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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER: 1-12154
USA WASTE SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-1309529
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5400 LBJ FREEWAY
SUITE 300 - TOWER ONE
DALLAS, TEXAS 75240
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(214) 383-7900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NO CHANGE
(FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
----------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK AS OF NOVEMBER 12, 1996:
COMMON STOCK $.01 PAR VALUE 138,369,237 SHARES
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USA WASTE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Par Value Amounts)
(Unaudited)
September 30, December 31,
1996 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14,108 $ 21,058
Accounts receivable, net 212,680 136,247
Notes and other receivables 23,005 15,704
Deferred income taxes 38,870 20,101
Prepaid expenses and other 36,964 33,026
---------- -----------
Total current assets 325,627 226,136
Notes and other receivables 20,504 19,907
Property and equipment, net 1,661,791 1,319,199
Excess of cost over net assets of acquired businesses, net 420,658 206,638
Other intangible assets, net 66,663 55,567
Other assets 124,350 87,087
Deferred income taxes 9,384 19,023
---------- -----------
Total assets $2,628,977 $ 1,933,557
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 81,717 $ 64,437
Accrued liabilities 183,733 67,198
Deferred revenues 19,399 10,876
Current maturities of long-term debt 24,964 53,516
---------- -----------
Total current liabilities 309,813 196,027
Long-term debt, less current maturities 1,001,467 678,225
Closure, post-closure, and other liabilities 230,523 151,683
---------- -----------
Total liabilities 1,541,803 1,025,935
---------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value;
10,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value;
300,000,000 shares authorized; 138,343,184 and
124,019,297 shares issued, respectively 1,383 1,240
Additional paid-in capital 1,232,775 1,041,573
Accumulated deficit (131,875) (118,595)
Foreign currency translation adjustment (14,625) (14,777)
Less treasury stock at cost, 23,485 shares and
138,810 shares, respectively (484) (1,819)
---------- -----------
Total stockholders' equity 1,087,174 907,622
---------- -----------
Total liabilities and stockholders' equity $2,628,977 $ 1,933,557
========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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USA WASTE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- --------------------
1996 1995 1996 1995
-------- -------- ---- ----
(Restated) (Restated)
Operating revenues $ 352,754 $ 262,434 $ 963,021 $ 726,148
--------- --------- ---------- ---------
Costs and expenses:
Operating 186,487 145,668 522,698 408,053
General and administrative 41,704 34,441 118,557 104,859
Depreciation and amortization 41,353 30,331 111,157 88,934
Merger costs 82,556 -- 120,656 25,639
Unusual items 50,848 -- 63,800 4,733
--------- --------- ---------- ---------
402,948 210,440 936,868 632,218
--------- --------- ---------- ---------
Income (loss) from operations (50,194) 51,994 26,153 93,930
--------- --------- ---------- ---------
Other income (expense):
Interest expense:
Nonrecurring interest -- -- -- (10,994)
Other (11,520) (12,731) (33,977) (37,917)
Interest and other income, net 3,328 1,961 8,868 7,574
--------- --------- ---------- ---------
(8,192) (10,770) (25,109) (41,337)
--------- --------- ---------- ---------
Income (loss) before provision for income taxes (58,386) 41,224 1,044 52,593
Provision for (benefit from) income taxes (19,522) 16,490 14,324 27,037
--------- --------- ---------- ---------
Net income (loss) $ (38,864) $ 24,734 $ (13,280) $ 25,556
========= ========= ========== =========
Earnings (loss) per common share $ (0.27) $ 0.22 $ (0.10) $ 0.24
========= ========= ========== =========
Weighted average number of common and
common equivalent shares outstanding 142,664 112,167 138,262 108,710
========= ========= ========== =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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USA WASTE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands)
(Unaudited)
Foreign
Additional Currency
Preferred Common Paid-in Accumulated Translation Treasury
Stock Stock Capital Deficit Adjustment Stock
----- ----- ------- ------- ---------- -----
Balance, December 31, 1995 $ -- $1,240 $1,041,573 $(118,595) $(14,777) $(1,819)
Common stock options exercised -- 17 13,849 -- -- --
Common stock warrants exercised -- 2 3,686 -- -- --
Common stock issued to qualified defined
contribution plan -- 3 473 -- -- --
Common stock issued in purchase acquisitions
and development projects -- 40 101,492 -- -- --
Common stock issued for acquisitions accounted
for as poolings of interests -- 41 7,810 -- -- --
Common stock returned for acquisition
settlement -- -- -- -- -- (751)
Common stock issued for investment in company -- 4 1,588 -- -- --
Common stock issued from treasury upon
exercise of stock options -- -- (481) -- -- 1,698
Common stock issued from treasury upon
exercise of stock warrants -- -- (119) -- -- 388
Common stock issued for conversion of
subordinated debentures -- 36 59,590 -- -- --
Common stock issued for executive bonuses -- -- 225 -- -- --
Restricted stock expense and forfeitures -- -- 2,204 -- -- --
Below market value stock options -- -- 874 -- -- --
Foreign currency translation adjustment -- -- -- -- 152 --
Other -- -- 11 -- -- --
Net income (loss) -- -- -- (13,280) -- --
--------- ------ ---------- --------- -------- -------
Balance, September 30, 1996 $ -- $1,383 $1,232,775 $(131,875) $(14,625) $ (484)
========= ====== ========== ========= ======== =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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USA WASTE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1996 1995
---------- ----------
(Restated)
Cash flows from operating activities:
Net cash provided by (used in) operating
activities $ 183,305 $ (10,037)
---------- ---------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (238,661) (20,029)
Capital expenditures (246,486) (162,051)
Loans and advances to others (13,856) (2,395)
Collection of loans to others 13,134 4,033
Proceeds from sale of assets 11,920 8,927
Proceeds from sale of investments -- 1,200
Change in restricted assets (25,975) 4,285
Other -- (4,268)
---------- ---------
Net cash used in investing activities (499,924) (170,298)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,262,796 485,637
Principal payments on long-term debt (972,154) (389,303)
Proceeds from issuance of common stock, net -- 67,635
Proceeds from exercise of stock options 15,081 1,463
Proceeds from exercise of warrants 3,957 2,428
Other (20) (2,423)
---------- ---------
Net cash provided by financing activities 309,660 165,437
---------- ---------
Effect of exchange rate on cash and cash equivalents 9 (80)
---------- ---------
Decrease in cash and cash equivalents (6,950) (14,978)
Cash and cash equivalents at beginning of period 21,058 39,967
---------- ---------
Cash and cash equivalents at end of period $ 14,108 $ 24,989
========== =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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USA WASTE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated balance sheets of USA Waste Services, Inc. and
subsidiaries (the "Company") as of September 30, 1996 and December 31, 1995,
the related condensed consolidated statements of operations for the three and
nine months ended September 30, 1996 and 1995, the condensed consolidated
statement of stockholders' equity for the nine months ended September 30,
1996, and the condensed consolidated statements of cash flows for the nine
months ended September 30, 1996 and 1995 are unaudited. In the opinion of
management, such financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of
financial position, results of operations, and cash flows for the periods
presented. The Company has restated the previously issued financial statements
for the nine months ended September 30, 1995 to reflect the merger with
Sanifill, Inc. ("Sanifill") consummated on August 30, 1996, accounted for
using the pooling of interests method of accounting. The Company has also
restated the previously issued financial statements for the three and nine
months ended September 30, 1995 to reflect the merger with Western Waste
Industries ("Western") consummated on May 7, 1996, accounted for using the
pooling of interests method of accounting. In addition, certain 1995 amounts
have been reclassed to conform to the 1996 presentation. The financial
statements presented herein should be read in connection with the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, the Company's
Joint Proxy Statement and Prospectus dated July 19, 1996, included in the
Company's Registration Statement on Form S-4 filed in connection with the
acquisition of Sanifill, and the supplemental consolidated financial statements
and supplemental interim condensed consolidated financial statements and related
notes thereto included in the Company's Current Report on Form 8-K dated
November 12, 1996, filed in connection with the acquisition of Sanifill.
1. BUSINESS COMBINATIONS
On August 30, 1996, the Company consummated a merger agreement with Sanifill
(the "Sanifill Merger") accounted for as a pooling of interests and,
accordingly, the accompanying financial information has been restated to
include the accounts and operations of Sanifill for all periods presented.
Under the terms of the Sanifill Merger, the Company issued 1.70 shares of its
common stock for each share of Sanifill outstanding common stock. The Sanifill
Merger increased the Company's outstanding shares of common stock by
approximately 43,414,000 shares and the Company assumed options under
Sanifill's stock option plans equivalent to approximately 4,361,000 underlying
shares of Company common stock. In the third quarter of 1996, the Company
recognized approximately $80,000,000 in merger related costs associated with
the Sanifill Merger.
Combined and separate results of operations of the Company prior to
consummation of the merger ("USA Waste") and Sanifill for the restated periods
are as follows (in thousands):
USA Waste Sanifill Adjustments Combined
--------- --------- ----------- ---------
Six months ended June 30, 1996 (unaudited):
Operating revenues $ 428,861 $ 181,406 $ -- $ 610,267
Income before income taxes 26,827 31,606 997 (a) 59,430
Net income 36,633 18,964 (30,013)(a) 25,584
Six months ended June 30, 1995 (unaudited):
Operating revenues $ 348,594 $ 115,120 $ -- $ 463,714
Income before income taxes (8,489) 18,884 974 (a) 11,369
Net income (loss) (18,763) 11,406 8,179 (a) 822
(a) Deferred income taxes have been restated as though USA Waste and
Sanifill had been combined from their inceptions.
On May 15, 1996, the Company consummated a merger agreement with Grand
Central, accounted for as a pooling of interests, pursuant to which the
Company issued 2,067,605 shares of its common stock in exchange for all
outstanding shares of Grand Central. The Company restated its previously
issued financial statements for the three months ended March 31, 1996 to
include the accounts and operations of Grand Central. Periods prior to 1996
were not restated as combined results are not materially different from
results as presented. Related to this merger, the Company recognized
$2,700,000 of merger costs in the second quarter of 1996.
On May 31, 1996, July 19, 1996, and August 30, 1996, the Company consummated
mergers accounted for as poolings of interests, pursuant to which the Company
issued 900,001, 475,330, and 643,318 shares of its common stock in exchange
for all outstanding shares of the acquired companies. Periods prior to
consummation of the mergers were not restated to include the accounts and
operations of the acquired companies as combined results are not materially
different
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from the results as presented.
During the nine months ended September 30, 1996, the Company acquired 67
collection businesses, eleven landfills, 17 transfer stations, and three
recycling businesses for approximately $238,661,000 in cash, $26,531,000 in
liabilities incurred or debt assumed, and 3,985,448 shares of the Company's
common stock. These acquisitions were accounted for under the purchase method
of accounting. Included in these amounts is the acquisition of six collection
businesses, five landfills, and six transfer stations of Philip Environmental,
Inc., consummated on August 26, 1996, for approximately $60,000,000 in cash
and 1,950,764 shares of the Company's common stock.
The following summarized pro forma results of operations assumes 1996 and 1995
acquisitions accounted for as purchases occurred at the beginning of 1995 (in
thousands, except per share amounts):
Nine Months Ended September 30,
-------------------------------
1996 1995
---------- ----------
Operating revenues $1,076,971 $ 991,249
Net income 5,838 46,273
Earnings per common share 0.04 0.38
The above pro forma financial information is based on certain assumptions and
preliminary estimates which are subject to change. The above pro forma
financial information reflects the consideration paid at closing for all
acquisitions. It does not reflect the payments of any contingent
consideration. If all contingent consideration agreed upon in the purchase
transactions were required to be paid in full, it would materially affect the
results reflected in the above pro forma financial information. The above pro
forma financial information also does not reflect anticipated volume or price
increases, synergies, or other operational improvements. The pro forma
financial information does not purport to be indicative of the results which
would actually have been obtained had the purchase transactions been completed
on January 1, 1995 or which may be obtained in the future.
2. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
September 30, December 31,
1996 1995
---------- ----------
Credit facility:
Revolving credit facility $ 506,000 $ 51,613
Term loan facility -- 215,835
Sanifill credit facility -- 58,000
Western credit facility -- 41,000
Senior notes, maturing in varying annual installments
through June 2005, interest ranging from 7.29% to 8.44% 106,947 109,416
Convertible subordinated debentures, interest at 5% 112,069 --
Convertible subordinated debentures, interest at 7 1/2% -- 58,213
Notes payable, maturing in varying amounts through October
2010, interest ranging from 4% to 12% 51,644 41,554
Note payable to bank, interest at 4.15% 60,000 --
Subordinated debt, maturing in varying monthly installments
through January 2008, interest ranging from 7.25% to 10% 6,931 7,493
Industrial revenue bonds, principal payable in annual installments,
maturing in 1996-2021, variable interest rates (2.55% to 6.35%
at September 30, 1996), enhanced by letters of credit 163,230 125,374
Other 19,610 23,243
---------- ----------
1,026,431 731,741
Less current maturities 24,964 53,516
---------- ----------
$1,001,467 $ 678,225
========== ==========
As of December 31, 1995, the Company had borrowed $267,448,000 under its
$550,000,000 financing agreement, which consisted of a $300,000,000 five-year
revolving credit and letter of credit facility and a $250,000,000 term loan
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facility. Revolving credit loans under the credit facility were limited to
$180,000,000 at December 31, 1995, less the amount of any future industrial
revenue bonds enhanced by letters of credit under the credit facility. Loans
bore interest at a rate based on the Eurodollar rate or the prime rate, plus a
spread not to exceed 1.75% per annum (the applicable interest rate at December
31, 1995 was 7.31%). The credit facility was also used for letters of credit
purposes with variable fees from 0.5% to 1.75% per annum (1.5% at December 31,
1995) charged on amounts issued. A commitment fee of up to 0.5% was required
on the unused portion of the credit facility.
On May 7, 1996, in connection with the merger with Western, the Company replaced
its existing credit facility with a $750,000,000 senior revolving credit
facility and retired amounts outstanding under Western's credit facility. The
credit facility was used to refinance existing bank loans and letters of credit,
to fund additional acquisitions, and for working capital. The credit facility
was available for standby letters of credit of up to $300,000,000. Loans under
the credit facility bore interest at a rate based on the Eurodollar rate plus a
spread not to exceed 0.75% per annum (spread set at 0.405% per annum as of June
30, 1996). The credit facility required a facility fee not to exceed 0.375% per
annum on the entire available credit facility (facility fee set at 0.22% per
annum as of June 30, 1996). The credit facility contained financial covenants
with respect to interest coverage and debt capitalization ratios. The credit
facility also contained limitations on dividends, additional indebtedness,
liens, and asset sales.
On August 30, 1996, in connection with the Sanifill Merger, the Company
replaced the $750,000,000 senior revolving credit facility with a
$1,200,000,000 senior revolving credit facility ("Credit Facility") and
retired amounts under Sanifill's credit facility. The Credit Facility was used
to refinance existing bank loans and letters of credit and will be used to
fund additional acquisitions and for working capital. The Credit Facility is
available for standby letters of credit of up to $400,000,000. Loans under the
Credit Facility bear interest at a rate based on the Eurodollar rate plus a
spread not to exceed 0.75% per annum (spread initially set at 0.35% per
annum). The Credit Facility requires a facility fee not to exceed 0.375% per
annum on the entire available Credit Facility (facility fee initially set at
0.20% per annum). The Credit Facility contains financial covenants with
respect to interest rate coverage and debt capitalization ratios. The Credit
Facility also contains limitations on dividends, additional indebtedness,
liens, and asset sales. Principal reductions are not required over the
five-year term of the Credit Facility.
On March 4, 1996, Sanifill issued $115,000,000 of 5% convertible subordinated
debentures, due on March 1, 2006. Interest is payable semi-annually in March
and September. The debentures are convertible into shares of the Company's
common stock at a conversion price of $28.31 per share. The debentures are
subordinated in right of payment to all existing and future senior
indebtedness, as defined. The debentures are redeemable after March 15, 1999 at
the option of the Company at 102.5% of the principal amount, declining annually
to par on March 1, 2002, plus accrued interest. Deferred offering costs of
approximately $2,900,000 were incurred and are being amortized ratably over the
life of the debentures. The proceeds were used to repay debt under Sanifill's
credit facility.
On March 18, 1996, Sanifill called for redemption all of its $60,000,000 of
7 1/2% convertible subordinated debentures due June 1, 2006 at redemption price
of 104.5% of their face amount plus accrued interest from December 1, 1995 to,
and including, the redemption date of April 17, 1996. Alternatively, holders of
these debentures were allowed to convert their debentures into common stock at
any time prior to the close of business on April 10, 1996, at a conversion
price equal to $28.82 per share (equivalent to $16.95 per share post Sanifill
Merger). Holders electing to convert received 34.7 shares of Sanifill's common
stock for each $1,000 principal amount of debentures surrendered. The
$60,000,000 of debentures were ultimately converted to approximately 2,100,000
shares of Sanifill common stock (equivalent to 3,570,000 shares of Company
common stock). Deferred offering costs of approximately $1,700,000 were
recorded as a reduction to additional paid-in capital.
On August 30, 1996, the Company borrowed $60,000,000 from a Canadian bank to
facilitate the acquisition of certain assets of Philip Environmental, Inc.
(see Note 1). The note was paid off on October 15, 1996, through borrowings
from the Credit Facility.
Subsequent to December 31, 1995, the Company guaranteed specific obligations
of two unconsolidated affiliates for up to $25,000,000. The Company is of the
opinion that these unconsolidated affiliates will be able to perform under their
respective obligations and that no payments will be required and, due to the
Company's ability to assume a senior debt position, no losses will be incurred
under such guarantees.
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3. INCOME TAXES
The difference in federal income taxes at the statutory rate and the provision
for (benefit from) income taxes for the nine months ended September 30, 1996
is primarily due to non-deductible merger costs.
4. COMMITMENTS AND CONTINGENCIES
Environmental matters -- The Company is subject to extensive and evolving
federal, state, and local environmental laws and regulations that have been
enacted in response to technological advances and the public's increased
concern over environmental issues. As a result of changing governmental
attitudes in this area, management anticipates that the Company will
continually modify or replace facilities and alter methods of operation. The
majority of the expenditures necessary to comply with the environmental laws
and regulations are made in the normal course of business. Although the
Company, to the best of its knowledge, is in compliance in all material
respects with the laws and regulations affecting its operations, there is no
assurance that the Company will not have to expend substantial amounts for
compliance in the future.
Litigation and investigation -- See Part II, Item 1, of this Form 10-Q for
discussion of legal matters.
Insurance -- The Company carries a broad range of insurance coverages, which
management considers prudent for the protection of the Company's assets and
operations. Some of these coverages are subject to varying retentions of risk
by the Company. The casualty coverages currently include $2,000,000 primary
commercial general liability and $1,000,000 primary automobile liability
supported by $100,000,000 in umbrella insurance protection. The property
policy provides insurance coverage for all of the Company's real and personal
property.
The Company maintains workers' compensation insurance in accordance with laws
of the various states in which it has employees. The Company also currently
has an environmental impairment liability ("EIL") insurance policy for certain
of its landfills and transfer stations that provides coverage for property
damages and/or bodily injuries to third parties caused by off-site pollution
emanating from such landfills or transfer stations.
This policy provides $5,000,000 of coverage per incident with a $10,000,000
aggregate limit. To date, the Company has not had any difficulty in obtaining
insurance. However, if the Company in the future is unable to obtain adequate
insurance, or decides to operate without insurance, a partially or completely
uninsured claim against the Company, if successful and of sufficient
magnitude, could have a material adverse effect upon the Company's business or
its financial condition. Additionally, continued availability of casualty and
EIL insurance with sufficient limits at acceptable terms is an important
aspect of obtaining revenue-producing waste service contracts.
Employment agreements -- The Company has entered into employment agreements
with certain of its officers. These employment agreements include provisions
governing compensation and benefits to be paid upon termination of employment
with the Company or certain changes in control of the Company. Under certain
conditions, the agreements can be terminated by the Company or the officer.
Upon termination of an agreement, the officer's compensation would continue at
approximately 75% of his prior compensation for periods ranging from three to
five years. During the three to five year period, the officer would be
available to the Company on a part-time basis for consulting and also would
not be permitted to engage in any activities in direct competition with the
Company. If these officers were to be terminated without cause during 1996 or
if certain officers elected to terminate their agreements, the aggregate
annual compensation on a part-time basis would be approximately $4,550,000. If
a change in control were to occur in 1996 and the officers were to elect to
take the change in control payments, they would receive approximately
$11,201,000. As of September 30, 1996, the Company has not recorded any
accruals in the financial statements related to these employment agreements.
5. SUBSEQUENT EVENTS
Subsequent to September 30, 1996, the Company acquired twelve collection
businesses and one landfill for approximately $16,601,000 in cash and
$12,512,000 in liabilities incurred or debt assumed under the purchase method
of accounting. The pro forma effect of the acquisitions is not material to the
Company's financial position or results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion reviews the Company's operations for the three and
nine months ended September 30, 1996 and 1995, and should be read in
conjunction with the Company's condensed consolidated financial statements and
related notes thereto included elsewhere herein, as well as the Company's
consolidated financial statements and related notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, the
Company's Joint Proxy Statement and Prospectus dated July 19, 1996, included
in the Company's Registration Statement on Form S-4 filed in connection with
the acquisition of Sanifill, and the supplemental consolidated financial
statements and supplemental interim condensed consolidated financial
statements and related notes thereto included in the Company's Current Report
on Form 8-K dated November 12, 1996, filed in connection with the acquisition
of Sanifill.
INTRODUCTION
The Company provides non-hazardous solid waste management services, consisting
of collection, transfer, disposal, recycling, and other miscellaneous
services. Since August 1990, the Company has experienced significant growth
principally through the acquisition and integration of solid waste businesses
and is now the third largest non-hazardous solid waste company in North
America. The Company conducts operations through subsidiaries in multiple
locations throughout the United States, primarily, and in Canada, Puerto Rico,
and Mexico. The Company owns or operates 94 landfills, 54 transfer stations, 114
collection companies, and 17 recycling companies serving more than 1,700,000
customers.
The Company's revenues consist primarily of fees charged for its collection
and disposal services. Revenues for collection services include fees from
residential, commercial, industrial, and municipal collection customers. A
portion of these fees are billed in advance; a liability for future service is
recorded upon receipt of payment and revenues are recognized as services are
actually provided. Fees for residential services are normally based on the
type and frequency of service. Fees for commercial and industrial services are
normally based on the type and frequency of service and the volume of solid
waste collected.
The Company's revenues from its landfill operations consist of disposal fees
(known as tipping fees) charged to third parties and are normally billed
monthly. Tipping fees are based on the volume or weight of solid waste being
disposed of at the Company's landfill sites. Fees are charged at transfer
stations based on the volume of solid waste deposited, taking into account the
Company's cost of loading, transporting, and disposing of the solid waste at a
landfill. Intercompany revenues between the Company's landfill and collection
operations have been eliminated in the financial statements presented herein.
Operating expenses include direct and indirect labor and the related taxes and
benefits, fuel, maintenance and repairs of equipment and facilities, tipping
fees paid to third party landfills, property taxes, and accruals for future
landfill closure and post-closure costs. Certain direct landfill development
expenses are capitalized and depreciated over the estimated useful life of a
site as capacity is consumed, and include acquisition, engineering, upgrading,
construction, and permitting costs. All indirect development expenses, such as
administrative salaries and general corporate overhead, are expensed in the
period incurred.
General and administrative costs include management salaries, clerical and
administrative costs, professional services, facility rentals, and related
insurance costs, as well as costs related to the Company's marketing and sales
force.
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RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the period to period
change in dollars (in thousands) and percent for the various Condensed
Consolidated Statements of Operations items:
Period to Period Period to Period
Change for the Change for the
Three Months Ended Nine Months Ended
September 30, September 30,
1996 and 1995 1996 and 1995
----------------------- --------------------
$ % $ %
----- ----- ----- -----
Operating revenues $ 90,320 34.4 $236,873 32.6 %
--------- --------
Costs and expenses:
Operating 40,819 28.0 114,647 28.1
General and administrative 7,263 21.1 13,698 13.1
Depreciation and amortization 11,022 36.3 22,221 25.0
Merger costs 82,556 -- 95,017 370.6
Unusual items 50,848 -- 59,067 1,248.0
--------- --------
192,508 91.5 304,650 48.2
--------- --------
Income (loss) from operations (102,188) (196.5) (67,777) (72.2)
--------- --------
Other income (expense):
Interest expense:
Nonrecurring interest -- -- 10,994 (100.0)
Other 1,211 (9.5) 3,940 (10.4)
Interest and other income, net 1,367 69.7 1,294 17.1
--------- --------
2,578 (23.9) 16,228 (39.3)
--------- --------
Income (loss) before provision for income taxes (99,610) (241.6) (51,549) (98.0)
Provision for (benefit from) income taxes (36,012) (218.4) (12,713) (47.0)
--------- --------
Net income (loss) $ (63,598) (257.1)% $(38,836) (152.0)%
========= ========
11
12
The following table presents, for the periods indicated, the percentage
relationship that the various components of the Condensed Consolidated
Statements of Operations bear to operating revenues:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
1996 1995 1996 1995
-------- -------- --------- ---------
Operating revenues:
Landfill disposal 29.8 29.9 28.9 29.3
Waste collection 51.8 50.5 52.9 51.7
Transfer stations 11.4 10.0 10.6 9.1
Other 7.0 9.6 7.6 9.9
----- ----- ----- -----
100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Operating 52.9 55.5 54.3 56.2
General and administrative 11.8 13.1 12.3 14.4
Depreciation and amortization 11.7 11.6 11.6 12.2
Merger costs 23.4 -- 12.5 3.5
Unusual items 14.4 -- 6.6 0.8
----- ----- ----- -----
114.2 80.2 97.3 87.1
----- ----- ----- -----
Income (loss) from operations (14.2) 19.8 2.7 12.9
----- ----- ----- -----
Other income (expense):
Interest expense:
Nonrecurring interest -- -- -- (1.5)
Other (3.2) (4.9) (3.5) (5.2)
Interest and other income, net 0.9 0.8 0.9 1.0
----- ----- ----- -----
(2.3) (4.1) (2.6) (5.7)
----- ----- ----- -----
Income (loss) before provision for income taxes (16.5) 15.7 0.1 7.2
Provision for (benefit from) income taxes (5.5) 6.3 1.5 3.7
----- ----- ----- -----
Net income (loss) (11.0)% 9.4% (1.4)% 3.5%
===== ===== ===== =====
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Operating Revenues
Operating revenues increased $90,320,000 or 34.4% and $236,873,000 or 32.6%
for the three and nine months ended September 30, 1996, respectively, as
compared to the corresponding periods of 1995. The increase in operating
revenues for the three months and nine months ended September 30, 1996 as
compared to the corresponding periods in 1995 has been analyzed on a
pre-Sanifill merger basis. Operating revenues for the Company, excluding the
Sanifill merged operations, increased $54,612,000 or 28.8% and $134,879,000 or
25.1% for the three and nine months ended September 30, 1996, respectively, as
compared to the corresponding periods of 1995. The Company's core solid waste
operations increased $56,500,000 and $140,400,000 for the three and nine month
periods ended September 30, 1996, respectively, of which $44,186,000 and
$102,850,000, respectively, relate to acquisitions during 1996 and the effect
of acquisitions made during 1995. The remaining decreases are due to declines
in non-core revenues. During the third quarter, operating revenues for
comparable disposal and collection operations increased 1.7% due to price
increases and 5.9% due to volume increases.
Operating revenues for Sanifill increased $35,708,000 or 49.1% and
$101,994,000 or 54.3% for the three and nine months ended September 30, 1996,
as compared to the corresponding periods of 1995. Sanifill's domestic disposal
operations increased $13,587,000 and $39,013,000 for the three and nine months
ended September 30, 1996, respectively, of which $10,547,000 and $24,513,000,
respectively, relate to acquisitions made during 1996 and the effect of
acquisitions made during 1995. Domestic collection operations increased
$17,787,000 and $55,756,000 for the three and nine months ended September 30,
1996, respectively. Solid waste operations in Mexico and Canada account for the
remaining increases of $4,334,000 and $7,225,000 for the three and nine months
ended September 30, 1996, respectively. With regard to the change in existing
domestic disposal operations, Sanifill's "same-store" operating revenues
increased approximately 11%, consisting primarily of volume increases, for the
third quarter of 1996.
Operating Costs and Expenses
Operating costs and expenses increased $40,819,000 or 28.0% and $114,647,000
or 28.1% for the three and nine months ended September 30, 1996, respectively,
as compared to the corresponding periods of 1995. The increase in operating
costs and expenses is primarily attributable to the impact of new business
acquisitions, net of dispositions, made in 1996 and 1995 of $59,515,000 and
$171,529,000 for the three and nine months ended September 30, 1996,
respectively.
12
13
Offsetting this increase is the effect of reduced operating costs and expenses
for the existing operations of Chambers Development Company, Inc. ("Chambers")
since the Company's merger with Chambers in June 1995, reduced operating costs
resulting from the increased utilization of internal disposal from 37.0% and
40.4% to 46.6% and 46.1% for the three and nine months ended September 30, 1996,
respectively, and reduced operating costs for comparable operations resulting
from synergies realized from tuck-in acquisitions and mergers with Sanifill,
Western, and Chambers consummated in August 1996, May 1996, and June 1995,
respectively.
As a percentage of operating revenues, operating costs and expenses decreased
from 55.5% and 56.2% for the three and nine months ended September 30, 1995,
respectively, to 52.9% and 54.3% for the corresponding periods in 1996. This
decrease occurred for the reasons described above.
General and Administrative
General and administrative expenses increased $7,263,000 and $13,698,000 for
the three and nine months ended September 30, 1996, respectively, compared to
the corresponding 1995 periods, but decreased as a percentage of operating
revenues. This is primarily the result of the Company's ability to integrate
new business acquisitions without a proportionate increase in general and
administrative expenses and cost reductions as a result of the mergers with
Sanifill, Western, and Chambers consummated in August 1996, May 1996, and June
1995, respectively.
Depreciation and Amortization
Depreciation and amortization increased $11,022,000 and $22,221,000 for the
three and nine months ended September 30, 1996, respectively, compared to the
corresponding periods of 1995 due primarily to the acquisition of new
businesses. As a percentage of operating revenues, depreciation and
amortization decreased for the nine months ended September 30, 1996 compared
to the corresponding 1995 period due to improved utilization of equipment
through the internal volume growth in the collection and disposal operations
without a corresponding increase in equipment and facilities. For the three
months ended September 30, 1996, depreciation and amortization as a percentage
of operating revenues was virtually unchanged compared to the corresponding
1995 period.
Merger Costs
In the third quarter of 1996, the Company recognized $82,556,000 of merger
costs, of which approximately $80,000,000 related to the acquisition of
Sanifill and the remainder related to the acquisition of two landfills and a
collection company. The $80,000,000 of merger costs related to Sanifill
includes $9,500,000 of transaction costs, $20,000,000 of relocation, severance,
and other termination benefits, $13,000,000 of costs relating to integrating
operations, and $37,500,000 of disposal of duplicate facilities. In the second
quarter of 1996, the Company incurred $35,000,000, $2,700,000, and $400,000 of
merger costs related to the acquisitions of Western, Grand Central, and a
collection company, respectively. The $35,000,000 of merger costs related to
Western include $6,800,000 of transaction costs, $15,000,000 of severance and
other termination benefits, and $13,200,000 of costs related to integrating
operations. In the second quarter of 1995, the Company incurred $25,073,000 of
merger costs related to the Chambers acquisition, including $11,900,000 of
transaction costs, $9,473,000 of severance and other termination benefits, and
$3,700,000 of costs related to integrating operations. An additional $566,000
of merger costs was incurred in the second quarter of 1995 related to the
acquisition of a collection, materials recovery, and transfer station
operation.
Unusual Items
In the third quarter of 1996, the Company recognized unusual items of
$50,848,000, including $28,900,000 of operating losses and estimated losses
related to the disposition of certain non-core business assets, $15,000,000 of
operating losses and project reserves related to certain Mexico operations,
and $6,948,000 of various other terminated projects. In the second quarter of
1996, unusual items include approximately $4,800,000 of retirement benefits
associated with Western's pre-merger retirement plan and approximately
$8,100,000 of estimated future losses related to municipal solid waste
contracts in California as a result of the continuing decline in prices of
recyclable materials. In 1995, unusual items represent $2,800,000 of severance
and other termination benefits paid to former Chambers employees in connection
with its pre-merger reorganization, $1,300,000 of estimated future losses
associated with a New Jersey municipal solid waste contract, and $600,000 of
shareholder litigation settlement costs.
13
14
Income (Loss) from Operations
For reasons discussed above, income (loss) from operations as a percent of
operating revenues was (14.2)% and 2.7% for the three and nine months ended
September 30, 1996, respectively, as compared to 19.8% and 12.9% in the
respective 1995 periods. Income (loss) from recurring operations was 23.6% and
21.9% for the three and nine months ended September 30, 1996, respectively.
The improvement in recurring operations is the result of economies of scale
realized by the Company with respect to recent acquisitions and improvements
in comparable operations.
Other Income and Expense
Other income and expense consists of interest expense, interest income, and
other income. Interest expense, gross of amounts capitalized, decreased as a
result of the refinancing of Chambers pre-merger indebtedness and the
Company's existing indebtedness to lower rates at June 30, 1995, and
$10,994,000 of nonrecurring interest incurred in the second quarter of 1995
relating to extension fees and other charges associated with the
aforementioned debt refinancing by Chambers. For the three months ended
September 30, 1996 compared to the corresponding 1995 period, the decrease in
interest rates was entirely offset by the increase in indebtedness.
Capitalized interest for the three and nine months ended September 30, 1996
was $4,727,000 and $13,066,000, respectively, as compared to $3,184,000 and
$9,205,000 in the corresponding 1995 periods.
Provision for (Benefit from) Income Taxes
The provision for (benefit from) income taxes decreased $36,012,000 and
$12,713,000 for the three and nine months ended September 30, 1996,
respectively, as compared to the corresponding periods of 1995. The decrease
in the provision for (benefit from) income taxes in 1996 is the result of
merger costs and unusual items.
Net Income (Loss)
For the reasons discussed above, net income (loss) decreased $63,598,000 and
$38,836,000 during the three and nine months ended September 30, 1996,
respectively, as compared to the corresponding periods of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in an industry that requires a high level of capital
investment. The Company's capital requirements basically stem from (i) its
working capital needs for its ongoing operations, (ii) capital expenditures
for cell construction and expansion of its landfill sites, as well as new
trucks and equipment for its collection operations, and (iii) business
acquisitions. The Company's strategy is to meet these capital needs first from
internally generated funds and secondly from various financing sources
available to the Company, including the issuance of its common stock. It is
further part of the Company's strategy to minimize working capital while
maintaining available commitments under bank credit agreements to fund any
capital needs in excess of internally generated cash flow.
As of September 30, 1996, the Company had working capital of $15,814,000 (a
ratio of current assets to current liabilities of 1.05:1) and a cash balance
of $14,108,000, which compares to working capital of $30,109,000 (a ratio of
current assets to current liabilities of 1.15:1) and a cash balance of
$21,058,000 as of December 31, 1995. For the first nine months of 1996, net
cash from operations was approximately $183,305,000 and net cash from financing
activities was approximately $309,660,000. These funds were used primarily to
fund investments in other businesses of $238,661,000 and for capital
expenditures of approximately $246,486,000.
The Company's capital expenditure and working capital requirements have
increased reflecting the Company's business strategy of growth through
acquisitions and development projects. The Company intends to finance the
remainder of its 1996 capital expenditures through internally generated cash
flow and amounts available under its revolving credit facility. At September 30,
1996, the available line of credit for cash borrowings was $449,000,000.
On August 30, 1996, in connection with the Sanifill Merger, the Company
replaced the $750,000,000 senior revolving credit facility with a
$1,200,000,000 senior revolving credit facility ("Credit Facility") and
retired amounts under Sanifill's credit facility. The Credit Facility was used
to refinance existing bank loans and letters of credit and will be used to
fund
14
15
additional acquisitions and for working capital. The Credit Facility is
available for standby letters of credit of up to $400,000,000. Loans under the
Credit Facility bear interest at a rate based on the Eurodollar rate plus a
spread not to exceed 0.75% per annum (spread initially set at 0.35% per annum).
The Credit Facility requires a facility fee not to exceed 0.375% per annum on
the entire available Credit Facility (facility fee initially set at 0.20% per
annum). The Credit Facility contains financial covenants with respect to
interest rate coverage and debt capitalization ratios. The Credit Facility also
contains limitations on dividends, additional indebtedness, liens, and asset
sales. Principal reductions are not required over the five-year term of the
Credit Facility. On October 11, 1996, the Company's corporate credit rating was
increased which had the effect of reducing the spread under the Credit Facility
to 0.30% per annum and the facility fee to 0.15% per annum, effective October
12, 1996.
The Company's business plan is to grow through acquisitions as well as
development projects. The Company has issued equity securities in business
acquisitions and expects to do so in the future. Furthermore, the Company's
future growth will depend greatly upon its ability to raise additional capital.
The Company continually reviews various financing alternatives and depending
upon market conditions could pursue the sale of debt and/or equity securities to
help effectuate its business strategy. Management believes that it can arrange
the necessary financing required to accomplish its business plan; however, to
the extent the Company is not successful in its future financing strategies the
Company's growth could be limited.
SEASONALITY AND INFLATION
Because the volumes of certain types of waste, such as yard clippings and
construction debris, tend to be higher in the spring and summer, the Company
experiences seasonal variations in its revenues. As a result, during spring
and summer, the Company's revenues tend to be higher than its revenues in fall
and winter. In addition, during the winter, harsh weather conditions often
temporarily affect the Company's ability to collect, transport, and dispose of
waste, as experienced by certain operating locations in the first quarter of
1996. The seasonal impact is often offset by revenues added through
acquisitions such that the Company's reported revenues have historically
reflected increases in period to period comparisons.
The Company believes that inflation and changing prices have not had, and are
not expected to have, any material adverse effect on the results of operations
in the near future.
15
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about March 8, 1993, an action was filed in the United States District
Court for the Western District of Pennsylvania, captioned Option Resource
Group, et al. v. Chambers Development Company, Inc., et al., Civil Action No.
93-354. This action was brought by a market maker in options in Chambers stock
and two of its general partners and asserts federal securities law and common
law claims alleging that Chambers, in publicly disseminated materials,
intentionally or negligently misstated its earnings and that Chambers'
officers and directors committed mismanagement and breach of fiduciary duties.
These plaintiffs allege that, as a result of large amounts of put options
traded on the Chicago Board of Options Exchange between March 13 and March 18,
1992, they engaged in offsetting transactions resulting in approximately
$2,100,000 in losses. The plaintiffs in Option Resource Group had successfully
requested exclusion from a now settled class action of consolidated suits
instituted on similar claims ("Class Action") and Option Resource Group is
continuing as a separate lawsuit. Discovery has been completed and a trial
date of January 2, 1997 has been set. Plaintiffs filed a motion for summary
judgment which is untimely under the court's case management procedures. The
court has stayed responses to the motion for summary judgment. In response to
discovery on damages, the plaintiffs reduced their damages claim to $433,000
in alleged losses, plus interest and attorneys' fees, for a total damage claim
of $658,000, as of August 21, 1995. The Company intends to continue to
vigorously defend against this action. Management of the Company believes the
ultimate resolution of such complaint will not have a material adverse effect
on the Company's financial position or results of operations.
On August 3, 1995, Frederick A. Moran and certain related persons and entities
filed a lawsuit against Chambers Development Company, Inc., certain former
officers and directors of Chambers, and Grant Thronton, LLP, in the United
States District Court for the Southern District of New York under the caption
Moran, et al. v. Chambers, et al., Civil Action No. 95-6034. Plaintiffs, who
claim to represent approximately 484,000 shares of Chambers stock, requested
exclusion from the settlement agreements which resulted in the resolution of
the Class Action and assert that they have incurred losses attributable to
shares purchased during the class period and certain additional losses by
reason of alleged management misstatements during and after the class period.
The claimed losses include damages to Mr. Moran's business and reputation. The
Judicial Panel on Multidistrict Litigation has transferred this case to the
United States District Court for the Western District of Pennsylvania. The
Company has filed its answer to the complaint and intends to vigorously defend
against these claims. The case is currently in discovery. Management of the
Company believes the ultimate resolution of such complaint will not have a
material adverse effect on the Company's financial position or results of
operations.
On or about February 1, 1996, an action was filed in the Circuit Court of
Cook County, Illinois, captioned Allabastro v. USA Waste Services, Inc.,
Action No. 96L01165. The case was subsequently removed to the United States
District Court for the Northern District of Illinois, Action No. 96-CV-1336.
The plaintiff alleges to have entered into an oral agreement with the Company
for brokerage services and is demanding a fee of $950,000 based on the alleged
contract and on common law for acting as a broker/advisor to the Company in
its 1993 purchase of an Indiana landfill and hauling operation from Chambers.
Based on the same facts, the plaintiff is also demanding an additional
$36,250,000 fee in connection with the June 1995 merger of Chambers with the
Company. The plaintiff is also seeking unspecified damages for acting as a
management advisor to the Company in its procurement of a landfill
renovation/operation contract in Charleston, West Virginia. Interest and other
costs are also demanded. The case is in the early stages of discovery. The
Company has filed its answer and intends to vigorously defend against this
action, and management believes the ultimate resolution of this suit will not
have a material adverse effect on the Company's financial position or results
of operations.
In or about August 1994, a case was filed against Western in the United States
District Court for the Western District of Arkansas. This is an action
originally filed by seven landowners who live near a landfill operated by
Western in Miller County, Arkansas. The landowners allege that Western
unlawfully received hazardous waste and that the pollutants from the waste
received by Western had contaminated their property or threatened to
contaminate their property in the future. The landowners seek an unspecified
amount of damages based on the contamination or threat of contamination. In
addition, the landowners seek to recover damages based on the devaluation of
their property due to the stigma of being located near a disposal site for
hazardous waste and based upon their fear of developing adverse health
effects. In July 1995, 135 additional plaintiffs intervened and asserted
claims similar to those raised by the original plaintiffs. Western and the
other defendants have denied that any unlawful disposal of waste took place at
the landfill. In or about June 1995, a case was filed by eight land owners who
own property along a creek downstream from Western's Miller County landfill.
Plaintiffs allege that their property has been contaminated by releases of
hazardous substances from the landfill and other hazardous substance disposal
sites operated by the other defendants. The Company believes it has valid
defenses to the
16
17
allegations and is vigorously defending the action, and management believes
the ultimate resolution of this suit will not have a material adverse effect
on the Company's financial position or results of operations.
In late December 1994, a lawsuit was filed in Los Angeles County Superior
Court by 24 plaintiffs. Western is among 19 named defendants. The complaint
asserts causes of action for nuisance and trespass seeking damages for
personal injuries and property damage. The complaint alleges that Western owns
a parcel of property, acquired from Cadillac Fairview/California located in
Torrance, California. The complaint alleges that Montrose Chemical Corporation
and others manufactured DDT on property at or adjacent to the property owned
by Western. The plaintiffs further allege that contaminants from this property
escaped to plaintiff's property, injured plaintiff, and damaged the value of
plaintiff's property. On June 29, 1995, this case was removed to the United
States District Court. Western has filed an answer denying any liability. The
Company believes it has valid defenses to the allegations and intends to
vigorously contest the case and is contemplating filing a cross-complaint once
its investigation of the facts is completed, and management believes the
ultimate resolution of this suit will not have a material adverse effect on
the Company's financial position or results of operations.
On or about February 2, 1995, a complaint was filed in a taxpayer lawsuit. The
complaint does not name Western as a defendant. The plaintiffs allege that
Riverside County and the other defendants, in connection with a contract with
Western regarding the operation and management of the El Sobrante Landfill (the
"Landfill") located within Riverside County (the "Agreement"), engaged in
various improper actions, including the unlawful sale of public property,
wasting public funds, and making an unconstitutional gift of public property and
funds. The complaint seeks an order voiding the Agreement and an injunction
ordering the other defendants to pay Riverside County allegedly unlawful
revenues earned from the Landfill, to cease further dumping at the Landfill of
out-of-county waste, return of alleged windfall profits, and limiting dumping
fees charged to incounty residents. The complaint also seeks general damages of
$10,000,000, special and punitive damages, attorneys' fees, and costs. The
Company believes the taxpayer suit is based upon erroneous assumptions and that
there are valid defenses available to Riverside County to each of the claims
asserted in the complaint. The Company has now filed a motion to intervene in
the litigation and will thereafter become a party to the lawsuit.
Recent newspaper articles have indicated that Western, either alone or with
others engaged in the solid waste industry, may be a subject of an
investigation by the United States government relating to political
corruption. The Company has not, however, been charged with any wrongdoing and
does not know whether such an investigation is, in fact, ongoing. Western has
not been advised by the government that it is a target of any such
investigation. Upon written inquiry under the Freedom of Information Act,
Western was advised that there were no records of any such investigations.
On or about August 20, 1996, an action was filed in Ontario Court (General
Division), Canada, captioned Laidlaw Waste Systems (Canada) Ltd. ("Laidlaw")
vs. Philip Environmental, Inc. and USA Waste Services, Inc., et. at., No.
96-CO- 109675. Laidlaw filed this suit related to certain rights of first
refusal that Laidlaw had on Quebec assets acquired by the Company from Philip
Environmental, Inc. in August 1996. Laidlaw is seeking to have the court
either set aside the acquisition or alternatively to award monetary damages
(Laidlaw is seeking general damages of $100,000,000 and punitive damages of
$25,000,000). The Company believes this suit is without merit and is
vigorously defending against it. In addition, Philip Environmental, Inc. has
agreed to indemnify the Company for all costs, fees, and damages incurred by
the Company with respect to this suit.
The Company is a party to various other litigation matters arising in the
ordinary course of business. Management believes that the ultimate resolution
of these matters will not have a material adverse impact on the Company's
financial position and results of operations. In the normal course of its
business and as a result of the extensive government regulation of the solid
waste industry, the Company periodically may become subject to various
judicial and administrative proceedings involving federal, state, or local
agencies. To date, the Company has not been required to pay any material fine
or had a judgment entered against it for violation of any environmental law.
From time to time the Company also may be subjected to actions brought by
citizen's groups in connection with the permitting of landfills or transfer
stations, or alleging violations of the permits pursuant to which the Company
operates. From time to time, the Company is also subject to claims for
personal injury or property damage arising out of accidents involving its
vehicles.
17
18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of Stockholders of the Company held on August 27, 1996,
proposals to (i) approve and adopt the Agreement and Plan of Merger dated as
of June 22, 1996, by and among the Company, Quatro Acquisition Corp., and
Sanifill, Inc., and (ii) approve an amendment to the Company's Restated
Certificate of Incorporation to increase its authorized shares of common stock
from 150,000,000 to 300,000,000 shares were submitted to a vote of the
stockholders. Both proposals were adopted by the Company's stockholders, and
the voting was as follows:
Votes Broker
Votes for Against Abstentions Non-Votes
--------- ------- ----------- ---------
Sanifill Merger 70,453,908 180,560 106,101 563,190
Increase Authorized Shares 70,314,137 870,536 119,086 --
18
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits to this report are listed in the Exhibit Index elsewhere herein.
(b) Reports on Form 8-K:
A report on Form 8-K dated September 3, 1996 was filed September 18, 1996. The
Company filed information with respect to the consummation of its acquisition
of Sanifill, Inc. and filed financial statements for Sanifill, Inc.
A report on Form 8-K dated September 12, 1996 was filed September 25, 1996 and
amended on Form 8-K/A filed November 13, 1996. The Company filed information
with respect to 1996 individually insignificant acquisitions, which in
aggregate were deemed significant for purposes of Regulation S-X.
A report on Form 8-K dated November 12, 1996 was filed November 12, 1996. The
Company filed restated supplemental financial statements of USA Waste
Services, Inc. to include the financial statements of Sanifill, Inc.
19
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
USA WASTE SERVICES, INC.
Registrant
November 14, 1996 BY: /s/ Earl E. DeFrates
- -------------------- ---------------------------------------
Date Earl E. DeFrates,
Executive Vice President,
Chief Financial Officer
November 14, 1996 BY: /s/ Bruce E. Snyder
- -------------------- ---------------------------------------
Date Bruce E. Snyder,
Vice President - Controller,
Chief Accounting Officer
20
21
USA WASTE SERVICES, INC.
EXHIBIT INDEX
Number and Description of Exhibit *
-----------------------------------
2 None
3 None
4 None
10 None
11 Computation of Earnings (Loss) Per Common Share
15 None
18 None
19 None
22 None
23 None
24 None
27 Financial Data Schedule
99 None
- ---------------------------------------
* Exhibits not listed are inapplicable.
21
1
EXHIBIT 11
USA WASTE SERVICES, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- --------
(Restated) (Restated)
Primary
Net income (loss) ($38,864) $24,734 ($13,280) $25,556
-------- ------- -------- -------
Number of common shares outstanding 138,343 112,209 138,343 112,209
Effect of using weighted average common stock
outstanding (1,876) (4,185) (5,846) (6,981)
Common stock equivalents (1) 6,197 4,143 5,765 3,482
-------- ------- -------- -------
Total 142,664 112,167 138,262 108,710
======== ======= ======== =======
Earnings (loss) per common share ($0.27) $0.22 ($0.10) $0.24
======== ======= ======== =======
Fully Diluted
Net income (loss) ($38,864) $24,734 ($13,280) $25,556
-------- ------- -------- -------
Number of common shares outstanding 138,343 112,209 138,343 112,209
Effect of using weighted average common stock
outstanding (1,877) (4,186) (5,846) (6,981)
Common stock equivalents (1) 6,411 4,357 6,022 3,739
-------- ------- -------- -------
Total 142,877 112,380 138,519 108,967
======== ======= ======== =======
Earnings (loss) per common share (2) ($0.27) $0.22 ($0.10) $0.23
======== ======= ======== =======
- ----------------------------------------
(1) Common stock equivalents were determined based on the "Treasury Stock
Method", as set forth in Accounting Principles Board Opinion No. 15.
(2) The dilutive effect between primary and fully dilutive earnings (loss) per
common share is less than 3% or is anti-dilutive for all periods presented
and is therefore not disclosed in the consolidated statements of
operations.
5
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
14,108,000
0
222,162,000
(9,482,000)
0
325,627,000
2,233,611,000
(571,820,000)
2,628,977,000
309,813,000
1,001,467,000
0
0
1,383,000
1,085,791,000
2,628,977,000
963,021,000
963,021,000
522,698,000
936,868,000
(8,868,000)
0
33,977,000
1,044,000
14,324,000
(13,280,000)
0
0
0
(13,280,000)
(0.10)
(0.10)
