<PAGE>
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 March 31, 1996
[ ] 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 0-20868
UNITED WASTE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3532338
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Four Greenwich Office Park, Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 622-3131
Indicate by check mark whether the registrant (1) has 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.
X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the issuer's classes of
common stock as of May 6, 1996:
Common Stock, $.001 par value 17,859,821 shares
<PAGE>
UNITED WASTE SYSTEMS, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
INDEX
Page
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Condensed Financial Statements
Condensed Consolidated Balance Sheets as of March 31,
1996 and December 31, 1995 (unaudited) . . . . . . . .3
Condensed Consolidated Statements of Operations for
Three Months Ended March 31, 1996 and 1995
(unaudited). . . . . . . . . . . . . . . . . . . . . .4
Condensed Consolidated Statement of Stockholders'
Equity for the Three Months Ended March 31, 1996
(unaudited). . . . . . . . . . . . . . . . . . . . . .5
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1996 and 1995
(unaudited). . . . . . . . . . . . . . . . . . . . . .6
Notes to Unaudited Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . .8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 12
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE>
UNITED WASTE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,335,494 $ 3,836,675
Accounts receivable, net of
allowance for doubtful accounts
of $2,685,000 and $2,117,000 38,943,301 37,341,231
Prepaid expenses and other current
assets 14,659,471 13,635,294
Total current assets 55,938,266 54,813,200
Property and equipment, net
of accumulated depreciation of
$57,309,000 and $51,421,000 304,812,166 287,562,619
Intangible assets, net 191,974,001 171,739,197
Other assets 17,768,073 19,907,045
$570,492,506 $534,022,061
Current liabilities:
Current portion of long-term debt
and nonrecourse bonds $ 4,283,189 $ 5,644,096
Accounts payable 14,873,925 17,717,411
Deferred revenue 8,948,502 8,291,415
Due to seller 6,208,663 6,465,720
Short-term accrued landfill costs 6,413,557 6,524,024
Current portion of capital lease
obligations 1,417,692 1,383,576
Accrued expenses and other current
liabilities 15,399,019 15,444,962
Total current liabilities 57,544,547 61,471,204
Long-term debt, less current portion 169,145,485 156,193,971
Obligations under capital leases, less
current portion 4,434,634 4,687,554
Nonrecourse sewage facility revenue bonds,
less current portion 9,400,000 9,400,000
Accrued landfill costs 33,319,800 27,663,907
Other long-term liabilities 2,798,776 3,056,578
Deferred income taxes 34,841,257 33,885,306
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value,
25,000,000 shares authorized;
17,847,637 and 17,213,167 shares
issued and outstanding 17,848 17,213
Additional paid-in capital 215,119,565 199,962,126
Retained earnings 43,870,594 37,684,202
Total stockholders' equity 259,008,007 237,663,541
$570,492,506 $534,022,061
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
UNITED WASTE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
(Unaudited)
<S> <C> <C>
Revenues $ 62,674,983 $ 38,192,293
Cost of operations 39,884,215 24,985,933
Selling, general and administrative
expense 9,510,975 6,300,604
Income from operations 13,279,793 6,905,756
Interest expense 3,408,687 1,817,307
Other income, net (270,521) (183,443)
Income before provision
for income taxes 10,141,627 5,271,892
Provision for income taxes 3,955,235 1,992,197
Net income 6,186,392 3,279,695
Net deductions from income available
to common stockholders 204,925
Income available to
common stockholders $ 6,186,392 $ 3,074,770
Earnings per common share and
common equivalent share $ .33 $ .21
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
UNITED WASTE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
Number Additional
of Paid-in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
Balance,
December 31, 1995 17,213,167 $17,213 $199,962,126 $37,684,202
Exercise of common
stock warrants
and options 603,848 604 14,012,545
Issuance of
common stock 30,622 31 1,144,894
Net income 6,186,392
Balance,
March 31, 1996 17,847,637 $17,848 $215,119,565 $43,870,594
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
UNITED WASTE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,186,392 $ 3,279,695
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 8,046,501 4,273,319
Deferred income taxes 988,551 192,166
Loss on sale of assets 12,388 64,802
Pro forma tax adjustment 212,383
Changes in operating assets and
liabilities:
Accounts receivable 464,721 776,187
Other assets (537,154) (1,459,594)
Accounts payable (4,334,526) (3,729,039)
Accrued landfill costs 369,717 154,165
Other liabilities 2,106,752 2,087,816
Net cash provided by operating
activities 13,303,342 5,851,900
Cash flows from investing activities:
Purchases of property and equipment (7,225,883) (4,608,631)
Proceeds from sale of assets 75,650
Restricted investments, net (held to
maturity) 1,985,768 (487,603)
Payments of contingent purchase price (374,173) (926,169)
Payments of capitalized project costs (290,628) (162,143)
Purchases of other companies,
net of cash acquired (28,650,056) (31,877,940)
Net cash used in investing activities (34,554,972) (37,986,836)
Cash flows from financing activities:
Due to sellers (2,243,872) (1,855,976)
Dividends on preferred stock (204,925)
Proceeds from debt 21,100,000 46,950,000
Repayments of debt (9,554,949) (13,135,135)
Repayments of capital lease obligations (332,185) (311,008)
Payments of financing costs (558,580)
Proceeds from exercise of common
stock warrants and options 10,781,455 604,008
Net proceeds from issuance
of common stock 3,438,600
Net cash from financing activities 19,750,449 34,926,984
(Decrease) increase in cash and
cash equivalents (1,501,181) 2,792,048
Cash and cash equivalents at
beginning of period 3,836,675 711,402
Cash and cash equivalents at
end of period $2,335,494 $3,503,450
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
UNITED WASTE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
(Unaudited)
<S> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest,
net of amounts capitalized $ 3,509,942 $ 422,887
Cash paid during the period for
income taxes $ 2,157,320 $ 914,755
Supplemental schedule of noncash investing
and financing activities:
The Company acquired the net assets
and assumed certain liabilities of
other companies as follows:
Fair value of net assets acquired:
Property and equipment $ 15,960,870 $ 28,204,261
Other assets, net of cash acquired 23,789,450 35,647,517
Less liabilities assumed (7,823,613) (19,303,872)
Less amounts due to seller (2,006,922) (3,527,784)
Less amounts paid in common stock (1,144,893) (6,960,000)
Less deposits and capitalized project
costs paid in prior periods (124,836) (2,182,182)
Net cash paid $28,650,056 $31,877,940
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
UNITED WASTE SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
Note 1 - Basis of presentation
The condensed consolidated balance sheet as of March 31, 1996
and the related condensed consolidated statements of operations,
stockholders' equity and cash flows for the three months ended
March 31, 1996 and 1995 are unaudited and, in the opinion of
management, such financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary to a
fair statement of the results of the interim periods presented.
Interim financial statements do not require all disclosures
normally presented in year-end financial statements, and,
accordingly, certain disclosures have been omitted.
The financial statements included herein should be read in
conjunction with the Company's Consolidated Financial Statements
and related Notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
Effective January 1, 1996, the Company adopted the provisions
of Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of ("SFAS No.
121"), issued by the Financial Accounting Standards Board. SFAS
No. 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121
also addresses the accounting for long-lived assets that are
expected to be disposed of. The adoption and on-going effects of
this Statement did not have an effect on the Company's financial
position or results of operations for the quarter ended March 31,
1996.
Note 2 - Acquisitions
During the first quarter of 1996, the Company completed the
following acquisitions of businesses:
<TABLE>
<CAPTION>
Company Business Date Acquired
<S> <C> <C>
United Waste Systems, Inc.
(MN) (not previously affiliated
with the Company) Collection January 1996
Cardinal Sanitation, Inc. Collection January 1996
Albany Disposal Service, Inc. Collection January 1996
Hudson & Sons Sanitation Collection January 1996
Commercial Disposal Company, Inc. Collection/ January 1996
Transfer
Station
<PAGE>
Central Sanitary Landfill, Inc. Landfill/ February 1996
Collection
Robert Wright Disposal, Inc. Collection February 1996
Creech Sanitation Collection February 1996
Cheshire Sanitation, Inc. Collection/ February 1996
Transfer
Station
Charlie's Rubbish Collection March 1996
</TABLE>
The above acquisitions have been accounted for as purchases
and, accordingly, the results of their operations have been
included in the Company's condensed consolidated financial
statements from their respective acquisition dates.
The following table summarizes, on an unaudited pro forma
basis, the combined results of operations of the Company for the
quarters ended March 31, 1996 and 1995 as though each acquisition
described above which was consummated in the first quarter of 1996,
was made on January 1, 1996, in the case of the results for the
first quarter of 1996, and each acquisition which was consummated
during the period of January 1, 1995 to March 31, 1996 as described
above and in Note 3 to the Notes to Consolidated Financial
Statements included in the Company's 1995 Annual Report on Form 10-
K, were made on January 1, 1995, in the case of the results for the
first quarter of 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $63,683,186 $59,769,332
Net income 6,208,005 4,113,252
Primary earnings
per common share and common
equivalent share .33 .29
Fully diluted earnings
per common share and common
equivalent share .33 .29
</TABLE>
On September 29, 1995, the Company acquired all of the
outstanding stock of Carmel Marina Corporation, Neal Road Landfill
Corporation, Jolon Road Landfill Corporation, Cal Sanitation
Services, Inc., Portable Site Services, Inc. and certain real
estate assets (the "Carmel Marina Companies") in a transaction
accounted for as a pooling-of-interests and, accordingly, the
condensed consolidated financial statements of the Company have
been restated for the three months ended March 31, 1995 to include
the accounts of the Carmel Marina Companies.
<PAGE>
Certain of the Carmel Marina Companies had elected to be
treated as Subchapter S Corporations for federal and state income
tax purposes. Under this provision, the companies' income or loss
is passed through to their stockholders rather than being subjected
to taxes at the corporate level. The condensed consolidated
financial statements for the three months ended March 31, 1995
reflect provisions for income taxes on a pro forma basis as if all
of the Carmel Marina Companies were liable for federal and state
income taxes as taxable corporate entities.
The unaudited results are based upon certain assumptions and
estimates which are subject to change. These results are not
necessarily indicative of the actual results of operations that
might have occurred, nor are they necessarily indicative of
expected results in the future.
Note 3 - Contingencies
While the Company carries a wide range of insurance coverage
for the protection of the Company's assets and operations, the
Company does not carry insurance coverage for environmental
liability, except as described in the following sentence. The
Company's insurance coverage for environmental liability is limited
to (i) contractor pollution liability insurance that relates to
certain environmental services provided by the Company and (ii)
certain other pollution liability insurance which is the equivalent
to self-insurance because under the terms thereof the Company is
required to fully reimburse the insurance company for any paid
claims. In the event uninsured losses occur, the Company's net
income and financial position could be materially adversely
affected.
On January 9, 1996, the Junker Landfill Trust sued the
Company, Junker Sanitation Service, Inc., and United Waste
Transfer, Inc., both of which are subsidiaries of the Company, and
approximately 800 other parties in the United States District Court
for the Western District of Wisconsin, Case No. 96C-19S, for
contribution under the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), as well as state common
law. These claims relate to alleged releases of hazardous
substances at the Junker Landfill site in Hudson, Wisconsin. The
suit against Junker Sanitation Services, Inc. is based upon its
transportation of waste to the landfill over a ten year period
ended 1987. The claims asserted directly against the Company and
United Waste Transfer, Inc. are based upon the Company"s
acquisition in 1995 of the stock of Junker Sanitation Services,
Inc. The suit is in its initial stages and the Company is not yet
in a position to assess the likelihood of the Plaintiff's success
in this litigation. In any event, the former owner of Junker
Sanitation, Inc. has agreed to indemnify the Company against any
liability to the Plaintiff. In the opinion of management, this
<PAGE>
claim should not materially affect the financial position of the
Company.
On May 26, 1995, the Company sued Robert Foley and Matthew
Parzych in the United States District Court for the District of
Connecticut, Case No. 3:95-CV-985. The defendants sold stock in
certain Massachusetts corporations to the Company under an
agreement dated April 1, 1992 (the "1992 agreement"). In the suit
the Company seeks approximately $1,115,000 in cash and securities
from an escrow account and additional amounts from defendants by
reason of indemnity provisions contained in the 1992 agreement and
confirmed in an agreement dated January 28, 1994 (the "1994
agreement"). The defendants have counterclaimed against the
Company and its chief executive officer, seeking to invalidate the
1994 agreement primarily for alleged lack of consideration and
economic duress, and to receive alleged damages and costs. The
counterclaims for damages are primarily for alleged
misrepresentations by the Company in connection with the 1992
agreement, and were asserted by defendants notwithstanding
provisions in the 1994 agreement which generally released the
Company from all claims. The Company intends vigorously to pursue
its claims in this action and to seek dismissal of the
counterclaims. In the opinion of management, this claim should not
materially affect the financial position of the Company.
The Company accrues the costs for closure and post-closure
monitoring over the life of its owned landfills and will pay out
these costs over the next thirty years. Major components of these
costs include closure cap construction, leachate treatment and
groundwater monitoring. The Company accrues these costs utilizing
engineering estimates based on current governmental regulations
regarding closure requirements. The Company estimates that the
aggregate liability for the closure, post-closure and remediation
costs of its landfills owned at March 31, 1996 will be
approximately $59.5 million. At March 31, 1996, the Company has
approximately $39.7 million of these costs accrued and, therefore,
has accrued approximately 67% of its estimated total costs to date.
The Company monitors the availability of airspace at each of
its landfills and the need to obtain permit modifications for
approvals for expansion in order to continue operating these
landfills. In order to develop and operate a landfill, a
composting facility or transfer station, or other solid waste
management facility, the Company typically must go through several
governmental review processes and obtain one or more permits and
often zoning or other land use approvals. Once obtained, operating
permits generally must be periodically renewed and are subject to
modification and revocation by the issuing agency. There can be no
assurance that the Company will succeed in obtaining these permits,
permit modifications or approvals.
<PAGE>
Item 2 Management's discussion and analysis of financial
condition and results of operations.
The following discussion should be read in conjunction with
the unaudited Condensed Consolidated Financial Statements and
related Notes thereto of the Company included herein and the
Consolidated Financial Statements and related Notes thereto
included in the Company's 1995 Annual Report on Form 10-K.
The following discussion includes statements that are forward-
looking in nature. Whether such statements ultimately prove to be
accurate depends upon a variety of factors that may affect the
business and operations of the Company. Certain of these factors
are discussed under the caption Item 1 - "Business-Factors that May
Influence Future Results and Accuracy of Forward-Looking
Statements" included in the Company's 1995 Annual Report on Form
10-K. The information in such Annual Report under such caption is
incorporated by reference herein.
Introduction
The Company was formed in July 1989 to acquire and operate
businesses in the nonhazardous solid waste services industry and
since its formation through March 31, 1996, has completed 93
acquisitions, including 41 completed during 1995 and 12 in the
first quarter of 1996. The Company believes that these recently
completed acquisitions will have a substantial impact on its future
results of operations and that its results of operations do not as
yet fully reflect certain cost savings and synergies and
efficiencies that it is seeking to achieve through the integration
of the newly acquired businesses with existing operations. The
focus of the Company's acquisition program at present is to
capitalize on opportunities around its existing operating regions
that will create synergies and efficiencies, as well as to
selectively enter one to three new regions annually. The Company
may also selectively consider acquisitions or consolidation
opportunities involving other public companies or large privately-
held companies.
The acquisitions completed by the Company include the
acquisition of Carmel Marina Corporation and affiliated companies
(the "Carmel Marina Companies") on September 29, 1995. This
acquisition was accounted for as a pooling-of-interests and,
disclosed, the financial information of the Company for the three
months ended March 31, 1995 discussed below have been restated to
include the accounts of the Carmel Marina Companies. The other
acquisitions completed during 1996 and 1995 were accounted for as
purchases and, accordingly, the results of operations of the
businesses acquired in these acquisitions are included in the
Company's financial statements only from their respective dates of
acquisition. In view of the fact that the Company's operating
results for 1996 and 1995 were impacted by these acquisitions that
<PAGE>
were accounted for as purchases, the Company believes that the
results of its operations for 1996 and 1995 are not directly
comparable.
General
The Company's revenues have been primarily attributable to (i)
collection revenues and (ii) fees (commonly referred to as "tipping
fees") charged to dispose of waste at the Company's landfills. The
table below shows for the periods indicated the percentage of the
Company's total revenues attributable to various sources.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
<S> <C> <C>
Landfill operations(1) 30% 31%
Collection operations(2) 64 58
Waste reuse and reduction
programs 3 4
Other services 3 7
Total 100% 100%
(1) Revenue from landfill operations primarily represent fees
charged to dispose of waste at the Company's landfills (including
fees charged to the Company's collection operations).
(2) Excludes the portion of collection revenues attributable to
disposal charges for solid waste collected by the Company and
disposed of at the Company's landfills.
</TABLE>
In certain instances, the amount of revenues that a newly
acquired business contributes to the Company's revenues may be
significantly less than the revenues that such business had prior
to being acquired due to the elimination of intercompany revenues
resulting from consolidation with the Company.
A portion of the Company's revenues from waste reuse and
reduction programs is derived from the sale of recyclable waste
products. The resale prices of, and demand for, recyclable waste
products can vary significantly and be subject to changing market
conditions. Accordingly, the Company's revenues from such sales
may materially vary from period to period.
Landfill cost of operations include primarily direct and
indirect labor, the legal and administrative cost of ongoing
environmental compliance, certain landfill taxes, franchise fees or
host community fees, rental payments under leases with respect to
landfill sites that are not owned, landfill site maintenance,
depreciation and amortization expense, and accruals for closure and
<PAGE>
post-closure expenses anticipated to be incurred in the future.
Certain direct landfill development costs, such as engineering,
upgrading, construction and permitting costs paid to outside
parties in respect of permits acquired or in the process of being
acquired, are capitalized and amortized based on consumed airspace.
All indirect landfill development costs, such as executive
salaries, general corporate overhead, public affairs and other
corporate services, are expensed as incurred. The Company believes
that the costs associated with the engineering, ownership and
operation of landfills will increase in the future as a result of
increasing federal, state and local regulation and a growing
community awareness of the landfill permitting process. Although
there can be no assurance, the Company believes that it will be
able to implement price increases sufficient to offset these
increased expenses.
Collection cost of operations includes direct and indirect
labor, insurance, fuel, equipment maintenance costs, tipping fees
paid to third party landfills and, with respect to the Company's
asbestos collection operations, transportation costs.
Selling, general and administrative expense includes
management salaries, clerical and administrative overhead, costs
associated with the Company's commercial and industrial sales force
and community relations expenses.
The Company capitalizes engineering, legal, accounting and
other direct costs that are incurred in connection with potential
acquisitions. The Company, however, routinely evaluates such
capitalized costs and charges to expense those relating to
abandoned acquisitions. Indirect acquisition costs, such as
executive salaries, general corporate overhead, public affairs and
other corporate services, are expensed as incurred.
The Company estimates landfill closure and post-closure
reserves based on an analysis of the requirements of the
regulations under Subtitle D of the Resource Conservation and
Recovery Act of 1976 and state laws and regulations. Since the
annual charge for each landfill is determined based upon the total
estimated unaccrued landfill closure and post-closure costs and the
estimated portion of remaining airspace filled during the year, the
provision may vary from period to period, as the volume of waste
disposed of in the landfill increases or decreases, expansions and
new permits change the life of the landfill and other circumstances
require management to reevaluate and to change such estimates. The
Company estimates that the aggregate liability for the closure and
post-closure costs of the facilities that it currently owns will be
approximately $59.5 million. At March 31, 1996, reserves for
landfill closure and post-closure costs (including reserves assumed
through acquisitions) were approximately $39.7 million, and the
balance will be accrued over the remaining operating lives of the
landfills.
<PAGE>
Results of Operations
Three months ended March 31, 1996 and 1995
Revenues. Revenues for the first three months of 1996 were
$62.7 million, representing an increase of 64% over revenues for
the first three months of 1995 of $38.2 million. Of this increase,
approximately 55 percentage points were due to the revenues
attributable to (i) the businesses acquired by the Company
subsequent to March 31, 1995 and (ii) businesses that were acquired
during the first quarter of 1995 and thus were included in the
Company's first quarter 1995 results for only a portion of the
quarter and in the Company's first quarter 1996 results for a full
quarter. The balance of this increase was due to an increase in
1996 in volume of waste received by the Company's operations that
were owned by the Company throughout both periods (approximately 4
percentage points) and in prices charged for services
(approximately 5 percentage points).
Cost of Operations. Cost of operations for the first three
months of 1996 was $39.9 million compared with $25.0 million for
the first three months of 1995. The increase in cost of operations
was attributable to the increase in the Company's revenues
described above. As a percentage of revenues, cost of operations
was 63.6% during the first three months of 1996 and 65.4% during
the first three months of 1995. The improvement in gross margin
primarily reflected (i) the increase in revenues attributable to
the fee and volume increases discussed above, which were achieved
without a corresponding increase in related costs, and (ii) the
fact that during the first quarter of 1995 the Company entered the
Minnesota/Iowa region through several acquisitions and subsequent
to such quarter achieved cost savings through consolidating and
integrating these operations and improving operating efficiencies.
This improvement in gross margin was offset somewhat by the
increase in collection revenues as a percentage of total revenues,
since collection operations generally have lower margins than
landfill operations.
Selling, General and Administrative Expense. Selling, general
and administrative expense ("SG&A") increased to $9.5 million
during the first three months of 1996 from $6.3 million during the
first three months of 1995, but as a percentage of revenues
decreased to 15.2% during the first three months of 1996 from 16.5%
during the first three months of 1995. The decrease in SG&A as a
percentage of revenues in 1996 primarily reflected the fact that,
as the Company completed acquisitions in 1995 and the first quarter
of 1996, its revenues increased without a commensurate increase in
senior management expense or corporate overhead.
<PAGE>
Interest Expense. Interest expense increased to $3.4 million
in the first three months of 1996 from $1.8 million in the first
three months of 1995. This increase primarily reflected the fact
that the Company's indebtedness increased subsequent to the first
quarter of 1995 primarily as a result of the completion of
acquisitions. Interest capitalized as a component of construction
projects during the first three months of 1996 and 1995 amounted to
approximately $220,000 and $270,000, respectively.
Income Taxes. Income taxes increased to $4.0 million, or an
effective rate of 39%, during the first three months of 1996 from
$2.0 million, or an effective rate of 37.8% during the first three
months of 1995. The increase in the effective rate primarily
reflected higher state income taxes in 1996.
Liquidity and Capital Resources
The Company (i) has used, and expects to continue using, a
substantial amount of cash generated from operations to fund
acquisitions, thereby reducing its current assets and (ii) in
connection with acquisitions and the financing of machinery and
equipment, the Company has assumed or incurred indebtedness with
relatively short-term repayment schedules, thereby increasing its
current liabilities. As a result of the foregoing financing
practices, the Company has had, and expects to continue to have,
low levels of working capital or working capital deficiencies. For
example, although as described below, the Company generated cash
from operations during the first three months of 1996, the Company
had a working deficiency of $1.6 million at March 31, 1996. As
discussed below, the Company believes that its working capital
position will not impair its ability to meet its ongoing cash
requirements and continue its acquisition program, although there
can be no assurance of this.
During the three months ended March 31, 1996, the Company
generated cash from operations of approximately $13.3 million and
had net cash from financing activities of approximately $19.8
million. The Company used these funds generated from operating and
financing activities to complete business acquisitions of
approximately $28.7 million and for capital expenditures of
approximately $7.2 million. These acquisitions and capital
expenditures accounted for the increase in property and equipment,
and intangible assets, at March 31, 1996 compared with such amounts
at December 31, 1995.
The Company's $215 million, three year, secured revolving
credit facility due August 1998 (the "Credit Facility") bears
interest at a rate per annum equal to the Eurodollar Rate (Reserved
Adjusted)(as defined in the loan agreement providing for the Credit
Facility) applicable to each interest period plus .75% to 1.75% per
annum or the Alternate Reference Rate (as so defined) from time to
<PAGE>
time in effect plus 0% to .25% per annum. The Credit Facility is
secured by substantially all of the assets of United Waste Systems,
Inc. and by the stock and assets of its subsidiaries, restricts the
Company from granting other liens on its assets (subject to certain
limited exceptions), and requires the Company to comply with
certain covenants including, but not limited to, maintenance of
certain financial ratios, limitation on additional indebtedness,
limitation on capital expenditures and a prohibition on the
Company's payments of cash dividends on its capital stock. The
Credit Facility also currently requires that the consent of the
lenders be obtained in order for the Company to make an acquisition
that provides for an aggregate purchase price of $15 million or
more. In addition, the Credit Facility prohibits the Company from
using more than $10 million of its cash to secure closure and post-
closure obligations that the Company may have relating to its
landfills. Under the terms of the Credit Facility, an event of
default would occur should two or more of the individuals currently
serving as executive officers of the Company cease to be employed
by the Company. At March 31, 1996, the outstanding amount of
indebtedness under the Credit Facility was $55.6 million compared
with $41.8 million at December 31, 1995. This increase in
indebtedness was primarily attributable to borrowings made to fund
acquisitions. The weighted average interest rate applicable to the
indebtedness outstanding under the Credit Facility at March 31,
1996 was 6.92%.
The Credit Facility also allows the Company to obtain up to
$65 million in letters of credit. These letters of credit may be
used, among other purposes, to secure or support closure
obligations that the Company may have relating to its landfills.
On March 31, 1996, the face amount of outstanding letters of credit
issued pursuant to the Credit Facility was approximately $53.7
million. The aggregate amount that the Company is permitted to
borrow under the Credit Facility is reduced by the aggregate face
amount of all outstanding letters of credit issued thereunder.
Set forth is a discussion of the Company's primary ongoing
cash requirements and the means by which it expects to meet these
requirements in the future.
Operating Activities. The Company anticipates that for the
foreseeable future, cash generated from operating activities will
be sufficient to provide the cash required for operating
activities.
Capital Expenditures. The Company expects to make capital
expenditures on an ongoing basis for improvements to, and expansion
of, its landfills and for equipment purchases. The Company
estimates that the capital expenditures that will be required in
respect of the existing operations of the Company will be in the
range of $43 million to $45 million during the last nine months of
1996 and $50 to $55 million in 1997. The Company expects that it
<PAGE>
will fund such estimated capital expenditures in respect of its
existing operations from cash generated from operations,
supplemented, if required, by borrowings available under the Credit
Facility. In addition, the Company expects that it will be
required to make capital expenditures in respect of new operations
that it may hereafter acquire. The Company cannot quantify at this
time the amount of such capital expenditures.
Acquisitions. An element of the Company's strategy is to
continue to acquire additional solid waste companies. The Company
expects to pay for future acquisitions using cash, capital stock,
assumption of indebtedness and/or notes, ongoing royalties and
contingent payments. The Company expects that any cash required
for future acquisitions will be provided by a combination of cash
generated from operations, borrowings available under the Credit
Facility and future debt or equity financing. There can be no
assurance, however, that any such future debt or equity financing
will be available or, if available, will be available on terms
satisfactory to the Company.
In order to minimize cash required to complete acquisitions
and adequately secure indemnity obligations, the Company frequently
structures its landfill acquisitions in a manner such that a
portion of the purchase consideration is deferred, contingent or
payable in the form of future royalties. The Company expects that
deferred or contingent payments and royalties that may become
payable in respect of its completed acquisitions will be funded
from cash generated from operations, supplemented, if required, by
borrowings available under the Credit Facility.
Debt Repayment. At March 31, 1996, the Company had debt and
capital lease obligations of approximately $188.7 million. The
Company will be obligated to retire approximately $4.4 million and
$3.7 million of indebtedness during the remainder of 1996 and in
1997, respectively. The Company plans to meet such obligations
from cash generated from operations, borrowings available under the
Credit Facility and/or additional financing.
Financial Assurance. The Company is required to provide
financial assurance to various governmental and regulatory bodies
for closure, post-closure and remediation obligations. The Company
provides for these financial assurance obligations primarily
through the issuance of letters of credit obtained under the Credit
Facility, as well as through surety bonds and irrevocable trust
funds. As of March 31, 1996, the aggregate amount of these
financial assurance obligations was $32.8 million, $26.3 million of
which is being satisfied by letters of credit obtained under the
Credit Facility. Under the Subtitle D Regulations, new financial
assurance requirements become effective on or before April 9, 1997.
The Company estimates that when such regulations become effective
the financial assurance obligations that it will be required to
provide in order to continue certain of its existing landfill
<PAGE>
operations will increase by approximately $26.7 million to
approximately $59.5 million. The Company plans to meet such
increased financial assurance obligations through additional
letters of credit obtained under existing or new credit facilities
and, where permitted, insurance policies.
Capital Expenditures
The Company, in accordance with generally accepted accounting
principles, capitalizes certain expenditures and advances relating
to its acquisitions, pending acquisitions and landfill development
and expansion projects. Indirect acquisitions costs, such as
executive salaries, general corporate overhead, public affairs and
other corporate services, are expensed as incurred. The Company's
policy is to charge against earnings any unamortized capitalized
expenditures or advances (net of any portion thereof that the
Company estimates will be recoverable, through sale or otherwise)
relating to any operation that is permanently shut down, any
pending acquisition that is not consummated, and any landfill
development or expansion project that is not successfully
completed. The Company also has a substantial investment in its
permitted landfills. If any of the Company's landfills were to
lose their permits, the Company would charge against earnings the
unamortized portion of its investment and any necessary
acceleration of closure and post closure accruals. The Company has
capitalized expenditures with respect to substantially all of its
other operations. There can be no assurance that the Company will
not be required in future periods to incur charges against earnings
relating to these capitalized expenditures in excess of the scheduled
amortization.
The Company has entered into a definitive agreement to acquire
Ham Sanitary Landfill, Inc. ("Ham Sanitary"), a landfill operation
in West Virginia. The Company has obtained certain required
regulatory approvals in connection with this transaction. However,
the closing of this acquisition remains subject to the condition,
among others, that a Certificate of Need be granted and that
certain other approvals be obtained. In the event that the
acquisition is not consummated, a charge against earnings would be
required to the extent that advances which the Company has made in
connection with such acquisition are not recoverable. As of March
31, 1996, advances made with respect to Ham Sanitary (which the
Company contracted to acquire in June 1991) aggregated
approximately $1.7 million.
The Company has entered into a definitive agreement to sell
its transfer station in Pennsylvania, which had revenues of approximately
$1.9 million in 1995 and incurred operating losses and negative cash flow.
However, the closing of this transaction is subject to certain closing
conditions and,accordingly, there can be no assurance that this transaction
will be completed. Assuming completion of this transaction, the Company
would incur a charge against earnings in the range of $1.0 million
<PAGE>
to $1.3 million. If this sales transaction is not completed, the
Company expects that it will permanently shut down this transfer
station, in which event, it would incur a charge against earnings
equal to the unamortized capital expenditures relating to this
facility (other than those relating to assets, if any, that can be
used in other Company operations). As of March 31, 1996, such
unamortized capital expenditures totaled approximately $1.8
million.
The Company capitalizes certain costs related to obtaining
certain financings and amortizes these costs over the life of the
related financing. In the event that the Company refinances any
financings with respect to which it has capitalized costs, the
Company would be required to charge against earnings the
unamortized portion of such costs. At March 31, 1996 the Company's
unamortized financing costs amounted to approximately $3.1 million.
Inflation and Prevailing Economic Condition
To date, inflation has not had a significant impact on the
Company's operations. The Company generally enters into long-term
contracts only if such contracts include provisions for price
escalations based on a price index.
Seasonality
The Company's revenues tend to be somewhat lower in the winter
months. This is generally reflected in the Company's first quarter
results and may also be reflected in its fourth quarter results.
This is primarily attributable to the fact that (i) the volume of
waste relating to construction and demolition activities and
activities relating to the remediation of contaminated soils tends
to increase in the spring and summer months and (ii) the volume of
waste relating to industrial and residential waste in certain of
the regions where the Company operates tends to decrease during the
winter months. Particularly harsh weather conditions may result in
the temporary suspension of certain of the Company's operations and
could adversely affect the Company's overall results of operations.
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
(1) Exhibit 11 - Computation of earnings per share
(2) Exhibit 27 - Financial Data Schedule
(3) Exhibit 99 - Information that appears in the
Company's Report on Form 10-K for the year ended
December 31, 1995, under Item 1 - "Business -
Factors that May Influence Future Results and
Accuracy of Forward - Looking Statements."
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
UNITED WASTE SYSTEMS, INC.
Dated: May 14, 1996 By: /s/ Michael J. Nolan
Michael J. Nolan
Chief Financial Officer
(Principal Financial Officer)
Dated: May 14, 1996 By: /s/ Sandra E. Welwood
Sandra E. Welwood
Vice President, Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT 11
UNITED WASTE SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
<S> <C> <C>
Net income $6,186,392 $3,279,695
Dividends on preferred stock (204,925)
Earnings available to
common stockholders $6,186,392 $3,074,770
Historical weighted average
common shares outstanding 17,594,655 13,602,102
Dilution of common stock options
and warrants (1) 1,286,710 1,244,898
Weighted average common shares
outstanding 18,881,365 14,847,000
$.33 $.21
- - -----------------------
(1) Based upon the treasury stock approach
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the Company's
condensed consolidated financial statements for the three months ended March 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,335,494
<SECURITIES> 0
<RECEIVABLES> 41,628,301
<ALLOWANCES> 2,685,000
<INVENTORY> 0
<CURRENT-ASSETS> 55,938,266
<PP&E> 362,121,166
<DEPRECIATION> 57,309,000
<TOTAL-ASSETS> 570,492,506
<CURRENT-LIABILITIES> 57,544,549
<BONDS> 182,980,119
0
0
<COMMON> 17,848
<OTHER-SE> 258,990,159
<TOTAL-LIABILITY-AND-EQUITY> 570,492,506
<SALES> 0
<TOTAL-REVENUES> 62,674,983
<CGS> 39,884,215
<TOTAL-COSTS> 49,395,190
<OTHER-EXPENSES> (270,521)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,408,687
<INCOME-PRETAX> 10,141,627
<INCOME-TAX> 3,955,235
<INCOME-CONTINUING> 6,186,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,186,392
<EPS-PRIMARY> .33
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
Factors that May Influence Future Results and Accuracy of
Forward-Looking Statements
The Company, in an effort to help keep its stockholders and
the public informed about the Company's operations, may from time
to time issue certain statements, either in writing or orally,
that contain or may contain forward-looking information. There
can be no assurance, however, that actual results will not differ
materially from the Company's expectations, statements or
projections. Factors that could cause actual results to differ
from the Company's expectations, statements or projections
include the risks and uncertainties relating to the Company's
business described below.
Economic Conditions: The Company's business is affected by
general economic conditions. There can be no assurance that an
economic downturn will not result in a reduction in the volume of
waste being disposed of at the Company's operations and/or the
price that the Company can charge for its services.
Weather Conditions: Protracted periods of inclement weather
may adversely affect the Company's operations by interfering with
collection and landfill operations, delaying the development of
landfill capacity and/or reducing the volume of waste generated
by the Company's customers. In addition, particularly harsh
weather conditions may result in the temporary suspension of
certain of the Company's operations.
Competition: The solid waste collection and disposal
business is highly competitive and requires substantial amounts
of capital. The Company competes with numerous waste management
companies, a number of which have significantly larger operations
and greater resources than the Company. The Company also
competes with those counties and municipalities that maintain
their own waste collection and disposal operations.
Ongoing Capital Requirements: To the extent that internally
generated cash and cash available under the Company's existing
revolving credit facility are not sufficient to provide the cash
required for future operations, capital expenditures,
acquisitions, debt repayment obligations and/or financial
assurance obligations, the Company will require additional equity
and/or debt financing in order to provide such cash. There can be
no assurance, however, that such financing will be available or,
if available, will be available on terms satisfactory to the
Company.
Dependence on Senior Management: The Company is highly
dependent upon its senior management team. The loss of the
services of any member of senior management may have a material
adverse effect on the Company.
Environmental and Land Use Matters: The Company is subject
to extensive and evolving environmental and land use laws and
<PAGE>
regulations, which have become increasingly stringent as a result
of greater public interest in protecting the environment. These
laws and regulations affect the Company's business in many ways,
including those set forth below. See "Business" Environmental
Regulations' for further information concerning the matters set
forth below.
In connection with most of its operations, the Company is
required to obtain and/or maintain in effect various permits and
other governmental approvals, including approvals relating to
zoning, land use and environmental matters. These permits and
approvals are difficult, time consuming and costly to obtain and
maintain in effect and, once obtained, may be subject to
modification, renewal or revocation by the issuing agency. There
can be no assurance that the Company will be successful in
obtaining and maintaining in effect the permits and approvals
required for the successful operation and growth of its business
(including permits and approvals required to develop timely
additional disposal capacity to replace capacity that is
exhausted). The failure by the Company to obtain or maintain in
effect a permit significant to its business could adversely
affect the Company's business and financial condition.
The Company's operations are subject to and substantially
affected by extensive federal, state and local laws and
regulations, which govern environmental, permitting, zoning, land
use, health, safety and other matters. Compliance with these
laws and regulations require significant expenditures, and future
changes in these laws and regulations may materially increase the
amount of such required expenditures. In addition, such laws and
regulations may impose restrictions on operations that could
adversely affect the Company, such as limitations on the
expansion of disposal facilities or limitations on, or the
banning of, waste from out-of-state or locality or certain
categories of wastes.
There may be various adverse consequences to the Company in
the event that the Company fails to comply with applicable laws,
regulations or permits, in the event that a facility owned or
operated by the Company causes environmental damage or in the
event that waste transported by the Company causes environmental
damage at another site. Under certain circumstance, the Company,
as a successor owner, may also be responsible for any such
failure by a predecessor owner and/or for damage caused by a
predecessor owner. These adverse consequences may include
substantial monetary penalties; the need to undertake
investigatory or remedial activities; the need to curtail or
terminate the operations involved or affected; the revocation or
denial of permits or other approvals; the imposition of liability
on the Company in respect of any environmental damage at its
landfill sites or caused by its landfills or other facilities or
environmental damage at other sites associated with waste
transported by the Company; and criminal liability for the
Company or its employees. Any of the foregoing could adversely
<PAGE>
affect the Company's business and financial condition.
Limits on Insurance Coverage: As described under "Business-
Liability Insurance and Bonding," the Company's insurance for
environmental liability is very limited because the Company
believes that the cost for such insurance is high relative to the
coverage it would provide. Due to the limited nature of the
Company's insurance coverage for environmental liability, if the
Company were to incur liability for environmental damage, its
business and financial condition could be materially adversely
affected.
Alternatives to Landfill Disposal: Alternatives to landfill
disposal, such as recycling and composting, are increasingly
being used. In addition, in certain of the Company's markets
incineration is an alternative to landfill disposal. There also
has been an increasing trend at the state and local levels to
mandate recycling and waste reduction at the source and to
prohibit the disposal of certain type of wastes, such as yard
wastes, at landfills. These developments may result in the volume
of waste going to landfills being reduced in certain areas, which
may affect the Company's ability to operate its landfills at
their full capacity and/or affect the prices that can be charged
for landfill disposal services.
Commodity Risk Upon Resale of Recyclables: A portion of the
Company's revenues from waste reuse and reduction programs is
derived from the sale of recyclable waste products. The resale
prices of, and demand for, recyclable waste products can vary
significantly and are subject to changing market conditions.
Accordingly, the Company's revenues from such sales may
materially vary from period to period.
Capitalized Expenditures: In accordance with generally
accepted accounting principles, the Company capitalizes certain
expenditures and advances relating to its acquisitions, pending
acquisitions and landfill development and expansion projects.
Indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services,
are expensed as incurred. The Company's policy is to charge
against earnings any unamortized capitalized expenditures and
advances (net of any portion thereof that the Company estimates
will be recoverable, through sale or otherwise) relating to any
operation that is permanently shut down, any pending acquisition
that is not consummated, and any landfill development or
expansion project that is not successfully completed. There can
be no assurance that the Company in future periods will not be
required to incur a charge against earnings in accordance with
such policy, which charge, depending upon the magnitude thereof,
could adversely affect the Company's results of operations.
<PAGE>
Risks Associated with Acquisitions: In connection with any
acquisition made by the Company, there may be liabilities that
the Company fails or is unable to discover, including liabilities
arising from environmental contamination or non-compliance by
prior owners with environmental laws or regulatory requirements,
and for which the Company, as a successor owner, may be
responsible.
As the Company completes acquisitions in a region, it seeks
to achieve synergies and efficiencies through the integration of
newly acquired and existing operations in the region. There can
be no assurance, however, that the Company will be successful in
this regard or that such efforts may not in certain circumstances
adversely affect its existing operations.
Availability of Acquisition Targets: The Company's ongoing
acquisition program is a key element of its expansion strategy.
There can be no assurance, however, that the Company will succeed
in locating appropriate acquisition candidates that can be
acquired at price levels that the Company considers appropriate.
