1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (date of earliest event reported): March 12, 1997 USA WASTE SERVICES, INC. (Exact name of registrant as specified in its charter) Commission file number 1-12154 ------- DELAWARE 73-1309529 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1001 FANNIN, SUITE 4000 HOUSTON, TEXAS 77002 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 512-6200 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED The audited historical combined balance sheet of Laidlaw Solid Waste Management Group - Canadian Operations as at August 31, 1996 and combined statements of operations and cash flows for the year then ended and the unaudited historical combined balance sheet of Laidlaw Solid Waste Management Group - Canadian Operations as at November 30, 1996 and combined statements of operations and cash flows for the three months ended November 30, 1996 are set forth as ATTACHMENT A and are incorporated herein by reference. (b) PRO FORMA FINANCIAL INFORMATION Pro forma financial information for the business acquired subsequent to December 31, 1996 is set forth as ATTACHMENT B and are incorporated herein by reference. (c) EXHIBITS 23.1 Consent of Independent Accountants. 3 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. By: /s/ GREGORY T. SANGALIS --------------------------------- Gregory T. Sangalis Vice President, General Counsel & Secretary July 22, 1997 4 Attachment A REPORT OF INDEPENDENT ACCOUNTANTS We have audited the accompanying combined balance sheet of Laidlaw Solid Waste Management Group - Canadian Operations (as defined in Note 1) as of August 31, 1996 and the related combined statements of operations and cash flows for the year then ended. These financial statements are the responsibility of the management of Laidlaw Inc. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of the Laidlaw Solid Waste Management Group - Canadian Operations as of August 31, 1996, and the combined results of its operations and its cash flows for the year then ended in conformity with United States generally accepted accounting principles. October 16, 1996 (except for Notes 1 and 8 which are as at January 15, 1997) Coopers & Lybrand Hamilton, Canada Chartered Accountants 5 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS COMBINED BALANCE SHEETS (US $000's)
- ------------------------------------------------------------------------ (Unaudited) November 30 August 31 1996 1996 $ $ - ------------------------------------------------------------------------ ASSETS CURRENT ASSETS Trade and other accounts receivable (net of allowance for doubtful accounts of $622; August 31, 1996 - $634) 44,573 42,562 Inventories 2,574 2,613 Income taxes recoverable (Note 8) 47,536 49,236 Other current assets 5,263 5,919 -------- -------- 99,946 100,330 -------- -------- FIXED ASSETS Land, landfill sites and improvements 73,412 72,042 Buildings 29,911 27,897 Vehicles and other 239,478 229,665 -------- -------- 342,801 329,604 Less: Accumulated depreciation and amortization (170,794) (164,594) -------- -------- 172,007 165,010 -------- -------- OTHER ASSETS Goodwill (net of accumulated amortization of $18,401; August 31, 1996 - $17,363) 116,566 113,490 Deferred charges 11,399 11,351 Other 1,388 1,482 -------- -------- 129,353 126,323 -------- -------- 401,306 391,663 ======== ======== 6 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS COMBINED BALANCE SHEETS (US $000's)
- ------------------------------------------------------------------ (Unaudited) November 30 August 31 1996 1996 $ $ - ------------------------------------------------------------------ LIABILITIES CURRENT LIABILITIES Accounts payable 28,425 29,237 Accrued liabilities 9,727 9,324 Current portion of long-term debt (Note 3) 77 243 ------- ------- 38,229 38,804 LONG-TERM DEBT (Note 3) 142 264 DEFERRED INCOME TAXES (Note 8) 21,235 21,130 ENVIRONMENTAL AND OTHER LONG-TERM LIABILITIES (Note 4) 8,497 8,360 ------- ------- 68,103 68,558 ------- ------- COMMITMENTS AND CONTINGENCIES (Note 5) NET INVESTMENT BY LAIDLAW INC. 333,203 323,105 ------- ------- 401,306 391,663 ======= ======= 7 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS COMBINED STATEMENTS OF OPERATIONS (US $000's)
- -------------------------------------------------------------------------------- (Unaudited) For the Three Months For the Ended Year Ended November 30 August 31 1996 1996 $ $ - -------------------------------------------------------------------------------- REVENUE 71,549 262,179 ------ ------- Operating expenses (Note 6) 51,648 188,759 Selling, general and administrative expenses (Note 6) 5,098 19,175 Depreciation and amortization 7,413 30,121 ------ ------- INCOME FROM OPERATIONS 7,390 24,124 ------ ------- Allocated interest expense (Note 1) 2,680 11,244 Interest portion of closure and post-closure costs 102 406 Interest on long-term debt and other interest 147 250 Interest, dividend and other income (344) (1,139) ------ ------- INCOME BEFORE INCOME TAXES 4,805 13,363 DEFERRED INCOME TAX EXPENSE (Notes 1 and 8) 2,419 6,775 ------ ------- NET INCOME 2,386 6,588 ====== ======= 8 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS COMBINED STATEMENTS OF CASH FLOWS (US $000's) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (Unaudited) For the Three Months For the Ended Year Ended November 30 August 31 1996 1996 $ $ - -------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN): Operating activities 9,829 28,887 Investing activities (13,922) (65,871) Financing activities 14,191 96,850 ------- ------- 10,098 59,866 NET INVESTMENT BY LAIDLAW INC. - BEGINNING OF PERIOD 323,105 263,239 ------- ------- NET INVESTMENT BY LAIDLAW INC. - END OF PERIOD 333,203 323,105 ======= ======= OPERATING ACTIVITIES Net Income 2,386 6,588 Items not affecting cash: Depreciation and amortization 7,413 30,121 Deferred income taxes 1,329 6,775 Other (408) (3,725) ------- ------- 10,720 39,759 Cash used in financing working capital excluding the effect of acquisitions: Trade and other accounts receivable (2,011) (4,722) Inventories 39 (654) Other current assets 656 (2,308) Accounts payable and accrued liabilities 425 (3,188) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 9,829 28,887 ======= ======= 9 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS COMBINED STATEMENTS OF CASH FLOWS (CONT'D) (US $000's)
- --------------------------------------------------------------------------- (Unaudited) For the Three Months For the Ended Year Ended November 30 August 31 1996 1996 $ $ - --------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of fixed assets (9,538) (20,437) Net proceeds from sale of fixed and other assets 983 1,658 (Increase) decrease in deferred charges 71 (1,278) Expended on acquisitions (Note 7) (5,532) (46,046) Net decrease in other assets 94 232 ------- ------- NET CASH USED IN INVESTING ACTIVITIES (13,922) (65,871) ======= ======= FINANCING ACTIVITIES Repayment of long-term debt (491) (327) Net advances from Laidlaw Inc. 14,682 97,177 ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 14,191 96,850 ======= ======= 10 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (US $000'S) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS Under the terms of a Stock Purchase Agreement dated September 17, 1996 (the "Laidlaw Agreement") among Allied Waste Industries, Inc. ("Allied") and certain affiliates of Allied, and Laidlaw Inc. ("Laidlaw") and certain affiliates of Laidlaw, Allied purchased the solid waste management business of Laidlaw (the "Laidlaw Solid Waste Management Group"). The Laidlaw Solid Waste Management Group provides solid waste collection, compaction, disposal, recycling, resource recovery, transportation and transfer services to commercial, industrial and residential customers in the United States and Canada. Laidlaw conducted the solid waste management business directly and indirectly through its subsidiaries, Laidlaw Waste Systems, Inc. Laidlaw Waste Systems (Canada) Ltd. and Laidlaw Medical Services Ltd. ("Medical Services"). Subsequent to the Laidlaw Agreement, a Share Purchase Agreement dated January 15, 1997 (the "Agreement") among USA Waste Services, Inc. ("USA Waste") and certain affiliates of USA Waste, and Allied and certain affiliates of Allied was entered into. Under the terms of the Agreement, USA Waste has offered to purchase the Canadian operations of the Laidlaw Solid Waste Management Group ("Laidlaw Solid Waste Management Group - Canadian Operations" or the "Group") from Allied. The Group provides solid waste collection, compaction, disposal, recycling, transportation and transfer services to commercial, industrial, and residential customers in Canada. Allied conducts this business directly or indirectly through its subsidiaries, Allied Waste Holdings (Canada) Ltd., Laidlaw Waste Systems Ltd., and Medical Services. Interest expense associated with intercompany financing with the Group's parent, Laidlaw, has been allocated to the Group based on its share of the parent's net assets. Income taxes have been calculated using applicable Canadian income tax rates applied to the Group's income for tax purposes. These special purpose financial statements give effect to the combination of the operations constituting the Laidlaw Solid Waste Management Group - Canadian Operations. The Group's intercompany loans and advances have been excluded from the combined balance sheet. The surplus funds of the Group are regularly transferred to Laidlaw, and any financing requirements are provided by Laidlaw. Accordingly, no cash or bank indebtedness balances are reported in these combined financial statements. 11 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (CONT'D) (US $000'S) - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts for certain revenues and expenses during the reported period. Actual results could differ from those estimates. A summary of significant accounting policies followed in the preparation of these combined financial statements is as follows: (a) INVENTORIES Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and replacement cost. (b) FIXED ASSETS Landfill sites, preparation costs, and improvements are recorded at cost and amortized on the basis of landfill capacity utilized during the year. Depreciation and amortization of other property and equipment is provided substantially on a straight-line basis over their estimated useful lives which are as follows: Buildings 20 to 40 years Vehicles and other 5 to 15 years Management periodically reviews the carrying values of its fixed assets to determine whether such values are recoverable. Any resulting write downs are charged against income. 12 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (CONT'D) (US $000'S) - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (c) OTHER ASSETS Goodwill is amortized on a straight-line basis over forty years. The Group reviews the value assigned to goodwill to determine if its recoverability has been impaired by conditions affecting the Group. The amount of any impairment is charged against income. Deferred charges are amortized on a straight-line basis over a two to nine year period depending on the nature of the deferred costs. (d) FINANCIAL INSTRUMENTS The Group's accounts receivable, accounts payable and long-term debt constitute financial instruments. Based on available market information, the carrying value of these instruments approximates their fair value as at August 31, 1996. Concentrations of credit risk in accounts receivable are limited, due to the large number of customers comprising the Group's customer base throughout Canada. The Group performs ongoing credit evaluations of its customers, but does not require collateral to support customer accounts receivable. The Group establishes an allowance for doubtful accounts based on the credit risk applicable to particular customers, historical trends and other relevant information. (e) REVENUE Amounts billed to customers prior to providing the related services are deferred and later reported as revenues in the period in which the services are rendered. (f) ENVIRONMENTAL LIABILITIES Environmental liabilities include accruals for costs associated with closure and post-closure monitoring and maintenance of the Group's landfills and remediation at certain of the Group's facilities. The Group accrues for closure and post-closure costs over the life of the landfill site as airspace is consumed. (g) FOREIGN CURRENCY TRANSLATION The majority of the Group's transactions and account balances are denominated in Canadian dollars. For the presentation in these combined financial statements, the accounts are translated to U.S. dollars on the following basis: Assets and liabilities at the exchange rate in effect at the balance sheet date and revenue and expenses at weighted monthly average exchange rates for the year. 13 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (CONT'D) (US $000'S) - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (h) ACCOUNTING PRONOUNCEMENT NOT YET REQUIRED TO BE ADOPTED The Group does not expect the adoption of "SFAS" No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" to have a materially adverse effect on the Group's financial position or results of operations. In 1997 the Group is required to adopt SFAS No. 121, issued by the Financial Accounting Standards Board. SFAS No. 121 requires that long-lived assets be reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) from an asset to be held and used in operations is less than the carrying value of the asset, an impairment loss must be recognized in the amount of the difference between the carrying value and the fair value. Should events and circumstances indicate that any of the Group's landfills be reviewed for possible impairment, such review for recoverability will be made in accordance with Emerging Issues Task Force Discussion Issue ("EITF") 95-23. The EITF outlines how cash flows for environmental exit costs should be determined and measured. SFAS No. 121 has been adopted for the unaudited period ended November 30, 1996. The Group has evaluated these issues and has determined that no events or circumstances have occurred that require the evaluation of any of the Group's landfills for possible impairment. (i) INTERIM REPORTING The combined balance sheets of Laidlaw Solid Waste Management Group - Canadian Operations as of November 30, 1996, the related, combined statements of operations for the three months ended November 30, 1996 and the combined statements of cash flows for the three months ended November 30, 1996 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 period presented. 3. LONG-TERM DEBT The aggregate amount of minimum payments required on long-term debt in each of the years indicated is as follows: $ Year ending August 31, 1997 243 1998 168 1999 32 2000 32 2001 32 --- 507 ===
(Unaudited) November 30 August 31 1996 1996 $ $ Notes due at various dates from 1998 to 2002 with interest rates from 0% to 8% 219 507 Less: Current portion 77 243 --- --- 142 264 === === 14 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (CONT'D) (US $000'S) - -------------------------------------------------------------------------------- 4. ENVIRONMENTAL LIABILITIES The Group has recorded liabilities for closure and post-closure monitoring and environmental remediation costs as follows: August 31 1996 $ Current portion of environmental liabilities, included in accrued liabilities 748 Non-current portion of environmental liabilities 5,409 ----- 6,157 ===== The Group, in the normal course of its business, expends funds for environmental protection and remediation, but does not expect these expenditures to have a materially adverse effect on its financial condition or results of operations, since its business is based upon compliance with environmental laws and regulations and its services are priced accordingly. Closure and post-closure costs for the Group's landfills are based upon the local landfill regulations governing the facility. Costs include such items as final capping of the site, methane gas and leachate management, groundwater monitoring, and operation and maintenance costs to be incurred during the period after the facility closes and ceases to accept waste. The Group has also established procedures to routinely evaluate potential remedial liabilities at sites which it owns or operated, or to which it transported waste. The Group routinely reviews and evaluates sites requiring remediation, giving consideration to the nature (i.e. owner, operator, transporter or generator), and the extent (i.e. amount and nature of waste hauled to the location, number of years of site operation by the Group, or other relevant factors) of the Group's alleged connection with the site, the accuracy and strength of evidence connecting the Group to the location, the number, connection and financial ability of other named and unnamed potentially responsible parties and the nature and estimated cost of the likely remedy. Where the Group concludes that it is probable that a liability has been incurred, provision is made in the financial statements, based upon management's judgement and prior experience, for the Group's best estimate of the liability. Such estimates are subsequently revised as deemed necessary as additional information becomes available. 15 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (CONT'D) (US $000'S) - -------------------------------------------------------------------------------- 4. ENVIRONMENTAL LIABILITIES (CONT'D) Estimates of the extent of the Group's degree of responsibility for remediation of a particular site and the method and ultimate cost of remediation require a number of assumptions and are inherently difficult. The ultimate outcome of these items may differ from current estimates. The Group believes that its extensive experience in the environmental services business provides a reasonable basis for making its estimates. However, these estimates may include a range of possible outcomes. In such cases, the Group provides for the amount within the range that constitutes its best estimate. The Group's best estimate is at the higher range of possible outcomes. While the Group does not currently anticipate that any adjustment to its estimates would be material to its financial statements, it is reasonably possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could necessitate the recording of additional liabilities that could be material. The impact of such future events cannot be estimated at the current time. Where the Group believes that both the amount of a particular environmental liability and the timing of the payments are reliably determinable, the cost in current dollars is discounted to present value, assuming inflation of 3% and a risk free discount rate of 8%. Had the Group not discounted any portion of its liability, the amount recorded would have been increased by approximately $9.4 million as at August 31, 1996. The majority of the Group's active landfill sites have estimated remaining lives ranging from 3 to approximately 23 years based upon current site plans and anticipated annual volumes of waste. As at August 31, 1996, the Group estimates that during this remaining site life, it will provide for an additional $24.0 million of closure and post-closure costs, including accretion for the discount recognized to date. Anticipated payments of environmental liabilities for each of the next five years and thereafter are as follows:
$ Year ending August 31, 1997 748 1998 466 1999 1,154 2000 804 2001 663 Thereafter 26,625 ------ 30,460 ====== 16 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (CONT'D) (US $000'S) - -------------------------------------------------------------------------------- 5. COMMITMENTS AND CONTINGENCIES (a) LEASE COMMITMENTS Rental expense incurred under operating leases amounted to $2,412 in the year ended August 31, 1996. Rentals payable under operating leases for premises and equipment are as follows: (b) LEGAL PROCEEDINGS The Group is subject to extensive and evolving laws and regulations and has implemented its own environmental safeguards to respond to regulatory requirements. In the normal course of business, the Group provides for closure and post-closure accruals to comply with all governmental regulations. In the normal course of conducting its operations, the Group may become involved in certain legal and administrative proceedings. Some of these actions may result in fines, penalties or judgements against the Group which may have an impact on the financial results for a particular period. Management expects that such matters in process at August 31, 1996 will not have a materially adverse effect on this Group's financial position or its results from operations. (c) LETTERS OF CREDIT AND GUARANTEES At November 30, 1996, the Group has $14,124 (August 31, 1996 - $14,503) in outstanding letters of credit, of which the most significant are in support of the Group's undertakings in respect of landfill closure and post-closure activities required in obtaining regulatory operating permits. In addition, Laidlaw Inc. and its affiliates have provided guarantees and additional letters of credit in the aggregate amount of approximately $40 million (August 31, 1996 - $40 million) for closure and post-closure activities and bid bonds.
$ Year ending August 31, 1997 2,241 1998 2,031 1999 1,874 2000 1,731 2001 1,143 Thereafter 5,062 ------ 14,082 ====== 17 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (CONT'D) (US $000'S) - -------------------------------------------------------------------------------- 6. RELATED PARTY TRANSACTIONS Included in operating expenses and selling, general and administrative expenses are management fee income, insurance premiums and rental charges paid to affiliated companies as follows:
For the Year Ended August 31 1996 $ Management fees income - net 3,787 ===== Insurance premiums expense 184 ===== Rental charges expense 198 ===== The Group directly incurs all of the significant costs of doing business 18 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (CONT'D) (US $000'S) - -------------------------------------------------------------------------------- 7. ACQUISITIONS A summary of the Group's acquisitions of solid waste management companies for the year ended August 31, 1996 is as follows: PRO FORMA DATA (UNAUDITED) The condensed pro forma statement of operations data, as if acquisitions for the year ended August 31, 1996 had occurred at the beginning of the year, is as follows:
$ Assets acquired - at fair value: Fixed assets 10,661 Goodwill 34,336 Long-term investments and other assets 6,606 ------ 51,603 Long-term liabilities assumed 7,397 Working capital 1,840 ------ Expended in acquisitions 46,046 ====== Number of businesses acquired 6 ====== Annualized revenue acquired (unaudited) 38,000 ======
$ Statement of operations data: Revenue 275,170 Net income 6,915 19 LAIDLAW SOLID WASTE MANAGEMENT GROUP - CANADIAN OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS (CONT'D) (US $000'S) - -------------------------------------------------------------------------------- 8. INCOME TAXES The Company's effective income tax rates are as follows: The tax effect of temporary differences which comprise deferred income taxes shown on the balance sheet are as follows:
(Unaudited) For the Three Months For the Ended Year Ended November 30 August 31 1996 1996 % % Statutory Canadian federal income tax 29.1 29.1 Net provincial income taxes 14.4 14.4 Expenses not deductible 6.9 7.2 ---- ---- 50.4 50.7 ==== ==== As per the Laidlaw Agreement and the Agreement, any loss carryforwards, loss carry backs, and income tax credits for tax purposes, included in income taxes recoverable which result in tax benefits to the Group, must ultimately be refunded to Laidlaw Inc. As at November 30, 1996, the entire income tax recoverable balance of $47,536 (August 31, 1996 - $49,236) consisted of such items.
(Unaudited) November 30 August 31 1996 1996 $ $ Deferred tax assets: Accrued remediation and closure costs 2,659 2,621 Other 1,221 1,204 ------ ------ Net deferred tax assets 3,880 3,825 Excess of tax over book depreciation 25,115 24,955 ------ ------ Net deferred tax liability 21,235 21,130 ====== ====== 20 ATTACHMENT B USA WASTE SERVICES, INC. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) On March 12, 1997, USA Waste Services, Inc. (the "Company") acquired all of Canadian solid waste subsidiaries of Allied Waste Industries, Inc. ("Allied") for US $518,000,000 in a transaction accounted for as a purchase. The acquired businesses ("Allied-Canada") include seven landfills, 41 collection operations, and eight transfer stations. Allied purchased these Canadian solid waste subsidiaries under the terms of a Stock Purchase Agreement dated September 17, 1996 (the "Laidlaw Agreement") between Allied and Laidlaw Inc. ("Laidlaw"), in which Allied purchased all the sold waste management business of Laidlaw. The Pro Forma Condensed Consolidated Financial Statements give effect to the purchase of the Canadian operations of the Laidlaw Solid Waste Management Group ("Laidlaw Solid Waste Management Group - Canadian Operations"). On February 7, 1997, the Company issued $535,275,000 of 4% convertible subordinated notes, due on February 1, 2002 ("Notes Offering"). The notes are convertible into shares of the Company's common stock at a conversion price of $43.56 per share. Concurrent with the Notes Offering, the Company completed a public offering of 11,500,000 shares of its common stock, priced at $35.125 per share ("Equity Offering") for net proceeds of approximately $387,438,000. The proceeds from the Notes Offering and Equity Offering were primarily used to repay debt under the Company's Credit Facility and for general corporate purposes. The accompanying pro forma condensed consolidated balance sheet as of December 31, 1996 has been prepared as if the acquisition, Notes Offering and Equity Offering which occurred after December 31, 1996 were consummated as of that date. The accompanying pro forma condensed consolidated statements of operations for the year ended December 31, 1996 present the pro forma results of operation of the Company as if the acquisition, Notes Offering and Equity Offering had occurred on January 1, 1996. The accompanying pro forma condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 as amended by Form 10-K/A filed April 30, 1997. 21 USA WASTE SERVICES, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (In Thousands, Except Share and Par Value Amounts) (Unaudited) December 31, 1996
Pro Forma Allied-Canada Adjustments ASSETS USA Waste (Note 2) (Note 2) ---------------- ---------------- ----------------- Current Assets: Cash and cash equivalent $ 23,511 $ - $ - Accounts receivable, net 210,038 36,673 (1,600) (a) Notes and other receivables 25,579 7,900 (400) (a) Deferred income taxes 39,714 47,536 (47,536) (a) Prepaid expenses and other 41,139 7,837 (200) ---------------- ---------------- ----------------- Total current assets 339,981 99,946 (49,736) Notes and other receivables 49,059 - - Property and equipment, net 1,810,251 172,007 105,250 (a) Excess of cost over net assets of acquired businesses, net 433,913 116,566 203,434 (a) Other intangibles, net 83,486 - 5,000 (a) Other assets 113,815 12,787 (11,399) (a) Total assets ---------------- ---------------- ----------------- $ 2,830,505 $ 401,306 $ 252,549 ================ ================ ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 94,900 $ 28,425 $ - Accrued liabilities 172,916 9,727 12,058 (a) Deferred revenues 23,450 - - Current maturities of long-term debt 28,695 77 (77) (a) ---------------- ---------------- ----------------- Total current liabilities 319,961 38,229 11,981 Long-term debt 1,158,305 142 (142) (a) 518,000 (b) Deferred income taxes 8,786 21,235 43,765 (a) Closure, post-closure and other liabilities 188,177 8,497 12,148 (a) ---------------- ---------------- ----------------- 1,675,229 68,103 585,752 ---------------- ---------------- ----------------- 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; 139,609,250 historical shares issued and outstanding (151,109,250) pro forma shares issued and outstanding 1,396 - - Additional paid-in capital 1,255,856 333,203 (333,203) (c) Retained earnings (accumulated deficit) (85,649) - - Foreign currency translation adjustment (15,843) - - Less treasury stock at cost (484) - - ---------------- ---------------- ----------------- Total stockholders' equity 1,155,276 333,203 (333,203) ---------------- ---------------- ----------------- Total liabilities and stockholders' equity $ 2,830,505 $ 401,306 252,549 ================ ================ ================= See notes to pro forma condensed consolidated financial statements
Other Pro Forma Adjustments ASSETS (Note 3) Pro Forma ---------------- ---------------- Current Assets: Cash and cash equivalent $ - $ 23,511 Accounts receivable, net - 245,111 Notes and other receivables - 33,079 Deferred income taxes - 39,714 Prepaid expenses and other - 48,776 ---------------- ---------------- Total current assets - 390,191 Notes and other receivables - 49,059 Property and equipment, net - 2,087,508 Excess of cost over net assets of acquired businesses, net - 753,913 Other intangibles, net - 88,486 Other assets 14,000 (d) 129,203 Total assets ---------------- ---------------- $ 14,000 $ 3,498,360 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ - $ 123,325 Accrued liabilities - 194,701 Deferred revenues - 23,450 Current maturities of long-term debt - 28,695 ---------------- ---------------- Total current liabilities - 370,171 Long-term debt (383,438) (d) 1,302,867 Deferred income taxes - 73,786 Closure, post-closure and other liabilities - 208,822 ---------------- ---------------- (383,438) 1,955,646 ---------------- ---------------- 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; 139,609,250 historical shares issued and outstanding (151,109,250) pro forma shares issued and outstanding 115 (d) 1,511 Additional paid-in capital 387,323 (d) 1,643,179 Retained earnings (accumulated deficit) - (85,649) Foreign currency translation adjustment - (15,843) Less treasury stock at cost - (484) ---------------- ---------------- Total stockholders' equity 387,438 1,542,714 ---------------- ---------------- Total liabilities and stockholders' equity $ 14,000 $ 3,498,360 ================ ================ 22 USA WASTE SERVICES, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited) For the year ended December 31, 1996 See notes to proforma condensed consolidated financial statements.
PREACQUISITION OTHER PERIOD PRO FORMA PRO FORMA ALLIED-CANADA ADJUSTMENTS ADJUSTMENTS USA WASTE (NOTE 2) (NOTE 2) (NOTE 3) PRO FORMA ----------- --------- -------- ----------- ----------- Operating Revenues $ 1,313,388 $ 268,698 $ - $ - $ 1,582,086 ----------- --------- -------- ----------- ----------- Costs and expenses: Operating (exclusive of depreciation and amortization shown below) 704,917 194,225 - - 899,142 General and administrative 160,539 19,478 - - 180,017 Depreciation and amortization 153,168 30,334 6,013 (e) - 195,601 6,086 (f) Merger costs 120,656 - - - 120,656 Unusual items 63,800 - - - 63,800 ----------- --------- -------- ----------- ----------- 1,203,080 244,037 12,099 - 1,459,216 ----------- --------- -------- ----------- ----------- Income from operations 110,308 24,661 (12,099) - 122,870 ----------- --------- -------- ----------- ----------- Interest expense (45,547) (11,404) 11,404 (g) 33,112 (j) (43,515) (31,080)(h) Interest income 5,267 - - - 5,267 Other, net 8,060 703 - - 8,763 ----------- --------- -------- ----------- ----------- (32,220) (10,701) (19,676) 33,112 (29,485) ----------- --------- -------- ----------- ----------- Income before income taxes 78,088 13,960 (31,775) 33,112 93,385 Provision for income taxes 45,142 7,034 (13,076)(i) 13,245 (k) 52,345 ----------- --------- -------- ----------- ----------- Net Income $ 32,946 $ 6,926 $(18,699) $ 19,867 $ 41,040 =========== ========= ======== =========== =========== Earnings per common share $ 0.24 $ 0.27 =========== =========== Weighted average number of common and common equivalent shares outstanding 139,740 11,500 (l) 151,240 =========== =========== =========== 23 USA WASTE SERVICES, INC. NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited pro forma condensed consolidated financial statements (the "Pro Forma Financial Statements") for USA Waste Services, Inc. (the "Company") have been prepared based upon certain pro forma adjustments to the historical consolidated financial statements of the Company set forth in its previously filed Annual Report on Form 10-K for the year ended December 31, 1996, as amended by Form 10-K/A filed April 30, 1997. The Pro Forma Financial Statements are based on certain assumptions and preliminary estimates which are subject to change, but management does not believe any possible deviations will be material to the Pro Forma Financial Statements. The Pro Forma Financial Statements do not purport to be indicative of the results which would actually have been obtained had the acquisition, Notes Offering and Equity Offering been completed on the dates indicated or which may be obtained in the future. 2. BUSINESS ACQUIRED On March 12, 1997, USA Waste Service, Inc. (the "Company") acquired all of the Canadian solid waste subsidiaries of Allied Waste Industries, Inc. ("Allied") for US $518,000,000 in a transaction accounted for as a purchase. The acquired businesses ("Allied-Canada") include seven landfills, 41 collection operations, and eight transfer stations. Allied purchased these Canadian solid waste subsidiaries under the terms of a Stock Purchase Agreement dated September 17, 1996 (the "Laidlaw Agreement") between Allied and Laidlaw Inc. ("Laidlaw"), in which Allied purchased all the solid waste management business of Laidlaw. The Pro Forma Condensed Consolidated Financial Statements give effect to the purchase of the Canadian operations of Laidlaw Solid Waste Management Group ("Laidlaw Solid Waste Management Group - Canadian Operations"). The pro forma adjustments which have been made to the acquired business are described below: a) Reflects the adjustments to the historical balance sheet of the business acquired for the purchase price allocation. The Company has allocated the cost of the acquired business to the assets acquired and liabilities assumed based on estimates of fair values thereof. The increase in accrued liabilities and closure, post-closure, and other liabilities is due to a working capital purchase price adjustment included in the purchase agreement to be paid to the previous owners of approximately $8,200,000 in addition to the original $518,000,000 purchase price, based on working capital information as if the transaction had occurred on December 31, 1996. The increase also includes approximately $10,000,000 for unfavorable contracts assumed by USA Waste, and approximately $6,000,000 of other liabilities and exit costs, including 24 severance costs, legal fees, and other transaction costs relating to the acquisition. Management does not believe that any possible deviations of estimated fair value and actual fair value will be material to the Pro Forma financial statements. b) Reflects the financing of the US $518,000,000 purchase price of the acquisition from the Company's credit facility, as if the transaction had occurred January 1, 1996. In connection with the actual financing of the acquisition, the Company entered into a $350,000,000 note bearing interest at the bankers' acceptance rate plus 0.45%, maturing in seven years. Of the remaining balance of the purchase price, $80,000,000 was borrowed by the Company under its existing credit senior revolving credit facility and $88,000,000 was from the proceeds of the Company's Notes Offering and Equity Offering in February, 1997. c) Reflects the elimination of the equity of the business acquired. d) Reflects the decrease in long-term debt for the effects of the assumed utilization of net proceeds from the Equity Offering and Notes Offering and the issuance of $535,275,000 of 4% Convertible Subordinated Debt under the Notes Offering, as if such transactions had occurred on December 31, 1996, as follows: e) Reflects additional depletion due to the allocation of the purchase price of the acquisition. Landfill costs are depleted over the anticipated life of the site on a units-of-production basis. f) Reflects additional amortization of goodwill and customer lists due to the allocation of the purchase price of the acquisition. Goodwill is amortized over a 40 year period on a straight-line basis. Customer lists are amortized from 5 to 7 years on a straight-line basis. g) Reflects the elimination of all the acquired business' interest expense that was allocated from its previous corporate affiliate. h) Reflects interest expense at a rate of 6% on the $518,000,000 of indebtedness incurred in connection with financing the business acquired as if the acquisition had occurred on January 1, 1996. i) Reflects the income tax effect related to the above adjustments to the operations of the business acquired using the measurement principles contained in SFAS 109.
Proceeds from Equity Offering $387,438,000 Proceeds from Notes Offering 535,275,000 Less: Notes Offering Transaction Costs (14,000,000) ------------ Net Proceeds 908,713,000 4% Convertible Subordinated Debt (535,275,000) ------------ Change in Long-term debt $373,438,000 ============ 25 3. OTHER PRO FORMA ADJUSTMENTS j) Reflects the changes in interest expense as a result of the following financing transactions as if these transactions had occurred on January 1, 1996: o Reduction in interest expense of $54,523,000 due to the use of net proceeds of $908,713,000 from the sale of Common Stock and 4% Subordinated Debt to finance the $518,000,000 purchase price of the business acquired and to repay $366,488,000 under the revolving line of credit that existed at January 1, 1996, and to repay $24,225,000 of other indebtedness that existed at January 1, 1996, all with an average interest rate of 6%. o Increase in interest expense of $21,411,000 due to the issuance of $535,275,000 of 4% Convertible Subordinated Debt. k) Reflects the income tax effect of the above pro forma adjustment using the measurement principles contained in SFAS 109. l) Reflects the additional weighted average common and common equivalent shares outstanding which have been included to reflect the Equity Offering as if it had occurred January 1, 1996. 26 USA WASTE SERVICES, INC. EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 23.1 Consent of Independent Accountants
1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of USA Waste Services, Inc. on Form S-3 (File Nos. 33-42988, 33-43809, 33-76226, 33-85018, 333-00097, 333-08573, 333-17421, 333-17453, and 333-21035), on Form S-4 (File Nos. 33-77110, 33-59259, 33-60103, 33-63981, 333-02181, 333-08161, and 333-14109), and on Form S-8 (File Nos. 33-43619, 33-72436, 33-84988, 33-84990, 33-59807, 33-61621, 33-61625, 33-61627, 333-14115, and 333-14613), of our report dated October 16, 1996 (except for Notes 1 and 8 which are as at January 15, 1997), on our audit of the financial statements of Laidlaw Solid Waste Management Group - Canadian Operations as at August 31, 1996 and for the year then ended, which is included in this Current Report on Form 8-K/A. COOPERS & LYBRAND Chartered Accountants Hamilton, Canada July 22, 1997