- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
FORM 10-K
(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, 1999
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 (IRS Employer Identification Number)
incorporation or organization)
15880 North Greenway-Hayden Loop, Suite 100
Scottsdale, Arizona 85260
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (480) 627-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
----
(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 Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ----
Indicate 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 $646,557,350 as of March 27, 2000.
The number of shares of the registrant's common stock, $.01 par value,
outstanding at March 27, 2000 was 189,010,989.
The registrant's proxy statement is to be filed in connection with the
registrant's 2000 annual meeting of stockholders, portions of which are
incorporated by reference into Part III of this report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I
<S> <C> <C>
Item 1. Business........................................................................................... 3
Item 2. Properties......................................................................................... 10
Item 3. Legal Proceedings.................................................................................. 10
Item 4. Submission of Matters to a Vote of Security Holders................................................ 11
PART II
Item 5. Market Price and Dividends on the Common Stock and Related Stockholder Matters..................... 12
Item 6. Selected Financial Data............................................................................ 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................................... 34
Item 8. Financial Statements and Supplementary Data........................................................ 35
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure................................ 78
PART III
Item 10. Directors and Executive Officers of the Registrant................................................. 78
Item 11. Executive Compensation............................................................................. 78
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 78
Item 13. Certain Relationships and Related Transactions..................................................... 78
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 78
Signatures......................................................................................... 82
</TABLE>
2
<PAGE>
PART I
Item 1. Business
Allied Waste Industries, Inc., a Delaware corporation ("Allied" or "we"), is the
second largest, non-hazardous solid waste management company in the United
States, and operates as a vertically integrated company that provides
collection, transfer, recycling and disposal services for residential,
commercial and industrial customers. We serve approximately 9.9 million
customers through a network of 340 collection companies, 148 transfer stations,
151 active landfills and 95 recycling facilities within 42 states. We are
organized by eight geographic operating regions of the United States: Atlantic,
Central, Great Lakes, Midwest, Northeast, Southeast, Southwest and West. We
reported revenues of approximately $3.3 billion and approximately $1.6 billion
for the years ended December 31, 1999 and 1998, respectively.
On July 30, 1999, we completed the acquisition of Browning-Ferris Industries,
Inc. ("BFI") for approximately $7.7 billion of cash and the assumption of
approximately $1.9 billion of BFI debt. Prior to the acquisition, BFI was the
second largest non-hazardous solid waste company in North America and provided
integrated solid waste management services, including residential, commercial
and industrial collection, transfer, disposal and recycling. As of the date of
acquisition, BFI serviced approximately 7.3 million customers through a network
of 221 collection companies, 86 transfer stations, 84 landfills, and 102
recycling facilities and had annual revenues of approximately $4.2 billion.
Industry Trends
Based on industry data, we estimate that the total 1998 revenues of the
non-hazardous solid waste industry in the United States were approximately $37
billion. The non-hazardous solid waste industry has traditionally been very
fragmented, particularly in the collection segment of the business. Publicly
traded companies, municipalities and privately held companies, generated
approximately 46%, 33% and 21% of the industry's revenue, respectively. After
our acquisition of BFI, the three largest publicly traded companies, Allied,
Waste Management, Inc. and Republic Services, Inc., represent a substantial
majority of the publicly traded company revenues.
The non-hazardous solid waste industry has undergone cycles of consolidation. We
believe that several factors will lead to continuing acquisitions and
consolidation in the industry albeit at a slower pace than the last few years.
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 continue to contribute to consolidation within the industry:
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 1989 there were
approximately 7,500 landfills; by 1992, the number had dropped to 5,000;
and in 1997 there were less than 2,500 landfills.
3
<PAGE>
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
indicated that of the 1,600 municipalities surveyed, which collectively
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.
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.
Generally, revenue growth within the industry has been a function of overall
economic and population growth and changing demographics. Industry growth has
also been impacted by changes in state and federal regulations supply of and
demand for disposal capacity and consumer awareness of environmental matters.
While the companies within the industry provide essential services, their
revenue growth has been, and will continue to be impacted by changes in general
economic and industry specific trends.
Business Strategy
The major components of our business strategy consist of: (1) operating
vertically integrated non-hazardous solid waste service businesses with a high
rate of waste internalization, by which we mean transferring and disposing of
waste we collect at our own landfills; (2) managing these businesses locally
with a strong operations focus on customer service; (3) maintaining our market
position through internal development and incremental acquisitions; and (4)
maintaining the financial capacity, management capabilities and administrative
systems and controls to support on-going operations and future growth.
Vertical Integration and Internalization. The vertical integration business
model has been and will continue to be the key element of our 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.
We have and will continue to build, through acquisitions and other market
development initiatives, market specific, vertically integrated operations
typically consisting of collection companies, transfer stations, recycling
facilities and landfills. Within our markets, we seek to strengthen our
competitive position and improve our financial returns by acquiring additional
operating assets, typically through "tuck-in" collection company acquisitions.
We believe that we can realize competitive advantages and future growth by
continuously implementing this strategy across existing and selected new markets
in the United States. Our internalization rate, as measured by collection
volumes, was approximately 61% in 1999.
Focus on Operations. Decentralized operations and local management characterize
our operations-oriented business strategy. We only recruit operating managers
with extensive industry experience, usually with significant experience in their
geographic markets. Our senior executive management, senior operating management
and regional vice presidents currently average approximately 18, 22 and 24 years
of industry experience, respectively. By continuing to hire and retain
experienced, local market-oriented managers, we believe that we are well
positioned to react to changes in our markets and are able to capitalize on
growth opportunities.
4
<PAGE>
Achieving a Sustainable Long-Term Growth Rate. With the completion of the BFI
acquisition, our focus is on achieving a sustainable rate of long-term growth.
Although we will continue to acquire "tuck-in" businesses and may enter selected
new markets, we will concentrate on efficiently operating the assets we have
accumulated over the last eight years. Therefore, we anticipate future revenue
growth will slow to a lower, sustainable rate. This is consistent with the
strategic plan we have articulated in the past. We intend to grow primarily
through internal development by acquiring privately owned solid waste companies.
We also intend to take selective advantage of opportunities when government
entities privatize the operation of all or part of their solid waste systems. In
addition, we seek to achieve broad geographic diversification in our operations
and market development activities. Our revenue mix for 1999 was approximately
61% collection, 25% disposal, 6% transfer, 5% recycling and 3% other.
Maintaining Capacity for Future Growth. We seek to implement our business
strategy by maintaining effective internal controls, experienced management and
sufficient financial capacity. While we expect operating cash flows to fund most
of our working capital and capital expenditure requirements, we intend to access
the public and private capital markets, as appropriate, to fund our continuing
growth and market development activities.
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. We generally provide solid waste collection under the
following two primary types of arrangements, depending on the customer being
served.
Commercial. We provide containerized non-hazardous solid waste disposal
services to a wide variety of commercial and industrial customers. We
provide these customers 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. Our commercial containers generally range in size
from one to eight cubic yards and our 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. We determine fees relating to
those contracts by general competitive and prevailing local economic
conditions and 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. We perform residential collection services under
individual monthly subscriptions directly to households or under
contracts with municipal governments that give us exclusive rights to
service all or a portion of the homes in the municipalities at
established rates. We seek to obtain municipal contracts that enhance
the efficiency and profitability of our operations as a result of the
density of collection customers within a given area. At the end of the
term of most municipal contracts, we will attempt to renegotiate the
contract, and if unable to do so, will re-bid the contract on a sealed
bid basis. We also make residential collection service arrangements
with households directly with the customer. We seek to enter into
residential service arrangements where the route density is high,
thereby creating additional economic benefit. We set collection fees
based on general competitive and prevailing local economic conditions
and 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. We
generally base fees upon such factors as the type and volume or weight of the
waste transferred and the transport distance involved. We believe 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.
5
<PAGE>
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. Disposal fees and the cost of transferring solid waste to the
disposal facility 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 necessary for all solid waste management companies. While
access to disposal facilities owned or operated by unaffiliated parties can
generally be obtained, we prefer, in keeping with our business strategy, to own
or operate our own disposal facilities. This ensures access on favorable terms
and allows us to internalize disposal fees.
Recycling. We include recycling as a component of our 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. We generally charge recycling fees based on the
service sought by the customer. The customer pays for the cost of removing,
processing and disposing of potentially recyclable materials. In most cases, we
receive mixed waste materials at a materials recovery facility, which is often
integrated into, or contiguous to, a transfer operation. At the facility, we
sort, separate, accumulate, bind or place in a container and ready for
transportation materials such as paper, cardboard, plastic, aluminum and other
metals. The purchaser generally pays for the materials based on fluctuating
spot-market prices. We dispose of material, for which there is no market or for
which the market price is insufficient to warrant processing, at a landfill or
other disposal facility. We seek to avoid exposure to fluctuating commodity
prices by passing through substantially all of the profit or loss from the sale
of recyclables to customers. We also engage in organic materials recycling
and/or disposal and other alternative energy concepts such as biomass fuels.
Organization, Marketing and Sales
Our management philosophy utilizes a decentralized business model. We believe
that this method is best suited to maximize the opportunities in each market
that we operate in and has largely contributed to our success.
We implement this philosophy through a regional and district infrastructure. We
have organized our operations into eight regions: Atlantic, Central, Great
Lakes, Midwest, Northeast, Southeast, Southwest and West. Consistent with the
vertical integration model, each region is organized into several operating
districts and each district comprises specific site operations. Each of our
regions and substantially all of our districts include collection, transfer,
recycling and disposal services, which facilitates efficient and cost effective
waste handling and allows the districts to maximize the internalization of
waste.
The districts consist of a collection of stand-alone companies usually operating
as a vertically integrated operation within a common marketplace. These
districts range in size from approximately $50 million in revenue to
approximately $250 million in revenue. Each district reports to a regional
office. Each regional office has approximately six districts under its
management.
A regional vice president supported by a staff including a regional controller
manages each region. All regional vice presidents and most regional controllers
have significant industry experience (in the case of regional vice presidents,
an average of 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, we generally make it a practice to fill operating
management positions from within the organization.
We also align the responsibilities of our field management with the vertical
integration model. All regional managers and generally most district managers
have responsibility for all phases of the vertical integration model including
collection, transfer, recycling and disposal. Regional management also has
responsibility for increasing regional revenues through both acquisition and
internal development initiatives. We believe that this approach promotes the
most efficient handling of waste by increasing internalization and results in
reduced costs and increased profits. In addition to base salary, we compensate
regional and district management through a bonus program and stock option plan.
Compensation pursuant to the bonus and stock option plans is largely contingent
upon meeting or exceeding various goals in the manager's geographic area of
responsibility.
6
<PAGE>
Each of our districts has staff responsible for sales and marketing. Our 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, we have a municipal marketing coordinator in most service areas,
who is responsible for communicating with each municipality or community to
which we provide residential service to ensure customer satisfaction.
Additionally, the municipal coordinators organize and handle bids for renewal
and new municipal contracts in their service area.
Competition
The non-hazardous waste collection and disposal industry is highly competitive.
The industry is currently comprised of three national waste companies: Allied,
Waste Management, Inc. and Republic Services, Inc. We also compete with local
and regional companies of varying sizes and competitive resources and 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 or incineration facility. We 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 continuing to undergo
consolidation and we encounter competition through pricing and service and in
our efforts to acquire landfills and collection operations. Accordingly, it may
become uneconomical for us to make further acquisitions or we may be unable to
locate or acquire suitable acquisition candidates at price levels and on terms
and conditions that we consider appropriate, particularly in markets we do not
already serve.
Environmental and Other Regulations
We are subject to extensive and evolving environmental laws and regulations. The
Environmental Protection Agency, (the "EPA") and various other federal, state
and local environmental, zoning, health and safety agencies administer the
regulations. Many of these agencies periodically examine our 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. We believe that
regulation of the waste industry will continue to evolve and we will adapt to
such future regulatory requirements to ensure compliance.
Our operation of landfills subjects us to certain operational, monitoring, site
maintenance, closure, post-closure and other obligations which could give rise
to increased costs for compliance and corrective measures. In connection with
our acquisition and continued operation of existing landfills, we must often
spend considerable time, effort and money to obtain permits required to increase
the capacity of these landfills. We cannot definitively predict whether or not
we will be able to obtain the governmental approvals necessary to establish new
or expand existing landfills.
7
<PAGE>
Our 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, required all landfills to meet these requirements by
October 9, 1993. Subtitle D required landfills that were not in compliance
with the requirements of Subtitle D on the applicable date of
implementation, which varied state by state, 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.
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 our landfills or transfer stations may be discharged into
surface waters, the Clean Water Act requires us to apply for and obtain
discharge permits, conduct sampling and monitoring and, under certain
circumstances, reduce the quantity of pollutants in those discharges. The
EPA has expanded the permit program to include storm water discharges from
landfills that receive, or in the past received, industrial waste. In
addition, if development may alter or affect "wetlands," we may have to
obtain a permit and undertake certain mitigation measures before
development may begin. This requirement is likely to affect the
construction or expansion of many solid waste disposal sites, including
some we own or are developing.
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 (as defined in
CERCLA) into the environment. CERCLA's primary mechanism for achieving
remediation of 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
parties who arranged for disposal at the facility (i.e. generators of the
waste and transporters who select the disposal site). 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 for which construction, reconstruction or modification was
commenced before May 30, 1991. The other applies to all municipal solid
waste landfills for which construction, reconstruction or modification was
commenced on or after May 30, 1991. The Emission Guidelines may be
implemented by the states after the EPA approves the individual state's
program. 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 to
reduce emissions to allowable limits.
8
<PAGE>
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 record keeping, 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 our operations.
Future Federal Legislation. In the future, our 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 we 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. Our collection, transfer and landfill operations
may also be affected by "flow control" legislation, which may be proposed in the
United States Congress. This proposed federal legislation may allow states and
local governments to direct waste generated within their jurisdiction to a
specific facility for disposal or processing. If this or similar legislation is
enacted, state or local governments with jurisdiction over our landfills could
act to limit or prohibit disposal or processing of waste in our landfills.
State Regulation. Each state in which we operate 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. We believe 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.
Our 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.
In connection with acquiring companies, we engage independent environmental
consulting firms to assist in conducting environmental assessments of the real
property of companies acquired or leased from third parties. Through this
process, we identified a number of contaminated landfills and other properties
that require us to incur costs for incremental closure and post-closure
measures, remediation activities and litigation costs in the future. We recorded
a provision of $267.0 million and $41.1 million for environmental matters in our
1999 and 1998 statement of operations, respectively. These costs primarily
related to matters associated with acquired companies prior to their
acquisition. We expect these amounts to be disbursed over the next 30 years.
We have implemented and will continue to implement our own environmental
safeguards that seek to comply with or exceed these governmental requirements.
Additionally, our policy is to obtain an environmental assessment prepared by an
independent environmental consulting firm or from our internal engineers for all
real estate acquired or leased. For calendar year 2000, we expect to spend
approximately $135 million for closure, post-closure and remediation
expenditures.
9
<PAGE>
Liability Insurance and Bonding
We carry general liability, comprehensive property damage, workers'
compensation, employer's liability, directors' and officers' liability,
environmental impairment liability and other coverages we believe are customary
to the industry. Except as discussed in Legal Proceedings below, management does
not expect the impact of any known casualty, property, environmental insurance
or other contingencies to be material to our consolidated liquidity, financial
position or results of operations.
We are required to provide certain financial assurances to governmental agencies
under applicable environmental regulations relating to our landfill and
collection operations. These financial assurances include performance bonds,
letters of credit, insurance contracts and trust deposits required principally
to secure our estimated landfill closure and post-closure obligations and
collection contracts. We expect to be required to provide approximately $1.5
billion in financial assurance obligations relating to our landfill operations
by the end of fiscal year 2000. We expect that financial assurances will
increase in the future as we acquire and expand our activities and that a
greater percentage of the financial assurances will be comprised, directly and
indirectly, of letters of credit.
Employees
We employ approximately 32,500 persons. Certain of our employees are covered by
collective bargaining agreements. We believe relations with our employees are
satisfactory.
Item 2. Properties
Our principal executive offices are located at 15880 N. Greenway-Hayden Loop,
Suite 100, Scottsdale, Arizona 85260 where we currently lease approximately
42,500 square feet of office space. We currently maintain regional
administrative offices in Arizona, Illinois, Indiana, Missouri, Georgia, South
Carolina, Colorado and Massachusetts.
Our principal property and equipment 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 our primary
lenders. We own or lease real property in the states in which we are doing
business. At December 31, 1999, we owned and operated 151 active solid waste
landfills, aggregating approximately 64,117 total acres, including approximately
22,723 permitted acres. In addition, we own or operate 340 collection companies,
148 transfer stations and 95 recycling facilities.
Item 3. Legal Proceedings
We are currently involved in certain routine litigation. We believe 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 our consolidated liquidity, financial position or results of
operations.
Federal, state and local provisions that relate to the protection of the
environment regulate our business. The nature of our business results in us
frequently becoming a party to judicial or administrative proceedings involving
governmental authorities and other interested parties. At December 31, 1999, we
were not involved in any such proceedings where we believe sanctions imposed by
governmental authorities may exceed $100,000 or which we believe will have a
material effect on our consolidated liquidity or results of operations. From
time to time, we may also be subject to actions brought by citizens' groups,
adjacent landowners or others in connection with the permitting and licensing of
our landfills or transfer stations, or alleging personal injury, environmental
damage or violations of the permits and licenses pursuant to which we operate.
10
<PAGE>
We have been notified that we are considered a potentially responsible party at
a number of sites under CERCLA or other environmental laws. We continually
review our status with respect to each site, taking into account the alleged
connection to the site and the extent of the contribution to the volume of waste
at the site, the available evidence connecting the entity to that site and the
number and financial soundness of other potentially responsible parties at the
site. The ultimate amounts for environmental liabilities at sites where we may
be a potentially responsible party cannot be determined and estimates of such
liabilities made by us, after consultation with our independent environmental
engineers, require assumptions about future events subject 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 we have concluded that our 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 our assessments to date, the recorded liabilities are periodically evaluated,
as additional information becomes available, to ascertain that the accrued
liabilities are adequate. We have determined that the recorded liability for
environmental matters as of December 31, 1999 of approximately $478.2 million
represents the most probable outcome of these contingent matters. We do 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 our consolidated liquidity, financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
On November 17,1999, we held a special stockholders meeting. The holders of
Common Stock (as defined in Item 5) and the Series A Senior Convertible
Preferred Stock collectively representing 200,518,096 shares were present in
person or represented by proxy at the meeting. At the meeting, the stockholders
took the following actions:
<TABLE>
<CAPTION>
Number of Number of Number of
Votes Votes Against Votes
For Withheld
---------------- -------------- --------------
<S> <C> <C> <C>
Authorization of the issuance of common stock upon
conversion of the Series A Senior Convertible
Preferred Stock...................................... 196,013,940 3,777,431 726,725
Authorization to increase the maximum number of
shares of common stock under the 1991 Incentive
Stock Plan........................................... 173,595,417 26,047,120 875,559
</TABLE>
11
<PAGE>
PART II
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:
<TABLE>
<CAPTION>
High Low
---------------- ---------------
<S> <C> <C> <C> <C>
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
Year Ended December 31, 1999:
First Quarter............................................................. 24 1/16 12 3/4
Second Quarter............................................................ 20 13 1/8
Third Quarter............................................................. 20 5/8 11 1/16
Fourth Quarter............................................................ 11 15/16 6 1/2
<FN>
As of March 27, 2000, there were approximately 742 holders of record of our
Common Stock.
</FN>
</TABLE>
Dividend Policy
We have not paid dividends on our common stock, $0.01 par value (the "Common
Stock"), do not anticipate paying any dividends thereon in the foreseeable
future and are prohibited under the terms of our long-term indebtedness from
paying such dividends.
12
<PAGE>
Recent Sales of Unregistered Securities
The following table reflects sales of our unregistered securities during the
fiscal year ended December 31, 1999. Except as otherwise disclosed, the
issuances 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 we received 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>
July 26, 1999 125,000 $ 625,000 Equus II Incorporated (exercise of expiring warrant)
September 9, 1999 29,104 262,500 Ben Ipema (cashless exercise of expiring warrant)
November 29, 1999 33,750 315,000 Lee Brandsma (cashless exercise of expiring warrant)
November 29, 1999 35,415 315,000 Larry Groot (cashless exercise of expiring warrant)
November 29, 1999 2,951 26,250 John Garrity (cashless exercise of expiring warrant)
Notes
July 30, 1999 $2,000,000,000 $ 1,993,360,000(1) 1999 Notes(2) due 2009
Preferred Stock
July 30, 1999 1,000,000 $ 1,000,000,000 Series A Senior Convertible Preferred Stock(3)
<FN>
(1) The 1999 Notes (as defined herein) were issued at a discounted price to investors of 99.668%.
(2) The 1999 Notes were subsequently exchanged for registered senior notes on January 28, 2000.
(3) The shares of Series A Senior Convertible Preferred Stock were sold for
$1.0 billion in cash, as part of our financing of our acquisition of BFI
on July 30, 1999 to investors led by affiliates of, and persons related
to, Apollo Advisors II, L.P. or Blackstone Capital Partners II Merchant
Banking Fund L.P. Reference is made to our proxy statement for our 2000
annual meeting of stockholders, which is incorporated herein by
reference, for additional information relating to the purchasers of
these shares. Shares of Series A Convertible Preferred Stock are
convertible, at the option of the holders, into shares of our common
stock. The conversion price is $18.00 per share and the number of shares
into which the holders of the Series A Convertible Preferred Stock may
convert their shares is obtained by dividing the liquidation preference
of the preferred stock, which increases at an annual rate of 6.5%
compounded quarterly, until we pay cash dividends on this stock, plus
accrued and unpaid dividends by $18.00 subject to customary antidilution
adjustments. As of December 31, 1999, the 1,000,000 preferred shares
were convertible into 57,099,364 shares of our common stock.
</FN>
</TABLE>
13
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below as of and for the five years ended
December 31, 1999 are derived from our Consolidated Financial Statements, which
have been audited by Arthur Andersen LLP, independent public accountants. The
selected financial data as of December 31, 1995 is derived from our Consolidated
Financial Statements, which have not been audited subsequent to being restated
for business combinations accounted for as pooling-of-interests consummated in
1998. See Note 2 to our 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 our Consolidated
Financial Statements and the notes thereto, included elsewhere herein.
(All amounts are in thousands, except per share amounts and percentages.)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------------- ---------------- ---------------- ---------------- ----------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues............................ $ 3,341,071 $ 1,575,612 $ 1,340,661 $ 619,548 $ 580,784
Cost of operations.................. 1,948,964 892,273 777,289 386,001 366,980
Selling, general and administrative
expenses.......................... 231,366 155,835 177,396 102,416 97,031
Depreciation and amortization....... 273,368 149,260 131,658 63,638 50,398
Goodwill amortization............... 110,726 30,705 26,580 4,185 5,016
Acquisition related and unusual
costs(1).......................... 588,855 317,616 3,934 96,508 1,531
--------------- ---------------- ---------------- ---------------- ----------------
Operating income (loss)........... 187,792 29,923 223,804 (33,200) 59,828
Equity in earnings of unconsolidated
affiliates........................ (20,785) -- -- -- --
Interest income..................... (7,212) (4,030) (1,765) (2,479) (735)
Interest expense.................... 443,044 88,431 108,045 21,347 20,443
--------------- ---------------- ---------------- ---------------- ----------------
Income (loss) before income taxes. (227,255) (54,478) 117,524 (52,068) 40,120
Income tax expense (benefit)........ (8,756) 43,773 40,277 354 10,904
Minority interest................... 2,751 -- -- -- --
--------------- ---------------- ---------------- ---------------- ----------------
Income (loss) before extraordinary
losses and cumulative effect of
change in accounting principle.... (221,250) (98,251) 77,247 (52,422) 29,216
Extraordinary losses, net of income
tax benefit(2).................... 3,223 124,801 53,205 13,887 908
Cumulative effect of change in
accounting principle, net of income
tax benefit(3).................... 64,255 -- -- -- --
--------------- ---------------- ---------------- ---------------- ----------------
Net income (loss)................. (288,728) (223,052) 24,042 (66,309) 28,308
Dividends on preferred stock........ 27,789 -- 381 1,073 4,070
Conversion fee on equity securities
converted(4)...................... -- -- -- -- 2,151
--------------- ---------------- ---------------- ---------------- ----------------
Net income (loss) available to
common shareholders............... $ (316,517) $ (223,052) $ 23,661 $ (67,382) $ 22,087
=============== ================ ================ ================ ================
Basic EPS:
Income (loss) available to
common shareholders before
extraordinary losses and
cumulative effect of change in
accounting principle.............. $ (1.33) $ (0.54) $ 0.47 $ (0.40) $ 0.21
Extraordinary losses, net of income
tax benefit....................... (0.02) (0.68) (0.33) (0.11) (0.01)
Cumulative effect of change in
accounting principle, net of income
tax benefit....................... (0.34) -- -- -- --
--------------- ---------------- ---------------- ---------------- ----------------
Net income (loss) available to
common shareholders............... $ (1.69) $ (1.22) $ 0.14 $ (0.51) $ 0.20
=============== ================ ================ ================ ================
Weighted average common shares...... 187,801 182,796 164,888 132,967 112,162
=============== ================ ================ ================ ================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Diluted EPS:
Income (loss) available to
common shareholders before
extraordinary losses and
cumulative effect of change in
accounting principle.............. $ (1.33) $ (0.54) $ 0.44 $ (0.40) $ 0.20
Extraordinary loss, net of income
tax benefit....................... (0.02) (0.68) (0.30) (0.11) (0.01)
Cumulative effect of change in
accounting principle, net of income
tax benefit....................... (0.34) -- -- -- --
--------------- ---------------- --------------- --------------- ---------------
Net income (loss) available to
common shareholders............... $ (1.69) $ (1.22) $ 0.14 $ (0.51) $ 0.19
=============== ================ =============== =============== ===============
Weighted average common and
common equivalent shares.......... 187,801 182,796 172,958 132,967 115,903
=============== ================ =============== =============== ===============
Pro forma amounts, assuming the
change in accounting principle is
applied retroactively:
Net income (loss) available to
common shareholders............... (256,265) 5,085 (73,909) 16,147
Diluted earnings (loss) per share... (1.40) 0.03 (0.56) 0.14
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
December 31,
---------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........... $ 121,405 $ 39,742 $ 33,320 $ 70,015 $ 26,038
Working capital (deficit)........... (381,077) 45,031 (75,054) 26,410 (47,211)
Property and equipment, net......... 3,738,388 1,776,025 1,583,133 932,110 497,284
Goodwill, net....................... 8,238,929 1,327,470 1,082,750 888,648 90,301
Total assets........................ 14,963,101 3,752,592 3,073,820 2,662,200 763,979
Long-term debt, less current
portion........................... 9,240,291 2,118,927 1,492,360 1,283,327 304,114
Stockholders' equity including
Preferred Stock................... 1,639,555 930,074 962,465 385,218 223,333
Long-term debt to total
capitalization(5)................. 85% 69% 61% 77% 58%
<FN>
(1) Acquisition related and unusual costs relate to management's changes in
strategic plans and restructuring resulting from acquisitions. The
charges primarily consist of transaction or deal costs, employee
severance and transition costs, changes in estimates relating to
environmental, legal matters and regulatory compliance, restructuring
costs related to the consolidation or relocation of operations, costs
for the abandonment or sale of non-revenue producing assets, provisions
for losses on contractual obligations, and asset impairments.
(2) The extraordinary losses were incurred as a result of premiums paid
for the early extinguishment of debt and the write-off of related
deferred debt issue costs.
(3) During the third quarter of 1999, we changed our method of accounting
for capitalized interest. According to generally accepted accounting
principles, this change is applied from the beginning of 1999. A charge
for the cumulative effect of the change in accounting principle of
$106.2 million ($64.3 million net of income taxes) was recorded
effective January 1, 1999.
(4) A non-cash conversion fee of $2.2 million was incurred in the fourth
quarter of 1995 as a result of an inducement to holders of certain
convertible preferred stock and convertible subordinated notes to
exercise their conversion option to receive our common stock.
(5) At December 31, 1999, the long-term debt to total capitalization
excluding the Preferred Stock is 94%.
</FN>
</TABLE>
15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our Consolidated
Financial Statements and the notes thereto, included elsewhere herein.
Introduction
We have experienced significant growth, primarily resulting from the acquisition
of solid waste businesses. Since January 1, 1993, we have completed 225
acquisitions including 55 acquisitions in 1999. Our Consolidated Financial
Statements have been restated to reflect the acquisition of companies accounted
for using the pooling-of-interests method for business combinations in 1997 and
1998. The results of operations for the acquisitions accounted for under the
purchase method for business combinations are included in our financial
statements only from the applicable date of acquisition. As a result, we believe
our historical results of operations for the periods presented are not directly
comparable to our current results of operations.
In June 1998, we acquired the Rabanco Companies ("Rabanco") in a transaction
accounted for using the pooling-of-interests method for business combinations.
Rabanco provided solid waste collection, recycling, transportation and disposal
services in the Pacific Northwest and generated annual revenue of approximately
$160 million, excluding the effects of the internalization of waste volumes.
In August 1998, we acquired Illinois Recycling Services, Inc. and its affiliates
("Illinois Recycling") in a transaction accounted for using the
pooling-of-interests method for business combinations. Illinois Recycling
provided solid waste collection, recycling and transportation services primarily
in the Chicago metropolitan area and northern Indiana and generated annual
revenue of approximately $80 million, excluding the effects of the
internalization of waste volumes.
In October 1998, we acquired American Disposal Services, Inc. ("ADSI") in a
transaction accounted for using the pooling-of-interests method for business
combinations. ADSI was 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 generated annual revenue of approximately $240 million, excluding the
effects of the internalization of waste volumes.
In December 1998, we completed a private offering of an aggregate of $1.7
billion of senior notes. The proceeds were used to retire indebtedness and
leases and for general corporate purposes.
On July 30, 1999, we completed the acquisition of BFI in a transaction accounted
for as a purchase. As a result of the acquisition, each share of BFI common
stock was converted into the right to receive $45 in cash. Including assumed and
refinanced debt, the cost of acquiring BFI was approximately $9.6 billion.
Financing for the acquisition was obtained from draws of $4.7 billion from
credit facilities with a capacity of $7.1 billion (the "1999 Credit Facility"),
the sale of $1.0 billion of newly issued senior convertible preferred stock (the
"Preferred Stock") and the sale of $2.0 billion of 10% Senior Subordinated Notes
due 2009 (the "1999 Notes"). With the completion of the acquisition of BFI, we
operate in 42 states and serve approximately 9.9 million commercial and
residential customers from a base of assets including 151 active landfills, 148
transfer stations, 95 recycling facilities and 340 collection companies.
In connection with the acquisition of BFI, we initiated an asset divestiture
program, whereby we would sell, for cash or through simultaneous buy and sell
transactions, certain non-core assets that do not fit with our vertical
integration operating strategy. The net proceeds from this initiative are
expected to generate approximately $1.6 billion (net of approximately $150
million of tax). As of December 31, 1999, we had completed divestitures, which
generated $926 million of proceeds and were comprised of the sale of the shares
of SITA, S.A., the sale of the BFI medical waste operations and the sale of
certain non-core, non-integrated assets.
Additionally, we have entered into various agreements to divest of BFI's
Canadian operations, BFI Gas Services and other non-core, non-integrated assets,
which are expected to generate approximately $892 million of proceeds. These
divestitures are recorded as "Assets Held for Sale" in the Consolidated
Financial Statements as of December 31, 1999 and are expected to be completed
during 2000. In connection with the sale of these identified assets, we
anticipate entering into definitive agreements to acquire certain assets which
would further integrate existing markets. We anticipate spending approximately
$575 million on such acquisitions during 2000.
16
<PAGE>
We also intend to divest other non-core assets during 2000 which we would
anticipate generating approximately $535 million of proceeds. These assets have
not been specifically identified and approved for sale by management and the
board of directors and are not classified as Assets Held for Sale at December
31, 1999.
As of February 22, 2000, we had completed the sales of assets subsequent to year
end for approximately $137 million and acquired assets for approximately $107
million, which were pending as noted above.
Status of Integration of BFI. In connection with the acquisition of BFI on July
30, 1999, we anticipated annual cost savings of approximately $360 million by
the end of 2000 resulting from corporate and field SG&A savings, operations
labor cost savings, market cost savings and asset buy and sell agreements. As of
December 31, 1999, we had achieved approximately $335 million in annual cost
savings through headcount reductions of approximately 2,900 employees, the
closure of 51 facilities, 96 route rationalizations and other cost savings.
Internalization increased from 57% at the time of the acquisition to 61% at
December 31, 1999. The remaining $25 million of cost savings is expected to be
achieved in 2000 in connection with the completion of the divestiture
initiative, which includes asset buy and sell agreements.
Additionally, as of December 31, 1999, we have completed the management
information systems conversions from BFI's systems to Allied's systems for
financial reporting, payroll, fixed assets and maintenance tracking. Subsequent
to December 31, 1999, we completed the conversion of the general ledger and
accounts payable from BFI's SAP system to Allied's system. We have not
experienced any significant operational, accounting or reporting issues related
to these conversions.
Accounting Policies. Subsequent to the acquisition of BFI, we evaluated our
capitalized interest policy to assess the methodology of the calculation with
the change in the business strategy resulting from the acquisition. Under the
new methodology, the area of the landfill under development is defined as only
the portion of the permitted acreage currently undergoing active cell
development. The costs upon which interest is capitalized continue to include
the actual acquisition, permitting and construction costs incurred for cell
development. Consistent with the prior policy, as construction of an area is
completed and the area becomes available for use, the cell no longer qualifies
for interest capitalization. The adoption of this method, which was accounted
for as a change in accounting principle, reflects the change in our operating
strategy as a result of the BFI acquisition. The impact of the change in
accounting principle was a cumulative charge in 1999 of approximately $64.3
million, net of related income tax benefit.
General
Revenues. Our revenues are attributable primarily to fees charged to customers
for waste collection, transfer, recycling and disposal services. We generally
provide collection services under direct agreements with our customers or
pursuant to contracts with municipalities. Commercial and municipal contract
terms, generally range from one to five years and commonly have automatic
renewal options. Our landfill operations include both company-owned landfills
and those operated for municipalities for a fee. In each geographic region in
which we are located, we provide collection, transfer and disposal services. The
following tables show for the periods indicated the percentage of our total
reported revenues attributable to services provided and revenues attributable to
geographic regions. The data below has been restated to give effect to
acquisitions that were accounted for using the pooling-of-interests method for
business combinations.
17
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C> <C>
Collection(1)...................................................... 60.7 % 55.7 % 57.2 %
Transfer........................................................... 5.6 7.1 6.7
Landfill(1)........................................................ 25.3 29.9 26.4
Other.............................................................. 8.4 7.3 9.7
--------- --------- --------
Total revenues................................................... 100.0 % 100.0 % 100.0 %
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Atlantic........................................................... 10 % 7 % 6 %
Central............................................................ 12 19 19
Great Lakes........................................................ 13 19 15
Midwest............................................................ 10 10 10
Northeast.......................................................... 16 11 14
Southeast.......................................................... 9 4 4
Southwest.......................................................... 12 9 11
West............................................................... 18 21 21
--------- --------- --------
Total revenues................................................... 100 % 100 % 100 %
========= ========= ========
<FN>
(1) The portion of collection and third-party transfer revenues attributable
to disposal charges for waste collected by us and disposed at our
landfills has been excluded from collection and transfer revenues and
included in landfill revenues.
</FN>
</TABLE>
Our strategy is to develop vertically integrated operations to ensure
internalization of the waste we collect and thus realize higher margins from our
operations. By disposing of waste at company-owned and/or operated landfills, we
retain the margin generated through disposal operations that would otherwise be
earned by third-party landfills. Approximately 61% of the waste we collect as
measured by disposal volumes was disposed of at landfills we own and/or operate
in 1999 which includes the results of operations of BFI since July 30, 1999. In
addition, transfer stations are an integral part of the disposal process. We
locate our transfer stations in areas where our landfills are outside of the
population centers in which we collect waste. Such waste is transferred to
long-haul trailers and economically transported to our 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 our 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. We
use a life-cycle accounting method for landfills and the related closure and
post-closure liabilities. This method applies the costs associated with
acquiring, developing, closing and monitoring the landfills over the associated
landfill capacity based on consumption. On an annual basis, we update the
development cost estimates (which include the costs to develop the site as well
as the individual cell construction costs), closure and post-closure cost
estimates and future capacity estimates for each landfill. The cost estimates
are prepared by local company and third-party engineers based on the applicable
local, state and federal regulations and site specific permit requirements.
Future capacity estimates are updated, using aerial surveys of each landfill
performed annually, by third-party engineers to estimate utilized disposal
capacity and remaining disposal capacity. These cost and capacity estimates are
reviewed and approved by senior operations management annually.
Selling, general and administrative expenses include management, clerical and
administrative compensation and overhead, sales cost, community relations'
expenses and provisions for estimated uncollectible accounts receivable.
18
<PAGE>
Depreciation and amortization includes depreciation of fixed assets and
amortization of other intangible assets and landfill airspace. We use the units
of production method for purposes of calculating the amortization rate at each
landfill. This methodology divides the costs associated with acquiring,
permitting and developing the entire landfill by the total remaining capacity of
that landfill. The resulting per unit amortization rate is applied to each unit
disposed at the landfill and is recorded as expense for that period. Costs
associated with developing the landfill include direct costs such as excavation,
liners, leachate collection systems, engineering and legal fees, and capitalized
interest. Estimated total future development cost for our 151 active landfills
is approximately $2.6 billion, excluding interest to be capitalized, and we
expect that this amount will be spent over the remaining operating lives of the
landfills. We have available disposal capacity of approximately 2.7 billion
cubic yards of capacity as of December 31, 1999.
Goodwill amortization includes the amortization of costs paid in excess of the
net assets acquired in purchase business combinations.
In connection with potential acquisitions, we incur and capitalize certain
transaction costs 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. We routinely evaluate capitalized transaction and integration
costs, and we expense those costs related to acquisitions not likely to occur.
We expense indirect acquisition costs, such as executive salaries, general
corporate overhead and other corporate services, as incurred.
We capitalize certain direct landfill development costs, such as engineering,
construction and permitting costs, and amortize based on consumed airspace. We
believe 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.
We cannot assure you whether we will be able to raise prices sufficiently to
offset these increased expenses. We expense all indirect landfill development
costs, such as executive salaries, general corporate overhead, public affairs
and other corporate services, as incurred.
Closure and post-closure costs represents our financial commitment for the
regulatory required costs associated with our 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. We
establish closure and post-closure requirements based on the standards of
Subtitle D as implemented on a state-by-state basis. We base closure and
post-closure accruals on cost estimates for capping and covering a landfill,
methane gas control, leachate management and groundwater monitoring, and other
operational and maintenance costs to be incurred after the site discontinues
accepting waste. We prepare site-specific closure and post-closure engineering
cost estimates annually for landfills owned and/or operated by us for which we
are responsible for closure and post-closure.
We accrue and charge closure and post-closure costs 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, we assess
and accrue the closure and post-closure liability at the time we assume 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, we accrue and charge closure and post-closure costs as airspace is
consumed. We update and approve estimated closure and post-closure liabilities
annually based on assessments performed by in-house and independent
environmental engineers. Such costs may change in the future as a result of
permit modifications or changes in legislative or regulatory requirements.
We accrue closure and post-closure cost estimates based on the present value of
the future obligation. We discount future costs where we believe that both the
amounts and timing of related payments are reliably determinable. We annually
update our estimates of future closure and post-closure costs. We account for
the impact of changes, which are determined to be changes in estimates, on a
prospective basis.
19
<PAGE>
In 1999, we calculated the net present value of the closure and post-closure
commitment assuming inflation of 2.5% and a risk-free capital rate of 7.0%. We
accrete discounted amounts previously recorded to reflect the effects of the
passage of time. We currently estimate total future payments for closure and
post-closure to be $2.7 billion. The present value of such estimate is $1.0
billion. At December 31, 1999 and 1998, accruals for landfill closure and
post-closure costs (including costs assumed through acquisitions) were
approximately $517.3 million and $154.5 million, respectively. The accruals
reflect a portfolio of landfills with estimated remaining lives, based on
current waste flows, that range from one to over 150 years, and an estimated
average remaining life of approximately 39 years.
Year 2000 Update. We did not experience any significant malfunctions or errors
in our operating or business systems when the date changed from 1999 to 2000.
Based on operations since January 1, 2000, we do not expect any significant
impact to our ongoing business as a result of the "Year 2000 issue." However, it
is possible that the full impact of the date change, which was of concern due to
computer programs that use two digits instead of four digits to define years,
has not been fully recognized. We believe that any future problems are likely to
be minor and correctable. In addition, we could still be negatively affected if
the Year 2000 or similar issues adversely affect our customers or suppliers. We
currently are not aware of any significant Year 2000 or similar problems that
have arisen for our customers and suppliers. We will continue to monitor Year
2000 matters in our ongoing operations and as a part of our acquisition due
diligence. We spent less than $500,000 on Year 2000 readiness efforts.
Results of Operations
The following table sets forth the percentage relationship that the various
items bear to revenues and the percentage change in dollar amounts for the
periods indicated. We have restated the statement of operations data to give
effect to acquisitions that were accounted for using the pooling-of-interests
method for business combinations. See Note 2 to our Consolidated Financial
Statements.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1999 Compared 1998 Compared
to 1998 to 1997
% Change in % Change in
Amounts Amounts
1999 1998 1997
--------------- --------------- --------------- --------------- --------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues............................ 100.0% 100.0% 112.0% 100.0% 17.5%
Cost of operations.................. 58.3 56.6 118.4 58.0 14.8
Selling, general and administrative
expenses.......................... 6.9 9.9 48.5 13.2 (12.2)
Depreciation and amortization....... 8.2 9.5 83.1 9.8 13.4
Goodwill amortization............... 3.3 1.9 260.6 2.0 15.5
Acquisition related and unusual
costs............................. 17.7 20.1 85.4 0.3 7,973.6
--------------- --------------- --------------- --------------- --------------
Operating income.................. 5.6 2.0 527.6 16.7 (86.6)
Equity in earnings of unconsolidated
affiliates........................ (0.6) -- 100.0 -- --
Interest expense, net............... 13.0 5.4 416.4 7.9 (20.6)
--------------- --------------- --------------- --------------- --------------
Income (loss) before income taxes. (6.8) (3.4) (317.1) 8.8 (146.4)
Income tax expense (benefit)........ (0.3) 2.8 -- 3.0 8.7
Minority interest................... 0.1 -- 100.0 -- --
--------------- --------------- --------------- --------------- --------------
Income (loss) before extraordinary
losses and cumulative effect of
change in accounting principle.... (6.6) (6.2) (125.2) 5.8 (227.2)
Extraordinary losses, net of income
tax benefit....................... 0.1 7.9 (97.4) 4.0 134.6
Cumulative effect of change in
accounting principle, net of income
tax benefit....................... 2.0 -- 100.0 -- --
--------------- --------------- --------------- --------------- --------------
Net income (loss)................. (8.7) (14.1) (29.4) 1.8 (1,027.8)
Dividends on Preferred Stock........ 0.8 -- 100.0 -- (100.0)
--------------- --------------- --------------- --------------- --------------
Net income (loss) available to
common shareholders............. (9.5)% (14.1)% (41.9)% 1.8% (1,042.7)%
=============== =============== =============== =============== ==============
</TABLE>
20
<PAGE>
Years Ended December 31, 1999 and 1998
Revenues. Revenues in 1999 were $3.3 billion compared to $1.6 billion in
1998, an increase of 112%. The increase in revenues is primarily
attributable to the acquisition of BFI on July 30, 1999 and the inclusion
in our results of BFI revenues for the period July 31, 1999 through
December 31, 1999. BFI's 1998 pro forma revenue adjusted to reflect the
sale of BFI's Canadian operations and Medical Waste operations was
approximately $3.8 billion.
Cost of Operations. Cost of operations in 1999 was $1.9 billion compared
to $892.3 million in 1998, an increase of 118.4%. The increase in cost of
operations was primarily attributable to the inclusion of BFI's cost of
operations associated with the revenues from July 31, 1999 through
December 31, 1999. As a percentage of revenues, cost of operations
increased to 58.3% in 1999 from 56.6% in 1998, primarily due to the change
in revenue mix resulting from the acquisition of BFI. BFI's revenue mix
was more heavily weighted towards collection revenue, which has lower
margins than landfill revenues.
Selling, General and Administrative Expenses. SG&A expenses in 1999 were
$231.4 million compared to $155.8 million in 1998, an increase of 48.5%,
and reflects our acquisition of BFI. As a percentage of revenues, SG&A
decreased to 6.9% in 1999 from 9.9% in 1998. This decrease is the result
of achieving the cost savings associated with the acquisition of BFI and
significantly increasing the revenues as noted above.
Depreciation and Amortization. Depreciation and amortization in 1999 was
$273.4 million compared to $149.3 million in 1998, an increase of 83.1%,
and reflects our acquisition of BFI. As a percentage of revenues,
depreciation and amortization expense decreased to 8.2% in 1999 from 9.5%
in 1998. The decrease is primarily due to the significant increase in
revenues from our acquisition of BFI which more than offset the
corresponding increase in depreciation due to the acquisition of BFI.
Additionally, as required by generally accepted accounting principles, we
ceased recording depreciation on assets held for sale during 1999. Such
depreciation would have been approximately $6.3 million.
Goodwill Amortization. Goodwill amortization in 1999 was $110.7 million
compared to $30.7 million in 1998, an increase of 260.6%. The increase in
goodwill amortization was due to an increase in goodwill of approximately
$7 billion primarily resulting from the acquisition of BFI.
Acquisition Related and Unusual Costs. During the year ended December 31,
1999, we recorded $588.9 million of acquisition related and unusual costs
primarily associated with the $9.6 billion acquisition of BFI, which was
accounted for as a purchase. The costs primarily relate to environmental
related matters, litigation liabilities, risk management liabilities, loss
contract provisions, transition costs, the write-off of deferred costs
relating to the acquisition. These costs are comprised of the following:
We recorded a charge of approximately $267.0 million related to changes in
estimates of environmental liabilities associated with BFI's operations.
In connection with our due diligence and integration process, assessments
of the acquired operations were performed by third-party and in-house
engineers. Based on these assessments, we made changes in accounting
estimates of approximately (i) $133.7 million associated with the
Superfund accrual for over 150 CERCLA cases in which BFI was involved,
(ii) $30.3 million associated with the remedial accrual for sites in which
BFI was involved with remedial action plans, (iii) $56.3 million
associated with the environmental accrual for various containment and
treatment matters at 76 active or closed BFI landfills, and (iv) $46.7
million associated with the accrual for the remedial and closure
requirements of four BFI hazardous waste facilities.
21
<PAGE>
Management believes the environmental accrual as of December 31, 1999
represents the most probable outcome of these matters. We do not expect
that adjustments to these estimates, which are reasonably possible in the
near term and that may result in changes to recorded amounts, will have a
material effect on our consolidated liquidity, financial position or
results of operations. As of December 31, 1999, we believe that it is
possible that the ultimate outcome of the environmental matters could
result in approximately $33 million of additional liability.
We recorded a charge of approximately $93.5 million related to changes in
estimates of litigation liabilities associated with BFI's operations. In
connection with our due diligence and integration process, assessments of
the acquired operations and outstanding litigation were performed by
third-party and in-house legal counsel. We evaluated over 150 cases
involving employee-related matters, insurance related matters, regulatory
matters, collection matters and contract disputes. Accordingly, we
increased the litigation accrual based on the most probable loss to be
incurred.
Management believes the litigation accrual as of December 31, 1999
represents the most probable outcome of outstanding assessments, claims
and cases. We do 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 our consolidated
liquidity, financial position or results of operations. As of December 31,
1999, we believe that it is possible that the ultimate outcome of the
litigation matters could result in approximately $10 million of additional
liability.
We recorded an increase of approximately $20.0 million to the
self-insurance accruals based on the results of a third party actuarial
review performed in connection with due diligence and integration of the
BFI acquisition. As of September 30, 1999, we instituted a guaranteed cost
insurance program for all casualty insurance coverages. As a result, we
are fully insured for any such claims occurring subsequent to that date.
In connection with the integration of the BFI acquisition, we reviewed the
existing contracts of the business for recoverability. Several contracts
were identified which were in a loss position when the direct costs
(excluding any non-variable costs) attributable to the contract were
deducted from the revenue to be generated by the contract. Consistent with
our accounting policies, we recorded a charge of approximately $32.6
million to operations for the anticipated excess of costs over revenues of
the identified contracts.
As a result of the acquisition of BFI, management reassessed the level of
acquisitions that it would pursue in the future and decided that certain
companies that were being considered will no longer be pursued.
Accordingly, we wrote off $26.1 million of deferred charges previously
incurred in connection with these potential acquisitions. Additionally, we
wrote off $33.8 million of commitment fees paid in connection with a
portion of the financing of the BFI acquisition. These fees were
associated with funds that were not ultimately drawn due to alternative
sources of financing becoming available. However, as secured financing for
the entire purchase price of the acquisition was a condition of the
signing of the merger agreement with BFI, and the debt associated with
these fees was not incurred, the cost was written off at the time of the
acquisition.
In connection with the integration plan for BFI, we identified and
notified approximately 1,500 employees that they would be retained for a
specified period, generally not exceeding 12 months from the acquisition
date, to perform transition related functions. Subsequent to the specified
time period, they will be terminated. Additionally, we identified certain
offices and operations, which are duplicative, and we are in the process
of consolidating these operations. As these transition costs are not
accruable until committed or paid, approximately $67.4 million of
transition costs were expensed during 1999. Additionally, we accrued
approximately $10.0 million of committed transition costs during the year.
We estimate that we may incur approximately $115 million of additional
transition expenses associated with the integration of BFI through the
completion of our plan.
Additionally, we recorded approximately $43.5 million of non-cash asset
impairments related to the valuation of Allied Assets Held for Sale,
approximately $1.8 million of non-cash asset impairments related to
duplicate facilities, and approximately $0.4 million of restructuring and
abandonment costs related to other 1999 acquisitions.
22
<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. During 1999, approximately $7.2 million of accrued
acquisition related costs associated with 1998 acquisitions were reversed
to acquisition related and unusual costs.
The following table reflects the cash activity related to the acquisition
related and unusual costs accrued during 1999 (in thousands):
<TABLE>
<CAPTION>
1999
Additions 1999 Balance
through Non-Cash 1999 Remaining
Expense(1) Charges Expenditures December 31, 1999
-------------- --------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Transition costs.................... $ 77,350 $ -- $ (74,654) $ 2,696
Restructuring and abandonment
costs............................. 387 -- -- 387
Loss contracts...................... 32,643 -- (6,058) 26,585
Environmental, litigation, and
regulatory compliance costs....... 380,500 -- (9,455) 371,045
Asset impairments................... 105,186 (105,186) -- --
-------------- -------------- ---------------- -----------------
Total............................. $ 596,066 $ (105,186) $ (90,167) $ 400,713
============== =============== ================ =================
<FN>
(1) Additionally during 1999, we reversed approximately $7.2 million of accruals to acquisition related and
unusual costs related to 1998 acquisitions.
</FN>
</TABLE>
Interest Expense, Net. Interest expense, net of interest income was $435.8
million in 1999 compared to $84.4 million in 1998, an increase of 416.4%.
The increase in interest expense is primarily due to the increase in debt
of approximately $8 billion from the acquisition of BFI, which was
outstanding for five months in 1999. Additionally, capitalized interest
decreased to $25.5 million in 1999 from $67.5 million in 1998 due to the
change in accounting principle.
Income Taxes. Income taxes reflect an effective tax rate of (3.9)% in 1999
and 80.3% in 1998. The effective income tax rate in 1999 deviates from the
federal statutory rate of 35% primarily due to the non-deductible nature
of certain acquisition related charges and the non-deductibility of the
amortization related to $6.7 billion of goodwill recorded in connection
with the acquisition of BFI. The effective income tax rate in 1998
deviates from the federal statutory rate primarily due to 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). Without
considering the effect of the acquisition-related charges the 1999
effective tax rate is 47.5%.
Extraordinary Loss, Net. In July 1999, in connection with our financing of
the BFI acquisition, we replaced our credit facility and recognized an
extraordinary charge of approximately $5.3 million ($3.2 million net of
income tax benefit) related to the write-off of previously deferred debt
issuance costs.
Cumulative Effect of Change in Accounting Principle, Net. In connection
with the acquisition of BFI, we changed our capitalized interest policy to
more accurately reflect our long-term business strategy. As a result, we
recorded a charge of $64.3 million, net of related tax, during 1999, to
reflect the cumulative effect on prior years of the change in the method
of interest capitalization.
Dividends on Preferred Stock. Dividends on Preferred Stock were $27.8
million in 1999 and reflect the 6.5% dividend on the Preferred Stock
issued on July 30, 1999 in connection with the financing of the
acquisition of BFI. Dividends were not paid in cash, instead, the
liquidation preference of the Preferred Stock increased by accrued, but
unpaid dividends.
23
<PAGE>
Years Ended December 31, 1998 and 1997
Revenues. Revenues in 1998 were $1.6 billion compared to $1.3 billion 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 from 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 our 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. Depreciation and amortization in 1998 was
$149.3 million compared to $131.7 million in 1997, an increase of 13.4%.
In addition to the depreciation and amortization of acquired companies,
the increase in depreciation and amortization was due to a 7.6% increase
in internalized landfill tonnage and an 11.1% increase in capital
expenditures. As a percentage of revenues, depreciation and amortization
did not change significantly.
Goodwill Amortization. Goodwill amortization in 1998 was $30.7 million
compared to $26.6 million in 1997, an increase of 15.5%. The increase in
goodwill amortization was due to a 22.6% increase in goodwill. As a
percentage of revenues, goodwill amortization did not change
significantly.
Acquisition Related and Unusual Costs. During the year ended December 31,
1998, we recorded acquisition related and unusual costs in the amount of
$317.6 million. These costs consist of transaction and deal costs,
employee severance and transition costs, environmental related matters,
litigation liabilities, regulatory compliance matters, restructuring and
abandonment costs, loss contract provisions and non-cash asset impairment
charges. We do not anticipate that future costs to be incurred in
connection with the 1998 acquisitions will be significant as restructuring
and transition activities associated with these acquisitions had been
substantially completed as of December 31, 1998. The 1998 acquisition
related and unusual costs discussed below predominantly relate to
acquisitions accounted for as poolings-of-interests 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 was accrued at December 31,
1998 and was paid in the first six months of 1999.
24
<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 related to the elimination of duplicate
corporate and administrative offices of companies acquired. Integration
plans included 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 ours. The exit and integration plans called for the termination
of approximately 800 employees who performed 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. Approximately
$10.1 million was accrued at December 31, 1998, the majority of which has
been paid in 1999.
Environmental related matters, litigation liabilities and regulatory
compliance matters assumed in acquisitions totaled $73.4 million.
Subsequent to the acquisitions, we 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 our 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. Additional accrued environmental liability
of $27.1 million 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 containment, the
removal of waste improperly disposed of, extraction and treatment of
landfill gas, removal and disposal of contaminated soil and groundwater
treatment 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. At
December 31, 1998, approximately $41.1 million and $15.8 million was
accrued for environmental matters and legal and regulatory compliance
matters, respectively, which are expected to be disbursed in future
periods.
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, we identified 14 companies acquired in
business combinations accounted for as poolings-of-interest 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, we identified
regulatory compliance issues related to 12 companies acquired, which
included 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.
25
<PAGE>
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 our 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 was accrued at December 31, 1998
and was paid as of September 30, 1999.
Non-cash asset impairment charges aggregating $69.7 million were recorded
during the fourth quarter of 1998, related to assets held for future use
and assets, which were disposed of, in the first and second quarters of
1999.
Interest Expense, Net. Interest expense net of interest income was $84.4
million in 1998 as 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 from $37.6 million in 1997.
The increase in capitalized interest is a result of the acquisition of 21
landfills during 1998 primarily financed with our common stock instead of
cash. Therefore, we 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 an effective tax rate of 80.3% 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, we replaced our 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, we replaced our 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.
26
<PAGE>
In September 1997, we sold 18.6 million shares of common stock with net
proceeds of approximately $327.4 million (the "Equity Offering"). We used
$203 million of the net proceeds to retire a portion of the term loan
facility of the 1997 Credit Agreement (as defined below) 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, we 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.
In May 1997, we repurchased from Laidlaw, Inc. two junior subordinated
debentures with an aggregate face amount of $318 million and a warrant to
acquire 20.4 million shares of common stock, used as partial consideration
for the acquisition of the solid waste operations of Laidlaw, Inc., 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, we
replaced our $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).
Liquidity and Capital Resources
Historically, we have satisfied our acquisition, capital expenditure and
working capital needs primarily through bank financing and public
offerings and private placements of debt and equity securities. Between
January 1992 and December 1999, we completed total debt financings in
excess of $14.3 billion and equity financings in excess of $1.4 billion,
excluding stock issued for consideration in business combinations.
Due to acquisitions and the capital requirements of our previous business
strategy, we have used amounts in excess of the cash generated from
operations to fund acquisitions and capital expenditures. In the future we
anticipate that cash flow from operations, less acquisitions and capital
requirements, will be sufficient to service our long-and short-term debt.
However, over the next several quarters, transition and integration costs
associated with the BFI acquisition may cause us to have negative cash
flow from operations or may cause us to incur additional amounts of debt.
In connection with acquisitions, we have assumed or incurred indebtedness
with relatively short-term repayment schedules, thereby increasing our
current and medium-term liabilities. Also, for certain acquisitions,
current liabilities are recorded for acquisition related and unusual costs
that require payment in the near term. Current liabilities periodically
include scheduled payments required under our 1999 Credit Facility. In
addition, we have acquired operating equipment using financing leases,
which have short, and medium-term maturities. Also we use excess cash
generated from operations to pay down amounts owed on our revolving line
of credit, which is classified as long-term debt. As a result, we
periodically have low levels of working capital or working capital
deficits.
27
<PAGE>
During the years ended December 31, 1999, 1998 and 1997, our cash flows
from operating, investing and financing activities were as follows (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
------------- ------------ -------------
Operating Activities:
<S> <C> <C> <C>
Net income (loss)................................................. $ (288.7) $ (223.1) $ 24.0
Non-cash acquisition related and unusual costs and
asset impairments................................................ 105.2 88.2 --
Non-cash operating expenses(1).................................... 318.8 245.8 187.3
Cumulative effect of change in accounting principle............... 64.3 -- --
Gain on sale of assets............................................ (5.3) (3.5) (7.2)
Extraordinary losses due to early extinguishments of debt,
net of income tax benefit and cash premium paid................. 3.2 119.0 50.5
Cash premium paid due to early extinguishments of debt............ -- (173.2) (64.4)
Change in operating assets and liabilities, net................... 291.5 116.2 (62.7)
------------- ------------ -------------
Cash provided by operating activities........................... 489.0 169.4 127.5
------------- ------------ -------------
Investing Activities:
Cost of acquisitions, net of cash acquired........................ (7,574.4) (313.0) (498.7)
Capital expenditures and net contributions to unconsolidated
subsidiaries.................................................... (356.2) (301.7) (188.0)
Capitalized interest.............................................. (25.5) (67.5) (37.6)
Proceeds from sale of assets...................................... 522.1 12.1 530.1
Change in deferred acquisition costs and notes
receivable...................................................... (28.5) (8.2) (7.9)
------------ ------------ -------------
Cash used for investing activities.............................. (7,462.5) (678.3) (202.1)
------------ ------------ -------------
Financing Activities:
Net proceeds from sale of common stock and exercise of
stock options and warrants...................................... 10.2 11.3 329.0
Net proceeds from sale of Preferred Stock......................... 973.9 -- --
Net proceeds from long-term debt, net of issuance costs........... 8,672.3 2,725.3 1,336.8
Repayments of long-term debt...................................... (2,601.2) (2,265.7) (1,791.8)
Other............................................................. -- 44.4 163.9
------------- ------------ -------------
Cash provided by financing activities........................... 7,055.2 515.3 37.9
------------- ------------ -------------
Increase (decrease) in cash and cash equivalents.................. $ 81.7 $ 6.4 $ (36.7)
============= ============ =============
<FN>
(1) Consists principally of provisions for depreciation and amortization,
undistributed earnings of equity investments, allowance for doubtful
accounts, accretion of debt and amortization of debt issuance costs, and
deferred income taxes.
</FN>
</TABLE>
As of December 31, 1999, we had cash and cash equivalents of $121.4
million. Our capital expenditure and working capital requirements have
increased significantly, reflecting our rapid growth through acquisition
and development of revenue producing assets, and will increase further
compared to the years ended December 31, 1999 and 1998 due to the
acquisition of BFI. During 1999, we acquired solid waste operations,
excluding the BFI acquisition, representing approximately $381.2 million
in annual revenues ($332.7 million net of intercompany eliminations), and
sold operations representing approximately $372.5 million in annual
revenues. Subsequent to December 31, 1999, we sold certain assets with
annual revenues of approximately $120 million for consideration of
approximately $137 million. For the calendar year 2000, we expect to spend
approximately $675 million for capital expenditures, closure and
post-closure, and remediation expenditures relating to our landfill
operations. We also expect to spend approximately $300 million after
tax,for non-recurring integration and transaction costs primarily related
to the acquisition of BFI. The acquisition of additional waste operations
would require additional capital amounts and capital expenditure
requirements.
28
<PAGE>
As of December 31, 1999, our debt structure consisted primarily of $5.2
billion outstanding under the 1999 Credit Facility, $2.0 billion of the
1999 Notes, $1.7 billion of the 1998 Senior Notes and $1.3 billion of debt
assumed in connection with the BFI acquisition. As of December 31, 1999
there is aggregate availability under the revolving credit facility of the
1999 Credit Facility of approximately $1.0 billion to be used for working
capital, letters of credit, acquisitions and other general corporate
purposes. The indentures relating to the 1999 Credit Agreement, the 1999
Notes and the 1998 Senior Notes contain financial and operating covenants
and restrictions on our ability to complete acquisitions, pay dividends,
incur indebtedness, make investments and take certain other corporate
actions. A substantial portion of our available cash will be required to
service this indebtedness. For fiscal 2000, our debt service is expected
to be approximately $1.2 billion consisting of approximately $371 million
in principal repayments and approximately $870 million in interest
payments. These amounts may vary depending upon changes in interest rates.
We are also required to provide financial assurances to governmental
agencies under applicable environmental regulations relating to our
landfill operations and collection contracts. We satisfy these financial
assurance requirements by issuing performance bonds, letters of credit,
insurance policies or trust deposits as they relate to landfill closure
and post-closure costs and performance under certain collection contracts.
At December 31, 1999, we had outstanding approximately $1.5 billion in
financial assurance instruments, represented by $701.7 million of
performance bonds, $656.6 million of insurance policies, $52.1 million of
trust deposits and $105.8 million of letters of credit. During the
calendar year 2000, we expect to be required to provide approximately $1.5
billion in financial assurance instruments relating to our landfill
operations.
We have lease facilities (the "Lease Facilities") that allow us to enter
into equipment leases at rates ranging from similar term treasury note
rates plus 1.55% for terms of 36 to 84 months. We had equipment leases
outstanding at December 31, 1999 and 1998 of $14.8 million and $36.6
million, respectively.
Subtitle D and other regulations that apply to the non-hazardous waste
disposal industry have required us, 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 us to spend sums in addition to those
presently reserved for such purposes. These factors, together with the
other factors discussed above, could substantially increase our operating
costs and our ability to invest in our facilities.
Our ability to meet future capital expenditure and working capital
requirements, to make scheduled payments of principal, to pay interest, or
to refinance our indebtedness, and to fund capital amounts required for
the expansion of the existing business depends on our future performance,
which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond our control.
On the basis of historical financial information, including recent
operating history of both Allied and BFI, we believe that available cash
flow, together with available borrowings under the new credit facility,
our lease facilities and other sources of liquidity, will be adequate to
meet our anticipated future requirements for working capital, acquisition
related and integration costs, letters of credit, capital expenditures,
scheduled payments of principal and interest on debt incurred under the
new credit facility, the assumed BFI debt, the 1998 Senior Notes, the 1999
Notes and other debt, and capital amounts required for growth. However, we
may have to refinance the principal payment at maturity on the 1998 Senior
Notes, the 1999 Notes and other debt. We cannot assure you that our
business will generate sufficient cash flow from operations, that we will
be able to avail ourselves to future financings in an amount sufficient to
enable us to service our indebtedness or to make necessary capital
expenditures, or that any refinancing would be available on commercially
reasonable terms, if at all. Further, depending on the timing, amount and
structure of any possible future acquisitions and the availability of
funds under the new credit facility, we may need to raise additional
capital. We may raise such funds through additional bank financings or
public or private offerings of our debt and equity securities. We cannot
assure you that we will be able to secure such funding, if necessary, on
favorable terms, if at all. If we are not successful in securing such
funding, our ability to pursue our business strategy may be impaired and
results of operations for future periods may be negatively affected. (See
Note 6 to Allied's Consolidated Financial Statements).
29
<PAGE>
Significant Financing Events
In July 1999, in connection with the completion of the acquisition of BFI,
we entered into new financing arrangements and repaid all amounts borrowed
under the then existing credit facility and all amounts borrowed by BFI
under its commercial paper program. The new financing arrangements were
(i) the 1999 Credit Facility for Allied NA, which is guaranteed by us and
substantially all of our subsidiaries (including BFI and its
subsidiaries), from a bank group for $7.1 billion to provide financing for
the acquisition of BFI and working capital for us following the
acquisition, (ii) the sale of the $2.0 billion principal amount 1999 Notes
by Allied NA which are guaranteed by us and substantially all of our
subsidiaries (including BFI and its subsidiaries), and (iii) the sale for
$1.0 billion of the Preferred Stock. In connection with the completion of
the acquisition of BFI, we also guaranteed certain of BFI's remaining debt
and, for the 1998 Senior Notes and for certain of BFI's remaining debt,
provided collateral (pari passu with the 1999 Credit Facility) consisting
of certain of BFI's assets. Both the New Credit Facility and the 1999
Notes contain restrictions on Allied's ability to make acquisitions,
purchase fixed assets above certain amounts, pay dividends, incur
additional 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 Allied's assets. The 1999
Credit Facility, the 1999 Notes and the Preferred Stock contain
provisions, which could require repayment, in some cases at a premium upon
a defined "change of control" of Allied and the Preferred Stock also
contain restrictions on Allied's ability to pay cash dividends on common
stock.
In December 1998, Allied NA issued an aggregate principal amount of $1.7
billion of senior notes in a Rule 144A offering which was subsequently
registered for public trading with the SEC in January 1999. We used the
net proceeds from the 1998 Senior Notes to fund the purchase of all of the
outstanding 1996 Notes and Senior Discount Notes, to repay borrowings
outstanding under the Senior Credit Facility and certain capital lease
obligations and for general corporate purposes. We guarantee the 1998
Senior Notes 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.
In June 1998, we repaid $486.8 million outstanding under the 1997 Credit
Agreement and entered into a new credit agreement (the "Credit
Agreement"). The Credit Agreement provides an $800 million five year
senior secured revolving credit facility and a $300 million five year
senior secured term loan facility (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.
On September 30, 1997, we 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,
we 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 1997, we repaid our 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.
In May 1997, Allied, 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.
30
<PAGE>
New Accounting Standards
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133, and amendment of SFAS No. 133. This statement
defers, for one-year, the effective date of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, to those fiscal years
beginning after June 15, 2000. SFAS No. 133 requires all derivatives to be
recorded as either assets or liabilities and the instruments to be
measured at fair value. Gains or losses resulting from changes in the
values of those derivatives are to be recognized immediately or deferred,
depending on the use of the derivative, and whether or not it qualifies as
a hedge. We will adopt SFAS No. 133 by January 1, 2001, as required. We
are currently assessing the impact of this statement on our results of
operations and financial position.
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 we
believe that the expectations reflected in such Forward Looking Statements
are reasonable, we can give no assurance that such expectations will prove
to be 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, including whether and when the
acquisitions will be accretive to earnings, made by or to be made by us,
or projections involving anticipated revenues, earnings, levels of capital
expenditures or other aspects of operating results and the underlying
assumptions including internal growth as well as general economic and
financial market conditions. All phases of our operations are subject to a
number of uncertainties, risks and other influences, many of which are
outside of our control and any one of which, or a combination of which,
could materially affect the results of our operations and whether Forward
Looking Statements made by us ultimately prove to be accurate. Such
important factors ("Important Factors") that could cause actual results to
differ materially from our expectations are disclosed in this section and
elsewhere in this report. All subsequent written and oral Forward Looking
Statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the Important Factors described
below that could cause actual results to differ from our expectations.
Shareholders, potential investors and other readers are urged to consider
these factors in evaluating Forward Looking Statements and are cautioned
not to place undue reliance on these Forward Looking Statements. The
forward-looking statements made herein are only made as of the date of
this filing and we undertake no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
Leverage Ability to Service Debt. We have substantial indebtedness with
significant debt service requirements. At December 31, 1999, our
consolidated debt was approximately $10.2 billion. The degree to which we
are leveraged has important consequences, including the following (i) our
ability to obtain additional financing in the future may be impaired, (ii)
a portion of our cash flow from operations is required to be dedicated to
the payment of principal and interest on our debt, thereby reducing funds
available to us for other purposes, (iii) we may be vulnerable in the
event of an economic downturn in our business, and (iv) to the extent our
outstanding debt under our 1999 Credit Facility is at variable rates that
have not been hedged, we will be vulnerable to increases in interest
rates. In addition, a portion of our bank debt provides for increasing
interest rates if that portion is not repaid by July 30, 2000.
Accordingly, if we are unable to repay this portion from the proceeds of
asset divestitures or otherwise, our vulnerability to changes in interest
rates will be greater.
Our ability to meet our debt service obligations will depend on our future
operating performance and financial results, which will be subject in part
to factors beyond our control. Although we believe that our cash flow will
be adequate to meet our interest payments, we cannot assure that we will
continue to generate earnings in the future sufficient to cover our fixed
charges and if we are unable to borrow sufficient funds under either the
1999 Credit Facility or from other sources, we may be required to
refinance all or a portion of our assets. There can be no assurance that a
refinancing would be possible, nor can there be any assurance as to the
timing of any asset sales or the proceeds, which we could realize
therefrom.
31
<PAGE>
If for any reason, including a shortfall in anticipated operating results
or proceeds from asset sales, we were unable to meet our debt service
obligations, we would be in default under the terms of certain of our debt
agreements. In the event of such a default, the holders of such debt could
elect to declare all of such debt immediately due and payable, including
accrued and unpaid interest, and to terminate their commitments with
respect to funding obligations under such debt. In addition, such holders
could proceed against any collateral which, in the case of the 1999 Credit
Facility, consists of the capital stock of our subsidiaries and
substantially all of our assets and the assets of our subsidiaries. Any
default with respect to any of our debt could result in default under
other debt or result in bankruptcy.
Competition. The solid waste collection and disposal business is highly
competitive and requires substantial amounts of capital. We compete with
numerous waste management companies, one of which has significantly larger
operations and greater resources. We also compete with those counties and
municipalities that maintain their own waste collection and disposal
operations. Forward Looking Statements assume that we will be able to
effectively compete with the other waste management companies and
municipalities and that we will be able to maintain or improve margins (or
pricing of services) on existing or acquired operations and effectively
compete with government owned and operated landfills which enjoy certain
competitive advantages from tax-exempt financing and tax revenue
subsidies.
Availability of Acquisition Targets. Our ongoing acquisition program is
part of our growth strategy. In addition, obtaining landfill permits has
become increasingly difficult, time consuming and expensive. We cannot
assure that we will succeed in obtaining landfill permits or locating
appropriate acquisition candidates that can be acquired at price levels
that we consider appropriate. The Forward Looking Statements assume that a
number of acquisition candidates and landfill properties sufficient to
meet our goals will be available and that we will be able to complete the
acquisitions at prices that we have experienced in the past two years. In
addition, federal and state antitrust and similar policies may limit our
ability to pursue acquisitions.
Divestitures. Our Forward Looking Statements assume that we will be able
to exit certain regional markets and sell certain non-strategic
businesses. There can be no assurance as to whether or when transactions
will close or the amounts to be received in such transactions, including
transactions under definitive agreement, and whether we will be successful
in negotiating asset sales at a pace and on terms sufficient to achieve
our goals.
Integration. Our financial position and results of operations depend to a
large extent on the integration of recently acquired businesses including
the acquisition of BFI completed on July 30, 1999. Before the acquisition
of BFI, Allied and BFI operated as separate entities. We may not be able
to maintain the levels of operating efficiency that Allied or BFI had
achieved or might achieve separately. Successful integration of BFI's
operations will depend upon our ability to manage those operations and to
eliminate redundant and excess costs. Because of difficulties in combining
operations, we may not be able to achieve the cost savings, increases in
internalization rates, and other size related benefits that we hope to
achieve after the acquisition. Failure to achieve effective integration in
the anticipated time period or at all could have an adverse effect on our
future results of operations.
Ongoing Capital Requirements. To the extent that internally generated cash
and cash available under our 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, we will require additional equity and/or debt financing in
order to provide such cash. We have incurred significant debt obligations
in the last two years, which entail substantial debt service costs. The
Forward Looking Statements assume that we will be able to raise the
capital necessary to finance such requirements at rates that are as good
as or better than those we are currently experiencing. We cannot assure,
however, that such financing and hedging and other means of fixing
interest rates on our debt will be available or, if available, that we
will find such terms regarding debt service costs and interest rates
consistent with the assumptions of Forward Looking Statements or otherwise
satisfactory. See "Liquidity and Capital Resources".
32
<PAGE>
Economic Conditions. Our business is affected by general economic
conditions. The Forward Looking Statements assume that we will be able to
achieve internal volume and price growth, which is not impacted by an
economic downturn. As our revenue continues to grow it is likely that the
rates of internal growth will reflect growth rates, which are less than
those experienced in 1999. We cannot assure that an economic downturn will
not result in a reduction in the volume of waste being disposed of at our
operations and/or the price that we can charge for our services.
Weather Conditions. Protracted periods of inclement weather may adversely
affect our operations by interfering with collection and landfill
operations, delaying the development of landfill capacity and/or reducing
the volume of waste generated by our customers. In addition, particularly
harsh weather conditions may result in the temporary suspension of certain
of our operations. The Forward Looking Statements do not assume that such
weather conditions will occur.
Dependence on Senior Management. We are highly dependent upon our senior
management team. In addition, as we continue to grow, our requirements for
operations management with waste industry experience will also increase.
The availability of such experienced management is not known. Our Chief
Financial Officer announced his forthcoming resignation in February 2000.
The Forward Looking Statements assume that experienced management will be
available when needed by us at compensation levels that are within
industry norms. We may also encounter difficulty in the assimilation and
retention of employees. 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 us.
Influence of Government Regulation and Other Third Party Actions. Our
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 our 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 resulting from transportation or
predecessors' transportation and collection operations, all of which could
have a material adverse effect on us. Liability may also arise from
actions brought by other third parties such as 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 our operations due to government regulation or other
third-party actions.
Potential Environmental Liability. We may incur liabilities for the
deterioration of the environment as a result of our operations. Any
substantial liability for environmental damage could materially adversely
affect our operating results and financial condition. Due to the limited
nature of our insurance coverage of environmental liability, if we were to
incur substantial financial liability for environmental damage, our
business and financial condition could be materially adversely affected.
The Forward Looking Statements assume that we will not incur any material
environmental liabilities other than those for which a provision has been
recorded in the Consolidated Financial Statements and disclosed in the
notes thereto.
Inflation and Prevailing Economic Conditions
To date, inflation has not had a significant impact on our operations.
Consistent with industry practice, most of our contracts provide for a
pass through of certain costs, including increases in landfill tipping
fees and, in some cases, fuel costs. We therefore believe we should be
able to implement price increases sufficient to offset most cost increases
resulting from inflation. However, competitive factors may require us to
absorb cost increases resulting from inflation. We are unable to determine
the future impact of a sustained economic slowdown.
33
<PAGE>
Seasonality
We believe that our collection, transfer 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.
We are subject to interest rate risk on our variable rate long-term debt.
To modify the risk from interest rate fluctuations, we enter into hedging
transactions that have been authorized pursuant to our policies and
procedures. We do not use financial instruments for trading purposes and
are not a party to any leveraged derivatives.
At December 31, 1998, our variable rate debt consisted of our $300 million
Senior Credit Facility which had an average interest rate of 6.0% and
scheduled maturities of $75 million in 2001, $105 million in 2002 and $120
million in 2003. The book value at December 31, 1998 approximated its fair
market value.
We have effectively converted our long-term debt, which requires payment
at variable rates of interest, to fixed rate obligations through interest
rate swap transactions. These transactions required us to pay fixed rates
of interest on notional amounts of principal to counter-parties. The
counter-parties, in turn, paid to us variable rates of interest on the
same notional amounts of principal. Increases or decreases in short-term
market rates did not impact earnings and cash flow as all variable rate
debt had been swapped for fixed rates. In addition, decreases in long-term
market interest rates would have the effect of increasing the fair value
of our 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>
Fair Market
Notional Principal Interest Interest Value
(in thousands) Maturity Paid Underlying 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
<FN>
See Note 6 to our Consolidated Financial Statements in Item 8 of this Form
10-K for additional information regarding how we manage interest rate risk
at December 31, 1999.
</FN>
</TABLE>
34
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Operations for the Three Years Ended
December 31, 1999.
Consolidated Statements of Stockholders' Equity for the Three Years
Ended December 31, 1999.
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1999.
Notes to Consolidated Financial Statements.
35
<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, 1999 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, 1999. These financial statements
and Schedule II referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and Schedule II referred to below based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
As explained in Note 1 to the financial statements, effective January 1,
1999, the Company changed its method of accounting for the capitalization
of interest.
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 is 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
February 22, 2000
36
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amount)
December 31,
------------------------------------------
1999 1998
------------------ ------------------
ASSETS
Current Assets --
<S> <C> <C>
Cash and cash equivalents............................................... $ 121,405 $ 39,742
Accounts receivable, net of allowance of $59,490 and $13,907............ 867,667 225,087
Prepaid and other current assets........................................ 252,187 47,184
Deferred income taxes, net.............................................. 115,263 44,141
Assets held for sale.................................................... 891,900 143,750
------------------ ------------------
Total current assets.................................................. 2,248,422 499,904
Property and equipment, net............................................. 3,738,388 1,776,025
Goodwill, net .......................................................... 8,238,929 1,327,470
Other assets, net....................................................... 737,362 149,193
------------------ ------------------
Total assets.......................................................... $ 14,963,101 $ 3,752,592
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt....................................... $ 1,002,928 $ 21,516
Accounts payable........................................................ 481,318 106,082
Accrued closure, post-closure and environmental costs................... 134,968 41,938
Accrued interest........................................................ 158,251 7,892
Other accrued liabilities............................................... 613,663 228,934
Unearned revenue........................................................ 238,371 48,511
----------------- -----------------
Total current liabilities............................................. 2,629,499 454,873
Long-term debt, less current portion.................................... 9,240,291 2,118,927
Deferred income taxes................................................... 204,786 --
Accrued closure, post-closure and environmental costs................... 860,574 205,982
Other long-term obligations............................................. 388,396 42,736
Commitments and contingencies
Series A senior convertible preferred stock, 1,000 shares
authorized, issued and outstanding, liquidation
preference of $1,028 per share........................................ 1,001,559 --
Stockholders' Equity --
Common stock............................................................ 1,885 1,845
Additional paid-in capital.............................................. 1,205,399 1,208,906
Retained deficit........................................................ (569,288) (280,677)
----------------- -----------------
Total stockholders' equity............................................ 637,996 930,074
----------------- -----------------
Total liabilities and stockholders' equity............................ $ 14,963,101 $ 3,752,592
================= =================
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these balance sheets.
</FN>
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
Year Ended December 31,
-------------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues............................................................ $ 3,341,071 $ 1,575,612 $ 1,340,661
Cost of operations excluding acquisition related and unusual costs.. 1,948,964 892,273 777,289
Selling, general and administrative expenses excluding acquisition
related and unusual costs......................................... 231,366 155,835 177,396
Depreciation and amortization....................................... 273,368 149,260 131,658
Goodwill amortization............................................... 110,726 30,705 26,580
Acquisition related and unusual costs............................... 588,855 317,616 3,934
--------------- --------------- ---------------
Operating income.................................................. 187,792 29,923 223,804
Equity in earnings of unconsolidated affiliates..................... (20,785) -- --
Interest income..................................................... (7,212) (4,030) (1,765)
Interest expense.................................................... 443,044 88,431 108,045
--------------- --------------- ---------------
Income (loss) before income taxes................................. (227,255) (54,478) 117,524
Income tax expense (benefit)........................................ (8,756) 43,773 40,277
Minority Interest................................................... 2,751 -- --
--------------- --------------- ---------------
Income (loss) before extraordinary losses and cumulative effect of
change in accounting principle.................................. (221,250) (98,251) 77,247
Extraordinary losses, net of income tax benefit..................... 3,223 124,801 53,205
Cumulative effect of change in accounting principle, net of income
tax benefit....................................................... 64,255 -- --
--------------- --------------- ---------------
Net income (loss)................................................. (288,728) (223,052) 24,042
Dividends on preferred stock........................................ 27,789 -- 381
--------------- --------------- ---------------
Net income (loss) available to common shareholders................ $ (316,517) $ (223,052) $ 23,661
=============== =============== ===============
Basic EPS:
Income (loss) available to common shareholders before extraordinary
losses and cumulative effect of change in accounting principle, net
of income tax benefit............................................. $ (1.33) $ (0.54) $ 0.47
Extraordinary losses, net of income tax benefit..................... (0.02) (0.68) (0.33)
Cumulative effect of change in accounting principle, net of income
tax benefit....................................................... (0.34) -- --
--------------- --------------- ---------------
Net income (loss) available to common shareholders................ $ (1.69) $ (1.22) $ 0.14
=============== =============== ===============
Weighted average common shares...................................... 187,801 182,796 164,888
=============== =============== ===============
Diluted EPS:
Income (loss) available to common shareholders before extraordinary
losses and cumulative effect of change in accounting principle, net
of income tax benefit............................................. $ (1.33) $ (0.54) $ 0.44
Extraordinary losses, net of income tax benefit..................... (0.02) (0.68) (0.30)
Cumulative effect of change in accounting principle, net of income
tax benefit....................................................... (0.34) -- --
--------------- --------------- ---------------
Net income (loss) available to common shareholders................ $ (1.69) $ (1.22) $ 0.14
=============== =============== ===============
Weighted average common and common equivalent shares................ 187,801 182,796 172,958
=============== =============== ===============
Pro forma amounts, assuming the change in accounting principle
is applied retroactively:
Net income (loss) available to common shareholders.................. $ (256,265) $ 5,085
Diluted earnings (loss) per share................................... $ (1.40) $ 0.03
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Additional Total
Preferred Common Paid-In Retained Stockholders'
Stock Stock Capital Deficit Equity
------------ ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance as of 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 as of 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 as of December 31, 1998............... -- 1,845 1,208,906 (280,677) 930,074
Common stock issued, net.................... -- 2 220 -- 222
Stock options and warrants exercised........ -- 14 20,480 -- 20,494
Dividends declared on Series A Senior
Convertible Preferred Stock............... -- -- (27,789) -- (27,789)
Equity transactions of pooled companies..... -- 24 3,582 117 3,723
Net loss.................................... -- -- -- (288,728) (288,728)
------------ ------------ -------------- -------------- ---------------
Balance as of December 31, 1999............... $ -- $ 1,885 $1,205,399 $ (569,288) $ 637,996
============ ============ ============== ============== ===============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</FN>
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
---------------------------------------------------
1999 1998 1997
--------------- --------------- -------------
Operating activities --
<S> <C> <C> <C>
Net income (loss)........................................................... $ (288,728) $ (223,052) $ 24,042
Adjustments to reconcile net income (loss) to cash provided by operating
activities--
Provisions for:
Depreciation and amortization............................................. 384,094 179,965 158,238
Non-cash acquisition related and unusual costs and asset impairments...... 105,186 88,228 --
Cumulative effect of change in accounting principle, net of income tax 64,255 -- --
benefit.....................................................................
Undistributed earnings of equity investment in unconsolidated subsidiary.. 13,217 -- --
Doubtful accounts......................................................... 10,305 8,086 4,228
Accretion of senior discount notes and amortization of debt issuance costs 27,155 33,057 26,630
Deferred income tax provision (benefit)................................... (115,964) 24,636 (1,794)
Gain on sale of assets.................................................... (5,346) (3,521) (7,250)
Extraordinary losses due to early extinguishments of debt, net of income tax
benefit and cash premium paid............................................. 3,223 118,957 50,518
Cash premium paid due to early extinguishments of debt...................... -- (173,159) (64,439)
Change in operating assets and liabilities, excluding the effects of purchase
acquisitions--
Accounts receivable, prepaid expenses, inventories and other.............. (100,586) (58,517) (131,840)
Accounts payable, accrued liabilities, unearned income, and other......... 13,099 159,862 70,803
Acquisition related accruals.............................................. 382,643 20,244 --
Closure and post-closure provision........................................ 35,242 17,607 12,920
Closure, post-closure and environmental expenditures...................... (38,784) (23,000) (14,590)
------------- ------------- -------------
Cash provided by operating activities....................................... 489,011 169,393 127,466
------------- ------------- -------------
Investing activities --
Cost of acquisitions, net of cash acquired................................ (7,589,597) (312,986) (498,706)
Accruals for acquisition price............................................ 15,171 -- --
Net contributions to unconsolidated subsidiaries.......................... (17,011) -- --
Capital expenditures, excluding acquisitions.............................. (339,192) (301,742) (188,005)
Capitalized interest...................................................... (25,474) (67,499) (37,568)
Proceeds from sale of assets.............................................. 53,246 12,070 5,404
Proceeds from sale of assets held for sale................................ 468,880 -- 524,716
Change in deferred acquisition costs and notes receivable................. (28,555) (8,184) (7,926)
------------- ------------- -------------
Cash used for investing activities.......................................... (7,462,532) (678,341) (202,085)
------------- ------------- -------------
Financing activities --
Net proceeds from sale of common stock and exercise of stock options
and warrants............................................................ 10,198 11,324 329,019
Net proceeds from sale of preferred stock................................. 973,881 -- --
Proceeds from long-term debt, net of issuance costs....................... 8,672,295 2,725,262 1,336,780
Repayments of long-term debt.............................................. (2,601,190) (2,265,741) (1,791,799)
Repurchase of warrant..................................................... -- -- (49,000)
Other long-term obligations............................................... -- 2,745 12,886
Dividends paid............................................................ -- -- (525)
Equity transactions of pooled companies................................... -- 41,780 200,563
------------- ------------- -------------
Cash provided by financing activities....................................... 7,055,184 515,370 37,924
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents............................ 81,663 6,422 (36,695)
Cash and cash equivalents, beginning of period.............................. 39,742 33,320 70,015
------------- ------------- -------------
Cash and cash equivalents, end of period.................................... $ 121,405 $ 39,742 $ 33,320
============= ============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
</TABLE>
40
<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 "we") is
the second largest, non-hazardous solid waste management company in the
United States, as measured by revenues. We provide non-hazardous waste
collection, transfer, recycling and disposal services in 42 states located
primarily in the Atlantic, Central, Great Lakes, Midwest, Northeast,
Southeast, Southwest and West regions of the United States.
On July 30, 1999, we completed the acquisition of Browning-Ferris Industries,
Inc. ("BFI") for approximately $7.7 billion of cash and the assumption of
approximately $1.9 billion of BFI debt. Prior to the acquisition, BFI was the
second largest non-hazardous solid waste company in North America and
provided integrated solid waste management services, including residential,
commercial and industrial collection, transfer, disposal and recycling. As of
the date of acquisition, BFI serviced approximately 7.3 million customers
through a network of 221 collection companies, 86 transfer stations, 84
landfills, and 102 recycling facilities and had annual revenues of
approximately $4.2 billion.
Principles of consolidation and presentation --
The Consolidated Financial Statements include the accounts of Allied and our
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 90
days and are stated at quoted market prices. Cash and cash equivalents are
net of approximately $169.2 million and $32.7 million of outstanding checks
and deposits in transit at December 31, 1999 and 1998, respectively.
Concentration of credit risk --
Financial instruments that potentially subject us to concentrations of credit
risk consist of cash and cash equivalents and trade receivables. We place our
cash and cash equivalents with high quality financial institutions and limit
the amount of credit exposure with any one financial institution.
We provide services to approximately 9.9 million residential, commercial and
industrial customers throughout the United States. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising our customer base. We perform ongoing credit evaluations
of our customers, but do not require collateral to support customer
receivables. We establish an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and
other information.
41
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 No. 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.
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 a per unit basis as landfill airspace is
consumed. We periodically review the realizability of our investment in
operating landfills. Should events and circumstances indicate that any of our
landfills be reviewed for possible impairment, such review for recoverability
will be made in accordance with Emerging Issues Task Force Discussion Issue
No. 95-23 ("EITF 95-23") The Treatment of Certain Site
Restoration/Environmental Exit Costs When Testing a Long-Lived Asset for
Impairment. 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 years
ended December 31, 1999, 1998 and 1997, maintenance and repair expenses
charged to cost of operations were $275.6 million, $99.8 million and $80.9
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.
Goodwill --
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. We allocate goodwill when appropriate, to the district operating
the assets based on a percentage of acquired assets' earnings before
interest, taxes, depreciation and amortization ("EBITDA") to the total
acquired EBITDA. In accordance with SFAS 121, we continually review for
impairment whenever events or changes in circumstances indicate that the
remaining estimated useful life of goodwill might warrant revision or that
the balance may not be recoverable. We evaluate possible impairment by
comparing estimated future cash flows, before interest expense and on an
undiscounted basis, and the net book value of assets including goodwill. If
undiscounted cash flows are insufficient to recover assets, further analysis
is performed in order to determine the amount of the impairment. We record 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 to the carrying amounts of impaired long-lived assets. See Note
1 - Acquisition related and unusual costs for a discussion of current year
asset impairments recorded. Goodwill amortization of $110.7 million, $30.7
million and $26.6 million was recorded for the years ended December 31, 1999,
1998 and 1997, respectively. Accumulated goodwill amortization was $185.3
million and $74.6 million at December 31, 1999 and 1998, respectively.
42
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other assets --
Other assets include notes receivable, landfill closure deposits, deferred
charges, investments in unconsolidated subsidiaries, prepaid pension costs
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 five years.
Accrued closure and post-closure costs --
Accrued closure and post-closure costs represent an estimate of the present
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills we currently own and/or
operate. Site specific closure and post-closure engineering cost estimates
are prepared annually for landfills owned and/or operated by us for which we
are 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 on a per unit basis as landfill airspace is consumed.
Discounting of future costs is applied where we believe that both the amounts
and timing of related payments are reliably determinable.
Environmental costs --
We accrue 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 as the timing of cash payments is not
reliably determinable. 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 AICPA Statement of Position 96-1 ("SOP 96-1")
Environmental Remediation Liabilities.
Other long-term obligations --
Other long-term obligations include the non-current portions of insurance
accruals, legal accruals, loss contract and restructuring accruals and other
obligations not expected to be paid within the following year.
Revenue --
Advance billings are recorded as unearned revenue, and revenue is recognized
when services are provided usually within 90 days.
43
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loss Contracts --
We review our 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 direct costs over the life of the contract
are expensed at the time of such determination.
Change in Accounting Principle --
We evaluated our capitalized interest policy to assess the comparability of
the calculation with the change in the business strategy resulting from the
acquisition of BFI. As a result of this assessment, we changed the method of
calculating capitalization of interest under Statement of Financial
Accounting Standard No. 34, Capitalization of Interest Cost ("SFAS 34").
Previously, interest was capitalized using a method that defined the area of
a landfill under development as all acreage considered available for
development. Actual acquisition, permitting and construction costs incurred
related to the area under development qualified for interest capitalization.
Any costs incurred related to areas already developed and accepting waste no
longer qualified for interest capitalization. Under the new methodology, the
area of a landfill under development is defined as only the portion of the
permitted acreage currently undergoing active cell development. The effect of
this change in definition is to substantially reduce the acreage qualifying
for interest capitalization. The costs upon which interest is capitalized
continue to include the actual acquisition, permitting and construction costs
incurred for cell development. Consistent with the prior policy, as
construction of an area is completed and the area becomes available for use,
the cell no longer qualifies for interest capitalization.
The adoption of this method, which is accounted for as a change in accounting
principle, reflects the change in our operating strategy as a result of the
BFI acquisition. Previously our strategy was focused on the acquisition and
development of waste disposal capacity. Through the BFI acquisition, we
substantially achieved our previous strategy and are now focusing on the
increased utilization of landfill capacity.
The impact of the change in accounting principle is a cumulative charge of
approximately $106.2 million ($64.3 million net of income taxes). The effect
of the change on the year ended December 31, 1999 was to decrease net income
before cumulative effect of a change in accounting principle by $14.8 million
($0.08 per share) and net income after cumulative effect of a change in
accounting principle by $79.1 million ($0.42 per share). The pro forma
amounts shown on our Consolidated Statements of Operations reflect the effect
of retroactive application on capitalized interest in the prior periods that
would have been recorded had the new method been in effect during these
periods and the related income tax benefit.
44
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Acquisition related and unusual costs --
1999:
During the year ended December 31, 1999, we recorded $588.9 million of
acquisition related and unusual costs primarily associated with the $9.6
billion acquisition of BFI, which was accounted for as a purchase (See
Note 2). The costs primarily relate to environmental related matters,
litigation liabilities, risk management liabilities, loss contract
provisions, transition costs and the write-off of deferred costs relating
to the acquisition. These costs are comprised of the following:
We recorded a charge of approximately $267.0 million related to changes in
estimates of environmental liabilities associated with BFI's operations.
In connection with our due diligence and integration process, assessments
of the acquired operations were performed by third-party and in-house
engineers. Based on these assessments, we made changes in accounting
estimates of approximately (i) $133.7 million associated with the
Superfund accrual for over 150 CERCLA cases in which BFI was involved,
(ii) $30.3 million associated with the remedial accrual for sites in which
BFI was involved with remedial action plans, (iii) $56.3 million
associated with the environmental accrual for various containment and
treatment matters at 76 active or closed BFI landfills, and (iv) $46.7
million associated with the accrual for the remedial and closure
requirements of four BFI hazardous waste facilities.
Management believes the environmental accrual as of December 31, 1999
represents the most probable outcome of these matters based on our
intended remediation plans. We do not expect that adjustments to these
estimates, which are reasonably possible in the near term and that may
result in changes to recorded amounts, will have a material effect on our
consolidated liquidity, financial position or results of operations.
We recorded a charge of approximately $93.5 million related to changes in
estimates of litigation liabilities associated with BFI's operations. In
connection with our due diligence and integration process, assessments of
the acquired operations and outstanding litigation were performed by
third-party and in-house legal counsel. We evaluated over 150 cases
involving employee-related matters, insurance related matters, regulatory
matters, collection matters and contract disputes. Accordingly, we
increased the litigation accrual based on the most probable loss to be
incurred.
Management believes the litigation accrual as of December 31, 1999
represents the most probable outcome of outstanding assessments, claims
and cases. We do 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 our consolidated
liquidity, financial position or results of operations. As of December 31,
1999, we believe that it is possible that the ultimate outcome of the
litigation matters could result in approximately $10 million of additional
liability.
We recorded an increase of approximately $20.0 million to the
self-insurance accruals based on the results of a third-party actuarial
review performed in connection with due diligence and integration of the
BFI acquisition. As of September 30, 1999, we instituted a guaranteed cost
insurance program for all casualty insurance coverages. As a result, we
are fully insured for any such claims occurring subsequent to that date.
In connection with the integration of the BFI acquisition, we reviewed the
existing contracts of the business for recoverability. Several contracts
were identified which were in a loss position when the direct costs
(excluding any non-variable type costs) attributable to the contract were
deducted from the revenue to be generated by the contract. Consistent with
our accounting policies, we recorded a charge of approximately $32.6
million to operations for the excess of costs over revenues of the
identified contracts.
45
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As a result of the acquisition of BFI, management reassessed the level of
acquisitions that it would pursue in the future and decided that certain
companies that were being targeted will no longer be pursued. Accordingly,
we wrote off $26.1 million of deferred charges previously incurred in
connection with these potential acquisitions. Additionally, we wrote off
$33.8 million of commitment fees paid in connection with a portion of the
financing of the BFI acquisition. These fees were associated with funds
that were not ultimately drawn due to alternative sources of financing
becoming available. However, as secured financing for the entire purchase
price of the acquisition was a condition of the signing of the merger
agreement with BFI, and the debt associated with these fees was not
incurred, the cost was written off in the third quarter.
In connection with the integration plan for BFI, we identified and
notified approximately 1,500 employees that they would be retained for a
specified period, generally not exceeding nine months from the acquisition
date, to perform transition related functions. Subsequent to the specified
time period, they will be terminated. Additionally, we identified certain
offices and operations, which are duplicative, and we are in the process
of consolidating these operations. As these transition costs are not
accruable until committed or paid, approximately $67.4 million of
transition costs were expensed during 1999. Additionally, we accrued
approximately $10.0 million of committed transition costs during the year.
We estimate that we may incur approximately $115 million of additional
transition expenses associated with the integration of BFI over the
subsequent quarters.
Additionally, we recorded approximately $43.5 million of non-cash asset
impairments related to the valuation of Allied assets held for sale,
approximately $1.8 million of non-cash asset impairments related to
duplicative facilities, and approximately $0.4 million of restructuring
and abandonment costs related to other 1999 acquisitions.
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. During 1999, approximately $7.2 million of accrued
acquisition related costs associated with 1998 acquisitions were reversed
to acquisition related and unusual costs.
The following table reflects the cash activity related to the acquisition
related and unusual costs accrued during 1999 (in thousands):
<TABLE>
<CAPTION>
1999
Additions 1999 Balance
through Non-Cash 1999 Remaining
Expense(1) Charges Expenditures December 31, 1999
-------------- --------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Transition costs.................... $ 77,350 $ -- $ (74,654) $ 2,696
Restructuring and abandonment
costs............................. 387 -- -- 387
Loss contracts...................... 32,643 -- (6,058) 26,585
Environmental, litigation, and
regulatory compliance costs....... 380,500 -- (9,455) 371,045
Asset impairments................... 105,186 (105,186) -- --
-------------- -------------- --------------- --------------
Total............................. $ 596,066 $ (105,186) $ (90,167) $ 400,713
============== ============== =============== ==============
<FN>
(1) Additionally during 1999, we reversed approximately $7.2 million of accruals to acquisition related and
unusual costs related to 1998 acquisitions.
</FN>
</TABLE>
46
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1998:
During the year ended December 31, 1998, we recorded acquisition related
and unusual costs in the amount of $317.6 million. These costs consist of
transaction and deal costs, employee severance and transition costs,
environmental related matters, litigation liabilities, regulatory
compliance matters, restructuring and abandonment costs, loss contract
provisions and non-cash asset impairment charges. We do not anticipate
that future costs to be incurred in connection with the 1998 acquisitions
will be significant as restructuring and transition activities associated
with these acquisitions had been substantially completed as of December
31, 1998. The 1998 acquisition related and unusual costs discussed below
predominantly relate to acquisitions accounted for as
poolings-of-interests 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 was accrued at December 31,
1998 and was paid during the first six months of 1999.
Employee severance and transition costs of $73.6 million consisted 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 related to the elimination of duplicate
corporate and administrative offices of companies acquired. Integration
plans included 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 ours. The exit and integration plans called for the termination
of approximately 800 employees who performed 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. Approximately
$10.1 million was accrued at December 31, 1998, substantially all of which
has been paid in 1999.
Environmental related matters, litigation liabilities and regulatory
compliance matters assumed in acquisitions totaled $73.4 million.
Subsequent to the acquisitions, we 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 our 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. Additional accrued environmental liability
of $27.1 million 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. At
December 31, 1998, approximately $41.1 million and $15.8 million was
accrued for environmental matters and legal and regulatory compliance
matters, respectively, which are expected to be disbursed in future
periods.
47
<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, we identified 14 companies acquired in
business combinations accounted for as poolings-of-interest 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, we identified
regulatory compliance issues related to 12 companies acquired, which
included 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.
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 our 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, substantially all of which
has been paid in 1999. This accrual was for payments under non-cancelable
lease agreements for corporate offices that were 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 was accrued at December 31, 1998
and was paid during 1999.
During the fourth quarter of 1998, we recognized non-cash asset impairment
charges aggregating $69.7 million. These charges related to assets held
for future use and assets which were disposed during the first six months
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. 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.
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.
During 1999, approximately $7.2 million accrued acquisition-related costs
associated with 1998 acquisitions were reversed to acquisition related and
unusual costs.
48
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects the activity related to the 1998 acquisition
related and unusual costs (in thousands):
<TABLE>
<CAPTION>
Balance
1998 Remaining
1998 Non-cash 1998 1999 1999 December 31,
Expense Charges Expenditures Expenditures Adjustments 1999
------------ ------------- -------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Transaction and deal costs... $ 51,200 $ -- $ (39,529) $ (10,952) $ (719) $ --
Severance and transition costs 73,619 -- (63,493) (8,800) (854) 472
Restructuring and abandonment
costs...................... 42,098 (18,514) (15,954) (2,353) (4,680) 597
Loss contracts............... 7,569 -- (2,587) (4,623) (359) --
Environmental, litigation and
regulatory compliance costs 73,416 -- (16,482) (16,589) (599) 39,746
Asset impairments............ 69,714 (69,714) -- -- -- --
------------ ------------- -------------- --------------- --------------- ----------------
Total........................ $ 317,616 $ (88,228) $ (138,045) $ (43,317) $ (7,211) $ 40,815
============ ============= ============== =============== =============== ================
</TABLE>
Extraordinary Losses --
1999:
In July 1999, we replaced our credit facility and recognized an
extraordinary charge of approximately $5.3 million ($3.2 million net of
income tax benefit) related to the write-off of previously deferred debt
issuance costs.
1998:
In December 1998, we replaced our 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, we replaced our 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.
49
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1997:
In May 1997, we repurchased from the Laidlaw, Inc. two junior subordinated
debentures with an aggregate face amount of $318 million and a warrant to
acquire 20.4 million shares of common stock, used as partial consideration
for the acquisition of the solid waste operations of Laidlaw, Inc., 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, we
replaced our $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, we sold 18.6 million shares of common stock with net
proceeds from the equity offering of approximately $327.4 million. We used
$203 million of the net proceeds from the equity offering 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, we 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.
Statements of cash flows --
The supplemental cash flow disclosures and non-cash transactions for the
three years ended December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
Supplemental Disclosures -
<S> <C> <C> <C>
Interest paid (net of amounts capitalized).................. $ 312,623 $ 62,386 $ 86,125
Income taxes paid (proceeds received)....................... (74,855) 33,653 17,244
Non-Cash Transactions -
Common stock, preferred stock or warrants
issued in acquisitions or as commissions.................. $ 1,573 $ 124,854 $ 73,570
Capital leases.............................................. -- 1,187 38,693
Debt and liabilities incurred or assumed in
acquisitions.............................................. 1,850,162 65,409 207,806
Debt converted to common stock.............................. -- -- 2,265
Non-cash purchase and sale of operating
business.................................................. -- -- 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.
50
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Interest rate protection agreements --
Interest rate protection agreements are used to reduce interest rate risks
and interest costs of our debt portfolio. We enter into these agreements
to change the fixed/variable interest rate mix of the portfolio to reduce
our aggregate exposure to increases in interest rates. We do 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 because these instruments are not reflected in the
financial statements at fair market value.
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 No. 107 ("SFAS 107"), Disclosures About
Fair Value of Financial Instruments. Our financial instruments as defined
by SFAS 107 include cash, money market funds, accounts receivable,
accounts payable and long-term debt. We have determined the estimated fair
value amounts at December 31, 1999 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 (See Note 6 for fair value of debt).
Stock-based compensation plans --
We account for our stock-based compensation plans under Accounting
Principles Board Opinion No. 25, ("APB 25") which does not require a
charge to the statement of operations for the estimated fair value of
stock options issued with an exercise price equal to the fair value of the
common stock on the date of grant. Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock-based Compensation
requires that companies, which do not elect to account for stock-based
compensation as prescribed by this 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 11).
Recently issued accounting pronouncements --
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133, an amendment of SFAS No. 133. This statement
defers, for one-year, the effective date of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, to those fiscal years
beginning after June 15, 2000. SFAS No. 133 requires all derivatives to be
recorded as either assets or liabilities and the instruments to be
measured at fair value. Gains or losses resulting from changes in the
values of those derivatives are to be recognized immediately or deferred,
depending on the use of the derivative, and whether or not it qualifies as
a hedge. We will adopt SFAS No. 133 by January 1, 2001, as required. We
are currently assessing the impact of this statement on our results of
operations and financial position.
51
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Business Combinations and Divestitures
Acquisitions accounted for under the poolings-of-interests method are
reflected in the results of operations as if the acquisition occurred on
the first day of the earliest year presented. Acquisitions accounted for
under the purchase method are reflected in the results of operations since
the effective date of the acquisition. For those acquisitions accounted
for using the purchase method, we allocate the cost of the acquired
business to the assets acquired and liabilities assumed based upon their
estimated fair values. These estimates are revised during the allocation
period as necessary when, and if, information regarding contingencies
becomes available to further define and quantify assets acquired and
liabilities assumed. The allocation period varies but generally does not
exceed one year. To the extent contingencies are resolved or settled
during the allocation period, such items are included in the revised
allocation of the purchase price. Purchase accounting adjustments,
acquisition-related costs and other possible charges that may arise from
the acquisitions may materially impact our future consolidated financial
position and consolidated financial results of operations.
The acquisition of BFI has been accounted for as a purchase and,
accordingly, the operating results of BFI have been included in our
consolidated financial statements since the date of acquisition. The
excess of the aggregate purchase price over the fair market value of net
assets was acquired of approximately $6.7 billion.
The following table reflects the allocation of purchase price for the
acquisition of BFI, giving effect to asset divestitures described in Note
3 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets, including assets classified as held for sale................................. $ 2,584,387
Property and equipment, net.................................................................. 1,943,906
Goodwill..................................................................................... 6,672,992
Non-current assets........................................................................... 678,139
Current liabilities.......................................................................... (1,142,469)
Long-term debt............................................................................... (1,755,501)
Other long-term obligations.................................................................. (1,327,003)
--------------------
Total net assets......................................................................... $ 7,654,451
====================
</TABLE>
Included in current liabilities above is approximately $139.7 million of
transaction, severance and transition costs of which $99.0 million remains
to be paid as of December 31, 1999.
During 1999, we acquired two companies in transactions accounted for as
poolings-of-interests. As the impact of these poolings on net assets,
revenues and net income was less than one percent of our consolidated net
assets, revenues and net income, prior period financial statements were
not restated to include historical operating results of the acquired
companies.
The following table summarizes acquisitions for the three years ended
December 31, 1999, excluding the acquisition of BFI:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
Number of businesses acquired accounted for as:
<S> <C> <C> <C>
Poolings-of-interests......................................... 2 19 9
Purchases..................................................... 52 35 26
------------ ------------- -------------
Total acquisitions............................................ 54 54 35
Total consideration (in millions)............................. $ 467.5 $ 2,329.0 $ 730.8
Shares of common stock issued (in millions)................... 1.6 79.5 7.0
</TABLE>
52
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Unaudited pro forma statement of operations data --
The following table compares, for the years ended December 31, 1999 and
1998, reported consolidated results of operations to unaudited pro forma
consolidated data as if all of the companies acquired in 1999 and 1998
accounted for using the purchase method for business combinations were
acquired as of January 1, 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ---------------------------------
Reported Pro Forma(1) Reported Pro Forma(1)
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues......................................... $ 3,341,071 $ 5,434,956 $ 1,575,612 $ 5,179,803
Net loss before extraordinary losses and cumulative
effect of change in accounting principle................. (221,250) (383,870) (98,251) (347,633)
Net loss available to common shareholders before
extraordinary losses and cumulative effect of change
in accounting principle.................................. (249,039) (453,286) (98,251) (414,235)
Net loss available to common shareholders before
extraordinary losses and cumulative effective of
change in accounting principle per common
share - basic............................................ (1.33) (2.42) (0.54) (2.25)
Net loss available to common shareholders before
extraordinary losses and cumulative effective of
change in accounting principle per common
share - diluted.......................................... (1.33) (2.42) (0.54) (2.25)
<FN>
(1) The pro forma results of operations exclude planned divestitures of
certain BFI operations resulting from the acquisition of BFI and exclude
any projected annual cost savings.
</FN>
This data does not purport to be indicative of our results of operations
that might have occurred, nor which might occur in the future.
</TABLE>
3. Assets Held for Sale
The ability to successfully implement our vertical integration business plan
is a key consideration in determining whether we will continue to operate in
a specific market. In the normal course of business, we have exited markets
in which the execution of the vertical integration business plan was not
practicable.
In October 1998, we formalized plans to dispose of certain operating
districts (the "Operating Districts") that represented non-core or
non-integrated operations. We entered into agreements to sell these
operations 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. We completed the sale of these assets
during the first six months of 1999.
In July 1999, management formalized plans to dispose of certain operations
required to be divested by governmental order as a condition for approval of
the acquisition of BFI (the "Allied Divestitures"). Additionally, management
identified other Allied operating districts (the "Allied Operations") in
which our vertical integration plan was not practicable as a result of the
BFI transaction and therefore these districts were identified for
divestiture. All of these operations had been owned prior to the acquisition
of BFI. In accordance with SFAS 121, an impairment loss of $43.5 million was
recorded during 1999 to reduce the carrying value of the assets to the net
realizable value including an accrual for the cost of disposal.
We completed the sale of certain assets of the Allied Divestitures for
approximately $23.0 million during the fourth quarter of 1999. Accordingly,
this amount is not included in assets held for sale in the consolidated
balance sheets at December 31, 1999.
53
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The results of operations before depreciation and amortization, acquisition
related expenses and other income/expense of the Operating Districts, the
Allied Divestitures and Allied Operations included in consolidated operating
income, in accordance with SFAS 121, was approximately $11.1 million during
the 12 months ended December 31, 1999. From the date the assets were
classified as held for sale, we excluded from our Consolidated Statements of
Operations, in accordance with SFAS 121, depreciation and amortization in the
amount of $6.3 million.
BFI Assets --
Concurrent with the acquisition of BFI, certain BFI operations were
identified by management as non-core or non-integrated operations and are
expected to be divested along with certain operations required by
governmental order to be divested. These operations include BFI's Canadian
operations ("BFI Canada"), medical waste operations ("BFI Medical Waste"),
gas systems operations ("BFI Gas") and certain solid waste operations ("BFI
Solid Waste Divestitures") (collectively, the "BFI Divestitures"). The sales
of these operations are being accounted for in accordance with Emerging
Issues Task Force Issue 87-11 -- Allocation of Purchase Price to Assets to Be
Sold. The BFI Divestitures are being carried at the net realizable value
based on the current terms of transactions expected to be closed in 2000
including accruals for cost of disposal, operating income and allocable
interest expense. Accordingly, approximately $49.7 million of consolidated
operating income excluding acquisition related charges and other income and
approximately $45.5 million of allocable interest expense related to the BFI
Divestitures were excluded from the consolidated statements of operations for
the 12 months ended December 31, 1999 and was included in assets held for
sale on the consolidated balance sheet.
We completed the sale of BFI Medical Waste to Stericycle, Inc. for
approximately $410.5 million in cash and certain assets of the BFI Solid
Waste Divestitures for approximately $27.7 million during the fourth quarter
of 1999. Accordingly, these amounts are not included in assets held for sale
in the Consolidated Balance Sheets at December 31, 1999.
At December 31, 1999, and 1998, the assets held for sale totaled $891.9
million and $143.8 million, respectively, and are classified as current
assets on the Consolidated Balance Sheets and are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------- ---------------------
<S> <C> <C>
Accounts receivable, net.................................. $ 90,396 $ 16,608
Other current assets...................................... 16,478 4,460
Property and equipment, net............................... 616,973 55,869
Goodwill, net............................................. 247,383 106,214
Other long-term assets.................................... 5,405 1,595
Current liabilities....................................... (64,682) (1,785)
Long-term liabilities..................................... (20,053) (39,211)
--------------------- ---------------------
Total net assets........................................ $ 891,900 $ 143,750
===================== =====================
</TABLE>
4. Property and Equipment
Property and equipment at December 31, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
<S> <C> <C>
Land and improvements..................................... $ 437,119 $ 168,569
Land held for permitting as landfills(1).................. 98,914 95,463
Landfills................................................. 1,637,782 1,063,598
Buildings and improvements................................ 454,416 162,989
Vehicles and equipment.................................... 1,114,130 500,811
Containers and compactors................................. 611,889 247,173
Furniture and office equipment............................ 120,636 18,655
--------------------- ---------------------
4,474,886 2,257,258
Accumulated depreciation and amortization................. (736,498) (481,233)
--------------------- ---------------------
$ 3,738,388 $ 1,776,025
===================== =====================
<FN>
(1) These properties have been approved for use as landfills, and we are currently in the process of obtaining
the necessary permits.
</FN>
</TABLE>
54
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Investments In Unconsolidated Subsidiaries
We use the equity method of accounting for investments in unconsolidated
subsidiaries over which we exercise control through a 20% to 50% ownership
interest. The summarized combined balance sheet, and the statement of
operations data presented in the table below indicates amounts related to the
following equity investees acquired in the BFI acquisition in which we
exercise control through a 50% ownership interest: American Ref-Fuel Company,
American Ref-Fuel Company of Hempstead, American Ref-Fuel Company of Essex,
American Ref-Fuel Company of Southeastern Connecticut, American Ref-Fuel
Company of Niagara, LP, American Ref-Fuel Company of SEMASS, LP, American
Ref-Fuel Operations of SEMASS, LP. There were no investments in
unconsolidated subsidiaries prior to the acquisition of BFI (in thousands).
<TABLE>
<CAPTION>
Summarized Combined Balance Sheet Data
December 31, 1999
--------------------------
<S> <C>
Current assets........................................................................ $ 147,863
Property and equipment, net of accumulated depreciation............................... 1,116,711
Other non-current assets.............................................................. 248,378
Current liabilities................................................................... 127,989
Long-term debt, net of current portion................................................ 1,123,414
Other long-term liabilities........................................................... 199,828
Retained earnings..................................................................... 61,721
</TABLE>
<TABLE>
<CAPTION>
Summarized Combined Statement of Operations Data
For the Period
July 31, 1999
through
December 31, 1999
--------------------------
(unaudited)
<S> <C>
Total revenue......................................................................... $ 146,940
Operating income...................................................................... 52,216
Net income............................................................................ 27,328
</TABLE>
Our investments in and advances to equity investees approximates $274.7
million at December 31, 1999, consisting of investments in excess of
underlying equity of $170.1 million, subordinated note and other receivables
of $73.7 million, and our proportional share of net assets of $30.9 million.
For the period from July 31, 1999 through December 31, 1999, our equity in
earnings of equity investees and dividends received from equity investees
were approximately $20.8 million and $34.0 million, respectively. Differences
between the equity in earnings of equity investees we reported and our
proportionate share of the combined earnings of the related investees have
resulted principally from accounting differences in the recognition of
expenses, goodwill amortization and the elimination of intercompany
transactions.
55
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Long-term Debt
Long-term debt at December 31, 1999 and 1998 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Senior credit facility, weighted average interest and effective rate of 6.00%............. $ -- $ 300,000
Revolving credit facility, effective rate of 9.00%........................................ 65,000 --
Senior notes, interest at 7.38%, effective rate of 7.41%, net of unamortized discount
of $274 and $331........................................................................ 224,726 224,669
Senior notes, interest and effective rate of 7.63%........................................ 600,000 600,000
Senior notes, interest at 7.88%, effective rate of 7.91%, net of unamortized discount
of $1,417 and $1,522.................................................................... 873,583 873,478
Asset sale term loan facility, effective rate of 9.00%.................................... 99,496 --
Tranche A term loan facility, effective rate of 8.68%..................................... 1,750,000 --
Tranche B term loan facility, effective rate of 8.88%..................................... 1,250,000 --
Tranche C term loan facility, effective rate of 9.13%..................................... 1,500,000 --
Tranche D term loan facility, effective rate of 10.50%.................................... 500,000 --
Senior subordinated notes, interest at 10.00%, effective rate of 9.92%, including
unamortized premium of $8,119........................................................... 2,008,119 --
Senior notes, interest at 6.10%, effective rate of 8.63%, net of unamortized discount
of $10,671.............................................................................. 146,018 --
Senior notes, interest at 6.38%, effective rate of 9.78%, net of unamortized discount
of $25,446.............................................................................. 135,754 --
Senior notes, interest at 7.88%, effective rate of 9.08%, net of unamortized discount
of $3,240............................................................................... 66,261 --
Debentures, interest at 7.40%, effective rate of 10.38%, net of unamortized discount
of $81,526.............................................................................. 278,474 --
Debentures, interest at 9.25%, effective rate of 9.95%, net of unamortized discount
of $4,778............................................................................... 94,722 --
Market value put securities, interest at 6.08%, effective rate of 6.32%, net of
unamortized discount of $295............................................................ 249,705 --
Solid waste revenue bond obligations, weighted average interest rate of 6.30% and 7.02%,
weighted average effective rate of 6.50% and 7.02% at December 31, 1999 and 1998,
respectively, net of unamortized discount of $5,131 and $0, respectively.................. 316,299 81,050
Notes payable to banks, finance companies, and individuals, weighted average
interest rates of 5% - 10%, and principle payable through 2007, secured by vehicles,
equipment, real estate, accounts receivable or stock of certain subsidiaries............ 54,648 6,326
Notes payable to individuals and a commercial company, interest of 5%-10%,
principal and interest payable through 2006, unsecured.................................. 15,624 18,296
Obligations under capital leases of vehicles and equipment, weighted average
interest of 8.00% and 8.10% at December 31, 1999 and 1998, respectively................. 14,790 36,624
--------------- ---------------
10,243,219 2,140,443
Current portion........................................................................... 1,002,928 21,516
--------------- ---------------
$ 9,240,291 $ 2,118,927
=============== ===============
</TABLE>
56
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the BFI acquisition in July 1999, we repaid the Senior
Credit Facility and entered into a new credit facility (the "1999 Credit
Facility"). The 1999 Credit Facility provides a $1.5 billion six-year
revolving credit facility, a $556 million two-year asset sale term loan (the
"Asset Sale Term Loan"), a $1,750 million six-year Tranche A term loan (the
"Tranche A Term Loan"), a $1,250 million seven-year Tranche B term loan (the
"Tranche B Term Loan"), a $1,500 million eight-year Tranche C term loan (the
"Tranche C Term Loan") and a $500 million eight-year Tranche D term loan (the
"Tranche D Term Loan").
The 1999 Credit Facility bears interest, at (a) an Alternate Base Rate, or
(b) a Eurodollar Rate, both terms defined in the 1999 Credit Facility, plus,
in either case, an applicable margin and may be used for acquisitions, the
issuance of letters of credit, working capital and other general corporate
purposes. Of the $1.5 billion available under the Revolving Credit Facility,
no more than $800 million may be used to support the issuance of letters of
credit. As of December 31, 1999, approximately $1.0 billion was available on
this facility.
We are required to make prepayments on the 1999 Credit Facility upon
completion of certain asset sales and issuances of debt or equity securities.
Proceeds from asset sales are to be applied first to reduce borrowings under
the Asset Sale Term Loan, second to reduce the borrowings under the Tranche
A, B and C Term Loans on a pro rata basis or the Tranche D Term Loan.
Required prepayments are to be made based on a percentage of the net proceeds
of any debt incurrence or equity issuance. Proceeds of an issuance of debt or
equity are first applied to reduce borrowings under the Tranche D Term Loan,
second to reduce borrowings under the Asset Sale Term Loan and third to
reduce the borrowings under the Tranche A, B and C Term Loans on a pro rata
basis.
In July 1999, Allied Waste North America, Inc. ("Allied NA"; a wholly owned
consolidated subsidiary of Allied) issued $2.0 billion of senior subordinated
notes (the "1999 Notes") in a Rule 144A offering. In January 2000, these
notes were exchanged for substantially identical notes (which are also
referred as the 1999 Notes) registered under the Securities Exchange Act of
1933. Interest accrues on the 1999 Notes at an interest rate of 10% per
annum, payable semi-annually on May 1 and November 1 beginning on November 1,
1999. We used the proceeds from the 1999 Notes as partial financing of the
acquisition of BFI. We, together with substantially all of our subsidiaries,
guarantee the 1999 Notes.
In connection with the BFI acquisition on July 30, 1999, we assumed all of
BFI's debt securities with the exception of commercial paper that was paid
off in connection with the acquisition. BFI's debt securities were recorded
at their fair market values as of the date of the acquisition in accordance
with Emerging Issues Task Force Issue 98-1 -- Valuation of Debt Assumed in a
Purchase Business Combination. The effect of revaluing the debt securities
formerly owned by BFI resulted in an aggregate discount from the face amount
of $137.0 million.
The debt assumed in connection with the acquisition, includes 6.08% Market
Value Put Securities ("MVPs") with a face amount of $250 million due January
18, 2002, 6.10% Senior Notes with a face amount of $156.7 million due January
15, 2003, 6.375% Senior Notes with a face amount of $161.2 million due
January 15, 2008, 7.875% Senior Notes with a face amount of $69.5 million
that mature on March 15, 2005, 9.25% Debentures with a face amount of $99.5
million that mature on May 1, 2021, 7.40% Debentures with a face amount of
$360.0 million due September 15, 2035 and solid waste revenue bond
obligations with an aggregate face amount of $236.2 million, a weighted
average interest rate of approximately 6.06% and various maturity dates
through the year 2027.
The MVPs have a mandatory put on January 18, 2000. First National Bank of
Chicago holds an option to purchase the MVPs. We repaid the MVPs on January
18, 2000 when First National Bank of Chicago did not exercise its option to
purchase the MVPs.
57
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The 6.10% Senior Notes, 6.375% Senior Notes and 9.25% Debentures are not
redeemable prior to maturity and are not subject to any sinking fund.
The 7.40% Debentures are not subject to any sinking fund and may be redeemed
as a whole or in part, at our option at any time. The redemption price is
equal to the greater of (i) the principal amount of the debentures and (ii)
the present value of future principal and interest payments discounted at a
rate specified under the terms of the indenture.
In December 1998, Allied NA issued an aggregate of $1.7 billion of senior
notes consisting of $225 million 7.375% senior notes due 2004, $600 million
7.625% senior notes due 2006 and $875 million 7.875% senior notes due 2009 in
a Rule 144A offering which were subsequently registered for public trading
with the SEC in January 1999. Interest accrued on the 1998 Senior Notes is
payable semi-annually on January 1 and July 1 beginning on July 1, 1999. We
used the net proceeds from the 1998 Senior Notes to fund the redemption of
the 1996 Notes and the Senior Discount Notes pursuant to tender offers we
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. We, together with
substantially all of our subsidiaries, guarantee the 1998 Senior Notes.
In June 1998, we 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 and a $300 million five year senior secured term
loan facility (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.
Future maturities of long tem debt --
Aggregate future maturities of long-term debt outstanding at December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
Maturity 1999
--------------------- ------------------
<S> <C>
2000 $ 1,002,928(1)
2001 118,889
2002 271,783
2003 510,977
2004 689,417
Thereafter 7,649,225
------------------
$ 10,243,219
==================
<FN>
(1) Consists of $111.0 million that will be repaid in 2000 based on the terms
of the indebtedness and $891.9 million of other non-current debt
classified as current related to the amounts to be repaid from the
proceeds of the asset divestitures classified as assets held for sale in
current assets on the balance sheet.
</FN>
</TABLE>
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, 1999 (in thousands):
<TABLE>
<CAPTION>
Maturity Principal Interest Total
- ------------------ --------------- ---------------- ---------------
<S> <C> <C> <C>
2000 $ 3,495 $ 1,030 $ 4,525
2001 3,585 848 4,433
2002 3,837 480 4,317
2003 1,875 252 2,127
2004 1,216 123 1,339
Thereafter 782 79 861
--------------- ---------------- ---------------
$ 14,790 $ 2,812 $ 17,602
=============== ================ ===============
</TABLE>
58
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fair value of debt and interest rate protection agreements --
We have interest rate risk relating to long-term variable rate debt. To
manage the potential interest rate volatility, we enter into interest rate
swaps. Interest rate swaps are used to manage the proportion of fixed and
variable rate debt based on market conditions. We do not hold or issue
derivative instruments for trading purposes.
The fair value of our debt and hedging instruments are subject to change as a
result of potential changes in market rates and prices. The table below
provides information about our long-term debt and interest rate hedges by
aggregate principal or notional amounts and weighted average interest rates
for instruments that are sensitive to changes in interest rates. The
financial instruments are grouped by market risk exposure category (dollars
in thousands).
<TABLE>
<CAPTION>
Balance at Fair Value at
December 31, 1999 December 31, 1999
----------------------- ----------------------
Long Term Debt
Fixed Rate Debt:
<S> <C> <C>
Principal amount........................ $ 4,725,018 $ 4,280,180
Weighted average interest rate.......... 8.44%
Variable Rate Debt:
Principal amount........................ $ 5,518,201 $ 5,518,201
Weighted average interest rate(2)....... 8.84%
Interest Rate Swaps(3)
Callable:
Notional amount......................... $ 2,650,000 $ 14,402
Weighted average interest rate.......... 5.74%
Non-Callable:
Notional amount......................... $ 450,000 $ 1,049
Weighted average interest rate.......... 5.78%
</TABLE>
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total
------------ ------------ ---------- ---------- ---------- ------------ ------------
Long Term Debt
Fixed Rate Debt:
<S> <C> <C> <C> <C> <C> <C> <C>
Principal amount............ $ 25,048 $ 6,409 $ 9,303 $148,497 $227,917 $ 4,307,844 $ 4,725,018
Weighted average interest rate 7.63% 8.02% 7.95% 6.13% 7.38% 8.71% 8.44%
Variable Rate Debt:
Principal amount............ $977,880(1) $ 112,480 $262,480 $362,480 $461,500 $ 3,341,381 $ 5,518,201
Weighted average interest
rate(2)..................... 9.67% 8.63% 8.66% 8.67% 8.68% 8.73% 8.84%
Interest Rate Swaps(3)
Callable:
Notional amount............. $1,500,000 $1,150,000 -- -- -- -- $ 2,650,000
Weighted average interest rate 5.68% 5.81% -- -- -- -- 5.74%
Non-Callable:
Notional amount............. $ 450,000 -- -- -- -- -- $ 450,000
Weighted average interest rate 5.78% -- -- -- -- -- 5.78%
<FN>
(1) Consists of $86.0 million of principal that will be repaid in 2000
based on the terms of the indebtedness and $891.9 million of long-term
debt to be repaid from the proceeds of the asset divestitures.
(2) Reflects the rate in effect as of December 31, 1999 and includes all
applicable margins. Actual future rates may vary.
(3) All interest rate swaps enable us to pay a fixed interest rate in
exchange for receiving variable interest rates at LIBOR. We have
assumed that interest rate swaps that are callable by the counterparty
will be called on the exercise date.
</FN>
</TABLE>
59
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Debt covenants --
Our 1999 Credit Facility contains certain financial covenants, including, but
not limited to, an EBITDA ratio and an interest expense coverage ratio.
Additionally, these covenants limit among other things, our ability and our
subsidiaries' ability 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 our assets.
The 1998 Senior Notes and the 1999 Notes contain certain financial and
operating covenants and restrictions which may, in certain circumstances,
limit our ability to complete acquisitions, pay dividends, incur
indebtedness, make investments and take certain other corporate actions.
At December 31, 1999, we were in compliance with all applicable covenants.
Substantially all of our subsidiaries are jointly and severally liable for
the obligations under the 1998 Senior Notes, the 1999 Notes and the 1999
Credit Facility through unconditional guarantees issued by current and future
subsidiaries which are all, except in one minor case, wholly-owned by us. In
addition, the 1999 Credit Facility is secured by substantially all the
personal property and a pledge of the stock of substantially all of our
present and future subsidiaries.
7. Landfill Accounting
We have a network of 151 owned or operated active landfills with a net book
value of approximately $1.4 billion at December 31, 1999. The landfills have
operating lives ranging from one to over 150 years based on available
capacity using current annual volumes. The average life of our landfills
approximates 39 years. We use a life-cycle accounting method for landfills
and the related closure and post-closure liabilities. This method applies the
costs associated with acquiring, developing, closing and monitoring the
landfills over the associated landfill capacity and associated consumption.
On an annual basis, we update the development cost estimates (which include
the costs to develop the site as well as the individual cell construction
costs), closure and post-closure cost estimates and future capacity estimates
for each landfill. The cost estimates are prepared by local company and
third-party engineers based on the applicable local, state and federal
regulations and site specific permit requirements. Future capacity estimates
are updated using aerial surveys of each landfill performed annually by
third-party engineers to estimate utilized disposal capacity and remaining
disposal capacity. These cost and capacity estimates are reviewed and
approved by senior operations management annually.
60
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Landfill Assets --
We use the units of production method for purposes of calculating the
amortization rate at each landfill. This methodology divides the costs
associated with acquiring, permitting and developing the entire landfill by
the total remaining capacity of that landfill. The resulting per unit
amortization rate is applied to each unit disposed at the landfill and is
recorded as expense for that period. We expensed approximately $81.5 million,
or an average of $1.28 per cubic yard consumed, related to landfill
amortization during the year ended December 31, 1999. The following is a
rollforward of our investment in our landfill assets excluding land held for
permitting as landfills (in thousands):
<TABLE>
<CAPTION>
Net Book Value
Cumulative of Landfills
Net Book Change in Acquired During Landfill Net Book
Value at Accounting 1999, net of Development Landfill Value at
December 31, 1998 Principle(1) Divestitures (2) Costs Amortization December 31, 1999
- ----------------------- -------------- ---------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C> <C> <C>
$ 924,698 (85,965) 501,735 162,754 (81,549) $ 1,421,673
<FN>
(1) Amount relates to the charge resulting from the change in accounting
principle for interest previously capitalized at our active landfills
(See Note1).
(2) Landfills classified as assets held for sale are included as divestitures.
Costs associated with developing the landfill include direct costs such as
excavation, liners, leachate collection systems, engineering and legal fees,
and capitalized interest. Estimated total future development cost for our 151
active landfills is approximately $2.6 billion, excluding capitalized
interest, and we expect that this amount will be spent over the remaining
operating lives of the landfills. We have available disposal capacity of
approximately 2.7 billion cubic yards as of December 31, 1999. We classify
this total disposal capacity as either permitted (having received the final
permit from the governing authorities) and deemed permitted. Our internal
requirements to classify capacity as deemed permitted are as follows:
</FN>
</TABLE>
1. Control of and access to the land where the expansion permit is
being sought.
2. All geologic and other technical siting criteria for a landfill
have been met, or a variance from such requirements has been
received (or can reasonably be expected to be achieved).
3. The political process has been assessed and there are no identified
impediments that cannot be resolved.
4. We are actively pursuing the expansion permit and an expectation
that the final local, state and federal
permits will be received within the next five years.
5. Senior operations management approval has been obtained.
Upon successfully meeting the preceding criteria, the costs associated with
developing, constructing, closing and monitoring the total additional future
capacity are considered in the calculation of the amortization and closure
and post-closure rates. At December 31, 1999, we had 2.11 billion cubic yards
of permitted capacity, and at 37 of our landfills, 545.0 million cubic yards
of deemed permitted capacity.
61
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reflects landfill airspace activity for active landfills
we owned or operated for the twelve months ended December 31, 1999 (airspace
in millions of cubic yards):
<TABLE>
<CAPTION>
Additions
Balance Acquisitions, Additions To Changes in Balance
as of net of to Deemed Permitted Airspace Engineering as of
12/31/98 Divestitures(1) Airspace Airspace Consumed Estimates 12/31/99
---------- ----------------- ------------ ---------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Permitted airspace........ 1,167.3 976.3 -- 20.2 (63.8) 8.0 2,108.0
Number of landfills....... 76 75 -- -- -- -- 151
Deemed airspace........... 268.3 273.7 35.6 (16.2) -- (16.4) 545.0
Number of landfills....... 21 13 3 -- -- -- 37
---------- ----------------- ------------ ---------- ------------ --------------- -----------
Total airspace............ 1,435.6 1,250.0 35.6 4.0 (63.8) (8.4) 2,653.0
Number of landfills....... 76 75 -- -- -- -- 151
<FN>
(1) Landfills classified as assets held for sale are included as divestitures.
</FN>
</TABLE>
Allied and its engineering consultants continually monitor the progress of
obtaining local, state and federal approval for each of its expansion
permits. If it is determined that the expansion no longer meets our criteria,
the capacity is removed from our total available capacity, the costs to
develop that capacity and the associated closure and post-closure costs are
removed from the landfill amortization base, and rates are adjusted
prospectively. In addition, any value assigned to deemed permitted capacity
would be written-off to expense during the period in which it is determined
that the criteria are no longer met.
Management periodically reviews the realizability of its investment in our
landfill asset base. As part of our annual review, we will evaluate any
events and circumstances which may indicate that a landfill be reviewed for
impairment. Such review for recoverability will be made using undiscounted
cash flows to measure recoverability in accordance with EITF 95-23.
Closure and Post-Closure --
Estimated costs for closure and post-closure as required under the
Environmental Protection Agency's Subtitle D regulations are compiled and
updated annually for each landfill from local and regional company engineers
and reviewed by senior management. The future estimated closure and
post-closure costs are increased at an inflation rate of 2.5%, and discounted
at a risk-free capital rate of 7.0%, per annum, based on the timing of the
amounts to be expended. The following table is a summary of the closure and
post-closure costs (in thousands):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------ ------------------
Discounted Closure and Post-Closure Liability Recorded:
<S> <C> <C>
Current Portion......................................................... $ 75,316 $ 28,938
Non-Current Portion..................................................... 442,032 125,609
------------------ ------------------
Total................................................................... $ 517,348 $ 154,547
Estimated Remaining Closure and Post-Closure Costs to be Expended:
Discounted.............................................................. $ 1,046,538 $ 396,520
Undiscounted............................................................ 2,689,485 1,227,792
Estimated Total Future Payments:
2000...................................................................... $ 75,316
2001...................................................................... 66,652
2002...................................................................... 56,688
2003...................................................................... 68,166
2004...................................................................... 56,514
Thereafter................................................................ 2,366,149
</TABLE>
62
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Our periodic closure and post-closure expense has two components. The first
component is the site specific per unit closure and post-closure expense. The
per unit rate is derived by dividing the estimated total remaining discounted
closure and post-closure costs by the remaining disposal capacity at each
landfill (consistent with the capacity used to calculate landfill
amortization rates). We use the resulting site-specific rates to record
expense during a given period based upon the consumption of disposal capacity
during that period.
The second component is the accretion expense necessary to increase the
accrued closure and post-closure reserve balance to its future, or
undiscounted, value. To accomplish this, we accrete our closure and
post-closure accrual balance using the current risk-free capital rate and
charge this accretion as an operating expense in that period. We charged
approximately $35.2 million, or an average of $0.55 per cubic yard consumed,
related to per unit closure and post-closure expense and periodic accretion
during the year ended December 31, 1999. Changes in estimates of costs or
capacity are treated on a prospective basis.
Environmental costs --
In connection with the acquisition of companies, we engage independent
environmental consulting firms to assist in conducting an environmental
assessment of companies acquired from third parties. Several contaminated
landfills and other properties were identified during 1999 and 1998 that
would require us to incur costs for incremental closure and post-closure
measures, remediation activities and litigation costs in the future. Based on
information available, we recorded a provision of $267.0 and $41.1 million
for environmental matters, in the 1999 and 1998 statements of operations,
respectively, and expect 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 us, after consultation with our
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 we have concluded that our 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 our assessment to date, the
recorded liabilities will be periodically evaluated, as additional
information becomes available to ascertain whether the accrued liabilities
are adequate. We have determined that the recorded liability for
environmental matters as of December 31, 1999 and 1998 of approximately
$478.2 million and $93.4 million, respectively, represents the most probable
outcome of these contingent matters. We do not reduce our 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, 1999 and
1998. We do 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 our consolidated liquidity, financial position
or results of operations. However, we believe that it is reasonably possible
the ultimate outcome of environmental matters, excluding closure and
post-closure, could result in approximately $33 million of additional
liability.
63
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1996 through December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Balance at Charges to Other Balance at
12/31/96 Expense Charges(1) Payments 12/31/97
------------- ---------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
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 at Charges to Other Balance at
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
Balance at Charges to Other Balance at
12/31/98 Expense Charges(1) Payments 12/31/99
------------- ---------------- ------------- -------------- --------------
Environmental costs............................ $ 93,373 $ 267,034 $ 131,909 $ (14,122) $ 478,194
Open landfills closure and post-closure costs.. 121,359 28,163 175,955 (11,677) 313,800
Closed landfills closure and post-closure costs 33,188 7,079 176,266 (12,985) 203,548
<FN>
(1) Amounts consist primarily of liabilities related to acquired companies.
</FN>
</TABLE>
8. Employee Benefit Plans
Effective July 30, 1999, in connection with the acquisition of BFI, we
assumed two defined benefit retirement plans covering substantially all BFI
employees in the United States, except for certain employees subject to
collective bargaining agreements. The BFI retirement plan was amended on July
30, 1999 to freeze future credited service, but interest credits will
continue to accrue. Certain union participants will continue to receive 2%
annual service credits in addition to interest credits through the duration
of the current collective bargaining agreements. The benefits not frozen for
this plan are based on years of service and the employee's compensation. Our
general funding policy for each pension plan is to make annual contributions
to the plans as determined to be required by the plans' actuary.
The BFI San Mateo Pension Plan covers substantially all employees of this
location. Benefits are based on the employee's years of service and
compensation using the average of earnings over the highest five consecutive
calendar years out of the last fifteen years of service.
64
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For both plans, an actuarial valuation report was prepared as of September
30, 1999 and used, as permitted by Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits ("SFAS 132"), for the following disclosures (in
millions):
<TABLE>
<CAPTION>
December 31,
1999
-----------------
<S> <C>
Actuarial present value of projected benefit obligation............................................ $ (249.1)
Plan assets at fair market value, primarily commercial paper, common stocks and
mutual funds..................................................................................... 304.3
------------
Projected benefit obligation less than plan assets (prepaid pension costs)......................... $ 55.2
------------
Discount rate...................................................................................... 7.75 %
Rate of increase in compensation levels............................................................ 4.0 %
Expected long-term rate of return on assets........................................................ 10.25 %
</TABLE>
The net pension benefit for the period from July 30, 1999 to December 31,
1999 of $4.7 million is comprised of the expected return on plan assets of
$13.2 million less interest cost of $8.5 million. Actual loss on plan assets,
benefits paid, and actuarial gains recognized during the period from July 30,
1999 to December 31, 1999 were $2.6 million, $2.2 million and $5.0 million,
respectively.
9. Redeemable Preferred Stock
In connection with the BFI acquisition, our Board of Directors adopted a
resolution creating a series of one million shares of preferred stock having
a par value of $0.10 per share. These shares were designated as Series A
Senior Convertible Preferred Stock ("Preferred Stock") and are entitled to
vote on, among other things, all matters on which the holders of Common Stock
are entitled to vote. Each share of Preferred Stock has the number of votes
equal to the number of shares of Common Stock then issuable upon conversion.
Shares of Preferred Stock will be entitled to cumulative quarterly dividends
in an amount equal to 6.5% per annum of the sum of liquidation preference
plus accrued but unpaid dividends for prior quarters. If dividends are not
paid in cash, the liquidation preference of the Preferred Stock increases by
any accrued and unpaid dividends.
The Preferred Stock has a redemption price of its then liquidation preference
per share, together with any accrued and unpaid dividends. Redemption of the
Preferred Stock is at our option in whole, but not in part, at any time on or
after July 30, 2004. After July 30, 2002, we have the right to redeem the
Preferred Stock in whole, but not in part, at the redemption price only if
the then current market price exceeds $27 per share.
The Preferred Shareholders have the right to convert each share of Preferred
Stock into the number of shares of Common Stock obtained by dividing the
redemption price plus any accrued and unpaid dividends on the conversion date
by the conversion price of $18 per share, subject to customary anti-dilution
adjustments. Upon a change in control, we are required to make an offer to
purchase for cash all shares of Preferred Stock at 101% of liquidation
preference plus accrued but unpaid dividends.
The amounts added to the liquidation preference during the five months ended
December 31, 1999 of the Preferred Stock were approximately $27.6 million or
$27.61 per share.
65
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Stockholders' Equity
Our authorized, issued and outstanding shares of common stock are as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Issued and Outstanding
At December 31,
----------------------------------
Authorized
Shares 1999 1998
-------------- ---------------- --------------
<S> <C> <C> <C>
Common stock, $0.01 par, net of 570
treasury shares............................................. 300,000 188,519 184,495
</TABLE>
Warrants to purchase common stock --
Warrants to purchase common shares at December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- -------------------
<S> <C> <C>
Number of shares...................................................... 347,827 647,827
Purchase price per share.............................................. $4.60 $4.60 - $5.25
Expiration dates...................................................... 2003 1999 - 2003
</TABLE>
11. 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", collectively
the "Plans") provide for the grant of non-qualified stock options, incentive
stock options, shares of restricted stock, shares of phantom stock and stock
bonuses. During 1999, the 1991 Plan was amended so that the maximum number of
shares that may be granted may not exceed 8.0% of the number of fully diluted
shares of common stock on the date of grant of an award. An additional
maximum number of shares of 500,000 and 2,000,000 common shares may be
granted under the 1993 Plan and the 1994 Plan, respectively. After taking
into account previously granted awards, awards covering approximately
7,649,575 shares of common stock were available under the Plans. The
Compensation Committee of the Board of Directors generally determines the
exercise price, term and other conditions applicable to each option granted.
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 our employee, 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 1,150,000 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.
66
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the status of our stock option plans at December 31, 1999, 1998
and 1997 and for the years then ended is presented in the table below and
narrative below:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ -------------------------------- --------------------------------
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....... 10,786,000 $ 12.97 8,831,266 $ 8.19 5,449,036 $ 6.10
Options granted............. 6,085,000 13.11 3,656,562 22.29 3,961,100 10.86
Options exercised........... (1,231,771) 7.97 (1,701,828) 8.50 (437,780) 6.04
Options terminated.......... (224,100) 16.88 -- -- (141,090) 9.10
Options outstanding, end ------------- --------------- ---------------
of period................. 15,415,129 13.37 10,786,000 12.97 8,831,266 8.19
============= =============== ===============
Options exercisable, end
of period................. 6,628,574 12.52 6,220,735 11.02 3,498,598 6.67
</TABLE>
We account for our stock-based compensation plans under APB 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 our Common Stock upon the
date of grant. 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,
-------------------------------------------------------------
1999 1998 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Risk free interest rate............................. 5.2% to 6.3% 4.7% to 5.6% 5.8% to 7.6%
Expected life....................................... 5 years 5 years 5 years
Dividend rate....................................... 0% 0% 0%
Expected volatility................................. 47% to 50% 44% to 46% 25% to 50%
</TABLE>
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 for 1997 includes the
impact of certain of our options whose vesting accelerated in 1997 due to a
change in control related to an equity financing transaction in connection
with the acquisition of the solid waste assets of Laidlaw, Inc. The pro forma
loss for 1998 includes the impact of certain ADSI options that vested in 1998
due to a change in control related to the acquisition of ADSI. The resulting
pro forma net income (loss), and pro forma net income (loss) per share is as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
-------------- ---------------- ---------------
<S> <C> <C> <C>
Net Income (loss): As reported $ (288,728) $ (223,052) $ 24,042
Pro forma (298,184) (229,928) 11,329
Net Income (loss) Per Share: As reported $ (1.54) $ (1.22) $ 0.14
Pro forma (1.59) (1.26) 0.07
</TABLE>
67
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables summarize information about stock options outstanding at
December 31, 1999 which are fully vested, partially vested and non-vested:
<TABLE>
<CAPTION>
Fully Vested:
Options Outstanding and Exercisable
---------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Range of Exercise Prices Number Outstanding Remaining Life Exercise Price
-------------------------------- ------------------- ----------------------- -----------------------
<S> <C> <C> <C>
$4.27 - $8.38 2,070,515 5 years $ 5.23
$8.50 - $12.25 1,413,399 7 years $ 9.71
$16.44 - $21.97 516,132 8 years $ 19.71
$22.84 - $27.27 933,139 1 year $ 26.12
Partially Vested:
Options Outstanding
---------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Range of Exercise Prices Number Outstanding Remaining Life Exercise Price
-------------------------------- -------------------- ------------------------ -----------------------
$4.49 - $10.00 2,244,144 8 years $ 9.80
$11.38 - $15.88 160,000 8 years $ 14.75
$18.94 - $21.19 2,207,800 9 years $ 21.06
Options Exercisable
---------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Range of Exercise Prices Number Outstanding Remaining Life Exercise Price
-------------------------------- -------------------- ------------------------ -----------------------
$4.49 - S10.00 989,455 8 years $ 9.60
$11.38 - $15.88 74,667 8 years $ 14.27
$18.94 - $21.19 631,267 9 years $ 21.06
Non Vested:
Options Outstanding
---------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Range of Exercise Prices Number Outstanding Remaining Life Exercise Price
-------------------------------- -------------------- ------------------------ -----------------------
$4.27 - $7.31 801,067 10 years $ 7.16
$9.50 - $13.31 3,833,300 10 years $ 13.24
$15.00 - $21.19 1,235,633 12 years $ 20.01
</TABLE>
68
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. 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,
---------------------------------------------------
1999 1998 1997
---------------- -------------- ------------
<S> <C> <C> <C>
Basic earnings per share computation:
Income (loss) before extraordinary losses and cumulative
effect of change in accounting principle...................... $ (221,250) $ (98,251) $ 77,247
Less: preferred stock dividends................................. 27,789 -- 381
--------------- --------------- -----------
Income (loss) available to common shareholders before
extraordinary losses and cumulative effect of change in
accounting principle available to common shareholders......... $ (249,039) $ (98,251) $ 76,866
=============== ============== ============
Weighted average common shares outstanding...................... 187,801 182,796 164,888
=============== ============== ============
Basic earnings per share before extraordinary losses and
cumulative effect of change in accounting principle........... $ (1.33) $ (0.54) $ 0.47
================ ============== ============
Diluted earnings per share computation:
Income (loss) before extraordinary losses and cumulative
effect of change in accounting principle...................... $ (221,250) $ (98,251) $ 77,247
Preferred dividends............................................. 27,789 -- 381
---------------- -------------- ------------
Income (loss) available to common shareholders before
extraordinary losses and cumulative effect of change in
accounting principle available to common shareholders......... $ (249,039) $ (98,251) $ 76,866
================ ============== ============
Weighted average common shares outstanding...................... 187,801 182,796 164,888
Effect of stock options and warrants, assumed
exercisable................................................... -- -- 6,657
Effect of shares assumed pursuant to hold-back
arrangements.................................................. -- -- 1,413
---------------- -------------- ------------
Weighted average common and common equivalent
shares outstanding............................................ 187,801 182,796 172,958
================ ============== ============
Diluted earnings per share before extraordinary losses and
cumulative effect of change in accounting principle........... $ (1.33) $ (0.54) $ 0.44
================ ============== ============
</TABLE>
Conversion has not been assumed for the Series A Senior Convertible Preferred
Stock in 1999 into 57,099,364 common shares, as the effects would not be
dilutive. Conversion has not been assumed for 7% preferred stock and
convertible notes in 1997, as the effects would not be dilutive.
69
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Income Taxes
We account 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. We file a consolidated federal
tax return that will include BFI after July 30, 1999.
The acquisition of BFI, which was accounted for as a purchase business
combination, resulted in approximately $6.7 billion of goodwill, $6.5 billion
of which is not amortizable for income tax purposes. The impact of the
non-deductible amortization during 1999 is reflected in the reconciliation of
the federal statutory tax rate to the effective tax rate. The tax accounts
established at July 30, 1999, relating to BFI purchase accounting include
approximately $100 million of net operating losses, which will result in a
$35 million refund of prior period tax payments, and $768 million of capital
loss carryforward. As of December 31, 1999, approximately $400 million of BFI
capital loss carryforward remains unused that will expire if not used by the
end of 2003. We believe that anticipated divestitures relating to the BFI
acquisition will generate sufficient capital gains to offset most of the
capital loss carryforward and we have established a $49 million valuation
allowance against the deferred tax asset for the amount of the carryforward
which may not offset capital gains. As of December 31, 1999 approximately
$1.9 billion of BFI state net operating loss carryforwards remain unused that
will expire at various times between 2000 and 2019 if not used. We have
established a $78 million valuation allowance for the possibility that some
of these state carryforwards may not be used.
In addition to the BFI carryforwards, we have state net operating losses of
approximately $289 million as of December 31, 1999, which will expire at
various times between 2000 and 2019 if not used. We also have federal minimum
tax credit carryforwards of approximately $15.6 million as of December 31,
1999, which are not subject to expiration. The net current deferred tax asset
includes the current benefit we expect to receive from the use of our net
operating loss, capital loss and minimum tax credit carryforwards.
The balance sheet classification and amount of the tax accounts established
relating to BFI are based on certain assumptions that could possibly change
based on the ultimate outcome of certain tax matters. As these tax accounts
were established in purchase accounting, any future changes relating to these
amounts will result in balance sheet reclassifications, which may include an
adjustment to the goodwill relating to BFI. The increase in total valuation
allowance during the year of $136 million is principally due to the BFI
acquisition. Subsequent recognition of tax benefits would result in an
adjustment to goodwill in an amount up to $127 million. In addition to the
valuation allowance relating to the BFI capital loss and state net operating
loss carryforward, the net deferred tax asset includes a valuation allowance
of $12 million and $3 million as of December 31, 1999 and 1998, respectively,
to reflect possible limitations on our ability to use other state net
operating loss carryforwards.
70
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The components of the income tax provision (benefit) consist of the following
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
---------------- --------------- ------------
<S> <C> <C> <C>
Current tax provision......................................... $ 65,300 $ 2,000 $ 78,418
Deferred provision (benefit).................................. (74,056) 41,773 (38,141)
---------------- --------------- ------------
Total......................................................... $ (8,756) $ 43,773 $ 40,277
================ =============== ============
</TABLE>
The reconciliation of the federal statutory tax rate to our effective tax
rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Federal statutory tax rate.................................... (35.0) % (35.0) % 35.0 %
Consolidated state taxes, net of federal benefit.............. (0.4) 9.2 3.1
Taxes of pooled companies..................................... (0.1) 70.6 (5.1)
Amortization of goodwill...................................... 11.2 3.7 0.6
Non-deductible write-off of goodwill and business
combination costs........................................... 16.2 28.8 --
Other permanent differences................................... 4.2 3.0 0.7
---------- ---------- ----------
Effective tax rate............................................ (3.9) % 80.3 % 34.3 %
========== =========== ==========
</TABLE>
Tax benefits for the extraordinary items in 1999, 1998 and 1997 were based on
our then ordinary combined federal and state rates of 39.5%, 39.5% and 40%,
respectively. Tax benefit for the cumulative effect of change in accounting
principle in 1999 was based on our ordinary combined federal and state rate
of 39.5%.
The components of the net deferred tax asset (liability) are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Deferred tax liability relating primarily to property consisting
of landfill assets, fixed assets and debt basis differences.......... $ (608,894) $ (120,942)
------------------- -------------------
Deferred Tax Assets Relating To:
Environmental, closure and post-closure reserves....................... 61,982 23,995
Other reserves......................................................... 317,769 120,293
Net operating loss, capital loss and minimum tax credit
carryforwards........................................................ 278,232 35,940
Valuation allowance.................................................... (138,612) (3,076)
------------------- -------------------
Total deferred tax asset............................................... 519,371 177,152
------------------- -------------------
Net deferred tax asset (liability)..................................... $ (89,523) $ 56,210
=================== ===================
</TABLE>
The change in the non-current deferred tax liability includes deferred taxes
related to 1999 acquisitions, the most significant of which was BFI, where
the financial basis of assets acquired differed from the tax basis of those
assets.
Deferred income taxes have not been provided as of December 31, 1999, on
approximately $21 million of undistributed earnings of foreign affiliates
which are considered to be permanently reinvested.
71
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Commitments and Contingencies
We are subject to extensive and evolving laws and regulations and have
implemented our own environmental safeguards to respond to regulatory
requirements. In the normal course of conducting our operations, we may
become involved in certain legal and administrative proceedings. Some of
these actions may result in fines, penalties or judgments against us, which
may have an impact on earnings for a particular period. We accrue for
litigation and regulatory compliance contingencies when such costs are
probable and reasonably estimable. We expect that matters in process at
December 31, 1999, which have not been accrued in the consolidated balance
sheet, will not have a material adverse effect on our consolidated liquidity,
financial position or results from operations.
In connection with certain acquisitions, we have 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.
We have 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, 1999
-------------------------
2000 $ 32,749
2001 29,266
2002 26,831
2003 24,364
2004 19,263
Thereafter 58,904
Rental expense under such operating leases was approximately $26.9 million,
$13.9 million and $12.2 million for the three years ended December 31, 1999,
respectively.
We have entered into employment agreements with certain of our executive
officers for periods up to three years. We have agreed to pay severance
amounts equal to a multiple of defined compensation under certain
circumstances. In the event of a material change in control, as defined in
the employment agreements, or termination of all executive officers under
such agreements, we would be required to make payments of approximately $12.3
million, in addition to a reimbursement payment to eliminate the effect of
any excise taxes associated with this payment.
As a condition of the merger agreement among Allied and BFI, we are required
to provide severance benefits to certain employees of BFI who do not have
employment agreements and who would not otherwise receive severance pay upon
termination, if terminated within 12 months following the date of
acquisition.
We carry a broad range of insurance coverage for protection of our assets and
operations from certain risks including environmental impairment liability
insurance for certain landfills.
We are also required to provide financial assurances to governmental agencies
under applicable environmental regulations relating to our landfill
operations and collection contracts. These financial assurance requirements
are satisfied by us issuing performance bonds, letters of credit, insurance
policies or trust deposits to secure our obligations as they relate to
landfill closure and post-closure costs and performance under certain
collection contracts. At December 31, 1999, we had outstanding approximately
$1.5 billion in financial assurance instruments, represented by $701.7
million of performance bonds, $656.6 million of insurance policies, $52.1
million of trust deposits and $105.8 million of letters of credit. During
calendar year 2000, we expect no material increase in financial assurance
obligations relating to our landfill operations and collection contracts.
72
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We have issued bank letters of credit in the aggregate amount of
approximately $539.2 million at December 31, 1999, including approximately
$105.8 million relating to financial assurances to government agencies. These
financial instruments are issued in the normal course of business and are not
reflected in the accompanying balance sheets. The underlying obligations of
the financial instruments are valued based on the likelihood of performance
being required. We do not expect any material losses to result from these off
balance sheet instruments based on historical results, and therefore, we are
of the opinion that the fair value of these instruments is zero.
Certain of our subsidiaries have 50% ownership interests in American Ref-Fuel
partnerships that construct, own and operate facilities which generate and
sell electricity from the incineration of solid waste. Substantially all of
the remaining ownership interests are held by Duke/UAE Ref-Fuel LLC, an
entity indirectly owned 65% by Duke Capital Corporation ("Duke Capital") and
35% by United American Energy Corporation. The five facilities currently in
commercial operation under this ownership structure are located in Hempstead,
New York, Essex County in New Jersey, Preston, Connecticut, Niagara Falls,
New York and Rochester, Massachusetts. Financing arrangements for four of
these projects include agreements with Allied and Duke Capital to each
severally fund one-half of each partnership's cash deficiencies resulting
from the partnership's failure to perform.
With respect to the facilities located in Hempstead, New York, Essex County
in New Jersey and Preston, Connecticut, Allied and Duke Capital generally
will not be required to fund cash deficiencies associated with waste
deliveries by the sponsoring municipality below certain minimum levels,
changes in law or termination of incineration service for reasons other than
default by the respective partnership. In the event of a partnership default
which results in termination of incineration service, we may limit our
financial obligations by partnership as follows:
Hempstead, New York -- Funding of 50% of periodic payments related to
outstanding debt. Average annual debt service on 50% of the debt over the
next five years is $12 million. We have guaranteed $15 million of
additional partnership debt and annual debt service on such debt is
estimated to be $0.5 million.
Essex County in New Jersey -- Funding of 50% of cash deficiencies
including debt service up to $50 to $100 million, depending upon the
circumstances. Average annual debt service on 50% of the debt over the
next five years is $10 million.
Preston, Connecticut -- Funding of 50% of periodic payments related to
outstanding debt. Average annual debt service on 50% of the debt over the
next five years is $5 million.
With respect to the facilities located in Niagara Falls, New York and
Rochester, Massachusetts, we may limit our financial obligations by
partnership as follows:
Niagara Falls, New York -- Funding of 50% of partnership cash deficiencies
relating to debt service. Average annual debt service on 50% of the debt
over the next five years is estimated to be $3 million.
SEMASS in Rochester, Massachusetts -- Under support agreements and
guarantees (i) lending up to 50% of $5 million to the SEMASS Partnership
under certain circumstances, (ii) deferring up to 50% of $7 million of
operating cost reimbursement, and (iii) funding up to 50% of $5 million in
operating damages. These obligations have been assigned to the lenders.
Average annual debt service on 50% of the debt over the next five years is
approximately $20 million.
73
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Related Party Transactions
Transactions with related parties are entered into only upon approval by a
majority of our independent directors 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, we were
obligated to pay $5.6 million to the previous owners of the real estate,
which included certain of our then current stockholders. During the years
ended December 31, 1998 and 1997, we paid principal of $1.7 million and
$136,000, respectively, to our stockholders related to the receipt of
permits. We fully repaid these promissory notes in 1998.
In 1998, we sold certain assets to a relative of an officer for approximately
$1.5 million. No gain or loss was recognized on this transaction.
16. Segment Reporting
We classify our operations into eight U.S. geographic regions: Atlantic,
Central, Northeast, Southeast, Great Lakes, Midwest, Southwest and West. Our
revenues are derived from one industry segment, which includes the
collection, transfer, recycling and disposal of non-hazardous solid waste. We
evaluate performance based on several factors, of which the primary financial
measure is EBITDA before acquisition related and unusual costs. 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 our
operations (in thousands):
<TABLE>
<CAPTION>
Great
Atlantic Central Lakes Midwest Northeast Southeast Southwest West Other(1) Total
--------- ------- ------- ------- --------- --------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999:
Revenues from external
customers.......... $ 313,656 $ 405,557 $ 437,978 $ 323,984 $ 516,517 $ 308,742 $ 400,557 $616,799 $ 17,281 $3,341,071
Intersegment revenues 56,841 94,918 119,244 72,353 94,704 49,315 79,606 104,529 -- 671,510
Depreciation and
amortization....... 38,322 43,960 64,549 45,131 47,784 35,020 58,385 50,943 -- 384,094
EBITDA before non-
recurring charges.. 105,563 124,251 182,995 139,132 124,179 101,610 159,094 212,204 11,713 1,160,741
Total assets......... 1,467,231 1,005,625 1,801,617 1,464,808 2,233,476 1,670,626 1,928,064 2,065,265 11,904,199 25,540,911
Capital expenditures. 49,363 57,931 64,966 40,381 20,821 16,784 27,593 54,699 6,654 339,192
1998:
Revenues from external
Customers.......... $ 104,587 $ 300,183 $ 296,894 $ 159,344 $ 164,701 $ 57,274 $ 148,768 $338,058 $ 5,803 $1,575,612
Intersegment revenues 14,728 56,522 68,675 37,524 21,314 12,743 35,626 34,289 -- 281,421
Depreciation and
amortization....... 11,858 29,566 41,794 22,533 13,006 5,829 20,111 28,397 6,871 179,965
EBITDA before non-
Recurring charges.. 31,348 89,360 132,002 67,561 33,580 14,337 58,026 116,661 (15,371) 527,504
Total assets......... 198,064 547,108 747,767 445,185 439,215 98,729 376,442 595,290 2,108,367 5,556,167
Capital expenditures. 48,752 42,416 67,987 31,023 8,064 10,302 35,142 54,149 3,907 301,742
1997:
Revenues from external
customers.......... $ 80,484 $ 238,831 $ 205,701 $ 132,973 $ 185,107 $ 47,320 $ 148,544 $275,721 $ 25,980 $1,340,661
Intersegment revenues 2,987 28,263 34,120 30,996 20,938 12,765 28,576 17,579 -- 176,224
Depreciation and
amortization....... 6,152 25,203 29,384 20,607 16,296 5,345 20,923 23,088 11,240 158,238
EBITDA before non-
recurring charges.. 19,104 59,134 78,864 58,988 39,050 12,345 56,642 62,000 (151) 385,976
Total assets......... 126,974 668,175 590,671 353,235 214,507 81,606 384,467 553,735 1,108,428 4,081,798
Capital expenditures. 21,263 21,830 57,650 20,710 9,974 10,362 19,157 23,151 3,908 188,005
<FN>
(1) Amounts relate primarily to our subsidiaries which provide services
throughout the organization and not on a regional basis.
</FN>
</TABLE>
74
<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 (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1999 1998 1997
---------------- --------------- ------------
<S> <C> <C> <C>
Operating Income:
Total EBITDA before acquisition related and unusual costs
for reportable segments..................................... $ 1,160,741 $ 527,504 $ 385,976
Depreciation and amortization for reportable
segments.................................................... 384,094 179,965 158,238
Acquisition related and unusual costs......................... 588,855 317,616 3,934
---------------- --------------- ------------
Operating Income............................................ $ 187,792 $ 29,923 $ 223,804
================ =============== ============
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Assets:
Total assets for reportable segments........................................... $ 25,540,911 $ 5,556,167
Elimination of investments..................................................... (10,577,810) (1,803,575)
---------------- ---------------
Total assets................................................................. $ 14,963,101 $ 3,752,592
================ ===============
</TABLE>
<TABLE>
<CAPTION>
Percentage of our total revenue attributable to services provided:
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Collection.................................................. 60.7 % 55.7 % 57.2 %
Transfer.................................................... 5.6 7.1 6.7
Landfill(1)................................................. 25.3 29.9 26.4
Other....................................................... 8.4 7.3 9.7
------------ ------------ ------------
Total revenues............................................ 100.0 % 100.0 % 100.0 %
============ ============ ============
<FN>
(1) The portion of collection and third-party transfer revenues attributable
to disposal charges for waste collected by us and disposed at our
landfills have been excluded from collection and transfer revenues and
included in landfill revenues.
</FN>
</TABLE>
75
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
17. Selected Quarterly Financial Data (unaudited)
The following table summarizes the unaudited consolidated quarterly results
of operations as reported for 1999 and as reported and as restated for
poolings-of-interests for 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter(2) Quarter
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
1999
Operating revenues:........................... $ 408,045 $ 463,357 $ 1,085,628 $ 1,384,041
Gross profit:................................. 178,031 206,345 449,937 557,794
Income (loss) before income taxes,
extraordinary items and cumulative effect
of change in accounting principle:(1)....... 56,237 79,277 (432,710) 69,941
Net income (loss): (1)........................ (31,081) 46,894 (335,553) 31,012
Basic earnings (loss) per common
share:(1)................................... (0.17) 0.25 (1.84) 0.08
Diluted earnings (loss) per common
share:(1)................................... (0.17) 0.25 (1.84) 0.08
<FN>
(1) The first and second quarters have been restated to reflect the effect of the change in accounting principle
(See Note 1).
(2) Includes approximately $548.7 million of acquisition related and unusual costs.
</FN>
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
1998
Operating Revenues:
As reported................................. $ 223,755 $ 299,692 $ 334,290 $ 407,119
As restated................................. 357,900 394,853 415,740 407,119
Gross profit:
As reported................................. 104,504 135,096 147,379 178,686
As restated................................. 152,084 171,998 180,571 178,686
Income (loss) before income taxes and extraordinary
items:
As reported................................. 28,387 8,565 28,245 (165,457)
As restated................................. 46,292 22,690 41,997 (165,457)
Net income (loss):
As reported................................. 16,749 (9,501) 11,123 (274,817)
As restated................................. 31,565 1,589 18,611 (274,817)
Basic earnings (loss) per common share:
As reported................................. 0.16 (0.08) 0.08 (1.50)
As restated................................. 0.17 0.01 0.10 (1.50)
Diluted earnings (loss) per common share:
As reported................................. 0.16 (0.07) 0.08 (1.50)
As restated................................. 0.17 0.01 0.10 (1.50)
</TABLE>
76
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
18. Summarized Financial Data of Allied Waste North America, Inc.
As discussed in Note 6, the 1998 Senior Notes and the 1999 Notes issued by
Allied NA (our wholly owned subsidiary) and certain debt of BFI (all of which
is no longer registered under the Securities Exchange Act of 1934) are
guaranteed by us. Our guarantee is full, unconditional and joint and several
of Allied NA's and BFI's debt. The separate complete financial statements
of Allied NA and BFI have not been included herein as we have determined
that such disclosure is not considered to be material. However, summarized
balance sheet data for Allied NA and subsidiaries as of December 31, 1999 and
1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Summarized Consolidated Balance Sheet Data
December 31, 1999 December 31, 1998
------------------------ -------------------------
<S> <C> <C>
Current assets............................................... $ 2,248,422 $ 499,904
Property and equipment, net.................................. 3,738,388 1,776,025
Goodwill, net................................................ 8,238,929 1,327,470
Other non-current assets..................................... 737,362 149,193
Current liabilities.......................................... 2,629,499 445,528
Long-term debt, net of current portion....................... 9,240,291 2,118,927
Due to parent................................................ 2,091,951 1,083,515
Other long-term obligations.................................. 1,453,756 268,407
Retained earnings (deficit).................................. (452,396) (163,785)
</TABLE>
<TABLE>
<CAPTION>
Summarized Statement of Operations Data
Year Ended December 31,
-----------------------------------------------------
1999 1998
----------------------- -------------------------
<S> <C> <C>
Revenue...................................................... $ 3,341,071 $ 1,575,612
Operating costs and expenses................................. 3,153,279 1,545,689
Operating income............................................. 187,792 29,923
Net loss before extraordinary loss and cumulative effect of
change in accounting principle............................... (221,250) (80,338)
Extraordinary loss, net...................................... 3,223 72,202
Cumulative effect of change in accounting principle, net..... 64,255 --
Net loss..................................................... (288,728) (152,540)
</TABLE>
19. Subsequent Events
On January 18, 2000, we repurchased the $250 million 6.08% MVPs when First
National Bank of Chicago did not exercise its option to purchase the
securities. The proceeds to repurchase the MVPs were obtained from a draw on
our revolving credit facility.
77
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this item is incorporated by reference to the
material appearing under the heading "Election of Directors" in the Proxy
Statement for the 2000 Annual Meeting of Stockholders.
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 2000 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
PRINCIPAL STOCKHOLDERS
Information required by this item is incorporated by reference to the
material appearing under the heading "Other Information - Principal
Stockholders" in the Proxy Statement for the 2000 Annual Meeting of
Stockholders.
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 2000 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
<TABLE>
<CAPTION>
Balance at Charges to Other Write-offs/ Balance at
12/31/96 Expense Charges(1) Payments 12/31/97
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ 8,391 $ 4,228 $ 1,624 $ (4,895) $ 9,348
Restructuring costs..................... 5,381 -- -- (5,381) --
Balance at Charges to Other Write-offs/ Balance at
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
</TABLE>
<TABLE>
<CAPTION>
Additions
Balance at Charges to through Other Write-offs/ Balance at
12/31/98 Expense Goodwill Charges(1) Payments 12/31/99
------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts... $ 13,907 $ 10,305 $ -- $ 51,341 $ (16,063) $ 59,490
Severance and termination costs... 10,126 499 52,254 -- (31,456) 31,423
Restructuring costs............... 7,630 565 1,426 -- (7,117) 2,504
<FN>
(1) Amounts consist primarily of liabilities related to acquired companies.
</FN>
</TABLE>
Valuation and qualifying accounts not included above have been shown in Notes
1 and 7 of our financial statements included in Part II Item 8 of this Form
10-K.
78
<PAGE>
Exhibit No. Description
- ----------- -------------
2.1 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 Allied's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 is
incorporated herein by reference.
2.2 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 Allied's Current Report
on Form 8-K filed August 21, 1998 is incorporated herein by reference.
2.3 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 Allied's Current Report
on Form 8-K filed March 16, 1999 is incorporated herein by reference.
3.1 Amended Certificate of Incorporation of Allied (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 Allied as of July 30, 1999.
3.3 Amendment to Amended Certificate of Incorporation of Allied 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 Allied's Registration Statement on Form S-1 (No.
33-48507) is incorporated herein by reference.
4.2 Indenture relating to the 1996 Notes dated February 28, 1997 between
Allied and First Trust. Exhibit 4.1 to Allied's Registration Statement
on Form S-4 (No. 333-22575) is incorporated herein by reference.
4.3 1991 Incentive Stock Plan of Allied. Exhibit 10.T to Allied's Form 10
dated May 14, 1991, is incorporated herein by reference.
4.4 1991 Non-Employee Director Stock Plan of Allied. Exhibit 10.U to
Allied's Form 10 dated May 14, 1991, is incorporated herein by
reference.
4.5 1993 Incentive Stock Plan of Allied. Exhibit 10.3 to Allied's
Registration Statement on Form S-1 (No. 33-73110) is incorporated
herein by reference.
4.6 1994 Amended and Restated Non-Employee Director Stock Option Plan of
Allied. Exhibit B to Allied's Definitive Proxy Statement in accordance
with Schedule 14A dated April 28, 1994, is incorporated herein by
reference.
4.7 Amendment to the 1994 Amended and Restated Non-Employee Director Stock
Option Plan. Exhibit 10.2 to Allied's Quarterly Report on Form 10-Q
dated August 10, 1995, is incorporated herein by reference.
4.8 Amended and Restated 1994 Incentive Stock Plan. Exhibit 10.1 to
Allied's Quarterly Report on Form 10-Q dated May 31, 1996, is
incorporated herein by reference.
4.9 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 Allied's Registration
Statement on Form S-4 (No. 333-31231) is incorporated herein by
reference.
4.10 Indenture, dated as of December 1, 1996, by and among Allied, the
Guarantors and First Bank National Association with respect to the
1996 Notes and Exchange Notes. Exhibit 4.1 to Allied's Registration
Statement on Form S-4 (No. 333-22575) is incorporated herein by
reference.
4.11 First Supplemental Indenture dated December 30, 1996 related to the
1996 Notes. Exhibit 4.2 to Allied's Registration Statement on Form S-4
(No. 333-22575) is incorporated herein by reference.
4.12 Second Supplemental Indenture dated April 30, 1997 related to the 1996
Notes. Exhibit 4.3 to Allied's Registration Statement on Form S-4 (No.
333-22575) is incorporated herein by reference.
79
<PAGE>
4.13 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.
4.14 Amendment No. 1 to the 1991 Incentive Stock Plan dated November 1,
1996. Exhibit 4.20 to Allied's Annual Report on Form 10-K dated March
31, 1998 is incorporated herein by reference.
4.15 Indenture relating to the 1998 Senior Notes, dated as of December 23,
1998, by and among Allied and U.S. Bank Trust National Association, as
Trustee, with respect to the 1998 Senior Notes and Exchange Notes.
Exhibit 4.1 to Allied's Registration Statement on Form S-4 (No.
333-70709) is incorporated herein by reference.
4.16 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 Allied's Registration Statement on Form
S-4 (No. 333-70709) is incorporated herein by reference.
4.17 Form of Series B Five Year Notes (included in Exhibit 4.22). Exhibit
4.3 to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.18 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 Allied's Registration Statement on Form
S-4 (No. 333-70709) is incorporated herein by reference.
4.19 Form of Series B Seven Year Notes (included in Exhibit 4.24). Exhibit
4.5 to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.20 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 Allied's Registration Statement on Form
S-4 (No. 333-70709) is incorporated herein by reference.
4.21 Form of Series B Ten Year Notes (included in Exhibit 4.26). Exhibit
4.7 to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.22 Certificate of Designation for Series A Senior Convertible Preferred
Stock. Exhibit 4.1 to Allied's current report on Form 8-K dated August
10, 1999, is incorporated herein by reference.
4.23 Certificate of Designation for Series B Junior Preferred Stock.
Exhibit 4.2 to Allied's current report on Form 8-K dated August 10,
1999, is incorporated herein by reference.
4.24 First Supplemental Indenture, dated July 30, 1999 among Allied,
certain subsidiaries of Allied and U.S. Bank Trust, N.A., as trustee,
regarding 10% Senior Subordinated Notes due 2009 of Allied Waste North
America, Inc. Exhibit 4.3 to Allied's current report on Form 8-K dated
August 10, 1999, is incorporated herein by reference.
10.1 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,
Inc. Exhibit 10.1 to Allied's Report on Form 10-Q for the quarter
ended March 31, 1997 is incorporated herein by reference.
10.2 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 Allied's Report on Form 10-Q for the quarter
ended March 31, 1997 is incorporated herein by reference.
10.3 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 Allied's Report on Form
10-Q for the quarter ended March 31, 1997 is incorporated herein by
reference.
80
<PAGE>
10.4 Registration Rights Agreement dated as of April 12, 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 Allied's Report on
Form 10-Q for the quarter ended March 31, 1997 is incorporated herein
by reference.
10.5 * Executive Employment Agreement between Allied and with Henry L.
Hirvela dated February 23, 2000.
10.6 Executive Employment Agreement between Allied and with Thomas H. Van
Weelden dated January 1, 1999. Exhibit 10.9 to Allied's Report on Form
10-Q for the quarter ended March 31, 1999 is incorporated herein by
reference.
10.7 Executive Employment Agreement between Allied and with Larry D. Henk
dated June 6, 1997. Exhibit 10.4 to Allied's Report on Form 10-Q for
the quarter ended June 30, 1997 is incorporated herein by reference.
10.8 Executive Employment Agreement between Allied and with Steven M. Helm
dated June 6, 1997. Exhibit 10.5 to Allied's Report on Form 10-Q for
the quarter ended June 30, 1997 is incorporated herein by reference.
10.9 Executive Employment Agreement between Allied and with Donald W.
Slager dated January 1, 1999. Exhibit 10.12 to Allied's Report on Form
10-Q for the quarter ended March 31, 1999 is incorporated herein by
reference.
10.10 Executive Employment Agreement between Allied and with Peter S.
Hathaway dated June 6, 1997. Exhibit 10.14 to Allied's Report on Form
10-K for the year ended December 31, 1997 is incorporated herein by
reference.
10.11 Executive Employment Agreement between Allied and with Michael G.
Hannon dated June 6, 1997. Exhibit 10.15 to Allied's Report on Form
10-K for the year ended December 31, 1997 is incorporated herein by
reference.
10.12 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 Allied's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 is
incorporated herein by reference.
10.13 Registration Rights Agreement, dated as of July 30, 1999, by and
among Allied, the Guarantors and the initial purchasers, relating to
the $2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit
10.3 to Allied's Current Report on Form 8-K dated August 10, 1999 is
incorporated herein by reference.
10.14 Purchase Agreement dated July 27, 1999, by and among Allied, the
Guarantors and the initial purchasers, with respect to the
$2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit 10.4 to
Allied's Current Report on Form 8-K dated August 10, 1999 is
incorporated herein by reference.
10.15 Credit Facility dated as of July 30, 1999. Exhibit 10.1 to Allied's
current report on Form 8-K dated August 10, 1999, is incorporated
herein by reference.
10.16 Second Amended and Restated Shareholders Agreement, dated as of July
30, 1999, between Allied and the purchasers of the Series A Senior
Convertible Preferred Stock and related parties. Exhibit 10.2 to
Allied's current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.
10.17 Amended and Restated Registration Rights Agreement dated as of July
30, 1999, between Allied and the purchasers of the Series A Senior
Convertible Preferred Stock and related parties. Exhibit 10.3 to
Allied's current report on Form 8-K dated August 10, 1999, 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 * Financial Data Schedule for the year ended December 31, 1999.
* Filed herewith
Reports on Form 8-K during the Quarter Ended December 31, 1999
November 22, 1999 Our Current Report on Form 8-K reports the pro forma
financial statements related to the BFI acquisition.
81
<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 March 30, 2000.
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, the
following persons in the capacities indicated on March 30, 2000 have signed
this report.
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
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
/s/ROGER A. RAMSEY Director
- ----------------------------------
Roger A. Ramsey
/s/ANTONY P. RESSLER Director
- ----------------------------------
Antony P. Ressler
/s/WARREN B. RUDMAN Director
- ----------------------------------
Warren B. Rudman
Director
- ----------------------------------
Vincent Tese
/s/DAVID BLITZER Director
- ----------------------------------
David Blitzer
82
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- --------------
2.1 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 Allied's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 is
incorporated herein by reference.
2.2 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 Allied's Current Report
on Form 8-K filed August 21, 1998 is incorporated herein by reference.
2.3 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 Allied's Current Report
on Form 8-K filed March 16, 1999 is incorporated herein by reference.
3.1 Amended Certificate of Incorporation of Allied (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 Allied as of July 30, 1999.
3.3 Amendment to Amended Certificate of Incorporation of Allied 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 Allied's Registration Statement on Form S-1 (No.
33-48507) is incorporated herein by reference.
4.2 Indenture relating to the 1996 Notes dated February 28, 1997 between
Allied and First Trust. Exhibit 4.1 to Allied's Registration Statement
on Form S-4 (No. 333-22575) is incorporated herein by reference.
4.3 1991 Incentive Stock Plan of Allied. Exhibit 10.T to Allied's Form 10
dated May 14, 1991, is incorporated herein by reference.
4.4 1991 Non-Employee Director Stock Plan of Allied. Exhibit 10.U to
Allied's Form 10 dated May 14, 1991, is incorporated herein by
reference.
4.5 1993 Incentive Stock Plan of Allied. Exhibit 10.3 to Allied's
Registration Statement on Form S-1 (No. 33-73110) is incorporated
herein by reference.
4.6 1994 Amended and Restated Non-Employee Director Stock Option Plan of
Allied. Exhibit B to Allied's Definitive Proxy Statement in accordance
with Schedule 14A dated April 28, 1994, is incorporated herein by
reference.
4.7 Amendment to the 1994 Amended and Restated Non-Employee Director Stock
Option Plan. Exhibit 10.2 to Allied's Quarterly Report on Form 10-Q
dated August 10, 1995, is incorporated herein by reference.
4.8 Amended and Restated 1994 Incentive Stock Plan. Exhibit 10.1 to
Allied's Quarterly Report on Form 10-Q dated May 31, 1996, is
incorporated herein by reference.
4.9 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 Allied's Registration
Statement on Form S-4 (No. 333-31231) is incorporated herein by
reference.
4.10 Indenture, dated as of December 1, 1996, by and among Allied, the
Guarantors and First Bank National Association with respect to the
1996 Notes and Exchange Notes. Exhibit 4.1 to Allied's Registration
Statement on Form S-4 (No. 333-22575) is incorporated herein by
reference.
4.11 First Supplemental Indenture dated December 30, 1996 related to the
1996 Notes. Exhibit 4.2 to Allied's Registration Statement on Form S-4
(No. 333-22575) is incorporated herein by reference.
<PAGE>
4.12 Second Supplemental Indenture dated April 30, 1997 related to the 1996
Notes. Exhibit 4.3 to Allied's Registration Statement on Form S-4 (No.
333-22575) is incorporated herein by reference.
4.13 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.
4.14 Amendment No. 1 to the 1991 Incentive Stock Plan dated November 1,
1996. Exhibit 4.20 to Allied's Annual Report on Form 10-K dated March
31, 1998 is incorporated herein by reference.
4.15 Indenture relating to the 1998 Senior Notes, dated as of December 23,
1998, by and among Allied and U.S. Bank Trust National Association, as
Trustee, with respect to the 1998 Senior Notes and Exchange Notes.
Exhibit 4.1 to Allied's Registration Statement on Form S-4 (No.
333-70709) is incorporated herein by reference.
4.16 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 Allied's Registration Statement on Form
S-4 (No. 333-70709) is incorporated herein by reference.
4.17 Form of Series B Five Year Notes (included in Exhibit 4.22). Exhibit
4.3 to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.18 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 Allied's Registration Statement on Form
S-4 (No. 333-70709) is incorporated herein by reference.
4.19 Form of Series B Seven Year Notes (included in Exhibit 4.24). Exhibit
4.5 to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.20 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 Allied's Registration Statement on Form
S-4 (No. 333-70709) is incorporated herein by reference.
4.21 Form of Series B Ten Year Notes (included in Exhibit 4.26). Exhibit
4.7 to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.22 Certificate of Designation for Series A Senior Convertible Preferred
Stock. Exhibit 4.1 to Allied's current report on Form 8-K dated August
10, 1999, is incorporated herein by reference.
4.23 Certificate of Designation for Series B Junior Preferred Stock.
Exhibit 4.2 to Allied's current report on Form 8-K dated August 10,
1999, is incorporated herein by reference.
4.24 First Supplemental Indenture, dated July 30, 1999 among Allied,
certain subsidiaries of Allied and U.S. Bank Trust, N.A., as trustee,
regarding 10% Senior Subordinated Notes due 2009 of Allied Waste North
America, Inc. Exhibit 4.3 to Allied's current report on Form 8-K dated
August 10, 1999, is incorporated herein by reference.
10.1 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,
Inc. Exhibit 10.1 to Allied's Report on Form 10-Q for the quarter
ended March 31, 1997 is incorporated herein by reference.
10.2 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 Allied's Report on Form 10-Q for the quarter
ended March 31, 1997 is incorporated herein by reference.
10.3 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 Allied's Report on Form
10-Q for the quarter ended March 31, 1997 is incorporated herein by
reference.
<PAGE>
10.4 Registration Rights Agreement dated as of April 12, 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 Allied's Report on
Form 10-Q for the quarter ended March 31, 1997 is incorporated herein
by reference.
10.5 * Executive Employment Agreement between Allied and with Henry L.
Hirvela dated February 23, 2000.
10.6 Executive Employment Agreement between Allied and with Thomas H. Van
Weelden dated January 1, 1999. Exhibit 10.9 to Allied's Report on Form
10-Q for the quarter ended March 31, 1999 is incorporated herein by
reference.
10.7 Executive Employment Agreement between Allied and with Larry D. Henk
dated June 6, 1997. Exhibit 10.4 to Allied's Report on Form 10-Q for
the quarter ended June 30, 1997 is incorporated herein by reference.
10.8 Executive Employment Agreement between Allied and with Steven M. Helm
dated June 6, 1997. Exhibit 10.5 to Allied's Report on Form 10-Q for
the quarter ended June 30, 1997 is incorporated herein by reference.
10.9 Executive Employment Agreement between Allied and with Donald W.
Slager dated January 1, 1999. Exhibit 10.12 to Allied's Report on Form
10-Q for the quarter ended March 31, 1999 is incorporated herein by
reference.
10.10 Executive Employment Agreement between Allied and with Peter S.
Hathaway dated June 6, 1997. Exhibit 10.14 to Allied's Report on Form
10-K for the year ended December 31, 1997 is incorporated herein by
reference.
10.11 Executive Employment Agreement between Allied and with Michael G.
Hannon dated June 6, 1997. Exhibit 10.15 to Allied's Report on Form
10-K for the year ended December 31, 1997 is incorporated herein by
reference.
10.12 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 Allied's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 is
incorporated herein by reference.
10.13 Registration Rights Agreement, dated as of July 30, 1999, by and
among Allied, the Guarantors and the initial purchasers, relating to
the $2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit
10.3 to Allied's Current Report on Form 8-K dated August 10, 1999 is
incorporated herein by reference.
10.14 Purchase Agreement dated July 27, 1999, by and among Allied, the
Guarantors and the initial purchasers, with respect to the
$2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit 10.4 to
Allied's Current Report on Form 8-K dated August 10, 1999 is
incorporated herein by reference.
10.15 Credit Facility dated as of July 30, 1999. Exhibit 10.1 to Allied's
current report on Form 8-K dated August 10, 1999, is incorporated
herein by reference.
10.16 Second Amended and Restated Shareholders Agreement, dated as of July
30, 1999, between Allied and the purchasers of the Series A Senior
Convertible Preferred Stock and related parties. Exhibit 10.2 to
Allied's current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.
10.17 Amended and Restated Registration Rights Agreement dated as of July
30, 1999, between Allied and the purchasers of the Series A Senior
Convertible Preferred Stock and related parties. Exhibit 10.3 to
Allied's current report on Form 8-K dated August 10, 1999, 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 * Financial Data Schedule for the year ended December 31, 1999.
* Filed herewith
Reports on Form 8-K during the Quarter Ended December 31, 1999
November 22, 1999 Our Current Report on Form 8-K reports the pro forma
financial statements related to the BFI acquisition.
<PAGE>
Exhibit 3.2
[Bylaw Amendments]
RESOLVED, that effective upon the closing of the Preferred
Stock Purchase Agreement, the following amendments to the Bylaws of the Company
shall take effect:
1. Section II.2 of the Bylaws is deleted and replaced in
its entirety with the following:
Section II.2. As of the closing of the purchase of
shares of Senior Convertible Preferred Stock (as defined in the Second
Amended and Restated Shareholders Agreement (the "Shareholders
Agreement"), dated as of July 30, 1999, by and between Allied Waste
Industries, Inc., a Delaware corporation (the "Company"), on the one
hand, and Apollo Investment Fund IV, L.P., a Delaware limited
partnership, Apollo Investment Fund III, L.P., a Delaware limited
partnership, Apollo Overseas Partners IV, L.P., a Delaware limited
partnership, Apollo Overseas Partners III, L.P., a Delaware limited
partnership, Apollo (U.K.) Partners III, L.P., an English limited
partnership, Apollo/AW LLC, a Delaware limited liability company,
Blackstone Capital Partners II Merchant Banking Fund L.P., a Delaware
limited partnership, Blackstone Capital Partners III Merchant Banking
Fund L.P., a Delaware limited partnership ("BCP"), Blackstone Offshore
Capital Partners II L.P., a Cayman Islands limited partnership,
Blackstone Family Investment Partnership II L.P., a Delaware limited
partnership, Blackstone Offshore Capital Partners III L.P., a Cayman
Islands limited partnership, Blackstone Family Investment Partnership
III L.P., a Delaware limited partnership, Greenwich Street Capital
Partners II, L.P., a Delaware limited partnership, GSCP Offshore Fund,
L.P., a Cayman Islands exempted limited partnership, Greenwich Fund,
L.P., a Delaware limited partnership, Greenwich Street Employees Fund,
L.P., a Delaware limited partnership, TRV Executive Fund, L.P., a
Delaware limited partnership, DLJMB Funding II, Inc., a Delaware
corporation, DLJ Merchant Banking Partners II, L.P., a Delaware limited
partnership, DLJ Merchant Banking Partners II-A, L.P., a Delaware
limited partnership, DLJ Diversified Partners, L.P., a Delaware limited
partnership, DLJ Diversified Partners-A, L.P., a Delaware limited
partnership, DLJ Millennium Partners, L.P., a Delaware limited
partnership, DLJ Millennium Partners-A, L.P., a Delaware limited
partnership, DLJ First ESC L.P., a Delaware limited partnership, DLJ
Offshore Partners II, C.V., a Netherlands Antilles limited partnership,
DLJ EAB Partners, L.P., a Delaware limited partnership, and DLJ ESC II
L.P., a Delaware limited partnership, or any other entities (other than
the Company) party to the Shareholders Agreement (collectively, the
"Shareholders"), on the other hand) pursuant to the Preferred Stock
Purchase Agreement (as defined in the Shareholders Agreement) and
until the earlier to occur of the tenth anniversary of the purchase
of shares of Senior Preferred Stock pursuant to the Preferred
Stock Purchase and the date on which the Apollo/Blackstone Shareholders
(as defined in the Shareholders Agreement) own, collectively, less than
20% of the Apollo/Blackstone Shares (as defined in the Shareholders
agreement) (the "Shareholder Designee Period"), the board of directors
shall consist of no more than thirteen (13) directors during the
Shareholder Designee Period.
2. Section II.3 of the Bylaws is amended to delete the
second paragraph and to add a new paragraph as follows:
At all times during the Shareholder Designee Period,
the Company agrees, subject to Section 3.1(d), to support the
nomination of, and the Company's Nominating Committee (as defined
herein) shall recommend to the Board of Directors the inclusion in the
slate of nominees recommended by the Board of Directors to shareholders
for election as directors at each annual meeting of shareholders of the
Company: (i) no more than two persons who are executive officers of the
Company ("Management Directors"), (ii) (A) five Shareholder Designees,
so long as the Apollo/Blackstone Shareholders beneficially own 80% or
more of the Apollo/Blackstone Shares, (B) four Shareholder Designees,
so long as the Apollo/Blackstone Shareholders beneficially own 60% or
more but less than 80% of the Apollo/Blackstone Shares, (C) three
Shareholder Designees, so long as the Apollo/Blackstone Shareholders
beneficially own 40% or more but less than 60% of the Apollo/Blackstone
Shares, (D) two Shareholder Designees, so long as the Apollo/Blackstone
Shareholders beneficially own 20% or more but less than 40% of the
Apollo/Blackstone Shares, and (E) one Shareholder Designee, so long as
the Apollo/Blackstone Shareholders beneficially own 10% or more but
less than 20% of the Apollo/Blackstone Shares (each a "Beneficial
Ownership Threshold"); provided, however, that if at any time as a
result of the Company's issuance of Voting Securities the Shareholders
beneficially own 9% or less of the Actual Voting Power (the "Actual
Voting Power Threshold"), the Apollo/Blackstone Shareholders shall be
entitled to no more than three Shareholder Designees (even if the
Apollo/Blackstone Shareholders would otherwise be entitled to a greater
number of Shareholder Designees pursuant to clauses (A) through (E)
above), and (iii) such other persons, each of whom is (A) recommended
by the Nominating Committee and (B) not an employee or officer of or
outside counsel to the Company or a partner, employee, director,
officer, affiliate or associate (as defined in Rule 12b-2 under the
Exchange Act) of any Shareholder or any affiliate of a Shareholder or
as to which the Shareholders or their affiliates own at least ten
percent of the voting equity securities ("Unaffiliated Directors"). If
any vacancy (whether by death, retirement, disqualification, removal
from office or other cause, or by increase in number of directors)
occurs prior to a meeting of the Company's stockholders, the Board (i)
may appoint a member of management to fill a vacancy caused by a
Management Director ceasing to serve as a director, (ii) shall appoint,
subject to Section 3.1(d), a person designated by the Apollo/Blackstone
Shareholders to fill a vacancy created by a Shareholder Designee
ceasing to serve as a director (except as a result of the reduction of
the number of Shareholder Designees entitled to be included on the
Board of Directors by reason of a decrease in the Apollo/Blackstone
Shareholders' beneficial ownership of Apollo/Blackstone Shares below
any Beneficial Ownership Threshold or by reasons of a decrease in the
Shareholders' beneficial ownership of Voting Securities below the
Actual Voting Power Threshold), and (iii) may appoint a person who
qualifies as an Unaffiliated Director and is recommended by the
Nominating Committee pursuant to the procedures set forth in the
following paragraph to fill a vacancy created by an Unaffiliated
Director ceasing to serve as a director (provided, however, that in the
case of a vacancy relating to an Unaffiliated Director, if a majority
of the Nominating Committee is unable to recommend a replacement, then
the directorship with respect to this vacancy shall remain vacant), and
each such person shall be a Management Designee, Shareholder Designee
or Unaffiliated Director, as the case may be, for purposes of this
Agreement. Upon any decrease in the Apollo/Blackstone Shareholders'
beneficial ownership of Apollo/Blackstone Shares below any Beneficial
Ownership Threshold or Voting Securities below the Actual Voting Power
Threshold, the Apollo/Blackstone Shareholders shall cause a number of
Shareholder Designees to offer to immediately resign from the Board of
Directors such that the number of Shareholder Designees serving on the
Board of Directors immediately thereafter will be equal to the number
of Shareholder Designees which the Apollo/Blackstone Shareholders would
then be entitled to designate under Section 3.1(b) of the Shareholders
Agreement. Upon termination of the Shareholder Designee Period, the
Apollo/Blackstone Shareholders shall promptly cause all of the
Shareholder Designees to offer to resign immediately from the Board of
Directors and any committees thereof.
3. The following provision shall replace Section III.3
of the Bylaws in its entirety:
Section III.3. For so long as the Apollo/Blackstone
Shareholders are entitled to at least two Shareholder Designees under
the Shareholders Agreement, the Apollo/Blackstone Shareholders shall be
entitled to have one Shareholder Designee serve on each committee of
the board of directors other than any committee formed for the purpose
of considering matters relating to the Shareholders. At all times
during the Shareholder Designee Period, Unaffiliated Directors shall be
designated exclusively by a majority of a nominating committee (the
"Nominating Committee"), which shall at all times during the
Shareholder Designee Period consist of not more than four persons, two
of whom shall be Shareholder Designees (or such lesser number of
Shareholder Designees as then serves on the Board of Directors) and two
of whom shall be either Management Directors or Unaffiliated Directors.
If the Nominating Committee is unable to recommend one or more persons
to serve as Unaffiliated Directors (except with respect to any vacancy
created by an Unaffiliated Director ceasing to serve as such), then the
Board of Directors shall nominate and recommend for election by
stockholders an Unaffiliated Director then serving on the Board of
Directors. Notwithstanding the foregoing, if the Apollo/Blackstone
Shareholders beneficially own less than 50% of the Apollo/Blackstone
Shares, the Nominating Committee shall be comprised of individuals only
one of whom is a Shareholder Designee.
EXHIBIT 10.5
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT is made and entered into effective February 23, 2000, by
and between ALLIED WASTE INDUSTRIES, INC., a Delaware corporation ("Company")
and HENRY L. HIRVELA ("Executive").
WITNESSETH:
WHEREAS, the Company and the Executive are parties to an Executive
Employment Agreement which was made effective January 1, 1999 ("Agreement"); and
WHEREAS, the Company and the Executive now desire to amend the
Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Executive hereby agree as follows:
1. The Company and the Executive intend to recognize and reward the
Executive for his unique and valuable experience and expertise with
respect to finance, acquisitions and divestitures. In addition, the
Company and the Executive wish to ensure that the Company is able to
continue to utilize the Executive's services in this area in the event
the Agreement is terminated either by the Executive for Good Reason or
by the Company Without Cause.
2. Subsection 6.3(a) is hereby amended and restated in its entirety to
read as follows:
(a) the Company and the Executive shall enter into a consulting
agreement for a term of twenty-six and one-half (26 1/2) months from
the Date of Termination, pursuant to which:
(1) the Executive, in his capacity as an independent
contractor, shall perform such duties and have such
responsibilities as may from time to time be assigned to the
Executive by the Company's Chief Executive Officer and agreed
to by the Executive;
(2) the Executive shall receive aggregate compensation in the
amount of Two Million Dollars ($2,000,000.00), payable in
twenty-six (26) monthly installments in the amount of
Seventy-Five Thousand Dollars ($75,000.00), together with a
final installment in the amount of Fifty Thousand Dollars
($50,000.00);
(3) at the end of the term, the Executive shall receive all
compensation previously deferred by the Executive and not yet
paid by the Company (unless such payment is inconsistent with
the terms of any payment election made by the Executive with
respect to such deferred compensation);
<PAGE>
(4) all stock options and other incentive awards granted to
the Executive by the Company shall remain exercisable, and
shall continue to vest in accordance with their terms, until
the earlier of (A) the last day of the term of the consulting
agreement or (B) May 15, 2002;
(5) the terms and provisions of Sections 7 through 11 shall
continue through (and, where relevant, after) the term of the
consulting agreement in the same manner as if the last day of
that term were the Date of Termination;
(6) in the event of the Executive's death during the term, the
Executive's estate shall be entitled to receive the balance of
the Two Million Dollars ($2,000,000.00) aggregate compensation
to which the Executive is entitled.
3. Subsection 6.3(d) is hereby deleted in its entirety.
4. In all other respects, the terms and conditions of the
Agreement remain in full force and effect.
DATED: February 23, 2000.
ALLIED WASTE INDUSTRIES, INC.
By
--------------------------------------
Steven M. Helm, Vice President, Legal
"Company"
HENRY L. HIRVELA
By
--------------------------------------
Henry L. Hirvela, Vice President, Chief
Executive Officer
"Executive"
<TABLE>
<CAPTION>
Exhibit 12
ALLIED WASTE INDUSTRIES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except for ratios)
1999 1998 1997 1996 1995
-------------- ---------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expensed.......................... $ 443,044 $ 88,431 $ 108,045 $ 21,347 $ 20,443
Interest capitalized....................... 25,474 67,499 37,568 13,451 11,088
-------------- ---------------- ------------- --------------- --------------
Total interest........................... 468,518 155,930 145,613 34,798 31,531
Interest component of rent expense......... 8,886 4,576 4,014 3,061 1,936
Interest expense of unconsolidated
subsidiaries............................. 16,779 -- -- -- --
-------------- ---------------- ------------- --------------- --------------
Total fixed charges...................... $ 494,183 $ 160,506 $ 149,627 $ 37,859 $ 33,467
============== ================ ============= =============== ==============
Earnings:
Income (loss) from continuing
operations before income taxes........... $ (227,255) $ (54,478) $ 117,524 $ (52,068) $ 40,120
Plus fixed charges......................... 494,183 160,506 149,627 37,859 33,467
Less interest capitalized.................. (25,474) (67,499) (37,568) (13,451) (11,088)
-------------- ---------------- ------------- --------------- ------------
Total earnings........................... $ 241,454 $ 38,529 $ 229,583 $ (27,660) $ 62,499
============== ================ ============= =============== =============
Ratio of earnings to fixed charges * ** 1.5x *** 1.9x
============== ================ ============= =============== =============
<FN>
* Earnings were inadequate to cover fixed charges by $252,729.
** Earnings were inadequate to cover fixed charges by $121,977.
*** Earnings were inadequate to cover fixed charges by $65,519.
</FN>
</TABLE>
Exhibit 21
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000
3003304 Nova Scotia Company
572060 B.C. Ltd.
A-1 Service, Inc.
Aaro Waste Paper Company
AAWI, Inc.
Adrian Landfill, Inc.
ADS, Inc.
ADS of Illinois, Inc.
Affordable Dumpsters, Inc.
Agri-Tech, Inc.
Alabama Recycling Services, Inc.
Albany-Lebanon Sanitation, Inc.
Alaska Street Associates, Inc.
All American Waste, Inc.
Allied Acquisition Pennsylvania, Inc.
Allied Acquisition Two, Inc.
Allied Enviro Engineering, Inc. (TX corp.)
Allied Enviroengineering, Inc. (DE corp.)
Allied Gas Recovery Systems, L.L.C.
Allied Nova Scotia, Inc.
Allied Services, LLC
Allied Waste Alabama, Inc.
Allied Waste Company, Inc.
Allied Waste Hauling of Georgia, Inc.
Allied Waste Holdings (Canada) Ltd.
Allied Waste Industries (Arizona), Inc.
Allied Waste Industries (New Mexico), Inc.
Allied Waste Industries (Southwest), Inc.
Allied Waste Industries of Georgia, Inc.
Allied Waste Industries of Illinois, Inc.
Allied Waste Industries of Northwest Indiana, Inc.
Allied Waste Industries of Tennessee, Inc.
Allied Waste Landfill Holdings, Inc.
Allied Waste North America, Inc.
Allied Waste of California, Inc.
Allied Waste of Long Island, Inc.
Allied Waste of New Jersey, Inc.
Allied Waste of New Jersey, LLC
Allied Waste Rural Sanitation, Inc.
1
<PAGE>
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000 (continued)
Allied Waste Services, Inc. (TX corp.)
Allied Waste Sycamore Landfill, LLC
Allied Waste Systems, Inc. (OH corp.)
Allied Waste Systems of New Jersey, LLC
Allied Waste Systems (Texas) Inc.
Allied Waste Transfer Systems of New Jersey, LLC
Allied Waste Transportation, Inc.
Al-Mulla Environmental Systems W.L.L.
Alternative Power Limited Partnership*
Americal Co.
American Disposal Services, Inc.
American Disposal Services of Illinois, Inc.
American Disposal Services of Kansas, Inc.
American Disposal Services of Missouri, Inc.
American Disposal Services of New Jersey, Inc.
American Disposal Services of West Virginia, Inc.
American Disposal Transfer Services of Illinois, Inc.
American Materials Recyling Corp.
American Ref-Fuel Company*
American Ref-Fuel Company of Delaware Valley, L.P.*
American Ref-Fuel Company of Essex County*
American Ref-Fuel Company of Hempstead*
American Ref-Fuel Company of Niagara, L.P.*
American Ref-Fuel Company of SEMASS, L.P.*
American Ref-Fuel Company of Southeastern Connecticut*
American Ref-Fuel Company of the Capital District, L.P.*
American Ref-Fuel Operations of SEMASS, L.P.*
American Transfer Company, Inc.
Anderson Regional Landfill, LLC
Anson County Landfill NC, LLC
Apache Junction Landfill Corporation
Arbor Hills Holdings L.L.C.*
Area Disposal Inc.
Attwoods Holdings GmbH
Attwoods of North America, Inc.
Attwoods Umweltschutz GmbH
Automated Modular Systems, Inc.
Autoshred, Inc.
AWIN Leasing Company, Inc.
AWIN Management, Inc.
B & L Waste Handling, Inc.
2
<PAGE>
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000 (continued)
Belleville Landfill, Inc.
BFI Argentina, S.A.
BFI Atlantic GmbH
BFI Atlantic, Inc.
BFI Chile Ltda.
BFI Energie Inc.
BFI Energy Systems of Albany, Inc.
BFI Energy Systems of Boston, Inc.
BFI Energy Systems of Delaware County, Inc.
BFI Energy Systems of Essex County, Inc.
BFI Energy Systems of Hempstead, Inc.
BFI Energy Systems of Niagara, Inc.
BFI Energy Systems of Niagara II, Inc.
BFI Energy Systems of Plymouth, Inc.
BFI Energy Systems of SEMASS, Inc.
BFI Energy Systems of Southeastern Connecticut, Inc.
BFI International, Inc.
BFI of Ponce, Inc.
BFI Properties, Inc.
BFI Ref-Fuel, Inc.
BFI Services Group, Inc.
BFI Trans River (GP), Inc.
BFI Trans River (LP), Inc.
BFI Transfer Systems of New Jersey, Inc.
BFI Umwelttechnik GmbH
BFI Waste Systems of New Jersey, Inc.
BFI Waste Systems of North America, Inc.
BFGSI of Illinois, Inc.
BFGSI, LLC*
BFGSI Series 1997-A Trust*
Bio-Med of Oregon, Inc.
Blue Ridge Landfill General Partnership
Borrego Landfill, Inc.
Bowers Phase II, Inc.
Brickyard Disposal & Recycling, Inc.
Bridgeton Landfill, LLC
Browning-Ferris Financial Services, Inc.
Browning-Ferris Gas Services, Inc.
Browning-Ferris, Inc.
Browning-Ferris Industries Argentina, S.A.
Browning-Ferris Industries Asia Pacific, Inc.
3
<PAGE>
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000 (continued)
Browning-Ferris Industries Europe, Inc.
Browning-Ferris Industries, Inc. (DE)
Browning-Ferris Industries, Inc. (MA)
Browning-Ferris Industries Ltd.
Browning-Ferris Industries of California, Inc.
Browning-Ferris Industries of Florida, Inc.
Browning-Ferris Industries of Hawaii, Inc.
Browning-Ferris Industries of Illinois, Inc.
Browning-Ferris Industries of Milwaukee, Inc.
Browning-Ferris Industries of New Jersey, Inc.
Browning-Ferris Industries of New York, Inc.
Browning-Ferris Industries of Ohio, Inc.
Browning-Ferris Industries of Puerto Rico, Inc.
Browning-Ferris Industries of Tennessee, Inc.
Browning-Ferris Services, Inc.
Brundidge Landfill, LLC
Brunswick Waste Management Facility, LLC
Butler County Landfill, LLC
Camelot Landfill TX, LP
Capitol Recycling & Disposal, Inc.
C.C. Boyce & Sons, Inc.
CC Landfill, Inc.
CCAI, Inc.
CDF Consolidated Corporation
CECOS International, Inc.
Celina Landfill, Inc.
Central Sanitary Landfill, Inc.
Chambers Development of North Carolina, Inc.
Champion Recycling, Inc.
Charlotte Hauling, Inc.
Charter Evaporation Resource Recovery Systems
Cherokee Run Landfill, Inc.
Chicago Disposal, Inc.
Chilton Landfill, LLC
Citizens Disposal, Inc.
City-Star Services, Inc.
City Garbage, Inc.
Clarkston Disposal, Inc.
Clinton Disposal Co.
Cocopah Landfill, Inc.
Commercial Reassurance Limited
4
<PAGE>
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000 (continued)
Consolidated Processing, Inc.
Containerized, Inc. of Texas
Copper Mountain Landfill, Inc.
Corvallis Disposal & Co.
Courtney Ridge Landfill, LLC
County Disposal, Inc.
County Disposal (Ohio), Inc.
County Landfill, Inc.
County Line Landfill Partnership
Crow Landfill TX L.P.
D & D Garage Services, Inc.
D & L Disposal L.L.C.
Dallas Garbage Disposal Co.
DeFeo Enterprises, Inc.
Delta Container Corporation
Delta Paper Stock, Co.
Denver RL North, Inc.
Dinverno, Inc.
Dinverno Recycling, Inc.
Dowling Industries, Inc.
Draw Acquisition Company Twenty Three
Draw Enterprises II, Inc.
Draw Enterprises Real Estate, Inc.
Draw Enterprises Real Estate, L.P.
Eagle Industries Leasing, Inc.
Eastern Disposal, Inc.
ECDC Environmental of Humbolt County, Inc.
ECDC Environmental, L.C.
ECDC Holdings, Inc.
Ellis County Landfill TX, L.P.
Ellis Scott Landfill MO, LLC
Elmhurst Disposal Company
Environmental Development Corp. (DE)
Environmental Development Corp. (P.R.)
Environmental Reclamation Company
Envotech-Illinois, L.L.C.
Environtech, Inc.
EOS Environmental, Inc.
Evergreen Scavenger Service, Inc.
Evergreen Scavenger Service, L.L.C.
Florida Republic Contracts, Inc.
5
<PAGE>
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000 (continued)
Foothills Sanitary Landfill, Inc.*
Forest View Landfill, LLC
Fort Worth Landfill TX, LP
Forward, Inc.
G. Van Dyken Disposal Inc.
Garofalo Brothers, Inc.
Garofalo Recycling and Transfer Station Co., Inc.
Gary Recycling Services, Inc.
General Refuse Rolloff Corp.
Georgia BFI Contracts, Inc.
Georgia Recycling Services, Inc.
Giordano Recycling Corp.
Global Indemnity Assurance Company
Golden Waste Disposal, Inc.
Grants Pass Sanitation, Inc.
Great Lakes Disposal Services, Inc.
Great Midwestern Recovery Systems, Inc.
Great Plains Landfill OK, LLC
Green Valley Landfill General Partnership
Harland's Sanitary Landfill, Inc.
Hawkeye Disposal Services, Inc.
Houston Towers TX, LP
Illiana Disposal Partnership
Illinois Bulk Handlers, Inc.
Illinois Landfill, Inc.
Illinois Recycling Services, Inc.
Imperial Landfill, Inc.
Independent Trucking Company
Indiana Recycling Service, Incorporated
Industrial Services of Illinois, Inc.
Ingrum Waste Disposal, Inc.
International Disposal Corp. of California
Jefferson City Landfill, LLC
Joe Di Rese & Sons, Inc.
Jones Road Landfill & Recycling, Ltd.
Keller Drop Box, Inc.
Keller Canyon Landfill Company
Kent-Meridian Disposal Company*
Kentucky Republic Contracts, Inc.
Key Waste Indiana Partnership
Lake Norman Landfill, Inc.
6
<PAGE>
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000 (continued)
Lathrop Sunrise Sanitation Corporation
Lee County Landfill SC, LLC
Lee County Landfill, Inc.
Lemons Landfill, LLC
Liberty Waste Holdings, Inc.
Liberty Waste Services Limited , L.L.C.
Liberty Waste Services of Illinois, L.L.C.
Liberty Waste Services of McCook, L.L.C.
Loop Express, Inc.
Loop Recycling, Inc.
Loop Transfer, Incorporated
Louis Pinto & Son, Inc., Sanitation Contractors
Mamaroneck Truck Repair, Inc.
Mars Road TX, LP
Maui Disposal Co., Inc.
Medical Disposal Services, Inc.
Mesa Disposal, Inc.
Mesquite Landfill TX, LP
Metro Enviro Transfer, LLC
Minneapolis Refuse, Inc.*
Mirror Nova Scotia Limited
Mississippi Waste Paper Company
MJS Associates, Inc.
Monarch Disposal, Inc.
Moorhead Landfill General Partnership
NationsWaste Catawba Regional Landfill, Inc.
NationsWaste, Inc.
New Jersey Republic Contracts, Inc.
New Morgan Landfill Company, Inc.
Newco Waste Systems of New Jersey, Inc.
Newton County Landfill Partnership
Nimishillen Industrial Park, Inc.
Northeast Landfill, LLC
Northeast Sanitary Landfill, Inc.
Northwest Recycling, Inc.
Northwest Waste Industries, Inc.
Oakland Heights Development, Inc.
Oklahoma City Landfill, LLC
Oklahoma City Waste Disposal, Inc.
Oklahoma Refuse, Inc.
Omega Holdings GmbH
7
<PAGE>
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000 (continued)
Otay Landfill, Inc.
Ottawa County Landfill, Inc.
Packerton Land Company, LLC
Packman, Inc.
Palomar Transfer Station, Inc.
Paper Fibres Company
Paper Fibers, Inc.
Paper Recycling Systems, Inc.
Peerless Landfill, LLC
Peltier Real Estate Company
Piedmont Trash Services, Inc.
Pima Environmental Services, Inc.
Pinal County Landfill Corp.
Pine Bend Holdings L.L.C.*
Pinecrest Landfill OK, LLC
Pinehill Landfill TX, LP
Pittsburg County Landfill, Inc.
Pleasant Oaks Landfill TX, LP
PM Recycling, Inc.
Portable Storage, Inc.
Price & Sons Recycling Company
Prime Carting, Inc.
PSI Waste Systems, Inc.
Queen City Transfer, Inc.
R. 18, Inc.
Rabanco Companies
Rabanco Connections International, Inc.
Rabanco Intermodal/B.C., Inc.
Rabanco, Ltd.
Rabanco Recycling, Inc.
Rabanco Regional Landfill Company
Ramona Landfill, Inc.
RCS, Inc.
R.C. Miller Enterprises, Inc.
R.C. Miller Refuse Service, Inc.
Recycle Seattle II
Recycling Associates Inc.
Recycling Industries Corp.
Regional Disposal Company
Ref-Fuel Canada Ltd.
Refuse Service, Inc.
8
<PAGE>
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000 (continued)
Risk Services, Inc.
Roosevelt Associates*
Ross Bros. Waste & Recycling Co.
Royal Oaks Landfill TX, LP
Royal Holdings, Inc.
Reliant Insurance Company
Roxana Landfill, Inc.
Rural Sanitation Service, Inc. of North Carolina
S & L, Inc.
S & S Recycling, Inc
Saline County Landfill, Inc.
San Marcos NCRRF, Inc.
Sangamon Valley Landfill, Inc.
Sanitary Disposal Service, Inc.
Sanitation Equipment Leasing, Inc.
Sauk Trail Development, Inc.
Seattle Disposal Company, Inc.
Selas Enterprises LTD
Show-Me Landfill, LLC
Shred-All Recycling Systems, Inc.
SITA S.A.*
Source Recycling, Inc.
South Chicago Disposal, Inc. of Indiana
Southeast Landfill, LLC
Southwest Regional Landfill, Inc.
Southwest Waste, Inc.
Springfield Environmental General Partnership
SSWI, Inc.
Standard Disposal Services, Inc.
Standard Environmental Services, Inc.
Standard Waste, Inc.
Stark Recycling Center, Inc.
Streator Area Landfill, Inc.
Suburban Carting Corp.
Suburban Transfer, Inc.
Suburban Warehouse, Inc.
Sunrise Sanitation Service, Inc.
Sunset Disposal, Inc. (KS corp.)
Sunset Disposal Service Inc. (CA corp.)
Sun Valley Environmental Services, Inc.
Super Services Waste Management, Inc.
9
<PAGE>
Allied Waste Industries, Inc.
Subsidiaries as of March 24, 2000 (continued)
Taylor Ridge Landfill, Inc.
Tate's Transfer Systems, Inc.
Tennessee Union County Landfill, Inc.
Tom Luciano's Disposal Service, Inc.
Top Disposal Service, Inc.
Total Solid Waste Recyclers, Inc.
Trans River Marketing Company, L.P.*
Tricil (N.Y.), Inc.
Tri-State Recycling Services, Inc.
Tri-State Refuse Corporation
Tri-State Refuse Equipment Sales & Service, Inc.
Trottown Transfer, Inc.
Turkey Creek Landfill TX, LP
United Disposal Service, Inc.
United Waste Control Corp.
Upper Rock Island County Landfill, Inc.
Usine de Triage Lachenaie Inc.
U.S. Disposal II
USA Waste of Illinois, Inc.
Valley Landfills, Inc.
VHG, Inc.
Vining Disposal Service, Inc.
Warner Hill Development Company
Waste Associates, Inc.
Waste Control Systems, Inc.
Wastehaul, Inc.
Waste Reclaiming Service, Inc.
Waste Services of New York, Inc.
Wayne County Landfill IL, Inc.
WDTR, Inc.
WJR Environmental, Inc.
Willamette Resources, Inc.
Williams County Landfill, Inc.
Woodlake Sanitary Service, Inc.
WST (Samut Prakarn) Co. Ltd.
Yavapai Environmental Services, Inc.
10
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-4 (File No. 333-60727), and on Form 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, No. 333-81821 and No. 333-94405).
ARTHUR ANDERSEN LLP
Phoenix, Arizona
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000848865
<NAME> Allied Waste Industries
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 121,405
<SECURITIES> 0
<RECEIVABLES> 927,157
<ALLOWANCES> 59,490
<INVENTORY> 31,240
<CURRENT-ASSETS> 2,248,422
<PP&E> 4,474,886
<DEPRECIATION> 736,498
<TOTAL-ASSETS> 14,963,101
<CURRENT-LIABILITIES> 2,629,499
<BONDS> 9,240,291
0
1,001,559
<COMMON> 1,885
<OTHER-SE> 636,111
<TOTAL-LIABILITY-AND-EQUITY> 14,963,101
<SALES> 3,341,071
<TOTAL-REVENUES> 3,341,071
<CGS> 1,948,964
<TOTAL-COSTS> 1,948,964
<OTHER-EXPENSES> 1,204,315
<LOSS-PROVISION> 10,305
<INTEREST-EXPENSE> 443,044
<INCOME-PRETAX> (227,255)
<INCOME-TAX> (8,756)
<INCOME-CONTINUING> (221,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,223
<CHANGES> 64,255
<NET-INCOME> (288,728)
<EPS-BASIC> (1.69)
<EPS-DILUTED> (1.69)
</TABLE>
