1996. The Company's effective tax rate in 1997
and 1996 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.
Extraordinary loss, net. On May 15, 1997, the Company repurchased from
the Laidlaw Group the $150 million 7% Junior Subordinated Debenture, the $168.3
million Zero Coupon Debenture and a warrant to purchase 20.4 million shares of
common stock, used as partial consideration for the purchase of Laidlaw's solid
waste business in 1996, for an aggregate purchase price of $230 million in cash.
An extraordinary charge related to the Repurchase of approximately $65.7 million
($39.4 million net of income tax benefit) was charged to earnings in the second
quarter of 1997. In addition, the Company replaced its $1.275 billion Bank
Agreement with the $900 million Senior Credit Facility on June 5, 1997 and
recognized an extraordinary charge of approximately $21.6 million ($13.0 million
net of income tax benefit) in the second quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
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. Between January
1, 1994 and June 30, 1997, the Company completed the $900 million Senior Credit
Facility which replaced the $1.275 billion Bank Agreement completed in
connection with the Laidlaw Acquisition (of which $517 million was repaid with
proceeds from the Canadian Sale in March 1997), a $418 million private placement
of its 11.3% senior discount notes, a $525 million private placement of the 1996
Notes, a $100 million public offering of its $100 million 12% Senior
Subordinated Notes due 2004 (the "1994 Notes") (substantially all of which were
repurchased pursuant to a tender offer (the "Tender Offer") in July 1996), a $50
million private placement of Common Stock, a $300 million senior revolving
credit facility (all debt under which was repaid in December 1996), and a $48
million public equity offering. Because of the capital intensive nature of the
solid waste industry and companies that grow substantially through acquisition,
the Company has used, and believes that it is reasonably possible that it will
continue using amounts in excess of the cash generated from operations to fund
acquisitions and capital expenditures, including 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.
19
<PAGE> 20
During the first six months ended June 30, 1996 and 1997, the Company's
cash flows for operating, investing and financing activities were as follows
(dollars in millions; unaudited):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ....................................... $ 4.2 $ (33.8)
Write off of deferred debt issuance costs ............... -- 17.3
Non-cash operating expenses(1) .......................... 16.5 35.9
(Gain) loss on sale of fixed assets ..................... 2.0 (0.5)
Decrease in operating assets and liabilities, net ....... (22.2) (49.1)
-------- --------
Cash provided by (used for) operating activities ........ 0.5 (30.2)
-------- --------
INVESTING ACTIVITIES:
Cost of acquisitions, net of cash acquired .............. (3.8) (100.5)
Capital expenditures .................................... (15.1) (53.8)
Capitalized interest .................................... (6.9) (15.2)
Proceeds from sale of fixed assets ...................... 0.2 526.8
Other ................................................... 0.7 (23.3)
-------- --------
Cash provided by (used for) investing activities ........ (24.9) 334.0
-------- --------
FINANCING ACTIVITIES:
Net proceeds from sale and redemption of preferred stock,
common stock, stock options and warrants ............. 48.3 1.9
Net proceeds from long-term debt ........................ 25.4 876.1
Repayments of long-term debt ............................ (51.2) (1,174.7)
Repurchase of warrant ................................... -- (49.0)
Other ................................................... 0.3 6.4
-------- --------
Cash provided by (used for) financing activities ..... 22.8 (339.3)
-------- --------
Decrease in cash ........................................ $ (1.6) $ (35.5)
======== ========
</TABLE>
- ----------------
(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.
As of June 30, 1997, the Company had cash and cash equivalents of $14.6
million. 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 1996 the Company
completed the Laidlaw Acquisition for total consideration of approximately $1.5
billion consisting of $1.2 billion cash, 14.6 million shares of Common Stock,
the Warrant to acquire 20.4 million shares of Common Stock, and the Allied
Debentures with an aggregate face amount of $318.3 million and acquired 21
additional businesses for total consideration of approximately $126.5 million of
which approximately $73.9 million of such consideration was paid in Common Stock
and $3.9 million was paid in seller notes. Total annualized revenues of the
latter businesses are approximately $78.8 million. Since January 1, 1997, the
Company has acquired solid waste operations, representing approximately $142.8
million in annual revenues and sold operations representing approximately $46.5
million in annual revenue. Net consideration of approximately $165.1 million
(including $10 million for the landfill under development) comprised of cash,
notes and Common Stock, was paid in these transactions. For the calendar year
1997, the Company expects to spend approximately $172 million for capital,
closure and post-closure, and remediation expenditures relating to its landfill
operations. As the Company continues to acquire waste operations in 1997,
additional capital amounts will be required during 1997 for the acquisition of
businesses and the capital expenditure requirements related to those acquired
businesses.
20
<PAGE> 21
On June 30, 1997, the Company's debt structure consisted of $525
million of the 1996 Notes, $500 million outstanding under the Term Loan
Facility, approximately $76 million outstanding under the Revolving Credit
Facility, and approximately $240 million of the Senior Discount Notes. As of
June 30, 1997 there is aggregate availability under the Revolving Credit
Facility of approximately $256 million to be used for working capital, letters
of credit, acquisitions and other general corporate purposes. No more than $175
million of the Revolving Credit Facility may be used to support the issuance of
letters of credit. The indenture relating to the 1996 Notes and the Senior
Credit Facility contain financial and operating covenants and significant
restrictions on the ability of the Company to complete acquisitions, pay
dividends, incur indebtedness, make investments and take certain other corporate
actions. A substantial portion of the Company's available cash will be required
to be applied to service indebtedness and preferred stock obligations, including
indebtedness incurred to finance the Laidlaw Acquisition, which is expected to
include approximately $203.6 million in annual principal and interest payments
(after giving effect to the payment of $517 million on the 1996 Bank Agreement
from the Canadian sale).
The Company is also required to provide financial assurances to
governmental agencies under applicable environmental regulations relating to its
landfill operations and collection contracts. These financial assurance
requirements are satisfied by the Company issuing performance bonds, letters of
credit, insurance policies or trust deposits to secure the Company's
obligations as they relate to landfill closure and post-closure costs and
performance under certain collection contracts. At June 30, 1997, the Company
had outstanding approximately $264.6 million in financial assurance instruments,
represented by $180.1 million of performance bonds, $22.3 million of letters of
credit, $55.9 million of insurance policies and $6.3 million of trust deposits.
During calendar year 1997, the Company expects to be required to provide
approximately $258 million in financial assurance obligations relating to its
landfill operations and collection contracts. The Company expects that financial
assurance obligations will increase in the future as it acquires and expands its
landfill activities and that a greater percentage of the financial assurance
instruments will be comprised of performance bonds and insurance policies.
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. In addition to equipment
leases outstanding at December 31, 1996 and June 30, 1997 of $45.2 million and
$74.2 million, respectively, the Company had available lease commitments of
$11.9 million and $22.4 million, respectively. The Company has entered into
master equipment lease facilities relating to the financing of the acquisition
of trucks and containers.
On August 12, 1997, the Company executed a definitive agreement to
assume ownership and operation of the active solid waste disposal system for San
Diego County, California. The completion of this transaction is subject to
certain normal regulatory approvals, the transfer of operating permits and
certain other conditions and consents, if required, by the Company's existing
lenders. Allied will purchase or assume operations of four landfills, one
transfer station, and one material recovery facility for $160 million in cash
paid directly to San Diego County, and make certain agreed upon future capital
expenditures for approximately $7 million. Completion of this transaction is
expected to occur before December 31, 1997.
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 pre-
Subtitle D landfills. 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.
21
<PAGE> 22
The Company's ability to meet future capital expenditure and working
capital requirements, to make scheduled payments of principal of, to pay
interest on, or to refinance its indebtedness, and to fund capital amounts
required for the acquisition of businesses and the expansion of existing
businesses depends on its future performance, which, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. Based upon the current level of operations and
anticipated growth, management of the Company believes that available cash flow,
together with available borrowing under the Senior Credit Facility, the Lease
Facilities and other sources of liquidity, will be adequate to meet the
Company's anticipated future requirements for working capital,
letters-of-credit, capital expenditures, scheduled payments of principal of and
interest on debt incurred under the Senior Credit Facility, interest on the 1996
Notes and the Senior Discount Notes, and capital amounts required for
acquisitions and expansion. However, the principal payment at maturity on the
1996 Notes and the Senior Discount Notes may require refinancing. Also there can
be no assurance that the Company's business will generate sufficient cash flow
from operations or that future financings will be available in an amount
sufficient to enable the Company to service its indebtedness or to make
necessary capital expenditures, or that any refinancing would be available on
commercially reasonable terms if at all. Additionally, depending on the timing,
amount and structure of any future acquisitions and the availability of funds
under the Senior Credit Facility, the Company may need to raise additional
capital to fund the acquisition and integration of additional solid waste
businesses. The Company may raise such funds through additional 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.
SIGNIFICANT FINANCING EVENTS
In December 1996, the Company entered into a bank credit facility
(the "1996 Bank Agreement") consisting of (i) a $475 million five and one-half
year amortizing senior secured term loan facility, (ii) three amortizing
senior secured term loan facilities in an aggregate original principal amount
of $500 million and with ultimate maturities which ranged from six and
one-half years to eight and one-half years, and (iii) a $300 million five and
one-half year senior secured revolving credit facility. In connection with
the closing of the Canadian Sale, an aggregate amount of approximately $517
million was applied to prepayment of the 1996 Bank Agreement.
In June 1997, the Company entered into the Credit Agreement with Credit
Suisse First Boston, as administrative and collateral agent, Citibank, N.A. as
documentation agent and Goldman Sachs Credit Partners, LP, as syndication agent.
The Credit Agreement provides a six and one-half year senior secured $500
million Term Loan Facility and a six and one-half year senior secured $400
million Revolving Credit Facility. Principal payments on the Term Loan
Facility are payable quarterly, beginning in September 1997 and increase from
$10 million to $100 million per annum through maturity in December 2003.
Principal under the Revolving Credit Facility is due upon maturity.
In addition to the scheduled principal payments above, the Company is
also required to make mandatory prepayments on the Senior Credit Facility equal
to 100% of the net proceeds from certain asset sales, the issuance of new debt
securities and extraordinary amounts, which include tax refunds, pension plan
reversions and certain insurance proceeds, and 50% of the net proceeds from new
equity issuances. Furthermore, the Company is also required to make mandatory
prepayments on the Senior Credit Facility equal to 50% of the Company's annual
excess Cash Flow, as defined in the Credit Agreement, unless the Company's
Senior Debt Ratio, as defined in the Credit Agreement, for the relevant fiscal
year end is less than 2.0 to 1.0. Mandatory prepayments are applied first to the
Term Loan Facility on a pro rata basis against remaining scheduled principal
payments, and second; to the permanent reduction of the Revolving Credit
Facility.
22
<PAGE> 23
In no event, however, shall the Revolving Credit Facility be required to be
reduced to an amount less than $300 million in connection with any such
mandatory prepayment.
Borrowings under the Revolving Credit Facility may be used for
acquisitions, the issuance of letters of credit, working capital and other
general corporate purposes. Of the $400 million available under the Revolving
Credit Facility, no more than $175 million may be used to support the issuance
of letters of credit.
The Senior Credit Facility bears interest, at the Company's option, at
either (a) a Base Rate, or (b) a Eurodollar Rate, both terms as defined in the
Credit Agreement, plus, in either case, an agreed upon applicable margin. The
applicable margin will be adjusted from time to time pursuant to a pricing grid
based upon the Company's Leverage Ratio, as defined in the Credit Agreement, and
varies between zero percent and 0.75% for Base Rate loans, and 0.75% and 1.75%
for Eurodollar loans. In addition, if any time, the Company's Senior Debt Ratio
is greater than 2.5 to 1.0, the applicable margin for all loans will be
increased by 0.25%.
The Senior Credit Facility is guaranteed by substantially all of the
Company's present and future subsidiaries. In addition, the Senior Credit
Facility is secured by substantially all the personal property and a pledge of
the stock, of substantially all the Company's present and future subsidiaries.
The Credit Agreement contains certain financial covenants including,
but not limited to, a Total Debt to EBITDA ratio, a Senior Debt to EBITDA ratio,
a Fixed Charge Coverage ratio and an Interest Expense Coverage ratio, all terms
as defined in the Credit Agreement. In addition, the Credit Agreement also
limits the Company's ability to make acquisitions, purchase fixed assets above
certain amounts, pay dividends, incur additional indebtedness and liens, make
optional prepayments on certain subordinated indebtedness, make investments,
loans or advances, enter into certain transactions with affiliates or enter into
a merger, consolidation or sale of all or a substantial portion of the Company's
assets.
The Company has entered into interest rate protection agreements (the
"Agreements"), with reputable national banks and investment banking institutions
to reduce its exposure to fluctuations in variable interest rates. A summary of
the Agreements outstanding as of June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Notional Amount Fixed Rate
--------------------- ----------
(dollars in millions)
<S> <C>
$ 50 5.76%
50 5.81
130 6.27
</TABLE>
The Agreements effectively change the Company's interest rate paid on
$230 million of its floating rate long-term debt ($576 million at June 30, 1997)
to a weighted average fixed rate ceiling of approximately 6.06% plus applicable
margins imposed by the terms of the Credit Agreement at June 30, 1997.
In December 1996, Allied NA issued $525 million of 10.25% Senior
Subordinated Notes due 2006 in a Rule 144A private offering (the "1996 Notes").
Net proceeds from the sale of the 1996 Notes, after the underwriting discount
and other expenses, were approximately $509 million. The net proceeds were used
to pay a portion of the cash purchase price of the Laidlaw Acquisition, repay
amounts outstanding under the Company's previous $300 million credit facility
with Credit Suisse as agent, fund certain acquisitions and for general corporate
purposes. Allied NA had an obligation to offer fully registered securities,
pursuant to an exchange offer, that are substantially identical to the 1996
Notes. Allied NA completed this exchange offer on July 23, 1997. The 1996 Notes
cannot be redeemed until December 1, 2001, except under certain circumstances.
Prior to December 1, 2001, the 1996 Notes are subject to redemption, at the
option of Allied NA, at the greater of (i) 100% of the principal amount of (ii)
the sum of the present values of the remaining scheduled payments of principal
and interest thereon discounted to maturity on a semiannual basis at a
comparable treasury yield plus 75 basis points, plus in each case accrued and
unpaid interest to the date of redemption. At any time prior to December 1,
1999, up to 33% of principal amount of 1996 Notes
23
<PAGE> 24
will be redeemable, at the option of Allied NA, from the proceeds of one or more
public offerings of capital stock by the Company at a redemption price of
110.25% of principal amount, plus accrued interest. The 1996 Notes are
guaranteed by the Company and substantially all of Allied NA's subsidiaries, the
guarantees of which are expressly subordinated to the guarantees of Allied NA's
Senior Credit Facility. The 1996 Notes contain several covenants, the most
restrictive of which limits Allied NA and its subsidiaries' ability to incur
additional indebtedness without complying with an interest coverage ratio test.
Other covenants contain limitations on payment of dividends, 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, mergers and consolidations, and changes of control. The covenants do
permit Allied NA to incur certain indebtedness including the Senior Credit
Facility, indebtedness issued and/or assumed in permitted acquisitions and other
indebtedness which is limited to a certain percentage of Allied NA's total
assets.
On May 15, 1997, the Company, pursuant to (the Laidlaw Securities
Purchase Agreement) with the Laidlaw Group and certain private securities
investment funds affiliated with either (i) Apollo Advisors II, L.P. or (ii) the
Blackstone Group, repurchased from the Laidlaw Group the Allied Debentures and
the Warrant for an aggregate purchase price of $230 million in cash. In
connection with the Repurchase, Allied issued $418 million aggregate principal
amount of the Senior Discount Notes in a private offering on May 15, 1997. The
net proceeds of approximately $230 million were used to pay the cash
consideration of the Repurchase. The Senior Discount Notes were issued at a
discount of principal amount and, unless certain provisions are triggered, there
will be no periodic cash payments of interest before June 1, 2002. Thereafter,
the Senior Discount Notes will accrue cash interest at the rate of 11.30% per
annum, payable semi-annually on June 1 and December 1 of each year, commencing
December 1, 2002. Allied has an obligation to offer exchange notes, pursuant to
an exchange offer, that are substantially identical to the Senior Discount
Notes. If Allied fails to effect an exchange offer, or if the registration
statement relating to the exchange offer shall be withdrawn by Allied before
certain dates, Allied will be subject to penalty interest in varying amounts
ranging from 0.25% to 1.0% per annum on the principal amount thereof as
liquidated damages to the holders of the Senior Discount Notes. On July 14,
1997, Allied filed with the Securities and Exchange Commission a registration
statement on Form S-4 relating to the exchange offer. The Senior Discount Notes
cannot be redeemed until December 1, 2001, except under certain circumstances.
At any time prior to June 1, 2000, up to 33% of principal amount of Senior
Discount Notes will be redeemable, at the option of Allied, from the proceeds of
one or more public offerings of capital stock by Allied at a redemption price of
111.30% of their accreted value, plus accrued interest. The Senior Discount
Notes contain several covenants, the most restrictive of which limits Allied and
its subsidiaries' and AWNA and its subsidiaries' ability to incur additional
indebtedness without complying with an interest coverage ratio test. Other
convenants contain limitations on payment of dividends except for 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, mergers and consolidations, and changes of
control. The convenants do permit Allied and AWNA to incur certain indebtedness
including the 1996 Bank Agreement, indebtedness issued and/or assumed in
permitted acquisitions and other indebtedness which is limited to a certain
percentage of AWNA's total assets.
In connection with the Laidlaw Acquisition, the Company issued a
warrant to Laidlaw for the purchase of 20.4 million shares of common stock of
the Company at an exercise price of $8.25 per share (the "Warrant"). The Warrant
was retired in connection with the Repurchase on May 15, 1997.
In January 1994, the Company issued $100 million of 10 3/4% senior
subordinated notes (the "1994 Notes"). The net proceeds from the sale of the
1994 Notes after underwriting discount and other expenses, were approximately
$95 million. In July 1996, the Company completed the Tender Offer and purchased
substantially all of its 1994 Notes at the redemption price of $1,157.50 per
$1,000 principal amount. In connection with the Tender Offer, the Company
recognized an extraordinary charge of $18.4 million ($11.0 million net of income
tax benefit), in the third quarter of 1996. The Company also received a consent
from a majority of the holders of the 1994 Notes to eliminate all substantive
financial covenants associated with the remaining 1994 Notes.
Simultaneously with the Tender Offer in July 1996, the Company
completed a new $300 million revolving credit facility which was extinguished on
December 30, 1996 in connection with the financing of the Laidlaw Acquisition.
The Company recognized an extraordinary charge of $4.0 million ($2.4 million net
of income tax benefit), in the fourth quarter.
On January 24, 1996, the Company completed a public offering of its
Common Stock. It issued 7.6 million shares 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
Company's outstanding credit agreement and for other general corporate purposes.
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 1996 conversion fee charge of
approximately $2.2 million paid in 285,000 shares of Common Stock.
24
<PAGE> 25
On January 30, 1995, the Company obtained stockholder approval of the
issuance of 11,709,602 shares of Common Stock to TPG and an affiliate, for $50
million (less approximately $5.0 million of direct offering costs and other
costs related to an amendment to the 1994 Notes).
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This quarterly report 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 ("Forward Looking
Statements"). 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 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. Forward Looking Statements assume that the
Company will be able to effectively compete with the other waste management
companies.
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. The Forward Looking Statements assume that a number
of acquisition candidates and landfill properties sufficient to meet the
Company's goals will be available for purchase and that the Company will be able
to complete the acquisition at prices that the Company has experienced in the
past two years.
Integration. The Company's financial position and results of operations
depend to a large extent on the integration of recently acquired businesses. The
Forward Looking Statements assume that integration of acquired companies,
including the internalization of waste, will require from three to nine months
from the date the acquisition closes. Failure to achieve 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. The Forward Looking Statements assume that the Company will be able to
raise the capital necessary to finance such requirements at rates that are as
good as or better than those it is currently experiencing. There can be no
assurance, however, that such financing will be available or, if available, will
be available on terms satisfactory to the Company.
25
<PAGE> 26
Economic Conditions. The Company's business is affected by general
economic conditions. The Forward Looking Statements assume that the Company will
be able to achieve internal volume and price growth which is not impacted by an
economic downturn. (As revenue of the Company continues to grow it is likely
that the rates of internal growth will reflect growth rates which are less than
those experienced in 1996.) 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. The Forward Looking Statements do not
assume that such weather conditions will occur.
Dependence on Senior Management. The Company is highly dependent upon
its senior management team. In addition, as the Company continues to grow, its
requirements for operations management with waste industry experience will also
increase. The availability of such experienced management is not known. The
Forward Looking Statements assume that experienced management will be available
when needed by the Company at compensation levels that are within industry
norms. The loss of the services of any member of senior management or the
inability to hire experienced operations management could 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'
transportation 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. The Forward Looking Statements assume that there will be no materially
negative impact on its operations due to government regulation.
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 of environmental liability, if the
Company were to incur liability for environmental damage, its business and
financial condition could be materially adversely affected. The Forward Looking
Statements assume that the Company will not incur any material environmental
liabilities other than those for which a provision has been recorded in the
consolidated financial statements and disclosed in the notes thereto.
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 cost increases, resulting from inflation. The Company is
unable to determine the future impact of a sustained economic slowdown.
26
<PAGE> 27
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In connection with the financing of the Senior Credit Facility, the
Company has entered into interest rate swap agreements (the "Agreements") with
reputable national banks and investment banking institutions to reduce its
exposure to market changes in interest rates. See footnote 1 to Condensed
Consolidated Financial Statements. The Company's use of the Agreements has not
been and is not expected to be material with respect to its financial position
or results of operations.
27
<PAGE> 28
PART 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
On July 2, 1997, the annual meeting of the stockholders of the Company was held.
The holders of 69,165,671 shares of Common Stock were present in person or
represented by proxy at the meeting. At the meeting, the stockholders took the
following action:
Election of Directors
The stockholders elected the following persons to serve as directors of
the Company until the next annual meeting of stockholders, and until
their successors are duly elected and qualified. Votes were cast as
follows:
<TABLE>
<CAPTION>
Number of Number of
Votes for Votes Withheld
---------- --------------
<S> <C> <C>
Roger A. Ramsey 69,074,095 91,576
Thomas H. Van Weelden 69,074,111 91,560
Nolan Lehmann 69,074,111 91,560
Alan B. Shepard 69,074,111 91,560
Brian A. O'Leary 69,073,911 91,760
Michael Gross 69,074,111 91,560
David B. Kaplan 69,074,111 91,560
Antony P. Ressler 69,074,111 91,560
Howard A. Lipson 69,074,111 91,560
Dennis Hendrix 69,073,911 91,760
Warren B. Rudman 69,073,711 91,960
Vincent Tese 69,073,911 91,760
</TABLE>
ITEM 5. OTHER INFORMATION
None.
28
<PAGE> 29
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
3.1 -- Restated Articles of Incorporation of Allied
Waste Industries, Inc. dated August 8, 1997.
Exhibit 3.1 to the Company's Current Report
on Form 10-K/A-2 dated August 8, 1997, is
incorporated herein by reference.*
3.2 -- Amended and Restated Bylaws of Allied Waste
Industries, Inc. as of May 13, 1997.*
10.1 -- Amended and Restated Credit Agreement dated
as of June 5, 1997 among the Company, Allied
Waste North America, the Lenders referred to
therein and Credit Suisse First Boston,
Goldman Sachs Credit Partners L.P., and
Citibank, N.A., as agents.*
10.2 -- Executive Employment Agreement between the
Company and Henry L. Hirvela dated
June 6, 1997.*
10.3 -- Third Amendment to Executive Employment
Agreement between the Company and Thomas H.
Van Weelden dated January 30, 1997.*
10.4 -- Executive Employment Agreement between the
Company and Larry D. Henk dated June 6,
1997.*
10.5 -- Executive Employment Agreement between the
Company and Steven M. Helm dated June 6,
1997.*
10.6 -- Third Amendment to Executive Employment
Agreement between the Company and Roger A.
Ramsey dated January 30, 1997.*
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.
* Filed previously with Form 10-Q on August 14, 1997.
(b) Reports on Form 8-K
May 2, 1997 The Company's current report on Form 8-K
reporting the commencement by the Company of
the offering of $418 million of 11.3% Senior
Discount Notes.
29
<PAGE> 30
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/ HENRY L. HIRVELA
------------------------------------------
Henry L. Hirvela
Vice President and Chief Financial Officer
(Principal Financial Officer)
By:/s/ PETER S. HATHAWAY
------------------------------------------
Peter S. Hathaway
Vice President, Chief Accounting Officer
(Principal Accounting Officer)
Date: August 18, 1997
30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,641
<SECURITIES> 0
<RECEIVABLES> 124,353
<ALLOWANCES> 5,618
<INVENTORY> 7,327
<CURRENT-ASSETS> 167,652
<PP&E> 1,004,936
<DEPRECIATION> 107,850
<TOTAL-ASSETS> 2,008,837
<CURRENT-LIABILITIES> 203,250
<BONDS> 1,389,206
0
1
<COMMON> 777
<OTHER-SE> 207,434
<TOTAL-LIABILITY-AND-EQUITY> 2,008,837
<SALES> 395,184
<TOTAL-REVENUES> 395,184
<CGS> 218,282
<TOTAL-COSTS> 218,282
<OTHER-EXPENSES> 98,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,707
<INCOME-PRETAX> 32,626
<INCOME-TAX> 14,029
<INCOME-CONTINUING> 18,597
<DISCONTINUED> 0
<EXTRAORDINARY> 52,412
<CHANGES> 0
<NET-INCOME> (33,815)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.39)
</TABLE>
