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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 SEPTEMBER 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 November 12, 1997, was 216,610,013.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USA WASTE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
September 30, December 31,
1997 1996
------------- -----------
ASSETS (restated)
Current assets:
Cash and cash equivalents $ 63,240 $ 26,079
Accounts receivable, net 435,637 265,002
Notes and other receivables 68,635 38,495
Deferred income taxes 55,776 48,561
Prepaid expenses and other 83,365 49,365
---------- -----------
Total current assets 706,653 427,502
Notes and other receivables 55,963 49,059
Property and equipment, net 3,595,868 2,198,231
Excess of cost over net assets of acquired businesses, net 1,316,027 715,910
Other intangible assets, net 105,227 88,341
Other assets 264,881 152,504
---------- -----------
Total assets $6,044,619 $ 3,631,547
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 194,192 $ 118,823
Accrued liabilities 256,399 206,591
Deferred revenues 55,851 35,640
Current maturities of long-term debt 39,317 34,606
---------- -----------
Total current liabilities 545,759 395,660
Long-term debt, less current maturities 2,440,879 1,470,282
Deferred income taxes 187,842 45,421
Closure, post-closure, and other liabilities 369,784 246,194
---------- -----------
Total liabilities 3,544,264 2,157,557
---------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 10,000,000
shares authorized; none issued -- --
Common stock, $.01 par value;
500,000,000 shares authorized; 216,048,062 and
181,630,519 shares issued, respectively 2,160 1,816
Additional paid-in capital 2,363,732 1,504,449
Retained earnings (accumulated deficit) 150,625 (15,948)
Foreign currency translation adjustment (15,678) (15,843)
Less treasury stock at cost, 23,485 shares (484) (484)
---------- -----------
Total stockholders' equity 2,500,355 1,473,990
---------- -----------
Total liabilities and stockholders' equity $6,044,619 $ 3,631,547
========== ===========
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 September 30, Nine months ended September 30,
--------------------------- -----------------------------
1997 1996 1997 1996
--------- ----------- ----------- -----------
(restated) (restated)
Operating revenues $ 761,751 $ 442,801 $ 1,878,460 $ 1,204,906
--------- ----------- ----------- -----------
Costs and expenses:
Operating (exclusive of depreciation
and amortization shown below) 388,908 231,509 970,373 649,829
General and administrative 81,945 51,647 207,352 147,708
Depreciation and amortization 87,671 51,344 219,255 138,893
Merger costs 104,152 84,751 109,411 125,047
Unusual items 24,720 50,848 24,720 63,800
--------- ----------- ----------- -----------
687,396 470,099 1,531,111 1,125,277
--------- ----------- ----------- -----------
Income (loss) from operations 74,355 (27,298) 347,349 79,629
--------- ----------- ----------- -----------
Other income (expense):
Interest expense (29,768) (15,417) (71,040) (45,080)
Interest and other income, net 4,071 4,014 15,508 7,786
--------- ----------- ----------- -----------
(25,697) (11,403) (55,532) (37,294)
--------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item 48,658 (38,701) 291,817 42,335
Provision for (benefit from) income taxes 23,463 (11,230) 121,364 31,355
--------- ----------- ----------- -----------
Income (loss) before extraordinary item 25,195 (27,471) 170,453 10,980
Extraordinary item related to early
retirement of debt, net of tax benefit of $4,195 (6,293) -- (6,293) --
--------- ----------- ----------- -----------
Net income (loss) $ 18,902 $ (27,471) $ 164,160 $ 10,980
========= =========== =========== ===========
Primary earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.12 $ (0.16) $ 0.81 $ 0.06
Extraordinary item (0.03) -- (0.03) --
--------- ----------- ----------- -----------
Net income (loss) $ 0.09 $ (0.16) $ 0.78 $ 0.06
========= =========== =========== ===========
Fully diluted earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.12 $ (0.16) $ 0.81 $ 0.06
Extraordinary item (0.03) -- (0.03) --
--------- ----------- ----------- -----------
Net income (loss) $ 0.09 $ (0.16) $ 0.78 $ 0.06
========= =========== =========== ===========
Primary weighted average number of common
and common equivalent shares
outstanding 218,197 176,392 220,342 180,675
========= =========== =========== ===========
Fully diluted weighted average number of
common and common equivalent shares
outstanding 218,197 176,392 229,527 181,480
========= =========== =========== ===========
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 $ -- $ 1,816 $1,504,449 $(15,948) $(15,843) $(484)
Common stock options and warrants
exercised, including tax benefits -- 28 65,601 -- -- --
Common stock issued in purchase
acquisitions and development projects -- 67 225,078 -- -- --
Common stock issued for acquisitions
accounted for as poolings of interests -- 71 23,372 527 -- --
Common stock issued in public offering -- 152 506,196 -- -- --
Common stock issued for United stock options -- 19 25,809 -- -- --
Foreign currency translation adjustment -- -- -- -- 165 --
Transactions of pooled companies -- -- (1,735) 1,567 -- --
Other -- 7 14,962 319 -- --
Net income -- -- -- 164,160 -- --
---------- ------- ---------- -------- -------- -----
Balance, September 30, 1997 $ -- $ 2,160 $2,363,732 $150,625 $(15,678) $(484)
========== ======= ========== ======== ======== =====
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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USA WASTE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1997 1996
--------- --------
(restated)
Cash flows from operating activities:
Net income $ 164,160 $ 10,980
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 219,255 138,893
Deferred income taxes 35,678 (14,827)
Effect of nonrecurring charges 48,479 61,444
Changes in assets and liabilities, net of
effects of acquisitions and divestitures (276,408) 43,591
--------- --------
Net cash provided by operating activities 191,164 240,081
--------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (1,339,392) (330,760)
Capital expenditures (274,889) (287,532)
Loans and advances to others (38,910) (13,856)
Collection of loans to others 6,810 13,134
Proceeds from sale of assets 112,564 12,933
Change in restricted funds 9,198 (25,230)
--------- --------
Net cash used in investing activities (1,524,619) (631,311)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 3,201,270 1,441,129
Principal payments on long-term debt (2,366,388) (1,065,261)
Net proceeds from issuance of common stock 506,781 --
Proceeds from exercise of common stock
options and warrants 32,753 35,671
Other (3,771) (1,260)
--------- --------
Net cash provided by financing activities 1,370,645 410,279
--------- --------
Effect of exchange rate changes on cash and
cash equivalents (29) 9
--------- --------
Increase in cash and cash equivalents 37,161 19,058
Cash and cash equivalents at beginning of period 26,079 27,780
--------- --------
Cash and cash equivalents at end of period $ 63,240 $ 46,838
========= ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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USA WASTE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The condensed consolidated balance sheets of USA Waste Services, Inc. and
subsidiaries (the "Company") as of September 30, 1997 and December 31, 1996, the
condensed consolidated statements of operations for the three and nine months
ended September 30, 1997 and 1996, the condensed consolidated statement of
stockholders' equity for the nine months ended September 30, 1997, and the
condensed consolidated statements of cash flows for the nine months ended
September 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 Company has
restated the previously issued financial statements as of December 31, 1996, and
for the three and nine months ended September 30, 1996, to reflect the merger
with United Waste Systems, Inc. ("United") consummated on August 26, 1997,
accounted for using the pooling of interests method of accounting. 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, the Company's Joint Proxy Statement and
Prospectus dated July 24, 1997, included in the Company's Registration Statement
on Form S-4 filed in connection with the merger with United, and the
supplemental consolidated financial statements and supplemental interim
condensed consolidated financial statements and related notes thereto included
in the Company's Current Report on Form 8-K dated November 12, 1997, filed in
connection with the merger with United.
1. BUSINESS COMBINATIONS
On August 26, 1997, the Company consummated a merger agreement with United (the
"United Merger") accounted for as a pooling of interests and, accordingly, the
accompanying financial statements have been restated to include the accounts and
operations of United for all prior periods presented. Under the terms of the
United Merger, the Company issued 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
had vested or had become exercisable, were cancelled in exchange for 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. The United Merger
increased the Company's outstanding shares of common stock by approximately
51,900,000 shares, which includes approximately 1,900,000 shares exchanged for
the aforementioned United stock options. In the third quarter of 1997, the
Company incurred approximately $89,152,000 in merger related costs associated
with the United Merger.
Combined and separate results of operations of the Company prior to consummation
of the merger ("USA Waste") and United for the restated periods are as follows
(in thousands):
USA Waste United Combined
------------- ------------- ----------------
Six months ended June 30, 1997 (unaudited):
Operating revenues $ 900,090 $ 216,619 $ 1,116,709
Income before income taxes 202,349 40,810 243,159
Net income 121,409 23,849 145,258
Six months ended June 30, 1996 (unaudited):
Operating revenues $ 610,267 $ 151,838 $ 762,105
Income before income taxes 59,430 21,606 81,036
Net income 25,584 12,867 38,451
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
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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 nine months ended September 30, 1997, in addition to the above
described transactions, the Company acquired 14 landfills, 160 collection
businesses, 19 transfer stations, and one recycling business for approximately
$476,153,000 in cash, $37,974,000 in liabilities incurred or debt assumed, and
3,729,000 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, second,
and third 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):
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
Operating revenues $ 2,223,410 $ 2,120,696
Income before extraordinary item 186,875 58,171
Net income 180,582 58,171
Primary earnings per common share:
Income before extraordinary item 0.88 0.31
Net income 0.85 0.31
Fully diluted earnings per common share:
Income before extraordinary item 0.87 0.31
Net income 0.84 0.31
In addition to the above described transactions, the Company consummated 23
acquisitions accounted for as poolings of interests during the nine months ended
September 30, 1997, pursuant to which the Company issued approximately 7,057,000
shares of its common stock. Periods prior to the date of consummation of these
acquisitions 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. Related to these poolings of interests, the
Company recognized merger costs of $1,996,000, $3,263,000, and $15,000,000
during the first, second, and third quarters of 1997, respectively.
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.
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3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
September 30, December 31,
1997 1996
---------- ----------
Revolving credit facility $ 705,000 $ 637,000
United credit facility -- 31,450
Senior notes, interest at 7%, net of unamortized discount of $2,484 297,516 --
Senior notes, interest at 7.125%, net of unamortized discount of $2,943 297,057 --
Senior notes, maturing in varying annual installments through June
2005, interest ranging from 7.29% to 8.44% -- 182,500
Convertible subordinated notes, interest at 4% 535,275 --
Convertible subordinated notes, interest at 4 1/2% 150,000 150,000
Convertible subordinated debentures, interest at 5% 115,000 115,000
Subordinated debt, maturing in varying monthly installments,
through January 2008, interest ranging from 7.25% to 10% 5,447 5,589
Tax-exempt bonds, principal payable in periodic installments
maturing in 1997-2021, fixed and variable interest rates ranging
from 3.55% to 9.25% at September 30, 1997 262,456 196,439
Promissory notes due September 2001, quarterly interest
payments at 8% 6,000 6,000
Other 106,445 180,910
---------- ----------
2,480,196 1,504,888
Less current maturities 39,317 34,606
---------- ----------
$2,440,879 $1,470,282
========== ==========
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 was available for standby
letters of credit of up to $500,000,000. On August 7, 1997, the credit facility
was again replaced with a $2,000,000,000 senior revolving credit facility with
the same general items, covenants, and limitations, which is available for
standby letters of credit up to $650,000,000. At September 30, 1997, the Company
had borrowed $705,000,000 and had letters of credit of $462,291,000 under its
$2,000,000,000 senior revolving credit facility. The applicable interest rate
and facility fee at September 30, 1997, was 5.975% per annum and 0.1125% per
annum, respectively.
On February 7, 1997, the Company issued $535,275,000 of 4% convertible
subordinated notes, due on February 1, 2002 ("Convertible 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 par, 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 revolving credit facility, to
fund acquisitions, and for general corporate purposes.
On February 7, 1997, concurrent with the Convertible 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 revolving credit facility and for general
corporate purposes.
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On March 3, 1997, United completed a public offering in which it issued
3,450,000 shares of its common stock, priced at $36.50 per share (equivalent to
3,708,750 shares of the Company's common stock, priced at $33.95 per share). The
net proceeds of approximately $119,000,000 were primarily used to repay
approximately $47,000,000 of debt under United's credit facility, to fund
acquisitions, and for general corporate purposes.
During August 1997 and September 1997, the Company prepaid the holders of the
two privately placed senior note issuances with proceeds from its senior
revolving credit facility. Interest on these privately placed senior notes
ranged from 7.29% to 8.44%. Accordingly, the Company recorded extraordinary
losses of approximately $9,286,000 related to this transaction comprised of
prepayment penalties of approximately $7,975,000 and unamortized deferred
offering costs of approximately $1,311,000. Additionally, upon consummation of
the United Merger, the Company retired amounts under United's credit facility,
and accordingly, recorded extraordinary losses to write-off the related
unamortized deferred financing costs.
On September 12, 1997, the Company issued $300,000,000 of 7% senior notes, due
on October 1, 2004, and $300,000,000 of 7.125% senior notes, due on October 1,
2007 (the "Senior Notes"). The Senior Notes constitute senior and unsecured
obligations of the Company, ranking equal in right of payment with all other
senior and unsecured obligations of the Company, as defined. The Senior Notes
are redeemable at the option of the Company at any time and from time to time at
100% of the principal amount of such notes, plus accrued interest. Deferred
offering costs of approximately $4,125,000 were incurred and are being amortized
ratably over the life of the Senior Notes. The proceeds were used to repay debt
under the Company's revolving credit facility. In anticipation of this debt
offering, the Company entered into interest rate locks on July 25, 1997, with
various institutions as a hedging transaction to cover the future issuance of
$600,000,000 of debt. The gain realized from this hedging transaction of
approximately $5,632,000 will be amortized over the life of the Senior Notes
using the effective interest method and has the effect of reducing the
all-inclusive interest rate to 6.90% on the 7% senior notes, due on October 1,
2004, and to 7.06% on the 7.125% senior notes, due on October 1, 2007.
Other long-term debt at September 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 from the Company's revolving credit facility.
4. INCOME TAXES
The difference in federal income taxes at the statutory rate and the provision
for (benefit from) income taxes for the three and nine months ended September
30, 1997 and 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 asserted 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 alleged that, as
a result of large amounts of put options traded on the Chicago Board of Options
Exchange between March 13 and March 18, 1992, they engaged in offsetting
transactions resulting in approximately $2,100,000 in losses. The plaintiffs in
Option Resource Group had successfully requested exclusion from a now settled
class action of consolidated suits instituted on similar claims ("Class Action")
and Option Resource Group continued 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. Discovery was completed and a trial date was set
for early 1997, then postponed by the court. The case was resolved
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through an alternative dispute resolution process in the federal court.
Plaintiffs were awarded $260,000 plus interest in the alternative dispute
resolution proceeding.
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 claimed 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
asserted that they 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 included
damages to Mr. Moran's business and reputation. The Judicial Panel on
Multidistrict Litigation transferred this case to the United States District
Court for the Western District of Pennsylvania. Discovery closed on June 30,
1997, and the parties have agreed to a settlement in which Chambers will pay
$550,000 to settle all claims against it and its former officers and directors,
and Grant Thornton will pay $50,000. A settlement agreement is in the process of
being executed by the respective parties.
On April 17, 1997, a purported class action on behalf of the public shareholders
of United entitled Schipper v. United Waste et al., Civil Action No. 15664-NC,
was filed in the Court of Chancery of the State of Delaware against United and
each of the members of United's Board of Directors asserting, among other
things, that defendants breached their fiduciary duties to stockholders of
United in negotiating the Merger Agreement with the Company and in engaging in
certain related alleged acts and omissions. The complaint seeks, among other
things, injunctive and other equitable relief against consummation of the United
Merger, and damages and costs in an unspecified amount. The United Merger was
closed on August 26, 1997, and the Company believes this claim is without merit.
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, results of
operations or cash flows. 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.
6. EARNINGS (LOSS) PER COMMON SHARE
Primary and fully dilutive earnings (loss) per common share amounts are
calculated as follows for the periods indicated:
For the three months ended September 30, 1997
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11
Primary - based on (i) net income and (ii) the primary weighted average
number of common shares and dilutive common equivalent shares outstanding
of 218,197,000.
Fully dilutive - based on (i) net income and (ii) the fully dilutive
weighted average number of common shares, dilutive common equivalent
shares, and other potentially dilutive securities outstanding of
218,197,000.
For the three months ended September 30, 1996
Primary - based on (i) net loss and (ii) the primary weighted average
number of common shares and dilutive common equivalent shares outstanding
of 176,392,000.
Fully dilutive - antidilutive for the three months ended September 30,
1996, and therefore presented as equal to primary loss per common share.
For the nine months ended September 30, 1997
Primary - based on (i) net income plus the after-tax interest expense of
approximately $8,271,000 on the Company's 4% convertible subordinated notes
that are considered to be common stock equivalents, and (ii) the primary
weighted average number of common and dilutive common equivalent shares
outstanding of 220,342,000.
Fully diluted - based on (i) net income plus (a) the after-tax interest
expense of approximately $8,271,000 on the above mentioned 4% convertible
subordinated notes, (b) the after-tax interest expense of approximately
$3,029,000 on the Company's 4 1/2% convertible subordinated notes, and (c)
the after-tax interest expense of approximately $2,581,000 on the Company's
5% convertible subordinated debentures, and (ii) the fully diluted weighted
average number of common, dilutive common equivalent, and other potentially
dilutive securities outstanding of 229,527,000.
For the nine months ended September 30, 1996
Primary - based on net income and the primary weighted average number of
common shares and dilutive common equivalent shares outstanding of
180,675,000.
Fully dilutive - based on (i) net income and (ii) the fully diluted
weighted average number of common shares and dilutive common equivalent
shares outstanding and other potentially dilutive securities of
181,480,000.
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, presentation, 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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12
Three Months Ended September 30, Nine Months Ended September 30,
------------------------- -----------------------------
1997 1996 1997 1996
----------- ------- ----------- -----------
Reported:
Primary earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.12 $ (0.16) $ 0.81 $ 0.06
Extraordinary item (0.03) -- (0.03) --
----------- ------- ----------- -----------
Net income (loss) $ 0.09 $ (0.16) $ 0.78 $ 0.06
=========== ======= =========== ===========
Weighted average number of common and
common equivalent shares outstanding 218,197 176,392 220,342 180,675
=========== ======= =========== ===========
Fully diluted earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.12 $ (0.16) $ 0.81 $ 0.06
Extraordinary item (0.03) -- (0.03) --
----------- ------- ----------- -----------
Net income (loss) $ 0.09 $ (0.16) $ 0.78 $ 0.06
=========== ======= =========== ===========
Weighted average number of common and
common equivalent shares outstanding 218,197 176,392 229,527 181,480
=========== ======= =========== ===========
Pro forma:
Basic earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.12 $ (0.16) $ 0.83 $ 0.06
Extraordinary item (0.03) -- (0.03) --
----------- ------- ----------- -----------
Net income (loss) $ 0.09 $ (0.16) $ 0.80 $ 0.06
=========== ======= =========== ===========
Basic weighted average shares 213,510 176,392 205,356 172,158
=========== ======= =========== ===========
Diluted earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.12 $ (0.16) $ 0.81 $ 0.06
Extraordinary item (0.03) -- (0.03) --
=========== ======= =========== ===========
Net income (loss) $ 0.09 $ (0.16) $ 0.78 $ 0.06
=========== ======= =========== ===========
Diluted weighted average shares 218,197 176,392 229,366 180,675
=========== ======= =========== ===========
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 presentation 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 $19,082,000 and $164,325,000
for the three and nine months ended September 30, 1997, respectively, and
$11,132,000 for the nine months ended September 30, 1996. Comprehensive loss
would have been $27,450,000 for the three months ended September 30, 1996.
8. SUBSEQUENT EVENTS
From October 1, 1997 through November 3, 1997, the Company acquired 11
collection businesses and one landfill for approximately $56,044,000 in cash,
$1,300,000 in liabilities incurred or debt assumed, and approximately 86,000
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 November 3, 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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Nine Months Ended September 30,
------------------------------------
1997 1996
--------------- ---------------
Operating revenues $ 2,257,103 $ 2,154,389
Income before extraordinary item 189,318 60,613
Primary earnings per common share:
Income before extraordinary item 0.89 0.32
Net income 0.86 0.32
Fully diluted earnings per common share:
Income before extraordinary item 0.88 0.32
Net income 0.85 0.32
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion reviews the Company's operations for the three and nine
months ended September 30, 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, the Company's Joint Proxy Statement and Prospectus
dated July 24, 1997, included in the Company's Registration Statement on Form
S-4 filed in connection with the merger with United, and the supplemental
consolidated financial statements and supplemental interim condensed
consolidated financial statements and related notes thereto included in the
Company's Current Report on Form 8-K dated November 12, 1997, filed in
connection with the merger with United.
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 the
third largest nonhazardous solid waste management company in North America, as
measured by 1996 revenues. The Company conducts operations in various locations
throughout the United States, Canada, Puerto Rico, and Mexico. As of September
30, 1997, the Company owned or operated 381 collection businesses, 159 transfer
stations, 164 landfills, and 21 recycling businesses serving more than 7,500,000
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 commercial, industrial, and municipal and residential
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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15
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 Nine Months Ended
September 30, September 30,
1997 and 1996 1997 and 1996
---------------------------- -------------------------
$ % $ %
------------ ----------- ----------- ---------
STATEMENT OF OPERATIONS
Operating revenues $ 318,950 72.0% $ 673,554 55.9%
--------- ---------
Costs and expenses:
Operating (exclusive of depreciation
and amortization shown below) 157,399 68.0 320,544 49.3
General and administrative 30,298 58.7 59,644 40.4
Depreciation and amortization 36,327 70.8 80,362 57.9
Merger costs 19,401 22.9 (15,636) (12.5)
Unusual items (26,128) (51.4) (39,080) (61.3)
--------- ---------
217,297 46.2 405,834 36.1
--------- ---------
Income (loss) from operations 101,653 372.4 267,720 336.2
--------- ---------
Other income (expense):
Interest expense (14,351) (93.1) (25,960) 57.2
Interest and other income, net 57 1.4 7,722 99.2
--------- ---------
(14,294) 125.4 (18,238) 48.9
--------- ---------
Income (loss) before income taxes and
extraordinary item 87,359 225.7 249,482 589.3
Provision for (benefit from) income taxes 34,693 308.9 90,009 287.1
--------- ---------
Income (loss) before extraordinary item 52,666 191.7 159,473 1,452.4
Extraordinary item (6,293) (100.0) (6,293) (100.0)
--------- ---------
Net income (loss) $ 46,373 168.8% $ 153,180 1,395.1%
========= =========
SUPPLEMENTARY DATA
EBITDA (1) $ 137,980 573.8% $ 348,082 159.3%
EBITDA excluding merger costs
and unusual items (1) 131,253 82.2 293,366 72.0
(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.
15
16
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 September 30, Nine Months Ended September 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
STATEMENT OF OPERATIONS
Operating revenues:
Collection 62.7% 52.8% 61.5% 53.7%
Transfer station 10.1 11.2 10.2 10.7
Disposal 23.5 28.9 24.3 28.3
Other 3.7 7.1 4.0 7.3
------------- ------------- ------------- -------------
100.0 100.0 100.0 100.0
------------- ------------- ------------- -------------
Costs and expenses:
Operating (exclusive of depreciation
and amortization shown below) 51.1 52.3 51.7 53.9
General and administrative 10.8 11.7 11.0 12.3
Depreciation and amortization 11.5 11.6 11.7 11.5
Merger costs 13.6 19.1 5.8 10.4
Unusual items 3.2 11.5 1.3 5.3
------------- ------------- ------------- -------------
90.2 106.2 81.5 93.4
------------- ------------- ------------- -------------
Income (loss) from operations 9.8 (6.2) 18.5 6.6
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (3.9) (3.5) (3.8) (3.7)
Interest and other income, net 0.5 0.9 0.8 0.6
------------- ------------- ------------- -------------
(3.4) (2.6) (3.0) (3.1)
------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary item 6.4 (8.8) 15.5 3.5
Provision for (benefit from) income taxes 3.1 (2.6) 6.5 2.6
------------- ------------- ------------- -------------
Income (loss) before extraordinary item 3.3 (6.2) 9.0 0.9
Extraordinary item 0.8 -- (0.3) --
------------- ------------- ------------- -------------
Net income (loss) 2.5% (6.2%) 8.7% 0.9%
============= ============= ============= =============
SUPPLEMENTARY DATA
EBITDA (1) 21.3% 5.4% 30.2% 18.1%
EBITDA excluding merger costs
and unusual items (1) 38.2 36.1 37.3 33.8
(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.
16
17
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
Operating Revenues
Operating revenues increased $318,950,000 or 72.0% and $673,554,000 or 55.9% for
the three and nine months ended September 30, 1997, respectively, as compared to
the corresponding prior year periods. The increase in operating revenues was
attributable to the effect of acquisitions of domestic and Canadian solid waste
businesses, less dispositions, and the internal growth of comparable operations.
Acquisitions of domestic solid waste businesses consummated during 1997 and the
effect of such acquisitions consummated during 1996 accounted for increases in
operating revenues of $214,400,000 and $423,300,000, or 48.4% and 35.1%, for the
three and nine months ended September 30, 1997, respectively. Acquisitions of
Canadian solid waste businesses consummated during 1997 and the effect of such
acquisitions consummated during 1996 accounted for increases in operating
revenues of $103,800,000 and $217,200,000, or 23.4% and 18.0%, for the three and
nine months ended September 30, 1997, respectively. Internal growth of
comparable operations resulted in an increase in operating revenues of
$41,600,000, consisting of increases of 3.6% due to pricing and 5.8% due to
volumes for the three months ended September 30, 1997, and an increase in
operating revenues of $115,900,000, consisting of 3.2% due to pricing and 6.4%
due to volumes for the nine months ended September 30, 1997. These increases
were offset by a decrease in operating revenues of 9.2% and 6.8% for the three
and nine months ended September 30, 1997, respectively, primarily as a result of
the disposition of certain Houston, Texas, solid waste collection and disposal
operations in January 1997, which was ordered by the United States Department of
Justice in connection with the Company's August 30, 1996, merger with Sanifill,
Inc., the disposition of certain nonstrategically located solid waste collection
operations in June 1997, and the disposition of other non-core businesses in
1997 and 1996.
Although the Company operates one line of business, integrated nonhazardous
solid waste management which encompasses the entire waste stream from collection
to transfer station to landfill, the Company's mix of operating revenues
reflects an increase in collection revenues as a percentage of total revenues
from 52.8% and 53.7% for the three and nine months ended September 30, 1996,
respectively, to 62.7% and 61.5% for the three and nine months ended September
30, 1997, respectively. The change in the Company's mix of operating revenues is
primarily the result of acquisitions of certain solid waste 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 $157,399,000, or 68.0%, and $320,544,000,
or 49.3% for the three and nine months ended September 30, 1997, respectively,
as compared to the corresponding prior year periods. The net increase in
operating costs and expenses was primarily attributable to the effect of new
acquisitions, net of dispositions, however, was offset by the increased
utilization of internal disposal capacity and the cost reductions in comparable
operations. The effect of new acquisitions, net of dispositions, resulted in an
increase to operating costs and expenses of $172,301,000 and $351,214,000 for
the three and nine months ended September 30, 1997, respectively. A decrease in
operating costs and expenses related to comparable operations of $14,902,000 and
$30,670,00 for the three and nine months ended September 30, 1997, respectively,
primarily resulted from the increased utilization of internal disposal capacity
and operating synergies realized from tuck-in acquisitions and the Company's
mergers with United, Sanifill, Inc., and Western Waste Industries in August
1997, August 1996, and May 1996, respectively.
Operating costs and expenses decreased as a percentage of operating revenues
from 52.3% to 51.1% for the three months ended September 30, 1996 and 1997,
respectively, and from 53.9% to 51.7% for nine months ended September 30, 1996
and 1997, respectively. The improvements in operating costs as a percentage of
revenues 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 increased $30,298,000 or 58.7% and
$59,644,000 or 40.4% for the three and nine months ended September 30, 1997,
respectively, as compared to the corresponding prior year periods. However, as a
percentage of operating revenues, general and administrative expenses decreased
from 11.7% and 12.3% for the three and nine months ended September 30, 1996,
respectively, to 10.8% and 11.0% for the three and nine months ended September
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
17
18
expenses as well as synergies resulting from the Company's mergers with United,
Sanifill, Inc., and Western Waste Industries in August 1997, August 1996, and
May 1996, respectively.
Depreciation and Amortization
Depreciation and amortization increased $36,327,000, or 70.8%, and $80,362,000,
or 57.9% for the three and nine months ended September 30, 1997, as compared
to the corresponding periods of 1996. The increase in depreciation and
amortization is primarily related to new acquisitions, increased landfill
disposal volumes, and upgrades to existing operations. However, as a percentage
of operating revenues, deprecation and amortization for the three and nine
months ended September 30, 1997, was consistent with such percentages for the
corresponding periods of the prior year. The increase in depreciation and
amortization due to the increased utilization of internal disposal capacity
was offset by the improved utilization of equipment through internal growth
in collection and disposal operations.
Merger Costs
In the third quarter of 1997, the Company recognized $89,152,000 related to the
United Merger and $15,000,000 related to the acquisition of other businesses
accounted for as poolings of interests. The $89,152,000 of merger costs related
to United include $17,566,000 of transaction costs, $26,198,000 of severance
and other termination benefits, $21,629,000 of costs related to integrating
operations, and $23,759,000 of estimated losses related to the disposition of a
Pennsylvania landfill ordered by the United States Department of Justice in
connection with the United Merger and the disposition of other duplicative
facilities. The Company recognized $1,996,000 and $3,263,000 in the first and
second quarters of 1997, respectively, related to other acquisitions of
businesses accounted for as poolings of interests. In the third quarter of 1996,
the Company recognized $80,000,000 related to the merger with Sanifill, Inc. and
$4,751,000 related to the acquisition of other businesses accounted for as
poolings of interests. The $80,000,000 of merger costs related to Sanifill, Inc.
include $9,500,000 of transaction costs, $20,000,000 of relocation, severance,
and other termination benefits, $13,000,000 of costs related to integrating
operations, and $37,500,000 of disposal of duplicative facilities. In the second
quarter of 1996, the Company recognized $35,000,000 related to the merger with
Western Waste Industries and $5,296,000 related to the acquisition of three
other companies accounted for as poolings of interests. 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 third quarter of 1997, the Company recognized unusual items of
$24,720,000, including estimated losses of $10,400,000 related to the closure of
two transfer stations in Minnesota, $8,400,000 of estimated losses related to
the closure and abandonment of two landfills in Massachusetts, and $5,920,000 of
reserves for various terminated projects. In the third quarter of 1996, the
Company recognized unusual items of $50,848,000, including $28,900,000 of
estimated losses related to the disposition of certain non-core business assets,
$15,000,000 of project reserves related to certain operations in Mexico, and
$6,948,000 of various other terminated projects. In the second quarter of 1996,
unusual items included $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 (Loss) from Operations
Income (loss) from operations as a percentage of operating revenues was 9.8% and
18.5% for the three and nine months ended September 30, 1997, respectively, as
compared to (6.2)% and 6.6% for the corresponding prior year periods. Exclusive
of nonrecurring charges, income from operations was 26.7% and 25.6% as a
percentage of operating revenues for the three and nine months ended September
30, 1997, as compared to 24.4% and 22.3% for the corresponding prior year
periods. The improvement in recurring operations is the result of synergies and
economies of scale realized by the Company as a result of 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 indebtedness. Interest capitalized for
the three and nine
18
19
months ended September 30, 1997, was $6,145,000 and $17,772,000, respectively,
as compared to $5,490,000 and $14,429,000 for the corresponding prior year
periods. The increase in other income for the nine months ended September 30,
1997, as compared to the corresponding period of the prior year, primarily
relates to the realization of a portion of the deferred gain recorded in
connection with the 1996 sale of certain nonhazardous oilfield waste disposal
operations.
Provision for (Benefit From) Income Taxes
The provision for (benefit from) income taxes increased $34,693,000 and
$90,009,000 for the three and nine months ended September 30, 1997,
respectively, as compared to the corresponding prior year periods. The
difference in federal income taxes at the statutory rate and the provision for
(benefit from) income taxes for the three and nine months ended September 30,
1997 and 1996, is primarily due to non-deductible merger costs and state and
local income taxes.
Income (Loss) Before Extraordinary Item
For reasons discussed above, income (loss) before extraordinary item increased
$87,359,000 and $249,482,000 during the three and nine months ended September
30, 1997, respectively, as compared to the corresponding prior year periods.
Extraordinary Item
During the third quarter of 1997, the Company recorded extraordinary losses
related to the early retirement of the two privately placed senior note
issuances of approximately $9,286,000 comprised of prepayment penalties of
approximately $7,975,000 and unamortized deferred offering costs of
approximately $1,311,000. Additionally, during the third quarter of 1997, the
Company recorded extraordinary losses of approximately $1,206,000 primarily
related to the write-off of the unamortized deferred financing costs related to
the United credit facility which was retired upon consummation of the United
Merger.
Net Income (Loss)
For reasons discussed above, net income (loss) increased $46,373,000 and
$153,180,000 during the three and nine months ended September 30, 1997,
respectively, as compared to the corresponding prior year periods.
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 September 30, 1997, the Company had working capital of $160,894,000 (a
ratio of current assets to current liabilities of 1.29:1) and a cash balance of
$63,249,000, which compares to working capital of $31,842,000 (a ratio of
current assets to current liabilities of 1.08:1) and a cash balance of
$26,079,000 as of December 31, 1996. For the first nine months of 1997, net cash
from operating activities was approximately $191,164,000 and net cash from
financing activities was approximately $1,370,645,000. These funds were used
primarily to fund investments in other businesses of $1,339,392,000 and for
capital expenditures of approximately $274,889,000.
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
19
20
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 was available for standby letters of credit of
up to $500,000,000. On August 7, 1997, the credit facility was again replaced
with a $2,000,000,000 senior revolving credit facility with the same general
items, covenants, and limitations, which is available for standby letters of
credit up to $650,000,000. At September 30, 1997, the Company had borrowed
$705,000,000 and had letters of credit of $462,291,000 under its $2,000,000,000
senior revolving credit facility. The applicable interest rate and facility fee
at September 30, 1997, was 5.975% per annum and 0.1125% per annum, respectively.
On February 7, 1997, the Company issued $535,275,000 of 4% convertible
subordinated notes, due on February 1, 2002 ("Convertible 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 par, 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 Convertible 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 March 3, 1997, United completed a public offering in which it issued
3,450,000 shares of its common stock, priced at $36.50 per share (equivalent to
3,708,750 shares of the Company's common stock, priced at $33.95 per share). The
net proceeds of approximately $119,000,000 were primarily used to repay
approximately $47,000,000 of debt under United's credit facility and for general
corporate purposes.
During August and September 1997, the Company prepaid the holders of the two
privately placed senior note issuances with proceeds from its senior revolving
credit facility. Interest on these privately placed senior notes ranged from
7.29% to 8.44%. Accordingly, the Company recorded extraordinary losses of
approximately $9,286,000 related to this transaction comprised of prepayment
penalties of approximately $7,975,000 and unamortized deferred offering costs of
approximately $1,311,000. Additionally, upon consummation of the United Merger,
the Company retired amounts under United's credit facility, and accordingly,
recorded extraordinary losses to write-off the related unamortized deferred
financing costs.
On September 12, 1997, the Company issued $300,000,000 of 7% senior notes, due
on October 1, 2004, and $300,000,000 of 7.125% senior notes, due on October 1,
2007 (the "Senior Notes"). The Senior Notes constitute senior and unsecured
obligations of the Company, ranking equal in right of payment with all other
senior and unsecured obligations of the Company, as defined. The Senior Notes
are redeemable at the option of the Company at any time and from time to time at
par, plus accrued interest. Deferred offering costs of approximately $4,125,000
were incurred and are being amortized ratably over the life of the Senior Notes.
The proceeds were used to repay debt under the Company's revolving credit
facility. In anticipation of this debt offering, the Company entered into
interest rate locks on July 25, 1997, with various institutions as a hedging
transaction to cover the future issuance of $600,000,000 of debt. The gain
realized from this hedging transaction of approximately $5,632,000 will be
amortized over the life of the Senior Notes using the effective interest method
and has the effect of reducing the all-inclusive interest rate to 6.90% on the
7% senior notes, due on October 1, 2004, and 7.06% on the 7.125% senior notes,
due on October 1, 2007.
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 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,
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21
warrants, options, convertible notes, or other similar instruments issued by the
Company from time to time in connection with any such acquisitions. As of
November 7, 1997, the Company had approximately 19,487,000 shares of its common
stock available for future offerings and issuances under this shelf
registration.
SEASONALITY AND INFLATION
The Company's operating revenues tend to be somewhat lower in the winter months.
This is generally reflected in the Company's first quarter and 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
At the Company's Annual Meeting of Stockholders held on August 26, 1997, a
proposal to elect the nominees listed in the following table as directors of the
Company was submitted to a vote of the Company's stockholders. The following
table also shows the results of voting as to each nominee:
NOMINEE VOTES FOR VOTES WITHHELD
------- --------- --------------
John E. Drury 125,752,212 1,323,737
William E. Moffett 125,860,069 1,215,880
John G. Rangos, Sr. 125,601,860 1,474,089
Jerome B. York 125,696,072 1,379,877
At the same meeting, proposals to (i) approve and adopt an Agreement and Plan of
Merger dated as of April 13, 1997, by and among the Company, Riviera Acquisition
Corp. and United Waste Systems, Inc., (ii) approve and adopt the USA Waste
Services, Inc. 1997 Employee Stock Purchase Plan, (iii) approve an amendment to
the Restated Certificate of Incorporation of the Company to increase the number
of authorized shares of the Company from 300,000,000 to 500,000,000, and (iv)
ratify the appointment of Coopers & Lybrand L.L.P. as independent accountants
for the ensuing year were submitted to a vote of the Company's stockholders. All
proposals were adopted by the stockholders. The voting was as follows:
VOTES BROKER
VOTES FOR AGAINST ABSTENTIONS NON-VOTES
--------- ------- ----------- ---------
United Merger 112,189,663 92,664 228,053 14,565,569
1997 Employee Stock Purchase Plan 126,038,501 756,409 281,039 --
Restated Certificate of Incorporation Amendment 111,656,537 911,880 142,554 14,364,978
Ratification of Independent Accountants 126,770,581 58,752 246,616 --
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.
(b) REPORTS ON FORM 8-K:
A report on Form 8-K (Amendment No. 2) dated March 12, 1997, was filed July 23,
1997, to amend the Company's previously filed Form 8-K regarding its acquisition
of the Canadian solid waste subsidiaries of Allied Waste Industries, Inc.
A report on Form 8-K dated August 26, 1997, was filed September 3, 1997, to
report the consummation of the Company's
22
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merger with United Waste Systems, Inc. and to file the historical financial
statements of United Waste Systems, Inc. and the required pro forma financial
information.
A report on Form 8-K dated September 10, 1997, was filed September 24, 1997, to
report the Company's sale of $300,000,000 of 7% Senior Notes due 2004, and
$300,000,000 of 7.125% Senior Notes due 2007, in an underwritten public
offering.
23
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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
November 14, 1997 BY: /s/ Earl E. DeFrates
- ----------------- --------------------------------
Date Earl E. DeFrates,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
November 14, 1997 BY: /s/ Bruce E. Snyder
- ----------------- --------------------------------
Date Bruce E. Snyder,
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
24
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USA WASTE SERVICES, INC.
EXHIBIT INDEX
Number and Description of Exhibit (*)
2 None
3(a) Amendment to Registrant's Restated Certificate of Incorporation
3(b) Conformed Copy of Registrant's Restated Certificate of Incorporation
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.
25
1
EXHIBIT 3(a)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
USA WASTE SERVICES, INC.
USA WASTE SERVICES, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
1. That the Board of Directors of the Company has approved resolutions
recommending to the stockholders of the Company that the Company's Restated
Certificate of Incorporation be amended in the following respect:
That the first sentence of Article Fourth of the Company's Restated
Certificate of Incorporation be deleted in its entirety, and the following
be inserted in its place:
Fourth: The total number of shares of capital stock which the
Corporation shall have authority to issue is five hundred ten million
(510,000,000), divided into five hundred million (500,000,000) shares of
Common Stock of the par value of one cent ($0.01) per share and ten million
(10,000,000) shares of Preferred Stock of the par value of one cent ($0.01)
per share."
2. That said resolutions were duly approved by the stockholders of the
Company at the 1997 annual meeting of the stockholders of the Company, notice of
which was given in accordance with the provisions of Section 222 of the General
Corporation Law of the State of Delaware.
3. That such amendment to the Company's Restated Certificate of
Incorporation has been duly adopted in accordance with Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Certificate of Amendment of the Company's Restated
Certificate of Incorporation has been executed as of this 26th day of August,
1997.
USA WASTE SERVICES, INC.
By: /s/ GREGORY T. SANGALIS
---------------------------------
Gregory T. Sangalis
Vice President and Secretary
ATTEST:
By: /s/ BRYAN J. BLANKFIELD
------------------------------
Bryan J. Blankfield
Assistant Secretary
1
EXHIBIT 3(b)
RESTATED CERTIFICATE OF INCORPORATION
OF
USA WASTE SERVICES, INC.
(Conformed Copy - As Amended As Of August 26, 1997)
The original Certificate of Incorporation of USA Waste Services, Inc. was
filed with the Secretary of State of the State of Delaware on April 28, 1995.
The original Certificate of Incorporation is hereby amended and restated
pursuant to 8 De1. C. s.245 to read in its entirety as follows:
First: The name of the Corporation is USA Waste Services, Inc.
Second: The registered office of the Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name and address of its registered agent
is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware.
Third: The nature of the business, objects and purposes to be transacted,
promoted or carried on by the Corporation is:
To engage in any lawful activity for which corporations may be
organized under the General Corporation Law of Delaware.
Fourth: The total number of shares of capital stock which the Corporation
shall have authority to issue is five hundred ten million (510,000,000), divided
into five hundred million (500,000,000) shares of Common Stock of the par value
of one cent ($0.01) per share and ten million (10,000,000) shares of Preferred
Stock of the par value of one cent ($0.01) per share.
A. No holder of Common Stock or Preferred Stock of the Corporation
shall have any pre-emptive, preferential, or other right to purchase or
subscribe for any shares of the unissued stock of the Corporation or of any
stock of the Corporation to be issued by reason of any increase of the
authorized capital stock of the Corporation or of the number of its shares, or
of any warrants, options, or bonds, certificates of indebtedness, debentures, or
other securities convertible into or carrying options or warrants to purchase
stock of the Corporation or of any stock of the Corporation purchased by it or
its nominee or nominees or other securities held in the treasury of the
Corporation, whether issued or sold for cash or other consideration or as a
dividend or otherwise other than, with respect to Preferred Stock, such rights,
if any, as the Board of Directors in its discretion from time to time may grant
and at such price as the Board of Directors in its discretion may fix.
B. The holders of Common Stock shall have the right to one vote per
share on all questions to the exclusion of all other classes of stock, except as
by law expressly provided, as otherwise herein expressly provided or as
contained within a certificate of designation, with respect to the holders of
any other class or classes of stock.
C. The Board of Directors is authorized, subject to limitations
prescribed by law, by resolution or resolutions to provide for the issuance of
shares of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers preferences, and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof. The authority of the Board
with respect to each series shall include but not be limited to, determination
of the following:
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) The dividend rights and dividend rate on the shares of that
series, whether dividends shall be cumulative, and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of dividends on
shares of that series;
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion or exchange privileges,
and, if so, the terms and conditions of such conversion or exchange including
provision for adjustment of the conversion or exchange rate in such events as
the Board of Directors shall determine;
2
(5) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in cash on redemption, which amount may vary under different conditions and at
different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(7) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
(8) Any other relative rights, preferences and limitations of that
series; or
(9) Any or all of the foregoing terms.
D. Except where otherwise set forth in the resolution or resolutions
adopted by the Board of Directors of the Corporation providing for the issue of
any series of Preferred Stock created thereby, the number of shares comprising
such series may be increased or decreased (but not below the number of shares
then outstanding) from time to time by like action of the Board of Directors of
the Corporation. Should the number of shares of any series be so decreased, the
shares constituting such decrease shall resume the status which they had prior
to adoption of the resolution originally fixing the number of shares of such
series.
E. Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise), purchased or
otherwise acquired by the Corporation, or which, if convertible or exchangeable,
have been converted into or exchanged for shares of stock of any other class or
classes, shall have the status of authorized and unissued shares of Preferred
Stock and may be reissued as a part of the series of which they were originally
a part or may be reclassified or reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board of Directors or as
part of any other series of Preferred Stock, all subject to the conditions or
restrictions adopted by the Board of Directors of the Corporation providing for
the issue of any series of Preferred Stock and to any filing required by law.
Fifth: The Corporation is to have perpetual existence.
Sixth: Elections of directors need not be by written ballot unless the
bylaws of the Corporation shall so provide. Meetings of stockholders may be held
within or without the State of Delaware, as the bylaws may provide. The books of
the Corporation may be kept (subject to any provision contained in the statutes
of the State of Delaware) outside the State of Delaware at such place or places
as may be designated from tine to time by the Board of Directors or in the
bylaws of the Corporation.
Seventh: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of Delaware or any
amendment thereto or successor provision thereto, or (iv) for any transaction
from which the director derived an improper personal benefit. If the General
Corporation law of Delaware hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
General Corporation Law of Delaware. Neither this Restated Certificate of
Incorporation nor any amendment, alteration, or repeal of this Article, nor the
adoption of any provision of the Restated Certificate of Incorporation
inconsistent with this Article, shall adversely affect, eliminate, or reduce any
right or protection of a director of the Corporation hereunder with respect to
any act, omission or matter occurring, or any action, suit, or claim that, but
for this Article, would accrue or arise, prior to the time of such amendment,
modification, repeal, or adoption of an inconsistent provision. All references
in this Article to a "director" shall also be deemed to refer to such person or
persons, if any, who pursuant to a provision of the Restated Certificate of
Incorporation in accordance with subsection (a) of Section 141 of the Delaware
General Corporation Law, exercise or perform any of the powers or duties
otherwise conferred or imposed upon the board of directors by the Delaware
General Corporation Law.
Eighth: This Corporation shall, to the maximum extent permitted from time
to time under the law of the State of Delaware, indemnify an upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a
2
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party to any threatened, pending or completed action, suit, proceeding or claim,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was or has agreed to be a director or officer of this
Corporation or any of its direct or indirect subsidiaries or while such a
director or officer is or was serving at the request of this Corporation as a
director, officer, partner, trustee, employee or agent of any corporation
partnership, joint venture trust or other enterprise, including service with
respect to employee benefit plans, against expenses (including attorney's fees
and expenses), judgments, fines, penalties and amounts paid in settlement
incurred in connection with the investigation, preparation to defend or defense
of such action, suit, proceeding or claim; provided, however, that the foregoing
shall not require this Corporation to indemnify or advance expenses to any
person in connection with any action, suit, proceeding, claim or counterclaim
initiated by or on behalf of such person. Such indemnification shall not be
exclusive of other indemnification rights arising under any bylaws, agreement,
vote of directors or stockholders or otherwise and shall inure to the benefit of
the heirs and legal representatives of such person. Any person seeking
indemnification under this Article shall be deemed to have met the standard of
conduct required for such indemnification un1ess the contrary shall be
established.
Ninth: (A) Except as otherwise provided in is Restated Certificate of
Corporation or the Bylaws of the Corporation relating to the rights of the
holders of any class or series of Preferred Stock, voting separately by class or
series, to elect additional directors under specified circumstances, the number
of directors of the Corporation shall be as fined from time to time by, or in
the manner provided in, the bylaws of the Corporation. Unless approved by at
least two-thirds of the incumbent directors, the number of directors which shall
constitute the whole Board of directors shall be no fewer than three and no more
than nine.
(B) Commencing with the election of directors at the 1995 Annual
Meeting of Stockholders, the directors, other than those who may be elected by
the holders of any class or series of Preferred Stock voting separately by class
or series, shall be classified, with respect to the time for which they
severally hold office, into three classes, Class I, Class II and Class III,
which shall be as nearly equal in number as possible, as shall be provided in
the manner specified in the bylaws of the Corporation. Each initial director in
Class I shall hold office for a term expiring at the 1996 annual meeting of
stockholders; each initial director of Class II shall hold office initially for
a term expiring at the 1997 annual meeting of stockholders; and each individual
director of Class I shall hold office for a term expiring at the 1996 annual
meeting of stockholders. Notwithstanding the foregoing provision of this
Article, each director shall serve until his successor is duly elected and
qualified or until his earlier death, resignation or removal. At each annual
meeting of stockholders following the l996 annual meeting, the successors to the
class of directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election and until their successors have
been duly elected and qualified or until their earlier death, resignation or
removal.
(C) Except as otherwise provided pursuant to the provisions of this
Restated Certificate of Incorporation or the bylaws of the Corporation relating
to the rights of the holders of any class or series of Preferred Stock, voting
separately by class or series, to elect directors under specified circumstances,
any director or directors may be removed from office at any time, with or
without cause but only by the affirmative vote, at any annual meeting or special
meeting (as the case may be) of the stockholders, of not less than two-thirds of
the total number of votes of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, but only if notice of such proposal was contained in
the notice of such meeting.
(D) In the event of any increase or decrease in the authorized number
of directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be appointed or determine by the Board of Directors
among the three classes of directors so as to maintain such classes as nearly
equal as possible. No decrease in the authorized number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(E) Vacancies in the Board of Directors however caused, and
newly-created directorships shall be filled solely by a majority vote of the
directors then in office, whether or not a quorum, and any director so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of the class to which the director has been chosen expires and
when the director's successor is elected and qualified, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
(F) Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filing of
vacancies, and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
unless expressly provided by such terms.
3
4
(G) Notwithstanding any other provision of this Restated Certificate
of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, this Restated Certificate of
incorporation or the Bylaws of the Corporation), the affirmative vote, at any
regular meeting or special meeting of the stockholders, of not less than
two-thirds of the total number of votes of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend or
repeal, or to adopt any provision inconsistent with the purpose or intent of,
this Article, but only if notice of the proposed alteration or amendment was
contained in the notice of such meeting.
Tenth; In furtherance of, and not in limitation of, the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the bylaws of the Corporation, or adopt new bylaws, without any action on
the part of the stockholders; provided, however, that no such adoption,
amendment or repeal shall be valid with respect to bylaw provisions which have
been adopted, amended or repealed by the stockholders; and further provided,
that bylaws adopted or amended by the Directors and any powers thereby conferred
may be amended, altered or repealed by the stockholders.
Eleventh: The Corporation reserves the right at any time, and from time to
time, to amend, alter, change, or repeal any provision contained in this
Restated Certificate of Incorporation, and other provisions authorized by the
laws of the State of Delaware at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences, and
privileges of whatsoever nature conferred upon stockholders, directors, or any
other persons whomsoever by and pursuant to this Restated Certificate of
Incorporation in its present form, or as hereafter amended are granted subject
to the rights reserved in this Article; provided, however, that the Corporation
shall not amend Article Ninth to be effective on a date other than a date on
which directors are elected.
4
1
EXHIBIT 11
USA WASTE SERVICES, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(restated) (restated)
Primary
Income (loss) before extraordinary item $ 25,195 $ (27,471) $ 170,453 $ 10,980
Extraordinary item (6,293) -- (6,293) --
Interest on convertible subordinated notes, net of taxes (2) -- -- 8,271 --
--------- --------- --------- ---------
Net income (loss) - primary $ 18,902 $ (27,471) $ 172,431 $ 10,980
========= ========= ========= =========
Number of common shares outstanding 216,048 178,374 216,048 178,374
Effect of using weighted average common shares outstanding (2,538) (1,982) (10,692) (6,216)
Common stock equivalents:
Common stock options and warrants (1) 4,687 -- 4,408 8,517
4% Convertible subordinated notes (2) -- -- 10,578 --
--------- --------- --------- ---------
Total 218,197 176,392 220,342 180,675
========= ========= ========= =========
Primary earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.12 $ (0.16) $ 0.81 $ 0.06
Extraordinary item (0.03) -- (0.03) --
--------- --------- --------- ---------
Net income (loss) $ 0.09 $ (0.16) $ 0.78 $ 0.06
========= ========= ========= =========
Fully diluted
Income (loss) before extraordinary item $ 25,195 $ (27,471) $ 170,453 $ 10,980
Extraordinary item (6,293) -- (6,293) --
Interest on 4% convertible subordinated notes, net of
taxes (2) -- -- 8,271 --
Interest on 4 1/2% convertible subordinated notes, net
of taxes (3) -- -- 3,029 --
Interest on 5% convertible subordinated debentures,
net of taxes (3) -- -- 2,581 --
--------- --------- --------- ---------
Net income (loss) - fully diluted $ 18,902 $ (27,471) $ 178,041 $ 10,980
========= ========= ========= =========
Number of common shares outstanding 216,048 178,374 216,048 178,374
Effect of using weighted average common shares outstanding (2,538) (1,982) (10,692) (6,216)
Common stock equivalents:
Common stock options and warrants (1) 4,687 -- 4,569 8,517
4% Convertible subordinated notes (2) -- -- 10,578 --
4 1/2% Convertible subordinated notes (3) -- -- 4,962 --
5% Convertible subordinated debentures (3) -- -- 4,062 --
--------- --------- --------- ---------
Total 218,197 176,392 229,527 180,675
========= ========= ========= =========
Fully diluted earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.12 $ (0.16) $ 0.81 $ 0.06
Extraordinary item (0.03) -- (0.03) --
--------- --------- --------- ---------
Net income (loss) $ 0.09 $ (0.16) $ 0.78 $ 0.06
========= ========= ========= =========
2
(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 September 30, 1996, common
stock equivalents from common stock options and warrants of 9,238,000 and
9,818,000 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 nine months ended September 30,
1997. For the three months ended September 30, 1997, interest net of taxes
of $3,238,000 and common stock equivalents of 12,288,000 were not included
in the primary and fully dilutive earnings per share calculation due to
their antidilutive nature for this period.
(3) In accordance with Accounting Principles Board Opinion No. 15, convertible
subordinated notes and debentures are considered in computing fully diluted
earnings per common share if inclusion of such items is dilutive based on
the "If-Converted Method". The Company's 4 1/2% convertible subordinated
notes, issued June 5, 1996, and 5% convertible subordinated debentures,
issued March 4, 1996, are dilutive for the nine months ended September 30,
1997. For the three months ended September 30, 1997 and 1996,and the months
ended September 30, 1996, interest net of taxes of $1,890,000 and
$4,051,000, respectively, and the related addback to shares of 9,024,000
and 5,324,000, respectively, were not included in the fully diluted
earnings per share calculation due to their antidilutive nature for these
periods.
2
1
EXHIBIT 12
USA WASTE SERVICES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
Nine Months Ended September 30,
----------------------------------
1997 (1) 1996 (2)
------------- -------------
Income before taxes and extraordinary item $ 291,817 $ 42,335
------------- -------------
Fixed charges deducted from income:
Interest expense 71,040 45,080
Implicit interest in rents 5,110 5,595
------------- -------------
76,150 50,675
------------- -------------
Earnings available for fixed charges $ 367,967 $ 93,010
============= =============
Interest expense $ 71,040 $ 45,080
Capitalized interest 17,772 14,429
Implicit interest in rents 5,110 5,595
------------- -------------
Total fixed charges $ 93,922 $ 65,104
============= =============
Ratio of earnings to fixed charges 3.9x 1.4x
============= =============
- -------------------------------------------------------------------------------
(1) Income before taxes and extraordinary item for the nine months ended
September 30, 1997, includes merger costs and unusual items of
$109,411,000, and $24,720,000, respectively. Excluding the effect of these
nonrecurring charges, the ratio of earnings to fixed charges would have
been 5.4x for the nine months ended September 30, 1997.
(2) Income before taxes and extraordinary item for the nine months ended
September 30, 1996, includes merger costs and unusual items of $125,047,000
and $63,800,000, respectively. Excluding the effect of these nonrecurring
charges, the ratio of earnings to fixed charges would have been 4.3x for
the nine months ended September 30, 1996.
5
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
63,249,000
0
464,385,000
(28,748,000)
0
706,653,000
4,423,592,000
(827,724,000)
6,044,619,000
545,759,000
2,440,879,000
0
0
2,160,000
2,498,195,000
6,044,619,000
1,878,460,000
1,878,460,000
970,373,000
1,531,111,000
(15,508,000)
0
71,040,000
291,817,000
121,364,000
170,453,000
0
(6,293,000)
0
164,160,000
0.78
0.78
