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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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.)
1001 FANNIN
SUITE 4000
HOUSTON, TEXAS 77002
(Address of principal executive offices)
(713) 512-6200
(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
--- ---
The number of shares of Common Stock, $.01 par value, of the Registrant
outstanding at August 12, 1997, was 162,769,036.
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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)
June 30, December 31,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 43,937 $ 23,511
Accounts receivable, net 327,707 210,038
Notes and other receivables 61,206 25,579
Deferred income taxes 31,980 39,714
Prepaid expenses and other 56,628 41,139
----------- -----------
Total current assets 521,458 339,981
Notes and other receivables 56,345 49,059
Property and equipment, net 2,917,497 1,810,251
Excess of cost over net assets of acquired businesses, net 873,189 433,913
Other intangible assets, net 85,146 83,486
Other assets 164,207 113,815
----------- -----------
Total assets $ 4,617,842 $ 2,830,505
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 153,231 $ 94,900
Accrued liabilities 145,121 172,916
Deferred revenues 38,968 23,450
Current maturities of long-term debt 49,520 28,695
----------- -----------
Total current liabilities 386,840 319,961
Long-term debt, less current maturities 1,996,958 1,158,305
Deferred income taxes 132,478 8,786
Closure, post-closure, and other liabilities 235,429 188,177
----------- -----------
Total liabilities 2,751,705 1,675,229
----------- -----------
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; 160,702,719 and
139,609,250 shares issued, respectively 1,607 1,396
Additional paid-in capital 1,845,112 1,255,856
Retained earnings (accumulated deficit) 35,760 (85,649)
Foreign currency translation adjustment (15,858) (15,843)
Less treasury stock at cost, 23,485 shares (484) (484)
----------- -----------
Total stockholders' equity 1,866,137 1,155,276
----------- -----------
Total liabilities and stockholders' equity $ 4,617,842 $ 2,830,505
=========== ===========
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 June 30, Six months ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- --------- ----------
(restated) (restated)
Operating revenues $ 535,185 $ 327,742 $ 900,090 $ 610,267
--------- --------- --------- ---------
Costs and expenses:
Operating (exclusive of depreciation
and amortization shown below) 275,680 177,255 463,403 336,211
General and administrative 59,820 40,149 102,614 76,853
Depreciation and amortization 62,614 37,103 108,203 69,804
Merger costs -- 38,100 -- 38,100
Unusual items -- 12,952 -- 12,952
--------- --------- --------- ---------
398,114 305,559 674,220 533,920
--------- --------- --------- ---------
Income from operations 137,071 22,183 225,870 76,347
--------- --------- --------- ---------
Other income (expense):
Interest expense (21,416) (11,230) (33,373) (22,457)
Interest and other income, net 4,815 2,395 9,852 5,540
--------- --------- --------- ---------
(16,601) (8,835) (23,521) (16,917)
--------- --------- --------- ---------
Income before income taxes 120,470 13,348 202,349 59,430
Provision for income taxes 48,188 15,416 80,940 33,846
--------- --------- --------- ---------
Net income (loss) $ 72,282 $ (2,068) $ 121,409 $ 25,584
========= ========= ========= =========
Primary earnings (loss) per common share $ 0.43 $ (0.02) $ 0.75 $ 0.19
========= ========= ========= =========
Fully diluted earnings (loss) per common share $ 0.43 $ (0.02) $ 0.75 $ 0.19
========= ========= ========= =========
Primary weighted average number of common
and common equivalent shares
outstanding 174,808 132,887 167,861 135,790
========= ========= ========= =========
Fully diluted weighted average number of
common and common equivalent shares
outstanding 179,080 132,887 171,995 136,074
========= ========= ========= =========
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)
Retained Foreign
Additional Earnings Currency
Preferred Common Paid-in (Accumulated Translation Treasury
Stock Stock Capital Deficit) Adjustment Stock
----------- --------- ----------- --------- --------- --------
Balance, December 31, 1996 $ -- $1,396 $1,255,856 $ (85,649) $(15,843) $ (484)
Common stock options and warrants
exercised, including tax benefits -- 21 37,772 -- -- --
Common stock issued in purchase
acquisitions and development projects -- 42 135,455 -- -- --
Common stock issued for acquisitions
accounted for as poolings of interests -- 30 15,986 -- -- --
Common stock issued in public offering -- 115 387,323 -- -- --
Foreign currency translation adjustment -- -- -- -- (15) --
Other -- 3 12,720 -- -- --
Net income -- -- -- 121,409 -- --
----------- ------ ---------- --------- -------- -----
Balance, June 30, 1997 $ -- $1,607 $1,845,112 $ 35,760 $(15,858) $(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)
Six Months Ended June 30,
------------------------
1997 1996
-------- ---------
(restated)
Cash flows from operating activities:
Net income $ 121,409 $ 25,584
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 108,203 69,804
Deferred income taxes 31,097 12,944
Changes in assets and liabilities, net of
effects of acquisitions and divestitures (205,648) (33,976)
----------- ---------
Net cash provided by operating activities 55,061 $ 74,356
----------- ---------
Cash flows from investing activities:
Acquisitions of businesses, net of
cash acquired (1,093,185) (139,795)
Capital expenditures (180,676) (151,585)
Loans and advances to others (37,732) (15,086)
Collection of loans to others 6,336 1,472
Proceeds from sale of assets 107,654 3,347
Change in restricted funds 5,435 (16,077)
----------- ---------
Net cash used in investing activities (1,192,168) (317,724)
----------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,640,995 659,905
Principal payments on long-term debt (882,409) (417,448)
Net proceeds from issuance of common stock 387,438 2,033
Proceeds from exercise of common stock
options and warrants 19,743 11,311
Other (8,108) 1,134
----------- ---------
Net cash provided by financing activities 1,157,659 256,935
----------- ---------
Effect of exchange rate changes on cash and
cash equivalents (126) 1
----------- ---------
Increase in cash and cash equivalents 20,426 13,568
Cash and cash equivalents at beginning of period 23,511 21,058
----------- ---------
Cash and cash equivalents at end of period $ 43,937 $ 34,626
=========== =========
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 June 30, 1997 and December 31, 1996, the
condensed consolidated statements of operations for the three and six months
ended June 30, 1997 and 1996, the condensed consolidated statement of
stockholders' equity for the six months ended June 30, 1997, and the condensed
consolidated statements of cash flows for the six months ended June 30, 1997
and 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 periods presented. The condensed consolidated balance
sheet as of December 31, 1996 was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. 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, 1996, as amended on Form 10-K/A filed April 30, 1997.
1. BUSINESS COMBINATIONS
On March 12, 1997, the Company acquired all of the Canadian solid waste
subsidiaries of Allied Waste Industries, Inc., representing 41 collection
businesses, seven landfills, and eight transfer stations in the provinces of
Alberta, British Columbia, Manitoba, Ontario, Quebec, and Saskatchewan for
approximately $518,000,000 in cash. The acquisition was accounted for as a
purchase.
On April 1, 1997, the Company acquired substantially all of the assets of
Mid-American Waste Systems, Inc. for approximately $201,000,000, consisting
primarily of cash and a limited amount of debt assumption. The assets acquired
include 11 collection businesses, 11 landfills, six transfer stations, and
three recycling businesses. The acquisition was accounted for as a purchase.
On June 10, 1997, the Company acquired the majority of the Waste Management,
Inc. Canadian solid waste businesses for $124,000,000 in cash and 1,705,757
shares of the Company's common stock. The assets acquired include 13 collection
businesses, one landfill, and three transfer stations in the provinces of
Alberta, British Columbia, Ontario, and Quebec. The acquisition was accounted
for as a purchase.
During the six months ended June 30, 1997, in addition to the above described
transactions, the Company acquired seven landfills, 61 collection businesses,
seven transfer stations, and 1 recycling business for approximately
$308,403,000 in cash, $35,943,000 in liabilities incurred or debt assumed, and
2,242,337 shares of the Company's common stock. These acquisitions were
accounted for as purchases.
The unaudited pro forma information set forth below assumes all first and
second quarter 1997 acquisitions accounted for as purchases and all 1996
acquisitions accounted for as purchases occurred at the beginning of 1996. The
unaudited pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that actually
would have been achieved had the purchase acquisitions been consummated at that
time (in thousands, except per share amounts):
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Six Months Ended June 30,
--------------------------
1997 1996
----------- -----------
Operating revenues $ 1,140,512 $ 1,131,218
Net income 130,709 51,287
Primary earnings per common share 0.80 0.36
Fully diluted earnings per common share 0.79 0.36
In addition to the above described transactions, the Company consummated five
acquisitions accounted for as poolings of interests during the six months ended
June 30, 1997, pursuant to which the Company issued 3,047,916 shares of its
common stock in exchange for all outstanding shares of the acquired companies.
Periods prior to consummation of these mergers were not restated to include the
accounts and operations of the acquired companies as the combined results would
not be materially different from the results as presented.
2. DIVESTITURES
In connection with the Company's merger with Sanifill, Inc., consummated on
August 30, 1996, the United States Department of Justice ordered the divestiture
of certain solid waste collection and disposal assets and operations in
Houston, Texas. On January 31, 1997, the Company sold these assets to
TransAmerican Waste Industries, Inc. ("TransAmerican") for $13,600,000 in cash
plus warrants to purchase 1,500,000 shares of TransAmerican's common stock at
an exercise price of $1.50 per share. The warrants are exercisable for a period
of five years.
On June 1, 1997, the Company sold eight collection businesses, eight landfills,
and six transfer stations to Allied Waste Industries, Inc. for approximately
$88,000,000.
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
June 30, December 31,
1997 1996
----------- ------------
Revolving credit facility $ 820,000 $ 637,000
Senior notes, maturing in varying annual installments through June
2005, interest ranging from 7.29% to 8.44% 107,500 107,500
Convertible subordinated debentures, interest at 5% 115,000 115,000
Convertible subordinated notes, interest at 4% 535,275 --
Note payable to bank, interest at Banker's Acceptance plus 0.45% 160,000 --
Subordinated debt, maturing in varying monthly installments
through January 2008, interest ranging from 7.25% to 10% 5,496 5,589
Industrial revenue bonds, principal payable in annual installments
maturing in 1997-2021, variable interest rates (3.1% to
3.4% at June 30, 1997), enhanced by letters of credit 208,514 164,639
Other 94,693 157,272
----------- -----------
2,046,478 1,187,000
Less current maturities 49,520 28,695
----------- -----------
$ 1,996,958 $ 1,158,305
=========== ===========
At December 31, 1996, the Company had borrowed $637,000,000 and had letters of
credit issued of $277,994,000 under its $1,200,000,000 senior revolving credit
facility. The credit facility was used to refinance existing bank loans and
letters of credit and to fund additional acquisitions and working capital. The
credit facility was available for standby letters of credit of up to
$400,000,000. 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
0.30% per annum, or an applicable interest rate of 5.87% per annum at December
31, 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 0.15% per
annum at December 31, 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. Principal reductions were not required during the
five-year term of the credit facility. On March 5, 1997, the credit facility
was replaced with a $1,600,000,000 senior revolving credit facility with the
same general terms, covenants, and
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limitations, which is available for standby letters of credit of up to
$500,000,000. At June 30, 1997, the Company had borrowed $820,000,000 and had
letters of credit of $385,060,000 under its $1,600,000,000 senior revolving
credit facility. The applicable interest rate and facility fee at June 30, 1997
was 6.05% per annum (including the spread set at 0.3% per annum) and 0.15%
per annum, respectively.
On February 7, 1997, the Company issued $535,275,000 of 4% convertible
subordinated notes, due on February 1, 2002 ("Notes Offering"). Interest is
payable semi-annually in February and August. The notes are convertible into
shares of the Company's common stock at a conversion price of $43.56 per share.
The notes are subordinated in right of payment to all existing and future senior
indebtedness, as defined. The notes are redeemable after February 1, 2000 at the
option of the Company at 101.6% of the principal amount, declining to 100.8% of
the principal amount on February 1, 2001 and thereafter until maturity at which
time the notes will be redeemed at 100%, plus accrued interest. Deferred
offering costs of approximately $14,000,000 were incurred and are being
amortized ratably over the life of the notes. The proceeds were primarily used
to repay debt under the Company's credit facility, to fund acquisitions, and for
general corporate purposes.
On February 7, 1997, 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. The net proceeds of approximately $387,438,000 were primarily used
to repay debt under the Company's credit facility and for general corporate
purposes.
On May 23, 1997, the Company borrowed $160,000,000 from a Canadian bank
primarily in connection with the acquisition of a majority of the Canadian
solid waste businesses of Waste Management, Inc. (see Note 1). The note bore
interest at Banker's Acceptance plus 0.45%. On July 7, 1997, the Company
retired the $160,000,000 Canadian borrowings with proceeds from its domestic
credit facility.
Other long-term debt at June 30, 1997 and December 31, 1996 consists of
miscellaneous notes payable and obligations under capital leases. Other
long-term debt at December 31, 1996 also included $83,475,000 payable to the
former owners of a landfill and collection operation acquired by the Company in
December 1996. This amount was retired in January 1997 through additional
borrowings under the credit facility.
4. INCOME TAXES
The difference in federal income taxes at the statutory rate and the provision
for income taxes for the three and six months ended June 30, 1997, is primarily
due to state and local income taxes. The difference in federal income taxes at
the statutory rate and the provision for income taxes for the three and six
months ended June 30, 1996, is primarily due to non-deductible merger costs and
state and local income taxes.
5. COMMITMENTS AND CONTINGENCIES
Environmental matters -- The Company is subject to extensive and evolving
federal, state, and local environmental laws and regulations in the United
States and elsewhere 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 -- 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 Development Company, Inc. ("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
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settled class action of consolidated suits instituted on similar claims ("Class
Action") and Option Resource Group is continuing as a separate lawsuit. 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. By order dated April 11, 1997,
the Court denied plaintiffs' previously filed motion for summary judgement.
Discovery has been completed, and the parties have agreed in principle to
resolve the case through an alternative dispute resolution process in the
federal court later in 1997. The Company intends to continue to vigorously
defend against this action. Management of the Company believes that the
ultimate resolution of this case will not have a material adverse effect to the
Company's financial position, results of operations or cash flows.
On August 3, 1995, Frederick A. Moran and certain related persons and entities
filed a lawsuit against Chambers, certain former officers and directors of
Chambers, and Grant Thornton, 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. Discovery is ongoing in this case. Management of the Company believes
that the ultimate resolution of this case will not have a material adverse
effect to the Company's financial position, results of operations or cash
flows.
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 effect to the Company's
financial position, results of operations or cash flows. 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 and investigations 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 or other equipment.
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 $200,000,000 in umbrella insurance protection. The property policy
provides insurance coverage for all of the Company's real and personal
property, including California earthquake perils. The Company also carries
$200,000,000 in aircraft liability protection.
The Company maintains workers' compensation insurance in accordance with laws
of the various states and countries in which it has employees. The Company also
currently has an environmental impairment liability ("EIL") insurance policy
for certain of its landfills, transfer stations, and recycling facilities that
provides coverage for property damages and/or bodily injuries to third parties
caused by off-site pollution emanating from such landfills, transfer stations,
or recycling facilities. This policy provides $5,000,000 of coverage per
incident with a $10,000,000 aggregate limit.
To date, the Company has not experienced 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 to the Company's financial condition or results
of operations. 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.
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6. EARNINGS PER COMMON SHARE
Primary earnings per common share for the three and six months ended June 30,
1997, is computed by dividing net income, after adjusting for the after-tax
interest expense of approximately $3,203,000 and $5,033,000, respectively, on
the Company's 4% convertible subordinated notes that are considered to be
common stock equivalents based upon the yield test at the time of issuance, by
the weighted average number of common and dilutive common equivalent shares
outstanding of 174,808,000 and 167,861,000, respectively. Fully diluted
earnings per common share for the three and six months ended June 30, 1997, is
computed by dividing net income, after adjusting for the after-tax interest
expense of approximately $3,203,000 and $5,033,000, respectively, on the
Company's 4% convertible subordinated notes and $860,000 and $1,710,000,
respectively, on the Company's 5% convertible subordinated debentures by the
weighted average number of common, dilutive common equivalent, and all other
potentially dilutive equivalent shares outstanding of 179,080,000 and
171,995,000, respectively.
Primary earnings per common share for the three and six months ended June 30,
1996, are computed by dividing net income by the weighted average number of
common and dilutive common equivalent shares outstanding of 132,887,000 and
135,790,000, respectively. Fully diluted earnings per common share for the three
and six months ended June 30, 1996, are computed by dividing net income by the
weighted average number of common and dilutive common equivalent shares
outstanding of 132,887,000 and 136,074,000, respectively. For the three months
ended June 30, 1996, common stock equivalents from common stock options and
warrants of 6,078,000 and 6,252,000 were not included in the primary and fully
diluted earnings per share calculation, respectively, due to their antidilutive
nature for this period. Adjustments for the Company's 5% convertible
subordinated debentures were not included in the fully diluted earnings per
share calculation for the three and six months ended June 30, 1996, due to their
antidilutive nature for these periods.
7. NEW ACCOUNTING PRONOUNCEMENTS
In October 1996, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No.
96-1, Environmental Remediation Liabilities ("SOP No. 96-1"). SOP No. 96-1
provides authoritative guidance on the recognition, measurement, display, and
disclosure of environmental remediation liabilities. The adoption of SOP No.
96-1 did not have a material effect to the Company's financial position,
results of operations or cash flows.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128").
SFAS No. 128 specifies the computation, presentation, and disclosure
requirements of earnings per share and supersedes Accounting Principles Board
Opinion No. 15, Earnings Per Share. SFAS No. 128 requires a dual presentation
of basic and diluted earnings per share. Basic earnings per share, which
excludes the impact of common stock equivalents, replaces primary earnings per
share. Diluted earnings per share, which utilizes the average market price per
share as opposed to the greater of the average market price per share or ending
market price per share when applying the treasury stock method in determining
common stock equivalents, replaces fully-diluted earnings per share. SFAS No.
128 is effective for both interim and annual periods ending after December 15,
1997. The following pro forma earnings per common share information assumes the
Company adopted SFAS No. 128 in 1996 (in thousands, except per share amounts):
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Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ------------ ----------- ------------
Reported:
Primary earnings per common share $0.43 $(0.02) $0.75 $0.19
Weighted average number of common and
common equivalent shares outstanding 174,808 132,887 167,861 135,790
Fully diluted earnings per common share $0.43 $(0.02) $0.75 $0.19
Fully diluted weighted average number of
common and common equivalent
shares outstanding 179,080 132,887 171,995 136,074
Pro forma:
Basic earnings per common share $0.46 $(0.02) $0.79 $0.20
Basic weighted average shares 157,997 132,887 153,645 131,091
Diluted earnings per common share $0.43 $(0.02) $0.75 $0.19
Diluted weighted average shares 178,870 132,887 171,923 135,790
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources and includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. SFAS No. 130 is effective for both interim and annual
periods beginning after December 15, 1997. Assuming the Company adopted SFAS
No. 130 in 1996, comprehensive income would have been $72,337,000 and
$121,394,000 for the three and six months ended June 30, 1997, respectively,
and $25,715,000 for the six months ended June 30, 1996. Comprehensive loss
would have been $2,166,000 for the three months ended June 30, 1996.
8. SUBSEQUENT EVENTS
From July 1, 1997 through August 5, 1997, the Company acquired 12 collection
businesses and one landfill for approximately $17,269,000 in cash, $8,076,000
in liabilities incurred or debt assumed, and 193,198 shares of the Company's
common stock. These acquisitions were accounted for as purchases.
The unaudited pro forma information set forth below assumes all 1997
acquisitions through August 5, 1997, accounted for as purchases and all 1996
acquisitions accounted for as purchases occurred at the beginning of 1996. The
unaudited pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisitions been consummated at that time (in
thousands, except per share amounts):
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Six Months Ended June 30,
-----------------------------
1997 1996
----------- ----------
Operating revenues $1,148,727 $1,139,433
Net income 131,621 52,199
Primary earnings per common share 0.80 0.37
Fully diluted earnings per common share 0.79 0.36
On April 14, 1997, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") to acquire United Waste Systems, Inc. ("United") through a
merger transaction ("United Merger"). The United Merger is subject to, among
other conditions, antitrust clearance and approval of both companies'
stockholders. It is anticipated that the United Merger will be completed in
August of 1997 and that it will be accounted for as a pooling of interests. The
Merger Agreement provides that on the effective date of the United Merger, the
Company will issue 1.075 shares of its common stock for each share of United
outstanding common stock. Additionally, at the effective date of the United
Merger, all United stock options, whether or not such stock options have vested
or become exercisable, will be cancelled in exchange for shares of the Company's
common stock equal in market value to the fair value of such United stock
options, as determined by an independent third party. It is currently estimated
that the Company will issue approximately 48,500,000 shares pursuant to the
United Merger, however the actual number of shares to be issued will not be
determined until immediately prior to consummation. Although actual costs may
vary, the Company currently expects to incur approximately $50,000,000 in
nonrecurring costs related to the United Merger. These costs will be accrued as
of the consummation date and are expected to be incurred within twelve months of
consummation. Following the United Merger, the Company's Board of Directors will
include two members designated by United.
On August 7, 1997, the Company increased its senior revolving credit facility
to $2,000,000,000 with the same general terms, covenants and limitations as the
$1,600,000,000 senior revolving credit facility that existed at June 30, 1997,
discussed in Note 3. The $2,000,000,000 senior revolving credit facility is also
available for up to $650,000,000 of standby letters of credit. Usage of the
facility will be limited to $1,700,000,000 until the United Merger is
consummated. Loans under this facility will bear interest at a rate based on the
Eurodollar rate plus a spread not to exceed 0.575% per annum (initially set at
0.2375%) with a facility fee not to exceed 0.30% per annum (initially set at
0.1125%). The Company will be required to pay an additional fee of 0.05% if
average credit facility borrowings and letters of credit for any calendar
quarter exceed 50% of total capacity.
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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 six
months ended June 30, 1997 and 1996, 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, 1996, as amended on Form 10-K/A filed
April 30, 1997.
INTRODUCTION
The Company provides nonhazardous 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 nonhazardous solid waste management company in North America, as
measured by 1996 revenues. The Company conducts operations through subsidiaries
in multiple locations throughout the United States, Canada, Puerto Rico, and
Mexico. As of June 30, 1997, the Company owned or operated 243 collection
businesses, 83 transfer stations, 119 landfills, and 21 recycling businesses
serving more than 6,000,000 customers.
The Company's operating revenues consist primarily of fees charged for its
collection and disposal services. Operating revenues for collection services
include fees from residential, commercial, industrial, and municipal collection
customers. A portion of these fees are billed in advance; and upon receipt of
payment a liability for future service is recorded and operating 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 operating 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
disposed of at the Company's landfill sites. Fees are charged at transfer
stations based on the volume or weight of solid waste deposited, taking into
account the Company's cost of loading, transporting, and disposing of the solid
waste at a landfill. Intercompany operating revenues between the Company's
collection, transfer, and landfill operations have been eliminated in the
condensed consolidated financial statements presented elsewhere 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
expenditures are capitalized and depreciated over the estimated useful life of
a site as capacity is consumed, and include acquisition, engineering,
upgrading, construction, capitalized interest, and permitting costs. All
indirect development expenses, such as administrative salaries and general
corporate overhead, are charged to expense 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 Statement of Operations line items and for certain supplementary
data.
Period to Period Period to Period
Change for the Change for the
Three Months Ended Six Months Ended
June 30, June 30,
1997 and 1996 1997 and 1996
--------------------- --------------------
$ % $ %
--------- ------ --------- -----
STATEMENT OF OPERATIONS
Operating revenues $ 207,443 63.3% $ 289,823 47.5%
--------- ---------
Costs and expenses:
Operating (exclusive of depreciation
and amortization shown below) 98,425 55.5 127,192 37.8
General and administrative 19,671 49.0 25,761 33.5
Depreciation and amortization 25,511 68.8 38,399 55.0
Merger costs (38,100) (100.0) (38,100) (100.0)
Unusual items (12,952) (100.0) (12,952) (100.0)
--------- ---------
92,555 30.3 140,300 26.3
--------- ---------
Income from operations 114,888 517.9 149,523 195.8
--------- ---------
Other income (expense):
Interest expense (10,186) (90.7) (10,916) (48.6)
Interest and other income, net 2,420 (101.0) 4,312 77.8
--------- ---------
(7,766) (87.9) (6,604) (39.0)
--------- ---------
Income before income taxes 107,122 802.5 142,919 240.5
Provision for income taxes 32,772 212.6 47,094 139.1
--------- ---------
Net income (loss) $ 74,350 3595.3% $ 95,825 374.6%
========= =========
SUPPLEMENTARY DATA
EBITDA (1) $ 140,399 236.8% $ 187,922 128.6%
EBITDA excluding merger costs
and unusual items(1) 89,347 81.0 136,870 69.4
(1) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance under
generally accepted accounting principles, is provided because the Company
understands that such information is used by certain investors when
analyzing the financial position and performance of the Company.
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The following table presents, for the periods indicated, the percentage
relationship that the various Condensed Consolidated Statements of Operations
line items and certain supplementary data bear to operating revenues:
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
STATEMENT OF OPERATIONS
Operating revenues:
Collection 61.4% 53.2% 59.1% 53.5%
Transfer station 10.0 10.5 10.4 10.3
Disposal 24.9 29.3 26.4 28.7
Other 3.7 7.0 4.1 7.5
----- ----- ----- -----
100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Operating (exclusive of depreciation
and amortization shown below) 51.5 54.1 51.5 55.1
General and administrative 11.2 12.2 11.4 12.6
Depreciation and amortization 11.7 11.3 12.0 11.4
Merger costs 0.0 11.6 0.0 6.3
Unusual items 0.0 4.0 0.0 2.1
----- ----- ----- -----
74.4 93.2 74.9 87.5
----- ----- ----- -----
Income from operations 25.6 6.8 25.1 12.5
----- ----- ----- -----
Other income (expense):
Interest expense (4.0) (3.4) (3.7) (3.7)
Interest and other income, net 0.9 0.7 1.1 0.9
----- ----- ----- -----
(3.1) (2.7) (2.6) (2.8)
----- ----- ----- -----
Income before income taxes 22.5 4.1 22.5 9.7
Provision for income taxes 9.0 4.7 9.0 5.5
----- ----- ----- -----
Net income (loss) 13.5% (0.6)% 13.5% 4.2%
===== ===== ===== =====
SUPPLEMENTARY DATA
EBITDA (1) 37.3% 18.1% 37.1% 23.9%
EBITDA excluding merger costs
and unusual items (1) 37.3 33.7 37.1 32.3
(1) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance under
generally accepted accounting principles, is provided because the Company
understands that such information is used by certain investors when
analyzing the financial position and performance of the Company.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Operating Revenues
Operating revenues for the three and six months ended June 30, 1997, increased
$207,443,000 or 63.3% and $289,823,000 or 47.5%, respectively, compared to the
corresponding periods of 1996. The increase in operating
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revenues is attributable to the effect of acquisitions, less dispositions, and
the internal growth of comparable operations. Acquisitions made in Canada
during 1997 and the effect of acquisitions made in Canada during 1996 accounted
for increases of $83,540,000 and $110,356,000 or 25.5% and 18.1% for the three
and six months ended June 30, 1997, respectively. All other acquisitions during
1997 and the effect of all other acquisitions made during 1996 accounted for
increases of $115,798,000 and $161,077,000 or 35.3% and 26.4% for the three and
six months ended June 30, 1997, respectively. Internal growth for comparable
operations resulted in an increase in operating revenues of $31,549,000,
consisting of increases of 3.0% due to pricing and 6.6% due to volumes for the
three months ended June 30, 1997, and an increase in operating revenues of
$60,742,000, consisting of increases of 2.7% due to pricing and 7.3% due to
volumes for the six months ended June 30, 1997. The remaining decrease in
operating revenues of 7.1% and 7.0% for the three and six months ended June 30,
1997, respectively, was primarily the result of the disposition of certain
solid waste collection and disposal operations in Houston, Texas, in January
1997, related to the Company's August 1996 merger with Sanifill, Inc., the
disposition of certain nonstrategically located solid waste collection and
disposal operations in June 1997, and dispositions of non-core businesses in
1997 and 1996.
The Company's one line of business, integrated nonhazardous solid waste
management, encompasses the entire waste stream from collection to transfer
station to landfill. As indicated in the table above, the Company's mix of
operating revenues for the three and six months ended June 30, 1997, reflects
an increase in collection revenues as a percentage of total revenues. The
change in the Company's mix of operating revenues is primarily the result of
acquisition of businesses in the first and second quarters of 1997 with large
collection operations. Such acquired businesses include the Canadian solid
waste subsidiaries of Allied Waste Industries, Inc., and a majority of the
Canadian solid waste businesses of Waste Management, Inc.
Operating Costs and Expenses (Exclusive of Depreciation and Amortization Shown
Below)
Operating costs and expenses increased $98,425,000 or 55.5% and $127,192,000 or
37.8% for the three and six months ended June 30, 1997, respectively, as
compared to respective prior year periods. The increase in operating costs and
expenses is primarily attributable to the effect of new acquisitions, net of
dispositions, which resulted in an increase of $130,357,000 and $186,400,000
for the three and six months ended June 30, 1997, respectively. The increase
was offset by a decrease of $3,853,000 and $10,832,000 for the three and six
months ended June 30, 1997, respectively, related to increased utilization of
internal disposal capacity from 51.5% and 49.0% for the three and six months
ended June 30, 1996, to 54.0% and 53.5% for the corresponding periods in 1997.
Additionally, a decrease related to improvements in comparable operations of
$28,079,000 and $48,376,000 for the three and six months ended June 30, 1997,
respectively, primarily resulted from operating synergies realized from tuck-in
acquisitions as well as the Company's mergers with Sanifill, Inc. and Western
Waste Industries in August 1996 and May 1996, respectively.
As a percentage of operating revenues, operating costs and expenses decreased
from 54.1% and 55.1% for the three and six months ended June 30, 1996,
respectively, to 51.5% for the three and six months ended June 30, 1997 for the
reasons described above. These improvements in operating costs and expenses
were slightly offset by the change in revenue mix as discussed above, as
collection operations typically have higher operating costs and expenses
than disposal operations.
General and Administrative
General and administrative expenses have increased $19,671,000 and $25,761,000
or 49.0% and 33.5% for the three and six months ended June 30, 1997,
respectively, as compared to the respective prior year periods. However, as a
percentage of operating revenues, general and administrative expenses have
decreased from 12.2% and 12.6% for the three and six months ended June 30,
1997, respectively, to 11.2% and 11.4% for the three and six months ended June
30, 1997, respectively. The decrease in general and administrative expenses as
a percentage of operating revenues is primarily the result of the Company's
ability to integrate new business acquisitions without a proportionate increase
in general and administrative expenses as well as cost reductions resulting
from mergers with Sanifill, Inc. and Western Waste Industries in August 1996
and May 1996, respectively.
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Depreciation and Amortization
Depreciation and amortization increased $25,511,000 or 68.6% and $38,399,000 or
55.0% for the three and six months ended June 30, 1997, respectively, as
compared to the respective prior year periods. The increase in depreciation and
amortization expense is primarily related to new acquisitions, increased
landfill disposal volumes, and upgrades to existing operations. Additionally, as
a percentage of operating revenues, depreciation and amortization increased from
11.3% and 11.4% for the three and six months ended June 30, 1996, to 11.7% and
12.0% for the corresponding periods in 1997. The increase in depreciation and
amortization expense as a percentage of operating revenues is due to increased
utilization of internal disposal capacity as discussed above as the resulting
increased internal operating revenues are eliminated in consolidation. This
increase in depreciation and amortization related to the internalization of
landfill disposal volumes is offset by the aforementioned decrease in operating
costs and expense.
Merger Costs
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 Waste
Industries, Grand Central Sanitation, Inc., and a collection company,
respectively. The $35,000,000 of merger costs related to Western Waste
Industries 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.
Unusual Items
In the second quarter of 1996, unusual items include $4,824,000 of retirement
benefits associated with Western Waste Industries' pre-merger retirement and
severance plans and $8,128,000 of estimated future losses related to municipal
solid waste contracts in California as a result of the continuing decline in
prices of recyclable materials.
Income from Operations
Income from operations as a percent of operating revenues was 25.6% and 25.1%
for the three and six months ended June 30, 1997, respectively, as compared to
6.8% and 12.5% for the prior year corresponding periods. Exclusive of
nonrecurring charges, income from operations as a percent of operating revenues
was 22.4% and 20.9% for the three and six months ended June 30, 1996. The
improvement in recurring operations is the result of economies of scale
realized by the Company with respect to recent mergers and acquisitions,
increased utilization of internal disposal capacity, 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, increased due to
an increase in the Company's outstanding debt balance. Capitalized interest for
the three and six months ended June 30, 1997, was $5,260,000 and $10,474,000,
respectively, as compared to $4,464,000 and $8,339,000 for the corresponding
1996 periods. The increase in other income for the six months ended June 30,
1997, primarily relates to realization of a portion of the deferred gain
recorded in connection with the 1996 sale of certain nonhazardous oil field
waste disposal operations.
Provision for Income Taxes
The provision for income taxes increased $32,772,000 and $47,094,000 for the
three and six months ended June 30, 1997, respectively, as compared to the
corresponding periods of 1996. The difference in federal income taxes at the
statutory rate and the provision for income taxes for the three and six months
ended June 30, 1997, is primarily due to state and local income taxes. The
difference in federal income taxes at the statutory rate and the provision for
income taxes for the three and six months ended June 30, 1996, is primarily due
to non-deductible merger costs and state and local income taxes.
Net Income
For reasons discussed above, net income increased $74,350,000 and $95,825,000
for the three and six months ended June 30, 1997, respectively, as compared to
the corresponding periods of 1996.
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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 incurrence of debt and 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 June 30, 1997, the Company had working capital of $134,618,000 (a ratio of
current assets to current liabilities of 1.35:1) and a cash balance of
$43,937,000, which compares to working capital of $20,020,000 (a ratio of
current assets to current liabilities of 1.06:1) and a cash balance of
$23,511,000 as of December 31, 1996. For the first six months of 1997, net cash
from operating activieies was approximately $55,061,000 and net cash from
financing activities was approximately $1,157,659,000. These funds were used
primarily to fund investments in other businesses of $1,093,185,000 and for
capital expenditures of approximately $180,676,000.
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 1997 capital expenditures through internally generated cash
flow and amounts available under its revolving credit facility.
At December 31, 1996, the Company had borrowed $637,000,000 and had letters of
credit issued of $277,994,000 under its $1,200,000,000 senior revolving credit
facility. The credit facility was used to refinance existing bank loans and
letters of credit and to fund additional acquisitions and working capital. The
credit facility was available for standby letters of credit of up to
$400,000,000. 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
0.30% per annum, or an applicable interest rate of 5.87% per annum at December
31, 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 0.15% per
annum at December 31, 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. Principal reductions were not required during the
five-year term of the credit facility. On March 5, 1997, the credit facility
was replaced with a $1,600,000,000 senior revolving credit facility with the
same general terms, covenants, and limitations, which is available for standby
letters of credit of up to $500,000,000. At June 30, 1997, the Company had
borrowed $820,000,000 and had letters of credit issued of $385,060,000 under
its $1,600,000,000 senior revolving credit facility. The applicable interest
rate and facility fee at June 30, 1997 were 6.05% per annum (including the
spread set at 0.3% per annum) and 0.15% per annum, respectively.
On February 7, 1997, the Company issued $535,275,000 of 4% convertible
subordinated notes, due on February 1, 2002 ("Notes Offering"). Interest is
payable semi-annually in February and August. The notes are convertible into
shares of the Company's common stock at a conversion price of $43.56 per share.
The notes are subordinated in right of payment to all existing and future
senior indebtedness, as defined. The notes are redeemable after February 1,
2000 at the option of the Company at 101.6% of the principal amount, declining
to 100.8% of the principal amount on February 1, 2001 and thereafter until
maturity at which time the notes will be redeemed at 100%, plus accrued
interest. Deferred offering costs of approximately $14,000,000 were incurred and
are being amortized ratably over the life of the notes. The proceeds were
primarily used to repay debt under the Company's credit facility and for general
corporate purposes.
On February 7, 1997, 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. The net proceeds of approximately $387,438,000 were primarily used
to repay debt under the Company's credit facility and for general corporate
purposes.
On June 10, 1997, the Company acquired the majority of the Canadian solid waste
businesses of Waste Management, Inc. for $124,000,000 in cash and 1,705,757
shares of the Company's common stock. Primarily in
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19
connection with this transaction, the Company borrowed $160,000,000 from a
Canadian bank bearing interest at Banker's Acceptance plus 0.45%. On July 7,
1997, the Company retired the $160,000,000 Canadian borrowings with proceeds
from its domestic credit facility.
After considering the July 1997 payment of $160,000,000 related to the Canadian
borrowings, the Company would have had approximately $234,940,000 available for
additional cash borrowings under its credit facility as of June 30, 1997.
On April 14, 1997, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") to acquire United Waste Systems, Inc. ("United") through a
merger transaction ("United Merger"). The United Merger is subject to, among
other conditions, antitrust clearance and approval of both companies'
stockholders. It is anticipated that the United Merger will be completed in
August of 1997 and that it will be accounted for as a pooling of interests. The
Merger Agreement provides that on the effective date of the United Merger, the
Company will issue 1.075 shares of its common stock for each share of United
outstanding common stock. Additionally, at the effective date of the United
Merger, all United stock options, whether or not such stock options have vested
or become exercisable, will be cancelled in exchange for shares of the Company's
common stock equal in market value to the fair value of such United stock
options, as determined by an independent third party. It is currently estimated
that the Company will issue approximately 48,500,000 shares pursuant to the
United Merger, however the actual number of shares to be issued will not be
determined until immediately prior to consummation. Although actual costs may
vary, the Company currently expects to incur approximately $50,000,000 in
nonrecurring costs related to the United Merger. These costs will be accrued as
of the consummation date and are expected to be incurred within twelve months of
consummation. Following the United Merger, the Company's Board of Directors will
include two members designated by United.
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.
On July 30, 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission to provide for the issuance of up to
$1,500,000,000 of debt securities and/or the Company's common stock. The debt
securities and/or common stock may be issued at prices and at terms to be
determined at or prior to the time of any such issuance.
On August 4, 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission to provide for the issuance of up to
20,000,000 shares of the Company's common stock that may be offered and issued
by the Company from time to time in connection with the acquisition directly or
indirectly by the Company of other businesses or properties or interests
therein, and which may be reserved for issuance pursuant to, or offered and
issued upon exercise or conversion of, warrants, options, to time convertible
notes, or other similar instruments issued by the Company from time to time in
connection with any such acquisitions.
On August 7, 1997, the Company increased its senior revolving credit facility to
$2,000,000,000 with the same general terms, covenants and limitations as the
$1,600,000,000 senior revolving credit facility that existed at June 30, 1997.
The $2,000,000,000 senior revolving credit facility is also available for up to
$650,000,000 of standby letters of credit. Usage of the facility will be limited
to $1,700,000,000 until the United Merger is consummated. Loans under this
facility will bear interest at a rate based on the Eurodollar rate plus a spread
not to exceed 0.575% per annum (initially set at 0.2375%) with a facility fee
not to exceed 0.30% per annum (initially set at 0.1125%). The Company will be
required to pay an additional fee of 0.05% if average credit facility borrowings
and letters of credit for any calendar quarter exceed 50% of total capacity.
SEASONALITY AND INFLATION
The Company's operating revenues tend to be somewhat lower in the winter
months. This is generally reflected in
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the Company's first quarter results of operations and may also be reflected in
its fourth quarter results of operations. This is primarily attributable to the
fact that (i) the volume of waste relating to construction and demolition
activities tends to increase in the spring and summer months and (ii) the
volume of industrial and residential waste in certain regions where the
Company operates tends to decrease during the winter months.
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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various litigation matters arising in the ordinary
course of business. Management believes that the ultimate resolution of these
matters will not have a material adverse effect to the Company's financial
position, results of operations or cash flows. 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 and investigations 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 or
other equipment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The exhibits to this report are listed in the Exhibit Index included elsewhere
herein.
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(b) REPORTS ON FORM 8-K:
A report on Form 8-K/A (Amendment No. 1) was filed April 15, 1997. The Company
filed this report to amended its Form 8-K dated March 12, 1997, regarding its
acquisition of the Canadian solid waste subsidiaries of Allied Waste
Industries, Inc. to include the audited financial statements of the business
acquired and pro forma condensed consolidated financial statements.
A report on Form 8-K was filed April 17, 1997. The Company filed information
related to its Agreement and Plan of Merger with United Waste Systems, Inc.
dated April 13, 1997.
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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
August 14, 1997 BY: /s/ EARL E. DEFRATES
- --------------- ----------------------------
Date Earl E. DeFrates,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
August 14, 1997 BY: /s/ BRUCE E. SNYDER
- --------------- ----------------------------
Date Bruce E. Snyder,
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
23
24
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
12 Computation of Ratio of Earnings to Fixed Charges
15 None
18 None
19 None
22 None
23 None
24 None
27 Financial Data Schedule
99 None
- ---------------------------------------
* Exhibits not listed are inapplicable.
24
1
EXHIBIT 11
USA WASTE SERVICES, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1997 1996 1997 1996
----------- ------------ ------------ ----------
(restated) (restated)
Primary
Net income (loss) $ 72,282 $ (2,068) $ 121,409 $ 25,584
Interest on 4% convertible subordinated notes, net of
taxes (2) 3,203 -- 5,033 --
--------- --------- --------- ---------
Net income (loss) - primary $ 75,485 $ (2,068) $ 126,442 $ 25,584
========= ========= ========= =========
Number of common shares outstanding 160,679 134,312 160,679 134,312
Effect of using weighted average common shares outstanding (2,682) (1,425) (7,034) (3,221)
Common stock equivalents:
Common stock options and warrants (1) 4,523 -- 4,507 4,699
4% Convertible subordinated notes (2) 12,288 -- 9,709 --
--------- --------- --------- ---------
Total 174,808 132,887 167,861 135,790
========= ========= ========= =========
Primary earnings (loss) per common share $ 0.43 $ (0.02) $ 0.75 $ 0.19
========= ========= ========= =========
Fully diluted
Net income (loss) $ 72,282 $ (2,068) $ 121,409 $ 25,584
Interest on 4% convertible subordinated notes, net of
taxes (2) 3,203 -- 5,033 --
Interest on 5% convertible subordinated debentures,
net of taxes (3) 860 -- 1,710 --
--------- --------- --------- ---------
Net income (loss) - fully diluted $ 76,345 $ (2,068) $ 128,152 $ 25,584
========= ========= ========= =========
Number of common shares outstanding 160,679 134,312 160,679 134,312
Effect of using weighted average common shares outstanding (2,682) (1,425) (7,034) (3,221)
Common stock equivalents:
Common stock options and warrants (1) 4,733 -- 4,579 4,983
4% Convertible subordinated notes (2) 12,288 -- 9,709 --
5% Convertible subordinated debentures (3) 4,062 -- 4,062 --
--------- --------- --------- ---------
Total 179,080 132,887 171,995 136,074
========= ========= ========= =========
Fully diluted earnings (loss) per common share $ 0.43 $ (0.02) $ 0.75 $ 0.19
========= ========= ========= =========
- -----------------------------------------------------------------------------
(1) The dilutive impact of common stock options and warrants were determined
based on the "Treasury Stock Method," as set forth in Accounting Principles
Board Opinion No. 15. For the three months ended June 30, 1996, common
stock equivalents from common stock options and warrants of 6,078,000 and
6,252,000 were not included in the primary and fully diluted earnings per
share calculation, respectively, due to their antidilutive nature for this
period.
(2) In accordance with Accounting Principles Board Opinion No. 15, convertible
subordinated notes that are deemed to be common stock equivalents are
considered in computing both primary and fully diluted earnings per common
share if inclusion of such convertible subordinated notes is dilutive
based on the "If-Converted Method." The Company's 4% convertible
subordinated notes, issued February 7, 1997, are considered to be common
stock equivalents based upon the yield test at the time of issuance. The
4% convertible subordinated notes are dilutive for both primary and fully
diluted earnings per common share for the three and six months ended June
30, 1997.
(3) In accordance with Accounting Principles Board Opinion No. 15, convertible
subordinated debentures are considered in computing fully diluted earnings
per common share if inclusion of such convertible subordinated debentures
is dilutive based on the "If-Converted Method." The Company's 5%
convertible subordinated debentures, issued March 4, 1996, are dilutive
for the three and six months ended June 30, 1997, however are antidilutive
for the three and six months ended June 30, 1996.
25
1
EXHIBIT 12
USA WASTE SERVICES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
Six Months Ended June 30,
---------------------------
1997 1996 (1)
---------- ---------
Income before taxes $ 202,349 $ 59,430
---------- ---------
Fixed charges deducted from income:
Interest expense 33,373 22,457
Implicit interest in rents 3,068 3,206
---------- ---------
36,441 25,663
---------- ---------
Earnings available for fixed charges $ 238,790 $ 85,093
========== =========
Interest expense $ 33,373 $ 22,457
Capitalized interest 10,474 8,339
Implicit interest in rents 3,068 3,206
---------- ---------
Total fixed charges $ 46,915 $ 34,002
========== =========
Ratio of earnings to fixed charges 5.09x 2.50x
========== =========
- --------------------------------------------------------------------------------
(1) Income before taxes for the six months ended June 30, 1996, includes
merger costs and unusual items of $38,100,000 and $12,952,000,
respectively. Excluding the effect of these nonrecurring charges, the
ratio of earnings to fixed charges would be 4.00x for the six
months ended June 30, 1996.
26
5
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
43,937,000
0
345,461,000
(17,754,000)
0
521,458,000
3,578,015,000
(660,518,000)
4,617,842,000
386,840,000
1,996,958,000
0
0
1,607,000
1,864,530,000
4,617,842,000
900,090,000
900,090,000
463,403,000
674,220,000
(9,852,000)
0
33,373,000
202,349,000
80,940,000
121,409,000
0
0
0
121,409,000
0.75
0.75
