1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 18, 1995
USA Waste Services, Inc.
(Exact name of registrant as specified in charter)
Delaware 1-12154 73-1309529
(State or other jurisdic- (Commission (IRS employer
tion of incorporation) file number) identification no.)
5400 LBJ Freeway, Suite 300 - Tower One, Dallas, Texas 75240
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 383-7900
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
The information set forth in the press release of the registrant, dated
December 19, 1995, which is filed as an exhibit hereto, is incorporated by
reference. Certain financial statements and pro forma financial information
relating to the merger described in such press release is incorporated by
reference herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business to be Acquired
The following financial statements of Western Waste Industries
("Western") are included herein: (i) the audited consolidated balance sheets as
of June 30, 1994 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended June 30, 1995, together with the notes thereto and the report
of independent auditors dated August 25, 1995, except for Note 8 as to which
the date is September 12, 1995; and (ii) the audited consolidated balance
sheet as of June 30, 1995 and the unaudited consolidated balance sheet as of
September 30, 1995 and the related unaudited consolidated statements of
income and cash flows for the three months ended September 30, 1994 and 1995.
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Report of Independent Auditors
Board of Directors and Shareholders
Western Waste Industries
We have audited the accompanying consolidated balance sheets of Western Waste
Industries and subsidiaries as of June 30, 1994 and 1995 and the related
consolidated statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Western Waste Industries and subsidiaries at June 30, 1994 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, in 1994 the
Company changed its method of accounting for income taxes, and as discussed
in Note 1 to the consolidated financial statements, in 1995 the Company
changed its method of accounting for impairment of long-lived assets.
/s/ ERNST & YOUNG LLP
Long Beach, California
August 25, 1995, except for Note 8 as
to which the date is September 12, 1995
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Western Waste Industries Consolidated Statement of Operations
Year Ended June 30,
------------------------------------------
1993 1994 1995
------------ ------------ ------------
Revenue $231,205,000 $257,005,000 $270,941,000
------------ ------------ ------------
Costs and expenses:
Operating 187,648,000 192,099,000 196,235,000
Selling, general
and administrative 37,076,000 38,483,000 39,480,000
Special charges 21,043,000 - -
------------ ------------ ------------
Total costs and expenses 245,767,000 230,582,000 235,715,000
------------ ------------ ------------
Income (loss) from operations (14,562,000) 26,423,000 35,226,000
Nonoperating income (expense):
Interest income 841,000 799,000 1,542,000
Interest expense (3,480,000) (3,834,000) (5,349,000)
Other 2,735,000 ( 767,000) ( 628,000)
------------ ----------- ------------
Net nonoperating
income (expense) 96,000 (3,802,000) (4,435,000)
------------ ----------- ------------
Income (loss) before income taxes
and cumulative effect of
accounting change (14,466,000) 22,621,000 30,791,000
Income taxes (benefit) ( 4,350,000) 10,094,000 13,702,000
------------ ----------- ------------
Income (loss) before cumulative
effect of accounting change (10,116,000) 12,527,000 17,089,000
Cumulative effect of
accounting change - 414,000 -
------------ ------------ ------------
Net income (loss) $(10,116,000) $ 12,941,000 $ 17,089,000
============ ============ ============
Earnings (loss) per common share:
Primary
Income (loss) before cumulative
effect of accounting change $ (.73) $ .83 $ 1.10
Cumulative effect of
accounting change - .03 -
------------ ------------ ------------
Net income (loss) $ (.73) $ .86 $ 1.10
============ ============ ============
Fully diluted
Income (loss) before cumulative
effect of accounting change $ (.73) $ .80 $ 1.10
Cumulative effect of
accounting change - .03 -
------------ ------------ ------------
Net income (loss) $ (.73) $ .83 $ 1.10
============ ============ ============
The accompanying notes are an integral part of these statements.
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Western Waste Industries Consolidated Balance Sheet
June 30,
---------------------------
1994 1995
------------ ------------
Assets
Current assets:
Cash and short-term investments $ 9,935,000 $ 6,484,000
Receivables, less allowance of $1,611,000
in 1994, and $1,738,000 in 1995 31,367,000 29,596,000
Supplies 3,349,000 3,320,000
Prepaid expenses 2,842,000 3,762,000
Other current assets 1,323,000 199,000
Deferred income tax benefit 5,319,000 4,101,000
------------ ------------
Total current assets 54,135,000 47,462,000
Property and equipment, net 185,598,000 196,972,000
Purchased routes, net 9,410,000 7,340,000
Goodwill, net 21,818,000 19,994,000
Other assets 13,720,000 21,605,000
------------ ------------
$284,681,000 $293,373,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current instalments of long-term debt $ 1,526,000 $ 1,308,000
Accounts payable 8,764,000 9,159,000
Accrued payroll and related costs 3,325,000 3,885,000
Other current liabilities 19,860,000 17,822,000
------------ ------------
Total current liabilities 33,475,000 32,174,000
Long-term debt, excluding current
instalments 91,864,000 78,882,000
Other liabilities 17,218,000 18,400,000
Deferred income taxes 2,947,000 3,696,000
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock, no par value; 2,000,000
shares authorized; none issued or
outstanding -- --
Common stock, no par value; 50,000,000
shares authorized; issued and outstanding
14,333,612 shares in 1994 and 14,612,599
in 1995 75,659,000 79,614,000
Retained earnings 63,518,000 80,607,000
------------ ------------
Total shareholders' equity 139,177,000 160,221,000
------------ ------------
$284,681,000 $293,373,000
============ ============
The accompanying notes are an integral part of these statements.
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Western Waste Industries Consolidated Statement of Shareholders' Equity
Common Stock
-------------------------- Retained
Shares Amount Earnings Total
----------- ----------- ----------- -----------
Balance at July 1,
1992 13,775,202 $61,934,000 $60,622,000 $122,556,000
Stock issued in
connection with:
401(k) plan 47,309 506,000 - 506,000
Stock option plans 44,050 449,000 - 449,000
Acquisitions - 8,955,000 71,000 9,026,000
Net Loss - - (10,116,000) (10,116,000)
----------- ----------- ----------- ------------
Balance at
June 30, 1993 13,866,561 71,844,000 50,577,000 122,421,000
----------- ----------- ----------- ------------
Stock issued in
connection with:
401(k) plan 39,441 566,000 - 566,000
Stock option plans 284,610 4,219,000 - 4,219,000
Guaranteed value
commitments 240,000 - - -
Cancellation of stock (97,000) (970,000) - (970,000)
Net Income - - 12,941,000 12,941,000
----------- ----------- ----------- ------------
Balance at
June 30, 1994 14,333,612 75,659,000 63,518,000 139,177,000
----------- ----------- ----------- ------------
Stock issued in
connection with:
401(k) plan 37,869 661,000 - 661,000
Stock option plans 241,118 3,294,000 - 3,294,000
Net Income - - 17,089,000 17,089,000
----------- ----------- ----------- ------------
Balance at
June 30, 1995 14,612,599 $79,614,000 $80,607,000 $160,221,000
=========== =========== =========== ============
The accompanying notes are an integral part of these statements.
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Western Waste Industries Consolidated Statement of Cash Flows
YEAR ENDED JUNE 30,
1993 1994 1995
------------ ----------- ------------
Operating activities:
Net income (loss) $(10,116,000) $12,941,000 $17,089,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 18,678,000 22,047,000 26,999,000
Bad debt expense 1,858,000 1,965,000 1,579,000
Uninsured claims 3,723,000 1,728,000 1,407,000
Employer portion-401(k)
contribution 506,000 566,000 661,000
Deferred income taxes (8,976,000) 1,327,000 1,967,000
Loss on municipal contract 6,000,000 - (950,000)
Gain on sale of minority
investment (2,829,000) - -
Cumulative effect of accounting
change - (414,000) -
Loss on disposition of assets 157,000 1,164,000 628,000
Special charges 21,043,000 - -
Changes in operating assets
and liabilities net of effects
of purchased businesses:
Decrease (increase) in
receivables (1,882,000) (6,045,000) 1,162,000
Decrease (increase) in other
assets 1,891,000 4,979,000 (2,429,000)
Increase (decrease) in
accounts payable 48,000 ( 171,000) 395,000
Increase (decrease) in
other liabilities 6,171,000 (3,842,000) 515,000
----------- ----------- -----------
Net cash provided by
operating activities 36,272,000 36,245,000 49,023,000
----------- ----------- -----------
Investing activities:
Purchases of property and equipment (34,980,000) (44,293,000) (36,386,000)
Proceeds from sale of investments 7,000,000 - 1,200,000
Proceeds from disposition of assets 270,000 1,976,000 870,000
----------- ----------- -----------
Net cash used in investing
activities (27,710,000) (42,317,000) (34,316,000)
----------- ----------- -----------
Financing activities:
Proceeds from revolving lines of
credit and long-term borrowings,
net of restricted cash 13,515,000 15,028,000 18,675,000
Principal payments on debt (20,954,000) ( 4,574,000) (39,450,000)
Proceeds from sale of stock 419,000 3,294,000 2,617,000
----------- ----------- -----------
Net cash provided (used) by
financing activities ( 7,020,000) 13,748,000 (18,158,000)
----------- ----------- -----------
Increase (decrease) in cash and
short-term investments 1,542,000 7,676,000 (3,451,000)
Cash and short-term investments at
beginning of year 717,000 2,259,000 9,935,000
----------- ----------- -----------
Cash and short-term investments at
end of year $ 2,259,000 $ 9,935,000 $6,484,000
=========== =========== ==========
The accompanying notes are an integral part of these statements.
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Western Waste Industries Notes to Consolidated Financial Statements
June 30, 1995
Western Waste Industries is a integrated solid waste services company,
providing collection, recycling, composting and disposal services for
commercial, industrial and residential customers. The Company operates as a
single business segment.
Note 1 Summary of significant accounting policies:
Principles of consolidation-The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Cash and short term investments-Short term investments generally consist of
highly liquid investments with a maturity of three months or less.
Property and equipment-Property and equipment are recorded at cost. Landfill
sites and site improvements are carried at cost and to the extent this
exceeds estimated end use realizable value, such excess is amortized over the
remaining estimated useful life of the site. Interest is capitalized in
connection with the construction of major facilities. The capitalized
interest is recorded as part of the asset to which it relates and is
amortized over the asset's useful life. In fiscal 1993, 1994 and 1995,
respectively, $1,151,000, $953,000 and $820,000 of interest cost was
capitalized. Depreciation and amortization of other property and equipment
are provided for by using the straight-line method over their estimated
useful lives. Leasehold improvements are amortized over the shorter of the
life of the improvement or the term of the lease.
Purchased routes-Purchased routes are amortized on a straight-line basis
over the contract periods or estimated service periods, generally 10 years.
Accumulated amortization at June 30, 1994 and 1995 was $16,640,000 and
$18,414,000, respectively.
Impairment of long-lived assets-In the fourth quarter of fiscal 1995, the
Company adopted FASB Statement No. 121 "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The
Statement requires the Company to review long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever certain
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Under the Statement, if the sum of the
expected future undiscounted cash flows is less than the carrying amount of
the asset, an impairment loss is recognized. An impairment loss is measured
as the amount by which the carrying amount exceeds the fair value of the
assets (assets to be held
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and used) or fair value less cost to sell (assets to be disposed of).
Goodwill-Consideration paid in excess of the fair market value of net assets
acquired is recorded as goodwill and is generally amortized on a
straight-line basis over 40 years. During fiscal 1993 and 1994, the carrying
value of goodwill was reviewed if the facts and circumstances suggested that
it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value
of the goodwill is reduced by the estimated shortfall of cash flows. In
fiscal 1995, the Company accounted for impairment as discussed above under
"Impairment of Long-Lived Assets". Accumulated amortization at June 30,
1994 and 1995 was $2,794,000 and $3,379,000, respectively.
Deferred bond issue costs-Expenses related to the issuance of Pollution
Control Revenue Bonds and Solid Waste Disposal Revenue Bonds (see Note 7) are
included in other assets and are amortized over the life of the bonds using
the straight-line method. At June 30, 1994 and 1995, the unamortized portion
of deferred bond issue costs amounted to $286,000 and $714,000, respectively.
Closure and post-closure reserves-The Company will have material financial
obligations relating to closure and post-closure costs of landfill facilities
it operates or for which it is otherwise responsible. While the precise
amount of these future obligations cannot be determined, the Company has
estimated that total costs for final closure of its existing facilities and
post-closure activities, will approximate $32,000,000. Closure and post-
closure accruals consider final capping of the site, site inspections,
ground-water monitoring, leachate management, methane gas control and
recovery, and operation and maintenance costs to be incurred during the
period after the facility closes.
Closure and post-closure costs are accrued and charged to cost of operations
over the estimated useful lives of such facilities. These accruals are based
on estimates from management reviews performed periodically. The closure and
post-closure requirements for the Company's municipal solid waste landfills
are established by Subtitle D or the applicable states' adopted and EPA
approved Subtitle D implementation plan. In performing the review for each
facility, the Company analyzes actual costs incurred versus total estimated
costs, updates prior cost estimates to reflect current regulatory
requirement, and considers requirements of proposed regulatory changes.
The Company accounts for closure and post-closure accruals by comparing
the total estimated closure and post-closure cost with the existing reserve.
The difference is accrued and charged to cost of operations as airspace is
consumed.
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The Company had closure and post-closure reserves as follows:
June 30,
--------------------------
1994 1995
------------ ------------
Current portion included in
Other Current Liabilities $ 2,019,000 $ 2,636,000
Non-current portion included in
Other Liabilities 5,617,000 6,544,000
------------ ------------
$ 7,636,000 $ 9,180,000
============ ============
Marketable Securities-In May 1993, the FASB issued Statement No. 115
"Accounting for Certain Investments in Debt and Equity Securities". The
Statement requires the Company to report its investment in marketable
securities (see Note 5) at fair value, with unrealized gains and losses
reported in a separate component of shareholders' equity. The Company
adopted this statement in fiscal 1995. The effect of this adoption was not
material to the financial position or results of operations of the Company.
Note 2 Special Charges
In fiscal 1993, the Company incurred special charges in the amount of
$21,043,000. These charges included principally (i) writeoffs and reserves
of $10,143,000 related to certain landfill development projects (ii) a
provision of $6,900,000 for additional reserves for potential future
expenditures relating to the long-term requirements for closure/post closure
management of certain of the Company's landfills and (iii) a general reserve
of $4,000,000 for property no longer needed for operations and other matters.
The balance of the reserves related to (i) landfill development projects and
(ii) real property totaled $3,600,000 and $1,800,000 respectively, as of June
30, 1995. Company management believes that these reserves remain adequate as
of June 30, 1995.
Note 3 Acquisitions/Divestitures:
In October 1990, the Company issued 300,000 shares of its common stock
in exchange for all the outstanding capital stock of a waste collection
company. This transaction, which was not material to the Company's financial
position or results of operations when originally recorded in fiscal 1991,
was accounted for as a pooling-of-interests at that time. However, as a
result of new information, it was determined in fiscal 1993 that the
transaction would have been more properly recorded by using the purchase
method. Accordingly, the financial statements for the
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year ended June 30, 1993 reflect this revision. As the effect was not
material, financial statements for prior years were not restated. Total
consideration paid for this acquisition was $9,310,000 consisting of 300,000
shares of capital stock at a guaranteed price of $30 per share and $310,000
in assumed debt in excess of assets acquired. In exchange for this
consideration, the Company allocated $1,215,000 to purchased routes and
$8,095,000 to goodwill. As part of this transaction the Company issued
240,000 shares of common stock in fiscal 1994 as renumeration for a stock
price guarantee.
In February 1993, the Company sold its equity investment in the
outstanding common stock of Best Pak Disposal resulting in a gain of
$2,800,000. The gain of $2,800,000 was included in nonoperating income
(expense)-other in the Consolidated Statement of Operations for the year
ended June 30, 1993. As part of the fiscal 1993 transaction, the Company
received 75,000 shares of common stock of USA Waste Services, Inc., valued at
$1,200,000. In fiscal 1995, the Company exercised a put option on the shares
and received $1,200,000.
Note 4 Property and equipment:
Property and equipment is composed of the following:
June 30,
------------------------
1994 1995
---------- ----------
Land $ 27,271,000 $ 27,533,000
Landfill sites 52,445,000 63,391,000
Buildings and leasehold
improvements 40,080,000 44,633,000
Vehicles 74,854,000 75,682,000
Equipment and other 81,800,000 85,875,000
------------ ------------
276,450,000 297,114,000
Less accumulated depreciation
and amortization 90,852,000 100,142,000
------------ ------------
$185,598,000 $196,972,000
============ ============
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Note 5 Other assets:
Other non-current assets consist of the following:
June 30,
------------------------
1994 1995
----------- -----------
Marketable securities $ 2,260,000 $ 1,518,000
Secured note receivable 3,113,000 3,438,000
Joint development venture 3,073,000 3,602,000
Restricted cash - 6,416,000
Other 5,274,000 6,631,000
----------- -----------
$13,720,000 $21,605,000
=========== ===========
In fiscal 1992, the Company entered into a joint development arrangement
with two other companies, for the purpose of developing a waste-by-rail
project called California RailFill Systems, formerly California InteRail.
The project is in the permitting stage and expects to receive solid waste
from throughout Southern California. The preliminary permitting cost
estimate is approximately $5,000,000 for each member of the joint development
team, of which the Company has expended $4,429,000 through June 30, 1995.
The Company's investment in this venture totaled $3,073,000 and $3,602,000 at
June 30, 1994 and 1995, respectively.
As of June 30, 1995, the Company had $6,416,000 in restricted cash. This
cash, which is related to the California Pollution Control Bonds (see Note
7), is held in custody by a Trustee and is restricted as to withdrawal or use
for qualified fixed asset expenditures.
During fiscal 1995 the Company experienced significant competition in the
greenwaste market resulting in a decrease in price and volume and negative
cashflow from operations. The Company believes that this environment will
continue in the foreseeable future. Accordingly the Company evaluated the
ongoing value of the fixed assets, covenants, and goodwill associated with
its greenwaste operations. Based on this evaluation, and in accordance with
the adoption of FASB 121 (see Note 1) the Company determined that assets with
a carrying value of approximately $4,473,000 were impaired and wrote them
down by approximately $1,242,000 to their fair value. The Company obtained
independent appraisals of its fixed assets in order to determine fair value.
The impairment loss is included in Operating Expenses in the fiscal 1995
Consolidated Statement of Operations.
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Note 6 - Other current liabilities:
Other current liabilities consist of the following:
June 30,
----------------------
1994 1995
----------- -----------
Uninsured claims $ 6,698,000 $ 6,413,000
Closure and post-closure reserves 2,019,000 2,636,000
Reserve for loss on municipal contract 500,000 500,000
Other 10,643,000 8,273,000
----------- -----------
$19,860,000 $17,822,000
=========== ===========
The Company has a risk management program whereby it retains the
liability, subject to maximum limits, for auto, general liability, employee
health and welfare benefits and workers' compensation. As required by law,
the Company has pledged certain marketable securities, (see Note 5) and has
established a letter of credit in the amount of $1,366,000 as of June 30,
1995, to guarantee its workers' compensation obligations in California. The
Company establishes self insured losses and loss adjustment expenses based on
estimates of the ultimate cost of claims which have been reported but not
fully paid, and of claims which have been incurred but not yet reported. The
length of time for which such costs must be estimated varies depending on the
coverage involved. Actual claim costs are dependent upon such complex
factors as inflation, changes in the doctrines of legal liability and size of
damage awards. Because of the variables involved, the reserving process
results in an estimate rather than an exact calculation of liabilities.
The estimated liability for uninsured claims at June 30, 1995, included in
other current liabilities and other liabilities, consists of the following:
Current Long-term Total
------- --------- ----------
Liability and property damage $2,482,000 $3,800,000 $ 6,282,000
Workers' compensation 2,931,000 3,085,000 6,016,000
Employee health and welfare 1,000,000 382,000 1,382,000
---------- ---------- -----------
$6,413,000 $7,267,000 $13,680,000
========== ========== ===========
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Under its current risk management programs, the Company's maximum
liability per occurrence is listed below:
Auto and general liability $250,000
Workers' compensation $ 325,000 - $500,000
Employee health and welfare $ 65,000
Note 7 Long-term debt:
Long-term debt, which approximates market value, consists of the following:
June 30,
------------------------
1994 1995
----------- -----------
Notes payable to banks, unsecured $82,000,000 $44,000,000
Solid Waste Disposal Revenue Bonds,
Series 1994A - 24,000,000
Solid Waste Disposal Revenue Bonds 8,200,000 8,200,000
Pollution Control Revenue Bonds 1,489,000 1,133,000
Other notes payable, secured and unsecured 1,701,000 2,857,000
----------- -----------
Total long-term debt 93,390,000 80,190,000
Less current instalments 1,526,000 1,308,000
----------- -----------
Long-term debt, excluding current instalments $91,864,000 $78,882,000
=========== ===========
Aggregate principal amounts of long-term debt at June 30, 1995, including
capital leases, are due as follows:
Year Ended
June 30,
-----------
1996 $ 1,308,000
1997 44,990,000
1998 856,000
1999 828,000
2000 8,000
Thereafter 32,200,000
-----------
$80,190,000
===========
The Company's revolving line of credit (the "Agreement"), which
currently matures on June 1, 1997, permits borrowings up to $100,000,000. At
the Company's option, borrowings under the Agreement bear interest at the
bank's prime rate (8.75% at June 30, 1995), and/or at the London Interbank
Offered Rate (LIBOR) plus .75 to 2.0 per cent, depending upon certain ratios.
At June 30, 1995, all borrowings were under the LIBOR option with rates ranging
from 6.75% to 6.81% and averaging 6.79%. The Agreement has a $16.5 million
quarterly commitment reduction commencing March 1, 1996. On
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or before the first day of October of each year, the Company has the
option to request an extension of the revolving period and the
termination date with the approval of its banks. The Company is in
the process of negotiating a new agreement and therefore has not
filed the extension request. Under the terms of the Agreement, the
Company is subject to various debt covenants including maintenance of
certain financial ratios, and in addition, it limits the amount of
cash dividends.
During the second quarter of fiscal 1995 the Company issued, through the
California Pollution Control Financing Authority, $24,000,000 of tax exempt
bonds (the "Bonds") with a term of twelve years. The Bonds are subject to a
mandatory sinking fund redemption of $4,000,000 each October 1, over the period
of 2001 to 2006. The proceeds of the financing are restricted to fund certain
projects, including purchases of equipment, located in California counties. As
part of this financing, the Company established an irrevocable letter of credit
for the principal amount of $24,000,000 plus 52 days accrued interest on the
bonds to guarantee repayment. The bonds bear interest at a floating rate
(3.76% as of June 30, 1995) which is set weekly by a remarketing agent.
Simultaneously with the issuance of the Bonds, the Company entered into an
interest rate swap agreement with a major bank whereby the Company will pay a
fixed rate of 6.29% and the bank will pay the floating rate for a period of
five years. The Company records the fixed rate as interest expense.
Solid Waste Disposal Revenue Bonds issued by the California Pollution
Control Financing Authority are secured by a solid waste landfill facility
constructed with bond proceeds. The bonds, which mature through 2000, bear
interest at a floating rate set weekly (4.375% at June 30, 1995) until
conversion to a fixed rate, at the option of the Company, for the remaining
term of the bonds. As of June 30, 1995, the Company has not exercised its
option of conversion to a fixed rate. The Company also has an option to redeem
the bonds prior to maturity at the redemption price ranging from 100% to 103%
depending on the redemption date. At June 30, 1995, the Company established in
the trustee's favor an irrevocable letter of credit for the principal amount of
$8,200,000 plus 123 days accrued interest on the bonds to guarantee repayment.
Pollution Control Revenue Bonds issued by the California Pollution Control
Financing Authority are secured by a solid waste disposal facility constructed
with bond proceeds. Revenue from the operation of the solid waste disposal
facility is pledged to secure repayment of the bonds. The Company is required
to deposit into a Reserve Fund an amount equal to three months' debt service
(principal and interest). The Reserve Fund balances at June 30, 1994 and 1995
were $546,000 and $588,000 respectively, and have been deducted from bond
principal outstanding. Bond repayment is guaranteed up to a maximum of 80
percent by the Federal Small Business Administration. The bonds bear interest
at a rate from 5.4% to 6.0% and mature from 2000 to 2005.
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At June 30, 1995, $33,000,000 of long-term debt was collateralized by
land, buildings and equipment with a carrying value of $24,000,000. Interest
paid during fiscal years 1993, 1994 and 1995 was $5,010,000, $4,652,000, and
$5,790,000, respectively.
The fair value of the Company's long term debt calculated using current
rates offered to the Company for debt of the same remaining maturities is not
materially different from the amounts included in the Consolidated Balance
Sheet.
The Company has used an interest-rate swap agreement to effectively
convert a portion of its floating rate debt to a fixed rate basis, thus
reducing the impact of interest-rate volatility on future operations.
Approximately 31% ($24,000,000) of the Company's outstanding floating rate debt
was subject to this interest-rate swap agreement as of June 30, 1995.
Note 8 Income taxes:
Effective July 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". Under the liability method,
deferred tax liabilities and assets are determined based on the difference
between financial reporting and tax basis of assets and liabilities, using the
enacted tax rates in effect for the year in which the differences are expected
to reverse. Taxes previously accrued will be adjusted for changes in tax rates
as they become effective as opposed to when the taxes were recorded. The
cumulative effect of adopting Statement 109 was a $414,000 benefit to income.
As permitted under the new rules, prior year financial statements have not been
restated.
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17
Significant components of deferred tax assets and liabilities are as
follows:
1994 1995
----------- -----------
Deferred tax assets:
Self-insurance $ 4,572,000 $ 5,043,000
Reserve for:
Asset valuation 4,305,000 4,668,000
Landfill related costs 4,094,000 4,311,000
Loss on municipal contract 1,348,000 959,000
Litigation settlements 1,013,000 115,000
Disposal of a division 581,000 -
State taxes 595,000 802,000
Other, net 1,127,000 1,385,000
----------- -----------
Total deferred tax assets 17,635,000 17,283,000
Deferred tax liabilities:
Tax over book depreciation 11,935,000 13,121,000
Deferred gain on sale of asset 1,465,000 1,465,000
Prepaid expenses 490,000 495,000
Property taxes - 354,000
Other 1,373,000 1,443,000
----------- -----------
Total deferred tax liabilities 15,263,000 16,878,000
----------- -----------
Net deferred taxes $ 2,372,000 $ 405,000
=========== ===========
Income tax expense (benefit) consists of the following:
Year Ended June 30,
----------------------------------------------
Deferred Method Liability Method
--------------- --------------------------
1993 1994 1995
--------------- ----------- ----------
Current:
Federal $ 1,441,000 $ 7,085,000 $ 9,592,000
State 555,000 1,682,000 2,143,000
-------------- ----------- -----------
1,996,000 8,767,000 11,735,000
Deferred:
Federal (4,891,000) 1,174,000 1,710,000
State (1,455,000) 153,000 257,000
-------------- ----------- -----------
(6,346,000) 1,327,000 1,967,000
-------------- ----------- -----------
$(4,350,000) $10,094,000 $13,702,000
============== =========== ===========
-17-
18
The provision for deferred taxes, as of June 30, 1993 consists of the
following:
Accelerated depreciation for tax purposes $ 1,811,000
Change in allowance valuation of properties ( 820,000)
Reserve for:
Landfill related costs (2,992,000)
Loss on municipal contract (2,460,000)
Litigation settlements (1,230,000)
Disposal of a division 666,000
Change in estimated liability for uninsured claims (1,753,000)
Change in certain prepaid expenses 86,000
Equity investment income ( 260,000)
Other, net 606,000
-----------
$(6,346,000)
===========
A reconciliation of income tax expense (benefit) computed by applying the
statutory federal income tax rate to income (loss) before taxes and reported
tax expense is presented below:
Year Ended June 30,
-----------------------------------
1993 1994 1995
----------- ----------- -----------
Income tax computed at statutory
federal income tax rate $(4,918,000) $ 7,918,000 $10,777,000
State income taxes, net of
federal income tax benefit ( 594,000) 1,193,000 1,560,000
Provision for non-deductible
items 764,000 600,000 387,000
Amortization and other expenses not
deductible for tax purposes, net 398,000 383,000 978,000
----------- ----------- -----------
Income tax expense (benefit)
as reported $(4,350,000) $10,094,000 $13,702,000
----------- ----------- -----------
Effective tax rate (30.1%) 44.6% 44.5%
=========== =========== ===========
The Company made income tax payments of $5,014,000, $5,995,000, and
$9,740,000 during fiscal years 1993, 1994 and 1995, respectively.
The Company's corporate tax returns are currently being audited by the
Internal Revenue Service (IRS) for fiscal years 1989 through 1993. The IRS has
proposed adjustments for these years, which the Company is vigorously
protesting, which neither alone nor together would have a
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material effect on the Company's financial position or results of
operations, when resolved.
In September 1995, the Company entered into a settlement agreement with
the IRS for fiscal years 1989 and 1990 and resolved certain other open issues
for other years. The Company has paid additional tax and interest of
approximately $2,200,000, which is within amounts previously accrued. Also, as
part of the settlement, the deductibility and amortization period of certain
intangibles were changed, which will result in the deductibility of certain
previously undeductible goodwill.
Note 9 Shareholders' equity:
Primary and fully diluted earnings per share are computed on the basis of
the weighted average number of shares outstanding plus the common stock
equivalents which would arise from the exercise of stock options as follows:
Year Ended June 30,
------------------------------------
1993 1994 1995
---------- ---------- ----------
Primary 13,818,000 15,048,000 15,531,000
Fully diluted 13,818,000 15,525,000 15,531,000
The Company presently maintains three stock option plans affording key
employees and directors with the Company the right to purchase shares of its
common stock. At June 30, 1995, options were available for future grants only
under one of the plans, the Companys 1992 Stock Option Plan. The options may
be designated as incentive or non-qualified in nature, at the discretion of
the Compensation Committee of the Board of Directors, though only employees are
eligible to receive incentive stock options. The Company has reserved
2,000,000 shares under its Incentive Stock Option Plan (ISOP) and an additional
2,000,000 shares under its Non-Qualified Stock Option Plan. In addition, the
1992 plan provides for the reserve of 2,000,000 shares which are to be
designated as either qualified or non-qualified. The plans provide for the
granting of options at a purchase price of at least 100% of the fair market
value on the date the options are granted. Options are generally exercisable
in instalments beginning one year after the grant date.
The exercise of non-qualified stock options results in state and federal
income tax benefits to the Company related to the difference between the market
price at the date of exercise and the option price. During fiscal 1993, 1994,
and 1995, $30,000, $925,000, and $677,000, respectively, was credited to common
stock.
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20
Information with respect to options granted under the plans is as follows:
Non-qualified
ISOP Plan
------------ -------------
Outstanding at July 1, 1993 779,000 1,670,566
Issued -- 740,400
Canceled ( 20,561) ( 48,333)
Exercised (168,209) (116,401)
------------ ------------
Outstanding at June 30, 1994 590,230 2,246,232
Issued 291,500 270,000
Canceled ( 2,375) ( 23,432)
Exercised ( 42,530) (198,588)
------------ ------------
Outstanding at June 30, 1995 836,825 2,294,212
============ ============
Exercisable at June 30, 1995 547,325 1,438,824
============ ============
Option price range $8.00-$22.00 $8.00-$20.00
Notes receivable of $154,000 due from employees for the purchase of shares
of the Company's common stock under stock option plans, have been deducted from
shareholders' equity at June 30, 1994.
During fiscal 1994, the Company accepted as settlement of a receivable,
97,000 shares of common stock valued at $970,000. The shares were canceled and
returned to authorized but unissued status.
The Company issued 240,000 shares of common stock in fiscal 1994 as
renumeration for a stock price guarantee related to an acquisition which took
place in fiscal 1991 (See Note 3).
In April 1995, the Company filed a shelf registration statement on Form
S-4 covering 3,000,000 shares of common stock with the Securities and Exchange
Commission. The Registration Statement became effective in May 1995.
Note 10 Commitments and other items:
The Company leases a portion of its equipment and facilities which are
classified as operating leases. Minimum rental commitments (exclusive of
property tax, insurance and maintenance) under all non-cancelable operating
leases are due at June 30, 1995, as follows:
1996 $ 2,016,000
1997 80,000
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21
Included above is a lease with the Company's President for the rental of
one of the Company's buildings. The rental rate is, in management's opinion,
comparable to that which would have been entered into with independent third
parties.
Rental expense approximated $11,415,000, $10,156,000 and $7,018,000 for
the fiscal years ended June 30, 1993, 1994 and 1995, respectively. These
amounts include rental payments to the President of approximately $172,000,
$161,000 and $175,000 for the fiscal years ended June 30, 1993, 1994 and 1995,
respectively.
The Company has a 401(k) plan which generally covers all full time
salaried and clerical employees not represented by a bargaining agreement.
Eligible employees are allowed to contribute up to the maximum allowed by law.
At its discretion, the Company can match up to 50% of the amount contributed by
employees. The Company's contributions for 1993, 1994, and 1995, represented by
issuance of Company common stock, were $506,000 and $566,000, and $661,000,
respectively.
In connection with the Company's decision to dispose of a truck body
manufacturing division in fiscal 1992, the Company recorded a provision of
$4,050,000 to reflect the estimated loss on disposition, including estimated
future costs and operating results. In fiscal 1995, the Company completed the
disposal.
On June 30, 1992, the Company entered into an agreement with the City of
San Jose, to provide refuse and recycling services, for a term of six years,
with service beginning July 1, 1993. During the initial months of the
contract, it became apparent that the level of services required for the
contract and related costs of operation would be greater than originally
envisioned. This occurred, in part, by factors outside of the control of the
Company. As a consequence, most of the increased cost could not have been
anticipated or estimated prior to the start of the contract. The Company
estimated that it would incur a loss of $6,000,000 over the life of the
contract, in order to satisfy the service requirements of the contract and
accordingly accrued that amount in fiscal 1993. Through 1995 the Company
incurred $3,050,000 of the projected loss. As of June 30, 1995, the Company
revised its estimate of the loss related to the remaining contract period
resulting in a reduction of the accrual of approximately $950,000. This
reduction was based mainly on improved recycling market prices and operating
margins. The Company believes that the remaining $2,000,000 is adequate to
cover any future losses related to this contract.
Note 11 Litigation:
The Company was served on October 13, 1993 with a class action lawsuit.
The complaint alleges that the Company violated federal securities laws with
regard to certain disclosures and representations made by the Company and
certain alleged omissions on the part of the
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Company in connection with merger negotiations between the Company and
Browning-Ferris Industries ("BFI"). The plaintiffs allege that they and all
other persons or entities that bought the stock of the Company during the
period of September 2, 1993 through October 7, 1993 suffered damages as a
result of changes in the market price of the Company's common stock. The
Company does not believe that it has violated any laws with regard to the BFI
matter and intends to vigorously defend the lawsuit.
The Company was served on August 9, 1994 with a complaint filed by certain
refuse haulers in San Bernardino County alleging that the Company violated
certain California Business and Professions Code Sections and also
intentionally interfered with existing and prospective economic relations. The
complaint alleges that the Company does not hold a validly issued permit to
operate within a certain geographic area in the County of San Bernardino and
that the Company has engaged in a course of conduct of predatory pricing. The
complaint also alleges that the Company has violated a San Bernardino County
ordinance by engaging in discriminatory and non-uniform pricing of its refuse
hauling services. In addition to the injunction, the complaint prays for three
times the actual damages incurred by plaintiffs, punitive and exemplary damages
in the amount to be proven at the time of trial, reasonable attorneys' fees and
costs of suit. The Company believes it has valid defenses to the allegations
and intends to vigorously defend the suit. The Company has filed a
cross-complaint against the plaintiffs for engaging in improper pricing
activities.
The Company was named by the County of Los Angeles in regard to an
indemnification action by the County for collection of alleged damages
resulting from hauling waste from County garbage districts to the Operating
Industries Landfill. The Company and some of its prior subsidiaries hauled
waste to the Operating Industries site for certain defendant cities and also
hauled waste through two defendant county garbage districts in the County of
Los Angeles. In July 1994, the Company reached an agreement to settle the
claims for the amount of $3,600,000, and received insurance proceeds of
$1,200,000 as of June 30, 1994. This amount fell within the range previously
accrued. The settlement includes a release by the EPA with regard to the
Operating Industries site.
In or about August 1994, a case was filed in the United States District
Court for the Western District of Arkansas. This is an action originally filed
by seven landowners who live near a landfill operated by the Company in Miller
County, Arkansas. The landowners allege that the Company unlawfully received
hazardous waste and that the pollutants from the waste received by the Company
had contaminated their property or threatened to contaminate their property in
the future. The landowners seek an unspecified amount of damages based on the
contamination or threat of contamination. In addition, the landowners seek to
recover damages based on the devaluation of their property due to the "stigma"
of being located near a disposal site for hazardous waste. In addition, the
landowners also seek to recover damages based upon their fear of developing
adverse health effects. In July 1995, 135 additional plaintiffs intervened and
asserted claims similar to those raised by the
-22-
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original plaintiffs. The Company and the other defendants have denied that any
unlawful disposal of waste took place at the landfill. In or about June 1995,
a case of was filed by eight land owners who own property along a creek
downstream from the Company's Miller County landfill. Plaintiffs allege that
their property has been contaminated by releases of hazardous substances from
the landfill and other hazardous substance disposal sites operated by the other
defendants. The Company believes it has valid defenses to the allegations and
is vigorously defending the action.
In late December 1994, a lawsuit was filed in Los Angeles County Superior
Court by 24 plaintiffs. The Company is among 19 named defendants. The
complaint asserts causes of action for nuisance and trespass seeking damages
for personal injuries and property damage. The complaint alleges that Western
owns a parcel of property, acquired from Cadillac Fairview/California located
in Torrance, California. The complaint alleges that Montrose Chemical
Corporation and others manufactured DDT on property at or adjacent to the
property owned by Western. The plaintiffs further allege that contaminants
from this property escaped to plaintiff's property, injured plaintiff and
damaged the value of plaintiff's property. On June 29, 1995, this case was
removed to the United States District Court. The Company has filed an answer
denying any liability. The Company believes it has valid defenses to the
allegations and intends to vigorously contest the case and is contemplating
filing a cross-complaint once its investigation of the facts is completed.
On or about February 2, 1995, a complaint was filed in a taxpayer lawsuit.
The complaint does not name the Company as a defendant. The plaintiffs allege
that the County and the other defendants, in connection with a contract with
the Company, regarding the operation and management of the El Sobrante Landfill
(the "Landfill") located within the County (the "Agreement"), engaged in
various improper actions, including the unlawful sale of public property,
wasting public funds, and making an unconstitutional gift of public property
and funds. The complaint seeks an order voiding the Agreement and an
injunction ordering the defendants to pay to the county allegedly unlawful
revenues earned from th Landfill, to cease further dumping at the Landfill of
out-of-county waste, return of alleged windfall profits and limiting dumping
fees charged to incounty residents. The complaint also seeks general damages
of $10,000,000 and special and punitive damages, attorneys' fees and costs.
The Company believes the taxpayer suit is based upon erroneous assumptions and
that there are valid defenses available to the County to each of the claims
asserted in the complaint.
In addition to the above, there are a number of claims and suits pending
against the Company for alleged damages to persons and property, alleged
violation of certain laws and for alleged liabilities arising out of matters
occurring during the normal operation of the waste management business. In the
opinion of management, the uninsured liability, if any, under the
aforementioned claims and suits would not materially affect the financial
position or results of operations of the Company.
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UNAUDITED SELECTED QUARTERLY DATA
(dollars expressed in thousands,
except per share figures)
Income Net Income
from Net per
Revenue operations income share (primary)
------- ---------- ---------- ---------------
Fiscal 1994
First quarter $ 62,911 $ 5,201 $ 2,975(a) $ .21(a)
Second quarter 63,323 5,906 2,836 .19
Third quarter 64,949 7,560 3,375 .22
Fourth quarter 65,822 7,756 3,755 .24
-------- -------- -------- ------
$257,005 $ 26,423 $ 12,941 $ .86
======== ======== ======== ======
Fiscal 1995
First quarter $ 67,147 $ 8,449 $ 4,078 $ .26
Second quarter 67,671 9,453 4,147 .27
Third quarter 67,638 8,816 4,339 .28
Fourth quarter 68,485 8,508 4,525 .29
-------- -------- -------- ------
$270,941 $ 35,226 $ 17,089 $ 1.10
======== ======== ======== ======
(a) Net income and net income per share for the first quarter of fiscal
1994 includes a tax benefit of $414 or $.03 per share related to the
change in accounting for income taxes.
-24-
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WESTERN WASTE INDUSTRIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, September 30,
1995 1995
-------- ------------
ASSETS (Unaudited)
Current assets:
Cash and short-term investments $ 6,484 $ 8,374
Receivables, less allowance of $1,738 and $1,885,
respectively 29,596 32,373
Supplies 3,320 3,670
Deferred income tax benefit 4,101 4,301
Prepayments and other 3,961 2,810
-------- --------
Total current assets 47,462 51,528
Property and equipment, net 196,972 202,795
Purchased routes, net 7,340 6,863
Goodwill, net 19,994 19,811
Other assets 21,605 18,135
-------- --------
$293,373 $299,132
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt $ 1,308 $ 1,296
Accounts payable 9,159 8,331
Accrued payroll and related costs 3,885 3,414
Other current liabilities 17,822 20,916
-------- --------
Total current liabilities 32,174 33,957
Long-term debt, excluding current instalments 78,882 78,758
Other liabilities 18,400 18,664
Deferred income taxes 3,696 2,472
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, no par value; 2,000,000
shares authorized; none issued or
outstanding - -
Common stock, no par value; 50,000,000
shares authorized; issued and
outstanding 14,612,599 and 14,653,668
shares, respectively 79,614 80,249
Retained earnings 80,607 85,032
-------- --------
Total shareholders' equity 160,221 165,281
-------- --------
$293,373 $299,132
======== ========
The accompanying notes are an integral part of these statements.
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WESTERN WASTE INDUSTRIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(dollars in thousands except share data)
Three Months Ended
September 30,
--------------------
1994 1995
-------- --------
Revenue $ 67,147 $ 69,739
-------- --------
Costs and expenses:
Operating 49,144 51,430
Selling, general and
administrative 9,554 9,866
-------- --------
Total costs and expenses 58,698 61,296
-------- --------
Income from operations 8,449 8,443
Nonoperating income (expense):
Interest expense (1,138) ( 1,167)
Other 37 353
-------- --------
(1,101) ( 814)
-------- --------
Income before income taxes 7,348 7,629
Income taxes 3,270 3,204
-------- --------
Net Income $ 4,078 $ 4,425
======== ========
Primary and fully diluted
earnings per common share $ .26 $ .28
======== ========
The accompanying notes are an integral part of these statements.
-26-
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WESTERN WASTE INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(dollars in thousands)
Three Months Ended
September 30,
---------------------
1994 1995
------- -------
Operating activities:
Net income $ 4,078 $ 4,425
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,353 6,414
Provision for losses on accounts
receivables 357 358
Uninsured claims 14 (96)
Employer portion - 401(k) contribution 188 169
Deferred income tax expense (benefit) 1,260 (1,424)
Loss on disposition of assets 196 118
Increase (decrease) in cash resulting
from changes in operating assets and
liabilities, excluding effects of
purchased businesses:
Receivables (2,581) (1,137)
Other assets (1,204) 252
Accounts payable 19 ( 828)
Other liabilities (2,488) 3,118
------- -------
Net cash provided by operating
activities 6,192 11,369
Investing activities:
Purchases of property and equipment ( 7,356) (11,956)
Proceeds from disposition of assets 193 224
------- -------
Net cash used in investing
activities ( 7,163) (11,732)
Financing activities:
Proceeds from $24 million tax exempt
borrowings - 2,058
Principal payments on borrowings (6,381) ( 136)
Proceeds from issuance of stock 864 331
------- -------
Net cash provided by (used in)
financing activities (5,517) 2,253
------- -------
Increase (decrease) in cash and
short-term investments (6,488) 1,890
Cash and short-term investments
at beginning of period 9,935 6,484
------- -------
Cash and short-term investments
at end of period $ 3,447 $ 8,374
======= =======
The accompanying notes are an integral part of these statements.
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WESTERN WASTE INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of presentation:
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation
have been included. All adjustments made to the interim financial
statements were of a normal recurring nature. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1995.
Certain reclassifications have been made in prior year financial
statements to conform to the current year presentation.
NOTE 2 - Earnings per share:
Primary and fully diluted earnings per share are computed on the
basis of the weighted average number of shares outstanding plus the common
stock equivalents which would arise from the exercise of stock options
using the treasury stock method.
The average number of shares used for primary and fully diluted
calculations for the three months ended September 30, 1994 and 1995 were
15,664,000 and 16,009,000, respectively.
NOTE 3 - Long-term debt:
Long-term debt, which approximates market value, consists of the
following:
June 30, September 30,
1995 1995
----------- ------------
(dollars in thousands)
Notes payable to banks, unsecured $44,000 $44,000
Solid Waste Disposal Revenue Bonds, Series 1994A 24,000 24,000
Solid Waste Disposal Revenue Bonds 8,200 8,200
Pollution Control Revenue Bonds 1,133 1,052
Other notes payable, secured and unsecured 2,857 2,802
----------- -----------
Total long-term debt 80,190 80,054
Less current instalments 1,308 1,296
----------- -----------
Long-term debt, excluding current instalments $78,882 $78,758
=========== ===========
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29
The Company's revolving line of credit (the "Agreement"),
which currently matures on June 1, 1997, permits borrowings up to
$100,000,000. At the Company's option, borrowings under the Agreement
bear interest at the bank's prime rate and/or at the London Interbank
Offered Rate (LIBOR) plus .75 to 2.0 per cent, depending upon certain
ratios. At September 30, 1995, all borrowings were under the LIBOR option
with rates ranging from 6.63% to 6.69%. The Agreement has a $16.5 million
quarterly commitment reduction commencing March 1, 1996. On or before the
first day of October of each year, the Company has the option to request
an extension of the revolving period and the termination date with the
approval of its banks. The Company is in the process of negotiating a new
agreement and therefore has not filed the extension request. Under the
terms of the Agreement, the Company is subject to various debt covenants
including maintenance of certain financial ratios, and in addition, it
limits the amount of cash dividends.
NOTE 4 - Restricted Cash:
As of September 30, 1995, the Company had $5,328,000 in restricted
cash. This cash, which is related to California Pollution Control Bonds
issued in fiscal 1995, is held in custody by a Trustee and is restricted
as to withdrawal or use for qualified fixed asset expenditures. Of the
above amount, $2,360,000 is included in Other Assets while the remaining
$2,968,000 is included in Receivables.
-29-
30
(b) Pro Forma Financial Information
The following pro forma financial statements of USA Waste Services, Inc.
("USA Waste") and Western are included herein: the combined historical
unaudited pro forma condensed balance sheet as of September 30, 1995 and the
related combined historical unaudited pro forma condensed statements of
operations for the nine months ended 1995 and 1994 and for each of the three
years in the period ended December 31, 1994.
-30-
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USA WASTE AND WESTERN
COMBINED HISTORICAL UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following combined historical unaudited pro forma condensed financial
statements are based upon the historical consolidated financial statements of
USA Waste Services, Inc. ("USA Waste") as previously filed with the Securities
and Exchange Commission under the Securities Act of 1934, as amended, and of
Western, included elsewhere in this Current Report on Form 8-K and should be
read in conjunction with those consolidated financial statements and related
notes. These combined historical unaudited pro forma condensed financial
statements are not necessarily indicative of the operating results that would
have been achieved had the merger been consummated as of the beginning of the
periods presented and should not be construed as representative of future
operating results. These combined historical unaudited pro forma condensed
financial statements give effect to the merger by combining the results of
operations of USA Waste and Western using the "pooling of interests" method of
accounting as if the companies had been combined since their inception.
In connection with the proposed merger, it is anticipated that Western will
change its fiscal year end from June 30 to Decmber 31 to conform with USA
Waste's year end. In the accompanying combined historical unaudited pro forma
condensed financial statements, Western's operating results for the six months
ended June 30, 1994 were included in the statements of operations for its fiscal
year ended June 30, 1994 and the twelve months ended December 31, 1994.
Western's operating revenues and income from continuing operations for the six
months ended June 30, 1994 were $130,771,000 and $7,130,000, respectively.
In addition, USA Waste closed two equity related transactions subsequent to
September 30, 1995 which significantly changed its balance sheet. On October
6, 1995, USA Waste completed a public offering of 6,345,625 shares of its
common stock. The net proceeds of approximately $117,851,000 were used for the
repayment of debt. On December 11, 1995, USA Waste converted $48,070,000 of 8
1/2% Convertible Subordinated Debentures into common stock at $13.25 per
share. As a result of these transactions, the total liabilities were reduced
by $165,921,000 and the stockholders' equity increased $163,890,000. See the
effects of these changes on the balance sheet as of September 30, 1995 in the
"Pro Forma Adjusted" column in the accompanying combined historical unaudited
pro forma balance sheet.
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USA WASTE AND WESTERN
COMBINED HISTORICAL UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
The following combined historical unaudited pro forma condensed balance sheet
presents the combined financial position of USA Waste and Western as of
September 30, 1995. Such unaudited pro forma combined information is based on
the historical consolidated balance sheets of USA Waste and Western as of
September 30, 1995 after giving effect to the proposed merger using the
"pooling of interests" method of accounting and to the pro forma adjustments as
described in the notes to combined historical unaudited pro forma condensed
financial statements. The pro forma adjusted column reflects the sale of
6,345,625 shares of USA Waste's common stock, priced at $19.625 per share, on
October 6, 1995. The net proceeds of approximately $117,851,000 were used for
the repayment of debt. The pro forma adjusted column also reflects the
conversion of $48,070,000 of USA Waste's 8 1/2% Convertible Subordinated
Debentures on December 11, 1995 into common stock at $13.25 per share.
USA Waste Western Pro Forma Pro Forma
September 30, 1995 September 30, 1995 Adjustments Pro Forma Adjusted
------------------ ------------------ ----------- --------- ----------
(in thousands)
Assets
Current assets:
Cash and cash equivalents $11,985 $8,374 $ --- $20,359 $20,359
Accounts receivable, net 62,777 32,373 --- 95,150 95,150
Notes and other receivables 7,951 --- --- 7,951 7,951
Prepaid expenses and other 21,523 10,781 (4,301)(e) 28,003 28,003
-------- -------- ------- ---------- ----------
Total current assets 104,236 51,528 (4,301) 151,463 151,463
Notes and other receivables 9,070 --- --- 9,070 9,070
Property and equipment, net 564,355 202,795 --- 767,150 767,150
Excess of cost over net assets of acquired
business, net 92,010 19,811 (2,222)(a) 109,599 109,599
Other intangible assets, net 25,921 6,863 --- 32,784 32,784
Other assets 41,289 18,135 --- 59,424 57,393
-------- -------- ------- ---------- ----------
Total assets $836,881 $299,132 ($6,523) $1,129,490 $1,127,459
======== ======== ========= ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $53,061 $32,454 $ --- $85,515 $85,515
Deferred revenues 7,730 207 --- 7,937 7,937
Current maturities of long-term debt 36,744 1,296 --- 38,040 35,957
-------- -------- ------- ---------- ----------
Total current liabilities 97,535 33,957 --- 131,492 129,409
Long-term debt 488,665 78,758 --- 567,423 403,585
Closure, post-closure and other liabilities 59,529 21,136 (2,472)(e) 78,193 78,193
-------- -------- ------- ---------- ----------
645,729 133,851 (2,472) 777,108 611,187
-------- -------- ------- ---------- ----------
Commitments and contingencies --- --- --- --- ---
Stockholders' equity:
Preferred stock --- --- --- --- ---
Common stock 539 80,249 (80,030)(c) 758 853
Additional paid-in capital 555,555 --- 80,508 (a,c) 636,063 799,858
Retained earnings (accumulated deficit) (362,981) 85,032 (4,529)(a,c) (282,478) (282,478)
Less treasury stock, at cost (1,961) --- --- (1,961) (1,961)
-------- -------- ------- ---------- ----------
Total stockholders' equity 191,152 165,281 (4,051) 352,382 516,272
-------- -------- ------- ---------- ----------
Total liabilities and stockholders' equity $836,881 $299,132 ($6,523) $1,129,490 $1,127,459
======== ======== ======= ========== ==========
See notes to combined historical unaudited pro forma condensed
financial statements.
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USA WASTE AND WESTERN
COMBINED HISTORICAL UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The following combined historical unaudited pro forma condensed statement of
operations for the nine months ended September 30, 1995 was prepared based on
the historical statements of operations for USA Waste and Western for such
period after giving effect to the proposed merger using the "pooling of
interests" method of accounting and to the pro forma adjustments described in
the notes to combined historical unaudited pro forma condensed financial
statements.
USA Waste Western
9 Months Ended 9 Months Ended Pro Forma
September 30, 1995 September 30, 1995 Adjustments Pro Forma
------------------ ------------------ ----------- ---------
(in thousands except per share amounts)
Operating revenues $332,447 $205,862 $ --- $538,309
-------- -------- ------- --------
Costs and expenses:
Operating 186,998 150,295 (19,451)(b) 317,842
General and administrative 47,710 29,800 (980)(b) 76,530
Unusual items 4,733 --- --- 4,733
Merger costs 25,073 --- --- 25,073
Depreciation and amortization 41,789 --- 20,387 (a,b) 62,176
-------- -------- ------- --------
306,303 180,095 (44) 486,354
-------- -------- ------- --------
Income from operations 26,144 25,767 44 51,955
-------- -------- ------- --------
Other income (expense):
Interest expense:
Early redemption premiums, extension fees,
and other nonrecurring interest (10,994) --- --- (10,994)
Other (24,583) (3,977) --- (28,560)
Interest income 1,919 1,323 --- 3,242
Other income, net 2,117 488 --- 2,605
-------- -------- ------- --------
(31,541) (2,166) --- (33,707)
-------- -------- ------- --------
Income (loss) before provision for income taxes (5,397) 23,601 44 18,248
Provision for income taxes 3,358 10,312 1,400 (e) 15,070
-------- -------- ------- --------
Income (loss) from continuing operations ($8,755) $13,289 ($1,356) $3,178
======== ======== ======= ========
Income (loss) from continuing operations per
common share ($0.17) $0.85 $0.04 (d)
======== ======== ========
Weighted average shares outstanding 51,977 15,680 7,840 (d) 75,497
======== ======== ======= ========
See notes to combined historical unaudited pro forma condensed
financial statements.
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USA WASTE AND WESTERN
COMBINED HISTORICAL UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The following combined historical unaudited pro forma condensed statement of
operations for the nine months ended September 30, 1994 was prepared based on
the historical statements of operations for USA Waste and Western for such
period after giving effect to the proposed merger using the "pooling of
interests" method of accounting and to the pro forma adjustments described in
the notes to combined historical unaudited pro forma condensed financial
statements.
USA Waste Western
9 Months Ended 9 Months Ended Pro Forma
September 30, 1994 September 30, 1994 Adjustments Pro Forma
------------------ ------------------ ----------- ---------
(in thousands except per share amounts)
Operating revenues $325,755 $197,918 $ --- $523,673
-------- -------- ------- --------
Costs and expenses:
Operating 192,427 145,371 (16,657)(b) 321,141
General and administrative 51,293 28,782 (1,379)(b) 78,696
Merger costs 3,782 --- --- 3,782
Depreciation and amortization 42,762 --- 17,966 (a,b) 60,728
-------- -------- ------- --------
290,264 174,153 (70) 464,347
-------- -------- ------- --------
Income from operations 35,491 23,765 70 59,326
-------- -------- ------- --------
Other income (expense):
Shareholder litigation settlement
and other litigation related costs (74,100) --- --- (74,100)
Interest expense (25,075) (3,141) --- (28,216)
Interest income 1,964 632 --- 2,596
Other income, net 1,432 (943) --- 489
-------- -------- ------- --------
(95,779) (3,452) --- (99,231)
-------- -------- ------- --------
Income (loss) before provision for income taxes (60,288) 20,313 70 (39,905)
Provision for income taxes 4,983 9,105 944 (e) 15,032
-------- -------- ------- --------
Income (loss) from continuing operations ($65,271) $11,208 ($874) ($54,937)
======== ======== ======= ========
Income (loss) from continuing operations per
common share ($1.34) $0.73 ($0.77)(d)
======== ======== ========
Weighted average shares outstanding 49,182 15,418 7,709 (d) 72,309
======== ======== ======= ========
See notes to combined historical unaudited pro forma condensed
financial statements.
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USA WASTE AND WESTERN
COMBINED HISTORICAL UNAUDITED PRO FORMA HISTORICAL CONDENSED
STATEMENT OF OPERATIONS
The following combined historical unaudited pro forma condensed statement of
operations for the year ended December 31, 1994 was prepared based on the
historical statement of operations of USA Waste and Western for such period
after giving effect to the proposed merger using the "pooling of interests"
method of accounting and to the pro forma adjustments described in the notes to
combined historical unaudited pro forma condensed financial statements.
USA Waste Western
Year Ended 12 Months Ended Pro Forma
December 31, 1994 December 31, 1994 Adjustments Pro Forma
----------------- ----------------- ----------- ---------
(in thousands except per share amounts)
Operating revenues $434,224 $265,589 $ --- $699,813
-------- -------- ------- --------
Costs and expenses:
Operating 257,370 193,597 (22,559)(b) 428,408
General and administrative 71,500 38,774 (2,106)(b) 108,168
Unusual items 8,863 --- --- 8,863
Merger costs 3,782 --- --- 3,782
Depreciation and amortization 56,139 --- 24,571 (a,b) 80,710
-------- -------- ------- --------
397,654 232,371 (94) 629,931
-------- -------- ------- --------
Income from operations 36,570 33,218 94 69,882
-------- -------- ------- --------
Other income (expense):
Shareholder litigation settlement
and other litigation related costs (79,400) --- --- (79,400)
Interest expense:
Early redemption premiums, extension fees,
and other nonrecurring interest (1,254) --- --- (1,254)
Other (32,804) (4,542) --- (37,346)
Interest income 2,641 958 --- 3,599
Other income, net 1,877 (1,850) --- 27
-------- -------- ------- --------
(108,940) (5,434) --- (114,374)
-------- -------- ------- --------
Income (loss) before provision for income taxes (72,370) 27,784 94 (44,492)
Provision for income taxes 3,908 12,429 984 (e) 17,321
-------- -------- ------- --------
Income (loss) from continuing operations ($76,278) $15,355 ($890) ($61,813)
======== ======== ======= ========
Income (loss) from continuing operations per
common share ($1.55) $1.00 ($0.86)(d)
======== ======== ========
Weighted average shares outstanding 49,671 15,421 7,710 (d) 72,802
======== ======== ======= ========
See notes to combined historical unaudited pro forma condensed
financial statements.
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USA WASTE AND WESTERN
COMBINED HISTORICAL UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The following combined historical unaudited pro forma condensed statement of
operations for the year ended December 31, 1993 was prepared based on the
historical statement of operations of USA Waste for such period and the
historical statement of operations of Western for its fiscal year ended June
30, 1994, after giving effect to the proposed merger using the "pooling of
interest" method of accounting and to the pro forma adjustments described in the
notes to combined historical unaudited pro forma condensed financial
statements.
USA Waste Western
Year Ended Year Ended Pro Forma
December 31, 1993 June 30, 1994 Adjustments Pro Forma
----------------- ------------- ----------- ---------
(in thousands except per share amounts)
Operating revenues $382,234 $257,005 $ --- $639,239
-------- -------- ------- --------
Costs and expenses:
Operating 217,345 192,099 (20,717)(b) 388,727
General and administrative 66,968 38,483 (1,330)(b) 104,121
Unusual items 2,672 --- --- 2,672
Depreciation and amortization 52,222 --- 22,001 (a,b) 74,223
-------- -------- ------- --------
339,207 230,582 (46) 569,743
-------- -------- ------- --------
Income from operations 43,027 26,423 46 69,496
-------- -------- ------- --------
Other income (expense):
Shareholder litigation related costs (5,500) --- --- (5,500)
Interest expense (35,975) (3,834) --- (39,809)
Interest income 3,539 799 --- 4,338
Other income, net 1,915 (767) --- 1,148
-------- -------- ------- --------
(36,021) (3,802) --- (39,823)
-------- -------- ------- --------
Income before provision for income taxes 7,006 22,621 46 29,673
Provision for income taxes 6,018 10,094 1,808 (e) 17,920
-------- -------- ------- --------
Income from continuing operations $988 $12,527 ($1,762) $11,753
======== ======== ======= ========
Income from continuing operations per
common share $0.01 $0.83 $0.16(d)
======== ======== ========
Weighted average shares outstanding 45,885 15,048 7,524 (d) 68,457
======== ======== ======= ========
See notes to combined historical unaudited pro forma condensed
financial statements.
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USA WASTE AND WESTERN
COMBINED HISTORICAL UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The following combined historical unaudited pro forma condensed statement of
operations for the year ended December 31, 1992 was prepared based on the
historical statement of operations of USA Waste for such period and the
historical statement of operations of Western for its fiscal year ended June
30, 1993, after giving effect to the proposed merger using the "pooling of
interest" method of accounting and to the pro forma adjustments described in the
notes to combined historical unaudited pro forma condensed financial statements.
USA Waste Western
Year Ended Year Ended Pro Forma
December 31, 1992 June 30, 1993 Adjustments Pro Forma
----------------- ------------- ----------- ---------
(in thousands except per share amounts)
Operating revenues $351,359 $231,205 $ --- $582,564
-------- -------- ------- --------
Costs and expenses:
Operating 208,928 187,648 (17,538)(b) 379,038
General and administrative 75,426 37,076 (1,140)(b) 111,362
Unusual items 51,047 21,043 --- 72,090
Depreciation and amortization 44,139 --- 18,748 (a,b) 62,887
-------- -------- ------- --------
379,540 245,767 70 625,377
-------- -------- ------- --------
Income from operations (28,181) (14,562) (70) (42,813)
-------- -------- ------- --------
Other income (expense):
Shareholder litigation related costs (10,853) --- --- (10,853)
Interest expense (35,840) (3,480) --- (39,320)
Interest income 5,435 841 --- 6,276
Other income, net 1,699 2,735 (2,829)(a) 1,605
-------- -------- ------- --------
(39,559) 96 (2,829) (42,292)
-------- -------- ------- --------
Loss before provision for income taxes (67,740) (14,466) (2,899) (85,105)
Provision for income taxes 479 (4,350) 3,563 (e) (308)
-------- -------- ------- --------
Loss from continuing operations ($68,219) ($10,116) ($6,462) ($84,797)
======== ======== ======= ========
Loss from continuing operations per
common share ($1.60) ($0.73) ($1.34)(d)
======== ======== ========
Weighted average shares outstanding 42,707 13,818 6,909 (d) 63,434
======== ======== ======= ========
See notes to combined historical unaudited pro forma condensed
financial statements.
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USA WASTE AND WESTERN
NOTES TO COMBINED HISTORICAL UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The combined historical unaudited pro forma condensed financial
statements assume the issuance of USA Waste Common Stock in exchange for all
outstanding Western Common Stock. Such financial statements also assume that
the merger will be accounted for using the "pooling of interests" method of
accounting pursuant to Opinion No. 16 of the Accounting Principles Board. The
pooling of interests method of accounting assumes that the combining companies
have been merged from their inception, and the historical financial statements
for periods prior to consummation of the merger are restated as though the
companies have been combined from their inception.
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the combined historical unaudited pro forma condensed statements of
operations exclude the results of operations associated with discontinued
businesses, extraordinary items, and cumulative effects of accounting changes.
In addition, the combined historical unaudited pro forma condensed financial
statements do not include any adjustment for estimated nonrecurring costs
related to the merger which are not determinable at this time.
Certain reclassifications have been made to the historical financial
statements of USA Waste and Western to conform to the pro forma presentation.
Such reclassifications are not material to the combined unaudited pro forma
condensed financial statements.
PRO FORMA ADJUSTMENTS
(a) All significant intercompany balance sheet and statement of
operations items between USA Waste and Western have been eliminated in the
combined historical unaudited pro forma condensed financial statements. In
February 1992, USA Waste acquired a 55% interest in a hauling company from a
third party where Western owned the remaining 45%. In March 1993, USA Waste
acquired the remaining 45% from Western. The combined historical unaudited pro
forma condensed financial statements reflect the combined company's 100%
ownership of the acquired hauling company as of February 1992 and the related
purchase accounting entry and subsequent goodwill amortization as if USA Waste
and Western had been combined from their inception. Minority interest
recognized between February 1992 and March 1993 has been removed from the
combined historical unaudited pro forma financial statements as well as the
gain recognized by Western upon the March 1993 sale, the related goodwill
recorded by USA Waste, and its subsequent amortization.
(b) Adjustments have been made to reclassify Western's depreciation
and amortization from operating expenses and general and administrative
expenses to a separate line item to conform to the presentation of USA Waste as
if the companies had been combined since their inception.
(c) The stockholders' equity accounts have been adjusted to reflect
the assumed issuance of 21 million shares of USA Common Stock for each issued
and outstanding share of Western Common Stock (based on the exchange ratio of
1.5 shares of USA Waste Common Stock for each share of Western Common Stock).
The actual number of shares of USA Waste Common Stock to be issued pursuant to
the merger will be based upon the number of shares of Western issued and
outstanding immediately prior to the consummation of the merger, excluding USA
Waste's 4.5% ownership in Western (which was acquired in October and November
1995).
(d) Pro forma income (loss) from continuing operations per share for
each period is based on the combined weighted average number of shares
outstanding, after giving effect to the issuance of 1.5 shares of USA
Waste
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39
Common Stock for each share of Western Common Stock, including approximately 3
million shares of USA Waste Common associated with Western's common stock
equivalents, and to preferred stock dividends paid by USA Waste of $152,000,
$582,000, and $565,000 for the years ended December 31, 1992, 1993, and 1994,
respectively, and $565,000 for the nine months ended September 30, 1994. The
historical USA Waste income from continuing operations per share has also been
adjusted for the preferred stock dividends. Fully diluted earnings (loss) per
share are considered equal to primary earnings (loss) per share for all periods
presented because the addition of potentially dilutive securities that are not
common stock equivalents would have been either antidilutive or immaterial.
(e) The combined historical unaudited pro forma condensed financial
statements assume that the merger qualifies as a "tax-free" reorganization for
federal income tax purposes. The provision for income taxes has been adjusted
to reflect the adoption of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, to conform to the accounting policies of USA Waste
as if the companies had been combined since their inception.
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40
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of December 18, 1995, by
and among USA Waste Services, Inc., Riviera Acquisition
Corporation and Western Waste Industries [Incorporated by
Reference to Exhibit A of the Schedule 13D filed by USA Waste
with respect to the common stock of Western on December 28,
1995].
23.1 Consent of Ernst & Young LLP.
99.1 Press Release dated December 19, 1995.
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41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
USA WASTE SERVICES, INC.
By /s/ Gregory T. Sangalis
------------------------------------
Gregory T. Sangalis
Vice President, General Counsel
& Secretary
January 9, 1996
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42
EXHIBIT INDEX
Exhibit No. Description Sequentially
- ----------- ----------- Numbered Page
-------------
2.1 Agreement and Plan of Merger, dated as of December
18, 1995, by and among USA Waste Services, Inc.,
Riviera Acquisition Corporation and Western Waste
Industries [Incorporated by Reference to Exhibit A
of the Schedule 13D filed by USA Waste with
respect to the common stock of Western on December
28, 1995]
23.1 Consent of Ernst & Young LLP
99.1 Press Release dated December 19, 1995