<PAGE>
RULE NO. 424(b)(1)
REGISTRATION NO. 333-47921
4,000,000 SHARES
[LOGO]
AMERICAN DISPOSAL SERVICES, INC.
COMMON STOCK
---------------------
Of the 4,000,000 shares of Common Stock offered hereby, 1,488,629 shares are
being issued and sold by American Disposal Services, Inc. (the "Company") and
2,511,371 shares are being sold by certain selling stockholders (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders. The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "ADSI." On April 2, 1998, the last sale price of the
Common Stock as reported by the Nasdaq National Market was $37.31 per share.
See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING 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.
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<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................... $36.50 $1.825 $34.675 $34.675
Total(3).................... $146,000,000 $7,300,000 $51,618,211 $87,081,789
</TABLE>
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- -------------------------------------------------------------------------------
(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 by the Company, exercisable
within 30 days from the date hereof, to purchase up to 600,000 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
$167,900,000, $8,395,000 and $72,423,211, 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 April 8, 1998, at the offices of CIBC
Oppenheimer Corp., CIBC Oppenheimer Tower, One World Financial Center, New
York, New York 10281.
---------------------
Joint Book-Running Managers
CIBC OPPENHEIMER DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus is April 3, 1998.
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CURRENT OPERATIONS
[MAP]
-----------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS, PENALTY BIDS AND PASSIVE MARKET MAKING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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 consummated on May 31, 1996; (iii) exclude 2,059,358 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 and in the Northeast. The Company
owns nine solid waste landfills and owns, operates or has exclusive contracts
to receive waste from 20 transfer stations. The Company's operations cover six
primary operating regions and its landfills and transfer stations are supported
by 17 collection divisions, which currently serve over 400,000 residential,
commercial and industrial customers. The Company has adopted an acquisition-
based growth strategy and intends to continue its expansion, generally in its
existing and proximate markets. Since January 1993, the Company has acquired 70
solid waste businesses, including eight solid waste landfills and 66 solid
waste collection companies.
The Company began its operations in the Midwest and currently has operations
in the following 12 states: Arkansas, Connecticut, Illinois, Indiana, Kansas,
Kentucky, Massachusetts, Missouri, Ohio, Oklahoma, Pennsylvania and Rhode
Island. The Company's objective is to build a large profitable fully-integrated
solid waste services company with an established market presence in secondary
markets. 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 stringent environmental and other
governmental regulations.
The Company's operating program generally involves a four-step process: (i)
acquiring solid waste landfills in markets that are within approximately 125
miles of significant metropolitan centers; (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. As part of its acquisition program, the Company has, and in the
future 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 to maximize the captive waste streams
(which includes waste from the Company's collection operations and third-party
haulers operating under long-term collection contracts) disposed of at each of
its landfills. During the year ended December 31, 1997, the Company's captive
waste constituted an average of approximately 73% of the solid waste disposed
of at Company-owned landfills. In addition, approximately 81% of the total
tonnage collected by the Company during such period was disposed of at Company-
owned landfills. The Company plans to continue to pursue its acquisition-based
growth strategy to maximize the internalization of waste collected and expand
its presence in its existing and proximate markets.
3
<PAGE>
RECENT DEVELOPMENTS
Since the Company's offering of Common Stock consummated in October 1997 (the
"October Offering"), the Company has expanded and strengthened its market
presence in its six operating regions through the acquisition of 15 solid waste
businesses, which collectively included one landfill, 15 collection companies,
three transfer stations and a contract to operate a fourth transfer station.
In the New England Region, which the Company entered in September 1996, the
Company continued to expand its presence through five "tuck-in" acquisitions of
collection operations. In the Illinois Region, the Company acquired selected
assets from John Sexton Contractors, Inc. (the "Sexton Acquisition"). The
Sexton Acquisition added a collection operation, two transfer stations and one
landfill to the Company's operations in the Illinois Region. In addition, the
Company has completed two collection company acquisitions in the Illinois
Region, one as a "tuck-in" to the Sexton Acquisition and one as a "tuck-in" to
the Company's existing Chicago operations.
In January 1998, the Company completed the acquisition of the R.C. Miller
companies (the "R.C. Miller Acquisition"), which provide solid waste
collection, transfer and recycling services in Canton, Ohio and surrounding
counties. The R.C. Miller Acquisition further expands the Company's presence in
the Ohio Region and provides a geographical link between the Company's Ohio and
Western Pennsylvania Regions. Subsequent to the R.C. Miller Acquisition, the
Company completed three "tuck-in" acquisitions in the Ohio Region.
In October 1997, the Company repaid its $60 million term loan with a portion
of the proceeds from the October Offering and currently has a $140 million
revolving credit facility (the "Credit Facility"). The Company is currently
negotiating a larger credit facility with its bank group, which the Company
believes would provide it with more flexibility and lower financing costs. At
March 1, 1998, the outstanding debt under the Credit Facility was $34.4
million, up from $19.7 million at December 31, 1997, primarily as a result of
recent acquisitions.
The Company's principal executive offices are located at 745 McClintock
Drive, Suite 230, Burr Ridge, Illinois 60521, and its telephone number is (630)
655-1105.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by:
The Company..................... 1,488,629 shares
The Selling Stockholders........ 2,511,371 shares
---------
Total......................... 4,000,000 shares
=========
Common Stock outstanding after the
Offering......................... 22,116,173 shares(1)
Use of proceeds................... To repay outstanding indebtedness under the
Credit Facility, for possible future
acquisitions and for working capital and
general corporate purposes. The Company
will not receive any of the proceeds from
the sale of shares by the Selling
Stockholders. See "Use of Proceeds."
Nasdaq National Market symbol..... ADSI
</TABLE>
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(1) Does not include 2,059,358 shares of Common Stock issuable upon the
exercise of warrants and stock options outstanding as of March 1, 1998, at
a weighted average exercise price of $19.57 per share.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 30,004 $ 56,804 $ 121,363
Cost of operations................... 17,286 30,376 65,947
Selling, general and administrative
expenses............................ 5,882 8,328 16,821
Depreciation and amortization
expense............................. 6,308 12,334 21,975
---------- ---------- -----------
Operating income..................... 528 5,766 16,620
Interest expense..................... (3,030) (5,745) (6,223)
Interest income...................... 189 260 201
Other income......................... -- 179 274
---------- ---------- -----------
Income (loss) before income taxes and
extraordinary item.................. (2,313) 460 10,872
Income tax expense................... (332) (245) (3,531)
---------- ---------- -----------
Income (loss) before extraordinary
item................................ (2,645) 215 7,341
Extraordinary item--loss on early
retirement of debt.................. (908) (476) --
---------- ---------- -----------
Net income (loss).................... (3,553) (261) 7,341
Preferred stock dividend............. (190) (109) --
---------- ---------- -----------
Net income (loss) applicable to
common stockholders................. $ (3,743) $ (370) $ 7,341
========== ========== ===========
Basic earnings per common share:(1)
Income (loss) before extraordinary
item............................... $ (0.85) $ 0.02 $ 0.56
Extraordinary item.................. (0.27) (0.07) --
---------- ---------- -----------
Net income (loss)................... $ (1.12) $ (0.05) $ 0.56
========== ========== ===========
Weighted average common stock
outstanding......................... 3,340,512 7,063,928 13,177,346
========== ========== ===========
Diluted earnings per common share:
Income (loss) before extraordinary
item............................... $ (0.85) $ 0.01 $ 0.53
Extraordinary item.................. (0.27) (0.06) --
---------- ---------- -----------
Net income (loss)................... $ (1.12) $ (0.05) $ 0.53
========== ========== ===========
Weighted average common stock and
common stock equivalent shares
outstanding......................... 3,340,512 7,465,050 13,822,337
========== ========== ===========
OTHER DATA:
Net cash provided by operating
activities.......................... $ 5,601 $ 10,336 $ 31,126
Net cash used in investing
activities.......................... (68,374) (37,663) (177,368)
Net cash provided by financing
activities.......................... 68,608 23,245 146,367
EBITDA(2)............................ 6,836 18,100 38,595
EBITDA margin(3)..................... 22.8% 31.9% 31.8%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------
ACTUAL AS ADJUSTED(4)
------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 2,426 $18,632
Working capital.......................................... 721 16,927
Property and equipment, net.............................. 174,340 174,340
Total assets............................................. 373,024 403,976
Long-term obligations, net of current portion............ 20,788 1,122
Total stockholders' equity............................... 297,375 347,993
</TABLE>
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(1) The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share, during the fourth quarter of 1997. SFAS No. 128
replaced the calculation of primary and fully diluted earnings per common
share with basic and diluted earnings per common share. Earnings (loss) per
common share amounts have been restated, where appropriate.
(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. EBITDA, as
measured by the Company, might not be comparable to similarly titled
measures reported by other companies. Funds depicted by the EBITDA measure
are not available for management's discretionary use due to required debt
service and other commitments or uncertainties.
(3) EBITDA margin represents EBITDA expressed as a percentage of revenues.
(4) As adjusted to give effect to the sale of shares of Common Stock offered
hereby (the "Offering") and the application of the estimated net proceeds
therefrom, as described in "Use of Proceeds," as if the Offering had
occurred on December 31, 1997. Long-term obligations, net of current
portion, of $20,788 was adjusted to give effect to borrowings of $14.7
million to fund acquisitions completed in the period from January 1, 1998
to February 28, 1998 and the application of the estimated net proceeds of
$50.6 million from this Offering to arrive at the As Adjusted balance of
$1.1 million.
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 certain
statements of a forward-looking nature relating to future events or the future
financial performance of the Company within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are intended to be covered by the safe harbors
created thereby. Discussions containing such forward-looking statements may be
found in the material set forth under "Prospectus Summary," "Risk Factors,"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" 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.
AVAILABILITY OF ADDITIONAL ACQUISITION TARGETS
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.
INTEGRATION OF ACQUISITIONS
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 companies it has acquired to date, and expects to acquire in
the future, 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
successfully consolidate its operations. The failure to achieve any of these
results could have a material adverse effect on the Company's business,
financial condition and results of operations.
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 expand 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 could have a material adverse
effect on the Company's business, financial condition and results of
operations.
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
6
<PAGE>
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.
FUNDING OF FUTURE CAPITAL REQUIREMENTS; PRIOR LOSSES 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 recorded net losses to
common stockholders of approximately $3.7 million and $370,000 during the
fiscal years ended December 31, 1995 and 1996, respectively. In addition, 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. Furthermore, in connection with a completed
acquisition, the Company may be obligated to make contingent cash payments of
up to approximately $37.5 million over the next nine years if certain business
development projects are achieved as a result of that acquisition. To the
extent that internally generated cash and cash available under the Credit
Facility are not sufficient to provide the cash required for future
operations, capital expenditures, acquisitions, earn-out and contingent
payments, 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 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.
USE OF LEVERAGE
Historically, the Company has incurred significant debt obligations in
connection with financing its acquisitions and business growth. The Company
has a $140 million Credit Facility with a bank group led by ING (U.S.) Capital
Corporation, as administrative agent, Morgan Guaranty Trust Company of New
York, as syndication agent, Union Bank of California, N.A., as documentation
agent, BHF-Bank Aktiengesellschaft, as co-agent, and Bank of America Illinois,
as co-agent. As of December 31, 1997, the Company's consolidated indebtedness
was $23.1 million, its consolidated total assets were $373.0 million and its
stockholders' equity was $297.4 million. At March 1, 1998, the Company's
consolidated indebtedness had increased to approximately $39.7 million.
Following the completion of the Offering and the application of the net
proceeds to the Company for the repayment of the Credit Facility, it is
anticipated that the Company's consolidated indebtedness would be
approximately $3.4 million. The Company anticipates incurring significant
indebtedness in the future in order to fund all or a portion of the purchase
price of future acquisitions. The Company's ability to meet its debt service
obligations 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.
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 environmental
contamination or non-compliance by prior owners with environmental laws or
regulatory requirements, and for which the Company, as a successor owner or
operator, 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.
7
<PAGE>
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 and Chief Executive Officer.
LIMITATIONS ON INTERNAL 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 required permits and approvals to operate or expand solid waste
management facilities, including 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 requirements, 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 and
approvals 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.
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, the Company's business, financial condition and
results of operations might be materially adversely affected.
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.
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,
8
<PAGE>
either of which could adversely affect the Company's operations and 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 maintain in effect a
permit significant to its business could materially adversely affect the
Company's business, financial condition and results of operations.
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 more
stringent financial assurance requirements, which became 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 flow control requirements, 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, or at sites
to which it transported waste, 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.
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
9
<PAGE>
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 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.
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, site monitoring, 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 at one landfill, and may in the future discover at
other landfills or waste management facilities, indications of groundwater
contamination. 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, if adopted, could 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.
10
<PAGE>
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.
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.
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 adopted and implemented, may have a material adverse
effect on the business, financial condition and results of operations of the
Company.
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. If the Company were unable to obtain surety bonds 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.
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
11
<PAGE>
the Company's operations and could materially adversely affect the Company's
overall business, financial condition and results of operations.
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. In
addition, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law, which prohibits the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the 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.
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.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,488,629 shares of
Common Stock offered by the Company hereby are estimated to be $50,618,211
million ($71,423,211 million if the Underwriters' over-allotment option is
exercised in full). The Company intends to apply a portion of the net proceeds
of the Offering to repay amounts outstanding under the Credit Facility. The
net proceeds of the Offering that have not been applied to repay amounts
outstanding under the Credit Facility will be available for possible future
acquisitions and for working capital and general corporate purposes. The
Credit Facility provides for a revolving line of credit of $140 million to be
used for acquisitions (of which $20 million may be used for working capital
and letter of credit purposes). The Credit Facility bears interest at rates
per annum equal to, at the Company's discretion, either (i) the higher of (a)
the federal funds rate plus 0.5% and (b) the prime rate, plus an applicable
margin or (ii) the London Interbank Offered Rate ("LIBOR") plus an applicable
margin, and matures in 2002. As of March 1, 1998, the Company had borrowed
$34.4 million under the Credit Facility. As of such date, the interest rate on
the various loans under the Credit Facility was 6.63%. The Company intends to
draw down on the Credit Facility from time to time in order to fund future
acquisitions in whole or in part. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." The net proceeds from the sale of the 2,511,371 shares of Common
Stock offered hereby by the Selling Stockholders, will be paid directly to the
Selling Stockholders. The Company will not receive any proceeds from such
sale. See "Principal and Selling Stockholders."
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company has been quoted on the Nasdaq National
Market under the symbol ("ADSI") since July 26, 1996, the date of the
commencement of the Company's initial public offering. The following table
sets forth, for the periods indicated, the high and low closing prices of the
Common Stock as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
3rd Quarter....................................................... $18.25 $ 9.00
4th Quarter....................................................... $18.50 $15.50
1997
1st Quarter....................................................... $18.00 $16.50
2nd Quarter....................................................... $25.06 $16.38
3rd Quarter....................................................... $33.75 $21.00
4th Quarter....................................................... $37.50 $29.00
1998
1st Quarter....................................................... $38.25 $32.25
</TABLE>
On April 2, 1998 the last reported sales price of the Common Stock was
$37.31 per share.
DIVIDEND POLICY
The Company has never 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."
13
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the current portion of long-term
obligations and the actual capitalization of the Company at December 31, 1997
and (ii) "As Adjusted" amounts to reflect (a) additional borrowings under the
Credit Facility of $14.7 million in conjunction with acquisitions completed in
the period between January 1, 1998 and February 28, 1998 and (b) the sale of
1,488,629 shares of Common Stock offered by the Company hereby and the
application of the estimated net proceeds of the Offering to repay amounts
outstanding under the Credit Facility and to fund costs of the Offering. See
"Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
AS
ACTUAL ADJUSTED
----------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Current portion of long-term debt and capital lease
obligations......................................... $ 2,360 $ 2,360
=========== ===========
Long-term debt and capital lease obligations, net of
current portion..................................... $ 20,788 $ 1,122
Stockholders' equity: (1)
Preferred stock; 5,000,000 shares authorized; no
shares issued or outstanding...................... -- --
Common stock; 60,000,000 shares authorized;
19,323,100 shares issued and outstanding;
22,116,173 shares issued and outstanding as
adjusted.......................................... 193 221
Additional paid-in capital......................... 298,110 348,700
Accumulated deficit................................ (928) (928)
----------- -----------
Total stockholders' equity....................... 297,375 347,993
----------- -----------
Total capitalization............................. $ 318,163 $ 349,115
=========== ===========
</TABLE>
- --------
(1) Excludes (i) 600,000 additional shares of Common Stock that may be sold
pursuant to the Underwriters' over-allotment option, and (ii) 1,450,145
shares of Common Stock reserved for issuance pursuant to stock options and
outstanding warrants.
14
<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 Notes to Consolidated Financial Statements included elsewhere herein for
information concerning the basis of presentation. The following selected
consolidated financial data as of December 31, 1996 and 1997 and for each of
the three years ended December 31, 1997 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, 1995 is derived from audited
consolidated financial statements that are incorporated by reference.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
--------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 30,004 $ 56,804 $ 121,363
Cost of operations...................... 17,286 30,376 65,947
Selling, general and administrative
expenses............................... 5,882 8,328 16,821
Depreciation and amortization expense... 6,308 12,334 21,975
--------- --------- ----------
Operating income........................ 528 5,766 16,620
Interest expense........................ (3,030) (5,745) (6,223)
Interest income......................... 189 260 201
Other income............................ -- 179 274
--------- --------- ----------
Income (loss) before income taxes and
extraordinary item..................... (2,313) 460 10,872
Income tax expense...................... (332) (245) (3,531)
--------- --------- ----------
Income (loss) before extraordinary
item................................... (2,645) 215 7,341
Extraordinary item--loss on early
retirement of debt..................... (908) (476) --
--------- --------- ----------
Net income (loss)....................... (3,553) (261) 7,341
Preferred stock dividend................ (190) (109) --
--------- --------- ----------
Net income (loss) applicable to common
stockholders........................... $ (3,743) $ (370) $ 7,341
========= ========= ==========
Basic earnings per common share:(1)
Income (loss) before extraordinary
item.................................. $ (0.85) $ 0.02 $ 0.56
Extraordinary item..................... (0.27) (0.07) --
--------- --------- ----------
Net income (loss)...................... $ (1.12) $ (0.05) $ 0.56
========= ========= ==========
Weighted average common stock
outstanding............................ 3,340,512 7,063,928 13,177,346
========= ========= ==========
Diluted earnings per common share:
Income (loss) before extraordinary
item.................................. $ (0.85) $ 0.01 $ 0.53
Extraordinary item..................... (0.27) (0.06) --
--------- --------- ----------
Net income (loss)...................... $ (1.12) $ (0.05) $ 0.53
========= ========= ==========
Weighted average common stock and common
stock equivalent shares outstanding.... 3,340,512 7,465,050 13,822,337
========= ========= ==========
OTHER DATA:
Net cash provided by operating
activities............................. $ 5,601 $ 10,336 $ 31,126
Net cash used in investing activities... (68,374) (37,663) (177,368)
Net cash provided by financing
activities............................. 68,608 23,245 146,367
EBITDA(2)............................... 6,836 18,100 38,595
EBITDA margin(3)........................ 22.8% 31.9% 31.8%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1997
---------------- ----------------------
1995 1996 ACTUAL AS ADJUSTED(4)
------- ------- ------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 6,383 $ 2,301 $ 2,426 $18,632
Working capital....................... (8,819) 1,219 721 16,927
Property and equipment, net........... 81,250 93,692 174,340 174,340
Total assets.......................... 114,693 144,986 373,024 403,976
Long-term obligations, net of current
portion.............................. 48,789 65,445 20,788 1,122
Total stockholders' equity............ 33,855 58,097 297,375 347,993
</TABLE>
15
<PAGE>
- --------
(1) The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share, during the fourth quarter of 1997. SFAS No. 128
replaced the calculation of primary and fully diluted earnings per common
share with basic and diluted earnings per common share. Earnings (loss)
per common share amounts have been restated, where appropriate.
(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. EBITDA, as
measured by the Company, might not be comparable to similarly titled
measures reported by other companies. Funds depicted by the EBITDA measure
are not available for management's discretionary use due to required debt
service and other commitments or uncertainties.
(3) EBITDA margin represents EBITDA expressed as a percentage of revenues.
(4) As adjusted to give effect to the sale of shares of Common Stock offered
in the Offering and the application of the estimated net proceeds
therefrom, as described in "Use of Proceeds," as if the Offering had
occurred on December 31, 1997. Long-term obligations, net of current
portion, of $20,788 was adjusted to give effect to borrowings of $14.7
million to fund acquisitions completed in the period from December 31,
1997 to February 28, 1998 and the application of the estimated net
proceeds of $50.6 million from this Offering to arrive at the As Adjusted
balance of $1.1 million.
16
<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.
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 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. The Company's
revenue derived from landfill operations increased substantially with the
acquisition of the Clarion, Wyandot and Livingston landfills in separate
closings in June, August, and November 1995 (collectively, the "CDI
Acquisition"). Since the CDI Acquisition, the Company has acquired
proportionately more collection operations than landfill operations, resulting
in a decreasing overall percentage of revenues attributable to landfill
operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Collection(1)..................................... 55.3% 47.5% 55.6%
Transfer.......................................... 5.0 2.1 5.8
Landfill(1)....................................... 39.0 49.9 37.9
Other............................................. 0.7 0.5 0.7
-------- -------- --------
Total Revenues.................................. 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.
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 year ended December 31, 1997,
the Company's captive waste (which includes waste from the Company's
collection operations and third-party haulers operating under long-term
collection contracts) constituted an average of approximately 73% of the solid
waste disposed of at its landfills. In addition, approximately 81% of the
total tonnage collected by the Company was disposed of at Company-owned
landfills.
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 the Company's
principal stockholder (which terminated upon closing of the Company's initial
public offering in July 1996).
17
<PAGE>
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 landfill development costs, such as engineering, upgrading,
construction, interest 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
regulations and a growing community awareness of the landfill permitting
process. Although there can be no assurance, the Company believes that it will
be able to implement price increases sufficient to offset these increased
expenses. 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, 1997, closure costs
expected to occur during the operating lives of these facilities and expensed
over these facilities' useful lives will approximate $17.3 million. In
addition, the Company has estimated that, as of December 31, 1997, 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 be approximately $54.4
million. The accruals reflect relatively young landfills with estimated
remaining lives, based on current waste flows, that range from approximately
three to 50 years, and an estimated average remaining life of greater than 20
years.
The Company is in the process of conducting a comprehensive review of its
computer systems to identify the systems that could be affected by the Year
2000 issue and believes that the Year 2000 issue should not pose any
significant operational problems for the Company. The Company does not expect
that the expenditures related to the Year 2000 issue will have a material
effect on its financial position or results of operations in any year.
18
<PAGE>
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>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues....................................... 100.0% 100.0% 100.0%
Cost of operations............................. 57.6 53.5 54.3
Selling, general and administrative expenses... 19.6 14.6 13.9
Depreciation and amortization expense.......... 21.0 21.7 18.1
-------- -------- --------
Operating income............................... 1.8 10.2 13.7
Interest expense, net.......................... (9.5) (9.7) (5.0)
Other income................................... -- 0.3 0.2
Income tax expense............................. (1.1) (0.5) (2.9)
Extraordinary loss, net of income tax.......... (3.0) (0.8) --
-------- -------- --------
Net income (loss)............................ (11.8)% (0.5)% 6.0%
======== ======== ========
EBITDA margin(1)............................... 22.8% 31.9% 31.8%
</TABLE>
- --------
(1) EBITDA margin represents EBITDA expressed as a percentage of revenues.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues in 1997 increased $64.6 million to $121.4 million from
$56.8 million in 1996. Approximately $55.8 million of the increase is
attributable to the effects of companies acquired during 1996 and 1997.
Approximately $8.8 million is attributable to increases in revenues in
operations owned more than twelve months.
Cost of Operations. Cost of operations in 1997 was $65.9 million compared to
$30.4 million in 1996. As a percentage of revenues, cost of operations was
54.3% in 1997 compared to 53.5% in 1996. The increase in cost of operations as
a percentage of revenues is due to the impact of an increased number of
collection operations versus landfill operations in 1997 compared to 1996.
Collection operations generally have higher operating costs than landfill
operations.
Selling, General, and Administrative Expense. SG&A expenses increased to
$16.8 million in 1997 compared to $8.3 million in 1996. As a percentage of
revenues, SG&A expenses decreased to 13.9% in 1997 from 14.6% in 1996. The
decreases in SG&A expenses as a percentage of revenues is due primarily to a
significant increase in revenue producing assets, while corporate and other
related administrative expenses increased moderately.
Depreciation and Amortization Expense. Depreciation and amortization expense
was $22.0 million in 1997 compared to $12.3 million in 1996. The increase in
depreciation and amortization expense is due primarily to the Company's growth
through acquisitions. As a percentage of revenues, depreciation and
amortization expense was 18.1% and 21.7% for 1997 and 1996, respectively. The
decline in depreciation and amortization expense as a percentage of revenues
from 1996 to 1997 is due primarily to the reduction in the relative
concentration of landfill assets, which typically have higher depreciation and
amortization expense than collection operations.
Net Interest Expense. Net interest expense was $6.0 million in 1997 compared
to $5.5 million in 1996, which reflects the additional debt incurred to
complete certain 1997 acquisitions.
Income Taxes. The Company recorded an income tax provision of $3.5 million
in 1997 compared to $245,000 in 1996, reflecting the increased taxable income
generated, partially offset by utilization of net operating loss
carryforwards.
19
<PAGE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues. Revenues in 1996 were $56.8 million compared to $30.0 million in
1995. Approximately $17.1 million of the increase was attributable to the
impact of the full year contribution from the CDI Acquisition. In addition,
the Company completed 16 acquisitions in 1996, which accounted for
approximately $6.3 million of the increase in revenues.
Cost of Operations. Cost of operations in 1996 was $30.4 million compared to
$17.3 million in 1995, an increase corresponding primarily to the Company's
revenue growth described above. As a percentage of revenues, cost of
operations declined to 53.5% in 1996 from 57.6% in 1995, due primarily to the
following factors. The Company's proportion of landfill operations, which
generally have lower operating costs than collection operations, has increased
as a result of the full year contribution of the CDI Acquisition. In addition,
operating cost savings occurred as a result of the consolidation of the
acquired Missouri collection operations and the full year impact of the new
transfer stations opened in the Missouri region.
Selling, General, and Administrative Expenses. SG&A expenses were $8.3
million in 1996 compared to $5.9 million in 1995. The increase in the SG&A
expenses resulted from the full year impact of the CDI Acquisition as well as
increased expenses from the 16 acquisitions completed in 1996. As a percentage
of revenues, SG&A expenses declined to 14.6% in 1996 from 19.6% in 1995. The
decrease in SG&A expense as a percentage of revenues was due primarily to a
significant increase in revenue, while corporate and other related
administrative expenses increased moderately. In 1996, the Company terminated
a management agreement with an affiliate of its principal shareholder,
pursuant to which a management fee of $466,000 was paid in 1996.
Depreciation and Amortization Expense. Depreciation and amortization expense
for 1996 was $12.3 million compared to $6.3 million in 1995. The increase 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 and goodwill associated with acquisitions consummated
in 1996. As a percentage of revenues, depreciation and amortization expense
was 21.7% during 1996 versus 21.0% in 1995. The relatively high percentages
are primarily due to the configuration of the Wheatland landfill in 1995 and
the high concentration of the Company's assets in landfills following the CDI
Acquisition in 1996. Depreciation and amortization expense is expected to
decline as a percentage of revenues in future periods as the concentration of
the Company's assets in landfills diminishes due to the full year impact of
the 1996 collection company acquisitions and as the Company reduces future
cell development cost. Net fixed assets increased to $93.7 million in 1996
from $81.3 million in 1995 and goodwill, net of accumulated amortization
expense, increased to $31.2 million in 1996 from $15.7 million in 1995.
Net Interest Expense. Net interest expense was $5.5 million in 1996 compared
to $2.8 million in 1995. This increase is attributable to the full year impact
of additional debt incurred to complete the CDI Acquisition and the 16
acquisitions completed in 1996.
Income Taxes. The Company recorded an income tax provision of $245,000 and
$332,000 for 1996 and 1995, respectively. The 1996 provision reflects the
Company having consolidated taxable income of $460,000. Although the Company
recorded a net loss in 1995, the Company recorded an income tax provision
because the Company's subsidiaries were not then consolidated and CDI reported
a profit.
Extraordinary Loss. In 1996, the Company recognized an extraordinary loss of
$476,000, representing the write-off of unamortized debt issuance costs in
connection with the refinancing of its prior credit facility.
LIQUIDITY AND CAPITAL RESOURCES
Due to the capital intensive nature of the solid waste industry and the
Company's focus on an acquisition-based growth strategy, the Company has used,
and expects to continue using, substantially all cash generated from
operations to fund acquisitions, capital expenditures and landfill
development. Historically, the Company has satisfied its acquisition, capital
expenditure and working capital needs primarily through equity and bank
financings. There can be no assurance that such financing will continue to be
available.
20
<PAGE>
Net cash provided by operating activities for 1997 increased to $31.1
million compared to $10.3 million for the same period in 1996. The increase
was primarily due to acquisition related activities which resulted in an
improvement in net income to $7.3 million in 1997 compared to a net loss of
$0.3 million in the prior year, an increase in depreciation and amortization
of $9.6 million over the prior period, an increase in other long term
liabilities of $6.0 million, offset by an increase in accounts receivable of
$8.6 million.
Net cash used in investing activities increased to $177.4 million in 1997
from $37.7 million in the prior year. The increase was due primarily to
payments for acquisitions of $153.0 million completed in 1997 and an increase
of $10.3 million in capital expenditures for 1997 compared to 1996. The
Company's capital expenditure requirements have increased significantly,
reflecting the Company's rapid growth by acquisition and development of
additional revenue producing assets, and will increase further as the Company
continues to pursue its acquisition-based growth strategy. During 1997, the
Company spent $24.3 million in capital expenditures, of which $10.3 million
was for cell development. In fiscal year 1998, the Company expects to spend
approximately $29 million for capital expenditures on operations owned as of
December 31, 1997, of which approximately $9 million is anticipated to be used
for cell development.
Net cash provided by financing activities totaled $146.4 million for 1997,
compared to $23.2 million for 1996 reflecting borrowings of $141.2 million in
1997 under the Company's then existing term and revolving credit facilities to
fund acquisitions. Repayments under the Company's Credit Facility totaled
$188.6 million, funded primarily by the net proceeds of $194.0 million from
offerings of Common Stock in May 1997 and in October 1997.
The Credit Facility provides the Company with a revolving line of credit of
$140 million to be used for acquisitions (of which $20 million may be used for
working capital and letter of credit purposes). The Credit Facility bears
interest at rates per annum equal to, at the Company's discretion, either: (i)
the higher of (a) the federal funds rate plus 0.5% and (b) the prime rate,
plus an applicable margin or (ii) the London Interbank Offered Rate ("LIBOR"),
plus an applicable margin, and matures in 2002. As of March 1, 1998, the
Company had borrowed $34.4 million under the Credit Facility. As of such date,
the interest rate on the various loans under the Credit Facility was 6.63% and
the total unused availability under the Credit Facility was approximately
$105.6 million. The Company intends to apply a portion of the net proceeds
from the Offering to repay amounts outstanding under the Credit Facility which
may be reborrowed in the future.
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.
21
<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 and in the Northeast. The Company
owns nine solid waste landfills and owns, operates or has exclusive contracts
to receive waste from 20 transfer stations. The Company's operations cover six
primary operating regions and its landfills and transfer stations are
supported by 17 collection divisions, which currently serve over 400,000
residential, commercial and industrial customers. The Company has adopted an
acquisition-based growth strategy and intends to continue its expansion,
generally in its existing and proximate markets. Since January 1993, the
Company has acquired 70 solid waste businesses, including eight solid waste
landfills and 66 solid waste collection companies.
The Company began its operations in the Midwest and currently has operations
in the following 12 states: Arkansas, Connecticut, Illinois, Indiana, Kansas,
Kentucky, Massachusetts, Missouri, Ohio, Oklahoma, Pennsylvania and Rhode
Island. The Company's objective is to build a large profitable fully-
integrated solid waste services company with an established market presence in
secondary markets. 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 stringent environmental and
other governmental regulations.
The Company's principal growth strategy is to identify and acquire solid
waste landfills located in 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's operating program generally involves a four-step process: (i)
acquiring solid waste landfills in markets that are within approximately 125
miles of significant metropolitan centers; (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. As part of its acquisition program, the Company has, and in the
future 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 to maximize the captive waste streams
(which includes waste from the Company's collection operations and third-party
haulers operating under long-term collection contracts) disposed of at each of
its landfills. During the year ended December 31, 1997, the Company's captive
waste constituted an average of approximately 73% of the solid waste disposed
of at Company-owned landfills. In addition, approximately 81% of the total
tonnage collected by the Company during such period was disposed of at
Company-owned landfills. The Company plans to continue to pursue its
acquisition-based growth strategy to maximize the internalization of waste
collected and expand its presence in its existing and proximate markets.
RECENT DEVELOPMENTS
Since the October Offering, the Company has expanded and strengthened its
market presence in its six operating regions through the acquisition of 15
solid waste businesses, which collectively included one landfill, 15
collection companies, three transfer stations, and a contract to operate a
fourth transfer station.
In the New England Region, which the Company entered in September 1996, the
Company continued to expand its presence through five "tuck-in" acquisitions
of collection operations. In the Illinois Region, the
22
<PAGE>
Company completed the Sexton Acquisition, which added a collection operation,
two transfer stations and one landfill to the Company's operations. In
addition, the Company has completed two collection company acquisitions in the
Illinois Region, one as a "tuck-in" to the Sexton Acquisition and one as a
"tuck-in" to the Company's existing Chicago operations.
In January 1998, the Company completed the R.C. Miller Acquisition which
provide solid waste collection, transfer and recycling services in Canton,
Ohio and the surrounding counties. The R.C. Miller Acquisition further expands
the Company's presence in the Ohio Region and provides a geographical link
between the Company's Ohio and Western Pennsylvania Regions. Subsequent to the
R.C. Miller Acquisition, the Company completed three "tuck-in" acquisitions in
the Ohio Region.
In October 1997, the Company repaid its $60 million term loan with a portion
of the proceeds from the October Offering and currently has a $140 million
Credit Facility. The Company is currently negotiating a larger credit facility
with its bank group, which the Company believes would provide it with more
flexibility and lower financing costs. At March 1, 1998, the outstanding debt
under the Credit Facility was $34.4 million, up from $19.7 million at December
31, 1997, primarily as a result of recent acquisitions.
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.
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: (i) environmental regulations,
including 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; (ii) 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; (iii) 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. Due in part to these trends, the
Company believes that significant opportunities exist to expand and further
integrate its operations in each of its existing markets, as well as in new
markets that meet the Company's acquisition criteria.
STRATEGY
The Company's objective is to build a large, profitable, 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.
23
<PAGE>
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 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.
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.
ACQUISITION PROGRAM
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
24
<PAGE>
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
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
ongoing basis.
COMPLETED ACQUISITIONS
The Company has completed 70 acquisitions of solid waste companies in 12
states 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 December 1993
Green 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
Nesvold Sanitation...... Collection Seneca, MO December 1996
Sparky's Waste Control.. Collection Springfield, MO January 1997
Cupp Disposal........... Collection Joplin, MO June 1997
Sunset Disposal/Resource
Recovery................ Landfill and Collection Coffeyville, KS August 1997
L. B. Smith............. Collection Springfield, MO August 1997
Supreme Sanitation...... Collection Pittsburg, KS August 1997
Packman................. Collection Coffeyville, KS January 1998
Freeman Waste
Management.............. Collection Eureka Springs, AR February 1998
ILLINOIS REGION:
Livingston.............. Landfill Pontiac, IL November 1995
Barbara Companies....... Landfill, Collection, Chicago, IL September 1997
MRF and Morris, IL
Transfer Station
Sexton Companies........ Landfill, Collection Bloomington, IL November 1997
and Transfer Stations Chicago, IL
Harrell & Daughters..... Collection Bloomington, IL December 1997
Yellow Recycling &
Disposal................ Collection Lemont, IL December 1997
SOUTHWESTERN INDIANA RE-
GION:
WMX-Evansville.......... Landfill, Collection Evansville, IN April 1997
and Transfer Station
Action Trash &
Disposal................ Collection Vincennes, IN July 1997
T&G Container........... Collection and Washington, IN July 1997
Transfer Station
Mother Earth............ Collection, Louisville, KY August 1997
Beneficial Reuse
and Transfer Station
Earth First of
Kentuckiana............. Collection New Albany, IN January 1998
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
COMPANY BUSINESS PRINCIPAL LOCATION DATE ACQUIRED
- ------- -------- ------------------ -------------
<S> <C> <C> <C>
OHIO REGION:
Wyandot................. Landfill Upper Sandusky, OH August 1995
Environmental Collection May 1996
Transportation and
Management.............. Findlay, OH
R&R Waste Disposal...... Collection Findlay, OH May 1996
Jerry's Rubbish......... Collection Findlay, OH June 1996
Seneca Disposal......... Collection Tiffin, OH June 1996
Ross Bros. Waste & Collection and Mt. Vernon, OH September 1996
Recycling............... Transfer Station
D&L Hauling............. Collection Findlay, OH October 1996
Rutledge Trucking....... Collection Delaware, OH November 1996
Morrow Sanitary
Company................. Collection Mt. Gilead, OH November 1996
Bowers-Phase II......... Collection and Vickery, OH December 1996
Transfer Station
Cargo Services.......... Collection Mt. Gilead, OH December 1996
Rumpke Waste (routes)... Collection Fostoria, OH December 1996
Christiansen's.......... Collection Sandusky, OH May 1997
D&R Refuse.............. Collection Kenton, OH July 1997
Geyer Sanitation........ Collection Galion, OH July 1997
Didions' Garbage & Collection January 1998
Refuse.................. Bellevue, OH
R.C. Miller Collection Canton, OH January 1998
Enterprises............. and Transfer Station
McFarland Disposal...... Collection Ravenna, OH February 1998
Owens Rubbish Service... Collection Akron, OH February 1998
WESTERN PENNSYLVANIA RE-
GION:
Clarion................. Landfill and Collection Leeper, PA June 1995
Mauthe Sanitation....... Collection Strattanville, PA March 1996
Allied Waste Systems.... Collection Youngstown, OH February 1997
Horodyski............... Collection Warren, OH April 1997
Township Garbage........ Collection Warren, OH July 1997
NEW ENGLAND REGION:
T&J Trucking............ Collection Johnston, RI September 1996
American Disposal
Services/N.E.E.D........ Collection Johnston, RI September 1996
A-1 Container........... Collection Rehoboth, MA January 1997
BFI-Derby District...... Collection and Seymour, CT May 1997
Transfer Station
Liberty Disposal........ Collection Providence, RI May 1997
A. Macera............... Collection Johnston, RI August 1997
Macera Bros............. Collection and Cranston, RI August 1997
Transfer Station
R.D. Compactor.......... Collection Providence, RI September 1997
Wasteline Rubbish
Disposal................ Collection Johnston, RI October 1997
Bonollo Rubbish......... Collection Wrentham, MA November 1997
One Way Waste Systems... Collection N. Attleboro, MA December 1997
South County Companies.. Collection and N. Kingston, RI January 1998
Transfer Station
Page Hauling............ Collection Warwick, RI February 1998
</TABLE>
Missouri Region. The Company established a market presence in the Missouri
Region in January 1993 with the acquisition of its Wheatland landfill. Since
purchasing the Wheatland landfill, the Company has acquired one transfer
station and independently developed three transfer stations. The Company also
has exclusive contracts to accept waste from two other transfer stations.
Additionally, the Company acquired 21 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.
Since the acquisition of its Wheatland landfill, the Company has increased the
waste
26
<PAGE>
volume at its landfill by approximately 1,000 tons per day. Since the October
Offering, the Company has acquired two collection companies and developed one
transfer station within the region. Such activity has expanded the service
area of the Company's operations in the Missouri Region.
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 particularly attractive to the Company's
management because of the expected closing of two competing landfills that
accepted an aggregate of approximately 15,000 tons per day and the management
team's experience with the Chicago market. Since the acquisition of the
Livingston landfill, one of the competing landfills in the Chicago
metropolitan area has closed and the other is expected to close in 1998. Since
the acquisition of the Livingston landfill, the Company has increased the
waste volume at this landfill by approximately 4,000 tons per day through
intensified sales and marketing efforts. Approximately 71% of the waste volume
at the Livingston landfill is captive waste. Since the October Offering, the
Company has acquired three collection operations, two transfer stations and a
landfill in the Illinois Region.
Southwestern Indiana Region. In April 1997, the Company acquired the
Blackfoot landfill, two collection companies, an exclusive transfer station
contract and a permit to develop a new transfer station, all located in the
southwestern Indiana Region (which includes western Kentucky). These
acquisitions provided the Company with the opportunity to enter the
southwestern Indiana Region and to secure a significant market share position
in that region through the acquisition of a single, fully integrated solid
waste management operation. Since the October Offering, the Company completed
the acquisition of one collection company within the Southwestern Indiana
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. To date, the Company has acquired 18
collection companies and has acquired, developed or secured exclusive
contracts with five transfer stations in the 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
the acquisition of collection companies, new operating contracts with two
transfer stations and implementation of a new sales focus. To further expand
its operations, the Company is seeking to increase capacity at the Wyandot
landfill. In January 1998, the Company completed the R.C. Miller Acquisition,
which provides the Company with solid waste collection, transfer and recycling
services in Canton, Ohio and the surrounding counties. In connection with the
R.C. Miller Acquisition, the Company acquired a construction and demolition
landfill, which the Company is in the process of closing. The R.C. Miller
Acquisition expands the Company's presence in the Ohio Region and provides a
geographical link between the Company's Ohio and Western Pennsylvania Regions.
Furthermore, since the October Offering, the Company has acquired three
additional collection companies in the region.
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 80 miles
of both Pittsburgh and Erie, Pennsylvania. Since the acquisition of the
Clarion landfill, the Company has increased volumes to this landfill by
approximately 300 tons per day to the maximum daily limit, primarily through
the acquisition of collection companies.
New England Region. The Company began operating in the New England Region in
September 1996 with the acquisition of two collection companies in Rhode
Island. The Company was attracted to the New England Region because it was
largely an unconsolidated market where no existing operator had a competitive
advantage since the State of Rhode Island owns and operates the sole landfill
in the state. As a result, the Company has focused its acquisition strategy on
collection companies. Since the October Offering, the Company has acquired
five collection companies and a contract to operate one transfer station in
the region. The Company believes that as a result of its acquisitions in the
region, it currently owns and operates the largest collection operation in
Rhode Island and has strategically positioned itself to expand its market
share in the New England Region.
27
<PAGE>
OPERATIONS
The Company's waste management operations include the ownership and
operation of solid waste landfills, transfer stations and waste collection
services. 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.
LANDFILLS
The Company currently owns nine landfill operations permitted to receive
solid waste. These landfill operations are located in Illinois, Indiana, 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 year ended December 31, 1997, 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
73% of the solid waste disposed of at its landfills.
The table and landfill descriptions below provide certain additional
information, as of December 31, 1997 regarding the nine landfills that the
Company owns and operates.
<TABLE>
<CAPTION>
APPROXIMATE ACREAGE APPROXIMATE
------------------- UNUSED PERMITTED
LANDFILLS LOCATION TOTAL PERMITTED (1) AIRSPACE(2)
--------- -------- ----- ------------- ----------------
(IN MILLIONS OF
CUBIC YARDS)
<S> <C> <C> <C> <C>
Wheatland.............. Scammon, KS 68 55 0.9
Resource Recovery...... Cherryvale, KS 282 37 2.2
Pittsburg County....... McAlester, OK 76 30 1.4
Livingston............. Pontiac, IL 556 255 27.9
Environtech............ Morris, IL 326 78 5.9
McLean................. Bloomington, IL 55 33 1.0
Blackfoot.............. Evansville, IN 379 166 17.8
Wyandot(3)............. Upper Sandusky, OH 344 87 5.7
Clarion................ Leeper, PA 606 60 3.9
----- --- ----
Total................ 2,692 801 66.7
===== === ====
</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 estimated 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) The Company has applied for a permit to increase the permitted acreage and
permitted cubic airspace at the Wyandot landfill by approximately 98 acres
and approximately 19.1 million cubic yards, respectively.
28
<PAGE>
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 to enable it to expand its disposal 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 Internal Expansion" and "--Extensive Environmental Land Use
Laws and Regulations."
Wheatland. The Wheatland landfill consists of approximately 68 acres.
Approximately 55 of the owned acres are permitted acres and there are
approximately 0.9 million cubic yards of unused permitted airspace. The
Company anticipates that after a planned expansion, the Wheatland landfill
would have approximately 7 years of total site life at current average
disposal levels (approximately 2.5 years if such expansion is not approved by
the Cherokee County Board of Commissioners). In addition, the Company has an
option to purchase an undeveloped parcel in Missouri, which has been granted a
permit to develop a landfill.
Resource Recovery. The Resource Recovery landfill consists of approximately
282 acres, of which approximately 37 are permitted. There are approximately
2.2 million cubic yards of unused permitted airspace. The Resource Recovery
landfill has approximately 14 years of total site life at current average
disposal levels.
Pittsburg County. The Pittsburg County landfill consists of approximately 76
acres, of which approximately 30 are permitted acres. There are approximately
1.4 million cubic yards of unused permitted airspace. The Pittsburg County
landfill would have approximately 40 years of total site life at current
average disposal levels.
Livingston. The Livingston landfill consists of approximately 556 acres, of
which approximately 255 are permitted acres. There are approximately 27.9
million cubic yards of unused permitted airspace. Previously, cells developed
at the Livingston landfill have been constructed with double composite liner
systems. In September 1996, the Livingston landfill received a permit to
construct cells using a single liner composite system. The Livingston landfill
has approximately 12.5 years of total site life at current average disposal
levels, which have increased substantially since its acquisition by the
Company.
Environtech. The Environtech landfill consists of approximately 326 acres of
which 78 acres have received local siting approval and state permitting. There
are approximately 5.9 million cubic yards of unused airspace. Environtech has
approximately 24 years of total site life at current average disposal levels.
McLean. The McLean County landfill is located in Bloomington, Illinois. The
landfill consists of approximately 55 acres, of which approximately 33 acres
are approved for waste disposal. The current waste receipts are minimal due to
this landfill's proximity to the Livingston landfill.
Blackfoot. The Blackfoot landfill in Evansville, Indiana consists of
approximately 379 acres, of which approximately 166 are permitted acres. The
site has available capacity of approximately 17.8 million cubic yards of
airspace. This includes 0.5 million cubic yards of airspace which will be
approved as a minor modification to the existing permit, pursuant to the
applicable state regulations. The Blackfoot landfill has approximately 55
years of total site life at current average disposal levels.
29
<PAGE>
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 adjacent additional acres in the vicinity. Approximately 87
of the owned acres are permitted, and there are approximately 5.7 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 has applied for a permit from applicable regulatory authorities to
use a single composite liner in constructing new cells, which the Company
believes should reduce cell development costs. In addition, the Company has
applied 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 39 years of total site life at current disposal
levels. Currently, however, the Wyandot landfill has approximately 8.5 years
of total site life at current average disposal levels.
Clarion. The Clarion landfill consists of approximately 606 acres, of which
approximately 60 are permitted acres. There are approximately 3.9 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
10 years of total site life at current average disposal levels.
TRANSFER STATIONS
The Company has an active program to acquire, develop, own, operate and
contract to receive waste volumes from transfer stations in markets which are
proximate to its operations. The use of transfer stations reduces the
Company's costs associated with the transportation of its collected waste and
also increases the market area served by the Company's landfills. Presently,
the Company owns, operates or has exclusive contracts to receive waste from a
total of 20 transfer stations, including six in the Missouri Region, three in
the Illinois Region, three in the southwestern Indiana Region, five in the
Ohio Region and three in the New England Region. Typically, the Company
acquires transfer stations that will service its Company-owned landfills and
expand its geographic service area.
COLLECTION OPERATIONS
The Company collects solid waste from over 400,000 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 year ended December 31,
1997, the Company's captive waste constituted an average of approximately 73%
of the solid waste disposed of at Company-owned landfills. In addition,
approximately 81% of the total tonnage collected by the Company was disposed
of at Company-owned landfills.
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 also provides subscription residential collection services directly to
households.
30
<PAGE>
SALES AND MARKETING
The Company has a coordinated marketing strategy which is formulated at the
corporate level and implemented at the regional level. 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.
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 during the year ended December 31,
1997. The Company does not believe that the loss of any single customer would
have a material adverse effect on the Company's results of operations.
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 several national waste
management companies, such as Waste Management, Inc., Browning-Ferris
Industries, Inc., USA Waste Services, Inc., Republic Industries, Inc. and
Allied Waste Industries, Inc., and includes numerous local and regional
companies of varying sizes and competitive resources such as Casella Waste
Systems, Inc., Eastern Environmental Services, Inc., Superior Services, Inc.
and Waste 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 landfills has pollution liability coverage of $10 million per
occurrence or $10 million in the aggregate subject to a $10,000 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.
31
<PAGE>
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 December 31, 1997, the Company had outstanding approximately
$38.1 million of performance bonds. 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.
32
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Subject to the consummation of this Offering, David C. Stoller, Merril M.
Halpern, A. Lawrence Fagan, Richard T. Henshaw, III and Norman Steisel have
indicated that they will not stand for re-election to the Board of Directors
of the Company at the 1998 Annual Meeting of Stockholders of the Company (the
"Annual Meeting"). At the Annual Meeting, the Company proposes to nominate to
the Board of Directors two executive officers of the Company (Messrs. De Young
and Lavey) and not less than four independent directors, including G.T.
Blankenship. In addition, immediately following the consummation of this
Offering, Mr. De Young will replace Mr. Stoller as Chairman of the Board of
Directors and will continue to serve as President and Chief Executive Officer
of the Company.
The following table sets forth information concerning the Company's
executive officers and directors as of March 1, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David C. Stoller................... 46 Chairman; Director
President; Chief Executive Officer;
Richard De Young................... 43 Director
Richard Kogler..................... 38 Vice President; Chief Operating Officer
Stephen P. Lavey................... 36 Vice President; Chief Financial Officer
Vice President; General Counsel and
Ann L. Straw....................... 44 Secretary
Lawrence R. Conrath, Sr............ 41 Vice President; Controller
John J. McDonnell.................. 42 Vice President--Engineering
Mary T. Ryan....................... 44 Vice President--Corporate Affairs
Merril M. Halpern.................. 63 Director
A. Lawrence Fagan (1).............. 67 Director
Richard T. Henshaw, III (2)........ 59 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
January 1, 1996. He has served in the same capacities for ADS, Inc. ("ADS")
since January 1993 and County Disposal, Inc. ("CDI") since May 1995; both ADS
and CDI were predecessor entities of the Company. Since March 1998, Mr.
Stoller has been an entrepreneur with Charterhouse Group International, Inc.
("Charterhouse"), which is a private investment firm specializing in leveraged
buy-out acquisitions. From January 1997 until February 1998, he was a Managing
Director of Charterhouse. From August 1992 through December 1996, Mr. Stoller
served as the Chairman of Charterhouse Environmental Capital Group, Inc.
("Charterhouse Environmental Capital"), which provided 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 Chief Executive Officer since September 4, 1997
and President and a director of the Company since January 1, 1996. 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, and its President since July 31, 1996. 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.
33
<PAGE>
Richard Kogler has been a Vice President and the Chief Operating Officer of
the Company since January 1, 1996. He previously served in the same capacities
for ADS since May 1995 and as President of CDI between May 1995 and July 1996.
He has been Vice President of CDI since July 31, 1996. From October 1984
through May 1995 Mr. Kogler was employed by WMX, most recently as a Regional
Operations Vice President.
Stephen P. Lavey has been a Vice President and the Chief Financial Officer
of the Company since February 1997. He was previously employed by Bank of
America from June 1990 through January 1997, most recently as a Vice President
in its Environmental Services Lending Group, specializing in the solid waste,
environmental engineering and water purification industries. Mr. Lavey is also
a Certified Public Accountant.
Ann L. Straw has been a Vice President and the General Counsel of the
Company since January 1, 1996. She previously served in the same capacities
for ADS (since June 1995) and for CDI (since June 1995). She has been the
Secretary of the Company since January 1, 1996, and of ADS and CDI since July
31, 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, Sr. has been Controller of the Company since January 1,
1996 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. Mr. Conrath is also a Certified Public Accountant.
John J. McDonnell has been a Vice President--Engineering of the Company
since January 1, 1996. 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.
Mary T. Ryan has been a Vice President--Corporate Affairs since March 1997
after joining the Company in November 1996. From May 1996 to November 1996,
she was employed by Ketchum Public Relations as Senior Vice President,
Corporate Issues. From July 1984 to April 1995 she was employed by WMX, most
recently as Vice President, Management Services.
Merril M. Halpern has served as a director of the Company since January 1,
1996. Since October 1984, Mr. Halpern has served as Chairman of the Board of
Charterhouse. From 1973 to October 1984, Mr. Halpern served as President and
Chief Executive Officer of Charterhouse. Mr. Halpern is also a director of
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 January 1,
1996. He has been President of Charterhouse since January 1997 and formerly
served as Executive Vice President of Charterhouse since 1984. Mr. Fagan is
also a director of MPD.
Richard T. Henshaw, III has been a director of the Company since January 1,
1996. He has served as a director of ADS (since January 1993) and CDI (since
May 1995). Mr. Henshaw has been a Managing Director of Charterhouse since
January 1997 and formerly served as a Senior Vice President of Charterhouse
since 1991. Prior thereto he was a Senior Vice President of The Bank of New
York. Mr. Henshaw is also a director of Cornell Corrections, Inc., a provider
of privatized correctional services.
G.T. Blankenship has been a director of the Company since January 1, 1996.
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 a director of the Company since July 1996. He has
served as Vice President, Business Development of Computer Sciences Corp.
since May 1997. He was the President of EnEssCo Strategies, a strategic
consulting services firm specializing in government regulated markets, from
January 1994 to May 1997. 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.
34
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of March 1, 1998 and after
completion of this Offering, 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 current executive officers; and (iv) the Company's
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING SHARES TO BE AFTER OFFERING (1)
----------------------- SOLD IN -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER PERCENT THE OFFERING NUMBER PERCENT
- ------------------------------------- ------------ ---------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Charterhouse
Environmental Holdings,
L.L.C. (2)............. 933,528 4.5% 933,528 -- --
Charterhouse Equity
Partners II, L.P. (3).. 1,255,829 6.1% 1,255,829 -- --
CDI Equity, LLC (4)..... 322,014 1.6% 322,014 -- --
Pilgrim Baxter &
Associates, Ltd. (5)... 1,754,020 8.5% -- 1,754,020 7.9%
Nicholas-Applegate
Capital Mgmt. (6)...... 1,173,600 5.7% -- 1,173,600 5.3%
David C. Stoller
(7)(8)................. 173,738 * -- 173,738 *
Richard De Young
(7)(9)................. 215,059 1.0% -- 215,059 *
Stephen P. Lavey (7).... 41,666 * -- 41,666 *
Merril M. Halpern (8)... -- -- -- -- --
A. Lawrence Fagan (8)... -- -- -- -- --
Richard T. Henshaw, III
(8).................... -- -- -- -- --
G.T. Blankenship (10)... 97,451 * -- 97,451 *
Norman Steisel.......... -- -- -- -- --
Richard Kogler (7)...... 26,922 * -- 26,922 *
Ann L. Straw (7)(11).... 21,661 * -- 21,661 *
John J. McDonnell
(7)(12)................ 54,191 * -- 54,191 *
Lawrence R. Conrath
(7)(13)................ 38,980 * -- 38,980 *
Mary T. Ryan (14)....... 17,725 * -- 17,725 *
All directors and
executive officers as a
group (13 persons)
(7).................... 687,393 3.2% -- 687,393 3.0%
</TABLE>
- --------
* Less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option to
purchase up to 600,000 additional shares of Common Stock. See "Use of
Proceeds" and "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. Mr. Stoller is a partner of
StollerCo and disclaims 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. Includes 2,440 shares of Common Stock
beneficially owned by a related party prior to the Offering, 2,440 shares
of Common Stock to be sold by the related party in the Offering and 0
shares of Common Stock to be beneficially owned by the related party
after the Offering.
35
<PAGE>
(4) The address of CDI Equity, LLC ("CDI Equity") is c/o Aetna Life Insurance
Company, Conveyor RC21, 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 Services, Inc., which is a wholly-owned subsidiary of Aetna, Inc.,
and 1% by CDI Equity, Inc., a wholly-owned subsidiary of Aetna Life
Insurance Company.
(5) Information regarding Pilgrim Baxter & Associates, Ltd. is based on
Schedule 13G filed by such person with the Securities and Exchange
Commission as of December 31, 1997. The address of Pilgrim Baxter &
Associates, Ltd. is 825 Duportail Road, Wayne, Pennsylvania 19087.
(6) Information regarding Nicholas-Applegate Capital Mgmt. is based on
Schedule 13G filed by such person with the Securities and Exchange
Commission as of December 31, 1997. The address of Nicholas-Applegate
Capital Mgmt. is 600 West Broadway, 29th Floor, San Diego, CA 92101.
(7) Includes options exercisable within 60 days of March 1, 1998 to purchase
171,271, 212,592, 41,666, 26,922, 53,195, 37,982, 21,461 and 725 shares
granted under the American Disposal Services, Inc. 1996 Stock Option Plan
to Messrs. Stoller, De Young, Lavey, Kogler, McDonnell and Conrath and
Ms. Straw and Ryan, 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 group of persons, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(8) Merril M. Halpern and A. Lawrence Fagan are executive officers, directors
and stockholders of Charterhouse, Richard T. Henshaw, III is an executive
officer of Charterhouse and until March 1, 1998, Mr. Stoller was an
executive officer of Charterhouse. Messrs. Halpern, Fagan, Henshaw and
Stoller each disclaim beneficial ownership of the shares of Common Stock
beneficially owned by Charterhouse.
(9) Includes 2,467 shares held jointly by Mr. De Young and his wife.
(10) Includes 7,995 shares held by Mr. Blankenship's wife, of which Mr.
Blankenship disclaims beneficial ownership.
(11) Includes 200 shares held by Ms. Straw's minor children.
(12) Includes 996 shares held by Mr. McDonnell's minor children.
(13) Includes 498 shares held jointly by Mr. Conrath and his wife and 400
shares held in an IRA for the benefit of Mr. Conrath.
(14) Includes 6,000 shares held in an IRA for the benefit of Ms. Ryan and
11,000 shares held jointly by Ms. Ryan and her husband.
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
Upon completion of the Offering, the Company will have 22,116,173 shares of
Common Stock outstanding (assuming no exercise of the Underwriters'
overallotment option), all of which 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.
36
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom CIBC
Oppenheimer Corp. and Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") are acting as Representatives, has severally agreed with the Company
and the Selling Stockholders, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company and the Selling
Stockholders, 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>
CIBC Oppenheimer Corp........................................... 1,160,000
Donaldson, Lufkin & Jenrette Securities Corporation............. 1,160,000
BT Alex. Brown Incorporated..................................... 60,000
Cowen & Company................................................. 60,000
Credit Suisse First Boston Corporation.......................... 60,000
A.G. Edwards & Sons, Inc........................................ 60,000
Furman Selz LLC................................................. 60,000
Goldman, Sachs & Co. ........................................... 60,000
Lazard Freres & Co. LLC......................................... 60,000
Lehman Brothers Inc. ........................................... 60,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.............. 60,000
Morgan Stanley & Co. Incorporated............................... 60,000
PaineWebber Incorporated........................................ 60,000
Prudential Securities Incorporated.............................. 60,000
Salomon Brothers Inc. .......................................... 60,000
SBC Warburg Dillon Read Inc. ................................... 60,000
Schroder & Co. Inc. ............................................ 60,000
First Analysis Securities Corporation........................... 60,000
GS2 Securities, Inc. ........................................... 60,000
Pacific Growth Equities, Inc. .................................. 60,000
Piper Jaffray Inc. ............................................. 60,000
Robert W. Baird & Co. Incorporated.............................. 30,000
William Blair & Company, L.L.C. ................................ 30,000
J.C. Bradford & Co. ............................................ 30,000
Crowell, Weedon & Co. .......................................... 30,000
EVEREN Securities, Inc. ........................................ 30,000
Fahnestock & Co. Inc. .......................................... 30,000
Jefferies & Company............................................. 30,000
C.L. King & Associates, Inc. ................................... 30,000
Legg Mason Wood Walker, Incorporated............................ 30,000
McDonald & Company Securities, Inc. ............................ 30,000
Morgan Keegan & Company, Inc. .................................. 30,000
Raymond James & Associates, Inc. ............................... 30,000
The Robinson-Humphrey Company, LLC.............................. 30,000
Sanders Morris Mundy Inc. ...................................... 30,000
Scott & Stringfellow, Inc. ..................................... 30,000
Stephens Inc. .................................................. 30,000
Tucker Anthony Incorporated..................................... 30,000
Wheat First Securities, Inc. ................................... 30,000
---------
Total......................................................... 4,000,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock directly to
the public 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 $1.12 per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $0.10 per share of 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.
37
<PAGE>
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
600,000 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 number shares of Common Stock offered hereby.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of the shares of Common Stock offered hereby.
The Company and the Selling Stockholders have 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 who will beneficially own an aggregate
of 687,393 shares of Common Stock or options to purchase shares of Common
Stock after the Offering, have agreed not to sell, offer to sell, distribute,
pledge, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, or encumber, or exercise registration rights with respect to, any
shares of Common Stock, any options or warrants to purchase any shares of
Common Stock, or any securities convertible into or exchangeable for shares of
Common Stock now owned by them or hereafter acquired or with respect to which
they have acquired or hereafter acquire the power of disposition for a period
of 90 days after the date of this Prospectus without the prior written consent
of CIBC Oppenheimer Corp. and DLJ. The Company has also agreed not to sell,
offer to sell, distribute, pledge, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, or encumber, or exercise
registration rights with respect to, any shares of Common Stock, any options
or warrants to purchase any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock now owned by them
or hereafter acquired or with respect to which they have acquired or hereafter
acquire the power of disposition for a period of 90 days after the date of
this Prospectus, without the prior written consent of CIBC Oppenheimer Corp.
and DLJ, subject to certain exceptions, including the ability to issue shares
of Common Stock pursuant to the shelf registration statement, as described in
the following paragraph.
In addition, the Company has registered 2,500,000 shares of Common Stock
under the Securities Act pursuant to a shelf registration statement for use in
connection with future acquisitions, of which 1,233,793 shares of Common Stock
have not yet been issued. Once issued, these shares generally will be freely
tradeable by persons not affiliated with the Company; however, the Company has
agreed to use its commercially reasonable efforts to restrict such persons
from selling such shares during the 90-day period following the effective date
of the Registration Statement of which this Prospectus is a part. The Company
may from time to time increase the number of shares of Common Stock issuable
pursuant to such shelf registration statement.
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions, penalty
bids and "passive" market making in accordance with Regulation M under the
Securities Act of 1934, as amended (the "Exchange Act"). Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the Common Stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. In "passive" market making, market makers in the
Common Stock who are Underwriters or prospective underwriters may, subject to
certain limitations, make bids for or purchases of the Common Stock until the
time, if any, at which a stabilizing bid is made. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when
the Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions, penalty bids and
passive market making may cause the price of the Common Stock to be higher
than it would otherwise be in the absence of such transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and,
if commenced, may be discontinued at any time.
38
<PAGE>
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Proskauer Rose 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, 1995,
1996 and 1997 and for each of the three years in the period ended December 31,
1997, 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 reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and in accordance therewith, files reports
and other information with the Securities and Exchange Commission (the
"Commission"). These reports and other information concerning the Company may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661 and at Suite 1300, 7 World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the fees prescribed by the Commission.
Reports, proxy, information statements and other information regarding the
Company filed electronically with the Commission are available on the
Commission's web site (http://www.sec.gov).
The Company has filed with the Commission a Registration Statement on Form
S-3 (which term shall encompass any amendments and exhibits thereto) under the
Securities Act with respect of the Shares offered hereby. This Prospectus,
which forms a part of such Registration Statement, does not contain all the
information set forth in such Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to such Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. Any interested parties may
inspect such Registration Statement, without charge, at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and may obtain copies of all or any part of it from the Commission
upon payment of the fees prescribed by the Commission. Neither the delivery of
this Prospectus or any Prospectus Supplement nor any sales made hereunder or
thereunder shall under any circumstances create any implication that the
information contained herein or therein is correct as of any time subsequent
to the date hereof or thereof or that there has been no change in the affairs
of the Company since the date hereof or thereof.
39
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated by reference and
made a part of this Prospectus: (i) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997; (ii) the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997; (iii) all other reports filed pursuant to Section 13(a) or
15(d) of the Exchange Act since December 31, 1996, specifically including the
Company's Current Reports on Form 8-K dated April 15, 1997, May 29, 1997,
September 23, 1997 (as amended on November 13, 1997) and January 23, 1998;
(iv) the Company's Proxy Statement dated April 21, 1997 relating to the 1997
Annual Meeting of Stockholders held on May 28, 1997; (v) the Company's Proxy
Statement dated September 26, 1997 relating to the Special Meeting of
Stockholders held on October 7, 1997; and (vi) the description of the Common
Stock of the Company contained in the Company's registration statement (No.
333-36389) as filed with the Commission on September 25, 1997, as amended.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document or information
incorporated or deemed to be incorporated herein by reference shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any subsequently filed document that
also is, or is deemed to be, incorporated herein by reference, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The making of a modifying or superseding statement shall not be deemed an
admission that the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement or a material fact or an omission to
state a material fact that is required to be stated or that is necessary to
make statement not misleading in light of the circumstances in which it was
made.
THE COMPANY UNDERTAKES TO PROVIDE, WITHOUT CHARGE, TO EACH PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS
OR INFORMATION REFERRED TO ABOVE THAT HAS BEEN OR MAY BE INCORPORATED BY
REFERENCE IN THE PROSPECTUS (EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE). REQUESTS SHOULD BE
DIRECTED TO ANN L. STRAW, SECRETARY, AMERICAN DISPOSAL SERVICES, INC., 745
MCCLINTOCK DRIVE, SUITE 230, BURR RIDGE, ILLINOIS 60521, TELEPHONE: (630) 655-
1105.
40
<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
Consolidated Balance Sheets at December 31, 1997 and 1996............... F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995.................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995....................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
</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, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Disposal Services, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Chicago, Illinois
February 24, 1998
F-2
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 2,426 $ 2,301
Restricted cash held in escrow.......................... 337 --
Trade receivables--net of allowance of $1,326 and $473.. 23,052 9,741
Prepaid expenses........................................ 1,348 1,248
Other current assets.................................... 1,347 354
-------- --------
Total current assets.................................. 28,510 13,664
Property and equipment, net............................... 174,340 93,692
Other assets:
Cost over fair value of net assets of acquired
businesses, net of accumulated amortization of $3,635
and $1,374............................................. 157,304 31,237
Other intangible assets, net of accumulated amortization
of $631 and $439....................................... 2,045 1,610
Debt issuance costs, net of accumulated amortization of
$696 and $204.......................................... 2,922 2,392
Other................................................... 7,903 2,411
-------- --------
$373,024 $144,986
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 6,361 $ 3,359
Accrued liabilities:
Consideration held back for certain acquisitions...... 4,910 1,369
Wages, salaries, and other compensation............... 2,665 240
Other accrued liabilities............................. 5,708 2,640
Deferred revenues....................................... 5,785 2,245
Current portion of long-term debt and capital lease
obligations............................................ 2,360 2,572
-------- --------
Total current liabilities............................. 27,789 12,425
Long-term debt and capital lease obligations, net of
current portion.......................................... 20,788 65,445
Accrued environmental and landfill costs.................. 12,450 7,603
Deferred income taxes..................................... 2,577 1,416
Other long-term liabilities............................... 12,045 --
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued and outstanding in 1997 and
1996..................................................... -- --
Common stock, $0.01 par value; 60,000,000 shares
authorized; shares issued and outstanding 1997--
19,323,100 and 1996--8,872,381........................... 193 89
Warrants outstanding...................................... -- 107
Additional paid-in capital................................ 298,110 66,170
Accumulated deficit....................................... (928) (8,269)
-------- --------
297,375 58,097
-------- --------
$373,024 $144,986
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Revenues.......................................... $121,363 $56,804 $30,004
Cost of operations................................ 65,947 30,376 17,286
Selling, general, and administrative expenses..... 16,821 8,328 5,882
Depreciation and amortization..................... 21,975 12,334 6,308
-------- ------- -------
Operating income.................................. 16,620 5,766 528
Interest expense.................................. (6,223) (5,745) (3,030)
Interest income................................... 201 260 189
Other income...................................... 274 179 --
-------- ------- -------
Income (loss) before income taxes and
extraordinary item............................... 10,872 460 (2,313)
Income tax expense................................ 3,531 245 332
-------- ------- -------
Income (loss) before extraordinary item........... 7,341 215 (2,645)
Extraordinary item--loss on early retirement of
debt............................................. -- (476) (908)
-------- ------- -------
Net income (loss)................................. 7,341 (261) (3,553)
Preferred stock dividend.......................... -- (109) (190)
-------- ------- -------
Net income (loss) applicable to common
stockholders..................................... $ 7,341 $ (370) $(3,743)
======== ======= =======
Basic earnings per common share:
Income (loss) before extraordinary item.......... $ 0.56 $ 0.02 $ (0.85)
Extraordinary item............................... -- (0.07) (0.27)
-------- ------- -------
Net income (loss)................................ $ 0.56 $ (0.05) $ (1.12)
======== ======= =======
Diluted earnings per common share:
Income (loss) before extraordinary item.......... $ 0.53 $ 0.01 $ (0.85)
Extraordinary item............................... -- (0.06) (0.27)
-------- ------- -------
Net income (loss)................................ $ 0.53 $ (0.05) $ (1.12)
======== ======= =======
</TABLE>
See accompanying notes.
F-4
<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 at December 31,
1994................... 2,382,345 $ 24 $ 107 $ 16,157 $(4,156) $ 12,132
Issuance of common
stock, net of issuance
costs.................. 3,280,520 33 -- 25,433 -- 25,466
Dividends on preferred
stock.................. -- -- -- -- (190) (190)
Net loss................ -- -- -- -- (3,553) (3,553)
---------- ---- ----- -------- ------- --------
Balance at December 31,
1995................... 5,662,865 57 107 41,590 (7,899) 33,855
Issuance of common
stock, net of issuance
costs.................. 3,162,500 32 -- 24,573 -- 24,605
Exercise of common stock
warrants and options... 47,016 -- -- 7 -- 7
Dividends on preferred
stock.................. -- -- -- -- (109) (109)
Net loss................ -- -- -- -- (261) (261)
---------- ---- ----- -------- ------- --------
Balance at December 31,
1996................... 8,872,381 89 107 66,170 (8,269) 58,097
Issuance of common
stock, net of issuance
costs.................. 8,925,000 89 -- 193,870 -- 193,959
Stock issued for
acquisitions........... 1,416,912 14 -- 37,067 -- 37,081
Exercise of common stock
warrants and options... 108,807 1 (107) 647 -- 541
Tax benefit from
exercise of stock
options................ -- -- -- 356 -- 356
Net income.............. -- -- -- -- 7,341 7,341
---------- ---- ----- -------- ------- --------
Balance at December 31,
1997................... 19,323,100 $193 $ -- $298,110 $ (928) $297,375
========== ==== ===== ======== ======= ========
</TABLE>
See accompanying notes
F-5
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................. $ 7,341 $ (261) $ (3,553)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary item, net...................... -- 476 908
Depreciation and amortization................ 21,975 12,334 6,308
Provision for environmental and landfill
costs....................................... 597 571 292
Deferred income taxes........................ 600 176 47
Gain on sale of fixed assets................. (212) (98) --
Changes in operating assets and liabilities,
net of effects from acquisitions:
Trade receivables.......................... (8,630) (2,600) (340)
Prepaid expenses and other assets.......... (6,187) (1,071) (161)
Accounts payable, accrued liabilities and
accrued environmental and landfill costs.. 7,287 153 1,846
Deferred revenue........................... 2,310 656 254
Other long-term liabilities................ 6,045 -- --
--------- -------- --------
Net cash provided by operating activities...... 31,126 10,336 5,601
INVESTING ACTIVITIES
Capital expenditures........................... (24,320) (14,003) (6,173)
Cost of acquisitions........................... (153,048) (23,660) (62,201)
--------- -------- --------
Net cash used in investing activities.......... (177,368) (37,663) (68,374)
FINANCING ACTIVITIES
Net proceeds from issuances of common stock.... 193,959 24,605 25,466
Exercise of common stock options............... 541 7 --
Tax benefit associated with stock options...... 356 -- --
Proceeds from issuances from long-term debt.... 141,177 66,950 32,568
Debt issuance costs............................ (1,022) (2,596) (946)
Repayments of indebtedness..................... (188,644) (51,162) (2,698)
Redemption of preferred stock.................. -- (1,950) --
Net proceeds from issuance of preferred stock.. -- -- 1,908
Preferred stock dividend....................... -- (109) (190)
Proceeds from (payment of) note payable to
stockholders.................................. -- (12,500) 12,500
--------- -------- --------
Net cash provided by financing activities...... 146,367 23,245 68,608
--------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................... 125 (4,082) 5,835
Cash and cash equivalents, at beginning of
year.......................................... 2,301 6,383 548
--------- -------- --------
Cash and cash equivalents, at end of year...... $ 2,426 $ 2,301 $ 6,383
========= ======== ========
NONCASH ACTIVITIES
Issuance of common stock for certain
acquisitions.................................. $ 37,081 $ -- $ --
Issuance of notes payable for certain
acquisitions.................................. 2,598 -- --
Consideration held back or held in escrow for
certain acquisitions.......................... 10,910 1,369 --
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest......................... $ 6,814 $ 6,222 $ 2,515
Cash (refunds) paid for income taxes........... 2,260 (159) 478
</TABLE>
See accompanying notes
F-6
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. FORMATION AND BASIS OF PRESENTATION
ADS, Inc. (ADS) was organized January 15, 1991, to acquire, develop, and
operate non-hazardous municipal solid waste disposal, collection, and transfer
operations and provide non-hazardous 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, 1994.
In July 1996, the Company issued 3,162,500 shares of common stock at $9.00
per share in its initial public offering. Proceeds from the offering, net of
underwriting commissions and related expenses, were $24.6 million. In April
1997, the Company issued 4,600,000 shares of common stock at $16.50 per share
in a public offering. Proceeds from the offering, net of underwriting
commissions and related expenses, were $70.1 million. The proceeds from each
of these offerings were used to finance acquisitions and pay down a portion of
the debt facility.
In October 1997, the Company completed a public offering of 6,837,000 shares
of common stock at $30.50 per share. Of the 6,837,000 shares, 4,325,000 shares
were issued and sold by the Company and 2,512,000 shares were sold by selling
stockholders. Proceeds to the Company from the offering, net of underwriting
commissions and related expenses, were $123.8 million. Immediately following
the offering, the Company had 19,129,542 shares of common stock issued and
outstanding. The offering proceeds were used to finance acquisitions and pay
down a portion of the debt facility.
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
F-7
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
the Company's customer base. No single group or customer represents greater
than 10% of total accounts receivable. The Company maintains an allowance for
losses based on the expected collectibility of accounts receivable. Credit
losses have been within managements 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.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year's financial
statements to conform with the 1997 presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash in banks and liquid investments
with original maturities of three months or less.
RESTRICTED CASH HELD IN ESCROW
Cash held in escrow represents cash held in banks restricted to fund
obligations incurred in acquiring businesses. These obligations are expected
to be funded in 1998.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of equipment,
which includes amortization of equipment capitalized under lease obligations,
is computed using the straight-line method over the estimated useful lives of
the respective assets assuming no salvage values as follows:
<TABLE>
<S> <C>
Vehicles and equipment.................................... 3 to 12 years
Buildings................................................. 25 to 30 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, preparation costs, and capitalized interest.
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. Amortization rates are based on
accounting estimates by management determined primarily from the results of
engineering studies of the total estimated preparation cost expected to be
incurred over the life of the related landfill. Landfill costs capitalized in
1997, 1996 and 1995 include capitalized interest of approximately $639,000,
$481,000, and $0, respectively.
INTANGIBLE ASSETS
The cost over fair value of net assets of acquired businesses represents
long-lived intangible assets including routes, tradenames and goodwill and is
amortized on a 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
F-8
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
on the straight-line method over their estimated lives, typically no more than
8 years. Amortization expense for fiscal years 1997, 1996, and 1995 related to
intangible assets was approximately $3.0 million, $1.0 million, and $1.4
million, respectively. In 1995, the Company determined not to enforce certain
covenants not to compete which arose from 1993 transactions. The net book
value of such covenants of $505,000 was fully written-off and included in 1995
amortization expense.
The Company continually evaluates the value and future benefits of its
intangibles. The Company assesses recoverability from future operations using
income from operations of the related acquired business as a measure. Under
this approach, the carrying value would be reduced if it becomes probable that
the Company's best estimate for expected future cash flows of the related
business would be less than the carrying amount of the intangible over the
remaining amortization period. For the three year period ended December 31,
1997, there were no adjustments to the carrying amounts of intangibles
resulting from these evaluations.
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
$478,000 and $545,000 at December 31, 1997 and 1996, 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
recently promulgated air emissions standards under the Clean Air Act, as they
apply 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
life of the site in accordance with the landfill operation requirements of
Subtitle D and the EPA's recently promulgated 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, 1997, 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 $17.3 million. In addition, the
Company has estimated that, as of December 31, 1997, closure costs expected to
occur during the operating lives of these facilities will approximate $54.4
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.
F-9
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
REVENUE RECOGNITION
Landfill revenues are recorded at the date of actual waste disposal.
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.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs for fiscal
years 1997, 1996 and 1995 were approximately $438,000, $181,000 and $84,000,
respectively.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which
replaced the calculation of primary and fully diluted earnings per common
share with basic and diluted earnings per common share. Unlike primary
earnings per common share, basic earnings per common share excludes any
dilutive effects of options, warrants and convertible securities. All earnings
(loss) per common share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS 128 requirements (see Note 12).
In restating earnings (loss) per common share to comply with the SFAS 128
requirements, the Company applied the recently issued Staff Accounting
Bulletin No. 98 (SAB 98). As a result of applying the provisions of SAB 98,
the Company has restated 1995 loss per common share to exclude the anti-
dilutive effect of options and warrants granted within one year of the
Company's initial public offering and with exercise prices below the initial
public offering price of $9.00 per common share.
EMPLOYEE STOCK OPTIONS
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 such stock option grants in accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock Options
Issued to Employees" (APB 25), and, accordingly, typically recognizes no
compensation expense for these stock option grants.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 96-1, "Environmental Remediation Liabilities." The SOP is
effective for fiscal years beginning after December 15, 1996, and provides
that environmental remediation liabilities should be accrued when the criteria
of FAS 5, "Accounting for Contingencies," are met. Included in the SOP are
benchmarks to aid in the determination of when such criteria are met and
environmental liabilities should be recognized. The adoption of SOP 96-1 did
not have a material effect on the Company's consolidated financial position,
results of operation, or cash flows.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 130 will have no impact on the Company's consolidated
financial position, results of operations, or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected
F-10
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December
15, 1997. The Company has evaluated the disclosure requirements of SFAS No.
131 and believes that its adoption will have no material impact on its future
disclosure requirements.
3. ACQUISITIONS
The acquisitions below have been accounted for using the purchase method of
accounting and, accordingly, the results of their operations have been
included in the Company's results of operations from their respective
acquisition dates. The purchase prices have been allocated to the assets
acquired and liabilities assumed based on their fair values at their
respective acquisition dates with the residual allocated to cost over fair
value of net assets acquired.
During 1997 the Company acquired 28 non-hazardous solid waste businesses,
consisting of 28 collection operations, seven transfer stations, four
landfills, and two beneficial reuse facilities. During 1996, the Company
acquired sixteen non-hazardous solid waste businesses, consisting of 16
collection operations and two transfer stations. As described in Note 1, the
Company acquired three non-hazardous solid waste landfills and a solid waste
collection operation (the Envirite Acquisition) during 1995.
The Company has not completed its valuation of certain of its 1997 purchases
and the purchase price allocations are subject to change when additional
information concerning asset and liability valuations is completed.
The purchase prices allocated to the net assets acquired are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Property and equipment........................... $ 74,472 $ 8,425 $62,288
Accounts receivable and inventory................ 4,781 810 3,363
Other assets..................................... 1,480 785 1,664
Cost over fair value of net assets acquired...... 128,328 15,642 3,060
Total liabilities assumed........................ (5,424) (633) (8,174)
-------- ------- -------
Total purchase price............................. $203,637 $25,029 $62,201
======== ======= =======
</TABLE>
The Company has entered into certain acquisition agreements that include
consideration that is issuable upon the resolution of certain contingent
incentives available to the former owners of the acquired businesses. These
contingencies are not recorded as liabilities or shown as outstanding
securities unless the outcome of the contingency is determinable beyond
reasonable doubt. The resolution of these contingencies could result in
additional payments in cash or shares of Company common stock (see Note 12)
through September 10, 2006. The additional cash payments are not expected to
exceed $37,500,000.
F-11
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS--(CONTINUED)
The pro forma unaudited results of operations for the years ended December
31, 1997 and 1996, assuming each acquisition above and the public offerings
(see Note 1) had occurred on January 1, 1996, are as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues............................................ $ 160,869 $ 142,380
Operating income.................................... 24,424 18,269
Income before extraordinary item.................... 15,272 11,319
Net income applicable to common stockholders........ 15,272 10,843
Pro forma basic earnings per common share:
Income before extraordinary item.................. $ 0.80 $ 0.64
Extraordinary item................................ -- (0.03)
---------- ----------
Net income........................................ $ 0.80 $ 0.61
========== ==========
Pro forma weighted average common stock
outstanding........................................ 19,188,674 17,653,952
========== ==========
Pro forma diluted earnings per common share:
Income before extraordinary item.................. $ 0.77 $ 0.63
Extraordinary item................................ -- (0.03)
---------- ----------
Net income........................................ $ 0.77 $ 0.60
========== ==========
Pro forma weighted average common stock and common
stock equivalent shares outstanding................ 19,833,665 18,021,839
========== ==========
</TABLE>
The pro forma results do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions occurred on
January 1, 1996 nor are they necessarily indicative of future operating
results.
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- -------
<S> <C> <C>
Land...................................................... $ 18,229 $ 5,417
Landfills................................................. 120,949 78,547
Buildings................................................. 16,014 3,285
Vehicles and equipment.................................... 52,903 23,977
-------- -------
208,095 111,226
Less: Accumulated depreciation and amortization........... (33,755) (17,534)
-------- -------
$174,340 $93,692
======== =======
</TABLE>
F-12
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Long-term debt:
Acquisition loan, ING Capital Corporation................. $19,666 $41,506
Term loan, ING Capital Corporation........................ -- 24,750
Other borrowings, with interest rates ranging from 6.0% to
11.0%.................................................... 3,171 1,101
Capital lease obligations:
Capital lease obligations with interest and principal due
monthly through 1999, at various interest rates ranging
from 9.50% to 9.75%, secured by equipment................ 311 660
------- -------
23,148 68,017
Less: Current portion....................................... 2,360 2,572
------- -------
Long-term obligations, net of current portion............... $20,788 $65,445
======= =======
</TABLE>
In May 1997, the Company increased the amount of its revolving credit and
term loan facility (the "Credit Facility") with ING (U.S.) Capital Corporation
from $125 million to $200 million. At that time, the Credit Facility provided
the Company with a term loan of $60 million and a revolving credit facility of
$140 million to be used for acquisitions (of which $20 million could be used
for working capital and letter of credit purposes). In October 1997, the
Company repaid its $60 million term loan with the proceeds of a public
offering, and at December 31, 1997 maintains its $140 million revolving credit
facility. 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 prime rate, plus an applicable margin; or (ii) the London Interbank
Offered Rate ("LIBOR"), plus an applicable margin, and mature in 2002. As of
December 31, 1997, the interest rates on the acquisition loan under the Credit
Facility ranged from 7.00% to 8.50%. The Credit Facility is secured by
substantially all of the assets of the Company. The Company's ability to use
the acquisition facility is based upon a number of covenants, including the
maintenance of specified debt to equity and fixed charge coverage ratios. At
December 31, 1997 the Company was in compliance with the terms of these
covenants. In connection with refinancings during 1996 and 1995, the Company
recognized an extraordinary loss, net of income tax benefit, of $476,000 and
$908,000, respectively, representing unamortized deferred debt issuance costs
related to refinanced obligations.
At December 31, 1997, maturities of obligations (excluding capital lease
obligations) are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................................. $ 2,160
1999................................................................. 601
2000................................................................. 180
2001................................................................. 191
2002 and thereafter.................................................. 19,705
-------
$22,837
=======
</TABLE>
F-13
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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,
----------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets arising from:
Net operating loss carryforwards............................ $ 3,999 $ 2,938
Closure and post-closure costs.............................. 240 421
Amortization of intangibles................................. 1,059 881
Other....................................................... 561 26
------- -------
Total deferred tax assets..................................... 5,859 4,266
Valuation allowance........................................... (1,776) (2,280)
------- -------
Net deferred tax assets....................................... $ 4,083 $ 1,986
======= =======
Deferred tax liabilities arising from:
Property and equipment...................................... $ 4,414 $ 2,855
Amortization of intangibles and landfill.................... 1,184 472
Other....................................................... 501 75
------- -------
Total deferred tax liabilities................................ $ 6,099 $ 3,402
======= =======
Net deferred tax liability.................................... $ 2,016 $ 1,416
======= =======
</TABLE>
At December 31, 1997, the Company had net operating loss (NOL) carryforwards
of approximately $10.5 million for federal income tax purposes that expire in
years 2006 to 2011. The utilization of the NOL carryforwards is limited by
future taxable earnings generated at the subsidiary level. The Company
recorded a valuation allowance to reflect uncertainty as to the utilization of
such NOL carryforwards for financial reporting purposes. The maximum annual
utilization of such NOL carryforwards are limited under the Internal Revenue
Code as a result of changes in ownership that have occurred.
Significant components of income tax expense were as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ 2,793 $ 99 $ 141
State........................................... 138 (30) 144
--------- ------- -------
2,931 69 285
Deferred:
Federal......................................... 553 146 38
State........................................... 47 30 9
--------- ------- -------
600 176 47
--------- ------- -------
Total provision................................... $ 3,531 $ 245 $ 332
========= ======= =======
</TABLE>
F-14
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES--(CONTINUED)
A reconciliation from the statutory income tax rate to the effective income
tax rate was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal statutory income tax rate............. 35.0% 34.0% (34.0)%
Effect of:
State taxes, net of federal tax effect...... 1.1 -- 3.1
Nondeductible goodwill...................... 1.9 15.5 --
Net operating loss with no benefit.......... -- -- 39.6
Utilization of net operating loss
carryforward............................... (5.0) -- --
Other, net.................................. (0.5) 3.8 1.6
------- ------- --------
Effective tax rate............................ 32.5% 53.3% 10.3 %
======= ======= ========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company had entered into a management agreement with a stockholder for
certain services to be rendered to the Company in exchange for annual
management fees. The management agreement was terminated in connection with
the initial public offering during July 1996. Management fees of approximately
$466,000 and $659,000 were incurred in 1996 and 1995, respectively. At
December 31, 1995, the Company had a $12,500,000 unsecured note payable
outstanding to a stockholder, which was issued on November 16, 1995 and was
due November 16, 1996, bearing an annual interest rate of prime plus 3%. The
Company repaid the note payable to the stockholder in May 1996. Interest
expense relating to this note payable was approximately $621,000 and $180,000
in 1996 and 1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL AND REGULATORY REQUIREMENTS
The business and activities of the Company are, and may become more,
extensively regulated by, among others, the federal Environmental Protection
Agency, the Department of Transportation, the Interstate Commerce Commission,
and various state and local 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
numerous state and local laws and regulations. The full impact of these laws
and regulations and the possible 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(s) 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.
F-15
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company has obtained some levels of pollution liability insurance
covering certain 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 outside of or in excess of its insurance limits, its financial
condition could be adversely affected.
In connection with the Company's existing landfills, the Company has
obtained financial assurance bonds for approximately $26.9 million at December
31, 1997, from a financial institution to provide financial assurance that
closure and postclosure expenses will be met in the event that the Company is
not able to fulfill its closure and postclosure obligations.
CONTINGENT PAYMENTS RELATED TO ACQUISITIONS
The Company has entered into certain acquisition agreements that include
consideration that is issuable upon the resolution of certain contingent
incentives available to the former owners of the acquired businesses. See Note
3 and Note 12 for further discussion.
FUTURE MINIMUM LEASE PAYMENTS
At December 31, 1997, future minimum lease payments under noncancelable
lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998.......................................................... $224 $ 2,012
1999.......................................................... 111 1,521
2000.......................................................... -- 1,335
2001.......................................................... -- 1,295
2002 and thereafter........................................... -- 6,262
---- -------
Total minimum payments........................................ 335 $12,425
=======
Less: Amount representing interest............................ 24
----
Present value of net minimum lease payments................... $311
====
</TABLE>
Rental expense in 1997, 1996, and 1995 was approximately $1.8 million, $1.3
million and $793,000, respectively.
9. RETIREMENT PLAN
Effective January 1, 1996, the Company established a defined contribution
retirement savings plan covering substantially all employees of the Company.
Each participant may elect to defer a portion of annual compensation subject
to certain limitations. The Company matches up to 50% of the first $1,000 of
participant contributions to the plan. The Company's contributions for the
years ended December 31, 1997 and 1996 were approximately $129,000 and
$94,000, respectively.
F-16
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. REDEEMABLE PREFERRED STOCK
On March 28, 1995, the Company issued 1,950 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 had the right to purchase one common
share for each warrant held at the exercise price of $.10 per share on or
before December 31, 2002. The Company redeemed the outstanding preferred stock
in May 1996, and paid any accrued dividends related to the preferred stock.
The warrants were exercised in 1996.
11. 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 of 1,600,000 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.
During 1997, the Company's stockholders approved an increase in the aggregate
number of shares available for grant under the plan from 1,100,000 shares to
1,600,000 shares. Options granted under the plan as of January 1, 1996
replaced existing stock options granted by ADS and County in connection with
the Exchange. The stock options vest over three and five year periods and are
exercisable over a ten year period from the original grant dates. All vesting
is subject to acceleration under specified circumstances.
Options to purchase an aggregate of 63,601 shares were granted outside the
plan to a former employee and were fully vested as of January 1, 1996. 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.
A summary of stock option information follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ----------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 934,914 $ 7.47 869,617 $7.36 186,444 $7.17
Granted............... 476,735 21.29 68,270 9.00 683,173 7.41
Exercised............. (49,793) 10.86 (467) 7.17 0 --
Forfeited............. (9,286) 12.98 (2,506) 7.64 0 --
--------- ------ ------- ----- ------- -----
Outstanding at end of
year................... 1,352,570 $12.58 934,914 $7.47 869,617 $7.36
========= ====== ======= ===== ======= =====
Exercisable at end of
year................... 620,585 434,553 105,223
Available future grant.. 260,771 228,220 293,984
Weighted average value
of options granted
during the year........ $10.75 $4.33 $1.88
</TABLE>
Options outstanding and exercisable as of December 31, 1997 by price range:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------ ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE IN YEARS PRICE SHARES PRICE
- ------------------------ ------- ------------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 7.17--$ 9.00................. 858,205 7.4 $ 7.48 596,653 $ 7.42
$17.25--$17.50................. 282,431 9.2 $17.36 -- --
$21.67--$29.63................. 211,934 9.2 $26.84 23,932 $22.97
</TABLE>
F-17
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. STOCKHOLDERS' EQUITY--(CONTINUED)
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), requires use of option valuation models that were not developed for use
in valuing stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Disclosure of pro forma information regarding net income (loss) and net
income (loss) per common share is required by SFAS 123, and has been
determined as if the Company had accounted for its stock options granted in
1997, 1996, and 1995 using SFAS 123. The options granted in 1997 and 1996 were
valued using the Black-Scholes option pricing model. The options granted in
1995, as a non-public company, were valued using the minimum value method. The
Black-Scholes option valuation model requires the input of highly subjective
assumptions and, because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the model
cannot necessarily provide a single measure of the fair value of its stock
options. The following assumptions were utilized in the valuation:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate.............................. 6.31% 6.65% 5.85%
Expected dividend yield.............................. 0% 0% 0%
Expected stock price volatility...................... 48.9% 44.4% n/a
Expected life of options............................. 5 years 5 years 5 years
</TABLE>
Had compensation cost for the Company' stock options granted in 1997 and
1996 been determined based on the fair value at the dates of grants, the
Company's net income (loss) and net income (loss) per common share would have
been as follows on a pro forma basis (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C> <C>
Net income (loss) applicable to
common stockholders............. As reported $ 7,341 $ (370) $ (3,743)
Pro forma 5,998 (687) (3,807)
Basic earnings (loss) per common
share........................... As reported 0.56 (0.05) (1.12)
Pro forma 0.46 (0.10) (1.14)
Diluted earnings (loss) per
common share.................... As reported 0.53 (0.05) (1.12)
Pro forma 0.43 (0.09) (1.14)
</TABLE>
The pro forma effect for 1997, 1996, and 1995 is not representative of the
pro forma effect in future years as the pro forma disclosures reflect only the
fair value of stock options granted in 1997, 1996, and 1995 and do not reflect
the fair value of outstanding options granted prior to 1995.
STOCK WARRANTS
In connection with obtaining various credit agreements, the Company issued
warrants to purchase 168,905 shares of common stock with exercise prices
ranging from $4.72 to $7.41 per share. The Company recorded the fair value of
the warrants as a component of equity and recognized debt issuance cost of
$106,666. The warrants expire 10 years from date of issuance. On November 13,
1997 warrant certificates representing 26,137 shares with an exercise price of
$7.17 per share and 45,193 shares with an exercise price of $4.72 per share
were exercised on a cashless basis. On January 9, 1998 warrant certificates
representing 48,787 shares with an exercise price of $7.41 per share were
exercised on a cashless basis.
F-18
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. STOCKHOLDERS' EQUITY--(CONTINUED)
PREFERRED STOCK
In connection with the Exchange, 5,000,000 shares of new preferred stock of
the Company were authorized with none issued at December 31, 1997 and 1996.
12. EARNINGS PER SHARE
The following table sets forth the computation of earnings (loss) per common
share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Numerator:
Net income (loss) applicable to common
stockholders............................... $ 7,341 $ (370) $ (3,743)
========== ========= =========
Denominator:
Denominator for basic earnings per common
share--weighted-average shares............. 13,177,346 7,063,928 3,340,512
Effect of dilutive securities:
Stock options and warrants................ 644,991 401,122 --
---------- --------- ---------
Denominator for diluted earnings per common
share--adjusted weighted-average shares and
assumed conversions........................ 13,822,337 7,465,050 3,340,512
---------- --------- ---------
Basic earnings per common share........... $ 0.56 $ (0.05) $ (1.12)
Diluted earnings per common share......... 0.53 (0.05) (1.12)
</TABLE>
Options to purchase 171,500, 13,502, and 3,000 shares of common stock at
$27.13, $29.63, and $29.00, respectively, were outstanding during 1997, but
were not included in the computation of diluted earnings per common share
because the options' exercise price was greater than the average market price
of the common shares and, therefore, the effect would be antidilutive.
Under one of the Company's acquisition agreements, if certain revenue goals
are met by the former owner of the acquired business, the Company is obligated
to deliver up to 115,000 additional shares of common stock to the former
owner. No portion of the 115,000 additional shares are included in the
computation of diluted earnings per common share in 1997 because none of the
revenue goals have been met as of December 31, 1997. Under another acquisition
agreement, if certain contracts are obtained or waste volume goals are met by
the former owner of the acquired business, the Company is obligated to deliver
additional shares of stock to the former owner. As the amount of shares are to
be determined using a future share price, it is not possible to estimate the
amount of shares that could be delivered by the Company. The value of
additional shares to be issued is not expected to exceed $12,500,000. No
additional shares are included in the computation of diluted earnings per
common share in 1997 because the contracts have not been obtained and waste
volume goals have not been met as of December 31, 1997.
Subsequent to December 31, 1997, the Company has issued 1,304,444 additional
shares of common stock in conjunction with subsequent acquisitions and the
exercise of warrants and stock options.
13. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company has acquired twelve solid waste
companies. On January 5, 1998, the Company acquired all of the outstanding
stock of R.C. Miller Enterprises, Inc. (R.C. Miller). The Company's
acquisition of R.C. Miller represents the substantial majority of the net
assets of companies acquired subsequent to December 31, 1997.
F-19
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1997 and 1996 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
1997
----
<S> <C> <C> <C> <C> <C>
Net sales......................... $18,511 $27,763 $35,373 $39,716 $121,363
Gross profit...................... 8,619 12,575 16,039 18,183 55,416
Net income........................ 446 1,236 2,515 3,144 7,341
Basic earnings per common share... 0.05 0.11 0.18 0.17 0.56
Diluted earnings per common
share............................ 0.05 0.10 0.17 0.17 0.53
<CAPTION>
1996
----
<S> <C> <C> <C> <C> <C>
Net sales......................... $11,724 $13,453 $15,122 $16,505 $ 56,804
Gross profit...................... 5,616 6,391 7,022 7,399 26,428
Net income (loss) before
extraordinary item............... (479) (199) 227 557 106
Net income (loss) applicable to
common stockholders.............. (479) (675) 227 557 (370)
Basic earnings (loss) per common
share before extraordinary item.. (0.08) (0.04) 0.03 0.06 0.02
Diluted earnings (loss) per common
share before extraordinary item.. (0.08) (0.04) 0.03 0.06 0.01
Basic and diluted earnings (loss)
per common share................. (0.08) (0.12) 0.03 0.06 (0.05)
</TABLE>
Note:
Earnings per common share have been restated to comply with SFAS No. 128.
The earnings per common share computation for the year is a separate,
annual calculation. Accordingly, the sum of the quarterly earnings per
common share amounts do not necessarily equal the earnings per common
share amounts for the year.
F-20
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMA-
TION 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
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPA-
NY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CON-
STITUTE 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 PER-
SON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANC-
ES, 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 COR-
RECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 13
Price Range of Common Stock.............................................. 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 22
Management............................................................... 33
Principal and Selling Stockholders....................................... 35
Transfer Agent........................................................... 36
Shares Eligible for Future Sale.......................................... 36
Underwriting............................................................. 37
Legal Matters............................................................ 39
Experts.................................................................. 39
Available Information.................................................... 39
Incorporation of Certain Documents by Reference.......................... 40
Index to Financial Statements............................................ F-1
</TABLE>
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4,000,000 SHARES
[LOGO]
AMERICAN DISPOSAL SERVICES, INC.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
CIBC OPPENHEIMER
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
APRIL 3, 1998
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