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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period from ____ to ____
Commission File Number 0-19285
ALLIED WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 88-0228636
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
15880 North Greenway-Hayden Loop, Suite 100
Scottsdale, Arizona 85260
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (480) 627-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was $2,486,717,563 as of March 26, 2001.
The number of shares of the registrant's common stock, $.01 par value,
outstanding at March 26, 2001 was 197,139,093.
The registrant's proxy statement is to be filed in connection with the
registrant's 2001 annual meeting of stockholders, portions of which are
incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
PART I
Item 1. Business........................................................................................... 3
Item 2. Properties......................................................................................... 9
Item 3. Legal Proceedings.................................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders................................................ 10
PART II
Item 5. Market Price and Dividends on the Common Stock and Related Stockholder Matters..................... 11
Item 6. Selected Financial Data............................................................................ 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................................... 32
Item 8. Financial Statements and Supplementary Data........................................................ 33
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure................................ 83
PART III
Item 10. Directors and Executive Officers of the Registrant................................................. 83
Item 11. Executive Compensation............................................................................. 83
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 83
Item 13. Certain Relationships and Related Transactions..................................................... 83
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 83
Signatures......................................................................................... 87
2
PART I
Item 1. Business
Allied Waste Industries, Inc. ("Allied" or "we"), a Delaware corporation, is the
second largest, non-hazardous solid waste management company in the United
States, and operates as a vertically integrated company that provides
collection, transfer, disposal and recycling services for residential,
commercial and industrial customers. We serve approximately 10 million customers
through a network of 338 collection companies, 151 transfer stations, 164 active
landfills and 75 recycling facilities within 40 states. We have organized our
operations into eight geographic operating regions: Atlantic, Central, Great
Lakes, Midwest, Northeast, Southeast, Southwest and West. Consistent with our
vertical integration model, each region is organized into several operating
districts and each district is comprised of specific site operations. The
districts consist of a collection of stand-alone companies usually operating as
a vertically integrated operation within a common marketplace. We reported
revenues of approximately $5.7 billion and approximately $3.3 billion for the
years ended December 31, 2000 and 1999, respectively.
Industry Trends
Based on industry data, we estimate that the 1999 revenues of the non-hazardous
solid waste industry in the United States were approximately $40 billion. The
non-hazardous solid waste industry has traditionally been very fragmented,
particularly in the collection segment of the business. Publicly traded
companies, municipalities and privately held companies, generate approximately
56%, 24% and 20% of the industry's revenue, respectively.
In the recent past, the non-hazardous solid waste industry has undergone
significant consolidation due to certain funding pressures brought about by
regulatory changes enacted throughout the 1990's. Subtitle D of the Resource
Conservation and Recovery Act of 1976 ("Subtitle D"), as well as more stringent
financial assurance requirements imposed by various state and local governments,
significantly increased the amount of capital generally required for solid waste
management operations. Furthermore, other regulatory compliance is increasing in
areas that effect, for example, workplace safety, vehicle operating and
maintenance standards, and the labor environment. As a result, many smaller
companies that lacked the requisite capital were compelled to sell their
operations to more strongly capitalized companies.
We believe the recent cycle of industry consolidation is substantially complete.
Presently, the three largest companies in the United States represent a
substantial majority of the publicly traded company revenues. The industry is
displaying a greater focus on maximization of cash flow and internal growth
through initiatives that increase returns on investment. Generally, revenue
growth within the industry has been a function of overall economic and
population growth. Industry growth has also been impacted by changes in state
and federal regulations, supply of and demand for disposal capacity, and
consumer awareness of environmental matters. While the companies within the
industry provide essential services, their revenue growth has been, and will
continue to be, impacted by changes in general economic and industry specific
trends.
Business Strategy
The major components of our business strategy which will enable us to maximize
operating cash flows to continue to pay down debt consist of: (1) operating
vertically integrated non-hazardous solid waste service businesses with a high
rate of waste internalization, defined as transferring and disposing of waste we
collect at our own landfills; (2) managing these businesses locally with a
strong operations focus on customer service; (3) maintaining or improving our
market position through internal development and incremental acquisitions; and
(4) maintaining the financial capacity, management capabilities and
administrative systems and controls to support on-going operations and future
growth.
3
Vertical Integration and Internalization. The vertical integration business
model has been and will continue to be the key element of our operating
philosophy. The fundamental objective of the vertical integration business model
is to control the waste stream from the point of collection through disposal and
to achieve a high rate of waste internalization. We have and will continue to
build, through market development initiatives, including market specific
acquisitions, vertically integrated operations typically consisting of
collection companies, transfer stations, recycling facilities and landfills.
Within our markets, we seek to strengthen our competitive position and improve
our financial returns by acquiring and selling operating assets. We believe that
we can realize competitive advantages by continuously implementing this strategy
across existing and selected new markets in the United States. Our
internalization rate, as measured by collection volumes, was approximately 65%
at the end of 2000.
Focus on Operations. Decentralized operations and local management characterize
our operations-oriented business strategy. We focus our recruiting efforts on
operating managers with extensive industry experience, usually with significant
experience in their geographic markets. Our senior executive management, senior
operating management and regional vice presidents currently average
approximately 19, 20 and 25 years of industry experience, respectively. By
continuing to hire and retain experienced, local market-oriented managers, we
believe that we are well positioned to react to changes in our markets and are
able to capitalize on growth opportunities.
Achieving a Sustainable Long-Term Growth Rate. Our focus is on achieving a
sustainable rate of long-term growth. Although we will continue to acquire
"tuck-in" businesses and may enter selected new markets, we will concentrate on
efficiently operating the assets we have accumulated since the early 1990's.
Therefore, we anticipate future revenue growth will slow to a lower, sustainable
rate which is slower than in the past. We intend to grow revenues through
organic means by increasing volumes collected and disposed and by increasing the
rates we charge for the services we provide. We intend to supplement organic
growth with tuck-in acquisitions of privately owned solid waste operations, net
of the sale of operations that do not fit our business model. We also intend to
take selective advantage of opportunities when government entities privatize the
operation of all or part of their solid waste systems. In addition, we seek to
achieve broad domestic geographic diversification in our operations and market
development activities.
Maintaining Capacity for Future Growth. We seek to implement our business
strategy by maintaining effective internal controls, experienced management and
sufficient financial capacity. We expect operating cash flows to fund our
working capital and capital expenditure requirements, with the existing credit
facility sufficient to handle seasonal and other peak spending requirements.
Operations
Our revenue mix for 2000 was approximately 61.7% collection, 29.1% disposal
(including transfer), 5.6% recycling and 3.6% other.
Collection. Collection operations involve collecting and transporting
non-hazardous waste from the point of generation to the transfer station or
the site of disposal. Depending on the customer being served, we generally
provide solid waste collection under the following two primary types of
arrangements.
Commercial. We provide containerized non-hazardous solid waste disposal
services to a wide variety of commercial and industrial customers. We
provide these customers with containers that are designed to be lifted
mechanically and either emptied into a collection vehicle's compaction
hopper or, in the case of roll-off containers, to be loaded onto the
collection vehicle. Our commercial containers generally range in size from
one to eight cubic yards and our roll-off containers generally range in
size from 20 to 40 cubic yards. Contracts for roll-off containers may
provide for temporary (such as the removal of waste from a construction
site) or ongoing services. Fees relating to those contracts are generally a
function of general competitive and prevailing local economic conditions,
as well as considerations such as collection frequency, type of equipment
furnished, distance traveled to the disposal site, the cost of disposal and
the type and volume or weight of the waste collected.
4
Residential. We perform residential collection services under individual
monthly subscriptions directly to households or under contracts with
municipal governments that give us exclusive rights to service all or a
portion of the homes in the municipalities at established rates. We seek to
obtain municipal contracts that enhance the efficiency and profitability of
our operations as a result of the density of collection customers within a
given area. At the end of the term of most municipal contracts, we will
attempt to renegotiate the contract, and if unable to do so, will re-bid
the contract on a sealed bid basis. We also make residential collection
service arrangements with households directly with the customer. We seek to
enter into residential service arrangements where the route density is
high, thereby creating additional economic benefit. We set collection fees
based on general competitive and prevailing local economic conditions and
other considerations such as collection frequency, the type and volume or
weight of the waste collected, the distance to the disposal facility, and
cost of disposal. Residential collection fees are either paid by the
municipalities out of tax revenues or service charges or are paid directly
by the residents who receive the service.
Transfer Stations. A transfer station is a facility where solid waste is
received from third-party and company owned collection vehicles and then
transferred to and compacted in large, specially constructed trailers for
transportation to disposal facilities. This consolidation reduces costs by
increasing the density of the waste being transported through compaction
and by improving utilization of collection personnel and equipment, and is
an increasingly common procedure in the solid waste management industry. We
generally base fees upon such factors as the type and volume or weight of
the waste transferred and the transport distance to the disposal facility.
We believe that as increased regulations and public pressure restrict the
development of landfills in urban and suburban areas, transfer stations
will increasingly be used as an efficient means to transport waste over
longer distances to available landfills.
Landfills. Solid waste landfills are the primary method of disposal of
solid waste in the United States. Currently, a landfill must be designed,
permitted, operated and closed in compliance with comprehensive federal,
state and local regulations promulgated under Subtitle D. Operating
procedures include excavation, continuous spreading and compacting of
waste, and covering of waste with earth or other inert material. Disposal
fees and the cost of transferring solid waste to the disposal facility
place an economic restriction on the geographic scope of landfill
operations in a particular market. Access to a disposal facility, such as a
landfill, is necessary for all solid waste management companies. While
access to disposal facilities owned or operated by unaffiliated parties can
generally be obtained, we prefer, in keeping with our business strategy, to
own or operate our own disposal facilities. This ensures access and allows
us to internalize disposal fees.
Recycling. We include recycling as a component of our vertically integrated
solid waste business strategy. Services include curbside collection of
recyclable materials for residential customers, commercial and industrial
collection of recyclable materials, and, to a lesser extent, material
recovery/waste reduction. We generally charge recycling fees based on the
service sought by the customer. The customer pays for the cost of removing,
processing and disposing of potentially recyclable materials. In most
cases, we receive mixed waste materials at a materials recovery facility,
which is often integrated into, or contiguous to, a transfer operation. At
the facility, we sort, separate, accumulate, bind or place in a container
and ready for transportation materials such as paper, cardboard, plastic,
aluminum and other metals. The purchaser generally pays for the materials
based on fluctuating spot-market prices. We dispose of material, for which
there is no market or for which the market price is insufficient to warrant
processing, at a landfill or other disposal facility. We seek to avoid
exposure to fluctuating commodity prices by passing through substantially
all of the profit or loss from the sale of recyclables to customers. We
also engage in organic materials recycling and/or disposal and other
alternative energy concepts such as biomass fuels.
Organization, Marketing and Sales
Our management philosophy utilizes a decentralized business model. We believe
that this model allows us to maximize the opportunities in each market that we
operate and has largely contributed to our ability to achieve high operating
margins.
5
We implement this philosophy through a regional and district infrastructure. We
have organized our operations into eight regions: Atlantic, Central, Great
Lakes, Midwest, Northeast, Southeast, Southwest and West. Consistent with the
vertical integration model, each region is organized into several operating
districts and each district contains several specific site operations. Each of
our regions, and substantially all of our districts include collection,
transfer, recycling and disposal services, which facilitates efficient and cost
effective waste handling and allows the regions and districts to maximize the
internalization of waste.
The districts consist of a collection of stand-alone companies usually operating
as a vertically integrated operation within a common marketplace. These
districts range in size from approximately $50 million in revenue to
approximately $300 million in revenue. Each district reports to a regional
office. Each regional office has approximately six districts under its
management.
A region vice president manages each region supported by a staff, including a
region controller. All region vice presidents and most region controllers have
significant industry experience (in the case of region vice presidents, an
average of 25 years of experience). Region offices are typically located in a
district's facility in order to reduce overhead costs and to promote a close
working relationship between the region management and district personnel.
All region managers and most district managers have responsibility for all
phases of the vertical integration model including collection, transfer,
recycling and disposal. Region management also has responsibility for increasing
region revenues through internal development initiatives and acquisitions. In
addition to base salary, we compensate region and district management through a
bonus program and stock incentive plans. Compensation pursuant to the bonus and
stock incentive plans is largely contingent upon meeting or exceeding various
goals in the manager's geographic area of responsibility.
Each of our districts has staff responsible for sales and marketing. Our policy
is to periodically visit each commercial account to ensure customer satisfaction
and to sell additional services. In addition to calling on existing customers,
each salesperson calls upon potential customers within a defined area in each
market.
We also have a municipal marketing coordinator in most service areas, who is
responsible for communicating with each municipality or community to which we
provide residential service to ensure customer satisfaction. Additionally, the
municipal coordinators organize and handle bids for renewal and new municipal
contracts in their service area.
Competition
The non-hazardous waste collection and disposal industry is highly competitive.
We compete with large companies and municipalities which may have greater
financial and operations resources. We also compete with the use of alternatives
to landfill disposal because of state requirements to reduce landfill disposal.
The non-hazardous waste collection and disposal industry is led by three large
national waste management companies: Allied, Waste Management, Inc., and
Republic Services, Inc. It also includes numerous regional and local companies.
Many counties and municipalities that operate their own waste collection and
disposal facilities have the benefits of tax-exempt financing and may control
the disposal of waste collected within their jurisdictions.
We encounter competition due to the use of alternatives to landfill disposal,
such as recycling and incineration. Further, most of the states in which we
operate landfills have adopted plans or requirements that require the adoption
of comprehensive plans to reduce the volume of solid waste deposited in
landfills through waste planning, composting and recycling or other programs.
State and local governments are increasingly mandating waste reduction at the
source and prohibiting the disposal of certain types of wastes, such as yard
wastes, at landfills. These trends may reduce the volume of waste going to
landfills in certain areas. If this occurs, we cannot assure that we will be
able to operate our landfills at their full capacity or charge current prices
for landfill disposal services due to the decrease in demand for services. We
also encounter competition in our acquisition of landfills and collection
operations. This competition is due to our competitors' interest in acquiring
solid waste assets.
6
Environmental and Other Regulations
We are subject to extensive and evolving environmental laws and regulations. The
Environmental Protection Agency, (the "EPA") and various other federal, state
and local environmental, zoning, health and safety agencies administer the
regulations. Many of these agencies periodically examine our operations to
monitor compliance with such laws and regulations. Governmental authorities have
the power to enforce compliance with these regulations and to obtain injunctions
or impose civil or criminal penalties in case of violations. We believe that
regulation of the waste industry will continue to evolve and we will adapt to
such future regulatory requirements to ensure compliance.
Our operation of landfills subjects us to certain operational, monitoring, site
maintenance, closure, post-closure and other obligations which could give rise
to increased costs for compliance and corrective measures. In connection with
our acquisition and continued operation of existing landfills, we must often
spend considerable time, effort and money to obtain permits required to increase
the capacity of these landfills. We cannot definitively predict whether or not
we will be able to obtain the governmental approvals necessary to establish new
or expand existing landfills.
Our operations are subject to extensive regulation, principally under the
following federal statutes:
The Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended.
RCRA regulates the handling, transportation and disposal of hazardous and
non-hazardous wastes and delegates authority to states to develop programs
to ensure the safe disposal of solid wastes. On October 9, 1991, the EPA
promulgated Solid Waste Disposal Facility Criteria for non-hazardous solid
waste landfills under Subtitle D. Subtitle D includes location standards,
facility design and operating criteria, closure and post-closure
requirements, financial assurance standards and groundwater monitoring as
well as corrective action standards, many of which had not commonly been in
place or enforced previously at landfills. Subtitle D applies to all solid
waste landfill cells that received waste after October 9, 1991, and, with
limited exceptions, required all landfills to meet these requirements by
October 9, 1993. Subtitle D required landfills that were not in compliance
with the requirements of Subtitle D on the applicable date of
implementation, which varied state by state, to close. In addition,
landfills that stopped receiving waste before October 9, 1993 were not
required to comply with the final cover provisions of Subtitle D. Each
state must comply with Subtitle D and was required to submit a permit
program designed to implement Subtitle D to the EPA for approval by April
9, 1993. All states except Maine and Washington have EPA approved programs
which implemented the minimum requirements of Subtitle D.
The Federal Water Pollution Control Act of 1972 (the "Clean Water Act"), as
amended. This act establishes rules regulating the discharge of pollutants
into streams and other waters of the United States (as defined in the Clean
Water Act) from a variety of sources, including solid waste disposal sites.
If runoff from our landfills or transfer stations may be discharged into
surface waters, the Clean Water Act requires us to apply for and obtain
discharge permits, conduct sampling and monitoring and, under certain
circumstances, reduce the quantity of pollutants in those discharges. The
EPA has expanded the permit program to include storm water discharges from
landfills that receive, or in the past received, industrial waste. In
addition, if development may alter or affect "wetlands," we may have to
obtain a permit and undertake certain mitigation measures before
development may begin. This requirement is likely to affect the
construction or expansion of many solid waste disposal sites, including
some we own or are developing.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), as amended. CERCLA addresses problems created by the
release or threatened release of hazardous substances (as defined in
CERCLA) into the environment. CERCLA's primary mechanism for achieving
remediation of such problems is to impose strict, joint and several
liability for cleanup of disposal sites on current owners and operators of
the site, former site owners and operators at the time of disposal, and
parties who arranged for disposal at the facility (i.e. generators of the
waste and transporters who select the disposal site). The costs of a CERCLA
cleanup can be substantial. Liability under CERCLA is not dependent on the
existence or disposal of "hazardous wastes" (as defined under RCRA), but
can also be founded on the existence of even minute amounts of the more
than 700 "hazardous substances" listed by the EPA.
7
The Clean Air Act of 1970 (the "Clean Air Act"), as amended. The Clean Air
Act provides for increased federal, state and local regulation of the
emission of air pollutants. The EPA has applied the Clean Air Act to
landfills. In March 1996, the EPA adopted New Source Performance Standard
and Emission Guidelines (the "Emission Guidelines") for municipal solid
waste landfills. These regulations impose limits on air emissions from
solid waste landfills. The Emission Guidelines propose two sets of
emissions standards, one of which is applicable to all solid waste
landfills for which construction, reconstruction or modification was
commenced before May 30, 1991. The other applies to all municipal solid
waste landfills for which construction, reconstruction or modification was
commenced on or after May 30, 1991. The Emission Guidelines may be
implemented by the states after the EPA approves the individual state's
program. These guidelines, combined with the new permitting programs
established under the recent Clean Air Act amendments, will likely subject
solid waste landfills to significant new permitting requirements and, in
some instances, require installation of methane gas recovery systems to
reduce emissions to allowable limits.
The Occupational Safety and Health Act of 1970 ("OSHA"), as amended. OSHA
establishes certain employer responsibilities, including maintenance of a
workplace free of recognized hazards likely to cause death or serious
injury, compliance with standards promulgated by the Occupational Safety
and Health Administration, and various record keeping, disclosure and
procedural requirements. Various standards, including standards for notices
of hazards, safety in excavation and demolition work, and the handling of
asbestos, may apply to our operations.
Future Federal Legislation. In the future, our collection, transfer and landfill
operations may also be affected by legislation that may be proposed in the
United States Congress that would authorize the states to enact laws governing
interstate shipments of waste. Such proposed federal legislation may allow
individual states to prohibit the disposal of out-of-state waste or to limit the
amount of out-of-state waste that could be imported for disposal and would
require states, under certain circumstances, to reduce the amounts of waste
exported to other states. If this or similar legislation is enacted, states in
which we operate landfills could act to limit or prohibit the importation of
out-of-state waste. Such state actions could adversely affect landfills within
these states that receive a significant portion of waste originating from
out-of-state. Our collection, transfer and landfill operations may also be
affected by "flow control" legislation, which may be proposed in the United
States Congress. This proposed federal legislation may allow states and local
governments to direct waste generated within their jurisdiction to a specific
facility for disposal or processing. If this or similar legislation is enacted,
state or local governments with jurisdiction over our landfills could act to
limit or prohibit disposal or processing of waste in our landfills.
State Regulation. Each state in which we operate has laws and regulations
governing solid waste disposal and water and air pollution and, in most cases,
regulations governing the design, operation, maintenance and closure of
landfills and transfer stations. We believe that several states have proposed or
have considered adopting legislation that would regulate the interstate
transportation and disposal of waste in their landfills. Many states have also
adopted legislative and regulatory measures to mandate or encourage waste
reduction at the source and waste recycling.
Our collection and landfill operations may be affected by the current trend
toward laws requiring the development of waste reduction and recycling programs.
For example, a number of states have recently enacted laws that will require
counties to adopt comprehensive plans to reduce, through waste planning,
composting and recycling or other programs, the volume of solid waste deposited
in landfills within the next few years. A number of states have also taken or
propose to take steps to ban or otherwise limit the disposal of certain wastes,
such as yard wastes, beverage containers, newspapers, unshredded tires,
lead-acid batteries and household appliances into landfills.
We have implemented and will continue to implement our own environmental
safeguards that seek to comply with these governmental requirements.
8
Liability Insurance and Bonding
We carry general liability, comprehensive property damage, workers'
compensation, employer's liability, directors' and officers' liability, limited
environmental impairment liability and other coverages we believe are customary
to the industry. Except as discussed in Legal Proceedings below, management does
not expect the impact of any known casualty, property, environmental insurance
or other contingencies to be material to our consolidated liquidity, financial
position or results of operations.
We are required to provide certain financial assurances to governmental agencies
under applicable environmental regulations relating to our landfill and
collection operations. These financial assurances include surety bonds, letters
of credit, insurance policies and trust deposits required principally to secure
our estimated landfill closure and post-closure obligations and collection
contracts. We are required to provide approximately $1.5 billion in financial
assurance obligations relating to our landfill operations.
Employees
We employ approximately 28,000 persons. Certain of our employees are covered by
collective bargaining agreements. We believe relations with our employees are
satisfactory.
Item 2. Properties
Our principal executive offices are located at 15880 N. Greenway-Hayden Loop,
Suite 100, Scottsdale, Arizona 85260 where we currently lease approximately
60,000 square feet of office space. We currently maintain regional
administrative offices in Arizona, Illinois, Indiana, Missouri, Georgia, South
Carolina, Colorado and Massachusetts.
Our principal property and equipment consists of land (primarily landfill sites,
transfer stations, and facilities for collection operations), buildings, and
vehicles and equipment, substantially all of which are encumbered by liens in
favor of our primary lenders. We own or lease real property in the states in
which we are doing business. At December 31, 2000, we owned and operated 164
active solid waste landfills, aggregating approximately 72,075 total acres,
including approximately 24,598 permitted acres. In addition, as of that date we
owned or operated 338 collection companies, 151 transfer stations and 75
recycling facilities.
Item 3. Legal Proceedings
We are currently involved in certain routine litigation. We believe that all
such litigation arose in the ordinary course of business and that costs of
settlements or judgments arising from such suits will not have a materially
adverse effect on our consolidated liquidity, financial position or results of
operations.
Federal, state and local provisions that relate to the protection of the
environment regulate our business. The nature of our business results in us
frequently becoming a party to judicial or administrative proceedings involving
governmental authorities and other interested parties. At December 31, 2000, we
were not involved in any such proceedings where we reasonably believe sanctions
imposed by governmental authorities will exceed $100,000 or which we believe
will have a material effect on our consolidated liquidity or results of
operations. From time to time, we may also be subject to actions brought by
citizens' groups, adjacent landowners or others in connection with the
permitting and licensing of our landfills or transfer stations, or alleging
personal injury, environmental damage or violations of the permits and licenses
pursuant to which we operate.
9
We have been notified that we are considered a potentially responsible party at
a number of sites under CERCLA or other environmental laws. In all cases, such
alleged responsibility is due to the actions of companies acquired by Allied
prior to their acquisition by Allied. We continually review our status with
respect to each site, taking into account the alleged connection to the site and
the extent of the contribution to the volume of waste at the site, the available
evidence connecting the entity to that site and the number and financial
soundness of other potentially responsible parties at the site. The ultimate
amounts for environmental liabilities at sites where we may be a potentially
responsible party cannot be determined and estimates of such liabilities made by
us, after consultation with our independent environmental engineers, require
assumptions about future events subject to a number of uncertainties, including
the extent of the contamination, the appropriate remedy, the financial viability
of other potentially responsible parties and the final apportionment of
responsibility among the potentially responsible parties. Where we have
concluded that our estimated share of potential liabilities is probable, a
provision has been made in the consolidated financial statements. Since the
ultimate outcome of these matters may differ from the estimates used in our
assessments to date, the recorded liabilities are periodically evaluated, as
additional information becomes available, to ascertain that the accrued
liabilities are adequate. We have determined that the recorded liability for
environmental matters as of December 31, 2000 of approximately $432.5 million
represents the most probable outcome of these contingent matters. We do not
expect that adjustments to estimates, which are reasonably possible in the near
term and that may result in changes to recorded amounts, will have a material
effect on our consolidated liquidity, financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
10
PART II
Item 5. Market Price and Dividends on the Common Stock and Related Stockholder
Matters
Price Range of Common Stock
The Common Stock (as defined below) is traded on the New York Stock Exchange
under the symbol "AW". The high and low sales prices per share for the periods
indicated were as follows:
High Low
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Year Ended December 31, 2000:
First Quarter............................................................. 8.44 5.38
Second Quarter............................................................ 10.38 5.31
Third Quarter............................................................. 11.75 9.19
Fourth Quarter............................................................ 14.56 7.88
Year Ended December 31, 1999:
First Quarter............................................................. 24.06 12.75
Second Quarter............................................................ 20.00 13.13
Third Quarter............................................................. 20.63 11.06
Fourth Quarter............................................................ 11.94 6.50
As of March 26, 2001, there were approximately 722 holders of record of our
Common Stock.
Dividend Policy
We have not paid dividends on our common stock, $0.01 par value (the "Common
Stock"), and do not anticipate paying any dividends thereon in the foreseeable
future as we are prohibited under the terms of our long-term indebtedness from
paying such dividends.
Recent Sales of Unregistered Securities
Not Applicable.
11
Item 6. Selected Financial Data
The selected financial data presented below as of and for the five years ended
December 31, 2000 are derived from our Consolidated Financial Statements, which
have been audited by Arthur Andersen LLP, independent public accountants. See
Note 2 to our Consolidated Financial Statements. These selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our Consolidated Financial
Statements and the notes thereto, included elsewhere herein. (All amounts are in
thousands, except per share amounts and percentages.)
2000 1999 1998 1997(4) 1996(4)
--------------- ---------------- ---------------- ---------------- ----------------
Statement of Operations Data:
Revenues............................ $ 5,707,485 $ 3,341,071 $ 1,575,612 $ 1,340,661 $ 619,548
Cost of operations.................. 3,280,027 1,948,964 892,273 777,289 386,001
Selling, general and administrative
expenses.......................... 417,558 231,366 155,835 177,396 102,416
Depreciation and amortization....... 450,794 273,368 149,260 131,658 63,638
Goodwill amortization............... 223,244 110,726 30,705 26,580 4,185
Acquisition related and unusual
costs(1).......................... 127,327 588,855 317,616 3,934 96,508
--------------- ---------------- ---------------- ---------------- ----------------
Operating income (loss)........... 1,208,535 187,792 29,923 223,804 (33,200)
Equity in earnings of unconsolidated
affiliates........................ (50,788) (20,785) -- -- --
Interest income..................... (4,127) (7,212) (4,030) (1,765) (2,479)
Interest expense.................... 882,282 443,044 88,431 108,045 21,347
--------------- ---------------- ---------------- ---------------- ----------------
Income (loss) before income taxes. 381,168 (227,255) (54,478) 117,524 (52,068)
Income tax expense (benefit)........ 237,540 (8,756) 43,773 40,277 354
Minority interest................... 5,975 2,751 -- -- --
--------------- ---------------- ---------------- ---------------- ----------------
Income (loss) before extraordinary
losses and cumulative effect of
change in accounting principle.. 137,653 (221,250) (98,251) 77,247 (52,422)
Extraordinary losses, net of income
tax benefit(2).................... 13,266 3,223 124,801 53,205 13,887
Cumulative effect of change in
accounting principle, net of income
tax benefit(3).................... -- 64,255 -- -- --
--------------- ---------------- ---------------- ---------------- ----------------
Net income (loss)................. 124,387 (288,728) (223,052) 24,042 (66,309)
Dividends on preferred stock........ 68,452 27,789 -- 381 1,073
--------------- ---------------- ---------------- ---------------- ----------------
Net income (loss) available to
common shareholders............... $ 55,935 $ (316,517) $ (223,052) $ 23,661 $ (67,382)
=============== ================ ================ ================ ================
Basic EPS:
Income (loss) available to
common shareholders before
extraordinary losses and
cumulative effect of change in
accounting principle, net of income
tax benefit....................... $ 0.37 $ (1.33) $ (0.54) $ 0.47 $ (0.40)
Extraordinary losses, net of income
tax benefit....................... (0.07) (0.02) (0.68) (0.33) (0.11)
Cumulative effect of change in
accounting principle, net of income
tax benefit....................... -- (0.34) -- -- --
--------------- ---------------- ---------------- ---------------- ----------------
Net income (loss) available to
common shareholders............... $ 0.30 $ (1.69) $ (1.22) $ 0.14 $ (0.51)
=============== ================ ================ ================ ================
Weighted average common shares...... 188,814 187,801 182,796 164,888 132,967
=============== ================ ================ ================ ================
12
2000 1999 1998 1997 1996
--------------- --------------- --------------- -------------- --------------
Diluted EPS:
Income (loss) available to
common shareholders before
extraordinary losses and
cumulative effect of change in
accounting principle, net of income
tax benefit....................... $ 0.36 $ (1.33) $ (0.54) $ 0.44 $ (0.40)
Extraordinary loss, net of income
tax benefit....................... (0.07) (0.02) (0.68) (0.30) (0.11)
Cumulative effect of change in
accounting principle, net of income
tax benefit....................... -- (0.34) -- -- --
--------------- --------------- --------------- --------------- --------------
Net income (loss) available to
common shareholders............... $ 0.29 $ (1.69) $ (1.22) $ 0.14 $ (0.51)
=============== =============== =============== =============== ==============
Weighted average common and
common equivalent shares.......... 191,122 187,801 182,796 172,958 132,967
=============== =============== =============== =============== ==============
Pro forma amounts, assuming the
change in accounting principle is
applied retroactively:
Net income (loss) available to
common shareholders............... $ (256,265) $ 5,085 $ (73,909)
Diluted earnings (loss) per share... (1.40) 0.03 (0.56)
Balance Sheet Data:
December 31,
-------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- --------------- --------------- ---------------- ---------------
Cash and cash equivalents........... $ 122,094 $ 121,405 $ 39,742 $ 33,320 $ 70,015
Working capital (deficit)........... (328,049) (381,077) 45,031 (75,054) 26,410
Property and equipment, net......... 3,860,538 3,738,388 1,776,025 1,583,133 932,110
Goodwill, net....................... 8,717,438 8,238,929 1,327,470 1,082,750 888,648
Total assets........................ 14,513,634 14,963,101 3,752,592 3,073,820 2,662,200
Long-term debt, less current
portion........................... 9,635,124 9,240,291 2,118,927 1,492,360 1,283,327
Stockholders' equity including
Preferred Stock................... 1,767,659 1,639,555 930,074 962,465 385,218
Long-term debt to total
capitalization.................... 85% 85% 69% 61% 77%
(1) Acquisition related and unusual costs relate to management's changes in
strategic plans and restructuring resulting from acquisitions. The charges
primarily consist of transaction or deal costs, employee severance and
transition costs, changes in estimates relating to environmental and legal
matters and regulatory compliance, restructuring costs related to the
consolidation or relocation of operations, costs for the abandonment or
sale of non-revenue producing assets, provisions for losses on contractual
obligations, and asset impairments.
(2) The extraordinary losses were incurred as a result of premiums paid for the
early extinguishment of debt and the write-off of related deferred debt
issue costs.
(3) During the third quarter of 1999, we changed our method of accounting for
capitalized interest. According to generally accepted accounting
principles, this change is applied from the beginning of 1999. A charge for
the cumulative effect of the change in accounting principle of $106.2
million ($64.3 million, net of income taxes) was recorded effective January
1, 1999.
(4) The years ended December 31, 1997 and 1996 Consolidated Financial
Statements have been restated to reflect the acquisition of companies
accounted for using the pooling-of-interests method for business
combinations in 1998.
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our Consolidated
Financial Statements and the notes thereto, included elsewhere herein.
Introduction
We have experienced significant growth, primarily resulting from the acquisition
of solid waste businesses. Since January 1, 1993, we have completed 275
acquisitions including 50 acquisitions in 2000. The results of operations for
the acquisitions accounted for under the purchase method for business
combinations are included in our financial statements only from the applicable
date of acquisition. As a result, we believe our historical results of
operations for the periods presented are not directly comparable to our current
results of operations.
On July 30, 1999, we completed the acquisition of Browning-Ferris Industries,
Inc. ("BFI") in a transaction accounted for as a purchase. As a result of the
acquisition, each share of BFI common stock was converted into the right to
receive $45 in cash. Including assumed and refinanced debt, the original cost of
acquiring BFI was approximately $9.6 billion. Financing for the acquisition was
obtained from draws of $4.7 billion from credit facilities with a capacity of
$7.1 billion (the "1999 Credit Facility"), the sale of $1.0 billion of newly
issued senior convertible preferred stock (the "Preferred Stock") and the sale
of $2.0 billion of 10% Senior Subordinated Notes due 2009 (the "1999 Notes").
In connection with the acquisition of Browning-Ferris Industries, Inc. ("BFI"),
we initiated an asset divestiture program, whereby we sold, for cash or through
simultaneous buy and sell transactions, certain non-core assets that did not fit
with our vertical integration operating strategy for total net proceeds of
approximately $1.6 billion. As of December 31, 2000, we had completed this
divestiture program with the exception of the transaction involving the waste
incineration business of American Ref-fuel. A definitive agreement was entered
into during November 2000 and is expected to be completed around the first
quarter of 2001.
Status of Integration of BFI. In connection with the acquisition of BFI on July
30, 1999, we anticipated annual cost savings of approximately $360 million by
the end of 2000 resulting from corporate and field SG&A savings, operations
labor cost savings, market cost savings and asset buy and sell agreements. As of
June 30, 2000, we had substantially achieved the annual cost savings through
headcount reductions of approximately 2,900 employees, the closure of 51
facilities, 96 route rationalizations and other cost savings. Internalization
increased from 57% at the time of the acquisition to 65% at December 31, 2000.
We have completed the management information systems conversions from BFI's
systems to Allied's systems for financial reporting, payroll, fixed assets and
maintenance tracking. We have also completed the conversion of the general
ledger and accounts payable from BFI's SAP system to Allied's system. We have
not experienced any significant operational, accounting or reporting issues
related to these conversions.
14
General
Revenues. Our revenues are attributable primarily to fees charged to customers
for waste collection, transfer, recycling and disposal services. We generally
provide collection services under direct agreements with our customers or
pursuant to contracts with municipalities. Commercial and municipal contract
terms, generally range from one to five years and commonly have renewal options.
Our landfill operations include both company-owned landfills and those operated
for municipalities for a fee. The following tables show for the periods
indicated the percentage of our total reported revenues attributable to services
provided and revenues attributable to geographic regions.
Revenues by Line of Business (in thousands, except percentages):
Years Ended December 31,
--------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- ---------------------------- ---------------------------
Collection........ $ 4,227,680 61.7 % $ 2,422,628 60.4 % $ 1,041,441 56.1 %
Disposal(1)....... 1,993,276 29.1 1,261,106 31.4 697,972 37.6
Recycling......... 384,027 5.6 203,632 5.1 64,385 3.5
Other............. 242,196 3.6 125,215 3.1 53,235 2.8
-------------- -------- --------------- --------- --------------- --------
6,847,179 100.0 % 4,012,581 100.0 % 1,857,033 100.0 %
======== ========= ========
Intercompany...... (1,139,694) (671,510) (281,421)
-------------- --------------- ---------------
Reported
revenues...... $ 5,707,485 $ 3,341,071 $ 1,575,612
============== =============== ===============
(1) Transfer revenues are included in disposal.
Revenues by Region:
Years Ended December 31,
--------------------------------------
2000 1999 1998
---------- --------- ---------
Atlantic............................................................... 10.6 % 9.4 % 6.6 %
Central................................................................ 9.3 12.1 19.1
Great Lakes............................................................ 11.2 13.1 18.8
Midwest................................................................ 8.5 9.7 10.1
Northeast.............................................................. 16.5 15.5 10.5
Southeast.............................................................. 13.5 9.2 3.6
Southwest.............................................................. 13.2 12.0 9.4
West................................................................... 16.7 18.5 21.5
Other(1)............................................................... 0.5 0.5 0.4
---------- -------- ---------
Total revenues....................................................... 100.0 % 100.0 % 100.0 %
========== ======== =========
(1) Amounts relate primarily to our subsidiaries which provide services
throughout the organization and not on a regional basis.
Our strategy is to develop vertically integrated operations to internalize the
waste we collect and thus realize higher margins from our operations. By
disposing of waste at company-owned and/or operated landfills, we retain the
margin generated through disposal operations that would otherwise be earned by
third-party landfills. Approximately 63% of the waste we collect as measured by
disposal volumes was disposed of at landfills we own and/or operate for the year
2000 and this internalization rate had increased to approximately 65% at the end
of 2000. In addition, transfer stations are an integral part of the disposal
process. We locate our transfer stations in areas where our landfills are
outside of the population centers in which we collect waste. Such waste is
transferred to long-haul trailers and economically transported to our landfills.
15
Expenses. Cost of operations includes labor, maintenance and repairs, equipment
and facility rent, utilities and taxes, the costs of ongoing environmental
compliance, safety and insurance, disposal costs and costs of independent
haulers transporting our waste to the disposal site. Disposal costs include
certain landfill taxes, host community fees, payments under agreements with
respect to landfill sites that are not owned, landfill site maintenance, fuel
and other equipment operating expenses and accruals for estimated closure and
post-closure monitoring expenses anticipated to be incurred in the future. We
use a life-cycle accounting method for landfills and the related closure and
post-closure liabilities. This method applies the costs associated with
acquiring, developing, closing and monitoring the landfills over the associated
landfill capacity based on consumption. On an annual basis, we update the
development cost estimates (which include the costs to develop the site as well
as the individual cell construction costs), closure and post-closure cost
estimates and future capacity estimates for each landfill. The cost estimates
are prepared by company and third-party engineers based on the applicable local,
state and federal regulations and site specific permit requirements. Future
capacity estimates are updated, using aerial surveys of each landfill to
estimate utilized disposal capacity and remaining disposal capacity. These cost
and capacity estimates are reviewed and approved by senior operations management
annually.
Selling, general and administrative expenses include management, clerical and
administrative compensation and overhead, sales cost, investor and community
relations' expenses and provisions for estimated uncollectible accounts
receivable.
Depreciation and amortization includes depreciation of fixed assets and
amortization of other intangible assets and landfill airspace. We use the units
of production method for purposes of calculating the amortization rate at each
landfill. This methodology divides the costs associated with acquiring,
permitting and developing the entire landfill by the total remaining capacity of
that landfill. The resulting per unit amortization rate is applied to each unit
disposed at the landfill and is recorded as expense for that period. Costs
associated with developing the landfill include direct costs such as excavation,
liners, leachate collection systems, engineering and legal fees, and capitalized
interest, which are capitalized and amortized based on consumed airspace.
Estimated total future development cost for our 164 active landfills is
approximately $3.1 billion, excluding interest to be capitalized, and we expect
that this amount will be spent over the remaining operating lives of the
landfills. We have available disposal capacity of approximately 3.0 billion
cubic yards of capacity as of December 31, 2000.
We believe that the costs associated with engineering, owning and operating
landfills will increase in the future as a result of federal, state and local
regulation as well as community participation in opposition to the landfill
process. We cannot assure you that we will be able to raise prices sufficiently
to offset these increased expenses. We expense all indirect landfill development
costs, such as executive salaries, general corporate overhead, public affairs
and other corporate services, as incurred.
Goodwill amortization includes the amortization of costs paid in excess of the
net assets acquired in purchase business combinations.
In connection with potential acquisitions, we incur and capitalize certain
transaction costs and integration costs, which include stock registration,
legal, accounting, consulting, engineering and other direct costs. When an
acquisition is accounted for using the pooling-of-interests method for business
combinations, these costs are charged to the statement of operations as
acquisition related costs. When an acquisition is accounted for using the
purchase method for business combinations, these costs are capitalized. We
routinely evaluate capitalized transaction and integration costs, and we expense
those costs related to acquisitions not likely to occur. We expense indirect
acquisition costs, such as executive salaries, general corporate overhead and
other corporate services, as incurred.
16
Closure and post-closure costs represent our financial commitment for the
regulatory required costs associated with our future obligations for final
closure, which is the closure of a cell of a landfill once the cell is no longer
receiving waste, and post-closure monitoring and maintenance of landfills, which
is required for up to 30 years after a landfill's final closure. We establish
closure and post-closure requirements based on the standards of Subtitle D as
implemented on a state-by-state basis. We base closure and post-closure accruals
on cost estimates for capping and covering a landfill, methane gas control,
leachate management and groundwater monitoring, and other operational and
maintenance costs to be incurred after the site discontinues accepting waste. We
prepare site-specific closure and post-closure engineering cost estimates
annually for landfills owned and/or operated by us for which we are responsible
for closure and post-closure.
We accrue and charge closure and post-closure costs based on accepted tonnage as
landfill airspace is consumed to ensure that the total closure and post-closure
obligations are fully accrued for each landfill at the time that the site
discontinues accepting waste and is closed. For landfills purchased, we assess
and accrue the closure and post-closure liability at the time we assume closure
responsibility based upon the estimated closure and post-closure costs and the
percentage of airspace utilized as of the date of acquisition. After the date of
acquisition, we accrue and charge closure and post-closure costs as airspace is
consumed. We update and approve estimated closure and post-closure liabilities
annually based on assessments performed by in-house and independent
environmental engineers. Such costs may change in the future as a result of
permit modifications or changes in legislative or regulatory requirements.
We accrue closure and post-closure cost estimates based on the present value of
the future obligation. We discount future costs where we believe that both the
amounts and timing of related payments are reliably determinable. We annually
update our estimates of future closure and post-closure costs. We account for
the impact of changes, which are determined to be changes in estimates, on a
prospective basis.
In 2000, we calculated the net present value of the closure and post-closure
commitment assuming inflation of 2.5% and a risk-free capital rate of 7.0%. We
accrete discounted amounts previously recorded to reflect the effects of the
passage of time. We currently estimate total future payments for closure and
post-closure to be $3.2 billion. The present value of such estimate is $1.2
billion. At December 31, 2000 and 1999, accruals for landfill closure and
post-closure costs (including costs assumed through acquisitions) were
approximately $601.4 million and $517.3 million, respectively. The accruals
reflect a portfolio of landfills with estimated remaining lives, based on
current waste flows, that range from one to over 150 years, and an estimated
average remaining life of approximately 40 years.
17
Results of Operations
The following table sets forth the percentage relationship that the various
items bears to revenues for the periods indicated. See Note 2 to our
Consolidated Financial Statements.
Year Ended December 31,
--------------------------------------------------------
2000 1999 1998
---------------- --------------- ----------------
Statement of Operations Data:
Revenues............................................... 100.0% 100.0% 100.0%
Cost of operations..................................... 57.5 58.3 56.6
Selling, general and administrative expenses........... 7.3 6.9 9.9
Depreciation and amortization.......................... 7.9 8.2 9.5
Goodwill amortization.................................. 3.9 3.3 1.9
Acquisition related and unusual costs.................. 2.2 17.7 20.1
---------------- --------------- ----------------
Operating income..................................... 21.2 5.6 2.0
Equity in earnings of unconsolidated affiliates........ (0.9) (0.6) --
Interest expense, net.................................. 15.4 13.0 5.4
---------------- --------------- ----------------
Income (loss) before income taxes.................... 6.7 (6.8) (3.4)
Income tax expense (benefit)........................... 4.2 (0.3) 2.8
Minority interest...................................... 0.1 0.1 --
---------------- --------------- ----------------
Income (loss) before extraordinary losses and
cumulative effect of change in accounting
principle.......................................... 2.4 (6.6) (6.2)
Extraordinary losses, net of income tax benefit........ 0.2 0.1 7.9
Cumulative effect of change in accounting
principle, net of income tax benefit................. -- 2.0 --
---------------- --------------- ----------------
Net income (loss).................................... 2.2 (8.7) (14.1)
Dividends on Preferred Stock........................... 1.2 0.8 --
---------------- --------------- ----------------
Net income (loss) available to common
shareholders....................................... 1.0% (9.5)% (14.1)%
================ =============== ================
18
Years Ended December 31, 2000 and 1999
Revenues. Revenues in 2000 were $5.7 billion compared to $3.3 billion in 1999,
an increase of 70.8%. The increase in revenues was primarily attributable to the
acquisition of companies throughout 1999, the most significant of which was BFI
which was acquired on July 30, 1999. Accordingly, the results in 2000 include
twelve months of the operations acquired from BFI compared to five months in
1999. Revenues attributable to existing operations increased approximately 4% in
2000 compared to 1999 primarily due to pricing increases. Volume increases
during 2000 were offset by initiatives to reduce customer accounts which were
not generating acceptable returns.
Cost of Operations. Cost of operations in 2000 was $3.3 billion compared to $1.9
billion in 1999, an increase of 68.3%. The increase in cost of operations was
primarily associated with the increase in revenues described above. As a
percentage of revenues, cost of operations decreased to 57.5% in 2000 from 58.3%
in 1999, primarily due to price increases, the initiatives to reduce customer
accounts which were not generating acceptable returns, the achievement of
operating synergies resulting from the BFI acquisition, and the effect of
increased landfill internalization from 61% at the end of 1999 to 65% at the end
of 2000.
Selling, General and Administrative Expenses. SG&A expenses in 2000 were $417.6
million compared to $231.4 million in 1999, an increase of 80.5%, and reflects
our acquisition of BFI. As a percentage of revenues, SG&A increased to 7.3% in
2000 from 6.9% in 1999. This increase is primarily due to compensation increases
during 2000.
Depreciation and Amortization. Depreciation and amortization in 2000 was $450.8
million compared to $273.4 million in 1999, an increase of 64.9%. As a
percentage of revenues, depreciation and amortization expense decreased to 7.9%
in 2000 from 8.2% in 1999. The percent decrease is primarily due to the increase
in depreciation expense, resulting from a 15% increase in capital expenditures,
being more than offset by the greater increase in revenues during 2000.
Goodwill Amortization. Goodwill amortization in 2000 was $223.2 million compared
to $110.7 million in 1999, an increase of 101.6%. The increase in goodwill
amortization was due to an increase in goodwill of approximately $7 billion
primarily resulting from the acquisition of BFI.
Acquisition Related and Unusual Costs
Year Ended December 31, 2000
During 2000, we recorded approximately $127.3 million of acquisition related and
unusual costs primarily associated with the acquisition of BFI. These costs were
comprised primarily of approximately $75.2 million of transition costs related
to transitional employees and duplicative facilities and operations, $30.2
million relating to changes in estimated loss contract provisions, restructuring
and abandonment liabilities, litigation liabilities and environmental related
matters, $26.5 million of non-cash asset impairments related to the divestitures
of certain operations and we reversed through acquisition related and unusual
costs approximately $4.6 million of accruals established in connection with the
acquisition of BFI and accruals associated with 1998 acquisitions.
Subsequent event --
As part of our ongoing review of the operations and the self-funding market
development program for 2001, we sold certain non-integrated operations in the
Northeast region for approximately $53 million during the month of February
2001. The proceeds were used to repay debt, but will likely be deployed later
this year as a part of our self-funding market development program to purchase
assets in other markets that improve our market density and internalization. In
connection with this sale, we will reflect an after tax non-cash loss of
approximately $65 million in the reported results for the first quarter of 2001.
19
Year Ended December 31, 1999
During the year ended December 31, 1999, we recorded $588.9 million of
acquisition related and unusual costs primarily associated with the $9.6 billion
acquisition of BFI, which was accounted for as a purchase. The costs primarily
relate to environmental related matters, litigation liabilities, risk management
liabilities, loss contract provisions, transition costs and the write-off of
deferred costs relating to the acquisition. These costs are comprised of the
following:
We recorded a charge of approximately $267.0 million related to changes in
estimates of environmental liabilities associated with BFI's operations. In
connection with our due diligence and integration process, assessments of the
acquired operations were performed by third-party, in-house engineers and legal
counsel. Based on these assessments, we made changes in accounting estimates of
approximately (i) $133.7 million associated with the Superfund accrual for over
150 CERCLA cases in which BFI was involved, (ii) $30.3 million associated with
the remedial accrual for sites in which BFI was involved with remedial action
plans, (iii) $56.3 million associated with the environmental accrual for various
containment and treatment matters at 76 active or closed BFI landfills, and (iv)
$46.7 million associated with the accrual for the remedial and closure
requirements of four BFI closed hazardous waste facilities.
In 1999 we recorded a charge of approximately $93.5 million related to changes
in estimates of litigation liabilities associated with BFI's operations. In
connection with our due diligence and integration process, assessments of the
acquired operations and outstanding litigation were performed by third-party and
in-house legal counsel. We evaluated over 200 cases involving employee-related
matters, regulatory matters, collection matters, contract disputes and other
commercial litigation matters. Accordingly, we increased the litigation accrual
based on the most probable loss to be incurred.
In 1999 we recorded an increase of approximately $20.0 million to the
self-insurance accruals based on the results of a third-party actuarial review
performed in connection with due diligence and integration of the BFI
acquisition. As of September 30, 1999, we instituted a guaranteed cost insurance
program for all casualty insurance coverages.
In connection with the integration of the BFI acquisition, we reviewed the
existing contracts of the business for recoverability. Several contracts were
identified which were in a loss position when the direct costs (excluding any
non-variable type costs) attributable to the contract were deducted from the
revenue to be generated by the contract. Consistent with our accounting
policies, we recorded a charge of approximately $32.6 million to operations for
the excess of costs over revenues of the identified contracts.
As a result of the acquisition of BFI, management reassessed the level of
acquisitions that it would pursue in the future and decided that certain
companies that were being considered would no longer be pursued. Accordingly, we
wrote off $26.1 million of deferred charges previously incurred in connection
with these potential acquisitions. Additionally, we wrote off $33.8 million of
commitment fees paid in connection with a portion of the financing of the BFI
acquisition. These fees were associated with funds that were not ultimately
drawn due to alternative sources of financing becoming available. However, as
secured financing for the entire purchase price of the acquisition was a
condition of the signing of the merger agreement with BFI, and the debt
associated with these fees was not incurred, the cost was written off in the
third quarter of 1999.
In connection with the integration plan for BFI, we identified and notified
approximately 1,500 employees that they would be retained for a specified
period, generally not exceeding 12 months from the acquisition date, to perform
transition related functions. Subsequent to the specified time period, they were
terminated. Additionally, we identified certain offices and operations which
were duplicative. As these transition costs cannot be expensed or accrued until
committed or paid, approximately $67.4 million of transition costs were expensed
during 1999. Additionally, we accrued approximately $10.0 million of committed
transition costs during 1999.
Additionally, we recorded approximately $43.5 million of non-cash asset
impairments related to the valuation of Allied assets held for sale,
approximately $1.8 million of non-cash asset impairments related to duplicate
facilities, and approximately $0.4 million of restructuring and abandonment
costs related to other 1999 acquisitions.
20
Any subsequent changes in estimates of acquisition related and unusual costs
have been and will be included in the acquisition related and unusual costs
caption of the statement of operations in the period in which the change in
estimate is made. During 1999, approximately $7.2 million of accrued acquisition
related costs associated with 1998 acquisitions were reversed to acquisition
related and unusual costs.
The following table reflects the cash activity related to the acquisition
related and unusual costs accrued during 1999 (in thousands):
1999 Balance
Additions Remaining
through 1999 2000 December 31,
Expense Expenditures Expenditures Adjustments 2000
---------------- ---------------- ---------------- ---------------- ----------------
Transition costs............. $ 77,350 $ (74,654) $ (2,091) $ (605) $ --
Loss contracts............... 32,643 (6,058) (14,698) 18,776 30,663
Litigation and compliance
costs...................... 113,382 (1,553) (30,960) 5,734 86,603
---------------- ---------------- ---------------- ---------------- ----------------
Total..................... $ 223,375 $ (82,265) $ (47,749) $ 23,905 $ 117,266
================ ================ ================ ================ ================
Interest Expense, net. Interest expense, net of interest income was $878.2
million in 2000 compared to $435.8 million in 1999, an increase of 101.5%. The
increase in 2000 primarily results from twelve months of interest expense on
debt incurred and assumed in connection with the acquisition of BFI as compared
to five months in 1999.
Income Taxes. Income taxes reflect an effective tax rate of 63.3% in 2000 and
(3.9)% in 1999. The effective income tax rate in 2000 deviates from the federal
statutory rate of 35% primarily due to the non-deductibility of the amortization
related to $6.4 billion of goodwill recorded in connection with the acquisition
of BFI.
Extraordinary Loss, net. In September 2000, we repaid the Tranche D term loan
prior to its maturity date. In connection with this repayment, we recognized a
non-cash extraordinary charge for the early extinguishment of the debt of
approximately $11.2 million ($6.8 million net of income tax benefit) related to
the write-off of previously deferred debt issuance costs.
In February 2000, we repaid the asset sale term loan facility prior to its
maturity date. In connection with this repayment, we recognized a non-cash
extraordinary charge for the early extinguishment of the debt of approximately
$10.7 million ($6.5 million net of income tax benefit) related to the write-off
of deferred debt issuance costs.
In July 1999, we repaid our credit facility prior to its maturity date. In
connection with this repayment, we recognized a non-cash extraordinary charge
for the early extinguishment of the debt of approximately $5.3 million ($3.2
million net of income tax benefit) related to the write-off of previously
deferred debt issuance costs.
Cumulative Effect of Change in Accounting Principle, net. In connection with the
acquisition of BFI, we changed our capitalized interest policy to more
accurately reflect our long-term business strategy. As a result, we recorded a
charge of $64.3 million, net of related tax, during 1999, to reflect the
cumulative effect on prior years of the change in the method of interest
capitalization.
Dividends on Preferred Stock. Dividends on Preferred Stock were $68.5 million in
2000 and $27.8 million in 1999, which reflects the 6.5% dividend on the
Preferred Stock issued on July 30, 1999 in connection with the financing of the
acquisition of BFI. Dividends were not paid in cash, instead, the liquidation
preference of the Preferred Stock increased by accrued, but unpaid dividends.
21
Years Ended December 31, 1999 and 1998
Revenues. Revenues in 1999 were $3.3 billion compared to $1.6 billion in 1998,
an increase of 112%. The increase in revenues was primarily attributable to the
acquisition of BFI on July 30, 1999 and the inclusion in our results of BFI
revenues for the period July 31, 1999 through December 31, 1999. BFI's 1998 pro
forma revenue adjusted to reflect the sale of BFI's Canadian operations and
medical waste operations was approximately $3.8 billion.
Cost of Operations. Cost of operations in 1999 was $1.9 billion compared to
$892.3 million in 1998, an increase of 118.4%. The increase in cost of
operations was primarily attributable to the inclusion of BFI's cost of
operations associated with the revenues from July 31, 1999 through December 31,
1999. As a percentage of revenues, cost of operations increased to 58.3% in 1999
from 56.6% in 1998, primarily due to the change in revenue mix resulting from
the acquisition of BFI. BFI's revenue mix was more heavily weighted towards
collection revenue, which has lower margins than landfill revenues.
Selling, General and Administrative Expenses. SG&A expenses in 1999 were $231.4
million compared to $155.8 million in 1998, an increase of 48.5%, and reflects
our acquisition of BFI. As a percentage of revenues, SG&A decreased to 6.9% in
1999 from 9.9% in 1998. This decrease is the result of achieving the cost
savings associated with the acquisition of BFI and significantly increasing the
revenues as noted above.
Depreciation and Amortization. Depreciation and amortization in 1999 was $273.4
million compared to $149.3 million in 1998, an increase of 83.1%, and reflects
our acquisition of BFI. As a percentage of revenues, depreciation and
amortization expense decreased to 8.2% in 1999 from 9.5% in 1998. The decrease
is primarily due to the significant increase in revenues from our acquisition of
BFI which more than offset the corresponding increase in depreciation due to the
acquisition of BFI. Additionally, as required by generally accepted accounting
principles, we ceased recording depreciation on assets held for sale during
1999. Such depreciation would have been approximately $6.3 million.
Goodwill Amortization. Goodwill amortization in 1999 was $110.7 million compared
to $30.7 million in 1998, an increase of 260.6%. The increase in goodwill
amortization was due to an increase in goodwill of approximately $7 billion
primarily resulting from the acquisition of BFI.
Acquisition Related and Unusual Costs. During the year ended December 31, 1999,
we recorded $588.9 million of acquisition related and unusual costs primarily
associated with the $9.6 billion acquisition of BFI, which was accounted for as
a purchase. The costs primarily relate to environmental related matters,
litigation liabilities, risk management liabilities, loss contract provisions,
transition costs, and the write-off of deferred costs relating to the
acquisition.
Interest Expense, net. Interest expense, net of interest income was $435.8
million in 1999 compared to $84.4 million in 1998, an increase of 416.4%. The
increase in interest expense was primarily due to the increase in debt of
approximately $8 billion from the acquisition of BFI, which was outstanding for
five months in 1999. Additionally, capitalized interest decreased to $25.5
million in 1999 from $67.5 million in 1998 due to the change in accounting
principle.
Income Taxes. Income taxes reflect an effective tax rate of (3.9)% in 1999 and
80.3% in 1998. The effective income tax rate in 1999 deviates from the federal
statutory rate of 35% primarily due to the non-deductible nature of certain
acquisition related charges and the non-deductibility of the amortization
related to $6.4 billion of goodwill recorded in connection with the acquisition
of BFI. The effective income tax rate in 1998 deviates from the federal
statutory rate primarily due to applying the pooling-of-interests method of
accounting for business combinations (including the initial recording of
deferred income taxes and non-deductible transaction costs, partially offset by
the absence of income taxes on S-Corporation pre-combination earnings). Without
considering the effect of the acquisition-related charges the 1999 effective tax
rate was 47.5%.
Extraordinary Loss, net. In July 1999, in connection with our financing of the
BFI acquisition, we replaced our credit facility and recognized an extraordinary
charge of approximately $5.3 million ($3.2 million net of income tax benefit)
related to the write-off of previously deferred debt issuance costs.
22
In December 1998, we replaced our 1996 Notes and Senior Discount Notes with $1.7
billion in senior notes and recognized a charge of approximately $201.2 million
($121.7 million net of income tax benefit) related to premiums paid for the
early payment of the 1996 Notes and the Senior Discount Notes and the write-off
of previously deferred debt issuance costs. In June 1998, we replaced our credit
facility and recognized an extraordinary charge of approximately $5.1 million
($3.1 million net of income tax benefit) related to the write-off of previously
deferred debt issuance costs.
Cumulative Effect of Change in Accounting Principle, net. In connection with the
acquisition of BFI, we changed our capitalized interest policy to more
accurately reflect our long-term business strategy. As a result, we recorded a
charge of $64.3 million, net of related tax, during 1999, to reflect the
cumulative effect on prior years of the change in the method of interest
capitalization.
Dividends on Preferred Stock. Dividends on Preferred Stock were $27.8 million in
1999 and reflect the 6.5% dividend on the Preferred Stock issued on July 30,
1999 in connection with the financing of the acquisition of BFI. Dividends were
not paid in cash, instead, the liquidation preference of the Preferred Stock
increased by accrued, but unpaid dividends.
Liquidity and Capital Resources
Our liquidity needs derived from operations are met with operating cash flow and
when non-operating liquidity needs arise they are met, if not from remaining
operating cash flow, with borrowings under our revolving credit facility. Cash
provided by operations for the year 2000 was $803.3 million, which included
$242.7 million spent on non-recurring acquisition related accruals and
transition costs. This exceeded 2000 operating capital expenditure requirements
of approximately $435 million, (including capitalized interest of $45.4
million), by $368.3 million. Non-operating items provided liquidity during 2000
of $210.0 million primarily derived from the divestiture of solid waste
businesses net of the acquisition of such businesses for $236.3 million. During
2000 we were able to pay $594.4 million of our debt using the excess cash
provided by both operating and non-operating sources.
During the year ending December 31, 2001 we expect to generate excess cash
provided by both operating and non-operating sources that will allow us to repay
between $350 million and $450 million of our debt.
We have historically operated with a working capital deficit and we expect that
we will continue to operate with a working capital deficit. The working capital
deficit is generally caused by the current portion of non-recurring market
development related obligations, $243.0 million as of December 31, 2000. In
addition, we regularly use excess available cash from operating and
non-operating activities to pay amounts owed on our revolving line of credit,
which is classified as long term. Non-recurring market development related
obligations are primarily related to the BFI acquisition and are expected to
decrease over subsequent years.
We expect 2001 cash flows to be derived from the following components (all
amounts are approximate anticipated ranges):
o Adjusted earnings before interest, taxes, depreciation and
amortization from $2.075 billion to $2.150 billion,
o Other non-cash items, including provision for closure, post-closure
and allowance for doubtful accounts from $75 million to $90 million,
o Cash interest from $860 million to $880 million,
o Cash taxes from $150 million to $165 million,
o Closure, post-closure and environmental expenditures from $170 million
to $185 million,
o Capital expenditures from $530 million to $560 million,
o Debt reduction from American Ref-Fuel transaction of $300 million,
o Non-recurring payments against acquisition accruals from $125 million
to $175 million,
o Cash taxes and payments related to acquisitions and divestitures in
prior years of $100 million.
23
During the years ended December 31, 2000, 1999 and 1998, our cash flows from
operating, investing and financing activities were as follows (in millions):
Year Ended December 31,
-----------------------------------------------
2000 1999 1998
------------- ------------- ------------
Operating Activities:
Net income (loss)................................................$ 124.4 $ (288.7) $ (223.1)
Non-cash acquisition related and unusual costs and asset
impairments.................................................... 26.5 105.2 88.2
Non-cash operating expenses(1)................................... 892.5 318.8 245.8
Cumulative effect of change in accounting principle.............. -- 64.3 --
Gain on sale of assets........................................... (10.5) (5.3) (3.5)
Extraordinary losses due to early extinguishments of debt,
net of income tax benefit and cash premium paid................ 13.3 3.2 119.0
Cash premium paid due to early extinguishments of debt........... -- -- (173.2)
Change in operating assets and liabilities, net.................. (242.9) 291.5 116.2
------------- ------------- ------------
Cash provided by operating activities.......................... 803.3 489.0 169.4
------------- ------------- ------------
Investing Activities:
Cost of acquisitions, net of cash acquired(2).................... (802.9) (7,589.6) (313.0)
Proceeds from divestitures, net(2)............................... 1,039.2 468.9 --
Accruals for acquisition price and severance costs............... (27.8) 15.2 --
Capital expenditures and net contributions to unconsolidated
subsidiaries................................................... (374.5) (356.2) (301.7)
Capitalized interest............................................. (45.4) (25.5) (67.5)
Proceeds from sale of fixed assets............................... 42.9 53.2 12.1
Change in deferred acquisition costs and notes
receivable..................................................... (41.4) (28.5) (8.2)
------------- ------------- ------------
Cash used for investing activities............................. (209.9) (7,462.5) (678.3)
------------- ------------- ------------
Financing Activities:
Net proceeds from sale of common stock and exercise of
stock options and warrants..................................... 1.7 10.2 11.3
Net proceeds from sale of Preferred Stock........................ -- 973.9 --
Net proceeds from long-term debt, net of issuance costs.......... 2,202.0 8,672.3 2,725.3
Repayments of long-term debt..................................... (2,796.4) (2,601.2) (2,265.7)
Other............................................................ -- -- 44.4
------------- ------------- ------------
Cash provided by (used for) financing activities............... (592.7) 7,055.2 515.3
------------- ------------- ------------
Increase in cash and cash equivalents............................$ 0.7 $ 81.7 $ 6.4
============= ============= ============
(1) Consists principally of provisions for depreciation and amortization,
undistributed earnings of equity investments, allowance for doubtful
accounts, accretion of debt and amortization of debt issuance costs,
and deferred income taxes.
(2) During 2000, we acquired solid waste operations, representing
approximately $482.6 million ($468.9 million net of intercompany
eliminations) in annual revenues, and sold operations representing
approximately $814.2 million ($679.4 million net of intercompany
eliminations) in annual revenues.
24
As of December 31, 2000, we had cash and cash equivalents of $122.1 million. Our
debt structure consisted primarily of $4.9 billion outstanding under the 1999
Credit Facility, $2.0 billion of the 1999 Notes, $1.7 billion of the 1998 Senior
Notes and $1.1 billion of debt assumed in connection with the BFI acquisition.
As of December 31, 2000 there was aggregate availability under the revolving
credit facility of the 1999 Credit Facility of approximately $587 million to be
used for working capital, letters of credit, acquisitions and other general
corporate purposes. The 1999 Credit Agreement and the indentures relating to the
1999 Notes and the 1998 Senior Notes contain financial and operating covenants
and restrictions on our ability to complete acquisitions, pay dividends, incur
indebtedness, make investments and take certain other corporate actions. A
substantial portion of our available cash will be required to service this
indebtedness. For fiscal 2001, our required debt service is expected to be
approximately $880 million consisting of approximately $10 million in principal
repayments and between approximately $860 to $880 million in interest payments.
These amounts may vary depending upon changes in interest rates.
We are also required to provide financial assurances to governmental agencies
under applicable environmental regulations relating to our landfill operations.
We satisfy these financial assurance requirements by issuing surety bonds,
letters of credit, insurance policies or trust deposits as they relate to
landfill closure and post-closure costs. At December 31, 2000, we had
outstanding approximately $1.5 billion in financial assurance instruments,
represented by $369.3 million of surety bonds, $1,080.5 million of insurance
policies, $64.9 million of trust deposits and $18.8 million of letters of
credit. During the calendar year 2001, we expect to continue to provide
approximately $1.5 billion in financial assurance instruments relating to our
landfill operations.
Subtitle D and other regulations that apply to the non-hazardous waste disposal
industry have required us, as well as others in the industry, to alter
operations and to modify or replace pre-Subtitle D landfills. Such expenditures
have been and will continue to be substantial. Further regulatory changes could
accelerate expenditures for closure and post-closure monitoring and obligate us
to spend sums in addition to those presently reserved for such purposes. These
factors, together with the other factors discussed above, could substantially
increase our operating costs and our ability to invest in our facilities.
Our ability to meet future capital expenditure and working capital requirements,
to make scheduled payments of principal, to pay interest, or to refinance our
indebtedness, and to fund capital amounts required for the expansion of the
existing business depends on our future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors beyond our control. We cannot assure you that our business
will generate sufficient cash flow from operations, that future financings will
be available to us in amounts sufficient to enable us to service our
indebtedness or to make necessary capital expenditures, or that any refinancing
would be available on commercially reasonable terms, if at all. Further,
depending on the timing, amount and structure of any possible future
acquisitions and the availability of funds under the 1999 Credit Facility, we
may need to raise additional capital. We may raise such funds through additional
bank financings or public or private offerings of our debt and equity
securities. We cannot assure you that we will be able to secure such funding, if
necessary, on favorable terms, if at all. If we are not successful in securing
such funding, our ability to pursue our business strategy may be impaired and
results of operations for future periods may be negatively affected. (See Note 6
to Allied's Consolidated Financial Statements).
25
Significant Financing Events
In July 1999, in connection with the completion of the acquisition of BFI, we
entered into new financing arrangements and repaid all amounts borrowed under
the then existing credit facility and all amounts borrowed by BFI under its
commercial paper program. The new financing arrangements were (i) the 1999
Credit Facility for Allied Waste North America, Inc. ("Allied NA"; a wholly
owned consolidated subsidiary of Allied), which is guaranteed by us and
substantially all of our subsidiaries (including BFI and its subsidiaries), from
a bank group for $7.1 billion to provide financing for the acquisition of BFI
and working capital for us following the acquisition, (ii) the sale of the $2.0
billion principal amount 1999 Notes by Allied NA which are guaranteed by us and
substantially all of our subsidiaries (including BFI and its subsidiaries), and
(iii) the sale for $1.0 billion of the Preferred Stock. In connection with the
completion of the acquisition of BFI, we also guaranteed certain of BFI's
remaining debt and, for the 1998 Senior Notes and for certain of BFI's remaining
debt, we provided collateral, which is also collateral for the 1999 Credit
Facility. Both the 1999 Credit Facility and the 1999 Notes contain restrictions
on Allied's ability to make acquisitions, purchase fixed assets above certain
amounts, pay dividends, incur additional indebtedness, make investments, loans
or advances, enter into certain transactions with affiliates or enter into a
merger, consolidation or sale of all or a substantial portion of Allied's
assets. The 1999 Credit Facility, the 1999 Notes and the Preferred Stock contain
provisions, which could require repayment, in some cases at a premium upon a
defined "change of control" of Allied. The Preferred Stock also contains
restrictions on Allied's ability to pay cash dividends on common stock.
Subsequent Event. On January 30, 2001, we issued $600 million of 8.875% senior
secured notes, due 2008, in a private placement under Rule 144A of the
Securities Act of 1933. We used the net proceeds of approximately $589 million
from the sale of these notes to ratably repay portions of tranches A, B and C of
the term loans under the 1999 Credit Facility, $110 million of which was due in
September 2001. We expect to file a registration statement to register these
notes under the Securities Act of 1933 within 120 days of the offering date.
Coincident with the offering we amended our credit facilities to change certain
financial covenants to provide us with greater operating flexibility.
New Accounting Standard
In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133. This statement amends the
accounting and reporting standards of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, with respect to specific interpretations and
circumstances, and incorporates certain decisions arising from the Derivatives
Implementation Group process.
In June 1999, the implementation date of SFAS No. 133 was deferred one year from
the original date to those fiscal years beginning after June 15, 2000 by SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133. SFAS No.'s 133 and 138 require
all derivatives to be recorded as either assets or liabilities and the
instruments to be measured at fair value. Gains or losses resulting from changes
in the values of those derivatives are to be recognized immediately in earnings,
other comprehensive income or deferred, depending on the use of the derivative,
and whether or not it qualifies as a hedge. The statement requires a formal
documentation of hedge designation and assessment of the effectiveness of
transactions that receive hedge accounting. We adopted SFAS No.'s 133 and 138 on
January 1, 2001, as required.
In the process of adoption of SFAS 133 we have reviewed all significant
transactions and contracts for derivative activity and determined that our
interest rate swap agreements are our only transactions representing derivative
instruments that require a change in accounting under SFAS No. 133 and 138. We
have interest rate risk relating to long-term variable rate debt. We enter into
interest rate swap agreements when such transactions will serve to reduce the
aggregate exposure of future cash flows to volatility or adverse movements in
interest rates. Interest rate swap agreements are entered into solely for the
purpose of reducing risk; positions are not taken for speculative purposes.
26
Our interest rate swaps are properly designated as, and are effective as, hedges
of our variable rate debt. We assume no ineffectiveness in our interest rate
hedges, as the notional amounts, indices, repricing dates, and all other
significant terms of the swap agreements are matched to the provisions and terms
of the variable rate debt being hedged. These instruments are designated as cash
flow hedges, and accordingly, at January 1, 2001, the mark to market value of
these instruments was recorded as a cumulative effect of change in accounting
principle in Other Comprehensive Income (OCI) in the amount of ($45.2) million
net of tax. The effect of the swaps will be matched against interest expense for
the related variable rate debt over the terms of the swaps.
Disclosure Regarding Forward Looking Statements
This annual report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended ("Forward Looking Statements"). All
statements other than statements of historical fact included in this report, are
Forward Looking Statements. Although we believe that the expectations reflected
in such Forward Looking Statements are reasonable, we can give no assurance that
such expectations will prove to be correct. Generally, these statements relate
to business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, number of acquisitions and projected
or anticipated benefits from acquisitions, including whether and when the
acquisitions will be accretive to earnings, made by or to be made by us, or
projections involving anticipated revenues, earnings, levels of capital
expenditures or other aspects of operating results and the underlying
assumptions including internal growth as well as general economic and financial
market conditions. All phases of our operations are subject to a number of
uncertainties, risks and other influences, many of which are outside of our
control and any one of which, or a combination of which, could materially affect
the results of our operations and whether Forward Looking Statements made by us
ultimately prove to be accurate. Such important factors ("Important Factors")
that could cause actual results to differ materially from our expectations are
disclosed in this section, in the section titled "Risk Factors" and elsewhere in
this report. All subsequent written and oral Forward Looking Statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the Important Factors described below that could cause actual
results to differ from our expectations. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating Forward Looking
Statements and are cautioned not to place undue reliance on these Forward
Looking Statements. The forward-looking statements made herein are only made as
of the date of this filing and we undertake no obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances.
Risk Factors
Leverage and Ability to Service Debt. We have had and will continue to have a
substantial amount of outstanding indebtedness with significant debt service
requirements. At December 31, 2000, our consolidated debt was approximately $9.6
billion. The degree to which we are leveraged could have important consequences.
For example it could:
o make it more difficult for us to satisfy our obligations with respect
to our debt;
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, which would reduce the
availability of our cash flow to fund working capital, capital
expenditures and for other general corporate purposes;
o increase our vulnerability to economic downturns and competitive
pressures in the industry in which we operate;
o increase our vulnerability to interest rate increases for the portion
of unhedged debt under our credit facility;
o place us at a competitive disadvantage compared to our competitors
that have less debt in relation to cash flow;
o limit our flexibility in planning for, or reacting to changes in our
business and the industry in which we operate;
o limit, among other things, our ability to borrow additional funds; and
o subject us to financial and other restrictive covenants in our
indebtedness. The failure to comply with these covenants could result
in an event of default which, if not cured or waived, could have a
material negative effect on us.
27
To service our indebtedness, we will require a significant amount of cash. Our
ability to generate cash depends on many factors beyond our control. Our ability
to make payment on our indebtedness will depend on our ability to generate cash
flow in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Based on our current level of operations, we believe our
cash flow from operations, available cash and available borrowings under our
credit facility will be adequate to meet our liquidity needs for the foreseeable
future.
We cannot assure you, however, that our business will generate sufficient cash
flow from operations, or that future borrowings will be available to us under
our 1999 Credit Facility in an amount sufficient to enable us to pay our
indebtedness or to fund other liquidity needs. We may need to refinance all or a
portion of our indebtedness before maturity. We cannot assure that we will be
able to refinance any of our indebtedness, including our 1999 Credit Facility,
on commercially reasonable terms or at all.
Our 1999 Credit Facility, and certain of the agreements governing our other
indebtedness contain covenants that restrict our ability to make distributions
or other payment to our investors and creditors unless certain financial tests
or other criteria are satisfied. We must also comply with certain specified
financial ratios and tests. In some cases, our subsidiaries are subject to
similar restrictions which may restrict their ability to make distributions to
us. In addition, our credit facility and these other agreements contain
additional affirmative and negative covenants, including limitation on our
ability to incur additional indebtedness and to make acquisitions and capital
expenditures which could affect our ability to operate our business. All of
these restrictions could affect our ability to operate our business and may
limit our ability to take advantage of potential business opportunities as they
arise.
If we do not comply with these covenants and restrictions, we could be in
default under those agreements, and the debt, together with accrued interest,
could then be declared immediately due and payable. If we default under our 1999
Credit Facility, the lenders could cause all of our outstanding debt obligations
under that credit facility to become due and payable, require us to apply all of
our cash to repay the indebtedness or prevent us from making debt service
payments on any other indebtedness we owe. If we are unable to repay any
borrowings when due, the lenders under our 1999 Credit Facility could proceed
against their collateral, which includes collateral securing the notes and the
guarantees. In addition any default under our 1999 Credit Facility or agreements
governing our other indebtedness could lead to an acceleration of debt under
other debt instruments that contain cross acceleration or cross-default
provisions. Our ability to comply with these provisions of our 1999 Credit
Facility and other agreements governing our other indebtedness may be affected
by changes in the economic or business conditions or other events beyond our
control.
Competition. The non-hazardous waste collection and disposal industry is highly
competitive. We compete with large companies and municipalities which may have
greater financial and operations resources. We also compete with the use of
alternatives to landfill disposal because of state requirements to reduce
landfill disposal. The non-hazardous waste collection and disposal industry is
led by three large national waste management companies: Allied, Waste
Management, Inc., and Republic Services, Inc. It also includes numerous regional
and local companies. Many counties and municipalities that operate their own
waste collection and disposal facilities have the benefits of tax-exempt
financing and may control the disposal of waste collected within their
jurisdictions.
We encounter competition due to the use of alternatives to landfill disposal,
such as recycling and incineration. Further, most of the states in which we
operate landfills have adopted plans or requirements that require counties to
adopt comprehensive plans to reduce the volume of solid waste deposited in
landfills through waste planning, composting and recycling or other programs.
State and local governments are increasingly mandating waste reduction at the
source and prohibiting the disposal of certain types of wastes, such as yard
wastes, at landfills. These trends may reduce the volume of waste going to
landfills in certain areas. If this occurs, we cannot assure that we will be
able to operate our landfills at their full capacity or charge current prices
for landfill disposal services due to the decrease in demand for services. We
also encounter competition in our acquisition of landfills and collection
operations. This competition is due to our competitors' interest in acquiring
solid waste assets.
28
Business Strategy. Over the long term, our ability to continue to sustain our
current vertical integration strategy will depend on our ability to replace,
through acquisition or development, appropriate landfill capacity, collection
operations and transfer stations. We cannot assure that we will be able to
replace such assets either timely or cost effectively or integrate acquisition
candidates effectively or profitably. Further, we cannot assure that we will be
successful in expanding the permitted capacity of our current landfills once our
landfill capacity is full. In such event, we may have to dispose collected waste
at landfills operated by our competitors or haul the waste long distances at a
higher cost to another of our landfills, which could significantly increase our
waste disposal expenses.
Acquisitions may increase our capital requirements because acquisitions require
sizable amounts of capital, and competition with other solid waste companies
that have a similar acquisition strategy may increase prices. If acquisition
candidates are unavailable or too costly, we may need to change our business
strategy. In addition, we cannot assure that we will successfully obtain the
permits we require to operate our business because permits to operate
non-hazardous solid waste landfills and to expand the permitted capacity of
existing landfills have become increasingly difficult and expensive to obtain.
Permits often take years to obtain as a result of numerous hearings and
compliance with zoning, environmental and other regulatory measures. These
permits are also often subject to resistance from citizen or other groups. A
failure to obtain the required permits to operate non-hazardous solid waste
landfills could have a material negative effect on our future results of
operations.
Limited Operating History with Regard to Recently Acquired Businesses. During
1998, 1999 and 2000, we acquired companies, including BFI, with annualized
revenues of approximately $5.9 billion and sold operations with annualized
revenues of approximately $1.2 billion. Thus, we have only a limited history of
operating a significant portion of our business. It is also possible that we
will acquire landfills, collection operations and transfer stations in the
future. Although we believe we have substantially completed the integration of
BFI, future acquisitions may pose integration problems and expected financial
benefits and operational efficiencies may not be realized. Our failure to
effectively integrate acquired operations could have a material negative effect
on our future results of operations and financial position.
Ongoing Capital Requirements. Our ability to remain competitive, sustain our
growth and operations and expand operations largely depends on our cash flow
from operations and access to capital. We intend to fund our cash needs through
cash flow from operations and borrowings under our 1999 Credit Facility, if
necessary. However, we may require additional equity and/or debt financing for
debt repayment obligations and to fund our growth. We spent approximately $488.4
million for capital expenditures and closure and post-closure and remediation
expenditures related to our landfill operations during 2000, and we expect to
spend approximately $745 million for these purposes in 2001. If we undertake
more acquisitions or further expand our operations, the amount we expend on
capital, closure and post-closure and remediation expenditures will increase.
The increase in expenditures may result in low levels of working capital or
require us to finance working capital deficits.
Our cash needs will increase if the expenditures for closure and post-closure
monitoring increase above the current reserves taken for these costs.
Expenditures for these costs may increase as a result of any federal, state or
local government regulatory action. These factors, together with those discussed
above, could substantially increase our operating costs and therefore impair our
ability to invest in our existing facilities or new facilities.
Our ability to pay our debt obligations or to refinance our indebtedness depends
on our future performance. Our future performance may be affected by general
economic, financial, competitive, legislative, regulatory and other factors
beyond our control. We believe that our current available cash flow and
borrowings available under our 1999 Credit Facility and other sources of
liquidity will be sufficient to meet our anticipated future requirements for
working capital, letters of credit, closure, post-closure and remediation
expenditures, acquisition related expenditures and capital expenditures.
We may need to refinance our 1999 Credit Facility, the 1999 senior subordinated
notes, the assumed BFI debt, the 1998 senior notes, and/or other indebtedness to
pay the principal amounts due at maturity. In addition, we may need additional
capital to fund future acquisitions. We cannot assure that our business will
generate sufficient cash flow or that we will be able to obtain sufficient funds
to enable us to pay our debt obligations and capital expenditures.
29
Economic Conditions. Our business is affected by general economic conditions. We
cannot assure that an economic downturn will not result in a reduction in the
volume of waste being disposed of at our operations and/or the price that we can
charge for our services.
Weather Conditions. Our collection and landfill operations could be adversely
affected by long periods of inclement weather which interfere with collection
and landfill operations, delay the development of landfill capacity and/or
reduce the volume of waste generated by our customers. In addition, certain of
our operations may be temporarily suspended as a result of particularly harsh
weather conditions. Long periods of inclement weather could have an adverse
effect on our results of operations.
Dependence on Senior Management. We depend highly upon our senior management
team. We will continue to require operations management personnel with waste
industry experience. We do not know the availability of such experienced
management personnel or how much it may cost to attract and retain such
personnel. The loss of the services of any member of senior management or the
inability to hire experienced operations management personnel could materially
adversely affect our operations and financial condition.
Influence of Government Regulation and Other Third Party Actions. Our equipment,
facilities, and operations are subject to extensive and changing federal, state,
and local environmental laws and regulations relating to environmental
protection and occupational health and safety. These include, among other
things, laws and regulations governing the use, treatment, storage, and disposal
of solid and hazardous wastes and materials, air quality, water quality and the
remediation of contamination associated with the release of hazardous
substances.
Our compliance with regulatory requirements is costly. We are often required to
enhance or replace our equipment and to modify landfill operations or, in some
cases, to close landfills. We cannot assure you that we will be able to
implement price increases sufficient to offset the cost of complying with these
standards. In addition, environmental regulatory changes could accelerate or
increase expenditures for closure and post-closure monitoring at solid waste
facilities and obligate us to spend sums in addition to those presently accrued
for such purposes.
In addition to the costs of complying with environmental regulations, we are
involved in administrative and judicial proceedings related to environmental
matters. As a result, we may be required to pay fines or may lose certain
permits and licenses. We also may have to defend ourselves against governmental
agencies and surrounding landowners who assert claims alleging environmental
damage, personal injury, property damage and/or violations of permits and
licenses by us. A significant judgment against us, the loss of a significant
permit or license or the imposition of a significant fine could have a material
negative effect on our financial condition.
Certain of our waste disposal operations traverse state and county boundaries.
In the future, our collection, transfer and landfill operations may also be
affected by proposed federal legislation that authorizes the states to enact
legislation governing interstate shipments of waste. Such proposed federal
legislation may allow individual states to prohibit or limit importing
out-of-state waste to be disposed of and may require states, under certain
circumstances, to reduce the amount of waste exported to other states. If this
or similar legislation is enacted in states in which we operate landfills that
receive a significant portion of waste originating from out-of-state, our
operations could be negatively affected. We believe that several states have
proposed or have considered adopting legislation that would regulate the
interstate transportation and disposal of waste in the states' landfills. Our
collection, transfer and landfill operations may also be affected by "flow
control" legislation which may be proposed in the United States Congress. This
proposed federal legislation may allow states and local governments to direct
waste generated within their jurisdiction to a specific facility for disposal or
processing. If this or similar legislation is enacted, state or local
governments with jurisdiction over our landfills could act to limit or prohibit
disposal or processing of waste in our landfills.
Potential Environmental Liability. We may incur liabilities for the
deterioration of the environment as a result of our operations. Any substantial
liability for environmental damage could materially adversely affect our
operating results and financial condition. Due to the limited nature of our
insurance coverage of environmental liability, if we were to incur substantial
financial liability for environmental damage, our business and financial
condition could be materially adversely affected.
30
Hazardous Substances Liability. We have been identified as a potentially
responsible party at numerous sites under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or CERCLA. CERCLA
has been interpreted to impose strict, joint and several liability on current
and former owners or operators of a facility at which there has been a release
or a threatened release of a "hazardous substance", on persons who arrange for
the disposal of such substances at the facility and on persons who transport
such substances to facilities selected by such persons. Hundreds of substances
are defined as "hazardous" under CERCLA and their presence, even in minute
amounts, can result in substantial liability. The statute provides for the
remediation of contaminated facilities and imposes costs on the responsible
parties. The expense of conducting such a cleanup can be significant.
Notwithstanding our efforts to comply with applicable regulations and to avoid
transporting and receiving hazardous substances, such substances may be present
in waste collected by us or disposed of in our landfills, or in waste collected,
transported or disposed of in the past by acquired companies. Cleanup liability
may also arise under various state laws similar to CERCLA. As used in this
report, "non-hazardous waste" means substances that are not defined as hazardous
waste under federal regulations.
Potential Undisclosed Liabilities Associated with our Acquisitions. We may be
exposed to liabilities that we fail or are unable to discover in connection with
acquisitions. In connection with any acquisition made by us, there may be
liabilities that we fail to discover or are unable to discover including
liabilities arising from non-compliance with environmental laws by prior owners
and for which we, as successor owner, may be responsible.
Inflation and Prevailing Economic Conditions
To date, inflation has not had a significant impact on our operations.
Consistent with industry practice, most of our contracts provide for a pass
through of certain costs, including increases in landfill tipping fees and, in
some cases, fuel costs. We therefore believe we should be able to implement
price increases sufficient to offset most cost increases resulting from
inflation. However, competitive factors may require us to absorb cost increases
resulting from inflation. We are unable to determine the future impact of a
sustained economic slowdown.
Seasonality
We believe that our collection, transfer and landfill operations can be
adversely affected by protracted periods of inclement weather which could delay
the development of landfill capacity or transfer of waste and/or reduce the
volume of waste generated. Severe weather can negatively effect the costs of
collection and disposal.
31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to interest rate risk on our variable rate long-term debt. To
moderate the risk from interest rate fluctuations, we enter into hedging
transactions that have been authorized pursuant to our policies and procedures.
We do not use financial instruments for trading purposes and are not a party to
any leveraged derivatives.
We have effectively converted a significant portion of our long-term debt, which
requires payment at variable rates of interest, to fixed rate obligations
through interest rate swap transactions. These transactions required us to pay
fixed rates of interest on notional amounts of principal to counter-parties. The
counter-parties, in turn, paid to us variable rates of interest on the same
notional amounts of principal. Increases or decreases in short-term market rates
did not materially impact earnings and cash flow as a significant portion of
variable rate debt had been swapped for fixed rates. In addition, increases or
decreases in long-term market interest rates would effect the fair value of our
long-term debt offset by change to the fair value of our swap portfolio. The
following interest rate table summarizes all interest rate swaps that were in
effect and their fair value as of December 31, 2000:
Fair Market
Notional Principal Interest Interest Value
(in thousands) Maturity Paid Underlying Obligations Received (in thousands)
- ------------------- --------------- ---------- ------------------------- ----------- ----------------
January 2001 Credit Agreement
$ 4,000,000 -March 2004 7.02 % Term Loan Facility Libor $ (74,666)
See Notes 1 and 6 to our Consolidated Financial Statements in Item 8 of this
Form 10-K for additional information regarding how we manage interest rate risk
at December 31, 2000, and accounting principle changes effective January 1,
2001.
32
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 2000 and 1999.
Consolidated Statements of Operations for the Three Years Ended December
31, 2000.
Consolidated Statements of Stockholders' Equity for the Three Years Ended
December 31, 2000.
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 2000.
Notes to Consolidated Financial Statements.
33
Report of Independent Public Accountants
To Allied Waste Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Allied Waste
Industries, Inc., (a Delaware corporation) and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. 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 auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Allied Waste Industries, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
As explained in Note 1 to the financial statements, effective January 1, 1999,
the Company changed its method of accounting for the capitalization of interest.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II listed in Item 14 of Part IV
herein is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
February 20, 2001
34
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amount)
December 31,
------------------------------------------
2000 1999
------------------ ------------------
ASSETS
Current Assets --
Cash and cash equivalents............................................... $ 122,094 $ 121,405
Accounts receivable, net of allowance of $43,099 and $59,490............ 823,259 867,667
Prepaid and other current assets........................................ 119,483 252,187
Deferred income taxes, net.............................................. 206,867 115,263
Assets held for sale.................................................... -- 891,900
------------------ ------------------
Total current assets.................................................. 1,271,703 2,248,422
Property and equipment, net............................................. 3,860,538 3,738,388
Goodwill, net .......................................................... 8,717,438 8,238,929
Other assets, net....................................................... 663,955 737,362
------------------ ------------------
Total assets.......................................................... $ 14,513,634 $ 14,963,101
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt....................................... $ 13,997 $ 1,002,928
Accounts payable........................................................ 476,333 481,318
Accrued closure, post-closure and environmental costs................... 153,226 134,968
Accrued interest........................................................ 165,954 158,251
Other accrued liabilities............................................... 564,154 613,663
Unearned revenue........................................................ 226,088 238,371
------------------ ------------------
Total current liabilities............................................. 1,599,752 2,629,499
Long-term debt, less current portion.................................... 9,635,124 9,240,291
Deferred income taxes................................................... 358,637 204,786
Accrued closure, post-closure and environmental costs................... 880,580 860,574
Other long-term obligations............................................. 271,882 388,396
Commitments and contingencies
Series A Senior Convertible Preferred Stock, 1,000 shares
authorized, issued and outstanding, liquidation
preference of $1,096 and $1,028 per share............................. 1,069,827 1,001,559
Stockholders' Equity --
Common stock............................................................ 1,961 1,885
Additional paid-in capital.............................................. 1,140,772 1,205,399
Retained deficit........................................................ (444,901) (569,288)
------------------ ------------------
Total stockholders' equity............................................ 697,832 637,996
------------------ ------------------
Total liabilities and stockholders' equity............................ $ 14,513,634 $ 14,963,101
================== ==================
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
35
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
Year Ended December 31,
-------------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Revenues............................................................ $ 5,707,485 $ 3,341,071 $ 1,575,612
Cost of operations excluding acquisition related and unusual costs.. 3,280,027 1,948,964 892,273
Selling, general and administrative expenses excluding acquisition
related and unusual costs......................................... 417,558 231,366 155,835
Depreciation and amortization....................................... 450,794 273,368 149,260
Goodwill amortization............................................... 223,244 110,726 30,705
Acquisition related and unusual costs............................... 127,327 588,855 317,616
--------------- --------------- ---------------
Operating income.................................................. 1,208,535 187,792 29,923
Equity in earnings of unconsolidated affiliates..................... (50,788) (20,785) --
Interest income..................................................... (4,127) (7,212) (4,030)
Interest expense.................................................... 882,282 443,044 88,431
--------------- --------------- ---------------
Income (loss) before income taxes................................. 381,168 (227,255) (54,478)
Income tax expense (benefit)........................................ 237,540 (8,756) 43,773
Minority interest................................................... 5,975 2,751 --
--------------- --------------- ---------------
Income (loss) before extraordinary losses and cumulative effect of
change in accounting principle.................................. 137,653 (221,250) (98,251)
Extraordinary losses, net of income tax benefit..................... 13,266 3,223 124,801
Cumulative effect of change in accounting principle, net of income
tax benefit....................................................... -- 64,255 --
--------------- --------------- ---------------
Net income (loss)................................................. 124,387 (288,728) (223,052)
Dividends on preferred stock........................................ 68,452 27,789 --
--------------- --------------- ---------------
Net income (loss) available to common shareholders................ $ 55,935 $ (316,517) $ (223,052)
=============== =============== ===============
Basic EPS:
Income (loss) available to common shareholders before extraordinary
losses and cumulative effect of change in accounting principle, net
of income tax benefit............................................. $ 0.37 $ (1.33) $ (0.54)
Extraordinary losses, net of income tax benefit..................... (0.07) (0.02) (0.68)
Cumulative effect of change in accounting principle, net of income
tax benefit....................................................... -- (0.34) --
--------------- --------------- ---------------
Net income (loss) available to common shareholders................ $ 0.30 $ (1.69) $ (1.22)
=============== =============== ===============
Weighted average common shares...................................... 188,814 187,801 182,796
=============== =============== ===============
Diluted EPS:
Income (loss) available to common shareholders before extraordinary
losses and cumulative effect of change in accounting principle, net
of income tax benefit............................................. $ 0.36 $ (1.33) $ (0.54)
Extraordinary losses, net of income tax benefit..................... (0.07) (0.02) (0.68)
Cumulative effect of change in accounting principle, net of income
tax benefit....................................................... -- (0.34) --
--------------- --------------- ---------------
Net income (loss) available to common shareholders................ $ 0.29 $ (1.69) $ (1.22)
=============== =============== ===============
Weighted average common and common equivalent shares................ 191,122 187,801 182,796
=============== =============== ===============
Unaudited pro forma amounts, assuming the change in accounting
principle is applied retroactively:
Net loss available to common shareholders........................... $ (256,265)
Diluted loss per share.............................................. $ (1.40)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
36
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Deficit Equity
------------ -------------- ------------- ----------------
Balance as of December 31, 1997.................. $ 1,814 $ 999,277 $ (38,626) $ 962,465
Common stock issued, net....................... 13 26,474 -- 26,487
Stock grant amortization....................... -- 1,251 -- 1,251
Stock options and warrants exercised, net...... 18 23,547 -- 23,565
Equity transactions of pooled companies........ -- 158,357 (18,999) 139,358
Net loss....................................... -- -- (223,052) (223,052)
------------ -------------- ------------- ----------------
Balance as of December 31, 1998.................. 1,845 1,208,906 (280,677) 930,074
Common stock issued, net....................... 2 220 -- 222
Stock options and warrants exercised, net...... 14 20,480 -- 20,494
Dividends declared on Series A Senior
Convertible Preferred Stock.................. -- (27,789) -- (27,789)
Equity transactions of pooled companies........ 24 3,582 117 3,723
Net loss.................................... -- -- (288,728) (288,728)
------------ -------------- ------------- ----------------
Balance as of December 31, 1999.................. 1,885 1,205,399 (569,288) 637,996
Common stock issued, net....................... 73 2,670 -- 2,743
Stock options and warrants exercised, net...... 3 1,155 -- 1,158
Dividends declared on Series A Senior
Convertible Preferred Stock.................. -- (68,452) -- (68,452)
Net income..................................... -- -- 124,387 124,387
------------ -------------- ------------- ----------------
Balance as of December 31, 2000.................. $ 1,961 $ 1,140,772 $ (444,901) $ 697,832
============ ============== ============= ================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
37
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
--------------- --------------- --------------
Operating activities --
Net income (loss)........................................................... $ 124,387 $ (288,728) $ (223,052)
Adjustments to reconcile net income (loss) to cash provided by operating
activities--
Provisions for:
Depreciation and amortization............................................. 674,038 384,094 179,965
Non-cash acquisition related and unusual costs and asset impairments...... 26,486 105,186 88,228
Cumulative effect of change in accounting principle, net of income tax -- 64,255 --
benefit.....................................................................
Undistributed earnings of equity investment in unconsolidated subsidiary.. (38,190) 13,217 --
Doubtful accounts......................................................... 19,463 10,305 8,086
Accretion of debt and amortization of debt issuance costs................. 44,219 27,155 33,057
Deferred income tax provision (benefit)................................... 193,054 (115,964) 24,636
Gain on sale of assets.................................................... (10,513) (5,346) (3,521)
Extraordinary losses due to early extinguishments of debt, net of income
tax benefit and cash premium paid......................................... 13,266 3,223 118,957
Cash premium paid due to early extinguishments of debt...................... -- -- (173,159)
Change in operating assets and liabilities, excluding the effects of
purchase acquisitions--
Accounts receivable, prepaid expenses, inventories and other.............. 3,238 (100,586) (58,517)
Accounts payable, accrued liabilities, unearned income, and other......... (41,859) 13,099 159,862
Acquisition related and non-recurring accruals............................ (167,542) 382,643 20,244
Closure and post-closure provision........................................ 61,727 35,242 17,607
Closure, post-closure and environmental expenditures...................... (98,458) (38,784) (23,000)
--------------- --------------- --------------
Cash provided by operating activities....................................... 803,316 489,011 169,393
--------------- --------------- --------------
Investing activities --
Cost of acquisitions, net of cash acquired................................ (802,876) (7,589,597) (312,986)
Proceeds from divestitures, net of cash divested.......................... 1,039,182 468,880 --
Accruals for acquisition price and severance costs........................ (27,820) 15,171 --
Net distributions from (contributions to) unconsolidated subsidiaries..... 15,372 (17,011) --
Capital expenditures, excluding acquisitions.............................. (389,918) (339,192) (301,742)
Capitalized interest...................................................... (45,352) (25,474) (67,499)
Proceeds from sale of fixed assets........................................ 42,874 53,246 12,070
Change in deferred acquisition costs and notes receivable................. (41,413) (28,555) (8,184)
--------------- --------------- --------------
Cash used for investing activities.......................................... (209,951) (7,462,532) (678,341)
--------------- --------------- --------------
Financing activities --
Net proceeds from sale of common stock and exercise of stock options
and warrants............................................................ 1,724 10,198 11,324
Net proceeds from sale of preferred stock................................. -- 973,881 --
Proceeds from long-term debt, net of issuance costs....................... 2,202,000 8,672,295 2,725,262
Repayments of long-term debt.............................................. (2,796,400) (2,601,190) (2,265,741)
Other long-term obligations............................................... -- -- 2,745
Equity transactions of pooled companies................................... -- -- 41,780
--------------- --------------- --------------
Cash provided by (used for) financing activities............................ (592,676) 7,055,184 515,370
--------------- --------------- --------------
Increase in cash and cash equivalents....................................... 689 81,663 6,422
Cash and cash equivalents, beginning of year................................ 121,405 39,742 33,320
--------------- --------------- --------------
Cash and cash equivalents, end of year...................................... $ 122,094 $ 121,405 $ 39,742
=============== =============== ==============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
38
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Allied Waste Industries, Inc., a Delaware corporation, ("Allied" or "we") is the
second largest, non-hazardous solid waste management company in the United
States, as measured by revenues. We provide non-hazardous waste collection,
transfer, recycling and disposal services in 40 states geographically identified
as the Atlantic, Central, Great Lakes, Midwest, Northeast, Southeast, Southwest
and West regions of the United States.
On July 30, 1999, we completed the acquisition of Browning-Ferris Industries,
Inc. ("BFI") for approximately $7.7 billion of cash and the assumption of
approximately $1.9 billion of BFI debt. Prior to the acquisition, BFI was the
second largest non-hazardous solid waste company in North America and provided
integrated solid waste management services, including residential, commercial
and industrial collection, transfer, disposal and recycling.
Principles of consolidation and presentation --
The Consolidated Financial Statements include the accounts of Allied and our
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation.
Certain reclassifications have been made to the prior period financial
statements to conform to the current presentation.
Cash and cash equivalents --
Cash equivalents are investments with original maturities of less than 90 days
and are stated at quoted market prices. Cash and cash equivalents are net of
approximately $149.5 million and $169.2 million of outstanding checks and
deposits in transit at December 31, 2000 and 1999, respectively.
Concentration of credit risk --
Financial instruments that potentially subject us to concentrations of credit
risk consist of cash and cash equivalents and trade receivables. We place our
cash and cash equivalents with high quality financial institutions and limit the
amount of credit exposure with any one financial institution.
We provide services to approximately 10 million residential, commercial and
industrial customers throughout the United States. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers comprising our customer base. We perform ongoing credit evaluations of
our customers, but do not require collateral to support customer receivables. We
establish an allowance for doubtful accounts based on factors surrounding the
credit risk of specific customers, historical trends and other information.
39
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and equipment --
Property and equipment are recorded at cost, which includes interest to finance
the acquisition and construction of major capital additions during the
development phase, primarily landfills and transfer stations, until they are
completed and ready for their intended use. Depreciation is provided on the
straight-line method over the estimated useful lives of buildings (30-40 years),
vehicles and equipment (3-10 years), containers and compactors (5-15 years) and
furniture and office equipment (3-8 years). In accordance with Statement of
Financial Accounting Standard No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-lived Assets and Long-lived Assets to be Disposed of, we
evaluate long-lived assets, such as property and equipment, and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The cost of landfill airspace, including original acquisition cost and incurred
and projected landfill construction costs, is amortized over the capacity of the
landfill based on a per unit basis as landfill airspace is consumed. We
periodically review the realizability of our investment in operating landfills.
Should events and circumstances indicate that any of our landfills be reviewed
for possible impairment, such review for recoverability will be made in
accordance with Emerging Issues Task Force Discussion Issue No. 95-23 ("EITF
95-23") The Treatment of Certain Site Restoration/Environmental Exit Costs When
Testing a Long-Lived Asset for Impairment. The EITF outlines how cash flows for
environmental exit costs should be determined and measured.
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs, which do not improve assets or extend
their useful lives, are charged to expense as incurred. For the years ended
December 31, 2000, 1999 and 1998, maintenance and repair expenses charged to
cost of operations were $430.0 million, $275.6 million and $99.8 million,
respectively. When property is retired, the related cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized.
Goodwill --
Goodwill is the cost in excess of fair value of identifiable assets in purchase
business combinations and is amortized on a straight-line basis over 40 years.
We allocate goodwill when appropriate, to the district operating the assets
based on a percentage of acquired assets' earnings before interest, taxes,
depreciation and amortization ("EBITDA") to the total acquired EBITDA. In
accordance with SFAS 121, we continually review for impairment whenever events
or changes in circumstances indicate that the remaining estimated useful life of
goodwill might warrant revision or that the balance may not be recoverable. We
evaluate possible impairment by comparing estimated future cash flows, before
interest expense and on an undiscounted basis, to the net book value of assets
including goodwill. If undiscounted cash flows are insufficient to recover
assets, further analysis is performed in order to determine the amount of the
impairment. We record an impairment loss equal to the amount by which the
carrying amount of the assets exceeds their fair market value. Fair market value
is usually determined based on the present value of estimated expected future
cash flows using a discount rate commensurate with the risks involved. In
instances where goodwill is identified with assets that are subject to an
impairment loss, the carrying amount of the identified goodwill is reduced
before making any reduction to the carrying amounts of impaired long-lived
assets. See Note 1 - Acquisition related and unusual costs for a discussion of
asset impairments recorded. Goodwill amortization of $223.2 million, $110.7
million and $30.7 million was recorded for the years ended December 31, 2000,
1999 and 1998, respectively. Accumulated goodwill amortization was $408.5
million and $185.3 million at December 31, 2000 and 1999, respectively.
40
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other assets --
Other assets include notes receivable, landfill closure deposits, deferred
charges, investments in unconsolidated subsidiaries, prepaid pension costs and
miscellaneous non-current assets. Deferred charges include costs incurred to
acquire businesses and to obtain debt financing. Upon consummation of an
acquisition, deferred costs relating to acquired businesses accounted for as
purchases are allocated to goodwill or landfill airspace while costs relating to
acquired businesses accounted for as poolings-of-interests are expensed. Direct
costs related to acquisitions under evaluation are capitalized and reviewed for
realization on a periodic basis. These costs are expensed when management
determines that the capitalized costs provide no future benefit. Upon funding of
debt offerings, deferred costs are capitalized as debt issuance costs and
amortized using the effective interest method over the life of the related debt.
Miscellaneous assets include consulting and non-competition agreements, which
are amortized in accordance with the terms of the respective agreements and
contracts, generally not exceeding five years.
Accrued closure and post-closure costs --
Accrued closure and post-closure costs represent an estimate of the present
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills we currently own, and/or
operate or have retained upon divestiture. Site specific closure and
post-closure engineering cost estimates are prepared annually for landfills
owned and/or operated by us for which we are responsible for closure and
post-closure. The impact of changes determined to be changes in estimates, based
on the annual update, are accounted for on a prospective basis. The present
value of estimated future costs are accrued on a per unit basis as landfill
airspace is consumed. Discounting of future costs is applied where we believe
that both the amounts and timing of related payments are reliably determinable.
Environmental costs --
We accrue for costs associated with environmental remediation obligations when
such costs are probable and reasonably estimable. Accruals for estimated losses
from environmental remediation obligations generally are recognized no later
than completion of the remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not discounted to
their present value as the timing of cash payments is not reliably determinable.
Recoveries of environmental remediation costs from other parties are recorded
when their receipts are deemed probable. Environmental liabilities and
apportionment of responsibility among potentially responsible parties are
accounted for in accordance with the guidance provided by the AICPA Statement of
Position 96-1 ("SOP 96-1") Environmental Remediation Liabilities.
Other long-term obligations --
Other long-term obligations include the non-current portions of insurance
accruals, legal accruals, loss contract and acquisition-related accruals and
other obligations not expected to be paid within the following year.
Revenue --
Advance billings are recorded as unearned revenue, and revenue is recognized
when services are provided, usually within 90 days.
41
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loss contracts --
We review our revenue producing contracts in the ordinary course of business to
determine if the direct costs, exclusive of any non-variable costs, to service
the contractual arrangements exceed the revenues to be produced by the contract.
Any resulting excess direct costs over the life of the contract are expensed at
the time of such determination.
Change in accounting principle --
In 1999 we evaluated our capitalized interest policy to assess the comparability
of the calculation with the change in the business strategy resulting from the
acquisition of BFI. As a result of this assessment, we changed the method of
calculating capitalization of interest under Statement of Financial Accounting
Standard No. 34, Capitalization of Interest Cost. Previously, interest was
capitalized using a method that defined the area of a landfill under development
as all acreage considered available for development. Actual acquisition,
permitting and construction costs incurred related to the area under development
qualified for interest capitalization. Any costs incurred related to areas
already developed and accepting waste no longer qualified for interest
capitalization. Under the new methodology, the area of a landfill under
development was defined as only the portion of the permitted acreage currently
undergoing active cell development. The effect of this change in definition is
to substantially reduce the acreage qualifying for interest capitalization. The
costs upon which interest is capitalized continue to include the actual
acquisition, permitting and construction costs incurred for cell development.
Consistent with the prior policy, as construction of an area is completed and
the area becomes available for use, the cell no longer qualifies for interest
capitalization.
The adoption of this method, which was accounted for as a change in accounting
principle, reflects the change in our operating strategy as a result of the BFI
acquisition. Previously our strategy was focused on the acquisition and
development of waste disposal capacity. Through the BFI acquisition, we
substantially achieved our previous strategy and are now focusing on the
increased utilization of landfill capacity.
The impact of the change in accounting principle was a cumulative charge of
approximately $106.2 million ($64.3 million net of income taxes). The effect of
the change on the year ended December 31, 1999 was to decrease net income before
cumulative effect of a change in accounting principle by $14.8 million ($0.08
per share) and net income after cumulative effect of a change in accounting
principle by $79.1 million ($0.42 per share). The unaudited pro forma amounts
shown on our Consolidated Statements of Operations reflect the effect of
retroactive application on capitalized interest in 1998 that would have been
recorded had the new method been in effect during this period, net of the
related income tax benefit.
42
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition related and unusual costs --
Year Ended December 31, 2000
During 2000, we recorded approximately $127.3 million of acquisition related and
unusual costs primarily associated with the acquisition of BFI. These costs are
comprised primarily of approximately $75.2 million of transition costs related
to transitional employees and duplicative facilities and operations, $30.2
million relating to changes in estimated loss contract provisions, restructuring
and abandonment liabilities, litigation liabilities and environmental related
matters, $26.5 million of non-cash asset impairments related to the divestitures
of certain operations. Additionally during 2000, we reversed through acquisition
related and unusual costs approximately $4.6 million of accruals established in
connection with the acquisition of BFI and accruals associated with 1998
acquisitions.
Subsequent event --
As part of our ongoing review of the operations and the self-funding market
development program for 2001, we sold certain non-integrated operations in the
Northeast region for approximately $53 million during the month of February
2001. The proceeds were used to repay debt, but will likely be deployed later
this year as a part of our self-funding market development program to purchase
assets in other markets that improve our market density and internalization. In
connection with this sale, we will reflect an after tax non-cash loss of
approximately $65 million in the reported results for the first quarter of 2001.
Year Ended December 31, 1999
During the year ended December 31, 1999, we recorded $588.9 million of
acquisition related and unusual costs primarily associated with the $9.6 billion
acquisition of BFI, which was accounted for as a purchase (See Note 2). The
costs primarily relate to environmental related matters, litigation liabilities,
risk management liabilities, loss contract provisions, transition costs and the
write-off of deferred costs relating to the acquisition. These costs are
comprised of the following:
We recorded a charge of approximately $267.0 million related to changes in
estimates of environmental liabilities associated with BFI's operations. In
connection with our due diligence and integration process, assessments of the
acquired operations were performed by third-party, in-house engineers and legal
counsel. Based on these assessments, we made changes in accounting estimates of
approximately (i) $133.7 million associated with the Superfund accrual for over
150 CERCLA cases in which BFI was involved, (ii) $30.3 million associated with
the remedial accrual for sites in which BFI was involved with remedial action
plans, (iii) $56.3 million associated with the environmental accrual for various
containment and treatment matters at 76 active or closed BFI landfills, and (iv)
$46.7 million associated with the accrual for the remedial and closure
requirements of four BFI closed hazardous waste facilities.
In 1999 we recorded a charge of approximately $93.5 million related to changes
in estimates of litigation liabilities associated with BFI's operations. In
connection with our due diligence and integration process, assessments of the
acquired operations and outstanding litigation were performed by third-party and
in-house legal counsel. We evaluated over 200 cases involving employee-related
matters, regulatory matters, collection matters and contract disputes and other
commercial litigation matters. Accordingly, we increased the litigation accrual
based on the most probable loss to be incurred.
In 1999 we recorded an increase of approximately $20.0 million to the
self-insurance accruals based on the results of a third-party actuarial review
performed in connection with due diligence and integration of the BFI
acquisition. As of September 30, 1999, we instituted a guaranteed cost insurance
program for all casualty insurance coverages.
43
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the integration of the BFI acquisition, we reviewed the
existing contracts of the business for recoverability. Several contracts were
identified which were in a loss position when the direct costs (excluding any
non-variable type costs) attributable to the contract were deducted from the
revenue to be generated by the contract. Consistent with our accounting
policies, we recorded a charge of approximately $32.6 million to operations for
the excess of costs over revenues of the identified contracts.
As a result of the acquisition of BFI, management reassessed the level of
acquisitions that it would pursue in the future and decided that certain
companies that were being targeted would no longer be pursued. Accordingly, we
wrote off $26.1 million of deferred charges previously incurred in connection
with these potential acquisitions. Additionally, we wrote off $33.8 million of
commitment fees paid in connection with a portion of the financing of the BFI
acquisition. These fees were associated with funds that were not ultimately
drawn due to alternative sources of financing becoming available. However, as
secured financing for the entire purchase price of the acquisition was a
condition of the signing of the merger agreement with BFI, and the debt
associated with these fees was not incurred, the cost was written off in the
third quarter of 1999.
In connection with the integration plan for BFI, we identified and notified
approximately 1,500 employees that they would be retained for a specified
period, generally not exceeding 12 months from the acquisition date, to perform
transition related functions. Subsequent to the specified time period, they were
terminated. Additionally, we identified certain offices and operations which
were duplicative. As these transition costs cannot be expensed or accrued until
committed or paid, approximately $67.4 million of transition costs were expensed
during 1999. Additionally, we accrued approximately $10.0 million of committed
transition costs during 1999.
Additionally, we recorded approximately $43.5 million of non-cash asset
impairments related to the valuation of Allied assets held for sale,
approximately $1.8 million of non-cash asset impairments related to duplicative
facilities, and approximately $0.4 million of restructuring and abandonment
costs related to other 1999 acquisitions.
Any subsequent changes in estimates of acquisition related and unusual costs
have been and will be included in the acquisition related and unusual costs
caption of the statement of operations in the period in which the change in
estimate is made. During 1999, approximately $7.2 million of accrued acquisition
related costs associated with 1998 acquisitions were reversed to acquisition
related and unusual costs.
The following table reflects the cash activity related to the acquisition
related and unusual costs accrued during 1999 (in thousands):
1999 Balance
Additions Remaining
through 1999 2000 December 31,
Expense Expenditures Expenditures Adjustments 2000
---------------- ---------------- ---------------- ---------------- ----------------
Transition costs............. $ 77,350 $ (74,654) $ (2,091) $ (605) $ --
Loss contracts............... 32,643 (6,058) (14,698) 18,776 30,663
Litigation and compliance
costs...................... 113,382 (1,553) (30,960) 5,734 86,603
---------------- ---------------- ---------------- ---------------- ----------------
Total..................... $ 223,375 $ (82,265) $ (47,749) $ 23,905 $ 117,266
================ ================ ================ ================ ================
44
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1998
During the year ended December 31, 1998, we recorded acquisition related and
unusual costs in the amount of $317.6 million. These costs consist of
transaction and deal costs, employee severance and transition costs,
environmental related matters, litigation liabilities, regulatory compliance
matters, restructuring and abandonment costs, loss contract provisions and
non-cash asset impairment charges. The 1998 acquisition related and unusual
costs discussed below predominantly relate to acquisitions accounted for as
poolings-of-interests and consist of the following:
Direct transaction and deal costs of $51.2 million including investment banker,
attorney, accountant, environmental assessment and other third-party fees.
Approximately $11.7 million was accrued at December 31, 1998 and was paid during
the first six months of 1999.
Employee severance and transition costs of $73.6 million consisted of $39.3
million in termination payments made to employees of acquired companies based on
change of control provisions in preexisting contracts and $34.3 million of costs
associated with severance payments under exit or integration plans implemented
in connection with acquisitions made during 1998. Exit plans primarily related
to the elimination of duplicate corporate and administrative offices of
companies acquired. Integration plans included the combination of field
activities for human resource, accounting, facility maintenance, health and
safety compliance and customer service activities of companies acquired with
field activities similar to ours. The exit and integration plans called for the
termination of approximately 800 employees who performed managerial, sales,
administrative support, maintenance and repair, or hauling and landfill
operations duties. All employees were identified and notified of their severance
or transition benefits at the time management approved the plan, which occurred
at or around the time of the acquisitions. Approximately $10.1 million was
accrued at December 31, 1998, substantially all of which was paid in 1999.
Environmental related matters, litigation liabilities and regulatory compliance
matters assumed in acquisitions totaled $73.4 million. Subsequent to the
acquisitions, we made certain changes in accounting estimates due to events and
new information becoming available for environmental liabilities of
approximately $41.1 million, litigation liabilities of approximately $20.8
million and regulatory compliance liabilities of approximately $11.5 million.
As part of our acquisition due diligence process, environmental assessments were
performed at the time of acquisition by third-party, in-house engineers and
legal counsel. The assessments were performed at over 150 operating sites owned
or used by the 54 companies acquired by Allied in 1998. Additional environmental
liabilities were accrued based on the results of the assessments and represent
the most probable outcome of these identified contingent matters. An additional
accrued environmental liability of $27.1 million was comprised of required
remedial activities identified at 28 separate locations. These locations include
eight landfills acquired by Allied, 15 landfills not owned by Allied, but used
for disposal by collection companies acquired, and transfer stations and
maintenance facilities acquired. Required remedial activities include the
removal and treatment of waste improperly disposed of, containment and abatement
of landfill gas migration, removal and disposal of contaminated soil and
hazardous waste and legal and administrative costs of the settlement of
Superfund claims. The additional $14 million of environmental accruals related
to removal and treatment of leachate at landfills, the level of which exceeded
permitted amounts at seven of the acquired landfills. At December 31, 1998,
approximately $41.1 million and $15.8 million was accrued for environmental
matters and legal and regulatory compliance matters, respectively.
45
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The change in estimate relating to litigation and regulatory compliance
liabilities was accrued based on legal due diligence performed by in-house and
outside legal counsel for acquired companies at the time of acquisition and the
determination of the most probable loss incurred. As a result of this legal due
diligence, we identified 14 companies acquired in business combinations
accounted for as poolings-of-interest which had an aggregate of 54 asserted and
unasserted claims involving matters such as contract disputes, employment
related disputes, real and personal property and sales tax issues and billing
disputes. Additionally, we identified regulatory compliance issues related to 12
companies acquired, which included citations for certain state and federal
health, safety and transportation violations and the associated costs of fines,
assessments and required maintenance costs to bring facilities and equipment
into compliance.
Restructuring and abandonment costs were $42.1 million in business combinations
accounted for as pooling-of-interests. Costs to relocate redundant operations
and to transition them to common information systems were $23.1 million.
Redundant operations consisted primarily of activities for human resources,
accounting, facility maintenance, health and safety compliance and customer
service which were performed in field offices of companies acquired. Abandonment
costs and losses on the disposal of duplicate revenue producing assets relating
to specifically identified transfer stations and recycling facilities were $8.8
million. Revenue and net operating income of the abandoned operations
represented less than one percent of our consolidated amounts. Additionally,
$10.2 million of costs were incurred for the disposition of redundant
non-revenue producing assets. This includes $7.6 million that was accrued at
December 31, 1998 in accordance with exit and integration plans, substantially
all of which was paid in 1999. This accrual was for payments under
non-cancelable lease agreements for corporate offices that were vacated and
other costs to close corporate facilities after operations have ceased under
exit plans implemented during 1998 at five companies acquired.
Loss contract provisions were $7.6 million for losses associated with collection
contracts and other contractual obligations assumed in acquisitions.
Approximately $5 million was accrued at December 31, 1998 and was paid during
1999.
During the fourth quarter of 1998, we recognized non-cash asset impairment
charges aggregating $69.7 million. These charges related to assets held for
future use and assets which were disposed during the first six months of 1999.
An impairment charge of $45.9 million, with no associated tax benefit, was
recorded relating to goodwill recorded by American Disposal Services, Inc.
("ADSI") in connection with ADSI's September 1997 acquisition of Fred Barbara
Trucking, a private waste transportation business. Additionally, an impairment
charge of $23.8 million was recorded for the write-down to net realizable value
less cost of disposal of assets to be sold relating to non-core or
non-integrated operating districts.
Any subsequent changes in estimates of acquisition related and unusual costs
have been and will be included in the acquisition related and unusual costs
caption of the statement of operations in the period in which the change in
estimate is made. During 1999, approximately $7.2 million accrued
acquisition-related costs associated with 1998 acquisitions were reversed to
acquisition related and unusual costs.
46
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects the activity related to the 1998 acquisition
related and unusual costs (in thousands):
Balance
1998 Remaining
1998 Non-cash 1998 1999 2000 December 31,
Expense Charges Expenditures Expenditures Expenditures Adjustments 2000
---------- --------- --------- ----------- ----------- ---------- ---------
Transaction and deal
costs ............. $ 51,200 $ -- $ (39,529) $ (10,952) $ -- $ (719) $ --
Severance and
transition costs .. 73,619 -- (63,493) (8,800) (472) (854) --
Restructuring and
abandonment costs . 42,098 (18,514) (15,954) (2,353) (597) (4,680) --
Loss contracts ...... 7,569 -- (2,587) (4,623) (359) --
Environmental,
litigation
and regulatory .... 73,416 -- (16,482) (16,589) (10,878) (599) 28,868
compliance costs
Asset impairments ... 69,714 (69,714) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total ............... $ 317,616 $ (88,228) $(138,045) $ (43,317) $ (11,947) $ (7,211) $ 28,868
========= ========= ========= ========= ========= ========= =========
Extraordinary losses --
In September 2000, we repaid the Tranche D term loan prior to its maturity date.
In connection with this repayment, we recognized a non-cash extraordinary charge
for the early extinguishment of the debt of approximately $11.2 million ($6.8
million, net of income tax benefit, $0.04 per share) related to the write-off of
previously deferred debt issuance costs.
In February 2000, we repaid the asset sale term loan facility prior to its
maturity date. In connection with this repayment, we recognized a non-cash
extraordinary charge for the early extinguishment of the debt of approximately
$10.7 million ($6.5 million, net of income tax benefit, $0.03 per share) related
to the write-off of previously deferred debt issuance costs.
In July 1999, we repaid our credit facility prior to its maturity date. In
connection with the repayment, we recognized a non-cash extraordinary charge for
the early extinguishments of the debt of approximately $5.3 million ($3.2
million, net of income tax benefit, $0.02 per share) related to the write-off of
previously deferred debt issuance costs.
In December 1998, we replaced our 1996 Notes and Senior Discount Notes with $1.7
billion in senior notes and recognized a charge of approximately $201.2 million
($121.7 million net of income tax benefit, $0.66 per share) related to premiums
paid for the early payment of the 1996 Notes and the Senior Discount Notes and
the write-off of previously deferred debt issuance costs. In June 1998, we
replaced our credit facility and recognized an extraordinary charge of
approximately $5.1 million ($3.1 million, net of income tax benefit, $0.02 per
share) related to the write-off of previously deferred debt issuance costs.
47
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statements of cash flows --
The supplemental cash flow disclosures and non-cash transactions for the three
years ended December 31, 2000 are as follows (in thousands):
Year Ended December 31,
---------------------------------------------------
2000 1999 1998
-------------- --------------- --------------
Supplemental Disclosures -
Interest paid (net of amounts capitalized).................. $ 853,770 $ 312,623 $ 62,386
Income taxes paid (refunds received)........................ 27,876 (74,855) 33,653
Non-Cash Transactions -
Common stock, preferred stock or warrants issued in
acquisitions or as commissions............................ $ -- $ 1,573 $ 124,854
Capital leases.............................................. -- -- 1,187
Debt and liabilities incurred or assumed in acquisitions.... 93,468 1,850,162 65,409
Use of estimates ---
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Final settlement
amounts could differ from those estimates.
Interest rate protection agreements --
We enter into interest rate protection agreements to manage the fixed/variable
interest rate mix of the portfolio to reduce our aggregate exposure to increases
in interest rates. We do not hold or issue derivative financial instruments for
trading purposes. Hedge accounting treatment is applied to interest rate
derivative contracts that are designated as hedges of specified debt positions.
Amounts payable or receivable under interest rate swap agreements are recognized
as adjustments to interest expense in the periods in which they accrue. Net
premiums paid for these financial instruments are deferred and recognized
ratably over the life of the instruments.
Fair value of financial instruments --
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107 ("SFAS 107"), Disclosures About Fair Value of Financial
Instruments. Our financial instruments as defined by SFAS 107 include cash,
money market funds, accounts receivable, accounts payable and long-term debt. We
have determined the estimated fair value amounts at December 31, 2000 using
available market information and valuation methodologies. Considerable judgment
is required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates may not be indicative of the amounts that could be
realized in a current market exchange. The use of different market assumptions
or valuation methodologies could have a material effect on the estimated fair
value amounts.
The carrying value of cash, money market funds, accounts receivable and accounts
payable approximate fair values due to the short-term maturities of these
instruments (See Note 6 for fair value of debt).
48
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation plans --
We account for our stock-based compensation plans under Accounting Principles
Board Opinion No. 25, ("APB 25") Accounting for Stock Issued to Employees which
does not require a charge to the statement of operations for the estimated fair
value of stock options issued with an exercise price equal to the fair value of
the common stock on the date of grant. Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock-based Compensation requires
that companies, which do not elect to account for stock-based compensation as
prescribed by this statement, disclose the pro forma effects on earnings and
earnings per share as if SFAS 123 had been adopted. Additionally, certain other
disclosures with respect to stock compensation and the related assumptions are
used to determine the pro forma effects of SFAS 123 (See Note 11).
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - An interpretation of APB Opinion No. 25 ("FIN 44")". FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequence of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN 44 had a material impact on our financial position or results
of operations.
Recently issued accounting pronouncements --
In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133. This statement amends the
accounting and reporting standards of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, with respect to specific interpretations and
circumstances, and incorporates certain decisions arising from the Derivatives
Implementation Group process.
In June 1999, the implementation date of SFAS No. 133 was deferred one year from
the original date to those fiscal years beginning after June 15, 2000 by SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133. SFAS No.'s 133 and 138 require
all derivatives to be recorded as either assets or liabilities and the
instruments to be measured at fair value. Gains or losses resulting from changes
in the values of those derivatives are to be recognized immediately in earnings,
other comprehensive income or deferred, depending on the use of the derivative,
and whether or not it qualifies as a hedge. The statement requires a formal
documentation of hedge designation and assessment of the effectiveness of
transactions that receive hedge accounting. We adopted SFAS No.'s 133 and 138 on
January 1, 2001, as required.
In the process of adoption of SFAS 133 we have reviewed all significant
transactions and contracts for derivative activity and determined that our
interest rate swap agreements are our only transactions representing derivative
instruments that require a change in accounting under SFAS No. 133 and 138. We
have interest rate risk relating to long-term variable rate debt. We enter into
interest rate swap agreements when such transactions will serve to reduce the
aggregate exposure of future cash flows to volatility or adverse movements in
interest rates. Interest rate swap agreements are entered into solely for the
purpose of reducing risk; positions are not taken for speculative purposes.
Our interest rate swaps are properly designated as and are effective as hedges
of our variable rate debt. We assume no ineffectiveness in our interest rate
hedges, as the notional amounts, indices, repricing dates, and all other
significant terms of the swap agreements are matched to the provisions and terms
of the variable rate debt being hedged. These instruments are designated as cash
flow hedges, and accordingly, at January 1, 2001, the fair market value of these
instruments was recorded as a cumulative effect of change in accounting
principle in Other Comprehensive Income (OCI) in the amount of ($45.2) million,
net of tax. The effect of the swaps will be matched against interest expense for
the related variable rate debt over the terms of the swaps.
49
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Combinations
Acquisitions accounted for under the poolings-of-interests method are reflected
in the results of operations as if the acquisition occurred on the first day of
the earliest year presented. Acquisitions accounted for under the purchase
method are reflected in the results of operations since the effective date of
the acquisition. For those acquisitions accounted for using the purchase method,
we allocate the cost of the acquired business to the assets acquired and
liabilities assumed based upon their estimated fair values. These estimates are
revised during the allocation period as necessary when, and if, information
regarding contingencies becomes available to further define and quantify assets
acquired and liabilities assumed. The allocation period generally does not
exceed one year. To the extent contingencies are resolved or settled during the
allocation period, such items are included in the revised allocation of the
purchase price. Purchase accounting adjustments, acquisition related costs and
other possible charges that may arise from the acquisitions may materially
impact our future consolidated financial position and consolidated financial
results of operations.
The acquisition of BFI has been accounted for as a purchase and, accordingly,
the operating results of BFI have been included in our consolidated financial
statements since the date of acquisition. The excess of the initial aggregate
purchase price over the fair market value of net assets acquired was
approximately $6.7 billion. During the year following the acquisition, changes
in estimates were appropriately adjusted through goodwill.
The following table reflects the initial allocation of purchase price for the
acquisition of BFI, giving effect to asset divestitures described in Note 3 (in
thousands):
Current assets, including assets classified as held for sale.... $ 2,584,387
Property and equipment, net..................................... 1,943,906
Goodwill........................................................ 6,672,992
Non-current assets.............................................. 678,139
Current liabilities............................................. (1,142,469)
Long-term debt.................................................. (1,755,501)
Other long-term obligations..................................... (1,327,003)
--------------------
Total net assets............................................ $ 7,654,451
====================
The following table summarizes acquisitions for the three years ended December
31, 2000, excluding the acquisition of BFI:
2000 1999 1998
------------- -------------- ---------------
Number of businesses acquired accounted for as:
Poolings-of-interests............................. -- 2 19
Purchases......................................... 50 52 35
------------ ------------ -------------
Total acquisitions................................ 50 54 54
Total consideration (in millions).................$ 853.9 $ 467.5 $ 2,329.0
Shares of common stock issued (in millions)....... -- 1.6 79.5
50
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited pro forma statement of operations data --
The following table compares, for the years ended December 31, 2000 and 1999,
reported consolidated results of operations to unaudited pro forma consolidated
data as if all of the companies acquired in 2000 and 1999 accounted for using
the purchase method for business combinations were acquired as of January 1,
1999 (in thousands, except per share data):
2000 1999
------------------------------------ ---------------------------------
Reported Pro Forma(1) Reported Pro Forma(1)
--------------- ---------------- -------------- ---------------
Revenues................................. $ 5,707,485 $ 5,738,821 $ 3,341,071 $ 5,574,076
Net income (loss) before
extraordinary losses and cumulative
effect of change in accounting
principle, net......................... 137,653 141,537 (221,250) (360,770)
Net income (loss) available to
common shareholders before
extraordinary losses and cumulative
effect of change in accounting
principle, net......................... 69,201 73,085 (249,039) (426,935)
Net income (loss) available to
common shareholders before
extraordinary losses and cumulative
effective of change in accounting
principle per common share - basic..... 0.37 0.39 (1.33) (2.27)
Net income (loss) available to
common shareholders before
extraordinary losses and cumulative
effective of change in accounting
principle per common
share - diluted........................ 0.36 0.38 (1.33) (2.27)
(1) The pro forma results of operations exclude divestitures of certain
BFI operations planned at the time of the acquisition of BFI and
exclude any projected annual cost savings.
This data does not purport to be indicative of our results of operations that
might have occurred, nor which might occur in the future.
3. Assets Held for Sale
The ability to successfully implement our vertical integration business plan is
a key consideration in determining whether we will continue to operate in a
specific market. In the normal course of business, we have exited markets in
which the execution of the vertical integration business plan was not
practicable.
In October 1998, we formalized plans to dispose of certain operating districts
(the "Operating Districts") that represented non-core or non-integrated
operations. We entered into agreements to sell these operations and in
accordance with SFAS 121 recorded an impairment loss to reduce the carrying
value of the assets to net realizable value including an accrual for the cost of
disposal. We completed the sale of these assets during the first six months of
1999.
In July 1999, management formalized plans to dispose of certain operations
required to be divested by governmental order as a condition for approval of the
acquisition of BFI (the "Allied Divestitures"). Additionally, management
identified other Allied operating districts (the "Allied Operations") in which
our vertical integration plan was not practicable as a result of the BFI
transaction and therefore these districts were identified for divestiture. All
of these operations had been owned prior to the acquisition of BFI. In
accordance with SFAS 121, an impairment loss of $43.5 million was recorded
during 1999 to reduce the carrying value of the assets to the net realizable
value including an accrual for the cost of disposal.
51
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The results of operations before depreciation and amortization and acquisition
related and unusual costs of the Operating Districts, the Allied Divestitures
and the Allied Operations included in consolidated operating income, in
accordance with SFAS 121, was approximately $2.6 million and $11.1 million
during the 12 months ended December 31, 2000 and 1999, respectively. We excluded
from our Consolidated Statements of Operations, in accordance with SFAS 121,
depreciation and amortization in the amount of $1.4 million and $6.3 million for
the twelve months ended December 31, 2000 and 1999, respectively.
BFI assets --
Concurrent with the acquisition of BFI, certain BFI operations were identified
by management as non-core or non-integrated operations and are expected to be
divested along with certain operations required by governmental order to be
divested. These operations included BFI's Canadian operations, medical waste
operations, gas systems operations and certain solid waste operations
(collectively, the "BFI Divestitures"). The sales of these operations were
accounted for in accordance with Emerging Issues Task Force Issue 87-11 --
Allocation of Purchase Price to Assets to Be Sold. The BFI Divestitures were
carried at the net realizable value based on the terms of transactions including
accruals for cost of disposal, operating income and allocable interest expense.
Accordingly, approximately $24.3 million and $49.7 million of consolidated
operating income excluding acquisition related and unusual costs, and
approximately $24.8 million and $45.5 million of allocable interest expense
related to the BFI Divestitures were excluded from the Consolidated Statements
of Operations for the 12 months ended December 31, 2000 and 1999, respectively.
At December 31, 1999, the assets held for sale totaled $891.9 million and were
classified as current assets on the Consolidated Balance Sheets and are
summarized as follows (in thousands):
December 31, 1999
---------------------
Accounts receivable, net............................ $ 90,396
Other current assets................................ 16,478
Property and equipment, net......................... 616,973
Goodwill, net....................................... 247,383
Other long-term assets.............................. 5,405
Current liabilities................................. (64,682)
Long-term liabilities............................... (20,053)
---------------------
Total net assets.................................. $ 891,900
=====================
During 2000, we completed the divestitures of the operations previously
classified as assets held for sale.
4. Property and Equipment
Property and equipment at December 31, 2000 and 1999 is as follows (in
thousands):
2000 1999
--------------------- ---------------------
Land and improvements...........................$ 406,700 $ 437,119
Land held for permitting as landfills(1)........ 127,778 98,914
Landfills....................................... 1,997,733 1,637,782
Buildings and improvements...................... 444,348 454,416
Vehicles and equipment.......................... 1,411,068 1,114,130
Containers and compactors....................... 672,175 611,889
Furniture and office equipment.................. 39,578 120,636
--------------------- ---------------------
5,099,380 4,474,886
Accumulated depreciation and amortization....... (1,238,842) (736,498)
--------------------- ---------------------
$ 3,860,538 $ 3,738,388
===================== =====================
(1) These properties have been approved for use as landfills, and we are
currently in the process of obtaining the necessary permits.
52
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Investments In Unconsolidated Subsidiaries
We use the equity method of accounting for investments in unconsolidated
subsidiaries over which we exercise control through a 20% to 50% ownership
interest. The summarized combined balance sheet, and the statement of operations
data presented in the table below indicates amounts related to the following
equity investees acquired in the BFI acquisition in which we exercise control
through a 50% ownership interest: American Ref-Fuel Company, American Ref-Fuel
Company of Hempstead, American Ref-Fuel Company of Essex, American Ref-Fuel
Company of Southeastern Connecticut, American Ref-Fuel Company of Niagara, LP,
American Ref-Fuel Company of SEMASS, LP, and American Ref-Fuel Operations of
SEMASS, LP. There were no investments in unconsolidated subsidiaries prior to
the acquisition of BFI (See Note 14) (in thousands, unaudited).
Summarized Combined Balance Sheet Data
December 31, 2000 December 31, 1999
-------------------------- -------------------------
Current assets................................................ $ 162,799 $ 147,863
Property and equipment, net of accumulated depreciation 1,086,470 1,116,711
Other non-current assets...................................... 245,836 248,378
Current liabilities........................................... 120,964 127,989
Long-term debt, net of current portion........................ 1,098,605 1,123,414
Other long-term liabilities................................... 216,597 199,828
Retained earnings............................................. 58,939 61,721
Summarized Combined Statement of Operations Data
For the For the Period July 31,
Year Ended 1999 through
December 31, 2000 December 31, 1999
------------------------- -----------------------
Total revenue........................................... $ 363,719 $ 146,940
Operating income........................................ 159,113 52,216
Net income.............................................. 95,118 27,328
Our investments in and advances to equity investees approximates $240.0 and
$274.7 million at December 31, 2000 and 1999, respectively consisting of
investments in excess of underlying equity of $134.3 million and $170.1 million,
a subordinated note and other receivables of $76.2 million and $73.7 million,
and our proportional share of net assets of $29.5 million and $30.9 million,
respectively.
For the year ended December 31, 2000, and for the period from July 31, 1999
through December 31, 1999, our equity in earnings of equity investees were
approximately $50.8 million and $20.8 million and dividends received from equity
investees were approximately $12.6 million and $34.0 million, respectively.
Differences between the equity in earnings of equity investees we reported and
our proportionate share of the combined earnings of the related investees have
resulted principally from accounting differences in the recognition of expenses,
goodwill amortization and the elimination of intercompany transactions.
53
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-term Debt
Long-term debt at December 31, 2000 and 1999 consists of the following (in
thousands):
2000 1999
--------------- ---------------
Senior subordinated notes, interest at 10.00%, effective rate of 10.15% and 10.24%,
respectively, including unamortized premium of $7,272 and $8,119, respectively.......... $ 2,007,272 $ 2,008,119
Tranche A term loan facility, effective rate of 9.19% and 8.57%, respectively............. 1,675,000 1,750,000
Tranche B term loan facility, effective rate of 9.52% and 9.05%, respectively............. 1,250,000 1,250,000
Tranche C term loan facility, effective rate of 9.73% and 9.24%, respectively............. 1,500,000 1,500,000
Tranche D term loan facility, effective rate of 9.78%..................................... -- 500,000
Senior notes, interest at 7.88%, effective rate of 8.01% and 8.21%, respectively, net of
unamortized discount of $1,310 and $1,417, respectively................................. 873,690 873,583
Senior notes, interest at 7.63% and effective rate of 7.85%............................... 600,000 600,000
Senior notes, interest at 7.38%, effective rate of 7.77% and 7.95%, respectively, net
of unamortized discount of $216 and $274, respectively.................................. 224,784 224,726
Revolving credit facility, effective rate of 10.46% and 10.16%, respectively.............. 435,000 65,000
Debentures, interest at 7.40%, effective rate of 10.34% and 10.39%, respectively, net
of unamortized discount of $79,251 and $81,526, respectively............................ 280,749 278,474
Senior notes, interest at 6.10%, effective rate of 8.82% and 8.95%, respectively, net of
unamortized discount of $7,194 and $10,671, respectively................................ 149,495 146,018
Senior notes, interest at 6.38%, effective rate of 9.77% and 9.90%, respectively, net of
unamortized discount of $22,305 and $25,446, respectively............................... 138,895 135,754
Debentures, interest at 9.25%, effective rate of 9.94% and 9.95%, respectively, net of
unamortized discount of $4,554 and $4,778, respectively................................. 94,946 94,722
Senior notes, interest at 7.88%, effective rate of 9.15% and 9.20%, respectively, net of
unamortized discount of $2,622 and $3,240, respectively................................. 66,879 66,261
Market value put securities, interest at 6.08%, effective rate of 7.73%, net of
unamortized discount of $295............................................................ -- 249,705
Asset sale term loan facility, effective rate of 8.56%.................................... -- 99,496
Solid waste revenue bond obligations, weighted average interest rate of 6.40% and
6.30%, weighted average effective rate of 7.35% and 6.12%, respectively, net of
unamortized discount of $4,810 and $5,131, respectively................................. 314,887 316,299
Notes payable to banks, finance companies, and individuals, weighted average
interest rates of 5% - 20%, and principal payable through 2010, secured by vehicles,
equipment, real estate, accounts receivable or stock of certain subsidiaries............ 22,931 54,648
Obligations under capital leases of vehicles and equipment, weighted average
interest of 8.00%....................................................................... 10,592 14,790
Notes payable to individuals and a commercial company, interest of 5%-10%,
principal and interest payable through 2007, unsecured.................................. 4,001 15,624
--------------- ---------------
9,649,121 10,243,219
Less: Current portion..................................................................... 13,997 1,002,928
--------------- ---------------
$ 9,635,124 $ 9,240,291
=============== ===============
54
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the BFI acquisition in July 1999, we entered into a new
credit facility (the "1999 Credit Facility"). The 1999 Credit Facility provides
a $1.5 billion six-year revolving credit facility, a $556 million two-year asset
sale term loan (the "Asset Sale Term Loan") which was repaid in full in February
2000, a $1,750 million six-year Tranche A term loan (the "Tranche A Term Loan"),
a $1,250 million seven-year Tranche B term loan (the "Tranche B Term Loan"), a
$1,500 million eight-year Tranche C term loan (the "Tranche C Term Loan") and a
$500 million eight-year Tranche D term loan (the "Tranche D Term Loan"). The
Tranche D Term Loan was repaid in full in September 2000.
The 1999 Credit Facility bears interest, at (a) an Alternate Base Rate, or (b) a
Eurodollar Rate, both terms defined in the 1999 Credit Facility, plus, in either
case, an applicable margin and may be used for working capital and other general
corporate purposes, acquisitions, and the issuance of letters of credit. Of the
$1.5 billion available under the Revolving Credit Facility, no more than $800
million may be used to support the issuance of letters of credit. As of December
31, 2000, approximately $587 million was available on this facility.
The term loan facility is a funded, amortizing senior secured term loan with
annual principal payments increasing from zero in 2001, to $127 million in 2002,
and to $350 million in 2003. Principal under the revolving credit facility is
due upon maturity.
We are required to make prepayments on the 1999 Credit Facility upon completion
of certain asset sales and issuances of debt or equity securities. Proceeds from
asset sales are to be applied first to reduce borrowings under the Tranche A, B
and C Term Loans on a pro rata basis. Required prepayments are to be made based
on a percentage of the net proceeds of any debt incurrence or equity issuance.
In July 1999, Allied Waste North America, Inc. ("Allied NA"; a wholly owned
consolidated subsidiary of Allied) issued $2.0 billion of senior subordinated
notes (the "1999 Notes") in a Rule 144A offering. In January 2000, these notes
were exchanged for substantially identical notes (which are also referred as the
1999 Notes) registered under the Securities Exchange Act of 1933. Interest
accrues on the 1999 Notes at an interest rate of 10% per annum, payable
semi-annually on May 1 and November 1. We used the proceeds from the 1999 Notes
as partial financing of the acquisition of BFI. We, together with substantially
all of our subsidiaries, guarantee the 1999 Notes.
In connection with the BFI acquisition on July 30, 1999, we assumed all of BFI's
debt securities with the exception of commercial paper that was paid off in
connection with the acquisition. BFI's debt securities were recorded at their
fair market values as of the date of the acquisition in accordance with Emerging
Issues Task Force Issue 98-1 -- Valuation of Debt Assumed in a Purchase Business
Combination. The effect of revaluing the debt securities resulted in an
aggregate discount from the historic face amount of $137.0 million. At December
31, 2000, the remaining unamortized discount related to the debt securities
assumed from BFI was $120.7 million.
The Market Value Put Securities ("MVPs") had an optional put on January 18,
2000, which was exercised. Accordingly, we repaid the MVPs in January through a
draw on our revolving credit facility.
The 6.10% Senior Notes, 6.375% Senior Notes and 9.25% Debentures are not
redeemable prior to maturity and are not subject to any sinking fund.
The 7.40% Debentures are not subject to any sinking fund and may be redeemed as
a whole or in part, at our option at any time. The redemption price is equal to
the greater of (i) the principal amount of the debentures and (ii) the present
value of future principal and interest payments discounted at a rate specified
under the terms of the indenture.
55
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1998, Allied NA issued an aggregate of $1.7 billion of senior notes
consisting of $225 million 7.375% senior notes due 2004, $600 million 7.625%
senior notes due 2006 and $875 million 7.875% senior notes due 2009 in a Rule
144A offering which were subsequently registered for public trading with the SEC
in January 1999. Interest accrued on the 1998 Senior Notes is payable
semi-annually on January 1 and July 1. We used the net proceeds from the 1998
Senior Notes to fund the redemption of the 1996 Notes and the Senior Discount
Notes pursuant to tender offers we commenced in November 1998 and completed in
December 1998, to repay borrowings outstanding under the Senior Credit Facility
and certain capital lease obligations, and for general corporate purposes. We,
together with substantially all of our subsidiaries, guarantee the 1998 Senior
Notes.
In June 1998, we repaid $486.8 million outstanding under the 1997 Credit
Agreement and entered into a new credit agreement (the "1998 Credit Agreement").
The Credit Agreement provided a $800 million five year senior secured revolving
credit facility and a $300 million five year senior secured term loan facility
(together with the revolving credit facility, the "Senior Credit Facility").
Future maturities of long term debt --
Aggregate future maturities of long-term debt outstanding at December 31, 2000
reflect our intent and ability to refinance certain tranches of the 1999 Credit
Facility (in thousands):
Maturity 2000
---------------------- -------------------
2001 $ 13,997
2002 141,534
2003 507,179
2004 680,023
2005 1,030,555
Thereafter 7,275,833
-------------------
$ 9,649,121
===================
Future payments under capital leases, the principal amounts of which are
included above in future maturities of long-term debt, are as follows at
December 31, 2000 (in thousands):
Maturity Principal Interest Total
- ------------------- ----------------- ------------------ ------------------
2001 $ 3,323 $ 713 $ 4,036
2002 3,599 431 4,030
2003 1,709 212 1,921
2004 1,189 113 1,302
2005 566 36 602
Thereafter 206 17 223
----------------- ------------------ ------------------
$ 10,592 $ 1,522 $ 12,114
================= ================== ==================
56
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value of debt and interest rate protection agreements --
We have interest rate risk relating to long-term variable rate debt. To manage
the potential interest rate volatility, we enter into interest rate swaps.
Interest rate swaps are used to manage the proportion of fixed and variable rate
debt based on market conditions. We do not hold or issue derivative instruments
for trading purposes.
The fair value of our debt and hedging instruments are subject to change as a
result of potential changes in market rates and prices. The table below provides
information about our long-term debt and interest rate hedges by aggregate
principal or notional amounts and weighted average interest rates for
instruments that are sensitive to changes in interest rates. The financial
instruments are grouped by market risk exposure category (dollars in thousands).
Balance at Fair Value at Balance at Fair Value at
December 31, December 31, December 31, December 31,
2000 2000 1999 1999
----------------- ----------------- ----------------- ------------------
Long-Term Debt
Fixed Rate Debt:
Principal amount............. $ 4,697,530 $ 4,349,440 $ 4,725,018 $ 4,280,180
Weighted average interest
rate....................... 8.74% 8.44%
Variable Rate Debt:
Principal amount............. $ 4,951,591 $ 4,746,918 $ 5,518,201 $ 5,518,201
Weighted average interest
rate(1).................... 9.22% 8.84%
Interest Rate Swaps(2)
Cancelable:
Notional amount.............. $ 450,000 $ (2,170) $ 2,650,000 $ 14,402
Weighted average interest
rate....................... 6.37% 5.74%
Non-Cancelable:
Notional amount.............. $ 3,550,000 $ (72,496) $ 450,000 $ 1,049
Weighted average interest
rate....................... 7.10% 5.78%
(1) Reflects the rate in effect as of December 31, 2000 and 1999 and
includes all applicable margins. Actual future rates may vary.
(2) All interest rate swaps enable us to pay a fixed interest rate in
exchange for receiving variable interest rates at LIBOR.
57
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt covenants --
Our 1999 Credit Facility contains certain financial covenants, including, but
not limited to, EBITDA ratio and an interest expense coverage ratio.
Additionally, these covenants limit, among other things, our ability and our
subsidiaries' ability to incur additional indebtedness and liens, make
acquisitions and purchase fixed assets above certain amounts, pay dividends,
make optional prepayments on certain subordinated indebtedness, make
investments, loans or advances, enter into certain transactions with affiliates
or consummate a merger, consolidation or sale of all or substantially all of our
assets.
The 1998 Senior Notes and the 1999 Notes contain certain financial and operating
covenants and restrictions which may, in certain circumstances, limit our
ability to complete acquisitions, pay dividends, incur indebtedness, make
investments and take certain other corporate actions.
At December 31, 2000, we were in compliance with all applicable covenants.
Substantially all of our subsidiaries are jointly and severally liable for the
obligations under the 1998 Senior Notes, the 1999 Notes and the 1999 Credit
Facility through unconditional guarantees issued by current and future
subsidiaries which are all, except in one minor case, wholly-owned by us. In
addition, the 1999 Credit Facility is secured by substantially all the personal
property and a pledge of the stock of substantially all of our present and
future subsidiaries.
On January 30, 2001, we funded an offering of $600 million of 8.875% senior
secured notes, due 2008, as a private placement under Rule 144A of the
Securities Act of 1933 (the "Securities Act"). We used the proceeds from the
sale of these notes to ratably repay portions of tranches A, B and C of the term
loans under the 1999 Credit Facility. The offer of these senior secured notes
was made only by means of an offering circular to qualified investors and has
not been registered under the Securities Act and may not be offered or sold in
the United States absent registration under the Securities Act or an exemption
from the registration requirements of the Securities Act. We expect to file for
registration within 120 days of the offering date. Coincident with the offering
we amended our credit facility to change certain financial covenants to provide
us with greater operating flexibility.
7. Landfill Accounting
We have a network of 164 owned or operated active landfills with a net book
value of approximately $1.65 billion at December 31, 2000. The landfills have
operating lives ranging from one to over 150 years based on available capacity
using current annual volumes. The average life of our landfills approximates 40
years. We use a life-cycle accounting method for landfills and the related
closure and post-closure liabilities. This method applies the costs associated
with acquiring, developing, closing and monitoring the landfills over the
associated landfill capacity and associated consumption. On an annual basis, we
update the development cost estimates (which include the costs to develop the
site as well as the individual cell construction costs), closure and
post-closure cost estimates and future capacity estimates for each landfill. The
cost estimates are prepared by local company and third-party engineers based on
the applicable local, state and federal regulations and site specific permit
requirements. Future capacity estimates are updated using aerial surveys of each
landfill to estimate utilized disposal capacity and remaining disposal capacity.
These cost and capacity estimates are reviewed and approved by senior operations
management annually.
58
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Landfill assets --
We use the units of production method for purposes of calculating the
amortization rate at each landfill. This methodology divides the costs
associated with acquiring, permitting and developing the entire landfill by the
total remaining capacity of that landfill. The resulting per unit amortization
rate is applied to each unit disposed at the landfill and is recorded as expense
for that period. We expensed approximately $131.8 million and $81.5 million or
an average of $1.35 per cubic yard and $1.28 per cubic yard consumed, related to
landfill amortization during the years ended December 31, 2000 and 1999,
respectively. The following is a rollforward of our investment in our landfill
assets excluding land held for permitting as landfills (in thousands):
Net Book Value
of Landfills
Acquired During Landfill
Net Book Value at 2000, net of Development Landfill Net Book Value at
December 31, 1999 Divestitures Costs Amortization December 31, 2000
- --------------------------- ---------------------- ------------------- --------------- ---------------------
$ 1,421,673 188,230 170,900 (131,795) $ 1,649,008
Costs associated with developing the landfill include direct costs such as
excavation, liners, leachate collection systems, engineering and legal fees, and
capitalized interest. Estimated total future development cost for our 164 active
landfills is approximately $3.1 billion, excluding capitalized interest, and we
expect that this amount will be spent over the remaining operating lives of the
landfills. We have available disposal capacity of approximately 3.0 billion
cubic yards as of December 31, 2000. We classify this total disposal capacity as
either permitted (having received the final permit from the governing
authorities) and deemed permitted. Our internal requirements to classify
capacity as deemed permitted are as follows:
1. Control of and access to the land where the expansion permit is being
sought.
2. All geologic and other technical siting criteria for a landfill have
been met, or a variance from such requirements has been received (or
can reasonably be expected to be achieved).
3. The political process has been assessed and there are no identified
impediments that cannot be resolved.
4. We are actively pursuing the expansion permit and an expectation that
the final local, state and federal permits will be received within the
next five years.
5. Senior operations management approval has been obtained.
Upon successfully meeting the preceding criteria, the costs associated with
developing, constructing, closing and monitoring the total additional future
capacity are considered in the calculation of the amortization and closure and
post-closure rates. At December 31, 2000, we had 2.41 billion cubic yards of
permitted capacity, and at 43 of our landfills, 589.3 million cubic yards of
deemed permitted capacity.
59
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects landfill airspace activity for active landfills we
owned or operated for the twelve months ended December 31, 2000 (airspace in
millions of cubic yards):
Additions
Balance Acquisitions, Additions To Changes in Balance
as of Divestitures to Deemed Permitted Airspace Engineering as of
12/31/99 and Closures(1) Airspace Airspace Consumed Estimates 12/31/00
---------- ----------------- ------------ ---------- ------------ --------------- -----------
Permitted airspace........ 2,108.0 195.9 -- 202.2 (97.6) 0.7 2,409.2
Number of landfills....... 151 13 -- -- -- -- 164
Deemed airspace........... 545.0 37.8 162.4 (155.3) -- (0.6) 589.3
Number of landfills....... 37 4 10 (8) -- -- 43
---------- ----------------- ------------ ---------- ------------ --------------- -----------
Total airspace............ 2,653.0 233.7 162.4 46.9 (97.6) 0.1 2,998.5
Number of landfills....... 151 13 -- -- -- -- 164
(1) Landfills classified as assets held for sale are included as
divestitures.
Allied and its engineering and legal consultants continually monitor the
progress of obtaining local, state and federal approval for each of its
expansion permits. If it is determined that the expansion no longer meets our
criteria, the capacity is removed from our total available capacity, the costs
to develop that capacity and the associated closure and post-closure costs are
removed from the landfill amortization base, and rates are adjusted
prospectively. In addition, any value assigned to deemed permitted capacity
would be written-off to expense during the period in which it is determined that
the criteria are no longer met.
Closure and post-closure --
Estimated costs for closure and post-closure as required under Subtitle D
regulations are compiled and updated annually for each landfill by local and
regional company engineers and reviewed by senior management. The future
estimated closure and post-closure costs are increased at an inflation rate of
2.5%, and discounted at a risk-free capital rate of 7.0%, per annum, based on
the timing of the amounts to be expended. The following table is a summary of
the closure and post-closure costs (in thousands):
December 31, 2000 December 31, 1999
------------------ ------------------
Discounted Closure and Post-Closure Liability Recorded:
Current Portion......................................................... $ 90,785 $ 75,316
Non-Current Portion..................................................... 510,568 442,032
------------------ ------------------
Total................................................................... $ 601,353 $ 517,348
Estimated Remaining Closure and Post-Closure Costs to be Expended:
Discounted.............................................................. $ 1,222,920 $ 1,046,538
Undiscounted............................................................ 3,180,287 2,689,485
Estimated Total Future Payments:
2001...................................................................... $ 90,785
2002...................................................................... 92,703
2003...................................................................... 76,548
2004...................................................................... 54,873
2005...................................................................... 49,344
Thereafter................................................................ 2,816,034
60
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our periodic closure and post-closure expense has two components. The first
component is the site specific per unit closure and post-closure expense. The
per unit rate is derived by dividing the estimated total remaining discounted
closure and post-closure costs by the remaining disposal capacity at each
landfill (consistent with the capacity used to calculate landfill amortization
rates). We use the resulting site-specific rates to record expense during a
given period based upon the consumption of disposal capacity during that period.
The second component is the accretion expense necessary to increase the accrued
closure and post-closure reserve balance to its future, or undiscounted, value.
To accomplish this, we accrete our closure and post-closure accrual balance
using the current risk-free capital rate and charge this accretion as an
operating expense in that period. We charged approximately $61.7 million and
$35.2 million, or an average of $0.63 per cubic yard and $0.55 per cubic yard
consumed, related to per unit closure and post-closure expense and periodic
accretion during the years ended December 31, 2000 and 1999, respectively.
Changes in estimates of costs or capacity are treated on a prospective basis.
Environmental costs ---
In connection with the acquisition of companies, we engage independent
environmental consulting firms to assist in conducting an environmental
assessment of companies acquired from third parties. Several contaminated
landfills and other properties were identified during 1999 and 1998 that would
require us to incur costs for incremental closure and post-closure measures,
remediation activities and litigation costs in the future. Based on information
available, we recorded a provision of $3.3 million, $267.0 million and $41.1
million for environmental matters, in the 2000, 1999 and 1998 statements of
operations, respectively, and expect these amounts to be disbursed over the next
30 years.
The ultimate amounts for environmental liabilities cannot be determined and
estimates of such liabilities made by us, after consultation with our
independent environmental engineers, require assumptions about future events due
to a number of uncertainties including the extent of the contamination, the
appropriate remedy, the financial viability of other potentially responsible
parties and the final apportionment of responsibility among the potentially
responsible parties. Where we have concluded that our estimated share of
potential liabilities is probable, a provision has been made in the consolidated
financial statements. Since the ultimate outcome of these matters may differ
from the estimates used in our assessment to date, the recorded liabilities will
be periodically evaluated, as additional information becomes available to
ascertain whether the accrued liabilities are adequate. We have determined that
the recorded liability for environmental matters as of December 31, 2000 and
1999 of approximately $432.5 million and $478.2 million, respectively,
represents the most probable outcome of these contingent matters. We do not
reduce our estimated obligations for proceeds from other potentially responsible
parties or insurance companies. If receipt is probable, proceeds are recorded as
an offset to environmental expense in operating income. There were no
significant recovery receivables outstanding as of December 31, 2000 or 1999. We
do not expect that adjustments to estimates, which are reasonably possible in
the near term and that may result in changes to recorded amounts, will have a
material effect on our consolidated liquidity, financial position or results of
operations. However, we believe that it is reasonably possible the ultimate
outcome of environmental matters, excluding closure and post-closure could
result in approximately $30 million of additional liability.
61
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the activity and balances related to environmental
accruals and for closure and post-closure accruals related to open and closed
landfills from December 31, 1997 through December 31, 2000 (in thousands):
Balance at Charges to Other Balance at
12/31/97 Expense Charges(1) Payments 12/31/98
------------- ---------------- ------------- -------------- --------------
Environmental costs............................ $ 63,762 $ 41,100 $ -- $ (11,489) $ 93,373
Open landfills closure and post-closure costs.. 103,751 15,384 3,820 (1,596) 121,359
Closed landfills closure and post-closure costs 40,880 2,223 -- (9,915) 33,188
Balance at Charges to Other Balance at
12/31/98 Expense Charges(1) Payments 12/31/99
------------- ---------------- ------------- -------------- --------------
Environmental costs............................ $ 93,373 $ 267,034 $ 131,909 $ (14,122) $ 478,194
Open landfills closure and post-closure costs.. 121,359 28,163 175,955 (11,677) 313,800
Closed landfills closure and post-closure costs 33,188 7,079 176,266 (12,985) 203,548
Balance at Charges to Other Balance at
12/31/99 Expense Charges(1) Payments 12/31/00
------------- ---------------- ------------- -------------- --------------
Environmental costs............................ $ 478,194 $ 3,331 $ (9,436) $ (39,636) $ 432,453
Open landfills closure and post-closure costs.. 313,800 47,134 34,438 (18,925) 376,447
Closed landfills closure and post-closure costs 203,548 14,593 46,662 (39,897) 224,906
(1) Amounts consist primarily of liabilities related to acquired and
divested companies.
8. Employee Benefit Plans
Effective July 30, 1999, in connection with the acquisition of BFI, we assumed
two defined benefit retirement plans covering substantially all BFI employees in
the United States, except for certain employees subject to collective bargaining
agreements. The BFI retirement plan was amended on July 30, 1999 to freeze
future credited service, but interest credits will continue to accrue. Certain
union participants will continue to receive 2% annual service credits in
addition to interest credits through the duration of the current collective
bargaining agreements. The benefits not frozen for this plan are based on years
of service and the employee's compensation. Our general funding policy for each
pension plan is to make annual contributions to the plans as determined to be
required by the plans' actuary. No contributions were required during 1999 or
2000.
The BFI San Mateo Pension Plan covers substantially all employees of this
location. Benefits are based on the employee's years of service and compensation
using the average of earnings over the highest five consecutive calendar years
out of the last fifteen years of service.
62
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For both plans, an actuarial valuation report was prepared as of September 30,
1999 and 2000 and used, as permitted by Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits ("SFAS 132"), for the following disclosures (in
thousands):
For the Period from For the Period from
September 30, 1999 July 30, 1999
Change in Benefit Obligation through through
September 30, 2000 September 30, 1999
------------------------ ---------------------------
Benefit obligation at beginning of period..................... $ 249,110 $ 247,875
Service cost.................................................. 1,094 496
Interest cost................................................. 17,965 7,945
Actuarial gain................................................ (10,665) (4,994)
Benefits paid................................................. (20,531) (2,212)
------------------------ ---------------------------
Benefit obligation at end of period........................... $ 236,973 $ 249,110
Change in Plan Assets
Fair value of plan assets at beginning of period.............. $ 304,274 $ 309,092
Actual return on plan assets.................................. 70,464 (2,606)
Benefits paid................................................. (20,531) (2,212)
------------------------ ---------------------------
Fair value of plan assets at end of period.................... 354,207 304,274
Funded Status................................................. 117,234 55,164
Unrecognized net actuarial (gain) loss........................ (34,333) 10,768
------------------------ ---------------------------
Prepaid benefit cost.......................................... $ 82,901 $ 65,932
======================== ===========================
- ----------------------------------------------------------------------------------------------------------------------------
Amounts Recognized in the Statement of Financial Position
December 31, 2000 December 31, 1999
------------------------ ---------------------------
Prepaid benefit cost.......................................... $ 82,901 $ 65,932
- ----------------------------------------------------------------------------------------------------------------------------
For the Period from
Components of Net Periodic Benefit Cost For the Year Ended July 30, 1999 through
December 31, 2000 December 31, 1999
------------------------ ---------------------------
Service cost.................................................. $ 1,094 $ 496
Interest cost................................................. 17,965 7,945
Expected return on plan assets................................ (34,630) (13,155)
Recognized net actuarial gain................................. (1,398) --
------------------------ ---------------------------
Net periodic benefit cost..................................... $ (16,969) $ (4,714)
======================== ===========================
Weighted-Average Assumptions at September 30, 2000 and 1999
Discount rate................................................. 7.75% 7.75%
Expected return on plan assets................................ 10.25% 10.25%
Average rate of compensation increase......................... 4.00% 4.00%
63
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Redeemable Preferred Stock
In connection with the BFI acquisition, our Board of Directors adopted a
resolution creating a series of one million shares of preferred stock having a
par value of $0.10 per share. These shares were designated as Series A Senior
Convertible Preferred Stock ("Preferred Stock") and are entitled to vote on,
among other things, all matters on which the holders of Common Stock are
entitled to vote. Each share of Preferred Stock has the number of votes equal to
the number of shares of Common Stock then issuable upon conversion. Shares of
Preferred Stock will be entitled to cumulative quarterly dividends in an amount
equal to 6.5% per annum of the sum of the liquidation preference plus accrued
but unpaid dividends for prior quarters. If dividends are not paid in cash, the
liquidation preference of the Preferred Stock increases by any accrued and
unpaid dividends.
The Preferred Stock has a redemption price of its then liquidation preference
per share, together with any accrued and unpaid dividends. Redemption of the
Preferred Stock is at our option in whole, but not in part, at any time on or
after July 30, 2004. After July 30, 2002, we have the right to redeem the
Preferred Stock in whole, but not in part, at the redemption price only if the
then current market price of our Common Stock exceeds $27 per share.
The Preferred Shareholders have the right to convert each share of Preferred
Stock into the number of shares of Common Stock obtained by dividing the
redemption price plus any accrued and unpaid dividends on the conversion date by
the conversion price of $18 per share, subject to customary anti-dilution
adjustments. Upon a change in control, we are required to make an offer to
purchase for cash all shares of Preferred Stock at 101% of liquidation
preference plus accrued but unpaid dividends.
The amounts added to the liquidation preference of the Preferred Stock were
approximately $68.4 million or $68.44 per share during the year ended December
31, 2000 and approximately $27.6 million or $27.61 per share for the five months
ended December 31, 1999.
10. Stockholders' Equity
Our authorized, issued and outstanding shares of common stock are as follows (in
thousands, except per share data):
Issued and Outstanding
At December 31,
----------------------------------
Authorized
Shares 2000 1999
-------------- ---------------- --------------
Common stock, $0.01 par, net of 603 treasury shares........... 300,000 196,109 188,519
Warrants to purchase common stock --
Warrants to purchase common shares at December 31, 2000 and 1999 are summarized
as follows:
2000 1999
-------------------- -------------------
Number of shares...................................................... 347,827 347,827
Purchase price per share.............................................. $4.60 $4.60
Expiration dates...................................................... 2003 2003
64
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Plans
Option plans --
The 1991 Incentive Stock Plan ("1991 Plan"), the 1993 Incentive Stock Plan
("1993 Plan") and the 1994 Incentive Stock Plan ("1994 Plan", collectively the
"Plans") provide for the grant of non-qualified stock options, incentive stock
options, shares of restricted stock, shares of phantom stock and stock bonuses.
During 1999, the 1991 Plan was amended so that the maximum number of shares that
may be granted may not exceed 8.0% of the number of fully diluted shares of
common stock on the date of grant of an award. An additional maximum number of
shares of 500,000 and 2,000,000 common shares may be granted under the 1993 Plan
and the 1994 Plan, respectively. After taking into account previously granted
awards, awards covering approximately 606,741 shares of common stock were
available under the Plans. The Compensation Committee of the Board of Directors
generally determines the exercise price, term and other conditions applicable to
each option granted.
The 1994 Amended and Restated Non-Employee Director Stock Option Plan provides
for the grant of non-qualified options to each member of the Board of Directors,
who is not also our employee, at a price equal to the fair market value of a
common share on the date of grant. The maximum number of shares, which may be
granted under the plan, is 1,150,000 common shares. All options granted under
the plan are fully vested and exercisable on the date of grant and expire ten
years from the grant date.
A summary of the status of our stock option plans at December 31, 2000, 1999 and
1998 and for the years then ended is presented in the table and narrative below:
Years Ended December 31,
-------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ -------------------------------- --------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------- ------------ --------------- ------------- --------------- -------------
Options outstanding,
beginning of year......... 15,415,129 $ 13.37 10,786,000 $ 12.97 8,831,266 $ 8.19
Options granted............. 2,203,800 11.65 6,085,000 13.11 3,656,562 22.29
Options exercised........... (375,927) 5.90 (1,231,771) 7.97 (1,701,828) 8.50
Options forfeited........... (1,791,360) 17.57 (224,100) 16.88 -- --
------------- --------------- ---------------
Options outstanding, end
of year................... 15,451,642 12.82 15,415,129 13.37 10,786,000 12.97
============= =============== ===============
Options exercisable, end
of year................... 7,832,176 14.44 6,628,574 12.52 6,220,735 11.02
65
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We account for our stock-based compensation plans under APB 25, under which no
compensation expense has been recognized, as all options have been granted with
an exercise price equal to the fair value of our Common Stock upon the date of
grant. The fair value of each option grant has been estimated as of the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
For the Years Ended December 31,
-------------------------------------------------------------
2000 1999 1998
----------------- ----------------- ------------------
Risk free interest rate............................. 5.3% to 6.9% 5.2% to 6.3% 4.7% to 5.6%
Expected life....................................... 5 years 5 years 5 years
Dividend rate....................................... 0% 0% 0%
Expected volatility................................. 52% to 55% 47% to 50% 44% to 46%
Using these assumptions, pro forma net income (loss) and net income (loss) per
share would reflect additional compensation expense recognized over the vesting
periods of the options. The resulting pro forma net income (loss), and pro forma
net income (loss) per share is as follows (in thousands, except per share data):
For the Years Ended December 31,
------------------------------------------------------
2000 1999 1998
-------------- --------------- ----------------
Net Income (loss): As reported...... $ 55,935 $ (316,517) $ (223,052)
Pro forma........ 42,634 (325,973) (229,928)
Net Income (loss) Per Share: As reported...... $ 0.29 $ (1.69) $ (1.22)
Pro forma........ 0.22 (1.74) (1.26)
66
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize information about stock options outstanding at
December 31, 2000 which are fully vested, partially vested and non-vested:
Fully Vested:
Options Outstanding and Exercisable
- -------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Range of Exercise Prices Number Outstanding Remaining Life Exercise Price
- -------------------------------- ------------------- ----------------------- -----------------------
$ 4.27 - $ 8.38 1,926,848 5 years $ 5.46
$ 8.50 - $12.25 1,638,342 6 years $ 9.73
$16.44 - $21.97 494,629 8 years $ 19.71
$22.84 - $27.27 140,349 8 years $ 26.26
Partially Vested:
Options Outstanding
- -------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Range of Exercise Prices Number Outstanding Remaining Life Exercise Price
- -------------------------------- -------------------- ------------------------ -----------------------
$ 7.31 - $10.00 2,466,374 7 years $ 9.32
$13.31 - $15.00 4,741,000 9 years $ 13.72
$15.88 - $21.19 2,025,600 7 years $ 20.78
Options Exercisable
- -------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Range of Exercise Prices Number Outstanding Remaining Life Exercise Price
- -------------------------------- -------------------- ------------------------ -----------------------
$ 7.31 - $10.00 1,313,692 7 years $ 9.58
$13.31 - $15.00 1,185,250 9 years $ 13.72
$15.88 - $21.19 1,133,066 8 years $ 20.76
Non Vested:
Options Outstanding
- -------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Range of Exercise Prices Number Outstanding Remaining Life Exercise Price
- -------------------------------- -------------------- ------------------------ -----------------------
$ 6.06 - $ 8.00 243,000 10 years $ 7.68
$ 9.63 - $12.94 1,775,500 10 years $ 12.72
67
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stockholder rights plan --
During May 2000, our Board of Directors adopted a Stockholder Rights Plan (the
"Plan"). The Plan provides for the distribution of one preferred stock purchase
right on each share of our Common Stock and approximately 57 rights on each
share of our Preferred Stock. Initially, the rights will trade with the Common
Stock and Preferred Stock and will not be represented by separate certificates.
The rights represent the right to purchase one ten-thousandth of a share of a
newly created series of our junior preferred stock at an exercise price of $85,
but will not be exercisable until certain events occur.
The rights will be exercisable only if a person or group acquires 15% or more of
our voting stock or announces a tender offer which, if consummated, would result
in such an acquisition. Following an acquisition of 15% or more of our voting
stock, each right will entitle its holder, at the right's then current exercise
price, to purchase a fractional number of junior preferred shares having a
market value of twice the exercise price.
In addition, if we are acquired in a merger or other business combination
transaction after a person has acquired 15% or more of our voting stock, each
right will entitle its holder to purchase, at the right's then current exercise
price, a number of the acquiring company's common shares having a market value
of twice such price.
Prior to the acquisition by a person or group of 15% or more of our voting
stock, the rights are redeemable at the option of the Board of Directors.
The stock ownership of the holders of our Preferred Stock and related parties
will not cause the rights to become exercisable or otherwise be treated as the
acquisition of 15% or more of our voting power for purposes of the rights plan.
The rights expire in 2010.
Restricted stock plan --
In April 2000, we amended and restated the 1991 Plan, whereby the Committee may
award restricted stock to certain individuals. Restricted stock is common shares
of Allied that cannot be sold or transferred and that remain subject to being
forfeited until the individual becomes "vested". Generally, if the individual
terminates employment prior to vesting, the unvested shares are forfeited.
The Committee has awarded restricted stock to certain individuals pursuant to a
Performance-Accelerated Restricted Stock Agreement ("PARSAP") and may make
similar awards in the future. Under the terms of the PARSAP, an individual is
fully vested after 10 years, but may become vested sooner if certain performance
goals are met.
The performance goals are based on a targeted implied equity value per share
being met. Targets are set for three, four, and five years after the date the
restricted stock is awarded with provisions for accelerated vesting for up to
100% of the shares of restricted stock by the fifth year if the targets are met.
Vesting also may be accelerated if certain events occur. If an individual's
employment is terminated due to disability or death, any unvested shares of
restricted stock become fully vested at that time. If the individual's
employment is terminated in or after the sixth year, either by Allied without
cause or due to retirement, a portion of unvested shares may become fully
vested. The portion is determined with reference to the number of months worked
since the date of grant and the total number of months in the original 10 year
vesting period.
Vesting also may be accelerated in the case of a change in control. Vesting will
be accelerated under circumstances whereby a change in control occurs in
combination with certain set market prices per share of stock.
68
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2000, the Compensation Committee of the Board of Directors approved
grants of approximately 7.0 million shares of restricted stock to approximately
60 key management employees under this plan. The weighted average grant-date
fair value of shares granted during 2000 was $6.10 per share. None of the shares
are vested at December 31, 2000. During 2000 we recognized approximately $2.8
million recorded for compensation expense. At December 31, 2000 we have $39.9
million of deferred compensation related to this plan.
12. Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated by dividing net income (loss),
less dividend requirements on preferred stock, by the weighted average number of
common shares and common share equivalents outstanding during each period. The
computation of basic earnings per share and diluted earnings per share is as
follows (in thousands, except per share data):
For the Years Ended December 31,
----------------------------------------------------
2000 1999 1998
----------------- ---------------- ----------------
Basic earnings per share computation:
Income (loss) before extraordinary losses and cumulative
effect of change in accounting principle...................... $ 137,653 $ (221,250) $ (98,251)
Less: preferred stock dividends................................. 68,452 27,789 --
----------------- ---------------- ----------------
Income (loss) available to common shareholders before
extraordinary losses and cumulative effect of change in
accounting principle, net of income tax benefit............... $ 69,201 $ (249,039) $ (98,251)
================= ================ ================
Weighted average common shares outstanding...................... 188,814 187,801 182,796
================= ================ ================
Basic earnings (loss) per share before extraordinary losses
and cumulative effect of change in accounting principle,
net of income tax benefit..................................... $ 0.37 $ (1.33) $ (0.54)
================= ================ ================
Diluted earnings per share computation:
Income (loss) before extraordinary losses and cumulative
effect of change in accounting principle...................... $ 137,653 $ (221,250) $ (98,251)
Less: preferred stock dividends................................. 68,452 27,789 --
----------------- ---------------- ----------------
Income (loss) available to common shareholders before
extraordinary losses and cumulative effect of change in
accounting principle, net of income tax benefit............... $ 69,201 $ (249,039) $ (98,251)
================= ================ ================
Weighted average common shares outstanding...................... 188,814 187,801 182,796
Dilutive effect of stock, stock options, warrants and
contingently issuable shares.................................. 2,308 -- --
----------------- ---------------- ----------------
Weighted average common and common equivalent
shares outstanding............................................ 191,122 187,801 182,796
================= ================ ================
Diluted earnings (loss) per share before extraordinary
losses and cumulative effect of change in accounting
principle, net of income tax benefit.......................... $ 0.36 $ (1.33) $ (0.54)
================= ================ ================
Conversion has not been assumed for the Preferred Stock into 60,891 and 57,089
common shares and stock options of 2,663 and 12,468 in 2000 and 1999,
respectively as the effects would not be dilutive.
69
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Income Taxes
We account for income taxes using a balance sheet approach whereby deferred tax
assets and liabilities are determined based on the differences in financial
reporting and income tax basis of assets, other than non-deductible goodwill,
and liabilities. The differences are measured using the income tax rate in
effect during the year of measurement.
The acquisition of BFI in 1999, which was accounted for as a purchase business
combination, resulted in approximately $6.7 billion of goodwill, $6.4 billion of
which is not amortizable for income tax purposes. The impact of the
non-deductible amortization is reflected in the reconciliation of the federal
statutory tax rate to the effective tax rate.
As of December 31, 2000, approximately $173 million of capital loss carryforward
remains unused that will expire if not used by the end of 2003. We believe that
anticipated divestitures will generate sufficient capital gains to offset most
of the capital loss carryforward and we have established a $49 million valuation
allowance against the deferred tax asset for the amount of the carryforward
which may not offset capital gains. We also have federal net operating losses of
$112 million available at December 31, 2000. If unused, material portions of
these losses will begin to expire in 2018. Additionally, we have state net
operating loss carryforwards available at December 31, 2000 that we expect will
generate future tax savings of approximately $51 million. The state net
operating losses will expire at various times between 2001 and 2019 if not used.
We have established a valuation allowance of $35 million for the possibility
that some of these state carryforwards may not be used. In addition to the net
operating loss carryforwards, we have federal minimum tax credit carryforwards
of approximately $11 million as of December 31, 2000, which are not subject to
expiration. The net current deferred tax asset includes the current benefit we
expect to receive in 2001 from the use of our net operating loss, capital loss
and minimum tax credit carryforwards.
The balance sheet classification and amount of the tax accounts established
relating to acquisitions are based on certain assumptions that could possibly
change based on the ultimate outcome of certain tax matters. As these tax
accounts were established in purchase accounting, any future changes relating to
these amounts will result in balance sheet reclassifications, which may include
an adjustment to the goodwill. The valuation allowance at December 31, 2000
includes approximately $73 million related to the BFI acquisition, the
subsequent reduction of which would result in an adjustment to goodwill.
70
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the income tax provision (benefit) consist of the following
(in thousands):
Year Ended December 31,
---------------------------------------------------
2000 1999 1998
---------------- --------------- ------------
Current tax provision......................................... $ 44,486 $ 65,300 $ 2,000
Deferred provision (benefit).................................. 193,054 (74,056) 41,773
---------------- --------------- ------------
Total......................................................... $ 237,540 $ (8,756) $ 43,773
================ =============== ============
The reconciliation of the federal statutory tax rate to our effective tax rate
is as follows:
Year Ended December 31,
---------------------------------------------
2000 1999 1998
--------- ----------- ----------
Federal statutory tax rate.................................... 35.0 % (35.0) % (35.0) %
Consolidated state taxes, net of federal benefit.............. 7.2 (0.4) 9.2
Taxes of pooled companies..................................... -- (0.1) 70.6
Amortization of goodwill...................................... 16.0 11.2 3.7
Non-deductible write-off of goodwill and business
combination costs........................................... 1.8 16.2 28.8
Other permanent differences................................... 3.3 4.2 3.0
--------- ----------- ----------
Effective tax rate............................................ 63.3 % (3.9) % 80.3 %
========= =========== ==========
Tax benefits for the extraordinary items in 2000, 1999 and 1998 were based on
our then ordinary combined federal and state rates of 39.5%. Tax benefit for the
cumulative effect of change in accounting principle in 1999 was based on our
ordinary combined federal and state rate of 39.5%.
The components of the net deferred tax liability are as follows (in thousands):
December 31,
------------------------------------------
2000 1999
------------------- -------------------
Deferred tax liability relating primarily to property consisting
of landfill assets, fixed assets and debt basis differences.......... $ (714,529) $ (608,894)
------------------- -------------------
Deferred Tax Assets Relating To:
Environmental, closure and post-closure reserves....................... 326,866 61,982
Other reserves......................................................... 141,324 317,769
Net operating loss, capital loss and minimum tax credit
carryforwards........................................................ 179,183 278,232
Valuation allowance.................................................... (84,614) (138,612)
------------------- -------------------
Total deferred tax asset............................................... 562,759 519,371
------------------- -------------------
Net deferred tax liability............................................. $ (151,770) $ (89,523)
=================== ===================
Deferred income taxes have not been provided as of December 31, 2000 and 1999,
on approximately $36 million and $21 million, respectively, of undistributed
earnings of foreign affiliates, which are considered to be permanently
reinvested.
71
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Commitments and Contingencies
We are subject to extensive and evolving laws and regulations and have
implemented our own environmental safeguards to respond to regulatory
requirements. In the normal course of conducting our operations, we may become
involved in certain legal and administrative proceedings. Some of these actions
may result in fines, penalties or judgments against us, which may have an impact
on earnings for a particular period. We accrue for litigation and regulatory
compliance contingencies when such costs are probable and reasonably estimable.
We expect that matters in process at December 31, 2000, which have not been
accrued in the Consolidated Balance Sheet, will not have a material adverse
effect on our consolidated liquidity, financial position or results from
operations.
In connection with certain acquisitions, we have entered into agreements to pay
royalties based on waste tonnage disposed at specified landfills. The royalties
are generally payable quarterly and amounts earned, but not paid, are accrued in
the accompanying Consolidated Balance Sheets.
We have operating lease agreements for service facilities, office space and
equipment. Future minimum payments under non-cancelable operating leases with
terms in excess of one year are as follows (in thousands):
December 31, 2000
----------------------
2001 $ 31,045
2002 28,137
2003 24,936
2004 21,040
2005 18,713
Thereafter 41,109
Rental expense under such operating leases was approximately $31.0 million,
$26.9 million and $13.9 million for each of the three years ended December 31,
2000, respectively.
We have entered into employment agreements with certain of our executive
officers for periods up to three years. We have agreed to pay severance amounts
equal to a multiple of defined compensation under certain circumstances. In the
event of a material change in control, as defined in the employment agreements,
or termination of all executive officers under such agreements, we would be
required to make payments of approximately $12.3 million, in addition to a
reimbursement payment to eliminate the effect of any excise taxes associated
with this payment.
We carry a broad range of insurance coverage for protection of our assets and
operations from certain risks, including environmental impairment liability
insurance for certain landfills.
We are also required to provide financial assurances to governmental agencies
under applicable environmental regulations relating to our landfill operations
and collection contracts. These financial assurance requirements are satisfied
by us issuing performance bonds, letters of credit, insurance policies or trust
deposits to secure our obligations as they relate to landfill closure and
post-closure costs and performance under certain collection contracts. At
December 31, 2000, we had outstanding approximately $1.5 billion in financial
assurance instruments, represented by $369.3 million of surety bonds, $1,080.5
million of insurance policies, $64.9 million of trust deposits and $18.8 million
of letters of credit. During calendar year 2001, we expect no material increase
in financial assurance obligations relating to our landfill operations and
collection contracts.
72
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have issued bank letters of credit in the aggregate amount of approximately
$477.6 million at December 31, 2000, including approximately $18.8 million
relating to financial assurances to government agencies. These financial
instruments are issued in the normal course of business and are not reflected in
the accompanying Consolidated Balance Sheets. The underlying obligations of the
financial instruments are valued based on the likelihood of performance being
required. We do not expect any material losses to result from these off balance
sheet instruments based on historical results, and therefore, we are of the
opinion that the fair value of these instruments is zero.
Certain of our subsidiaries have 50% ownership interests in American Ref-Fuel
partnerships that construct, own and operate facilities which generate and sell
electricity from the incineration of solid waste. Substantially all of the
remaining ownership interests are held by Duke/UAE Ref-Fuel LLC, an entity
indirectly owned 65% by Duke Capital Corporation ("Duke Capital") and 35% by
United American Energy Corporation. Financing arrangements for four of these
projects include agreements with Allied and Duke Capital to each severally fund
one-half of each partnership's cash deficiencies resulting from the
partnership's failure to perform.
In the event of a partnership default which results in termination of
incineration service, we may limit our financial obligations to funding up to
50% of periodic payments related to outstanding debt, and in certain
circumstances other operating cash deficiencies. Average annual debt service on
50% of the aggregate American Ref-Fuel partnership debt over the next five years
is $50 million. Funding of operating cash deficiencies would not be required in
excess of $100 million or 50% of the deficiency, whichever is less. Under
support agreements with one of the partnerships, a subsidiary of Allied
guarantees to lend up to $2.5 million, defer operating cost reimbursement up to
$3.5 million and fund up to $2.5 million in operating damages under certain
circumstances.
On November 10, 2000, we entered into a definitive agreement to sell our
interest in two Ref-Fuel facilities located in Chester, Pennsylvania, and
Rochester, Massachusetts, to Duke/UAE. Additionally, pursuant to the agreement,
the ownership structure of the four remaining Ref-Fuel facilities located in New
York, New Jersey and Connecticut will be modified to give Duke/UAE operational
control of the entities. This transaction should allow us to reduce our debt
requirements by approximately $300 million and decrease our required letters of
credit related to Ref-Fuel by approximately $130 million. The transaction is
subject to customary closing provisions and the consents and approvals of
relevant municipalities and regulatory agencies, along with a requirement of
obtaining an investment grade rating of the acquiring entity from the credit
rating agencies. The ratings agency requirement has been met as of the date of
filing this report.
73
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Related Party Transactions
Transactions with related parties are entered into only upon approval by a
majority of our independent directors and only upon terms comparable to those
that would be available from unaffiliated parties.
16. Segment Reporting
We classify our operations into eight U.S. geographic regions: Atlantic,
Central, Northeast, Southeast, Great Lakes, Midwest, Southwest and West. Our
revenues are derived from one industry segment, which includes the collection,
transfer, recycling and disposal of non-hazardous solid waste. We evaluate
performance based on several factors, of which the primary financial measure is
EBITDA before acquisition related and unusual costs. The accounting policies of
the business segments are the same as those described in the Organization and
Summary of Significant Accounting Policies (See Note 1). The tables below
reflect certain geographic information relating to our operations (in
thousands):
Great
Atlantic Central Lakes Midwest Northeast Southeast Southwest West Other(1) Total
-------- ------- --------- --------- --------- --------- ---------- --------- ---------- ---------
2000:
Revenues from external
customers.......... $ 604,334 $ 529,003 $ 638,100 $ 483,240 $ 943,281 $ 772,027 $ 754,432 $ 950,664 $ 32,404 $5,707,485
Intersegment revenues 89,198 123,993 159,468 115,807 204,666 111,077 126,124 209,361 -- 1,139,694
Depreciation and
amortization....... 64,949 68,111 95,513 71,600 84,546 81,011 96,663 104,972 6,673 674,038
EBITDA before non-
recurring charges.. 211,525 180,711 250,669 228,711 244,217 296,104 297,181 354,788 (54,006) 2,009,900
Total assets......... 1,237,401 1,332,753 1,708,010 1,531,835 2,083,952 1,627,026 1,772,697 2,663,654 12,042,318 25,999,646
Capital expenditures. 38,202 47,833 46,162 33,276 36,196 39,841 60,737 82,431 5,240 389,918
1999:
Revenues from external
customers.......... $ 313,656 $ 405,557 $ 437,978 $ 323,984 $ 516,517 $ 308,742 $ 400,557 $ 616,799 $ 17,281 $3,341,071
Intersegment revenues 56,841 94,918 119,244 72,353 94,704 49,315 79,606 104,529 -- 671,510
Depreciation and
amortization....... 38,322 43,960 64,549 45,131 47,784 35,020 58,385 50,943 -- 384,094
EBITDA before non-
recurring charges.. 105,563 124,251 182,995 139,132 124,179 101,610 159,094 212,204 11,713 1,160,741
Total assets......... 1,467,231 1,005,625 1,801,617 1,464,808 2,233,476 1,670,626 1,928,064 2,065,265 11,904,199 25,540,911
Capital expenditures. 49,363 57,931 64,966 40,381 20,821 16,784 27,593 54,699 6,654 339,192
1998:
Revenues from external
customers.......... $ 104,587 $ 300,183 $ 296,894 $ 159,344 $ 164,701 $ 57,274 $ 148,768 $ 338,058 $ 5,803 $1,575,612
Intersegment revenues 14,728 56,522 68,675 37,524 21,314 12,743 35,626 34,289 -- 281,421
Depreciation and
amortization....... 11,858 29,566 41,794 22,533 13,006 5,829 20,111 28,397 6,871 179,965
EBITDA before non-
recurring charges.. 31,348 89,360 132,002 67,561 33,580 14,337 58,026 116,661 (15,371) 527,504
Total assets......... 198,064 547,108 747,767 445,185 439,215 98,729 376,442 595,290 2,108,367 5,556,167
Capital expenditures. 48,752 42,416 67,987 31,023 8,064 10,302 35,142 54,149 3,907 301,742
(1) Amounts relate primarily to our subsidiaries which provide services
throughout the organization and not on a regional basis.
74
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of reportable segment primary financial measure and assets to
operating income (loss) and total assets, respectively (in thousands):
Years Ended December 31,
---------------------------------------------------
2000 1999 1998
--------------- --------------- -------------
Operating income:
Total EBITDA before acquisition related and unusual costs
for reportable segments..................................... $ 2,009,900 $ 1,160,741 $ 527,504
Depreciation and amortization for reportable segments......... 674,038 384,094 179,965
Acquisition related and unusual costs......................... 127,327 588,855 317,616
--------------- --------------- -------------
Operating income............................................ $ 1,208,535 $ 187,792 $ 29,923
=============== =============== =============
December 31,
-----------------------------------
2000 1999
---------------- ---------------
Assets:
Total assets for reportable segments........................................... $ 25,999,646 $ 25,540,911
Elimination of investments..................................................... (11,486,012) (10,577,810)
---------------- ---------------
Total assets................................................................. $ 14,513,634 $ 14,963,101
================ ===============
Amounts and percentages of our total revenue attributable to services provided
(in thousands, except percentages):
Years Ended December 31,
--------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- ---------------------------- ---------------------------
Collection........ $ 4,227,680 61.7 % $ 2,422,628 60.4 % $ 1,041,441 56.1 %
Disposal(1)....... 1,993,276 29.1 1,261,106 31.4 697,972 37.6
Recycling......... 384,027 5.6 203,632 5.1 64,385 3.5
Other............. 242,196 3.6 125,215 3.1 53,235 2.8
--------------- -------- --------------- --------- ---------------- -------
6,847,179 100.0 % 4,012,581 100.0 % 1,857,033 100.0 %
======== ========= =======
Intercompany...... (1,139,694) (671,510) (281,421)
--------------- --------------- ----------------
Reported
revenues...... $ 5,707,485 $ 3,341,071 $ 1,575,612
=============== =============== ================
(1) Transfer revenues are included in disposal.
75
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Selected Quarterly Financial Data (unaudited)
The following table summarizes the unaudited consolidated quarterly results of
operations as reported for 2000 and 1999 (in thousands, except per share
amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- -------------- --------------
2000
Operating revenues:........................... $ 1,378,293 $ 1,461,854 $ 1,474,731 $ 1,392,607
Gross profit:................................. 568,337 611,733 640,608 606,780
Income before extraordinary items:............ 24,957 47,696 28,740 36,260
Net income available to common
shareholders:............................... 1,863 30,817 4,618 18,637
Basic earnings per common share:.............. 0.13 0.25 0.15 0.19
Diluted earnings per common share:............ 0.13 0.25 0.15 0.19
First Second Third Fourth
Quarter Quarter Quarter(2) Quarter
------------- ------------- -------------- --------------
1999
Operating revenues:........................... $ 408,045 $ 463,357 $ 1,085,628 $ 1,384,041
Gross profit:................................. 178,031 206,345 449,937 557,794
Income (loss) before extraordinary items
and cumulative effect of change in
accounting principle:(1).................... 33,174 46,894 (332,330) 31,012
Net income (loss) available to common
shareholders: (1)........................... (31,081) 46,894 (346,772) 14,442
Basic earnings (loss) per common
share:(1)................................... 0.18 0.25 (1.77) 0.16
Diluted earnings (loss) per common
share:(1)................................... 0.17 0.25 (1.77) 0.16
(1) The first and second quarters have been restated to reflect the effect of
the change in accounting principle (See Note 1).
(2) Includes approximately $548.7 million of acquisition related and unusual
costs.
18. Consolidating Financial Statements of Allied NA
As discussed in Note 6, the 1998 Senior Notes and the 1999 Notes issued by
Allied NA (our wholly owned subsidiary) and certain debt of BFI (all of which is
no longer registered under the Securities Exchange Act of 1934) are guaranteed
by us. Our guarantee is full, unconditional and joint and several of Allied NA's
and BFI's debt. Presented below are Consolidating Balance Sheets as of December
31, 2000 and 1999 and the related Consolidating Statements of Operations and
Cash Flows for the years ended December 31, 2000, 1999 and 1998 of Allied Waste
Industries, Inc. ("Parent"), the guarantor subsidiaries ("Guarantors") and the
subsidiaries which are not guarantors ("Non-guarantors") (in thousands):
76
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
(in thousands, except per share amount)
December 31, 2000
----------------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
---------------- --------------- ---------------- --------------- ----------------
ASSETS
Current Assets --
Cash and cash equivalents.......... $ 959 $ 120,699 $ 436 $ -- $ 122,094
Accounts receivable, net of
allowance of $43,099............. -- 823,259 -- -- 823,259
Prepaid and other current assets... -- 116,853 2,630 -- 119,483
Deferred income taxes, net......... -- 206,867 -- -- 206,867
---------------- --------------- ---------------- --------------- ----------------
Total current assets............. 959 1,267,678 3,066 -- 1,271,703
Property and equipment, net........ -- 3,860,538 -- -- 3,860,538
Goodwill, net ..................... -- 8,717,438 -- -- 8,717,438
Investment in subsidiaries......... 176,400 47,715 -- (224,115) --
Other assets, net.................. -- 663,955 -- -- 663,955
---------------- --------------- ---------------- --------------- ----------------
Total assets..................... $ 177,359 $ 14,557,324 $ 3,066 $ (224,115) $ 14,513,634
================ =============== ================ =============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt.. $ -- $ 13,997 $ -- $ -- $ 13,997
Accounts payable................... -- 476,333 -- -- 476,333
Accrued closure, post-closure
and environmental costs.......... -- 153,226 -- -- 153,226
Accrued interest................... -- 165,954 -- -- 165,954
Other accrued liabilities.......... 29,254 529,965 4,935 -- 564,154
Unearned revenue................... -- 224,801 1,287 -- 226,088
---------------- --------------- ---------------- --------------- ----------------
Total current liabilities........ 29,254 1,564,276 6,222 -- 1,599,752
Long-term debt, less current
portion.......................... -- 9,635,124 -- -- 9,635,124
Deferred income taxes.............. -- 358,637 -- -- 358,637
Accrued closure, post-closure
and environmental costs.......... -- 880,580 -- -- 880,580
Due to/(from) parent............... (2,252,840) 2,183,578 (58,115) 127,377 --
Other long-term obligations........ -- 271,882 -- -- 271,882
Commitments and contingencies
Series A senior convertible
preferred stock, 1,000 shares
authorized, issued and
outstanding, liquidation
preference of $1,096 per share... 1,069,827 -- -- -- 1,069,827
Stockholders' Equity --
Common stock....................... 1,961 -- 200 (200) 1,961
Additional paid-in capital......... 1,238,571 -- 47,515 (145,314) 1,140,772
Retained earnings (deficit)........ 90,586 (336,753) 7,244 (205,978) (444,901)
---------------- --------------- ---------------- --------------- ----------------
Total stockholders' equity....... 1,331,118 (336,753) 54,959 (351,492) 697,832
---------------- --------------- ---------------- --------------- ----------------
Total liabilities and
stockholders' $ 177,359 $ 14,557,324 $ 3,066 $ (224,115) $ 14,513,634
equity......................... ================ =============== ================ =============== ================
77
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
(in thousands, except per share amount)
December 31, 1999
----------------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
---------------- --------------- ---------------- --------------- ----------------
ASSETS
Current Assets --
Cash and cash equivalents.......... $ 3,759 $ 117,396 $ 250 $ -- $ 121,405
Accounts receivable, net of
allowance of $59,490............. -- 867,667 -- -- 867,667
Prepaid and other current assets... -- 251,757 430 -- 252,187
Deferred income taxes, net......... -- 115,263 -- -- 115,263
Assets held for sale............... -- 891,900 -- -- 891,900
---------------- --------------- ---------------- --------------- ----------------
Total current assets............. 3,759 2,243,983 680 -- 2,248,422
Property and equipment, net........ -- 3,738,388 -- -- 3,738,388
Goodwill, net ..................... -- 8,238,929 -- -- 8,238,929
Investment in subsidiaries......... 176,400 -- -- (176,400) --
Other assets, net.................. -- 737,362 -- -- 737,362
---------------- --------------- ---------------- --------------- ----------------
Total assets..................... $ 180,159 $ 14,958,662 $ 680 (176,400) $ 14,963,101
================ =============== ================ =============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt.. $ -- $ 1,002,928 $ -- $ -- $ 1,002,928
Accounts payable................... -- 481,318 -- -- 481,318
Accrued closure, post-closure
and environmental costs.......... -- 134,968 -- -- 134,968
Accrued interest................... -- 158,251 -- -- 158,251
Other accrued liabilities.......... 34,636 577,858 1,169 -- 613,663
Unearned revenue................... -- 238,548 (177) -- 238,371
---------------- --------------- ---------------- --------------- ----------------
Total current liabilities........ 34,636 2,593,871 992 -- 2,629,499
Long-term debt, less current
portion.......................... -- 9,240,291 -- -- 9,240,291
Deferred income taxes.............. -- 204,786 -- -- 204,786
Accrued closure, post-closure
and environmental costs.......... -- 860,574 -- -- 860,574
Due to/(from) parent............... (2,177,658) 2,128,178 (1,278) 50,758 --
Other long-term obligations........ -- 388,396 -- -- 388,396
Commitments and contingencies
Series A senior convertible
preferred stock, 1,000 shares
authorized, issued and
outstanding, liquidation
preference of $1,028 per share... 1,001,559 -- -- -- 1,001,559
Stockholders' Equity --
Common stock....................... 1,885 -- 100 (100) 1,885
Additional paid-in capital......... 1,233,851 -- (100) (28,352) 1,205,399
Retained earnings (deficit)........ 85,886 (457,434) 966 (198,706) (569,288)
---------------- --------------- ---------------- --------------- ----------------
Total stockholders' equity....... 1,321,622 (457,434) 966 (227,158) 637,996
---------------- --------------- ---------------- --------------- ----------------
Total liabilities and
stockholders' $ 180,159 $ 14,958,662 $ 680 $ (176,400) $ 14,963,101
equity......................... ================ =============== ================ =============== ================
78
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
Year Ended December 31, 2000
---------------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
--------------- --------------- ---------------- -------------- -----------------
Revenues................................ $ -- $ 5,705,555 $ 1,930 $ -- $ 5,707,485
Cost of operations excluding acquisition
related and unusual costs............. -- 3,280,027 -- -- 3,280,027
Selling, general and administrative
expenses excluding acquisition related
and unusual costs..................... 8,443 408,347 768 -- 417,558
Depreciation and amortization........... -- 450,794 -- -- 450,794
Goodwill amortization................... -- 223,244 -- -- 223,244
Acquisition related and unusual costs... -- 127,327 -- -- 127,327
--------------- --------------- ---------------- -------------- ----------------
Operating income...................... (8,443) 1,215,816 1,162 -- 1,208,535
Equity in earnings of unconsolidated
affiliates............................ -- (50,788) -- -- (50,788)
Interest income......................... -- (4,143) 16 -- (4,127)
Interest expense........................ -- 890,811 (8,529) -- 882,282
Intercompany interest expense (income).. (72,528) 72,528 -- -- --
Management fees......................... (5,000) 5,000 -- -- --
--------------- --------------- ---------------- -------------- ----------------
Income before income taxes............ 69,085 302,408 9,675 -- 381,168
Income tax expense...................... 28,574 205,570 3,396 -- 237,540
Minority interest....................... -- 5,975 -- -- 5,975
--------------- --------------- ---------------- -------------- ----------------
Income before extraordinary losses.... 40,511 90,863 6,279 -- 137,653
Extraordinary loss, net of income tax
benefit............................... -- 13,266 -- -- 13,266
--------------- --------------- ---------------- -------------- ----------------
Net income............................ 40,511 77,597 6,279 -- 124,387
Dividends on preferred stock............ 68,452 -- -- -- 68,452
--------------- --------------- ---------------- -------------- ----------------
Net income (loss) available to common
shareholders........................ $ (27,941) $ 77,597 $ 6,279 $ -- $ 55,935
=============== =============== =============== ================ ================
79
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
Year Ended December 31, 1999
---------------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
---------------- --------------- --------------- ---------------- ---------------
Revenues............................. $ -- $ 3,340,764 $ 307 $ -- $ 3,341,071
Cost of operations excluding
acquisition related and unusual -- 1,951,048 (2,084) -- 1,948,964
costs................................
Selling, general and administrative
expenses excluding acquisition
related and unusual costs.......... 3,302 227,824 240 -- 231,366
Depreciation and amortization........ -- 273,368 -- -- 273,368
Goodwill amortization................ -- 110,726 -- -- 110,726
Acquisition related and unusual costs -- 588,855 -- -- 588,855
--------------- --------------- ---------------- -------------- ----------------
Operating income................... (3,302) 188,943 2,151 -- 187,792
Equity in earnings of unconsolidated
affiliates......................... -- (20,785) -- -- (20,785)
Interest income...................... (4,028) (3,156) (28) -- (7,212)
Interest expense..................... -- 443,063 (19) -- 443,044
Intercompany interest expense
(income)........................... (77,329) 77,329 -- -- --
Management fees...................... (5,000) 5,000 -- -- --
--------------- --------------- ---------------- -------------- ----------------
Income (loss) before income taxes.. 83,055 (312,508) 2,198 -- (227,255)
Income tax expense (benefit)......... 33,388 (43,341) 1,197 -- (8,756)
Minority interest.................... -- 2,751 -- -- 2,751
--------------- --------------- ---------------- -------------- ----------------
Income (loss) before extraordinary
loss and cumulative effect of
change in accounting principle.... 49,667 (271,918) 1,001 -- (221,250)
Extraordinary loss, net of income
tax benefit........................ -- 3,223 -- -- 3,223
Cumulative effect of change in
accounting principle, net of income
tax benefit........................ -- 64,255 -- -- 64,255
--------------- --------------- ---------------- -------------- ----------------
Net income (loss).................. 49,667 (339,396) 1,001 -- (288,728)
Dividends on preferred stock......... 27,789 -- -- -- 27,789
--------------- --------------- ---------------- -------------- ----------------
Net income (loss) available to
common shareholders.............. $ 21,878 $ (339,396) $ 1,001 $ -- $ (316,517)
=============== =============== =============== ================ ================
80
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
Year Ended December 31, 1998
---------------------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
---------------- ----------------- ----------------- ----------------- ----------------
Revenues...................... $ -- $ 1,575,212 $ 400 $ -- $ 1,575,612
Cost of operations excluding
acquisition related and
unusual costs............... -- 892,273 -- -- 892,273
Selling, general and
administrative expenses
excluding acquisition
related and unusual costs... 4,601 150,932 302 -- 155,835
Depreciation and amortization. -- 149,260 -- -- 149,260
Goodwill amortization......... -- 30,705 -- -- 30,705
Acquisition related and
unusual costs............... -- 317,616 -- -- 317,616
----------------- ---------------- ----------------- ----------------- ----------------
Operating income............ (4,601) 34,426 98 -- 29,923
Interest income............... -- (4,022) (8) -- (4,030)
Interest expense.............. -- 88,431 -- -- 88,431
Intercompany interest
expense (income)............ (95,836) 95,836 -- -- --
Management fees............... (5,000) 5,000 -- -- --
----------------- ---------------- ----------------- ----------------- ----------------
Income (loss) before income
taxes..................... 96,235 (150,819) 106 -- (54,478)
Income tax expense............ 38,686 5,087 -- -- 43,773
----------------- ---------------- ----------------- ----------------- ----------------
Income (loss) before
extraordinary loss net of
income tax benefit......... 57,549 (155,906) 106 -- (98,251)
Extraordinary loss, net of
income tax benefit.......... -- 124,801 -- -- 124,801
----------------- ---------------- ----------------- ----------------- ----------------
Net income (loss)........... $ 57,549 $ (280,707) $ 106 $ -- $ (223,052)
================= ================ ================= ================= ================
81
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31, 2000
-------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
------------ ------------ ------------- ------------- --------------
Cash (used for) provided by operating activities .. $ (4,523) $ 855,368 $ (47,529) $ -- $ 803,316
Investing activities --
Cost of acquisitions, net of cash acquired ...... -- (802,876) -- -- (802,876)
Proceeds from divestitures, net of cash divested -- 1,039,182 -- -- 1,039,182
Other investing activities ...................... -- (493,972) 47,715 -- (446,257)
----------- ----------- ----------- --------- -----------
Cash (used for) provided by investing activities .. -- (257,666) 47,715 -- (209,951)
----------- ----------- ----------- --------- -----------
Financing activities --
Proceeds from common stock ...................... 1,724 -- -- -- 1,724
Proceeds from long-term debt, net of issuance ... -- 2,202,000 -- -- 2,202,000
costs
Repayments of long-term debt .................... -- (2,796,400) -- -- (2,796,400)
----------- ----------- ----------- --------- -----------
Cash provided by (used in) financing activities ... 1,724 (594,400) -- -- (592,676)
----------- ----------- ----------- --------- -----------
Increase (decrease) in cash and cash equivalents .. (2,799) 3,302 186 -- 689
Cash and cash equivalents, beginning of period .... 3,759 117,396 250 -- 121,405
----------- ----------- ----------- --------- -----------
Cash and cash equivalents, end of period .......... $ 960 $ 120,698 $ 436 $ -- $ 122,094
=========== =========== =========== ========= ===========
Year Ended December 31, 1999
--------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
------------ ----------- ---------- ----------- -----------
Cash (used for) provided by operating activities $ (981,443) $ 1,470,239 $ 215 $ -- $ 489,011
Investing activities --
Cost of acquisitions, net of cash acquired ... -- (7,589,597) -- -- (7,589,597)
Other investing activities ................... -- 127,065 -- -- 127,065
----------- ----------- ----------- --------- -----------
Cash used for investing activities ............. -- (7,462,532) -- -- (7,462,532)
----------- ----------- ----------- --------- -----------
Financing activities --
Net proceeds from sale of common stock and
exercise ....................................... -- 10,198 -- -- 10,198
of stock options and warrants
Net proceeds from sale of preferred stock .... 973,881 -- -- -- 973,881
Proceeds from long-term debt, net of issuance 10,189 8,662,106 -- -- 8,672,295
costs
Repayments of long-term debt ................. -- (2,601,190) -- -- (2,601,190)
----------- ----------- ----------- --------- -----------
Cash provided by financing activities .......... 984,070 6,071,114 -- -- 7,055,184
----------- ----------- ----------- --------- -----------
Increase in cash and cash equivalents .......... 2,627 78,821 215 -- 81,663
Cash and cash equivalents, beginning of period . 1,132 38,575 35 -- 39,742
----------- ----------- ----------- --------- -----------
Cash and cash equivalents, end of period ....... $ 3,759 $ 117,396 $ 250 $ -- $ 121,405
=========== =========== =========== ========= ===========
Year Ended December 31, 1998
--------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
------------ ------------ --------------- ------------- --------------
Cash provided by (used for) operating activities $ 246,580 $ (77,141) $ (46) $ -- $ 169,393
Cash used for investing activities ............. -- (678,341) -- -- (678,341)
Financing activities --
Proceeds from long-term debt, net of issuance 11,324 2,713,938 -- -- 2,725,262
costs
Repayments of long-term debt ................. (256,950) (2,008,791) -- -- (2,265,741)
Other financing activities ................... -- 55,849 -- -- 55,849
----------- ----------- ----------- --------- -----------
Cash provided by (used in) financing activities (245,626) 760,996 -- -- 515,370
----------- ----------- ----------- --------- -----------
Increase (decrease) in cash and cash equivalents 954 5,514 (46) -- 6,422
Cash and cash equivalents, beginning of period . 178 33,061 81 -- 33,320
----------- ----------- ----------- --------- -----------
Cash and cash equivalents, end of period ....... $ 1,132 $ 38,575 $ 35 $ -- $ 39,742
=========== =========== =========== ========= ===========
82
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this item is incorporated by reference to the material
appearing under the heading "Election of Directors" in the Proxy Statement for
the 2001 Annual Meeting of Stockholders.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the material
appearing under the heading "Executive Compensation" in the Proxy Statement for
the 2001 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference to the material
appearing under the heading "Other Information - Principal Stockholders" in the
Proxy Statement for the 2001 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference to the material
appearing under the heading "Certain Relationships and Related Transactions" in
the Proxy Statement for the 2001 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statement Schedules -
Schedule II - Valuation and Qualifying Accounts
Balance at Charges to Other Write-offs/ Balance at
12/31/97 Expense Charges(1) Payments 12/31/98
------------ -------------- ------------- -------------- -------------
Allowance for doubtful accounts...$ 9,348 $ 8,086 $ 1,912 $ (5,439) $ 13,907
Severance and termination costs... -- 34,328 -- (24,202) 10,126
Restructuring costs............... -- 10,152 -- (2,522) 7,630
Additions
Balance at Charges to through Other Write-offs/ Balance at
12/31/98 Expense Goodwill Charges(1) Payments 12/31/99
------------ -------------- ------------- ------------- -------------- -------------
Allowance for doubtful accounts...$ 13,907 $ 10,305 $ -- $ 51,341 $ (16,063) $ 59,490
Severance and termination costs... 10,126 499 52,254 -- (31,456) 31,423
Restructuring costs............... 7,630 565 1,426 -- (7,117) 2,504
Balance at Charges to Other Write-offs/ Balance at
12/31/99 Expense Charges(1) Payments 12/31/00
------------ -------------- ------------- -------------- -------------
Allowance for doubtful accounts...$ 59,490 $ 19,463 $ 6,421 $ (42,275) $ 43,099
Severance and termination costs... 31,423 -- -- (27,041) 4,382
Restructuring costs............... 2,504 6,074 -- (2,630) 5,948
(1) Amounts primarily relate to acquired companies.
Valuation and qualifying accounts not included above have been shown in Notes 1
and 7 of our financial statements included in Part II Item 8 of this Form 10-K.
83
Exhibit No. Description
- ----------- ------------
2.1 Amended and Restated Agreement and Plan of Reorganization between Allied
Waste Industries, Inc. and Rabanco Acquisition Company, Rabanco Acquisition
Company Two, Rabanco Acquisition Company Three, Rabanco Acquisition Company
Four, Rabanco Acquisition Company Five, Rabanco Acquisition Company Six,
Rabanco Acquisition Company Seven, Rabanco Acquisition Company Eight,
Rabanco Acquisition Company Nine, Rabanco Acquisition Company Ten, Rabanco
Acquisition Company Eleven, and Rabanco Acquisition Company Twelve. Exhibit
2.4 to Allied's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 is incorporated herein by reference.
2.2 Agreement and Plan of Merger dated as of August 10, 1998 by and among
Allied Waste Industries, Inc., AWIN II Acquisition Corporation and American
Disposal Services, Inc. Exhibit 2 to Allied's Current Report on Form 8-K
filed August 21, 1998 is incorporated herein by reference.
2.3 Agreement and Plan of Merger dated as of March 7, 1999 by and among Allied
Waste Industries, Inc., AWIN I Acquisition Corporation and Browning-Ferris
Industries, Inc. Exhibit 2 to Allied's Current Report on Form 8-K filed
March 16, 1999 is incorporated herein by reference.
3.1 Amended Certificate of Incorporation of Allied (Incorporated herein by
reference to Exhibit 3.1 to the Company's Report on Form 10-K for the
fiscal year ended December 31, 1996).
3.2 Amended and Restated Bylaws of Allied as of July 30, 1999.
3.3 Amendment to Amended Certificate of Incorporation of Allied dated October
15, 1998. Exhibit 3.4 to the Company's Report on Form 10-Q for the quarter
ended September 30, 1998 is incorporated herein by reference.
4.1 Specimen certificate for shares of Common Stock par value $.01 per share.
Exhibit 4.2 of Allied's Registration Statement on Form S-1 (No. 33-48507)
is incorporated herein by reference.
4.2 1991 Incentive Stock Plan of Allied. Exhibit 10.T to Allied's Form 10 dated
May 14, 1991, is incorporated herein by reference.
4.3 1991 Non-Employee Director Stock Plan of Allied. Exhibit 10.U to Allied's
Form 10 dated May 14, 1991, is incorporated herein by reference.
4.4 1993 Incentive Stock Plan of Allied. Exhibit 10.3 to Allied's Registration
Statement on Form S-1 (No. 33-73110) is incorporated herein by reference.
4.5 1994 Amended and Restated Non-Employee Director Stock Option Plan of
Allied. Exhibit B to Allied's Definitive Proxy Statement in accordance with
Schedule 14A dated April 28, 1994, is incorporated herein by reference.
4.6 Amendment to the 1994 Amended and Restated Non-Employee Director Stock
Option Plan. Exhibit 10.2 to Allied's Quarterly Report on Form 10-Q dated
August 10, 1995, is incorporated herein by reference.
4.7 Amended and Restated 1994 Incentive Stock Plan. Exhibit 10.1 to Allied's
Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated herein by
reference.
4.8 Amendment No. 1 to the 1991 Incentive Stock Plan dated November 1, 1996.
Exhibit 4.20 to Allied's Annual Report on Form 10-K dated March 31, 1998 is
incorporated herein by reference.
4.9 Senior Indenture relating to the 1998 Senior Notes dated as of December 23,
1998, by and among Allied NA and U.S. Bank Trust National Association, as
Trustee, with respect to the 1998 Senior Notes and Exchange Notes. Exhibit
4.1 to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.10 Five Year Series Supplemental Indenture relating to the 1998 Five Year
Notes, dated December 23, 1998, among Allied NA, the Guarantors and the
Trustee. Exhibit 4.2 to Allied's Registration Statement on Form S-4 (No.
333-70709) is incorporated herein by reference.
4.11 Form of Series B Five Year Notes (included in Exhibit 4.21). Exhibit 4.3 to
Allied's Registration Statement on Form S-4 (No. 333-70709) is incorporated
herein by reference.
4.12 Seven Year Series Supplemental Indenture relating to the 1998 Seven Year
Notes, dated December 23, 1998, among Allied NA, the Guarantors and the
Trustee. Exhibit 4.4 to Allied's Registration Statement on Form S-4 (No.
333-70709) is incorporated herein by reference.
4.13 Form of Series B Seven Year Notes (included in Exhibit 4.25). Exhibit 4.5
to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
84
4.14 Ten Year Series Supplemental Indenture relating to the 1998 Ten Year Notes,
dated December 23, 1998, among Allied NA, the Guarantors and the Trustee.
Exhibit 4.6 to Allied's Registration Statement on Form S-4 (No. 333-70709)
is incorporated herein by reference.
4.15 Form of Series B Ten Year Notes. Exhibit 4.7 to Allied's Registration
Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.
4.16 Fourth Supplemental Indenture relating to the 1998 Senior Notes, dated as
of July 30, 1999, among Allied NA, certain guarantors signatory thereto,
and U.S. Bank Trust National Association, as Trustee. Exhibit 4.26 to
Allied's Report on Form 10-Q for the quarter ended June 30, 2000, is
incorporated herein by reference.
4.17 Fifth Supplemental Indenture relating to the 1998 Senior Notes, dated as of
December 29, 1999, among Allied NA, certain guarantors signatory thereto,
and U.S. Bank Trust National Association, as Trustee. Exhibit 4.27 to
Allied's Report on Form 10-Q for the quarter ended June 30, 2000, is
incorporated herein by reference.
4.18 Collateral Trust Agreement, dated July 30, 1999, among Allied NA, certain
of its subsidiaries, and The Chase Manhattan Bank, as Collateral Trustee,
is incorporated herein by reference.
4.19 Shared Collateral Pledge Agreement, dated July 30, 1999, among Allied NA,
certain of its subsidiaries, and The Chase Manhattan Bank, as Collateral
Trustee, is incorporated herein by reference.
4.20 Shared Collateral Security Agreement, dated July 30, 1999, among Allied NA,
certain of its subsidiaries, and The Chase Manhattan Bank, as Collateral
Trustee, is incorporated herein by reference.
4.21 Certificate of Designation for Series A Senior Convertible Preferred Stock.
Exhibit 4.1 to Allied's current report on Form 8-K dated August 10, 1999,
is incorporated herein by reference.
4.22 Certificate of Designation for Series B Junior Preferred Stock. Exhibit 4.2
to Allied's current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.
4.23 Subordinated Indenture, dated July 30, 1999, among Allied NA, certain
guarantors signatory thereto, and U.S. Bank Trust National Association, as
Trustee, regarding the 10% Senior Subordinated Notes due 2009 of Allied NA.
Exhibit 4.1 to Allied's Registration Statement on Form S-4 (No. 333-91539),
is incorporated herein by reference.
4.24 First Supplemental Indenture, dated July 30, 1999 among Allied NA, certain
subsidiaries of Allied NA and U.S. Bank Trust, National Association, as
Trustee, regarding 10% Senior Subordinated Notes due 2009 of Allied NA.
Exhibit 4.3 to Allied's current report on Form 8-K dated August 10, 1999,
is incorporated herein by reference.
4.25 Second Supplemental Subordinated Indenture relating to the 10% Senior
Subordinated Notes due 2009 of Allied NA, dated December 29, 1999, among
Allied NA, certain guarantors signatory thereto, and U.S. Bank Trust
National Association, as Trustee. Exhibit 4.2 to Allied's Registration
Statement on Form S-4 (No. 333-91539), is incorporated herein by reference.
4.26 Form of 10% Series B Senior Subordinated Notes due 2009 (included in
Exhibit 4.25), is incorporated herein by reference.
4.27 Restated Indenture, relating to debt issued by BFI, dated September 1,
1991, among BFI and First City, Texas-Houston, National Association, as
Trustee, is incorporated herein by reference.
4.28 First Supplemental Indenture relating to the debt issued by BFI, dated July
30, 1999, among Allied, BFI and Chase Bank of Texas, National Association,
as Trustee, is incorporated herein by reference.
4.29 Rights Agreement, dated as of May 25, 2000, between Allied and American
Stock Transfer & Trust Company, as Rights Agent. Exhibit 1 to Allied's
Registration Statement on Form 8-A filed May 31, 2000, is incorporated
herein by reference.
10.1 Securities Purchase Agreement dated April 21, 1997 between Apollo
Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo
(U.K.) Partners III, L.P.; Blackstone Capital Partners II Merchant Banking
Fund L.P., Blackstone Offshore Capital Partners II L.P. and Blackstone
Family Investment Partnership II L.P.; Laidlaw Inc. and Laidlaw
Transportation, Inc.; and Allied Waste Industries, Inc. Exhibit 10.1 to
Allied's Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated herein by reference.
10.2 Executive Employment Agreement between Allied and with Henry L. Hirvela
dated February 23, 2000, is incorporated herein by reference.
85
10.3 Executive Employment Agreement between Allied and with Thomas H. Van
Weelden dated January 1, 1999. Exhibit 10.9 to Allied's Report on Form 10-Q
for the quarter ended March 31, 1999, is incorporated herein by reference.
10.4 Executive Employment Agreement between Allied and with Larry D. Henk dated
June 6, 1997. Exhibit 10.4 to Allied's Report on Form 10-Q for the quarter
ended June 30, 1997, is incorporated herein by reference.
10.5 Executive Employment Agreement between Allied and with Steven M. Helm dated
June 6, 1997. Exhibit 10.5 to Allied's Report on Form 10-Q for the quarter
ended June 30, 1997, is incorporated herein by reference.
10.6 Executive Employment Agreement between Allied and with Donald W. Slager
dated January 1, 1999. Exhibit 10.12 to Allied's Report on Form 10-Q for
the quarter ended March 31, 1999, is incorporated herein by reference.
10.7 Executive Employment Agreement between Allied and with Peter S. Hathaway
dated June 6, 1997. Exhibit 10.14 to Allied's Report on Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.
10.8 Executive Employment Agreement between Allied and with Michael G. Hannon
dated June 6, 1997. Exhibit 10.15 to Allied's Report on Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.
10.9 Registration Rights Agreement, dated as of July 30, 1999, by and among
Allied, the Guarantors and the initial purchasers, relating to the
$2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit 10.3 to
Allied's Current Report on Form 8-K dated August 10, 1999, is incorporated
herein by reference.
10.10Purchase Agreement dated July 27, 1999, by and among Allied, the
Guarantors and the initial purchasers, with respect to the $2,000,000,000
10% Senior Subordinated Notes due 2009. Exhibit 10.4 to Allied's Current
Report on Form 8-K dated August 10, 1999, is incorporated herein by
reference.
10.11Credit Facility dated as of July 21, 1999. Exhibit 10.1 to Allied's
current report on Form 8-K dated August 10, 1999, is incorporated herein by
reference.
10.12Non-Shared Collateral Security Agreement, dated July 30, 1999, among
Allied, Allied NA, certain of its subsidiaries, and The Chase Manhattan
Bank, as Collateral Agent, is incorporated herein by reference.
10.13Non-Shared Collateral Pledge Agreement, dated July 30, 1999, among Allied,
Allied NA, certain of its subsidiaries, and The Chase Manhattan Bank, as
Collateral Agent, is incorporated herein by reference.
10.14Second Amended and Restated Shareholders Agreement, dated as of July 30,
1999, between Allied and the purchasers of the Series A Senior Convertible
Preferred Stock and related parties. Exhibit 10.2 to Allied's current
report on Form 8-K dated August 10, 1999, is incorporated herein by
reference.
10.15Amended and Restated Registration Rights Agreement dated as of July 30,
1999, between Allied and the purchasers of the Series A Senior Convertible
Preferred Stock and related parties. Exhibit 10.3 to Allied's current
report on Form 8-K dated August 10, 1999, is incorporated herein by
reference.
12 * Ratio of earnings to fixed charges and preferred stock dividends.
21 * Subsidiaries of the Registrant.
23.1 * Consent of Arthur Andersen LLP.
* Filed herewith
Reports on Form 8-K during the Quarter Ended December 31, 2000
November 7, 2000 Our Current Report on Form 8-K reports the financial results
for the third quarter of 2000.
86
Signatures
Pursuant to the requirements of Sections 13 or 15(d) 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.
ALLIED WASTE INDUSTRIES, INC.
Date: 3/15/01 By: /s/ THOMAS W. RYAN
------------------- ------------------------------------
Thomas W. Ryan
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- -------------------------- ------------------------------------- ------------
Director, Chairman of the Board of
/s/ THOMAS H. VAN WEELDEN Directors and Chief Executive Officer 3/15/01
- -------------------------- (Principal Executive officer) -----------
Thomas H. Van Weelden
/s/ THOMAS W. RYAN Executive Vice President and Chief 3/15/01
- -------------------------- Financial Officer -----------
Thomas W. Ryan
/s/ PETER S. HATHAWAY Senior Vice President, Finance 3/15/01
- -------------------------- (Principal Accounting Officer) -----------
Peter S. Hathaway
/s/ MICHAEL GROSS Director 3/16/01
- -------------------------- -----------
Michael Gross
/s/ DENNIS HENDRIX Director 3/16/01
- -------------------------- -----------
Dennis Hendrix
/s/ LEON D. BLACK Director 3/16/01
- -------------------------- -----------
Leon D. Black
/s/ NOLAN LEHMANN Director 3/16/01
- -------------------------- -----------
Nolan Lehmann
/s/ HOWARD A. LIPSON Director 3/19/01
- -------------------------- -----------
Howard A. Lipson
/s/ ROGER A. RAMSEY Director 3/20/01
- -------------------------- -----------
Roger A. Ramsey
/s/ Director
- -------------------------- -----------
Antony P. Ressler
/s/ WARREN B. RUDMAN Director 3/15/01
- -------------------------- -----------
Warren B. Rudman
/s/ VINCENT TESE Director 3/16/01
- -------------------------- -----------
Vincent Tese
/s/ DAVID BLITZER Director 3/16/01
- -------------------------- -----------
David Blitzer
/s/ ROBERT AGATE Director 3/16/01
- -------------------------- -----------
Robert Agate
87
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Amended and Restated Agreement and Plan of Reorganization between Allied
Waste Industries, Inc. and Rabanco Acquisition Company, Rabanco Acquisition
Company Two, Rabanco Acquisition Company Three, Rabanco Acquisition Company
Four, Rabanco Acquisition Company Five, Rabanco Acquisition Company Six,
Rabanco Acquisition Company Seven, Rabanco Acquisition Company Eight,
Rabanco Acquisition Company Nine, Rabanco Acquisition Company Ten, Rabanco
Acquisition Company Eleven, and Rabanco Acquisition Company Twelve. Exhibit
2.4 to Allied's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 is incorporated herein by reference.
2.2 Agreement and Plan of Merger dated as of August 10, 1998 by and among
Allied Waste Industries, Inc., AWIN II Acquisition Corporation and American
Disposal Services, Inc. Exhibit 2 to Allied's Current Report on Form 8-K
filed August 21, 1998 is incorporated herein by reference.
2.3 Agreement and Plan of Merger dated as of March 7, 1999 by and among Allied
Waste Industries, Inc., AWIN I Acquisition Corporation and Browning-Ferris
Industries, Inc. Exhibit 2 to Allied's Current Report on Form 8-K filed
March 16, 1999 is incorporated herein by reference.
3.1 Amended Certificate of Incorporation of Allied (Incorporated herein by
reference to Exhibit 3.1 to the Company's Report on Form 10-K for the
fiscal year ended December 31, 1996).
3.2 Amended and Restated Bylaws of Allied as of July 30, 1999.
3.3 Amendment to Amended Certificate of Incorporation of Allied dated October
15, 1998. Exhibit 3.4 to the Company's Report on Form 10-Q for the quarter
ended September 30, 1998 is incorporated herein by reference.
4.1 Specimen certificate for shares of Common Stock par value $.01 per share.
Exhibit 4.2 of Allied's Registration Statement on Form S-1 (No. 33-48507)
is incorporated herein by reference.
4.2 1991 Incentive Stock Plan of Allied. Exhibit 10.T to Allied's Form 10 dated
May 14, 1991, is incorporated herein by reference.
4.3 1991 Non-Employee Director Stock Plan of Allied. Exhibit 10.U to Allied's
Form 10 dated May 14, 1991, is incorporated herein by reference.
4.4 1993 Incentive Stock Plan of Allied. Exhibit 10.3 to Allied's Registration
Statement on Form S-1 (No. 33-73110) is incorporated herein by reference.
4.5 1994 Amended and Restated Non-Employee Director Stock Option Plan of
Allied. Exhibit B to Allied's Definitive Proxy Statement in accordance with
Schedule 14A dated April 28, 1994, is incorporated herein by reference.
4.6 Amendment to the 1994 Amended and Restated Non-Employee Director Stock
Option Plan. Exhibit 10.2 to Allied's Quarterly Report on Form 10-Q dated
August 10, 1995, is incorporated herein by reference.
4.7 Amended and Restated 1994 Incentive Stock Plan. Exhibit 10.1 to Allied's
Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated herein by
reference.
4.8 Amendment No. 1 to the 1991 Incentive Stock Plan dated November 1, 1996.
Exhibit 4.20 to Allied's Annual Report on Form 10-K dated March 31, 1998 is
incorporated herein by reference.
4.9 Senior Indenture relating to the 1998 Senior Notes dated as of December 23,
1998, by and among Allied NA and U.S. Bank Trust National Association, as
Trustee, with respect to the 1998 Senior Notes and Exchange Notes. Exhibit
4.1 to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.10 Five Year Series Supplemental Indenture relating to the 1998 Five Year
Notes, dated December 23, 1998, among Allied NA, the Guarantors and the
Trustee. Exhibit 4.2 to Allied's Registration Statement on Form S-4 (No.
333-70709) is incorporated herein by reference.
4.11 Form of Series B Five Year Notes (included in Exhibit 4.21). Exhibit 4.3 to
Allied's Registration Statement on Form S-4 (No. 333-70709) is incorporated
herein by reference.
4.12 Seven Year Series Supplemental Indenture relating to the 1998 Seven Year
Notes, dated December 23, 1998, among Allied NA, the Guarantors and the
Trustee. Exhibit 4.4 to Allied's Registration Statement on Form S-4 (No.
333-70709) is incorporated herein by reference.
4.13 Form of Series B Seven Year Notes (included in Exhibit 4.25). Exhibit 4.5
to Allied's Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.
4.14 Ten Year Series Supplemental Indenture relating to the 1998 Ten Year Notes,
dated December 23, 1998, among Allied NA, the Guarantors and the Trustee.
Exhibit 4.6 to Allied's Registration Statement on Form S-4 (No. 333-70709)
is incorporated herein by reference.
4.15 Form of Series B Ten Year Notes. Exhibit 4.7 to Allied's Registration
Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.
4.16 Fourth Supplemental Indenture relating to the 1998 Senior Notes, dated as
of July 30, 1999, among Allied NA, certain guarantors signatory thereto,
and U.S. Bank Trust National Association, as Trustee. Exhibit 4.26 to
Allied's Report on Form 10-Q for the quarter ended June 30, 2000, is
incorporated herein by reference.
4.17 Fifth Supplemental Indenture relating to the 1998 Senior Notes, dated as of
December 29, 1999, among Allied NA, certain guarantors signatory thereto,
and U.S. Bank Trust National Association, as Trustee. Exhibit 4.27 to
Allied's Report on Form 10-Q for the quarter ended June 30, 2000, is
incorporated herein by reference.
4.18 Collateral Trust Agreement, dated July 30, 1999, among Allied NA, certain
of its subsidiaries, and The Chase Manhattan Bank, as Collateral Trustee,
is incorporated herein by reference.
4.19 Shared Collateral Pledge Agreement, dated July 30, 1999, among Allied NA,
certain of its subsidiaries, and The Chase Manhattan Bank, as Collateral
Trustee, is incorporated herein by reference.
4.20 Shared Collateral Security Agreement, dated July 30, 1999, among Allied NA,
certain of its subsidiaries, and The Chase Manhattan Bank, as Collateral
Trustee, is incorporated herein by reference.
4.21 Certificate of Designation for Series A Senior Convertible Preferred Stock.
Exhibit 4.1 to Allied's current report on Form 8-K dated August 10, 1999,
is incorporated herein by reference.
4.22 Certificate of Designation for Series B Junior Preferred Stock. Exhibit 4.2
to Allied's current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.
4.23 Subordinated Indenture, dated July 30, 1999, among Allied NA, certain
guarantors signatory thereto, and U.S. Bank Trust National Association, as
Trustee, regarding the 10% Senior Subordinated Notes due 2009 of Allied NA.
Exhibit 4.1 to Allied's Registration Statement on Form S-4 (No. 333-91539),
is incorporated herein by reference.
4.24 First Supplemental Indenture, dated July 30, 1999 among Allied NA, certain
subsidiaries of Allied NA and U.S. Bank Trust, National Association, as
Trustee, regarding 10% Senior Subordinated Notes due 2009 of Allied NA.
Exhibit 4.3 to Allied's current report on Form 8-K dated August 10, 1999,
is incorporated herein by reference.
4.25 Second Supplemental Subordinated Indenture relating to the 10% Senior
Subordinated Notes due 2009 of Allied NA, dated December 29, 1999, among
Allied NA, certain guarantors signatory thereto, and U.S. Bank Trust
National Association, as Trustee. Exhibit 4.2 to Allied's Registration
Statement on Form S-4 (No. 333-91539), is incorporated herein by reference.
4.26 Form of 10% Series B Senior Subordinated Notes due 2009 (included in
Exhibit 4.25), is incorporated herein by reference.
4.27 Restated Indenture, relating to debt issued by BFI, dated September 1,
1991, among BFI and First City, Texas-Houston, National Association, as
Trustee, is incorporated herein by reference.
4.28 First Supplemental Indenture relating to the debt issued by BFI, dated July
30, 1999, among Allied, BFI and Chase Bank of Texas, National Association,
as Trustee, is incorporated herein by reference.
4.29 Rights Agreement, dated as of May 25, 2000, between Allied and American
Stock Transfer & Trust Company, as Rights Agent. Exhibit 1 to Allied's
Registration Statement on Form 8-A filed May 31, 2000, is incorporated
herein by reference.
10.1 Securities Purchase Agreement dated April 21, 1997 between Apollo
Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo
(U.K.) Partners III, L.P.; Blackstone Capital Partners II Merchant Banking
Fund L.P., Blackstone Offshore Capital Partners II L.P. and Blackstone
Family Investment Partnership II L.P.; Laidlaw Inc. and Laidlaw
Transportation, Inc.; and Allied Waste Industries, Inc. Exhibit 10.1 to
Allied's Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated herein by reference.
10.2 Executive Employment Agreement between Allied and with Henry L. Hirvela
dated February 23, 2000, is incorporated herein by reference.
10.3 Executive Employment Agreement between Allied and with Thomas H. Van
Weelden dated January 1, 1999. Exhibit 10.9 to Allied's Report on Form 10-Q
for the quarter ended March 31, 1999, is incorporated herein by reference.
10.4 Executive Employment Agreement between Allied and with Larry D. Henk dated
June 6, 1997. Exhibit 10.4 to Allied's Report on Form 10-Q for the quarter
ended June 30, 1997, is incorporated herein by reference.
10.5 Executive Employment Agreement between Allied and with Steven M. Helm dated
June 6, 1997. Exhibit 10.5 to Allied's Report on Form 10-Q for the quarter
ended June 30, 1997, is incorporated herein by reference.
10.6 Executive Employment Agreement between Allied and with Donald W. Slager
dated January 1, 1999. Exhibit 10.12 to Allied's Report on Form 10-Q for
the quarter ended March 31, 1999, is incorporated herein by reference.
10.7 Executive Employment Agreement between Allied and with Peter S. Hathaway
dated June 6, 1997. Exhibit 10.14 to Allied's Report on Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.
10.8 Executive Employment Agreement between Allied and with Michael G. Hannon
dated June 6, 1997. Exhibit 10.15 to Allied's Report on Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.
10.9 Registration Rights Agreement, dated as of July 30, 1999, by and among
Allied, the Guarantors and the initial purchasers, relating to the
$2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit 10.3 to
Allied's Current Report on Form 8-K dated August 10, 1999, is incorporated
herein by reference.
10.10Purchase Agreement dated July 27, 1999, by and among Allied, the
Guarantors and the initial purchasers, with respect to the $2,000,000,000
10% Senior Subordinated Notes due 2009. Exhibit 10.4 to Allied's Current
Report on Form 8-K dated August 10, 1999, is incorporated herein by
reference.
10.11Credit Facility dated as of July 21, 1999. Exhibit 10.1 to Allied's
current report on Form 8-K dated August 10, 1999, is incorporated herein by
reference.
10.12Non-Shared Collateral Security Agreement, dated July 30, 1999, among
Allied, Allied NA, certain of its subsidiaries, and The Chase Manhattan
Bank, as Collateral Agent, is incorporated herein by reference.
10.13Non-Shared Collateral Pledge Agreement, dated July 30, 1999, among Allied,
Allied NA, certain of its subsidiaries, and The Chase Manhattan Bank, as
Collateral Agent, is incorporated herein by reference.
10.14Second Amended and Restated Shareholders Agreement, dated as of July 30,
1999, between Allied and the purchasers of the Series A Senior Convertible
Preferred Stock and related parties. Exhibit 10.2 to Allied's current
report on Form 8-K dated August 10, 1999, is incorporated herein by
reference.
10.15Amended and Restated Registration Rights Agreement dated as of July 30,
1999, between Allied and the purchasers of the Series A Senior Convertible
Preferred Stock and related parties. Exhibit 10.3 to Allied's current
report on Form 8-K dated August 10, 1999, is incorporated herein by
reference.
12 * Ratio of earnings to fixed charges and preferred stock dividends.
21 * Subsidiaries of the Registrant.
23.1 * Consent of Arthur Andersen LLP.
* Filed herewith
Reports on Form 8-K during the Quarter Ended December 31, 2000
November 7, 2000 Our Current Report on Form 8-K reports the financial results
for the third quarter of 2000.