<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1996
REGISTRATION NO. 333-4889
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
POST EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN DISPOSAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4953 13-3858494
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
745 MCCLINTOCK DRIVE
SUITE 305
BURR RIDGE, ILLINOIS 60521
(708) 655-1105
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ANN L. STRAW, ESQ.
AMERICAN DISPOSAL SERVICES, INC.
745 MCCLINTOCK DRIVE
SUITE 305
BURR RIDGE, ILLINOIS 60521
(708) 655-1105
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Stephen W. Rubin, Esq. Howard L. Shecter, Esq.
Proskauer Rose Goetz & Mendelsohn LLP Morgan, Lewis & Bockius LLP
1585 Broadway 101 Park Avenue
New York, New York 10036 New York, New York 10178
(212) 969-3000 (212) 309-6000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as possible after the Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CROSS REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- - ------------------------------------------------------------------------ --------------------------------------------------
<C> <C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus.................................... Facing Page of Registration Statement; Cross
Reference Sheet; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges............................................... Prospectus Summary; Risk Factors; The Company
4. Use of Proceeds.............................................. Use of Proceeds
5. Determination of Offering Price.............................. Underwriting
6. Dilution..................................................... Dilution
7. Selling Security Holders..................................... Not applicable
8. Plan of Distribution......................................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered................... Description of Capital Stock
10. Interest of Named Experts and Counsel........................ Not applicable
11. Information With Respect to the Registrant
(a) Description of Business........................... Prospectus Summary; Business; Management's
Discussion and Analysis of Financial Condition
and Results of Operations
(b) Description of Property........................... Business
(c) Legal Proceedings................................. Business
(d) Dividends and Related Stockholder Matters......... Risk Factors; Capitalization; Dividend Policy;
Description of Capital Stock
(e) Financial Statements.............................. Consolidated Financial Statements; Unaudited
Interim Condensed Consolidated Financial
Statements; Unaudited Pro Forma Consolidated
Financial Statements; Financial Statements of
Acquired Companies (CDI Acquisition)
(f) Selected Financial Data........................... Prospectus Summary; Selected Consolidated
Financial Data
(g) Supplementary Financial Information............... Not applicable
(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. Experts
(j) Directors and Executive Officers.................. Management
(k) Executive Compensation............................ Management
(l) Security Ownership of Certain Beneficial Owners
and Management................................... Principal Stockholders; Shares Eligible for Future
Sale
(m) Certain Relationships and Related Transactions.... Certain Transactions
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities.................................. Not applicable
</TABLE>
<PAGE>
2,750,000 SHARES
[LOGO]
COMMON STOCK
--------------
All of the shares of Common Stock offered hereby are being issued and sold
by American Disposal Services, Inc. (the "Company"). See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price.
Prior to this offering, there has been no public market for the Common Stock
of the Company. The Common Stock has been approved for quotation on the Nasdaq
National Market under the trading symbol "ADSI."
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK
OFFERED HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------
Per Share......................... $9.00 $0.63 $8.37
Total (3)......................... $24,750,000 $1,732,500 $23,017,500
- - -------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $1,000,000.
(3) The Underwriters have been granted an option, exercisable within 30 days
from the date hereof, to purchase up to 412,500 additional shares of Common
Stock, at the Price to Public per share, less the Underwriting Discount, for
the purpose of covering over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $28,462,500, $1,992,375 and
$26,470,125, respectively. See "Underwriting."
-------------------
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel or
reject orders in whole or in part and subject to certain other conditions. It is
expected that delivery of the certificates representing the shares will be made
against payment on or about July 30, 1996, at the offices of Oppenheimer & Co.,
Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281.
-------------------
OPPENHEIMER & CO., INC. CS FIRST BOSTON
The date of this Prospectus is July 25, 1996.
<PAGE>
[MAP]
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMPANY'S COMMON STOCK PURSUANT TO EXEMPTIONS FROM
RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
The Company intends to furnish its stockholders annual reports containing
financial statements audited by its independent certified public accountants and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE
NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL FINANCIAL INFORMATION, SHARE AND PER SHARE DATA IN THIS
PROSPECTUS: (I) GIVE EFFECT TO AN EXCHANGE OF THE COMPANY'S COMMON STOCK, PAR
VALUE $.01 PER SHARE ("COMMON STOCK"), IN CONNECTION WITH THE FORMATION OF A
HOLDING COMPANY, EFFECTIVE AS OF JANUARY 1, 1996; (II) GIVE EFFECT TO A 13.5 FOR
1 STOCK SPLIT; (III) EXCLUDE 1,085,070 SHARES OF COMMON STOCK OF THE COMPANY
ISSUABLE UPON EXERCISE OF OUTSTANDING WARRANTS AND STOCK OPTIONS; AND (IV)
ASSUME NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. AS USED IN THIS
PROSPECTUS, THE TERMS "COMPANY" AND "AMERICAN DISPOSAL SERVICES" REFER
COLLECTIVELY TO AMERICAN DISPOSAL SERVICES, INC. AND ITS SUBSIDIARIES, UNLESS
THE CONTEXT OTHERWISE REQUIRES.
------------------------
THE COMPANY
American Disposal Services is a regional, integrated, non-hazardous solid
waste services company that provides solid waste collection, transfer and
disposal services primarily in the Midwest. The Company owns five solid waste
landfills and owns, operates or has exclusive contracts to receive waste from
seven transfer stations. The Company's landfills and transfer stations are
supported by its collection operations, which serve over 85,000 residential,
commercial and industrial customers.
The Company began its operations in the Midwest and currently has operations
in Arkansas, Illinois, Kansas, Missouri, Ohio, Oklahoma and Pennsylvania. The
Company has adopted an acquisition-based growth strategy, and intends to
continue its expansion, generally in its existing and proximate markets. A
cornerstone of the Company's growth strategy is to identify and acquire solid
waste landfills located in secondary markets that are within approximately 125
miles of significant metropolitan centers and to secure dedicated waste streams
for such landfills by acquisition or development of transfer stations and
acquisition of collection companies. The Company expects the current
consolidation trends in the solid waste industry to continue as many independent
landfill and collection operators lack the capital resources, management skills
and technical expertise necessary to operate in compliance with increasingly
stringent environmental and other governmental regulations. Due in part to this
consolidation, the Company believes that significant opportunities exist to
expand and further integrate its operations in each of its existing markets.
Since January 1993, the Company has acquired 23 solid waste businesses,
including four solid waste landfills, 18 solid waste collection companies and
one transfer station.
The Company's operating program generally involves a four-step process: (i)
acquiring solid waste landfills in its target markets; (ii) securing captive
waste streams for its landfills through the acquisition or development of
transfer stations serving those markets, through acquisitions of collection
companies and by entering into long-term contracts directly with customers or
collection companies; (iii) making "tuck-in" acquisitions of collection
companies to further penetrate its target markets; and (iv) integrating these
businesses into the Company's operations to achieve operating efficiencies and
economies of scale. The implementation of the Company's operating program is
substantially complete in its Missouri region (which also includes Arkansas,
Kansas and Oklahoma), where the Company has completed the acquisition of 12
collection companies and the acquisition or development of three transfer
stations. The Company is in the initial phases of its operating program in the
Illinois, Ohio and Pennsylvania regions in which the Company began operations in
1995. In addition, the Company may, as specific opportunities arise, evaluate
and pursue acquisitions in the solid waste collection and disposal industry that
do not strictly conform to the Company's four-step operating program.
The Company's operating strategy emphasizes the integration of its solid
waste collection and disposal operations and the internalization of waste
collected. One of the Company's goals is for its captive waste streams
(including the Company's collection operations and third party haulers operating
under long-term contracts) to provide in excess of 50% of the volume of solid
waste disposed of at each of its landfills. During the three months ended March
31, 1996, the Company's captive waste constituted an average of approximately
63% of the solid waste disposed of at its landfills.
3
<PAGE>
Each member of the Company's senior operating management team has worked at
a senior level in the solid waste industry in the Midwest for over 10 years.
The Company has recorded net losses to common stockholders of approximately
$749,000, $2.4 million and $3.7 million during the fiscal years ended December
31, 1993, 1994 and 1995, respectively. Additionally, the Company has had working
capital deficits in the past, and at March 31, 1996, the Company had a working
capital deficit of approximately $9.6 million.
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the factors set forth under the caption "Risk Factors." Among other
things, prospective purchasers should be aware of the risks associated with: (i)
the Company's ability to manage its growth effectively; (ii) the availability of
acquisition targets and integration of future acquisitions; (iii) the Company's
history of losses and working capital deficits and its integration of completed
acquisitions; (iv) the Company's limited operating history; (v) the Company's
significant leverage; (vi) the Company's ability to compete in the highly
competitive solid waste collection and disposal industry; and (vii) the
Company's ability to fund future capital requirements and working capital
deficits.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.............. 2,750,000 shares
Common Stock outstanding after the
Offering......................... 8,426,901 shares (1)
Use of proceeds................... Reduction of indebtedness, acquisitions, working capital
and general corporate purposes.
Nasdaq National Market symbol..... ADSI
</TABLE>
- - ------------------------
(1) Does not include 1,085,070 shares of Common Stock issuable upon the exercise
of warrants and stock options outstanding as of March 31, 1996.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31,
------------------------------- DECEMBER 31, ---------------------
1993 1994 1995 1995 (1) 1995 1996
--------- --------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 7,730 $ 18,517 $ 30,004 $ 44,500 $ 5,034 $ 11,724
Cost of operations................................. 5,750 12,647 17,286 22,330 3,047 6,108
Selling, general and administrative expenses....... 1,646 4,910 5,882 9,493 1,080 1,935
Depreciation and amortization expense.............. 1,166 3,226 6,308 13,040 984 2,718
--------- --------- --------- ------------ --------- ----------
Operating income (loss)............................ (832) (2,266) 528 (363) (77) 963
Interest expense................................... (417) (1,497) (3,030) (5,314) (511) (1,617)
Interest income.................................... 35 2 189 189 4 78
--------- --------- --------- ------------ --------- ----------
Loss before income taxes and extraordinary item.... (1,214) (3,761) (2,313) (5,488) (584) (576)
Income tax benefit (expense)....................... 391 1,372 (332) (332) 156 160
--------- --------- --------- ------------ --------- ----------
Loss before extraordinary item..................... (823) (2,389) (2,645) $ (5,820) (428) (416)
------------
------------
Extraordinary item -- gain (loss) on early
retirement of debt................................ 74 -- (908) -- --
--------- --------- --------- --------- ----------
Net loss........................................... (749) (2,389) (3,553) (428) (416)
Preferred stock dividend requirement of
subsidiary........................................ -- -- (190) -- (63)
--------- --------- --------- --------- ----------
Net loss to common stockholders.................... $ (749) $ (2,389) $ (3,743) $ (428) $ (479)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Pro forma net loss per share of common stock....... $ (.99)
------------
------------
Pro forma weighted average common stock and common
stock equivalent shares used to calculate pro
forma net loss per share amounts.................. 5,864,078
------------
------------
Supplemental pro forma net loss per share of common
stock (5)......................................... $ (.67)
------------
------------
OTHER DATA:
EBITDA (2)......................................... $ 334 $ 960 $ 6,836 $ 12,677 $ 907 $ 3,681
EBITDA margin (3).................................. 4.3% 5.2% 22.8% 28.5% 18.0% 31.4%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------
ACTUAL AS ADJUSTED (4)
----------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 6,706 $ 12,715
Working capital (deficit)............................................................ (9,558) 11,325
Property and equipment, net.......................................................... 81,696 81,696
Total assets......................................................................... 115,432 122,720
Long-term debt, net of current portion............................................... 49,006 51,779
Redeemable preferred stock of subsidiary............................................. 1,908 --
Total stockholders' equity........................................................... 33,318 54,860
</TABLE>
- - ------------------------
(1) Pro forma information for the year ended December 31, 1995 gives effect to
the CDI Acquisition (as defined in "The Company") and borrowings
outstanding under the Credit Facility (as defined in "Risk Factors --
Significant Leverage") and the application of the net proceeds therefrom,
as if each of the foregoing had occurred or been in effect on January 1,
1995. See the Pro Forma Consolidated Statement of Operations and related
notes included elsewhere herein.
(2) EBITDA represents operating income plus depreciation and amortization.
While EBITDA data should not be construed as a substitute for operating
income, net income (loss) or cash flows from operations in analyzing the
Company's operating performance, financial position and cash flows, the
Company has included EBITDA data (which are not a measure of financial
performance under generally accepted accounting principles) because it
understands that such data are commonly used by certain investors to
evaluate a company's performance in the solid waste industry.
(3) EBITDA margin represents EBITDA expressed as a percentage of revenues.
(4) Adjusted to give effect to borrowings outstanding under the Credit Facility
and the application of the net proceeds therefrom, and the sale of the
Common Stock offered hereby and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds." See "Capitalization."
(5) Supplemental pro forma net loss per share of Common Stock for the year
ended December 31, 1995 represents pro forma net loss per share of Common
Stock adjusted to give effect to the issuance of 1,375,000 shares, the
number of shares of Common Stock being issued in the Offering the proceeds
of which are being used to repay approximately $11.0 million of the Credit
Facility, as if such issuance and repayment was completed on the first day
of the period presented, and a related reduction in interest expense.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK BEING OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION, THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. DISCUSSIONS
CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET
FORTH UNDER "PROSPECTUS SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS --
INTRODUCTION," "BUSINESS -- INDUSTRY BACKGROUND," "BUSINESS -- STRATEGY,"
"BUSINESS -- ACQUISITION PROGRAM," "BUSINESS -- OPERATIONS" AND "BUSINESS --
ENVIRONMENTAL REGULATIONS" AS WELL AS IN THE PROSPECTUS GENERALLY. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK
FACTORS, IN ADDITION TO THE OTHER INFORMATION CONCERNING THE COMPANY AND ITS
BUSINESS CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE SHARES OF COMMON
STOCK OFFERED HEREBY.
ABILITY TO MANAGE GROWTH
The Company's goal is to increase the scale of its operations significantly
through the acquisition of other solid waste businesses and through internal
growth. Consequently, the Company may experience periods of rapid growth with
significantly increased staffing level requirements. Such growth could place a
significant strain on the Company's management and on its operational, financial
and other resources. The Company's ability to maintain and manage its growth
effectively will require it to develop its management information systems
capabilities and improve its operational and financial systems and controls.
Moreover, the Company will need to attract, train, motivate, retain and manage
its senior managers, technical professionals and other employees. Any failure to
expand its management information system capabilities, to implement and improve
its operational and financial systems and controls or to recruit appropriate
additional personnel in an efficient manner at a pace consistent with the
Company's business growth would have a material adverse effect on the Company's
business, financial condition and results of operations.
AVAILABILITY OF ACQUISITION TARGETS; INTEGRATION OF FUTURE ACQUISITIONS
The Company's ongoing acquisition program is a key element of its
acquisition-based growth strategy for expanding its solid waste management
services. Consequently, the future growth of the Company depends in large part
upon the successful continuation of this acquisition program. The Company may
encounter substantial competition in its efforts to acquire landfills, transfer
stations and collection companies. There can be no assurance that the Company
will succeed in locating or acquiring appropriate acquisition candidates at
price levels and on terms and conditions that the Company considers appropriate.
In addition, if in the future the Company is successful in acquiring targeted
companies, it will need to integrate these acquired companies into the Company's
operations. There can be no assurance that the Company will successfully
integrate future acquisitions into its operations. See "Business -- Strategy,"
"-- Acquisition Program" and "-- Competition."
HISTORY OF LOSSES AND WORKING CAPITAL DEFICITS; INTEGRATION OF COMPLETED
ACQUISITIONS
The Company has recorded net losses to common stockholders of approximately
$749,000, $2.4 million and $3.7 million during the fiscal years ended December
31, 1993, 1994 and 1995, respectively, and has had working capital deficits in
the past. See "-- Funding of Future Capital Requirements and Working Capital
Deficits" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Introduction." The financial position and results of
operations of the Company will depend to a large extent on the Company's ability
to integrate effectively the operations of the 23 companies it has acquired from
January 1993 to date and to realize expected efficiencies and economies of scale
from such acquisitions. There can be no assurance that the Company's efforts to
integrate these operations will be effective, that expected efficiencies and
economies of scale will be realized or that the Company will be able to
consolidate successfully its operations. The failure to achieve any of these
results could cause the Company's net losses and working capital deficits to
continue and could have a material adverse effect on the Company's business,
financial condition and results of operations.
6
<PAGE>
LIMITED OPERATING HISTORY
Following the Exchange (as defined in "The Company"), the Company began
operating as a consolidated entity effective as of January 1, 1996. Prior to
1996, the Company's operations were conducted by ADS, Inc. ("ADS") and County
Disposal, Inc. ("CDI"), two subsidiaries of the Company, the operations of which
were acquired by the Company's stockholders in 1993 and 1995, respectively.
Accordingly, the Company has a limited history of operating as a consolidated
entity and may experience difficulties as it integrates the operations of its
subsidiaries.
SIGNIFICANT LEVERAGE
The Company has incurred significant debt obligations in connection with
financing its acquisitions and business growth. In May 1996 the Company entered
into an $87 million revolving credit and term loan facility with Internationale
Nederlanden (U.S.) Capital Corporation, as administrative agent, and Morgan
Guaranty Trust Company of New York, as documentation agent (the "Credit
Facility"). As of March 31, 1996, the Company's consolidated indebtedness was
$67.6 million, its consolidated total assets were $115.4 million and its
stockholders' equity was $33.3 million (or $53.6, $122.7 and $54.9 million,
respectively, as adjusted to give effect to borrowings outstanding under the
Credit Facility and the application of the net proceeds therefrom, and the sale
of the Common Stock offered hereby and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds"). During the three
months ended March 31, 1996, the Company's operating income plus depreciation
and amortization ("EBITDA") was $3.7 million, and interest expense during this
period was $1.6 million. The Company's ability to meet its debt service
obligations and to reduce its total debt will depend upon its future
performance, which, in turn, will be subject to general economic conditions and
to financial, business and other factors affecting the operations of the
Company, many of which are beyond the Company's control. If the Company fails to
generate sufficient cash flow to repay its debt, the Company may be required to
refinance all or a portion of its existing debt or to obtain additional
financing. There can be no assurance that such refinancing or any additional
financing could be obtained on terms favorable to the Company or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
HIGHLY COMPETITIVE INDUSTRY
The solid waste collection and disposal business is highly competitive and
requires substantial amounts of capital. The Company competes with numerous
solid waste management companies, many of which are significantly larger and
have greater financial resources than the Company. The Company also competes
with those counties, municipalities and solid waste districts that maintain
their own waste collection and disposal operations. These counties,
municipalities and solid waste districts may have financial advantages due to
the availability to them of user fees, charges or tax revenues and the greater
availability to them of tax-exempt financing. In addition, competitors may
reduce the price of their services in an effort to expand market share or to win
competitively bid municipal contracts. There can be no assurance that the
Company will be able to compete successfully. See "Business -- Competition."
FUNDING OF FUTURE CAPITAL REQUIREMENTS AND WORKING CAPITAL DEFICITS
The Company's acquisition-based growth strategy has resulted in a steady
increase in its capital requirements, and such increase may continue in the
future as the Company pursues its strategy. The Company has incurred working
capital deficits in the past, and there can be no assurance that its available
working capital will be sufficient in the future as it pursues its growth
strategy. At March 31, 1996, the Company had a working capital deficit of
approximately $9.6 million. For calendar year 1996, the Company expects to spend
approximately $13 million for capital expenditures. To the extent that
internally generated cash, the cash available to the Company from the net
proceeds of the Offering and cash available under the Credit Facility are not
sufficient to provide the cash required for future operations, capital
expenditures, acquisitions, debt repayment obligations and financial assurance
obligations, the Company will require additional equity 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 on terms satisfactory to
the Company. Where appropriate, the Company may seek to minimize the use of cash
to finance its acquisitions by using capital
7
<PAGE>
stock, assumption of indebtedness or notes. However, there can be no assurance
the owners of the businesses the Company may wish to acquire will be willing to
accept non-cash consideration in whole or in part. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Acquisition Program."
DEPENDENCE ON THIRD PARTY COLLECTION OPERATIONS
A portion of the solid waste delivered to the Company's landfills is
delivered by third party collection companies under informal arrangements or
without long-term contracts. If these third parties discontinued their
arrangements with the Company and if the Company were unable to replace these
third party arrangements without incurring significant additional costs, the
Company's business, financial condition and results of operations might be
materially adversely affected.
LIMITATIONS ON EXPANSION
The Company's operating program depends on its ability to expand and develop
its landfills, transfer stations and collection operations. The process of
obtaining permits to operate or expand solid waste landfills and transfer
stations has become increasingly difficult and expensive, often taking several
years, requiring numerous hearings and compliance with zoning, environmental and
other regulatory measures, and often being subject to resistance from citizen or
other groups. There can be no assurance that the Company will be successful in
obtaining the permits it requires or that such permits will not contain onerous
terms and conditions. An inability to receive such permits could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-- Extensive Environmental and Land Use Laws and Regulations."
In some areas, suitable land may be unavailable for new landfill sites. There
can be no assurance that the Company will be successful in obtaining new
landfill sites or expanding the permitted capacity of its current landfills once
its landfill capacity has been consumed. In such event, the Company could be
forced to dispose of collected waste at landfills operated by its competitors,
which could have a material adverse effect on the Company's landfill revenues
and collection expenses. See "Business -- Operations -- Landfills."
EXTENSIVE ENVIRONMENTAL AND LAND USE LAWS AND REGULATIONS
The Company is subject to extensive and evolving environmental and land use
laws and regulations, which have become increasingly stringent in recent years
as a result of greater public interest in protecting and cleaning up the
environment. These laws and regulations affect the Company's business in many
ways, including as set forth below. See "Business -- Environmental Regulations"
for further information concerning the matters set forth below.
EXTENSIVE PERMITTING REQUIREMENTS. In order to develop and operate a
landfill or other solid waste management facility, it is necessary to obtain and
maintain in effect one or more facility permits and other governmental
approvals, including those related to zoning, environmental and land use. In
addition, the Company may be required to obtain similar permits and approvals in
order to expand its existing landfill and solid waste management operations.
These permits and approvals are difficult and time consuming to obtain and are
frequently subject to community opposition, opposition by various local elected
officials or citizens and other uncertainties. In addition, after an operating
permit for a landfill or other facility is obtained, the permit may be subject
to modification or revocation by the issuing agency, and it may be necessary to
obtain periodically a renewal of the permit, which may reopen opportunities for
opposition to the permit. Moreover, from time to time, regulatory agencies may
delay the review or grant of these required permits or approvals or may modify
the procedures or increase the stringency of the standards applicable to its
review or grant of such permits or approvals. In addition, the Company may not
be able to ensure that its landfill operations are included and remain in the
solid waste management plan of the state or county in which such operations are
conducted. The Company may also have difficulty obtaining host agreements with
counties or local communities, or existing host communities may demand
modifications of existing host agreements in connection with planned expansions,
either of which could increase the Company's costs and reduce its margins. 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 or approvals required
for planned landfill expansions, and the failure by the Company to obtain or
8
<PAGE>
maintain in effect a permit significant to its business could materially
adversely affect the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DESIGN, OPERATION AND CLOSURE REQUIREMENTS. The design, operation and
closure of landfills are subject to extensive regulations. These regulations
include, among others, the regulations (the "Subtitle D Regulations")
establishing minimum federal requirements adopted by the United States
Environmental Protection Agency (the "EPA") in October 1991 under Subtitle D of
the Resource Conservation and Recovery Act of 1976 ("RCRA"). The Subtitle D
Regulations generally became effective on October 9, 1993 (except for certain
municipal solid waste landfills accepting less than 100 tons per day, as to
which the effective date was April 9, 1994, and new financial assurance
requirements, which are scheduled to become effective April 9, 1997). The
Subtitle D Regulations require all states to adopt regulations regarding
landfill design, operation and closure requirements that are as stringent as, or
more stringent than, the Subtitle D Regulations. All states in which the
Company's landfills are located have in place extensive landfill regulations
consistent with the Subtitle D requirements. These federal and state regulations
require the Company to design the landfill in accordance with stringent
technical requirements, monitor groundwater, post financial assurances, and
fulfill landfill closure and post-closure obligations. These regulations could
also require the Company to undertake investigatory, remedial and monitoring
activities, to curtail operations or to close a landfill temporarily or
permanently. Furthermore, future changes in these regulations may require the
Company to modify, supplement, or replace equipment or facilities at costs which
may be substantial.
LEGAL AND ADMINISTRATIVE PROCEEDINGS. In the ordinary course of its
business, the Company may become involved in a variety of legal and
administrative proceedings relating to land use and environmental laws and
regulations. These may include proceedings by federal, state or local agencies
seeking to impose civil or criminal penalties on the Company for violations of
such laws and regulations, or to impose liability on the Company under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA") or comparable state statutes, or to revoke or deny renewal of a
permit; actions brought by citizens' groups, adjacent landowners or governmental
entities opposing the issuance of a permit or approval to the Company or
alleging violations of the permits pursuant to which the Company operates or
laws or regulations to which the Company is subject; and actions seeking to
impose liability on the Company for any environmental damage at its landfill
sites or that its landfills or other properties may have caused to adjacent
landowners or others, including groundwater or soil contamination. The Company
could incur substantial legal expenses during the course of the aforementioned
proceedings, and the adverse outcome of one or more of these proceedings could
materially adversely affect the Company's business, financial condition and
results of operations. See "Business -- Legal Proceedings."
During the ordinary course of its operations, the Company has from time to
time received, and expects that it may in the future receive, citations or
notices from governmental authorities that its operations are not in compliance
with its permits or certain applicable environmental or land use laws and
regulations. The Company generally seeks to work with the authorities to resolve
the issues raised by such citations or notices. There can be no assurance,
however, that the Company will always be successful in this regard, and the
failure to resolve a significant issue could result in one or more of the
adverse consequences to the Company described below under "Potential
Liabilities."
POTENTIAL LIABILITIES. There may be various adverse consequences to the
Company in the event that a facility owned or operated by the Company (or a
predecessor owner or operator whose liabilities the Company may have acquired
expressly or under successor liability theories) causes environmental damage, in
the event that waste transported by the Company (or a predecessor) causes
environmental damage at another site, in the event that the Company fails (or a
predecessor failed) to comply with applicable environmental and land use laws
and regulations or the terms of a permit or outstanding consent order or in the
event the Company's owned or operated facility or the soil or groundwater
thereunder is or becomes contaminated. These may include the imposition of
substantial monetary penalties on the Company; the issuance of an order
requiring the curtailment or termination of the operations involved or affected;
the revocation or denial of permits or other approvals necessary for continued
operation or landfill expansion; the imposition of liability on the Company in
respect of any environmental damage (including groundwater
9
<PAGE>
or soil contamination) at its landfill sites or that its landfills or other
facilities or other Company-owned or operated facilities caused to adjacent
landowners or others or environmental damage at another site associated with
waste transported by the Company; the imposition of liability on the Company
under CERCLA or under comparable state laws; and criminal liability for the
Company or its officers. Any of the foregoing could materially adversely affect
the Company's business, financial condition and results of operations.
As described under "Business -- Environmental Regulations," CERCLA and
analogous state laws impose retroactive strict joint and several liability on
various parties that are, or have been, associated with a site from which there
has been, or is threatened, a release of any hazardous substance (as defined by
CERCLA) into the environment. Liability under RCRA, CERCLA and analogous state
laws may include responsibility for costs of site investigations, site cleanup,
natural resources damages and property damages. Liabilities under RCRA, CERCLA
and analogous state laws can be very substantial and, if imposed upon the
Company, could materially adversely affect the Company's business, financial
condition and results of operations.
In the ordinary course of its landfill and waste management operations and
in connection with its review of landfill and other operations to be acquired,
the Company has discovered, and may in the future discover, indications of
groundwater contamination at certain landfills. In such events, the Company
would seek or be required to determine the magnitude and source of the problem
and, if appropriate or required by applicable regulations, to design and
implement measures to remedy, or halt the spread of, the contamination. There
can be no assurance, however, that contamination discovered at a landfill or at
other Company sites will not result in one or more of the adverse consequences
to the Company described above.
TYPE, QUANTITY AND SOURCE LIMITATIONS. Certain permits and approvals may
limit the types of waste that may be accepted at a landfill or the quantity of
waste that may be accepted at a landfill during a given time period. In
addition, certain permits and approvals, as well as certain state and local
regulations, may limit a landfill to accepting waste that originates from
specified geographic areas or seek to restrict the importation of out-of-state
waste or otherwise discriminate against out-of-state waste. Generally,
restrictions on the importation of out-of-state waste have not withstood
judicial challenge. However, from time to time federal legislation is proposed
which would allow individual states to prohibit the disposal of out-of-state
waste or to limit the amount of out-of-state waste that could be imported for
disposal and would require states, under certain circumstances, to reduce the
amounts of waste exported to other states. Although such legislation has not yet
been adopted by Congress, if this or similar legislation is enacted, states in
which the Company operates landfills could act to limit or prohibit the
importation of out-of-state waste. Such state actions could materially adversely
affect landfills within those states that receive a significant portion of waste
originating from out-of-state.
In addition, certain states and localities may for economic or other reasons
restrict the exportation of waste from their jurisdiction or require that a
specified amount of waste be disposed of at facilities within their
jurisdiction. In 1994, the United States Supreme Court held unconstitutional,
and therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, the Company
may elect not to challenge such restrictions based upon various considerations.
In addition, the aforementioned proposed federal legislation would allow states
and localities to impose certain flow control restrictions. These restrictions
could result in the volume of waste going to landfills being reduced in certain
areas, which may materially adversely 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. These restrictions may also result in
higher disposal costs for the Company's collection operations. If the Company
were unable to pass such higher costs through to its customers, the Company's
business, financial condition and results of operations could be materially
adversely affected.
POTENTIAL LIABILITIES ASSOCIATED WITH ACQUISITIONS
The businesses acquired by the Company may have liabilities that the Company
did not discover or may have been unable to discover during its pre-acquisition
investigations, including liabilities arising from
10
<PAGE>
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. Any indemnities or warranties, due to their limited
scope, amount, or duration, the financial limitations of the indemnitor or
warrantor or other reasons, may not fully cover such liabilities.
DEPENDENCE ON SENIOR MANAGEMENT
The Company is highly dependent on its senior management team. The loss of
the services of any member of senior management may have a material adverse
effect on the Company's business, financial condition and results of operations.
In an effort to minimize this risk, the Company has entered into employment
contracts with certain members of senior management. The Company does not
maintain "key man" life insurance with respect to members of senior management
except for a $2.0 million policy maintained on the Company's President.
DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company intends to use 50%, or approximately $11.0 million, of the
estimated net proceeds from the Offering to repay certain indebtedness. The
Company anticipates that the remaining net proceeds of this Offering will be
used for acquisitions, working capital and general corporate purposes. The
Company's management will have complete discretion to allocate the balance of
the net proceeds from the Offering among acquisitions, working capital and
general corporate purposes. See "Use of Proceeds."
LIMITS ON INSURANCE COVERAGE
There can be no assurance that the Company's pollution liability insurance
will provide sufficient coverage in the event an environmental claim were made
against the Company or that the Company will be able to maintain in place such
insurance at reasonable costs. An uninsured or underinsured claim of sufficient
magnitude could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Liability
Insurance and Bonding."
INCURRENCE OF CHARGES RELATED TO CAPITALIZED EXPENDITURES
In accordance with generally accepted accounting principles, the Company
capitalizes certain expenditures and advances relating to 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 or not expected to be
successfully completed. Therefore, the Company may be required to incur a charge
against earnings in future periods, which charge, depending upon the magnitude
thereof, could materially adversely affect the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for a discussion of capitalized expenditures in connection with
certain operations and projects.
USE OF ALTERNATIVES TO LANDFILL DISPOSAL
Alternatives to landfill disposal, such as recycling and composting, are
increasingly being used. In addition, incineration is an alternative to landfill
disposal in certain of the Company's markets. 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 or affect the prices
that can be charged for landfill disposal services. For example, Illinois, Ohio
and Pennsylvania, states in which the Company operates landfills, have adopted
bans on the disposal of yard waste or leaves in landfills located in those
states, and all of the states in which the Company operates landfills have
adopted rules restricting or limiting disposal of tires at landfills. In
addition, each of the states in which the Company operates landfills has adopted
plans or requirements which set goals for specified percentages of certain solid
waste items to be recycled. These recycling goals are being phased in over the
next few years. These alternatives, if and when
11
<PAGE>
adopted and implemented, may have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Business --
Environmental Regulations -- State and Local Regulations."
ABILITY TO MEET FINANCIAL ASSURANCE OBLIGATIONS
The Company is required to post a performance bond or a bank letter of
credit or to provide other forms of financial assurance in connection with
closure and post-closure obligations with respect to landfills or its other
solid waste management operations and may be required to provide such financial
assurance in connection with municipal residential collection contracts. As of
July 11, 1996, the Company had outstanding approximately $15 million of
performance bonds and $90,000 in letters of credit. If the Company were unable
to obtain surety bonds or letters of credit in sufficient amounts, or to provide
other required forms of financial assurance, it would be unable to remain in
compliance with the Subtitle D Regulations or comparable state requirements and,
among other things, might be precluded from entering into certain municipal
collection contracts and obtaining or holding landfill operating permits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Liability
Insurance and Bonding."
SEASONALITY
The Company's revenues tend to be somewhat lower in the winter months. This
is primarily attributable to the fact that: (i) the volume of waste relating to
construction and demolition activities tends to increase in the spring and
summer months; and (ii) the volume of industrial and residential waste in the
regions where the Company operates tends to decrease during the winter months.
In addition, particularly harsh weather conditions may delay the development of
landfill capacity and otherwise result in the temporary suspension of certain of
the Company's operations and could materially adversely affect the Company's
overall business, financial condition and results of operations.
HOLDING COMPANY STRUCTURE
The Company was formed in connection with the Exchange pursuant to which all
of the outstanding common stock of ADS and CDI was exchanged for Common Stock.
As a result of the Exchange, the Company is a holding company that conducts all
of its operations through its subsidiaries. Accordingly, the Company will rely
on distributions from ADS and CDI to provide the funds necessary to meet its
obligations under the Credit Facility and otherwise. The ability of either
subsidiary to make such payments to the Company is subject to applicable laws
and contractual restrictions that may restrict or prohibit the making of such
payments.
CONTROL BY EXISTING STOCKHOLDERS
Immediately following the Offering, the Company's principal stockholders
will beneficially own approximately 60% of the outstanding shares of the
Company's Common Stock. See "Principal Stockholders." As a result, such persons
will have the ability to exercise significant influence over all matters
requiring stockholder approval, such as the election of directors, mergers and
acquisitions. Such a high level of ownership by such persons and entities may
have a significant effect in delaying, deferring or preventing a change in
control of the Company.
ANTI-TAKEOVER PROVISIONS
The Board of Directors may issue up to 5,000,000 shares of Preferred Stock
in the future without stockholder approval upon such terms as the Board of
Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying or preventing a
change in control of the Company without further action by the stockholders. The
Company has no present plans to issue any shares of Preferred Stock. See
"Description of Capital Stock -- Undesignated Preferred Stock." In addition,
following the Offering the Company will become subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which will
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the
12
<PAGE>
date of the transaction in which the person became an interested stockholder,
unless the business combination is approved in a prescribed manner. The
application of Section 203 also could have the effect of delaying or preventing
a change of control of the Company. See "Description of Capital Stock --
Delaware Anti-Takeover Law and Certain Charter Provisions."
NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained after the Offering. The initial public offering price has been
determined through negotiations between the Company, and the representatives of
the Underwriters based on several factors and may not be indicative of the
market price of the Common Stock after the Offering. See "Underwriting." The
market price of the shares of Common Stock may be highly volatile and is likely
to be affected by factors such as actual or anticipated fluctuations in the
Company's operating results, announcements of new contracts by the Company, its
competitors or their customers, government regulatory action, general market
conditions and other factors. In addition, the stock market has from
time-to-time experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stock of solid waste
disposal companies and that have often been unrelated to the operating
performance of particular companies. These broad market fluctuations may also
adversely affect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has occurred against the issuing company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Any adverse determination in such litigation could also subject the
Company to significant liabilities.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in the Offering will therefore incur immediate and substantial net
tangible book value dilution. To the extent that stock options and warrants
(currently outstanding or subsequently granted) to purchase the Company's Common
Stock are exercised, there may be further dilution. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE
Sale of substantial amounts of shares in the public market or the prospect
of such sales could adversely affect the market price of the Company's Common
Stock. Upon completion of the Offering, the Company will have outstanding
8,426,901 shares of Common Stock, of which the 2,750,000 shares offered hereby
will be freely tradeable. The Company's officers and directors and holders of 5%
or more of the outstanding shares of Common Stock prior to the Offering, who
beneficially own an aggregate of 5,888,279 shares of Common Stock or options or
warrants to purchase shares of Common Stock, have agreed not to offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of such
securities for 180 days after the date of this Prospectus without the prior
written consent of Oppenheimer & Co., Inc. In its sole discretion and at any
time without notice, Oppenheimer & Co., Inc. may release all or any portion of
the shares subject to lock-up agreements. In addition, following 180 days after
the Offering, the holders of 5,032,861 shares of Common Stock and warrants to
purchase 215,455 shares of Common Stock have demand and "piggy-back" rights with
respect to the registration of such shares of Common Stock for sale to the
public. If such holders, by exercising their registration rights, cause a large
number of shares to be sold in the public market, such sales could have an
adverse effect on the market price for the Company's Common Stock. In addition,
if the Company is required to include such shares in Company-initiated
registration statements, this could have an adverse effect on the Company's
ability to raise needed capital. See "Shares Eligible for Future Sale" and
"Underwriting." The Company intends to file a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), upon completion of
the Offering or shortly thereafter, covering the sale of 1,100,000 shares of
Common Stock reserved for issuance under the Company's 1996 Stock Option Plan.
13
<PAGE>
Upon completion of the Offering, there will be outstanding options to purchase a
total of 869,615 shares of Common Stock and warrants to purchase a total of
215,455 shares of Common Stock. See "Management -- 1996 Stock Option Plan."
ABSENCE OF DIVIDENDS
The Company has never declared or paid dividends on its Common Stock and
does not anticipate paying dividends in the foreseeable future. See "Dividend
Policy."
14
<PAGE>
THE COMPANY
American Disposal Services, Inc. was incorporated in the State of Delaware
in November 1995. The Company is the sole stockholder of ADS, an Oklahoma
corporation that was formed in January 1991, and CDI, a Delaware corporation
that was formed in April 1995. The Company acquired all the shares of the common
stock of ADS and CDI, effective as of January 1, 1996, in exchange for which the
previous stockholders of ADS and CDI received shares of the Company's Common
Stock (the "Exchange"). As part of the Exchange, all options and warrants that
had previously been granted by ADS and CDI were cancelled in exchange for
options and warrants granted by the Company. In addition, effective as of May
31, 1996, the Company completed a 13.5-for-1 stock split of the Company's Common
Stock (the "Stock Split"; together with the Exchange, the "Restructuring").
In January 1993, affiliates of Charterhouse Group International, Inc.
("Charterhouse") acquired a majority interest in ADS, the primary asset of which
was the Pittsburg County landfill near McAlester, Oklahoma. In connection with
the Charterhouse investment, ADS recruited the Company's President in January
1993, and assembled the balance of the Company's senior management team between
1993 and 1995. As a result of the management team's substantial experience in
the solid waste industry and the financial expertise and capital provided by
Charterhouse, the Company was able to finance its acquisition-based growth
strategy, which from the outset focused on the identification and acquisition of
solid waste landfills located in secondary markets. Using this strategy, CDI
acquired three landfills in Illinois, Ohio and Pennsylvania in 1995 (the "CDI
Acquisition"). Since January 1993, the Company has acquired 23 solid waste
businesses, including four solid waste landfills, 18 solid waste collection
companies and one transfer station.
The Company's principal executive offices are located at 745 McClintock
Drive, Suite 305, Burr Ridge, Illinois 60521, and its telephone number is (708)
655-1105.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting underwriting discounts and offering expenses payable by
the Company, are approximately $22.0 million (approximately $25.5 million if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use such proceeds: (i) to repay approximately $11.0 million of one of the
term loans outstanding under the Credit Facility which bears an interest rate of
8.38% and has a maturity date of June 30, 2001; and (ii) to apply the remaining
approximately $11.0 million for acquisitions, working capital and general
corporate purposes. See "Risk Factors -- Discretion of Management to Allocate
Offering Proceeds." The proceeds from the Credit Facility repaid all of the
Company's existing bank debt and a portion of a note payable to a stockholder,
and redeemed the preferred stock of a subsidiary. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." While the Company has entered into letters of intent for
certain proposed acquisitions, these proposed transactions are not material to
the Company's business.
Pending use of the net proceeds for the above purposes, the Company intends
to invest such funds in short-term, investment-grade securities, including
government obligations and money market instruments.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock,
and neither ADS nor CDI has declared or paid any dividends on its common stock.
The Company and its Board of Directors currently intend to retain any earnings
for use in the operation and expansion of the Company's business and do not
anticipate paying any dividends on the Common Stock for the foreseeable future.
The Credit Facility prohibits the payment of cash dividends without prior bank
approval. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
15
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of March 31,
1996 was $15,761,000, or $2.78 per share. The "net tangible book value as
adjusted" per share represents the amount of total tangible assets of the
Company less total liabilities, divided by 8,426,901, the number of shares of
Common Stock outstanding after the Offering, after giving effect to the sale of
2,750,000 shares of Common Stock offered hereby at a public offering price of
$9.00 per share and application of the estimated net proceeds therefrom. The net
tangible book value as adjusted of the Company as of March 31, 1996 would have
been $37,779,000 or $4.48 per share. This represents an immediate increase in
net tangible book value as adjusted of $1.70 per share to existing stockholders
and an immediate dilution of $4.52 per share to new investors purchasing shares
in the Offering.
The following table illustrates the dilution per share as described above:
<TABLE>
<S> <C> <C>
Initial public offering price....................................... $ 9.00
Net tangible book value before the Offering....................... $ 2.78
Increase attributable to new investors............................ 1.70
---------
Net tangible book value as adjusted after the Offering.............. 4.48
---------
Dilution to new investors........................................... $ 4.52
---------
---------
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the net
tangible book value as adjusted will be $4.66 per share, resulting in dilution
to new investors purchasing shares in the Offering of $4.34 per share.
The following table sets forth, on an as adjusted basis as of March 31,
1996, the number of shares of Common Stock purchased from the Company, the total
cash consideration paid to the Company and the average price per share paid by
the existing stockholders and by new investors purchasing shares of Common Stock
in the Offering, at an initial public offering price of $9.00 per share.
<TABLE>
<CAPTION>
SHARES TOTAL CASH
PURCHASED (1) CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 5,676,901 67.4% $ 41,589,000 62.7% $ 7.33
New investors.............................. 2,750,000 32.6% $ 24,750,000 37.3% $ 9.00
---------- --- ------------- ---
Total.................................. 8,426,901 100% $ 66,339,000 100%
---------- --- ------------- ---
---------- --- ------------- ---
</TABLE>
- - ------------------------
(1) The foregoing table assumes no exercise of the Underwriters' over-allotment
option or of warrants and stock options outstanding as of March 31, 1996. As
of March 31, 1996, there were outstanding warrants and options to purchase
an aggregate of 1,085,070 shares of Common Stock. To the extent that
additional options are granted under the Company's 1996 Stock Option Plan,
there could be further dilution to new investors if the exercise price of
such options is less than the initial public offering price per share. See
"Management -- 1996 Stock Option Plan."
16
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of the Company
at March 31, 1996; and (ii) the capitalization of the Company at March 31, 1996
as adjusted to reflect borrowings under the Credit Facility (and the recognition
of related unamortized deferred debt issuance cost) and the application of the
net proceeds therefrom to repay all of the Company's then existing bank debt and
a portion of a note payable to a stockholder, and redeem the preferred stock of
a subsidiary, and the sale of 2,750,000 shares of Common Stock offered hereby
and the application of the estimated net proceeds therefrom to repay $11.0
million of borrowings outstanding under the Credit Facility. See "Use of
Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
AS
ACTUAL ADJUSTED
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term obligations......................................... $ 4,167 $ 1,793
Note payable to stockholder (1).................................................. 12,500 --
--------- ----------
Short term debt and current portion of long-term obligations................... $ 16,667 $ 1,793
--------- ----------
--------- ----------
Long-term obligations............................................................ $ 49,006 $ 51,779
Redeemable preferred stock of subsidiary......................................... 1,908 --
Stockholders' equity (2):
Preferred stock: 5,000,000 shares authorized; no shares issued or
outstanding................................................................... -- --
Common stock: 20,000,000 shares authorized; 5,676,901 shares issued and
outstanding; 8,426,901 shares issued and outstanding as adjusted.............. 57 84
Warrants outstanding........................................................... 107 107
Additional paid-in capital..................................................... 41,532 63,523
Accumulated deficit............................................................ (8,378) (8,854)
--------- ----------
Total stockholders' equity................................................... 33,318 54,860
--------- ----------
Total capitalization....................................................... $ 84,232 $ 106,639
--------- ----------
--------- ----------
</TABLE>
- - ------------------------
(1) Subsequent to March 31, 1996, $7.5 million of the note payable was repaid
with borrowings under the Credit Facility, and the remaining $5.0 million
was repaid with existing cash.
(2) Excludes 412,500 additional shares of Common Stock that may be sold pursuant
to the Underwriters' over-allotment option and 1,085,070 shares of Common
Stock reserved for issuance pursuant to the exercise of outstanding warrants
and stock options under the Company's 1996 Stock Option Plan.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated statement of operations,
balance sheet and other data of the Company for the periods presented. See "The
Company" and the Notes to the consolidated financial statements included
elsewhere herein for information concerning the basis of presentation. The
following selected consolidated financial data as of December 31, 1994 and 1995
and for each of the three years in the period ended December 31, 1995 have been
derived from the audited consolidated financial statements of the Company
included elsewhere in this Prospectus and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected consolidated financial data as of December 31, 1991,
1992 and 1993 and for the years ended December 31, 1991 and 1992, are derived
from audited consolidated financial statements that are not included herein. The
selected consolidated financial data as of March 31, 1996 and for the three
months ended March 31, 1995 and 1996 are unaudited but have been prepared on the
same basis as the audited financial data and, in the opinion of management,
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for such periods.
The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
--------------------------------------------------------------- -----------
1991 1992 1993 1994 1995 1995
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 33 $ 146 $ 7,730 $ 18,517 $ 30,004 $ 5,034
Cost of operations........................ 22 249 5,750 12,647 17,286 3,047
Selling, general and administrative
expenses................................. 167 625 1,646 4,910 5,882 1,080
Depreciation and amortization expense..... 9 100 1,166 3,226 6,308 984
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)................... (165) (828) (832) (2,266) 528 (77)
Interest expense.......................... -- (26) (417) (1,497) (3,030) (511)
Interest income........................... -- -- 35 2 189 4
----------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes and extraordinary
item..................................... (165) (854) (1,214) (3,761) (2,313) (584)
Income tax benefit (expense).............. -- -- 391 1,372 (332) 156
----------- ----------- ----------- ----------- ----------- -----------
Loss before extraordinary item............ (165) (854) (823) (2,389) (2,645) (428)
Extraordinary item -- gain (loss) on early
retirement of debt....................... -- -- 74 -- (908) --
----------- ----------- ----------- ----------- ----------- -----------
Net loss.................................. (165) (854) (749) (2,389) (3,553) (428)
Preferred stock dividend requirement...... -- -- -- -- (190) --
----------- ----------- ----------- ----------- ----------- -----------
Net loss applicable to common
stockholders............................. $ (165) $ (854) $ (749) $ (2,389) $ (3,743) $ (428)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Loss per share of common stock:
Loss before extraordinary item.......... $ (.49) $ (2.14) $ (.58) $ (.99) $ (.80) $ (.17)
----------- ----------- ----------- ----------- ----------- -----------
Extraordinary item...................... -- -- .05 -- (.26) --
----------- ----------- ----------- ----------- ----------- -----------
Net loss................................ $ (.49) $ (2.14) $ (.53) $ (.99) $ (1.06) $ (.17)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Weighted average common stock and common
stock equivalent shares used to calculate
per share amounts........................ 338,141 399,465 1,406,219 2,411,381 3,527,688 2,569,522
OTHER DATA:
EBITDA (1)................................ $ (156 ) $ (728 ) $ 334 $ 960 $ 6,836 $ 907
EBITDA margin (2)......................... (472.7 )% (498.6 )% 4.3 % 5.2 % 22.8 % 18.0%
<CAPTION>
1996
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 11,724
Cost of operations........................ 6,108
Selling, general and administrative
expenses................................. 1,935
Depreciation and amortization expense..... 2,718
-----------
Operating income (loss)................... 963
Interest expense.......................... (1,617)
Interest income........................... 78
-----------
Loss before income taxes and extraordinary
item..................................... (576)
Income tax benefit (expense).............. 160
-----------
Loss before extraordinary item............ (416)
Extraordinary item -- gain (loss) on early
retirement of debt....................... --
-----------
Net loss.................................. (416)
Preferred stock dividend requirement...... (63)
-----------
Net loss applicable to common
stockholders............................. $ (479)
-----------
-----------
Loss per share of common stock:
Loss before extraordinary item.......... $ (.08)
-----------
Extraordinary item...................... --
-----------
Net loss................................ $ (.08)
-----------
-----------
Weighted average common stock and common
stock equivalent shares used to calculate
per share amounts........................ 5,864,078
OTHER DATA:
EBITDA (1)................................ $ 3,681
EBITDA margin (2)......................... 31.4 %
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 109 $ 12 $ 2,134 $ 548 $ 6,383 $ 6,706
Working capital (deficit)...................................... 118 (332) 788 (2,237) (8,819) (9,558)
Property and equipment, net.................................... 393 467 15,156 17,062 81,250 81,696
Total assets................................................... 629 705 35,651 37,557 114,693 115,432
Long-term debt and capital lease obligations, net of current
portion....................................................... -- -- 16,073 18,487 48,789 49,006
Redeemable preferred stock of subsidiary....................... -- -- -- -- 1,908 1,908
Stockholders' equity........................................... 585 89 12,531 12,132 33,855 33,318
</TABLE>
- - ------------------------------
(1) EBITDA represents operating income plus depreciation and amortization.
While EBITDA data should not be construed as a substitute for operating
income, net income (loss) or cash flows from operations in analyzing the
Company's operating performance, financial position and cash flows, the
Company has included EBITDA data (which are not a measure of financial
performance under generally accepted accounting principles) because it
understands that such data are commonly used by certain investors to
evaluate a company's performance in the solid waste industry.
(2) EBITDA margin represents EBITDA expressed as a percentage of revenues.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data", the Company's Consolidated Financial Statements
and the notes thereto and the Company's Pro Forma Financial Statements and the
notes thereto, included elsewhere herein.
INTRODUCTION
The Company has adopted an acquisition-based growth strategy that focuses
on: (i) the identification and acquisition of solid waste landfills located in
secondary markets that are within approximately 125 miles of significant
metropolitan centers; and (ii) securing dedicated waste streams for such
landfills by the acquisition or development of transfer stations and the
acquisition of collection companies. The Company has completed 23 acquisitions
since January 1993. All of these acquisitions were accounted for under the
purchase method of accounting for business combinations. Accordingly, the
amortization of goodwill and landfill airspace reflects the fair market value of
the Company's assets at the time of their acquisition rather than their
historical cost basis, and the results of operations for such acquired
businesses are included in the Company's financial statements only from the
applicable date of acquisition. As a result, the Company believes its historical
results of operations for the periods presented are not directly comparable.
There are several other aspects of the Company's growth strategy that cause
management to believe that the Company's historical results of operations may
not be consistent with future performance, including the following:
- CONCENTRATION OF LANDFILL ASSETS. Since the CDI Acquisition, the mix of
the Company's assets has been concentrated in landfills, as opposed to
collection and transfer station operations. As a result of goodwill
associated with the Company's acquisitions and the amortization expense
associated with its landfill assets and closure obligations, the amount of
depreciation and amortization as a percentage of the Company's revenues
for the year ended December 31, 1995 and for the three months ended March
31, 1996 was relatively high as compared to other solid waste companies
(21.0% and 23.2%, respectively). Management believes that this percentage
is likely to decline as the Company penetrates the market in its Illinois,
Ohio and Pennsylvania regions by acquiring or developing transfer
stations, acquiring collection operations and making "tuck-in"
acquisitions of collection companies.
- MANAGEMENT CAPABILITIES. Since 1993, the Company has assembled a
management team with substantial experience in the solid waste industry.
The Company believes that its senior management team has the ability to
manage the Company's operations as they expand. Therefore, the Company
believes that the amount of selling, general and administrative expenses
is likely to decline as a percentage of revenues as the Company grows.
- CELL DEVELOPMENT COSTS. Cells developed to date at the landfills acquired
in the CDI Acquisition have been constructed with double liner composite
systems. The Company is exploring the possibility of using alternative
design systems at its Ohio and Illinois landfills, which should result in
lower cell development costs.
Consistent with its operating program, the Company believes acquisitions of
solid waste companies will have a positive impact on its future results of
operations and, accordingly, believes that the Company's historical results
should be considered in conjunction with the Unaudited Pro Forma Consolidated
Financial Statements and the notes thereto included elsewhere herein.
Additionally, neither the historical nor the pro forma results of operations
fully reflect the operating efficiencies and improvements that are expected to
be achieved by integrating acquired businesses, internalizing waste flows to the
Company's landfills and realizing other synergies. See "Business -- Strategy."
GENERAL
REVENUES. The Company's revenues are attributable primarily to fees charged
to customers for waste collection, transfer and disposal services. The Company's
collection services are generally provided under
19
<PAGE>
direct agreements with its customers or pursuant to contracts with
municipalities. Commercial and municipal contract terms, where used, generally
range from one to five years and commonly have automatic renewal options. A
relatively small portion of such agreements also provide for the prepayment of
certain fees, which fees are reflected as deferred revenues. The table below
shows for the periods indicated, the percentage of the Company's total revenues
attributable to services provided:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Collection (1).................................... 57.8% 68.0% 55.3% 63.5% 39.4%
Transfer.......................................... --(2) 9.1 5.0 8.9 1.9
Landfill (1)...................................... 42.2 22.8 39.0 27.0 58.5
Other............................................. -- 0.1 0.7 0.6 0.2
----- ----- ----- ----- -----
Total Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- - ------------------------
(1) The portion of collection revenues attributable to disposal charges for
waste collected by the Company and disposed of at the Company's landfills
has been excluded from collection revenues and included in landfill
revenues.
(2) In 1993, the Company did not separately account for its revenues from
collection and transfer operations and, accordingly, revenues from transfer
operations are reflected as collection revenues.
A component of the Company's business strategy is to maximize
internalization of waste it collects and thereby realize higher margins from its
operations. By disposing of waste at Company-owned landfills, the Company
retains the margin generated through disposal operations that would otherwise be
earned by third-party landfills. During the three months ended March 31, 1996,
98% of the total tonnage collected by the Company was disposed of at
Company-owned landfills. This represents approximately 29% of the total tonnage
disposed of at Company-owned landfills in the three months ended March 31, 1996.
During such period, 34% of the total tonnage disposed of at Company-owned
landfills was delivered pursuant to long-term contracts.
EXPENSES. Cost of operations include labor, maintenance and repairs,
equipment and facility rent, utilities and taxes, the costs of ongoing
environmental compliance, safety and insurance, disposal costs and costs of
independent haulers transporting Company waste to disposal sites. Disposal costs
include certain landfill taxes, host community fees, landfill site maintenance,
fuel and other equipment operating expenses and provision for post-closure
expenses, consisting of cap maintenance, groundwater monitoring, methane gas
control and recovery and leachate treatment/disposal, anticipated to be incurred
in the future.
Selling, general and administrative ("SG&A") expenses include management,
clerical and administrative compensation, overhead, sales costs, community
relations expenses, provisions for estimated uncollectible accounts receivable
and unrealizable acquisition costs and management fees paid to an affiliate of
Charterhouse. Upon closing of the Offering, in lieu of paying such management
fees, the Company will begin to pay a salary to the Company's Chairman (which
should result in savings to the Company of approximately $300,000 per annum).
See "Certain Transactions."
Depreciation and amortization expense includes depreciation of fixed assets,
closure costs and amortization of landfill airspace, goodwill, other intangibles
and loan origination fees. The amount of landfill amortization expense related
to airspace consumption can vary materially from landfill to landfill depending
upon the purchase price, landfill configuration and cell development costs.
Certain direct landfill development costs, such as engineering, upgrading,
construction and permitting costs, are capitalized and amortized based on
airspace consumed. All of the Company's capitalized expenditures relating to
cell development and landfill expansion work are in connection with cells for
which the Company holds a permit for development. The Company believes that the
costs associated with engineering, owning and operating landfills will increase
in the future as a result of federal, state and local regulation and a growing
community awareness of the landfill permitting process. Although there can be no
assurance, the
20
<PAGE>
Company believes that it will be able to implement price increases sufficient to
offset these increased expenses. All indirect landfill development costs, such
as executive salaries, general corporate overhead, public affairs and other
corporate services, are expensed as incurred.
The Company capitalizes engineering, legal, accounting and other direct
costs incurred in connection with potential acquisitions, accounted for using
the purchase method for business combinations. The Company, however, routinely
evaluates such capitalized costs and expenses those costs related to
acquisitions not likely to occur. Indirect acquisition costs, such as executive
salaries, general corporate overhead and other corporate services, are expensed
as incurred.
Accrued closure and post-closure costs represent an estimate of the current
value of the future obligations associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned by the
Company. Site specific closure and post-closure engineering cost estimates are
prepared annually for landfills owned by the Company. Estimated costs are
accrued based on accepted tonnage as landfill airspace is consumed. The Company
periodically updates its estimates of future closure and post-closure costs.
These changes are accounted for on a prospective basis. The Company expects its
closure and post-closure costs per ton to decrease as it expands landfill
capacity and as such costs are amortized over greater airspace.
The Company has estimated that, as of December 31, 1995, total costs for
post-closure activities, including cap maintenance, groundwater monitoring,
methane gas control and recovery and leachate treatment/disposal for up to 30
years after closure in certain cases, will approximate $11.3 million. In
addition, the Company has estimated that, as of December 31, 1995, closure costs
expected to occur during the operating lives of these facilities and expensed
over these facilities' useful lives will approximate $28.4 million. At December
31, 1994 and 1995 and March 31, 1996, accruals for landfill closure and
post-closure costs (including costs assumed through acquisitions) were
approximately $1.1 million, $6.2 million and $6.6 million, respectively. The
accruals reflect relatively young landfills with estimated remaining lives,
based on current waste flows, that range from 4 to 46 years, and an estimated
average remaining life of greater than 20 years.
RESULTS OF OPERATIONS
The following table sets forth items in the Company's consolidated statement
of operations as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of operations..................................... 74.4 68.3 57.6 60.5 52.1
Selling, general and administrative expenses........... 21.3 26.5 19.6 21.5 16.5
Depreciation and amortization expenses................. 15.1 17.4 21.0 19.6 23.2
----- ----- ----- ----- -----
Operating income (loss)................................ (10.8) (12.2) 1.8 (1.6) 8.2
Interest expense, net.................................. (4.9) (8.1) (9.5) (10.0) (13.1)
Income tax (expense) benefit........................... 5.0 7.4 (1.1) 3.1 1.4
Extraordinary gain (loss), net of income tax........... 1.0 -- (3.0) -- --
----- ----- ----- ----- -----
Net loss........................................... (9.7)% (12.9)% (11.8)% (8.5)% (3.5)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
EBITDA margin.......................................... 4.3% 5.2% 22.8% 18.0% 31.4%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
REVENUES. Revenues for the three months ended March 31, 1996 were $11.7
million compared to $5.0 million for the three months ended March 31, 1995. The
increase in revenues is due primarily to the effects of the CDI Acquisition
(which occurred after March 31, 1995). Revenues of $7.2 million for the 1996
period
21
<PAGE>
were generated from companies acquired since March 31, 1995, while revenues
attributable to existing operations amounted to $4.5 million, a decrease of
$552,000. This decrease was due primarily to the lapse of an exclusive contract
with a transfer station in Oklahoma.
COST OF OPERATIONS. Cost of operations for the three months ended March 31,
1996 was $6.1 million compared to $3.0 million for the three months ended March
31, 1995. This increase was attributable primarily to the associated increase in
revenues described above. As a percentage of revenues, cost of operations
decreased to 52.1% in the 1996 period from 60.5% in the 1995 period. The
resulting increase in margins was due primarily to the Company's higher
proportion of landfill operations (which generally have higher margins than
disposal operations), with landfill revenues increasing from $1.4 million to
$6.9 million and from 27.0% to 58.5% as a percentage of revenues. Margins also
increased because of increased operating efficiencies resulting from the
consolidation of hauling operations and the opening of new transfer stations in
the Company's Missouri region.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased to
$1.9 million for the three months ended March 31, 1996 compared to $1.1 million
for the three months ended March 31, 1995. The aggregate increase in SG&A
expenses resulted from expenses associated with the CDI Acquisition, and an
increase in personnel and other expenses related to the anticipated growth of
the Company. As a percentage of revenues, SG&A expenses decreased to 16.5% in
the 1996 period from 21.5% in the 1995 period. The decrease in SG&A expenses as
a percentage of revenues is due partially to a significant increase in revenue
producing assets while corporate level personnel and other related expenses
increased moderately. SG&A expenses in future periods should be positively
affected by savings of approximately $300,000 per annum due to the termination,
effective at the closing of the Offering, of the Company's management agreement
with an affiliate of its principal stockholder. See "Certain Transactions."
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the three months ended March 31, 1996 was $2.7 million compared to
$1.0 million for the three months ended March 31, 1995. The increase in
depreciation and amortization expense is due primarily to the CDI Acquisition
which significantly increased landfill airspace amortization and provision for
closure costs, and, to a lesser extent, the capital expenditures associated with
such acquisition. See "-- Introduction." As a percentage of revenues,
depreciation and amortization expense was 23.2% and 19.6% for the three months
ended March 31, 1996 and March 31, 1995, respectively. The relatively high
percentages are primarily due to the configuration of the Wheatland landfill
during the three months ended March 31, 1995 and the high concentration of the
Company's assets in landfills following the CDI Acquisition during the three
months ended March 31, 1996. Net fixed assets increased to $81.7 million at
March 31, 1996 from $17.3 million at March 31, 1995 and goodwill, net of
accumulated amortization expense, increased to $15.6 million at March 31, 1996
from $13.6 million at March 31, 1995.
NET INTEREST EXPENSE. Net interest expense was $1.5 million for the three
months ended March 31, 1996 compared to $507,000 for the three months ended
March 31, 1995. This increase is attributable to additional debt incurred to
complete the CDI Acquisition.
INCOME TAXES. The Company recorded an income tax benefit of $160,000 for
the three months ended March 31, 1996 and $156,000 for the three months ended
March 31, 1995 primarily due to the effects of differences in the treatment of
goodwill for book and tax purposes.
YEARS ENDED DECEMBER 31, 1995 AND 1994
REVENUES. Revenues in 1995 were $30.0 million compared to $18.5 million in
1994. The increase in revenues was due primarily to the effects of the CDI
Acquisition and, to a lesser extent, price and volume increases attributable to
existing operations. Revenues of $10.1 million in 1995 were generated from
companies acquired during 1995, while increases in revenue attributable to
operations acquired prior to 1996 amounted to $1.3 million.
COST OF OPERATIONS. Cost of operations in 1995 was $17.3 million compared
to $12.6 million in 1994. This increase in costs was attributable primarily to
increases in the Company's revenues described above. As a percentage of
revenues, cost of operations was 57.6% in 1995 compared to 68.3% in 1994. This
decrease
22
<PAGE>
was due primarily to operating efficiencies and improvements from the Company's
development of its Missouri region and the impact of the CDI Acquisition, which
shifted the relative proportion of the Company's assets toward landfills that
typically operate at higher margins than collection operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $5.8
million in 1995 compared to $4.9 million in 1994. The increase was a result of
expenses associated with the CDI Acquisition, expenses incurred in connection
with the Company's increase in personnel and other expenses related to the
anticipated expansion of the Company's operations. SG&A expenses as a percentage
of revenues were 19.6% in 1995 compared to 26.5% in 1994.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense in 1995 was $6.3 million compared to $3.2 million in 1994. The increase
in depreciation and amortization expense is due to the acquisition of the CDI
landfills, with their relatively higher depreciation and amortization expense
compared to depreciation and amortization expense of collection operations,
depreciation of increased capital expenditures and a one time write-off of
$505,000 following the Company's election in 1995 not to pursue the enforcement
of several covenants not to compete. Net fixed assets increased to $81.3 million
in 1995 from $17.1 million in 1994 and goodwill, net of accumulated amortization
expense, increased to $15.7 million in 1995 from $13.6 million in 1994.
NET INTEREST EXPENSE. Net interest expense increased to $2.8 million in
1995 from $1.5 million in 1994. This increase primarily reflects increased
indebtedness incurred in connection with acquisitions and capital expenditures.
INCOME TAXES. Although the Company recorded a net loss in 1995, the Company
recorded an income tax expense of $300,000 in 1995 because the Company's
subsidiaries were not then consolidated and CDI reported a profit in 1995. The
Company recorded an income tax benefit of $1.4 million in 1994. See Note 6 of
the Notes to Consolidated Financial Statements included elsewhere herein.
EXTRAORDINARY EXPENSE. In 1995, the Company recognized an extraordinary
loss of $908,000, representing unamortized deferred debt issuance cost in
connection with the extinguishment of debt outstanding under a prior credit
facility.
YEARS ENDED DECEMBER 31, 1994 AND 1993
REVENUES. Revenues in 1994 were $18.5 million compared to $7.7 million in
1993. The increase in revenues was due primarily to the effects of 1993
acquisitions, the operations of which were included in the Company's financial
results for a full year beginning in 1994, and the additional impact of
acquisitions completed during 1994.
COST OF OPERATIONS. Cost of operations in 1994 were $12.6 million compared
to $5.8 million in 1993. The increase in the cost of operations principally
reflects costs associated with acquired operations. Cost of operations as a
percentage of revenues, however, decreased from 74.4% in 1993 to 68.3% in 1994.
The improvement in margins in 1994 resulted primarily from lower third-party
disposal costs as a result of diverting waste at acquired businesses from
third-party landfills to Company-owned landfills. Margins also benefitted from
the integration of acquired companies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $4.9
million in 1994 compared to $1.6 million in 1993. SG&A expenses as a percentage
of revenues were 26.5% in 1994 compared to 21.3% in 1993. This increase reflects
expenses incurred in connection with the Company's increase in personnel and
other expenses related to the anticipated growth of the Company.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense in 1994 was $3.2 million compared to $1.2 million in 1993. The increase
in depreciation and amortization expense is due to the full year impact of
acquisitions completed during 1993.
NET INTEREST EXPENSE. Net interest expense increased to $1.5 million in
1994 from $382,000 in 1993, primarily because the Company's indebtedness
increased subsequent to 1993 as a result of acquisitions, landfill development
and other capital expenditures.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Due to the capital intensive nature of the solid waste industry, the Company
has used, and expects to continue using, substantially all cash generated from
operations to fund acquisitions, capital expenditures and landfill development.
Certain operating equipment has also been acquired using leases which have short
and medium-term maturities. As a result, the Company has incurred working
capital deficits in the past, and there can be no assurance that its available
working capital will be sufficient in the future as it pursues its
acquisition-based growth strategy. Historically, the Company has satisfied its
acquisition, capital expenditure and working capital needs primarily through
equity infusions from its principal stockholders and bank financing.
The Company's capital expenditure and working capital requirements have
increased significantly, reflecting the Company's rapid growth by acquisition
and development of revenue producing assets, and will increase further as the
Company continues to pursue its acquisition-based growth strategy. During 1994,
the Company spent $5.6 million in capital expenditures, of which $1.7 million
was for cell development at the Company's initial two landfills. During 1995,
when the Company acquired three more landfills, the Company spent $6.2 million
in capital expenditures, of which $4.9 million was for cell development. In
connection with such acquisitions, the Company required $25.5 million in equity
infusions from its principal stockholders and $36.7 million in bank debt. In
1996, the Company expects to spend approximately $13 million for capital
expenditures of which $8.1 million is anticipated to be used for cell
development. The increase in cell development costs in 1996 over 1995 will be
due to the Company's ownership of the Clarion, Livingston and Wyandot landfills
for the entire year and the fact that increased volumes at the landfills will
cause cell development to occur prior to the winter season when construction
activities cease.
Operating activities provided net cash of $5.6 million in 1995 and used net
cash of $1.1 million in 1994. From 1994 to 1995, depreciation and amortization
expense increased by $3.1 million and accounts payable and accrued liabilities
increased by $1.8 million. The increase in each of these items was primarily due
to the Company's purchase of three landfills in 1995. See " -- Introduction."
Investing activities used net cash of $68.4 million and $6.2 million in 1995 and
1994, respectively. The increase in the amount of net cash used in investing
activities between 1994 and 1995 is primarily due to the CDI Acquisition.
Financing activities provided net cash of $68.6 million and $5.7 million in 1995
and 1994, respectively. The increase in net cash provided by financing
activities reflects proceeds from a 1995 credit facility, a note payable to a
stockholder and net proceeds from issuances of common stock.
In May 1996, the Company entered into the $87 million Credit Facility with
Internationale Nederlanden (U.S.) Capital Corporation, as administrative agent,
and Morgan Guaranty Trust Company of New York, as documentation agent, which
repaid all of the Company's then existing bank debt and a portion of a note
payable to a stockholder, and redeemed the preferred stock of a subsidiary. In
connection with such refinancing, the Company recognized an extraordinary loss,
net of federal tax benefit, of $476,000, representing unamortized deferred debt
issuance cost. The Credit Facility provides the Company with two term loans of
$38 million and $25 million which were used to repay then existing debt and
financing fees, a $7 million revolving credit facility for working capital
purposes, and a $17 million expansion facility which may only be used for
acquisitions. The various loans and lines of credit under the Credit Facility
bear interest at rates per annum equal to, at the Company's discretion, either:
(i) the higher of (a) the federal funds rate plus 1/2 of 1% and (b) the prime
rate, plus an applicable margin ranging from 1.00% to 1.75%; or (ii) the London
Interbank Offered Rate ("LIBOR"), plus an applicable margin ranging from 2.50%
to 3.25%, and have maturities ranging from 2001 to 2003. As of July 11, 1996,
the Company had borrowed $73.4 million under the Credit Facility. As of such
date, the interest rates on the various loans and lines of credit under the
Credit Facility ranged from 8.00% to 8.75% and the total unused availability
under the Credit Facility was $13.6 million, of which $6.0 million may be used
for working capital purposes and $7.6 million may be used for acquisitions. The
Company's ability to use the expansion facility is based upon a number of
covenants, including the maintenance of specified debt to equity and fixed
charge coverage ratios. The Company is in compliance with the terms of these
covenants. Other covenants contain limitations on the payments of dividends, the
incurrence of additional debt and the use of proceeds from debt or equity
issuances. The Credit Facility requires the Company to use 50% of the proceeds
of any equity offering (including the
24
<PAGE>
Offering) to repay a portion of the term loans then outstanding. Upon
consummation of this Offering and the application of the net proceeds therefrom,
the Company expects to have $13.6 million of availability under the Credit
Facility, of which $6.0 million may be used for working capital purposes and
$7.6 million may be used for acquisitions.
The Company expects that Subtitle D and other regulations that apply to the
non-hazardous waste disposal industry will require the Company, as well as
others in the industry, to alter operations and to modify or replace existing
facilities. Such expenditures have been and will continue to be substantial.
Regulatory changes could accelerate expenditures for closure and post-closure
monitoring and obligate the Company to spend sums in addition to those presently
reserved for such purposes. These factors, together with the other factors
discussed above, could substantially increase the Company's operating costs. See
"Risk Factors -- Extensive Environmental and Land Use Laws and Regulations."
The Company intends to satisfy its interest obligations as well as future
capital expenditures and working capital requirements, with cash flows from
operations and borrowings under the Credit Facility. After completion of the
Offering, the Company may need to raise additional capital to fund the
acquisition and integration of additional solid waste businesses. The Company
may raise such funds through bank financings or public or private offerings of
its securities. There can be no assurance that the Company will be able to
secure such funding, if necessary, on favorable terms, if at all. If the Company
is not successful in securing such funding, the Company's ability to pursue its
business strategy may be impaired and results of operations for future periods
may be adversely affected. See "Risk Factors -- Capital Requirements and Limited
Working Capital."
CDI ACQUISITION
Through the CDI Acquisition, the Company acquired three landfills and
certain other assets (the "MSG Facilities") from the Municipal Services Group of
Envirite Corporation. See "The Company." For the periods presented in the
historical financial statements of the MSG Facilities included elsewhere herein,
the MSG Facilities' funds were generated from operating activities and from
financing through Envirite Corporation's credit facility. Separate historical
financial statements for the MSG Facilities could not be prepared because
Envirite Corporation did not maintain intercompany accounts that would allow
calculation of corporate overhead allocations and certain balance sheet items.
Operating cash flows from the MSG Facilities for the fiscal years ended January
1, 1994 and December 31, 1994 and the period from January 1, 1995 to the dates
of acquisition of such properties were $3.1 million, $3.0 million and $3.8
million, respectively. Capital expenditures for the MSG Facilities for the
fiscal years ended January 1, 1994 and December 31, 1994 and the period from
January 1, 1995 to the dates of acquisition of such properties were $4.7
million, $2.1 million and $2.2 million, respectively. These cash flows may have
been different if the MSG Facilities had operated independently of Envirite
Corporation for the periods presented.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. Consistent with industry practice, most of the Company's contracts
provide for a pass through of certain costs, including increases in landfill
tipping fees and, in some cases, fuel costs. The Company therefore believes it
should be able to implement price increases sufficient to offset most cost
increases resulting from inflation. However, competitive factors may require the
Company to absorb at least a portion of these cost increases, particularly
during periods of high inflation. The Company is unable to determine the future
impact of a sustained economic slowdown.
SEASONALITY
The Company's revenues tend to be somewhat lower in the winter months. This
is primarily attributable to the fact that: (i) the volume of waste relating to
construction and demolition activities tends to increase in the spring and
summer months; and (ii) the volume of industrial and residential waste in the
regions where the Company operates tends to decrease during the winter months.
In addition, particularly harsh weather conditions may delay the development of
landfill capacity and otherwise result in the temporary suspension of certain of
the Company's operations and could materially adversely affect the Company's
overall business, financial condition and results of operations.
25
<PAGE>
BUSINESS
INTRODUCTION
American Disposal Services is a regional, integrated, non-hazardous solid
waste services company that provides solid waste collection, transfer and
disposal services primarily in the Midwest. The Company owns five solid waste
landfills and owns, operates or has exclusive contracts to receive waste from
seven transfer stations. The Company's landfills and transfer stations are
supported by its collection operations, which serve over 85,000 residential,
commercial and industrial customers.
The Company began its operations in the Midwest and currently has operations
in Arkansas, Illinois, Kansas, Missouri, Ohio, Oklahoma and Pennsylvania. The
Company has adopted an acquisition-based growth strategy, and intends to
continue its expansion, generally in its existing and proximate markets. A
cornerstone of the Company's growth strategy is to identify and acquire solid
waste landfills located in secondary markets that are within approximately 125
miles of significant metropolitan centers and to secure dedicated waste streams
for such landfills by acquisition or development of transfer stations and
acquisition of collection companies. The Company expects the current
consolidation trends in the solid waste industry to continue as many independent
landfill and collection operators lack the capital resources, management skills
and technical expertise necessary to operate in compliance with increasingly
stringent environmental and other governmental regulations. Due in part to this
consolidation, the Company believes that significant opportunities exist to
expand and further integrate its operations in each of its existing markets.
Since January 1993, the Company has acquired 23 solid waste businesses,
including four solid waste landfills, 18 solid waste collection companies and
one transfer station.
The Company's operating program generally involves a four-step process: (i)
acquiring solid waste landfills in its target markets; (ii) securing captive
waste streams for its landfills through the acquisition or development of
transfer stations serving those markets, through acquisitions of collection
companies and by entering into long-term contracts directly with customers or
collection companies; (iii) making "tuck-in" acquisitions of collection
companies to further penetrate its target markets; and (iv) integrating these
businesses into the Company's operations to achieve operating efficiencies and
economies of scale. The implementation of the Company's operating program is
substantially complete in its Missouri region (which also includes Arkansas,
Kansas and Oklahoma), where the Company has completed the acquisition of 12
collection companies and the acquisition or development of three transfer
stations. The Company is in the initial phases of its operating program in the
Illinois, Ohio and Pennsylvania regions in which the Company began operations in
1995. In addition, the Company may, as specific opportunities arise, evaluate
and pursue acquisitions in the solid waste collection and disposal industry that
do not strictly conform to the Company's four-step operating program.
The Company's operating strategy emphasizes the integration of its solid
waste collection and disposal operations and the internalization of waste
collected. One of the Company's goals is for its captive waste streams
(including the Company's collection operations and third party haulers operating
under long-term contracts) to provide in excess of 50% of the volume of solid
waste disposed of at each of its landfills. During the three months ended March
31, 1996, the Company's captive waste constituted an average of approximately
63% of the solid waste disposed of at its landfills.
INDUSTRY BACKGROUND
In the United States, landfilling is at present the most common means of
disposing of non-hazardous municipal solid waste ("MSW"), which consists
primarily of refuse and garbage from households and commercial establishments.
In addition, landfilling is one of the means of disposing of certain special
waste. Special waste, some types of which may require special handling, consists
of all waste not regulated as hazardous waste under federal or state laws other
than MSW and may include asbestos, petroleum contaminated soil, incinerator ash,
foundry sands and sewage and industrial sludges.
In October 1991, the EPA adopted the Subtitle D Regulations, which generally
became effective on October 9, 1993 (except for certain MSW landfills accepting
less than 100 tons per day, as to which the effective date was April 9, 1994,
and new financial assurance requirements, which are scheduled to become
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<PAGE>
effective April 9, 1997). The Subtitle D Regulations specify design, siting,
operating, monitoring, closure and financial requirements for landfill
operations and, among other things, require upgraded or new composite landfill
liners, leachate collection and treatment, groundwater and methane gas
monitoring, stricter siting and locational criteria, closure and extended
post-closure requirements and financial assurances (such as a surety bond) that
the owner or operator can meet certain of these obligations. Each state is
required to revise its applicable solid waste regulations or programs to meet
the requirements of the Subtitle D Regulations or such requirements
automatically will be imposed by the EPA. Many states have already adopted
regulations or programs as stringent as, or more stringent than, the Subtitle D
Regulations, including all of those in which the Company's landfills are
located.
The Company believes that in recent years there has been a trend towards
consolidation of landfill ownership and that a similar trend is emerging in the
solid waste collection industry, which historically has been characterized by
numerous small companies. The Company believes that these trends will continue
and are the result of several factors:
- The Subtitle D Regulations and related state regulations and programs have
significantly increased the amount of capital and the technical expertise
required in order to own and operate a landfill. As a result, many
landfill operators that lack the required capital or expertise are
electing to sell their landfills, as an alternative to closing them.
- A number of municipalities are electing to privatize the operations of
their municipal landfills as an alternative to funding the changes to
these landfills that are required in order to comply with the Subtitle D
Regulations and related state regulations and programs.
- As a result of heightened sensitivity to environmental concerns by many
communities, it is becoming increasingly desirable in many markets for
collection companies to provide waste reuse and reduction programs, such
as recycling and composting, in addition to conventional waste collection
services. This development, as well as more stringent bonding requirements
being imposed on waste collection companies by various municipalities,
have increased the amount of capital generally required for waste
collection operations, causing private collection companies that lack the
requisite capital to sell their operations to better capitalized
companies.
STRATEGY
The Company's objective is to build a large regional fully-integrated solid
waste services company with an established market presence in secondary markets.
The Company's strategy for achieving this objective is to establish a market
presence generally anchored by its landfills; to increase volume in its markets
through "tuck-in" acquisitions of collection companies and marketing to new
customers; to provide a high level of customer service; to implement selective
price increases; and to continue to implement strict cost controls and reduce
corporate overhead as a percentage of revenues. The Company believes that this
strategy of building an integrated entity should provide it with competitive
cost advantages in its targeted regional markets. The Company's ability to
implement its strategy is enhanced by the experience of its senior managers and
their knowledge of the solid waste industry. There can be no assurance, however,
that the Company will be successful in the execution of its strategy. See "Risk
Factors."
The Company targets acquisitions in geographic areas characterized by one or
more of the following criteria: (i) the availability of permitted and
underutilized landfill capacity located outside of, but within 125 miles of, a
significant metropolitan center; (ii) the absence of a dominant competitor in
the area which would preclude the Company from implementing its business
strategy; (iii) anticipated economic and population growth; and (iv) near or
medium-term scheduled closures of competing landfills.
The Company has adopted the following four-step operating program in
executing its business strategy:
1. LANDFILL ACQUISITIONS. Once the Company identifies an area that
qualifies under its target market criteria, the Company seeks to establish a
market presence, generally by acquiring one or more landfills in that area
that can be accessed economically from the metropolitan center or from the
regional market area, either through direct hauling or through strategically
located transfer stations. In evaluating a landfill acquisition, the Company
considers, among others, the following factors: (i) current
27
<PAGE>
disposal costs together with transportation costs to the targeted landfill
relative to transportation and disposal costs of potential competitors; (ii)
expected landfill life; (iii) opportunities for landfill expansion; and (iv)
projected short-term ability to secure a minimum of 500 tons per day of
disposal volume.
2. SECURE CAPTIVE WASTE VOLUMES. After the Company has acquired a
landfill, it seeks to build a market presence and increase the utilization
of the landfill by securing captive waste streams, which includes developing
and acquiring transfer stations, entering into waste collection contracts
and acquiring waste collection companies. Generally, the Company pursues the
acquisition of collection companies that: (i) have well-established
residential or commercial collection routes and accounts; (ii) own and
operate transfer stations; or (iii) do not own landfills and are vulnerable
to volatile disposal pricing, which the Company believes it can minimize
through landfill ownership.
3. "TUCK-IN" ACQUISITIONS. The Company acquires service rights,
obligations, machinery and equipment in "tuck-in" acquisitions of collection
companies to: (i) increase the waste stream directed to its landfills; (ii)
maximize its market presence; and (iii) take advantage of economies of scale
which should increase earnings and return on capital.
4. INTEGRATION AND EXPANSION OF OPERATIONS. Immediately upon closing
any acquisition, the Company integrates the acquired company into its
operations by: (i) instituting strict cost control procedures; (ii)
consolidating and rationalizing collection routes and pricing; (iii)
implementing Company operating policies and procedures (including programs
designed to improve employee productivity and equipment utilization); (iv)
establishing a sales and marketing force; and (v) converting the acquired
company to the Company's accounting, data processing and management
reporting systems. During the transition period following acquisitions, the
Company retains the management of certain companies it acquires in order to
benefit from management's local operating knowledge and the goodwill it has
developed. Additionally, on a selective basis, the Company seeks to expand
the capacity of its landfills to accommodate increasing waste volumes and
improve profitability.
ACQUISITION PROGRAM
In January 1993, representatives of Charterhouse and the Company's
management formulated an acquisition-based growth strategy to establish a large
regional fully-integrated solid waste management services company. To execute
its strategy, affiliates of Charterhouse acquired a majority interest in ADS,
which owned one landfill in Oklahoma, and began assembling a senior management
team. See "The Company." Using ADS as a platform for this strategy, the Company
has increased the number of landfills it owns from one to five and has completed
23 acquisitions of solid waste companies since January 1993.
The Company has assembled an experienced acquisition team comprised of
operations, environmental, engineering, legal, financial and accounting
personnel, each engaged in identifying and evaluating acquisition opportunities
in order to execute its operating program. The Company has established
pre-acquisition review procedures for acquisition candidates, including legal,
financial, engineering, operational and environmental reviews. The environmental
review includes, where appropriate, investigation of geologic, hydrogeologic and
other site conditions, past and current operations (including types of waste
deposited), design and construction records, permits, regulatory compliance
history, regulatory agency records and available soil sampling, groundwater and
air monitoring results. The Company uses regional managers to assist in the
acquisition process by identifying suitable candidates and performing
pre-acquisition review and evaluation tasks.
In considering whether to proceed with an acquisition, in addition to
determining whether the candidate meets the Company's criteria described above,
the Company evaluates a number of factors, including: (i) the acquisition
candidate's historical and projected financial results; (ii) any expected
synergies with one or more of the Company's existing operations; (iii) the
proposed purchase price and the Company's expected resultant internal rate of
return on investment and the expected impact on the Company's earnings per
share; (iv) whether the candidate will enhance the Company's ability to effect
other acquisitions in the vicinity; (v) the candidate's customer service
reputation and relationships with the local communities; (vi) the composition
and size of the candidate's customer base; (vii) the types of services provided
by the
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<PAGE>
candidate; and (viii) whether the candidate has definable and controllable
liabilities, including potential environmental liabilities. The Company believes
that significant opportunities exist to acquire new landfills and to develop its
existing markets, and reviews acquisition opportunities on an on-going basis.
The Company has completed 23 acquisitions of solid waste companies since
January 1993, which are summarized in the table below.
<TABLE>
<CAPTION>
COMPANY BUSINESS PRINCIPAL LOCATION DATE ACQUIRED
- - ----------------------------------- -------------------------- ------------------------- ---------------------
<S> <C> <C> <C>
MISSOURI REGION:
Wheatland Landfill Scammon, KS January 1993
Pittsburg Sanitation Collection Pittsburg, KS January 1993
Ozark Sanitation Collection Carthage, MO January 1993
Trashmaster Collection Joplin, MO January 1993
A-1 Trash Service Collection Verona/Aurora, MO April 1993
Tate's Transfer Transfer Station Verona/Aurora, MO April 1993
Renfro Sanitation Collection Branson, MO June 1993
B&B Trash Collection Pittsburg, KS July 1993
B&B Refuse Collection Neosho, MO December 1993
Apex Sanitation Collection Grove, OK and Green December 1993
Forest, AR
Epps Sanitation Collection Branson, MO December 1993
Cummings Sanitation Collection Nixa, MO May 1994
Light Hauling Collection Branson, MO August 1994
Poole's Sanitation Collection Bentonville, AR August 1994
Southwest Waste Collection Springfield, MO July 1996
WESTERN PENNSYLVANIA REGION:
Clarion Landfill and Collection Leeper, PA June 1995
Mauthe Sanitation Collection Strattanville, PA March 1996
OHIO REGION:
Wyandot Landfill Upper Sandusky, OH August 1995
Environmental Transportation and Collection Findlay, OH May 1996
Management
R&R Waste Disposal Collection Findlay, OH May 1996
Jerry's Rubbish Collection Findlay, OH June 1996
Seneca Disposal Collection Tiffin, OH June 1996
ILLINOIS REGION:
Livingston Landfill Pontiac, IL November 1995
</TABLE>
MISSOURI REGION. The Company established a market presence in the southwest
Missouri region in January 1993 with the acquisition of its Wheatland landfill.
The implementation of the Company's operating program is substantially complete
in its Missouri region. Since purchasing the Wheatland landfill, the Company has
acquired one transfer station and independently developed two transfer stations.
The Company also has exclusive contracts to accept waste from two other transfer
stations. Additionally, the Company acquired 13 collection companies, including
the three operations purchased simultaneously with the Wheatland landfill. The
collection operations and transfer stations have been consolidated into three
divisions. The Company has integrated acquired companies by consolidating and
rationalizing routes and pricing, reducing overhead through consolidating an
acquired company's operations, implementing the Company's cost controls and
operating procedures, converting acquired companies to the Company's management
reporting systems and implementing a sales and marketing team. The Company
continues to pursue "tuck-in" acquisitions of collection companies to increase
its per ton margins through internalizing waste streams. The Company also seeks
to expand its operations by taking advantage of the economic efficiencies
provided by its integrated operations and is in the process of developing
another transfer station. Since the acquisition of its Wheatland landfill, the
Company has increased the waste volume at its landfill by approximately 800 tons
per day.
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<PAGE>
WESTERN PENNSYLVANIA REGION. The Company entered the western Pennsylvania
region in June 1995 with the acquisition of its Clarion landfill and an
affiliated collection company. The Clarion landfill is located within 110 miles
of Pittsburgh and Erie, Pennsylvania. The Company is in the early stages of its
operating program in the western Pennsylvania region. Since the acquisition of
the Clarion landfill, the Company has reached the maximum allowable waste volume
by increasing deliveries to this landfill by approximately 300 tons per day,
primarily through the expansion of its market presence and the geographic scope
of its operations. As part of its ongoing strategy in the western Pennsylvania
market, the Company seeks to increase its volume of internalized waste through
additional "tuck-in" acquisitions in order to increase per ton margins. In March
1996, the Company completed its first "tuck-in" acquisition of a collection
company in this region.
OHIO REGION. The Company established a market presence in north-central
Ohio in August 1995 with the acquisition of its Wyandot landfill, which is
located within approximately 125 miles of Cleveland, Ohio and within
approximately 75 miles of Toledo and Columbus, Ohio. The Company is in the early
stages of its operating program in the north-central Ohio region. Since the
acquisition of the Wyandot landfill, the Company has increased the waste volume
at this landfill by approximately 300 tons per day, primarily through operating
under contract with two transfer stations and implementing a new sales focus.
The Company recently completed the acquisition of four collection companies in
the Ohio region and is pursuing the acquisition of additional collection
companies to increase its volume of internalized waste. To further expand its
operations, the Company is seeking to increase capacity at the Wyandot landfill.
See "-- Operations -- Landfills." Prior to the acquisition by the Company, the
Wyandot landfill's waste volume was composed primarily of special waste. The
Company is seeking to increase the volume of MSW relative to special waste
deposited at the Wyandot landfill through shifting the focus of its sales and
marketing efforts towards MSW collections.
ILLINOIS REGION. The Company established a market presence in north-central
Illinois in November 1995 with the acquisition of its Livingston landfill, which
is located approximately 90 miles from downtown Chicago. The acquisition of the
Livingston landfill was attractive to the Company's management because of the
expected closing of two competing landfills that currently accept an aggregate
of approximately 15,000 tons per day and the management team's experience with
the Chicago market. The Company is in the early stages of its operating program
in the north-central Illinois region. Since the acquisition of the Livingston
landfill, the Company has increased the waste volume at this landfill by
approximately 1,000 tons per day through intensified sales and marketing
efforts. Presently, the Company is independently developing one transfer station
and is pursuing the acquisition of another. Additionally, the Company is
pursuing the acquisition of collection companies of varying size to increase its
volume of internalized waste which is currently delivered pursuant to brokerage
contracts. The Company is also seeking to expand capacity at the Livingston
landfill. See "-- Operations -- Landfills."
There can be no assurance that the Company will be successful in
implementing its operating program in any of these existing markets or in any
future markets. See "Risk Factors -- Ability to Manage Growth," " --
Availability of Acquisition Targets; Integration of Future Acquisitions," " --
History of Losses and Working Capital Deficits; Integration of Completed
Acquisitions," "-- Limited Operating History," "-- Funding of Future Capital
Requirements and Working Capital Deficits" and "-- Limitations on Expansion."
OPERATIONS
The Company's waste management operations include the ownership and
operation of solid waste landfills, transfer stations and waste collection
services. The Company's landfills are relatively underutilized given their
potential size and the fact that the Company's operating program in a majority
of its markets has not yet been completed. There can be no assurance, however,
that the Company will be successful in executing its operating program. See
"Risk Factors." The Company believes that all of its landfills and transfer
stations comply with or exceed the requirements mandated by the Subtitle D
Regulations and the applicable state regulations. The Company regularly monitors
incoming waste at its landfills to determine if such wastes are in compliance
with its permits.
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<PAGE>
LANDFILLS
The Company currently owns five landfill operations permitted to receive
solid waste. These landfill operations are located in Illinois, Ohio,
Pennsylvania, Kansas and Oklahoma.
Each of the Company's landfill operations is located on land owned by the
Company. The permitted waste streams at each of these landfills include both MSW
and certain special waste (the type of special waste varying from landfill to
landfill). During the three months ended March 31, 1996, the Company's captive
waste (including the Company's collection operations and third party haulers
operating under long-term contracts) constituted an average of approximately 63%
of the solid waste disposed of at its landfills.
The table and landfill descriptions below provide certain additional
information, as of May 1, 1996, regarding the five landfill operations that the
Company currently owns and operates.
<TABLE>
<CAPTION>
APPROXIMATE ACREAGE APPROXIMATE
--------------------------- UNUSED PERMITTED
LANDFILLS LOCATION TOTAL PERMITTED (1) AIRSPACE (2)
- - --------------------------------------- ------------------------ --------- ---------------- ----------------
<S> <C> <C> <C> <C>
(IN MILLIONS OF
CUBIC YARDS)
Livingston............................. Pontiac, IL 556 255(3) 31.4(3)
Wyandot................................ Upper Sandusky, OH 344 87 6.7
Clarion................................ Leeper, PA 606 60 4.7
Wheatland.............................. Scammon, KS 68 55 1.7
Pittsburg County....................... Pittsburg, OK 76 15 0.5
--------- --- ---
Total.............................. 1,650 472 45.0
--------- --- ---
--------- --- ---
</TABLE>
- - ------------------------
(1) Permitted acreage, as used in this table and in this Prospectus, represents
the portion of the total acreage on which disposal cells and supporting
facilities have been constructed (including any that may have been filled or
capped) or may be constructed based upon an approval issued by the state
generally authorizing the development or siting of a landfill on the
acreage. Prior to actually constructing and/or operating each new disposal
cell on the permitted acreage, it may be necessary, depending upon the
regulatory requirements of the particular state, for the Company to obtain
additional authorizations with respect to such cell. The portion of total
acreage that is not currently permitted acreage is not currently available
for waste disposal.
(2) Unused permitted airspace represents in cubic yards the portion of the
permitted acreage that has not yet been used for waste disposal but may be
available for waste disposal after certain approvals are secured and, in
some instances, new disposal cells are constructed. Prior to actually
constructing and/or operating a new disposal area or cell on permitted
acreage, it may be necessary, depending upon the regulatory requirements of
the particular state or locality, for the Company to obtain additional
authorizations.
(3) Includes approximately 200 acres and 26.0 million cubic yards for which the
Company has received siting approval, a prerequisite to obtaining a permit
for a landfill in Illinois. The Company submitted its application for a
permit in November 1995. There can be no assurance that any permit received
will be for the same specifications as the application, or that additional
terms or conditions will not be imposed.
The Company monitors the available permitted in-place disposal capacity at
each of its landfills on an ongoing basis and evaluates whether to seek to
expand this capacity. In making this evaluation, the Company considers various
factors, including the volume of waste projected to be disposed of at the
landfill, the size of the unpermitted acreage included in the landfill, the
likelihood that the Company will be successful in obtaining the necessary
approvals and permits required for the expansion and the costs that would be
involved in developing the expanded capacity. The Company also considers on an
ongoing basis the extent to which it is advisable, in light of changing market
conditions and/or regulatory requirements, to seek to expand or change the
permitted waste streams at a particular landfill or to seek other permit
modifications. Set forth below is certain information concerning certain of the
new permits, permit modifications and approvals that the Company is currently
seeking or expects to seek to enable it to expand its disposal
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<PAGE>
capacity. There can be no assurance that the Company will succeed in obtaining
any of such permits, permit modifications or approvals, or that additional
permits, permit modifications or approvals will not be required or that
additional requirements will not be imposed by regulatory agencies. See "Risk
Factors -- Limitations on Expansion" and "-- Extensive Environmental Land Use
Laws and Regulations."
LIVINGSTON. The Livingston landfill consists of approximately 556 acres, of
which approximately 255 are permitted acres. There are approximately 31.4
million cubic yards of unused permitted or sited airspace, including
approximately 26.0 million cubic yards for which the Company has received siting
approval, a prerequisite to obtaining a permit for a landfill in Illinois. Cells
developed to date at the Livingston landfill have been constructed with double
composite liner systems. In October 1995, Livingston received local siting
approval from the Livingston County Board for a major lateral and vertical
expansion and re-permitting of the site. The local siting approval included
authorization to expand the residual waste monofill into a facility capable of
accepting various special wastes and MSW. The siting approval also included
authorization to develop additional acreage north of the existing site. The net
effect of this approval was to increase the sited acreage by 200 acres to
approximately 255 acres and increase the site's available capacity from
approximately 6.0 million cubic yards to an estimated available capacity of
approximately 31.4 million cubic yards as of January 1, 1996. The Company
submitted its permit application in November 1995 and such application is
pending before the Illinois Environmental Protection Agency. In addition, the
Company is seeking permission from applicable regulatory authorities to use
single composite liner systems in constructing new cells, which the Company
believes should reduce cell development costs. The Company anticipates that
after the planned expansion, the Livingston landfill would have approximately 20
years of total site life at current disposal levels.
WYANDOT. The Wyandot landfill consists of approximately 344 acres in three
proximate locations, and the Company has an option to purchase up to
approximately 94 additional acres in the vicinity. Approximately 87 of the owned
acres are permitted, and there are approximately 6.7 million cubic yards of
unused permitted airspace. Cells developed to date at the Wyandot landfill have
been constructed with double composite liner systems. The Company plans to seek
permission from applicable regulatory authorities to use alternative designs in
constructing new cells, which the Company believes should reduce cell
development costs. The Company plans to apply for a permit from the Ohio
Environmental Protection Agency to expand its landfill capacity by using the
valley between two of the hills that are currently permitted for waste disposal,
as well as the option acreage. The Company anticipates that if it exercised its
option, obtained the required permits and constructed the additional landfill
areas, the Wyandot landfill would have approximately 20 years of total site life
at currently anticipated disposal levels.
CLARION. The Clarion landfill consists of approximately 606 acres, of which
approximately 60 are permitted acres. There are approximately 4.7 million cubic
yards of unused permitted airspace. Cells developed at the Clarion landfill have
been, and due to regulatory requirements will continue to be, constructed with
double liner systems. The Clarion landfill has approximately 13 years of total
site life at current disposal levels.
WHEATLAND. The Wheatland landfill consists of approximately 68 acres, and
the Company has an option to purchase up to approximately 800 additional acres
in the vicinity. Approximately 55 of the owned acres are permitted acres and
there are approximately 1.7 million cubic yards of unused permitted airspace.
The Company anticipates that after a planned expansion, the Wheatland landfill
would have approximately eight years of total site life at current disposal
levels. In addition, the Company is evaluating several alternatives for further
expansion at the Wheatland landfill or for developing a landfill at a different
site.
PITTSBURG COUNTY. The Pittsburg County landfill consists of approximately
76 acres, of which approximately 15 are permitted acres. There are approximately
0.5 million cubic yards of unused permitted airspace. The Company plans to apply
for a permit in the near future to build a lateral expansion that would increase
permitted capacity to approximately 30 acres. The Company anticipates that after
the planned expansion, the Pittsburg County landfill would have approximately 25
years of total site life at current disposal levels.
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TRANSFER STATIONS
The Company has an active program to acquire, develop and operate transfer
stations in its landfill markets. Presently the Company owns, operates or has
exclusive contracts to receive waste from a total of seven transfer stations
(three of which are owned and four of which are under exclusive contract to
provide their waste to the Company) at which solid waste collected from
individual customers in Company-owned vehicles or waste delivered by third-party
collection companies is unloaded, compacted, reloaded and transported to
Company-owned landfills. The use of transfer stations reduces the Company's
costs by improving its utilization of collection personnel and equipment and
increasing the market area that the Company's landfills can serve. See, however,
"Risk Factors -- Extensive Environmental and Land Use Laws and Regulations." The
Company plans to expand into contiguous or proximate markets through the
development or acquisition of additional transfer stations in 1996.
COLLECTION OPERATIONS
The Company collects solid waste from over 85,000 residential, commercial
and industrial customers through its own collection operations and through
brokerage arrangements with other haulers. The Company's collection operations
are conducted generally within a 50-mile radius of either its transfer stations
or landfills, which allows the Company to serve a geographic area within a
radius of approximately 125 miles from its landfills. The Company also contracts
with local generators of solid waste and directs the waste to either its own
landfill or to a third-party landfill or for additional handling at one of its
transfer stations. During the three months ended March 31, 1996, the Company's
captive waste (including the Company's collection operations and third party
haulers operating under long-term contracts) constituted an average of
approximately 63% of the solid waste disposed of at its landfills. See, however,
"Risk Factors -- Dependence on Third Party Collection Operations."
Fees for the Company's commercial and industrial collection services are
determined by such factors as collection frequency, type of equipment and
containers furnished, the type, volume and weight of the waste collected, the
distance to the disposal or processing facility and the cost of disposal or
processing. A majority of the Company's commercial and industrial waste
collection services are performed under contracts. Substantially all of the
Company's municipal solid waste collection services are performed under
contracts with municipalities. These contracts grant the Company exclusive
rights to service all or a portion of the residential homes in a specified
community or provide a central repository for residential waste drop-off. The
Company had 46 municipal contracts in place as of March 31, 1996. Municipal
contracts in the Company's market areas are typically awarded, at least
initially, on a competitive bid basis and usually range in duration from one to
five years. Fees are based primarily on the frequency and type of service, the
distance to the disposal or processing facility and the cost of disposal or
processing. Municipal collection fees are usually paid either by the
municipalities from tax revenues or through direct service charges to the
residents receiving the service. The Company also provides subscription
residential collection services directly to households.
SALES AND MARKETING
The Company has a coordinated marketing strategy which is formulated at the
corporate level and implemented at the regional level to achieve its desired mix
of MSW and special waste in each of its regions. For example, certain employees
of the Company in its Ohio and Pennsylvania regions focus on securing special
waste generated by industrial customers. In addition to competitive pricing, the
Company's marketing strategy emphasizes quality service particularly with
respect to rapid turnaround time at its landfills. Each manager implements the
Company's marketing strategy, which is overseen by senior management. Depending
upon the size of the region and its customer mix, each manager may focus on
commercial, industrial, residential or municipal accounts to a varying degree.
The Company maintains periodic contact with all of its accounts to increase
customer retention. Company salespersons call on prospective customers in a
specified geographic territory.
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Since the Company acquires its waste collection operations primarily from
entrepreneurs who generally do not have independent sales forces, the Company
often retains these entrepreneurs during the transition period following the
acquisition of such operations to acquaint the Company's sales force with the
acquired companies' customer base.
The Company has a diverse customer base, with no single customer accounting
for more than 10% of the Company's revenues in 1995. The Company does not
believe that the loss of any single customer would have a material adverse
effect on the Company's results of operation.
COMPETITION
The solid waste collection and disposal business is highly competitive and
requires substantial amounts of capital. The Company competes with numerous
local and regional companies and, in selected areas, with the large national
waste management companies. The industry is led by four national waste
companies, WMX Technologies, Inc., Browning-Ferris Industries, Inc., Laidlaw
Waste Systems, Inc. and USA Waste Services, Inc. and includes numerous local and
regional companies of varying sizes and competitive resources such as Sanifill,
Inc., United Waste Systems, Inc., Allied Waste Industries, Inc. and Republic
Industries, Inc. The large national companies, as well as a number of the
regional companies, are significantly larger and have greater financial
resources than the Company. The Company also competes with those counties and
municipalities that maintain their own waste collection and disposal operations.
These counties and municipalities may have financial advantages due to the
availability to them of tax revenues and tax exempt financing. The Company
competes primarily by charging competitive prices and offering quality service.
Competitors may reduce the price of their services in an effort to expand market
share or to win competitively bid municipal contracts.
The solid waste collection and disposal industry is currently undergoing
significant consolidation, and the Company encounters competition in its efforts
to acquire landfills and collection operations. Accordingly, it may become
uneconomical for the Company to make further acquisitions or the Company may be
unable to locate or acquire suitable acquisition candidates at price levels and
on terms and conditions that the Company considers appropriate, particularly in
markets the Company does not already serve.
Competition in the disposal industry may also be affected by the increasing
national emphasis on recycling and other waste reduction programs, which may
reduce the volume of waste deposited in landfills. See "Risk Factors -- Highly
Competitive Industry" and "-- Use of Alternatives to Landfill Disposal."
LIABILITY INSURANCE AND BONDING
The Company carries a broad range of insurance for the protection of its
assets and operations that it believes is customary to the waste management
industry, including pollution liability coverage. Specifically, each of the
Company's five landfills has pollution liability coverage of $1.0 million per
occurrence or $2.0 million in the aggregate subject to a $25,000 deductible.
Nevertheless, if the Company were to incur liability for environmental damage
which exceeds coverage limits or is not covered by insurance, its business,
financial condition and results of operations could be materially adversely
affected.
The Company is required to post a performance bond or a bank letter of
credit or to provide other forms of financial assurance in connection with
closure and post-closure obligations with respect to landfills and its other
solid waste management operations and may be required to provide such financial
assurance in connection with municipal residential collection contracts. As of
July 11, 1996, the Company had outstanding approximately $15 million of
performance bonds and $90,000 in letters of credit. If the Company were unable
to obtain surety bonds or letters of credit in sufficient amounts, or to provide
other required forms of financial assurance, it would be unable to remain in
compliance with the Subtitle D Regulations or comparable state requirements and,
among other things, might be precluded from entering into certain municipal
collection contracts and obtaining or holding landfill operating permits.
EMPLOYEES
At June 30, 1996, the Company employed approximately 347 employees, 30 of
whom were managers or professionals, 246 of whom were hourly paid employees
involved in collection, transfer and disposal
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operations, and 71 of whom were sales, clerical, data processing or other
administrative employees. None of the Company's employees is represented by
unions, and the Company has no knowledge of any organizational efforts among its
employees. The Company believes that its relations with its employees are good.
ENVIRONMENTAL REGULATIONS
The Company is subject to extensive and evolving environmental laws and
regulations that have been enacted in response to technological advances and
increased concern over environmental issues. These regulations are administered
by the EPA and various other federal, state and local environmental,
transportation, health and safety agencies. The Company believes that there will
continue to be increased regulation, legislation and regulatory enforcement
actions related to the solid waste management, collection and disposal industry.
In light of these developments, the Company attempts to anticipate future
regulatory requirements that might be imposed and plans accordingly to remain in
compliance with the regulatory framework.
In order to develop and operate a landfill, 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. These permits and zoning or land use approvals are
difficult and time consuming to obtain or to secure renewal of and sometimes are
opposed by various local elected officials and citizens' groups. Once obtained,
operating permits generally must be periodically renewed and are subject to
modification and revocation by the issuing agency.
The Company's operation of solid waste management facilities subject it to
certain operational, monitoring, site maintenance, closure and post-closure and
financial assurance obligations which change from time to time and which could
give rise to increased capital expenditures and operating costs. In connection
with the Company's acquisition of existing landfills, it is often necessary to
expend considerable time, effort and money in complying with the governmental
review and permitting process necessary to maintain or increase the capacity of
these landfills. Governmental authorities have the power to enforce compliance
with these laws and regulations and to obtain injunctions or impose civil or
criminal penalties in the case of violations. During the ordinary course of its
landfill operations, the Company has from time to time received citations or
notices from such authorities that such operations are not in compliance with
certain applicable environmental laws and regulations. Upon receipt of such
citations or notices, the Company generally works with the authorities in an
attempt to resolve the issues raised by such citations or notices. Failure to
correct the problems to the satisfaction of the authorities could lead to
curtailed operations or even closure of a landfill.
In order to transport solid waste, it is generally necessary for the Company
to possess one or more permits from state or local agencies. These permits must
also be periodically renewed and are subject to modification and revocation by
the issuing agency. In addition, the Company's waste transportation operations
are subject to evolving law and regulations that impose operational, monitoring,
training and safety requirements. The Company operates in substantial conformity
with its permits.
The principal federal, state and local statutes and regulations applicable
to the Company's operations are as follows:
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA"). RCRA regulates
the generation, treatment, storage, handling, transportation and disposal of
solid waste and requires states to develop programs to insure the safe disposal
of solid waste. RCRA divides solid waste into two groups, hazardous and
non-hazardous. Wastes are generally classified as hazardous wastes if they: (i)
either (a) are specifically included on a list of hazardous wastes or (b)
exhibit certain hazardous characteristics; and (ii) are not specifically
designated as non-hazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as non-hazardous.
Among the wastes that are specifically designated as non-hazardous waste are
household waste and special wastes. These wastes, which will be accepted at the
Company's landfills, may contain substances that may be as toxic or prone to
cause contamination as some wastes classified and regulated as hazardous.
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In October 1991, the EPA adopted the Subtitle D Regulations. These new
regulations became generally effective in October 1993 (except for certain MSW
landfills accepting less than 100 tons per day, as to which the effective date
was April 9, 1994, and new financial assurance requirements, which become
effective April 9, 1997) and include location restrictions, siting criteria,
facility design standards, operating criteria, closure and post-closure
requirements, financial assurance requirements, groundwater monitoring
requirements, groundwater remediation standards and corrective action
requirements. In addition, these new regulations require that new landfill units
meet more stringent liner design criteria (typically, composite soil and
synthetic liners or two or more synthetic liners) designed to keep leachate out
of groundwater and have extensive collection systems to carry away leachate for
treatment prior to disposal. Groundwater wells must also be installed at
virtually all landfills to monitor groundwater quality. The Company believes
that there is no groundwater contamination at its landfills that is material to
its financial condition. The regulations also require, where threshold test
levels are present, that methane gas generated at landfills be controlled in a
manner that will protect human health and the environment. Each state is
required to revise its landfill regulations to meet these requirements or such
requirements will be automatically imposed upon it by the EPA. Each state is
also required to adopt and implement a permit program or other appropriate
system to ensure that landfills within the state comply with the Subtitle D
criteria. All states in which the Company owns landfills have adopted
regulations or programs as stringent as or more stringent than the Subtitle D
Regulations, which were first proposed in August 1988. All states in which the
Company's landfills are located have adopted the required plans and have
submitted them to the EPA for review. Pennsylvania, Oklahoma, Ohio and Illinois
have each received full EPA approval for their programs, and Kansas has received
partial approval for its program.
THE FEDERAL WATER POLLUTION CONTROL ACT OF 1977, AS AMENDED (THE "CLEAN
WATER ACT"). The Clean Water Act establishes rules regulating the discharge of
pollutants from a variety of sources, including solid waste disposal sites, into
waters of the United States. If runoff or collected leachate from the Company's
landfills is discharged into waters of the United States, the Clean Water Act
would require the Company to apply for and obtain a discharge permit, conduct
sampling and monitoring and, under certain circumstances, reduce the quantity of
pollutants in such discharge. Also, virtually all landfills are required to
comply with the new federal storm water regulations, which are designed to
prevent possibly contaminated storm water from flowing into surface waters.
These regulations required that applications for stormwater discharge permits be
submitted by October 1992. The Company is working with the appropriate
regulatory agencies to ensure that its facilities are in compliance with Clean
Water Act requirements, particularly as they apply to treatment and discharge of
leachate and storm water. The Company has secured or has applied for the
required discharge permits under the Clean Water Act or comparable
state-delegated programs. In those instances where the Company's applications
for discharge permits are pending and a final discharge permit has not been
issued, the Company is substantially in compliance with applicable substantive
standards set by the respective states in administering the Clean Water Act. To
ensure compliance with the Clean Water Act pretreatment and discharge
requirements, the Company has arranged to discharge its effluent to municipal
wastewater treatment facilities, except at the Pittsburg County landfill, where
the state regulatory agency has allowed recirculation of the Company's leachate
to a lined area of the landfill.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980 ("CERCLA"). CERCLA established a regulatory and remedial program intended
to provide for the investigation and cleanup of facilities from which there has
been, or is threatened, a release of any hazardous substance into the
environment. CERCLA's primary mechanism for remedying such problems is to impose
strict joint and several liability for cleanup of facilities on current owners
and operators of the site, former owners and operators of the site at the time
of the disposal of the hazardous substances, as well as the generators of the
hazardous substances and the transporters who arranged for disposal or
transportation of the hazardous substances. The costs of CERCLA investigation
and cleanup can be very substantial. Liability under CERCLA does not depend upon
the existence or disposal of "hazardous waste" but can also be founded upon the
existence of even very small amounts of the many hundreds of "hazardous
substances" listed by the EPA, many of which can be found in household waste. If
the Company were to be found to be a responsible party for a CERCLA cleanup,
either at one of the Company's owned or operated facilities, or at a site where
waste transported by the Company has been stored or disposed of, the Company
could be held completely
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responsible for all investigative and remedial costs even if others may also be
liable. CERCLA also authorizes the imposition of a lien in favor of the United
States upon all real property subject to or affected by a remedial action for
all costs for which a party is liable. The Company's ability to obtain
reimbursement from others for their allocable share of such costs would be
limited by the Company's ability to find other responsible parties and prove the
extent of their responsibility and by the financial resources of such other
parties. In the past, legislation has been introduced in Congress to limit the
liability of municipalities and others under CERCLA as generators and
transporters of municipal solid waste. Although such legislation has not been
enacted, if it were to pass it would limit the Company's ability to seek full
contribution from municipalities for CERCLA cleanup costs even if the hazardous
substances that were released and caused the need for cleanup at one of the
Company's facilities were generated by or transported to the facility by a
municipality.
Continued funding for implementation of RCRA, the Clean Water Act and CERCLA
is scheduled for reauthorization by Congress this year. Depending upon whether
and how Congress acts, it is possible that each of these laws may be changed in
ways that may significantly affect the Company's business.
THE CLEAN AIR ACT. The Clean Air Act, including the 1990 amendments,
provides for regulation, through state implementation of federal requirements,
of the emission of air pollutants from certain landfills based upon the date of
the landfill construction and volume per year of emissions of regulated
pollutants. The EPA has recently promulgated new source performance standards
regulating air emissions of certain regulated pollutants (methane and
non-methane organic compounds) from municipal solid waste landfills. The EPA has
also issued regulations controlling the emissions of particular regulated air
pollutants from municipal solid waste landfills. Landfills located in areas
designated as having air pollution problems may be subject to even more
extensive air pollution controls and emission limitations. In addition, the EPA
has issued standards regulating the disposal of asbestos-containing materials.
Each of the federal statutes described above contains provisions
authorizing, under certain circumstances, the bringing of lawsuits by private
citizens to enforce the provisions of the statutes.
THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970 ("OSHA"). OSHA establishes
employer responsibilities and authorizes the promulgation by the Occupational
Safety and Health Administration of occupational health and safety standards,
including the obligation to maintain a workplace free of recognized hazards
likely to cause death or serious injury, to comply with adopted worker
protection standards, to maintain certain records, to provide workers with
required disclosures and to implement certain health and safety training
programs. Various of those promulgated standards may apply to the Company's
operations, including those standards concerning notices of hazards, safety in
excavation and demolition work, the handling of asbestos and asbestos-containing
materials, and worker training and emergency response programs. The Company's
employees are trained to respond appropriately in the event there is an
accidental spill or release of packaged asbestos-containing materials or other
regulated substances during transportation or landfill disposal.
STATE AND LOCAL REGULATION. Each state in which the Company now operates or
may operate in the future has laws and regulations governing the generation,
storage, treatment, handling, transportation and disposal of solid waste, water
and air pollution and, in most cases, the siting, design, operation,
maintenance, closure and post-closure maintenance of landfills and transfer
stations. In addition, many states have adopted "Superfund" statutes comparable
to, and in some cases more stringent than, CERCLA. These statutes impose
requirements for investigation and cleanup of contaminated sites and liability
for costs and damages associated with such sites, and some provide for the
imposition of liens on property owned by responsible parties. Furthermore, many
municipalities also have ordinances, local laws and regulations affecting
Company operations. These include zoning and health measures that limit solid
waste management activities to specified sites or activities, flow control
provisions that direct the delivery of solid wastes to specific facilities, laws
that grant the right to establish franchises for collection services and then
put out for bid for the right to provide collection services, and bans or other
restrictions on the movement of solid wastes into a municipality.
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Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and approvals,
as well as certain state and local regulations, may limit a landfill to
accepting waste that originates from specified geographic areas or seek to
restrict the importation of out-of-state waste or otherwise discriminate against
out-of-state waste. Generally, restrictions on the importation of out-of-state
waste have not withstood judicial challenge. However, from time to time federal
legislation is proposed which would allow individual states to prohibit the
disposal of out-of-state waste or to limit the amount of out-of-state waste that
could be imported for disposal and would require states, under certain
circumstances, to reduce the amounts of waste exported to other states. Although
such legislation has not been passed by Congress yet, if this or similar
legislation is enacted, states in which the Company operates landfills could act
to limit or prohibit the importation of out-of-state waste. Such state actions
could materially adversely affect landfills within those states that receive a
significant portion of waste originating from out-of-state.
In addition, certain states and localities may for economic or other reasons
restrict the exportation of waste from their jurisdiction or require that a
specified amount of waste be disposed of at facilities within their
jurisdiction. In 1994, the United States Supreme Court held unconstitutional,
and therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, the Company
may elect not to challenge such restrictions based upon various considerations.
In addition, the aforementioned proposed federal legislation would allow states
and localities to impose certain flow control restrictions. These restrictions
could result in the volume of waste going to landfills being reduced in certain
areas, which may materially adversely 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. These restrictions may also result in
higher disposal costs for the Company's collection operations. If the Company
were unable to pass such higher costs through to its customers, the Company's
business, financial condition and results of operations could be materially
adversely affected.
There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source and waste recycling and to prohibit
or restrict the disposal of certain types of solid wastes, such as yard wastes,
leaves and tires, in landfills. The enactment of regulations reducing the volume
and types of wastes available for transport to and disposal in landfills could
affect the Company's ability to operate its facilities at their full capacity.
PROPERTY AND EQUIPMENT
The principal fixed assets used by the Company in connection with its
landfill operations are its landfills which are described under "Business --
Operations -- Landfills." The five landfill operations currently owned by the
Company are situated on sites owned by the Company.
The principal fixed assets used by the Company in its collection operations
and transfer stations are approximately 47 acres of land used for transfer
stations and other facilities related to collection operations (of which
approximately 27 acres are owned and 20 acres are leased); and approximately 68
landfill equipment and machinery units, 16,887 collection containers and small
equipment units and 283 trucks and trailers (in each instance, such number
includes owned and leased units).
The Company's corporate headquarters are located in Burr Ridge, Illinois,
where it leases approximately 4,000 square feet of space.
LEGAL PROCEEDINGS
In the normal course of its business and as a result of the extensive
governmental regulation of the waste industry, the Company may periodically
become subject to various judicial and administrative proceedings involving
federal, state or local agencies. In these proceedings, an agency may seek to
impose fines on the Company to revoke, or to deny renewal of, an operating
permit held by the Company. From time to time, the Company also may be subject
to actions brought by citizens' groups or adjacent landowners in connection with
the permitting and licensing of its landfills or transfer stations, or alleging
environmental damage or violations of the permits and licensees pursuant to
which the Company operates.
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Thirty-four plaintiffs in the vicinity of the Company's Wheatland landfill
initiated a suit in 1993 seeking actual and punitive damages for nuisance,
trespass and negligence. The suit is pending in the District Court of Crawford
County, Kansas. Plaintiffs claim to have suffered a diminution in real property
values, lost past and future profits for three businesses, reduced use and
enjoyment of their residences for individual plaintiffs, mental anguish and
personal injury. Three plaintiffs have since voluntarily withdrawn their cases
and two additional plaintiffs have reached settlement with the Company for an
aggregate of $70,000. The Company has entered into a settlement agreement with
the remaining plaintiffs and is awaiting court approval for the settlement
agreement with respect to the claims made by three plaintiffs who are minors.
The Company believes that such agreement will not materially adversely affect
its business, financial condition or results of operations.
In addition, the Company is or may become party to various claims and suits
pending for alleged damages to persons and property, alleged violation of
certain laws and for alleged liabilities arising out of matters occurring during
the normal operation of the waste management business. In the opinion of
management, the liability, if any, under these claims and suits would not
materially adversely affect the business, financial condition or results of
operations of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
executive officers and directors as of May 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ------------------------------------- --------- --------------------------------------------------------------
<S> <C> <C>
David C. Stoller..................... 46 Chairman; Director
Richard De Young..................... 42 President; Director
Scott H. Flamm....................... 41 Senior Vice President; Chief Financial Officer; Director
Richard Kogler....................... 37 Vice President; Chief Operating Officer
Ann L. Straw......................... 43 Vice President; General Counsel; Secretary
Lawrence R. Conrath.................. 39 Vice President; Controller
John J. McDonnell.................... 41 Vice President -- Engineering
Merril M. Halpern.................... 62 Director
A. Lawrence Fagan (1)................ 66 Director
Richard T. Henshaw, III (2).......... 57 Director
G.T. Blankenship (2)................. 68 Director
Norman Steisel (1)................... 54 Director
</TABLE>
- - ------------------------
(1) Member of audit committee
(2) Member of compensation committee
DAVID C. STOLLER has been Chairman and a director of the Company since the
Exchange. He has served in the same capacities for ADS (since January 1993) and
CDI (since May 1995). He has also been (since August 1992) the Chairman of
Charterhouse Environmental Capital Group, Inc. ("Charterhouse Environmental
Capital"), which provides management and consulting services to companies with
environmental operations including the Company. Charterhouse Environmental
Capital is an affiliate of Charterhouse. Mr. Stoller was a partner at the law
firm of Milbank, Tweed, Hadley & McCloy (where he remains as "Of Counsel") from
January 1989 through July 1992.
RICHARD DE YOUNG has been President and a director of the Company since the
Exchange. He has also served as President of ADS since April 1994 and as a
director since September 1993 and was the Chief Operating Officer and Vice
President for ADS from January 1993 through April 1994. Mr. De Young has been a
director of CDI since May 1995. From June 1982 through January 1993 he was
employed by Waste Management of North America, a subsidiary of WMX Technologies,
Inc. ("WMX"), most recently as a regional Operations Vice President, with
responsibility for landfill and collection operations in the Midwest region.
SCOTT H. FLAMM has been a Senior Vice President, and the Chief Financial
Officer of the Company since May 1996 and a director since the Exchange. From
the Exchange until May 1996, he was Vice Chairman of the Company. He previously
served as Vice Chairman of CDI since May 1995. He has been a director of ADS
(since January 1993) and CDI (since May 1995). He has also been Executive Vice
President of Charterhouse Environmental Capital since January 1993. From 1988
until January 1993, he was Executive Vice President and Chief Operating Officer
and a director of Catalyst Energy, an independent power producer.
RICHARD KOGLER has been a Vice President and the Chief Operating Officer of
the Company since the Exchange. He previously served in the same capacities for
ADS since May 1995 and he has been President of CDI since May 1995. From October
1984 through May 1995 Mr. Kogler was employed by WMX, most recently as a
regional Operations Vice President.
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ANN L. STRAW has been Vice President and General Counsel of the Company
since the Exchange. She previously served in the same capacities for ADS (since
June 1995) and for CDI (since June 1995). She has been the Secretary of CDI
since July 1995. From 1986 through May 1995 she was employed by WMX, most
recently as a Group Counsel for WMX's Midwest Group.
LAWRENCE R. CONRATH has been Controller of the Company since the Exchange
and a Vice President since May 1996. He previously served as Controller for ADS
since May 1994. Prior to joining the Company, Mr. Conrath spent two years with
United Waste Systems, Inc., as Regional Controller of its Michigan region. From
1978 through 1990, Mr. Conrath was employed by WMX in several financial
positions, most recently as Director of Accounting for the WMX Urban Services
Group.
JOHN J. MCDONNELL has been Vice President -- Engineering of the Company
since the Exchange. He previously served as Environmental Engineer for ADS
(since February 1993) and CDI (since June 1995). From 1985 through February
1993, Mr. McDonnell was employed by WMX, most recently as an Engineering
Manager.
MERRIL M. HALPERN has served as a director of the Company since the
Exchange. Since October 1984, Mr. Halpern has served as Chairman of the Board of
Charterhouse, which is a private investment firm specializing in leveraged
buy-out acquisitions. From 1973 to October 1984, Mr. Halpern served as President
and Chief Executive Officer of Charterhouse. Mr. Halpern is also a director of
Dreyer's Grand Ice Cream, Inc., a manufacturer and distributor of ice cream
products; Del Monte Corporation, a processor and marketer of canned foods and
vegetables; Designer Holdings Ltd., a developer and marketer of designer
sportswear lines ("Designer Holdings"); Insignia Financial Group, Inc., a real
estate management firm; and Microwave Power Devices, Inc., a manufacturer of
highly linear power amplifiers primarily for the wireless telecommunications
market ("MPD").
A. LAWRENCE FAGAN has served as a director of the Company since the
Exchange. He has been Executive Vice President of Charterhouse since 1984. Mr.
Fagan is also a director of Designer Holdings and MPD.
RICHARD T. HENSHAW, III has been a director of the Company since the
Exchange. He has served as a director of ADS (since January 1993) and CDI (since
May 1995). Mr. Henshaw has been a Senior Vice President of Charterhouse since
1991. Prior thereto he was a Senior Vice President of The Bank of New York.
G.T. BLANKENSHIP has been a director of the Company since the Exchange. He
previously served as a director of ADS (since January 1991). Mr. Blankenship has
been a self-employed private investor since 1990.
NORMAN STEISEL has been the President of EnEssCo Strategies, a strategic
consulting services firm specializing in government regulated markets, since
January 1994. From January 1990 through December 1993, Mr. Steisel was the First
Deputy Mayor of the City of New York. Prior to 1990, he was a Senior Vice
President at Lazard Freres & Co., specializing in environmental corporate and
municipal finance.
See "Certain Transactions" and "Principal Stockholders" for certain
information concerning the Company's directors and executive officers.
Directors of the Company hold office until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier resignation or removal. All officers are appointed by and serve at
the discretion of the Board of Directors. There are no family relationships
among any directors or officers of the Company.
The Board of Directors has established a compensation committee and an audit
committee. The compensation committee reviews executive salaries, administers
any bonus, incentive compensation and stock option plans of the Company,
including the American Disposal Services, Inc. 1996 Stock Option Plan, and
approves the salaries and other benefits of the executive officers of the
Company. In addition, the compensation committee consults with the Company's
management regarding pension and other benefit plans and compensation policies
and practices of the Company. The audit committee reviews the professional
services provided by the Company's independent auditors, the independence of
such auditors from management of the Company, the annual financial statements of
the Company and the Company's system of
41
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internal accounting controls. The audit committee also reviews such other
matters with respect to the accounting, auditing and financial reporting
practices and procedures of the Company as it may find appropriate or may be
brought to its attention, and meets from time to time with members of the
Company's internal audit staff.
EMPLOYMENT AGREEMENTS
In May 1996, Mr. Stoller entered into an employment agreement with the
Company, under which he serves as the Company's Chairman. The employment
agreement provides for an annual base salary of $300,000 and terminates on the
first anniversary of the closing of the Offering. The employment agreement
provides that Mr. Stoller will receive a $600,000 payment in the event his
employment is terminated following a "change-in-control" of the Company.
In May 1996, Mr. De Young entered into an employment agreement with the
Company, effective upon closing of the Offering, under which he serves as the
Company's President. The employment agreement provides for an annual base salary
of $300,000 and terminates on the third anniversary of the closing of the
Offering. The employment agreement provides that Mr. De Young will receive a
$600,000 payment in the event his employment is terminated following a
"change-in-control" of the Company. In addition, if the Company retains an
officer (other than the Chairman of the Board) in a capacity that is senior to
Mr. De Young, or if his responsibilities are materially diminished (other than
for cause), Mr. De Young will have the right to terminate his employment in
which event he will be entitled to receive payments equal to the greater of
$750,000 or the remaining aggregate amount of base salary otherwise payable
under the employment agreement.
In January 1993, Mr. McDonnell entered into an employment agreement with
ADS, under which he serves as the Company's Vice President -- Engineering. The
employment agreement currently provides for an annual base salary of $127,000
and terminates on January 26, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Board of Directors determined the compensation of all the
Company's executive officers. Since May 16, 1996, all such deliberations were
made by the Company's compensation committee. The compensation committee of the
Board of Directors consists of Messrs. Blankenship and Henshaw. No member of the
compensation committee or executive officer of the Company has a relationship
that would constitute an interlocking relationship with the executive officers
or directors of another entity.
DIRECTOR COMPENSATION
The only directors who will be compensated for services as a director are
Messrs. Blankenship and Steisel, each of whom will receive $2,000 for each
meeting of the Board of Directors which he attends and $500 for each meeting of
a committee of the Board of Directors which he attends.
EXECUTIVE COMPENSATION
The following table sets forth, for the year ended December 31, 1995, the
cash compensation paid and shares underlying options granted to Mr. De Young,
the President of the Company, and each other executive officer whose salary for
such fiscal year was in excess of $100,000. The Company did not pay bonuses to
these individuals during the year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SHARES
UNDERLYING
SALARY OPTIONS GRANTED
---------- ----------------
<S> <C> <C>
Richard De Young, President.............................................. $ 230,092 212,109
Scott H. Flamm, Senior Vice President, Chief Financial Officer........... 122,106(1) 83,989
John J. McDonnell, Vice President -- Engineering......................... 109,447 49,205
</TABLE>
- - ------------------------
(1) Represents the salary received since June 1995, when Mr. Flamm became an
employee of the Company.
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<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of options to
purchase shares of the Company's Common Stock to each of the named executive
officers of the Company during the year ended December 31, 1995. No stock
appreciation rights ("SARS") were granted in 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (1)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------------
NAME GRANTED YEAR ($/SHARE) DATE (2) 5% 10%
- - ------------------------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Richard De Young......... 212,109 30.41% $ 7.41 8/1/2005 $ 1,414,664 $ 3,008,789
Scott H. Flamm........... 83,989 12.04% $ 7.41 12/27/2005 584,299 1,263,394
John J. McDonnell........ 1,263 0.18% $ 7.17 2/23/2002 5,992 10,623
47,942 6.87% $ 7.41 8/1/2005 319,750 680,062
</TABLE>
- - ------------------------
(1) Based on certain assumed rates of appreciation from an initial public
offering price of $9.00 as of June 1, 1996. The potential realizable values
set forth above do not take into account applicable tax and expense payments
that may be associated with such option exercises. Actual realizable value,
if any, will be dependent on the future price of the Common Stock on the
actual date of exercise, which may be earlier than the stated expiration
date. The 5% and 10% assumed annualized rates of stock price appreciation
over the exercise period of the options used in the table above are mandated
by the rules of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of the future price of the Common Stock
on any date. There is no representation either express or implied that the
stock price appreciation rates for the Common Stock assumed for purposes of
this table will actually be achieved.
(2) Each option is subject to earlier termination if the officer's employment
with the Company is terminated.
The following table sets forth information for each of the named executive
officers with respect to the value of options outstanding as of December 31,
1995. There were no options exercised during 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
1995 AT DECEMBER 31, 1995 (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ------------------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard De Young................................ 26,537 256,205 $ 48,563 $ 417,951
Scott H. Flamm.................................. 14,822 69,167 23,567 109,976
John J. McDonnell............................... 8,846 63,904 16,188 105,438
</TABLE>
- - ------------------------
(1) Represents the difference between an initial public offering price of $9.00
and the exercise price per share of the in-the-money options, multiplied by
the number of shares underlying the in-the-money options.
1996 STOCK OPTION PLAN
Effective as of January 1, 1996, the Company adopted the American Disposal
Services, Inc. 1996 Stock Option Plan (the "Plan"). The Plan is a stock plan
providing for the grant of incentive stock options and nonqualified stock
options to key employees and consultants of the Company and its subsidiaries.
ADMINISTRATION. The Plan is administrated by the compensation committee of
the Company's Board of Directors (the "Committee"). The Committee determines the
key employees and consultants eligible to receive options and the terms thereof,
all in a manner consistent with the Plan.
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<PAGE>
SHARES SUBJECT TO OPTIONS. The Plan provides that the total number of
shares of Common Stock that may be subject to options shall be 1,100,000 shares.
Shares subject to any option which terminates or expires unexercised will be
available for subsequent grants.
OPTIONS. The Plan provides for the grant of incentive stock options and
nonqualified stock options to key employees and consultants, as determined by
the Committee. The exercise price of incentive stock options granted under the
Plan shall be at least 100% of fair market value of the Common Stock on the date
of grant and the exercise price of nonqualified stock options shall be at least
equal to the par value of the Common Stock. Nonqualified stock options shall be
exercisable for not more than ten years, and incentive stock options may be
exercisable for up to ten years except as otherwise provided. The Committee may
provide that an optionee may pay for shares upon exercise of an option: (i) in
cash; (ii) in already-owned shares of Common Stock; (iii) by agreeing to
surrender then exercisable options equivalent in value; (iv) by payment through
a cash or margin arrangement with a broker; (v) in shares otherwise issuable
upon exercise of the option; or (vi) by such other medium or by any combination
of (i), (ii), (iii), (iv) or (v) as authorized by the Committee. The grant of an
option may be accompanied by a reload option, which gives an optionee who pays
the exercise price of an option with shares of Common Stock an additional option
to acquire the same number of shares that was used to pay for the original
option. Under certain circumstances, including termination of employment upon
retirement, disability or death, the option may be exercised during an extended
period.
In connection with the Restructuring, all options to purchase shares of ADS
and CDI were exchanged for options to purchase shares of Common Stock under the
Plan.
CERTAIN TRANSACTIONS
Messrs. Stoller and Flamm are officers of Charterhouse Environmental
Capital, an affiliate of Charterhouse, which has been providing management and
consulting services to the Company since 1993. These services include: services
relating to the Company's banking and other financial relationships including
assistance in connection with the financing and refinancing of corporate
indebtedness; analysis and assistance from both a financial and operational
standpoint in connection with the expansion of the Company's business
operations; assistance with strategic planning; and advice related to
acquisitions. Fees paid by the Company to Charterhouse Environmental Capital
were $314,000 in 1993, $515,000 in 1994 and $659,000 in 1995. These management
and consulting services will be terminated effective at the closing of the
Offering. See, however, "Management -- Employment Agreements."
On November 16, 1995, the Company borrowed $12.5 million from Charterhouse
Equity Partners II, L.P. See "Principal Stockholders." The loan matures on
November 15, 1996 and bears interest at a rate per annum equal to the prime rate
plus 3%. The Company repaid this loan in June 1996 with $7.5 million of
borrowings under the Credit Facility and the remaining $5.0 million was repaid
with existing cash. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Effective as of January 1, 1996, the Company entered into agreements with
each of its executive officers providing that, upon such officer's exercise of
stock options granted in exchange for options previously granted by CDI, the
Company will pay to such officer an amount equal to the tax savings actually
recognized by the Company as a result of the deductions attributable to such
exercise. In no event can the payment to be received by an executive officer
under such agreement exceed the difference between the federal income tax
actually paid by such officer as a result of such option exercise and the amount
of federal income tax that would have been paid by such officer had such option
exercise been taxed at the capital gains rate.
All future transactions, including loans, between the Company and its
officers, directors, principal stockholders or their affiliates will be subject
to approval of a majority of the independent and disinterested outside
directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of May 31, 1996 and as adjusted to
reflect the sale of the Common Stock offered hereby, by: (i) each person known
by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock; (ii) each of the Company's directors; (iii) the Company's Chief
Executive Officer and each of the Company's other executive officers; and (iv)
the Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP (1)
NUMBER OF
SHARES --------------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNERS OWNED OFFERING OFFERING
- - -------------------------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Charterhouse Environmental Holdings, L.L.C. (2)............... 1,867,289 32.9% 22.2%
Charterhouse Equity Partners II, L.P. (3)..................... 2,511,973 44.2% 29.8%
CDI Equity, LLC (4)........................................... 644,109 11.3% 7.6%
David C. Stoller (5).......................................... 60,271 1.1% *
Richard De Young (5)(6)....................................... 38,540 * *
Scott H. Flamm (5)............................................ 23,764 * *
Merril M. Halpern (7)......................................... -- -- --
A. Lawrence Fagan (7)......................................... -- -- --
Richard T. Henshaw, III (7)................................... -- -- --
G.T. Blankenship (8).......................................... 100,935 1.8% 1.2%
Norman Steisel................................................ -- -- --
Richard Kogler (5)............................................ 1,177 * *
Ann L. Straw (5).............................................. 777 * *
John J. McDonnell (5)(9)...................................... 13,441 * *
Lawrence R. Conrath (5)(10)................................... 5,264 * *
All directors and executive officers as a group (12 persons)
(5).......................................................... 244,169 4.3% 2.9%
</TABLE>
- - ------------------------
* Less than one percent.
(1)Assumes no exercise of the Underwriters' over-allotment option to purchase
up to 412,500 additional shares of Common Stock from the Company. See
"Underwriting."
(2)The address of Charterhouse Environmental Holdings, L.L.C. ("Charter
Environmental") is c/o Charterhouse Group International, Inc., 535 Madison
Avenue, New York, New York 10022. Charterhouse Equity Partners, L.P. ("CEP")
and StollerCo Partners, L.P. ("StollerCo") are the members of Charter
Environmental, with a majority of the ownership interests being held by CEP.
The general partner of CEP is CHUSA Equity Investors, L.P., whose general
partner is Charterhouse Equity, Inc., a wholly-owned subsidiary of
Charterhouse. As a result of the foregoing, all of the shares of Common
Stock held by Charter Environmental would, for purposes of Section 13(d) of
the Securities Exchange Act of 1934, be considered to be beneficially owned
by Charterhouse. Messrs. Stoller and Flamm are partners of StollerCo and
disclaim beneficial ownership of shares of Common Stock held of record by
Charter Environmental.
(3)The address of Charterhouse Equity Partners II, L.P. ("CEP II") is c/o
Charterhouse Group International, Inc., 535 Madison Avenue, New York, New
York 10022. The general partner of CEP II is CHUSA Equity Investors II,
L.P., whose general partner is Charterhouse Equity II, Inc., a wholly-owned
subsidiary of Charterhouse. As a result of the foregoing, all of the shares
of Common Stock held by CEP II would, for purposes of Section 13(d) of the
Securities Exchange Act of 1934, be considered to be beneficially owned by
Charterhouse.
45
<PAGE>
(4)The address of CDI Equity, LLC is c/o Aetna Life and Casualty Company,
Conveyor IG6U, 151 Farmington Avenue, Hartford, Connecticut 06156. The
member interests in CDI Equity, LLC are held as follows: 99% by Aetna Life
Insurance Company, which is a wholly-owned subsidiary of Aetna Life and
Casualty Company, and 1% by CDI Equity, Inc., a wholly-owned subsidiary of
Aetna Life Insurance Company.
(5)Includes options exercisable within 60 days of May 31, 1996 to purchase
57,804, 36,073, 22,232, 1,177, 12,446, 4,767 and 777 shares granted under
the American Disposal Services, Inc. 1996 Stock Option Plan to Messrs.
Stoller, De Young, Flamm, Kogler, McDonnell and Conrath and Ms. Straw,
respectively. For purposes of computing the percentage of outstanding shares
beneficially held by each person or group of persons named above on a given
date, any security which such person or persons has the right to acquire
within 60 days after such date is deemed to be beneficially owned for the
purpose of computing the percentage ownership of such person or persons, but
is not deemed to be outstanding for the purpose of computing the percentage
ownership of any person.
(6)Includes 2,467 shares held jointly by Mr. De Young and his wife.
(7)Merril M. Halpern and A. Lawrence Fagan are executive officers, directors
and stockholders of Charterhouse and Richard T. Henshaw, III is an executive
officer of Charterhouse. Messrs. Halpern, Fagan and Henshaw each disclaim
beneficial ownership of the shares of Common Stock beneficially owned by
Charterhouse.
(8) Includes 7,995 shares held by Mr. Blankenship's wife, of which Mr.
Blankenship disclaims beneficial ownership.
(9) Includes 996 shares held by Mr. McDonnell's minor children.
(10) Includes 498 shares held jointly by Mr. Conrath and his wife.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock,
par value $.01 per share, (the "Preferred Stock"). The discussions of the Common
Stock and Preferred Stock here and elsewhere in this Prospectus are qualified in
their entirety by reference to: (i) the Certificate of Incorporation of the
Company, as amended, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part; and (ii) the
applicable Delaware law.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Stockholders casting a plurality of votes of the stockholders entitled
to vote in an election of directors may elect all of the directors standing for
election. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
Preferred Stock that may be issued at such future time or times. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company after the
payment of all debts and other liabilities and subject to the prior rights of
Preferred Stock that may be outstanding at such time. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company in the Offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
As of May 31, 1996, there were 5,676,901 shares of Common Stock outstanding
and held of record by approximately 65 stockholders after giving effect to the
Restructuring. After giving effect to the issuance of the 2,750,000 shares of
Common Stock offered by the Company hereby (assuming no exercise of the
Underwriters' over-allotment option), there will be 8,426,901 shares of Common
Stock outstanding upon the closing of the Offering.
UNDESIGNATED PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control of others. At present, the Company has no plans to issue any of
the Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (for the purposes of determining the number of shares
outstanding, under Delaware law, those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer are
excluded from the calculation); or (iii) on or subsequent to such date, the
business
47
<PAGE>
combination is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Certain provisions of the Company's Certificate of Incorporation and
Delaware law may have a significant effect in delaying, deferring or preventing
a change in control of the Company and may adversely affect the voting and other
rights of other holders of Common Stock. In particular, the ability of the Board
of Directors to issue Preferred Stock without further stockholder approval may
have the effect of delaying, deferring or preventing a change in control of the
Company and may adversely affect the voting and other rights of other holders of
Common Stock.
REGISTRATION RIGHTS
After the Offering, the holders of 5,032,861 shares of Common Stock and
warrants to purchase 215,455 shares of Common Stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the agreements between the Company and the holders of such
registrable securities, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders exercising registration rights, such holders
are entitled to notice of such registration and are entitled to include shares
of such Common Stock therein. The holders of such registrable securities may
also require the Company on two separate occasions to file a registration
statement under the Securities Act at the Company's expense with respect to
their shares of Common Stock, and the Company is required to use its diligent
reasonable efforts to effect such registration. These rights are subject to
certain conditions and limitations, among them the right of the underwriters of
an offering to limit the number of shares included in such registration.
TRANSFER AGENT
The Transfer Agent for the Common Stock is the Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004. Its telephone number is
(212) 509-4000.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock. Future
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
Upon completion of the Offering, the Company will have approximately
8,426,901 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' overallotment option). Of these shares, the 2,750,000 shares sold
in the Offering will be freely transferable without restriction or registration
under the Securities Act, except for any shares purchased by an existing
"affiliate" of the Company, as that term is defined by the Securities Act (an
"Affiliate"), which shares will be subject to the resale limitations of Rule 144
adopted under the Securities Act.
After the Offering, the holders of 5,032,861 shares of Common Stock, and
warrants to purchase 215,455 shares of Common Stock, will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
See "Description of Capital Stock -- Registration Rights." Registration of such
48
<PAGE>
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by Affiliates) immediately upon the effectiveness of such
registration.
The Company's officers and directors and holders of 5% or more of the
outstanding shares of Common Stock prior to the Offering, who beneficially own
an aggregate of 5,888,279 shares of Common Stock or options or warrants to
purchase shares of Common Stock, have agreed not to offer, sell, contract to
sell or grant any option to purchase or otherwise dispose of such securities for
180 days after the date of this Prospectus, without the prior written consent of
Oppenheimer & Co., Inc. Additionally, the Company has agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
any rights to acquire Common Stock for a period 180 days after the date of this
Prospectus, without the prior written consent of Oppenheimer & Co., Inc.,
subject to certain limited exceptions.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Offering, a person (or person whose shares are aggregated) who owns shares
that were purchased from the Company (or any Affiliate) at least two years
previously, including persons who may be deemed Affiliates of the Company, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of the Company's Common
Stock or the average weekly trading volume of the Company's Common Stock in the
Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission"). Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an Affiliate of the Company at any
time during the 90 days preceding a sale, and who owns shares within the
definition of "restricted securities" under Rule 144 under the Securities Act
that were purchased from the Company (or any Affiliate) at least three years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements. It is anticipated that after the expiration
of such 90 day period no shares of Common Stock will be immediately eligible for
sale under Rule 144.
The Company intends to file a registration statement under the Securities
Act covering approximately 1,100,000 shares of Common Stock issued or reserved
for issuance under the Plan. See "Management -- 1996 Stock Option Plan." Such
registration statement is expected to be filed prior to the end of the 1996
calendar year and will automatically become effective upon filing. Accordingly,
shares registered under such registration statement pursuant to the Plan will,
subject to Rule 144 volume limitations applicable to Affiliates, be available
for sale in the open market, except to the extent that such shares are subject
to vesting restrictions. At May 31, 1996, options to purchase 869,615 shares
were issued and outstanding under the Plan.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters, for whom Oppenheimer & Co., Inc. and CS First Boston
Corporation are acting as Representatives, has severally agreed to purchase from
the Company, the respective number of shares of Common Stock set forth opposite
the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- - ---------------------------------------------------------------------------------------- --------------
<S> <C>
Oppenheimer & Co., Inc.................................................................. 635,000
CS First Boston Corporation............................................................. 635,000
Bear, Stearns & Co. Inc................................................................. 80,000
Deutsche Morgan Grenfell/C.J. Lawrence Inc.............................................. 80,000
Donaldson, Lufkin & Jenrette Securities Corporation..................................... 80,000
A.G. Edwards & Sons, Inc................................................................ 80,000
Goldman, Sachs & Co..................................................................... 80,000
Lehman Brothers Inc..................................................................... 80,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated...................................... 80,000
NatWest Securities Corporation.......................................................... 80,000
PaineWebber Incorporated................................................................ 80,000
Prudential Securities Incorporated...................................................... 80,000
Salomon Brothers Inc.................................................................... 80,000
Smith Barney Inc........................................................................ 80,000
Advest, Inc............................................................................. 40,000
The Chicago Corporation................................................................. 40,000
Cleary, Gull, Reiland & McDevitt Inc.................................................... 40,000
Fahnestock & Co. Inc.................................................................... 40,000
Gruntal & Co., Incorporated............................................................. 40,000
Janney Montgomery Scott Inc............................................................. 40,000
Morgan Keegan & Company, Inc............................................................ 40,000
Parker/Hunter Incorporated.............................................................. 40,000
Pennsylvania Merchant Group Ltd......................................................... 40,000
Rauscher Pierce Refsnes, Inc............................................................ 40,000
Raymond James & Associates, Inc......................................................... 40,000
Van Kasper & Company.................................................................... 40,000
H.G. Wellington & Co. Inc............................................................... 40,000
--------------
Total................................................................................. 2,750,000
--------------
--------------
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus and in part to certain securities dealers at such price less a
concession of $0.35 per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $0.10 per share to certain brokers and
dealers. After the shares of Common Stock are released for sale to the public,
the offering price and other selling terms may from time to time be changed by
the Representatives. The Underwriters are obligated to take and pay for all of
the shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any are taken.
The Company has granted the Underwriters an option, exercisable for up to 30
days after the date of this Prospectus, to purchase up to an aggregate of
412,500 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them as shown in
the foregoing table bears to the 2,750,000 shares of Common Stock offered
hereby. The Underwriters may exercise such option only to cover over-allotments
made in
50
<PAGE>
connection with the sale of the shares of Common Stock offered hereby. The
Representatives have advised the Company that the Underwriters do not intend to
confirm sales in excess of 5% of the shares offered hereby to any account over
which they exercise discretionary authority.
The Company has agreed to indemnify the representatives of the Underwriters
and the several Underwriters against certain liabilities, including, without
limitation liabilities under the Securities Act.
The Company's officers and directors and holders of 5% or more of the
outstanding shares of Common Stock prior to the Offering, who beneficially own
an aggregate of 5,888,279 shares of Common Stock or options or warrants to
purchase shares of Common Stock, have agreed not to offer, sell, contract to
sell, pledge or grant any option to purchase or otherwise dispose of such
securities for 180 days after the date of this Prospectus without the prior
written consent of Oppenheimer & Co., Inc. The Company has also agreed not to
offer, sell, contract to sell, or otherwise dispose of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or any rights to acquire Common Stock (other than shares issuable
upon exercise of outstanding options and warrants) for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Oppenheimer & Co., Inc., subject to certain limited exceptions. See "Shares
Eligible for Future Sale."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price has been
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were prevailing market conditions,
the results of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies which the Company
and the Representatives believe to be comparable to the Company, estimates of
the business potential of the Company, the present state of the Company's
development and other factors deemed relevant by the Representatives.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New
York 10036. Certain legal matters will be passed upon for the Underwriters by
Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178.
EXPERTS
The consolidated financial statements of the Company at December 31, 1994
and 1995 and for each of the two years in the period ended December 31, 1995,
appearing in this Prospectus and the Registration Statement of which this
Prospectus forms a part have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and cash
flows of the Company for the fiscal year ended December 31, 1993, included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
In 1994 the Company appointed Ernst & Young LLP to replace Arthur Andersen
LLP as its principal accountants. The Company dismissed Arthur Andersen LLP
during 1994. The reports of Arthur Andersen LLP on the 1993 financial statements
of the Company did not contain an adverse opinion or disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to change accountants was approved by the Company's
Board of Directors. There were no disagreements with the former accountants
during the two fiscal years preceding their replacement or during the subsequent
interim period preceding their replacement on any matter of accounting
principles or
51
<PAGE>
practices, financial statement disclosure or auditing scope or procedures, which
disagreements, if not resolved to the former accountants' satisfaction, would
have caused them to make reference to the subject matter of the disagreement in
connection with their reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain items of which are
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the financial statements,
schedules, and exhibits filed as a part thereof. The Registration Statement,
including all schedules and exhibits thereto, may be inspected without charge at
the public reference facilities maintained by the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and at the
Commission's regional offices at 7 World Trade Center, 13th floor, New York, New
York and 500 West Madison Street, Suite 1400, Chicago, Illinois. Copies of such
material may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Statements contained in this Prospectus concerning the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or otherwise with the Commission, each
such statement being qualified in all respects by such reference. The Company
believes that all material elements of such contracts and documents are
described in this Prospectus.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AMERICAN DISPOSAL SERVICES, INC. AND SUBSIDIARIES:
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors........................................................................... F-2
Report of Independent Accountants........................................................................ F-3
Consolidated Balance Sheets at December 31, 1995 and 1994................................................ F-4
Consolidated Statements of Operations for the years ended December 31, 1995,
1994 and 1993........................................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995, 1994 and 1993..................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993............... F-7
Notes to Consolidated Financial Statements............................................................... F-8
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet at March 31, 1996................................................... F-18
Condensed Consolidated Statements of Operations for the three months ended March 31, 1996 and 1995....... F-19
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995....... F-20
Notes to Condensed Consolidated Financial Statements..................................................... F-21
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Statement of Operations for the year ended December 31, 1995...................... F-23
ACQUIRED COMPANIES (CDI ACQUISITION):
ENVIRITE CORPORATION, MSG FACILITIES
Report of Independent Auditors........................................................................... F-25
Statements of Net Assets Acquired at December 31, 1994 and January 1, 1994............................... F-26
Statements of Revenue and Direct Operating Expenses for the fiscal years ended December 31, 1994 and
January 1, 1994......................................................................................... F-27
Notes to Financial Statements............................................................................ F-28
Report of Independent Auditors........................................................................... F-31
Statement of Revenue and Direct Operating Expenses for the period ended November 15, 1995................ F-32
Notes to Financial Statements............................................................................ F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Disposal Services, Inc.
We have audited the accompanying consolidated balance sheets of American
Disposal Services, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1994 financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Disposal Services, Inc. as of December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 22, 1996 , except as to Note 10 for
which the date is May 30, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
American Disposal Services, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of American Disposal Services, Inc. and
subsidiaries for the year ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of American
Disposal Services, Inc. and subsidiaries for the year ended December 31, 1993,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
April 15, 1994
F-3
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................ $ 6,383 $ 548
Cash held in escrow...................................................................... 156 191
Trade receivables -- Net of allowance for doubtful accounts of $476 and $408............. 6,331 2,560
Prepaid expenses......................................................................... 686 97
Inventory................................................................................ 312 184
---------- ---------
Total current assets....................................................................... 13,868 3,580
Property and equipment, net................................................................ 81,250 17,062
Other assets:
Cost over fair value of net assets of acquired businesses, net of accumulated
amortization of $823 and $451........................................................... 15,739 13,569
Other intangible assets, net of accumulated amortization of $305 and $455................ 1,081 1,435
Debt issuance costs, net of accumulated amortization of $71 and $234..................... 815 1,002
Other.................................................................................... 1,940 909
---------- ---------
$ 114,693 $ 37,557
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to stockholder.............................................................. $ 12,500 $ --
Accounts payable......................................................................... 3,185 881
Accrued liabilities...................................................................... 2,360 1,440
Deferred revenues........................................................................ 1,202 948
Current portion of long-term debt and capital lease obligations.......................... 3,440 2,548
---------- ---------
Total current liabilities.................................................................. 22,687 5,817
Long-term debt and capital lease obligations, net of current portion....................... 48,789 18,487
Accrued environmental and landfill costs................................................... 6,214 1,121
Deferred income taxes...................................................................... 1,240 --
Redeemable preferred stock of subsidiary................................................... 1,908 --
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized; shares issued and
outstanding; 1995 -- 5,676,901; 1994 -- 2,382,345....................................... 57 24
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued and outstanding
in 1995 and 1994........................................................................ -- --
Warrants outstanding..................................................................... 107 107
Additional paid-in capital............................................................... 41,590 16,157
Accumulated deficit...................................................................... (7,899) (4,156)
---------- ---------
33,855 12,132
---------- ---------
$ 114,693 $ 37,557
---------- ---------
---------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues................................................................ $ 30,004 $ 18,517 $ 7,730
Cost of operations...................................................... 17,286 12,647 5,750
Selling, general, and administrative expenses........................... 5,882 4,910 1,646
Depreciation and amortization........................................... 6,308 3,226 1,166
------------ ------------ ------------
Operating income (loss)................................................. 528 (2,266) (832)
Interest expense........................................................ (3,030) (1,497) (417)
Interest income......................................................... 189 2 35
------------ ------------ ------------
Loss before income taxes and extraordinary item......................... (2,313) (3,761) (1,214)
Income tax benefit (expense)............................................ (332) 1,372 391
------------ ------------ ------------
Loss before extraordinary item.......................................... (2,645) (2,389) (823)
Extraordinary item -- Gain (loss) on early retirement of debt........... (908) -- 74
------------ ------------ ------------
Net loss................................................................ (3,553) (2,389) (749)
Preferred stock dividend requirement of subsidiary...................... (190) -- --
------------ ------------ ------------
Net loss applicable to common stockholders.............................. $ (3,743) $ (2,389) $ (749)
------------ ------------ ------------
------------ ------------ ------------
Per common share:
Loss before extraordinary item........................................ $ (.80) $ (.99) $ (.58)
Extraordinary item.................................................... (.26) -- .05
------------ ------------ ------------
Net loss.............................................................. $ (1.06) $ (.99) $ (.53)
------------ ------------ ------------
------------ ------------ ------------
Weighted average common stock and common stock equivalent shares
outstanding............................................................ 3,527,688 2,411,381 1,406,219
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- WARRANTS PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT OUTSTANDING CAPITAL DEFICIT EQUITY
---------- ----------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1992......... 212,288 $ 2 $ -- $ 1,105 $ (1,018) $ 89
Issuance of common stock, net of
issuance costs...................... 1,887,664 19 -- 13,065 -- 13,084
Issuance of common stock warrants.... -- -- 107 -- -- 107
Net loss............................. -- -- -- -- (749) (749)
---------- --- ----- ----------- ------------ ------------
Balance -- December 31, 1993......... 2,099,952 21 107 14,170 (1,767) 12,531
Issuance of common stock, net of
issuance costs...................... 282,393 3 -- 1,987 -- 1,990
Net loss............................. -- -- -- -- (2,389) (2,389)
---------- --- ----- ----------- ------------ ------------
Balance -- December 31, 1994......... 2,382,345 24 107 16,157 (4,156) 12,132
Issuance of common stock, net of
issuance costs...................... 3,294,556 33 -- 25,433 -- 25,466
Net loss............................. -- -- -- -- (3,553) (3,553)
Dividends on preferred stock of
subsidiary.......................... -- -- -- -- (190) (190)
---------- --- ----- ----------- ------------ ------------
Balance -- December 31, 1995......... 5,676,901 $ 57 $ 107 $ 41,590 $ (7,899) $ 33,855
---------- --- ----- ----------- ------------ ------------
---------- --- ----- ----------- ------------ ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................................ $ (3,553) $ (2,389) $ (749)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Extraordinary item, net....................................................... 908 -- (74)
Depreciation and amortization................................................. 6,308 3,226 1,166
Provision for environmental and landfill costs................................ 292 48 39
Deferred income taxes......................................................... 47 (1,372) (391)
Changes in current assets and liabilities, net of effects from acquisitions:
Trade receivables........................................................... (340) (625) (1,714)
Prepaid expenses, cash held in escrow and other assets...................... (33) (361) (560)
Inventory................................................................... (128) (96) (68)
Accounts payable and accrued liabilities.................................... 1,846 235 1,226
Deferred revenue............................................................ 254 210 737
---------- --------- ----------
Net cash provided by (used in) operating activities............................. 5,601 (1,124) (388)
INVESTING ACTIVITIES
Capital expenditures............................................................ (6,173) (5,600) (5,592)
Cost of acquisitions............................................................ (62,201) (580) (17,469)
---------- --------- ----------
Net cash used in investing activities........................................... (68,374) (6,180) (23,061)
FINANCING ACTIVITIES
Net proceeds from issuances of common stock..................................... 25,466 1,990 12,885
Net proceeds from issuance of preferred stock of subsidiary..................... 1,908 -- --
Preferred stock dividend requirements of subsidiary............................. (190) -- --
Proceeds from issuance of long-term debt........................................ 45,068 6,319 19,836
Repayments of indebtedness...................................................... (2,698) (2,511) (6,301)
Debt issuance costs............................................................. (946) (80) (849)
---------- --------- ----------
Net cash provided by financing activities....................................... 68,608 5,718 25,571
---------- --------- ----------
Net increase (decrease) in cash and cash equivalents............................ 5,835 (1,586) 2,122
Cash and cash equivalents, at beginning of year................................. 548 2,134 12
---------- --------- ----------
Cash and cash equivalents at end of year........................................ $ 6,383 $ 548 $ 2,134
---------- --------- ----------
---------- --------- ----------
Supplemental cash flow information:
Cash paid for interest........................................................ $ 2,515 $ 1,426 $ 331
Cash paid for income taxes.................................................... 478 -- --
</TABLE>
See accompanying notes.
F-7
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. FORMATION AND BASIS OF PRESENTATION
ADS, Inc. (ADS) was organized January 15, 1991, to acquire, develop, and
operate nonhazardous municipal solid waste disposal, collection, and transfer
operations and provide nonhazardous solid waste disposal management services to
commercial, industrial, and residential customers. During 1993, an affiliate of
Charterhouse Equity Partners, L.P. (CEP) purchased a controlling interest in
ADS.
County Disposal, Inc. (County) was incorporated by Charterhouse Equity
Partners II, L.P. (CEPII) on April 27, 1995, for the purpose of acquiring
certain net assets of Envirite Corporation (Envirite). On April 28, 1995,
Envirite and County entered into an Asset Purchase Agreement whereby County
agreed to purchase from Envirite certain landfill facilities and waste
transportation and collection equipment located in Livingston County, Illinois,
and Wyandot County, Ohio; all of the issued and outstanding capital stock of
County Environmental Services, Inc., a wholly-owned subsidiary of Envirite,
which owned and operated a landfill facility and waste transportation and
collection equipment located in Clarion County, Pennsylvania; and certain
related assets and assumption of certain liabilities.
Effective January 1, 1996, the stockholders of ADS and County exchanged
their shares for shares of a newly created holding company by the name of
American Disposal Services, Inc. (the Company). This share exchange (the
Exchange) qualifies as a transfer of companies under common control as
affiliates of Charterhouse Group International, Inc. are the general partners
and in control of CEP and CEPII and, accordingly, the transaction has been
accounted for at historical cost in a manner similar to pooling of interests
accounting. The financial statements have been prepared as if this Exchange had
occurred as of December 31, 1992.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risks consist primarily of trade receivables. Credit risk on trade
receivables is minimized as a result of the large and diverse nature of the
Company's customer base. The Company maintains an allowance for losses based on
the expected collectibility of accounts receivable. Credit losses have been
within management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Trade receivables, trade payables, and debt obligations are carried at cost
which approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash in banks and liquid investments
with original maturities of three months or less.
CASH HELD IN ESCROW
Cash held in escrow represents cash held in banks restricted to fund
obligations incurred in acquiring businesses.
F-8
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory is stated at the lower of cost (first in, first out method) or
market and consists principally of equipment parts, materials, and supplies.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of equipment is
computed using the straight-line method over the estimated useful lives of the
respective assets as follows:
<TABLE>
<S> <C>
Vehicles and equipment............... 3 to 12 years
25 to 30
Buildings............................ years
</TABLE>
Expenditures for major renewals are capitalized, and expenditures for
routine maintenance and repairs are charged to expense as incurred.
Capitalized landfill costs include expenditures for land and related
airspace, permitting costs and preparation costs. Landfill permitting and
preparation costs represent only direct costs related to these activities,
including legal, engineering, construction of landfill improvements, cell
development costs, and the direct costs of Company personnel dedicated for these
purposes. Preparation costs for individual secure land disposal cells are
recorded in property and equipment and amortized as the airspace is filled.
INTANGIBLE ASSETS
The cost over fair value of net assets of acquired businesses is amortized
on the straight-line method over periods not exceeding 40 years. Other
intangible assets, substantially all of which are covenants not to compete and
customer lists, are amortized on the straight-line method over their estimated
lives, typically no more than 12 years. Amortization expense for fiscal years
1995, 1994, and 1993 related to intangible assets was $1.4 million, $600,000,
and $345,000, respectively. In 1995, the Company determined not to enforce
certain covenants not to compete which arose from 1993 transactions with the net
book value of such covenants of $505,000, fully written-off and included in 1995
amortization expense.
DEFERRED ACQUISITION COSTS
The Company capitalizes engineering, legal, accounting, and other direct
costs paid to outside parties that are incurred in connection with potential
acquisitions. The Company, however, routinely evaluates such capitalized costs
and charges to expense those relating to abandoned acquisition candidates.
Indirect acquisition costs, such as executive salaries, general corporate
overhead, and other corporate services are expensed as incurred. Net deferred
acquisition costs, included in other intangible assets, were approximately
$370,000 and $379,000 at December 31, 1995 and 1994, respectively.
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
Accrued environmental and landfill costs represent landfill accruals which
are provided for environmental compliance costs and closure and post-closure
costs. These accruals are based on accounting estimates by management determined
primarily from the results of engineering studies and reviews and on
interpretation of the technical standards of the Environmental Protection
Agency's Subtitle D regulations, or the approved state counterpart, and the
proposed air emissions standards under the Clean Air Act as they are being
applied on a state-by-state basis. The Company typically provides accruals for
these costs as permitted airspace of such facilities is consumed. Closure and
post-closure monitoring and maintenance costs represent the costs related to
cash expenditures yet to be incurred when a landfill facility ceases to accept
waste and closes. Certain of these accrued environmental and landfill costs,
principally capping, leachate collection and removal, and methane gas control
and recovery, are operating and maintenance costs to be incurred during the
30-year period after the facility closes, but are accrued during the operating
F-9
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
life of the site in accordance with the landfill operation requirements of
Subtitle D and the proposed air emissions standards. An environmental and
landfill cost accrual is provided as a liability assumed for purchased landfill
operations based on permitted airspace consumed prior to the acquisition date
and is included in the purchase price allocation (see Note 3). The Company has
estimated that, as of December 31, 1995, post-closure expenses, including cap
maintenance, groundwater monitoring, methane gas control and recovery and
leachate treatment/disposal for up to 30 years after closure in certain cases,
will approximate $11.3 million. In addition, the Company has estimated that, as
of December 31, 1995, closure costs expected to occur during the operating lives
of these facilities' useful lives will approximate $28.4 million. These accruals
are reviewed by management periodically and revised prospectively for any
significant changes in future cost estimates.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
DEFERRED REVENUES
Revenues billed prior to the performance of services are deferred and
recorded as income in the period in which the related services are rendered,
generally over a three-month period.
RECLASSIFICATIONS
Certain 1994 and 1993 financial statement amounts have been reclassified to
conform with the 1995 presentation.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common stock
and common stock equivalent shares outstanding during each year and incremental
shares from the assumed exercise of options and warrants granted within one year
of the initial public offering computed using the treasury stock method.
STOCK-BASED COMPENSATION
The Company typically grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB No. 25, and, accordingly, typically recognizes no compensation expense for
these stock option grants and intends to continue to do so.
3. ACQUISITIONS
As described in Note 1, the Company acquired three landfills and a waste
collection operation (the Envirite Acquisition) during 1995. The Company also
acquired three waste collection operations during 1994, and nine waste
collection operations, a transfer station and a landfill during 1993.
F-10
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
3. ACQUISITIONS (CONTINUED)
The operating results of these businesses since the dates of acquisition are
included in the consolidated statements of operations. All of the Company's
acquisitions were accounted for as purchases and, accordingly, the purchase
prices have been allocated to the net assets acquired based upon fair values at
the dates of acquisition with the residual amounts allocated to cost over fair
value of net assets acquired. The purchase prices allocated to the net assets
acquired were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Property and equipment.......................................... $ 62,288 $ 580 $ 9,837
Accounts receivable and inventory............................... 3,363 -- --
Other assets.................................................... 1,664 -- 1,995
Cost over fair value of net assets acquired..................... 3,060 -- 12,003
Acquisition price financed by sellers........................... -- -- (3,500)
Total liabilities assumed....................................... (8,174) -- (2,829)
--------- --------- ---------
Total cash paid............................................. $ 62,201 $ 580 $ 17,506
--------- --------- ---------
--------- --------- ---------
</TABLE>
The pro forma unaudited results of operations for the years ended December
31, 1995 and 1994, assuming the Envirite Acquisition occurred at January 1,
1994, were as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Revenues.......................................................... $ 44,500 $ 37,338
Operating loss.................................................... (276) (5,009)
Net loss applicable to common stockholders........................ (6,788) (8,367)
Pro forma loss per share of common stock.......................... (1.92) (3.47)
Weighted average common stock and common stock equivalent shares
outstanding...................................................... 3,527,688 2,411,381
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
--------- ------------
<S> <C> <C>
Land................................................................. $ 5,038 $ 280
Landfills............................................................ 66,529 8,382
Buildings............................................................ 2,695 659
Vehicles and equipment............................................... 14,335 10,956
--------- ------------
88,597 20,277
Less: Accumulated depreciation and amortization...................... (7,347) (3,215)
--------- ------------
$ 81,250 $ 17,062
--------- ------------
--------- ------------
</TABLE>
F-11
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
5. OBLIGATIONS
Obligations, which approximate fair value, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Long-term debt:
Term loan, Bank of America............................................ $ 20,000 $ --
Revolving loan, Bank of America....................................... 10,847 --
Term loan A, ING Capital Corporation.................................. 12,525 9,300
Term loan B, ING Capital Corporation.................................. 4,000 --
Acquisition loan, ING Capital Corporation............................. -- 8,573
Revolving loan, ING Capital Corporation............................... 2,423 2,050
Other long-term borrowings, with interest ranging from 7.0% to
11.0%................................................................ 1,285 1,003
Capital lease obligations:
Capital lease obligations with interest and principal due monthly
through 1999, at various interest rates ranging from 6.0% to 9.5%,
secured by equipment................................................. 1,149 109
--------- ---------
52,229 21,035
Less: Current portion................................................. 3,440 2,548
--------- ---------
Long-term obligations, net of current portion......................... $ 48,789 $ 18,487
--------- ---------
--------- ---------
</TABLE>
On September 21, 1995, County, a subsidiary of the Company, entered into a
credit agreement with Bank of America that provides for borrowings of up to $45
million to finance acquisitions and provide working capital. The facility
consists of a $20 million term loan and a $25 million revolving loan, which is
currently limited to $20 million until certain earnings requirements are met.
The term loan bears a rate of interest per annum based on the London Interbank
Offered Rate (LIBOR) plus 3.75% (9.1% at December 31, 1995) or the higher of
prime plus 1.25% (9.75% at December 31, 1995) or the Federal Funds Rate plus
1.75% (7.5% at December 31, 1995) and is due in quarterly installments beginning
in December 1996 through September 2000. The revolving loan bears interest based
on LIBOR plus 3.25% (8.6% at December 31, 1995) or the higher of prime plus
0.75% (9.25% at December 31, 1995) or at the Federal Funds Rate plus 1.25% (7.0%
at December 31, 1995) and matures on September 21, 1998. The revolving loan
provides for commitment fees of 1/2% per annum on the unused portions payable
monthly in arrears. The facility is secured by substantially all of the assets
of County. Under the terms of the credit agreement, County is subject to various
debt covenants, including maintenance of certain financial ratios and
restrictions on additional indebtedness, payment of cash dividends, capital
expenditures, rental obligations, and asset dispositions. In conjunction with
obtaining the credit agreement, the Company granted 97,575 warrants to purchase
shares of common stock of the Company at $7.41 per share.
On October 13, 1995, ADS, a subsidiary of the Company, extinguished an
existing credit agreement and entered into a new credit agreement with the
Internationale Nederlanden (U.S.) Capital Corporation, as agent (ING), to
provide for borrowings of up to approximately $23 million. As a result of the
early extinguishment of the credit agreement, the Company recognized an
extraordinary loss of $907,720 representing unamortized deferred debt issuance
cost. The facility consists of a $12.5 million term loan A, $4.0 million term
loan B, and a $6.4 million revolving loan. Term loan A bears a rate of interest
per annum based on the London Interbank Offered Rate (LIBOR) plus 3% (8.35% at
December 31, 1995), or the higher of prime plus 1.50% (10.00% at December 31,
1995), or Federal Funds Rate plus 1.75% (7.50% at December 31, 1995), and is due
in quarterly installments through December 31, 2000. Term loan B bears a rate of
F-12
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
5. OBLIGATIONS (CONTINUED)
interest per annum based on the higher of prime plus 3.00% (11.5% at December
31, 1995) or Federal Funds Rate plus 3.25% (9.00% at December 31, 1995, which
can be fixed at March 31, 1996, at the Company's option, and is due in quarterly
installments beginning March 31, 1998 through December 31, 2000. The revolving
loan bears interest at the higher of prime plus 1.25% (9.75% at December 31,
1995), or Federal Funds Rate plus 1.5% (7.25% at December 31, 1995), and matures
on December 31, 2000. The revolving loans provide for commitment fees of 1/2%
per annum on the unused portions payable monthly in arrears. The ING facility is
secured by substantially all of the assets of ADS. Under the terms of the ING
credit agreement, ADS is subject to various debt covenants, including
maintenance of certain financial ratios and restrictions on additional
indebtedness, payment of cash dividends, capital expenditures, rental
obligations, and asset dispositions.
Maturities of long-term obligations (excluding capital lease obligations)
are as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................... $ 2,929
1997............................................................... 6,252
1998............................................................... 18,613
1999............................................................... 8,386
2000 and thereafter................................................ 14,900
---------
$ 51,080
---------
---------
</TABLE>
At December 31, 1995, the Company had outstanding a $12,500,000 unsecured
note payable to a stockholder, which was issued on November 16, 1995 and is due
November 15, 1996, bearing an annual interest rate of prime plus 3% (11.5% at
December 31, 1995). Interest expense relating to this note payable of
approximately $180,000 was incurred in 1995.
F-13
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting and income
tax purposes. Significant components of the Company's deferred tax assets and
liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets arising from:
Net operating loss carryforwards........................................ $ 3,111 $ 2,311
Bad debt reserves....................................................... 41 118
Closure and post-closure costs.......................................... 421 91
Amortization of intangibles............................................. 550 76
--------- ---------
Total deferred tax assets............................................. 4,123 2,596
Valuation allowance....................................................... (2,323) (310)
--------- ---------
Net deferred tax assets............................................... 1,800 2,286
Deferred tax liabilities arising from:
Property and equipment.................................................. 2,898 2,172
Amortization of intangibles............................................. 84 74
Capital leases.......................................................... 32 11
Discharge of indebtedness............................................... 26 29
--------- ---------
Total deferred tax liabilities........................................ 3,040 2,286
--------- ---------
Net deferred tax liability............................................ $ (1,240) $ --
--------- ---------
--------- ---------
</TABLE>
At December 31, 1995, the Company has net operating loss (NOL) carryforwards
of approximately $8.4 million for income tax purposes that expire in years 2006
to 2010.
The utilization of the NOL carryforwards is limited by future taxable
earnings generated at the subsidiary level. The Company recorded a valuation
allowance against the NOL carryforwards to reflect uncertainty as to the
utilization of such benefit for financial reporting purposes, of approximately
$2.3 million at December 31, 1995. The valuation allowance decreased during 1994
by $81,000 and increased during 1993 by $391,000 due to changes in the certainty
of utilizing NOL carryforwards.
Significant components of the income tax expense (benefits) were as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.......................................................... $ 141 $ -- $ --
State............................................................ 144 -- --
--------- --------- ---------
285 -- --
Deferred:
Federal.......................................................... 38 (1,205) (330)
State............................................................ 9 (167) (61)
--------- --------- ---------
47 (1,372) (391)
--------- --------- ---------
Total provision................................................ $ 332 $ (1,372) $ (391)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
6. INCOME TAXES (CONTINUED)
A reconciliation from the statutory income tax rate to the effective income
tax rate was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory income tax rate........................... (34.0)% (34.0)% (34.0)%
Effect of:
State taxes, net of federal tax effect.................... 3.1 (2.9) (3.5)
Net operating loss with no benefit........................ 39.6 0.1 3.6
Other, net................................................ 1.6 0.3 1.7
----- ----- -----
Effective tax rate...................................... 10.3% (36.5)% (32.2)%
----- ----- -----
----- ----- -----
</TABLE>
7. RELATED PARTIES
During 1995, the Company entered into a new management agreement with a
stockholder. The agreement specifies certain services to be rendered to the
Company in exchange for annual management fees of $700,000. Management fees of
approximately $659,000, $515,000, and $314,000 were incurred in 1995, 1994, and
1993, respectively.
8. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL AND REGULATORY REQUIREMENTS
The business and activities of the Company are or may become heavily
regulated by the Environmental Protection Agency, the Department of
Transportation, the Interstate Commerce Commission, and various state
environmental and transportation regulatory authorities. The Company is subject
to various statutes and regulations which include, but are not limited to, the
Resource Conservation and Recovery Act of 1976, the Federal Water Pollution
Control Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Clean Air Act, and various state regulations. The
full impact of these laws and regulations and adoption of new statutes and
regulations with respect to the Company's facilities and operations is uncertain
and could have material adverse effects on the Company's business, results of
operations, and financial condition in that the Company: (i) could be required
to incur additional expenses in compliance efforts; (ii) might be unable to
comply, forcing the Company to cease operations; and (iii) could incur
additional liability for past operation of acquired assets. These regulations
may also impose restrictions on the Company's operations, such as limiting the
expansion of disposal facilities, limiting or banning the disposal of
out-of-state waste or certain other categories of waste, or mandating the
disposal of local refuse.
Although the Company believes it is in substantial compliance with current
regulatory requirements, because of heightened political and public concern over
environmental issues, companies in the waste disposal industry, including the
Company, may become subject to judicial and administrative proceedings involving
federal, state, or local agencies in the normal course of business.
The Company has obtained pollution liability insurance covering claims for
sudden or gradual onset environmental damage at its landfill sites. The Company
carries a comprehensive general liability insurance policy which management
considers adequate to protect its assets and operations from other risks.
The Company also may be subject to claims for personal injury or property
damage arising out of motor vehicle accidents involving its trucks. The Company
currently carries insurance with policy limits which management believes to be
sufficient to cover these risks. If the Company were to incur liabilities in
excess of its insurance limits, its financial condition could be adversely
affected.
F-15
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In connection with three of the Company's existing landfills (one in 1994),
the Company has provided financial assurance bonds for approximately $6.3
million at December 31, 1995 from a financial institution to provide financial
assurance that closure and post-closure expenses will be met in the event that
the Company is not able to fulfill its closure and post-closure obligations.
At December 31, 1995, future minimum lease payments under noncancelable
lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1996..................................................................... $ 598 $ 1,548
1997..................................................................... 431 1,101
1998..................................................................... 192 1,015
1999..................................................................... 104 852
2000 and thereafter...................................................... -- 379
--------- -----------
Total minimum lease payments......................................... 1,325 $ 4,895
-----------
-----------
Less: Amount representing interest....................................... 176
---------
Present value of minimum lease payments.............................. $ 1,149
---------
---------
</TABLE>
Rental expense in 1995, 1994, and 1993 was approximately $793,000, $132,000,
and $85,000, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with several officers.
The terms of these agreements include annual salary commitments of approximately
$795,000. The agreements are effective through 1998. In addition, the officers
were granted options to purchase shares of the Company's common stock (see Note
9).
OTHER
The Company has entered into certain Net Profits Agreements (the Agreements)
in conjunction with the September 1991 Pittsburg County landfill acquisition.
The Agreements require the Company to pay a total of 15% of the net profits, as
defined in the Agreements, from the related acquired landfill operation to two
individuals who are not currently stockholders of ADS. These payments are
required for the life of the acquired landfill. Through December 31, 1995, no
amounts related to the Agreements were payable.
REDEEMABLE PREFERRED STOCK OF SUBSIDIARY
On March 28, 1995, ADS, a subsidiary of the Company, issued 1,950 shares of
its Series A Preferred Stock and 46,550 warrants to purchase shares of common
stock of the Company, for $1,950,000. The holder of the warrants can purchase
one common share for each warrant held at the exercise price of $0.10 per share
on or before December 31, 2002. The holder of Series A Preferred Stock is
entitled to receive, out of funds legally available, cumulative cash dividends
at a rate of $130 per share per annum, payable in equal quarterly installments.
ADS may redeem all or part of the Series A Preferred Stock then outstanding by
paying to the holders of the shares being redeemed a redemption price equal to
the sum of the amount of accrued and unpaid cumulative dividends on the shares
being redeemed, plus $1,000 per share redeemed on the first day of each
February, May, August, and November in each year, commencing on May 1, 1995.
In connection with the Exchange, 5,000,000 shares of new preferred stock of
the Company were authorized with none issued at December 31, 1995.
F-16
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
9. STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company's Board of Directors adopted the American Disposal Services,
Inc. 1996 Stock Option Plan effective January 1, 1996. The plan permits grants
of options up to an aggregate 1,100,000 shares of common stock to employees and
certain consultants of the Company, on such terms as the Company's compensation
committee (or a stock option subcommittee thereof) determines. Options to
purchase an aggregate 806,014 shares were granted under the plan as of January
1, 1996 to replace existing stock options granted by ADS and County.
An aggregate of 123,638 options have an exercise price of $7.17 per share,
and vest in 20% increments on each anniversary of the date of the original grant
of the ADS stock options that they replace. An aggregate of 10,464 options have
an exercise price of $7.17 per share, and vest in 33 1/3% increments on each
anniversary of the date of the original grant of the ADS stock options that they
replace. An aggregate of 671,912 options have an exercise price of $7.41 per
share, and vest in part over a three-year period and in part based on the
Company's financial performance through fiscal 1998. All vesting is subject to
acceleration under specified circumstances. All the foregoing stock options were
originally granted at their fair value at the date of grant. The new options
granted under the 1996 Option Plan expire ten years from the date of the
original grant of the ADS and County stock options they replace. As of December
31, 1995, the number of shares vested under the 1996 Option Plan was 105,223.
No options were exercised during the three years ended December 31, 1995.
Options to purchase an aggregate 63,601 shares were granted outside the plan
to a former employee as of January 1, 1996 and are fully vested. Such shares
have an exercise price of $7.17 per share, increasing at 25% per annum from the
date of original grant of the ADS stock options they replace.
STOCK WARRANTS
In connection with obtaining a credit agreement in 1993, the Company issued
warrants to ING to purchase 71,330 shares of common stock. In 1993, 44,606
warrants were issued with an exercise price of $4.72 per share and 26,137
warrants were issued with an exercise price of $7.17 per share. An additional
587 shares were issued in 1995 under terms of the credit agreement with an
exercise price of $4.72 per share. The common stock was valued by management at
$7.17 on the date of issuance of the warrants. Given the difference between the
exercise price and the value of the common stock, the Company recorded the
warrants as a component of equity and recognized debt issuance cost of $106,666.
The warrants expire ten years from date of issuance.
10. SUBSEQUENT EVENT
On May 30, 1996, the stockholders of the Company approved a 13.5 to 1 stock
split. The accompanying financial statements are presented as if the stock split
had taken place on December 31, 1992.
F-17
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents (includes restricted cash of $156)....................................... $ 6,706
Trade receivables, net............................................................................. 6,563
Other current assets............................................................................... 670
-----------
Total current assets................................................................................. 13,939
Property, plant, and equipment, net.................................................................. 81,696
Other assets:
Cost over fair value of assets acquired, net....................................................... 15,636
Other intangibles assets, net...................................................................... 1,921
Other assets....................................................................................... 2,240
-----------
$ 115,432
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable due to stockholder.................................................................... $ 12,500
Accounts payable................................................................................... 2,821
Accrued liabilities and deferred revenues.......................................................... 4,009
Current portion of long-term debt and capital lease obligations.................................... 4,167
-----------
Total current liabilities............................................................................ 23,497
Long-term debt and capital lease obligations, net of current portion................................. 49,006
Accrued environmental and landfill costs............................................................. 6,623
Deferred income taxes................................................................................ 1,080
Redeemable preferred stock of subsidiary............................................................. 1,908
Total stockholders' equity (5,676,901 shares of common stock issued and outstanding)................. 33,318
-----------
$ 115,432
-----------
-----------
</TABLE>
See accompanying notes.
F-18
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1996 1995
---------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues............................................................................... $ 11,724 $ 5,034
Cost of operations..................................................................... 6,108 3,047
Selling, general, and administrative expenses.......................................... 1,935 1,080
Depreciation and amortization.......................................................... 2,718 984
---------- ------------
Operating income (loss)................................................................ 963 (77)
Interest expense....................................................................... (1,617) (511)
Interest income........................................................................ 78 4
---------- ------------
Loss before income taxes............................................................... (576) (584)
Income tax benefit..................................................................... 160 156
---------- ------------
Net loss............................................................................... (416) (428)
Preferred stock dividend requirement of subsidiary..................................... (63) --
---------- ------------
Net loss applicable to common stockholders............................................. $ (479) $ (428)
---------- ------------
---------- ------------
Loss per share of common stock......................................................... $ (.08) $ (.17)
---------- ------------
---------- ------------
Weighted average common stock and common stock equivalent shares outstanding........... 5,864,078 2,569,522
---------- ------------
---------- ------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss..................................................................................... $ (416) $ (428)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization.............................................................. 2,718 984
Provision for environmental and landfill costs............................................. 118 12
Deferred income taxes...................................................................... (160) (156)
Changes in working capital:................................................................
Trade receivables........................................................................ (232) 109
Accounts payable......................................................................... (364) (5)
Accrued liabilities and deferred revenue................................................. 447 (317)
Other working capital.................................................................... (93) (268)
--------- ---------
Net cash provided by (used in) operating activities.......................................... 2,018 (69)
INVESTING ACTIVITIES
Capital expenditures......................................................................... (2,674) (991)
--------- ---------
Net cash used in investing activities........................................................ (2,674) (991)
FINANCING ACTIVITIES
Net proceeds from issuance of preferred stock of subsidiary.................................. -- 1,908
Preferred stock dividend requirement of subsidiary........................................... (63) --
Net borrowings (repayments).................................................................. 944 (1,170)
Cash paid for stock issuance costs........................................................... (58) --
--------- ---------
Net cash provided by financing activities.................................................... 823 738
--------- ---------
Net increase (decrease) in cash and cash equivalents (including restricted cash)............. 167 (322)
Cash and cash equivalents (including restricted cash) at beginning of period................. 6,539 739
--------- ---------
Cash and cash equivalents (including restricted cash) at end of period....................... $ 6,706 $ 417
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-20
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
1. FORMATION AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
1996, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes included elsewhere herein.
Effective January 1, 1996, the stockholders of ADS and County exchanged
their shares for shares of a newly created holding company by the name of
American Disposal Services, Inc. (the Company). This share exchange (the
Exchange) qualifies as a transfer of companies under common control and,
accordingly, the transaction has been accounted for at historical cost in a
manner similar to pooling of interest accounting. The financial statements have
been prepared as if the Exchange occurred on December 31, 1994.
2. RELATED PARTY INTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Charterhouse Equity Partners II, L.P....................................... $ 359 $ --
--------- ---------
--------- ---------
</TABLE>
3. ENVIRONMENTAL MATTERS
See Note 8 of Notes to Consolidated Financial Statements included elsewhere
herein for a description of environmental matters.
4. ACQUISITIONS
As described in Note 3 of Notes to Consolidated Financial Statements
included elsewhere herein, the pro forma results of operations for the three
months ended March 31, 1996 and 1995 assuming the Envirite Acquisition had
occurred at January 1, 1995 were as follows (in thousands, except share data):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues........................................................ $ 11,724 $ 10,006
Operating income................................................ 963 112
Net loss applicable to common stockholders...................... (479) (1,048)
Pro forma loss per share of common stock........................ $ (.08) $ (.18)
Weighted average common stock and common stock equivalent shares
outstanding.................................................... 5,864,078 5,864,078
</TABLE>
5. SUBSEQUENT EVENT
In May 1996, the Company negotiated a new credit agreement with
Internationale Nederlanden (U.S.) Capital Corporation (ING), as administrative
agent, and Morgan Guaranty Trust Company of New York, as documentation agent,
that provides for borrowings of up to $87 million to finance acquisitions and
provide working capital, which was used to repay the existing credit agreements
with Bank of America and ING, as well as the note payable to stockholder and
redeemable preferred stock of subsidiary. The facility consists of
F-21
<PAGE>
5. SUBSEQUENT EVENT (CONTINUED)
a $38 million term loan A, $25 million term loan B, $7 million revolving loan,
and $17 million acquisition facility. The rate of interest is equal to either a
base rate plus an applicable margin or the London Interbank Offered Rate (LIBOR)
plus an applicable margin. The base rate is the higher of the Federal Funds Rate
plus 0.5% or the prime rate. Term loan A bears an interest rate of the base rate
plus 1.25% or LIBOR plus 2.75% and is due in quarterly installments beginning in
December 1996 through June 2001. Term loan B bears an interest rate of the base
rate plus 1.75% or LIBOR plus 3.25% and is due in quarterly installments
beginning in December 1996 through June 2003. The revolving loan bears an
interest rate of the base rate plus 1.00% or LIBOR plus 2.50% and matures on
June 30, 2001. The acquisition facility bears an interest rate of the base rate
plus 1.50% or LIBOR plus 3.00% and is due in quarterly installments beginning in
September 1998 through March 2000. The revolving loan and acquisition facility
provide for commitment fees of 1/2% per annum on the unused portions. The
facility is secured by substantially all of the assets of the Company. Under
terms of the credit agreement, the Company is subject to various debt covenants,
including maintenance of certain financial ratios and other restrictions. The
Credit Facility requires the Company to use 50% of the proceeds of any equity
offering to repay a portion of the term loans.
F-22
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
PRO FORMA FINANCIAL DATA
The following unaudited Pro Forma Consolidated Statement of Operations of
the Company is based on the historical Consolidated Financial Statements of the
Company and Envirite Corporation MSG Facilities included elsewhere herein,
adjusted to give effect to the Envirite Acquisition and the refinancing
transactions.
The Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1995 gives effect to the Envirite Acquisition and the refinancing
transactions, as if they had occurred as of January 1, 1995. The Pro Forma
Consolidated Statement of Operations does not purport to represent what the
Company's results of operations would actually have been had the Envirite
Acquisition in fact occurred on such date or to project the Company's results of
operations for any future period or date. The Pro Forma Consolidated Statement
of Operations does not give effect to any transactions other then the Envirite
Acquisition and the refinancing transactions, as discussed in the notes to the
Pro Forma Consolidated Statement of Operations set forth below.
The Envirite Acquisition was accounted for using the purchase method of
accounting. Under purchase accounting, tangible and identifiable intangible
assets acquired and liabilities assumed are recorded at their respective fair
values.
The Pro Forma adjustments are based on available information and upon
certain assumptions that management of the Company believes are reasonable under
the circumstances. The Pro Forma Financial Data and accompanying notes should be
read in conjunction with the historical Consolidated Financial Statements of the
Company and Envirite Corporation MSG Facilities, including the notes thereto,
and other financial information pertaining to the Company included elsewhere
herein.
<TABLE>
<CAPTION>
ACQUISITIONS
-----------------------------
HISTORICAL HISTORICAL (1) ADJUSTMENTS (2) REFINANCING (3) PRO FORMA
----------- ------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 30,004 $ 14,496 $ -- $ -- $ 44,500
Cost of operations....................... 17,286 5,044 22,330
Selling, general and administrative
expenses................................ 5,882 2,146 1,465 9,493
Depreciation and amortization............ 6,308 5,861 784 87 13,040
----------- ------------ ------- ----- ------------
Operating income (loss).................. 528 1,445 (2,249) (87) (363)
Interest Expense......................... (3,030) (2,241) (43) (5,314)
Interest Income.......................... 189 -- 189
----------- ------------ ------- ----- ------------
Loss before income taxes and
extraordinary item...................... (2,313) 1,445 (4,490) (130) (5,488)
Income tax benefit (expense)............. (332) (332)
----------- ------------ ------- ----- ------------
Net loss................................. $ (2,645) $ 1,445 $ (4,490) $ (130) $ (5,820)
----------- ------------ ------- ----- ------------
----------- ------------ ------- ----- ------------
Net loss per share of common stock....... $ (.99)
------------
------------
Weighted average common stock and common
stock equivalent shares outstanding..... 5,864,078
------------
------------
EBITDA (4)............................... $ 12,677
------------
------------
</TABLE>
F-23
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
- - ------------------------
(1) Reflects the combined historical statement of revenues and direct operating
expenses for the Municipal Services Group (MSG) of Envirite Corporation for
the period of January 1, 1995 through the dates of acquisitions as follows:
- Clarion County, Pennsylvania -- June 8, 1995
- Wyandot County, Ohio -- August 1, 1995
- Livingston County, Illinois -- November 16, 1995
(2) Adjustments to reflect the historical amounts for the acquisitions noted in
footnote (1) as follows (in thousands):
<TABLE>
<S> <C>
Incremental amortization of landfill costs recorded in purchase
accounting......................................................... $ 752
Incremental goodwill amortization of assets acquired in excess of
fair value......................................................... 32
Incremental interest expense on additional debt..................... 2,241
Incremental selling, general and administrative expenses, including
management salaries and benefits, professional fees and other
expenses........................................................... 1,465
---------
$ 4,490
---------
---------
</TABLE>
(3) Adjustments to reflect the new credit facility, which replaces: (i) the Bank
of America term loan and revolver; (ii) the ING Capital Corporation term
loans and revolver; (iii) $7.5 million of the note payable to a stockholder;
and (iv) the redeemable perferred stock of a subsidiary as follows (in
thousands):
<TABLE>
<S> <C>
Interest Expense
Term loan A at $38 million bearing an interest rate of 8.79%..... $ 3,340
Term loan B at $21 million bearing an interest rate of 9.29%..... 1,974
Less historical and adjusted interest expense.................... (5,271)
---------
Net adjustment................................................... $ 43
---------
---------
Debt Issuance Costs
Amortization for new credit facility............................. $ 345
Less historical amortization..................................... (258)
---------
Net adjustment................................................... $ 87
---------
---------
</TABLE>
An average LIBOR rate of 6.04% was used for the year ended December 31,
1995. The debt issuance costs were allocated on a pro-rata basis to the
respective components of the new credit facility.
(4) EBITDA represents operating income plus depreciation and amortization. While
EBITDA data should not be construed as a substitute for operating income,
net income (loss) or cash flows from operations in analyzing the Company's
operating performance, financial position and cash flows, the Company has
included EBITDA data (which are not a measure of financial performance under
generally accepted accounting principles) because it understands that such
data are commonly used by certain investors to evaluate a company's
performance in the solid waste industry.
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Envirite Corporation
We have audited the accompanying statements of net assets acquired of the
MSG Facilities of Envirite Corporation as of December 31, 1994 and January 1,
1994, and the related statements of revenue and direct operating expenses for
the years then ended. These financial statements are the responsibility of
Envirite Corporation's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of net assets acquired and
revenue and direct operating expenses are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statements. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 1, the accompanying financial statements were prepared
for the purpose of complying with Rule 3-05 of Regulation S-X of the Securities
and Exchange Commission, as agreed to by representatives of the Commission, and
are not intended to be a complete presentation of assets and liabilities and
results of operations on a stand-alone basis of the MSG Facilities.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets acquired of the MSG Facilities of
Envirite Corporation at December 31, 1994 and January 1, 1994, and the revenue
and direct operating expenses for the years then ended, as described in Note 1,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 8, 1995
F-25
<PAGE>
ENVIRITE CORPORATION
MSG FACILITIES
STATEMENTS OF NET ASSETS ACQUIRED
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------- -------------
<S> <C> <C>
Accounts receivable................................................................ $ 3,329,720 $ 1,883,946
Wyandot trust fund................................................................. 1,029,770 664,521
Property, plant and equipment, at cost:
Land, primarily disposal sites................................................... 28,682,963 26,911,426
Buildings........................................................................ 850,276 838,985
Machinery and equipment.......................................................... 6,075,446 5,387,264
------------- -------------
35,608,685 33,137,675
Less accumulated depreciation.................................................... (7,073,154) (5,054,868)
------------- -------------
Net property, plant and equipment.................................................. 28,535,531 28,082,807
------------- -------------
Total assets................................................................... $ 32,895,021 $ 30,631,274
------------- -------------
LIABILITIES AND NET ASSETS ACQUIRED
Closure and post-closure liabilities............................................... $ 3,790,695 $ 2,223,407
Financing agreements............................................................... 1,189,196 --
Capital leases payable............................................................. 270,808 294,793
------------- -------------
Total liabilities.............................................................. 5,250,699 2,518,200
------------- -------------
Net assets acquired................................................................ $ 27,644,322 $ 28,113,074
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-26
<PAGE>
ENVIRITE CORPORATION
MSG FACILITIES
STATEMENTS OF REVENUE AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
FISCAL YEARS ENDED,
----------------------------
DECEMBER 31, JANUARY 1,
1994 1994
------------- -------------
<S> <C> <C>
Sales.............................................................................. $ 18,820,589 $ 14,873,841
Direct operating costs and expenses:
Cost of sales.................................................................... 13,279,680 10,475,968
Selling and administrative....................................................... 4,452,969 3,445,685
------------- -------------
Operating profit................................................................... $ 1,087,940 $ 952,188
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-27
<PAGE>
ENVIRITE CORPORATION
MSG FACILITIES
NOTES TO FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On April 28, 1995, Envirite Corporation (Envirite) and County Disposal, Inc.
(County) entered into an Asset Purchase Agreement (the Agreement) whereby County
agreed to purchase from Envirite certain landfill facilities and waste
transportation and collection equipment located in Livingston County, Illinois
(Livingston Facility) and Wyandot County, Ohio (Wyandot Facility), all of the
issued and outstanding capital stock of County Environmental Services, Inc., a
wholly-owned subsidiary of Envirite, which owns and operates a landfill facility
and waste transportation and collection equipment located in Clarion County,
Pennsylvania (Clarion Facility) (collectively, the MSG Facilities), and certain
related assets, and assume certain liabilities.
The accompanying Statements of Net Assets Acquired present as of December
31, 1994 and January 1, 1994, the MSG Facilities' assets to be acquired and
certain liabilities assumed (including those represented by the capital stock of
County Environmental Services, Inc.) by County pursuant to the Agreement. Cash,
income tax benefits and liabilities, and certain other assets and liabilities,
related to the MSG Facilities will be retained by Envirite and are not included
herein. Pursuant to the Agreement, County assumes certain other liabilities that
are not required by generally accepted accounting principles to be recorded in
these financial statements. The Statements of Revenue and Direct Operating
Expenses represent those revenues and expenses that are specifically
identifiable to the MSG Facilities and do not include certain corporate
expenses. As a result, the accompanying Statements are not intended to be a
complete presentation of the MSG Facilities' assets and liabilities and results
of operations had they been operated as a stand-alone entity.
ACCOUNTS RECEIVABLE
Pursuant to the Agreement, accounts receivable represent amounts not greater
than 60 days old. All other receivables are retained by Envirite.
WYANDOT TRUST FUND
These amounts are held in trust to meet legal requirements for closure and
post-closure obligations for the Wyandot Facility.
PROPERTY, PLANT, AND EQUIPMENT
Costs associated with the acquisition and development of disposal sites are
recorded as land and amortized as landfill capacity is consumed. Plant and
equipment is depreciated under the straight-line method. Estimated useful lives
are 15 to 35 years for buildings and 3 to 8 years for machinery and equipment.
Depreciation and landfill amortization expense was $2,183,000 and $2,110,000 in
1994 and 1993, respectively.
As of January 2, 1994, the Company changed the estimated useful lives of
certain transportation assets from five to eight years. The effect of this
change in useful lives was to increase the operating profit by $136,000 in 1994.
FISCAL YEAR
The Company utilizes a 52 - 53 week fiscal year. There were 53 weeks in the
1993 fiscal year and 52 weeks in the 1994 fiscal year.
CLOSURE AND POST-CLOSURE COSTS
The estimated costs associated with meeting regulatory requirements for the
closure and post-closure monitoring of landfills are charged to expense as
landfill capacity is consumed. Post-closure monitoring is
F-28
<PAGE>
ENVIRITE CORPORATION
MSG FACILITIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
generally required for thirty years from the time the landfill is closed. These
costs and landfill capacities are based on engineering estimates and are
reviewed annually. Landfill closure and post-closure costs of $1,709,000 and
$1,228,000 were expensed in 1994 and 1993, respectively.
In accordance with regulatory requirements, Envirite provides financial
assurance for closure and post-closure monitoring. These requirements are
satisfied either by providing a letter of credit or funding a trust. In
accordance with these requirements, Envirite had $3,239,000 of letters of credit
outstanding at December 31, 1994 for these purposes and $1,029,770 is held in
trust.
SELLING AND ADMINISTRATIVE EXPENSE
Included in direct selling and administrative expense for the year ended
December 31, 1994 is approximately $700,000 of one-time charges related to bonus
payments to certain Envirite employees who assisted in the disposition of the
landfills.
2. RENT EXPENSE
Rent expense for leased office space and certain equipment was $386,000 and
$259,000 in 1994 and 1993, respectively.
Future annual rentals for these operating leases will be as follows:
<TABLE>
<S> <C>
1995............................................................ $ 597,170
1996............................................................ 597,170
1997............................................................ 484,016
1998............................................................ 391,948
1999............................................................ 166,332
---------
$2,236,636
---------
---------
</TABLE>
3. CAPITAL LEASES
Property, plant, and equipment includes leased property under capital leases
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ ----------
<S> <C> <C>
Machinery and equipment............................................ $ 552,191 $ 456,000
Less accumulated depreciation...................................... 213,966 122,766
------------ ----------
$ 338,225 $ 333,234
------------ ----------
------------ ----------
</TABLE>
Future minimum lease payments under these capital leases together with the
present value of the minimum lease payments as of December 31, 1994 are as
follows:
<TABLE>
<S> <C>
1995.............................................................. $ 138,649
1996.............................................................. 88,124
1997.............................................................. 44,221
1998.............................................................. 23,261
1999.............................................................. 13,572
---------
Total minimum lease payments.................................. 307,827
Less amount representing interest................................. (37,019)
---------
Present value of minimum lease payments........................... $ 270,808
---------
---------
</TABLE>
F-29
<PAGE>
ENVIRITE CORPORATION
MSG FACILITIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994
4. FINANCING AGREEMENTS
Financing agreements are secured by certain equipment used at the MSG
Facilities and are at interest rates ranging from 7.6% to 10.7% with monthly
principal payments through July 1999. The amount of the liability is based on
the purchased assets collateralizing the debt. County Environmental Services,
Inc. is a guarantor of one financing agreement, a portion of which relates to
the purchased assets. The amount of the guarantee not related to purchased
assets is $430,000 as of November 8, 1995.
5. ASSETS PLEDGED AS COLLATERAL
At December 31, 1994, Envirite had a loan and security agreement providing
for a revolving credit facility for $28,300,000 including cash borrowings and
letters of credit (the "Revolving Credit Facility"). Collateral includes a
security interest in accounts receivable and certain real property included in
the accompanying financial statements and the stock of a subsidiary of Envirite.
6. SUBSEQUENT EVENT
As of November 8, 1995, the Wyandot and Clarion Facilities have been sold to
County in accordance with the Agreement. Cash borrowings and irrevocable letters
of credit under Envirite's Revolving Credit Facility at that date were $0 and
$4,656,424, respectively.
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Envirite Corporation
We have audited the accompanying statement of revenue and direct operating
expenses of the MSG Facilities of Envirite Corporation for the period January 1,
1995 to November 15, 1995. This financial statement is the responsibility of
Envirite Corporation's management. Our responsibility is to express an opinion
on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and direct operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statement. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 1, the accompanying financial statement was prepared
for the purpose of complying with Rule 3-05 of Regulation S-X of the Securities
and Exchange Commission, as agreed to by representatives of the Commission, and
is not intended to be a complete presentation of results of operations on a
stand-alone basis of the MSG Facilities.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and direct operating expenses of the MSG
Facilities of Envirite Corporation for the period January 1, 1995 to November
15, 1995, as described in Note 1, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 9, 1996
F-31
<PAGE>
ENVIRITE CORPORATION
MSG FACILITIES
STATEMENT OF REVENUE AND DIRECT OPERATING EXPENSES
FOR THE PERIOD JANUARY 1, 1995 TO NOVEMBER 15, 1995
<TABLE>
<S> <C>
Sales....................................................................... $ 14,495,965
Direct operating costs and expenses:
Cost of sales............................................................. 10,904,948
Selling and administrative................................................ 2,145,510
--------------
Operating profit............................................................ $ 1,445,507
--------------
--------------
</TABLE>
See accompanying notes.
F-32
<PAGE>
ENVIRITE CORPORATION
MSG FACILITIES
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO NOVEMBER 15, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On April 28, 1995, Envirite Corporation (Envirite) and County Disposal, Inc.
(County) entered into an Asset Purchase Agreement (the Agreement) whereby County
agreed to purchase from Envirite certain landfill facilities and waste
transportation and collection equipment located in Livingston County, Illinois
(Livingston Facility) and Wyandot County, Ohio (Wyandot Facility), all of the
issued and outstanding capital stock of County Environmental Services, Inc., a
wholly-owned subsidiary of Envirite, which owns and operates a landfill facility
and waste transportation and collection equipment located in Clarion County,
Pennsylvania (Clarion Facility) (collectively, the MSG Facilities), and certain
related assets, and to assume certain liabilities.
The Statement of Revenue and Direct Operating Expenses represents those
revenues and expenses from January 1, 1995 to the dates of sale of the three
facilities (June 8, 1995 for Clarion; August 1, 1995 for Wyandot; November 16,
1995 for Livingston) that are specifically identifiable to the MSG Facilities
and do not include certain corporate expenses. As a result, the accompanying
Statement is not intended to be a complete representation of the MSG Facilities'
results of operations had they been operated as a stand-alone entity.
CLOSURE AND POST-CLOSURE COSTS
The estimated costs associated with meeting regulatory requirements for the
closure and post-closure monitoring of landfills are charged to expense as
landfill capacity is consumed. Post-closure monitoring is generally required for
thirty years from the time the landfill is closed. These costs and landfill
capacities are based on engineering estimates and are reviewed annually.
Landfill closure and post-closure costs of $1,472,000 were expensed in the
period January 1, 1995 to November 15, 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.
2. RENT EXPENSE
Rent expense for leased office space and certain equipment was $482,000 for
the period January 1, 1995 to November 15, 1995.
F-33
<PAGE>
- - ------------------------------------------------
------------------------------------------------
- - ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 6
The Company.......................................... 15
Use of Proceeds...................................... 15
Dividend Policy...................................... 15
Dilution............................................. 16
Capitalization....................................... 17
Selected Consolidated Financial Data................. 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 19
Business............................................. 26
Management........................................... 40
Certain Transactions................................. 44
Principal Stockholders............................... 45
Description of Capital Stock......................... 47
Shares Eligible for Future Sale...................... 48
Underwriting......................................... 50
Legal Matters........................................ 51
Experts.............................................. 51
Additional Information............................... 52
Index to Financial Statements........................ F-1
</TABLE>
-------------------
UNTIL AUGUST 19, 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,750,000 SHARES
[LOGO]
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
OPPENHEIMER & CO., INC.
CS FIRST BOSTON
JULY 25, 1996
- - ------------------------------------------------
------------------------------------------------
- - ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table shows the expenses, other than underwriting discounts,
which the Company expects to incur in connection with the issuance and
distribution of the securities being registered under this registration
statement. All expenses are estimated except for the Securities and Exchange
Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 15,268
Nasdaq entry fee................................................ 38,567
NASD filing fee................................................. 4,928
Blue Sky fees and expenses...................................... 25,000
Legal fees and expenses......................................... 400,000
Accounting fees and expenses.................................... 175,000
Printing and engraving expenses................................. 100,000
Transfer agent's fee............................................ 3,000
Miscellaneous................................................... 238,237
---------
Total....................................................... $1,000,000
---------
---------
</TABLE>
- - ------------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
("Section 145") permits a Delaware corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
In the case of an action by or in the right of the corporation, Section 145
permits the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. No indemnification may be made in respect of any claim, issue, or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
To the extent that a director, officer, employee, or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in the preceding two paragraphs, Section 145 requires
that he be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
II-1
<PAGE>
Section 145 provides that expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in Section 145.
Article Fifth of the Company's Certificate of Incorporation eliminates the
personal liability of the directors of the Company to the Company or its
stockholders for monetary damages for breach of fiduciary duty as directors,
with certain exceptions, and Article Sixth requires indemnification of directors
and officers of the Company, and for advancement of litigation expenses to the
fullest extent permitted by Section 145. Article Sixth of the Company's By-laws
provides for indemnification of the Company's officers and directors to the
fullest extent permitted by Section 145 and other applicable laws as currently
in effect and as they may be amended in the future.
The Underwriting Agreement filed herewith as Exhibit 1.1 provides for
indemnification of the directors, certain officers, and controlling persons of
the Company by the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. The Company has also entered into
agreements with its directors and executive officers providing for
indemnification in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
As part of the Exchange, the Company issued an aggregate of 5,676,901 shares
of its Common Stock, options to purchase 869,615 shares of Common Stock and
Warrants to purchase 215,455 shares of Common Stock (after giving effect to the
Stock Split) to the then stockholders, option holders and warrant holders,
respectively, of ADS and CDI, effective as of January 1, 1996. No underwriters
were engaged in connection with the foregoing sales of securities. Such sales
were made in reliance on the exemption set forth in Section 4(2) of the
Securities Act of 1933, as amended ("Securities Act"), relating to sales by an
issuer not involving a public offering. All of the foregoing shares are deemed
to be restricted securities for the purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- - ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
.11 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the Company*
3.2 Amendment to Restated Certificate of Incorporation*
3.3 By-laws of the Company*
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Proskauer Rose Goetz & Mendelsohn LLP*
10.1 Credit Agreement dated as of May 30, 1996 among the Company, Internationale Nederlanden (U.S.)
Capital Corporation, as administrative agent, and Morgan Guaranty Trust Company of New York, as
documentation agent, and the other financial institutions party thereto*
10.2 Registration Rights Agreement dated as of January 1, 1996 among the Company and certain of its
stockholders*
10.3 Employment Agreement dated as of May 31, 1996 between the Company and Richard De Young*
10.4 Employment Agreement dated January 26, 1993 between the Company and John J. McDonnell, as amended*
10.5 Employment Agreement dated May 16, 1995 between the Company and Richard T. Kogler*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- - ----------- ----------------------------------------------------------------------------------------------------
10.6 Employment Agreement dated June 2, 1995 between the Company and Ann L. Straw*
<C> <S>
10.7 Employment Agreement dated May 3, 1994 between the Company and Lawrence R. Conrath*
10.8 Employment Agreement dated as of May 31, 1996 between the Company and David C. Stoller*
10.9 American Disposal Services, Inc. 1996 Stock Option Plan*
10.10 Form of Indemnification Agreement between the Company and its directors*
10.11 Form of Indemnification Agreement between the Company and its executive officers*
10.12 Form of Indemnification Agreement between the Company and its directors and executive officers*
10.13 Form of Tax-Sharing Agreement between the Company and its executive officers*
21.1 Subsidiaries of the Company*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Proskauer Rose Goetz & Mendelsohn LLP (included in exhibit 5.1)*
24.1 Powers of Attorney*
</TABLE>
- - ------------------------
(*) Previously filed.
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement (filed herewith as Exhibit 1.1)
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described above in Item 14 or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted against the Registrant by such director,
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registrant's registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Burr Ridge, State of Illinois, on July 24, 1996.
AMERICAN DISPOSAL SERVICES, INC.
By: /s/ RICHARD DE YOUNG*
-----------------------------------
Richard De Young
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registrant's registration statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- - ------------------------------------------------------ ---------------------------------------- ---------------
/s/ DAVID C. STOLLER* Chairman and Director July 24, 1996
------------------------------------------- (principal executive officer)
David C. Stoller
/s/ RICHARD DE YOUNG* President and Director July 24, 1996
-------------------------------------------
Richard De Young
/s/ SCOTT H. FLAMM Senior Vice President, Chief Financial July 24, 1996
------------------------------------------- Officer and Director (principal
Scott H. Flamm financial officer)
/s/ LAWRENCE R. CONRATH* Vice President and Controller (principal July 24, 1996
------------------------------------------- accounting officer)
Lawrence R. Conrath
/s/ MERRIL M. HALPERN* Director July 24, 1996
-------------------------------------------
Merril M. Halpern
/s/ A. LAWRENCE FAGAN* Director July 24, 1996
-------------------------------------------
A. Lawrence Fagan
/s/ RICHARD T. HENSHAW, III* Director July 24, 1996
-------------------------------------------
Richard T. Henshaw, III
/s/ G. T. BLANKENSHIP* Director July 24, 1996
-------------------------------------------
G. T. Blankenship
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- - ------------------------------------------------------ ---------------------------------------- ---------------
/s/ NORMAN STEISEL* Director July 24, 1996
-------------------------------------------
Norman Steisel
By: /S/ SCOTT H. FLAMM
---------------------------------------
Scott H. Flamm
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE
- - ----------- ------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the Company*
3.2 Amendment to Restated Certificate of Incorporation*
3.3 By-laws of the Company*
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Proskauer Rose Goetz & Mendelsohn LLP*
10.1 Credit Agreement dated as of May 30, 1996 among the Company, Internationale Nederlanden
(U.S.) Capital Corporation, as administrative agent, and Morgan Guaranty Trust Company of
New York, as documentation agent, and the other financial institutions party thereto*
10.2 Registration Rights Agreement dated as of January 1, 1996 among the Company and certain of
its stockholders*
10.3 Employment Agreement dated as of May 31, 1996 between the Company and Richard De Young*
10.4 Employment Agreement dated January 26, 1993 between the Company and John J. McDonnell, as
amended*
10.5 Employment Agreement dated May 16, 1995 between the Company and Richard T. Kogler*
10.6 Employment Agreement dated June 2, 1995 between the Company and Ann L. Straw*
10.7 Employment Agreement dated May 3, 1994 between the Company and Lawrence R. Conrath*
10.8 Employment Agreement dated as of May 31, 1996 between the Company and David C. Stoller*
10.9 American Disposal Services, Inc. 1996 Stock Option Plan*
10.10 Form of Indemnification Agreement between the Company and its directors*
10.11 Form of Indemnification Agreement between the Company and its executive officers*
10.12 Form of Indemnification Agreement between the Company and its directors and executive
officers*
10.13 Form of Tax-Sharing Agreement between the Company and its executive officers*
21.1 Subsidiaries of the Company*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Proskauer Rose Goetz & Mendelsohn LLP (included in exhibit 5.1)*
24.1 Powers of Attorney*
</TABLE>
- - ------------------------
(*) Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 22, 1996, except Note 10, as to which the date
is May 30, 1996, included in the Registration Statement on Form S-1 and the
related Prospectus of American Disposal Services, Inc. for the registration of
up to 3,162,500 shares of its common stock.
ERNST & YOUNG LLP
Chicago, Illinois
July 22, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated November 8, 1995 and February 9, 1996, with respect
to the financial statements of the MSG Facilities of Envirite Corporation,
included in the Registration Statement on Form S-1 and the related Prospectus of
American Disposal Services, Inc. for the registration of up to 3,162,500 shares
of its common stock.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
July 22, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in this registration
statement.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
July 24, 1996
