<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(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
Note: The only change effected by this amendment is in the pro forma information
for 1995 that appears in Note 2 to Unaudited Condensed Consolidated Financial
Information under Item 1.
<PAGE>
UNITED WASTE SYSTEMS, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
PAGE
------
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
<PAGE>
UNITED WASTE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
------------ ------------
<S> <C> <C>
(Unaudited)
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.
3
<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.
4
<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.
5
<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.
6
<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>
(Unaudited)
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.
7
<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
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C>
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 .33 .26
per common share and common
equivalent share
Fully diluted earnings
per common share and common
equivalent share .33 .26
</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.
9
<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 claim should not materially affect the financial
position of the
10
<PAGE>
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.
11
<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
12
<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%
==== ====
</TABLE>
- --------------
(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.
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
13
<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.
14
<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.
15
<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
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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
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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
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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 amortizations.
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
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charge against earnings in the range of $1.0 million 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.
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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.
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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)
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