SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES 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 Number)
15880 North Greenway-Hayden Loop, Suite 100
Scottsdale, Arizona 85260
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 423-2946
Securities registered pursuant to Section 12(b)of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(None)
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(Title of Class)
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 and 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.
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was $2,333,685,285 as of March 25, 1999.
The number of shares of the Company's common stock, $.01 par
value, outstanding at March 25, 1999 was 187,637,123.
The registrant's proxy statement is to be filed in connection with the
registrant's 1999 annual meeting of stockholders, portions of which are
incorporated by reference into Part III of this report.
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PART I
Item l. Business
Allied Waste Industries, Inc., a Delaware corporation ("Allied" or the
"Company"), is the third largest, non-hazardous solid waste management company
in the United States, as measured by revenues. The Company serves approximately
2.6 million customers through operations in 28 states located primarily in the
Great Lakes, Midwest, Northeast, Southeast, Southwest and West regions of the
United States. As of March 1999, the Company provided its services through a
network of 130 collection companies, 68 transfer stations, 76 landfills, and 22
recycling facilities. The Company had revenues of $1.3 billion and $1.6 billion
for the years ended December 31, 1997 and 1998, respectively.
In October 1998, Allied 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 485,000 customers in 12 states, primarily in the
Midwest and Northeast United States and generates annual revenue of
approximately $240 million, excluding the effects of the internalization of
waste volumes.
Industry Trends
Based on data available from the Environmental Protection Agency (the
"EPA") and industry trade journals, the Company estimates that the total 1996
revenues of the non-hazardous solid waste industry in the United States were
approximately $36 billion. The non-hazardous solid waste industry is highly
fragmented. Approximately 41%, 32% and 27% of the revenue is generated by
publicly traded companies, municipalities and privately held companies,
respectively. The four largest publicly traded companies represent a substantial
majority of the publicly traded company revenues.
The non-hazardous solid waste industry is characterized by
consolidation. The Company believes that several factors will lead to continuing
acquisitions and consolidation in the industry. Rising costs, regulatory
complexities and increased capital requirements will create opportunities for
large integrated public companies that have the requisite management expertise
and ready access to capital. The following factors are contributing to
consolidation and acquisition opportunities:
(1) Subtitle D of the Resource Conservation and Recovery Act of 1976,
as amended ("Subtitle D") and similar state regulations have significantly
increased the amount of capital, technical expertise, operating costs and
financial assurance obligations required to own and operate solid waste
landfills. As a result, many landfill operators that lack the necessary capital
or expertise are electing to sell their landfills as an alternative to closing
them. Industry data show that, in recent years, the number of landfills in the
United States has been decreasing. In 1988 there were approximately 7,500
landfills; by 1991, the number had dropped to 5,700; and in 1995 there were less
than 2,900 landfills.
(2) As an alternative to funding the changes required by Subtitle D,
many municipalities are electing to privatize their municipal solid waste
landfill operations. A survey cited in a 1996 industry trade journal, Waste Age,
indicates that of the 1,600 municipalities surveyed, which together represent
80% of the United States population, 11%, 35%, 27% and 22% are considering
privatization of solid waste collection services, material recovery facilities,
landfill operations and transfer stations, respectively.
(3) As a result of heightened sensitivity to environmental conditions
in many communities, it is becoming increasingly desirable for solid waste
management companies to provide waste recycling programs in addition to
conventional collection and disposal services.
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These developments, as well as more stringent financial assurance
requirements being imposed on solid waste management companies by various
municipalities, have increased the amount of capital generally required for
solid waste management operations, causing smaller companies that lack the
requisite capital to sell their operations to better-capitalized companies.
Business Strategy
The major components of the Company's business strategy consist of: (1)
operating vertically integrated non-hazardous solid waste service businesses
with a high rate of waste internalization; (2) managing these businesses locally
with a strong focus on operations; (3) maintaining a high rate of growth through
acquisitions and internal development in existing and selected new markets; and
(4) maintaining the financial capacity, management capabilities and
administrative systems and controls to support on-going operations and future
growth. The Company operates almost exclusively in the United States.
Vertical Integration and Internalization. The vertical
integration business model is the key element of Allied's
operating philosophy and growth strategy. The fundamental
objective of the vertical integration business model is to
control the waste stream from the point of collection through
disposal and to achieve a high rate of waste internalization.
Allied seeks to build, through acquisitions and other market
development initiatives, market specific, vertically
integrated operations typically consisting of one or more
collection companies, transfer stations, processing centers
and landfills. Within its markets, Allied seeks to strengthen
its competitive position and improve its financial returns by
acquiring additional operating assets, typically through
"tuck-in" collection company acquisitions. Allied believes
that it can realize competitive advantages and strong future
growth by continuously implementing this strategy across
existing and new markets in the United States. Allied's
internalization rate, as measured by collection volumes, was
approximately 68% in 1998.
Focus on Operations. Allied's operations-oriented business
strategy is characterized by decentralized operations and
local management with significant experience in operating and
growing solid waste businesses. Allied only recruits operating
managers with extensive industry experience, usually with
significant experience in their geographic markets. Allied's
senior executive management, senior operating management and
regional vice presidents currently average approximately 18,
26 and 24 years of industry experience, respectively. By
continuing to hire and retain experienced, local
market-oriented managers, Allied believes that it will be well
positioned to react to changes in its market and will be able
to capitalize on growth opportunities in existing and new
markets.
Maintaining High Rate of Growth. Allied seeks to capitalize on
the on-going consolidation of the approximately $36 billion
solid waste industry in the United States. Allied intends to
grow primarily by acquiring privately-owned solid waste
companies and through internal development. Allied also
intends to take selective advantage of opportunities when
government entities privatize the operation of all or part of
their solid waste systems. In addition, Allied seeks to
achieve broad geographic and business mix diversification in
its operations and market development activities. Allied's
revenue mix for 1998 was approximately 56% collection, 30%
disposal, 7% transfer, 4% recycling and 3% other.
Maintaining Capacity for Future Growth. Allied implements its
business strategy by maintaining effective internal controls,
experienced management and sufficient financial capacity.
While Allied expects internal cash flows to fund most of its
working capital and capital expenditure requirements, Allied
intends to access the public and private capital markets, as
appropriate, to fund its continuing growth and market
development activities.
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Operations
Collection. Collection operations involve collecting and transporting
non-hazardous waste from the point of generation to the transfer station or the
site of disposal. Solid waste collection is generally provided under two primary
types of arrangements, depending on the customer being served.
Commercial. The Company provides containerized non-hazardous solid
waste disposal services to a wide variety of commercial and industrial
customers. These customers are provided with containers that are
designed to be lifted mechanically and either emptied into a collection
vehicle's compaction hopper or, in the case of roll-off containers, to
be loaded onto the collection vehicle. The Company's commercial
containers generally range in size from one to eight cubic yards and
its roll-off containers generally range in size from 20 to 40 cubic
yards. Contracts for roll-off containers may provide for temporary
(such as the removal of waste from a construction site) or ongoing
services. Fees relating to those contracts are determined by general
competitive and prevailing local economic conditions and include other
considerations such as collection frequency, type of equipment
furnished, distance traveled to the disposal site, the cost of disposal
and the type and volume or weight of the waste collected.
Residential. Residential collection services are performed
pursuant to individual monthly subscriptions directly to households or
long-term contracts with municipal governments that give the Company
exclusive rights to service all or a portion of the homes in such
municipalities at established rates. The Company seeks to obtain
municipal contracts which enhance the efficiency and profitability of
the Company's operations as a result of the density of collection
customers within a given area. At the end of the term of most municipal
contracts, the Company will attempt to renegotiate the contract, and if
unable to do so, will rebid the contract on a sealed bid basis.
Residential collection service arrangements with households are made
directly between the Company and the resident. The Company seeks to
enter into residential service arrangements where the route density is
high, thereby creating additional economic benefit. Collection fees are
determined by the Company and the customer based on general competitive
and prevailing local economic conditions and include other
considerations such as collection frequency, the type and volume or
weight of the waste collected, the distance to the disposal facility,
and cost of disposal. Residential collection fees are either paid by
the municipalities out of tax revenues or service charges or are paid
directly by the residents who receive the service.
Transfer Stations. A transfer station is a facility where solid waste
is received from third-party and Company owned collection vehicles and then
transferred to and compacted in large, specially-constructed trailers for
transportation to disposal facilities. This consolidation reduces costs by
increasing the density of the waste being transported through compaction and by
improving utilization of collection personnel and equipment, and is an
increasingly common procedure in the solid waste management industry. Fees are
generally based upon such factors as the type and volume or weight of the waste
transferred and the transport distance involved. The Company believes that as
increased regulations and public pressure restrict the development of landfills
in urban and suburban areas, transfer stations will increasingly be used as an
efficient means to transport waste over longer distances to available landfills.
Recycling. In response to increasing awareness by the customer of
environmental concerns and expanding federal and state regulations pertaining to
waste recycling, the Company includes recycling as a component of its vertically
integrated solid waste business strategy. Services include curbside collection
of recyclable materials for residential customers, commercial and industrial
collection of recyclable materials, and, to a lesser extent, material
recovery/waste reduction. Recycling fees are generally service based wherein the
customer pays for the cost of removing, processing and disposing of potentially
recyclable materials. In most cases, mixed waste materials are received at an
owned or leased materials recovery facility ("MRF") which is often integrated
into or contiguous to a transfer operation. Materials such as paper, cardboard,
plastic, aluminum and other metals are sorted, separated, accumulated, bound or
placed in a container and readied for transportation to a third-party which will
reuse the separated materials. The purchaser generally pays for the materials
based on fluctuating spot-market prices.
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Material for which there is no market or for which the market price is
insufficient to warrant processing are disposed of at a landfill or other
disposal facility. The Company seeks to avoid exposure to fluctuating commodity
prices by passing through substantially all of the profit or loss from the sale
of recyclables to its customers.
Landfills. Solid waste landfills are the primary method of disposal of
solid waste in the United States. Currently, a landfill must be designed,
permitted, operated and closed in compliance with federal, state and local
regulations pursuant to Subtitle D. Operating procedures include excavation,
continuous spreading and compacting of waste, and covering of waste with earth
or other inert material. The cost of transferring solid waste to a disposal
location places an economic restriction on the geographic scope of landfill
operations in a particular market. Access to a disposal facility, such as a
landfill, is a requirement for all solid waste management companies. While
access can generally be obtained to disposal facilities owned or operated by
unaffiliated parties, the Company believes that, in keeping with its business
strategy, it is preferable to own or operate its own disposal facilities thereby
ensuring access on favorable terms and the internalization of disposal fees.
Organization, Marketing and Sales
The Company's operations are organized into six regions which beginning
in 1998 were designated as Great Lakes, Midwest, Northeast, Southeast, Southwest
and West. Each region is organized into several operating districts and each
district is comprised of specific site operations. In determining these regions
and districts, the Company utilizes its vertical integration strategy to
optimize operating efficiencies within each region. Each of its regions and
substantially all of its districts include collection, transfer, processing and
disposal services, which facilitates efficient and cost effective waste handling
and allows the districts to maximize the internalization of waste. In
determining the boundaries of regions and districts, consideration is also given
to the aggregate revenues generated in each region and district and the growth
and expansion plans in each geographic area.
Each region is managed by a regional vice president, who is supported
by a modest staff which includes a regional controller. All regional vice
presidents and most regional controllers have significant industry experience
(in the case of regional vice presidents, averaging 24 years of experience).
Most regional offices are located in a district facility in order to reduce
overhead costs and to promote a close working relationship between the regional
management and field operations personnel. In addition, Allied generally makes
it a practice to fill management positions from within the organization.
The responsibilities of Allied's field management also are aligned with
the vertical integration model. All regional managers and generally most
district mangers have responsibility for all phases of the waste handling
process including collection, transfer, processing and disposal. Regional
management also has responsibility for growing regional revenues through both
acquisition and internal development initiatives. Allied believes that this
approach promotes the most efficient handling of waste, including increased
internalization, and results in reduced costs and increased profits. In addition
to base salary, regional and district management are compensated through a bonus
program and stock option plan. The compensation payable to each manager pursuant
to the bonus and stock option plans is largely based upon meeting or exceeding
operating profit goals in such manager's geographic area of responsibility.
Each of Allied's districts has staff responsible for sales and
marketing. Allied's policy is to periodically visit each commercial account to
ensure customer satisfaction and to sell additional services. In addition to
calling on existing customers, each salesperson calls upon potential customers
within a defined area in each market.
In addition, to its sales efforts directed at commercial and industrial
customers, Allied has a municipal marketing coordinator in most service areas.
The municipal marketing coordinators are responsible for interfacing with each
municipality or community to which Allied provides residential service to ensure
customer satisfaction. In addition, the municipal coordinators organize and
handle bids for renewal and new municipal contracts in their service area.
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Competition
The non-hazardous waste collection and disposal industry is highly
competitive. The industry is currently comprised of four national waste
companies, Waste Management, Inc.; Browning-Ferris Industries, Inc. ("BFI") (on
March 7, 1999, the Company entered into a definitive merger agreement to acquire
BFI); Republic Services, Inc.; and Allied and local and regional companies of
varying sizes and competitive resources such as Superior Services, Inc. and
Waste Industries, Inc. The Company also competes with those counties and
municipalities that maintain their own waste collection or disposal operations.
These counties and municipalities may have financial advantages through their
access to tax revenues and tax-exempt financing and their ability to mandate the
disposal of waste collected within the jurisdiction at a municipal landfill. The
Company may also experience competition from companies using alternative methods
of managing solid waste streams, such as incineration.
The solid waste collection and disposal industry is currently
undergoing significant consolidation, and the Company encounters competition
through pricing and service in its efforts to acquire landfills and collection
operations. Accordingly, it may become uneconomical for the Company to make
further acquisitions or the Company may be unable to locate or acquire suitable
acquisition candidates at price levels and on terms and conditions that the
Company considers appropriate, particularly in markets the Company does not
already serve.
Environmental and Other Regulations
The Company is subject to extensive and evolving environmental laws and
regulations. These regulations are administered by the EPA and various other
federal, state and local environmental, zoning, health and safety agencies, many
of which periodically examine the Company's operations to monitor compliance
with such laws and regulations. Governmental authorities have the power to
enforce compliance with these regulations and to obtain injunctions or impose
civil or criminal penalties in case of violations. The Company believes that
there will be increased regulation and legislation related to the waste
management industry and the Company attempts to anticipate such future
regulatory requirements to ensure compliance.
The Company's operation of landfills subjects it to certain
operational, monitoring, site maintenance, closure, post-closure and other
obligations which could give rise to increased costs for monitoring and
corrective measures. In connection with the Company's acquisition of existing
landfills, it is often necessary to expend considerable time, effort and money
to obtain permits required to increase the capacity of these landfills. The
Company cannot predict whether or not it will be able to obtain the governmental
approvals necessary to establish new or expand existing landfills and, if it
does, whether or not it will be economically beneficial to do so.
The Company's operations are subject to extensive regulation,
principally under the following federal statutes:
The Resource Conservation and Recovery Act of 1976, ("RCRA") as
amended. RCRA regulates the handling, transportation and disposal of hazardous
and non-hazardous wastes and delegates authority to states to develop programs
to ensure the safe disposal of solid wastes. On October 9, 1991, the EPA
promulgated Solid Waste Disposal Facility Criteria for non-hazardous solid waste
landfills under Subtitle D. Subtitle D includes location standards, facility
design and operating criteria, closure and post-closure requirements, financial
assurance standards and groundwater monitoring as well as corrective action
standards, many of which had not commonly been in place or enforced previously
at landfills. Subtitle D applies to all solid waste landfill cells that received
waste after October 9, 1991, and, with limited exceptions, all landfills were
required to meet these requirements by October 9, 1993. Landfills that were not
in compliance with the requirements of Subtitle D on the applicable date of
implementation, which varied state by state, were required to close. In
addition, landfills that stopped receiving waste before October 9, 1993 were not
required to comply with the final cover provisions of Subtitle D. Each state
must comply with Subtitle D and was required to submit a permit program designed
to implement Subtitle D to the EPA for approval by April 9, 1993. States may
impose requirements for landfill units that are more stringent than the
requirements of Subtitle D. Once a state has an approved program, it must review
all existing landfill permits to ensure that they comply with Subtitle D.
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The Federal Water Pollution Control Act of 1972 (the "Clean Water
Act"), as amended. This act establishes rules regulating the discharge of
pollutants into streams and other waters of the United States (as defined in the
Clean Water Act) from a variety of sources, including solid waste disposal
sites. If runoff from the Company's landfills or transfer stations may be
discharged into surface waters, the Clean Water Act requires the Company to
apply for and obtain discharge permits, conduct sampling and monitoring and,
under certain circumstances, reduce the quantity of pollutants in those
discharges. The permit program has been expanded to include stormwater
discharges from landfills that receive, or in the past received, industrial
waste. In addition, if development may alter or affect "wetlands," a permit may
have to be obtained and certain mitigation measures may need to be undertaken
before such development may be commenced. This requirement is likely to affect
the construction or expansion of many solid waste disposal sites, including some
owned or being developed by the Company.
The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, ("CERCLA") as amended. CERCLA addresses problems created by the
release or threatened release of hazardous substances into the environment.
CERCLA's primary mechanism for remediating such problems is to impose strict,
joint and several liability for cleanup of disposal sites on current owners and
operators of the site, former site owners and operators at the time of disposal,
and waste generators and parties who arranged for disposal at the facility. The
costs of a CERCLA cleanup can be substantial. Liability under CERCLA is not
dependent on the existence or disposal of "hazardous wastes" (as defined under
RCRA), but can also be founded on the existence of even minute amounts of the
more than 700 "hazardous substances" listed by the EPA.
The Clean Air Act of 1970 (the "Clean Air Act"), as amended. The Clean
Air Act provides for increased federal, state and local regulation of the
emission of air pollutants. The EPA has applied the Clean Air Act to landfills.
In March 1996, the EPA adopted New Source Performance Standard and Emission
Guidelines (the "Emission Guidelines") for municipal solid waste landfills.
These regulations impose limits on air emissions from solid waste landfills. The
Emission Guidelines propose two sets of emissions standards, one of which is
applicable to all solid waste landfills that commence construction,
reconstruction or modification after May 30, 1991 and another which is
applicable to all solid waste landfills that received waste or had the capacity
to receive waste after November 8, 1987. The Emission Guidelines may be
implemented by the states. These guidelines, combined with the new permitting
programs established under the recent Clean Air Act amendments, will likely
subject solid waste landfills to significant new permitting requirements and, in
some instances, require installation of methane gas recovery systems.
The Occupational Safety and Health Act of 1970 ("OSHA"), as amended.
OSHA establishes certain employer responsibilities, including maintenance of a
workplace free of recognized hazards likely to cause death or serious injury,
compliance with standards promulgated by the Occupational Safety and Health
Administration, and various recordkeeping, disclosure and procedural
requirements. Various standards, including standards for notices of hazards,
safety in excavation and demolition work, and the handling of asbestos, may
apply to the Company's operations.
Future Federal Legislation. In the future, the Company's collection,
transfer and landfill operations may also be affected by legislation that may be
proposed in the United States Congress that would authorize the states to enact
legislation governing interstate shipments of waste. Such proposed federal
legislation may allow individual states to prohibit the disposal of out-of-state
waste or to limit the amount of out-of-state waste that could be imported for
disposal and would require states, under certain circumstances, to reduce the
amounts of waste exported to other states. If this or similar legislation is
enacted, states in which the Company will operate landfills could act to limit
or prohibit the importation of out-of-state waste. Such state actions could
adversely affect landfills within these states that receive a significant
portion of waste originating from out-of-state.
State Regulation. Each state in which the Company operates has laws and
regulations governing solid waste disposal and water and air pollution and, in
most cases, regulations governing the design, operation, maintenance and closure
of landfills and transfer stations. Management believes that several states have
proposed or have considered adopting legislation that would regulate the
interstate transportation and disposal of waste in their landfills. Many states
have also adopted legislative and regulatory measures to mandate or encourage
waste reduction at the source and waste recycling.
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The Company's collection and landfill operations may be affected by the
current trend toward laws requiring the development of waste reduction and
recycling programs. For example, a number of states have recently enacted laws
that will require counties to adopt comprehensive plans to reduce, through waste
planning, composting and recycling or other programs, the volume of solid waste
deposited in landfills within the next few years. A number of states have also
taken or propose to take steps to ban or otherwise limit the disposal of certain
wastes, such as yard wastes, beverage containers, newspapers, unshredded tires,
lead-acid batteries and household appliances into landfills.
The Company has implemented and will continue to implement its own
environmental safeguards that comply with or exceed these governmental
requirements. Additionally, the Company's policy is to obtain an environmental
assessment prepared by an independent environmental consulting firm for all real
estate acquired. For calendar year 1999, the Company expects to spend
approximately $41.9 million for closure, post-closure and remediation
expenditures.
Liability Insurance and Bonding
The Company carries general liability, comprehensive property damage,
workers' compensation, employer's liability, directors' and officers' liability
and other coverages it believes are customary to the industry. The Company also
has environmental impairment liability insurance for all of its operating
landfills except one owned and four operated sites. The environmental impairment
liability insurance is in the amount of up to $5 million for the policy term in
excess of a $1 million deductible per claim. Except as discussed in Legal
Proceedings below, management does not expect the impact of any known
environmental or other contingencies to be material to the Company's
consolidated liquidity, financial position or results of operations.
The Company is required to provide certain financial assurances to
governmental agencies under applicable environmental regulations relating to its
landfill and collection operations. These financial assurances include
performance bonds, letters of credit, insurance contracts and trust deposits
required principally to secure the Company's estimated landfill closure and
post-closure obligations and collection contracts. The Company expects to be
required to provide approximately $408 million in financial assurance
obligations relating to its landfill operations by the end of fiscal year 1999,
before giving effect to the acquisition of BFI. The Company expects that
financial assurances will increase in the future as the Company acquires and
expands its activities and that a greater percentage of the financial assurances
will be comprised, directly and indirectly, of letters of credit.
Employees
The Company employs approximately 9,500 persons. Certain employees of
the Company are covered by collective bargaining agreements. The Company
believes relations with its employees are satisfactory.
Item 2. Properties
The Company's principal executive offices are located at 15880 N.
Greenway-Hayden Loop, Suite 100, Scottsdale, Arizona 85260 where it currently
leases approximately 33,000 square feet of office space. The Company also
maintains six regional administrative offices in Arizona, Illinois, Missouri,
South Carolina, Colorado and New York.
The principal property and equipment of the Company consists of land
(primarily landfill sites, transfer stations, and bases for collection
operations), buildings, and vehicles and equipment, substantially all of which
are secured by liens to the Company's primary lenders. The Company owns or
leases real property in the states in which it is doing business. At December
31, 1998, 76 solid waste landfills, aggregating approximately 29,000 total
acres, including approximately 20,000 permitted acres, were owned and operated
by the Company. In addition, the Company owned or operated 129 collection
companies, 68 transfer stations and 22 recycling facilities.
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Item 3. Legal Proceedings
The Company is currently involved in certain routine litigation. The
Company believes that all such litigation arose in the ordinary course of
business and that costs of settlements or judgments arising from such suits will
not have a materially adverse effect on the Company's consolidated liquidity,
financial position or results of operations.
The business of the Company is regulated by federal, state and local
provisions that relate to the protection of the environment. The nature of the
Company's business results in it frequently becoming a party to judicial or
administrative proceedings involving governmental authorities and other
interested parties. At December 31, 1998, the Company was not involved in any
such proceedings where management believes sanctions imposed by governmental
authorities may exceed $100,000 or which management believes will have a
material effect on the Company's consolidated liquidity or results of
operations. From time to time the Company may also be subject to actions brought
by citizens' groups, adjacent landowners or others in connection with the
permitting and licensing of its landfills or transfer stations, or alleging
personal injury, environmental damage or violations of the permits and licenses
pursuant to which the Company operates.
In connection with acquiring companies, Allied engages an independent
environmental consulting firm to assist in conducting environmental assessments
of the real property of companies acquired from third-parties. Several
contaminated landfills and other properties were identified during 1998, that
require Allied to incur costs for incremental closure and post-closure measures,
remediation activities and litigation costs in the future. Based on information
available to the Company, Allied recorded a provision of $41.1 million for
environmental matters in the 1998 statement of operations and expects these
amounts to be disbursed over the next 30 years.
The Company has been notified that it is considered a potentially
responsible party at a number of locations under CERCLA or other environmental
laws. The Company continually reviews its status with respect to each location,
taking into account the alleged connection to the location and the extent of the
contribution to the volume of waste at the location, the available evidence
connecting the entity to that location and the numbers and financial soundness
of other potentially responsible parties at the location. The ultimate amounts
for environmental liabilities at sites regarding which the Company may be a
potentially responsible party cannot be determined and estimates of such
liabilities made by the Company, after consultation with its independent
environmental engineers, require assumptions about future events due to a number
of uncertainties including the extent of the contamination, the appropriate
remedy, the financial viability of other potentially responsible parties and the
final apportionment of responsibility among the potentially responsible parties.
Where the Company has concluded that its estimated share of potential
liabilities is probable, a provision has been made in the consolidated financial
statements. Since the ultimate outcome of these matters may differ from the
estimates used in the Company's assessment to date, the recorded liabilities
will be periodically evaluated as additional information becomes available to
ascertain that the accrued liabilities are adequate. The Company has determined
that the recorded liability for environmental matters as of December 31, 1998 of
approximately $93.4 million represents the most probable outcome of these
contingent matters. The Company does not expect that adjustments to estimates,
which are reasonably possible in the near term and that may result in changes to
recorded amounts, will have a material effect on the Company's consolidated
liquidity, financial position or results of operations.
In connection with the Laidlaw Acquisition (as defined in Item 7),
Laidlaw Inc. ("Laidlaw") disclosed to the Company the existence of a tax
controversy relating to disallowed deductions in income tax returns with the
United States Internal Revenue Service (the "IRS"). In the first quarter of
1999, Laidlaw negotiated a settlement of the tax case with the IRS. The total
net after tax cash cost will be $226 million. The amount includes $121 million
in taxes together with interest penalties of $161 million ($105 million after
tax). The agreement satisfies assessments upheld in the tax court opinion
received on July 1, 1998, in reference to the years 1986 through 1988, as well
as claims asserted by the IRS for the six subsequent years (1989-1994) of a
nine-year Netherlands-based financial program.
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The Company has obtained an indemnity from Laidlaw and certain of its
subsidiaries (the "Laidlaw Group") which covers the amounts at issue in the tax
controversy for which any direct or indirect subsidiary that was acquired from
Laidlaw in 1996 may ultimately be found liable. The obligation of the Laidlaw
Group to indemnify the Company in respect of amounts at issue in the tax
controversy is a general, unsecured obligation of the Laidlaw Group.
Item 4. Submission of Matters to a Vote of Security Holders
On October 15, 1998, a special meeting of the stockholders of the
Company was held. The holders of 112,198,084 shares of Common Stock (as defined
in Item 5) were present in person or represented by proxy at the meeting. At the
meeting, the stockholders took the following actions:
Number of Number of
Votes for Votes Withheld
------------ ---------------
Authorization of the
acquisition of ADSI..................... 111,636,535 561,549
Authorization to increase authorized
shares of Common Stock from
200 million to 300 million.............. 111,541,737 656,347
10
<PAGE>
P A R T I I
Item 5. Market Price and Dividends on the Common Stock and
Related Stockholder Matters.
Price Range of Common Stock
The Common Stock (as defined below) is traded on the New York Stock
Exchange under the symbol "AW". Prior to December 30, 1998 the Common Stock was
traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the
symbol "AWIN." The high and low sales prices per share for the periods indicated
were as follows:
High Low
-------- --------
Year ended December 31, 1997
First Quarter 9 7/8 7 1/4
Second Quarter 18 1/8 8
Third Quarter 20 1/8 14 1/4
Fourth Quarter 24 3/8 18 3/8
Year ended December 31, 1998
First Quarter 25 7/8 19 1/2
Second Quarter 28 7/8 23 3/8
Third Quarter 31 5/8 18
Fourth Quarter 24 1/8 16 1/8
As of March 25, 1999, there were approximately 645 holders of record of the
Company's Common Stock.
Dividend Policy
The Company has not paid dividends on its common stock, $0.01 par value
(the "Common Stock"), does not anticipate paying any dividends thereon in the
foreseeable future and is prohibited under the terms of the Company's long-term
indebtedness from paying such dividends.
11
<PAGE>
Recent Sales of Unregistered Securities
The following table reflects sales by the Company of unregistered
securities during the fiscal year ended December 31, 1998. Except as otherwise
disclosed, the issuances by the Company of the securities sold in the
transactions referenced below were not registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to the exemptions contemplated
in Section 4(2), Rule 144A, Regulation S and Section 3(a)(9) thereof, or
Regulation D thereunder, for transactions not involving a public offering. The
consideration paid to the Company in respect of each issuance was cash, unless
otherwise indicated.
<TABLE>
<CAPTION>
Number of
Shares or
Principal
Description/Date Amount Consideration Underwriters and Other Purchasers
- ---------------- ------------- -------------- ----------------------------------------
Common Stock
<S> <C> <C>
January 15, 1998 23,684 $ 150,000 Lee and Pam Brandsma (cashless exercise of warrant)
January 15, 1998 3,158 20,000 John Garrity (cashless exercise of warrant)
February 17, 1998 15,604 100,000 Laurence Groot (cashless exercise of warrant)
March 13, 1998 31,858 200,000 Ben Ipema (cashless exercise of warrant)
March 23, 1998 77,602 749,805 Kathleen M. Marhronic (cashless exercise of warrant)
Thomas Van Weelden, Chairman of the Board of Directors,
April 17, 1998 10,000 50,000 President and CEO (exercise of expiring warrant)
RAV Envira Consulting, Inc. (commission paid in
April 17, 1998 3,130 68,467 connection with an acquisition)
1998 Notes
December 23, 1998 $225,000,000 $ 219,944,250(1) Five Year Senior Notes(2) due 2004
December 23, 1998 600,000,000 587,400,000(1) Seven Year Senior Notes(2) due 2006
December 23, 1998 875,000,000 855,102,500(1) Ten Year Senior Notes(2) due 2009
<FN>
(1) The Five Year Senior Notes and Ten Year Senior Notes were issued at a
discounted price to investors of 99.853% and 99.826%, respectively. In
addition, the Company paid underwriting discounts and commissions of 2.1%.
(2) The 1998 Senior Notes (as defined herein) were subsequently exchanged
for registered senior notes on January 27, 1999.
</FN>
</TABLE>
12
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below as of December 31, 1994 and
1995 and for the year ended December 31, 1994 are derived from the Company's
Consolidated Financial Statements, which have not been audited subsequent to
being restated for business combinations accounted for as poolings-of-interests
consummated in 1998. The selected financial data presented below as of December
31, 1996, 1997 and 1998 and for the four years ended December 31, 1998 are
derived from the Company's Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP and have been restated to give effect to
transactions accounted for using the pooling-of-interests method for business
combinations. See Note 2 to the Company's Consolidated Financial Statements.
These selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the notes thereto, included
elsewhere herein. The Company has not paid dividends on its Common Stock, does
not anticipate paying any dividends on its Common Stock in the foreseeable
future, and is prohibited under the terms of the Company's long-term
indebtedness from paying such dividends. All amounts are in thousands except per
share amounts and percentages.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Statement of Operations Data: (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 506,604 $ 580,784 $ 619,548 $ 1,340,661 $ 1,575,612
Cost of 341,466 366,980 386,001 777,289 892,273
Operations..........................
Selling, general and
administrative expenses................... 95,006 97,031 102,416 177,396 155,835
Depreciation and
amortization expense...................... 40,966 55,414 67,823 158,238 179,965
Acquisition related and
unusual costs(1).......................... 2,100 1,531 96,508 3,934 247,902
Asset impairments(2)........................ -- -- -- -- 69,714
----------- ----------- ----------- ------------ -------------
Operating income (loss)..................... 27,066 59,828 (33,200) 223,804 29,923
Interest income............................. (2,127) (735) (2,479) (1,765) (4,030)
Interest expense............................ 21,701 20,443 21,347 108,045 88,431
----------- ----------- ----------- ------------ -------------
Income (loss) before income taxes .......... 7,492 40,120 (52,068) 117,524 (54,478)
Income tax expense .......................... 910 10,904 354 40,277 43,773
----------- ----------- ----------- ------------ -------------
Income (loss) before extraordinary
item ..................................... 6,582 29,216 (52,422) 77,247 (98,251)
Extraordinary loss, net of income tax
benefit(3).................................. (3,029) (908) (13,887) (53,205) (124,801)
----------- ----------- ----------- ------------ -------------
Net income (loss) .......................... 3,553 28,308 (66,309) 24,042 (223,052)
Preferred dividends......................... (3,773) (4,070) (1,073) (381) --
Conversion fee on equity
securities converted(4)................... -- (2,151) -- -- --
----------- ----------- ----------- ------------ -------------
Net income (loss) available
to common shareholders.................... $ (220) $ 22,087 $ (67,382) $ 23,661 $ (223,052)
=========== =========== =========== ============ =============
Basic EPS:
Income (loss) before
extraordinary loss...................... $ 0.03 $ 0.21 $ (0.40) $ 0.47 $ (0.54)
Extraordinary loss........................ (0.03) (0.01) (0.11) (0.33) (0.68)
----------- ----------- ----------- ------------ -------------
Income (loss)............................. $ -- $ 0.20 $ (0.51) $ 0.14 $ (1.22)
=========== =========== =========== ============ =============
Weighted average common shares.............. 106,270 112,162 132,967 164,888 182,796
=========== =========== =========== ============ ============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Diluted EPS: (unaudited)
<S> <C> <C> <C> <C> <C>
Income (loss) before
extraordinary loss...................... $ 0.02 $ 0.20 $ (0.40) $ 0.44 $ (0.54)
Extraordinary loss.......................... (0.02) (0.01) (0.11) (0.30) (0.68)
---------- ---------- ---------- ---------- ----------
Income (loss)............................... $ -- $ 0.19 $ (0.51) $ 0.14 $ (1.22)
========== ========== ========== ========== ==========
Weighted average common and
common equivalent shares.................. 113,625 115,903 132,967 172,958 182,796
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
December 31,
----------------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .................. $ 19,100 $ 26,038 $ 70,015 $ 33,320 $ 39,742
Working capital (deficit) .................. (15,840) (47,211) 26,410 (75,054) 45,031
Property and equipment, net ................ 328,160 497,284 932,110 1,583,133 1,776,025
Costs in excess of net assets acquired ..... 79,503 90,301 888,648 1,082,750 1,327,470
Total assets ............................... 568,207 763,979 2,662,200 3,073,820 3,752,592
Total long-term debt,
net of current portion ................... 255,665 304,114 1,283,327 1,492,360 2,118,927
Stockholders' equity ....................... 135,667 223,333 385,218 962,465 930,074
Long-term debt to
Total capitalization .................... 65% 58% 77% 61% 69%
- -----------------------
<FN>
(1) During 1998 the Company recorded acquisition related and unusual charges in
the amount of $247.9 million. These charges primarily relate to
acquisitions accounted for as poolings-of-interests and management's
changes in strategic plans and restructuring resulting from the
acquisitions. The charges consist of transaction or deal costs, employee
severance and transition costs, changes in estimates relating to
environmental or legal matters, restructuring costs related to the
consolidation or relocation of operations, costs for the abandonment or
sale of non-revenue producing assets, and provisions for losses on
contractual obligations.
(2) During the fourth quarter of 1998, the Company recognized asset impairment
charges aggregating $69.7 million. These charges related to assets held for
future use and assets to be disposed of in the first and second quarters of
1999. An impairment charge of $45.9 million, with no associated tax
benefit, was recorded relating to goodwill of a waste transportation
business recorded by a company recently acquired by Allied. Additionally,
an impairment charge of $23.8 million was recorded for the write-down to
net realizable value less cost of disposal of assets to be sold relating to
non-core or non-integrated operating districts.
(3) The extraordinary losses in 1994, 1995, 1996, 1997 and 1998 were incurred
as a result of premiums paid for the early extinguishment of debt and the
write-off of related deferred debt issue costs.
(4) A non-cash conversion fee of $2.2 million was incurred in the fourth
quarter 1995 as a result of an inducement offered by the Company to holders
of certain convertible preferred stock and convertible subordinated notes
to exercise their conversion option to receive Allied common stock. The
inducement fee consisted of payment of dividends or interest from the
conversion date through the first call or redemption date of each
convertible security. Approximately 7.8 million shares of common stock were
issued for conversion and approximately 285,000 shares were issued for the
conversion fee.
</FN>
</TABLE>
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
Company's 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 170 acquisitions. In 1998, the
Company acquired 54 businesses and subsequent to 1998 it has acquired 17
businesses. See Note 2 to the Company's Consolidated Financial Statements. The
Company's Consolidated Financial Statements have been restated to reflect the
acquisition of companies accounted for using the pooling-of-interests method for
business combinations. The majority of the acquisitions were accounted for under
the purchase method for business combinations and, accordingly, the results of
operations for such acquired businesses are included in the Company's financial
statements only from the applicable date of acquisition. As a result, the
Company believes its historical results of operations for the periods presented
are not directly comparable.
On December 30, 1996, the Company completed the acquisition of
substantially all of the non-hazardous solid waste management business conducted
by Laidlaw in the United States and Canada (the "Laidlaw Acquisition"), for
total consideration of approximately $1.5 billion comprised of $1.2 billion
cash, 14.6 million shares of Common Stock, a warrant to acquire 20.4 million
shares of Common Stock (the "Warrant"), and two junior subordinated debentures
with an aggregate face amount of $318 million (the "Allied Debentures"). 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,
the Company sold to USA Waste all of the Canadian non-hazardous solid waste
management operations of the Company for approximately $518 million (the
"Canadian Sale"). The Company used the proceeds from the Canadian Sale to pay
down approximately $517 million in debt under the Bank Agreement. The Company
acquired the Canadian operations in connection with the Laidlaw Acquisition.
In May 1997, pursuant to a Securities Purchase Agreement (the "Laidlaw
Securities Purchase Agreement") with the Laidlaw Group and certain private
securities investment funds affiliated with either (i) Apollo Advisors II, L.P.
or (ii) the Blackstone Group, the Company repurchased from the Laidlaw Group the
Allied Debentures and the Warrant for an aggregate purchase price of $230
million in cash (the "Repurchase"). The net proceeds of $230 million related to
the $418 million face value 11.3% senior discount notes (the "Senior Discount
Notes") were used to fund the Repurchase. Also pursuant to the Laidlaw
Securities Purchase Agreement, the private securities investment funds purchased
all of the Common Stock of Allied held by Laidlaw.
In June 1998, Allied acquired the Rabanco Companies in a transaction
accounted for using the pooling-of-interests method for business combinations.
The Rabanco Companies provide solid waste collection, recycling, transportation
and disposal services in the Pacific Northwest and generates annual revenue of
approximately $160 million, excluding the effects of the internalization of
waste volumes.
In August 1998, Allied acquired Illinois Recycling Services and its
affiliates in a transaction accounted for using the pooling-of-interests method
for business combinations. Illinois Recycling Services 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.
15
<PAGE>
In October 1998, Allied acquired American Disposal Services, Inc. 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
485,000 customers in 12 states, primarily in the Midwest and Northeast United
States and generates annual revenue of approximately $240 million, excluding the
effects of the internalization of waste volumes.
On November 12, 1998, Allied announced the signing of a letter of
intent with BFI involving the purchase and sale of certain waste services
assets. The transactions include customer contracts, equipment and facilities
and represent approximately $120 million in annual revenues to each party. The
transactions are expected to close in the second quarter of 1999.
In December 1998, the Company completed a private offering of an
aggregate of $1.7 billion of senior notes consisting of $225 million 7 3/8%
senior notes due 2004 (the "Five Year Senior Notes"), $600 million 7 5/8% senior
notes due 2006 (the "Seven Year Senior Notes") and $875 million 7 7/8% senior
notes due 2009 (the "Ten Year Senior Notes", and together with the Five Year
Senior Notes and the Seven Year Senior Notes, the "1998 Senior Notes"). The
Company used the net proceeds from the 1998 Senior Notes to fund the purchase of
the 1996 Notes and the Senior Discount Notes pursuant to tender offers the
Company commenced in November 1998, to repay borrowings outstanding under the
Senior Credit Facility (as defined herein) and certain capital lease
obligations, and for general corporate purposes.
In March 1999, Allied and BFI announced that they entered into a
definitive merger agreement under which Allied will acquire BFI for $45 in cash
per BFI common share, as well as assume approximately $1.8 billion in debt, in a
transaction valued at approximately $9.1 billion. Allied has bank commitments to
finance the acquisition consisting of $7 billion senior secured debt and $2.5
billion senior unsecured debt at interest rates ranging from Libor plus 2.50% to
Libor plus 3.50%, and a commitment from Apollo Management IV, L.P., Blackstone
Capital Partners III Merchant Banking Fund L.P. and other investors to purchase
$1 billion of 6.5% convertible preferred stock. The transaction is structured as
a merger of BFI with a subsidiary of Allied and is subject to the approval of
BFI stockholders and other customary conditions.
General
Revenues. The Company's revenues are attributable primarily to fees
charged to customers for waste collection, transfer, recycling and disposal
services. The Company's collection services are generally provided under direct
agreements with its customers or pursuant to contracts with municipalities.
Commercial and municipal contract terms, where used, generally range from 1 to 5
years and commonly have automatic renewal options. The Company's landfill
operations include both Company-owned landfills and those operated for
municipalities for a fee. The Company is fully integrated in each geographic
region in which it is located as it provides collection, transfer and disposal
services. The tables below show for the periods indicated the percentage of the
Company's total reported revenues attributable to services provided and to
geographic region. The data below 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,
------------------------------------------
1996 1997 1998
---- ---- ----
Collection............. 58.2% 57.2% 55.7%
Transfer............... 5.9 6.7 7.1
Landfill (1)........... 25.9 26.4 29.9
Other.................. 10.0 9.7 7.3
---------- ---------- ----------
Total revenues....... 100.0% 100.0% 100.0%
========== ========== ==========
16
<PAGE>
Year Ended December 31,
---------------------------------------------
1996 1997 1998
---- ---- ----
Great Lakes........... 31.7% 27.6% 33.0%
Midwest............... 8.8 12.8 12.0
Northeast............. 12.2 19.6 14.3
Southeast............. 14.2 8.9 9.7
Southwest............. 1.9 10.1 9.5
West ................. 31.2 21.0 21.5
------- --------- -------
Total revenues...... 100.0% 100.0% 100.0%
======= ========= ========
(1) The portion of collection revenues attributable to disposal charges for
waste collected by the Company and disposed at the Company's landfills have
been excluded from collection revenues and included in landfill revenues.
The Company's strategy is to develop vertically integrated operations
to ensure internalization of the 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 68% of Company-collected waste is disposed of at Company-owned
and/or operated landfills as measured by disposal volumes in 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 and economically transported to its landfills.
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 market development costs.
Depreciation and amortization expense includes depreciation of fixed
assets and amortization of landfill development costs (including capitalized
interest), goodwill and other intangible assets.
In connection with potential acquisitions, the Company incurs and
capitalizes certain transaction and integration costs which include stock
registration, legal, accounting, consulting, engineering and other direct costs.
When an acquisition is completed and is accounted for using the
pooling-of-interests method for business combinations, these costs are charged
to the statement of operations as acquisition related costs. When a completed
acquisition is accounted for using the purchase method for business
combinations, these costs are capitalized. The Company routinely evaluates
capitalized transaction and integration costs and expenses those costs related
to acquisitions not likely to occur. Indirect acquisition costs, such as
executive salaries, general corporate overhead and other corporate services, are
expensed as incurred.
Certain direct landfill development costs, such as engineering,
construction and permitting costs, are capitalized and amortized based on
consumed airspace. The Company believes that the costs associated with
engineering, owning and operating landfills will increase in the future as a
result of federal, state and local regulation and a growing community awareness
of the landfill permitting process. Although there can be no
17
<PAGE>
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.
Closure and post-closure costs represent the Company's financial commitment
for the regulatory required costs associated with its future obligations for
final closure, which is the closure of a cell of a landfill once the cell is no
longer receiving waste, and post-closure monitoring and maintenance of
landfills, which is usually required for up to 30 years after a landfill's final
closure. Closure and post-closure requirements are established under the
standards of Subtitle D as implemented on a state-by-state basis. Closure and
post-closure accruals are based on estimates for capping and cover of the
landfill, methane gas control, leachate management and groundwater monitoring,
and other operational and maintenance costs to be incurred after the site
discontinues accepting waste. 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.
Closure and post-closure liabilities are accrued and charged to expense
based on accepted tonnage as landfill airspace is consumed to ensure that the
total closure and post-closure obligations are fully accrued for each landfill
at the time that the site discontinues accepting waste and is closed. For
landfills purchased, the Company assesses and accrues a closure and post-closure
liability at the time the Company assumes closure responsibility based upon the
estimated closure and post-closure costs and the percentage of airspace utilized
as of the date of acquisition. After the date of acquisition, closure and
post-closure costs are accrued and charged to expense as airspace is consumed.
Estimated closure and post-closure liabilities are updated annually based on
assessments performed by in-house and independent environmental engineers and
are approved by management. Such costs may change in the future as a result of
permit modifications or changes in legislative or regulatory requirements.
Closure and post-closure cost estimates are accrued based on the present
value of the future obligation. 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.
The net present value of the closure and post-closure commitment is
calculated assuming inflation of 2.0% and a risk-free capital rate of 6.5%.
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 $1.2 billion, adjusted for inflation, while the
present value of such estimate is $396.5 million. At December 31, 1997 and 1998,
accruals for landfill closure and post-closure costs (including costs assumed
through acquisitions) were approximately $144.6 million and $154.5 million,
respectively. The accruals reflect relatively young landfills with estimated
remaining lives, based on current waste flows, that range from 1 to over 75
years, and an estimated average remaining life of greater than 30 years.
Year 2000 Systems Modifications. Certain computer program software has been
written using two digits rather than four digits to define the applicable year.
If left uncorrected, a system failure or miscalculations causing disruptions of
operations could result. The Company is implementing a formal plan which will
require programming modifications to ensure the Company's systems will operate
properly in the year 2000 ("Year 2000"). 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
them are not expected to exceed $300,000. No other information technology
projects have been deferred due to Year 2000 efforts.
Awareness. All Year 2000 projects with respect to internal systems are
approved by senior management and evaluated and reviewed by the Board of
Directors as deemed necessary if they are expected to result in material cost.
18
<PAGE>
Assessment and Renovation. The assessment and renovation phase of the plan
includes both information technology-related systems and non-information
technology areas.
Information technology-related systems. To date, the Company
has assessed all information technology-related systems, which includes
hardware, applications software, operating systems and databases. The Company's
general ledger, accounts payable and fixed asset systems have been vendor
certified as to their Year 2000 compliance. Modifications were necessary and
have been made to the customer billing and operations support systems. The
Company's core business systems, including general ledger, accounts payable,
fixed assets, customer billing and operations support, function properly with
respect to dates in the year 2000.
Non-Information technology areas. The Company's assessment of
Year 2000 issues includes non-information technology areas such as facility
security and heating, ventilation and air conditioning systems and technology
embedded in equipment and tele-communications. Non-information technology
systems will be assessed during the third quarter of 1999 and, if necessary, a
plan for modification will be reviewed for approval by senior management.
Validation. Validation includes testing and verifying the performance,
functionality, and integration of the customer billing and operations support
systems. After the Year 2000 modifications were made in the first quarter of
1999, the validation phase was completed.
Implementation. Implementation of the Company's plan includes both
information technology-related systems and non-information technology areas.
Information technology-related systems. The Company has begun
implementing modifications to its information systems. To date, one of the
Company's six regions has been converted to the modified applications. The
Company intends to complete the implementation of all modified information
systems, vendor supplied Local Area Network ("LAN") applications, and LAN
operating-systems patches by the end of the second quarter of 1999.
Non-Information technology areas. The Company plans to modify or
remediate non-information technology equipment and communications hardware
and software if the results of assessments indicate a significant risk exists to
the Company's business activities. Any required modifications would occur during
the third and fourth quarters of 1999. In addition, the Company will establish
contingency plans in case of unanticipated failures, and update existing
disaster recovery plans throughout 1999.
Upon completion of its Year 2000 plan, the Company expects to be Year 2000
compliant and expects to have no material exposure with respect to information
technology-related systems. However, if its plan is not completed in a timely
manner or the level of timely compliance by suppliers or vendors is not
sufficient, the Company believes that the most likely reasonable worst-case
scenario would involve the failure of one of the Company's critical systems.
This could result in delay or disruption in customer service and billing. As a
consequence, the Company could lose customers, which would result in a loss
of revenue. The Company could also experience an increase in operating costs. In
response to this scenario contingency and business continuation plans, which
address the Company's information and non-information technology related systems
are expected to be implemented. The Company expects its contingency and business
continuation plans to be developed by the fourth quarter of 1999. These plans
will include the manual performance of processes that are currently automated.
19
<PAGE>
Based on the nature of the waste management services and the decentralized
manner in which the Company operates, no one vendor or customer is considered to
be individually significant as the Company obtains services and goods at each
individual location and serves over 2.6 million customers. For services obtained
on a company-wide basis, such as payroll processing and financial services, the
Company has relied upon certification of Year 2000 compliance received directly
from these vendors. However, there can be no assurances that the information
systems of vendors and customers on which the Company relies will be Year 2000
compliant in a timely manner and will not have a material and adverse effect on
the Company's business, financial condition, results of operations and cash
flow. The Company has not obtained independent verification or validation to
assure the reliability of the Company and its vendors' or customer information
systems for the potential risks and associated costs as they relate to the Year
2000 issue.
Segment Reporting. Effective January 1, 1998, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards 131, Disclosures about Segments of an Enterprise and Related
Information ("Statement 131"). Statement 131 superseded FASB Statement 14,
Financial Reporting for Segments of a Business Enterprise. Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. See Note 13 in
the Company's notes to Consolidated Financial Statements.
20
<PAGE>
Results of Operations
The following table sets forth the percentage relationship that the
various items bear to revenues and the percentage of 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 Consolidated Financial Statements.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1997 1998 Compared
Compared to 1997
to 1996 % Change
% change in Amounts
1996 1997 in Amounts 1998
---- ---- ---------- ---- -------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues ................................... 100.0% 100.0% 116.4% 100.0% 17.5%
Cost of operations ......................... 62.3 58.0 101.4 56.6 14.8
Selling, general and administrative
expenses.................................... 16.5 13.2 73.2 9.9 (12.2)
Depreciation and amortization expense ...... 10.9 11.8 133.3 11.4 13.8
Acquisition related and unusual costs....... 15.6 0.3 (96.0) 15.7 6,256.4
Asset impairments........................... -- -- -- 4.4 100.0
--------- --------- --------
Operating income (loss) .................... (5.3) 16.7 774.1 2.0 (86.6)
Interest expense, net ...................... 3.0 7.9 462.4 5.4 (20.6)
Income tax expense, (benefit) ............. 0.1 3.0 9,975.0 2.8 8.7
Extraordinary loss, net of income
tax benefit ................................ 2.2 4.0 282.8 7.9 134.6
--------- --------- --------
Net income (loss) ........................ (10.6)% 1.8% 136.2% (14.1)% (1,029.6)%
========== ========= ========
</TABLE>
21
<PAGE>
Years Ended December 31, 1998 and 1997
Revenues. Revenues in 1998 were $1,575.6 million compared to $1,340.7
million in 1997, an increase of 17.5%. The increase in revenues attributable to
existing operations ("Internal Growth") was 8% with approximately 5%
attributable to net volume increases and approximately 3% attributable to price
increases. The additional revenue growth is attributable to companies acquired
net of revenues sold, subsequent to the same period in the prior year.
Cost of Operations. Cost of operations in 1998 was $892.3 million
compared to $777.3 million in 1997, an increase of 14.8%. This 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 56.6% in
1998 from 58.0% in 1997. The 1997 operating margin decreased from the previously
reported margin due to the restatements for companies acquired subsequent to
December 31, 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 68% in 1998 from
approximately 53% in 1997, as restated, increased volumes at the landfills, and
other cost savings from the integration of acquisitions.
Selling, General and Administrative Expenses. SG&A expense in 1998 was
$155.8 million compared to $177.4 million in 1997, a decrease of 12.2%. As a
percentage of revenues, SG&A decreased to 9.9% in 1998 compared to 13.2% in
1997. The 1997 SG&A expense increased from the previously reported amount due to
the restatements for companies acquired subsequent to December 31, 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 is due to the continued increase in revenues while reducing overhead
costs.
Depreciation and Amortization Expense. Depreciation and amortization in
1998 was $180.0 million compared to $158.2 million in 1997, an increase of
13.8%. In addition to the depreciation and amortization of acquired companies,
the increase in depreciation and amortization expense was due to a 7.6% increase
in internalized landfill tonnage, a 22.6% increase in costs in excess of net
assets acquired and an 11.1% increase in capital expenditures. As a percentage
of revenues, depreciation and amortization did not change significantly.
Acquisition Related and Unusual Costs. During 1998 the Company recorded
acquisition related and unusual charges in the amount of $247.9 million. These
charges consist of transaction and deal costs, employee severance and transition
costs, environmental related matters, litigation liabilities, regulatory
compliance matters, restructuring and abandonment costs and loss contract
provisions. The Company does not anticipate that future costs to be incurred in
connection with 1998 acquisitions will be significant as restructuring and
transition activities have been substantially implemented as of December 31,
1998. The 1998 acquisition related and unusual charges predominantly relate to
acquisitions accounted for as poolings-of-interest and consist of the following:
Direct transaction and deal costs of $51.2 million including investment
banker, attorney, accountant, environmental assessment and other third
party fees. Approximately $11.7 million is accrued at December 31, 1998
consisting of $2 million of environmental assesment fees and $9.7
million of professional service fees incurred in connection with fourth
quarter 1998 acquisitions.
22
<PAGE>
Employee severance and transition costs of $73.6 million consist of
$39.3 million in termination payments made to employees of acquired
companies based on change of control provisions in preexisting
contracts and $34.3 million of costs associated with severance
payments under exit or integration plans implemented in connection
with acquisitions made during 1998. Exit plans primarily relate to the
elimination of duplicate corporate and administrative offices of
companies acquired. Integration plans include the combination of field
activities for human resource, accounting, facility maintenance,
health and safety compliance and customer service activities of
companies acquired with field activities similar to those of the
Company. The exit and integration plans call for the termination of a
total of approximately 800 employees who have or are currently
performing managerial, sales, administrative support, maintenance and
repair, or hauling and landfill operations duties. All employees were
identified and notified of their severance or transition benefits at
the time management approved the plan, which occurred at or around the
time of the acquisitions. At December 31, 1998, the majority of
employees identified have been terminated and approximately $10.1
million, is accrued for benefits remaining to be paid. Of this amount,
$1.5 million relates to preexisting contracts and will be paid ratably
over a five year period after the severance date in accordance with
the terms of the contract and $8.6 million represents the severance
payments remaining to be made in 1999 to former employees in
accordance with exit and integration plans.
Environmental related matters, litigation liabilities and regulatory
compliance matters assumed in acquisitions totaled $73.4 million.
Subsequent to the acquisitions, the Company made certain changes in
accounting estimates due to events and new information becoming
available for environmental liabilities of approximately $41.1
million, litigation liabilities of approximately $20.8 million and
regulatory compliance liabilities of approximately $11.5 million.
As part of the Company's acquisition due diligence process,
environmental assessments were performed at the time of acquisition by
third party and in-house engineers. The assessments were performed at
over 150 operating sites owned or used by the 54 companies acquired by
Allied in 1998. Additional environmental liabilities were accrued
based on the results of the assessments and represent the most
probable outcome of these identified contingent matters. $27.1 million
of the additional accrued environmental liability was comprised of
required remedial activities identified at 28 seperate locations.
These locations include eight landfills acquired by Allied, 15
landfills not owned by Allied, but used for disposal by collection
companies acquired and transfer stations and maintenance facilities
acquired. Required remedial activities include the removal and
treatment of waste improperly disposed of, containment and abatement
of landfill gas migration, removal and disposal of contaminated soil
and hazardous waste and legal and administrative costs of the
settlement of Superfund claims. The additional $14 million of
environmental accruals related to removal and treatment of leachate at
landfills, the level of which exceeded permitted amounts at seven of
the acquired landfills. See Note 6 for further discussion of
environmental contingencies. At December 31, 1998, approximately $41.1
million is accrued for environmental matters, which is expected to be
disbursed in future periods and $15.8 million is accrued for legal and
regulatory compliance liabilities.
The change in estimate relating to litigation and regulatory
compliance liabilities was accrued based on legal due diligence
performed by in-house and outside legal counsel for acquired
companies at the time of acquisition and the determination of the
most probable loss incurred. As a result of this legal due
diligence, the Company identified 14 companies acquired in business
combinations accounted for as poolings-of-interests, which had an
aggregate of 54 asserted and unasserted claims involving matters
such as contract disputes, employment related disputes, real and
personal property and
23
<PAGE>
salestax issues and billing disputes. Additionally, the Company
identified compliance issues related to 12 companies acquired,
which includes citations for certain state and federal health,
safety and transportation violations and associated costs of fines,
assessments and required maintenance costs to bring facilities
and equipment into compliance.
Management believes the accrual as of year end for legal and
regulatory compliance matters represents the most probable outcome of
outstanding assessments and claims. The Company does not expect that
adjustments to estimates, which are reasonably possible in the near
term and that may result in changes to recorded amounts, will have a
material effect on the Company's consolidated liquidity, financial
position or results of operations. At December 31, 1998, the Company
believes that it is reasonably possible that the ultimate outcome of
the legal and regulatory compliance matters could result in
approximately $5 million of additional liability.
Restructuring and abandonment costs were $42.1 million in business
combinations accounted for as pooling-of-interests. Costs to relocate
redundant operations and to transition to common information systems were
$23.1 million. Redundant operations consisted primarily of activities for
human resource, accounting, facility maintenance, health and safety
compliance and customer service performed in field offices of companies
acquired. Abandonment costs and losses on the disposal of duplicate revenue
producing assets relating to specifically identified transfer stations and
recycling facilities were $8.8 million. Revenue and net operating income of
the abandoned operations represented less than one percent of the Company's
consolidated amounts. Additionally, $10.2 million of costs were incurred
for the disposition of redundant non-revenue producing assets. This
includes $7.6 million that was accrued at December 31, 1998, in accordance
with exit and integration plans and is expected to be paid in 1999. This
accrual is for payments under non-cancelable lease agreements for corporate
offices to be vacated and other costs to close corporate facilities after
operations have ceased under exit plans implemented during 1998 at five
companies acquired.
Loss contract provisions were $7.6 million for losses associated with
collection contracts and other contractual obligations assumed in
acquisitions. Approximately $5 million remains accrued at December 31,
1998.
<TABLE>
<CAPTION>
The following table reflects the activity related to the 1998
acquisition related and unusual costs:
1998 Balance
1998 Asset 1998 Remaining
Expense Impairments Expenditures Adjustments 12/31/98
--------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Transaction and Deal Costs............... $ 51,200 $ -- $ (39,529) $ -- $ 11,671
Severance and Transition Costs........... 73,619 -- (63,493) -- 10,126
Environmental, Litigation and
Regulatory Compliance Costs............ 73,416 -- (16,482) -- 56,934
Restructuring and
Abandonment Costs.................... 42,098 (18,514) (15,954) -- 7,630
Loss Contracts........................... 7,569 -- (2,587) -- 4,982
----------- ------------- ------------ ------------ ----------
Total.................................... $ 247,902 $ (18,514) $ (138,045) $ -- $ 91,343
=========== ============= ============ ============ ==========
</TABLE>
Asset Impairments. - During the fourth quarter of 1998, the Company
recognized non-cash asset impairment charges aggregating $69.7 million. These
charges related to assets held for future use and assets to be disposed of in
the first and second quarters of 1999.
An impairment charge of $45.9 million, with no associated tax benefit,
was recorded relating to goodwill recorded by American Disposal Services, Inc.
("ADSI") in connection with ADSI's September 1997 acquisition of Fred Barbara
Trucking, a private waste transportation business. ADSI was acquired by Allied
in a business combination accounted for as a pooling-of-interest on October 15,
1998. In the fourth quarter of 1998, the Company lost certain hauling agreements
at Fred Barbara Trucking, which had become an operating district in its Great
Lakes region resulting in a loss of district revenues . Upon identifying this
event, the Company evaluated possible impairment by comparing estimated future
cash flows, before interest expense and on an undiscounted basis, to the net
book value of assets. This comparison indicated that undiscounted cash flows
were insufficient to recover assets and further analysis was performed in order
to determine the amount of the impairment. In accordance with Statement of
Financial Accounting Standard 121 (SFAS 121), Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to be disposed of, the Company recorded
an impairment loss equal to the amount by which the carrying amount of the
assets exceeded their fair market value. Fair market value was determined based
on the present value of estimated expected future cash flows over 38 years using
a discount rate commensurate with the risks involved, which was 12%
approximating the Company's weighted average cost of capital.
24
<PAGE>
Additionally, an impairment charge of $23.8 million was recorded for
the write-down to net realizable value less cost of disposal of assets to be
sold relating to non-core or non-integrated operating districts. The ability to
successfully implement the Company's integration strategy is a key consideration
in determining whether the Company will continue in a specific market or exit a
market. In October 1998, the Company formalized plans to dispose of certain
operating districts considered non-core or non-integrated assets. The Company
has entered into agreements to sell these assets and in accordance with SFAS 121
recorded an impairment loss to reduce the carrying value of the assets to net
realizable value including an accrual for the cost of disposal. The sales are
expected to be consummated in the first and second quarters of 1999. The results
of operations before depreciation and amortization of these operating districts
included in consolidated operating income was approximately $4.4 million. At
December 31, 1998, the net assets subject to sale totaled $143.8 million and
have been classified as assets held for sale in current assets in the December
31, 1998 Consolidated Balance Sheet.
Net Interest Expense. Net interest expense was $84.4 million in 1998
compared to $106.3 million in 1997, a decrease of 20.6%. The decrease in net
interest expense was due to an increase in capitalized interest, to $67.5
million in 1998 compared to $37.6 million in 1997. The increase in capitalized
interest is a result of the acquisition of 21 landfills during 1998 primarily
financed with the common stock of the Company instead of cash. Therefore, the
Company had a significant increase in assets under development without a
corresponding increase in interest bearing debt. Additionally, net interest
expense was impacted by an overall reduction in the average interest rate
partially offset by a net increase in outstanding debt.
Income Taxes. Income taxes reflect a (80.3)% effective income tax rate
in 1998 and 34.3% in 1997. The increase is primarily caused by the income tax
accounting effects of asset write-downs and 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 income tax provision of $61.1 million. Without
considering the effect of pooled companies and asset write-downs, 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 Loss, Net. In December 1998, the Company replaced its
1996 Notes and Senior Discount Notes with $1.7 billion in senior notes and
recognized a charge of approximately $201.2 million ($121.7 million net of
income tax benefit) related to premiums paid for the early payment of the 1996
Notes and the Senior Discount Notes and the write-off of previously deferred
debt issuance costs. 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.
In May 1997, the Company repurchased from the Laidlaw Group two junior
subordinated debentures with an aggregate face amount of $318 million 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 addition, the Company replaced its
$1.275 billion Bank Agreement with the $900 million senior credit facility (the
"1997 Credit Agreement") in June 1997 and recognized an extraordinary charge of
approximately $21.6 million ($13.0 million net of income tax benefit).
In September 1997, the Company sold 18.6 million shares of common stock
with net proceeds of approximately $327.4 million (the "Equity Offering"). In
September, the Company used $203 million of the net proceeds to retire a portion
of the term loan facility of the 1997 Credit Agreement and $71 million to repay
the entire amount outstanding on the revolving credit facility. As a result of
the early repayment of debt outstanding under the term loan facility, the
Company recognized an extraordinary charge in the third quarter of 1997 of
approximately $1.3 million ($0.8 million net of income tax benefit) for the
write-off of previously deferred debt issuance costs.
25
<PAGE>
Years Ended December 31, 1997 and 1996
Revenues. Revenues in 1997 were $1,340.7 million compared to $619.5
million in 1996, an increase of 116.4%. Revenues of approximately $560.4 million
for 1997 were generated from companies acquired subsequent to the end of the
same period in the prior year, while increases in revenue attributable to
existing operations amounted to $160.8 million. If the Laidlaw Acquisition, net
of the Canadian Sale, is included as of January 1, 1996, Internal Growth would
have approximated 15% with 11% attributable to net volume increases and 4%
attributable to price increases.
Cost of Operations. Cost of operations in 1997 was $777.3 million
compared to $386 million in 1996, an increase of 101.4%. This 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 58.0% in
1997 from 62.3% in 1996. The improvement in gross margin is due primarily to the
integration of the assets acquired from Laidlaw during 1996 and increased
landfill volume.
Selling, General and Administrative Expenses. SG&A expenses increased
to $177.4 million in 1997 compared to $102.4 million in 1996, an increase of
73.2%. The increase in SG&A expense resulted from expenses associated with
acquired companies and expenses incurred in connection with the Company's
increase in personnel and other expenses related to the growth of the Company.
In addition, SG&A expenses include a charge of approximately $3.4 million
related to future post employment executive compensation and a credit of
approximately $3.0 million related to a favorable settlement of certain
litigation. As a percentage of revenues, SG&A decreased to 13.2% in 1997 from
16.5% in 1996. The decrease in SG&A as a percentage of revenues is primarily due
to the substantial increase in the revenues of the Company resulting principally
from the Laidlaw Acquisition, while SG&A expenses have not increased
proportionately.
Depreciation and Amortization Expense. Depreciation and amortization in
1997 was $158.2 million compared to $67.8 million in 1996, an increase of
133.3%. The increase in depreciation and amortization expense is due to
additional goodwill and capital expenditures. Fixed assets have increased from
$830.2 million in 1996, excluding the Laidlaw Acquisition on December 30, 1996,
to $1.9 billion in 1997 and goodwill has increased to $1.1 billion at December
31, 1997 from $148.6 million at December 31, 1996, excluding the Laidlaw
Acquisition on December 30, 1996. As a percentage of revenues, depreciation and
amortization increased to 11.8% in 1997 from 10.9% in 1996. This is primarily
the result of an increase in amortization of goodwill as a percentage of
revenues to 2.0% in 1997 from 0.7% in 1996 related to increased goodwill
recorded in connection with the Laidlaw Acquisition.
Acquisition Related and Unusual Costs. Acquisition related and unusual
costs in 1997 were $3.9 million compared to $96.5 million in 1996, a decrease of
96.0%. During 1996 in connection with the Laidlaw Acquisition, the Company
incurred approximately $84.6 million in charges. The remaining $11.9 million in
charges related to other acquisitions completed during 1996. Acquisition related
and unusual costs include approximately $51.5 million and $8.8 million relating
to the Laidlaw Acquisition and other acquisitions, respectively, for
environmental related matters for incremental closure and post-closure measures,
remediation activities and litigation costs, expected to be disbursed over the
next 30 years. Additionally, $21.5 million of asset impairments and abandonments
consisting of $10.8 million related to over 50 noncompetition agreements in
several markets where the counterparty no longer posed a significant threat,
$7.9 million for discontinued facilities, (of which $4.8 million related to the
Laidlaw Acquisition), and $2.8 million for market development activities no
longer being pursued. Additionally, the Company recorded approximately $14.7
million of acquisition related costs of which $3.5 million related to acquired
receivables considered uncollectible, $5.4 million of restructuring charges and
$5.8 million for the establishment of accruals related to litigation, taxes,
fines and other regulatory issues based on the results of assessments performed,
all of which accruals represent the most probable outcome of the identified
contingent matters. The restructuring charges of $5.4 million related primarily
to the disposition of redundant non-revenue producing assets. See the
rollforward of activity relating to accrued exit and integration plan costs
following the discussion of acquisition related and unusual costs.
26
<PAGE>
Any subsequent changes in estimates of acquisition related and unusual costs
will be included in the acquisition related and unusual costs caption of the
statement of operations in the period in which the change in estimate is made.
To date, no significant changes in estimates have been made related to these
costs.
In December 1996 the Company recorded $5.7 million in unusual costs
including $2.0 million in connection with the ongoing investigation and
remediation of the Company's Norfolk landfill and $3.7 million of other
non-recurring valuation adjustments.
<TABLE>
<CAPTION>
The following table reflects the annual activity for the three years ended December 31, 1998 related to the 1996
acquisition related and unusual costs:
1996 Balance
1996 Asset 1996 1997 1998 Adjust- Remaining
Expense Impairments Expenditures Expenditures Expenditures ments 12/31/98
--------- ------------- -------------- ------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Environmental Costs........... $60,303 $ -- $ -- $ (5,805) $ (16,206) $ -- $ 38,292
Asset Impairments
and Abandonments........... 21,521 (21,521) -- -- -- -- --
Other Acquisition
Related Costs.............. 14,684 (5,278) (3,091) (6,315) -- -- --
------ ---------- ----------- ----------- ----------- ------- ----------
Total........................ $96,508 $ (26,799) $ (3,091) $ (12,120) $ (16,206) $ -- $ 38,292
====== ========== =========== =========== =========== ======= ==========
</TABLE>
Acquisition related costs in 1997 were $5.0 million. In the fourth
quarter of 1997, the Company recorded approximately $1.1 million of unusual
costs, comprised of a $5.6 million gain on sale of assets to USA Waste, net of a
charge of approximately $4.5 million in connection with the abandonment of
certain collection and transfer operations.
Net Interest Expense. Net interest expense was $106.3 million in 1997
compared to $18.9 million in 1996, an increase of 462.4%. The increase in
interest expense is due to the increase in debt from $422.7 million at December
31, 1996, excluding the Laidlaw Acquisition on December 30, 1996, compared to
$1.6 billion at December 31, 1997. This increase in debt outstanding is
primarily the result of debt incurred in connection with the Laidlaw Acquisition
net of the application of the net proceeds received in connection with the
Canadian Sale. Additionally, in connection with the construction and development
of the Company's landfills, Allied capitalized approximately $37.6 million of
interest in 1997 compared to $13.5 million in 1996. The increase is primarily
due to the increase in the base of assets under development which qualify for
capitalized interest (primarily landfill assets) as a result of the Laidlaw
Acquisition in late 1996 and other acquisitions made during 1997.
Income Taxes. Income taxes reflect a 34.3% effective income tax rate
for 1997 which deviates from the federal statutory rate of 35% due primarily to
the income tax accounting effects of applying the pooling-of-interests method of
accounting for business combinations. Other items impacting the Company's
effective tax rate for both 1997 and 1996 include the differences in the
treatment of goodwill for book and tax purposes, state income taxes, and other
permanent differences. See Note 10 to the Consolidated Financial Statements.
Extraordinary Loss. In May 1997, the Company repurchased from the
Laidlaw Group two junior subordinated debentures with an aggregate face amount
of $318 million 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
addition, the Company replaced its $1.275 billion Bank Agreement with the 1997
Credit Agreement in June 1997 and recognized an extraordinary charge of
approximately $21.6 million ($13.0 million net of income tax benefit).
In September 1997, the Company sold 18.6 million shares of common stock
with net proceeds of approximately $327.4 million (the "Equity Offering"). In
September, the Company used $203 million of the net proceeds to retire a portion
of the term loan facility of the 1997 Credit Agreement and $71 million to repay
the entire amount outstanding on the revolving credit facility. As a result of
the early repayment of debt outstanding under the term loan facility, the
Company recognized an extraordinary charge in the third quarter of 1997 of
approximately $1.3 million ($0.8 million net of income tax benefit) for the
write-off of previously deferred debt issuance costs.
On July 31, 1996, Allied completed a tender offer (the "Tender Offer")
for substantially all of its $100 million 12% senior notes due 2004 at the
redemption price of $1,157.50 per $1,000 note. An extraordinary charge related
to the Tender Offer of approximately $18.4 million ($11.0 million net of income
tax benefit), was charged to earnings in the third quarter of 1996. In
connection with the Laidlaw Acquisition, the Company refinanced its $300 million
senior revolving credit facility and recognized an extraordinary charge of
approximately $4.0 million ($2.4 million net of income tax benefit) that was
charged to earnings in the fourth quarter of 1996.
In May 1996, the Company recognized an extraordinary charge of
approximately $0.8 million ($476,000 net of income tax benefit) representing
unamortized deferred debt issuance costs related to refinanced obligations.
27
<PAGE>
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
December 1996 and December 1998, the Company has completed debt financings in
excess of $3.5 billion.
Due to the acquisition driven and the capital intensive nature of the
Company's business strategy, the Company has used, and believes that it is
reasonably possible that it will continue using amounts in excess of the cash
generated from operations to fund acquisitions and capital expenditures,
including landfill development. In connection with acquisitions, the Company has
assumed or incurred indebtedness with relatively short-term repayment schedules,
thereby increasing its current and medium-term liabilities. Additionally, some
operating equipment has been acquired using financing leases which have short
and medium-term maturities. Additionally, the Company uses excess cash generated
from operations to pay down amounts owed on its revolver which is classified as
long-term debt. As a result, the Company has periodically had low levels of
working capital or working capital deficits.
During the years ended December 31, 1996, 1997 and 1998, the Company's
cash flows from operating, investing and financing activities were as follows
(in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1997 1998
---- ---- ----
Operating Activities:
<S> <C> <C> <C>
Net income (loss) ............................................ $ (66.3) $ 24.0 $ (223.1)
Extraordinary loss on early extinguishments of debt .......... 13.6 (13.9) (54.2)
Non-cash acquisition related and unusual costs ............... 96.5 -- 38.8
Asset impairments............................................. -- -- 69.7
Non-cash operating expenses(1)................................ 81.7 183.4 241.8
Loss (gain) on sale of assets ................................ 1.8 (7.2) (3.5)
Increase in operating assets and liabilities, net ............ (55.8) (58.8) 99.9
------------ ------------ ------------
Cash provided by operating activities ..................... 71.5 127.5 169.4
------------ ------------ ------------
Investing Activities:
Cost of acquisitions, net of cash acquired ................... (1,380.3) (498.7) (313.0)
Capital expenditures ......................................... (87.4) (225.6) (369.2)
Proceeds from sale of assets ................................. 0.9 530.1 12.1
Other ........................................................ (0.4) (7.9) (8.2)
------------ ------------ ------------
Cash used for investing activities ......................... (1,467.2) (202.1) (678.3)
------------ ------------ ------------
Financing Activities:
Net proceeds from sale and
redemption of preferred stock and common stock ............ 48.1 329.0 11.3
Net proceeds from long-term debt ............................. 1,881.3 1,336.8 2,725.3
Payments of long-term debt ................................... (487.9) (1,791.8) (2,265.7)
Other ........................................................ (0.6) 163.9 44.4
------------ ------------ ------------
Cash provided by financing activities ...................... 1,440.9 37.9 515.3
------------ ------------ ------------
Increase (decrease) in cash................................... $ 45.2 $ (36.7) $ 6.4
============ ============ ============
- ------------------
<FN>
(1) Consists principally of provisions for depreciation and amortization,
allowance for doubtful accounts, potentially unrealizable acquisition costs
and deferred income taxes.
</FN>
</TABLE>
28
<PAGE>
As of December 31, 1998, the Company had cash and cash equivalents of
$39.7 million. The Company's capital expenditure and working capital
requirements have increased significantly, reflecting the Company's rapid growth
by acquisition and development of revenue producing assets, and will increase
further as the Company continues to pursue its business strategy. During 1998,
the Company acquired solid waste operations representing approximately $741.9
million in annual revenues ($727.8 million net of intercompany eliminations),
and sold operations representing approximately $7.0 million in annual revenue.
Net consideration of approximately $2.3 billion comprised of cash, notes and
Common Stock, was paid in these transactions. Subsequent to December 31, 1998,
the Company acquired 17 operating solid waste businesses with annual revenues of
approximately $70.6 million for consideration of approximately $143.7 million.
For the calendar year 1999, the Company expects to spend approximately $315
million for capital expenditures, closure and post-closure, and remediation
expenditures relating to its landfill operations. As the Company continues to
acquire waste operations in 1999, additional capital amounts will be required
during 1999 for the acquisition of businesses and the capital expenditure
requirements related to those acquired businesses.
On December 31, 1998, the Company's debt structure consisted primarily
of $1.7 billion of the 1998 Senior Notes and $300 million outstanding under the
Term Loan Facility (as defined herein). As of December 31, 1998 there is
aggregate availability under the Revolving Credit Facility of approximately
$720.7 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 to expand to $1.1 billion from $900 million by increasing the
revolving credit facility from $400 million to $600 million and by adding a $200
million delayed draw term facility (the "Delayed Draw Term Facility"), after
giving effect to the repayment of $203 million of the Term Loan Facility on
September 30, 1997. The Revolving Credit Facility includes a $250 million
sublimit for the issuance of letters of credit (increased from $175 million at
September 30, 1997). The indentures relating to the 1998 Senior 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, on an annualized basis, this is
expected to include approximately $204.5 million in annual principal and
interest payments.
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 December 31, 1998, the Company had outstanding
approximately $428.6 million in financial assurance instruments, represented by
$277.6 million of performance bonds, $134.4 million of insurance policies and
$16.6 million of trust deposits. During calendar year 1999, the Company expects
to be required to provide approximately $408 million in financial assurance
obligations relating to its landfill operations and collection contracts. The
Company expects that financial assurance obligations will increase in the future
as it acquires and expands its landfill activities and that a greater percentage
of the financial assurance instruments will be comprised of performance bonds
and insurance policies.
The Company has lease facilities (the "Lease Facilities") that allow it
to enter into equipment leases at rates ranging from similar term treasury note
rates plus 1.55% for terms of 36 to 84 months. In addition to equipment leases
outstanding at December 31, 1997 and 1998 of $71.0 million and $36.6 million,
respectively, the Company had available lease commitments of $32.4 million and
$55.0 million, respectively. The Company has entered into master equipment lease
facilities relating to the financing of the acquisition of trucks and
containers.
29
<PAGE>
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 Credit Agreement, 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 1998 Senior Notes, and capital
amounts required for acquisitions and expansion. However, the principal payment
at maturity on the 1998 Senior Notes may require refinancing. There can be no
assurance that the Company's business will generate sufficient cash flow from
operations or that future financings will be available in an amount sufficient
to enable the Company to service its indebtedness or to make necessary capital
expenditures, or that any refinancing would be available on commercially
reasonable terms if at all. Additionally, depending on the timing, amount and
structure of any future acquisitions and the availability of funds under the
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.
Significant Financing Events
In December 1996, Allied Waste North America ("Allied NA") issued the
1996 Notes. Net proceeds from the sale of the 1996 Notes, after the underwriting
discount and other expenses, were approximately $509 million. The net proceeds
were used to pay a portion of the cash purchase price of the Laidlaw
Acquisition, repay amounts outstanding under the Company's previous $300 million
revolving credit facility, fund certain acquisitions and for general corporate
purposes.
In May 1997, the Company, pursuant to the Laidlaw Securities Purchase
Agreement with the Laidlaw Group and certain private securities investment funds
affiliated with either (i) Apollo Advisors II, L.P. or (ii) the Blackstone Group
(the "Apollo/Blackstone Investors"), repurchased from the Laidlaw Group the
Allied Debentures and the Warrant for an aggregate purchase price of $230
million in cash. Also pursuant to the Laidlaw Securities Purchase Agreement, the
Apollo/Blackstone Investors purchased all of the Common Stock held by Laidlaw.
In connection with the Repurchase, Allied issued $418 million aggregate face
amount of the Senior Discount Notes in a private offering on May 15, 1997. The
net proceeds of $230 million realized from the sale of the Senior Discount Notes
were used to pay the cash consideration in the Repurchase.
In June 1997, the Company repaid its senior credit facility and entered
into the 1997 Credit Agreement. The 1997 Credit Agreement provides a six and
one-half year senior secured $500 million term loan facility and a six and
one-half year senior secured $400 million revolving credit facility.
30
<PAGE>
On September 30, 1997, the Company repaid $203 million outstanding
under the Term Loan Facility and $71 million outstanding under the Revolving
Credit Facility of the 1997 Credit Agreement. In connection with this repayment,
the Company amended the 1997 Credit Agreement in October 1997, providing for a
six and one-half year senior secured $297 million funded term loan facility, a
senior secured $200 million delayed draw term loan facility to finance certain
acquisitions prior to March 31, 1998, and a senior secured $600 million
revolving credit facility due December 2003.
In June 1998, the Company repaid $486.8 million outstanding under the
1997 Credit Agreement and entered into a new credit agreement (the "Credit
Agreement"). The Credit Agreement provides a $800 million five year senior
secured revolving credit facility (the "Revolving Credit Facility") and a $300
million five year senior secured term loan facility (the "Term Loan Facility"
and together with the Revolving Credit Facility, the "Senior Credit Facility").
The Term Loan Facility is a funded, 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 addition to the scheduled principal payments above, the Company is
also required to make mandatory prepayments on the Senior Credit Facility equal
75% or 50% of the net proceeds from certain debt issues and up to 75% or 50% of
the net proceeds from the sale of assets if the Company's Leverage Ratio, as
defined in the Credit Agreement exceeds 4.5 to 1.0 or 4.0 to 1.0, respectively.
Mandatory prepayments shall be applied first to the outstanding revolving credit
advances and Term Loans pro rata based on outstandings, until no revolving
credit advances are outstanding, and then to repay outstanding Term Loans.
Borrowings under the Credit Agreement may be used for acquisitions, the
issuance of letters of credit, working capital and other general corporate
purposes. Of the $800 million available under the Revolving Credit Facility, no
more than $250 million may be used to support the issuance of letters of credit.
The Senior Credit Facility bears interest, at the Company's option, at
the lesser of (a) a Base Rate, or (b) a Eurodollar Rate, both terms 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, 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 December 31, 1998.
31
<PAGE>
In December 1998, Allied NA issued an aggregate of $1.7 billion of
senior notes consisting of $225 million 7 3/8% senior notes due 2004 (the "Five
Year Senior Notes"), $600 million 7 5/8% senior notes due 2006 (the "Seven Year
Senior Notes"), and $875 million 7 7/8% senior notes due 2009 (the "Ten Year
Senior Notes" and collectively the "1998 Senior Notes") in a Rule 144A offering
which was subsequently registered for public trading with the Securities and
Exchange Commission (the "SEC") in January, 1999. The Company used the net
proceeds from the 1998 Senior Notes to fund the purchase of the 1996 Notes and
the Senior Discount Notes pursuant to tender offers the Company commenced in
November 1998 and completed in December 1998, to repay borrowings outstanding
under the Senior Credit Facility and certain capital lease obligations, and for
general corporate purposes. The Five Year Senior Notes and the Seven Year Senior
Notes will not be subject to any redemption at the option of the Company prior
to the final maturity of such notes. The Five Year Senior Notes and Seven Year
Senior Notes will be redeemable, at the option of the Company, in whole or in
part, at any time, in cash, at a redemption price equal to the greater of (i)
100% of their principal amount or (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to
maturity at a semi-annual basis at the treasury yield plus 50 basis points, plus
in each case accrued but unpaid interest to but excluding the date of
redemption. The Ten Year Senior Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after January 1, 2004 in cash at
the redemption price plus accrued and unpaid interest to but excluding the date
of redemption. Prior to January 1, 2004, the Ten Year Senior Notes will be
redeemable, at the option of the Company, in whole or in part, at any time, in
cash, at a redemption price equal to the greater of (i) 100% of their 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 the treasury yield plus 50 basis points, plus accrued but unpaid interest to
but excluding the date of redemption. In addition, at any time prior to January
1, 2002, the Company may on any one or more occasions redeem up to 33 1/3% of
the aggregate principal amount of Ten Year Senior Notes originally issued at a
redemption price equal to 107.9% of the principal amount thereof, plus accrued
and unpaid interest to the date of redemption, with the net cash proceeds of one
or more public offerings; provided that the notice of redemption with respect to
any such redemption is mailed within 30 days following the closing of the
corresponding public offering. The 1998 Senior Notes are guaranteed by the
Company and substantially all of Allied NA's current and future subsidiaries,
the guarantees of which are expressly subordinated to the guarantees of Allied
NA's Credit Agreement.
32
<PAGE>
Disclosure Regarding Forward Looking Statements
This annual 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 report, are Forward Looking Statements. Although the Company believes
that the expectations reflected in such Forward Looking Statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits or other consequences of such
plans or strategies, number of acquisitions and projected or anticipated
benefits from acquisitions made by or to be made by the Company, or projections
involving anticipated revenues, earnings, levels of capital expenditures or
other aspects of operating results. All phases of the Company operations are
subject to a number of uncertainties, risks and other influences, many of which
are outside the control of the Company and any one of which, or a combination of
which, could materially affect the results of the Company's operations and
whether Forward Looking Statements made by the Company ultimately prove to be
accurate. Such important factors ("Important Factors") that could cause actual
results to differ materially from the Company's expectations are disclosed in
this section and elsewhere in this report. All subsequent written and oral
Forward Looking Statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Important Factors
described below that could cause actual results to differ from the Company's
expectations.
Competition. The solid waste collection and disposal business is highly
competitive and requires substantial amounts of capital. The Company competes
with numerous waste management companies, a number of which have significantly
larger operations and greater resources than the Company. The Company also
competes with those counties and municipalities that maintain their own waste
collection and disposal operations. Forward Looking Statements assume that the
Company will be able to effectively compete with the other waste management
companies and municipalities.
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 acquisition at prices that the Company has experienced in the
past two years.
Integration. The Company's financial position and results of operations
depend to a large extent on the integration of recently acquired businesses. The
Forward Looking Statements assume that integration of acquired companies,
including the internalization of waste, will require from three to nine months
from the date the acquisition closes. Failure to achieve effective integration
in the anticipated time period or at all could have an adverse effect on the
Company's future results of operations.
Ongoing Capital Requirements. To the extent that internally generated
cash and cash available under the Company's existing credit facilities are not
sufficient to provide the cash required for future operations, capital
expenditures, acquisitions, debt repayment obligations and/or financial
assurance obligations, the Company will require additional equity and/or debt
financing in order to provide such cash. The Company has incurred significant
debt obligations in the last two years, which entail substantial debt service
costs. The Forward Looking Statements assume that the Company will be able to
raise the capital necessary to finance such requirements at rates that are as
good as or better than those it is currently experiencing. There can be no
assurance, however, that such financing will be available or, if available, will
be available on terms satisfactory to the Company.
33
<PAGE>
Economic Conditions. The Company's business is affected by general
economic conditions. The Forward Looking Statements assume that the Company will
be able to achieve internal volume and price growth which is not impacted by an
economic downturn. As revenue of the Company continues to grow it is likely that
the rates of internal growth will reflect growth rates which are less than those
experienced in 1998. There can be no assurance that an economic downturn will
not result in a reduction in the volume of waste being disposed of at the
Company's operations and/or the price that the Company can charge for its
services.
Weather Conditions. Protracted periods of inclement weather may
adversely affect the Company's operations by interfering with collection and
landfill operations, delaying the development of landfill capacity and/or
reducing the volume of waste generated by the Company's customers. In addition,
particularly harsh weather conditions may result in the temporary suspension of
certain of the Company's operations. The Forward Looking Statements do not
assume that such weather conditions will occur.
Dependence on Senior Management. The Company is highly dependent upon
its senior management team. In addition, as the Company continues to grow, its
requirements for operations management with waste industry experience will also
increase. The availability of such experienced management is not known. The
Forward Looking Statements assume that experienced management will be available
when needed by the Company at compensation levels that are within industry
norms. The loss of the services of any member of senior management or the
inability to hire experienced operations management could have a material
adverse effect on the Company.
Influence of Government Regulation. The Company's operations are
subject to and substantially affected by extensive federal, state and local
laws, regulations, orders and permits, which govern environmental protection,
health and safety, zoning and other matters. These regulations may impose
restrictions on operations that could adversely affect the Company's results,
such as limitations on the expansion of disposal facilities, limitations on or
the banning of disposal of out-of-state waste or certain categories of waste or
mandates regarding the disposal of solid waste. Because of heightened public
concern, companies in the waste management business may become subject to
judicial and administrative proceedings involving federal, state or local
agencies. These governmental agencies may seek to impose fines or to revoke or
deny renewal of operating permits or licenses for violations of environmental
laws or regulations or to require remediation of environmental problems at sites
or nearby properties, or resulting from transportation or predecessors'
transportation and collection operations, all of which could have a material
adverse effect on the Company. Liability may also arise from actions brought by
individuals or community groups in connection with the permitting or licensing
of operations, any alleged violations of such permits and licenses or other
matters. The Forward Looking Statements assume that there will be no materially
negative impact on 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 of environmental liability, if the
Company were to incur liability for environmental damage, its business and
financial condition could be materially adversely affected. The Forward Looking
Statements assume that the Company will not incur any material environmental
liabilities other than those for which a provision has been recorded in the
consolidated financial statements and disclosed in the notes thereto.
34
<PAGE>
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 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. 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 can be
adversely affected by protracted periods of inclement weather which could delay
the development of landfill capacity or transfer of waste and/or reduce the
volume of waste generated.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is subject to interest rate risk on its long-term debt.
Although no exposure exists with respect to the Company's fixed rate long-term
corporate debt instruments, the Company runs the risk of interest rate
fluctuations with respect to its Libor variable rate Senior Credit Facility at
December 31, 1998. To modify the risk from these interest rate fluctuations, the
Company enters into hedging transactions that have been authorized pursuant to
the Company's policies and procedures. The Company does not use financial
instruments for trading purposes and is not a party to any leveraged
derivatives. The following table sets forth, as of December 31, 1998, the
Company's long-term debt obligations, principal cash flows by scheduled
maturity, average interest rates and estimated fair market value (amounts in
thousands, except interest rates):
Senior Credit Average
Facility Interest Rate
-------- -------------
1999........................... $ -- 6.0%
2000........................... -- 6.0%
2001........................... 75,000 6.0%
2002........................... 105,000 6.0%
2003........................... 120,000 6.0%
Thereafter..................... -- --
---------
Total.......................... $ 300,000 6.0%
===========
Estimated Fair Value
at December 31, 1998........... $ 300,000
===========
35
<PAGE>
The Company has effectively converted its long-term debt, which requires
payment at variable rates of interest, to fixed rate obligations through
interest rate swap transactions. These transactions require the Company to pay
fixed rates of interest on notional amounts of principal to counter-parties. The
counter-parties, in turn, pay to the Company variable rates of interest on the
same notional amounts of principal. Increases or decreases in short-term market
rates would not impact earnings and cash flow as all variable rate debt has been
swapped for fixed rates. In addition, decreases in long-term market interest
rates would have the effect of increasing the fair value of the Company's
long-term debt and other long-term, fixed rate obligations. The following
interest rate table shows the interest rate swaps that were in effect
and their fair value as of December 31, 1998:
<TABLE>
<CAPTION>
Notional Fair
Principal Interest Underlying Interest Market Value
(in thousands) Maturity Paid Obligations Received (in thousands)
- ------------------- ------------------- ---------- ---------------------------------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$ 50,000 April 1999 5.12% Credit Agreement Term Loan Facility Libor $ 6.0
50,000 October 1999 6.02 Credit Agreement Term Loan Facility Libor 497.4
50,000 November 1999 5.90 Credit Agreement Term Loan Facility Libor 442.9
50,000 November 1999 5.91 Credit Agreement Term Loan Facility Libor 439.5
50,000 March 2000 6.06 Credit Agreement Term Loan Facility Libor 618.5
50,000 September 2000 6.08 Credit Agreement Term Loan Facility Libor 894.3
</TABLE>
Market Price Risk
The Company has risk exposure associated with the market price on the
1998 Senior Notes. The 1998 Senior Notes are recorded at book value, which could
vary from current market prices. At December 31, 1998, the 1998 Senior Notes had
a value of $1.717 billion based on quoted average market prices.
36
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants.
Consolidated Balance Sheets - December 31, 1997 and 1998.
Consolidated Statements of Operations for the Three Years Ended
December 31, 1998.
Consolidated Statements of Stockholders' Equity for the Three Years
Ended December 31, 1998.
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1998.
Notes to Consolidated Financial Statements.
37
<PAGE>
Report of Independent Public Accountants
To Allied Waste Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Allied Waste
Industries, Inc., (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allied Waste Industries, Inc.
and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II listed in Item 14 of Part IV
herein is presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
March 3, 1999.
38
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
1997 1998
---- ----
ASSETS
Current Assets --
<S> <C> <C>
Cash and cash equivalents...................................... $ 33,320 $ 39,742
Accounts receivable, net of allowance of $9,348
and $13,907.................................................. 202,687 225,087
Prepaid and other current assets .............................. 49,626 47,184
Deferred income taxes, net .................................... 7,652 44,141
Assets held for sale .......................................... -- 143,750
------------- ---------------
Total current assets .................................... 293,285 499,904
Property and equipment, net ...................................... 1,583,133 1,776,025
Costs in excess of net assets acquired, net ...................... 1,082,750 1,327,470
Other assets, net................................................. 114,652 149,193
------------- ---------------
Total assets ............................................ $ 3,073,820 $ 3,752,592
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt ............................. $ 68,996 $ 21,516
Accounts payable............................................... 98,881 106,082
Accrued closure, post-closure and environmental costs.......... 36,802 41,938
Other accrued liabilities ..................................... 119,307 236,826
Unearned revenue............................................... 44,353 48,511
------------- -------------
Total current liabilities .............................. 368,339 454,873
Long-term debt, less current portion ............................. 1,492,360 2,118,927
Deferred income taxes ............................................ 20,400 --
Accrued closure, post-closure and environmental costs ............ 171,591 205,982
Other long-term obligations ...................................... 58,665 42,736
Commitments and contingencies
Stockholders' Equity --
Common stock .................................................. 1,814 1,845
Additional paid-in capital .................................... 999,277 1,208,906
Retained deficit............................................... (38,626) (280,677)
------------- -------------
Total stockholders' equity ............................. 962,465 930,074
------------- -------------
Total liabilities and stockholders' equity ............. $ 3,073,820 $ 3,752,592
============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
</FN>
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for per share amounts)
Year Ended December 31,
---------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues ............................................ $ 619,548 $ 1,340,661 $ 1,575,612
Cost of operations .................................. 386,001 777,289 892,273
Selling, general and administrative expenses ........ 102,416 177,396 155,835
Depreciation and amortization ....................... 67,823 158,238 179,965
Acquisition related and unusual costs ............... 96,508 3,934 247,902
Asset impairments.................................... -- -- 69,714
------------ ------------ -------------
Operating income (loss) .......................... (33,200) 223,804 29,923
Interest income ..................................... (2,479) (1,765) (4,030)
Interest expense..................................... 21,347 108,045 88,431
------------ ------------ -------------
Income (loss) before income taxes................. (52,068) 117,524 (54,478)
Income tax expense................................... 354 40,277 43,773
------------ ------------ -------------
Income (loss) before extraordinary loss .......... (52,422) 77,247 (98,251)
Extraordinary loss due to early extinguishments
of debt, net of income tax benefit ................. (13,887) (53,205) (124,801)
------------ ------------ -------------
Net income (loss) ................................ (66,309) 24,042 (223,052)
Dividends on preferred stock......................... (1,073) (381) --
------------ ------------ -------------
Net income (loss) available
to common shareholders ........................... $ (67,382) $ 23,661 $ (223,052)
============ ============ =============
Basic EPS:
Net income (loss) before extraordinary loss ...... $ (0.40) $ 0.47 $ (0.54)
Extraordinary loss ............................... (0.11) (0.33) (0.68)
------------ ------------ -------------
Net income (loss) ................................ $ (0.51) $ 0.14 $ (1.22)
============ ============ =============
Weighted average common shares outstanding .......... 132,967 164,888 182,796
============ ============ =============
Diluted EPS:
Net income (loss) before extraordinary loss....... $ (0.40) $ 0.44 $ (0.54)
Extraordinary loss ............................... (0.11) (0.30) (0.68)
------------ ------------ -------------
Net income (loss) ................................ $ (0.51) $ 0.14 $ (1.22)
============ ============ =============
Weighted average common and common
equivalent shares outstanding .................... 132,967 172,958 182,796
============ ============ =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Additional Retained Total
Preferred Common Paid-In Earnings Stock-holders'
Stock Stock Capital (Deficit) Equity
---------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995.......................... $ 2 $ 1,227 $ 196,094 $ 21,127 $ 218,450
Common stock issued, net........................... -- 242 162,535 -- 162,777
Warrants issued ................................... -- -- 49,000 -- 49,000
Stock options and warrants
exercised ..................................... -- 10 2,336 -- 2,346
9% Cumulative Convertible preferred
stock and convertible notes converted ......... (1) 21 5,465 -- 5,485
Dividends declared on
preferred stock ............................... -- -- (1,073) -- (1,073)
Equity transactions of pooled
companies ..................................... -- 1 24,703 (10,162) 14,542
Net loss .......................................... -- -- -- (66,309) (66,309)
----------- -------- ------- ----------- ---------
Balance December 31, 1996.......................... 1 1,501 439,060 (55,344) 385,218
Common stock issued, net........................... -- 221 357,798 -- 358,019
Warrants repurchased .............................. -- -- (49,000) -- (49,000)
Stock grant amortization .......................... -- -- 381 -- 381
Stock options and warrants exercised............... -- 13 4,195 -- 4,208
9% Cumulative Convertible preferred stock
and convertible notes converted ............... (1) 17 2,174 -- 2,190
Dividends declared on preferred stock ............. -- -- (381) -- (381)
Equity transactions of pooled
companies ..................................... -- 62 245,050 (7,324) 237,788
Net income......................................... -- -- -- 24,042 24,042
----------- ---------- --------- -------- ---------
Balance December 31, 1997.......................... -- 1,814 999,277 (38,626) 962,465
Common stock issued, net........................... -- 13 26,474 -- 26,487
Stock grant amortization .......................... -- -- 1,251 -- 1,251
Stock options and warrants exercised............... -- 18 23,547 -- 23,565
Equity transactions of pooled
companies ..................................... -- -- 158,357 (18,999) 139,358
Net loss .......................................... -- -- -- (223,052) (223,052)
----------- ------------ ----------- ----------- ---------
Balance December 31, 1998.......................... $ -- $ 1,845 $ 1,208,906 $(280,677) $ 930,074
======== ========== =========== =========== =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------------------------------
1996 1997 1998
---- ---- ----
Operating activities --
<S> <C> <C> <C>
Net income (loss) ....................................................... $ (66,309) $ 24,042 $(223,052)
Adjustments to reconcile net income (loss) to cash
provided by operating activities--
Extraordinary loss due to early extinguishments of debt,
net of income tax benefit.......................................... 13,570 (13,921) (54,202)
Provisions for:
Depreciation and amortization ........................................ 67,823 158,238 179,965
Non-cash acquisition related and unusual costs ....................... 96,508 -- 38,758
Asset impairments..................................................... -- -- 69,714
Doubtful accounts..................................................... 2,871 4,228 8,086
Accretion of senior discount notes ................................... -- 22,764 29,149
Deferred income tax provision (benefit)............................... 11,018 (1,794) 24,637
Loss (gain) on sale of assets ........................................ 1,769 (7,250) (3,521)
Change in operating assets and liabilities, excluding the
effects of purchase acquisitions --
Accounts receivable, prepaid expenses, inventories and other.......... (34,173) (127,974) (54,609)
Accounts payable, accrued liabilities, unearned income and other ..... (26,520) 70,803 159,861
Closure and post-closure provision.................................... 6,660 12,920 17,607
Closure, post-closure and environmental expenditures ................. (1,681) (14,590) (23,000)
----------- ------------ ----------
Cash provided by operating activities ..................................... 71,536 127,466 169,393
----------- ------------ ----------
Investing activities --
Cost of acquisitions, net of cash acquired .............................. (1,380,299) (498,706) (312,986)
Capital expenditures..................................................... (74,051) (188,005) (301,742)
Capitalized interest .................................................... (13,451) (37,568) (67,499)
Proceeds from sale of assets............................................. 940 530,120 12,070
Change in deferred acquisition costs and notes receivable ............... (352) (7,926) (8,184)
----------- ------------ ----------
Cash used for investing activities ........................................ (1,467,213) (202,085) (678,341)
----------- ------------ ----------
Financing activities --
Net proceeds from sale of common stock, and exercise of
stock options and warrants .......................................... 48,119 329,019 11,324
Proceeds from long-term debt,
net of issuance costs................................................. 1,881,300 1,336,780 2,725,262
Repayments of long-term debt............................................. (487,868) (1,791,799) (2,265,741)
Repurchase of warrant ................................................... -- (49,000) --
Other long-term obligations ............................................. (13,555) 12,886 2,745
Dividends paid........................................................... (1,634) (525) --
Equity transactions of pooled companies.................................. 14,542 200,563 41,780
----------- ------------ ----------
Cash provided by financing activities ..................................... 1,440,904 37,924 515,370
----------- ------------ ----------
Increase (decrease) in cash and cash equivalents........................... 45,227 (36,695) 6,422
Cash and cash equivalents, beginning of period ............................ 24,788 70,015 33,320
----------- ------------ ----------
Cash and cash equivalents, end of period .................................. $ 70,015 $ 33,320 $ 39,742
=========== ============ ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</FN>
</TABLE>
42
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Allied Waste Industries, Inc., a Delaware corporation, ("Allied" or the
"Company") is the third largest, non-hazardous solid waste management company in
the United States, as measured by revenues. Allied provides non-hazardous waste
collection, transfer, recycling and disposal services in 28 states located
primarily in the Great Lakes, Midwest, Northeast, Southeast, Southwest and West
regions of the United States.
Principles of consolidation and presentation --
The consolidated financial statements include the accounts of Allied
and its subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. The consolidated financial statements and
accompanying notes have also been restated to reflect material acquisitions
accounted for as poolings-of-interests (See Note 2).
Certain reclassifications have been made to the prior period financial
statements to conform to the current presentation.
Cash and cash equivalents --
Cash equivalents are investments with original maturities of less than
ninety days and are stated at quoted market prices. Cash and cash equivalents
includes approximately $21.2 million and $32.7 million of book overdrafts at
December 31, 1997 and 1998, respectively.
Concentration of credit risk --
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and trade
receivables. The Company places its cash and cash equivalents with high quality
financial institutions and limits the amount of credit exposure to any one
financial institution.
The Company provides services to commercial and residential customers
in the United States. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base. The Company performs ongoing credit evaluations of its
customers, but does not require collateral to support customer receivables. The
Company establishes an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information.
Property and equipment --
Property and equipment are recorded at cost, which includes interest to
finance the acquisition and construction of major capital additions during the
development phase, primarily landfills and transfer stations, until they are
completed and ready for their intended use. Depreciation is provided on the
straight-line method over the estimated useful lives of buildings (30-40 years),
vehicles and equipment (3-15 years), containers and compactors (5-10 years) and
furniture and office equipment (3-8 years). Statement of Financial Accounting
Standard 121 (SFAS 121), Accounting for the Impairment of Long-lived Assets and
Long-lived Assets to be Disposed of, requires that long-lived assets, such as
property and equipment, and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable.
43
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The cost of landfill airspace, including original acquisition cost and
incurred and projected landfill construction costs, is amortized over the
capacity of the landfill based on tonnage as landfill airspace is consumed.
Management periodically reviews the realizability of its investment in operating
landfills. Should events and circumstances indicate that any of the Company's
landfills be reviewed for possible impairment, such review for recoverability
will be made in accordance with Emerging Issues Task Force Discussion Issue
("EITF") 95-23. The EITF outlines how cash flows for environmental exit costs
should be determined and measured.
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs which do not improve assets or extend
their useful lives are charged to expense as incurred. For the three years ended
December 31, 1998, maintenance and repair expenses charged to cost of operations
were $33.1 million, $80.9 million and $99.8 million, respectively. When property
is retired, the related cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized.
Costs in excess of net assets acquired --
Cost in excess of net assets acquired (or "goodwill") is the cost in
excess of fair value of identifiable assets in purchase business combinations
and is amortized on a straight-line basis over 40 years. The Company allocates
cost in excess of net assets acquired, when appropriate, to the districts
operating the assets based on a percentage of acquired assets' operating income
to the total acquired operating income. In accordance with SFAS 121, the Company
continually reviews for impairment whenever events or changes in circumstances
indicate that the remaining estimated useful life of costs in excess of net
assets acquired may warrant revision or that the balance may not be recoverable.
The Company evaluates possible impairment by comparing estimated future cash
flows, before interest expense and on an undiscounted basis, and the net book
value of assets including costs in excess of net assets acquired. If
undiscounted cash flows are insufficient to recover assets, further analysis is
performed in order to determine the amount of the impairment. The Company
records an impairment loss equal to the amount by which the carrying amount of
the assets exceeds their fair market value. Fair market value is usually
determined based on the present value of estimated expected future cash flows
using a discount rate commensurate with the risks involved. In instances where
goodwill is identified with assets that are subject to an impairment loss, the
carrying amount of the identified goodwill is reduced before making any
reduction of the carrying amounts of impaired long-lived assets. See Note 1 -
Asset Impairments for a discussion of current year asset impairments recorded.
Goodwill amortization of $5.2 million, $26.6 million and $30.7 million is
included in depreciation and amortization for the three years in the period
ended December 31, 1998, respectively. Accumulated goodwill amortization was
$43.9 million and $74.6 million at December 31, 1997 and 1998, respectively.
Other assets --
Other assets include notes receivable, landfill closure deposits,
deferred charges and miscellaneous non-current assets. Deferred charges include
costs incurred to acquire businesses and to obtain debt financing. Upon
consummation of an acquisition, deferred costs relating to acquired businesses
accounted for as purchases are allocated to goodwill or landfill airspace while
costs relating to acquired businesses accounted for as poolings-of-interests are
expensed. Direct costs related to acquisitions under evaluation are capitalized
and reviewed for realization on a periodic basis. These costs are expensed when
management determines that the capitalized costs provide no future benefit. Upon
funding of debt offerings, deferred costs are capitalized as debt issuance costs
and amortized using the interest method over the life of the related debt.
Miscellaneous assets include consulting and non-competition agreements which are
amortized in accordance with the terms of the respective agreements and
contracts, generally not exceeding 5 years.
44
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accrued closure and post-closure costs --
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 impact of
changes determined to be changes in estimates, based on the annual update, are
accounted for on a prospective basis. The present value of estimated future
costs are accrued based on accepted tonnage as landfill airspace is consumed.
Discounting of future costs is applied where the Company believes that both the
amounts and timing of related payments are reliably determinable.
Environmental costs --
Allied accrues for costs associated with environmental remediation
obligations when such costs are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries of environmental remediation costs
from other parties are recorded when their receipts are deemed probable.
Environmental liabilities and apportionment of responsibility among potentially
responsible parties are accounted for in accordance with the guidance provided
by the Statement of Position 96-1 ("SOP 96-1") "Environmental Remediation
Liabilities."
Other long-term obligations --
Other long-term obligations include non-competition agreements with
former owners of acquired companies and deferred royalty obligations. Guaranteed
minimum royalty obligations are recorded upon acquisition of the related asset
whereas royalty obligations dependent upon future waste accepted at landfills
are expensed as earned.
Revenue --
Advance billings are recorded as unearned revenue, and revenue is
recognized when services are provided.
Loss Contracts --
The Company reviews its revenue producing contracts in the ordinary
course of business to determine if the direct costs , exclusive of any
non-variable costs, to service the contractual arrangements exceed the revenues
to be produced by the contract. Any resulting excess costs over the life of
the contract are expensed at the time of such determination.
Acquisition related and unusual costs --
During 1998, the Company recorded acquisition related and unusual
charges in the amount of $247.9 million. These charges consist of transaction
and deal costs, employee severance and transition costs, environmental related
matters, litigation liabilities, regulatory compliance matters, restructuring
and abandonment costs and loss contract provisions. The Company does not
anticipate that future costs to be incurred in connection with 1998 acquisitions
will be significant as restructuring and transition activities have been
substantially implemented as of December 31, 1998. The 1998 acquisition related
and unusual charges predominantly relate to acquisitions accounted for as
poolings-of-interests and consist of the following:
45
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Direct transaction and deal costs of $51.2 million including
investment banker, attorney, accountant, environmental assessment and
other third party fees. Approximately $11.7 million is accrued at
December 31, 1998 consisting of $2 million of environmental assessment
fees and $9.7 million of professional service fees incurred in
connection with fourth quarter 1998 acquisitions.
Employee severance and transition costs of $73.6 million consist of
$39.3 million in termination payments made to employees of acquired
companies based on change of control provisions in preexisting
contracts and $34.3 million of costs associated with severance
payments under exit or integration plans implemented in connection
with acquisitions made during 1998. Exit plans primarily relate to the
elimination of duplicate corporate and administrative offices of
companies acquired. Integration plans include the combination of field
activities for human resource, accounting, facility maintenance,
health and safety compliance and customer service activities of
companies acquired with field activities similar to those of the
Company. The exit and integration plans call for the termination of a
total of approximately 800 employees who have or are currently
performing managerial, sales, administrative support, maintenance and
repair, or hauling and landfill operations duties. All employees were
identified and notified of their severance or transition benefits at
the time management approved the plan, which occurred at or around the
time of the acquisitions. At December 31, 1998, the majority of
employees identified have been terminated and approximately $10.1
million is accrued for benefits remaining to be paid. Of this amount,
$1.5 million relates to preexisting contracts which will be paid
ratably over a five year period after the severance date in accordance
with the terms of the contract and $8.6 million represents the
severance payments remaining to be made in 1999 to former employees
in accordance with the exit and integration plans. See the
rollforward of activity relating to accrued exit and integration plan
costs following the discussion of acquisition related and unusual
costs.
Environmental related matters, litigation liabilities and regulatory
compliance matters assumed in acquisitions totaled $73.4 million.
Subsequent to the acquisitions, the Company made certain changes in
accounting estimates due to events and new information becoming
available for environmental liabilities of approximately $41.1
million, litigation liabilities of approximately $20.8 million and
regulatory compliance liabilities of approximately $11.5 million.
As part of the Company's acquisition due diligence process,
environmental assessments were performed at the time of acquisition by
third party and in-house engineers. The assessments were performed at
over 150 operating sites owned or used by the 54 companies acquired by
Allied in 1998. Additional environmental liabilities were accrued
based on the results of the assessments and represent the most
probable outcome of these identified contingent matters. $27.1 million
of the additional accrued environmental liability was comprised of
required remedial activities identified at 28 separate locations.
These locations include eight landfills acquired by Allied , 15
landfills not owned by Allied, but used for disposal by collection
companies acquired , and transfer stations and maintenance facilities
acquired. Required remedial activities include the removal and
treatment of waste improperly disposed of, containment and abatement
of landfill gas migration, removal and disposal of contaminated soil
and hazardous waste and legal and administrative costs of the
settlement of Superfund claims. The additional $14 million of
environmental accruals related to removal and treatment of leachate at
landfills, the level of which exceeded permitted amounts at seven of
the acquired landfills. See Note 6 for further discussion of
environmental contingencies. At December 31, 1998, approximately $41.1
million is accrued for environmental matters, which is expected to be
disbursed in future periods, and $15.8 million is accrued for legal
and regulatory compliance liabilities.
46
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The change in estimate relating to litigation and regulatory
compliance liabilities was accrued based on legal due diligence
performed by in-house and outside legal counsel for acquired companies
at the time of acquisition and the determination of the most probable
loss incurred. As a result of this legal due diligence, the Company
identified 14 companies acquired in business combinations accounted
for as poolings-of-interests, which had an aggregate of 54 asserted
and unasserted claims involving matters such as contract disputes,
employment related disputes, real and personal property and sales tax
issues and billing disputes. Additionally, the Company identified
regulatory compliance issues related to 12 companies acquired, which
includes citations for certain state and federal health, safety and
transportation violations and the associated costs of fines,
assessments and required maintenance costs to bring facilities and
equipment into compliance.
Management believes the accrual as of December 31, 1998 for legal and
regulatory compliance matters represents the most probable outcome of
outstanding assessments and claims. The Company does not expect that
adjustments to estimates, which are reasonably possible in the near
term and that may result in changes to recorded amounts, will have a
material effect on the Company's consolidated liquidity, financial
positions or results of operations. At December 31, 1998, the Company
believes that it is reasonably possible that the ultimate outcome of
the legal and regulatory compliance matters could result in
approximately $5 million of additional liability.
Restructuring and abandonment costs were $42.1 million in business
combinations accounted for as pooling-of-interests. Costs to relocate
redundant operations and to transition them to common information
systems were $23.1 million. Redundant operations consisted primarily
of activities for human resources, accounting, facility maintenance,
health and safety compliance and customer service which were performed
in field offices of companies acquired. Abandonment costs and losses
on the disposal of duplicate revenue producing assets relating to
specifically identified transfer stations and recycling facilities
were $8.8 million. Revenue and net operating income of the abandoned
operations represented less than one percent of the Company's
consolidated amounts. Additionally, $10.2 million of costs were
incurred for the disposition of redundant non-revenue producing
assets. This includes $7.6 million that was accrued at December 31,
1998, in accordance with exit and integration plans and is expected to
be paid in 1999. This accrual is for payments under non-cancelable
lease agreements for corporate offices to be vacated and other costs
to close corporate facilities after operations have ceased under
exit plans implemented during 1998 at five companies acquired.
See the rollforward of activity relating to accrued exit and
integration plan costs following the discussion of acquisition related
and unusual costs.
Loss contract provisions were $7.6 million for losses associated with
collection contracts and other contractual obligations assumed in
acquisitions. Approximately $5 million remains accrued at December 31,
1998.
<TABLE>
<CAPTION>
The following table reflects the activity related to the 1998
acquisition related and unusual costs:
1998 Balance
1998 Asset 1998 Remaining
Expense Impairments Expenditures Adjustments 12/31/98
--------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Transaction and Deal Costs............... $ 51,200 $ -- $ (39,529) $ -- $ 11,671
Severance and Transition Costs........... 73,619 -- (63,493) -- 10,126
Environmental, Litigation and
Regulatory Compliance Costs............ 73,416 -- (16,482) -- 56,934
Restructuring and
Abandonment Costs.................... 42,098 (18,514) (15,954) -- 7,630
Loss Contracts........................... 7,569 -- (2,587) -- 4,982
----------- ------------- ------------ ------------ ----------
Total.................................... $ 247,902 $ (18,514) $ (138,045) $ -- $ 91,343
=========== ============= ============ ============ ==========
</TABLE>
Acquisition related and unusual costs in 1996 were $96.5 million. In
connection with the 1996 acquisition of the non-hazardous solid waste management
business conducted by Laidlaw Inc. (the "Laidlaw Acquisition"), the Company
incurred approximately $84.6 million in charges primarily associated with the
acquisition. The remaining $11.9 million in charges related to other
acquisitions completed during 1996. Acquisition related and unusual costs
include approximately $51.5 million and $8.8 million relating to the Laidlaw
Acquisition and other acquisitions, respectively, for environmental related
matters for incremental closure and post-closure measures, remediation
activities and litigation costs, expected to be disbursed over the next 30
years. Additionally, $21.5 million of asset impairments and abandonments
consisting of $10.8 million related to over 50 noncompetition agreements in
several markets where the counterparty no longer posed a significant threat,
$7.9 million for discontinued facilities, (of which $4.8 million related to the
Laidlaw Acquisition), and $2.8 million for market development activities no
longer being
47
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
pursued. Additionally, the Company recorded approximately $14.7 million of
acquisition related costs of which $3.5 million related to acquired receivables
considered uncollectible, $5.4 million of restructuring charges and $5.8 million
for the establishment of accruals related to litigation, taxes, fines and other
regulatory issues based on the results of assessments performed, all of which
accruals represent the most probable outcome of the identified contingent
matters. The restructuring charges of $5.4 million related primarily to the
disposition of redundant non-revenue producing assets. See the rollforward of
activity relating to accrued exit and integration plan costs following the
discussion of acquisition related and unusual costs.
Any subsequent changes in estimates of acquisition related and unusual costs
will be included in the acquisition related and unusual costs caption of the
statement of operations in the period in which the change in estimate is made.
To date, no significant changes in estimates have been made related to these
costs.
<TABLE>
<CAPTION>
The following table reflects the annual activity for the three years ended December 31, 1998 related to the 1996
acquisition related and unusual costs:
1996 Balance
1996 Asset 1996 1997 1998 Adjust- Remaining
Expense Impairments Expenditures Expenditures Expenditures ments 12/31/98
--------- ------------- -------------- ------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Environmental Costs........... $60,303 $ -- $ -- $ (5,805) $ (16,206) $ -- $ 38,292
Asset Impairments
and Abandonments........... 21,521 (21,521) -- -- -- -- --
Other Acquisition
Related Costs.............. 14,684 (5,278) (3,091) (6,315) -- -- --
------ ---------- ----------- ----------- ----------- ------- ----------
Total........................ $96,508 $ (26,799) $ (3,091) $ (12,120) $ (16,206) $ -- $ 38,292
====== ========== =========== =========== =========== ======= ==========
</TABLE>
Asset Impairments
During the fourth quarter of 1998, the Company recognized non-cash
asset impairment charges aggregating $69.7 million. These charges related to
assets held for future use and assets to be disposed of in the first and second
quarters of 1999.
An impairment charge of $45.9 million, with no associated tax benefit,
was recorded relating to goodwill recorded by American Disposal Services, Inc.
("ADSI") in connection with ADSI's September 1997 acquisition of Fred Barbara
Trucking, a private waste transportation business. ADSI was acquired by Allied
in a business combination accounted for as a pooling-of-interest on October 15,
1998. In the fourth quarter of 1998, the Company lost certain hauling agreements
at Fred Barbara Trucking, which had become an operating district in its Great
Lakes region resulting in a loss of district revenues. Upon identifying this
event, the Company evaluated possible impairment by comparing estimated future
cash flows, before interest expense and on an undiscounted basis, to the net
book value of assets. This comparison indicated that undiscounted cash flows
were insufficient to recover assets and further analysis was performed in order
to determine the amount of the impairment. In accordance with SFAS 121, the
48
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company recorded an impairment loss equal to the amount by which the carrying
amount of the assets exceeded their fair market value. Fair market value was
determined based on the present value of estimated expected future cash flows
over 38 years using a discount rate commensurate with the risks involved, which
was 12% approximating the Company's weighted average cost of capital.
Additionally, an impairment charge of $23.8 million was recorded for
the write-down to net realizable value less cost of disposal of assets to be
sold relating to non-core or non-integrated operating districts. The ability to
successfully implement the Company's integration strategy is a key consideration
in determining whether the Company will continue in a specific market or exit a
market. In October 1998, the Company formalized plans to dispose of certain
operating districts considered non-core or non-integrated assets. The Company
has entered into agreements to sell these assets and in accordance with SFAS 121
recorded an impairment loss to reduce the carrying value of the assets to net
realizable value including an accrual for the cost of disposal. The sales are
expected to be consummated in the first and second quarters of 1999. The results
of operations before depreciation and amortization of these operating districts
included in consolidated operating income was approximately $4.4 million. At
December 31, 1998, the net assets subject to sale totaled $143.8 million and
have been classified as assets held for sale in current assets in the December
31, 1998 Consolidated Balance Sheet.
Extraordinary loss --
1998:
In December 1998, the Company completed tender offers to repurchase all
of its 1996 Notes (see Note 5) and all of its Senior Discount Notes (see Note
5). An extraordinary charge of approximately $201.2 million ($121.7 million net
of income tax benefit) related to prepayment premiums issued in the tender
offers and the write-off of previously deferred debt issuance costs was
recognized in the fourth quarter 1998. In addition, 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.
1997:
In May 1997, the Company repurchased (the "Repurchase") from Laidlaw
Inc. ("Laidlaw") and Laidlaw Transportation, Inc. (collectively, the "Laidlaw
Group") for $230 million in cash, the $150 million 7% Junior Subordinated
Debenture ($81.6 million book value), the $168.3 million Zero Coupon Debenture
($34.9 million book value, collectively the "Allied Debentures") and the warrant
to purchase 20.4 million shares of the Company's common stock, $0.01 par value
(the "Common Stock") $49.0 million book value, (the "Warrant"), issued as
partial consideration for the Laidlaw Acquisition. An extraordinary charge of
approximately $65.7 million ($39.4 million net of income tax benefit) related to
the Repurchase was recorded in the second quarter of 1997.
During June 1997, the Company replaced its Credit Agreement (see Note
5) with the Senior Credit Facility (see Note 5) and recognized an extraordinary
charge of approximately $21.6 million ($13.0 million net of income tax benefit)
related to prepayment premiums and the write-off of previously deferred debt
issuance costs.
49
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In September 1997, the Company sold 18.6 million shares of common stock
with net proceeds of approximately $327.4 million (the "Equity Offering"). In
October, the Company used $203 million of the net proceeds to retire a portion
of the term loan facility of the Credit Agreement (see Note 5), $71 million to
repay the entire amount outstanding on the revolving credit facility. 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.
1996:
In May 1996, the Company recognized an extraordinary charge of
approximately $0.8 million ($476,000 net of income tax benefit) representing
unamortized deferred debt issuance costs related to refinanced obligations.
In July 1996, the Company completed a tender offer (the "Tender Offer")
and purchased substantially all of its $100 million 12% Senior Subordinated
Notes due 2004 (the "1994 Notes") at the redemption price of $1,157.50 per
$1,000 note. An extraordinary charge to earnings related to the Tender Offer of
approximately $18.4 million ($11.0 million net of income tax benefit) was
charged to earnings in the third quarter of 1996. The Company also received a
consent from a majority of the holders of the 1994 Notes to eliminate all
substantive financial covenants associated with the remaining 1994 Notes.
In December 1996, the Company refinanced its $300 million senior
revolving credit facility with the proceeds from the senior credit facility
related to the Laidlaw Acquisition and recognized an extraordinary charge of
approximately $4.0 million ($2.4 million net of income tax benefit).
50
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Statements of cash flows --
The supplemental cash flow disclosures and non-cash transactions for the
three years ended December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1997 1998
---- ---- ----
Supplemental Disclosures --
<S> <C> <C> <C>
Interest paid (net of amounts capitalized)..................... $ 22,941 $ 86,125 $ 62,386
Income taxes paid.............................................. 6,727 17,244 33,653
Non-Cash Transactions --
Common stock, preferred stock or warrants
issued in acquisitions or as commissions.................... $ 164,764 $ 73,570 $ 124,854
Capital leases................................................. 19,094 38,693 1,187
Debt and liabilities incurred or assumed
in acquisitions............................................. 214,451 207,806 65,409
Debt converted to common stock ................................ 5,485 2,265 --
Non-cash purchase and sale of operating businesses ............ -- 181,434 --
</TABLE>
Use of estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Final settlement amounts could differ from those estimates.
Interest rate protection agreements --
Interest rate protection agreements are used to reduce interest rate risks
and interest costs of the Company's debt portfolio. The Company enters into
these agreements to change the fixed/variable interest rate mix of the portfolio
to reduce the Company's aggregate exposure to increases in interest rates. The
Company does not hold or issue derivative financial instruments for trading
purposes. Hedge accounting treatment is applied to interest rate derivative
contracts that are designated as hedges of specified debt positions. Amounts
payable or receivable under interest rate swap agreements are recognized as
adjustments to interest expense in the periods in which they accrue. Net
premiums paid for derivative financial instruments are deferred and recognized
ratably over the life of the instruments. Under hedge accounting treatment,
current period income is not affected by the increase or decrease in the fair
market value of derivative instruments as interest rates change and these
instruments are not reflected in the financial statements at fair market value.
Early termination of a hedging instrument does not result in recognition of
immediate gain or loss except in those cases when the debt instruments to which
a contract is specifically linked is terminated.
Fair value of financial instruments --
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards ("SFAS") 107, "Disclosures About Fair Value of
Financial Instruments". The Company's financial instruments as defined by SFAS
107 include cash, money market funds, accounts receivable, accounts payable and
long-term debt. The estimated fair value amounts have been determined by the
51
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company at December 31, 1998 using available market information and valuation
methodologies. Considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates may not be
indicative of the amounts that could be realized in a current market exchange.
The use of different market assumptions or valuation methodologies could have a
material effect on the estimated fair value amounts.
The carrying value of cash, money market funds, accounts receivable and
accounts payable approximate fair values due to the short-term maturities of
these instruments.
Stock-based compensation plans --
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion 25, ("APB 25"). Effective in January 1,
1996, the Company adopted the disclosure option of SFAS 123, "Accounting for
Stock-based Compensation." SFAS 123 requires that companies, which do not elect
to account for stock-based compensation as prescribed by the statement, disclose
the pro forma effects on earnings and earnings per share as if SFAS 123 had been
adopted. Additionally, certain other disclosures with respect to stock
compensation and the related assumptions are used to determine the pro forma
effects of SFAS 123 (see Note 8).
Recently issued accounting pronouncements --
In June 1998, the Financial Accounting Standards Boards issued
Statement of Financial Accounting Standards 133 - "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. The statement, which is
to be applied prospectively, is effective for the Company's quarter ending March
31, 2000. The Company is currently evaluating the impact of SFAS 133 on its
future results of operations and financial position.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards 130 Reporting Comprehensive Income. This statement requires
the Company to classify items of other comprehensive income, defined to be the
change in equity of the Company during the period from transactions and other
events and circumstances from non-owner sources, in a separate financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital. Adoption of
this standard did not have an effect on the Company's financial statements as it
has no items of other comprehensive income for any period presented.
During 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5") Reporting on the Costs of
Start-Up Activities. SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. The new statement is effective
for fiscal years beginning after December 15, 1998. The Company intends to adopt
this statement effective January 1, 1999. Initial application of SOP 98-5 is
required to be reported as the cumulative effect of a change in accounting. The
Company believes that its adoption will have no impact on its financial position
or results of operations.
52
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Business Combinations
Acquisitions accounted for as purchases are reflected in the results of
operations since the date of purchase in Allied's consolidated financial
statements. The results of operations for acquisitions accounted for as
poolings-of-interests are included in Allied's restated consolidated financial
statements for all periods presented. The final determination of the cost, and
the allocation thereof, of certain of the Company's acquisitions accounted for
as purchases is subject to resolution of certain contingencies. Once such
contingencies are achieved, the purchase price is adjusted.
On December 30, 1996, the Company completed the acquisition of
substantially all of the non-hazardous solid waste management business conducted
by Laidlaw in the United States and Canada, for total consideration of
approximately $1.5 billion comprised of cash, Common Stock, a warrant to acquire
Common Stock, and subordinated debentures. The cash consideration was financed
from the proceeds of a senior credit facility and the sale of the 1996 Notes
(see Note 5).
The following table summarizes acquisitions for the three years ended
December 31, 1998, excluding the Laidlaw Acquisition:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
Number of businesses acquired accounted for as:
<S> <C> <C> <C>
Poolings-of-interests .................................... 5 9 19
Purchases ................................................ 16 26 35
Total consideration (in millions) ........................ $ 126.5 $ 730.8 $ 2,329.0
Shares of common stock issued (in millions)(1)............ 8.9 7.0 79.5
<FN>
(1) Includes 0.8 million, 0.4 million and 1.6 million shares of contingently issuable common stock for the three years
ended December 31, 1998, respectively.
</FN>
</TABLE>
Revenues and net income have been restated for acquisitions accounted
for as poolings-of-interests as presented in the following table (in thousands):
<TABLE>
<CAPTION>
Allied
Before
Pooling 1998 Allied, as
Acquisitions Poolings Restated
--------------- ---------- ---------
<S> <C> <C> <C>
Year ended December 31, 1996
Revenues...................................... $ 291,685 $ 327,863 $ 619,548
Net loss...................................... (80,582) 14,273 (66,309)
Year ended December 31, 1997
Revenues ..................................... 875,028 465,633 1,340,661
Net income.................................... 412 23,630 24,042
Year ended December 31, 1998
Revenues ..................................... 1,189,139 386,473 1,575,612
Net loss ..................................... (261,783) 38,731 (223,052)
</TABLE>
53
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Unaudited pro forma statement of operations data --
The following table compares, for the year ended December 31, 1997 and
1998, reported consolidated results of operations to unaudited pro forma
consolidated data as if all of the companies acquired in 1997 and 1998 accounted
for using the purchase method for business combinations were acquired as of
January 1, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998
------------------------------ ------------------------------
Restated Pro Forma Reported Pro Forma
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues ........................................ $ 1,340,661 $ 1,439,615 $ 1,575,612 $ 1,602,815
Net income (loss) before extraordinary item...... 77,247 76,626 (98,251) (103,556)
Net income (loss) before extraordinary item
to common shareholders........................ 76,866 76,245 (98,251) (103,556)
Net income (loss) before extraordinary item
per common share - basic...................... 0.47 0.46 (0.54) (0.56)
Net income (loss) before extraordinary item
per common share - diluted ................... 0.44 0.44 (0.54) (0.56)
<FN>
This data does not purport to be indicative of the results of
operations of Allied that might have occurred nor which might occur in the
future.
</FN>
</TABLE>
3. Assets Held for Sale
The ability to successfully implement the Company's vertical
integration business plan is a key consideration in determining whether the
Company will continue to operate in a specific market. In the normal course of
business, the Company has exited markets in which the execution of the vertical
integration business plan was not practicable. In October 1998, the Company
formalized plans to dispose of certain operating districts that represented
non-core or non-integrated assets. The Company has entered into agreements to
sell these assets and in accordance with SFAS 121 recorded an impairment loss to
reduce the carrying value of the assets to net realizable value including an
accrual for the cost of disposal. The sales are expected to be consummated in
the first and second quarters of 1999.
The results of operations before depreciation and amortization of these
operating districts included in consolidated operating income, in accordance
with SFAS 121, was approximately $4.4 million. During the period from October 1,
1998 through December 31, 1998, the Company excluded from consolidated
statements of operations, in accordance with SFAS 121, depreciation and
amortization relating to assets held for sale in the amount of $2.7 million. At
December 31, 1998, the net assets subject to sale totaled $143.8 million, which
are classified as assets held for sale in current assets on the Consolidated
Balance Sheets and are summarized as following (in thousands):
Accounts receivable, net ........... $ 16,608
Other current assets................ 4,460
Property and equipment, net ........ 55,869
Costs in excess of net assets
acquired, net ...................... 106,214
Other long-term assets.............. 1,595
Current liabilities ................ (1,785)
Long-term liabilities .............. (39,211)
--------
Total net assets.................... $ 143,750
=========
54
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Property and Equipment
Property and equipment at December 31, 1997 and 1998 was as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Land and improvements ................................. $ 129,881 $ 168,569
Land held for permitting as landfills(1)............... 79,253 95,463
Landfills ............................................. 901,026 1,063,598
Buildings and improvement.............................. 150,247 162,989
Vehicles and equipment................................. 473,827 500,811
Containers and compactors.............................. 198,456 247,173
Furniture and office equipment ........................ 14,171 18,655
---------------- ----------------
1,946,861 2,257,258
Accumulated depreciation and amortization ............. (363,728) (481,233)
---------------- ----------------
$ 1,583,133 $ 1,776,025
================ ================
<FN>
(1) These properties have been approved for use as landfills, and the
Company is currently in the process of obtaining the necessary
permits.
</FN>
</TABLE>
55
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Long-Term Debt
Long-term debt at December 31, 1997 and 1998 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Senior credit facilities, weighted average interest
at 7.5% and 6.0%, respectively ................................. $ 438,000 $ 300,000
Senior subordinated notes, interest at 10.25% .................... 525,000 --
Senior discount notes, interest at 11.3% ......................... 254,690 --
Senior notes, interest at 7.375% ................................. -- 224,669
Senior notes, interest at 7.625%.................................. -- 600,000
Senior notes, interest at 7.875% ................................. -- 873,478
Notes payable to related parties at rates ranging
from 5.74% to 12%, repaid during 1998........................... 12,374 --
Notes payable to banks, finance companies, and
individuals, weighted average interest rate of 8.6% and 6.3%
at December 31, 1997 and 1998, respectively and principal
payable through 2014, secured by vehicles, equipment, real estate,
accounts receivable or stock of certain subsidiaries............ 230,044 87,376
Notes payable to individuals and a commercial
company, interest at 5%-10%, principal and
interest payable through 2006, unsecured ....................... 30,247 18,296
Obligations under capital leases of vehicles and
equipment, weighted average interest at 7.8%
and 8.1% at December 31, 1997, and 1998,
respectively, payable monthly .................................. 71,001 36,624
---------------- ----------------
1,561,356 2,140,443
Current portion................................................... 68,996 21,516
---------------- ----------------
$ 1,492,360 $ 2,118,927
================ ================
</TABLE>
In connection with the Laidlaw Acquisition, Allied NA (as defined herein)
issued $525 million of 10.25% Senior Subordinated Notes due 2006 (the "1996
Notes") in a Rule 144A offering which was subsequently registered for public
trading with the SEC. The 1996 Notes were repaid in December 1998.
In May 1997, Allied issued $418 million aggregate face amount of senior
discount notes (the "Senior Discount Notes) in a 144A offering which was
subsequently registered for public trading with the SEC. The Senior Discount
Notes were issued at a discount of principal amount and, were registered for
public trading with the SEC in July 1997 and repaid in December 1998.
In June 1997, the Company entered into a credit agreement (the "1997
Credit Agreement"). The 1997 Credit Agreement provides a six and one-half year
senior secured $500 million term loan facility and a six and one-half year
senior secured $400 million revolving credit facility.
56
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On September 30, 1997, the Company repaid $203 million on the term loan
facility and $71 million outstanding on the revolving credit facility of the
1997 Credit Agreement. In connection with this repayment, the Company amended
the 1997 Credit Agreement in October 1997, providing for a six and one-half year
senior secured $297 million funded term loan facility, a senior secured $200
million delayed draw term loan facility to finance certain acquisitions prior to
March 31, 1998, and a senior secured $600 million revolving credit facility due
December 2003.
In June 1998 the Company repaid $486.8 million outstanding under the
1997 Credit Agreement and entered into the Senior Credit Facility (defined
herein). The Senior Credit Facility provides a $800 million five year senior
secured revolving credit facility (the "Revolving Credit Facility") and a $300
million five year senior secured term loan facility (the "Term Loan Facility"
and together with the Revolving Credit Facility, the "Senior Credit Facility").
The Term Loan Facility is a funded, 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.
Borrowings under the Senior Credit Facility may be used for
acquisitions, the issuance of letters of credit, working capital and other
general corporate purposes. Of the $800 million available under the Revolving
Credit Facility, no more than $250 million may be used to support the issuance
of letters of credit.
The Senior Credit Facility bears interest, at the Company's option,
at the lesser of (a) a Base Rate, or (b) a Eurodollar Rate, both terms defined
in the Senior Credit Facility, 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 Senior Credit Facility, and varies between zero percent and 0.50% for Base
Rate loans, and 0.75% and 1.75% for Eurodollar loans.
In December 1998, Allied Waste North America, Inc. ("Allied NA") issued
an aggregate of $1.7 billion of senior notes consisting of $225 million 7 3/8%
senior notes due 2004 (the "Five Year Senior Notes"), $600 million 7 5/8% senior
notes due 2006 (the "Seven Year Senior Notes") and $875 million 7 7/8% senior
notes due 2009 (the "Ten Year Senior Notes" and collectively the "1998 Senior
Notes") in a Rule 144A offering which were subsequently registered for public
trading with the Securities and Exchange Commission (the "SEC") in January 1999.
Interest accrues on the 1998 Senior Notes at a weighted average effective
interest rate of 7.74% per annum, payable semi-annually on January 1 and July 1
beginning on July 1, 1999. The Company used the net proceeds from the 1998
Senior Notes to fund the purchase of the 1996 Notes and the Senior Discount
Notes pursuant to tender offers the Company commenced in November 1998 and
completed in December 1998, to repay borrowings outstanding under the Senior
Credit Facility and certain capital lease obligations, and for general corporate
purposes. The 1998 Senior Notes are guaranteed by the Company and substantially
all of Allied NA's current and future subsidiaries, the guarantees of which are
expressly subordinated to the guarantees of Allied NA's Credit Agreement.
57
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Future maturities of long-term debt --
Aggregate future maturities of long-term debt outstanding at December
31, 1998 (in thousands):
Maturity 1998
-------- ----
1999 $ 21,516
2000 20,093
2001 84,625
2002 117,496
2003 125,306
Thereafter 1,771,407
----------
$ 2,140,443
==========
Future payments under capital leases, the principal amounts of which
are included above in future maturities of long-term debt, are as follows at
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Maturity Principal Interest Total
-------- --------- -------- -----
<S> <C> <C> <C>
1999 $ 5,779 $ 2,383 $ 8,162
2000 4,280 2,032 6,312
2001 5,234 1,806 7,040
2002 9,023 2,163 11,186
2003 2,398 915 3,313
Thereafter 9,910 8,180 18,090
------------- ------------- -------------
$ 36,624 $ 17,479 $ 54,103
============= ============= =============
</TABLE>
Fair value of debt --
The Company's 1996 Notes had a fair value of $577.5 million and the
Senior Discount Notes had a fair value of $292.6 million at December 31, 1997
based upon quoted market prices. The Company's 1998 Senior Notes had a value of
$1.717 billion at December 31, 1998 based upon quoted market prices. The
Company's management believes the carrying value of all remaining long-term debt
approximates fair value.
Interest rate protection agreements --
The Company has entered into interest rate protection agreements (the
"Agreements"), with reputable national commercial banks and investment banking
institutions to reduce its exposure to fluctuations in variable interest rates.
A summary of the Agreements outstanding as of December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Notional Fair
Principal Interest Underlying Interest Market Value
(in thousands) Maturity Paid Obligations Received (in thousands)
- ------------------- ------------------- ---------- ---------------------------------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$ 50,000 April 1999 5.12% Credit Agreement Term Loan Facility Libor $ 6.0
50,000 October 1999 6.02 Credit Agreement Term Loan Facility Libor 497.4
50,000 November 1999 5.90 Credit Agreement Term Loan Facility Libor 442.9
50,000 November 1999 5.91 Credit Agreement Term Loan Facility Libor 439.5
50,000 March 2000 6.06 Credit Agreement Term Loan Facility Libor 618.5
50,000 September 2000 6.08 Credit Agreement Term Loan Facility Libor 894.3
</TABLE>
58
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 5.85% plus applicable margins imposed by the terms of the Credit
Agreement at December 31, 1998. The fair value of the Agreements as of December
31, 1998 was approximately $2.9 million, which reflects the estimated amounts
that the Company would pay to terminate the Agreements based on quoted market
prices of comparable contracts as of December 31, 1998.
Debt covenants --
The Company's Senior Credit Facility, contains certain financial
covenants, including, but not limited to, an EBITDA ratio, a fixed charge
coverage ratio and an interest expense coverage ratio. Additionally, these
covenants limit among other things, the ability of the Company and of its
subsidiaries to incur additional indebtedness and liens, make acquisitions and
purchase fixed assets above certain amounts, pay dividends, make optional
prepayments on certain subordinated indebtedness, make investments, loans or
advances, enter into certain transactions with affiliates or consummate a
merger, consolidation or sale of all or substantially all of its assets. At
December 31, 1998, Allied was in compliance with all applicable covenants. In
connection with the acquisition of Browning-Ferris Industries, Inc. (see Note
16), the Company intends to replace the Senior Credit Facility.
The 1998 Senior Notes contain certain financial and operating covenants
and restrictions which may in certain circumstances limit the ability of the
Company to complete acquisitions, pay dividends, incur indebtedness, make
investments and take certain other corporate actions.
Substantially all subsidiaries of the Company are jointly and severally
liable for the obligations under the 1998 Senior Notes and the Senior Credit
Facility through unconditional guarantees issued by current and future
subsidiaries which are all, except in one minor case, wholly-owned by the
Company. In addition, the Senior Credit Facility is secured by substantially all
the personal property and a pledge of the stock of substantially all of the
Company's present and future subsidiaries.
6. Closure, Post-Closure and Environmental Costs
Closure and post-closure costs --
The net present value of the closure and post-closure commitment, which
forms the basis of the Company's accrual, is calculated assuming inflation of
2.0% and a risk-free capital rate of 6.5% as the Company believes that both the
amount of the liability and the timing of payments are reliably determinable.
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, in accordance with Subtitle D, is $1.2 billion,
adjusted for inflation, as shown below, while the present value of such estimate
is $396.5 million. At December 31, 1997 and 1998, respectively, accruals for
landfill closure and post-closure costs (including costs assumed through
acquisitions) were approximately $144.6 million and $154.5 million. The accruals
reflect relatively young landfills whose estimated remaining lives, based on
current waste flows, range from 1 to over 75 years, with an estimated average
remaining life of greater than 30 years.
59
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's estimate of total future payments for closure and
post-closure liabilities for currently owned and operated landfills is as
follows (in thousands):
1999 $ 28,938
2000 25,218
2001 13,264
2002 19,960
2003 20,646
Thereafter 1,119,766
------------
$ 1,227,792
============
Closure and post-closure costs represent the Company's financial commitment for
the regulatory required costs associated with its future obligations for final
closure, which is the closure of a cell of a landfill once the cell is no longer
receiving waste, and post-closure monitoring and maintenance of landfills, which
is usually required for up to 30 years after a landfill's final closure. Closure
and post-closure requirements are established under the standards of Subtitle D
as implemented on a state-by-state basis. Closure and post-closure accruals are
based on estimates for capping and cover of the landfill, methane gas control,
leachate management and groundwater monitoring, and other operational and
maintenance costs to be incurred after the site discontinues accepting waste.
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.
Closure and post-closure liabilities are accrued and charged to expense
based on accepted tonnage as landfill airspace is consumed to ensure that the
total closure and post-closure obligations are fully accrued for each landfill
at the time that the site discontinues accepting waste and is closed. For
landfills purchased, the Company assesses and accrues a closure and post-closure
liability at the time the Company assumes closure responsibility based upon the
estimated closure and post-closure costs and the percentage of airspace utilized
as of the date of acquisition. After the date of acquisition, closure and
post-closure costs are accrued and charged to expense as airspace is consumed.
Estimated closure and post-closure liabilities are updated annually based on
assessments performed by in-house and independent environmental engineers and
are approved by management. Such costs may change in the future as a result of
permit modifications or changes in legislative or regulatory requirements.
Environmental costs --
In connection with the acquisition of companies, Allied engages an
independent environmental consulting firm to assist in conducting an
environmental assessment of companies acquired from third-parties. Several
contaminated landfills and other properties were identified during 1998 that
would require Allied to incur costs for incremental closure and post-closure
measures, remediation activities and litigation costs in the future. Based on
information available to the Company, Allied recorded a provision of $41.1
million for environmental matters, in the 1998 statement of operations and
expects these amounts to be disbursed over the next 30 years.
The ultimate amounts for environmental liabilities cannot be determined and
estimates of such liabilities made by the Company, after consultation with its
independent environmental engineers, require assumptions about future events due
to a number of uncertainties including the extent of the contamination, the
appropriate remedy, the financial viability of other potentially responsible
parties and the final apportionment of responsibility among the potentially
responsible parties. Where the Company has concluded that its estimated share of
potential liabilities is probable, a provision has been made in the consolidated
financial statements. Since the ultimate outcome of these matters may differ
from the estimates used in the Company's assessment to date, the recorded
liabilities will be periodically evaluated as additional information becomes
60
<PAGE>
available to ascertain whether the accrued liabilities are adequate. The Company
has determined that the recorded liability for environmental matters as of
December 31, 1997 and 1998 of approximately $63.8 million and $93.4 million,
respectively, represents the most probable outcome of these contingent matters.
The Company does not reduce its estimated obligations for proceeds from other
potentially responsible parties or insurance companies. If receipt is probable,
proceeds are recorded as an offset to environmental expense in operating income.
There were no significant recovery receivables outstanding as of December 31,
1997 and 1998. The Company does not expect that adjustments to estimates, which
are reasonably possible in the near term and that may result in changes to
recorded amounts, will have a material effect on the Company's consolidated
liquidity, financial positions or results of operations. However, the Company
believes that it is reasonably possible the ultimate outcome of environmental
matters, excluding closure and post-closure, could result in approximately $15
million of additional liability.
The following table shows the activity and balances related to
environmental accruals and for closure and post-closure accruals related to open
and closed landfills from December 31, 1995 through December 31, 1998:
<TABLE>
<CAPTION>
Balance Charges to Other Balance
12/31/95 Expense Charges(1) Payments 12/31/96
------------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Environmental costs............ $ -- $ 35,119 $ 9,981 $ -- $ 45,100
Open landfills closure and
post-closure costs............. 34,592 6,428 41,474 (922) 81,572
Closed landfills closure and
post-closure costs............. 2,855 232 38,881 (759) 41,209
Balance Charges to Other Balance
12/31/96 Expense Charges(1) Payments 12/31/97
------------- --------- ----------- ----------- ----------
Environmental costs............. $ 45,100 $ -- $ 20,895 $ (2,233) $ 63,762
Open landfills closure and
post-closure costs.................. 81,572 9,579 21,287 (8,687) 103,751
Closed landfills closure and
post-closure costs.............. 41,209 3,341 -- (3,670) 40,880
Balance Charges to Other Balance
12/31/97 Expense Charges(1) Payments 12/31/98
------------- --------- ---------- ----------- ----------
Environmental costs............. $ 63,762 $ 41,100 $ -- $ (11,489) $ 93,373
Open landfills closure and
post-closure costs.............. 103,751 15,384 3,820 (1,596) 121,359
Closed landfills closure and
post-closure costs.............. 40,880 2,223 -- (9,915) 33,188
<FN>
(1) Amounts consist primarily of costs assumed from acquired companies recorded
prior to the date of acquisition.
</FN>
</TABLE>
61
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Stockholders' Equity
The authorized, issued and outstanding shares of the Company's classes of
capital stock were as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Issued and Outstanding
At December 31,
--------------------------
Liquidation
Preference Authorized
Per Share Shares 1997 1998
--------- ------ ---- ----
<S> <C> <C> <C> <C>
Preferred stock, $.10 par -
Series C Convertible ............... $ 10 800 -- --
Series D Convertible ............... 15 267 -- --
Series E Convertible ............... 5,000 3 -- --
9% Cumulative Convertible .......... 1,000 30 -- --
$90 Cumulative Convertible ......... 1,000 20 -- --
7% Cumulative Convertible .......... 1,000 100 -- --
Common stock, $0.01 par, net of
570 treasury shares................. -- 300,000 181,406 184,495
</TABLE>
In October 1998, the Company's shareholders approved an amendment to the
Restated Certificate of Incorporation to increase the number of authorized
shares of common stock from 200 million to 300 million.
The Company had declared and accrued dividends on preferred stock of $1.1
million and $381,000 in 1996 and 1997, respectively.
During 1996, the Series D preferred stock and 9% preferred stock was
converted into Common Stock. During 1997, the 7% preferred stock was converted
into Common Stock.
Warrants to purchase common stock --
<TABLE>
<CAPTION>
Warrants to purchase common shares at December 31, 1997 and 1998 are summarized as follows:
1997 1998
----- ------
<S> <C> <C>
Number of shares........................... 858,942 647,827
Purchase price per share................... $4.60 - $7.00 $4.60 - $5.25
Expiration Dates........................... 1998 - 2005 1999 - 2003
</TABLE>
In connection with the Laidlaw Acquisition, the Company issued a warrant to
Laidlaw for the purchase of 20,400,000 shares of Common Stock at an exercise
price of $8.25 per share. The Company repurchased this warrant from Laidlaw
during 1997 for $49 million.
62
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Stock Option Plans
The 1991 Incentive Stock Plan ("1991 Plan"), the 1993 Incentive Stock
Plan ("1993 Plan") and the 1994 Incentive Stock Plan ("1994 Plan") provide for
the grant of non-qualified stock options, incentive stock options, shares of
restricted stock, shares of phantom stock and stock bonuses. The maximum number
of shares which may be granted under the 1991 Plan may not exceed 7.5% of the
number of common shares outstanding at the end of a preceding fiscal quarter
(10,292,056 shares at December 31, 1998). An additional maximum number of shares
of 500,000 and 1,000,000 common shares may be granted under the 1993 Plan and
the 1994 Plan, respectively. The exercise price, term and other conditions
applicable to each option granted are generally determined by the Compensation
Committee of the Board of Directors.
The 1994 Amended and Restated Non-Employee Director Stock Option Plan
provides for the grant of non-qualified options to each member of the Board of
Directors, who is not also an employee of the Company, at a price equal to the
fair market value of a common share on the date of grant. The maximum number of
shares which may be granted under the plan is 750,000 common shares. All options
granted under the plan are fully vested and exercisable on the date of grant and
expire ten years from the grant date.
63
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the status of the Company's stock option plans at December 31,
1996, 1997 and 1998 and for the years then ended is presented in the table and
narrative below:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------------------
1996 1997 1998
----- ----- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------- ------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding,
beginning
of period............. 3,910,908 $4.89 5,449,036 $6.10 8,831,266 $8.24
Options
granted............... 1,826,552 8.46 3,961,100 10.86 3,656,562 22.29
Options
exercised............. (282,289) 4.53 (437,780) 6.04 (1,701,828) 8.50
Options
terminated............ (6,135) 6.54 (141,090) 9.10 -- --
------- --------- ----------
Options
outstanding,
end of period........ 5,449,036 6.10 8,831,266 8.19 10,786,000 19.71
========= ========= ==========
Options
exercisable,
end of period........ 2,170,086 5.19 3,498,598 6.67 6,220,735 11.02
</TABLE>
The Company accounts for its stock-based compensation plans under APB
No. 25, under which no compensation expense has been recognized, as all options
have been granted with an exercise price equal to the fair value of the
Company's Common Stock upon the date of grant. In 1996, the Company adopted SFAS
No. 123 for disclosure purposes. The fair value of each option grant has been
estimated as of the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate........................ 5.2% to 6.7% 5.8% to 7.6% 4.7% to 5.6%
Expected life.................................. 5-8 years 5 years 5 years
Dividend rate.................................. 0% 0% 0%
Expected volatility............................ 49% 25% to 50% 44% to 46%
</TABLE>
64
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Using these assumptions, pro forma net income (loss) and net income
(loss) per share would reflect additional compensation expense recognized over
the vesting periods of the options. The pro forma income (loss) for 1997
includes the impact of certain Allied options whose vesting accelerated in 1997
due to a change in control related to an equity financing transaction in
connection with the Laidlaw Acquisition. The pro forma income (loss) for 1998
includes the impact of certain ADSI options that vested in 1998 due to a change
in control related to the ADSI acquisition. The resulting pro forma net income
(loss), and pro forma net income (loss) per share is as follows (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net income (loss): As reported $ (66,309) $ 24,042 $ (223,052)
Pro forma (68,583) 11,329 (229,928)
Net income (loss) per share: As reported $ (0.51) 0.14 (1.22)
Pro forma (0.52) 0.07 (1.26)
</TABLE>
The following tables summarize information about stock options
outstanding at December 31, 1998 which are fully vested, partially vested and
non-vested:
<TABLE>
<CAPTION>
Fully Vested:
------------
Options Outstanding and Exercisable
--------------------------------------
Number Weighted Average Weighted Average
Range of Exercise Prices Outstanding Remaining Life Exercise Price
------------------------ ------------------- -------------- --------------
<S> <C> <C> <C>
$3.00 - $7.75 2,681,743 4 years $5.01
$8.38 - $12.25 776,294 6 years $10.21
$16.03 - $21.36 421,809 5 years $18.20
$21.97 - $27.27 1,074,214 3 years $25.58
</TABLE>
<TABLE>
<CAPTION>
Partially Vested:
-----------------
Options Outstanding
--------------------
Number Weighted Average Weighted Average
Range of Exercise Prices Outstanding Remaining Life Exercise Price
------------------------ --------------------- -------------- --------------
<S> <C> <C> <C>
$6.88 - $10.00 3,332,040 8 years $9.55
$11.38 - $15.88 200,000 9 years $14.98
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
-------------------
Number Weighted Average Weighted Average
Range of Exercise Prices Outstanding Remaining Life Exercise Price
------------------------ ---------------------- -------------- --------------
<S> <C> <C> <C>
$6.88 - $10.00 1,221,342 8 years $9.30
$11.38 - $15.88 45,333 9 years $14.55
</TABLE>
<TABLE>
<CAPTION>
Non Vested:
------------
Options Outstanding
-------------------
Number Weighted Average Weighted Average
Range of Exercise Prices Outstanding Remaining Life Exercise Price
------------------------ -------------------- -------------- --------------
<S> <C> <C> <C>
$4.27 - $6.88 59,067 5 years $5.30
$9.50 - $18.94 113,300 8 years $12.35
$21.06 - $21.19 2,127,533 10 years $22.60
</TABLE>
65
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated by dividing net income
(loss), less dividend requirements on preferred stock, by the weighted average
number of common shares and common share equivalents outstanding during each
period as restated to reflect acquisitions accounted for as
poolings-of-interests. The computation of basic earnings per share and diluted
earnings per share is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1996 1997 1998
---- ---- ----
Basic earnings per share computation:
<S> <C> <C> <C>
Income (loss) before extraordinary item..................... $ (52,422) $ 77,247 $ (98,251)
Less: Preferred stock dividends ........................... (1,073) (381) --
----------- ----------- -----------
Income (loss) before extraordinary item
available to common shareholders ......................... $ (53,495) $ 76,866 $ (98,251)
=========== =========== ===========
Weighted average common shares
outstanding during the period ........................... 132,967 164,888 182,796
=========== =========== ===========
Basic earnings per share before extraordinary item ........... $ (0.40) $ 0.47 $ (0.54)
============ ============ ============
Diluted earnings per share computation:
Income (loss) before extraordinary item
available to common shareholders.......................... $ (53,495) $ 76,866 $ (98,251)
========== ========== ===========
Weighted average common
shares outstanding during the 132,967 164,888 182,796
period........................
Effect of stock options and warrants,
assumed exercised........................................... -- 6,657 --
Effect of shares assumed issued
pursuant to earn-out agreement.............................. -- 1,413 --
----------- ----------- -----------
Total shares.................................................. 132,967 172,958 182,796
=========== =========== ===========
Diluted earnings per share before
extraordinary item.......................................... $ (0.40) $ 0.44 $ (0.54)
============= ============ =============
</TABLE>
Conversion has not been assumed for Series D preferred stock, 9%
preferred stock warrants in 1996, nor has conversion been assumed for 7%
preferred stock and convertible notes in 1996 and 1997, as the effects would not
be dilutive.
In 1997, the Company adopted SFAS 128 "Earnings per Share," effective
December 15, 1997. As a result, the Company's reported earnings for 1996 were
restated. This accounting change had no material effect on previously reported
earnings per share data.
66
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Income Taxes
The Company accounts for income taxes using a balance sheet approach
whereby deferred tax assets and liabilities are determined based on the
differences in financial reporting and income tax basis of assets, other than
non-deductible goodwill, and liabilities. The differences are measured using the
income tax rate in effect during the year of measurement.
The Company and its subsidiaries file a consolidated federal income tax
return. As of December 31, 1998, Allied had a net operating loss carryforward
("NOLC") for federal income tax purposes of approximately $65.5 million. The
NOLC, which expires beginning in 2004, is available to offset future taxable
income subject to potential limitations.
The components of the income tax provision consist of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current tax provision ............................. $ 1,600 $ 78,418 $ 2,000
Deferred provision (benefit) ...................... (1,246) (38,141) 41,773
----------- ----------- -----------
Total.............................................. $ 354 $ 40,277 $ 43,773
=========== =========== ===========
</TABLE>
Reconciliation of the federal statutory tax rate to the Company's effective rate
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate .......................... (35.0) % 35.0 % (35.0) %
Consolidated state taxes, net of federal benefit .... (5.0) 3.1 9.2
Taxes of pooled companies ........................... 2.0 (5.1) 70.6
Amortization of goodwill............................. 2.3 0.6 3.7
Book goodwill associated with
asset impairments.................................. -- -- 28.8
Potential tax goodwill greater than book
goodwill.......................................... 34.7 -- --
Other permanent differences ......................... 1.7 0.7 3.0
--------- --------- --------
Effective tax rate................................... 0.7 % 34.3 % 80.3 %
======== ======== ========
</TABLE>
Tax benefits on the extraordinary items in 1997 and 1998 were based on
the Company's then ordinary combined federal and state rate of 40% and 39.5%,
respectively.
The net current deferred tax asset of $7.7 million and $44.1 million,
as of December 31, 1997 and 1998, respectively, includes the current benefit
expected to be obtained from the utilization of the Company's NOLCs and its
alternative minimum tax credits. These amounts include a valuation allowance of
$3.1 million, as of December 31, 1997 and 1998 to reflect possible limitations
on the ability to use NOLCs. The Company has determined that no additional
valuation allowance is needed at December 31, 1998 because the Company believes
the asset is more likely than not realizable. This determination is based on an
analysis of the Company's recent operating results, considering unusual and
non-recurring items, and anticipated future earnings.
67
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The components of the net deferred tax asset (liability) are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998
---- ----
<S> <C> <C>
Deferred tax liability relating primarily to property
consisting of landfill assets and debt basis differences........ $ (24,555) $ (120,942)
------------- -------------
Deferred tax assets relating to:
Closure and post-closure reserves............................... 1,194 23,995
Other, primarily reserves and estimated expenses ............... 2,961 120,293
Net operating loss and minimum tax credit carry forwards........ 10,728 35,940
Valuation allowance............................................. (3,076) (3,076)
------------- -------------
Total deferred tax asset........................................ 11,807 177,152
------------- -------------
Net deferred tax asset (liability)................................ $ (12,748) $ 56,210
============= =============
</TABLE>
The change in the long-term deferred tax liability includes deferred taxes
related to 1998 acquisitions where the financial basis of assets acquired
differed from the tax basis of those assets.
11. Commitments and Contingencies
The Company is subject to extensive and evolving laws and regulations and
has implemented its own environmental safeguards to respond to regulatory
requirements. In the normal course of conducting its operations, Allied may
become involved in certain legal and administrative proceedings. Some of these
actions may result in fines, penalties or judgements against the Company which
may have an impact on earnings for a particular period. Allied accrues for
litigation and regulatory compliance contingencies when such costs are probable
and reasonably estimable. Management expects that matters in process at
December 31, 1998 which have not been accrued in the consolidated balance sheet
will not have a material adverse effect on the Company's consolidated liquidity,
financial position or results from operations.
In connection with the Laidlaw Acquisition, Laidlaw disclosed to the
Company the existence of a tax controversy relating to disallowed deductions in
income tax returns filed by Laidlaw with the United States Internal Revenue
Service (the "IRS"). As part of the Laidlaw Acquisition, Laidlaw and certain of
its subsidiaries (the Laidlaw Group) retained responsibility for any obligations
arising out of the tax controversy and the Laidlaw Group indemnified the Company
against any liability the Company and its subsidiaries might have as a result of
certain tax liabilities, including those relating to this tax controversy. The
subsidiaries of Laidlaw acquired by the Company in 1996 could be jointly and
severally liable for tax assessments relating to periods prior to completion of
the Laidlaw Acquisition. The Company would have responsibility for any liability
relating to such tax assessments if the Laidlaw Group were unable to satisfy its
obligations. In the first quarter of 1999, Laidlaw announced a settlement of the
tax case with the IRS. The total net after tax cash cost to Laidlaw will be $226
million. The agreement satisfies assessments upheld in the tax court opinion
received on July 1, 1998. As the Laidlaw Group has settled the tax controversy
and in light of Laidlaw's financial condition and resources disclosed in its
publicly filed financial statements, the Company believes it no longer has
potential material liability for any material tax liabilities relating to
Laidlaw's operations prior to the Laidlaw Acquisition. The Company continues to
be indemnified against any such liabilities by the Laidlaw Group.
68
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has obtained an indemnity from Laidlaw and certain of its
subsidiaries (the "Laidlaw Group") which covers the amounts at issue in the tax
controversy for which any direct or indirect subsidiary that was acquired from
Laidlaw in 1996 may ultimately be found liable. The obligation of the Laidlaw
Group to indemnify the Company in respect of amounts at issue in the tax
controversy is a general, unsecured obligation of the Laidlaw Group.
In connection with certain acquisitions, the Company has entered into
agreements to pay royalties based on waste tonnage disposed at specified
landfills. The royalties are generally payable quarterly and amounts earned, but
not paid are accrued in the accompanying consolidated balance sheets.
Allied has operating lease agreements for service facilities, office space
and equipment. Future minimum payments under non-cancelable operating leases
with terms in excess of one year are as follows (in thousands):
December 31, 1998
--------------------
1999 $ 12,629
2000 11,606
2001 10,462
2002 8,821
2003 9,239
Thereafter 26,274
Rental expense under such operating leases was approximately $9.3 million,
$12.2 million and $13.9 million for the three years ended December 31, 1998,
respectively.
The Company has entered into employment agreements with certain of its
executive officers for periods up to five years. The Company has agreed to
severance pay amounts equal to a multiple of defined compensation under certain
circumstances. In the event of a material change in control or termination of
all executive officers under such agreements, Allied would be required to make
payments of approximately $10.7 million, in addition to a reimbursement payment
to eliminate the effect of any excise taxes associated with this payment.
Allied carries a broad range of insurance coverage for protection of its
assets and operations from certain risks including environmental impairment
liability insurance for certain landfills.
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 December 31, 1998, the Company had outstanding
approximately $428.6 million in financial assurance instruments, represented by
$277.6 million of performance bonds, $134.4 million of insurance policies and
$16.6 million of trust deposits. During calendar year 1999, the Company expects
to be required to provide approximately $408 million in financial assurance
obligations relating to its landfill operations and collection contracts. The
Company expects that financial assurance obligations will increase in the future
as it acquires and expands its landfill activities and that a greater percentage
of the financial assurance instruments will be comprised of performance bonds
and insurance policies.
69
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Related Party Transactions
Transactions with related parties are entered into only upon approval
by a majority of the independent directors of the Company and only upon terms
comparable to those that would be available from unaffiliated parties.
In connection with the receipt in April 1995 of all permits necessary
to develop a landfill on certain real estate acquired in July 1992, the Company
was obligated to pay $5.6 million to the previous owners of the real estate,
including current stockholders of the Company. During the years ended December
31, 1996, 1997 and 1998, the Company paid principal of $121,000, $136,000 and
$1.7 million, respectively, to stockholders of the Company related to the
receipt of permits. The Company fully repaid these promissory notes in 1998.
In connection with the successful completion of certain market
development projects during 1997, Allied paid approximately $2.5 million to the
former owner of a company acquired in 1996 who served as a director of Allied
during 1996 and 1997.
In 1998, the Company sold certain assets to a relative of an officer of
the Company for approximately $1.5 million. No gain or loss was recognized on
this transaction.
70
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Segment Reporting
The Company classifies its operations into six geographic regions:
Northeast, Southeast, Great Lakes, Midwest, Southwest and West United States.
The Company's revenues are derived from one industry segment, which includes the
collection, transfer, recycling and disposal of non-hazardous solid waste. The
Company evaluates performance based on several factors, of which the primary
financial measure is business segment operating income before depreciation and
amortization ("EBITDA") before acquisition related and unusual costs and asset
impairments. The accounting policies of the business segments are the same as
those described in the Organization and Summary of Significant Accounting
Policies (see Note 1). The tables below reflect certain geographic information
relating to the Company's operations (in thousands):
<TABLE>
<CAPTION>
North- South- Great South-
east east Lakes Midwest west West Other(1) Total
------------ ------------ ------------- ------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Revenues from
external
customers.................$75,383 $ 87,905 $196,318 $54,659 $11,730 $193,521 $ 32 $ 619,548
Intersegment
revenues....................2,632 11,808 38,134 12,253 107 11,151 -- 76,085
Depreciation and
amortization................6,833 8,274 22,863 8,378 1,086 16,451 3,938 67,823
EBITDA before non-recurring
charges(2).................11,159 19,011 49,081 16,545 2,694 33,618 (977) 131,131
1997
Revenues from
external
customers................$258,123 $117,462 $362,479 $168,650 $132,246 $275,721 $ 25,980 $1,340,661
Intersegment
revenues...................29,554 15,268 48,608 40,905 24,309 17,580 -- 176,224
Depreciation and
amortization...............23,776 10,565 45,806 24,973 18,791 23,087 11,240 158,238
EBITDA before non-recurring
charges(2).................66,696 28,586 105,192 74,917 48,737 61,999 (151) 385,976
Total assets................281,710 188,687 1,167,321 444,087 334,508 557,058 1,108,427 4,081,798
Capital
Expenditures...............23,615 24,603 66,897 29,760 16,071 23,151 3,908 188,005
1998
Revenues from
external
customers................$224,657 $152,568 $517,428 $188,330 $148,768 $338,058 $ 5,803 $1,575,612
Intersegment
revenues...................32,228 27,472 108,179 43,627 35,626 34,289 -- 281,421
Depreciation and
amortization...............21,047 16,911 61,385 25,800 20,111 28,397 6,314 179,965
EBITDA before non-recurring
charges(2).................51,524 45,684 192,219 78,761 58,026 116,661 (15,371) 527,504
Total assets................589,936 291,618 863,771 521,030 366,011 609,821 2,313,980 5,556,167
Capital expenditures.........31,155 51,954 120,466 34,588 27,538 34,387 1,654 301,742
<FN>
(1) Amounts relate primarily to the Company's subsidiaries which provide
services throughout the organization and not on a regional basis
(2) EBITDA before non-recurring charges includes acquisition related and
unusual costs and asset impairments.
</FN>
</TABLE>
71
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Reconciliation of reportable segment primary financial measure and assets to
operating income (loss) and total assets, respectively (amounts in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
Operating income (loss): 1996 1997 1998
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Total EBIDTA before
non-recurring charges
for reportable segments.............. $ 131,131 $ 385,976 $ 527,504
Depreciation and amortization
for reportable segments.............. 67,823 158,238 179,965
Acquisition related and
unusual costs........................ 96,508 3,934 247,902
Asset impairments....................... -- -- 69,714
----------------- ----------------- -----------------
Operating income (loss).............. $ (33,200) $ 223,804 $ 29,923
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1998
---- ----
Assets:
-------
<S> <C> <C>
Total assets for reportable segments $ 4,081,798 $ 5,556,167
Elimination of investments (1,007,978) (1,803,575)
------------ ---------------
Total assets $ 3,073,820 $ 3,752,592
============= ===============
</TABLE>
Percentage of Company's total revenue attributable to services provided:
Year Ended December 31,
------------------------------------------
1996 1997 1998
---- ---- ----
Collection............. 58.2% 57.2% 55.7%
Transfer............... 5.9 6.7 7.1
Landfill (1)........... 25.9 26.4 29.9
Other.................. 10.0 9.7 7.3
---------- ---------- ----------
Total revenues....... 100.0% 100.0% 100.0%
========== ========== ==========
(1) The portion of collection revenues attributable to disposal charges for
waste collected by the Company and disposed at the Company's landfills have
been excluded from collection revenues and included in landfill revenues.
72
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Selected Quarterly Financial Data (unaudited)
The following table summarizes the unaudited consolidated quarterly
results of operations as reported and as restated for poolings-of-interests for
1997 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
Operating revenues:
<S> <C> <C> <C> <C>
1997 as reported................. $ 184,065 $ 211,119 $ 224,295 $ 229,267
1997 as restated................. 292,883 336,077 355,004 356,697
Gross profit:
1997 as reported................. 79,143 97,759 107,671 107,611
1997 as restated................. 116,117 140,685 154,592 151,978
Income before income
taxes and extraordinary item
1997 as reported................. 10,294 22,332 24,312 31,870
1997 as restated................. 15,998 30,452 34,726 36,348
Net income (loss):
1997 as reported................. 5,868 (39,683) 13,634 19,352
1997 as restated................. 11,002 (32,671) 23,346 22,365
Basic earnings (loss) per common share:
1997 as reported................. 0.08 (0.51) 0.16 0.19
1997 as restated................. 0.07 (0.21) 0.14 0.12
Diluted earnings (loss) per common share:
1997 as reported................. 0.08 (0.45) 0.16 0.18
1997 as restated................. 0.07 (0.20) 0.14 0.12
Operating revenues:
1998 as reported................. $ 223,755 $ 299,692 $ 334,290 $ 407,119
1998 as restated................. 357,900 394,853 415,740 407,119
Gross profit:
1998 as reported................. 104,504 135,096 147,379 178,686
1998 as restated................. 152,084 171,998 180,571 178,686
Income (loss) before income
taxes and extraordinary item
1998 as reported................. 28,387 8,565 28,245 (165,457)
1998 as restated................. 46,292 22,690 41,997 (165,457)
Net income (loss):
1998 as reported................. 16,749 (9,501) 11,123 (274,817)
1998 as restated................. 31,565 1,589 18,611 (274,817)
Basic earnings (loss) per common share:
1998 as reported................. 0.16 (0.08) 0.08 (1.50)
1998 as restated................. 0.17 0.01 0.10 (1.50)
Diluted earnings (loss) per common share:
1998 as reported................. 0.16 (0.07) 0.08 (1.50)
1998 as restated................. 0.17 0.01 0.10 (1.50)
</TABLE>
73
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Summarized Financial Information of Allied Waste North America, Inc.
As discussed in Note 5, the 1996 Notes and the 1998 Senior Notes issued by
Allied NA (a wholly-owned subsidiary of the Company) are guaranteed by Allied.
Allied's guarantee is full unconditional and joint and several of Allied NA's
debt. The separate complete financial statements of Allied NA have not been
included herein as management has determined that such disclosure is not
considered to be material. However, summarized balance sheet information for
Allied NA and subsidiaries as of December 31, 1997 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
Summarized Consolidated Balance Sheet Information
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Current assets ...................................... $ 293,285 $ 499,904
Property and equipment, net.......................... 1,583,133 1,776,025
Costs in excess of net assets acquired............... 1,082,750 1,327,470
Other non-current assets ............................ 114,653 149,193
Current liabilities.................................. 358,894 445,528
Long-term debt, net of current portion .............. 1,237,670 2,118,927
Due to parent........................................ 1,059,838 1,083,515
Due to Allied Canada Finance, Ltd.................... 152,825 --
Other long-term obligations.......................... 255,930 268,407
Retained earnings (deficit) ......................... 8,664 (163,785)
</TABLE>
On November 25, 1996, substantially all of the operating assets and
liabilities of Allied were contributed from Allied to Allied NA. The results of
operations from inception to December 31, 1996 were not material except for the
acquisition related costs and unusual items (see Note 1).
<TABLE>
<CAPTION>
Summarized Statement of Operations Information
Year Ended December 31,
---------------------------------------------
1997 1998
---- ----
<S> <C> <C>
Revenue .............................................. $ 1,340,661 $ 1,575,612
Operating costs and expenses........................... 1,116,857 1,545,689
Operating income 223,804 29,923
Net income (loss) before extraordinary loss............ 77,247 (80,338)
Extraordinary loss, net................................ 53,205 72,202
Net income (loss)...................................... 24,042 (152,540)
</TABLE>
74
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Events (unaudited) Subsequent to Date of Auditors' Report
Subsequent to December 31, 1998, the Company acquired 17 operating
solid waste businesses with annual revenues of approximately $70.6 million for
consideration of approximately $143.7 million.
In March 1999, Allied and Browning-Ferris Industries, Inc. ("BFI")
announced that they entered into a definitive merger agreement under which
Allied will acquire BFI for $45 in cash per BFI common share, as well as assume
approximately $1.8 billion in debt, in a transaction valued at approximately
$9.1 billion. Allied has bank commitments to finance the acquisition consisting
of $7 billion senior secured debt and $2.5 billion senior unsecured debt at
interest rates ranging from Libor plus 2.50% to Libor plus 3.50%, and a
commitment from Apollo Management IV, L.P., Blackstone Capital Partners III
Merchant Banking Fund L.P. and other investors to purchase $1 billion of 6.5%
convertible preferred stock. The transaction is structured as a merger of BFI
with a subsidiary of Allied and is subject to the approval of BFI stockholders
and other customary conditions.
75
<PAGE>
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable.
76
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The executive officers of the Company serve at the pleasure of the Board of
Directors and are subject to annual appointment by the Board of Directors at its
first meeting following the annual meeting of stockholders. All of the Company's
directors and executive officers are set forth in the following table:
<TABLE>
<CAPTION>
Name Position Held Age Director Since
- ---------------------- ------------- --- --------------
<S> <C> <C>
Thomas H. Van Weelden Chairman of the Board, President and Chief Executive 44 1992
Officer
Michael G. Hannon Vice President - Mergers & Acquisitions 44
Peter S. Hathaway Vice President & Chief Accounting Officer 43
Steven M. Helm Vice President - Legal and Corporate Secretary 51
Larry D. Henk Vice President and Chief Operating Officer 39
Henry L. Hirvela Vice President and Chief Financial Officer 47
Donald W. Slager Vice President - Operations 37
Roger A. Ramsey Director 60 1989
Nolan Lehmann Director 54 1990
Michael Gross Director 37 1997
David B. Kaplan Director 31 1997
Antony P. Ressler Director 38 1997
Howard A. Lipson Director 35 1997
Dennis Hendrix Director 59 1997
Warren B. Rudman Director 68 1997
Vincent Tese Director 56 1997
</TABLE>
Thomas H. Van Weelden joined the Company in January 1992 as its Vice
President -- Development, and was promoted to President and Chief Operating
Officer in December 1992. Mr. Van Weelden was promoted to Chief Executive
Officer in July 1997 and was appointed Chairman of the Board of Directors in
December 1998. He was first elected a Director in March 1992.
Michael G. Hannon has served as Vice President -- Mergers &
Acquisitions since April 1994. Immediately prior to joining Allied, he served as
President of InnRoom Fitness, Inc., a fitness equipment leasing company, for a
period of 10 months. From 1975 to 1993, Mr. Hannon was employed by Laidlaw Waste
Systems, Inc. ("Laidlaw"), and its predecessor companies, GSX Corporation and
SCA Services, Inc., where he held a variety of management positions. From 1991
to 1993, his position at Laidlaw was that of Regional Vice President, with
overall responsibility for all waste service operations in a 12 state geographic
area. Prior to holding the position of Regional Vice President at Laidlaw, he
held positions in Corporate Development and served as a Regional Controller.
Peter S. Hathaway has served as Chief Accounting Officer since becoming
employed by Allied in February 1995 and Vice President since May 1996. From May
1996 through April 1997, Mr. Hathaway also served as Treasurer. From September
1991 through February 1995 he was employed by BFI as Controller and Finance
Director for certain Italian operations holding responsibilities for the
acquisition, reorganization and integration, controller, and financing functions
of a $100 million joint venture. From 1979 through September 1991, Mr. Hathaway
served in the audit division of Arthur Andersen LLP in Colorado, Italy and
Connecticut, most recently in the position of Senior Manager.
77
<PAGE>
Steven M. Helm has served as Corporate Counsel since August 1995 and
Vice President -- Legal and Corporate Secretary of the Company since May 1996.
Prior to joining the Company, Mr. Helm was a partner with the law firm Dukes,
Martin, Helm & Ryan Ltd. in Illinois from 1978 to July 1995.
Larry D. Henk has served as Vice President of Operations since June
1994. Mr. Henk was promoted to Chief Operating Officer in February 1998. Mr.
Henk joined the Company in January 1992, as General Manager of R.18, when it was
acquired by the Company. Prior to joining the Company, Mr. Henk served as
General Manager of R.18 since 1991 and General Manager of Environmental
Development Corporation from 1987 until its acquisition by the Company in July
1992.
Henry L. Hirvela has served as Vice President and Chief Financial
Officer of the Company since May 1996. Mr. Hirvela was an independent consultant
from February 1996 through May 1996. From September 1995 through February 1996
he served as Chief Financial Officer for Power Computing Corporation. Prior to
joining Power Computing, Mr. Hirvela was employed by BFI since 1988 as Vice
President-Treasurer with responsibilities for the company's global finance and
cash management functions. From 1981 until 1988 Mr. Hirvela worked for Texas
Eastern Corporation, a diversified international energy company, in a number of
management positions including Assistant Treasurer and Manager-Corporate
Development. Prior to joining Texas Eastern Corporation, Mr. Hirvela worked for
Bank of America as an operations officer in San Diego, California.
Donald W. Slager has served as Vice President-Operations of the Company
since his promotion from Assistant Vice President-Operations in February 1998.
Prior to this, Mr. Slager served as Regional Vice President of the West Region
from June 1996 to June 1997. Mr. Slager also served as District Manager for the
Chicago Metro District since 1993. Before Allied's acquisition of National Waste
Services in 1993, he served as General Manager from 1991-1993 and in other
management positions since 1986.
Roger A. Ramsey has served as a Director since October 1989,
Chairman of the Board of Directors from October 1989 through his retirement
from the Company in December 1998, and Chief Executive Officer of the Company
from October 1989 through July 1997. Mr. Ramsey was employed by the
international accounting firm, Arthur Andersen LLP, beginning in 1960. In 1968,
Mr. Ramsey co-founded Browning-Ferris Industries, Inc. ("BFI") and served as its
Vice President and Chief Financial Officer until 1976. In 1976, Mr. Ramsey
formed and became president of Criterion Capital Corporation, a venture capital
investment company. He also became chairman and chief executive officer of
Criterion Group, Inc., a portfolio company of Criterion Capital, until its sale
to Transamerica in 1989. Mr. Ramsey is also a member of the Board of Trustees of
Texas Christian University and U.S. Liquids, Inc.
Nolan Lehmann has served as a Director since October 1990. Since 1983,
Mr. Lehmann has served as President and a director of Equus Capital Management
Corporation, a registered investment advisor, and Equus II Incorporated
("Equus"), a registered public investment company whose stock is traded on the
New York Stock Exchange. Mr. Lehmann also serves as a director of American
Residential Services, Inc., Brazos Sportswear, Inc., Drypers Corporation and
Paracelsus Healthcare Corporation. Mr. Lehmann is a certified public accountant.
Michael Gross has served as a Director since May 1997. Mr. Gross is
one of the founding principals of Apollo Advisors, L.P. Mr. Gross is also a
director of Alliance Imaging, Inc., Breuners Home Furnishings, Inc., Building
One Services Corporation, Converse, Inc., Florsheim Group, Inc., Saks
Incorporated, SMT Health Services, Inc., and United Rentals, Inc.
78
<PAGE>
David B. Kaplan has served as a Director since May 1997. Since 1991,
Mr. Kaplan has been associated with and is a limited partner of Apollo Advisors,
L.P. ("Apollo") which, together with its affiliates, serves as managing general
partner of the Apollo investment funds. Prior to 1991, Mr. Kaplan was a member
of the Investment Banking Department of Donaldson, Lufkin & Jenrette Securities
Corporation. Mr. Kaplan is also a director of Koo Koo Roo Enterprises, Inc. and
WMC Finance Co.
Antony P. Ressler has served as a Director since May 1997. Mr. Ressler
is one of the founding principals of Apollo Advisors, L.P., Lion Advisors, L.P.
and Ares Management, L.P., which, together with its affiliates act as financial
advisor to and representative for certain institutional investors with respect
to securities investments. Mr. Ressler is also a director of Berlitz
International, Inc., Communications Corporation of America, Koo Koo Roo
Enterprises, Inc., United International Holdings, Inc., United Pan-Europe
Communications, N.V., and Vail Resorts, Inc.
Howard A. Lipson has served as a Director since May 1997. Mr. Lipson
currently serves as senior managing director of the Blackstone Group which he
joined in 1988. Prior to joining the Blackstone Group, Mr. Lipson was a member
of the Mergers and Acquisition Group of Salomon Brothers, Inc. Mr. Lipson is a
director of AMF Group, Inc., Ritvik Holdings Inc., Prime Succession Inc., Roses,
Inc., Volume Services America, Inc. and is a member of the Advisory Committee of
Graham Packaging Company.
Dennis Hendrix has served as a Director since July 1997. Mr. Hendrix
serves as a director of Greater Houston Partnership, the Robert A. Welch
Foundation, the Texas Medical Center, Baylor College of Medicine, Chase Bank of
Texas, Duke Energy Corporation, National Power, PLC, Newfield Exploration
Company and Pool Energy Services Company. From November 1990 until his
retirement in April 1997, he served as Chairman of the Board of Directors of
PanEnergy Corp. and as PanEnergy's Chief Executive Officer from November 1990
until April 1995. Mr. Hendrix was President and Chief Executive Officer of Texas
Eastern Corporation from 1986 to 1989.
Warren B. Rudman has served as a Director since July 1997. Mr. Rudman
has been a partner in the law firm of Paul, Weiss, Rifkind, Wharton and Garrison
since 1993. From 1980 until 1992, Mr. Rudman served as a United States Senator
from New Hampshire. While in the Senate, Mr. Rudman was Chairman and Vice
Chairman of the Ethics Committee and also served on the Appropriations
Committee, the Intelligence Committee, the Governmental Affairs Committee and
the Permanent Subcommittee on Investigations. He also serves on the board of
directors of the Chubb Corporation, Collins & Aikman, Prime Succession, the
American Stock Exchange, several funds of the Dreyfus Corporation and the
Raytheon Company. Mr. Rudman currently serves as Chairman of the President's
Foreign Intelligence Advisory Board and on the board of trustees of Valley Forge
Military Academy, the Council on Foreign Relations and the Brookings
Institution.
Vincent Tese has served as a Director since July 1997. Mr. Tese is on
the board of directors of Bear Stearns & Co., Inc. ("Bear Stearns"), a national
investment bank and brokerage company, which he joined in December 1994. Prior
to Bear Stearns, he served the government of New York state from 1983 to
December 1994 in several positions, including Director of Economic Development,
Chairman and Chief Executive Officer of the Urban Development Corporation, and
Commissioner of the Department of Economic Development. Mr. Tese has also served
as a Commissioner of the Port Authority of New York and New Jersey. In 1976, Mr.
Tese co-founded Cross Country Cable, Inc. and has also served as Chairman of
Cross Country Wireless, Inc., which was sold to Pacific Telesis in 1995. He
currently serves on the board of directors of Bowne & Co., Inc., Cablevision,
Inc., and Key Span Energy. In addition, Mr. Tese is a Trustee of New York
University School of Law and the New York Presbyterian Hospital.
79
<PAGE>
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the
material appearing under the heading "Executive Compensation" in the Proxy
Statement for the 1999 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, derived from
filings with the Securities and Exchange Commission and other public
information, regarding the beneficial ownership of the Company's Common Stock at
April 6, 1999 by: (i) each person who is known by the Company to beneficially
own more than five percent of the outstanding shares of Common Stock, (ii) each
of the current Directors, and the executive officers named in the Summary
Compensation Table (see "Executive Compensation"), and (iii) all current
Directors and executive officers as a group. Except as otherwise indicated below
and subject to applicable community property laws, each owner has sole voting
and sole investment powers with respect to the stock listed.
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name of Person or Identity of Group(l) Number Percentage
-------------------------------------- ------ ----------
<S> <C> <C>
Thomas H. Van Weelden 1,859,991(2) 1.0%
Roger A. Ramsey 1,319,609(3) *
Apollo Investment Fund III, L.P.
Apollo Overseas Partners III, L.P.
Apollo (UK) Partners III, L.P.
c/o Apollo Advisors, II, L.P. (4) 17,119,579(4) 9.1%
Two Manhattanville Road
Purchase, New York 10577
Blackstone Capital Partners II Merchant Banking Fund L.P.
Blackstone Offshore Capital Partners II L.P.
Blackstone Family Investment Partnership II L.P.
c/o Blackstone Management Associates II L.L.C.(5)
345 Park Avenue
New York, New York 10154 9,231,868(5) 4.9%
Steven M. Helm 119,913(6) *
Larry D. Henk 363,401(7) *
Henry L. Hirvela 201,667(8) *
Donald W. Slager 93,480(9) *
Michael Gross 17,155,910(10) 9.1%
David B. Kaplan 17,156,367(10) 9.1%
Antony P. Ressler 17,156,352(10) 9.1%
Nolan Lehmann 1,078,795(11) *
Howard A. Lipson 9,266,868(12) 4.9%
Dennis Hendrix 41,445(13) *
Warren B. Rudman 36,236(13) *
Vincent Tese 36,238(13) *
All Directors and executive officers as a group(16
persons)(2)-(3),(6)-(14) 31,814,751 14.6%
- -------------
* Does not exceed one percent.
80
<PAGE>
<FN>
(1) Unless otherwise indicated, the address of each person or group listed
above is 15880 North Greenway-Hayden Loop, Suite 100, Scottsdale, Arizona
85260.
(2) Includes 979,972 shares of Common Stock that may be acquired on the
exercise of options.
(3) Includes 987,472 shares of Common Stock that may be acquired on the
exercise of options.
(4) Apollo Advisors II, L.P. ("Apollo Advisors") serves as general partner
for each of Apollo Investment Fund III, L.P., Apollo Overseas Partners III,
L.P. and Apollo (UK) Partners III, L.P. (collectively, the "Apollo
Investors"), which directly own 15,609,142, 932,982 and 577,455 shares of
Common Stock, respectively, representing approximately 8.3%, 0.5% and 0.3%
of the outstanding Common Stock, respectively. Messrs. Gross, Kaplan and
Ressler are principals of Apollo Advisors and each disclaims beneficial
ownership of the indicated shares. The foregoing information is based on
Schedules 13D filed on behalf of the Apollo Investors with the Securities
and Exchange Commission.
(5) Blackstone Management Associates II L.L.C.,("Blackstone Associates") serves
as the sole general partner of Blackstone Capital Partners II Merchant
Banking Fund L.P.,("BCP II") and Blackstone Family Investment Partnership
II L.P., ("BFIP II")and the sole investment general partner of Blackstone
Offshore Capital Partners II L.P. ("BOCP II"). Blackstone Services (Cayman)
LDC is the administrative general partner of BOCP II. Pursuant to the
partnership agreement of BOCP II, Blackstone Associates has the sole power
to vote securities held by the BOCP II and the sole power to dispose of
securities held by BOCP II. Blackstone Associates, BCP II, BOCP II, and
BFIP II are collectively referred to as the "Blackstone Investors". Messrs.
Peter G. Peterson and Stephen A. Schwarzman are the founding members of
Blackstone Associates. The other members of Blackstone Associates are David
A. Stockman, Michael B. Hoffman, James J. Mossman, Arthur B. Newman,
Anthony Grillo, J. Tomilson Hill, Mark T. Gallogly, Glenn H. Hutchins,
Howard A. Lipson, Thomas J. Saylak and John Z. Kukral. Each of the BCP II,
BOCP II and BFIP II directly own 6,611,545, 1,962,385 and 657,938 shares of
the outstanding Common Stock, respectively, representing approximately
3.5%, 1.0% and 0.4% of such outstanding shares, respectively. Mr. Lipson is
Senior Managing Director of Blackstone Associates and disclaims beneficial
ownership of the indicated shares. The foregoing information is based on
Schedules 13D filed on behalf of the Blackstone Investors with the
Securities and Exchange Commission.
(6) Includes 119,413 shares of Common Stock that may be acquired on the
exercise of options.
(7) Includes 343,514 shares of Common Stock that may be acquired on the
exercise of options.
(8) Includes 196,667 shares of Common Stock that may be acquired on the
exercise of options.
(9) Includes 92,180 shares of Common Stock that may be acquired on the
exercise of options.
(10) Includes (i) 17,119,579 shares beneficially owned by the Apollo Investors,
as to which each of Messrs. Gross, Kaplan and Ressler disclaims beneficial
ownership, and (ii) 35,000 shares that may be acquired on the exercise of
options.
(11) Includes (i) 1,000,000 shares of Common Stock that are beneficially owned
by an affiliate of Mr. Lehmann and (ii) 52,500 shares of Common Stock that
may be acquired on the exercise of options.
(12) Includes (i) 9,231,868 shares beneficially owned by the Blackstone
Investors, as to which Mr. Lipson disclaims beneficial ownership, and (ii)
35,000 shares that may be acquired on the exercise of options.
(13) Includes 35,000 shares of Common Stock that may be acquired on the exercise
of options.
(14) Includes 166,187 shares of Common Stock that may be acquired on the
exercise of options by two executive officers who are not named officers.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference to the
material appearing under the heading "Certain Relationships and Related
Transactions" in the Proxy Statement for the 1999 Annual Meeting of
Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statement Schedules --
Schedule II - Valuation and Qualifying Accounts
81
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Charges to Other Write-offs/ Balance
12/31/95 Expense Charges(1) Payments 12/31/96
--------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts........... $ 7,457 $ 2,871 $ 937 $ (2,874) $ 8,391
Restructuring costs -- 5,381 -- -- 5,381
Balance Charges to Other Write-offs/ Balance
12/31/96 Expense Charges(1) Payments 12/31/97
----------- ---------- ---------- ----------- --------
Allowance for
doubtful accounts........... $ 8,391 $ 4,228 $ 1,624 $ (4,895) $ 9,348
Restructuring costs 5,381 -- -- (5,381) --
Balance Charges to Other Write-offs/ Balance
12/31/97 Expense Charges(1) Payments 12/31/98
-------- ---------- ---------- ----------- --------
Allowance for
doubtful accounts........... $ 9,348 $ 8,086 $ 1,912 $(5,439) $ 13,907
Severance and termination
costs -- 34,328 -- (24,202) 10,126
Restructuring costs -- 10,152 -- (2,522) 7,630
<FN>
(1) Amounts consist primarily of costs assumed from acquired companies recorded
prior to the date of acquisition.
Valuation and qualify accounts not included above have been shown in Notes 1 and
6 of the Company's financial statements included in Part II Item 8 of this Form
10-K.
</FN>
</TABLE>
82
<PAGE>
Exhibits --
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 for the quarter ended June 30, 1998 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 hereby by
reference.
2.6 Agreement and Plan of Merger dated as of March 7, 1999 by and among
Allied Waste Industries, Inc., AWIN I Acquisition Corporation and
Browning-Ferris Industries, Inc. Exhibit 2 to the Company's Current
Report on Form 8-K filed March 16, 1999 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 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.
3.3 Amendment to Amended Certificate of Incorporation of the Company dated
October 15, 1998. Exhibit 3.4 to the Company's Report on Form 10-Q for
the quarter ended September 30, 1998 is incorporated herein by
reference.
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.
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.
83
<PAGE>
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.
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.
4.21 Indenture relating to the 1998 Senior Notes, dated as of December 23,
1998, by and among the Company and U.S. Bank Trust National
Association, as Trustee, with respect to the 1998 Senior Notes and
Exchange Notes. Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (No.333-70709) is incorporated herein by
reference.
4.22 Five Year Series Supplement Indenture relating to the 1998 Five Year
Notes, dated December 23, 1998, among the Company, the Guarantors and
the Trustee. Exhibit 4.2 to the Company's Registration Statement on
Form S-4 (No. 333-70709) is incorporated herein by reference.
4.23 Form of Series B Five Year Notes (included in Exhibit 4.22) Exhibit 4.3
to the Company's Registration Statement on Form S-4 (No.333-70709) is
incorporated herein by reference.
4.24 Seven Year Series Supplement Indenture relating to the 1998 Seven Year
Notes, dated December 23, 1998, among the Company, the Guarantors and
the Trustee. Exhibit 4.4 to the Company's Registration Statement on
Form S-4 (No.333-70709) is incorporated herein by reference.
84
<PAGE>
4.25 Form of Series B Seven Year Notes(included in Exhibit 4.24).Exhibit 4.5
to the Company's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.26 Ten Year Series Supplement Indenture relating to the 1998 Ten Year
Notes, dated December 23, 1998, among the Company, the Guarantors and
the Trustee. Exhibit 4.6 to the Company's Registration Statement on
Form S-4 (No.333-70709) is incorporated herein by reference.
4.27 Form of Series B Ten Year Notes (included in Exhibit 4.26). Exhibit
4.7 to the Company's Registration Statement on Form S-4
(No.333-70709) is incorporated herein by reference.
4.28 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.
10.1 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.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
85
<PAGE>
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 Executive Employment Agreement between the Company and with Peter S.
Hathaway dated June 6, 1997. Exhibit 10.14 to the Company's Report on
Form 10-K for the year ended December 31, 1997 is incorporated herein
by reference.
10.15 Executive Employment Agreement between the Company and with Michael G.
Hannon dated June 6, 1997. Exhibit 10.15 to the Company's Report on
Form 10-K for the year ended December 31, 1997 is incorporated herein
by reference.
10.16 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.
10.17 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 for the quarter ended June 30, 1998 is
incorporated herein by reference.
10.18 Registration Rights Agreement, dated as of December 23, 1998, by and
among the Company, the Guarantors, and Donaldson, Lufkin & Jenrette
Securities Corporation, relating to the $225,000,000 7 3/8% Senior
Notes due 2004. Exhibit 10.1 to the Company's Registration Statement on
Form S-4 (No.333-70709) is incorporated herein by reference.
10.19 Registration Rights Agreement, dated as of December 23, 1998, by and
among the Company, the Guarantors, and Donaldson, Lufkin & Jenrette
Securities Corporation, relating to the $600,000,000 7 5/8% Senior
Notes due 2006. Exhibit 10.2 to the Company's Registration Statement on
Form S-4 (No.333-70709) is incorporated herein by reference.
10.20 Registration Rights Agreement, dated as of December 23, 1998, by and
among the Company, the Guarantors, and Donaldson, Lufkin & Jenrette
Securities Corporation, Goldman Sachs & Co., Credit Suisse First
Boston, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley Dean Witter Incorporated, Bear, Stearns, & Co, Inc., BT Alex.
Brown, CIBC Oppenheimer, Salomon Smith Barney, Inc., relating to the
$875,000,000 7 7/8% Senior Notes due 2009. Exhibit 10.3 to the
Company's Registration Statement on Form S-4 (No.333-70709) is
incorporated herein by reference.
10.21 Purchase Agreement dated December 14, 1998, by and among the Company,
the Guarantors and Donaldson, Lufkin & Jenrette Securities Corporation,
with respect to the 1998 Senior Notes. Exhibit 10.4 to the Company's
Registration Statement on Form S-4 (No.333-70709)is incorporated herein
by reference.
*12 Ratio of earnings to fixed charges.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Arthur Andersen LLP.
*27.1 Financial Data Schedule for the year ended December 31, 1998.
*27.2 Restated Financial Data Schedule for the year ended December 31, 1997.
86
<PAGE>
*27.3 Restated Financial Data Schedule for the year ended December 31, 1996.
*27.4 Restated Financial Data Schedule for the three months ended
March 31, 1998.
*27.5 Restated Financial Data Schedule for the six months ended
June 30, 1998.
*27.6 Restated Financial Data Schedule for the nine months ended
September 30, 1998.
*27.7 Restated Financial Data Schedule for the three months ended
March 31, 1997.
*27.8 Restated Financial Data Schedule for the six months ended
June 30, 1997.
*27.9 Restated Financial Data Schedule for the nine months ended
September 30, 1997.
* Filed herewith.
87
<PAGE>
Reports on Form 8-K during the Quarter Ended December 31, 1998--
December 28, 1998 The Company's Current Report on
Form 8-K reports the successful completion
of its $1.7 billion (previously announced as
$1.5 billion) debt offering and the cash
tender offer to purchase all of its 10.25%
1996 Notes and 11.30% Senior Discount Notes.
December 8, 1998 The Company's Current Report on Form
8-K reports the offering of $1.5 billion in
senior unsecured notes.
December 7, 1998 The Company's Current Report on Form
8-K reports the supplemental financial
statements related to the ADSI acquisition.
November 25, 1998 The Company's Current Report on
Form 8-K reports the commencement of a cash
tender offer to purchase all of AWNA's $525
million 10.25% Senior Subordinated Notes due
2006 and all of the 11.30% Senior Discount
Notes of the Company.
October 30, 1998 The Company's Current Report on
Form 8-K reports the consummation of the
merger with ADSI.
October 29, 1998 The Company's Current Report on
Form 8-K reports the restated supplemental
financial statements and other financial
data to reflect the significant acquisitions
completed in 1998 that were accounted for
using the pooling-of-interests method of
business combinations.
88
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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, in the City of
Scottsdale, State of Arizona, on July 13, 1999.
ALLIED WASTE INDUSTRIES, INC.
By: /s/HENRY L. HIRVELA
------------------------
Henry L. Hirvela
Vice President-Chief Financial Officer
(Principal Financial Officer)
By: /s/PETER S. HATHAWAY
--------------------------
Peter S. Hathaway
Vice President, Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on July
13, 1999.
Signature Title
----------- ------
/s/THOMAS H. VAN WEELDEN Director, Chairman of the Board of Directors
---------------------------- President and - Chief Executive Officer
Thomas H. Van Weelden (Principal Executive Officer)
/s/HENRY L. HIRVELA Vice President - Chief Financial Officer
---------------------------- (Principal Financial Officer)
Henry L. Hirvela
/s/PETER S. HATHAWAY Vice President - Chief Accounting Officer
----------------------------- (Principal Accounting Officer)
Peter S. Hathaway
/s/MICHAEL GROSS Director
-----------------------------
Michael Gross
/s/DENNIS HENDRIX Director
- ------------------------------
Dennis Hendrix
/s/DAVID B. KAPLAN Director
- -------------------------------
David B. Kaplan
/s/NOLAN LEHMANN Director
- -------------------------------
Nolan Lehmann
/s/HOWARD A. LIPSON Director
- -------------------------------
Howard A. Lipson
89
<PAGE>
SIGNATURES - (Continued)
/s/ROGER A. RAMSEY Director
-----------------------
Roger A. Ramsey
/s/ANTONY P. RESSLER Director
------------------------
Antony P. Ressler
/s/WARREN B. RUDMAN Director
-----------------------
Warren B. Rudman
/s/VINCENT TESE Director
-----------------------
Vincent Tese
90
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit # Exhibit Page
- --------- ------- ----
<S> <C>
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 for the
quarter ended June 30, 1998 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.
2.6 Agreement and Plan of Merger dated as of March 7, 1999 by and
among Allied Waste Industries, Inc., AWIN I Acquisition
Corporation and Browning-Ferris Industries, Inc. Exhibit 2 to the
Company's Current Report on Form 8-K filed March 16, 1999 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 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.
3.3 Amendment to Amended Certificate of Incorporation of the Company
dated October 15, 1998. Exhibit 3.4 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1998 is incorporated
herein by reference.
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.
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.
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.
4.21 Indenture relating to the 1998 Senior Notes, dated as of December 23, 1998, by and
among the Company and U.S. Bank Trust National Association, as Trustee, with
respect to the 1998 Senior Notes and Exchange Notes. Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (No.333-70709) is incorporated herein by
reference.
4.22 Five Year Series Supplement Indenture relating to the 1998 Five
Year Notes, dated December 23, 1998, among the Company, the
Guarantors and the Trustee. Exhibit 4.2 to the Company's
Registration Statement on Form S-4 (No.333-70709) is incorporated
herein by reference.
4.23 Form of Series B Five Year Notes (included in Exhibit 4.22) Exhibit 4.3 to the
Company's Registration Statement on Form S-4 (No.333-70709) is incorporated herein
by reference.
4.24 Seven Year Series Supplement Indenture relating to the 1998 Seven
Year Notes, dated December 23, 1998, among the Company, the
Guarantors and the Trustee. Exhibit 4.4 to the Company's
Registration Statement on Form S-4 (No.333-70709) is incorporated
herein by reference.
4.25 Form of Series B Seven Year Notes (included in Exhibit 4.24) Exhibit 4.5 4 to the
Company's Registration Statement on Form S-4 (No.333-70709) is incorporated herein
by reference.
4.26 Ten Year Series Supplement Indenture relating to the 1998 Ten Year
Notes, dated December 23, 1998, among the Company, the Guarantors
and the Trustee. Exhibit 4.6 to the Company's Registration
Statement on Form S-4 (No.333-70709) is incorporated herein by
reference.
4.27 Form of Series B Ten Year Notes (included in Exhibit 4.26) Exhibit 4.7 to the
Company's Registration Statement on Form S-4 (No.333-70709) is incorporated herein
by reference.
4.28 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.
10.1 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.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 Executive Employment Agreement between the Company and with Peter
S. Hathaway dated June 6, 1997. Exhibit 10.14 to the Company's
Report on Form 10-K for the year ended December 31, 1997 is
incorporated herein by reference.
10.15 Executive Employment Agreement between the Company and with
Michael G. Hannon dated June 6, 1997. Exhibit 10.15 to the
Company's Report on Form 10-K for the year ended December 31, 1997
is incorporated herein by reference.
10.16 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.
10.17 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 for
the quarter ended June 30, 1998 is incorporated herein by
reference.
10.18 Registration Rights Agreement, dated as of December 23, 1998,
by and among the Company, the Guarantors, and Donaldson, Lufkin
& Jenrette Securities Corporation, relating to the $225,000,000
7 3/8% Senior Notes due 2004. Exhibit 10.1 to the Company's
Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
10.19 Registration Rights Agreement, dated as of December 23, 1998, by
and among the Company, the Guarantors, and Donaldson, Lufkin &
Jenrette Securities Corporation, relating to the $600,000,000 7
5/8% Senior Notes due 2006. Exhibit 10.2 to the Company's
Registration Statement on Form S-4 (No.333-70709) is incorporated
herein by reference.
10.20 Registration Rights Agreement, dated as of December 23, 1998, by
and among the Company, the Guarantors, and Donaldson, Lufkin &
Jenrette Securities Corporation, Goldman Sachs & Co., Credit
Suisse First Boston, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley Dean Witter Incorporated, Bear,
Stearns, & Co, Inc., BT Alex. Brown, CIBC Oppenheimer, Salomon
Smith Barney, Inc., relating to the $875,000,000 7 7/8% Senior
Notes due 2009. Exhibit 10.3 to the Company's Registration
Statement on Form S-4 (No.333-70709) is incorporated herein by
reference.
10.21 Purchase Agreement dated December 14, 1998, by and among the
Company, the Guarantors and Donaldson, Lufkin & Jenrette
Securities Corporation, with respect to the 1998 Senior Notes.
Exhibit 10.4 to the Company's Registration Statement on Form S-4
(No.333-70709) is incorporated herein by reference.
*12 Ratio of earnings to fixed charges.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Arthur Andersen LLP.
*27.1 Financial Data Schedule for the year ended December 31, 1998.
*27.2 Restated Financial Data Schedule for the year ended December 31, 1997.
*27.3 Restated Financial Data Schedule for the year ended December 31, 1996.
*27.4 Restated Financial Data Schedule for the three months ended March 31, 1998.
*27.5 Restated Financial Data Schedule for the six months ended June 30, 1998.
*27.6 Restated Financial Data Schedule for the nine months ended September 30, 1998.
*27.7 Restated Financial Data Schedule for the three months ended March 31, 1997.
*27.8 Restated Financial Data Schedule for the six months ended June 30, 1997.
*27.9 Restated Financial Data Schedule for the nine months ended September 30, 1997.
* Filed herewith.
</TABLE>
<TABLE>
<CAPTION>
Exhibit 12
ALLIED WASTE INDUSTRIES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands except for ratios)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Fixed Charges:
<S> <C> <C> <C> <C> <C>
Interest expensed ........................ $ 13,958 $ 20,443 $ 21,347 $ 108,045 $ 88,431
Interest capitalized ..................... 3,517 11,088 13,451 37,568 67,499
------------ ------------ ------------ ------------ ------------
Total interest expense ............... 17,475 31,531 34,798 145,613 155,930
Interest component of
rent expense............................ 527 1,936 3,061 4,014 4,576
Amortization of debt
issuance costs.......................... 869 359 877 3,866 3,908
------------ ------------ ------------ ------------ ------------
Total fixed charges................... $ 18,871 $ 33,826 $ 38,736 $ 153,493 $ 164,414
============ ============ ============ ============ ============
Earnings:
Income (loss) from continuing
operations before income taxes ...... (1,944) 40,120 (52,068) 117,524 (54,478)
Plus fixed charges ....................... 18,871 33,826 38,736 153,493 164,414
Less interest capitalized ................ (3,517) (11,088) (13,451) (37,568) (67,499)
------------ ------------ ------------ ------------ ------------
Total earnings ..................... $ 13,410 $ 62,858 $ (26,783) $ 233,449 $ 42,437
============ ============ ============ ============ ============
Ratio of earnings to fixed charges * 1.9X ** 1.5X ***
============ ============ ============ ============ ============
- --------------------------------
<FN>
* Earnings were inadequate to cover fixed charges by $5,461.
** Earnings were inadequate to cover fixed charges by $65,519
*** Earnings were inadequate to cover fixed charges by $121,977.
</FN>
</TABLE>
EXHIBIT 21
Subsidiaries of the Registrant
Name of Subsidiary State of Organization
- --------------------------------------- ------------------------
3003304 Nova Scotia Company Canada
A-1 Service, Inc. Iowa
Aaro Waste Paper Company Michigan
AAWI, Inc. Texas
Able Sanitation, Inc. Michigan
Adrian Landfill, Inc. Michigan
ADS, Inc. Oklahoma
ADS of Illinois, Inc. Illinois
Affordable Dumpsters, Inc Illinois
Alabama Recycling Services, Inc. Alabama
Alaska Street Associates, Inc. Washington
Allied Acquisition Pennsylvania, Inc. Pennsylvania
Allied Acquisition Two, Inc. Massachusetts
Allied Cartage, Inc. Massachusetts
Allied Enviro Engineering, Inc. Texas
Allied Enviroengineering, Inc. Delaware
Allied Gas Recovery Systems, L.L.C. Delaware
Allied Nova Scotia, Inc. Delaware
Allied Services, LLC Delaware
Allied Waste Alabama, Inc. Delaware
Allied Waste Company, Inc. Delaware
Allied Waste Hauling of Georgia, Inc. Georgia
Allied Waste Holdings (Canada) Ltd. Delaware
Allied Waste Industries (Arizona), Inc. Arizona
Allied Waste Industries (New Mexico), Inc. New Mexico
Allied Waste Industries (Southwest), Inc. Arizona
Allied Waste Industries of Georgia, Inc. Georgia
Allied Waste Industries of Illinois, Inc. Illinois
Allied Waste Industries of New York, Inc. New York
Allied Waste Industries of Northwest Indiana, Inc. Indiana
Allied Waste Industries of Tennessee, Inc. Tennessee
Allied Waste Landfill Holdings, Inc. Delaware
Allied Waste North America, Inc. Delaware
Allied Waste of California, Inc. California
Allied Waste of Long Island, Inc. New York
Allied Waste of New Jersey, Inc. New Jersey
Allied Waste of New Jersey, LLC Delaware
Allied Waste Rural Sanitation, Inc. Delaware
Allied Waste Services, Inc. Massachusetts
Allied Waste Services, Inc. Texas
Allied Waste Systems, Inc. Delaware
Allied Waste Systems, Inc. Ohio
Allied Waste Systems (Texas) Inc. Texas
Allied Waste Systems Holdings, Inc. Delaware
Allied Waste Transportation, Inc. Delaware
Americal Co. Michigan
American Disposal Services, Inc. Delaware
American Disposal Services of Illinois, Inc. Delaware
American Disposal Services of Kansas, Inc. Kansas
American Disposal Services of Missouri, Inc. Oklahoma
American Disposal Services of New Jersey, Inc. Delaware
American Disposal Services of West Virginia, Inc. Delaware
American Disposal Transfer Services of Illinois, Inc. Delaware
American Materials Recycling Corp. New Jersey
American Transfer Company, Inc. New York
Anderson Regional Landfill, LLC Delaware
Anson County Landfill NC, LLC Delaware
Apache Junction Landfill Corporation Arizona
Area Disposal, Inc. Illinois
Autoshred, Inc. Missouri
AWIN I Acquisition Corporation Delaware
AWIN Leasing Company, Inc. Delaware
AWIN Management, Inc. Delaware
B & L Waste Handling, Inc. Rhode Island
Bellville Landfill, Inc. Missouri
Better Disposal Services, Inc. Nebraska
Borrego Landfill, Inc. California
Bowers Phase II, Inc. Ohio
Brickyard Disposal & Recycling, Inc. Illinois
Bridgeton Landfill, LLC Delaware
Brunswick Waste Management Facility, LLC Delaware
Butler County Landfill, LLC Delaware
Camelot Landfill TX, LP Delaware
CC Landfill, Inc. Delaware
CCAI, Inc. Washington
CDF Consolidated Corporation Illinois
Celina Landfill, Inc. Ohio
Central Sanitary Landfill, Inc. Michigan
Chambers Development of North Carolina, Inc. North Carolina
Champion Recycling, Inc. New York
Charter Evaporation Resource Recovery Systems California
Cherokee Run Landfill, Inc. Ohio
Chicago Disposal, Inc. Illinois
Citizens Disposal, Inc. Michigan
City-Star Services, Inc. Michigan
City Garbage, Inc. Texas
Clarkston Disposal, Inc. Michigan
Clinton Disposal Co. Iowa
Community Refuse Disposal, Inc. Nebraska
Consolidated Processing, Inc. Illinois
Container Service, Inc. Missouri
Containerized, Inc. of Texas Texas
County Disposal, Inc. Delaware
County Disposal (Ohio), Inc. Delaware
County Landfill, Inc. Delaware
County Line Landfill Partnership Indiana
Cousins Carting Corp. New York
Crow Landfill TX, L.P. Delaware
CRX, Inc. Nevada
D & D Garage Services, Inc. Illinois
D & L Disposal, L.L.C. Delaware
Delta Container Corporation California
Delta Paper Stock Co. California
Denver Regional Landfill, Inc. Colorado
Dinverno, Inc. Michigan
Dinverno Recycling, Inc. Michigan
Dopheide Sanitary Service, Inc. Nebraska
Draw Acquisition Company Eighteen Delaware
Draw Acquisition Company Twenty Two Delaware
Draw Acquisition Company Twenty Three Delaware
Draw Enterprises II, Inc. Illinois
Draw Enterprises Real Estate, Inc. Illinois
Draw Enterprises Real Estate, L.P. Illinois
Duncan Disposal Service, Inc. Michigan
Eagle Industries Leasing, Inc. Michigan
East Coast Waste Systems, Inc. Massachusetts
ECDC Environmental of Humbolt County, Inc. Delaware
ECDC Environmental, L.C. Utah
ECDC Holdings, Inc. Delaware
Ellis County Landfill TX, L.P. Delaware
Ellis Scott Landfill MO, LLC Delaware
Elmhurst Disposal Company Illinois
Enviro Carting Inc. New York
Environmental Development Corporation Delaware
Environmental Reclamation Company Illinois
Enviro Recycling Corp. New York
Envotech-Illinois, L.L.C. Delaware
Environtech, Inc. Delaware
EOS Environmental, Inc. Texas
Evergreen Scavenger Service, Inc. Delaware
Evergreen Scavenger Service, L.L.C. Delaware
Fred Barbara Trucking Co., Inc. Illinois
Fort Worth Landfill TX, LP Delaware
Forward, Inc. California
G. Van Dyken Disposal Inc. Michigan
Garofalo Brothers, Inc. New Jersey
Garofalo Recycling and Transfer Station Co., Inc. New Jersey
Gary Recycling Services, Inc. Indiana
General Refuse Rolloff Corp. Delaware
Georgia Recycling Services, Inc. Delaware
Golden Eagle Disposals, Inc. New York
Golden Waste Disposal, Inc. Georgia
Great Lakes Disposal Services, Inc. Delaware
Great Midwestern Recovery Systems, Inc. Illinois
Great Plains Landfill OK, LLC Delaware
Harland's Sanitary Landfill, Inc. Michigan
Hawkeye Disposal Services, Inc. Iowa
Illiana Disposal Partnership Indiana
Illinois Bulk Handlers, Inc. Illinois
Illinois Landfill, Inc. Illinois
Illinois Recycling Services, Inc. Illinois
Independent Trucking Company California
Indiana Recycling Service, Incorporated Indiana
Industrial Services of Illinois, Inc. Illinois
Ingrum Waste Disposal, Inc. Illinois
Jefferson City Landfill, LLC Delaware
Joe Di Rese & Sons, Inc. New Jersey
Kent-Meridian Disposal Company Washington
Key Waste Indiana Partnership Indiana
Lake Shore Distributions, Inc. Illinois
Lathrop Sunrise Sanitation Corporation California
Lee County Landfill SC, LLC Delaware
Lee County Landfill, Inc. Illinois
Lemons Landfill, LLC Delaware
Liberty Waste Holdings, Inc. Delaware
Liberty Waste Services Limited, L.L.C. Delaware
Liberty Waste Services of Illinois, L.L.C. Illinois
Liberty Waste Services of McCook, L.L.C. Delaware
Loop Express, Inc. Illinois
Loop Recycling, Inc. Illinois
Loop Transfer, Incorporated Illinois
Louis Pinto & Son, Inc., Sanitation Contractors New Jersey
Manumit of Florida, Inc. Florida
Mars Road TX, LP Delaware
MCM Sanitation, Inc. New York
Medical Disposal Services, Inc. Illinois
Mesquite Landfill TX, LP Delaware
Metropolitan Disposal, Inc. Massachusetts
Mississippi Waste Paper Company Mississippi
MJS Associates, Inc. Washington
Monarch Disposal, Inc. Illinois
NationsWaste Catawba Regional Landfill, Inc. South Carolina
NationsWaste, Inc. Delaware
Newton County Landfill Partnership Indiana
Nimishillen Industrial Park, Inc. Ohio
Northeast Landfill, LLC Delaware
Northeast Sanitary Landfill, Inc. South Carolina
Northwest Recycling, Inc. Illinois
Oakland Heights Development, Inc. Michigan
Oklahoma City Landfill, LLC Oklahoma
Oklahoma Refuse, Inc. Oklahoma
Organized Sanitary Collectors and Recyclers, Inc. Nebraska
Oscar's Collection System of Fremont, Inc. Nebraska
Otay Landfill, Inc. California
Ottawa County Landfill, Inc. Delaware
Packerton Land Company, L.L.C. Delaware
Packman, Inc. Kansas
Palomar Transfer Station, Inc. California
Paper Fibers, Inc. Washington
Paper Fibres Company Washington
Pinal County Landfill Corporation Arizona
Pinecrest Landfill OK, LLC Delaware
Pine Hill Farms Landfill TX, LP Delaware
Pittsburg County Landfill, Inc. Oklahoma
Pleasant Oaks Landfill TX, LP Delaware
Price & Sons Recycling Company Georgia
R. 18, Inc. Illinois
Rabanco Companies Washington
Rabanco Intermodal/B.C., Inc. Washington
Rabanco, Ltd. Washington
Rabanco Recycling, Inc. Washington
Rabanco Regional Landfill Company Washington
Ramona Landfill, Inc. California
RCS, Inc. Illinois
R.C. Miller Enterprises, Inc. Ohio
R.C. Miller Refuse Service, Inc. Ohio
Recycle Seattle II Washington
Recycling Associates, Inc. New York
Regional Disposal Company Washington
Reliable Rubbish Disposal, Inc. Massachusetts
Resource Recovery, Inc. Kansas
Ridgeline Trucking, Inc. Illinois
Roosevelt Associates Washington
Ross Bros. Waste & Recycling Co. Ohio
Royal Holdings, Inc. Michigan
Reliant Insurance Company Vermont
Roxana Landfill, Inc. Illinois
Rural Sanitation Service, Inc. of North Carolina North Carolina
S & L, Inc. Washington
S & S Environmental, Inc. Michigan
S & S Recycling, Inc. Georgia
San Marcos NCRRF, Inc. California
Sanitary Disposal Services, Inc. Michigan
Sanitran, Inc. New York
Saugus Disposal, Inc. Massachusetts
Sauk Trail Development, Inc. Michigan
Selas Enterprises LTD New York
Show-Me Landfill, LLC Delaware
Shred-All Recycling, Inc. Illinois
South Chicago Disposal, Inc. of Indiana Indiana
Southeast Landfill, LLC Delaware
Southwest Waste, Inc. Missouri
Specialized Waste Systems, Inc. Delaware
SSWI, Inc. Washington
Standard Disposal Services, Inc. Michigan
Standard Disposal Services of Florida, Inc. Florida
Standard Environmental Services, Inc. Michigan
Standard Waste, Inc. Delaware
Stark Recycling Center, Inc. Ohio
Stewart Trash & Recycling Services, Inc. Missouri
Streator Area Landfill, Inc. Illinois
Suburban Transfer, Inc. Illinois
Suburban Warehouse, Inc. Illinois
Sunrise Sanitation Service, Inc. California
Sunset Disposal, Inc. Kansas
Sunset Disposal Services, Inc. California
Super Services Waste Management, Inc. Arizona
Sycamore Landfill, Inc. California
Tates Transfer Systems, Inc. Missouri
T & G Container, Inc. Indiana
Tom Luciano's Disposal Service, Inc. New Jersey
Top Disposal Service, Inc. Illinois
Total Solid Waste Recyclers, Inc. New Jersey
Tricil (N.Y.) Inc. New York
Tri-State Recycling Services, Inc. Illinois
Tri-State Refuse Equipment Sales & Service, Inc. Ohio
Turkey Creek Landfill TX, LP Delaware
Turnpike Leasing, Inc. Massachusetts
United Waste Control Corp. Washington
United Waste Systems of Central Michigan, Inc. Michigan
Upper Rock Island County Landfill, Inc. Illinois
U.S. Disposal II Washington
USA Waste of Illinois, Inc. Illinois
Vining Disposal Service, Inc. Massachusetts
Vinnie Monte's Waste Systems, Inc. New York
Waste Associates, Inc. Washington
Wastehaul, Inc. Indiana
Waste Reclaiming Services, Inc. Illinois
Wayne County Landfill IL, Inc. Delaware
WJR Environmental, Inc. Washington
Williams County Landfill, Inc. Ohio
World Sanitation Corporation New York
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in the Registration Statements on Forms S-4(File No. 333-52501,
No. 333-59265, and No. 333-60727) and Forms S-8 (File No. 33-42354,
No. 33-63510, No.33-79654, No. 33-79756, No. 33-79664, No. 333-48357,
No. 333-62473, No. 333-68815 and No. 333-81821) of our reports dated March 3,
1999 included in the Allied Waste Industries, Inc. Form 10-K/A-1 for the year
ended December 31, 1998.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
July 12, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 39,742
<SECURITIES> 0
<RECEIVABLES> 238,994
<ALLOWANCES> 13,907
<INVENTORY> 10,287
<CURRENT-ASSETS> 499,904
<PP&E> 2,257,258
<DEPRECIATION> 481,233
<TOTAL-ASSETS> 3,752,592
<CURRENT-LIABILITIES> 454,873
<BONDS> 2,118,927
0
0
<COMMON> 1,845
<OTHER-SE> 928,229
<TOTAL-LIABILITY-AND-EQUITY> 3,752,592
<SALES> 1,575,612
<TOTAL-REVENUES> 1,575,612
<CGS> 892,273
<TOTAL-COSTS> 892,273
<OTHER-EXPENSES> 653,416
<LOSS-PROVISION> 8,086
<INTEREST-EXPENSE> 88,431
<INCOME-PRETAX> (54,478)
<INCOME-TAX> 43,773
<INCOME-CONTINUING> (98,251)
<DISCONTINUED> 0
<EXTRAORDINARY> (124,801)
<CHANGES> 0
<NET-INCOME> (223,052)
<EPS-BASIC> (1.22)
<EPS-DILUTED> (1.22)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 33,320
<SECURITIES> 0
<RECEIVABLES> 212,035
<ALLOWANCES> 9,348
<INVENTORY> 7,850
<CURRENT-ASSETS> 293,285
<PP&E> 1,946,861
<DEPRECIATION> 363,728
<TOTAL-ASSETS> 3,073,820
<CURRENT-LIABILITIES> 368,339
<BONDS> 1,492,360
0
0
<COMMON> 1,814
<OTHER-SE> 960,651
<TOTAL-LIABILITY-AND-EQUITY> 3,073,820
<SALES> 1,340,661
<TOTAL-REVENUES> 1,340,661
<CGS> 777,289
<TOTAL-COSTS> 777,289
<OTHER-EXPENSES> 339,568
<LOSS-PROVISION> 4,228
<INTEREST-EXPENSE> 108,045
<INCOME-PRETAX> 117,524
<INCOME-TAX> 40,277
<INCOME-CONTINUING> 77,247
<DISCONTINUED> 0
<EXTRAORDINARY> (53,205)
<CHANGES> 0
<NET-INCOME> 24,042
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 70,015
<SECURITIES> 0
<RECEIVABLES> 148,233
<ALLOWANCES> 8,391
<INVENTORY> 7,489
<CURRENT-ASSETS> 772,892
<PP&E> 1,184,014
<DEPRECIATION> 251,904
<TOTAL-ASSETS> 2,662,200
<CURRENT-LIABILITIES> 746,482
<BONDS> 1,283,327
0
1
<COMMON> 1,501
<OTHER-SE> 383,716
<TOTAL-LIABILITY-AND-EQUITY> 2,662,200
<SALES> 619,548
<TOTAL-REVENUES> 619,548
<CGS> 386,001
<TOTAL-COSTS> 386,001
<OTHER-EXPENSES> 266,747
<LOSS-PROVISION> 2,871
<INTEREST-EXPENSE> 21,347
<INCOME-PRETAX> (52,068)
<INCOME-TAX> 354
<INCOME-CONTINUING> (52,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 13,887
<CHANGES> 0
<NET-INCOME> (66,309)
<EPS-BASIC> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 47,865
<SECURITIES> 0
<RECEIVABLES> 228,263
<ALLOWANCES> 8,821
<INVENTORY> 7,645
<CURRENT-ASSETS> 305,125
<PP&E> 2,016,323
<DEPRECIATION> 364,726
<TOTAL-ASSETS> 3,232,711
<CURRENT-LIABILITIES> 348,490
<BONDS> 1,534,377
0
0
<COMMON> 1,669
<OTHER-SE> 1,033,991
<TOTAL-LIABILITY-AND-EQUITY> 3,232,711
<SALES> 357,900
<TOTAL-REVENUES> 357,900
<CGS> 205,816
<TOTAL-COSTS> 205,816
<OTHER-EXPENSES> 83,659
<LOSS-PROVISION> 377
<INTEREST-EXPENSE> 22,318
<INCOME-PRETAX> 46,292
<INCOME-TAX> 14,727
<INCOME-CONTINUING> 31,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,565
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 39,389
<SECURITIES> 0
<RECEIVABLES> 262,299
<ALLOWANCES> 8,902
<INVENTORY> 8,602
<CURRENT-ASSETS> 340,457
<PP&E> 2,092,990
<DEPRECIATION> 398,521
<TOTAL-ASSETS> 3,383,443
<CURRENT-LIABILITIES> 343,935
<BONDS> 1,565,438
0
0
<COMMON> 1,386
<OTHER-SE> 1,165,323
<TOTAL-LIABILITY-AND-EQUITY> 3,383,443
<SALES> 752,753
<TOTAL-REVENUES> 752,753
<CGS> 428,671
<TOTAL-COSTS> 428,671
<OTHER-EXPENSES> 213,346
<LOSS-PROVISION> 1,590
<INTEREST-EXPENSE> 43,996
<INCOME-PRETAX> 68,982
<INCOME-TAX> 32,774
<INCOME-CONTINUING> 36,208
<DISCONTINUED> 0
<EXTRAORDINARY> 3,054
<CHANGES> 0
<NET-INCOME> 33,154
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</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> 26,369
<SECURITIES> 0
<RECEIVABLES> 269,730
<ALLOWANCES> 9,843
<INVENTORY> 8,797
<CURRENT-ASSETS> 337,637
<PP&E> 2,234,270
<DEPRECIATION> 477,848
<TOTAL-ASSETS> 3,521,036
<CURRENT-LIABILITIES> 382,201
<BONDS> 1,612,411
0
0
<COMMON> 1,824
<OTHER-SE> 1,193,148
<TOTAL-LIABILITY-AND-EQUITY> 3,521,036
<SALES> 1,168,493
<TOTAL-REVENUES> 1,168,493
<CGS> 663,840
<TOTAL-COSTS> 663,840
<OTHER-EXPENSES> 333,774
<LOSS-PROVISION> 4,701
<INTEREST-EXPENSE> 65,506
<INCOME-PRETAX> 110,979
<INCOME-TAX> 56,160
<INCOME-CONTINUING> 54,817
<DISCONTINUED> 0
<EXTRAORDINARY> 3,054
<CHANGES> 0
<NET-INCOME> 51,765
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 66,806
<SECURITIES> 0
<RECEIVABLES> 179,340
<ALLOWANCES> 7,629
<INVENTORY> 8,183
<CURRENT-ASSETS> 282,589
<PP&E> 1,316,604
<DEPRECIATION> 266,133
<TOTAL-ASSETS> 2,342,221
<CURRENT-LIABILITIES> 292,883
<BONDS> 1,366,380
0
1
<COMMON> 1,436
<OTHER-SE> 413,951
<TOTAL-LIABILITY-AND-EQUITY> 2,342,221
<SALES> 292,883
<TOTAL-REVENUES> 292,883
<CGS> 176,766
<TOTAL-COSTS> 176,766
<OTHER-EXPENSES> 74,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,876
<INCOME-PRETAX> 15,998
<INCOME-TAX> 4,996
<INCOME-CONTINUING> 11,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,002
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 36,732
<SECURITIES> 0
<RECEIVABLES> 200,426
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