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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 MARCH 31, 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
--- ---
NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE, OF THE REGISTRANT
OUTSTANDING AT MAY 13, 1997, WAS 156,409,046.
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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)
MARCH 31, DECEMBER 31,
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 23,441 $ 23,511
Accounts receivable, net 266,782 210,038
Notes and other receivables 32,636 25,579
Deferred income taxes 34,666 39,714
Prepaid expenses and other 35,306 41,139
---------- ----------
Total current assets 392,831 339,981
Notes and other receivables 45,399 49,059
Property and equipment, net 2,260,151 1,810,251
Excess of cost over net assets
of acquired businesses, net 721,318 433,913
Other intangible assets, net 86,253 83,486
Other assets 180,843 113,815
---------- ----------
Total assets $3,686,795 $2,830,505
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 110,818 $ 94,900
Accrued liabilities 152,356 172,916
Deferred revenues 27,992 23,450
Current maturities of long-term debt 31,025 28,695
---------- ----------
Total current liabilities 322,191 319,961
Long-term debt, less current maturities 1,423,358 1,158,305
Deferred income taxes 93,942 8,786
Closure, post-closure, and other liabilities 178,356 188,177
---------- ----------
Total liabilities 2,017,847 1,675,229
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 10,000,000
shares authorized; none issued -- --
Common stock, $.01 par value;
300,000,000 shares authorized; 154,133,595 and
139,609,250 shares issued, respectively 1,541 1,396
Additional paid-in capital 1,720,326 1,255,856
Accumulated deficit (36,522) (85,649)
Foreign currency translation adjustment (15,913) (15,843)
Less treasury stock at cost, 23,485 shares (484) (484)
---------- ----------
Total stockholders' equity 1,668,948 1,155,276
---------- ----------
Total liabilities and stockholders' equity $3,686,795 $2,830,505
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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USA WASTE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
(RESTATED)
Operating revenues $364,905 $282,525
-------- --------
Costs and expenses:
Operating 187,723 158,956
General and administrative 42,794 36,704
Depreciation and amortization 45,589 32,701
-------- --------
276,106 228,361
-------- --------
Income from operations 88,799 54,164
-------- --------
Other income (expense):
Interest expense (11,957) (11,227)
Interest and other income, net 5,037 3,145
-------- --------
(6,920) (8,082)
-------- --------
Income before income taxes 81,879 46,082
Provision for income taxes 32,752 18,430
-------- --------
Net income $ 49,127 $ 27,652
======== ========
Primary earnings per common share $ 0.32 $ 0.21
======== ========
Fully diluted earnings per common share $ 0.32 $ 0.21
======== ========
Primary weighted average number of common
and common equivalent shares
outstanding 159,472 132,362
======== ========
Fully diluted weighted average number of
common and common equivalent shares
outstanding 163,548 132,560
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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USA WASTE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
FOREIGN
ADDITIONAL CURRENCY
PREFERRED COMMON PAID-IN ACCUMULATED TRANSLATION TREASURY
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT STOCK
----- ----- ------- ------- ---------- -----
Balance, December 31, 1996 $-- $1,396 $1,255,856 $(85,649) $(15,843) $(484)
Common stock options and warrants
exercised, including tax benefits -- 10 17,181 -- -- --
Common stock issued in purchase
acquisitions and development projects -- 14 49,443 -- -- --
Common stock issued for acquisitions
accounted for as poolings of
interests -- 4 1,094 -- -- --
Common stock issued in public offering -- 115 387,323 -- -- --
Foreign currency translation
adjustment -- -- -- -- (70) --
Other -- 2 9,429 -- -- --
Net income -- -- -- 49,127 -- --
-- ------ ---------- -------- -------- -----
Balance, March 31, 1997 $-- $1,541 $1,720,326 $(36,522) $(15,913) $(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)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
(RESTATED)
Cash flows from operating activities:
Net cash provided by operating activities $ 182 $ 39,471
---------- ---------
Cash flows from investing activities:
Acquisitions of businesses, net of cash
acquired (567,940) (90,456)
Capital expenditures (66,755) (53,046)
Loans and advances to others (6,944) (8,177)
Collection of loans to others 4,388 1,158
Proceeds from sale of assets 18,305 1,441
Change in restricted funds 9,409 948
---------- ---------
Net cash used in investing activities (609,537) (148,132)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,075,995 144,088
Principal payments on long-term debt (863,723) (27,578)
Net proceeds from issuance of common stock 387,438 712
Proceeds from exercise of common stock
options and warrants 9,346 2,516
Other (621) 392
---------- ---------
Net cash provided by financing activities 608,435 120,130
---------- ---------
Effect of exchange rate changes on cash and
cash equivalents 850 12
---------- ---------
Increase (decrease) in cash and cash equivalents (70) 11,481
Cash and cash equivalents at beginning of period 23,511 21,058
---------- ---------
Cash and cash equivalents at end of period $ 23,441 $ 32,539
========== =========
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 March 31, 1997 and December 31, 1996, the
condensed consolidated statements of operations for the three months ended
March 31, 1997 and 1996, the condensed consolidated statement of stockholders'
equity for the three months ended March 31, 1997, and the condensed
consolidated statements of cash flows for the three months ended March 31, 1997
and 1996 are unaudited. In the opinion of management, such financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of financial position, results of operations,
and cash flows for the periods presented. The condensed balance sheet data at
December 31, 1996 was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The financial statements presented herein should be read in connection with
the Company's Annual Report on Form 10-K for the year ended December 31, 1996,
as amended on Form 10-K/A filed April 30, 1997.
1. BUSINESS COMBINATIONS
On January 1, 1997, the Company consummated two mergers with California
collection companies accounted for as poolings of interests, pursuant to which
the Company issued 356,824 shares of its common stock. Periods prior to 1997
were not restated to include the accounts and operations of the acquired
companies as combined results are not materially different from the results as
presented.
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.
During the three months ended March 31, 1997, in addition to the above described
transactions, the Company acquired 28 collection businesses and three transfer
stations for approximately $49,940,000 in cash, $16,734,000 in liabilities
incurred or debt assumed, and 1,389,167 shares of the Company's common stock.
These acquisitions were accounted for as purchases.
The unaudited pro forma information set forth below assumes 1997 first quarter
and 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):
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Operating revenues $428,999 $438, 919
Net income 54,720 44,771
Primary earnings per common share 0.35 0.33
Fully diluted earnings per common share 0.35 0.33
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 divesture
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.
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3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
March 31, December 31,
1997 1996
---- ----
Revolving credit facility $ 105,000 $ 637,000
Senior notes, maturing in varying annual installments
through June 2005, interest ranging from 7.29% to 8.44% 107,500 107,500
Convertible subordinated debentures, interest at 5% 115,000 115,000
Convertible subordinated notes, interest at 4% 535,275 --
Note payable to bank, interest at Banker's Acceptance plus
0.45% 350,000 --
Subordinated debt, maturing in varying monthly installments
through January 2008, interest ranging from 7.25% to 10% 5,543 5,589
Industrial revenue bonds, principal payable in annual
installments, maturing in 1996-2021, variable interest
rates (3.1% to 3.4% at March 31, 1997), enhanced by
letters of credit 162,804 164,639
Other 73,261 157,272
---------- ----------
1,454,383 1,187,000
Less current maturities 31,025 28,695
---------- ----------
$1,423,358 $1,158,305
========== ==========
At December 31, 1996, the Company had borrowed $637,000,000 under its
$1,200,000,000 senior revolving credit facility. The credit facility was used
to refinance existing bank loans and letters of credit and to fund additional
acquisitions and working capital. The credit facility was available for
standby letters of credit of up to $400,000,000. Loans under the credit
facility bore interest at a rate based on the Eurodollar rate plus a spread not
to exceed 0.75% per annum (spread set at 0.30% per annum, or an applicable
interest rate of 5.87% per annum at December 31, 1996). The credit facility
required a facility fee not to exceed 0.375% per annum on the entire available
credit facility (facility fee set at 0.15% per annum at December 31, 1996).
The credit facility contained financial covenants with respect to interest
coverage and debt capitalization ratios. The credit facility also contained
limitations on dividends, additional indebtedness, liens, and asset sales.
Principal reductions were not required during the five-year term of the credit
facility. On March 5, 1997, the credit facility was replaced with a
$1,600,000,000 senior revolving credit facility with the same general terms,
covenants, and limitations, which is available for standby letters of credit of
up to $500,000,000. At March 31, 1997, the Company had borrowed $105,000,000
under its $1,600,000,000 senior revolving credit facility. The applicable
interest rate and facility fee at March 31, 1997 were 6.15% per annum
(including the spread set at 0.30% per annum) and 0.15% per annum, respectively.
On February 7, 1997, the Company issued $535,275,000 of 4% convertible
subordinated notes, due on February 1, 2002 ("Notes Offering"). Interest is
payable semi-annually in February and August. The notes are convertible into
shares of the Company's common stock at a conversion price of $43.56 per share.
The notes are subordinated in right of payment to all existing and future
senior indebtedness, as defined. The notes are redeemable after February 1,
2000 at the option of the Company at 101.6% of the principal amount, declining
to 100.8% of the principal amount on February 1, 2001 and thereafter until
maturity, plus accrued interest. Deferred offering costs of approximately
$14,000,000 were incurred and are being amortized ratably over the life of the
notes. The proceeds were primarily used to repay debt under the Company's
credit facility, to fund acquisitions, and for general corporate purposes.
On February 7, 1997, concurrent with the Notes Offering, the Company completed
a public offering of 11,500,000 shares of its common stock, priced at $35.125
per share. The net proceeds of approximately $387,438,000 were primarily used
to repay debt under the Company's credit facility and for general corporate
purposes.
On March 12, 1997, the Company borrowed $350,000,000 from a Canadian bank to
facilitate the acquisition of the Canadian solid waste subsidiaries of Allied
Waste Industries, Inc. (see Note 1). The note bears interest at Banker's
Acceptance plus 0.45%. On April 21, 1997, the Company retired the $350,000,000
Canadian borrowings with proceeds from its domestic credit facility.
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Other long-term debt at March 31, 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 paid in January 1997 through additional
borrowings under the credit facility.
4. 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 stock and two of its general partners and asserts federal
securities law and common law claims alleging that Chambers, in publicly
disseminated materials, intentionally or negligently misstated its earnings and
that Chambers' officers and directors committed mismanagement and breach of
fiduciary duties. These plaintiffs allege that, as a result of large amounts
of put options traded on the Chicago Board of Options Exchange between March 13
and March 18, 1992, they engaged in offsetting transactions resulting in
approximately $2,100,000 in losses. The plaintiffs in Option Resource Group
had successfully requested exclusion from a now settled class action of
consolidated suits instituted on similar claims ("Class Action") and Option
Resource Group is continuing as a separate lawsuit. In response to discovery
on damages, the plaintiffs reduced their damages claim to $433,000 in alleged
losses, plus interest and attorneys' fees, for a total damage claim of $658,000
as of August 21, 1995. By order dated April 11, 1997, the Court denied
plaintiffs' previously filed motion for summary judgement. Discovery has been
completed, and a trial date is expected to be set for later in 1997. The
Company intends to continue to vigorously defend against this action.
Management of the Company believes the ultimate resolution of this case will
not have a material adverse effect on the Company's financial position or
results of operations.
On August 3, 1995, Frederick A. Moran and certain related persons and entities
filed a lawsuit against Chambers, certain former officers and directors of
Chambers, and Grant Thornton, LLP, in the United States District Court for the
Southern District of New York under the caption Moran, et al. v. Chambers, et
al., Civil Action No. 95-6034. Plaintiffs, who claim to represent
approximately 484,000 shares of Chambers stock, requested exclusion from the
settlement agreements which resulted in the resolution of the Class Action and
assert that they have incurred losses attributable to shares purchased during
the class period and certain additional losses by reason of alleged management
misstatements during and after the class period. The claimed losses include
damages to Mr. Moran's business and reputation. The Judicial Panel on
Multidistrict Litigation has transferred this case to the United States
District Court for the Western District of Pennsylvania. The Company has filed
its answer to the complaint and intends to vigorously defend against these
claims. The case is currently in discovery, which is scheduled to close in
June 1997. Management of the Company believes the ultimate resolution of this
case will not have a material adverse effect on the Company's financial
position or results of operations.
The Company is a party to various other litigation matters arising in the
ordinary course of business. Management believes that the ultimate resolution
of these matters will not have a material adverse impact on the Company's
financial position and results of operations. In the normal course of its
business and as a result of the extensive government regulation of the solid
waste industry, the Company periodically may become subject to various judicial
and administrative proceedings 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 $150,000,000 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 had any difficulty in obtaining insurance.
However, if the Company in the future is unable to obtain adequate insurance,
or decides to operate without insurance, a partially or completely uninsured
claim against the Company, if successful and of sufficient magnitude, could
have a material adverse effect upon the Company's financial condition or
results of operations. Additionally, continued availability of casualty and EIL
insurance with sufficient limits at acceptable terms is an important aspect of
obtaining revenue-producing waste service contracts.
5. SUBSEQUENT EVENTS
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 eleven collection businesses, eleven landfills, six transfer
stations, and three recycling businesses. The acquisition will be accounted
for as a purchase.
On March 21, 1997, a Canadian subsidiary of the Company and WMX Technologies,
Inc.'s Waste Management, Inc. subsidiary ("WMX") jointly executed a letter of
intent whereby the Company will acquire the majority of WMX's Canadian solid
waste businesses for approximately $186,000,000, including $124,000,000 in cash
and $62,000,000 in Company common stock. The assets to be acquired include 13
collection businesses, one landfill, and three transfer stations in the
provinces of Alberta, British Columbia, Ontario, and Quebec. The acquisition,
which is expected to close by May 31, 1997, is subject to regulatory approval
and final negotiation and execution of a definitive sales agreement. The
acquisition will be accounted for as a purchase.
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From April 1, 1997 through May 5, 1997, in addition to the two aforementioned
transactions, the Company acquired eight collection businesses, one landfill,
and one transfer station for approximately $41,437,000 in cash, $325,000 in
liabilities incurred or debt assumed, and 404,506 shares of the Company's common
stock. These acquisitions were accounted for as purchases.
The unaudited pro forma information set forth below assumes 1997 and 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):
Three Months Ended March 31,
---------------------------
1997 1996
---- ----
Operating revenues $463,057 $472,977
Net income 57,608 47,659
Primary earnings per common share 0.36 0.35
Fully diluted earnings per common share 0.37 0.35
On April 14, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") to acquire United Waste Systems, Inc. ("United")
through a merger transaction ("United Merger"). The United Merger is subject
to, among other conditions, antitrust clearance and approval of both companies'
stockholders. It is anticipated that the United Merger will be completed in
the third quarter of 1997 and that it will be accounted for as a pooling of
interests. The Merger Agreement provides that on the effective date of the
United Merger, the Company will issue 1.075 shares of its common stock for each
share of United outstanding common stock. Additionally, at the effective date
of the United Merger, all United stock options, whether or not such stock
options have vested or become exercisable, will be cancelled in exchange for
shares of the Company's common stock equal in market value to the fair value of
such United stock options, as determined by an independent third party. The
United Merger is expected to increase the Company's outstanding shares of
common stock by approximately 47,800,000 shares. Following the United Merger,
the Company's Board of Directors will include two members designated by United.
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6. EARNINGS PER COMMON SHARE
Primary earnings per common share for the three months ended March 31, 1997 is
computed by dividing net income, after adjusting for the after-tax interest
expense of approximately $1,830,000 on the Company's 4% convertible
subordinated notes that are considered to be common stock equivalents based
upon the yield test at the time of issuance, by the weighted average number of
common and dilutive common equivalent shares outstanding of 159,472,000. Fully
diluted earnings per common share for the three months ended March 31, 1997 is
computed by dividing net income, after adjusting for the after-tax interest
expense of approximately $1,830,000 and $851,000 on the Company's 4%
convertible subordinated notes and 5% convertible subordinated debentures,
respectively, by the weighted average number of common, dilutive common
equivalent, and all other potentially dilutive equivalent shares outstanding
of 163,548,000.
Primary and fully diluted earnings per common shares for the three months ended
March 31, 1996 are computed by dividing net income by the weighted average
number of common and dilutive common equivalent shares outstanding of
132,362,000 and 132,560,000, respectively.
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
SFAS No. 128 was adopted in 1996 (in thousands, except per share amounts):
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Reported:
Primary earnings per common share $0.32 $0.21
Weighted average number of common
and common equivalent shares
outstanding 159,472 132,362
Fully diluted earnings per common
share $0.32 $0.21
Fully diluted weighted average
number of common and common
equivalent shares outstanding 163,548 132,560
Pro forma:
Basic earnings per common share $0.33 $0.22
Basic weighted averages shares
outstanding 147,680 127,996
Diluted earnings per common share $0.32 $0.21
Diluted weighted average shares
outstanding 163,534 132,362
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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 months
ended March 31, 1997 and 1996, and should be read in conjunction with the
Company's condensed consolidated financial statements and related notes thereto
included elsewhere herein as well as the Company's consolidated financial
statements and related notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, as amended on Form 10-K/A filed
April 30, 1997.
INTRODUCTION
The Company provides non-hazardous solid waste management services, consisting
of collection, transfer, disposal, recycling, and other miscellaneous services.
Since August 1990, the Company has experienced significant growth principally
through the acquisition and integration of solid waste businesses and is now
the third largest non-hazardous solid waste company in North America. The
Company conducts operations through subsidiaries in multiple locations
throughout the United States, Canada, Puerto Rico, and Mexico. The Company owns
or operates 203 collection businesses, 80 transfer stations, 119 landfills, and
20 recycling businesses serving more than 2,000,000 customers.
The Company's operating revenues consist primarily of fees charged for its
collection and disposal services. Operating revenues for collection services
include fees from residential, commercial, industrial, and municipal collection
customers. A portion of these fees are billed in advance; and upon receipt of
payment a liability for future service is recorded and operating revenues are
recognized as services are actually provided. Fees for residential services are
normally based on the type and frequency of service. Fees for commercial and
industrial services are normally based on the type and frequency of service and
the volume of solid waste collected.
The Company's operating revenues from its landfill operations consist of
disposal fees (known as tipping fees) charged to third parties and are normally
billed monthly. Tipping fees are based on the volume or weight of solid waste
disposed of at the Company's landfill sites. Fees are charged at transfer
stations based on the volume or weight of solid waste deposited, taking into
account the Company's cost of loading, transporting, and disposing of the solid
waste at a landfill. Intercompany operating revenues between the Company's
collection, transfer, and landfill operations have been eliminated in the
condensed consolidated financial statements presented elsewhere herein.
Operating expenses include direct and indirect labor and the related taxes and
benefits, fuel, maintenance and repairs of equipment and facilities, tipping
fees paid to third party landfills, property taxes, and accruals for future
landfill closure and post-closure costs. Certain direct landfill development
expenditures are capitalized and depreciated over the estimated useful life of
a site as capacity is consumed, and include acquisition, engineering,
upgrading, construction, 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.
11
12
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the period to period
change in dollars (in thousands) and percent for the various Condensed
Consolidated Statements of Operations line items:
PERIOD TO PERIOD
CHANGE FOR THE
THREE MONTHS ENDED
MARCH 31,
1997 AND 1996
-------------
$ %
--- ---
Operating revenues $82,380 29.2 %
-------
Costs and expenses:
Operating 28,767 18.1
General and administrative 6,090 16.6
Depreciation and amortization 12,888 39.4
-------
47,745 20.9
-------
Income from operations 34,635 63.9
-------
Other income (expense):
Interest expense (730) (6.5)
Interest and other income, net 1,892 60.2
-------
1,162 14.4
-------
Income before income taxes 35,797 77.7
Provision for income taxes 14,322 77.7
-------
Net income $21,475 77.7 %
=======
12
13
The following table presents, for the periods indicated, the percentage
relationship that the various Condensed Consolidated Statements of Operations
line items bear to operating revenues:
Three Months Ended March 31,
---------------------------
1997 1996
---- ----
Operating revenues:
Collection 55.7% 53.7%
Transfer stations 11.0 10.1
Disposal 28.6 28.0
Other 4.7 8.2
----- -----
100.0 100.0
----- -----
Costs and expenses:
Operating 51.5 56.2
General and administrative 11.7 13.0
Depreciation and amortization 12.5 11.6
----- -----
75.7 80.8
----- -----
Income from operations 24.3 19.2
----- -----
Other income (expense):
Interest expense (3.3) (4.0)
Interest and other income, net 1.5 1.1
----- -----
(1.8) (2.9)
----- -----
Income before income taxes 22.5 16.3
Provision for income taxes 9.0 6.5
----- -----
Net income 13.5% 9.8%
===== =====
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Operating Revenues
Operating revenues increased $82,830,000, or 29.2%, for the three months ended
March 31, 1997 compared to respective prior year period. This increase is
primarily attributable to acquisitions, in both 1997 and 1996, which resulted in
an increase in operating revenues of $72,095,000. Internal growth of comparable
businesses resulted in an increase in operating revenues of $29,193,000,
consisting of increases of 2.3% due to pricing and 8.1% due to volumes. The
remaining decrease in operating revenues was primarily the result of
dispositions of certain solid waste collection and disposal operations in
Houston, Texas, in 1997, related to the Company's merger with Sanifill, Inc. in
August 1996, and dispositions of non-core businesses in 1997 and 1996.
Operating Costs and Expenses
Operating costs and expenses increased $28,767,000, or 18.1%, for the three
months ended March 31, 1997 compared to the respective prior year period,
however, have decreased as a percentage of operating revenues from 56.2% in 1996
to 51.5% in 1997. The net increase in operating costs and expenses is primarily
attributable to the effect of new acquisitions, net of dispositions, which
resulted in an increase of $48,736,000. The increase was offset by a decrease
of $9,414,000 related to increased utilization of internal disposal capacity
from 40.3% in 1996 to 50.8% in 1997 and a decrease of $10,555,000 related to
improvements in comparable operations, primarily resulting from operating
synergies realized from tuck-in acquisitions and mergers with Sanifill, Inc. and
Western Waste Industries in August 1996 and May 1996, respectively. The
decrease in operating costs and expenses as a percentage of operating revenues
is the result of increased utilization of internal disposal capacity, synergies
related to the aforementioned mergers and tuck-in acquisitions, and the
inclement weather conditions experienced in the first quarter of 1996.
13
14
General and Administrative
General and administrative expenses have increased $6,090,000, or 16.6%, for
the three months ended March 31, 1997 compared to the respective prior year
period. As a percentage of operating revenues, however, general and
administrative expenses decreased from 13.0% in 1996 to 11.7% in 1997. The
decrease in general and administrative expenses as a percentage of operating
revenues is primarily the result of the Company's ability to integrate new
business acquisitions without a proportionate increase in general and
administrative expenses as well as cost reductions resulting from mergers with
Sanifill, Inc. and Western Waste Industries in August 1996 and May 1996,
respectively.
Depreciation and Amortization
Depreciation and amortization increased $12,888,000, or 39.4%, for the three
months ended March 31, 1997 compared to the respective prior year period. As a
percentage of operating revenues, depreciation and amortization increased from
11.6% in 1996 to 12.5% in 1997. The increase in depreciation and amortization
is primarily related to acquisitions and upgrades to existing operations as
well as increased landfill disposal volumes. The increase in depreciation and
amortization as a percentage of operating revenues is primarily the result of
increased utilization of internal disposal capacity, as the resulting increased
internal operating revenues are eliminated in consolidation. This increase in
depreciation and amortization related to the internalization of landfill
disposal volumes is offset by the aforementioned decrease in operating costs
and expenses.
Income from Operations
Income from operations increased $34,635,000, or 63.9%, for the three months
ended March 31, 1997 compared to the respective prior year period. As a
percentage of operating revenues, income from operations increased from 19.2%
in 1996 to 24.3% in 1997. The improvement in income from operations as a
percentage of operating revenues is the result of economies of scale realized
by the Company with respect to recent acquisitions, dispositions of less
profitable businesses, and improvements in comparable operations.
Other Income and Expense
Other income and expense consists of interest expense, interest income, and
other income. Interest expense, gross of amounts capitalized, increased due to
an increase in the Company's outstanding debt balance. Capitalized interest
was $5,214,000 and $3,875,000 for the three months ended March 31, 1997 and
1996, respectively. The increase in capitalized interest is due to increased
development activity incurred in connection with disposal sites. The increase
in other income in 1997 is primarily related to realization of a portion of the
deferred gain recorded in connection with the 1996 sale of certain nonhazardous
oil field waste disposal operations.
Provision for Income Taxes
The Company recorded provision for income taxes of $32,752,000 and $18,430,000
for the three months ended March 31, 1997 and 1996, respectively. The
differences in provision for income taxes at the federal statutory rate and the
reported amounts recorded relate primarily to state and local income taxes.
Net Income
For reasons discussed above, net income increased $21,475,000 for the three
months ended March 31, 1997 compared to the three months ended March 31, 1996.
14
15
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 March 31, 1997, the Company had working capital of $70,640,000 (a ratio
of current assets to current liabilities of 1.22:1) and a cash balance of
$23,441,000, which compares to working capital of $20,020,000 (a ratio of
current assets to current liabilities of 1.06:1) and a cash balance of
$23,511,000 as of December 31, 1996. For the first three months of 1997, net
cash from operations was approximately $182,000 and net cash from
financing activities was approximately $609,537,000. These funds were used
primarily to fund investments in other businesses of $567,940,000 and for
capital expenditures of approximately $66,755,000.
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 under its
$1,200,000,000 senior revolving credit facility. The credit facility was used
to refinance existing bank loans and letters of credit and to fund additional
acquisitions and working capital. The credit facility was available for
standby letters of credit of up to $400,000,000. Loans under the credit
facility bore interest at a rate based on the Eurodollar rate plus a spread not
to exceed 0.75% per annum (spread set at 0.30% per annum, or an applicable
interest rate of 5.87% per annum at December 31, 1996). The credit facility
required a facility fee not to exceed 0.375% per annum on the entire available
credit facility (facility fee set at 0.15% per annum at December 31, 1996).
The credit facility contained financial covenants with respect to interest
coverage and debt capitalization ratios. The credit facility also contained
limitations on dividends, additional indebtedness, liens, and asset sales.
Principal reductions were not required during the five-year term of the credit
facility. On March 5, 1997, the credit facility was replaced with a
$1,600,000,000 senior revolving credit facility with the same general terms,
covenants, and limitations, which is available for standby letters of credit of
up to $500,000,000. At March 31, 1997, the Company had borrowed $105,000,000
under its $1,600,000,000 senior revolving credit facility. The applicable
interest rate and facility fee at March 31, 1997 were 6.15% per annum
(including the spread set at 0.30% per annum) and 0.15% per annum, respectively.
On February 7, 1997, the Company issued $535,275,000 of 4% convertible
subordinated notes, due on February 1, 2002 ("Notes Offering"). Interest is
payable semi-annually in February and August. The notes are convertible into
shares of the Company's common stock at a conversion price of $43.56 per share.
The notes are subordinated in right of payment to all existing and future
senior indebtedness, as defined. The notes are redeemable after February 1,
2000 at the option of the Company at 101.6% of the principal amount, declining
to 100.8% of the principal amount on February 1, 2001 and thereafter until
maturity, plus accrued interest. Deferred offering costs of approximately
$14,000,000 were incurred and are being amortized ratably over the life of the
notes. The proceeds were primarily used to repay debt under the Company's
credit facility and for general corporate purposes.
On February 7, 1997, concurrent with the Notes Offering, the Company completed
a public offering of 11,500,000 shares of its common stock, priced at $35.125
per share. The net proceeds of approximately $387,438,000 were primarily used
to repay debt under the Company's credit facility and for general corporate
purposes.
On March 12, 1997, the Company acquired all of the Canadian solid waste
subsidiaries of Allied Waste Industries, Inc. for approximately $518,000,000
in cash. In connection with this transaction, the Company's Canadian
subsidiary borrowed $350,000,000 as evidenced by a promissory note bearing
interest at Banker's Acceptance plus 0.45%. On April 21, 1997, the Company
retired the $350,000,000 Canadian borrowings with proceeds from its domestic
credit facility.
On April 1, 1997, the Company acquired substantially all of the assets of
Mid-American Waste Systems, Inc. ("Mid- American") for approximately
$201,000,000, consisting primarily of cash and a limited amount of debt
assumption.
15
16
Reducing the availability for April 1997 payments related to the Canadian
borrowings and the Mid-American acquisition, the Company would have had
approximately $649,000,000 available for additional cash borrowings under its
credit facility as of March 31, 1997.
On March 21, 1997, a Canadian subsidiary of the Company and WMX Technologies,
Inc.'s Waste Management, Inc. subsidiary ("WMX") jointly executed a letter of
intent whereby the Company will acquire the majority of WMX's Canadian solid
waste businesses for approximately $186,000,000, including $124,000,000 in cash
and $62,000,000 in Company common stock. The acquisition, which is expected to
close by May 31, 1997, is subject to regulatory approval and final negotiation
and execution of a definitive sales agreement.
The Company's business plan is to grow through acquisitions as well as
development projects. The Company has issued equity securities in business
acquisitions and expects to do so in the future. Furthermore, the Company's
future growth will depend greatly upon its ability to raise additional capital.
The Company continually reviews various financing alternatives and depending
upon market conditions could pursue the sale of debt and/or equity securities
to help effectuate its business strategy. Management believes that it can
arrange the necessary financing required to accomplish its business plan;
however, to the extent the Company is not successful in its future financing
strategies the Company's growth could be limited.
SEASONALITY AND INFLATION
The Company's operating revenues tend to be somewhat lower in the winter
months. This is generally reflected in the Company's first quarter results of
operations and may also be reflected in its fourth quarter results of
operations. This is primarily attributable to the fact that (i) the volume of
waste relating to construction and demolition activities tends to increase in
the spring and summer months and (ii) the volume of waste relating to
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.
16
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about March 8, 1993, an action was filed in the United States District
Court for the Western District of Pennsylvania, captioned Option Resource
Group, et al. v. Chambers Development Company, Inc., et al., Civil Action No.
93-354. This action was brought by a market maker in options in Chambers stock
and two of its general partners and asserts federal securities law and common
law claims alleging that Chambers, in publicly disseminated materials,
intentionally or negligently misstated its earnings and that Chambers' officers
and directors committed mismanagement and breach of fiduciary duties. These
plaintiffs allege that, as a result of large amounts of put options traded on
the Chicago Board of Options Exchange between March 13 and March 18, 1992, they
engaged in offsetting transactions resulting in approximately $2,100,000 in
losses. The plaintiffs in Option Resource Group had successfully requested
exclusion from a now settled class action of consolidated suits instituted on
similar claims ("Class Action") and Option Resource Group is continuing as a
separate lawsuit. In response to discovery on damages, the plaintiffs reduced
their damages claim to $433,000 in alleged losses, plus interest and attorneys'
fees, for a total damage claim of $658,000 as of August 21, 1995. By order
dated April 11, 1997, the Court denied plaintiffs' previously filed motion for
summary judgement. Discovery has been completed, and a trial date is expected
to be set for later in 1997. The Company intends to continue to vigorously
defend against this action. Management of the Company believes the ultimate
resolution of this case will not have a material adverse effect on the
Company's financial position or results of operations.
On August 3, 1995, Frederick A. Moran and certain related persons and entities
filed a lawsuit against Chambers, certain former officers and directors of
Chambers, and Grant Thornton, LLP, in the United States District Court for the
Southern District of New York under the caption Moran, et al. v. Chambers, et
al., Civil Action No. 95-6034. Plaintiffs, who claim to represent
approximately 484,000 shares of Chambers stock, requested exclusion from the
settlement agreements which resulted in the resolution of the Class Action and
assert that they have incurred losses attributable to shares purchased during
the class period and certain additional losses by reason of alleged management
misstatements during and after the class period. The claimed losses include
damages to Mr. Moran's business and reputation. The Judicial Panel on
Multidistrict Litigation has transferred this case to the United States
District Court for the Western District of Pennsylvania. The Company has filed
its answer to the complaint and intends to vigorously defend against these
claims. The case is currently in discovery, which is scheduled to close in
June 1997. Management of the Company believes the ultimate resolution of this
case will not have a material adverse effect on the Company's financial
position or results of operations.
The Company is a party to various other litigation matters arising in the
ordinary course of business. Management believes that the ultimate resolution
of these matters will not have a material adverse impact on the Company's
financial position and results of operations. In the normal course of its
business and as a result of the extensive government regulation of the solid
waste industry, the Company periodically may become subject to various judicial
and administrative proceedings and investigations involving federal, state, or
local agencies. To date, the Company has not been required to pay any material
fine or had a judgment entered against it for violation of any environmental
law. From time to time, the Company also may be subjected to actions brought by
citizen's groups in connection with the permitting of landfills or transfer
stations, or alleging violations of the permits pursuant to which the Company
operates. From time to time, the Company is also subject to claims for personal
injury or property damage arising out of accidents involving its vehicles or
other equipment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The exhibits to this report are listed in the Exhibit Index included elsewhere
herein.
(b) REPORTS ON FORM 8-K:
A report on Form 8-K was filed January 13, 1997. The Company filed information
announcing that, although the Company is not a target, its subsidiary, Western
Waste Industries, which the Company acquired in May of 1996, is a target of an
ongoing investigation being conducted by the United States' Attorneys Office
for the Central District of California.
17
18
A report on Form 8-K was filed January 24, 1997. The Company filed information
announcing definitive agreements to acquire the Canadian solid waste
subsidiaries of Allied Waste Industries, Inc. and substantially all of the
assets of Mid-American Waste Systems, Inc.
A report on Form 8-K was filed February 6, 1997. The Company filed information
relating to a Form T-1 filed by Texas Commerce Bank National Association, as
trustee.
A report on Form 8-K was filed February 7, 1997. The Company filed information
related to its notes and equity offerings on February 7, 1997.
A report on Form 8-K was filed March 27, 1997. The Company filed information
with respect to the consummation of its acquisition of the Canadian solid waste
subsidiaries of Allied Waste Industries, Inc. on March 12, 1997.
18
19
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
May 15, 1997 BY: /s/ Earl E. DeFrates
- ----------------- --------------------
Date Earl E. DeFrates,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
May 15, 1997 BY: /s/ Bruce E. Snyder
- ----------------- -------------------
Date Bruce E. Snyder,
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
19
20
USA WASTE SERVICES, INC.
EXHIBIT INDEX
Number and Description of Exhibit *
- -----------------------------------
2 None
3 None
4 None
10 None
11 Computation of Earnings Per Common Share
15 None
18 None
19 None
22 None
23 None
24 None
27 Financial Data Schedule
99 None
- ---------------------------------------
* Exhibits not listed are inapplicable.
20
1
EXHIBIT 11
USA WASTE SERVICES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
(RESTATED)
Primary
Net income $ 49,127 $ 27,652
Interest on convertible subordinated notes, net of taxes (2) 1,830 --
-------- ---------
Net income -- primary $ 50,957 $ 27,652
======== =========
Number of common shares outstanding 155,225 129,206
Effect of using weighted average common shares outstanding (7,545) (1,210)
Common stock equivalents:
Common stock options and warrants (1) 4,692 4,366
Convertible subordinated notes (2) 7,100 --
-------- ---------
Total 159,472 132,362
======== =========
Primary earnings per common share $ 0.32 $ 0.21
======== =========
Fully diluted
Net income $ 49,127 $ 27,652
Interest on convertible subordinated notes, net of taxes (2) 1,830 --
Interest on convertible subordinated debentures, net of taxes (3) 851 --
-------- ---------
Net income -- fully diluted $ 51,808 $ 27,652
======== =========
Number of common shares outstanding 155,225 129,206
Effect of using weighted average common shares outstanding (7,545) (1,210)
Common stock equivalents:
Common stock options and warrants (1) 4,706 4,564
Convertible subordinated notes (2) 7,100 --
Convertible subordinated debentures (3) 4,062 --
-------- ---------
Total 163,548 132,560
======== =========
Fully diluted earnings per common share $ 0.32 $ 0.21
======== =========
- ----------------------------------------
(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.
(2) In accordance with Accounting Principles Board Opinion No. 15,
convertible subordinated notes that are deemed to be common stock
equivalents are considered in computing both primary and fully diluted
earnings per common share if inclusion of such convertible subordinated
notes is dilutive based on the "If-Converted Method". The Company's 4%
convertible subordinated notes, issued February 7, 1997, are
considered to be common stock equivalents based upon the yield test at
the time of issuance. The 4% convertible subordinated notes are
dilutive for both primary and fully diluted earnings per common share
for the three months ended March 31, 1997.
(3) In accordance with Accounting Principles Board Opinion No. 15,
convertible subordinated debentures are considered in computing fully
diluted earnings per common share if inclusion of such convertible
subordinated debentures is dilutive based on the "If-Converted Method".
The Company's 5% convertible subordinated debentures are dilutive for
the three months ended March 31, 1997.
21
5
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
23,441,000
0
281,707,000
(4,925,000)
0
392,831,000
2,878,915,000
(618,764,000)
3,686,795,000
322,191,000
1,423,358,000
0
0
1,541,000
1,667,407,000
3,686,795,000
364,905,000
364,905,000
187,823,000
276,106,000
(5,037,000)
0
11,957,000
81,879,000
32,752,000
49,127,000
0
0
0
49,127,000
0.32
0.32
