================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission File Number: 0-19285
ALLIED WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 88-0228636
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
15880 North Greenway-Hayden Loop, Suite 100, Scottsdale, Arizona 85260
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (480) 627-2700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of the issuer's class of common
stock, as of the latest practicable date.
Class Outstanding as of August 10, 2000
-------- ------------------------------
Common Stock.................. 196,781,869
================================================================================
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
Part I Financial Information
<TABLE>
<CAPTION>
<S> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets........................................................ 3
Condensed Consolidated Statements of Operations.............................................. 4
Condensed Consolidated Statements of Cash Flows.............................................. 5
Notes to Condensed Consolidated Financial Statements......................................... 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 20
Part II Other Information
Item 1 Legal Proceedings.................................................................................. 34
Item 2 Changes in Securities.............................................................................. 34
Item 3 Defaults Upon Senior Securities.................................................................... 34
Item 4 Submission of Matters to a Vote of Security Holders................................................ 34
Item 5 Other Information.................................................................................. 34
Item 6 Exhibits and Reports on Form 8-K................................................................... 34
Signature..................................................................................................... 35
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30, December 31,
2000 1999
------------------ ------------------
ASSETS (unaudited)
<S> <C> <C>
Current assets --
Cash and cash equivalents............................................... $ 139,206 $ 121,405
Accounts receivable, net of allowance of $45,911 and $59,490............ 860,675 867,667
Prepaid and other current assets........................................ 239,928 252,187
Deferred income taxes, net.............................................. 102,478 115,263
Assets held for sale.................................................... -- 891,900
------------------ ------------------
Total current assets.................................................. 1,342,287 2,248,422
Property and equipment, net............................................. 3,860,981 3,738,388
Goodwill, net .......................................................... 8,660,479 8,238,929
Other assets, net....................................................... 725,071 737,362
------------------ ------------------
Total assets.......................................................... $ 14,588,818 $ 14,963,101
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Current portion of long-term debt....................................... $ 117,693 $ 1,002,928
Accounts payable........................................................ 447,809 481,318
Accrued closure, post-closure and environmental costs................... 154,076 134,968
Accrued interest........................................................ 172,758 158,251
Other accrued liabilities............................................... 561,562 613,663
Unearned revenue........................................................ 229,891 238,371
----------------- -----------------
Total current liabilities............................................. 1,683,789 2,629,499
Long-term debt, less current portion.................................... 9,854,586 9,240,291
Deferred income taxes................................................... 156,066 204,786
Accrued closure, post-closure and environmental costs................... 867,456 860,574
Other long-term obligations............................................. 320,176 388,396
Commitments and contingencies
Series A senior convertible preferred stock, 1,000 shares
authorized, issued and outstanding, liquidation preference of
$1,061 and $1,028 per share........................................... 1,034,870 1,001,559
Stockholders' equity.................................................... 671,875 637,996
----------------- -----------------
Total liabilities and stockholders' equity............................ $ 14,588,818 $ 14,963,101
================= =================
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these balance sheets.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts, unaudited)
Six Months Ended June 30, Three Months Ended June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues........................................... $ 2,840,147 $ 871,402 $ 1,461,854 $ 463,357
Cost of operations, excluding acquisition related
and unusual costs................................ 1,660,077 487,026 850,121 257,012
Selling, general and administrative expenses,
excluding acquisition related and unusual costs.. 210,859 66,945 104,697 33,415
Depreciation and amortization...................... 226,581 81,952 114,984 43,553
Goodwill amortization.............................. 108,658 18,486 54,644 9,715
Acquisition related and unusual costs.............. 56,926 1,116 20,877 --
------------- ------------- ------------- -------------
Operating income................................. 577,046 215,877 316,531 119,662
Equity in earnings of unconsolidated subsidiaries.. (27,787) -- (14,290) --
Interest income.................................... (1,342) (668) (739) (293)
Interest expense................................... 435,101 81,030 220,695 40,678
------------- ------------- ------------- -------------
Income before income taxes....................... 171,074 135,515 110,865 79,277
Income tax expense ................................ 95,642 54,918 61,981 32,133
Minority interest.................................. 2,779 529 1,188 250
------------- ------------- ------------- -------------
Income before extraordinary loss and cumulative
effect of change in accounting principle......... 72,653 80,068 47,696 46,894
Extraordinary loss, net of income tax benefit...... 6,484 -- -- --
Cumulative effect of change in accounting principle,
net of income tax benefit........................ -- 64,255 -- --
------------- ------------- ------------- -------------
Net income....................................... 66,169 15,813 47,696 46,894
Dividends on preferred stock....................... 33,489 -- 16,879 --
------------- ------------- ------------- -------------
Net income available to common shareholders...... $ 32,680 $ 15,813 $ 30,817 $ 46,894
============= ============= ============= =============
Basic EPS:
Income available to common shareholders before
extraordinary loss and cumulative effect of change
in accounting principle, net of income tax benefit $ 0.20 $ 0.43 $ 0.16 $ 0.25
Extraordinary loss, net of income tax benefit...... (0.03) -- -- --
Cumulative effect of change in accounting principle,
net of income tax benefit........................ -- (0.35) -- --
------------- ------------- ------------- -------------
Net income available to common shareholders...... $ 0.17 $ 0.08 $ 0.16 $ 0.25
============= ============= ============= =============
Weighted average common shares..................... 188,664 186,424 188,688 186,688
============= ============= ============= =============
Diluted EPS:
Income available to common shareholders before
extraordinary loss and cumulative effect of change
in accounting principle, net of income tax benefit $ 0.20 $ 0.42 $ 0.16 $ 0.25
Extraordinary loss, net of income tax benefit...... (0.03) -- -- --
Cumulative effect of change in accounting principle,
net of income tax benefit........................ -- (0.34) -- --
------------- ------------- ------------- -------------
Net income available to common shareholders...... $ 0.17 $ 0.08 $ 0.16 $ 0.25
============= ============= ============= =============
Weighted average common and common
equivalent shares................................ 189,895 190,291 190,449 190,740
============= ============= ============= =============
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ALLIED WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Six Months Ended June 30,
---------------------------------
2000 1999
------------- --------------
<S> <C> <C>
Operating activities --
Net income.................................................................... $ 66,169 $ 15,813
Adjustments to reconcile net income to cash provided by operating activities--
Provisions for:
Depreciation and amortization............................................... 335,239 100,438
Non-cash acquisition related and unusual costs.............................. -- 571
Undistributed earnings of equity investment in unconsolidated subsidiaries.. (24,359) --
Doubtful accounts........................................................... 8,951 1,525
Accretion of debt and amortization of debt issuance costs................... 22,847 3,391
Deferred income tax provision............................................... 67,181 15,915
Gain on sale of assets...................................................... (6,928) (3,354)
Extraordinary loss due to early extinguishment of debt, net of income tax 6,484 --
benefit.........................................................................
Cumulative effect of change in accounting principle, net of income tax benefit -- 64,255
Change in operating assets and liabilities, excluding the effects of purchase
acquisitions--
Accounts receivable, prepaid expenses, inventories and other................ (24,030) (47,921)
Accounts payable, accrued liabilities, unearned income, and other........... (56,551) 52,776
Acquisition related and non-recurring accruals.............................. (88,930) --
Closure and post-closure provision............................................ 31,767 9,722
Closure, and post-closure expenditures........................................ (28,769) (7,042)
Environmental expenditures.................................................... (15,887) (3,810)
-------------- --------------
Cash provided by operating activities........................................... 293,184 202,279
-------------- --------------
Investing activities --
Cost of acquisitions, net of cash acquired.................................... (687,176) (229,974)
Proceeds from divestitures, net of cash divested.............................. 882,731 34,269
Accruals for acquisition price and severance costs............................ (23,314) --
Net withdrawal from unconsolidated subsidiaries............................... 15,372 --
Capital expenditures, excluding acquisitions.................................. (183,076) (105,087)
Capitalized interest.......................................................... (21,029) (7,138)
Proceeds from sale of fixed assets............................................ 31,804 5,299
Change in deferred acquisition costs and notes receivable..................... (12,000) (15,859)
-------------- --------------
Cash (used for) provided by investing activities................................ 3,312 (318,490)
-------------- --------------
Financing activities --
Net proceeds from sale of common stock and exercise of stock options
and warrants................................................................ -- 7,600
Proceeds from long-term debt, net of issuance costs........................... 1,323,000 278,729
Repayments of long-term debt.................................................. (1,601,695) (174,964)
-------------- --------------
Cash (used for) provided by financing activities................................ (278,695) 111,365
-------------- --------------
Increase (decrease) in cash and cash equivalents................................ 17,801 (4,846)
Cash and cash equivalents, beginning of period.................................. 121,405 39,742
-------------- --------------
Cash and cash equivalents, end of period........................................ $ 139,206 $ 34,896
============== ==============
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
</TABLE>
5
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Allied Waste Industries, Inc., ("Allied" or "we") a Delaware corporation, 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, disposal and recycling services to approximately 9.9 million customers
in 41 states through a network of 350 collection companies, 152 transfer
stations, 163 active landfills, and 87 recycling facilities. We have organized
our operations into eight regions: Atlantic, Central, Great Lakes, Midwest,
Northeast, Southeast, Southwest and West. Consistent with our vertical
integration model, each region is organized into several operating districts and
each district is comprised of specific site operations. The districts consist of
a collection of stand-alone companies usually operating as a vertically
integrated operation within a common marketplace.
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 with annual
revenues of approximately $4.2 billion and provided integrated solid waste
management services.
The Condensed Consolidated Financial Statements include the accounts of Allied
and its subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. The Condensed Consolidated Balance Sheet as of
December 31, 1999, which has been derived from audited Consolidated Financial
Statements, and the unaudited interim Condensed Consolidated Financial
Statements included herein have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). As applicable
under such regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. We believe that the
presentations and disclosures herein are adequate to make the information not
misleading when read in conjunction with our Annual Report on Form 10-K for the
year ended December 31, 1999. The Condensed Consolidated Financial Statements as
of June 30, 2000, and for the six months and three months ended June 30, 2000
and 1999 reflect, in the opinion of management, all adjustments (which include
normal recurring adjustments) necessary to fairly state the financial position
and results of operations for such periods.
Operating results for interim periods are not necessarily indicative of the
results for full years. These Condensed Consolidated Financial Statements should
be read in conjunction with our Consolidated Financial Statements for the year
ended December 31, 1999 and the related notes thereto included in our Annual
Report on Form 10-K filed with the SEC on March 30, 2000.
There have been no significant additions to or changes in our accounting
policies since December 31, 1999. For a description of our accounting policies,
see Note 1 of Notes to Consolidated Financial Statements for the year ended
December 31, 1999 in our Annual Report on Form 10-K.
6
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 and the write-off of
deferred costs relating to the acquisition. For a detailed description of the
costs, see Note 1 to our Consolidated Financial Statements for the year ended
December 31, 1999 in our annual report on Form 10-K.
In connection with the integration plan related to the acquisition of BFI in
1999, we identified and notified approximately 1,500 employees that they would
be retained for transition purposes for a specified period, generally not
exceeding nine to twelve months from the acquisition date. After the specified
time period, they will be terminated. Additionally, we identified certain
offices and operations, which were duplicative, and we are in the process of
consolidating these operations. As these costs are not accruable until committed
or paid approximately $67.4 million and $42.7 million of transition costs were
expensed during 1999 and for the six months ended June 30, 2000, respectively.
We estimate that we may incur approximately $53 million of additional transition
expenses associated with the integration of BFI over the subsequent quarters in
2000. Additional amounts may be incurred in 2001.
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 2000, approximately $17.2 million of additional acquisition related costs
associated with the BFI acquisition were recorded to acquisition related and
unusual costs, primarily relating to changes in estimated loss contract
liabilities and litigation reserves. Of these charges, approximately $2.0
million were non-cash charges.
The following table reflects the cash activity through June 30, 2000 related to
the acquisition related and unusual costs accrued during 1999 (in thousands):
<TABLE>
<CAPTION>
1999
Additions Balance
through 1999 2000 Remaining
Expense Expenditures Expenditures Adjustments June 30, 2000
----------------- ------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Transition costs............. $ 77,350 $ (74,654) $ (2,091) $ -- $ 605
Loss contracts............... 32,643 (6,058) (6,017) 10,015 30,583
Litigation and compliance
costs........................ 113,382 (1,553) (15,935) 5,227 101,121
----------------- ------------- ------------- ------------ ---------------
Total...................... $ 223,375 $ (82,265) $ (24,043) $ 15,242 $ 132,309
================= ============= ============= ============ ===============
</TABLE>
7
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Extraordinary loss --
In February 2000, we repaid the asset sale term loan facility prior to its
maturity date. In connection with this repayment, we recognized an extraordinary
charge for the early extinguishment of the debt of approximately $10.7 million
($6.5 million net of income tax benefit, $0.03 per share) related to the
write-off of previously deferred debt issuance costs.
Change in Accounting Principle --
During 1999, 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 ("SFAS") No. 34, Capitalization of Interest Cost.
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).
Statements of cash flows --
The non-cash transactions for the six months ended June 30, 2000 and 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
June 30,
---------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Debt and liabilities incurred or assumed in acquisitions....................... $ 81,868 $ 75,739
Non-cash purchase and sale of operating businesses............................. -- 106,188
</TABLE>
8
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
Recently issued accounting pronouncements --
In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133. This statement amends the
accounting and reporting standards of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, with respect to specific interpretations and
circumstances, and incorporates certain decisions arising from the Derivatives
Implementation Group process. In June 1999, the implementation date of SFAS No.
133 was deferred one year from the original date to those fiscal years beginning
after June 15, 2000 by SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133.
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 in earnings or other comprehensive income or deferred, depending on
the use of the derivative, and whether or not it qualifies as a hedge. The
statement requires a formal documentation of hedge designation and assessment of
the effectiveness of transactions that receive hedge accounting. 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.
2. Business Combinations and Divestitures
Unaudited pro forma statement of operations data --
The following table compares, for the six months ended June 30, 2000 and 1999,
reported consolidated results of operations to unaudited pro forma consolidated
data as if all of the companies acquired and divested in 2000 and 1999 accounted
for using the purchase method for business combinations were acquired or
divested as of January 1, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
2000 1999
-------------------------------- --------------------------------
Reported Pro Forma(1) Reported Pro Forma(1)
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues................................ $ 2,840,147 $ 2,916,146 $ 871,402 $ 2,903,298
Income (loss) before extraordinary loss
and cumulative effect of change in
accounting principle....................... 72,653 72,992 80,068 (32,470)
Income (loss) available to common
shareholders before extraordinary loss
and cumulative effect of change in
accounting principle.................. 39,164 38,233 80,068 (65,146)
Basic earnings (loss) per share before
extraordinary loss and cumulative
effect of change in accounting principle... 0.39 0.39 0.43 (0.17)
Diluted earnings (loss) per share before
extraordinary loss and cumulative
effect of change in accounting principle... 0.38 0.38 0.42 (0.17)
<FN>
(1) The reported and pro forma results of operations exclude the BFI operations classified as "Assets held for sale"
and also 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>
9
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 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.
The results of operations before depreciation and amortization and acquisition
related and unusual costs of the Allied Divestitures and the Allied Operations
included in consolidated operating income, in accordance with SFAS 121, was
approximately $2.6 million during the six months ended June 30, 2000. During the
six months ended June 30, 2000, we excluded from our Condensed Consolidated
Statements of Operations, in accordance with SFAS 121, depreciation and
amortization in the amount of $1.4 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 included 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 $24.3 million of consolidated operating income excluding
acquisition related and unusual costs and approximately $24.4 million of
allocable interest expense related to the BFI Divestitures were excluded from
our Condensed Consolidated Statements of Operations for the six months ended
June 30, 2000.
10
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 1999, the assets held for sale are classified as a current asset
on our Condensed Consolidated Balance Sheet and are summarized as follows (in
thousands):
December 31, 1999
-----------------------
Accounts receivable, net......................... $ 90,396
Other current assets............................. 16,478
Property and equipment, net...................... 616,973
Goodwill, net.................................... 247,383
Other long-term assets........................... 5,405
Current liabilities.............................. (64,682)
Long-term liabilities............................ (20,053)
-----------------------
Total net assets............................... $ 891,900
=======================
As of June 30, 2000, we have substantially completed the divestitures of the
operations previously classified as assets held for sale.
4. Long-term Debt
Long-term debt at June 30, 2000 and December 31, 1999 consists of the following
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- -----------------
(unaudited)
<S> <C> <C>
Revolving credit facility, effective rates of 8.95% and 9.00%.............. $ 545,000 $ 65,000
Asset sale term loan facility, effective rate of 9.00%..................... -- 99,496
Tranche A, B and C loan facilities, effective rates ranging from 8.65%
to 9.75%................................................................. 4,500,000 4,500,000
Tranche D term loan facility, effective rates of 10.63% and 10.50%......... 123,390 500,000
1999 Senior subordinated notes, effective rate of 9.92%.................... 2,007,696 2,008,119
1998 Senior notes, effective rates ranging from 7.38% to 7.91%............. 1,698,391 1,698,309
Senior notes and debentures, effective rates ranging from
8.63% to 10.36%.......................................................... 726,059 721,229
Market value put securities, effective rate of 6.32%....................... -- 249,705
Solid waste revenue bond obligations, weighted average effective
rates of 6.44% and 7.02%................................................. 314,925 316,299
Notes payable to banks, finance companies, and individuals,
weighted average interest rates ranging from 5% - 10%.................... 56,818 85,062
----------------- -----------------
9,972,279 10,243,219
Current portion............................................................ 117,693 1,002,928
----------------- -----------------
$ 9,854,586 $ 9,240,291
================= =================
</TABLE>
11
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the BFI acquisition in July 1999, we 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") which was repaid in full in February
2000, 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 June 30,
2000, approximately $535 million 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 to 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. We used the proceeds from the 1999 Notes
as partial financing for 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 resulted in an
aggregate discount from the historic face amount of $137.0 million.
The Market Value Put Securities ("MVPs") had an optional put on January 18,
2000, which was exercised. Accordingly, we repaid the MVPs in January through a
draw on our revolving credit facility.
5. Closure, Post-Closure and Environmental Liabilities
We have a network of 163 owned or operated active landfills with a net book
value of approximately $1.5 billion at June 30, 2000. The landfills have
operating lives ranging from one to over 150 years based on available capacity
using current annual volumes. The average life of our landfills approximates 39
years.
12
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Closure, Post-Closure Costs --
Estimated costs for closure and post-closure as required under the Environmental
Protection Agency's Subtitle D regulations, as implemented by individual states
are compiled and updated annually for each landfill from local and regional
company engineers and reviewed by senior management. The future estimated
closure and post-closure costs are increased at an inflation rate of 2.5%, and
discounted at a risk-free capital rate of 7.0%, per annum, based on the timing
of the amounts to be expended. The following table is a summary of the closure
and post-closure costs (in thousands):
<TABLE>
<CAPTION>
December 31,
1999
-----------------
<S> <C>
Discounted Closure and Post-Closure Liability Recorded:
Current Portion...............................................................$ 75,316
Non-Current Portion........................................................... 442,032
-----------------
Total.........................................................................$ 517,348
=================
Estimated Remaining Closure and Post-Closure Costs to be Expended:
Discounted....................................................................$ 1,046,538
Undiscounted.................................................................. 2,689,485
Estimated Total Future Payments:
2000..........................................................................$ 75,316
2001.......................................................................... 66,652
2002.......................................................................... 56,688
2003.......................................................................... 68,166
2004.......................................................................... 56,514
Thereafter.................................................................... 2,366,149
</TABLE>
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 $31.8 million,
related to per unit closure and post-closure expense and periodic accretion
during the six months ended June 30, 2000. Changes in estimates of costs or
capacity are treated on a prospective basis.
13
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 primarily during 1999 that will
require us to incur costs for incremental closure and post-closure measures,
remediation activities and litigation costs in the future. 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 our Condensed Consolidated Financial Statements.
Since the ultimate outcome of these matters may differ from the estimates used
in our assessment to date, the recorded liabilities are 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 June 30, 2000 and December 31, 1999 of approximately
$452.8 million and $478.2 million, respectively, represents the most probable
outcome of these contingent matters. We do not reduce our estimated obligations
for anticipated proceeds from other potentially responsible parties or insurance
companies. There were no significant recovery receivables outstanding as of June
30, 2000. 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.
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, 1999 through June 30, 2000 (in thousands):
<TABLE>
<CAPTION>
Balance at Charges to Other Balance at
12/31/99 Expense Charges(1) Payments 6/30/00
------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Environmental costs......... $ 478,194 $ -- $ (9,545) $ (15,887) $ 452,762
Open landfills closure and
post-closure costs........ 313,800 24,445 12,638 (7,000) 343,883
Closed landfills closure and
post-closure costs......... 203,548 7,322 35,786 (21,769) 224,887
<FN>
(1) Amounts consist primarily of recording liabilities related to acquired companies and subsequent adjustments.
</FN>
</TABLE>
14
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Net Income Per Common Share
Net income per common share is calculated by dividing net income, less dividend
requirements on preferred stock, by the weighted average number of common shares
and common share equivalents outstanding during each period. The computation of
basic earnings per share and diluted earnings per share is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------------- --------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic earnings per share
computation:
Income before extraordinary loss and
cumulative effect of change in
accounting principle....................... $ 72,653 $ 80,068 $ 47,696 $ 46,894
Less: preferred stock dividends.............. 33,489 -- 16,879 --
-------------- --------------- -------------- --------------
Income available to common
shareholders before extraordinary loss
and cumulative effect of change in
accounting principle....................... $ 39,164 $ 80,068 $ 30,817 $ 46,894
============== =============== ============== ==============
Weighted average common shares
outstanding................................ 188,664 186,424 188,688 186,688
============== =============== ============== ==============
Basic earnings per share before
extraordinary loss and cumulative effect
of change in accounting principle.......... $ 0.20 $ 0.43 $ 0.16 $ 0.25
============== =============== ============== ==============
Diluted earnings per share
computation:
Income before extraordinary loss and
cumulative effect of change in
accounting principle....................... $ 72,653 $ 80,068 $ 47,696 $ 46,894
Less: preferred stock dividends.............. 33,489 -- 16,879 --
-------------- --------------- -------------- --------------
Income available to common
shareholders before extraordinary loss
and cumulative effect of change in
accounting principle....................... $ 39,164 $ 80,068 $ 30,817 $ 46,894
============== =============== ============== ==============
Weighted average common shares
outstanding................................ 188,664 186,424 188,688 186,688
Dilutive effect of stock, stock options and
contingently issuable shares............... 1,231 3,867 1,761 4,052
-------------- --------------- -------------- --------------
Weighted average common and
common equivalent shares outstanding....... 189,895 190,291 190,449 190,740
============== =============== ============== ==============
Diluted earnings per share before
extraordinary loss and cumulative effect
of change in accounting principle.......... $ 0.20 $ 0.42 $ 0.16 $ 0.25
============== =============== ============== ==============
</TABLE>
15
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. 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 June 30, 2000, which have not been accrued
in the Condensed 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 Condensed 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 $15.5 million and
$13.3 million for the six months ended June 30, 2000 and 1999, respectively.
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 June
30, 2000, we had outstanding approximately $1.5 billion in financial assurance
instruments, represented by $661 million of performance bonds, $763 million of
insurance policies, $46 million of trust deposits and $42 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.
We have issued bank letters of credit in the aggregate amount of approximately
$459 million at June 30, 2000. These financial instruments are issued in the
normal course of business and are not reflected in the accompanying Condensed
Consolidated 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.
16
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. 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.
In the event of a partnership default which results in termination of
incineration service, we may limit our financial obligations to funding up to
50% of periodic payments related to outstanding debt, and in certain
circumstances other operating cash deficiencies. Average annual debt service on
50% of the aggregate American Ref-Fuel partnership debt over the next five years
is $50 million. Funding of operating cash deficiencies would not be required in
excess of $100 million or 50% of the deficiency, whichever is less. Under
support agreements with one of the partnerships, a subsidiary of Allied
guarantees to lend up to $2.5 million, defer operating cost reimbursement up to
$3.5 million and fund up to $2.5 million in operating damages under certain
circumstances.
8. Segment Reporting
We classify our operations into eight U.S. geographic regions: Atlantic,
Central, Great Lakes, Midwest, Northeast, Southeast, Southwest and West. Our
revenues are derived from one industry segment, which includes the collection,
transfer, disposal and recycling 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 for the six
and three months ended June 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 Six Months Ended June 30, 1999
------------------------------------------------ -----------------------------------------------
Revenues EBITDA Revenues EBITDA
from before from before
external Intersegment non-recurring external Intersegment non-recurring
customers revenues charges customers revenues charges
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Atlantic...... $ 299,202 $ 45,394 $ 100,510 $ 55,012 $ 11,829 $ 18,117
Central....... 264,626 61,715 87,111 149,696 42,791 53,014
Great Lakes... 323,028 78,819 124,449 144,555 41,147 68,446
Midwest....... 238,859 55,130 111,324 91,910 23,081 40,329
Northeast..... 469,064 99,045 124,562 112,045 11,252 25,148
Southeast..... 383,201 53,732 141,785 22,171 6,286 7,658
Southwest..... 380,473 63,697 147,014 82,729 21,684 35,798
West.......... 461,627 98,649 163,612 211,480 27,386 73,914
Other(1)...... 20,067 -- (31,156) 1,804 -- (4,993)
------------- ------------- ------------- ------------- ------------- -------------
Total......... $ 2,840,147 $ 556,181 $ 969,211 $ 871,402 $ 185,456 $ 317,431
============= ============= ============= ============= ============= =============
<FN>
(1) Amounts relate primarily to our subsidiaries which provide services throughout the organization and not on a regional basis.
</FN>
</TABLE>
17
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000 Three Months Ended June 30, 1999
------------------------------------------------ -----------------------------------------------
Revenues EBITDA Revenues EBITDA
from before from before
external Intersegment non-recurring external Intersegment non-recurring
customers revenues charges customers revenues charges
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Atlantic...... $ 151,216 $ 23,281 $ 51,384 $ 27,885 $ 5,989 $ 9,195
Central....... 139,434 32,543 47,479 81,709 25,288 31,132
Great Lakes... 166,099 41,985 66,214 74,664 20,967 36,471
Midwest....... 119,974 28,100 56,267 52,160 13,170 21,900
Northeast..... 242,722 53,886 65,063 58,992 5,016 14,267
Southeast..... 195,363 27,636 73,512 9,756 2,766 3,788
Southwest..... 196,903 32,389 76,132 43,490 11,926 19,217
West.......... 239,310 52,767 86,206 114,156 17,762 40,558
Other(1)...... 10,833 -- (15,221) 545 -- (3,598)
------------- ------------- ------------- ------------- ------------- -------------
Total......... $ 1,461,854 $ 292,587 $ 507,036 $ 463,357 $ 102,884 $ 172,930
============= ============= ============= ============= ============= =============
<FN>
(1) Amounts relate primarily to our subsidiaries which provide services throughout the organization and not on a regional basis.
</FN>
</TABLE>
Reconciliation of reportable segment primary financial measure to operating
income (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------------------------ ------------------------------------------
2000 1999 2000 1999
------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Operating income:
Total EBITDA before
acquisition related and
unusual costs for
reportable segments...... $ 969,211 $ 317,431 $ 507,036 $ 172,930
Depreciation and
amortization for
reportable segments...... (335,239) (100,438) (169,628) (53,268)
Acquisition related and
unusual costs............ (56,926) (1,116) (20,877) --
------------------- -------------------- ------------------- -------------------
Operating income......... $ 577,046 $ 215,877 $ 316,531 $ 119,662
=================== ==================== =================== ===================
</TABLE>
Percentage of our total revenue attributable to services provided:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------------------------ ------------------------------------------
2000 1999 2000 1999
------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Collection(1).............. 62.1% 55.5% 61.1% 54.8%
Transfer(1)................ 4.7 7.4 5.1 8.1
Landfill(1)................ 22.7 31.2 23.3 31.3
Other...................... 10.5 5.9 10.5 5.8
------------------- -------------------- ------------------- -------------------
Total revenues........... 100.0% 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 has been excluded from collection and transfer revenues and included in landfill
revenues.
</FN>
</TABLE>
18
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Summarized Financial Data of Allied Waste North America, Inc.
The 1998 Senior Notes and the 1999 Notes issued by Allied NA (our wholly owned
subsidiary) are guaranteed by us. Our guarantee is full, unconditional and joint
and several of Allied NA's debt. The separate complete financial statements of
Allied NA have not been included herein as we have determined that such
disclosure is not considered to be material. However, summarized consolidated
balance sheet and statement of operations data for Allied NA and subsidiaries as
of June 30, 2000 and December 31, 1999 and for the six months ended June 30,
2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Summarized Consolidated Balance Sheet Data
June 30, 2000 December 31, 1999
------------------------ -------------------------
(unaudited)
<S> <C> <C>
Current assets............................................... $ 1,342,287 $ 2,248,422
Property and equipment, net.................................. 3,860,981 3,738,388
Goodwill, net................................................ 8,660,479 8,238,929
Other non-current assets..................................... 725,071 737,362
Current liabilities.......................................... 1,683,789 2,629,499
Long-term debt, net of current portion....................... 9,854,586 9,240,291
Due to parent................................................ 2,092,972 2,091,951
Other long-term obligations.................................. 1,343,698 1,453,756
Retained deficit............................................. (386,227) (452,396)
</TABLE>
<TABLE>
<CAPTION>
Summarized Consolidated Statement of Operations Data
Six Months Ended June 30,
-----------------------------------------------------
2000 1999
----------------------- -------------------------
<S> <C> <C>
Revenue...................................................... $ 2,840,147 $ 871,402
Operating costs and expenses................................. 2,263,101 655,525
Operating income............................................. 577,046 215,877
Income before extraordinary loss and cumulative effect
of change in accounting principle.......................... 72,653 80,068
Extraordinary loss, net...................................... 6,484 --
Cumulative effect of change in accounting principle, net..... -- 64,255
Net income................................................... 66,169 15,813
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Condensed
Consolidated Financial Statements and the notes thereto, included elsewhere
herein.
Introduction
Allied Waste Industries, Inc., a Delaware corporation ("we" or "Allied") 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, disposal and recycling services for residential,
commercial and industrial customers. We operate in 41 states and serve
approximately 9.9 million commercial and residential customers from a base of
assets including 350 collection companies, 152 transfer stations, 163 active
landfills and 87 recycling facilities.
We have experienced significant growth, primarily resulting from the acquisition
of solid waste businesses. Since January 1, 1993, we have completed 257
acquisitions including 55 acquisitions in 1999. 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.
On July 30, 1999, we completed the acquisition of Browning-Ferris Industries,
Inc. ("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").
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 tax. As of June 30,
2000, we had completed divestitures, which generated approximately $1.3 billion
of net proceeds.
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
June 30, 2000, we have substantially achieved the 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 63% at June 30, 2000.
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. We have also completed the conversion of the general
ledger and accounts payable from BFI's SAP system to Allied's system and have
not experienced any significant operational, accounting or reporting issues
related to any of these conversions.
20
<PAGE>
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.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------------- --------------------
1999 1998 1997 2000
------------ ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Collection(1)............................... 60.7% 55.7% 57.2% 62.1%
Transfer(1)................................. 5.6 7.1 6.7 4.7
Landfill(1)................................. 25.3 29.9 26.4 22.7
Other....................................... 8.4 7.3 9.7 10.5
------------ ------------ ------------ --------------------
Total revenues............................ 100.0% 100.0% 100.0% 100.0%
============ ============ ============ ====================
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------------- --------------------
1999 1998 1997 2000
------------ ------------ ------------ --------------------
Atlantic.................................... 9.6% 6.7% 6.1% 10.5%
Central..................................... 12.2 19.1 18.8 9.3
Great Lakes................................. 13.1 18.8 15.4 11.4
Midwest..................................... 9.8 10.2 10.0 8.4
Northeast................................... 15.6 10.7 14.0 16.5
Southeast................................... 9.2 3.7 3.6 13.5
Southwest................................... 12.1 9.4 11.3 13.4
West........................................ 18.4 21.4 20.8 16.3
Other(2).................................... -- -- -- 0.7
------------ ------------ ------------ --------------------
Total revenues............................ 100.0% 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 has been excluded from collection and transfer revenues and included in landfill revenues.
(2) Amounts relate primarily to our subsidiaries which provide services throughout the organization and not on a regional basis.
</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 63% of the waste we collect as
measured by disposal volumes were disposed of at landfills we own and/or operate
in 2000. 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.
21
<PAGE>
Expenses. Cost of operations includes labor, maintenance and repairs, equipment
and facility rent, utilities and taxes, the costs of ongoing environmental
compliance, safety and insurance, disposal costs and costs of independent
haulers transporting 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.
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.
Depreciation and amortization includes depreciation of fixed assets and
amortization of other intangible assets and landfill airspace. Goodwill
amortization includes the amortization of costs paid in excess of the net assets
acquired in purchase business combinations.
Landfill Accounting. 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.
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 of
Landfills
Net Book Cumulative Acquired Net Book
Value at Change in During Landfill Value at
December 31, Accounting 1999, net of Development Landfill December 31,
1998 Principle(1) Divestitures (2) Costs Amortization 1999
------------------- --------------- ----------------- -------------- --------------- -----------------
<S> <C> <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 Note 1 to Condensed Consolidated Financial Statements).
(2) Landfills classified as assets held for sale are included as divestitures.
</FN>
</TABLE>
22
<PAGE>
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 costs are 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:
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.
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 Additions
Balance Acquisitions, To To Changes in Balance
as of net of 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 Emerging Issues Task Force ("EITF")
Issue 95-23.
23
<PAGE>
Closure and post-closure costs represent 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.
In 2000, 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. Estimated total future payments may change due to
our initiatives to maintain effective cost control by determining alternative
methods of complying with regulatory requirements, efficient execution of our
responsibilities and partnering with experts to identify and implement
innovative methods. At June 30, 2000 and December 31, 1999, accruals for
landfill closure and post-closure costs (including costs assumed through
acquisitions) were approximately $568.8 million and $517.3 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 at
December 31, 1999.
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.
24
<PAGE>
Results of Operations
Three Months Ended June 30, 2000 and 1999
The following table sets forth the percentage relationship that the various
items bear to revenues and the percentage change in dollar amounts for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------
2000
Compared to
1999
% Change
2000 1999 in Amounts
------------ ------------ ---------------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues.......................................................... 100.0% 100.0% 215.5%
Cost of operations, excluding acquisition related and unusual
costs........................................................... 58.2 55.5 230.8
Selling, general and administrative expenses, excluding
acquisition related and unusual costs........................... 7.2 7.2 213.3
Depreciation and amortization..................................... 7.9 9.4 164.0
Goodwill amortization............................................. 3.7 2.1 462.5
Acquisition related and unusual costs............................. 1.4 -- --
------------ ------------
Operating income................................................ 21.6 25.8 164.5
Equity in earnings of unconsolidated subsidiaries................. (1.0) -- --
Interest expense, net............................................. 15.0 8.7 444.6
------------ ------------
Income before income taxes...................................... 7.6 17.1 39.8
Income tax expense................................................ 4.2 6.9 92.9
Minority interest................................................. 0.1 0.1 375.2
------------ ------------
Net income...................................................... 3.3 10.1 1.7
Dividends on preferred stock...................................... 1.2 -- --
------------ ------------
Net income available to common shareholders..................... 2.1% 10.1% (34.3)%
============ ============
</TABLE>
Revenues. Revenues in 2000 were $1,461.9 million compared to $463.4 million in
1999, an increase of 215.5%. The increase in revenues is primarily due to the
acquisition of companies subsequent to June 30, 1999, the most significant of
which was BFI. Additionally, revenues attributable to existing operations
("Internal Growth") increased approximately 6% in 2000 compared to the same
period in 1999.
Cost of Operations. Cost of Operations in 2000 was $850.1 million compared to
$257.0 million in 1999, an increase of 230.8%. The increase in cost of
operations was primarily associated with the increase in revenues described
above. As a percentage of revenues, cost of operations increased to 58.2% in
2000 from 55.5% in 1999 primarily due to the change in revenue mix resulting
from the acquisition of BFI. BFI's revenue mix was more heavily weighted toward
collection revenue, which has lower margins than landfill revenues.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses in 2000 were $104.7 million compared to $33.4 million in
1999, an increase of 213.3%. As a percentage of revenues, SG&A was 7.2% in 2000,
the same as in 1999.
Depreciation and Amortization. Depreciation and amortization in 2000 was $115.0
million compared to $43.6 million in 1999, an increase of 164.0%. As a
percentage of revenue, depreciation and amortization expense decreased to 7.9%
in 2000 from 9.4% in 1999. The decrease is primarily due to the increase in
deprecation being more than offset by the increase in revenues from the
acquisition of BFI.
Goodwill Amortization. Goodwill amortization in 2000 was $54.6 million compared
to $9.7 million in 1999, an increase of 462.5%. The increase in goodwill
amortization was due to an increase in goodwill of approximately $7 billion
primarily resulting from the acquisition of BFI.
25
<PAGE>
Acquisition Related and Unusual Costs. During the second quarter of 2000, we
recorded $20.9 million of acquisition related and unusual costs of which $17.3
million related to transitional personnel, duplicate facilities and integration
costs associated with the integration of BFI. Additionally, we recorded a charge
of $6.6 million and reversed $3.0 million primarily resulting from changes in
estimates for acquisition related accruals.
Net Interest Expense. Net interest expense was $220.0 million in 2000 compared
to $40.4 million in 1999, an increase of 444.6%. The increase is due to the
increase in debt of approximately $7.7 billion primarily associated with the
acquisition of BFI.
Income Taxes. Income taxes reflect a 55.9% effective income tax rate for the
three months ended June 30, 2000 and 40.5% for the same period in 1999. The
effective income tax rate in 2000 deviates from the federal statutory rate of
35% primarily due to the non-deductibility of amortization expense related to
approximately $6.5 billion of goodwill recorded in connection with the
acquisition of BFI.
Dividends on Preferred Stock. Dividends on Preferred Stock were $16.9 million in
2000 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 the accrued, but unpaid dividends.
Six Months Ended June 30, 2000 and 1999
The following table sets forth the percentage relationship that the various
items bear to revenues and the percentage change in dollar amounts for the
periods indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------
2000
Compared to
1999
% Change
2000 1999 in Amounts
------------ ------------ ---------------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues.......................................................... 100.0% 100.0% 225.9%
Cost of operations, excluding acquisition related and unusual
costs........................................................... 58.5 55.9 240.9
Selling, general and administrative expenses, excluding
acquisition related and unusual costs........................... 7.4 7.7 215.0
Depreciation and amortization..................................... 8.0 9.4 176.5
Goodwill amortization............................................. 3.8 2.1 487.8
Acquisition related and unusual costs............................. 2.0 0.1 5,000.9
------------ ------------
Operating income................................................ 20.3 24.8 167.3
Equity in earnings of unconsolidated subsidiaries................. (1.0) -- --
Interest expense, net............................................. 15.3 9.2 439.8
------------ ------------
Income before income taxes...................................... 6.0 15.6 26.2
Income tax expense................................................ 3.4 6.3 74.2
Minority interest................................................. 0.1 0.1 425.3
------------ ------------
Income before extraordinary loss and cumulative effect
of change in accounting principle............................... 2.5 9.2 (9.3)
Extraordinary loss, net of income tax benefit..................... 0.2 -- --
Cumulative effect of change in accounting principle, net
of income tax benefit........................................... -- 7.4 --
------------ ------------
Net income...................................................... 2.3 1.8 318.4
Dividends on preferred stock...................................... 1.1 -- --
------------ ------------
Net income available to common shareholders..................... 1.2% 1.8% 106.7%
============ ============
</TABLE>
26
<PAGE>
Revenues. Revenues in 2000 were $2,840.1 million compared to $871.4 million in
1999, an increase of 225.9%. The increase in revenues is primarily due to the
acquisition of companies subsequent to June 30, 1999; the most significant of
which was BFI. Additionally, revenues attributable to existing operations
("Internal Growth") increased approximately 6% in 2000 compared to the same
period in 1999.
Cost of Operations. Cost of Operations in 2000 was $1,660.1 million compared to
$487.0 million in 1999, an increase of 240.9%. The increase in cost of
operations was primarily associated with the increase in revenues described
above. As a percentage of revenues, cost of operations increased to 58.5% in
2000 from 55.9% in 1999 primarily due to the change in revenue mix resulting
from the acquisition of BFI. BFI's revenue mix was more heavily weighted toward
collection revenue, which has lower margins than landfill revenues.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses in 2000 were $210.9 million compared to $66.9 million in
1999, an increase of 215.0%. As a percentage of revenues, SG&A decreased to 7.4%
in 2000 from 7.7% in 1999. The decrease is the result of achieving the cost
savings associated with the acquisition of BFI combined with the significant
increase in revenues as noted above.
Depreciation and Amortization. Depreciation and amortization in 2000 was $226.6
million compared to $82.0 million in 1999, an increase of 176.5%. As a
percentage of revenue, depreciation and amortization expense decreased to 8.0%
in 2000 from 9.4% in 1999. The decrease is primarily due to the increase in
deprecation being more than offset by the increase in revenues from the
acquisition of BFI.
Goodwill Amortization. Goodwill amortization in 2000 was $108.7 million compared
to $18.5 million in 1999, an increase of 487.8%. 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 first six months of 2000, we
recorded $56.9 million of acquisition related and unusual costs of which $42.7
million related to transitional personnel, duplicate facilities and integration
costs associated with the integration of BFI. Additionally, we recorded a charge
of $17.2 million and reversed $3.0 million primarily resulting from changes in
estimates for acquisition related accruals.
Net Interest Expense. Net interest expense was $433.8 million in 2000 compared
to $80.4 million in 1999, an increase of 439.8%. The increase is due to the
increase in debt of approximately $7.7 billion primarily associated with the
acquisition of BFI.
Income Taxes. Income taxes reflect a 55.9% effective income tax rate for the six
months ended June 30, 2000 and 40.5% for the same period in 1999. The effective
income tax rate in 2000 deviates from the federal statutory rate of 35%
primarily due to the non-deductibility of amortization expense related to
approximately $6.5 billion of goodwill recorded in connection with the
acquisition of BFI.
Extraordinary Loss, Net. In February 2000, we repaid the asset sale term loan
facility prior to its maturity date. In connection with this repayment, we
recognized an extraordinary charge for the early extinguishment of the debt of
approximately $10.7 million ($6.5 million net of income tax benefit) related to
the write-off of 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 $33.5 million in
2000 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 the accrued, but unpaid dividends.
27
<PAGE>
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 June 2000, 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.
As of June 30, 2000, we had cash and cash equivalents of $139.2 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 year
ended December 31, 1999 as a result of 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. During the six months ended June 30, 2000, we
acquired operations with annual revenues of $423.1 million ($409.6 million net
of intercompany eliminations) for consideration of $724.2 million. During the
six months ended June 30, 2000, we sold certain assets with annual revenues of
approximately $709.9 million ($576.5 million net of intercompany eliminations)
for consideration of approximately $946.7 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.
As of June 30, 2000, 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 $1.0 billion of debt assumed in connection
with the BFI acquisition. As of June 30, 2000 there is aggregate availability
under the revolving credit facility of the 1999 Credit Facility of approximately
$535 million 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 scheduled debt service is
expected to be approximately $1.3 billion consisting of approximately $371
million in principal repayments (including $250 million paid in connection with
the put on the MVP's which was exercised in January, 2000) and approximately
$900 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 June 30, 2000, we had
outstanding approximately $1.5 billion in financial assurance instruments,
represented by $661 million of performance bonds, $763 million of insurance
policies, $46 million of trust deposits and $42 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.
28
<PAGE>
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 affect 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 4
to Allied's Condensed Consolidated Financial Statements).
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 Waste North America, Inc. ("Allied NA"; a wholly
owned consolidated subsidiary of Allied), 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 1999 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". Allied and the Preferred Stock also
contain restrictions on Allied's ability to pay cash dividends on common stock.
29
<PAGE>
New Accounting Standard
In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB Statement No.
133. This statement amends the accounting and reporting standards of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, with respect
to specific interpretations and circumstances, and incorporates certain
decisions arising from the Derivatives Implementation Group process. In June
1999, the implementation date of SFAS No. 133 was deferred one year from the
original date to those fiscal years beginning after June 15, 2000 by SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133. 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 in earnings or
other comprehensive income or deferred, depending on the use of the derivative,
and whether or not it qualifies as a hedge. The statement requires a formal
documentation of hedge designation and assessment of the effectiveness of
transactions that receive hedge accounting. 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.
Stockholder Rights Plan and Restricted Stock Plan
During May 2000, our Board of Directors adopted a Stockholder Rights Plan (the
"Plan"). The Plan provides for the distribution of one preferred stock purchase
right on each share of our common stock and approximately 57 rights on each
share of our Senior Convertible Preferred Stock. Initially, the rights will
trade with the common stock and senior preferred stock and will not be
represented by separate certificates. The rights represent the right to purchase
one ten-thousandth of a share of a newly created series of our junior preferred
stock at an exercise price of $85, but will not be exercisable until certain
events occur.
The rights will be exercisable only if a person or group acquires 15% or more of
our voting stock or announces a tender offer which, if consummated, would result
in such an acquisition. Following an acquisition of 15% or more of our voting
stock, each right will entitle its holder, at the right's then current exercise
price, to purchase a fractional number of junior preferred shares having a
market value of twice the exercise price.
In addition, if we are acquired in a merger or other business combination
transaction after a person has acquired 15% or more of our voting stock, each
right will entitle its holder to purchase, at the right's then current exercise
price, a number of the acquiring company's common shares having a market value
of twice such price.
Prior to the acquisition by a person or group of 15% or more of our voting
stock, the rights are redeemable at the option of the Board of Directors.
The stock ownership of the holders of our senior convertible preferred stock and
related parties will not cause the rights to become exercisable or otherwise be
treated as the acquisition of 15% or more of our voting power for purposes of
the rights plan. The rights expire in 2010.
Additionally, in April 2000, the Compensation Committee of the Board of
Directors approved the grant of approximately 6.9 million shares of restricted
stock to approximately 60 key management employees under a performance -
accelerated restricted stock award plan. The vesting of the shares occurs after
10 years and can be accelerated to years three, four and five of the plan by the
achievement of certain predetermined performance goals.
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Disclosure Regarding Forward Looking Statements
This quarterly report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended ("Forward Looking Statements"). All
statements other than statements of historical fact included in this 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 June 30, 2000, our consolidated debt
was approximately $9.97 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.
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.
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.
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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.
Obtaining Landfill Permits and Availability of Acquisition Targets. Obtaining
landfill permits has become increasingly difficult, time consuming and
expensive. We cannot assure that we will succeed in obtaining additional
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 landfill properties and acquisition
candidates 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 previous
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".
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.
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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. 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, collection and landfill 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 Condensed 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.
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.
Quantitative and Qualitative Disclosures About Market Risk.
See Note 6 "Long-term Debt" to the Consolidated Financial Statements for the
year ended December 31, 1999 in our Annual Report on Form 10-K.
33
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
No changes to previously reported information.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 3, 2000, we held our annual stockholders meeting. The holders of
203,680,434 shares of Common Stock were present or represented by proxy at the
meeting. At the meeting, the stockholders took the following action:
The stockholders elected the following persons to serve as our directors
until the next annual meeting of stockholders, and until their successors are
duly elected and qualified. Votes were cast as follows:
Number of Number of
Votes for Votes Withheld
------------------- -------------------
Thomas H. Van Weelden 197,032,428 6,648,006
Roger A. Ramsey 202,458,870 1,221,564
Nolan Lehmann 202,468,475 1,211,959
Leon D. Black 51,496,809* 0
Michael Gross 51,496,809* 0
Antony P. Ressler 51,496,809* 0
Howard A. Lipson 51,496,809* 0
Dennis Hendrix 202,469,175 1,211,259
Warren B. Rudman 202,453,975 1,226,459
Vincent Tese 202,459,375 1,221,059
David Blitzer 51,496,809* 0
* Elected by the holders of the Preferred Stock voting separately as a class.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits --
Exhibit No. Description
----------- -----------
4.25 * Second Supplemental Indenture, dated December 29, 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.
4.26 * Fourth Supplemental Indenture, dated July 30, 1999, among Allied, certain
subsidiaries of Allied and U.S. Bank Trust, N.A. as trustee, regarding the
1998 Notes of Allied Waste North America, Inc.
4.27 * Fifth Supplemental Indenture, dated December 29, 1999, among Allied,
certain subsidiaries of Allied and U.S. Bank Trust, N.A. as trustee,
regarding the 1998 Notes of Allied Waste North America, Inc.
4.28 Form of Rights Agreement dated as of May 25, 2000 between Allied and
American Stock Transfer and Trust Company which includes the form of
Certificate of Designation specifying the terms of the Preferred Stock and
the form of the Rights Certificate which is incorporated herein by
reference.
27 * Financial Data Schedule for the six months ended June 30, 2000.
* Filed herewith
(b) Reports on Form 8-K during the Quarter Ended June 30, 2000 --
April 6, 2000 Our Current Report on Form 8-K for the year 2000 outlook for
the company.
April 6, 2000 Our Current Report on Form 8-K reports the financial results
for the first quarter of 2000.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant, Allied Waste Industries, Inc., has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ALLIED WASTE INDUSTRIES, INC.
By: /s/ PETER S. HATHAWAY
--------------------------------------
Peter S. Hathaway
Senior Vice President, Finance and
Chief Accounting Officer
(Principal Financial and Accounting Officer)
Date: August 14, 2000
35
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
4.25 * Second Supplemental Indenture, dated December 29, 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.
4.26 * Fourth Supplemental Indenture, dated July 30, 1999, among Allied, certain
subsidiaries of Allied and U.S. Bank Trust, N.A. as trustee, regarding the
1998 Notes of Allied Waste North America, Inc.
4.27 * Fifth Supplemental Indenture, dated December 29, 1999, among Allied,
certain subsidiaries of Allied and U.S. Bank Trust, N.A. as trustee,
regarding the 1998 Notes of Allied Waste North America, Inc.
4.28 Form of Rights Agreement dated as of May 25, 2000 between Allied and
American Stock Transfer and Trust Company which includes the form of
Certificate of Designation specifying the terms of the Preferred Stock and
the form of the Rights Certificate which is incorporated herein by
reference.
27 * Financial Data Schedule for the six months ended June 30, 2000.
* Filed herewith
