UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 1998
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.
Class Outstanding as of November_11, 1998
Common Stock............................ 182,736,760
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Page
<S> <C>
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.................................................... 14
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 Security Holders........................ 28
Item 5-- Other Information.......................................................... 28
Item 6-- Exhibits and Reports on Form 8-K........................................... 29
Signature .......................................................................... 33
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, September 30,
1997 1998
--------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets --
Cash and cash equivalents...................................... $ 29,872 $ 23,291
Accounts receivable, net of allowance of
$7,666 and $7,991, respectively.............................. 172,245 185,975
Prepaid and other current assets............................... 37,750 51,827
Inventories.................................................... 7,664 8,849
Deferred income taxes.......................................... 5,318 4,971
--------------- ----------------
Total current assets....................................... 252,849 274,913
Property and equipment, net....................................... 1,402,334 1,507,520
Goodwill, net..................................................... 899,297 942,145
Other assets...................................................... 92,675 90,885
--------------- ----------------
Total assets $ 2,647,155 $ 2,815,463
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Current portion of long-term debt.............................. $ 59,205 $ 27,557
Accounts payable............................................... 85,391 70,660
Accrued liabilities............................................ 104,239 161,969
Unearned income................................................ 38,214 42,910
--------------- ----------------
Total current liabilities 287,049 303,096
Long-term debt, less current portion.............................. 1,433,482 1,534,501
Deferred income taxes............................................. 14,759 37,980
Accrued closure, post-closure and environmental costs............. 212,084 209,460
Other long-term obligations....................................... 46,619 45,269
Commitments and contingencies.....................................
Stockholders' equity ...................................... 653,162 685,157
--------------- ----------------
Total liabilities and stockholders' equity $ 2,647,155 $ 2,815,463
=============== ================
<FN>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for per share amounts; unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- --------------------------
1997 1998 1997 1998
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues.......................................... $ 873,358 $ 959,539 $ 309,402 $ 334,290
Cost of operations................................ 507,483 538,713 173,734 186,911
Selling, general
and administrative expenses..................... 111,240 93,926 38,069 30,128
Depreciation and amortization..................... 98,795 110,550 35,378 38,807
Acquisition related and
non-recurring costs............................. 2,652 75,925 2,652 30,783
------------ ------------ ------------- -----------
Operating income................................ 153,188 140,425 59,569 47,661
Interest income................................... (1,333) (2,516) (229) (477)
Interest expense.................................. 78,661 63,276 28,422 19,893
------------ ------------ ----------- -----------
Income before income taxes........................ 75,860 79,665 31,376 28,245
Income tax expense.............................. 24,012 43,497 9,248 17,122
------------ ------------ ----------- -----------
Income (loss) before extraordinary items............. 51,848 36,168 22,128 11,123
Extraordinary items,
net of income tax benefit....................... 53,205 3,093 793 --
------------ ------------ ----------- -----------
Net income (loss)............................... (1,357) 33,075 21,335 11,123
Dividends on
preferred stock...................................... (381) -- (44) --
------------ ------------ ----------- -----------
Net income (loss) to common
shareholders.................................... $ (1,738) $ 33,075 $ 21,291 $ 11,123
============ ============ =========== ===========
Basic earnings per share:
Income before extraordinary items............... $ 0.46 $ 0.27 $ 0.19 $ 0.08
Extraordinary items............................... ( 0.47) (0.02) (0.01) --
------------ ------------ ---------- ----------
Net income (loss)............................... $ (0.01) $ 0.25 $ 0.18 $ 0.08
============ ============ =========== ===========
Weighted average common shares
outstanding..................................... 112,361 135,289 114,291 135,615
============ ============ =========== ===========
Diluted earnings per share:
Income before extraordinary items................. $ 0.43 $ 0.26 $ 0.19 $ 0.08
Extraordinary items.................................. (0.44) (0.02) (0.01) --
------------ ------------ ----------- -----------
Net income (loss)............................... $ (0.01) $ 0.24 $ 0.18 $ 0.08
============ ============ =========== ===========
Weighted average common and
common equivalent shares
outstanding..................................... 120,507 139,255 118,324 139,522
============ ============ =========== ===========
<FN>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Nine Months Ended
September
---------------------------
1997 1998
----------- -----------
<S> <C> <C>
Operating Activities --
Net income (loss).................................................... $ (1,357) $ 33,075
Adjustments to reconcile net income (loss) to cash
provided by operating activities --
Extraordinary items............................................. 21,549 5,103
Provisions for:
Depreciation and amortization .................................. 98,795 110,550
Closure and post-closure costs.................................. 7,908 10,129
Acquisition related and non-recurring costs..................... -- 41,675
Doubtful accounts............................................... 2,893 3,539
Accretion of senior discount notes.............................. 15,984 21,585
Deferred income taxes........................................... (30,886) 23,568
Gain on sale of fixed assets.................................... (927) (918)
Change in operating assets and liabilities,
excluding the effects of purchase acquisitions --
Accounts receivable, prepaid expenses, inventories and other...... (50,676) (36,510)
Accounts payable, accrued liabilities and unearned income......... 46,046 18,830
Closure and post-closure costs and other.......................... (15,607) (17,042)
-------------- -----------
Cash provided by operating activities.................................. 93,722 213,584
-------------- -----------
Investing Activities --
Cash expenditures for acquisitions, net of cash acquired............. (129,470) (49,959)
Capital expenditures, other than for acquisitions.................... (113,368) (139,847)
Capitalized interest................................................. (24,868) (47,004)
Proceeds from sale of assets......................................... 535,145 8,670
Change in deferred acquisition costs and notes receivable............ (7,817) (1,042)
-------------- -----------
Cash provided by (used in) investing activities........................ 259,622 (229,182)
-------------- -----------
Financing activities --
Net proceeds from sale of common stock,
stock options and warrants...................................... 329,677 (48)
Proceeds from long-term debt, net of issuance costs.................. 945,085 724,620
Repayments of long-term debt......................................... (1,536,963) (687,540)
Repurchase of warrant................................................ (49,000) --
Change in other long-term obligations................................ 976 (9,059)
Preferred stock dividends paid....................................... (525) --
Equity transactions of pooled companies.............................. (11,373) (18,878)
-------------- -----------
Cash provided by (used for) financing activities....................... (322,123) 9,095
-------------- -----------
Increase (decrease) in cash and cash equivalents....................... 31,221 (6,503)
Cash and cash equivalents, beginning of period......................... 68,480 29,794
-------------- -----------
Cash and cash equivalents, end of period............................... $ 99,701 $ 23,291
============== ===========
<FN>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these financial statements.
</FN>
</TABLE>
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, 1997, 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 conjunction with the Company's Annual Report on Form
10-K for the year ended December 31, 1997, as restated for significant
acquisitions accounted for as poolings-of-interests in its Current Report on
Form 8-K filed on October 29, 1998. The condensed consolidated financial
statements as of September 30, 1998 and for the three months and nine months
ended September 30, 1997 and 1998 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. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements of
Allied for the year ended December 31, 1997 and the related notes thereto
included in the Company's Annual Report on Form 10-K filed with the SEC on March
31, 1998, as restated for significant acquisitions accounted for as
poolings-of-interests in its Current Report on Form 8-K filed on October 29,
1998.
There have been no significant additions to or changes in accounting
policies of the Company since December 31, 1997. For a description of these
policies, see Note 1 of Notes to Consolidated Financial Statements for the year
ended December 31, 1997 in the Company's Annual Report on Form 10-K as restated
for significant acquisitions accounted for as poolings-of-interests in its
Current Report on Form 8-K filed on October 29, 1998.
Certain reclassifications have been made in prior period financial
statements to conform to the current presentation.
Accounting pronouncement not yet required to be adopted
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("Statement 133"). Statement 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value.
Statement 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Statement 133 is effective for fiscal years beginning after June 15,
1999. A company may elect early implementation of Statement 133 as of the
beginning of any fiscal quarter after issuance (that is, fiscal quarters
beginning June 16, 1998 and thereafter).
The Company has not yet quantified the impacts of adopting Statement
133 on its financial statements and has not determined the timing or method of
adoption. However, Statement 133 could increase volatility in earnings and other
comprehensive income.
Acquisition related and non-recurring costs
Acquisition related and non-recurring costs of $75.9 million were
incurred in 1998 for transaction and integration costs directly related to
acquisitions. During the third quarter of 1998, the Company recorded a $30.8
million acquisition related and non-recurring charge associated primarily with
acquisitions accounted for as poolings-of-interest. The third quarter charge is
comprised of $16.7 million of termination and severance costs and retention
bonuses, $8.7 million of asset impairments and abandonments, $2.6 million of
transaction related costs, $2.0 million of environmental and compliance related
costs and $0.8 million of other acquisition related costs.
Extraordinary items, net
In June 1998, the Company replaced its credit facility and recognized
an extraordinary charge of approximately $5.1 million ($3.1 million net of
income tax benefit) related to the write-off of previously deferred debt
issuance costs.
On May 15, 1997, the Company repurchased (the "Repurchase") from
Laidlaw Inc. ("Laidlaw") and Laidlaw Transportation, Inc. (collectively the
"Laidlaw Group") a $150 million 7% junior subordinated debenture ($81.6 million
book value), a $168.3 million zero coupon debenture ($34.9 million book value,
collectively the "Allied Debentures") and a warrant to purchase 20.4 million
shares of common stock ($49.0 million book value, the "Warrant"), used as
partial consideration for the purchase of Laidlaw's solid waste business in 1996
(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 a $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.
On September 30, 1997, the Company sold 18.6 million shares of common
stock with net proceeds of approximately $327.4 million (the "Equity Offering").
The Company used $203 million of the net proceeds to retire a portion of the
Term Loan Facility of the Credit Agreement, $71 million to repay the entire
amount outstanding on the Revolving Credit Facility and used the remaining
proceeds for acquisitions and general corporate purposes. As a result of the
early repayment of debt outstanding under the Term Loan Facility, the Company
recognized an extraordinary charge of approximately $1.3 million ($0.8 million
net of income tax benefit) related to the write-off of previously deferred debt
issuance costs in the third quarter of 1997.
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Statements of cash flows
The supplemental cash flow disclosures and non-cash transactions for
the nine months ended September 30, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1998
------ ------
(unaudited)
Supplemental Disclosures:
<S> <C> <C>
Interest paid................................................... $ 78,894 $ 70,819
Income taxes paid............................................... 11,200 21,508
Non-cash Transactions:
Common stock issued in acquisitions
accounted for as purchases................................... $ 14,939 $ 14,684
Capital leases.................................................. 14,973 1,187
Debt and liabilities incurred or assumed in acquisitions........ 62,815 22,036
Debt converted to common stock.................................. 1,290 --
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 resolved, the purchase price is adjusted.
The following table summarizes acquisitions for the nine months ended
September 30, 1997 and 1998:
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------------
1997 1998
------------- ---------
(unaudited)
Number of businesses acquired and accounted for as:
<S> <C> <C>
Poolings-of-interests......................................... 5 15
Purchases..................................................... 18 26
Total consideration (in millions)............................... $ 303.6 $ 937.6
Shares of common stock issued................................... 5,985,143(1) 32,030,454(2)
<FN>
- ----------
(1) Includes 279,560 shares of contingently issuable common stock.
(2) Includes 547,191 shares of contingently issuable common stock.
</FN>
</TABLE>
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In the first nine months of 1998, the Company acquired 15 companies in
transactions accounted for as poolings-of-interests. Prior period financial
statements have been restated to include historical operating results for 13 of
the companies acquired in the first nine months of 1998 that were accounted for
as a pooling-of-interests. As the effect of two of these business combinations
was not significant, prior period financial statements were not restated to
include historical operating results of these two acquired companies. The
following table presents revenues and net income restated for the cumulative
effect of acquisitions accounted for as poolings-of-interests during 1998 (in
thousands; unaudited).
<TABLE>
<CAPTION>
Before After
Pooling Effect of Pooling
Effects Poolings Effects
---------- ----------- ---------
Three months ended September 30, 1998
<S> <C> <C> <C>
Revenues...................................... $ 326,640 $ 7,650 $ 334,290
Net income.................................... 10,541 582 11,123
Nine months ended September 30, 1998
Revenues...................................... 794,338 165,201 959,539
Net income.................................... 11,161 21,914 33,075
Three months ended September 30, 1997
Revenues...................................... 224,295 85,107 309,402
Net income.................................... 13,634 7,701 21,335
Nine months ended September 30, 1997
Revenues...................................... 633,303 240,055 873,358
Net loss...................................... (19,329) 17,972 (1,357)
Year ended December 31, 1997
Revenues...................................... 875,028 305,000 1,180,028
Net income.................................... 412 19,654 20,066
Year ended December 31, 1996
Revenues...................................... 291,685 271,059 562,744
Net loss...................................... (80,582) 14,534 (66,048)
Year ended December 31, 1995
Revenues...................................... 262,243 288,537 550,780
Net income.................................... 13,130 18,731 31,861
</TABLE>
<PAGE>
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, 1997 and the nine months ended September 30, 1998 presents the
results of operations of Allied as if the companies purchased and sold in 1997
and through September 30, 1998, had all occurred as of January 1, 1997 (in
thousands, except per share data). In addition, the pro forma data reflect the
issuance of 18.6 million shares of common stock in the Equity Offering completed
September 30, 1997, as if it had occurred on January 1, 1997. This data does not
purport to be indicative of the results of operations of Allied that might have
occurred during the periods indicated nor that might occur in the future.
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------
Reported(1) ProForma
-------------------- -------------------
(unaudited)
<S> <C> <C>
Revenues ................................... $ 1,180,028 $ 1,257,979
Operating income............................ 206,919 213,712
Net income before extraordinary items....... 73,272 71,618
Net income before extraordinary items
to common shareholders.................... 72,891 71,237
Net income before extraordinary items
per common share.......................... 0.58 0.51
Weighted average common and common
equivalent shares-diluted................. 125,777 141,773
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------
Reported(1) ProForma
----------------------- --------------------
(unaudited)
<S> <C> <C>
Revenues ................................... $ 959,539 $ 967,083
Operating income............................ 140,425 137,114
Net income before extraordinary items....... 36,168 44,750
Net income before extraordinary items
per common share.......................... 0.26 0.32
Weighted average common and common
equivalent shares-diluted................. 139,255 139,596
<FN>
(1) Amounts have been restated to reflect acquisitions made during 1998 using the pooling-of-interests method of
accounting for business combinations.
</FN>
</TABLE>
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. NET INCOME PER COMMON SHARE
Net income per common share is calculated by dividing net income 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 basic earnings per share and diluted earnings per share is as
follows (in thousands, except per share data; unaudited):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- ---------------------------
1997 1998 1997 1998
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Basic earnings per share computation:
Net income
before extraordinary items........... $ 51,848 $ 36,168 $ 22,128 $ 11,123
Less: Preferred stock dividends........ (381) -- (44) --
----------- ------------- ----------- -----------
Income before extraordinary items
available to common shareholders..... $ 51,467 $ 36,168 $ 22,084 $ 11,123
=========== ============= =========== ===========
Weighted average common shares
outstanding.......................... 112,361 135,289 114,291 135,615
=========== ============= =========== ===========
Basic earnings per share
before extraordinary items.............. $ 0.46 $ 0.27 $ 0.19 $ 0.08
=========== ============= =========== ===========
Diluted earnings per share computation:
Net income
before extraordinary items........... $ 51,848 $ 36,168 $ 22,128 $ 11,123
Less: Preferred stock dividends........ (381) -- (44) --
Interest savings upon conversion
of convertible securities............ 428 -- 56 --
----------- ------------- ----------- -----------
Income before extraordinary items
available to common shareholders..... $ 51,895 $ 36,168 $ 22,140 $ 11,123
=========== ============= =========== ===========
Weighted average common
shares outstanding ..................... 112,361 135,289 114,291 135,615
Effect of stock options and warrants,
assumed exercisable..................... 6,107 3,181 2,694 3,106
Assumed conversions:
7% cumulative convertible
preferred............................... 1,019 -- 339 --
Convertible notes....................... 222 -- 188 --
Effect of shares assumed issued
pursuant to hold-back arrangements...... 798 785 812 801
----------- ------------- ----------- -----------
Weighted average common
and common equivalent
shares outstanding...................... 120,507 139,255 118,324 139,522
=========== ============= =========== ===========
Diluted earnings per share before
extraordinary items..................... $ 0.43 $ 0.26 $ 0.19 $ 0.08
=========== ============= =========== ===========
</TABLE>
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In 1997, the Company adopted SFAS No. 128 "Earnings per Share," which
required restatement of the prior period earnings per share amounts. The effect
of this accounting change on previously reported earnings per share data for the
three months and nine months ended September 30, 1997 was as follows:
<TABLE>
<CAPTION>
September 30, 1997
-----------------------------------------
Nine Months Ended Three Months Ended
----------------- --------------------
<S> <C> <C>
Per share amounts:
Primary earnings per share before
extraordinary items....................... $ 0.43 $ 0.18
Effect of SFAS No. 128...................... 0.03 0.01
------------------ --------------------
Basic earnings per share before
extraordinary items....................... $ 0.46 $ 0.19
================== ====================
Fully diluted earnings per share before
extraordinary items....................... $ 0.42 $ 0.18
Effect of SFAS No. 128...................... 0.01 0.01
------------------ --------------------
Diluted earnings per share before
extraordinary items....................... $ 0.43 $ 0.19
================== ====================
</TABLE>
4. SUMMARIZED FINANCIAL INFORMATION OF ALLIED WASTE NORTH AMERICA, INC.
As discussed in Note 5 of the Company's Annual Report on Form 10-K,
$525 million of the 10.25% senior subordinated notes due 2006 (the "1996 Notes")
issued by Allied Waste North America, Inc. ("Allied NA"; a wholly owned,
consolidated subsidiary of the Company) are guaranteed by Allied and
substantially all subsidiaries of the Company. The separate complete financial
statements of Allied NA have not been included herein as management has
determined that such disclosure is not material. However, summarized financial
information for Allied NA and subsidiaries as of December 31, 1997 and September
30, 1998 is as follows (in thousands):
Summarized Consolidated Balance Sheet Information
December 31, 1997 September 30, 1998
--------------- -----------------
(unaudited)
Current assets.............................$ 251,917 $ 274,913
Property and equipment, net................ 1,405,336 1,507,520
Goodwill, net.............................. 899,158 942,145
Other non-current assets................... 89,519 90,885
Current liabilities........................ 283,991 293,752
Long-term debt, net of current portion..... 1,167,301 1,279,811
Due to parent.............................. 752,601 902,016
Due to Allied Canada Finance, Ltd.......... 152,825 --
Other long-term obligations................ 278,735 299,829
Retained earnings.......................... 10,477 40,055
Summarized Statement of Operations Information
Nine Months
Ended September 30,
1997 1998
---------- ----------
(unaudited)
Revenue ......................................$ 873,358 $ 959,539
Operating costs and expenses................... 720,170 819,114
Operating income............................... 153,188 140,425
Income before extraordinary items.............. 56,779 49,450
Extraordinary items, net of income tax benefit. 13,831 3,093
Net income..................................... 42,948 46,357
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. SUBSEQUENT EVENTS
In October 1998, the Company acquired American Disposal Services, Inc.
("ADSI") in a transaction accounted for using the pooling-of-interests method
for business combinations. ADSI is a vertically integrated solid waste
management company providing collection, transfer, recycling and disposal
services to approximately 400,000 customers in 12 states, primarily in the
midwest and northeast United States. Under the terms of the agreement, ADSI
shareholders received 1.65 shares of Allied common stock for each share of ADSI
common stock or approximately 40.7 million shares.
<PAGE>
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, 1993, the Company has completed over 150 acquisitions. In 1997, the
Company acquired 35 businesses and subsequent to 1997, through September 30,
1998, it has acquired 41 businesses. The Company's Condensed Consolidated
Financial Statements have been restated to reflect the acquisition of companies
accounted for using the pooling-of-interests method for business combinations.
The majority of the acquisitions in 1997 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 to its current results of operations.
On December 30, 1996, the Company completed the 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 cash, shares of the
Company's common stock, $0.01 par value, (the "Common Stock"), warrants, and
subordinated debentures (the "Laidlaw Acquisition"). The cash consideration was
financed from the proceeds of its $1.275 billion senior credit facility (the
"Bank Agreement") and the sale of $525 million of 10.25% senior subordinated
notes due 2006 (the "1996 Notes"). In March 1997, pursuant to a Share Purchase
Agreement with USA Waste (now Waste Management, Inc., "Waste Management"), the
Company sold to Waste Management all of the Canadian non-hazardous solid waste
management operations that the Company acquired in the Laidlaw Acquisition, 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
Bank Agreement.
In May 1997, the Company repurchased from the Laidlaw and Laidlaw
Transportation, Inc. (collectively the "Laidlaw Group") the subordinated
debentures and warrants issued in the Laidlaw Acquisition for an aggregate
purchase price of $230 million in cash (the "Repurchase"). Net proceeds of $230
million from the $418 million face value 11.3% senior discount notes (the
"Senior Discount Notes") were used to fund the Repurchase. Additionally, certain
private securities investment funds purchased all of the Common Stock of Allied
held by Laidlaw.
In June 1998, the Company completed the acquisition of the Rabanco
Companies ("Rabanco") in a transaction accounted for using the
pooling-of-interests method for business combinations. Rabanco generates annual
revenue of approximately $175 million excluding the effects of the
internalization of waste volumes. Rabanco provides solid waste collection,
recycling, transportation and disposal services in the Pacific Northwest through
a network of approximately 160 collection routes, 3 transfer stations, an
extensive intermodal rail transportation system and a major regional landfill.
In August 1998, the Company acquired Illinois Recycling Services, Inc.
and its affiliates ("Illinois Recycling") in a transaction accounted for using
the pooling-of-interests method for business combinations. Illinois Recycling
provides solid waste collection, recycling and transportation services primarily
in the Chicago metro area and northern Indiana and generates annual revenue of
approximately $80 million excluding the effects of the internalization of waste
volumes.
<PAGE>
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 revenues attributable to
geographic regions (unaudited). The following data have been restated to give
effect to acquisitions that were accounted for using the pooling-of-interests
method for business combinations.
Year Ended December 31, Nine Months
----------------------------- Ended
1995 1996 1997 September 30, 1998
------ ----- ---- -------------------
Collection(1).............. 60% 59% 56% 55%
Transfer................... 7 6 7 6
Landfill(1)................ 22 24 26 31
Other...................... 11 11 11 8
----- ----- ---- -----
Total Revenues 100% 100% 100% 100%
===== ===== ==== =====
Year Ended December 31, Nine Months
---------------------------- Ended
1995 1996 1997 September 30, 1998
---- ---- ---- ------------------
Great Lakes................. 33% 29% 31% 31%
Midwest..................... 7 8 10 10
Northeast................... 10 10 11 9
Southeast................... 13 17 11 12
Southwest................... 2 2 13 12
West........................ 35 34 24 26
----- ----- ----- -----
Total Revenues 100% 100% 100% 100%
===== ===== ===== =====
- ---------
(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 has 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 66% of
Company-collected waste was disposed of at Company-owned and/or operated
landfills as measured using volume in the first nine months of 1998. 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 or railcars and transported to its landfills.
<PAGE>
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 costs which include stock registration, legal,
accounting, consulting, engineering and other direct costs to complete the
acquisitions. Additionally, the Company incurs charges for integration costs
which include uncollectible accounts receivable write-offs, employee termination
and relocation, write down of fixed assets, lease termination, and other one
time charges related to the acquisitions. 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 and non-recurring 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 of the Company, such as executive salaries,
general corporate overhead and other corporate services, are expensed as
incurred.
Certain direct landfill development costs, such as engineering,
construction and permitting costs, are capitalized to the landfill base.
Additionally, the Company capitalizes interest on the costs associated with
landfills under development using the Company's average interest rate on its
outstanding debt. As the development process is completed, on a cell by cell
basis, these costs are excluded from the capitalizable base. All such costs are
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 is 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.
<PAGE>
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 $1.0 billion while the present value of
such estimate is $247.1 million. At December 31, 1997 and September 30, 1998,
accruals for landfill closure and post-closure costs (including costs assumed
through acquisitions) were approximately $149.6 million and $147.0 million. The
accruals reflect relatively young landfills with estimated remaining lives,
based on current waste flows, that range from approximately 1 to over 75 years,
and an estimated average remaining life of greater than 30 years.
Year 2000 Systems Modifications. The Year 2000 issue is the result of
computer programs being written using two digits rather than four digits to
define the applicable year which, if left uncorrected, could result in a system
failure or miscalculations causing disruptions of operations. The Company is in
the process of implementing a formal plan to ensure the Company's systems are
compliant with respect to Year 2000 issues. This plan includes four phases
consisting of awareness, assessment and renovation, validation and
implementation. In management's opinion, the scope of Year 2000 systems
modifications will not be extensive and the costs associated with addressing the
Company's Year 2000 issues have not been and are not expected to be material.
Awareness. All Year 2000 projects with respect to internal systems will
be approved by senior management and evaluated and reviewed by the Board
of Directors as deemed necessary.
Assessment and Renovation. The assessment and renovation phase of the
Company's plan includes both information technology-related systems and
non-information technology areas.
Information technology-related systems. To date, an assessment of all
information technology-related systems, which includes hardware,
applications software, operating systems and databases, has been
carried out. The Company's general ledger, accounts payable and fixed
assets systems function properly with respect to dates in the year
2000. The Company is in the process of renovating its customer billing
and operations support systems and expects to complete this renovation
by the end of the first quarter of 1999.
Non-information technology areas. The Company's assessment of Year 2000
issues will include non-information technology areas such as equipment
and communications systems. These non-information technology systems
will be analyzed during the second quarter of 1999 and, if necessary, a
plan for renovation will be reviewed for approval by senior management.
In addition, the Company is implementing programs with outside vendors
to determine their readiness with Year 2000 issues. The Company will be
monitoring this through periodic questionnaires to suppliers.
Validation. Upon completion of the renovation of the customer billing and
operations support systems, the Company will begin its validation phase
by testing, verifying and validating the performance, functionality, and
integration of the system. The Company anticipates this phase of
information technology-related systems to be complete in the second
quarter of 1999.
Implementation. Upon completion of the validation phase of all
information technology as well as non-information technology areas for
Year 2000 compliance, the Company plans to implement any necessary
contingency plans and modify existing disaster recovery plans throughout
1999.
<PAGE>
Upon completion of its plan relating to the Year 2000, the Company
expects to be Year 2000 compliant and expects to have no material exposure with
respect to information technology-related systems. With respect to
non-information technology areas, it is uncertain what risks are associated with
the Year 2000 issue and any risks that may be identified could have a material,
adverse effect on the Company's business, financial condition, results of
operations and cash flows. There can be no assurances that the systems of
customers and vendors on which the Company relies will be converted in a timely
manner and will not have an adverse effect on the Company's systems or
operations.
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1998
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.
Three Months Ended September 30,
--------------------------------
1998
Compared
to 1997
% Change
1997 1998 in Amounts
------- -------- ----------
(unaudited)
Statement of Operations Data:
Revenues ................................... 100.0% 100.0% 8.0%
Cost of operations ......................... 56.2 55.9 7.6
Selling, general and administrative expenses 12.3 9.0 (20.9)
Depreciation and amortization .............. 11.4 11.6 9.7
Acquisition related and non-recurring costs 0.9 9.2 1,060.7
------ ------
Operating income ........................... 19.2 14.3 (20.0)
Interest expense, net ...................... 9.1 5.8 (31.1)
Income tax provision ....................... 3.0 5.1 85.1
Extraordinary items ........................ 0.3 0.0 (100.0)
------ ------
Net income.................................. 6.8% 3.4% (47.9)%
====== ======
Revenues. Revenues in 1998 were $334.3 million compared to $309.4 million in
1997, an increase of 8.0%. The increase in revenues attributable to operations
owned since September 30, 1997 ("Internal Growth") was 7%, adjusted for the
negative impact of closing the Plainville Landfill which amounted to a decrease
in revenue of approximately $2.7 million. Internal volume growth was
approximately 4% and price increases were 3%. The additional revenue growth is
attributable to companies acquired, net of revenues sold, subsequent to the end
of the same period in the prior year.
Cost of Operations. Cost of operations in 1998 was $186.9 million compared to
$173.7 million in 1997, an increase of 7.6%. 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 55.9% in 1998 from 56.2%
in 1997. The 1997 operating margin decreased from the previously reported margin
due to the restatements for companies acquired subsequent to September 30, 1997
and accounted for using the pooling-of-interests method for business
combinations. The 1998 operating margin was favorably impacted by an increase in
internalization of third-party disposal volumes to 64% in 1998 from
approximately 54% in 1997, as restated, increased volumes at the landfills, and
other costs savings from integration.
Selling, General and Administrative Expenses. SG&A expenses in 1998 were $30.1
million compared to $38.1 million in 1997, a decrease of 20.9%. As a percentage
of revenues, SG&A decreased to 9.0% in 1998 compared to 12.3% in 1997. The 1997
SG&A expense increased from the previously reported amount due to the
restatements for companies acquired subsequent to September 30, 1997 and
accounted for using the pooling-of-interests method for business combinations.
The 1998 SG&A expense decreased due to a reduction in certain sales and
administrative functions and related facilities completed at the beginning of
the second quarter of 1998 in accordance with the Company's continuing
acquisition integration plan. Additionally, the decrease in SG&A as a percentage
of revenues can be attributed to the continued increase in revenues while
reducing overhead costs.
<PAGE>
Depreciation and amortization. Depreciation and amortization in 1998 was
$38.8 million compared to $35.4 million in 1997, an increase of 9.7%. The
increase in depreciation and amortization expense is due to a 35% increase in
internalized landfill tonnage, increased capital expenditures and acquisitions.
Acquisition related and non-recurring costs. During the third quarter of
1998, the Company recorded a $30.8 million acquisition related and non-recurring
charge for transaction and integration costs associated primarily with
acquisitions accounted for as poolings-of-interest. 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, compliance related
costs and other one-time charges related to the acquisitions. The charge is
comprised of $16.7 million of termination and severance costs and retention
bonuses, $8.7 million of asset impairments and abandonments, $2.6 million of
transaction related costs, $2.0 million of environmental and compliance related
costs and $0.8 million of other acquisition related costs.
Interest expense, net. Net interest expense was $19.4 million in 1998
compared to $28.2 million in 1997, a decrease of 31.1%. The decrease in interest
expense was due to an overall reduction in the average interest rate, partially
offset by an increase in outstanding debt. Additionally, capitalized interest
increased to $16.1 million in 1998 compared to $9.7 million in 1997, due to the
acquisition of landfill assets and increases in landfills under development.
Income taxes. Income taxes reflect a 60.6% effective income tax rate in 1998
and 29.5% in 1997. The increase is primarily caused by the income tax accounting
effects of applying the pooling-of-interests method of accounting for business
combinations including the initial recording of deferred income taxes and
non-deductible transaction costs, partially offset by the absence of income
taxes on S-Corporation pre-combination earnings. This resulted in a one-time
impact on the total income tax provision of $5.7 million. Without considering
the effect of pooled companies, the third quarter 1998 effective tax rate is
39.7%, which deviates from the federal statutory rate of 35%, due to the effects
of differences in the treatment of goodwill for book and tax purposes, state
income taxes, and other permanent differences.
Extraordinary items, net. On September 30, 1997, the Company sold 18.6
million shares of common stock with net proceeds of approximately $327.4 million
(the "Equity Offering"). The Company used $203 million of the net proceeds to
retire a portion of the Term Loan Facility of the Credit Agreement, $71 million
to repay the entire amount outstanding on the Revolving Credit Facility and used
the remaining proceeds for acquisitions and general corporate purposes. As a
result of the early repayment of debt outstanding under the Term Loan Facility,
the Company recognized an extraordinary charge of approximately $1.3 million
($0.8 million net of income tax benefit) related to the write-off of previously
deferred debt issuance costs in the third quarter of 1997.
<PAGE>
Nine Months Ended September 30, 1997 and 1998
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.
Nine Months Ended September 30,
--------------------------------
1998
Compared
to 1997
% Change
1997 1998 in Amounts
------ ------ -------------
(unaudited)
Statement of Operations Data:
Revenues ..................................... 100.0% 100.0% 9.9%
Cost of operations ........................... 58.1 56.1 6.2
Selling, general and administrative expenses . 12.7 9.8 (15.6)
Depreciation and amortization ................ 11.3 11.5 11.9
Acquisition related and non-recurring costs 0.3 7.9 2,762.9
----- ----- --------
Operating income ............................. 17.6 14.7 (8.6)
Interest expense, net ........................ 8.9 6.3 (21.4)
Income tax provision ......................... 2.7 4.5 81.1
Extraordinary items .......................... 6.1 0.3 (94.2)
----- ----- --------
Net income (loss) ............................ (0.1)% 3.6% 2,537.4%
====== ===== ========
Revenues. Revenues in 1998 were $959.5 million compared to $873.4
million in 1997, an increase of 9.9%. Internal Growth was 8% adjusted for the
negative impact of the expiration of the disposal contract with the city of St.
Louis, acquired in the Laidlaw Acquisition, and the closing of the Plainville
Landfill which collectively amounted to a decrease in revenue of approximately
$13.5 million. Internal volume growth was approximately 5% and price increases
were approximately 3%. The additional revenue growth is attributable to
companies acquired, net of revenues sold, subsequent to the end of the same
period in the prior year.
Cost of Operations. Cost of operations in 1998 was $538.7 million compared to
$507.5 million in 1997, an increase of 6.2%. The increase in cost of operations
was primarily attributable to the increase in revenues described above. As a
percentage of revenues, cost of operations decreased to 56.1% in 1998 from 58.1%
in 1997. The 1997 operating margin decreased from the previously reported margin
due to the restatements for companies acquired subsequent to September 30, 1997
and accounted for using the pooling-of-interests method for business
combinations. The 1998 operating margin was favorably impacted by an increase in
internalization of third-party disposal volumes to 66% in 1998 from
approximately 51% in 1997, as restated, increased volumes at the landfills, and
other cost savings from integration.
Selling, General and Administrative Expenses. SG&A expenses in
1998 were $93.9 million compared to $111.2 million in 1997, a decrease of 15.6%.
As a percentage of revenues, SG&A decreased to 9.8% in 1998 compared to 12.7% in
1997. The 1997 SG&A expense increased from the previously reported amount due to
the restatements for companies acquired subsequent to September 30, 1997 and
accounted for using the pooling-of-interests method for business combinations.
The 1998 SG&A expense decreased due to a reduction in certain sales and
administrative functions and related facilities completed at the beginning of
the second quarter of 1998 in accordance with the Company's continuing
acquisition integration plan. Additionally, the decrease in SG&A as a percentage
of revenues can be attributed to the continued increase in revenues while
reducing overhead costs.
<PAGE>
Depreciation and amortization. Depreciation and amortization in 1998 was
$110.6 million compared to $98.8 million in 1997, an increase of 11.9%. The
increase in depreciation and amortization expense is due to a 37% increase in
internalized landfill tonnage, increased capital expenditures and acquisitions.
As a percentage of revenues, depreciation and amortization has remained
relatively flat.
Acquisition related and non-recurring costs. During the first nine months of
1998, the Company recorded a $75.9 million acquisition related and non-recurring
charge for transaction and integration costs associated primarily with
acquisitions accounted for as poolings-of-interest. 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, compliance related
costs and other one time charges related to the acquisitions. The charge is
comprised of $31.8 million of termination and severance costs and retention
bonuses, $18.5 million of asset impairments and abandonments, $10.9 million of
transaction related costs, $9.9 million of environmental and compliance related
costs and $4.8 million of other acquisition related costs.
Interest expense, net. Net interest expense was $60.8 million in 1998
compared to $77.3 million in 1997, a decrease of 21.4%. The decrease in interest
expense was due to an overall reduction in the average interest rate, partially
offset by an increase in outstanding debt. Additionally, capitalized interest
increased to $47.0 million in 1998 compared to $24.9 million in 1997, due to the
acquisition of landfill assets and increases in landfills under development.
Income taxes. Income taxes reflect a 54.6% effective income tax rate in 1998
and 31.7% 1997. The increase is primarily caused by the income tax accounting
effects of applying the pooling-of-interests method of accounting for business
combinations including the initial recording of deferred income taxes and
non-deductible transaction costs, partially offset by the absence of income
taxes on S-Corporation pre-combination earnings. This resulted in a one-time
impact on the total income tax provision of $11.2 million. Without considering
the effect of pooled companies, the 1998 effective tax rate is 40.5%, which
deviates from the federal statutory rate of 35%, due to the effects of
differences in the treatment of goodwill for book and tax purposes, state income
taxes, and other permanent differences.
Extraordinary items, net. In June 1998, the Company replaced its credit
facility and recognized an extraordinary charge of approximately $5.1 million
($3.1 million net of income tax benefit) related to the write-off of previously
deferred debt issuance costs.
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 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. In connection with the Equity
Offering, the Company retired $203 million of the Term Loan facility of the
Credit Agreement and, because of the early retirement of debt, recognized an
extraordinary charge of $1.3 million ($0.8 million net of income tax benefit)
related to the write-off of previously deferred debt issuance costs.
Liquidity and Capital Resources
Historically, the Company has satisfied its acquisition, capital
expenditure and working capital needs primarily through bank financing and
public offerings, and private placements of debt and equity securities. Between
January 1, 1994 and September 30, 1998, the Company has completed debt and
equity financings in excess of $3 billion. Due to the acquisition driven and the
capital intensive nature of the Company's growth objectives, the Company has
used, and believes that it will likely continue using amounts in excess of the
cash generated from operations to fund the growth component of its business
including acquisitions and capital expenditures. In connection with
acquisitions, the Company has assumed or incurred indebtedness with relatively
short-term repayment schedules, which have been refinanced under the Revolving
Credit Facility (as defined herein) and operating equipment has been acquired
using financing leases which have medium-term maturities. Additionally, the
Company uses excess cash generated from operations to pay down amounts owed on
its revolving line of credit which are classified as long-term debt. As a
result, the Company has periodically had low levels of working capital or
working capital deficits. However, the Company has approximately $432.8 million
in undrawn, committed capacity available under the Revolving Credit Facility at
September 30, 1998.
<PAGE>
<TABLE>
<CAPTION>
During the nine months ended September 30, 1997 and 1998, the Company's
cash flows from operating, investing, and financing activities were as follows
(dollars in millins; unaudited):
Nine Months Ended
September 30,
---------------------------------
1997 1998
------------- ---------------
<S> <C> <C>
Operating Activities:
Net income (loss)................................................... $ (1.4) $ 33.1
Non-cash operating expenses......................................... 115.3 215.2
Change in operating assets and liabilities, net..................... (20.2) (34.7)
------------- --------------
Cash provided by operating activities.................................. 93.7 213.6
------------- --------------
Investing Activities:
Cash expenditures for acquisitions, net of cash acquired............ (129.5) (50.0)
Capital expenditures, other than for acquisitions................... (113.3) (139.8)
Capitalized interest................................................ (24.9) (47.0)
Proceeds from sale of fixed assets.................................. 535.1 8.7
Other............................................................... (7.8) (1.1)
------------- --------------
Cash provided by (used for) investing activities....................... 259.6 (229.2)
------------- --------------
Financing Activities:
Net proceeds from sale and redemption of preferred stock,
common stock, stock options and warrants.......................... 329.7 --
Net proceeds from long-term debt.................................... 945.1 724.6
Repayments of long-term debt........................................ (1,537.0) (687.5)
Other............................................................... (59.9) (28.0)
------------- --------------
Cash provided by (used for) financing activities....................... (322.1) 9.1
------------- --------------
Increase (decrease) in cash and cash equivalents....................... $ 31.2 $ (6.5)
============= ==============
</TABLE>
As of September 30, 1998, the Company had cash and cash equivalents of
$23.3 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 likely
increase further as the Company continues to pursue its growth objectives.
During 1997, the Company acquired solid waste operations representing
approximately $369.1 million in annual revenues, and sold operations
representing approximately $127.9 million in annual revenue. Both acquisitions
and sales included landfill assets. Net consideration of approximately $528.3
million (including $10.5 million for landfills under development) comprised of
cash, notes and 7,038,456 shares of Common Stock, was paid in these
transactions. Subsequent to December 31, 1997 through September 30, 1998, the
Company acquired 41 operating solid waste businesses with annual revenues of
approximately $364.2 million, excluding the effects of the internalization of
waste volumes, for consideration of approximately $937.6 million, of which
$806.3 million consists of approximately 32.0 million shares of Common Stock.
For the calendar year 1998, the Company expects to spend approximately $200.9
million for capital, closure and post-closure, and remediation expenditures. As
the Company continues to acquire waste operations during 1998, additional
capital amounts will be required to fund the acquisition of businesses and the
related capital expenditure requirements.
<PAGE>
On September 30, 1998, the Company's debt structure consisted primarily of
$525 million of the 1996 Notes, $596.8 million outstanding under the Credit
Agreement, and approximately $268.9 million of accreted value on the Senior
Discount Notes ($418 million aggregate face amount). As of September 30, 1998
there was aggregate availability under the Revolving Credit Facility of
approximately $432.8 million to be used for working capital, letters of credit,
acquisitions and other general corporate purposes. In October 1997, the Company
amended the Credit Agreement, increasing the amount of the Senior Credit
Facility from $900 million to $1.1 billion. In June 1998, the Company replaced
the amended Credit Agreement with a new Credit Agreement, consisting of a $300
million term loan (the "Term Loan"), which is fully drawn, and a $800 million
revolving credit facility (the "Revolving Credit Facility"). The Revolving
Credit Facility includes a $250 million sublimit for the issuance of letters of
credit. The indentures relating to the 1996 Notes, the Senior Discount Notes and
the Credit Agreement contain financial and operating covenants and 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. Currently, this is expected to include
approximately $130 million in mandatory annual principal and interest payments.
At September 30, 1998, the Company was in compliance with the covenants
contained in the Credit Agreement and the Indentures related to the 1996 Notes
and the Senior Discount Notes.
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 September 30, 1998, the Company had outstanding
approximately $344.8 million in financial assurance instruments, represented by
$199.6 million of performance bonds, $1.5 million of letters of credit, $127.4
million of insurance policies and $16.3 million of trust deposits. 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 1.5% to 2.0% for terms of 36 to 84 months. In addition to equipment
leases outstanding at December 31, 1997 and September 30, 1998 of $62.9 million
and $58.7 million, respectively, the Company had available lease commitments of
$32.4 million and $50.0 million, respectively.
Subtitle D and other regulations that apply to the non-hazardous waste
disposal industry have required 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.
The Company's ability to meet future capital expenditure and working
capital requirements, to make scheduled payments of principal, to pay interest,
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 and interest on debt incurred
under the Credit Agreement, interest on the 1996 Notes and the Senior Discount
Notes, and capital amounts required for acquisitions and expansion at least
through the next 12 months. However, the principal payment at maturity on the
1996 Notes and the Senior Discount Notes may require refinancing. There can be
<PAGE>
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
Credit Agreement, 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.
Terms of Outstanding Debt
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 Waste North America, Inc. ("AWNA"), at the
greater of (i) 100% of the principal amount or (ii) the sum of the present
values of the remaining scheduled payments of principal and interest thereon
discounted to maturity on a semi-annual 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 will be redeemable, at the option of AWNA, 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 AWNA's current and
future subsidiaries, the guarantees of which are expressly subordinated to the
guarantees of AWNA's Senior Credit Facility.
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. The Senior
Discount Notes cannot be redeemed until December 1, 2001, except under certain
circumstances. 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 premium to their
accreted value, plus accrued interest.
The Credit Agreement also provides for a five year senior secured $300
million term loan facility (the "Term Loan Facility"). The Term Loan Facility is
an amortizing senior secured term loan with annual principal payments increasing
from $75 million in 2001 to $105 million in 2002, and to $120 million in 2003.
Principal under the Revolving Credit Facility is due upon maturity in June 2003.
In addition to the scheduled principal payments above, the Company is
also required to make mandatory prepayments on the Senior Credit Facilities from
the proceeds from certain asset sales and the issuance of new debt securities
and cash-pay preferred stock. The amount of the mandatory prepayment is based
upon the ratio of total debt to EBITDA (the "Ratio"); prepayments equal 75% of
the net proceeds when the Ratio exceeds 4.50 to 1.00, 50% of the net proceeds
when the Ratio exceeds 4.00 to 1.00 but is less than 4.50 to 1.00 and 0% when
the Ratio is less than 4.00 to 1.00. Proceeds from new equity issues are exempt
from mandatory prepayment requirements. Mandatory prepayments are applied first
to repay outstanding Revolving Credit Facility advances (but not to reduce
commitments under the Revolving Credit Facility) and the Term Loan pro rata
based on amount outstanding, until no Revolving Credit advances are outstanding,
and then to repay the outstanding Term Loan.
Borrowings under the Revolving Credit Facility may be used for
acquisitions, the issuance of letters of credit, working capital and other
general corporate purposes.
<PAGE>
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 Total Debt to EBITDA ratio, as defined in the Credit
Agreement, and varies between zero percent and 0.50% for Base Rate loans, and
0.75% and 1.75% for Eurodollar loans.
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 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 and 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 is
in compliance with all applicable covenants at September 30, 1998.
The Company has entered into interest rate protection agreements (the
"Agreements"), with commercial banks and investment banking institutions to
reduce its exposure to fluctuations in variable interest rates. A summary of the
Agreements outstanding as of September 30, 1998 is as follows:
Notional Amount Fixed Rate Period
--------------- ---------- -----------------------------------------
(in millions)
$ 50 6.08 September 1997 - September 2000
50 6.06 September 1997 - March 2000
50 5.12 February 1998 - April 1999
50 6.02 October 1997 - October 1999
50 5.90 November 1997 - November 1999
50 5.91 November 1997 - November 1999
130 6.06 May 1998 - May 2001
The Agreements effectively change the Company's interest rate paid on
its floating rate long-term debt to a weighted average fixed rate of
approximately 5.91% plus applicable margins imposed by the terms of the Credit
Agreement at September 30, 1998.
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
<PAGE>
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. The forward-looking statements made herein are only made as of the
date of this filing and the Company undertakes no obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances.
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 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
acquisitions at prices comparable to those 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.
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 are not impacted by an
economic downturn. 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 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 assume that such weather
conditions will not 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.
<PAGE>
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 the Company's 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 for 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.
Year 2000 Systems Modifications. The Company expects to be Year 2000
compliant in a timely manner and expects to have no material exposure with
respect to information technology-related systems. With respect to
non-information technology areas, it is uncertain what risks are associated with
the Year 2000 issue and any risk that may be identified could have a material,
adverse effect on the Company's business, financial condition, results of
operations and cash flows. There can be no assurances that the systems of
customers and vendors on which the Company relies will be converted in a timely
manner and will not have an adverse effect on the Company's systems or
operations. The Forward Looking Statements assume that there will be no material
adverse effect on the Company's systems or operations related to the Year 2000
issue.
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.
Seasonality
The Company believes that its collection and landfill operations are
adversely affected by protracted periods of inclement weather which will, from
time to time, delay the development of landfill capacity or transfer of waste
and/or reduce the volume of waste generated.
<PAGE>
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
None.
Item 5. Other Information
None.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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Exhibit
Number Description
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2.1 Stock Purchase Agreement dated September 17, 1996
among the Company, Allied, NA, 3294862 Canada
Inc., Laidlaw Inc., Laidlaw Transportation, Inc.,
Laidlaw Waste Systems, Inc., Laidlaw Waste
Systems (Canada) Ltd. and Laidlaw Medical
Services Ltd. Exhibit 2.1 to the Company's
Current Report on Form 8-K dated October 2, 1996,
is incorporated herein by reference.
2.2 Purchase Agreement relating to the 1996 Notes
dated November 25, 1996. Exhibit 2.1 to the
Company's Current Report on Form 8-K dated
December 19, 1996, is incorporated herein by
reference.
2.3 Share Purchase Agreement dated January 15, 1997
among the Company, Allied Waste Holdings (Canada)
Ltd., Laidlaw Waste Systems, Inc., USA Waste
Services, Inc. and Canadian Waste Services, Inc.
Exhibit 10.0 to the Company's Current Report on
Form 8-K dated January 30, 1997, is incorporated
herein by reference.
2.4 Amended and Restated Agreement and Plan of
Reorganization between Allied Waste Industries,
Inc. and Rabanco Acquisition Company, Rabanco
Acquisition Company Two, Rabanco Acquisition
Company Three, Rabanco Acquisition Company Four,
Rabanco Acquisition Company Five, Rabanco
Acquisition Company Six, Rabanco Acquisition
Company Seven, Rabanco Acquisition Company Eight,
Rabanco Acquisition Company Nine, Rabanco
Acquisition Company Ten, Rabanco Acquisition
Company Eleven, and Rabanco Acquisition Company
Twelve. Exhibit 2.4 to the Company's Quarterly
Report on Form 10-Q is incorporated herein by
reference.
2.5 Agreement and Plan of Merger dated as of August
10, 1998 by and among Allied Waste Industries,
Inc., AWIN II Acquisition Corporation and
American Disposal Services, Inc. Exhibit 2 to the
Company's Current Report on Form 8-K filed August
21, 1998 is incorporated herein by reference.
3.1 Amended Certificate of Incorporation of the Company (Incorporated
herein by reference to Exhibit 3.1 to the Company's report on Form
10-K for the fiscal year ended December 31, 1996).
3.2 Certificate of Designation, Preferences, Rights and Limitations of 7%
Cumulative Convertible Preferred Stock, par value $.10 per share
dated April 27, 1994. Exhibit 3.2 to Post-Effective Amendment
Number 1 to the Company's Registration Statement on Form S-1
(No. 33-75070) is incorporated herein by reference.
3.3 Amended and Restated Bylaws of the Company as of May 13, 1997.
Exhibit 3.2 to the Company's report on Form 10-Q for the quarter
ended June 30, 1997 is incorporated herein by reference.
* 3.4 Amendment to Amended Certificate of Incorporation of the Company
dated October 15, 1998.
4.1 Specimen certificate for shares of Common Stock par value $.01 per
share. Exhibit 4.2 of the Company's Registration Statement on Form
S-1 (No. 33-48507) is incorporated herein by reference.
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4.2 Indenture relating to the 1994 Notes dated January 15, 1994 between
the Company and First Trust National Association, as trustee ("First Trust").
Exhibit 4.1 to the Company's Registration Statement on Form S-1
(No. 33-73110) is incorporated herein by reference.
4.3 Specimen certificate representing the 1994 Notes. Exhibit 4.2 of the
Company's Registration Statement on Form S-1 (No. 33-48507) is
incorporated herein by reference.
4.4 Second Supplemental Indenture relating to the 1994 Notes dated
June 30, 1994 between the Company and First Trust. Exhibit 1.1 to the
Company's Current Report on Form 8-K dated
December 29, 1994, is incorporated herein by
reference.
4.5 Third Supplemental Indenture relating to the 1994
Notes dated January 31, 1995 between the Company
and First Trust, Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q dated August 10,
1995, is incorporated herein by reference.
4.6 Fourth Supplemental Indenture relating to the
1994 Notes dated January 23, 1996, between the
Company and First Trust. Exhibit 10.1 to the
Company's Current Report on Form 8-K dated
January 22, 1996, is incorporated herein by
reference.
4.7 Fifth Supplemental Indenture relating to the 1994
Notes dated July 30, 1996 between the Company and
First Trust, Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q dated August 14,
1996, is incorporated herein by reference.
4.8 Indenture relating to the 1996 Notes dated February 28, 1997 between the
Company and First Trust. Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (No. 333-22575) is incorporated herein by reference.
4.9 1991 Incentive Stock Plan of the Company. Exhibit
10.T to the Company's Form 10 dated May 14, 1991,
is incorporated herein by reference.
4.10 1991 Non-Employee Director Stock Plan of the
Company. Exhibit 10.U to the Company's Form 10
dated May 14, 1991, is incorporated herein by
reference.
4.11 1993 Incentive Stock Plan of the Company. Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (No. 33-73110) is incorporated herein
by reference.
4.12 1994 Amended and Restated Non-Employee Director
Stock Option Plan of the Company. Exhibit B to
the Company's Definitive Proxy Statement in
accordance with Schedule 14A dated April 28,
1994, is incorporated herein by reference.
4.13 Amendment to the 1994 Amended and Restated Non-Employee Director
Stock Option Plan. Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q dated August 10, 1995, is incorporated herein by reference.
4.14 Amended and Restated 1994 Incentive Stock Plan. Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated herein
by reference.
4.15 Indenture, dated as of May 15, 1997, by and among
the Company and First Bank National Association
with respect to the Senior Discount Notes and
Exchange Notes. Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (No.
333-31231) is incorporated herein by reference.
4.16 Indenture, dated as of December 1, 1996, by and
among the Company, the Guarantors and First Bank
National Association with respect to the 1996
Notes and Exchange Notes. Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (No.
333-22575) is incorporated herein by reference.
4.17 First Supplemental Indenture dated December 30, 1996 related to the 1996
Notes. Exhibit 4.2 to the Company's Registration Statement on Form S-4
(No. 333-22575) is incorporated herein by reference.
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4.18 Second Supplemental Indenture dated April 30,
1997 related to the 1996 Notes. Exhibit 4.3 to
the Company's Registration Statement on Form S-4
(No. 333-22575) is incorporated herein by
reference.
4.19 Senior Subordinated Guarantee dated as of
December 1, 1996 related to the 1996 Notes.
Exhibit 4.5 to the Company's Registration
Statement on Form S-4 (No. 333-22575) is
incorporated herein by reference.
4.20 Amendment No. 1 to the 1991 Incentive Stock Plan dated November 1,
1996. Exhibit 4.20 to the Company's Annual Report on Form 10-K dated
March 31, 1998 is incorporated herein by reference.
10.1 Credit Agreement dated as of June 18, 1998
among Allied Waste North America Inc.,
Allied Waste Industries, Inc., certain
lenders, Credit Suisse, First Boston and
Goldman Sachs Credit Partners L.P., as
Co-Syndication Agents, Citibank, N.A.,
as Issuing Bank and Citicorp USA, Inc., as Administrative Agent. Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q is incorporated herein by reference.
10.2 Agreement dated September 17, 1996, between Allied Waste Industries,
Inc., and the Laidlaw Group. Exhibit 10.1 to the Company's Current
Report on Form 8-K dated October 2, 1996, is incorporated herein by reference.
10.3 Credit Agreement among the Company, Allied NA,
and the various lenders represented by Goldman
Sachs Credit Partners, L.P., Credit Suisse and
Citibank, N.A. dated December 30,
1996. Exhibit 10.11 to the Company's report on
Form 10-K for the year ended December 31, 1996
is incorporated herein by reference.
10.4 Securities Purchase Agreement dated April 21,
1997 between Apollo Investment Fund III, L.P.,
Apollo Overseas Partners III, L.P., and Apollo
(U.K.) Partners III, L.P.; Blackstone Capital
Partners II Merchant Banking Fund L.P.,
Blackstone Offshore Capital Partners II L.P. and
Blackstone Family Investment Partnership
II L.P; Laidlaw Inc. and Laidlaw Transportation, Inc.; and Allied Waste
Industries, Exhibit 10.1 to the Company's report on Form 10-Q for the quarter
ended March 31,1997 is incorporated herein by reference.
10.5 Shareholders Agreement dated as of April 14, 1997 between Allied Waste Industries,
Inc. and Apollo Investment Fund III, L.P., Apollo Overseas Partners III,L.P., and
Apollo (U.K.) Partners III, L.P.; Blackstone Capital Partners II Merchant Banking Fund
L.P., Blackstone Offshore Capital Partners II L.P. and Blackstone Family
Investment Partnership II L.P. Exhibit 10.2 to the Company's report on Form 10-Q for
the quarter ended March 31, 1997 is incorporated herein by reference.
10.6 Amended and Restated Shareholders Agreement dated as of April 21, 1997 between
Allied Waste Industries, Inc. and Apollo Investment Fund III, L.P., Apollo Overseas
Partners III, L.P., and Apollo (U.K.) Partners III, L.P.;
Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone Offshore Capital Partners II
L.P. and Blackstone Family Investment Partnership II L.P. Exhibit 10.3 to the Company's
report on form 10-Q for the quarter ended March 31, 1997 is incorporated herein by reference.
10.7 Registration Rights Agreement dated as of April 21, 1997 between Allied Waste Industries, Inc.
and Apollo Investment Fund III, L.P., Apollo Overseas Partners III,
L.P., and Apollo (U.K.) Partners III, L.P.; Blackstone Capital Partners II Merchant
Banking Fund L.P., Blackstone Offshore Capital Partners II L.P. and Blackstone
Family Investment Partnership II L.P. Exhibit 10.4 to the Company's report on Form
10-Q for the quarter ended March 31, 1997 is incorporated herein by reference.
10.8 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. Exhibit 10.1 to the Company's report on Form 10-Q for the quarter
ended June 30, 1997 is incorporated herein by reference.
</TABLE>
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10.9 Executive Employment Agreement between the Company and with Henry
L. Hirvela dated June 6, 1997. Exhibit 10.2 to the Company's report
on Form 10-Q for the quarter ended June 30, 1997 is incorporated herein by reference.
10.10 Third Amendment to Executive Employment Agreement between the Company and
with Thomas H. Van Weelden dated January 30, 1997. Exhibit 10.3 to the
Company's report on form 10-Q for the quarter ended June 30, 1997 is incorporated herein by
reference.
10.11 Executive Employment Agreement between the Company and with Larry
D. Henk dated June 6, 1997. Exhibit 10.4 to the Company's report on Form
10-Q for the quarter ended June 30, 1997 is incorporated herein by reference.
10.12 Executive Employment Agreement between the Company and with Steven M. Helm
dated June 6, 1997. Exhibit 10.5 to the Company's report on Form 10-Q for the
quarter ended June 30, 1997 is incorporated herein by reference.
10.13 Third Amendment to Executive Employment Agreement between the Company and
with Roger A. Ramsey dated January 30, 1997, Exhibit 10.6 to the Company's report
on Form 10-Q for the quarter ended June 30, 1997 is incorporated herein by reference.
10.14 Registration Rights Agreement, dated as of December 5, 1996, by and among the
Company, Goldman, Sachs & Co., Merrill Lynch & Co., and Credit Suisse First Boston. Exhibit 10.1 to
the Company's Registration Statement on Form S-4 (No. 333-31231) is incorporated herein by reference.
10.15 Executive Employment Agreement between the Company and with Peter S. Hathaway
dated June 6, 1997. Exhibit 10.14 to the Company's Annual Report on Form 10-K
dated March 31, 1998 is incorporated herein by reference.
10.16 Executive Employment Agreement between the Company and with Michael G. Hannon dated June 6, 1997.
Exhibit 10.15 to the Company's Annual Report on Form 10-K dated March 31, 1998 is incorporated
herein by reference.
10.17 Share Purchase Agreement between Allied Waste Industries, Inc. and Allied Waste
Holdings (Canada) Ltd. and Laidlaw Waste Systems, Inc. and USA Waste Services, Inc. and
Canadian Waste Services Inc. dated January 15, 1997. Exhibit 10.0 to the Company's report
on Form 8-K dated January 30, 1997 is incorporated herein by reference.
*12 Ratio of earnings to fixed charges.
*27.1 Financial data schedule for the nine months ended September 30, 1998.
*27.2 Restated financial data schedule for the nine months ended September 30, 1997.
-------------
*Filed herewith
(b) Reports on Form 8-K
August 21, 1998 The Company's Current Report on Form 8-K reports the
signing of an agreement to merge with ADSI.
August 28, 1998 The Company's Current Report on Form 8-K reports financial
statements related to the Rabanco acquisition.
August 28, 1998 The Company's Current Report on Form 8-K/A reports the
financial statements and the pro forma financial statements related
to the ADSI acquisition.
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant, Allied Waste Industries, Inc., has caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
ALLIED WASTE INDUSTRIES, INC.
By: /s/ Henry L. Hirvela
------------------------------------
Henry L. Hirvela
Vice President and Chief Financial Officer
(Principal Financial Officer)
By: /s/ James S. Eng
--------------------------------------
James S. Eng
Corporate Controller
(Principal Accounting Officer)
Date: November 13, 1998
<PAGE>
Exhibit 3.4
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
ALLIED WASTE INDUSTRIES, INC.
Pursuant to Section 242 of the Delaware General Corporation Law
("DGCL"), Allied Waste Industries, Inc., a Delaware corporation (the
"Corporation"), does hereby certify that:
1. At a meeting of the Board of Directors of the Corporation held on
August 10, 1998, resolutions were duly adopted setting forth a proposed
amendment of the Restated Certificate of Incorporation of the Corporation,
declaring such amendment to be advisable and calling a meeting of the
stockholders of the Corporation for consideration of such amendment. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of
the Corporation be amended by deleting paragraph (a) of Article IV
thereof in its entirety and inserting in its place the following:
"(a) The total number of shares of all classes of stock
which the corporation shall have authority to issue is
three hundred ten million (310,000,000) shares, divided
into the following classes: (i) 300,000,000 shares of
common stock, par value $.01 per share ("Common Stock"),
and (ii) 10,000,000 shares of preferred stock, par value
$.10 per share ("Preferred Stock")."
2. The amendment was duly adopted by the stockholders of the
Corporation at a special meeting of the stockholders duly called and held, upon
notice in accordance with Section 222 of the DGCL.
3. The amendment was duly adopted in accordance with the provisions of
Section 242 of the DGCL.
IN WITNESS WHEREOF, Allied Waste Industries, Inc. has caused this
Certificate of Amendment to be signed by Peter S. Hathaway, its Vice President
and Chief Accounting Officer, this 15th day of October, 1998.
ALLIED WASTE INDUSTRIES, INC.
By:/s/ Peter S. Hathaway
-------------------------------
Peter S. Hathaway
Vice President, Chief Accounting Officer
EXHIBIT 12
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands except for ratios)
Nine Months
September 30,
---------------------------
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
Fixed Charges:
Interest expensed....................................................... $ 75,785 $ 60,396
Interest capitalized.................................................... 24,868 47,004
------------ -----------
Total interest expense.............................................. 100,653 107,400
Interest component of rent expense...................................... 3,319 1,838
Amortization of debt issuance costs..................................... 2,978 2,876
------------ -----------
Total Fixed Charges................................................. $ 106,950 $ 112,114
============ ===========
Earnings:
Income from continuing operations
before income taxes................................................... $ 76,513 $ 79,665
Plus fixed charges...................................................... 106,950 112,114
Less interest capitalized............................................... (24,868) (47,004)
------------ -----------
Total Earnings...................................................... $ 158,595 $ 144,775
============ ===========
Ratio of earnings to fixed charges......................................... 1.48x 1.29x
============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 23,291
<SECURITIES> 0
<RECEIVABLES> 193,966
<ALLOWANCES> 7,991
<INVENTORY> 8,849
<CURRENT-ASSETS> 274,913
<PP&E> 1,923,814
<DEPRECIATION> 416,294
<TOTAL-ASSETS> 2,815,463
<CURRENT-LIABILITIES> 303,096
<BONDS> 1,534,501
0
0
<COMMON> 1,358
<OTHER-SE> 683,799
<TOTAL-LIABILITY-AND-EQUITY> 2,815,463
<SALES> 959,539
<TOTAL-REVENUES> 959,539
<CGS> 538,713
<TOTAL-COSTS> 538,713
<OTHER-EXPENSES> 280,401
<LOSS-PROVISION> 3,539
<INTEREST-EXPENSE> 63,276
<INCOME-PRETAX> 79,665
<INCOME-TAX> 43,497
<INCOME-CONTINUING> 36,168
<DISCONTINUED> 0
<EXTRAORDINARY> 3,093
<CHANGES> 0
<NET-INCOME> 33,075
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 99,701
<SECURITIES> 0
<RECEIVABLES> 176,515
<ALLOWANCES> 8,842
<INVENTORY> 8,010
<CURRENT-ASSETS> 333,403
<PP&E> 1,342,948
<DEPRECIATION> 283,197
<TOTAL-ASSETS> 2,330,944
<CURRENT-LIABILITIES> 292,519
<BONDS> 1,198,073
0
0
<COMMON> 898
<OTHER-SE> 606,853
<TOTAL-LIABILITY-AND-EQUITY> 2,330,944
<SALES> 873,358
<TOTAL-REVENUES> 873,358
<CGS> 507,483
<TOTAL-COSTS> 507,483
<OTHER-EXPENSES> 212,687
<LOSS-PROVISION> 2,893
<INTEREST-EXPENSE> 78,661
<INCOME-PRETAX> 75,860
<INCOME-TAX> 24,012
<INCOME-CONTINUING> 51,848
<DISCONTINUED> 0
<EXTRAORDINARY> 53,205
<CHANGES> 0
<NET-INCOME> (1,357)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
