<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) November 4, 1997
ALLIED WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-19285 88-0228636
(Commission File Number) (IRS Employer Identification No.)
15880 N. GREENWAY/HAYDEN LOOP, SUITE 100
SCOTTSDALE, ARIZONA 85260
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (602) 423-2946
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events
Allied Waste Industries, Inc. ("Allied" or the "Company") acquired
Wayne Disposal-Oakland, Inc. and Wayne Disposal - Canton, Inc
(collectively, the "Recent Acquisitions"). The financial statements and
pro forma financial statements filed herein are filed for informational
purposes.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Wayne Disposal - Oakland, Inc.
(i) Report of Independent Public Accountants
(ii) Balance Sheets as of December 31, 1996 and 1995
(iii) Statements of Income for the Years Ended December 31,
1996 and 1995
(iv) Statements of Stockholders' Equity for the Years
Ended December 31, 1996 and 1995
(v) Statements of Cash Flows for the Years Ended December
31, 1996 and 1995
(vi) Notes to Financial Statements
(b) Financial Statements of Wayne Disposal - Canton, Inc.
(i) Report of Independent Public Accountants
(ii) Balance Sheets as of December 31, 1996 and 1995
(iii) Statements of Income for the Years Ended December 31,
1996 and 1995
(iv) Statements of Stockholders's Equity for the Years
Ended December 31, 1996 and 1995
(v) Statements of Cash Flows for the Years Ended December
31, 1996 and 1995
(vi) Notes to Financial Statements
(c) Pro Forma Combined Financial Statements of Allied Waste
Industries, Inc.
(i) Introduction
(ii) Pro Forma Combined Balance Sheet - June 30, 1997
(Unaudited)
(iii) Pro Forma Combined Statement of Operations for the
Six Months Ended June 30, 1997 (unaudited)
(iv) Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1996 (unaudited)
(v) Notes to Pro Forma Combined Financial Statements
(unaudited)
(d) Exhibits
23 Consent of Arthur Andersen LLP
2
<PAGE> 3
Report of Independent Public Accountants
To the Board of Directors of
Wayne Disposal - Oakland, Inc.:
We have audited the accompanying balance sheets of WAYNE DISPOSAL - OAKLAND,
INC. (a Michigan corporation) as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wayne Disposal - Oakland, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As explained in Note 5 to the financial statements, effective January 1, 1995,
the Company changed its method of accounting for investments.
Arthur Andersen LLP
Detroit, Michigan,
February 14, 1997.
-3-
<PAGE> 4
WAYNE DISPOSAL - OAKLAND, INC.
BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,913,000 $ 3,103,000
Accounts receivable-
Trade, less allowance for doubtful
accounts of $26,000 and $29,000 at
December 31, 1996 and 1995,
respectively 1,121,000 471,000
Affiliates 8,000 90,000
Note receivable - affiliate 811,000 --
Current portion of long-term note
receivable -- 71,000
Prepaid expenses and other 327,000 224,000
------------ ------------
Total current assets 6,180,000 3,959,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements 10,438,000 3,567,000
Buildings and improvements 870,000 241,000
Machinery and equipment 1,499,000 1,491,000
Construction in progress 5,697,000 8,469,000
------------ ------------
18,504,000 13,768,000
Less- Accumulated depreciation (3,132,000) (1,596,000)
------------ ------------
Net property and equipment 15,372,000 12,172,000
------------ ------------
OTHER ASSETS:
Restricted investments 1,808,000 6,663,000
Notes receivable - affiliates -- 1,450,000
Prepaid debt issuance costs, less
accumulated amortization of $60,000
and $25,000 at December 31, 1996
and 1995, respectively 285,000 320,000
Long-term note receivable, less
current portion above -- 222,000
------------ ------------
Total other assets 2,093,000 8,655,000
------------ ------------
$ 23,645,000 $ 24,786,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-4-
<PAGE> 5
WAYNE DISPOSAL - OAKLAND, INC.
------------------------------
BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
-----------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,500,000 $ 750,000
Accounts payable-
Trade 770,000 1,825,000
Affiliates 71,000 884,000
Accrued expenses 260,000 180,000
----------- -----------
Total current liabilities 2,601,000 3,639,000
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less current
portion above 11,250,000 12,750,000
Accrued closure/post-closure costs 2,261,000 1,870,000
----------- -----------
Total long-term liabilities 13,511,000 14,620,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 50,000
shares authorized; 300 shares
issued and outstanding 300 300
Retained earnings 7,531,700 6,468,700
Unrealized gain on restricted
investments 1,000 58,000
----------- -----------
Total stockholders' equity 7,533,000 6,527,000
----------- -----------
$23,645,000 $24,786,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-5-
<PAGE> 6
WAYNE DISPOSAL - OAKLAND, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
DISPOSAL REVENUE $ 8,714,000 $ 5,475,000
OPERATING EXPENSES 4,998,000 2,736,000
----------- -----------
Gross margin 3,716,000 2,739,000
ADMINISTRATIVE EXPENSES 1,582,000 693,000
----------- -----------
Income from operations 2,134,000 2,046,000
OTHER INCOME (EXPENSE):
Interest income 447,000 348,000
Interest expense (150,000) --
Rental income 225,000 295,000
Other income (expense) 22,000 (240,000)
----------- -----------
Total other income 544,000 403,000
----------- -----------
NET INCOME $ 2,678,000 $ 2,449,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE> 7
WAYNE DISPOSAL - OAKLAND, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S> <C>
BALANCE AT DECEMBER 31, 1994 (UNAUDITED) $ 5,470,000
Net income 2,449,000
Dividends paid (1,450,000)
Unrealized gain on restricted investments 58,000
-----------
BALANCE AT DECEMBER 31, 1995 (AUDITED) 6,527,000
Net income 2,678,000
Dividends paid (1,615,000)
Change in unrealized gain on restricted investments (57,000)
-----------
BALANCE AT DECEMBER 31, 1996 (AUDITED) $ 7,533,000
===========
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE> 8
WAYNE DISPOSAL - OAKLAND, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,678,000 $ 2,449,000
Adjustments to reconcile net income to net cash
provided by operations-
Depreciation and amortization 1,571,000 301,000
Increases (decreases) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (568,000) (27,000)
Prepaid expenses and other (103,000) (37,000)
Accounts payable (1,868,000) 2,106,000
Accrued expenses 80,000 123,000
Accrued closure/post-closure costs 391,000 318,000
------------ ------------
Net cash provided by operating activities 2,181,000 5,233,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in note receivable, net 293,000 26,000
Payment on note receivable - affiliate 700,000 400,000
Prepayment of debt issuance costs -- (346,000)
Issuance of notes receivable - affiliates (61,000) (1,850,000)
Purchases of restricted investments (9,113,000) (21,927,000)
Purchases of property and equipment (4,736,000) (7,363,000)
Proceeds from sales of investments, net 13,911,000 16,513,000
------------ ------------
Net cash provided by (used in) investing
activities 994,000 (14,547,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (750,000) 13,500,000
Dividends paid (1,615,000) (1,450,000)
------------ ------------
Net cash provided by (used in) financing
activities (2,365,000) 12,050,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 810,000 2,736,000
CASH AND CASH EQUIVALENTS, beginning of the year 3,103,000 367,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of the year $ 3,913,000 $ 3,103,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for interest $ 494,000 $ 451,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY -
Conversion of account receivable to note receivable $ -- $ 319,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-8-
<PAGE> 9
(1) DESCRIPTION OF COMPANY
Wayne Disposal - Oakland, Inc. (the Company) provides integrated
waste management operations, a sanitary landfill and a public
tipping area for small vehicles under permits granted by the
Michigan Department of Environmental Quality (MDEQ). The Company
began waste operations in July, 1983.
In the ordinary course of operations, the Company grants various
levels of indemnification to waste haulers and generators.
Management is not aware of any contingencies arising from these
indemnifications that would have a material adverse impact on the
financial statements of the Company at December 31, 1996 and 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue for the disposal of waste upon
receipt of the waste.
Cash Equivalents
Cash equivalents consist of money market funds with maturities of
three months or less.
Net Property and Equipment
Additions to property and equipment are recorded at cost. The
Company capitalized approximately $343,000 and $451,000 in 1996
and 1995, respectively, in interest related to construction
costs associated with preparing the site for operations.
Depreciation is provided over the estimated useful lives of the
respective assets using accelerated methods for assets purchased
prior to January 1, 1995 and straight-line methods for assets
purchased after December 31, 1994.
S Corporation Election
The stockholders of the Company have elected to treat the Company
as an S Corporation under the provisions of the Internal Revenue
Code. As a result, the taxable income of the Company is included
in the taxable income of the individual stockholders.
Accordingly, no provision for Federal income taxes is reflected
in the accompanying statements of income.
Reclassifications
Certain amounts in the 1995 financial statements have been
reclassified to conform with the 1996 presentation.
-9-
<PAGE> 10
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of the Company's financial instruments approximates
carrying value.
(3) CLOSURE/POST-CLOSURE
The Company provides for closure and post-closure monitoring costs
over the operating life of disposal sites as airspace is consumed.
The accrual for closure and post-closure costs relates to
expenditures to be incurred after a facility ceases to accept
waste. Similar costs incurred during the active life of a site are
charged to expense. Management estimates the landfill will reach
its maximum capacity in the year 2004.
Estimates of the extent of the Company's degree of responsibility for
a particular site and the method and ultimate cost of
closure/post-closure require a number of assumptions with respect
to prices, quantities and timing. Changes in regulatory
requirements may also have a significant impact on those
estimates. Accordingly, actual results could differ from those
estimates.
The Company records estimated closure/post-closure liabilities at the
present value of estimated future cash flows. The amounts accrued
in the accompanying balance sheets are determined using an
inflation rate of 2% and a discount rate of 9%. The Company
believes that this method of accounting is preferable as the
amounts and timing of future cash payments can be reliably
estimated.
The Company has estimated gross closure/post-closure costs of its
landfill to be approximately $4,627,000 and $3,982,000 as of
December 31, 1996 and 1995, respectively.
The Company provides financial assurance for estimated
closure/post-closure costs to the MDEQ by using unsecured
irrevocable letters of credit issued by a financial institution
which totaled approximately $1,000,000 and $868,000 at December
31, 1996 and 1995, respectively.
(4) INVESTMENTS
The Company's investments consist of U.S. treasury bills and money
market funds with maturities of less than one year. Proceeds from
sales or maturities of investments are reinvested to comply with
regulatory requirements to provide financial assurance for future
payments of accrued site restoration costs. Accordingly, these
investments are classified as long-term in the accompanying
balance sheets.
-10-
<PAGE> 11
The Company had remaining proceeds of $5,197,000 at December 31,
1995, from the Michigan Strategic Fund (MSF) which were invested
in a U.S. government obligations fund. This investment was
restricted for the acquisition of operating property and
equipment. Accordingly, this investment is classified as long-term
in the accompanying balance sheet.
Effective January 1, 1995, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities". This statement requires that certain investments be
classified into three separate categories; "held to maturity",
"available-for-sale" and "trading", each with different accounting
treatment. The Company has classified its investments as
"available-for-sale". The impact of adoption at January 1, 1995
was to increase and stockholders' equity by approximately $27,000.
(5) RELATED PARTY TRANSACTIONS
The Company has a note receivable from an affiliate which bears
interest at prime (8.25% at December 31, 1996) and is receivable
on demand. Accrued interest receivable was $61,000 and $78,000 at
December 31, 1996 and 1995, respectively, and interest income was
$61,000 and $78,000 for the years then ended.
Included in the accompanying statements of income for 1996 and 1995
are the following affiliate income and expense items:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Construction services $1,191,000 $520,000
========== ========
Rental expense $ 15,000 $ 31,000
========== ========
Rental income $ 30,000 $ 30,000
========== ========
</TABLE>
The Company is involved in a cost-sharing agreement for a group of
affiliated companies which are under common management. General
corporate expenses and certain operating costs paid by an
affiliated company are allocated to the Company based upon its
direct labor hours and revenues. Allocations under this
cost-sharing agreement included operating costs of $743,000 and
$700,000 and general and administrative costs of $871,000 and
$594,000 for the years ended December 31, 1996 and 1995,
respectively.
The Company is responsible for claims related to workers'
compensation. Workers' compensation claims are paid through a
self-insured plan administered by an affiliate. As such, the
amounts recorded for the settlement of workers' compensation
claims, which represent management's best estimate of the future
payments required to settle claims outstanding, known and
expected, at December 31, 1996, are included in accounts payable -
affiliates in the accompanying balance sheets. Through reinsurance
held by the affiliate, the liability of the Company is limited to
$325,000 per individual claim and $1,037,000 for the aggregate of
all workers' compensation claims incurred in a specific year.
These amounts are subject to ongoing review and revision.
-11-
<PAGE> 12
(6) LONG-TERM DEBT
As of December 31, 1996 and 1995, long-term debt consists of bonds
payable to MSF in semi-annual installments of $750,000, commencing
November 1996, plus interest at a variable rate as determined by
the remarketing agent (4.35% at December 31, 1996), collateralized
by letters of credit.
The bonds payable include certain restrictive covenants which, among
other things, require the Company to maintain certain financial
ratios. The Company received a waiver from the MSF for a financial
covenant violation subsequent to December 31, 1996.
Future principal maturities of long-term debt as of December 31,
1996, are as follows:
<TABLE>
<S> <C>
1997 $ 1,500,000
1998 1,500,000
1999 1,500,000
2000 1,500,000
2001 1,500,000
2002 and thereafter 5,250,000
-----------
$12,750,000
===========
</TABLE>
An additional letter of credit for $500,000 at December 31, 1996 and
1995 acts as a performance bond for a municipal contract.
(7) EMPLOYEE BENEFIT PLAN
The Company's union employees are covered by various union-sponsored,
multiemployer defined benefit pension plans. The Company
contributed and charged to expense approximately $56,000 and
$44,000 in 1996 and 1995, respectively. Contributions are
determined in accordance with the provisions of negotiated labor
contracts and are generally based on stipulated rates per hours
worked.
The Company is a party to a defined contribution 401(k) plan
sponsored by an affiliate for its nonunion employees. The plan
allows all eligible employees to make elective pretax
contributions for an amount up to 15% of the employee's
compensation. Additionally, the Company will make matching
contributions to the plan on behalf of the employee in the amount
of 50% of the employee-elected contributions, not to exceed 3% of
the employee's compensation. Contributions to the plan for all
affiliated companies for the years ended December 31, 1996 and
1995, totaled approximately $139,000 and $170,000, respectively.
(8) LEASE COMMITMENTS
The Company leases various machinery and equipment under operating
leases that are primarily on a monthly basis. Rent expense
related to these operating leases totaled $28,000 and $66,000 for
1996 and 1995, respectively.
-12-
<PAGE> 13
(9) SUBSEQUENT EVENTS
In January 1997, the Company declared and paid dividends in the
amount of $1,900,000 to shareholders of record as of December 20,
1996.
The Company has committed to sell all of the outstanding common
stock of the Company to Allied Waste Industries, Inc.
-13-
<PAGE> 14
Report of Independent Public Accountants
To the Board of Directors of
Wayne Disposal - Canton, Inc.:
We have audited the accompanying balance sheets of WAYNE DISPOSAL - CANTON, INC.
(a Michigan corporation) as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wayne Disposal - Canton, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As explained in Note 5 to the financial statements, effective January 1, 1995,
the Company changed its method of accounting for investments.
Arthur Andersen LLP
Detroit, Michigan,
February 14, 1997.
-14-
<PAGE> 15
WAYNE DISPOSAL - CANTON, INC.
BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,131,000 $ 1,338,000
Accounts receivable-
Trade, less allowance
for doubtful accounts of $184,000
and $83,000 at December 31,
1996 and 1995, respectively 1,629,000 2,183,000
Affiliates 321,000 1,131,000
Note receivable - affiliate 811,000 --
Current portion of long-term
note receivable -- 252,000
Prepaid expenses and other 282,000 224,000
------------ ------------
Total current assets 6,174,000 5,128,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements 18,606,000 12,923,000
Buildings and improvements 1,753,000 1,753,000
Machinery and equipment 988,000 922,000
Construction in progress 2,649,000 6,840,000
------------ ------------
23,996,000 22,438,000
Less- Accumulated depreciation (10,171,000) (7,539,000)
------------ ------------
Net property and equipment 13,825,000 14,899,000
------------ ------------
OTHER ASSETS:
Restricted investments 1,926,000 1,322,000
Note receivable - affiliate -- 750,000
Long-term note receivable, less
current portion above and net of
allowance for doubtful accounts of
$300,000 at December 31, 1995 -- 496,000
Other 465,000 645,000
------------ ------------
Total other assets 2,391,000 3,213,000
------------ ------------
$ 22,390,000 $ 23,240,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-15-
<PAGE> 16
WAYNE DISPOSAL - CANTON, INC.
BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,264,000 $ 1,264,000
Accounts payable-
Trade 189,000 461,000
Affiliates 291,000 506,000
Accrued expenses 495,000 681,000
----------- -----------
Total current liabilities 2,239,000 2,912,000
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less current portion above 6,806,000 8,142,000
Notes payable to stockholders -- 4,415,000
Note payable to affiliate -- 700,000
Accrued closure/post-closure costs 1,269,000 842,000
Accrued interest - stockholders -- 464,000
----------- -----------
Total long-term liabilities 8,075,000 14,563,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 50,000
shares authorized; 300 shares issued
and outstanding 300 300
Additional paid-in capital 5,578,000 --
Retained earnings 6,435,700 5,732,700
Unrealized gain on restricted investments 62,000 32,000
----------- -----------
Total stockholders' equity 12,076,000 5,765,000
----------- -----------
$22,390,000 $23,240,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-16-
<PAGE> 17
EXHIBIT 2
WAYNE DISPOSAL - CANTON, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
DISPOSAL REVENUE $ 12,134,000 $ 13,007,000
OPERATING EXPENSES 7,728,000 7,159,000
------------ ------------
Gross margin 4,406,000 5,848,000
ADMINISTRATIVE EXPENSES 2,312,000 1,200,000
------------ ------------
Income from operations 2,094,000 4,648,000
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 263,000 62,000
Interest expense (797,000) (817,000)
Other 158,000 187,000
------------ ------------
Total other expense (376,000) (568,000)
------------ ------------
NET INCOME $ 1,718,000 $ 4,080,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-17-
<PAGE> 18
WAYNE DISPOSAL - CANTON, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
BALANCE AT DECEMBER 31, 1994 (UNAUDITED) $ 1,653,000
Net income 4,080,000
Unrealized gain on restricted investments 32,000
------------
BALANCE AT DECEMBER 31, 1995 (AUDITED) 5,765,000
Forgiveness of stockholders' debt and interest 5,578,000
Net income 1,718,000
Dividends paid (1,015,000)
Change in unrealized gain on restricted investments 30,000
------------
BALANCE AT DECEMBER 31, 1996 (AUDITED) $ 12,076,000
============
The accompanying notes are an integral part of these statements.
-18-
<PAGE> 19
WAYNE DISPOSAL - CANTON, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,718,000 $ 4,080,000
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 2,817,000 3,012,000
Increase (decrease) in cash resulting from
changes in operating assets and liabilities-
Accounts receivable 1,364,000 (1,471,000)
Prepaid expenses and other (58,000) (103,000)
Accounts payable (487,000) 814,000
Accrued expenses (186,000) 187,000
Accrued closure/post-closure costs 427,000 422,000
Accrued interest - stockholders 258,000 264,000
----------- -----------
Net cash provided by operating activities 5,853,000 7,205,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of restricted investments 1,584,000 1,231,000
Change in note receivable, net 748,000 88,000
Issuance of notes receivable - affiliate (61,000) (750,000)
Purchases of restricted investments (2,158,000) (1,872,000)
Purchases of property and equipment (1,563,000) (4,102,000)
----------- -----------
Net cash used in investing activities (1,450,000) (5,405,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt and
note payable to affiliate 441,000 1,100,000
Payments of long-term debt and note payable to
affiliate (2,036,000) (1,594,000)
Dividends paid (1,015,000) --
----------- -----------
Net cash used in financing activities (2,610,000) (494,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,793,000 1,306,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,338,000 32,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 3,131,000 $ 1,338,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for interest $ 745,000 $ 586,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Conversion of accounts receivable to notes receivable $ -- $ 836,000
=========== ===========
Forgiveness of stockholders' debt and interest $ 5,578,000 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-19-
<PAGE> 20
WAYNE DISPOSAL - CANTON, INC.
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF COMPANY
Wayne Disposal - Canton, Inc. (the Company) provides integrated waste
management operations, a sanitary landfill and a public tipping
area for small vehicles under permits granted by the Michigan
Department of Environmental Quality (MDEQ). The Company began
waste operations in July, 1993.
In the ordinary course of operations, the Company grants various
levels of indemnification to waste haulers and generators.
Management is not aware of any contingencies arising from these
indemnifications that would have a material adverse impact on the
financial statements of the Company at December 31, 1996 and 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue for the disposal of waste upon
receipt of the waste.
Cash Equivalents
Cash equivalents consist of money market funds with a maturity of
three months or less.
Net Property and Equipment
Additions to property and equipment are recorded at cost. The
Company capitalized approximately $130,000 in 1995 in interest
related to construction costs associated with preparing the site
for operations. No amounts were capitalized in 1996.
Depreciation is provided over the estimated useful lives of the
respective assets using accelerated methods for assets purchased
prior to January 1, 1995 and straight-line methods for assets
purchased after December 31, 1994.
Other Assets
Other assets consist primarily of prepaid debt issuance costs and
permits which are amortized over the term of the debt and
permits. Accumulated amortization was $862,000 and $673,000 at
December 31, 1996 and 1995, respectively.
-20-
<PAGE> 21
WAYNE DISPOSAL - CANTON, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
S Corporation Election
The stockholders of the Company have elected to treat the Company
as an S Corporation under the provisions of the Internal Revenue
Code. As a result, the taxable income of the Company is included
in the taxable income of the individual stockholders.
Accordingly, no provision for Federal income taxes is reflected
in the accompanying statements of income.
Reclassifications
Certain amounts in the 1995 financial statements have been
reclassified to conform with the 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The fair value of the Company's financial instruments approximates
carrying value.
(3) CLOSURE/POST-CLOSURE COSTS
The Company provides for closure and post-closure monitoring costs
over the operating life of disposal sites as airspace is consumed.
The accrual for closure and post-closure costs relates to
expenditures to be incurred after a facility ceases to accept
waste. Similar costs incurred during the active life of a site are
charged to expense. Management estimates that the landfill will
reach its maximum capacity in the year 2007.
Estimates of the extent of the Company's degree of responsibility of
a particular site and the method and ultimate cost of
closure/post-closure require a number of assumptions with respect
to prices, quantities and timing. Changes in regulatory
requirement may also have a significant impact on those estimates.
Accordingly, actual results could differ from those estimates.
-21-
<PAGE> 22
WAYNE DISPOSAL - CANTON, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
The Company records closure/post-closure liabilities at the
present value of estimated future cash flows. The accrued
closure/post-closure costs included in the accompanying balance
sheets are determined by using an estimated inflation rate of 2%
and a discount rate of 9%. The Company believes that this method
of accounting is preferable as the amounts and timing of future
cash payments can be reliably estimated.
The Company has estimated the gross closure/post-closure costs of
the landfill to be approximately $3,007,000 and $2,043,000 as of
December 31, 1996 and 1995, respectively.
The Company provides financial assurance for estimated
closure/post-closure costs to the MDEQ by using unsecured
irrevocable letters of credit issued by a financial institution
which totaled approximately $1,000,000 at December 31, 1996 and
1995.
(4) INVESTMENTS
The Company's investments consist of U.S. treasury bills and
interest-bearing demand deposits with maturities of less than
one year. Proceeds from sales or maturities of investments are
reinvested to comply with regulatory requirements to provide
financial assurance for future payment of accrued site
restoration costs. Accordingly, these investments are classified
as long-term in the accompanying balance sheets.
Effective January 1, 1995, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities". This statement requires that certain investments be
classified into three separate categories; "held-to-maturity",
"available-for-sale" and "trading", each with different
accounting treatment. The Company has classified its investments
as "available-for-sale". The impact of adoption at January 1,
1995 was to increase investments and stockholders' equity by
$10,000.
(5) RELATED-PARTY TRANSACTIONS
Effective December 31, 1996, all stockholder debt and the related
accrued interest was forgiven by the stockholders. As a result,
notes payable of $4,856,000 and accrued interest of $722,000
were reclassified as of December 31, 1996 to additional paid-in
capital in the accompanying balance sheet. Interest expense
recorded related to these notes was $258,000 and $264,000 for
the years ended December 31, 1996 and 1995, respectively.
The Company had a note payable to an affiliate at December 31,
1995 which was paid in 1996. Interest expense related to this
note was $7,000 and $80,000 for the years ended December 31,
1996 and 1995, respectively.
-22-
<PAGE> 23
WAYNE DISPOSAL - CANTON, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
The Company has a note receivable from an affiliate which bears
interest at prime (8.25% at December 31, 1996) and is payable on
demand. Accrued interest receivable was $61,000 and $11,000 at
December 31, 1996 and 1995, respectively, and interest income
was $50,000 and $11,000 for the years ended December 31, 1996
and 1995, respectively.
Included in the accompanying statements of income for 1996 and
1995 are the following affiliate income and expense items:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Disposal revenue $1,741,000 $1,387,000
========== ==========
Disposal costs $ 152,000 $ 116,000
========== ==========
Construction services $1,728,000 $ 997,000
========== ==========
Rental expense $ 20,000 $ 24,000
========== ==========
Rental income $ 150,000 $ 150,000
========== ==========
</TABLE>
The Company is involved in a cost-sharing agreement for a group of
affiliated companies which are under common management. General
corporate expenses and certain operating costs paid by an
affiliated company are allocated to the Company based upon its
direct labor hours and revenues. Allocations under this
cost-sharing agreement included operating costs of $1,198,000
and $1,084,000 and general and administrative costs of $870,000
and $831,000 for the years ended December 31, 1996 and 1995,
respectively.
The Company is responsible for claims related to workers'
compensation. Workers' compensation claims are paid through a
self-insured plan administered by an affiliate. As such, the
amounts recorded for the settlement of workers' compensation
claims, which represent management's best estimate of the future
payments required to settle claims outstanding, known and
expected, at December 31, 1996, are included in accounts payable
- affiliates in the accompanying balance sheets. Through
reinsurance held by the affiliate, the liability of the Company
is limited to $325,000 per individual claim and $1,037,000 for
the aggregate of all workers' compensation claims incurred in a
specific year. These amounts are subject to ongoing review and
revision.
-23-
<PAGE> 24
WAYNE DISPOSAL - CANTON, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Bonds payable to Michigan Strategic
Fund (MSF)in annual installments of
$980,000 plus interest at rates of
5.3% to 6.2%, collateralized by
letters of credit
$6,860,000 $7,840,000
Note payable to bank in quarterly
installments of $71,000 plus interest
at the bank's prime rate (8.25% at
December 31, 1996), collateralized by
real property 1,210,000 1,566,000
---------- ----------
8,070,000 9,406,000
Less- Current portion 1,264,000 1,264,000
---------- ----------
$6,806,000 $8,142,000
========== ==========
</TABLE>
Future principal maturities of long-term debt as of December 31,
1996, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 $1,264,000
1998 1,264,000
1999 1,264,000
2000 1,264,000
2001 1,054,000
2002 and thereafter 1,960,000
----------
$8,070,000
==========
</TABLE>
The bonds payable include certain restrictive covenants which,
among other things, require the Company to maintain certain
financial ratios. The Company received a waiver for a financial
covenant violation from the MSF at December 31, 1996.
A letter of credit for $100,000 at December 31, 1996 and 1995,
acts as a performance bond for a municipal contract. Another
letter of credit for $139,000 at December 31, 1996 is related to
a soil erosion and sedimentation control permit.
-24-
<PAGE> 25
WAYNE DISPOSAL - CANTON, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(7) CONTINGENCIES
In the normal course of conducting its business, the Company
becomes involved in various lawsuits as well as administrative
proceedings and governmental investigations related to
environmental matters. Some of these proceedings may result in
judgments being assessed against the Company which, from time to
time, may have an impact on the earnings of a particular year.
The Company does not believe that these proceedings,
individually or in the aggregate, are material to its business
or its financial condition.
(8) EMPLOYEE BENEFIT PLAN
The Company's union employees are covered by various
union-sponsored, multiemployer defined benefit pension plans.
The Company contributed and charged to expense $97,000 and
$65,000 in 1996 and 1995, respectively. Contributions are
determined in accordance with the provisions of negotiated labor
contracts and are generally based on stipulated rates per hours
worked.
The Company is a party to a defined contribution 401(k) plan
sponsored by an affiliate for its nonunion employees. The plan
allows all eligible employees to make elective pretax
contributions for an amount up to 15% of the employee's
compensation. Additionally, the Company will make matching
contributions to the plan on behalf of the employee in the
amount of 50% of the employee-elected contributions, not to
exceed 3% of the employee's compensation. Contributions to the
plan for all affiliated companies for the years ended December
31, 1996 and 1995, totaled approximately $139,000 and $170,000,
respectively.
(9) LEASE COMMITMENTS
The Company leases various machinery and equipment under operating
leases that are primarily on a monthly basis. Rent expense
related to these operating leases totaled $35,000 and $18,000
for 1996 and 1995, respectively.
(10) SUBSEQUENT EVENTS
The Company has committed to sell all of the outstanding common
stock of the Company to Allied Waste Industries, Inc.
-25-
<PAGE> 26
PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined balance sheet as of June 30, 1997 gives effect
to the 1997 Equity Offering as if it had occurred on June 30, 1997. The
unaudited pro forma combined statements of operations for the six months ended
June 30, 1997 and the year ended December 31, 1996 give effect to the Laidlaw
Acquisition, the Recent Acquisitions, the Canadian Sale, the sale of the
Company's non-core medical waste assets, the issuance of the Senior Discount
Notes, the Repurchase, the execution of the Amended Bank Agreement and the
completion of the 1997 Equity Offering (all terms as defined herein), as if each
had occurred on January 1, 1996.
These statements do not purport to be indicative of the combined results of
operations of Allied, the Laidlaw Acquisition and Recent Acquisitions that might
have occurred, nor are they indicative of future results of operations.
The unaudited pro forma combined financial statements should be read in
conjunction with the Notes to Pro Forma Combined Financial Statements, the
historical consolidated financial statements of Allied and the notes thereto and
the historical financial statements of the Recent Acquisitions and the notes
thereto. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Disclosure Regarding Forward Looking Statements" in
Allied's annual report on Form 10-K, as amended.
-26-
<PAGE> 27
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Financing
Historical Transactions
(Note 1) (Note 4) Pro Forma
-------- -------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 14,641 $ 344,655(a) $ 71,338
(271,000)(b)
(16,958)(c)
Other current assets................................ 153,011 -- 153,011
------- -------- -------
Total current assets........................... 167,652 56,697 224,349
Property and equipment, net......................... 897,086 -- 897,086
Goodwill, net 854,491 -- 854,491
Other assets........................................ 89,608 (1,379)(d) 88,229
------ ------- ------
Total assets................................... $2,008,837 $ 55,318 $2,064,155
========== ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt................... $ 50,486 $ (11,000)(b) $ 39,486
Other current liabilities........................... 152,764 -- 152,764
------- ---------- -------
Total current liabilities...................... 203,250 (11,000) 192,250
Long-term debt, net of current portion.............. 1,389,206 (260,000)(b) 1,129,206
Other long-term liabilities......................... 208,169 (552)(e) 207,617
Stockholders' equity................................ 208,212 344,655(a) 535,082
(16,958)(c)
(1,379)(d)
552(e)
---------- ---------- ----------
Total liabilities and equity................... $2,008,837 $ 55,318 $2,064,155
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma
combined balance sheet.
-27-
<PAGE> 28
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
Recent Related to for the Financing
Historical Acquisitions Acquisitions Recent Transactions
(Note 1) (Note 2) (Note 3) Acquisitions (Note 4) Pro Forma
-------- -------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 395,184 $ 3,474 -- $ 398,658 $ -- $ 398,658
Cost of operations........ 218,282 1,573 -- 219,855 -- 219,855
Selling, general and
administrative
expenses............... 46,512 399 -- 46,911 -- 46,911
Depreciation and
amortization
expense................ 52,161 732 -- 52,893 -- 52,893
------ ----- ----- ------ ------ ------
Operating income....... 78,229 770 -- 78,999 78,999
Interest income........... (1,104) (119) -- (1,223) -- (1,223)
Interest expense.......... 46,707 158 1,167(e) 48,032 726 (a) 40,848
(41,331)(b)
33,421 (c)
------ ----- ----- ------ ------ ------
Net income
before income taxes.... 32,626 731 (1,167) 32,190 7,184 39,374
Income tax expense........ 14,029 315 (502) 13,842 3,089 16,931
------ ----- ----- ------ ----- ------
Net income
before extra-
ordinary loss.......... 18,597 416 (665) 18,348 4,095 22,443
Dividends on
preferred stock........ (337) -- -- (337) -- (337)
------ ----- ----- ------ ----- ------
Net income to
common share-
holders before
extraordinary loss..... $ 18,260 $ 416 $ (665) $ 18,011 $ 4,095 $ 22,106
========= ========== =========== =========== ========= ===========
Net income
per common share
before extra-
ordinary loss.......... $0.21 $ 0.20 $ 0.22
===== =========== ===========
Weighted average
and common
equivalent shares...... 88,375,927 88,615,890 99,313,523
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma
combined financial statement.
-28-
<PAGE> 29
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
Recent Laidlaw Related to Pro Forma Financing
Historical Acquisitions Acquisition Acquisitions for the Transactions
(Note 1) (Note 2) (Note 2) (Note 3) Acquisitions (Note 4) Pro Forma
-------- -------- -------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $ 246,679 $ 20,848 $ 494,532 $ -- $ 762,059 $ -- $ 762,059
Cost of
operations.............. 138,437 9,435 331,228 -- 479,100 -- 479,100
Selling, general
and administrative
expenses................ 38,602 2,392 27,623 -- 68,617 -- 68,617
Depreciation and
amortization
expense................. 31,470 4,388 63,884 19,038 (a) 116,701 -- 116,701
(2,079)(b)
Acquisition related costs.. 91,693 -- -- -- 91,693 -- 91,693
Unusual items.............. 5,744 -- -- -- 5,744 -- 5,744
--------- -------- --------- --------- --------- ------- -----------
Operating income (loss). (59,267) 4,633 71,797 (16,959) 204 -- 204
Interest income............ (2,110) (710) -- -- (2,820) -- (2,820)
Interest expense .......... 9,257 947 -- 4,074 (c) 116,097 1,743 (a) 101,989
(14,321)(d) (86,194)(b)
116,140 (e) 70,343 (c)
--------- -------- --------- --------- --------- ------- -----------
Net income (loss) before
income taxes............ (66,414) 4,396 71,797 (122,852) (113,073) 14,108 (98,965)
Income tax expense
(benefit)............... (399) 1,890 30,873 (52,826) (20,462) 6,066 (14,396)
--------- -------- --------- --------- --------- ------- -----------
Net income (loss)
before extra-
ordinary loss........... (66,015) 2,506 40,924 (70,026) (92,611) 8,042 (84,569)
Dividends on preferred
stock................... (1,073) -- -- -- (1,073) -- (1,073)
--------- -------- --------- --------- --------- ------- -----------
Net income (loss) to
common shareholders
before
extraordinary
loss.................... $ (67,088) $ 2,506 $ 40,924 $ (70,026) $ (93,684) $ 8,042 $ (85,642)
========= ========= ========== ========== ========= ======= ===========
Net loss per common
share before
extraordinary loss...... $ (1.15) $ (1.27) $ (0.93)
========= ========= ===========
Weighted average common
and common
equivalent shares....... 58,422,581 73,729,355 92,359,355
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma
combined financial statement.
-29-
<PAGE> 30
ALLIED WASTE INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. HISTORICAL
The historical balances represent the results of operations of Allied for each
of the indicated periods as reported in the historical consolidated financial
statements of Allied. The historical consolidated financial statements have been
restated to reflect acquisitions in 1996 accounted for as poolings-of-interests.
2. HISTORICAL AMOUNTS RELATED TO ACQUISITIONS
The amounts in the pro forma combined statements of operations represent the
results of operations of the companies acquired in 1997 ("Recent Acquisitions")
and substantially all of the non-hazardous solid waste business of Laidlaw Inc.
(the "Laidlaw Acquisition"), excluding the Canadian solid waste management
operations of the Company which were held for sale and sold in March 1997 to USA
Waste Services, Inc. for $518 million (the "Canadian Sale") and the Company's
non-core medical waste assets which were held for sale and sold in April 1997,
for the period prior to the date of the Laidlaw Acquisition.
The following represents acquisitions included in these pro forma combined
financial statements (collectively referred to as "Acquisitions.").
December 1996 - Allied completed the Laidlaw Acquisition for total consideration
of approximately $1.5 billion, as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash .........................................................$1,200,000
7% Debenture ................................................. 77,567
Zero Coupon Debenture ........................................ 33,180
Common Stock ................................................. 110,048
Warrant ...................................................... 49,000
----------
Total....................................................$1,469,795
==========
</TABLE>
Amounts in the statement of operations for the year ended December 31, 1996 for
the businesses acquired in the Laidlaw Acquisition and not disposed of are for
the 12 months ended November 30, 1996.
March 1997 - Allied acquired Wayne Disposal - Oakland, Inc. and Wayne Disposal -
Canton, Inc. for total consideration of approximately $52.5 million, including
approximately 747,000 shares of common stock.
3. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflected in the pro forma combined statements of
operations give effect to the following:
(a) To reflect $19.0 million of goodwill amortization related to $761.5
million of total goodwill recorded in connection with the Laidlaw
Acquisition, calculated based on a 40 year life.
(b) To reflect the elimination of historical goodwill amortization of the
Laidlaw subsidiaries acquired.
-30-
<PAGE> 31
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(c) To reflect amortization of commitment fees related to the $525 million
10.25% senior subordinated notes ("AWNA Notes") and the $1.275 billion
senior credit facility (the "1996 Bank Agreement") completed in
connection with the Laidlaw Acquisition, giving effect to the Canadian
Sale.
(d) To reflect the reduction of interest expense resulting from the
repayment of certain indebtedness with the proceeds from the 1996 Bank
Agreement completed in connection with the Laidlaw Acquisition,
calculated as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
-----------------
<S> <C>
Senior subordinated notes, $100 million, interest at 12%
for 7 months during 1996.......................................... $ (7,000)
Credit agreement, interest at 9.25% for 7 months during
1996 and related debt issuance cost amortization.................. (1,537)
Credit facility interest at 7% for 5 months during 1996 and
related debt issuance cost amortization........................... (5,784)
---------------
Total pro forma interest savings.............................. $ (14,321)
===============
</TABLE>
(e) To reflect interest expense related to the 1996 Bank Agreement, the
AWNA Notes, and two junior subordinated debentures issued in connection
with the Laidlaw Acquisition (the "Allied Finance Debentures") and
interest expense on cash paid in connection with the Recent
Acquisitions calculated as follows (in thousands):
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1996 June 30, 1997
------------------ ------------------
<S> <C> <C>
1996 Bank Agreement, interest at LIBOR $ $ --
plus 2.5%-3.25% .................................... 43,993 --
AWNA Notes, interest at 10.25% .......................... 53,813 --
7% debenture, implicit interest at 14% .................. 11,200 --
Zero coupon debenture, implicit interest at 14% ......... 4,800 --
1996 Bank Agreement, interest on $29.1
million at LIBOR plus 2.5%
for the Recent Acquisitions ........................ 2,334 1,167
--------- ------
Total pro forma interest expense ............... $ 116,140 $1,167
========= ======
</TABLE>
An increase in the interest rate of one-eighth of a percent on the 1996
Bank Agreement would not have a material impact for the year ended
December 31, 1996 or the six months ended June 30, 1997.
-31-
<PAGE> 32
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. FINANCING TRANSACTIONS
The pro forma combined financial statements give effect to the receipt of $240
million of proceeds from the issuance of $418 million principal amount of 11.30%
senior discount notes due 2007 (the "Senior Discount Notes"), the repurchase of
the Allied Finance Debentures (the "Repurchase"), the completion of an amended
and restated bank agreement (the "Amended Bank Agreement") that replaced the
1996 Bank Agreement and the completion of an offering of 18,600,000 shares of
common stock at $18.50 per share (the "1997 Equity Offering") in September 1997.
The pro forma combined financial statements do not include the historical and
pro forma extraordinary charges of approximately $13 million and $57 million,
respectively, net of income tax benefit, related to the early extinguishment of
debt in 1996 and incurred in connection with the Repurchase and the historical
and pro forma extraordinary charges of $52 million and $1 million, respectively,
related to the early extinguishment of debt in 1997 and, incurred in connection
with the repayment of certain debt under the Amended Bank Agreement.
The adjustments related to the financing transactions reflected in the pro forma
combined financial statements give effect to the following:
Pro Forma Combined Balance Sheet
(a) To reflect the completion of the 1997 Equity Offering.
(b) To reflect the repayment of debt with the proceeds from the 1997 Equity
Offering.
(c) To reflect payment of underwriting fees and other costs related to the
1997 Equity Offering.
(d) To reflect the write off of deferred debt issuance costs related to the
Amended Bank Agreement.
(e) To reflect the income tax benefit for the write off of certain Amended
Bank Agreement debt issuance costs related to the 1997 Equity Offering.
Pro Forma Combined Statement of Operations
(a) To reflect amortization of commitment fees related to the Senior
Discount Notes and the Amended Bank Agreement from January 1, 1997
through the date of the transaction.
-32-
<PAGE> 33
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(b) To reflect the reduction of interest expense resulting from the
repayment of certain indebtedness with the proceeds from the Amended
Bank Agreement and the Senior Discount Notes calculated as follows (in
thousands):
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
1996 Bank Agreement, interest at LIBOR plus
2.5%-3.25% for the period from January 1, 1996
through June 5, 1997 and related debt
issuance cost amortization................................ $(49,386) $(21,723)
Amended Bank Agreement, $271,000 repaid
in connection with the 1997 Equity
Offering, interest at 7.6% for 6 months during 1997
and related debt issuance cost amortization............... (20,808) (10,404)
Senior Discount Notes, interest accretion on $240 million
at 11.3% for the period from May 15, 1997
through June 30, 1997..................................... -- (3,390)
Zero Coupon Debenture, implicit interest at
14% for the period from January 1, 1996
through May 15, 1997...................................... (4,800) (1,742)
7% Debenture, implicit interest at 14% for the
period from January 1, 1996 through
May 15, 1997.............................................. (11,200) (4,072)
--------- --------
Total pro forma interest savings......................... $(86,194) $(41,331)
========= ========
</TABLE>
(c) To reflect interest expense related to the Amended Bank Agreement and
the Senior Discount Notes, calculated as follows (in thousands):
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
Amended Bank Agreement, $525 million
outstanding for the period from
January 1, 1996 through June 5, 1997,
interest at 7.6%.......................................... $42,457 $ 18,285
Senior Discount Notes, interest accretion on $240 million
at 11.3% for the period from January 1, 1996 through
June 30, 1997............................................. 27,886 15,136
------- --------
Total pro forma interest expense......................... $70,343 $ 33,421
======= ========
</TABLE>
An increase in the interest rate of one-eighth of a percent on the Amended Bank
Agreement would not have a material impact for the year ended December 31, 1996
or the six months ended June 30, 1997.
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<PAGE> 34
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. NET INCOME (LOSS) PER COMMON SHARE
Pro forma net income (loss) per common share is calculated by dividing pro forma
net income (loss) to common shareholders less requirements on Series D preferred
stock, 7% preferred stock, and 9% preferred stock by the pro forma weighted
average common and common equivalent shares outstanding during the periods. Pro
forma weighted average common and common equivalent shares have been computed as
follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
Historical weighted average
common shares..................................... 58,422,581 76,933,433
Common stock equivalents -
Stock options and warrants........................ -- 11,279,994
Convertible debt assumed converted................ -- 162,500
Pro forma effect of the Repurchase .................. -- (7,931,667)
Pro forma effect of issuing common
shares for the Laidlaw Acquisition
accounted for as a purchase....................... 14,560,109 --
Pro forma effect of issuing common
shares for the Recent Acquisitions
accounted for as a purchase....................... 746,665 239,263
Pro forma effect of issuing Common Shares
related to the 1997 Equity Offering............... 18,630,000 18,630,000
---------- ----------
Total............................................. 92,359,355 99,313,523
========== ==========
</TABLE>
-34-
<PAGE> 35
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant, Allied Waste Industries, Inc., has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ALLIED WASTE INDUSTRIES, INC.
By: /s/PETER S. HATHAWAY
-----------------------------------------
Vice President
and Chief Accounting Officer
Date: November 4, 1997
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<PAGE> 1
Exhibit 23
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 26, 1997,
included in Allied Waste Industries, Inc.'s Form 10-K for the year ended
December 31, 1996, and to all references to our firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
October 31, 1997.
