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As Of Filer Filing For·On·As Docs:Size Issuer Agent 2/18/05 Allied Waste Industries, LLC 10-K 12/31/04 21:3.3M Bowne - BPX/FA |
Document/Exhibit Description Pages Size 1: 10-K Annual Report HTML 2.31M 2: EX-4.33 Instrument Defining the Rights of Security Holders 4 20K 3: EX-10.61 Material Contract 4 22K 4: EX-10.62 Material Contract 5 27K 5: EX-10.63 Material Contract 2 11K 6: EX-10.64 Material Contract 2 11K 7: EX-10.65 Material Contract 6 30K 8: EX-10.66 Material Contract 2 11K 9: EX-10.67 Material Contract 55 183K 10: EX-10.68 Material Contract 121 423K 11: EX-10.69 Material Contract 22 62K 12: EX-10.70 Material Contract 31 96K 13: EX-10.71 Material Contract 28 91K 14: EX-10.72 Material Contract 15 76K 15: EX-12.1 Statement re: Computation of Ratios 2± 13K 16: EX-14 Code of Ethics 3 14K 17: EX-21 Subsidiaries of the Registrant 10 42K 18: EX-23.1 Consent of Experts or Counsel HTML 9K 19: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) HTML 15K 20: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) HTML 15K 21: EX-32 Certification per Sarbanes-Oxley Act (Section 906) HTML 10K
| e10vk |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2004 | ||
| OR | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 | |
| For the transition period from to | ||
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Delaware
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88-0228636 | |
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(State or other jurisdiction
of incorporation or organization) |
(IRS Employer Identification Number) |
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15880 North Greenway-Hayden
Loop, Suite 100 Scottsdale, Arizona (Address of principal executive offices) |
85260 (Zip Code) |
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| Title of Each Class | Name of Each Exchange on Which Registered | |
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Common Stock, $.01 par value
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New York Stock Exchange | |
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Series C Senior Mandatory
Convertible Preferred Stock
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New York Stock Exchange |
| PART I | ||||||||
| Item 1. | 3 | |||||||
| Item 2. | 11 | |||||||
| Item 3. | 12 | |||||||
| Item 4. | 14 | |||||||
| PART II | ||||||||
| Item 5. | 14 | |||||||
| Item 6. | 15 | |||||||
| Item 7. | 17 | |||||||
| Item 7A. | 65 | |||||||
| Item 8. | 67 | |||||||
| Item 9. | 136 | |||||||
| Item 9A. | 136 | |||||||
| Item 9B. | 136 | |||||||
| PART III | ||||||||
| Item 10. | 137 | |||||||
| Item 11. | 142 | |||||||
| Item 12. | 156 | |||||||
| Item 13. | 159 | |||||||
| Item 14. | 161 | |||||||
| PART IV | ||||||||
| Item 15. | 162 | |||||||
| 211 | ||||||||
| EX-4.33 | ||||||||
| EX-10.61 | ||||||||
| EX-10.62 | ||||||||
| EX-10.63 | ||||||||
| EX-10.64 | ||||||||
| EX-10.65 | ||||||||
| EX-10.66 | ||||||||
| EX-10.67 | ||||||||
| EX-10.68 | ||||||||
| EX-10.69 | ||||||||
| EX-10.70 | ||||||||
| EX-10.71 | ||||||||
| EX-10.72 | ||||||||
| EX-12.1 | ||||||||
| EX-14 | ||||||||
| EX-21 | ||||||||
| EX-23.1 | ||||||||
| EX-31.1 | ||||||||
| EX-31.2 | ||||||||
| EX-32 | ||||||||
2
3
Unless the context requires otherwise, reference in this
Form 10-K to “Allied,” “we,”
“us” and “our”, refer to Allied Waste
Industries, Inc. and its consolidated subsidiaries.
PART I
Item 1.
Business
Overview
We are the second largest non-hazardous solid waste management
company in the United States. The non-hazardous solid waste
industry in the United States generates approximately
$42 billion of annual revenue from publicly-traded
companies, municipalities and privately-held companies.
Publicly-traded companies generate approximately 49% of the
revenues, while municipalities and private companies generate
the remaining revenues. Presently, the three largest
publicly-traded companies in the waste management industry in
the United States generate over 90% of the public company
revenues.
We provide collection, transfer, recycling and disposal services
for approximately 10 million residential, commercial and
industrial customers. We serve our customers through a network
of 314 collection companies, 165 transfer stations, 166 active
landfills and 58 recycling facilities in 122 major markets
within 37 states. We operate only in the United States and
Puerto Rico. We operate as a vertically integrated company which
entails picking up waste from businesses and residences and
disposing of that waste in our own landfills to the extent that
it is economically beneficial (referred to as internalization).
This allows us greater stability in and control over the waste
flow into our landfills and, therefore, greater control over the
cash flow stability in our business.
Our management philosophy utilizes decentralized operating
management, with centralized control functions and management
oversight. We believe that this model allows us to maximize the
growth and development opportunities in each of our markets and
has largely contributed to our ability to operate the business
efficiently, while maintaining effective controls and standards
over our operations and administrative matters, including
financial reporting. Since the waste collection and disposal
business is a very local business, operations and opportunities
differ in each of our markets. By utilizing decentralized
operating management with standards for best practices, we
strive to standardize the common practices across the company,
while maintaining the day-to-day operating decisions at the
local level, which is closest to the customer. We implement this
philosophy by organizing our operations into a corporate, region
and district infrastructure.
We were incorporated in Delaware in 1989. We have grown the
company from a revenue base of $35 million in 1992 to over
$5 billion in 2004 primarily through a series of
acquisitions highlighted by the $1.5 billion acquisition of
the solid waste assets of Laidlaw, Inc. (Laidlaw) in 1996 and
the $9.6 billion acquisition of Browning-Ferris Industries,
Inc. (BFI) in 1999. We have, and continue to, acquire
smaller companies within the waste industry that either provide
additional infrastructure, such as landfills and transfer
stations in existing markets, or tuck into our existing
collection companies and enhance our internalization and
profitability in a market. Since 2001, we have funded the
acquisition of companies through the proceeds from divestitures
of our own assets that could not be operated in a manner
consistent with our business model.
Our current business objectives are to focus on internal revenue
and earnings growth and generate cash flow to invest in our
vehicles, containers and equipment and to repay debt. We
reported revenues of approximately $5.4 billion and
$5.2 billion for the years ended December 31, 2004 and
2003, respectively. During the years ended December 31,
2004 and 2003, we generated operating cash flows of
approximately $650.0 million and $783.9 million, and
reinvested approximately $582.9 million and
$491.8 million of capital into the business, respectively,
primarily for landfill development, vehicles and containers.
During 2004, we reduced our debt balance by $477.1 million
4
to $7.8 billion through the application of cash on our
balance sheet at December 31, 2003 and operating cash flows.
General information about us can be found at
www.alliedwaste.com. Our annual report on Form 10-K,
quarterly reports on Form 10-Q and current reports on
Form 8-K, as well as any amendments to those reports, are
available free of charge through our website as soon as
reasonably practicable after we file them with, or furnish them
to, the Securities and Exchange Commission (SEC).
Business Strategy
Our business strategy is aimed at maximizing operating cash
flows to reinvest in our business and to continue to pay down
debt. The components of this strategy include:
(1) operating vertically integrated, non-hazardous solid
waste service businesses with a high rate of waste
internalization; (2) implementing best practices programs;
(3) managing our businesses locally with a strong
operations focus on customer service; (4) maintaining or
improving our market position through internal development and
incremental acquisitions; and (5) maintaining the financial
capacity and effective administrative systems and controls to
support on-going operations and future growth.
Vertical Integration and Internalization. Vertical
integration has been and continues to be the key element of our
business strategy. The fundamental objective of the vertical
integration business model is to control the waste stream from
the point of collection through disposal, thereby optimizing the
economics of the waste stream by achieving a high rate of waste
internalization. As of December 31, 2004, approximately 73%
of the waste that our collection companies pick up is disposed
of at our landfills. Additionally, approximately half of the
waste that is disposed of at our landfills comes from our
collection companies. This means that on average, each day we
open our landfills, we expect that almost half of the volume
received will be delivered by our own vehicles.
Across the country we have built, through 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 developing and acquiring assets that provide or
improve the infrastructure for a vertically integrated market
and to increase the density of our collection routes or by
developing previously non-permitted, non-contiguous landfill
sites (greenfield landfill sites). We also may divest of
operations in markets in which over the long-term we cannot
successfully build a vertically integrated structure. We believe
that we can realize competitive advantages by continuously
implementing this strategy across existing and selected new
markets in the United States.
Best Practices. At the beginning of 2004, we began
efforts to implement best practice programs throughout our
organization. We believe the investment we are making in
implementing best practice programs in the areas of revenue
enhancement and operating cost reductions will provide benefits
to the overall business through improved operating margins over
the long term. The programs are focused on improving sales
productivity and pricing effectiveness, driver productivity
through improved routing, maintenance efficiency through
standardized operating practices, and reducing our costs through
more effective purchasing. In addition, we are focusing on
controlling cost increases associated with safety and our health
and welfare programs.
Focus on Customer Service Excellence. Decentralized
operations and local management characterize our
operations-oriented business strategy. Historically, we have
successfully focused our management development activities on
recruiting and retaining operating managers with extensive
industry and local market experiences. Our senior operating
management averages over 20 years of industry experience.
By continuing to hire and retain experienced, local
market-oriented managers, we believe that we are well positioned
to react to customer needs and changes in our markets and are
able to capitalize on growth opportunities. The focus on
customer services is supported by investing in and maintaining a
quality asset base and providing training programs that maximize
our operational excellence.
5
Internal Development and Incremental Acquisitions. We
focus on achieving a sustainable rate of long-term growth and
efficiently operating our assets. We intend to increase revenues
by increasing collection and disposal volumes and developing
greenfield landfill sites. We also intend to increase revenue by
increasing the rates we charge for the services we provide. We
intend to supplement this internal growth with acquisitions of
operating assets, such as landfills and transfer stations, and
tuck-in acquisitions of privately owned solid waste collection
and disposal operations in existing markets. We are continuously
evaluating our existing operating assets to determine if we are
maximizing our market density and internalization. To the extent
certain operating assets are not performing at efficient levels,
we may examine opportunities to provide greater efficiencies
through tuck-in acquisitions or ultimately determine to divest
of such assets and reallocate resources to other markets. We
also intend to examine opportunities when government entities
privatize the operation of all or part of their solid waste
systems. In addition, we seek to maintain broad domestic
geographic diversification in our operations through market
development initiatives.
Maintaining Financial Capacity and Infrastructure for Future
Growth. We seek to implement our business strategy by
maintaining sufficient financial capacity and effective
administrative systems and controls. Our operating cash flows
have historically been sufficient to fund our debt service,
working capital and capital expenditure requirements, and we
maintain a revolving line of credit capacity which has been
sufficient to handle seasonal and other peak spending
requirements. Cash flows available to pay down debt in excess of
current year debt maturities have been applied to future
maturities.
Our system of internal controls is implemented through clear
policies and procedures and appropriate delegation of authority
and segregation of responsibility. Our company policies
establish a philosophy of conducting operations in a responsible
and ethical manner, including the manner in which we handle
operations that impact the surrounding environment. Senior
management is committed to establishing and fostering an
environment of integrity and ethical conduct. Our comprehensive
internal audit function assists management in the oversight and
evaluation of the effectiveness of the system of internal
controls. Our system of internal controls are reviewed, tested,
modified and improved as changes occur in business conditions
and our operations.
In 2004, we implemented compliance with the Sarbanes-Oxley Act
of 2002, Section 404 (SOX 404). Our related report on
internal controls over financial reporting is included in
Item 9A.
Operations
Our revenue mix (based on net revenues) for 2004 was
approximately $3.9 billion collection, $436 million
transfer, $643 million landfill, $235 million
recycling and $128 million other. No one customer has
individually accounted for more than 2% of our consolidated
revenue in any of the last three years.
Collection. Collection operations involve collecting and
transporting non-hazardous waste from the point of generation to
the site of disposal, which may be a transfer station or a
landfill. Fees relating to collection services are based on
collection frequency, type of equipment furnished (if any),
special handling needs, the type and volume or weight of the
waste collected, the distance traveled to the transfer station
or disposal facility and the cost of disposal, as well as
general competitive and prevailing local economic conditions. We
have approximately 13,500 collection vehicles and perform the
majority of vehicle maintenance at our own maintenance
facilities. Depending on the customer being served, we generally
provide solid waste collection under the following four service
lines:
•
Commercial. We provide containerized non-hazardous solid
waste disposal services to a wide variety of commercial and
industrial customers. Commercial revenue represents
approximately 34% of our collection revenue. We provide
customers with containers that are designed to be lifted
mechanically and emptied into a collection vehicle’s
compaction hopper. Our commercial containers generally range in
size from one to eight cubic yards. Commercial contract terms
generally range from 1 to 3 years and commonly have renewal
options.
6
•
Residential. We perform residential collection services
under individual monthly subscriptions directly to households or
under exclusive contracts with municipal governments that allow
us to service all or a portion of the homes in the
municipalities at established rates. Municipal contracts
generally have a term of 3 to 5 years and commonly have
renewal options. 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. Residential revenue represents approximately 30% of our
collection revenue, approximately 45% of which is subscription
revenue and approximately 55% of which is municipal revenue.
Prior to the end of the term of most municipal contracts, we
will attempt to renegotiate the contract, and if unable to do
so, will generally re-bid the contract on a sealed bid basis. We
also make residential collection service arrangements directly
with households. We seek to enter into residential service
arrangements where the route density is high, thereby creating
additional economic benefit. 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. We generally provide small containers to our customers
that are lifted either mechanically or manually and emptied into
the collection vehicle. The collection vehicle will collect the
waste from many customers before traveling to a transfer station
or landfill for disposal.
•
Roll-off. Roll-off revenue represents approximately 31%
of our collection revenue. We provide roll-off collection
services to a wide variety of commercial and industrial
customers as well as residential customers. We provide customers
with containers that are designed to be lifted mechanically and
loaded onto the collection vehicle. Our roll-off containers
generally range in size from 20 to 40 cubic yards. The
collection vehicle returns to the transfer station or landfill
after pulling the container from each customer. Contracts for
roll-off containers may provide for temporary (such as the
removal of waste from a construction site) or ongoing services.
•
Recycling. Recycling collection revenue represents
approximately 5% of our total collection revenue. Recycling
collection services include curbside collection of recyclable
materials for residential customers and commercial and
industrial collection of recyclable materials. We generally
charge recycling fees based on the service sought by the
customer. The customer pays for the cost of removing, sorting
and transferring recyclable materials downstream in the
recycling process. The collection vehicle will collect the waste
from many customers before traveling to a material recovery
facility to deliver the recyclables.
Transfer Stations. A transfer station is a facility where
solid waste collected by third-party and company-owned vehicles
is consolidated 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 over long distances
through compaction and by improving utilization of collection
personnel and equipment. We generally base fees upon such
factors as the type and volume or weight of the waste
transferred, the transport distance to the disposal facility,
the cost of disposal and general competitive and economic
conditions. We believe that as increased regulations and public
pressure restrict the development of landfills in urban and
suburban areas, transfer stations will continue to be used as an
efficient means to transport waste over longer distances to
available landfills.
Landfills. Non-hazardous 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, most of which are promulgated under Subtitle D of
the Resource Conservation and Recovery Act of 1976, as amended
(RCRA). Operating procedures include excavation of earth,
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
7
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
strategy ensures access and allows us to internalize disposal
fees. Approximately half of our landfill volume is delivered by
our collection vehicles. Additionally, approximately one-third
of our landfill volumes are under contracts with third-party
collection companies with an average duration from one to five
years. This adds to the stability of our business.
We have a network of 166 owned or operated active landfills with
operating lives ranging from 1 to over 150 years. Based on
available capacity using annual volumes, the average life of our
landfills approximates 36 years.
Recycling — Commodity. We receive mixed waste
materials at a materials recovery facility, which is often
integrated into, or contiguous to, a transfer or collection
operation. At the facility, we sort, separate, accumulate, bind
or place in a container and ready for transport materials such
as paper, cardboard, plastic, aluminum and other metals. We also
engage in organic materials recycling and/or disposal. Cardboard
and various grades of paper represented approximately 72% of our
processed recyclable product in 2004. The purchaser of the
recyclables generally pays for the sorted materials based on
fluctuating spot-market prices. We seek to mitigate exposure to
fluctuating commodity prices by entering into contractual
agreements that set a minimum sales price on the recyclables and
when possible passing through profit or loss from the sale of
recyclables to customers.
Organization, Marketing and Sales
Our management philosophy utilizes decentralized operating
management, with centralized control functions and management
oversight. We believe that this model allows us to maximize the
growth and development opportunities in each of our markets and
has largely contributed to our ability to operate the business
efficiently, while maintaining effective controls and standards
over our operations and administrative matters, including
financial reporting. Since the waste collection and disposal
business is a very local business, operations and opportunities
differ in each of our markets. By utilizing decentralized
operating management with standards for best practices, we
strive to standardize the common practices across the company,
while maintaining the day-to-day operating decisions at the
local level, which is closest to the customer. We implement this
philosophy by organizing our operations into a corporate, region
and district infrastructure.
During the fourth quarter of 2004, we modified our field
organizational structure by eliminating our uppermost field
level, the “areas”, and consolidating our regions to
nine from twelve. This was done as part of our efforts to
maximize efficiency and improve communications. Our nine
geographic regions are: Atlantic, Great Lakes, Midstates,
Mountain, North Central, Northeast, Pacific, Southeast and
Southwest (See Note 16 to our consolidated financial
statements included under Item 8 of this Form 10-K for
a summary of revenues, profitability and total assets of our
nine geographic regional operating segments.) The geographic
regions are further divided into several operating districts and
each district contains a group of specific business units with
individual 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 efficiencies from the
internalization of waste. This organization structure provides
our field operators the ability and flexibility to manage
profitability within their respective geographic regions, while
providing guidance and resources to the local management.
Corporate management establishes long-term business plans,
outlines business and financial goals, implements policies and
procedures and evaluates effectiveness to provide for uniform
controls throughout the organization. Regional management
develops tactical plans and implements and monitors compliance
with policies and procedures to achieve the business goals and
objectives. District management is responsible for market
planning and development, oversight and coordina-
8
tion of the local markets, and building and maintaining vital
community relationships. Business unit management is responsible
for customer service, operational and local market execution in
accordance with business plans and compliance with policies and
procedures.
The regions are responsible for, among other things,
implementation of and compliance with corporate-wide policies
and initiatives, business unit reviews and analyses, personnel
development and training and providing functional expertise. All
regional managers and most district managers have responsibility
for all phases of the vertical integration model including
collection, transfer, recycling and disposal. The regional staff
consists primarily of a vice president, controller, operations
manager, finance manager, sales manager, engineer, safety
manager, human resource manager, materials marketing manager,
landfill maintenance manager, route auditor and accounting and
information systems support staff. Regional offices are
typically located in a district facility in order to reduce
overhead costs and to promote a close working relationship
between the regional management, district and business unit
personnel. Each region has between 5 to 7 districts under its
management.
Districts consist of a group of specific business units ranging
in size from approximately $30 million to $200 million
in revenue. The districts are responsible for maximizing the use
of company assets, pricing and market guidance, developing
market plans, sales optimization and state government affairs.
The districts consist primarily of a district manager,
controller, and assistant controller.
A business unit consists of individual site operations, known as
divisions, usually operating as a vertically integrated
operation within a common marketplace. A division is generally
comprised of a single operating unit, such as a collection
facility, transfer station or a landfill. The business units are
responsible for the execution of the business plans,
coordinating divisions within markets, developing and
maintaining customer relationships, landfill site construction,
employee safety and training and local government affairs.
Business unit management usually consists primarily of
accounting, operations, sales and maintenance activities.
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 municipal marketing representatives in most service
areas who are responsible for working with each municipality or
community to which we provide residential service to ensure
customer satisfaction. Additionally, the municipal
representatives organize and handle bids for renewal and new
municipal contracts in their service area.
In addition to base salary, we compensate regional 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 earnings
and cash flow goals in the manager’s geographic area of
responsibility, as well as the achievement of overall company
goals.
We believe in financial responsibility and reporting at the
operating level and as a result, consolidate over 700 financial
statements, inclusive of balance sheets, which extend to
regions, districts and divisions.
Employees
At December 31, 2004, we employed approximately 26,000
employees of whom approximately 25,000 were full-time employees.
Approximately 4,500 of the full-time employees were employed in
clerical, administrative, and sales positions; approximately
2,500 in management; and the remaining in collection, disposal,
transfer station and other operations. Approximately 29% of our
employees are currently covered by collective bargaining
agreements. From time to time, other operating locations of the
Company may experience union organizing efforts. We have not
historically experienced any significant work stoppages. We
currently have no disputes or bargaining circumstances that
could cause significant disruptions in our business.
9
Competition
The non-hazardous waste collection and disposal industry is
highly competitive. In addition to small local companies, we
compete with large companies and municipalities which may have
greater financial and operational flexibility. We compete on the
basis of price and the quality of our services. We also compete
with the use of alternatives to landfill disposal because of
certain 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 in our disposal business on the basis
of geographic location, quality of operations and alternatives
to landfill disposal, such as recycling and incineration.
Further, most of the states in which we operate landfills
require counties and municipalities to formulate comprehensive
plans to reduce the volume of solid waste deposited in landfills
through waste planning, composting and recycling or other
programs. Some state and local governments mandate waste
reduction at the source and prohibit the disposal of certain
types of wastes, such as yard wastes, at landfills.
Environmental and Other Regulations
We are subject to extensive and evolving environmental laws and
regulations administered by the Environmental Protection Agency
(the EPA) and various other federal, state and local
environmental, zoning, health and safety agencies. 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 operational,
permitting, 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
and maintain permits required to operate or increase the
capacity of these landfills.
Our operations are subject to extensive regulation, principally
under the following federal statutes:
The Resource Conservation and Recovery Act of 1976, as
amended (RCRA). 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.
The Federal Water Pollution Control Act of 1972 as amended
(the Clean Water Act). 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
10
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 as amended (CERCLA). 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.
The Clean Air Act of 1970 as amended (the Clean Air Act).
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 impose 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 are being
implemented by the states after the EPA approves the individual
state’s program. These guidelines, combined with the new
permitting programs established under the Clean Air Act subject
solid waste landfills to significant permitting requirements
and, in some instances, require installation of gas recovery
systems to reduce emissions to allowable limits. The EPA also
regulates the emission of hazardous air pollutants from
municipal landfills, and has promulgated regulations that
require measures to monitor and reduce such emissions.
The Occupational Safety and Health Act of 1970 as amended
(OSHA). 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 may require
states, under certain circumstances, to reduce the amount 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 potential 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
11
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 enacted laws that 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. 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 environmental
safeguards that seek to comply with these governmental
requirements.
Liability Insurance and Bonding
We carry commercial general liability, automobile liability,
workers’ compensation, employers’ liability,
directors’ and officers’ liability, pollution
liability, and other coverage we believe is customary in the
industry. We maintain high deductible programs under commercial
general liability, automobile liability and workers’
compensation insurance with varying deductible thresholds up to
$3 million. We do not expect the impact of any known
casualty, property or environmental claims to be material to our
consolidated liquidity, financial position or results of
operations.
We are required to provide approximately $2.7 billion of
financial assurances to governmental agencies and commercial
entities under applicable environmental regulations relating to
our landfill operations and collection contracts and financial
guarantee bonds for self-insurance. We satisfy the financial
assurance requirements by providing performance bonds, letters
of credit, insurance policies or trust deposits. We expect no
material increase in total financial assurance requirements
although the mix of financial assurance instruments may change.
Corporate Governance
Our corporate governance program reflects our commitment to
integrity and high ethical standards in conducting our business.
We are committed to rigorously and diligently exercising our
oversight responsibilities throughout the company, managing our
affairs consistent with the highest principles of business
ethics and the corporate governance requirements of federal law,
the SEC and the New York Stock Exchange.
The current committee charters, Corporate Governance Guidelines,
Code of Business Conduct and Ethics (for all employees, officers
and Board members) and Code of Ethics for Executive and Senior
Financial Officers are available in print to any investor who
requests them free of charge by writing to: Attention: Investor
Relations, Allied Waste Industries, Inc.,
15880 N. Greenway-Hayden Loop, Suite 100,
Scottsdale, Arizona 85260. This information is also available on
our website at www.alliedwaste.com.
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
105,000 square feet of office space. We currently maintain
regional administrative offices in all of our regions.
12
Our principal property and equipment consists of land,
buildings, 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 conducting
operations. At December 31, 2004, we owned or operated 314
collection companies, 165 transfer stations, 166 active solid
waste landfills and 58 recycling facilities within
37 states. In aggregate, our active solid waste landfills
total approximately 75,256 acres, including approximately
25,985 permitted acres. We believe that our property and
equipment are adequate for our current needs.
Item 3.
Legal Proceedings
We are involved in routine litigation that arises in the
ordinary course of business. We believe that costs of
settlements or judgments arising from routine litigation will
not have a material adverse effect on our consolidated
liquidity, financial position or results of operations.
Currently, we are a party to certain proceedings with the
Internal Revenue Service (IRS), in U.S. District Court for
the District of Arizona, and in Texas State Courts.
On August 9, 2004, August 27, 2004, and
September 30, 2004, three putative class action lawsuits
were filed against us and four of our current and former
officers in the U.S. District Court for the District of
Arizona. The lawsuits were consolidated into a single action on
November 22, 2004. On January 14, 2005, the court
entered an order appointing lead plaintiffs but to date, no
consolidated suit has been filed.
The complaints assert claims against all defendants under
Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder and claims against the
officers under Section 20(a) of the Securities Exchange
Act. The complaints allege that from February 10, 2004, to
July 27, 2004, the defendants caused false and misleading
statements to be issued in our public filings and public
statements regarding our anticipated second quarter 2004
results. The lawsuits seek an unspecified amount of damages.
This action is in its early stages and we are not able to
determine whether the outcome will have a material adverse
affect on our consolidated results of operations. We intend to
defend the action vigorously.
We are subject to federal, state and local environmental laws
and regulations. Due to the nature of our business we are often
a party to judicial or administrative proceedings involving
governmental authorities and other interested parties related to
environmental regulations. 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.
In June 1999, neighboring parties and the county drainage
district filed a lawsuit seeking to prevent BFI from obtaining a
vertical elevation expansion permit at one of our landfills in
Texas. In 2001, the expansion permit was granted. The parties
opposing the expansion permit continued to pursue their efforts
in preventing the expansion permit. In November 2003, a judgment
issued by a state trial court in Texas, effectively revoked the
expansion permit that was granted by the Texas Commission on
Environmental Quality (TCEQ) in 2001 and required us to
operate the landfill according to a prior permit granted in
1988. We have appealed this decision to the Texas State Court of
Appeals. Operationally, if necessary, we will attempt to obtain
bonding that will allow us to continue to operate the landfill
as usual during the period of appeal, which may continue for two
years or longer. If the appeal is not successful, the landfill
may become impaired and we may incur costs to relocate waste to
another landfill and this matter could result in a charge of up
to $50 million to our consolidated statement of operations.
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 prior to the time we acquired
them. We continually review our status with respect to each
site, taking into account the alleged connection to the site and
the extent of the
13
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 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, 2004 of approximately
$304.8 million represents the most probable outcome of
these contingent matters. We do not expect that adjustments to
estimates, which may be 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. For more information about
our potential environmental liabilities see Note 7 to our
consolidated financial statements.
We are currently under examination by various state and federal
taxing authorities for certain tax years, including federal
income tax audits for calendar years 1998 through 2003. A
federal income tax audit for BFI’s tax years ended
September 30, 1996 through July 30, 1999 is complete
with the exception of the matter discussed below.
Prior to our acquisition of BFI on July 30, 1999, BFI
operating companies, as part of a risk management initiative to
effectively manage and reduce costs associated with certain
liabilities, contributed assets and existing environmental and
self-insurance liabilities to six fully consolidated BFI risk
management companies (RMCs) in exchange for stock representing a
minority ownership interest in the RMCs. Subsequently, the BFI
operating companies sold that stock in the RMCs to third parties
at fair market value which resulted in a capital loss of
approximately $900 million for tax purposes, calculated as
the excess of the tax basis of the stock over the cash proceeds
received.
On January 18, 2001, the Internal Revenue Service (IRS)
designated this type of transaction and other similar
transactions as a “potentially abusive tax shelter”
under IRS regulations. During 2002, the IRS proposed the
disallowance of all of this capital loss. The primary argument
advanced by the IRS for disallowing the capital loss was that
the tax basis of the stock of the RMCs received by the BFI
operating companies was required to be reduced by the amount of
liabilities assumed by the RMCs even though such liabilities
were contingent and, therefore, not liabilities recognized for
tax purposes. Under the IRS view, there was no capital loss on
the sale of the stock since the tax basis of the stock should
have approximately equaled the proceeds received. We protested
the disallowance to the Appeals Office of the IRS in August 2002.
If the proposed disallowance is upheld, we estimate it could
have a potential total cash impact of up to $310 million
for federal and state taxes plus accrued interest through
December 31, 2004 of approximately $81.6 million
($49.0 million net of tax benefit). We also received a
notification from the IRS proposing a penalty of 40% of the
additional income tax resulting from the disallowance. Because
of several meritorious defenses, we believe the successful
assertion of penalties is unlikely.
We expect that sometime in the first half of 2005, the Appeals
Office of the IRS will uphold the disallowance of the capital
loss deduction. If this occurs, we would most likely litigate
the matter in a federal court and we would be required to pay a
deficiency of approximately $50 million for BFI tax years
prior to the acquisition. Thereafter, it would likely take a
couple of years before the court reached a decision and it is
likely that the losing party would appeal the decision to a
court of appeals. A settlement, however, could occur at any time
during the litigation process.
The remaining tax years affected by the capital loss issue are
currently being audited by the IRS. A court decision on the
litigation would resolve the issue in these years as well. If we
were to win the case, the initial payment would be refunded to
us, subject to an appeal. If we were to lose the case, the
deficiency associated with the remaining tax years would be due.
We continue to believe our position is well supported. However,
the potential tax and interest impact of a disallowance has been
fully reserved on our consolidated balance sheet. Also, the
$50 million payment noted above has been reclassed from
long-term liabilities to current liabilities. Therefore, with
regard to tax and accrued interest through December 31,
2004, a disallowance would have minimal impact on our
consolidated results of operations. The periodic accrual of
additional interest charged through the time at which this
matter is resolved will continue to affect consolidated results
of operations. In addition, the successful assertion by the IRS
of penalties could have a material adverse impact on our
consolidated liquidity, financial position and results of
operations.
Item 4.
Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our stockholders during
the fourth quarter of fiscal 2004.
PART II
Item 5.
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
Price Range of Common Stock
Our common stock, $0.01 par value, is traded on the New
York Stock Exchange under the symbol “AW”. The high
and low closing sales prices per share for the periods indicated
were as follows:
| High | Low | |||||||
|
Year Ended December 31, 2004:
|
||||||||
|
First Quarter
|
$ | 14.36 | $ | 11.92 | ||||
|
Second Quarter
|
13.82 | 11.94 | ||||||
|
Third Quarter
|
12.85 | 8.69 | ||||||
|
Fourth Quarter
|
9.34 | 8.00 | ||||||
|
Year Ended December 31, 2003:
|
||||||||
|
First Quarter
|
$ | 11.10 | $ | 7.75 | ||||
|
Second Quarter
|
11.16 | 7.85 | ||||||
|
Third Quarter
|
12.55 | 10.12 | ||||||
|
Fourth Quarter
|
13.99 | 10.32 | ||||||
14
Item 6.
Selected Financial Data
The selected financial data presented below are derived from our
historical consolidated financial statements which have been
audited by PricewaterhouseCoopers LLP, our Independent
Registered Public Accounting Firm. The 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 related notes
included elsewhere in this Form 10-K. (Amounts are in
millions, except per share amounts and percentages.)
| Year Ended December 31, | |||||||||||||||||||||
| 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||
|
Statement of Operations
Data(1):
|
|||||||||||||||||||||
|
Revenues
|
$ | 5,362.0 | $ | 5,247.7 | $ | 5,190.8 | $ | 5,231.4 | $ | 5,360.0 | |||||||||||
|
Cost of operations
|
3,374.8 | 3,190.1 | 3,039.1 | 2,964.2 | 3,132.2 | ||||||||||||||||
|
Selling, general and administrative
expenses
|
541.5 | 476.9 | 462.7 | 434.7 | 409.4 | ||||||||||||||||
|
Depreciation and amortization
|
559.3 | 546.0 | 478.5 | 448.8 | 433.8 | ||||||||||||||||
|
Goodwill
amortization(2)
|
— | — | — | 226.7 | 223.2 | ||||||||||||||||
|
Non-cash (gain) loss on
divestiture of
assets(3)
|
— | — | (9.3 | ) | 107.0 | 26.5 | |||||||||||||||
|
Operating income
|
886.4 | 1,034.7 | 1,219.8 | 1,050.0 | 1,134.9 | ||||||||||||||||
|
Equity in earnings of
unconsolidated affiliates
|
— | — | — | (14.1 | ) | (50.8 | ) | ||||||||||||||
|
Interest expense and
other(4)
|
758.9 | 832.9 | 854.0 | 866.1 | 892.1 | ||||||||||||||||
|
Income before income taxes
|
127.5 | 201.8 | 365.8 | 198.0 | 293.6 | ||||||||||||||||
|
Income tax expense
|
72.2 | 88.7 | 165.6 | 162.4 | 202.9 | ||||||||||||||||
|
Minority interest
|
(2.7 | ) | 1.9 | 1.9 | 3.7 | 6.0 | |||||||||||||||
|
Income from continuing operations
|
$ | 58.0 | $ | 111.2 | $ | 198.3 | $ | 31.9 | $ | 84.7 | |||||||||||
|
Basic EPS:
|
|||||||||||||||||||||
|
Continuing
operations(5)
|
$ | 0.12 | $ | (2.36 | ) | $ | 0.63 | $ | (0.21 | ) | $ | 0.09 | |||||||||
|
Weighted average common shares
|
315.0 | 203.8 | 190.2 | 189.6 | 188.8 | ||||||||||||||||
|
Diluted EPS:
|
|||||||||||||||||||||
|
Continuing
operations(5)
|
$ | 0.11 | $ | (2.36 | ) | $ | 0.62 | $ | (0.21 | ) | $ | 0.08 | |||||||||
|
Weighted average common and common
equivalent shares
|
319.7 | 203.8 | 193.5 | 189.6 | 191.1 | ||||||||||||||||
|
Pro forma amounts, assuming the
change in accounting principle is applied
retroactively(6):
|
|||||||||||||||||||||
|
Income from continuing operations
|
$ | 186.3 | $ | 20.1 | $ | 74.1 | |||||||||||||||
|
Basic income (loss) per share
|
0.57 | (0.28 | ) | 0.03 | |||||||||||||||||
|
Diluted income (loss) per share
|
0.56 | (0.28 | ) | 0.03 | |||||||||||||||||
15
| Year Ended December 31, | ||||||||||||||||||||
| 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
|
Statement of Cash Flows
Data(1):
|
||||||||||||||||||||
|
Cash flows from operating activities
|
$ | 650.0 | $ | 783.9 | $ | 976.6 | $ | 847.6 | $ | 692.2 | ||||||||||
|
Cash flows used for investing
activities (including asset purchases and sales, and capital
expenditures)
|
(537.9 | ) | (248.4 | ) | (519.5 | ) | (432.3 | ) | (196.4 | ) | ||||||||||
|
Cash flows used for financing
activities (including debt repayments)
|
(489.2 | ) | (285.7 | ) | (487.5 | ) | (434.4 | ) | (592.7 | ) | ||||||||||
|
Cash provided by discontinued
operations
|
0.4 | 15.5 | 52.2 | 57.5 | 96.7 | |||||||||||||||
|
Balance Sheet
Data(1):
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 68.0 | $ | 444.7 | $ | 179.4 | $ | 157.6 | $ | 119.2 | ||||||||||
|
Working capital (deficit)
|
(834.1 | ) | (282.2 | ) | (377.7 | ) | (245.4 | ) | (344.7 | ) | ||||||||||
|
Property and equipment, net
|
4,129.9 | 4,018.9 | 4,005.7 | 3,927.5 | 3,781.8 | |||||||||||||||
|
Goodwill, net
|
8,202.0 | 8,313.0 | 8,530.4 | 8,556.9 | 8,717.4 | |||||||||||||||
|
Total assets
|
13,493.9 | 13,860.9 | 13,928.9 | 14,347.1 | 14,513.6 | |||||||||||||||
|
Total debt
|
7,757.0 | 8,234.1 | 8,882.2 | 9,259.6 | 9,649.1 | |||||||||||||||
|
Series A preferred
stock(7)
|
— | — | 1,246.9 | 1,169.0 | 1,096.0 | |||||||||||||||
|
Stockholders’
equity(7)
|
2,604.9 | 2,517.7 | 689.1 | 585.8 | 671.6 | |||||||||||||||
|
Total debt to total capitalization
(including preferred stock)
|
75 | % | 77 | % | 82 | % | 84 | % | 85 | % | ||||||||||
| (1) | During 2004 and 2003, we sold or held for sale certain operations that met the criteria for reporting discontinued operations. The selected financial data for all prior periods have been reclassified to include these operations as discontinued operations. |
| (2) | In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS 142), amortization of goodwill ceased on January 1, 2002. |
| (3) | The non-cash (gain) loss on divestiture of assets relates to divestitures of certain operations that were not operating in a manner consistent with our business model. These divestitures are not included in discontinued operations. |
| (4) | Effective January 1, 2003, we adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145). Previously, extraordinary losses as a result of the write-off of deferred debt issuance costs and other costs incurred in connection with the early extinguishments of debt were properly classified as extraordinary. As a result of the adoption of SFAS 145, these expenses are now classified in interest expense and other. The pre-tax amounts reclassified were $16.8 million, $28.1 million and $21.9 million for the years ended December 31, 2002, 2001 and 2000, respectively. Costs incurred to early extinguish debt for the years ended December 31, 2004 and 2003 were $156.2 million and $108.1 million, respectively. |
| (5) | During December 2003, the Series A Preferred Stock was exchanged for common stock. In connection with the exchange, we recorded a reduction to net income available to common shareholders of $496.6 million for the fair value of the incremental shares of common stock issued to the holders of the preferred stock over the amount the holders would have received under the original conversion provisions. |
| (6) | Pro forma amounts give effect to the change in our method of accounting for landfill retirement obligations upon adoption of SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS 143) on January 1, 2003, as if the provisions of SFAS 143 had been applied retroactively. |
| (7) | In December 2003, all of the Series A Preferred Stock was exchanged for 110.5 million shares of common stock. |
16
17
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. Please note that unless otherwise
specifically indicated, discussion of our results relate to our
continuing operations.
Executive Summary
Our business is characterized by a stable customer base
resulting in strong cash flow from operations. We provide the
basic service of collection and disposal of non-hazardous solid
waste that is essential to our customers’ needs.
Competition is driven by local economic and demographic factors
as well as fluctuations in capacity utilization, in both the
collection and landfill business. However, the order of
magnitude for year over year price and volume changes over the
past three years has been less than three percent, positive or
negative. Customer service satisfaction levels industry-wide are
very high since the collection customer has a very low tolerance
for poor service.
The stability of our customer base generally drives our
operating costs. Labor costs are the most significant of our
total operating costs, consistent with our extensive workforce.
The direct cost of disposing of waste at third-party sites is
the next most significant of our total operating costs. The cost
of disposal of waste at our own landfills is included in
individual landfill related operating cost line items. Repair
and maintenance costs are also significant and directly relate
to the 13,500 collection and landfill vehicles and equipment
that we operate to service our customer base. Our selling,
general and administrative costs are largely predictable since
salaries and management incentive compensation represent the
most significant part of our selling, general and administrative
costs. Depreciation and amortization is split almost evenly
between depreciation of the vehicles and equipment used in our
operations and the amortization of our landfill assets. In
recent years, our operating costs have grown more quickly than
our revenues, resulting in declining operating margins.
We invest a significant amount of capital to support the ongoing
operations of our landfill and collection business. Landfills
are highly engineered, sophisticated facilities similar to civil
works. Each year we invest capital in our active landfills to
ensure sufficient capacity to receive the waste volume we
handle. In addition, we have approximately 13,500 collection
vehicles and over 100,000 containers to serve our collection
customers. They endure rough conditions each day and must be
routinely maintained and replaced.
Cash flows in our business are for the most part fairly
predictable as a result of the nature of our customer base. This
predictability helps us to determine our ability to service
debt. Knowing this, we have incurred debt to acquire the assets
we own and we have paid cash to acquire existing cash flow
streams. This financial model should allow us over time to
transfer the enterprise value of the company from debt holders
to shareholders as we use our cash flow to repay debt. We, of
course, need to prudently manage our debt to ensure a capital
structure that is supportive of our operating plan and to avoid
unnecessary risk depending on the varying economic and capital
market conditions. We intend to continue to use cash flow from
operations after capital expenditures to reduce our debt balance
until we reach credit ratios, that we believe will allow us to
benefit from an investment grade-like cost of capital. As this
occurs, we believe the relative cost of debt and interest
expense should decline. Upon achieving optimal credit ratios we
should have the opportunity to choose the best use of any excess
cash flow: further repay debt, pay a dividend to the extent
permitted, repurchase stock or reinvest in growing the size of
our company. We may take advantage of opportunities that arise
to accelerate the de-leveraging process as long as the
opportunities meet our need to maintain our competitive strength.
Effective October 4, 2004, Charles H. Cotros was appointed
Chairman of the Board of Directors and Chief Executive Officer
of the company, succeeding Thomas H. Van Weelden, who resigned
as Chairman and Chief Executive Officer of the Company on
October 4, 2004 and as President of the
18
Company on October 25, 2004. Mr. Cotros’
employment agreement currently anticipates he will remain in
this position until we complete our search for a permanent
Chairman and Chief Executive Officer, which we hope to
accomplish in 2005. Effective December 30, 2004, our
Executive Vice President and Vice Chairman retired.
Results of operations. Net income from continuing
operations for the year ended December 31, 2004 decreased
to $58.0 million from $111.2 million for the year
ended December 31, 2003. This decrease was primarily due to
increases in costs of operations and selling, general and
administrative expenses, partially offset by increases in
revenue and decreases in interest expense.
During 2004, internal revenue growth increased 2.1% and was
driven by increases in both average price per unit and volume.
However, increased costs for vehicle maintenance and costs
directly associated with the implementation of standards and
best practices across the company were the primary drivers of
the decline in operating income.
Based on past business cycles, we believe that a stronger
economic environment would drive greater volume growth, increase
capacity utilization and therefore have a positive impact on
average per unit pricing. We anticipate that most operating
costs will continue to increase from normal inflation. However,
we currently expect our employee benefits, fuel and maintenance
costs will continue to increase at a rate in excess of inflation.
At the beginning of 2004, we began efforts to design and
implement best practice programs throughout our organization. We
believe the investment we are making in implementing best
practice programs in the areas of revenue enhancement and
operating cost reductions will provide benefits to operating
margins and improve the overall business over the long term. The
programs are focused on improving sales productivity and pricing
effectiveness, driver productivity through improved routing,
maintenance efficiency through standardized operating practices,
and reducing our procurement costs through more effective
purchasing. In addition, we are focusing on controlling cost
increases associated with safety and our health and welfare
programs. We incurred approximately $25 million of costs
associated with the implementation of these programs in 2004.
The majority of these costs were for third-party consultants and
internal staffing. In 2005, we expect these costs to decrease to
approximately $10-$15 million for ongoing program support
costs. We expect to be able to produce approximately
$55 million of net benefits in 2005, with net annual
benefits potentially increasing to approximately
$150 million over the long-term. In addition, we plan to
increase capital expenditures over the next several years to
reduce the average age of our truck fleet which should improve
maintenance costs. In 2005, total capital expenditures are
expected to be approximately $700 million.
Financing activities. We continue to focus on maximizing
cash flow to repay debt and to seek opportunities to create
additional cash flow through reductions in interest cost. During
2004, we reduced our debt balance by $477 million to
$7.75 billion through the application of cash on our
balance sheet at December 31, 2003 and operating cash flow,
net of financing costs. We continue to reduce debt and improve
our ratio of debt to total capitalization, which decreased to
74.9% at the end of 2004 from 76.6% at the end of 2003.
During 2004, we refinanced $2.0 billion of debt in the
first half of the year, which enabled us to reduce the weighted
average interest rate on those borrowings from 9% to
approximately 6% and extend maturities from 2009 to 2011, 2014
and 2034. This contributed to the overall reduction of our
effective interest rate from 8.96% at December 31, 2003 to
7.18% as of December 31, 2004. In connection with these
refinancing activities, we paid approximately $158 million
in premiums and new debt issuance costs and charged
approximately $147 million to interest expense and other
for the premiums and the non-cash write-off of previously
deferred financing costs. In addition, during the last six
months of 2004, we redeemed an additional $150 million of
our 10% senior subordinated notes due in 2009 for
$157.5 million. In connection with this redemption, we paid
premiums of approximately $7.8 million and wrote-off
deferred financing costs of $1.6 million, both of which
were recorded as a charge to interest expense and other.
General
Revenues. We generate revenues primarily from fees
charged to customers for waste collection, transfer, recycling
and disposal services. We consider our core business to be our
collection, transfer and landfill operations. We also generate
revenue from the sale of recycled commodities. We record revenue
as the services are provided, with revenue deferred in instances
where services are billed in advance of the service being
provided. The following table shows our total reported revenues
by service line. Intercompany revenues have been eliminated.
Revenues by Service Line (in millions):
| Year Ended December 31, | ||||||||||||||
| 2004 | 2003 | 2002 | ||||||||||||
|
Collection
|
||||||||||||||
|
Residential
|
$ | 1,162.0 | $ | 1,132.8 | $ | 1,112.9 | ||||||||
|
Commercial
|
1,350.4 | 1,373.8 | 1,397.6 | |||||||||||
|
Roll-off(1)
|
1,198.6 | 1,185.6 | 1,203.4 | |||||||||||
|
Recycling
|
208.6 | 202.2 | 204.0 | |||||||||||
|
Total Collection
|
3,919.6 | 3,894.4 | 3,917.9 | |||||||||||
|
Disposal
|
||||||||||||||
|
Landfill(2)
|
642.6 | 633.4 | 586.3 | |||||||||||
|
Transfer
|
436.0 | 400.6 | 384.7 | |||||||||||
|
Total Disposal
|
1,078.6 | 1,034.0 | 971.0 | |||||||||||
|
Recycling — Commodity
|
235.4 | 194.8 | 165.8 | |||||||||||
|
Other
|
128.4 | 124.5 | 136.1 | |||||||||||
|
Total Revenues
|
$ | 5,362.0 | $ | 5,247.7 | $ | 5,190.8 | ||||||||
| (1) | Consists of revenue generated from commercial, industrial and residential customers from waste collected in roll-off containers that are loaded onto collection vehicles. Roll-off containers are generally uncovered containers that range in size from 20 to 40 cubic yards. |
| (2) | Landfill revenues are presented net of landfill taxes. |
19
We have organized our operations into nine geographic regions.
Our operations are not concentrated in any one geographic
region. Our regional teams focus on developing local markets in
which we can achieve the greatest level of internalization and
operating efficiency. As a result, we may choose to not operate
in a market where our business objectives cannot be met. At
December 31, 2004, we had operations in 122 major markets
in 37 states. We operate only in the United States and
Puerto Rico. The following table shows our revenues by
geographic region in total and as a percentage of total revenues.
Revenues by
Region(1)
(in millions, except percentages):
| Year Ended December 31, | ||||||||||||||||||||||||
| 2004 | 2003 | 2002 | ||||||||||||||||||||||
|
Atlantic
|
$ | 536.1 | 10.0 | % | $ | 523.4 | 10.0 | % | $ | 520.2 | 10.0 | % | ||||||||||||
|
Great Lakes
|
526.7 | 9.8 | 517.1 | 9.9 | 523.1 | 10.1 | ||||||||||||||||||
|
Midstates
|
478.1 | 8.9 | 480.9 | 9.2 | 499.0 | 9.6 | ||||||||||||||||||
|
Mountain
|
546.5 | 10.2 | 551.5 | 10.5 | 522.4 | 10.1 | ||||||||||||||||||
|
North Central
|
644.9 | 12.0 | 629.0 | 12.0 | 594.8 | 11.5 | ||||||||||||||||||
|
Northeast
|
703.9 | 13.1 | 687.5 | 13.1 | 702.1 | 13.5 | ||||||||||||||||||
|
Pacific
|
744.6 | 13.9 | 680.0 | 13.0 | 658.4 | 12.7 | ||||||||||||||||||
|
Southeast
|
530.7 | 9.9 | 543.9 | 10.3 | 543.4 | 10.4 | ||||||||||||||||||
|
Southwest
|
611.3 | 11.4 | 595.9 | 11.3 | 598.1 | 11.5 | ||||||||||||||||||
|
Other(2)
|
39.2 | 0.8 | 38.5 | 0.7 | 29.3 | 0.6 | ||||||||||||||||||
|
Total revenues
|
$ | 5,362.0 | 100.0 | % | $ | 5,247.7 | 100.0 | % | $ | 5,190.8 | 100.0 | % | ||||||||||||
| (1) | See discussion in Note 16 to our consolidated financial statements. |
| (2) | Amounts relate primarily to our subsidiaries which provide services throughout the organization. |
20
assets used in our operations are included in cost of
operations. The following table provides the components of our
operating costs as a percentage of our total operating costs:
| Year Ended December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Labor(1)
|
31.6 | % | 32.7 | % | 33.4 | % | ||||||
|
Disposal
|
14.8 | 16.2 | 17.0 | |||||||||
|
Repairs and
maintenance(2)
|
13.5 | 12.8 | 13.0 | |||||||||
|
Transportation
|
9.1 | 8.6 | 8.4 | |||||||||
|
Vehicle operating
|
6.8 | 6.5 | 6.6 | |||||||||
|
Landfill operating costs
|
8.2 | 7.8 | 7.5 | |||||||||
|
Safety and insurance
|
5.1 | 5.2 | 4.9 | |||||||||
|
Other(3)
|
10.9 | 10.2 | 9.2 | |||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | |||||||
| (1) | Includes health and welfare benefits and incentive compensation. |
| (2) | Includes related labor and benefits. |
| (3) | Primarily includes subcontractor costs, (gain) loss on sale of assets, environmental expense and related recoveries, and equipment and facility rent. |
| Year Ended December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Salaries(1)
|
58.8 | % | 59.2 | % | 57.4 | % | ||||||
|
Rent and office costs
|
7.9 | 8.8 | 9.6 | |||||||||
|
Professional
fees(2)
|
13.0 | 8.1 | 8.7 | |||||||||
|
Provision for doubtful accounts
|
3.4 | 4.9 | 3.7 | |||||||||
|
Other(3)
|
16.9 | 19.0 | 20.6 | |||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | |||||||
| (1) | Includes health and welfare benefits and incentive compensation. |
| (2) | Includes professional fees from our best practices program. |
| (3) | Primarily includes marketing, director and officer insurance, employee relocation and bank charges. |
21
Landfill Disposal Capacity and Operating Lives. We had
available disposal capacity of approximately 2.5 billion
tons as of December 31, 2004. We classify this total
disposal capacity as either permitted (having received the final
permit from the governing authorities) or probable expansion.
Probable expansion disposal capacity has not yet received final
approval from the regulatory agencies, but we have determined
that certain critical criteria have been met and the successful
completion of the expansion is highly probable. Our requirements
to classify disposal capacity as probable expansion are as
follows:
1.
We have 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 have 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.
The following table reflects disposal capacity activity for
active landfills we owned or operated for the twelve months
ended December 31, 2004 (disposal capacity in millions of
tons):
| Probable | Total | |||||||||||||||||||||||
| Permitted | Number | Expansion | Number | Total | Number | |||||||||||||||||||
| Disposal | of | Disposal | of | Disposal | of | |||||||||||||||||||
| Capacity | Landfills | Capacity | Landfills | Capacity | Landfills | |||||||||||||||||||
|
Balance as of December 31, 2003
|
1,937.4 | 166 | 615.5 | 34 | 2,552.9 | 166 | ||||||||||||||||||
|
Acquisitions, divestitures and
closures
|
2.8 | — | — | — | 2.8 | — | ||||||||||||||||||
|
Additions to probable expansion
disposal capacity
|
— | — | 24.5 | 2 | 24.5 | — | ||||||||||||||||||
|
Net change to permitted disposal
capacity
|
138.7 | — | (162.6 | ) | (12 | ) | (23.9 | ) | — | |||||||||||||||
|
Disposal capacity consumed
|
(78.1 | ) | — | — | — | (78.1 | ) | — | ||||||||||||||||
|
Changes in engineering estimates
|
(4.9 | ) | — | (1.9 | ) | — | (6.8 | ) | — | |||||||||||||||
|
Balance as of December 31, 2004
|
1,995.9 | 166 | 475.5 | 24 | 2,471.4 | 166 | ||||||||||||||||||
| At December 31, 2004 | At December 31, 2003 | |||||||||||||||
| Number of Sites | Percent of Total | Number of Sites | Percent of Total | |||||||||||||
|
0 to 5 years
|
30 | 18 | % | 27 | 16 | % | ||||||||||
|
5 to 10 years
|
15 | 9 | 12 | 7 | ||||||||||||
|
10 to 20 years
|
41 | 25 | 37 | 22 | ||||||||||||
|
20 to 40 years
|
38 | 23 | 44 | 27 | ||||||||||||
|
40+ years
|
42 | 25 | 46 | 28 | ||||||||||||
|
Total
|
166 | 100 | % | 166 | 100 | % | ||||||||||
22
Results of Operations
The following table sets forth our results of operations and
percentage relationship that the various items bear to revenues
for the periods indicated (in millions, except percentages).
Statement of Operations Data:
| Year Ended December 31, | |||||||||||||||||||||||||
| 2004 | 2003 | 2002 | |||||||||||||||||||||||
|
Revenues
|
$ | 5,362.0 | 100.0 | % | $ | 5,247.7 | 100.0 | % | $ | 5,190.8 | 100.0 | % | |||||||||||||
|
Cost of operations
|
3,374.8 | 63.0 | 3,190.1 | 60.8 | 3,039.1 | 58.6 | |||||||||||||||||||
|
Selling, general and administrative
expenses
|
541.5 | 10.1 | 476.9 | 9.1 | 462.7 | 8.9 | |||||||||||||||||||
|
Depreciation and amortization
|
559.3 | 10.4 | 546.0 | 10.4 | 478.5 | 9.2 | |||||||||||||||||||
|
Non-cash gain on divestiture of
assets
|
— | — | — | — | (9.3 | ) | (0.2 | ) | |||||||||||||||||
|
Operating income
|
886.4 | 16.5 | 1,034.7 | 19.7 | 1,219.8 | 23.5 | |||||||||||||||||||
|
Interest expense and other
|
758.9 | 14.1 | 832.9 | 15.9 | 854.0 | 16.5 | |||||||||||||||||||
|
Income before income taxes
|
127.5 | 2.4 | 201.8 | 3.8 | 365.8 | 7.0 | |||||||||||||||||||
|
Income tax expense
|
72.2 | 1.3 | 88.7 | 1.7 | 165.6 | 3.2 | |||||||||||||||||||
|
Minority interest
|
(2.7 | ) | 0.0 | 1.9 | 0.0 | 1.9 | 0.0 | ||||||||||||||||||
|
Income from continuing operations
|
58.0 | 1.1 | 111.2 | 2.1 | 198.3 | 3.8 | |||||||||||||||||||
|
Discontinued operations, net
|
(8.7 | ) | (0.2 | ) | (11.5 | ) | (0.2 | ) | 16.8 | 0.3 | |||||||||||||||
|
Cumulative effect of change in
accounting principle, net of tax
|
— | — | 29.0 | 0.6 | — | — | |||||||||||||||||||
|
Net income
|
49.3 | 0.9 | 128.7 | 2.5 | 215.1 | 4.1 | |||||||||||||||||||
|
Dividends on preferred stock
|
(21.6 | ) | (0.4 | ) | (95.6 | ) | (1.8 | ) | (77.9 | ) | (1.5 | ) | |||||||||||||
|
Non-cash conversion of preferred
stock
|
— | — | (496.6 | ) | (9.5 | ) | — | — | |||||||||||||||||
|
Net income (loss) available to
common shareholders
|
$ | 27.7 | 0.5 | % | $ | (463.5 | ) | (8.8 | )% | $ | 137.2 | 2.6 | % | ||||||||||||
|
Reported revenues in 2003
|
$ | 5,247.7 | |||
|
Core
business(1)
|
|||||
|
Increase from average per unit
price change
|
46.3 | ||||
|
Increase from volume change
|
56.3 | ||||
|
Net divested
revenues(2)
|
(29.5 | ) | |||
|
Increase in commodity and other
revenues
|
41.2 | ||||
|
Reported revenues in 2004
|
$ | 5,362.0 | |||
| (1) | Core business represents revenues from collection, transfer and landfill services on a same store basis. |
| (2) | Excludes amounts reclassified to discontinued operations. |
23
For the year ended December 31, 2004, revenues increased
over the prior year in all major lines of business: collection,
transfer and disposal. Additionally within the collection
business, the residential and roll off revenues increased, while
the commercial business showed a slight decrease. Increases in
overall revenues were driven by price and volume growth of about
1% each. The growth in our average per unit price is a result of
our continued focus on effective price increases, effectively
managing the pricing of our new work and allowing under-priced
work to be replaced with more profitable work. Volume growth
continues to be driven by an overall improvement in the economy,
as well as more effective sales practices in the landfill,
transfer and collection business. Commodity and other revenue
increased primarily due to an increase in the average per unit
price for our main recyclable commodities, old corrugated
cardboard and paper, as well as a slight increase in recycled
volumes.
Cost of Operations. Cost of operations increased 5.8% in
2004. The increase for the year is primarily attributable to
(i) inflationary increases in all costs,
(ii) incremental increases in costs associated with
increased volume (such as transportation, host fees and landfill
operating costs) and (iii) increases in maintenance,
landfill operating costs, fuel and transportation costs in
excess of inflation. Labor, which represents over 30% of the
cost of operations, increased approximately 2% in 2004.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased 13.6% in the year
ended December 31, 2004 as compared to 2003. The increase
is primarily attributable to salaries and professional fees.
Included in salaries were $18 million of costs associated
with an executive departure and our field organization
realignment in the fourth quarter of 2004. This amount includes
approximately $15 million related to the resignation of the
Chairman and Chief Executive Officer in the fourth quarter of
2004.
Costs associated with professional fees included approximately
$18 million on efforts to implement standards and best
practices across the company and an increase in professional
fees for incremental costs associated with increased corporate
governance regulations (including Sarbanes-Oxley 404
implementation) and labor relations.
Depreciation and Amortization. Depreciation and
amortization expense increased 2.4% in the year ended
December 31, 2004 as compared to 2003. The increase was
primarily attributable to an increase in landfill volume and
landfill amortization rates.
Interest Expense and Other. Interest expense and other
decreased by 8.9% in 2004. Following are the components of
interest expense and other (in millions):
| For the Year Ended | ||||||||||
| December 31, | ||||||||||
| 2004 | 2003 | |||||||||
|
Interest Expense and
Other —
|
||||||||||
|
Interest expense, gross
|
$ | 592.7 | $ | 691.2 | ||||||
|
Cash settlement on non-hedge
accounting interest rate swap contracts
|
8.5 | 50.8 | ||||||||
|
Interest income
|
(2.5 | ) | (3.4 | ) | ||||||
|
Interest capitalized for
development projects
|
(13.0 | ) | (15.7 | ) | ||||||
|
Accretion of debt and amortization
of debt issuance costs
|
27.0 | 31.8 | ||||||||
|
Non-cash gain on non-hedge
accounting interest rate swap contracts
|
(16.3 | ) | (48.1 | ) | ||||||
|
Amortization of accumulated other
comprehensive loss for de-designated interest rate swap contracts
|
6.7 | 23.1 | ||||||||
|
Costs incurred to early extinguish
debt
|
156.2 | 108.1 | ||||||||
|
Interest expense allocated to
discontinued operations
|
(0.4 | ) | (4.9 | ) | ||||||
|
Interest expense and other
|
$ | 758.9 | $ | 832.9 | ||||||
24
25
The decrease in gross interest expense and cash settlement on
non-hedge accounting interest rate swap contracts is
attributable primarily to the repayment of debt from our
continued de-leveraging strategy, the refinancing of debt at
lower interest rates and the maturing of higher rate interest
rate swap contracts. During 2004 and 2003, we decreased our debt
balance by $477 million and $648 million,
respectively, and in 2004, we refinanced approximately
$2.0 billion of debt with lower interest rates. At
December 31, 2004, approximately 79% of our debt had fixed
rates.
Costs incurred to retire debt prior to maturity in 2004 include
$129.8 million of premiums and fees paid and
$26.4 million of write-offs of financing costs. These costs
were associated with the repurchase of $1.3 billion of our
10% senior subordinated notes and the redemption of
$875 million of 7.875% senior notes, both of which
were due in 2009. Costs incurred to retire debt prior to
maturity in 2003 include (i) $53.8 million for the
write-off of deferred financing costs and other costs for the
refinancing of our credit facility and
(ii) $53.4 million in premiums paid and other costs
for the open market repurchase of $506.1 million of
10% senior subordinated notes during 2003.
The change in non-cash gain on non-hedge accounting interest
rate swap contracts is due to changes in the market value of the
underlying interest rate swap contract driven by both changes in
prevailing interest rates and the remaining term of the interest
rate swap contract. The decrease in amortization of accumulated
other comprehensive loss for de-designated interest rate swap
contracts is attributable to de-designated interest rate swap
contracts that matured during 2004.
Income Tax Expense. The effective tax rate for the year
ended December 31, 2004 was 55.5% compared to 44.4% for the
same period in 2003. The increase is due in part to a decrease
in annual earnings before taxes in 2004 compared with 2003 and
an increase in interest provided on the tax contingency
described in Note 13 to our Consolidated Financial
Statements.
Minority Interest. We recognized a non-recurring minority
interest benefit from revised estimates used in the stipulated
calculation of certain minority shareholders’ equity at
certain consolidated subsidiaries.
Discontinued Operations. Certain operations that were
divested during 2004 and 2003, are reflected as discontinued
operations in the accompanying financial statements. During
2004, we sold operations in Florida and included a net after tax
loss of approximately $8.5 million in discontinued
operations. Also included in the results for discontinued
operations for the year ended December 31, 2004 is a net
after tax gain of $1.7 million as a result of purchase
price adjustments for operations sold in 2003. During 2003, we
sold discontinued operations in South Carolina, Georgia,
Colorado, New Jersey, Virginia and Florida and included a net
after tax loss of approximately $29.0 million in
discontinued operations.
Dividends on Preferred Stock. Dividends on preferred
stock were $21.6 million and $95.6 million for years
2004 and 2003, respectively. Dividends on preferred stock
decreased by 77.5% in 2004. Dividends in 2004 include 6.25%
dividends payable in cash relating to Series C Mandatory
Convertible Preferred Stock (Series C Preferred Stock)
issued in April 2003. Dividends in 2003 included dividends
related to the Series C Preferred Stock and a non-cash 6.5%
dividend on the liquidation preference of our Series A
Senior Convertible Preferred Stock. The Series A Senior
Convertible Preferred Stock was converted to common stock in
December 2003.
Non-cash Conversion of Preferred Stock. In December 2003,
the Series A Senior Convertible Preferred Stock was
exchanged for common stock. In connection with the exchange, we
recorded a reduction to net income available to common
shareholders of $496.6 million for the fair value (using a
common stock price on the date of conversion of $13.50) of the
36.8 million incremental shares of common stock issued to
the holders of the preferred stock over the amount the holders
would have received under the original conversion provisions.
Years Ended December 31, 2003 and 2002
Revenues. Revenues increased 1.1% in 2003. Following is a
summary of the change in revenues (in millions):
|
Reported revenues in 2002
|
$ | 5,190.8 | |||
|
Core
business(1)
|
|||||
|
Decrease from average per unit
price change
|
(8.5 | ) | |||
|
Increase from volume change
|
83.1 | ||||
|
Net divested
revenues(2)
|
(34.8 | ) | |||
|
Increase in commodity and other
revenues
|
17.1 | ||||
|
Reported revenues in 2003
|
$ | 5,247.7 | |||
| (1) | Core business represents revenues from collection, transfer and landfill services on a same store basis. |
| (2) | Excludes amounts reclassified to discontinued operations. |
26
Interest Expense and Other. Interest expense and other
decreased by 2.5% in 2003. Following are the components of
interest expense and other (in millions):
| For the Year Ended | ||||||||||
| December 31, | ||||||||||
| 2003 | 2002 | |||||||||
|
Interest Expense and
Other —
|
||||||||||
|
Interest expense, gross
|
$ | 691.2 | $ | 735.0 | ||||||
|
Cash settlement on non-hedge
accounting interest rate swap contracts
|
50.8 | 59.6 | ||||||||
|
Interest income
|
(3.4 | ) | (4.8 | ) | ||||||
|
Interest capitalized for
development projects
|
(15.7 | ) | (20.6 | ) | ||||||
|
Accretion of debt and amortization
of debt issuance costs
|
31.8 | 43.2 | ||||||||
|
Non-cash gain on non-hedge
accounting interest rate swap contracts
|
(48.1 | ) | (2.4 | ) | ||||||
|
Amortization of accumulated other
comprehensive loss for de-designated interest rate swap contracts
|
23.1 | 35.4 | ||||||||
|
Costs incurred to early extinguish
debt
|
108.1 | 16.8 | ||||||||
|
Interest expense allocated to
discontinued operations
|
(4.9 | ) | (8.2 | ) | ||||||
|
Interest expense and other
|
$ | 832.9 | $ | 854.0 | ||||||
| • | South Carolina, Georgia and Colorado sold at the end of second quarter, | |
| • | New Jersey sold in the third quarter, | |
| • | South Florida sold at the beginning of fourth quarter, | |
| • | North and Central Florida sold at the end of fourth quarter or held for sale at December 31, 2003, and | |
| • | North Virginia sold at the end of fourth quarter. |
27
28
Cumulative Effect of Change in Accounting Principle. We
adopted SFAS 143, Accounting for Asset Retirement
Obligations, effective January 1, 2003. We recorded a
cumulative effect of change in accounting principle of
$29.0 million, net of income tax expense of
$19.4 million.
Dividends on Preferred Stock. Dividends on preferred
stock increased by 22.8% in 2003. Dividends increased because in
April 2003 we issued Series C Mandatory Convertible
Preferred Stock with 6.25% dividends payable in cash. Dividends
for both 2003 and 2002 reflect a 6.5% dividend on the
liquidation preference of our Series A Senior Convertible
Preferred Stock. During 2003 and 2002, in lieu of paying cash
dividends on the Series A Senior Convertible Preferred
Stock, the liquidation preference of the preferred stock
increased by the amount of accrued but unpaid dividends. In
December 2003, we exchanged the Series A Preferred Stock to
common stock, which included the cumulative dividends that had
been accrued.
Non-cash Conversion of Preferred Stock. During December
2003, the Series A Senior Convertible Preferred Stock was
exchanged for common stock. In connection with the exchange, we
recorded a reduction to net income available to common
shareholders of $496.6 million for the fair value (using a
common stock price on the date of conversion of $13.50) of the
36.8 million incremental shares of common stock issued to
the holders of the preferred stock over the amount the holders
would have received under the original conversion provisions.
Liquidity and Capital Resources
During 2004, we generated operating cash flows of
$650.0 million, of which we reinvested $582.9 million
of capital into the business. We reduced our debt balance by
$477 million to $7.8 billion. During 2004, we
completed various refinancing transactions and debt repayments,
reducing the weighted average interest rate on approximately
$2.0 billion of borrowings from 9% to 6%.
We generally meet operational liquidity needs with operating
cash flow. Our other liquidity needs are primarily for capital
expenditures for vehicles, containers and landfill development,
debt service costs, scheduled debt maturities and capping,
closure, post-closure and environmental expenditures.
When we cannot meet our liquidity needs with operating cash
flow, we meet those needs with borrowings under our revolving
credit facility. We have a $1.5 billion commitment until
2008 under our revolving credit facility, which we believe is
adequate to meet our liquidity needs based on current
conditions. At December 31, 2004, we had no loans
outstanding and $716.7 million in letters of credit
outstanding on the revolving credit facility, leaving
$783.3 million of availability. Additionally, we have
letter of credit capacity of $198 million until 2008 under
our institutional letter of credit facility to meet letter of
credit requirements, in addition to our revolving credit
facility, all of which was used at December 31, 2004.
We continuously seek opportunities to increase our cash flow
through improvements in operations and reducing our interest
cost. Historically we have used bank financings and capital
markets transactions to meet our refinancing and liquidity
requirements. Under our Credit Facility, we are required to meet
certain financial covenants. Our objective is to maintain
sufficient surplus between the required covenant ratios and the
actual ratios calculated according to the Credit Agreement. We
monitor the surplus carefully and will take action if the
surplus becomes too tight. We have not historically experienced
difficulty in obtaining financing or refinancing existing debt.
We expect to continue to seek such opportunities in the future
to the extent such opportunities are available to us. (See also
Debt Covenants in Contractual Obligations and
Commitments).
Our cash flows from operating, investing and financing
activities for the last three years were as follows (in
millions):
| Years Ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | |||||||||||
|
Operating Activities:
|
|||||||||||||
|
Net income
|
$ | 49.3 | $ | 128.7 | $ | 215.1 | |||||||
|
Discontinued operations, net of tax
|
8.7 | 11.5 | (16.8 | ) | |||||||||
|
Non-cash gain on divestiture of
assets
|
— | — | (9.3 | ) | |||||||||
|
Non-cash
expenses(1)
|
683.7 | 692.8 | 688.9 | ||||||||||
|
Gain on sale of fixed assets
|
(4.9 | ) | — | (5.8 | ) | ||||||||
|
Non-cash gain on non-hedge
accounting interest rate swap contracts
|
(16.2 | ) | (48.1 | ) | (2.4 | ) | |||||||
|
Amortization of accumulated other
comprehensive loss for de-designated interest rate swap contracts
|
6.7 | 23.1 | 35.4 | ||||||||||
|
Change in working capital
|
(34.9 | ) | 6.7 | 105.7 | |||||||||
|
Capping, closure, post-closure and
environmental expenditures, net of provision and accretion
|
(42.4 | ) | (30.8 | ) | (34.2 | ) | |||||||
|
Cash provided by operating
activities from continuing operations
|
650.0 | 783.9 | 976.6 | ||||||||||
|
Investing Activities:
|
|||||||||||||
|
Proceeds from divestitures less the
cost of acquisitions, net of cash
divested/acquired(2)
|
36.2 | 250.0 | 31.2 | ||||||||||
|
Proceeds from sale of fixed assets
|
11.0 | 17.5 | 28.6 | ||||||||||
|
Capital expenditures, excluding
acquisitions
|
(582.9 | ) | (491.8 | ) | (536.3 | ) | |||||||
|
Capitalized interest
|
(13.0 | ) | (15.7 | ) | (20.6 | ) | |||||||
|
Change in deferred acquisition
costs, notes receivable and other
|
10.8 | (8.4 | ) | (22.4 | ) | ||||||||
|
Cash used for investing activities
from continuing operations
|
(537.9 | ) | (248.4 | ) | (519.5 | ) | |||||||
|
Financing Activities:
|
|||||||||||||
|
Net proceeds from sale of
Series C Preferred Stock
|
— | 333.1 | — | ||||||||||
|
Proceeds from long-term debt, net
of issuance costs
|
3,082.6 | 3,037.1 | 1,044.3 | ||||||||||
|
Repayments of long-term debt
|
(3,609.1 | ) | (3,754.6 | ) | (1,447.5 | ) | |||||||
|
Payment of Series C Preferred
Stock dividends
|
(21.6 | ) | (10.2 | ) | — | ||||||||
|
Change in disbursement account
|
53.8 | 10.5 | (87.1 | ) | |||||||||
|
Net proceeds from sale of common
stock, exercise of stock options and other
|
5.1 | 98.4 | 2.8 | ||||||||||
|
Cash used for financing activities
from continuing operations
|
(489.2 | ) | (285.7 | ) | (487.5 | ) | |||||||
|
Cash provided by discontinued
operations
|
0.4 | 15.5 | 52.2 | ||||||||||
|
(Decrease)/ Increase in cash and
cash equivalents
|
$ | (376.7 | ) | $ | 265.3 | $ | 21.8 | ||||||
| (1) | Consists principally of provisions for depreciation and amortization, receivable realization allowance, accretion of debt and amortization of debt issuance costs, write-off of deferred debt issuance costs, non-cash reduction in acquisition accruals, non-cash portion of realignment costs, deferred income taxes and cumulative effect of change in accounting principle, net of tax. |
29
(2)
During 2004, we acquired solid waste operations representing
approximately $16.6 million ($16.6 million, net of
intercompany eliminations) in annual revenues and sold
operations representing approximately $62.2 million
($60.8 million, net of intercompany eliminations) in annual
revenues. During 2003, we acquired solid waste operations
representing approximately $42.1 million
($39.3 million, net of intercompany eliminations) in annual
revenues and sold operations representing approximately
$353.3 million ($338.6 million, net of intercompany
eliminations) in annual revenues. During 2002, we acquired solid
waste operations, representing approximately $28.3 million
in annual revenues, and sold operations representing
approximately $70.1 million ($69.3 million, net of
intercompany eliminations) in annual revenues.
Cash provided by continuing operations decreased by 17.1% in
2004 when compared to the same period in 2003. The decrease in
cash provided by continuing operations when comparing 2004 to
2003 is primarily due to the payment of $129.8 million of
premiums and fees for refinancing transactions in 2004, a
reduction in net income, and a decrease in working capital
deficit of $34.9 million, compared to an increase of $6.7
in 2003, that was primarily attributable to the timing of
payment of interest, taxes and other operating expenditures.
Following is a summary of the primary sources and uses of cash
during the year 2004 and 2003 (in millions):
Sources of cash
| 2004 | 2003 | |||||||
|
Cash from continuing operations
|
$ | 650.0 | $ | 783.9 | ||||
|
Decrease in cash balance
|
376.7 | — | ||||||
|
Net proceeds from issuance of
common and preferred stock
|
5.1 | 427.5 | ||||||
|
Net proceeds from acquisitions and
divestitures
|
36.2 | 250.0 | ||||||
|
Proceeds from the sale of fixed
assets
|
11.0 | 17.5 | ||||||
|
Total
|
$ | 1,079.0 | $ | 1,478.9 | ||||
| 2004 | 2003 | |||||||
|
Capital expenditures
|
$ | 582.9 | $ | 491.8 | ||||
|
Debt repayments
|
526.5 | 648.1 | ||||||
|
Increase in cash balance
|
— | 265.3 | ||||||
|
Payment of cash dividends
|
21.6 | 10.2 | ||||||
|
Other non-operating net cash
outflows (inflows)
|
(52.0 | ) | 63.5 | |||||
|
Total
|
$ | 1,079.0 | $ | 1,478.9 | ||||
30
summary of capital expenditures for the years ended
December 31, (in millions except for percentages):
| 2004 | 2003 | 2002 | |||||||||||
|
Vehicles, containers and heavy
equipment
|
$ | 214.8 | $ | 231.2 | $ | 289.6 | |||||||
|
Landfill development
|
297.1 | 219.1 | 207.1 | ||||||||||
|
Other(1)
|
71.0 | 41.5 | 39.6 | ||||||||||
|
Total capital expenditures,
excluding acquisitions
|
$ | 582.9 | $ | 491.8 | $ | 536.3 | |||||||
|
Capital expenditures as a % of
revenues
|
10.9 | % | 9.4 | % | 10.3 | % | |||||||
| (1) | Includes land and improvements, land held for permitting as landfills, buildings and improvements, and furniture and office equipment. |
| • | $400 million of 7.375% senior unsecured notes due 2014, | |
| • | $275 million of 6.375% senior notes due 2011, and | |
| • | $230 million of 4.25% senior subordinated convertible debentures due 2034. |
31
32
which matures in 2008 or with other long-term borrowings.
Although we intend to renew the loan agreement in May 2005 and
do not expect to repay the amounts within the next twelve
months, the loan is classified as a current liability because it
has a contractual maturity of less than one year.
In November 2004, we redeemed another $75 million of our
10% senior subordinated notes due 2009 for
$78.8 million with the borrowings under our receivables
secured loan. In connection with this redemption, we paid
premiums and fees of approximately $3.8 million and
wrote-off $0.8 million of deferred financing costs, both of
which were recorded as a charge to interest expense and other.
Exchange of Series A Senior Convertible Preferred
Stock
On December 18, 2003, we completed the exchange of the
Series A Preferred Stock outstanding for 110.5 million
shares of our common stock. The Series A Preferred Stock
had a stated value of $1.327 billion at December 18,
2003, the exchange date, which represented the original issuance
amount plus cumulative accrued and unpaid dividends. No
additional common shares were issued for the increase in
liquidation preference from July 31, 2003, the date we
reached agreement on the exchange transaction with the holders
of the Series A Preferred Stock, through the exchange date.
Upon completion of the exchange transaction, our outstanding
shares on a fully diluted basis increased to approximately
350 million shares. As a result of the exchange,
approximately $90 million in future annual dividend
payments due to begin July 2004 have been eliminated.
Due to the change in the original conversion terms, we were
required to quantify the accounting effect of the change in
conversion terms and reduce net income available to common
shareholders by the corresponding amount. Accordingly, we
recorded a non-cash conversion charge of $496.6 million,
which is reflected as a reduction to net income available to
common shareholders, but has no effect on total
stockholders’ equity because an offsetting amount is
recorded to additional paid-in capital. The non-cash conversion
charge is calculated as the market value of the shares of our
common stock issued in excess of the shares of common stock that
the holders of the Series A Preferred Stock could have
converted into under the original terms of the Series A
Preferred Stock.
Financing Plan
We are a highly leveraged company with $7.8 billion of
outstanding debt at December 31, 2004. The vast majority of
our debt was incurred to acquire solid waste companies during
the past 10 years. We incurred and assumed over
$11 billion of debt to acquire Browning Ferris Industries,
Inc. (BFI) in 1999. Since the acquisition of BFI, we have
repaid debt with cash flow from operations, asset sales and the
issuance of equity. We intend to continue to reduce our debt
balance until we reach credit ratios that we believe will allow
us to benefit from an investment grade-like cost of capital. We
believe those benefits will be realized when the following
ratios approach the indicated ranges:
•
Debt to EBITDA between 3.5:1 and 3.0:1
•
EBITDA to Interest between 3.0:1 and 3.5:1
•
Debt to book value market capitalization between 60% and 65%
We are unable to predict or forecast which debt rating will be
assigned by the rating agencies, or when new ratings will be
assigned by them. We believe that as we move towards these
ratios, when compared to today, we will have additional
opportunities to reduce our cost of debt below our current
level, provide opportunities to increase liquidity, and allow
more flexibility in deciding the most appropriate use of our
cash flow.
Until then, we will continue to manage operating cash flows and
capital expenditures to facilitate repayment of our scheduled
debt maturities and opportunistically reduce interest costs
through refinancing transactions to the extent economically
beneficial. Examples include the refinancing of
$1.8 billion of our 10% senior subordinated notes due
2009 and the other refinancing transactions in 2003 and 2004. We
believe that we will continue to generate cash flow from
operations after funding capital expenditures to be used to
repay debt. In the future, we expect to continue to acquire
operations that strengthen existing markets and increase
vertical integration. In addition, we will continue to evaluate
the performance of and opportunities to divest operations that
do not maximize operating efficiencies or provide an adequate
return on invested capital.
We may continue to seek opportunities to extend our maturities
in the future with actions that are economically beneficial. We
believe we have several alternatives available to us to extend
maturities of our debt portfolio or retire debt. The potential
alternatives include continued application of cash flow from
operations, asset sales and capital markets transactions.
Capital markets transactions could include issuance of debt with
longer-term maturities, issuance of equity, or a combination of
both. There is no assurance that in the future we will be able
to (i) consummate transactions in the capital markets on
commercially reasonable terms, or at all, (ii) sell assets
or (iii) generate annual cash flows to repay debt.
We are currently reviewing opportunities in the credit and
capital markets to refinance certain components of our capital
structure, including certain loans under our credit facility and
other fixed rate notes. Our objectives are to extend near-term
maturities, increase financial capacity, reduce interest rates,
and improve financial covenants. In addition, we are examining
opportunities to retire certain high cost debt to improve cash
flow and reduce financial leverage. Opportunities being reviewed
include accessing both debt and equity markets. There are no
assurances that a refinancing or any such transactions will be
consummated.
We currently have effective shelf registration statements with
the SEC that would allow us to issue various securities up to
$2.0 billion as market conditions permit.
Contractual Obligations and Commitments
Following is a summary of our debt structure and the associated
interest cost (in millions, except percentages):
| December 31, 2004 | December 31, 2003 | |||||||||||||||||||||||
| Ending | Effective | Annual | Ending | Effective | Annual | |||||||||||||||||||
| Debt | Interest | Interest | Debt | Interest | Interest | |||||||||||||||||||
| Debt Instrument | Balance | Rate(1) | Expense | Balance | Rate(1) | Expense | ||||||||||||||||||
|
Revolving credit
facility(2)
|
$ | — | 5.56 | % | $ | 14.8 | $ | — | 5.41 | % | $ | 14.0 | ||||||||||||
|
Term loans
|
1,555.5 | 6.04 | 112.3 | 1,435.0 | 9.36 | 157.8 | ||||||||||||||||||
|
Senior secured notes
|
4,833.5 | 7.81 | 381.4 | 4,826.5 | 8.45 | 380.0 | ||||||||||||||||||
|
Senior unsecured notes
|
400.0 | 7.53 | 21.0 | — | — | — | ||||||||||||||||||
|
Senior subordinated convertible
debentures
|
230.0 | 4.33 | 7.0 | — | — | — | ||||||||||||||||||
|
Senior subordinated notes
|
195.4 | 10.22 | 64.7 | 1,497.4 | 10.22 | 195.3 | ||||||||||||||||||
|
Receivables secured loan
|
209.9 | 3.32 | 3.7 | 146.3 | 1.68 | 2.4 | ||||||||||||||||||
|
Other
|
332.7 | 5.36 | 23.3 | 328.9 | 6.88 | 24.3 | ||||||||||||||||||
|
Total
|
$ | 7,757.0 | 7.18 | % | $ | 628.2 | $ | 8,234.1 | 8.96 | % | $ | 773.8 | ||||||||||||
| (1) | Includes the effect of interest rate swap contracts and amortization of debt issuance costs and premiums or discounts. |
| (2) | Reflects weighted average interest rate. |
33
The following table provides additional maturity detail of our
long-term debt at December 31, 2004 (in millions):
| Debt | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total | |||||||||||||||||||||
|
Revolving Credit
Facility(1)
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Term Loan B due 2010
|
15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 1,087.9 | 1,162.9 | |||||||||||||||||||||
|
Term Loan C due 2010
|
3.1 | 3.1 | 3.1 | 3.1 | 3.1 | 229.9 | 245.4 | |||||||||||||||||||||
|
Term Loan D due 2010
|
1.9 | 1.9 | 1.9 | 1.9 | 1.9 | 137.7 | 147.2 | |||||||||||||||||||||
|
Receivables secured
loan(2)
|
209.9 | — | — | — | — | — | 209.9 | |||||||||||||||||||||
|
7.875% BFI Senior notes
|
69.5 | — | — | — | — | — | 69.5 | |||||||||||||||||||||
|
7.625% Senior notes
|
— | 600.0 | — | — | — | — | 600.0 | |||||||||||||||||||||
|
8.875% Senior notes
|
— | — | — | 600.0 | — | — | 600.0 | |||||||||||||||||||||
|
8.50% Senior notes
|
— | — | — | 750.0 | — | — | 750.0 | |||||||||||||||||||||
|
6.375% BFI Senior notes
|
— | — | — | 161.2 | — | — | 161.2 | |||||||||||||||||||||
|
10.00% Senior sub notes
|
— | — | — | — | 195.0 | — | 195.0 | |||||||||||||||||||||
|
6.50% Senior notes due 2010
|
— | — | — | — | — | 350.0 | 350.0 | |||||||||||||||||||||
|
5.75% Senior notes due 2011
|
— | — | — | — | — | 400.0 | 400.0 | |||||||||||||||||||||
|
6.375% Senior notes due 2011
|
— | — | — | — | — | 275.0 | 275.0 | |||||||||||||||||||||
|
9.25% Senior notes due 2012
|
— | — | — | — | — | 375.0 | 375.0 | |||||||||||||||||||||
|
7.875% Senior notes due 2013
|
— | — | — | — | — | 450.0 | 450.0 | |||||||||||||||||||||
|
7.375% Senior unsecured notes
due 2014
|
— | — | — | — | — | 400.0 | 400.0 | |||||||||||||||||||||
|
6.125% Senior notes due 2014
|
— | — | — | — | — | 425.0 | 425.0 | |||||||||||||||||||||
|
9.25% BFI debentures due 2021
|
— | — | — | — | — | 99.5 | 99.5 | |||||||||||||||||||||
|
7.40% BFI debentures due 2035
|
— | — | — | — | — | 360.0 | 360.0 | |||||||||||||||||||||
|
4.25% Senior sub convertible
debentures due 2034
|
— | — | — | — | — | 230.0 | 230.0 | |||||||||||||||||||||
|
Other debt
|
28.4 | 8.7 | 2.9 | 1.7 | 1.9 | 292.6 | 336.2 | |||||||||||||||||||||
|
Total principal due
|
$ | 327.8 | $ | 628.7 | $ | 22.9 | $ | 1,532.9 | $ | 216.9 | $ | 5,112.6 | $ | 7,841.8 | ||||||||||||||
|
Discount, net
|
(84.8 | ) | ||||||||||||||||||||||||||
|
Total debt balance
|
$ | 7,757.0 | ||||||||||||||||||||||||||
| (1) | At December 31, 2004, under our 2003 Credit Facility, we had a revolver capacity commitment of $1.5 billion with no loans outstanding and $716.7 million of letters of credit outstanding, providing us remaining availability of $783.3 million. In addition, we had an institutional letter of credit facility of $198.0 million available under the 2003 Credit Facility, all of which was used for letters of credit outstanding. |
| (2) | The receivables secured loan is a 364 day liquidity facility. On October 1, 2004, we increased our receivables secured loan by $75 million and extended the maturity from March 2005 to May 2005. At that time, we intend to renew the liquidity facility. If we are unable to renew the loan agreement, we would refinance any amounts outstanding with our revolving credit facility which matures in 2008 or with other long-term borrowings. Although we intend to renew the loan agreement in May 2005 and do not expect to repay the amounts within the next twelve months, the loan is classified as a current liability because it has a contractual maturity of less than one year. |
34
The following table outlines what we regard as our material,
fixed, non-cancelable contractual cash obligations, their
payment dates and expirations. Amounts related to operating
leases and purchase obligations are not recorded as a liability
on our December 31, 2004 consolidated balance sheet and
will be recorded as appropriate in future periods. This table
excludes certain obligations that we have reflected on our
consolidated balance sheet, such as pension obligations, for
which we do not expect to have cash funding requirements and
excludes amounts related to environmental liabilities and
contingencies for which the timing of payments is not
determinable.
| Payments Due by Year | |||||||||||||||||||||||||||||
| Contractual Obligations | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
|
Recorded obligations:
|
|||||||||||||||||||||||||||||
|
Long-term
debt(1)
|
$ | 855.4 | $ | 1,102.3 | $ | 495.3 | $ | 1,935.4 | $ | 550.0 | $ | 6,852.2 | $ | 11,790.6 | |||||||||||||||
|
Capital lease obligations
|
2.9 | 1.9 | 1.7 | 1.7 | 1.7 | 12.6 | 22.5 | ||||||||||||||||||||||
|
Capping, closure and post- closure
obligations
|
71.4 | 73.5 | 68.7 | 70.9 | 72.9 | 2,815.1 | 3,172.5 | ||||||||||||||||||||||
|
Other long-term
liabilities(2)
|
— | 70.6 | 44.6 | 34.3 | 31.6 | 105.2 | 286.3 | ||||||||||||||||||||||
|
Unrecorded
obligations:
|
|||||||||||||||||||||||||||||
|
Operating leases
|
32.4 | 30.0 | 24.7 | 20.2 | 17.6 | 49.8 | 174.7 | ||||||||||||||||||||||
|
Purchase
obligations(3)
|
|||||||||||||||||||||||||||||
|
Disposal related
|
98.9 | 79.4 | 75.8 | 72.7 | 65.2 | 633.1 | 1,025.1 | ||||||||||||||||||||||
|
Other
|
88.6 | 34.5 | 21.5 | 14.0 | 16.6 | 32.2 | 207.4 | ||||||||||||||||||||||
|
Total cash contractual obligations
|
$ | 1,149.6 | $ | 1,392.2 | $ | 732.3 | $ | 2,149.2 | $ | 755.6 | $ | 10,500.2 | $ | 16,679.1 | |||||||||||||||
| (1) | Amount represents scheduled principal and interest due and excludes discounts and principal due on capital leases. Scheduled interest payment obligations are calculated using stated coupons for fixed debt and interest rates effective as of December 31, 2004 for variable rate debt. |
| (2) | The current portion of other long-term obligations is not reflected here, as it is included in the other accrued liabilities balance. |
| (3) | Purchase obligations consist primarily of (i) disposal related agreements which include fixed or minimum royalty and host agreements and take-or-pay and put-or-pay disposal agreements, and (ii) other obligations including a fuel contract agreement, committed capital expenditures, and consulting services arrangements. |
35
Under the 2003 Credit Facility, our primary financial covenants
are:
Minimum Interest Coverage:
| Through the | EBITDA(1)/ | |||||
| From the Quarter Ending | Quarter Ending | Interest | ||||
| March 31, 2005 | 1.95x | |||||
| September 30, 2005 | 2.00x | |||||
| December 31, 2005 | 2.10x | |||||
| June 30, 2006 | 2.15x | |||||
| September 30, 2006 | 2.20x | |||||
| December 31, 2006 | 2.30x | |||||
| March 31, 2007 | 2.40x | |||||
| June 30, 2007 | 2.45x | |||||
| March 31, 2008 | 2.50x | |||||
| June 30, 2008 | 2.60x | |||||
| September 30, 2008 | 2.70x | |||||
| Thereafter | 2.75x | |||||
| Through the | Total Debt/ | |||||
| From the Quarter Ending | Quarter Ending | EBITDA(1) | ||||
| June 30, 2005 | 5.75x | |||||
| December 31, 2005 | 5.50x | |||||
| June 30, 2006 | 5.25x | |||||
| September 30, 2006 | 5.00x | |||||
| December 31, 2006 | 4.75x | |||||
| December 31, 2007 | 4.50x | |||||
| June 30, 2008 | 4.25x | |||||
| Thereafter | 4.00x | |||||
| (1) | EBITDA used for covenants is calculated in accordance with the definition in our credit facility agreement. In this context, EBITDA is used solely to provide information on the extent to which we are in compliance with debt covenants. |
36
amend the 2003 Credit Facility or raise sufficient capital to
repay such obligations in the event the maturities are
accelerated.
Prepayments. Under our 2003 Credit Facility, we must
repay a portion of our borrowings annually (prior to the stated
maturity) if we generate cash flow in excess of specified
levels. To make these payments, if required, we may have to use
the 2003 Revolver to accommodate cash timing differences.
Factors primarily causing excess cash flow, as defined, could
include increases in operating cash flow, lower capital
expenditures and working capital requirements, net divestitures
or other favorable cash generating activities. In addition, we
are required to make prepayments on the 2003 Credit Facility
upon completion of certain transactions as defined in the Credit
Facility, including asset sales and issuances of debt or equity
securities.
Financial Assurances. We are required to provide
financial assurances to governmental agencies under applicable
environmental regulations relating to our landfill operations
for capping, closure and post-closure costs, and performance
under certain collection, landfill and transfer station
contracts. We satisfy the financial assurance requirements by
providing performance bonds, letters of credit, insurance
policies or trust deposits. The amount of the financial
assurance requirement for capping, closure and post-closure
costs is determined by the applicable state environmental
regulations, which vary by state. The financial assurance
requirements for capping, closure and post-closure costs can
either be for costs associated with a portion of the landfill or
the entire landfill. Generally, states will require a
third-party engineering specialist to determine the estimated
capping, closure and post-closure costs that are used to
determine the required amount of financial assurance for a
landfill. The amount of financial assurances required can, and
generally will, differ from the obligation determined and
recorded under generally accepted accounting principles (GAAP).
Additionally, we are required to provide financial assurance for
our insurance program and collateral required for certain
performance obligations. We do not expect a material increase in
financial assurances during 2005, although the mix of financial
assurance instruments may change.
At December 31, 2004, we had the following financial
assurance instruments in place (in millions):
| Landfill | ||||||||||||||||||||
| Closure/ | Contract | Risk/Casualty | Collateral for | |||||||||||||||||
| Post-Closure | Performance | Insurance | Obligations | Total | ||||||||||||||||
|
Insurance policies
|
$ | 670.4 | $ | — | $ | — | $ | — | $ | 670.4 | ||||||||||
|
Surety bonds
|
515.8 | 494.4 | — | — | 1,010.2 | |||||||||||||||
|
Trust deposits
|
77.7 | — | — | — | 77.7 | |||||||||||||||
|
Letters of
credit(1)
|
505.7 | 48.7 | 239.4 | 120.9 | 914.7 | |||||||||||||||
|
Total
|
$ | 1,769.6 | $ | 543.1 | $ | 239.4 | $ | 120.9 | $ | 2,673.0 | ||||||||||
| (1) | These amounts are issued under the 2003 Revolver and the institutional letter of credit facility under our 2003 Credit Facility. |
37
38
Off-Balance Sheet Financing
We have no off-balance sheet debt or similar obligations, other
than financial assurance instruments discussed above and
operating leases, which are not classified as debt. We have no
transactions or obligations with related parties that are not
disclosed, consolidated into or reflected in our reported
results of operations or financial position. We do not guarantee
any third party debt.
Interest Rate Swap Portfolio
We have entered into interest rate swap agreements for the
purpose of hedging variability of interest expense and interest
payments on our long-term variable rate bank debt and
maintaining a mix of fixed and floating rate debt. Our strategy
is to use interest rate swap contracts when such transactions
will serve to meet the objectives of our risk management policy.
These contracts are not entered into for trading purposes. Our
risk management policy requires that we evaluate the credit of
our counter parties and that we monitor counter party exposure.
At December 31, 2004, counter parties for our interest rate
swap portfolio were rated Aa3.
As a result of swap maturities and terminations during 2004, our
interest rate swap portfolio fixes 13% of our variable rate
interest payment obligation, protecting us from cash flow
variations arising from changes in short term interest rates. We
believe this is prudent given our capital structure. In 2004, we
changed our corporate policy to require that no less than 70% of
our total debt be effectively fixed, either directly or through
interest rate swap agreements. Prior to the change, the minimum
fixed rate policy was 75%. At December 31, 2004,
approximately 79% of our debt was fixed, 76% directly, and 3%
through an interest rate swap agreement. In the fourth quarter
of 2004, we terminated all swaps where we paid a variable rate
and received fixed payments. The average interest rate paid
under our swap contract at December 31, 2004 was 5.99%
compared to LIBOR of 2.15% at December 31, 2004.
In accordance with SFAS No. 133, Accounting for
Derivative and Hedging Activities as amended by
SFAS No. 138, Accounting for Certain Derivative and
Hedging Activities, a portion of our interest rate swap
portfolio was de-designated for hedge accounting purposes at
December 31, 2001, all of which matured by June 30,
2004. At the time debt obligations are repaid prior to maturity,
we may or may not terminate interest rate swap contracts
depending on the reflective economic considerations.
As of December 31, 2004, the Company had a floating to
fixed interest rate swap contract with a notional amount of
$250 million. This contract will mature in March 2005.
Based on the current maturity schedule of our interest rate swap
contract, our current debt balance and assuming the interest
rate swap contract is not replaced, we expect that at the end of
the first quarter of 2005 we will have approximately 76% of our
debt at fixed interest rates.
Contingencies
On August 9, 2004, August 27, 2004, and
September 30, 2004, three putative class action lawsuits
were filed against us and four of our current and former
officers in the U.S. District Court for the District of
Arizona. The lawsuits were consolidated into a single action on
November 22, 2004. On January 14, 2005, the court
entered an order appointing lead plaintiffs but to date, no
consolidated suit has been filed.
The complaints assert claims against all defendants under
Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder and claims against the
officers under Section 20(a) of the Securities Exchange
Act. The complaints allege that from February 10, 2004, to
July 27, 2004, the defendants caused false and
misleading statements to be issued in our public filings and
public statements regarding our anticipated second quarter 2004
results. The lawsuits seek an unspecified amount of damages.
This action is in its early stages and we are not able to
39
determine whether the outcome will have a material adverse
affect on our consolidated results of operations. We intend to
defend the action vigorously.
We are currently under examination by various state and federal
taxing authorities for certain tax years, including federal
income tax audits for calendar years 1998 through 2003. A
federal income tax audit for BFI’s tax years ended
September 30, 1996 through July 30, 1999 is complete
with the exception of the matter discussed below.
Prior to our acquisition of BFI on July 30, 1999, BFI
operating companies, as part of a risk management initiative to
effectively manage and reduce costs associated with certain
liabilities, contributed assets and existing environmental and
self-insurance liabilities to six fully consolidated BFI risk
management companies (RMCs) in exchange for stock representing a
minority ownership interest in the RMCs. Subsequently, the BFI
operating companies sold that stock in the RMCs to third parties
at fair market value which resulted in a capital loss of
approximately $900 million for tax purposes, calculated as
the excess of the tax basis of the stock over the cash proceeds
received.
On January 18, 2001, the Internal Revenue Service (IRS)
designated this type of transaction and other similar
transactions as a “potentially abusive tax shelter”
under IRS regulations. During 2002, the IRS proposed the
disallowance of all of this capital loss. The primary argument
advanced by the IRS for disallowing the capital loss was that
the tax basis of the stock of the RMCs received by the BFI
operating companies was required to be reduced by the amount of
liabilities assumed by the RMCs even though such liabilities
were contingent and, therefore, not liabilities recognized for
tax purposes. Under the IRS view, there was no capital loss on
the sale of the stock since the tax basis of the stock should
have approximately equaled the proceeds received. We protested
the disallowance to the Appeals Office of the IRS in August 2002.
If the proposed disallowance is upheld, we estimate it could
have a potential total cash impact of up to $310 million
for federal and state taxes plus accrued interest through
December 31, 2004 of approximately $81.6 million
($49.0 million net of tax benefit). We also received a
notification from the IRS proposing a penalty of 40% of the
additional income tax resulting from the disallowance. Because
of several meritorious defenses, we believe the successful
assertion of penalties is unlikely.
We expect that sometime in the first half of 2005, the Appeals
Office of the IRS will uphold the disallowance of the capital
loss deduction. If this occurs, we would most likely litigate
the matter in a federal court and we would be required to pay a
deficiency of approximately $50 million for BFI tax years
prior to the acquisition. Thereafter, it would likely take a
couple of years before the court reached a decision and it is
likely that the losing party would appeal the decision to a
court of appeals. A settlement, however, could occur at any time
during the litigation process.
The remaining tax years affected by the capital loss issue are
currently being audited by the IRS. A court decision on the
litigation would resolve the issue in these years as well. If we
were to win the case, the initial payment would be refunded to
us, subject to an appeal. If we were to lose the case, the
deficiency associated with the remaining tax years would be due.
We continue to believe our position is well supported. However,
the potential tax and interest (but not penalties) impact of a
disallowance has been fully reserved on our consolidated balance
sheet. Also, the $50 million payment noted above has been
reclassified from long-term liabilities to current liabilities.
Therefore, with regard to tax and accrued interest through
December 31, 2004, a disallowance would have minimal impact
on our consolidated results of operations. The periodic accrual
of additional interest charged through the time at which this
matter is resolved will continue to affect consolidated results
of operations. In addition, the successful assertion by the IRS
of penalties could have a material adverse impact on our
consolidated liquidity, financial position and results of
operations.
40
In the normal course of conducting our landfill operations, we
are involved in legal and administrative proceedings relating to
the process of obtaining and defending the permits that allow us
to operate our landfills.
In June 1999, neighboring parties and the county drainage
district filed a lawsuit seeking to prevent BFI from obtaining a
vertical elevation expansion permit at one of our landfills in
Texas. In 2001, the expansion permit was granted. The parties
opposing the expansion permit continued to pursue their efforts
in preventing the expansion permit. In November 2003, a judgment
issued by a state trial court in Texas effectively revoked the
expansion permit that was granted by the Texas Commission on
Environmental Quality in 2001 and required us to operate the
landfill according to a prior permit granted in 1988. We have
appealed their decision to the Texas Court of Appeals.
Operationally, if necessary, we will attempt to obtain bonding
that will allow us to continue to operate the landfill as usual
during the period of appeals, which may continue two years or
longer. If the appeal is not successful, the landfill may become
impaired, we may incur costs to relocate waste to another
landfill and this matter could result in a charge of up to
$50 million to our consolidated statement of operations.
We enter into contracts in the normal course of business that
include indemnification clauses. Indemnifications relating to
known liabilities are recorded in the consolidated financial
statements based on our best estimate of required future
payments. Certain of these indemnifications relate to contingent
events or occurrences, such as the imposition of additional
taxes due to a change in the tax law or adverse interpretation
of the tax law, and indemnifications made in divestiture
agreements where we indemnify the buyer for liabilities that may
become known in the future but that relate to our activities
prior to the divestiture. As of December 31, 2004, we
estimate the contingent obligations associated with these
indemnifications to be de minimus.
Subtitle D and other regulations that apply to the non-hazardous
solid 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.
Related Party Transactions
For a description of related party transactions, see
Note 15 to our consolidated financial statements included
herein.
Accounting for Stock Options Granted to Employees
We currently account for our stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) as amended. Pursuant to APB 25, we
recognize no compensation cost for our stock option grants to
employees because the number of shares potentially issuable and
the exercise price, which is equal to the fair market value of
the underlying stock on the date of grant, is fixed.
Were we to recognize compensation expense based on the fair
value of stock options granted, as provided for under
SFAS No. 123, Accounting for Stock Based
Compensation, we would have recognized compensation expense
net of tax of $7.0 million, $9.5 million and
$13.6 million, or $.03, $.05 and $.07 per diluted
share, for the year ended December 31, 2004, 2003 and 2002,
respectively.
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS 123R). SFAS 123R
requires us to measure the cost of employee services received in
exchange for an award of equity instruments based on the
grant-date fair value of the award. The cost of the employee
services is recognized as compensation cost
over the period that an employee provides service in exchange
for the award. SFAS 123R is effective July 1, 2005 for
us and may be adopted using a modified prospective method or a
modified retrospective method. We are currently evaluating the
adoption alternatives and expect to complete our evaluation
during the third quarter of 2005. If we adopt SFAS 123R
under the modified prospective method, the 2005 impact would be
to decrease income from continuing operations by approximately
$2.5 million, or less than $.01 per diluted share.
These amounts represent the net of tax expense previously
calculated under SFAS 123 for pro forma purposes for
existing stock option awards that will vest in our third and
fourth quarters of 2005. This amount does not reflect any new
awards or modifications to existing awards that could occur in
the future.
Critical Accounting Judgments and Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires estimates and
assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities in the consolidated financial
statements. The SEC has defined a company’s most critical
accounting policies as those that are most important to the
portrayal of the company’s financial condition and results
of operations that require management’s most difficult,
subjective or complex judgments, often as a result of the need
to make estimates of matters that are inherently uncertain.
These judgments and estimates often involve future events. Based
on this definition, we have identified the critical accounting
policies and judgments addressed below. In addition, management
has discussed these accounting policies and judgments with the
Audit Committee of our Board of Directors. No one geographic
operating segment has a more significant concentration of the
critical accounting policies and judgments addressed below.
Although we believe that our estimates and assumptions are
reasonable, they are based upon information available at the
time they are made. Actual results may differ significantly from
estimates under different assumptions or conditions. The
following critical accounting judgments and estimates are based
on our accounting practices in effect during 2004.
We have noted examples of the residual accounting and business
risks inherent for these areas that you should be aware of and
for you to consider. Residual accounting and business risk is
defined as the inherent risk that remains after the application
of our policies and processes and is generally outside of our
control.
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
| Landfill Accounting |
Our landfill investments fall into
two categories, each of which require accounting judgments and
estimates. • Landfill development asset and related amortization. • Landfill retirement obligation asset resulting from recording our capping, closure and post-closure liabilities and related amortization. Landfill operations are treated as a period expense and are not discussed herein. We use the life cycle accounting method for landfills and the related capping, closure and post-closure liabilities. In life |
41
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
| cycle accounting, all capitalizable costs to acquire, develop and retire a site are recorded to amortization expense based upon the consumption of disposal capacity. The cost of the assets and liabilities related to landfills is driven by the technical design that is developed by a third party consultant and approved by a regulatory agency. The technical design includes the construction, capping and closure specifications, the types and quantities of materials required and determination of the landfill capacity. Estimates of future landfill disposal capacity are updated periodically (at least annually) based on third party surveys. | ||||
| Landfill development asset and related amortization |
Site Permit and Technical
Design In order to develop, construct and operate a landfill, we are required to obtain permits from various regulatory agencies at the local, state and federal level. The permitting process requires an initial siting study to determine whether the location is feasible for landfill operations. The studies are typically prepared by third-party consultants and reviewed by our environmental management group. The initial studies are submitted to the regulatory agencies for approval. |
Changes in legislative or regulatory requirements may cause changes in the landfill site permitting process. These changes could make it more difficult or costly to obtain a landfill permit. Studies performed by third parties could be inaccurate which could result in the revocation of a permit. Conditions could exist that were not identified in the study which make the location not feasible for a landfill and could result in the revocation of a permit. Revocation of a permit could materially impair the recorded value of the landfill asset. Actions by neighboring parties, private citizen groups or others to oppose our efforts to obtain permits could result in revocation or suspension of a permit which could adversely impact the economic viability of the landfill and could materially impair the recorded value of the landfill. |
||
| Technical Landfill Design |
Changes in legislative or |
|||
42
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
| Upon receipt of initial regulatory approval, technical landfill designs are prepared. These designs are compiled by third-party consultants and reviewed by our environmental management group. The technical designs include the detailed specifications to develop and construct all components of the landfill including the types and quantities of materials that will be required. The technical designs are submitted to the regulatory agencies for approval. Upon approval of the technical design, the regulatory agencies issue permits to develop and operate the landfill. |
regulatory requirements may require
changes in the landfill technical design. These changes could
make it more difficult or costly to meet new design
standards. Technical design requirements, as approved, may need modifications at some future point in time. Third party designs could be inaccurate and could result in increased construction costs or difficulty in obtaining a permit. |
|||
|
Landfill Disposal Capacity Included in the technical designs are the factors that determine the ultimate disposal capacity of the landfill. These factors include the area over which the landfill will be developed, the depth of excavation, the height of the landfill elevation and the angle of the side-slope construction. The disposal capacity of the landfill is calculated in cubic yards. This measurement of volume is then converted to a disposal capacity expressed in tons based on an average expected density to be achieved over the operating life of the landfill. |
Estimates of future disposal capacity may change as a result of changes in legislative or regulatory design requirements. The density of waste may vary due to variations in operating conditions, including waste compaction practices, site design, climate and the nature of the waste. |
|||
|
Development Costs The types of costs that are detailed in the technical design specifications generally include excavation, natural and synthetic liners, leachate collection system construction, installation of methane gas collection systems and monitoring probes, installation of groundwater monitoring wells, construction of leachate management facilities and other costs associated with the development of the site. We review the adequacy of our cost estimates used in the annual update of the above costs by comparing estimated costs with third-party bids or contractual arrangements, review changes in year over year cost estimates for reasonableness, and compare our resulting development |
Actual future costs of construction materials and third party labor could differ from the costs we have estimated because of the impact from general economic conditions on the availability of the required materials and labor. Technical designs could be altered due to unexpected operating conditions, regulatory changes or legislative changes. |
|||
43
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
| cost per acre with prior periods. These development costs, together with any costs incurred to acquire, design and permit the landfill, including capitalized interest, are recorded to the landfill asset on the balance sheet as incurred. | ||||
|
Landfill Development Asset
Amortization In order to match the amortization of the landfill asset with the revenue generated by the landfill operations, we amortize the landfill development asset over its operating life on a per-ton basis as waste is accepted at the landfill. At the end of a landfill’s operating life, the landfill asset is fully amortized. The per-ton rate is calculated by dividing the sum of the landfill net book value and estimated future development costs (as described above) of the landfill by the estimated remaining disposal capacity. The costs are not inflated and discounted, but rather expressed in nominal dollars. This rate is applied to each ton accepted at the landfill and recorded as a charge to amortization expense. Amortization rates are influenced by the original cost basis for the landfill, including acquisition costs, which in turn is determined by geographic location and market values. We have secured significant landfill assets through business acquisitions in recent years and valued them at the time of acquisition based upon market value. Also, per-ton rates are influenced by site specific engineering and cost factors. |
Increases and decreases in our cost estimates and changes in disposal capacity will normally result in a change in our amortization rates on a prospective basis. An unexpected significant increase in estimated costs or reduction in disposal capacity could affect the ongoing economic viability of the landfill and result in an asset impairment. |
|||
|
Estimate Updates On at least an annual basis, we update the estimates of future development costs and remaining disposal capacity for each landfill. These costs and disposal capacity estimates are reviewed and approved by senior operations management annually. Changes in the cost estimates are reflected prospectively in the landfill amortization rates that are updated annually. |
||||
44
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
| Capping, closure and post-closure liabilities | We have two types of retirement obligations related to landfills: (1) capping and (2) closure and post-closure monitoring. | |||
|
Landfill Capping As individual areas within each landfill reach capacity, we are required to cap and close the areas in accordance with the landfill site permit. These requirements are detailed in the technical design of the landfill siting process described above. Capping activities primarily include installation of liners, drainage, compacted soil layers and topsoil over areas of a landfill where total disposal capacity has been consumed and waste is no longer being received. There are multiple capping activities that occur over the operating life of the landfill. |
Changes in legislative or regulatory requirements including changes in capping, closure activities or post-closure monitoring activities, types and quantities of materials used, or term of post-closure care could cause changes in our cost estimates. |
|||
|
Closure and Post-Closure
Monitoring Closure costs are any costs incurred after a site stops receiving waste but prior to being certified as closed and enters its post-closure monitoring period. After the entire landfill site has reached capacity and is closed, we are required to maintain and monitor the site for a post-closure period, which generally extends for a period of 30 years. Post-closure requirements generally include maintenance of the site and monitoring the methane gas collection systems and groundwater systems, and other activities that occur after the site has ceased accepting waste. Costs associated with post-closure monitoring generally include groundwater sampling, analysis and statistical reports, third party labor associated with gas systems operations and maintenance, transportation and disposal of leachate and erosion control costs related to the final cap. |
||||
|
Landfill Retirement Obligation
Asset Amortization Estimates of the total future costs required |
Actual timing of disposal capacity utilization could differ from projected timing, causing |
|||
45
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
|
to cap, close, and monitor the
landfill as specified by each landfill permit are developed
annually. The estimates include the specific timing of the
estimated future cash outflows, considering the anticipated
waste flow into the capping events and the landfill. Our cost
estimates are inflated to the period of performance using an
estimate of inflation which is updated annually (2.5% was used
in both 2004 and 2003). Capping, closure and post-closure liabilities are recorded in layers and discounted using the credit adjusted risk-free rate in effect at the time the obligation is incurred. The present value of the remaining capping costs for a specific capping event and the remaining closure and post-closure costs for the landfill are accrued as incurred on a per-ton basis. These liabilities are incurred as disposal capacity is consumed at the landfill. A corresponding retirement obligation asset is recorded for the same value as the additions to the capping, closure and post-closure liabilities. The retirement obligation asset is amortized to expense on a per-ton basis as disposal capacity is consumed. The per-ton rate is calculated by dividing the sum of the recorded retirement obligation asset net book value and expected future additions to the retirement obligation asset by the remaining disposal capacity relating to that event. Closure and post-closure per-ton rates are based on the total disposal capacity of the landfill. The recorded retirement obligation is increased each year to reflect the passage of time by accreting the balance at the same credit-adjusted risk-free rate that was used to calculate each layer of the recorded liability. This accretion expense is charged to cost of operations. Actual cash expenditures reduce the asset retirement obligation liability as they are incurred. |
differences in timing of when
amortization and accretion expense is recognized for capping,
closure and post-closure liabilities. Changes in future inflation rate projections could impact our actual future costs and our total liability. Changes in our capital structure could result in changes to the credit-adjusted risk-free rate used to discount the liabilities, which could cause changes in future recorded liabilities and expense. Change in the landfill retirement obligation due to changes in the anticipated waste flow, cost estimates or the timing of expenditures for closed landfills and fully incurred but unpaid capping events are recorded in results of operations as new information becomes available. This could result in unanticipated increases or decreases in expense. Rates could change in the future based on the evaluation of new facts and circumstances relating to landfill capping design, post-closure monitoring requirements, or the inflation or discount rate. |
46
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
|
Estimate Updates On an annual basis, we update the estimate of future capping, closure and post-closure costs and estimates of future disposal capacity for each landfill. Revisions in estimates of our costs or timing of expenditures are recognized immediately as increases or decreases to the capping, closure and post-closure liabilities and corresponding retirement obligation asset. Changes in the asset result in changes to the amortization rates which are applied prospectively except for fully incurred capping events and closed landfills which are recorded immediately in results of operations since the associated disposal capacity has already been consumed. |
||||
| Disposal capacity |
As described previously, disposal
capacity is determined by the specifications detailed in the
landfill permit obtained. We classify this disposal capacity as
permitted. We also include probable expansion disposal capacity
in our remaining disposal capacity estimates, which relates to
additional disposal capacity being sought through means of a
permit expansion. Probable expansion disposal capacity has not
yet received final approval from the regulatory agencies, but we
have determined that certain critical criteria have been met and
the successful completion of the expansion is highly probable.
Our internal criteria to classify disposal capacity as probable
expansion are as follows: 1. We have 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 |
We may be unsuccessful in obtaining permits for probable expansion disposal capacity because of the failure to obtain the final local, state or federal permit or due to other unknown reasons. If we are unsuccessful in obtaining permits for probable expansion disposal capacity, or the disposal capacity for which we obtain approvals is less than what was estimated, both costs and disposal capacity will change, which will generally increase the rates we charge for landfill amortization and capping, closure and post-closure accruals. An unexpected decrease in disposal capacity could cause an asset impairment. | ||
47
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
|
permit and have 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. After successfully meeting these criteria, the disposal capacity that will result from the planned expansion is included in our remaining disposal capacity estimates. Additionally, for purposes of calculating the landfill amortization and capping, closure and post-closure rates, we include the incremental costs to develop, construct, close and monitor the related probable expansion disposal capacity. |
||||
| Environmental liabilities |
Nature of Liabilities Liabilities arise from contamination existing at our landfills or at third-party landfills that we (or a predecessor company) have delivered or transported waste to and are based on our estimates of future costs that we will incur for incremental remediation activities and the related litigation costs. To determine our ultimate liability at these sites, we have used third-party environmental engineers and attorneys to assist in the evaluation of several factors, including the extent of contamination at each identified site and the most appropriate remedy. We accrue for costs associated with environmental remediation obligations when such costs are probable and reasonably estimable. The majority of our environmental liabilities are obligations that we assumed in connection with an acquisition. Any increases in the assumed accruals for environmental liabilities from the amounts recorded by the predecessor are charged to operating expense. If the liabilities arise through the normal course of business, the accruals are also charged to operating expense. |
Actual settlement of these liabilities could differ from our estimates due to a number of uncertainties, such as the extent of contamination at a particular site, the final remedy, the financial viability of other potentially responsible parties, and the final apportionment of responsibility among the potentially responsible parties. Actual amounts could differ from the estimated liability as a result of changes in estimated future litigation costs to pursue the matter to ultimate resolution including both legal and remedial costs. An unanticipated environmental liability that arises could result in a material charge to operating expense. |
||
|
Estimate Updates We periodically consult with outside legal counsel and environmental engineers to |
||||
48
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
| review the status of all environmental matters and to assist our environmental and legal management in updating our estimates of the likelihood and amounts of remediation. As the timing of cash payments for these liabilities is uncertain, the accrued costs are not discounted. Any changes in the liabilities resulting from these reviews are recorded to operating income in the period in which the change in estimate is made. | ||||
|
Summary We have determined that the recorded liability for environmental matters as of December 31, 2004 and 2003 of approximately $304.8 million and $337.4 million, respectively, represents the most probable outcome of these contingent matters. Cash paid for environmental matters during 2004 and 2003 was $31.8 million and $24.9 million, respectively. 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 capping, closure and post-closure could result in approximately $20 million of additional liability. Due to the nature of these matters, the cash flow impact would not be immediate and would most likely be over a period greater than five years. |
||||
| Non-recurring acquisition accruals |
Nature of Liabilities At the time of an acquisition accounted for under the purchase method of accounting, we evaluate and record liabilities of the acquired company to represent our estimate of fair value. Assumed liabilities as well as liabilities resulting directly from the completion of the acquisition are |
There could be changes in circumstances or estimates that cause the actual settlement of these liabilities to be higher or lower than our original estimates. Additional liabilities may exist |
||
49
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
| considered in the net assets acquired and resulting purchase price allocation. | related to the acquired operations that have not been identified. | |||
| Liabilities resulting from changes in estimates of assumed obligations, including litigation, self-insurance reserves and loss contracts, as well as liabilities related to restructuring and abandonment activities, are accrued through a charge to expense. Additionally, transition costs that are not accruable at the time of acquisition, including transitional personnel costs, route restructurings and costs associated with the consolidation of operations are expensed in the period in which the costs are incurred. | ||||
|
Estimate Updates We evaluate the adequacy of the non- recurring acquisition accruals at least annually by obtaining third party actuarial valuations of assumed self-insurance obligations, third party legal counsel updates for assumed litigation and field and corporate management reviews of all acquisition related commitments. Any changes in the liabilities resulting from these reviews are recorded in the period in which the change in estimate is made. The adjustment is charged to either an expense or goodwill consistent with how the original liability was established and the period of time that has elapsed since the date of the acquisition. Generally, we do not record adjustments to goodwill after one year from the date of the acquisition. |
||||
|
Summary At December 31, 2004 and 2003, we had approximately $124.6 million and $154.1 million, respectively, of non-recurring acquisition accruals remaining on our balance sheet, consisting primarily of loss contracts, litigation and compliance, and risk management and insurance liabilities associated with the acquisition of BFI. Cash paid against non-recurring acquisition accruals, including severance, in 2004 was $30.0 million and $41.5 million |
||||
50
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
| in 2003. | ||||
| Self-insurance liabilities and related costs |
We maintain high deductibles for
commercial general liability, automobile liability, and
workers’ compensation insurance and are fully self-insured
for employee group health claims. Deductible levels are between
$1 million and $3 million. The retained or non-insured
portion of the liability for unpaid claims and associated
expenses, including incurred but not reported losses, is
reflected in our balance sheet as an accrued liability. The
liability for unpaid claims and associated expenses for
commercial general liability, automobile liability and
workers’ compensation is actuarially determined by a
third-party actuary. We use a third-party administrator to track
and evaluate actual claims experience for consistency with the
data used in the annual actuarial valuation. The expense is
charged to operating costs. The actuarially determined liability
is calculated for the most part by our past claims experience
factor, which considers both the frequency and settlement amount
of claims. As of December 31, 2004 and 2003, we had approximately $209.5 million and $193.5 million of self-insurance liabilities on our balance sheet. Our recorded liabilities are not discounted. Cash paid for self-insurance claims during 2004 and 2003 was $216.6 million and $210.0 million, respectively. |
Incident rates, including frequency
and severity, could increase or decrease during a year causing
our current and future actuarially determined obligations to
increase or decrease. The costs to discharge our obligations, including legal costs and health care costs, could increase or decrease causing current and/or prior estimates of our self-insurance liability to change. |
||
| Loss Contingencies | We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. We determine whether to disclose and accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible or probable and can be reasonably estimated. We analyze our litigation and regulatory matters based on available information to assess potential liability. Management’s assessment is developed in consultation with our outside counsel and other |
Actual costs can vary from
estimates for a variety of reasons. For example, the costs from
settlement of claims and litigation can vary from estimates
based on differing interpretations of laws, opinions on
culpability and assessments on the amount of damages. Loss contingency assumptions involve judgments that are inherently subjective and generally |
||
51
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
|
advisors and is based on an
analysis of possible outcomes under various strategies. Generally, we record losses related to contingencies in cost of operations or selling, general and administrative expenses, depending on the nature of the underlying transaction leading to the loss contingency. |
involve business matters that are by nature unpredictable. If a loss contingency results in an adverse judgment or is settled for significant amounts, it could have a material adverse effect on our results of operations, cash flows and financial position in the period or periods in which such judgment or settlement occurs. | |||
| Receivable Realization Allowance |
We provide services to
approximately 10 million customers throughout the United
States. We perform credit evaluations for our significant
customers and establish an allowance for doubtful accounts based
on the aging of our receivables, payment performance factors,
historical trends and other information. In general, we reserve
50% of receivables outstanding 90 to 120 days and 100% of
those outstanding over 120 days. We also review specific
outstanding accounts and reserve the receivable if information
becomes available indicating we will not receive payment and
consider the recoverability of written-off accounts. Our reserve
is evaluated and revised on a monthly basis. We also reserve a portion of revenues as a sales valuation allowance. We measure this allowance based on our historical analysis of revenue reversals and credits issued after the month of billing. Revenue reversals and credits typically relate to resolution of customer disputes and billing adjustments. |
Adverse changes in the financial health of our customers could change the timing or levels of collections and require adjustments to our allowance for doubtful accounts. | ||
|
Asset Impairment |
Valuation Methodology We evaluate our long-lived assets for impairment based on projected cash flows anticipated to be generated from the ongoing operation of those assets. Evaluation Criteria We test long-lived assets for recoverability whenever events or changes in circumstances indicate that the asset’s |
If we have changes in events or circumstances, including reductions in anticipated cash flows generated by our operations or determinations to divest of certain assets, certain assets could be impaired which would result in a non-cash charge to earnings. Our most significant asset |
||
52
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
|
carrying amounts may not be
recoverable. Examples of such events could include a significant
adverse change in the extent or manner in which we use a
long-lived asset, a change in its physical condition, or new
circumstances that would cause an expectation that it is more
likely than not that we would sell or otherwise dispose of a
long-lived asset significantly before the end of its previously
estimated useful life. Recognition Criteria If such circumstances arise, we recognize an impairment for the difference between the carrying amount and fair value of the asset, if the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. We use the present value of the expected cash flows from that asset to determine fair value. |
impairment exposure, other than goodwill (see discussion below) is our investment in landfills. A reduction in our estimated disposal capacity as a result of unanticipated events could trigger an impairment charge. | |||
| Goodwill Impairment |
Valuation Methodology We evaluate goodwill for impairment based on fair value of each geographic operating segment. Our geographic operating segment is an aggregate of several vertically integrated businesses with similar operational characteristics. We estimate fair value based on net cash flows discounted using an estimated weighted-average cost of capital which was approximately 7.15% in 2004. In addition, consideration is also given to an earnings multiple approach, enterprise value and overall company market capitalization as indicators of the reasonableness of our discounted cash flows. Evaluation Criteria Annually, we test realizability of goodwill. In addition, we test goodwill for recoverability between annual evaluations whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Examples of such events could include a |
The estimated fair value could change as there are future changes in our capital structure, cost of debt, interest rates, ability to perform at levels that were forecasted, actual capital expenditure levels, or our market capitalization. For example, a reduction in long-term growth assumptions could reduce the estimated fair value to below carrying value, which would trigger an impairment charge. Similarly, an increase in our weighted average cost of capital could trigger an impairment charge. |
||
53
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
| significant adverse change in legal factors, liquidity or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, loss of key personnel, or new circumstances that would cause an expectation that it is more likely than not that we would sell or otherwise dispose of an operating segment or a significant portion of a geographic operating segment. | ||||
| Recognition Criteria | ||||
|
We recognize an impairment if the
net book value exceeds the fair value as determined using
discounted future cash flows on a geographic operating segment
basis. At the time of a divestiture of an individual business
unit within a geographic operating segment, goodwill is
allocated to that business unit based on the relative fair value
of the unit being disposed to the total reporting unit and a
gain or loss on disposal is derived. Subsequently, the remaining
goodwill in the geographic operating segment from which the
assets were divested is re-evaluated for impairment, which could
also result in an additional loss. Summary At December 31, 2004 and 2003, we had $8.2 billion and $8.3 billion, respectively, of goodwill recorded. At December 31, 2004 and 2003, there was no impairment of goodwill upon completion of our annual evaluation of goodwill recoverability. |
In the past, we have incurred non- cash losses on sales of assets driven primarily by the goodwill allocated to the assets divested. If similar divestiture decisions are made in the future, we could incur additional non-cash losses on asset sales. A divestiture of any individual asset below the geographic operating segment level could result in a loss. | |||
| Tax Accruals | 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 in which the differences are expected to reverse. We utilize outside experts and legal counsel to assist in the development or review of significant tax positions used in establishing our liability. | 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 goodwill. | ||
54
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
|
We provide a valuation allowance
for deferred tax assets (including net operating loss and
capital loss carryforwards) when it is more likely than not that
we will not be able to realize the future deduction giving rise
to the deferred tax asset. We record liabilities for actual or expected probable tax adjustments proposed or expected by tax authorities at the federal and state level. The acquisition of BFI in 1999, which was accounted for as a business purchase combination, resulted in approximately $6.8 billion of goodwill, $6.5 billion of which amortization is non-deductible for tax purposes. At December 31, 2004, approximately $5.9 billion of non-deductible goodwill remains on our balance sheet. Income tax expense is recorded on an interim basis based on the expected annual effective tax rate and discrete period items. The annual effective tax rate is determined using estimated full year earnings, non-deductible items and tax credits that are anticipated to be utilized. |
Changes in estimated realizability
of deferred tax assets could result in adjustments to income tax
expense. We are currently under examination by various state and federal taxing authorities for certain tax years. The Internal Revenue Code and Income Tax Regulations are a complex set of rules that we are required to interpret and apply to our transactions. Positions taken in tax years under examination are subject to challenge. Accordingly, we may have exposure for additional tax liabilities arising from these audits if any positions taken are disallowed by the taxing authorities. (See Note 13 of our consolidated financial statements included herein.) |
|||
| Summary | ||||
| As of December 31, 2004, state net operating loss and minimum tax credit carryforwards with an after tax benefit totaling $322.6 million remain unused that will expire if not used by the end of various future years. Valuation allowances have been established for the possibility that some of these carryforwards may not be used. | Actual income tax rates can vary from period to period as a result of differences between estimated and actual earnings, non- deductible items and tax credit utilization. An increase or decrease in the tax rate could have a material impact on our results of operations. | |||
| Defined Benefit Pension Plans |
Recognition Criteria Our defined benefit retirement plan was assumed in connection with the acquisition of BFI. The benefits of approximately 97% of the current plan participants were frozen upon acquisition. The benefit obligation and associated income or expense is actuarially |
|||
55
| Accounting | Accounting Policy and Process | Residual Accounting and | ||
| Area | Use of Estimates | Business Risk | ||
|
determined by an independent third
party based on actuarial assumptions we believe are reasonable.
We use a third party to administer the plan and maintain certain
data that is provided to the actuary. The plan assets are
managed by a third party that is unaffiliated to our actuary. We
recognize in our financial statements an accrued liability (or a
prepaid pension expense), for the difference between the cost to
satisfy our pension obligation and the investment income earned
or contributions to the plan. Pension income or expense is
recorded to selling, general and administrative expense. Our funding policy is to make annual contributions to the pension plan as determined to be required by the plan’s actuary and to meet the minimum requirements of the Employee Retirement Income Security Act (ERISA). No contributions were required during the last three years. No contributions are anticipated for 2005. |
||||
|
The plan’s policy is to invest
the plan’s assets as determined by our Benefits Committee.
At December 31, 2004, of the total plan assets of
$339.4 million, approximately 38% was invested in fixed
income bond funds and approximately 62% in equity funds. Assumptions The assumptions used in the actuarially determined funded status are as follows: (weighted average assumptions as of our measurement date, September 30): |
Changes in our investment mix and performance of the equity and bond markets and of fund managers could impact the amount of pension income or expense recorded, the funded status of the plan and the need for future cash contributions. At December 31, 2004, our defined benefit retirement plan was under- funded by $13.6 million. | |||
| 2004 | 2003 | |||||||
|
Discount rate
|
6.00 | % | 6.25 | % | ||||
|
Expected return on plan assets
|
8.50 | % | 9.00 | % | ||||
|
Average rate of compensation
increase
|
4.00 | % | 4.00 | % | ||||
| Our discount rate represents the yield on high quality (AAA) bonds at which our obligation could be settled. Our discount rate is based on a review of the current | Our discount rate is sensitive to changes in market based interest rates. A decrease in the discount rate will increase the liability and |
56
| Accounting | Accounting Policy and Process | Residual Accounting and | ||||
| Area | Use of Estimates | Business Risk | ||||
|
rate of long-term bonds which have
durations that are equivalent to our obligations under the
plan. The expected return on our plan assets represents a long-term view of returns based on our current asset mix. In developing our expected rate of return assumption, we evaluated an analysis of long-term expected and historical actual returns on the plan assets from our investment managers which gave consideration to our asset mix and anticipated length of obligation of our plan. |
decrease the funded status of the
plan. If actual return on plan assets varies from the expected returns, the fair value of the plan assets will differ from our projections. |
|||||
|
The average rate of compensation
increase applies only to the portion of the plan that is not
frozen. Less than 3% of the plan participants continue to earn
benefits. This rate reflects our expectations of average pay
increases over the period benefits are earned. We annually review our actual asset allocation, discount rate, expected rate of return and other actuarial assumptions and adjust them as deemed necessary. |
Changes in our key assumptions could cause changes in our assets, liabilities and income or expense recorded. For example, a decrease in the discount rate would result in a greater benefits obligation in future periods. A lower expected return on assets would also increase the amount of pension expense recorded. | |||||
| • | our business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, including our market-specific acquisitions and divestitures; | |
| • | our ability to obtain financing, refinance existing debt, reduce interest cost, accelerate our de-leveraging process, extend debt maturities and provide adequate financial liquidity; | |
| • | the adequacy of our operating cash flow and revolving credit facility to make payments on our indebtedness and fund other liquidity needs; | |
| • | our expectation of the amounts we will spend on capital expenditures, closure, post-closure and remediation expenditures related to landfill operations in 2005; |
57
58
•
our ability to generate cash flows from operations after funding
capital expenditures at similar levels as what we generated over
the last three years;
•
our ability at the end of the first quarter of 2005 to have 76%
of our debt at fixed interest rates;
•
our ability to increase revenue growth and internal growth by
increasing volumes collected and disposed and by increasing the
rates for the services we provide;
•
our ability to pay cash dividends in the future;
•
our expectation that we may become an investment grade
investment in the future;
•
our ability to achieve credit ratios that would allow us to
receive benefits of a cross over investment grade company and/or
investment grade-like cost of capital;
•
our estimates of future expenses, including amortization expense;
•
our ability to achieve cost reductions in the future;
•
our estimates of future annual interest cost reductions;
•
our ability to perform our obligations under financial assurance
contracts and our expectation that financial assurance contracts
will not materially increase;
•
underlying assumptions including internal growth as well as
general economic and financial market conditions;
•
our expectation that our casualty, property or environmental
claims or other contingencies will not have a material effect on
our operations;
•
our estimate of federal and state income taxes and penalties
required to be paid if we do not prevail in our appeal of the
IRS’ disallowance of capital losses related to BFI;
•
our belief that the costs of settlements or judgments arising
from litigation and the effects of settlements or judgments on
our consolidated liquidity, financial position or results of
operation will not be material;
•
our ability to achieve benefits, including the timing and amount
of any benefits, resulting from the implementation of standards
and best practice programs and our estimates of costs associated
with the implementation;
•
our ability to achieve benefits from the modification of our
organizational structure;
•
our ability to implement a refinancing plan or related
transaction and the expected benefits from such plan or
transaction;
•
our ability to implement environmental safeguards to comply with
governmental requirements;
•
the expected tenure for our Chairman of the Board of Directors
and Chief Executive Officer of the company;
•
our expectation that employee benefits, fuel, maintenance and
financial assurance costs will increase in excess of inflation;
•
our ability to maintain sufficient surplus between our covenant
ratios; and
•
our expectation to increase capital expenditures over the next
couple of years.
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.
Important factors that could cause actual results to
59
differ materially from our expectations are discussed below.
These risks and uncertainties include, without limitation:
Our significant leverage may make it difficult for us to
service our debt and operate our business. We have had and
will continue to have a substantial amount of outstanding
indebtedness with significant debt service requirements. At
December 31, 2004, our consolidated debt was approximately
$7.8 billion and our debt to total capitalization was
74.9%. The degree to which we are leveraged could have important
consequences. For example, it could:
•
make it more difficult for us to satisfy our obligations with
respect to our debt;
•
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 internal growth
through working capital and capital expenditures and for other
general corporate purposes;
•
increase our vulnerability to economic downturns in our industry;
•
increase our vulnerability to interest rate increases to the
extent any of our variable rate debt is not hedged;
•
place us at a competitive disadvantage compared to our
competitors that have less debt in relation to cash flow;
•
limit our flexibility in planning for or reacting to changes in
our business and our industry;
•
limit, among other things, our ability to borrow additional
funds or obtain other financing capacity; and
•
subject us to a greater risk of noncompliance with 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.
We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. As of December 31,
2004, our debt agreements permit us to incur substantial
additional indebtedness under various financial ratio tests. As
of December 31, 2004, we had no loans outstanding under the
$1.5 billion revolver of the 2003 Credit Facility. As of
such date, we had $716.7 million in letters of credit
outstanding on that revolver that support financial assurance
purposes, leaving $783.3 million of availability.
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 payments
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.
We cannot assure you that our business will generate sufficient
cash flow from operations, or that future borrowings will be
available to us under our 2003 Credit Facility in an amount
sufficient to enable us to pay our indebtedness or to fund other
liquidity needs.
We may be unable to refinance our indebtedness. We
cannot assure you that we will be able to refinance any of our
indebtedness, including our 2003 Credit Facility, on
commercially reasonable terms or at all. We may also need to
refinance our senior notes, our senior subordinated notes and/or
other indebtedness to pay the principal amounts due at maturity.
There can be no assurance that we will be able to obtain
sufficient funds to enable us to repay or refinance our debt
obligations on commercially reasonable terms or at all.
Covenants in our credit facility, our indentures and the
instruments governing our other indebtedness may limit our
ability to operate our business. Our 2003 Credit
Facility, and certain of the agreements governing our other
indebtedness contain covenants that restrict our ability to make
distributions or other payments to our investors and creditors
unless we satisfy certain financial
60
tests or other criteria. We must also comply with certain
specified financial ratios and tests. The credit facility
financial ratio tests assume that over time EBITDA increases and
interest decreases in relation to debt levels. If EBITDA does
not increase and if interest does not decrease in relation to
debt and if we are unable to renegotiate the covenants, we would
not comply with the provisions of the Credit Facility (see
Debt Covenants in Contractual Obligations and
Commitments).
In some cases, our subsidiaries are subject to similar
restrictions which may restrict their ability to make
distributions to us. 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. 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 our credit facility and other debt
agreements and the debt, together with accrued interest, could
then be declared immediately due and payable. If we default
under our 2003 Credit Facility, the lenders could cause all of
our outstanding debt obligations under such credit facility to
become due and payable, require us to apply all of our cash to
repay the indebtedness under such credit facility 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 2003 Credit Facility could proceed against
their collateral, which includes most of the assets we own,
including the stock and assets of our subsidiaries. In addition,
any default under our 2003 Credit Facility or agreements
governing our other indebtedness could lead to an acceleration
of debt under our other debt instruments that contain cross
acceleration or cross-default provisions. Our ability to comply
with these provisions of our 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.
Our bond ratings could be downgraded. Although
reductions in our bond ratings may not have an immediate impact
on the cost of debt or our liquidity, they may impact the cost
of debt and liquidity over the near to medium term. If our bond
ratings are reduced, future access at a reasonable cost to the
debt and financial assurance markets may be adversely impacted.
We compete with large companies and municipalities that may
have greater financial and operational resources. We also
compete with the use of alternatives to landfill disposal in
part because of state requirements to reduce landfill disposal
and we cannot assure you that we will continue to operate our
landfills at currently estimated volumes. The non-hazardous
waste collection and disposal industry is highly competitive. We
compete with large companies and municipalities which may have
greater financial and operational resources. 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, because
of state requirements to reduce landfill disposal and we cannot
ensure that our landfills will continue to operate at currently
estimated volumes. Further, most of the states or municipalities
in which we operate landfills require counties and
municipalities to formulate comprehensive plans to reduce the
volume of solid waste deposited in landfills through waste
planning, composting and recycling or other programs. Some state
and local governments mandate waste reduction at the source and
prohibit the disposal of certain types of wastes, such as yard
wastes, at landfills. These actions may reduce the volume of
waste going to landfills in certain areas. If this occurs, there
can be no assurances that we will be able to operate our
landfills at their current estimated volumes or charge current
prices for landfill disposal services due to the decrease in
demand for services.
61
If we are unable to execute our business strategy, our waste
disposal expenses could increase significantly. Over the
long term, our ability to continue to sustain our current
vertical integration strategy will depend on our ability to
maintain appropriate landfill capacity, collection operations
and transfer stations. We cannot assure you 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 you 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 of collected waste at landfills operated by our
competitors or haul the waste long distances at a higher cost to
another of our landfills, either of which could significantly
increase our waste disposal expenses.
We may be unable to obtain required permits or to expand
existing permitted capacity. There can be no assurance 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 and other political
pressures. Our 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.
The solid waste industry is a capital-intensive industry that
may consume cash from our operations and borrowings. Our
ability to remain competitive, grow and expand operations
largely depends on our cash flow from operations and access to
capital. We spent approximately $673.3 million in
combination for our capital expenditures and landfill capping,
closure, and post-closure and environmental remediation
expenditures during 2004, and we expect to spend approximately
$800 million for these purposes in 2005. If we undertake
more acquisitions or further expand our operations, the amount
we expend on capital, capping, closure, and post-closure and
environmental remediation expenditures will increase.
Acquisitions may increase our capital requirements because
acquisitions may require sizable amounts of capital and
competition with other solid waste companies that have a similar
acquisition strategy may increase costs. Increases in
expenditures will result in low levels of working capital or
require us to finance working capital deficits. We intend to
continue to fund our cash needs through cash flow from
operations and borrowings under our 2003 Credit Facility, if
necessary. However, we may require additional equity and/or debt
financing for debt repayment obligations, to fund our operations
and/or to grow our business.
Our cash needs will increase if the expenditures for closure and
post-closure monitoring increase above our current estimates for
these costs. Expenditures for these costs may increase as a
result of any federal, state or local government regulatory
action, including changes in closing or monitoring activities,
types and quantities of materials used or the period of required
post-closure monitoring. 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.
We may not be able to obtain necessary financial
assurances. We are required to provide financial assurances
to governmental agencies under applicable environmental
regulations relating to our landfill operations and collection
contracts. In addition, we are required to provide financial
assurances for our self-insurance program. We satisfy the
financial assurances requirements by providing performance
bonds, letters of credit, insurance policies or trust deposits.
As of December 31, 2004, we have total financial assurance
requirements of $2.7 billion, and we do not expect any
material change in the amount of those requirements. Should we
experience additional bond rating agency downgrades, the mix of
financial assurance instruments may change, requiring us to
provide additional letters of credit.
Changes in interest rates may affect our results of
operations. At December 31, 2004, approximately 79% of
our debt was fixed, 76% directly and 3% through interest rate
swap agreements. The
62
amount of this swap contract portfolio, which matures in the
first quarter of 2005, was $250 million. For certain
interest rate swap agreements, we record non-cash mark-to-market
gains and losses based on changes in future yield curves to the
statement of operations. Changes in the yield curves could
result in additional non-cash losses being recorded in the
statement of operations.
U.S. economic conditions may have an adverse impact
on our operating performance and results of operations.
Our business is affected by general economic conditions.
Weakness in the U.S. economy has a negative effect on our
operating results, including decreases in revenues and operating
cash flows. Additionally, in a down-cycle economic environment,
we may experience the negative effects of increased competitive
pricing pressure and customer turnover. If economic conditions
deteriorate, we will experience pressure on the pricing that we
are able to achieve for our services. In addition, worsening
economic conditions may lead to further negative effects of
customer turnover. There can be no assurance that current
economic conditions or worsening economic conditions or a
prolonged or recurring recession will not have a significant
adverse impact on our operating results. Additionally, there can
be no assurance that an improvement in economic conditions will
result in an immediate, if at all, positive improvement in our
operating results.
We may be affected by adverse 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. Severe weather can negatively affect the costs of
collection and disposal. Long periods of inclement weather could
have an adverse effect on our results of operations.
Loss of key executives and failure to attract qualified
management could limit our growth and negatively impact our
operations. We depend upon our senior management team.
We have announced the search for a permanent Chairman and Chief
Executive Officer of the company. We do not know how long that
search will take or what the impact of the search and the
transition to new leadership will be. We also continue to depend
on 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 have an adverse effect on
our operations and financial condition.
We are subject to costly environmental regulations and
environmental litigation. 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 these regulatory requirements is costly.
Government laws and regulations often require us to enhance or
replace our equipment and to modify landfill operations or
initiate final closure of a landfill. We cannot assure you that
we will be able to implement price increases sufficient to
offset the cost of complying with these laws and regulations. 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 incur costs to defend against litigation brought
by government agencies and private parties who allege we are in
violation of our permits and applicable environmental laws and
regulations. As a result, we may be required to pay fines,
implement corrective measures or may have our permits and
licenses modified or revoked. We are, and also may be in the
future, defendants in lawsuits brought by governmental
63
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 the disposal
of out-of-state waste or to limit the amount of out-of-state
waste that could be imported for disposal and may require
states, under some 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 jurisdictions 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.
We may have potential environmental liabilities that are
greater than our insurance coverage. 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 for environmental liability, if we were to
incur substantial financial liability for environmental damage,
our business and financial condition could be materially
adversely affected.
We may have additional hazardous substances
liability. We are a potentially responsible party at
many sites under the CERCLA and analogous state laws. CERCLA
provides for the remediation of contaminated facilities and
imposes strict, joint and several liability on current owners
and operators of a facility at which there has been a release or
a threatened release of a “hazardous substance”,
former site owners and operators at the time of disposal of the
hazardous substance(s) and on persons who arrange for the
disposal of such substances at the facility (i.e. generator of
the waste and transporters who selected the disposal site).
Hundreds of substances are defined as “hazardous”
under CERCLA and their presence, even in minute amounts, can
result in substantial liability. As used in this report,
“non-hazardous waste” means substances that are not
defined as hazardous waste under federal regulations. 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. We have
significant liabilities under these laws, primarily due to
acquired businesses and properties and their former operations.
Notwithstanding our efforts to comply with applicable
regulations and to avoid transporting and receiving hazardous
substances, we may have additional liability because 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. In addition,
actual costs for these liabilities could be significantly
greater than amounts presently accrued for these purposes.
There may be undisclosed liabilities associated with our
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. Similarly, we
incur capitalized costs associated with acquisitions, which may
never be consummated, resulting in a potential charge to
earnings.
64
We are subject to examination by various federal and state
taxing authorities. We are currently under examination
by various federal and state taxing authorities for certain tax
years. Any material disagreement with taxing authorities could
result in large cash expenditures and adversely affect our
operating results and financial condition. A federal income tax
audit for the calendar years 1998 through 2003 is ongoing. A
federal income tax audit for BFI’s tax years ended
September 30, 1996 through July 30, 1999, is completed
with the exception of the following matter. During 2002, the IRS
proposed the disallowance of a capital loss included in
BFI’s July 30, 1999 tax return. If such disallowance
is upheld, we estimate it could have a potential total cash
impact of up to $310 million plus accrued interest through
December 31, 2004 of approximately $81.6 million
($49.0 million net of tax benefit). We also received a
notification from the IRS proposing a penalty of 40% of the
additional income tax resulting from the disallowance.
We believe that the resolution of this matter will likely
require litigation. This litigation could take a couple of years
before a court reaches a decision. An unfavorable resolution of
this matter could require future potential cash expenditures
that could have a material negative effect on our financial
condition.
Our goodwill may become impaired. We have a
substantial amount of goodwill resulting from our acquisitions,
including BFI and Laidlaw. At least annually, we evaluate this
goodwill for impairment based on the fair value of each
geographic operating segment. This estimated fair value could
change if there were future changes in our capital structure,
cost of debt, interest rates, capital expenditure levels,
ability to perform at levels that were forecasted or a permanent
change to the market capitalization of our company. These
changes could result in an impairment that would require a
material non-cash charge to our results of operations. As a
result of our geographic realignment in the fourth quarter of
2004, our nine regions became our reporting units. Since
impairment is measured at the reporting unit level, this
increase from four to nine reporting units increases the
possibility we may have to record an impairment in the future.
Fluctuations in commodity prices could affect our
operating results. As part of our recycling services, we
process recyclable materials such as paper, cardboard, plastics,
aluminum and other metals for sale to third parties, generally
at current market prices. All of these materials are subject to
significant price fluctuations, which are driven by general
market conditions. These price fluctuations may affect our
future operating income and cash flows. Also, fluctuations in
fuel prices and other commodities used in our operations could
have a material adverse effect on our financial results.
We may be subject to work stoppages, which could increase
our operating costs and disrupt our operations. As of
December 31, 2004, approximately 29% of our workforce was
represented by various local labor unions. If our unionized
workers were to engage in a strike, work stoppage or other
slowdown in the future, we could experience a significant
disruption of our operations and an increase in our operating
costs, which could have a material adverse effect on us. In
addition, if a greater percentage of our work force becomes
unionized, our business and financial results could be
materially adversely affected.
We may not realize any or all of the expected benefits
from our significant investment in the development and
implementation of our Excellence Driven Standards and Best
Practices Program. We have invested in the
identification, development and implementation of best practice
programs intended to improve productivity, enhance the quality
of our revenue collections and reduce costs. We cannot guarantee
that all or any expected improvements will materialize or have a
positive effect on operating results.
The outcome of litigation and governmental proceedings
could impact our liquidity. We are currently involved in
litigation and governmental proceedings related to the business.
The timing and outcome of the final resolution to these matters
is uncertain. The possible resolution to these
matters could include judgements against us or settlements that
could require substantial payments that adversely affect our
liquidity.
We are required to make accounting estimates and judgments
in the ordinary course of business. The accounting
estimates and judgments we must make in the ordinary course of
business affect the reported amounts of our assets and
liabilities at the date of the financial statements and the
reported amounts of our operating results during the periods
presented as described under “Critical Accounting Judgments
and Estimates” above. Additionally, we are required to
interpret the accounting rules in existence as of the date of
the financial statements when the accounting rules are not
specific to a particular event or transaction. If the underlying
estimates are ultimately proved to be incorrect, or if auditors
or regulators subsequently interpret our application of
accounting rules differently, subsequent adjustments could have
a material adverse effect on our operating results for the
period or periods in which the change is identified.
Additionally, subsequent adjustments could require us to restate
our financial statements. Restating our financial statements
could result in a material change in our stock price.
The adoption of new accounting standards or
interpretations could adversely impact our results of
operations. Our implementation of new accounting rules
and interpretations or compliance with changes in the existing
accounting rules could adversely affect our balance sheet or
results of operations, or cause unanticipated fluctuations in
our results of operations in future periods.
Inflation and Prevailing Economic Conditions
Our objective is to be able to implement price increases
sufficient to offset most cost increases resulting from
inflation. However, competitive factors have and may continue to
require us to absorb cost increases resulting from inflation. As
a result, we have been unable to implement price increases
sufficient to offset cost increases resulting from inflation.
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 are
unable to determine the future impact of a sustained economic
slowdown.
Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk
Interest rate risk. We are subject to interest rate risk
on our variable rate long-term debt. To reduce 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 portion of our long-term debt,
which required 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. In addition, during
2003 we entered into interest rate swap contracts that convert
fixed rate debt to variable interest rates to effectively manage
the percentage of our debt portfolio that has fixed rate terms.
Under these transactions, which were terminated in the fourth
quarter of 2004, we were required to pay variable rates on
notional amounts of principal to counter-parties. The
counter-parties, in turn, paid to us the fixed rates of interest
on the same notional amount of principal.
The following interest rate table summarizes the interest rate
swap that was in effect and its fair value as of
December 31, 2004:
| Notional | Interest | Underlying | Interest | Fair Market | ||||||
| Principal | Maturity | Paid | Obligations | Received | Value Liability | |||||
| (In millions) | (In millions) | |||||||||
|
$250.0 |
March 2005 |
5.99% |
Term Loan Facility |
LIBOR |
$(1.8) |
65
66
Increases or decreases in short-term market rates did not
materially impact cash flow in 2004 as a significant portion of
variable rate debt had been swapped for fixed rates. At
December 31, 2004, with 79% of our debt fixed either
directly or through interest rate swap agreements, we have
$1.6 billion of floating rate debt. If interest rates
increased by 100 basis points, annualized interest expense
would increase by approximately $16.1 million
($9.7 million after tax). This analysis does not reflect
the effect that interest rates would have on other items, such
as new borrowings nor the favorable impact declining rates would
have on interest expense and cash payments for interest. See
Notes 4 and 5 to our consolidated financial statements in
this Form 10-K for additional information regarding how we
manage interest rate risk.
Fuel prices. Fuel costs represent a significant operating
expense. At our current consumption levels, a one-cent change in
the price of diesel fuel would affect our annual operating
results by approximately $0.4 million. Accordingly, a
substantial rise or drop in fuel costs could result in a
material impact to our results of operations. Historically, we
have mitigated this impact with fixed price purchase contracts.
Since a significant portion of these contracts expire in early
2005, we are initiating a strategic change to implement fuel
charges to appropriate customers that will vary with the cost of
fuel in addition to entering into new or renewed contracts when
economically practical.
Item 8.
Financial Statements and Supplementary Data
| 68 | ||
| 70 | ||
| 71 | ||
| 72 | ||
| 73 | ||
| 74 |
67
68
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Allied Waste Industries, Inc.:
We have completed an integrated audit of Allied Waste
Industries, Inc.’s 2004 consolidated financial statements
and of its internal control over financial reporting as of
December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements and financial statement
schedule
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Allied Waste Industries, Inc. (the
“Company”) and its subsidiaries at December 31,
2004 and 2003, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule appearing under
Item 15 of Part IV of this Form 10-K presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial
statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (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 of financial statements includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 7 to the consolidated financial
statements, the Company changed its method of accounting for
obligations associated with the retirement of long-lived assets
and the associated asset retirement costs as of January 1,
2003.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in
Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A of Part II of this
Form 10-K, that the Company maintained effective internal
control over financial reporting as of December 31, 2004
based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly
stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2004, based on criteria
established in Internal Control — Integrated
Framework issued by the COSO. The Company’s management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on
the effectiveness of the Company’s internal control over
financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating
69
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Phoenix, Arizona
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
| December 31, | |||||||||
| 2004 | 2003 | ||||||||
|
ASSETS
|
|||||||||
|
Current Assets —
|
|||||||||
|
Cash and cash equivalents
|
$ | 68.0 | $ | 444.7 | |||||
|
Accounts receivable, net of
allowance of $17.0 and $22.4
|
668.4 | 651.3 | |||||||
|
Prepaid and other current assets
|
81.9 | 108.8 | |||||||
|
Deferred income taxes, net
|
104.3 | 80.8 | |||||||
|
Total current assets
|
922.6 | 1,285.6 | |||||||
|
Property and equipment, net
|
4,129.9 | 4,018.9 | |||||||
|
Goodwill
|
8,202.0 | 8,313.0 | |||||||
|
Other assets, net
|
239.4 | 243.4 | |||||||
|
Total assets
|
$ | 13,493.9 | $ | 13,860.9 | |||||
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|||||||||
|
Current Liabilities —
|
|||||||||
|
Current portion of long-term debt
|
$ | 327.8 | $ | 249.6 | |||||
|
Accounts payable
|
582.8 | 477.5 | |||||||
|
Current portion of accrued capping,
closure, post-closure and environmental costs
|
95.0 | 95.2 | |||||||
|
Accrued interest
|
140.3 | 174.1 | |||||||
|
Other accrued liabilities
|
390.1 | 352.6 | |||||||
|
Unearned revenue
|
220.7 | 218.8 | |||||||
|
Total current liabilities
|
1,756.7 | 1,567.8 | |||||||
|
Long-term debt, less current portion
|
7,429.2 | 7,984.5 | |||||||
|
Deferred income taxes
|
207.7 | 128.5 | |||||||
|
Accrued capping, closure,
post-closure and environmental costs, less current portion
|
839.0 | 790.1 | |||||||
|
Other long-term obligations
|
656.4 | 872.3 | |||||||
|
Commitments and contingencies
|
|||||||||
|
Stockholders’
Equity —
|
|||||||||
|
Series C senior mandatory
convertible preferred stock, $0.10 par value,
6.9 million shares authorized, issued and outstanding,
liquidation preference of $50.00 per share, net of
$12.0 million of issuance costs
|
333.1 | 333.1 | |||||||
|
Common stock; $0.01 par value;
525 million authorized shares; 317.5 million and
320.1 million shares issued and outstanding
|
3.2 | 3.2 | |||||||
|
Additional paid-in capital
|
2,338.0 | 2,318.5 | |||||||
|
Accumulated other comprehensive loss
|
(69.4 | ) | (94.5 | ) | |||||
|
Retained deficit
|
— | (42.6 | ) | ||||||
|
Total stockholders’ equity
|
2,604.9 | 2,517.7 | |||||||
|
Total liabilities and
stockholders’ equity
|
$ | 13,493.9 | $ | 13,860.9 | |||||
70
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| Years Ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | |||||||||||
|
Revenues
|
$ | 5,362.0 | $ | 5,247.7 | $ | 5,190.8 | |||||||
|
Cost of operations (exclusive of
depreciation and amortization shown below)
|
3,374.8 | 3,190.1 | 3,039.1 | ||||||||||
|
Selling, general and administrative
expenses
|
541.5 | 476.9 | 462.7 | ||||||||||
|
Depreciation and amortization
|
559.3 | 546.0 | 478.5 | ||||||||||
|
Non-cash gain on divestiture of
assets
|
— | — | (9.3 | ) | |||||||||
|
Operating income
|
886.4 | 1,034.7 | 1,219.8 | ||||||||||
|
Interest expense and other
|
758.9 | 832.9 | 854.0 | ||||||||||
|
Income before income taxes
|
127.5 | 201.8 | 365.8 | ||||||||||
|
Income tax expense
|
72.2 | 88.7 | 165.6 | ||||||||||
|
Minority interest
|
(2.7 | ) | 1.9 | 1.9 | |||||||||
|
Income from continuing operations
|
58.0 | 111.2 | 198.3 | ||||||||||
|
Income (loss) from discontinued
operations, net of tax
|
(8.7 | ) | (11.5 | ) | 16.8 | ||||||||
|
Cumulative effect of change in
accounting principle, net of tax
|
— | 29.0 | — | ||||||||||
|
Net income
|
49.3 | 128.7 | 215.1 | ||||||||||
|
Dividends on preferred stock
|
(21.6 | ) | (95.6 | ) | (77.9 | ) | |||||||
|
Non-cash conversion of
Series A preferred stock
|
— | (496.6 | ) | — | |||||||||
|
Net income (loss) available to
common shareholders
|
$ | 27.7 | $ | (463.5 | ) | $ | 137.2 | ||||||
|
Basic EPS:
|
|||||||||||||
|
Continuing operations
|
$ | 0.12 | $ | (2.36 | ) | $ | 0.63 | ||||||
|
Discontinued operations
|
(0.03 | ) | (0.05 | ) | 0.09 | ||||||||
|
Cumulative effect of change in
accounting principle
|
— | 0.14 | — | ||||||||||
|
Net income (loss) available to
common shareholders
|
$ | 0.09 | $ | (2.27 | ) | $ | 0.72 | ||||||
|
Weighted average common shares
|
315.0 | 203.8 | 190.2 | ||||||||||
|
Diluted EPS:
|
|||||||||||||
|
Continuing operations
|
$ | 0.11 | $ | (2.36 | ) | $ | 0.62 | ||||||
|
Discontinued operations
|
(0.02 | ) | (0.05 | ) | 0.09 | ||||||||
|
Cumulative effect of change in
accounting principle
|
— | 0.14 | — | ||||||||||
|
Net income (loss) available to
common shareholders
|
$ | 0.09 | $ | (2.27 | ) | $ | 0.71 | ||||||
|
Weighted average common and common
equivalent shares
|
319.7 | 203.8 | 193.5 | ||||||||||
|
Pro forma amounts, assuming the
change in accounting principle is applied retroactively and
excluding the cumulative effect of change in accounting
principle in the year of adoption:
|
|||||||||||||
|
Net income (loss) available to
common shareholders
|
$ | (492.5 | ) | $ | 125.2 | ||||||||
|
Basic net income (loss) per share
|
$ | (2.42 | ) | $ | 0.66 | ||||||||
|
Diluted net income (loss) per share
|
$ | (2.42 | ) | $ | 0.65 | ||||||||
71
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
| Accumulated | ||||||||||||||||||||||||||
| Series C | Additional | Other | Total | |||||||||||||||||||||||
| Preferred | Common | Paid-In | Comprehensive | Retained | Stockholders’ | |||||||||||||||||||||
| Stock | Stock | Capital | Loss | Deficit | Equity | |||||||||||||||||||||
|
Balance as of December 31, 2001
|
$ | — | $ | 2.0 | $ | 1,055.3 | $ | (85.1 | ) | $ | (386.4 | ) | $ | 585.8 | ||||||||||||
|
Common stock issued, net
|
— | — | 6.6 | — | — | 6.6 | ||||||||||||||||||||
|
Stock options, net
|
— | — | 5.6 | — | — | 5.6 | ||||||||||||||||||||
|
Dividends declared on Series A
senior convertible preferred stock
|
— | — | (77.9 | ) | — | — | (77.9 | ) | ||||||||||||||||||
|
Net income
|
— | — | — | — | 215.1 | 215.1 | ||||||||||||||||||||
|
Other comprehensive income, net of
tax:
|
||||||||||||||||||||||||||
|
Net gain deferred on hedging
derivatives
|
— | — | — | 7.4 | — | 7.4 | ||||||||||||||||||||
|
Net loss on hedging derivatives
reclassified to earnings
|
— | — | — | 21.3 | — | 21.3 | ||||||||||||||||||||
|
Minimum pension liability adjustment
|
— | — | — | (74.8 | ) | — | (74.8 | ) | ||||||||||||||||||
|
Balance as of December 31, 2002
|
$ | — | $ | 2.0 | $ | 989.6 | $ | (131.2 | ) | $ | (171.3 | ) | $ | 689.1 | ||||||||||||
|
Common stock issued, net
|
$ | — | $ | 1.2 | $ | 1,415.8 | $ | — | $ | — | $ | 1,417.0 | ||||||||||||||
|
Stock options, net
|
— | — | 8.7 | — | — | 8.7 | ||||||||||||||||||||
|
Dividends declared on Series A
senior convertible preferred stock
|
— | — | (80.0 | ) | — | — | (80.0 | ) | ||||||||||||||||||
|
Issuance of Series C mandatory
convertible preferred stock
|
333.1 | — | — | — | — | 333.1 | ||||||||||||||||||||
|
Dividends paid on Series C
mandatory convertible preferred stock
|
— | — | (15.6 | ) | — | — | (15.6 | ) | ||||||||||||||||||
|
Net income
|
— | — | — | — | 128.7 | 128.7 | ||||||||||||||||||||
|
Other comprehensive income, net of
tax:
|
||||||||||||||||||||||||||
|
Net gain deferred on hedging
derivatives
|
— | — | — | 18.8 | — | 18.8 | ||||||||||||||||||||
|
Net loss on hedging derivatives
reclassified to earnings
|
— | — | — | 13.9 | — | 13.9 | ||||||||||||||||||||
|
Minimum pension liability adjustment
|
— | — | — | 4.0 | — | 4.0 | ||||||||||||||||||||
|
Balance as of December 31, 2003
|
$ | 333.1 | $ | 3.2 | $ | 2,318.5 | $ | (94.5 | ) | $ | (42.6 | ) | $ | 2,517.7 | ||||||||||||
|
Common stock issued, net
|
$ | — | $ | — | $ | 20.3 | $ | — | $ | — | $ | 20.3 | ||||||||||||||
|
Stock options, net
|
— | — | 14.1 | — | — | 14.1 | ||||||||||||||||||||
|
Dividends paid on Series C
mandatory convertible preferred stock
|
— | — | (14.9 | ) | — | (6.7 | ) | (21.6 | ) | |||||||||||||||||
|
Net income
|
— | — | — | — | 49.3 | 49.3 | ||||||||||||||||||||
|
Other comprehensive income, net of
tax:
|
||||||||||||||||||||||||||
|
Net gain deferred on hedging
derivatives
|
— | — | — | 18.2 | — | 18.2 | ||||||||||||||||||||
|
Net loss on hedging derivatives
reclassified to earnings
|
— | — | — | 4.3 | — | 4.3 | ||||||||||||||||||||
|
Minimum pension liability adjustment
|
— | — | — | 2.6 | — | 2.6 | ||||||||||||||||||||
|
Balance as of December 31, 2004
|
$ | 333.1 | $ | 3.2 | $ | 2,338.0 | $ | (69.4 | ) | $ | — | $ | 2,604.9 | |||||||||||||
| Years Ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | |||||||||||
|
Net income
|
$ | 49.3 | $ | 128.7 | $ | 215.1 | |||||||
|
Other comprehensive income, net of
tax:
|
|||||||||||||
|
Net gain deferred on hedging
derivatives
|
18.2 | 18.8 | 7.4 | ||||||||||
|
Net loss on hedging derivatives
reclassified to earnings
|
4.3 | 13.9 | 21.3 | ||||||||||
|
Minimum pension liability adjustment
|
2.6 | 4.0 | (74.8 | ) | |||||||||
| $ | 74.4 | $ | 165.4 | $ | 169.0 | ||||||||
72
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Years Ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | |||||||||||
|
Operating activities —
|
|||||||||||||
|
Net income
|
$ | 49.3 | $ | 128.7 | $ | 215.1 | |||||||
|
Discontinued operations, net of tax
|
8.7 | 11.5 | (16.8 | ) | |||||||||
|
Adjustments to reconcile net income
to cash provided by operating activities from continuing
operations —
|
|||||||||||||
|
Provisions for:
|
|||||||||||||
|
Depreciation and amortization
|
559.3 | 546.0 | 478.5 | ||||||||||
|
Non-cash gain on divestiture of
assets
|
— | — | (9.3 | ) | |||||||||
|
Doubtful accounts
|
18.6 | 23.6 | 17.0 | ||||||||||
|
Accretion of debt and amortization
of debt issuance costs
|
27.0 | 31.8 | 43.2 | ||||||||||
|
Deferred income tax
|
46.9 | 70.6 | 147.1 | ||||||||||
|
Gain on sale of fixed assets
|
(4.9 | ) | — | (5.8 | ) | ||||||||
|
Non-cash reduction in acquisition
accruals
|
(11.9 | ) | (11.2 | ) | (10.7 | ) | |||||||
|
Non-cash gain on non-hedge
accounting interest rate swap contracts
|
(16.2 | ) | (48.1 | ) | (2.4 | ) | |||||||
|
Amortization of accumulated other
comprehensive loss for de-designated interest rate swap contracts
|
6.7 | 23.1 | 35.4 | ||||||||||
|
Write-off of deferred debt issuance
costs
|
26.4 | 61.0 | 13.8 | ||||||||||
|
Non-cash portion of realignment and
executive departure costs
|
17.4 | — | — | ||||||||||
|
Cumulative effect of change in
accounting principle, net of tax
|
— | (29.0 | ) | — | |||||||||
|
Change in operating assets and
liabilities, excluding the effects of purchase
acquisitions —
|
|||||||||||||
|
Accounts receivable, prepaid
expenses, and other assets
|
(36.8 | ) | (24.3 | ) | 45.1 | ||||||||
|
Accounts payable, accrued
liabilities, unearned revenue, stock option tax benefits and
other
|
1.9 | 31.0 | 60.6 | ||||||||||
|
Capping, closure and post-closure
provision and accretion
|
48.0 | 44.3 | 70.5 | ||||||||||
|
Capping, closure, post-closure and
environmental expenditures
|
(90.4 | ) | (75.1 | ) | (104.7 | ) | |||||||
|
Cash provided by operating
activities from continuing operations
|
650.0 | 783.9 | 976.6 | ||||||||||
|
Investing activities —
|
|||||||||||||
|
Cost of acquisitions, net of cash
acquired
|
(21.5 | ) | (63.4 | ) | (51.4 | ) | |||||||
|
Proceeds from divestitures, net of
cash divested
|
57.7 | 313.4 | 82.6 | ||||||||||
|
Proceeds from sale of fixed assets
|
11.0 | 17.5 | 28.6 | ||||||||||
|
Capital expenditures, excluding
acquisitions
|
(582.9 | ) | (491.8 | ) | (536.3 | ) | |||||||
|
Capitalized interest
|
(13.0 | ) | (15.7 | ) | (20.6 | ) | |||||||
|
Change in deferred acquisition
costs, notes receivable and other
|
10.8 | (8.4 | ) | (22.4 | ) | ||||||||
|
Cash used for investing activities
from continuing operations
|
(537.9 | ) | (248.4 | ) | (519.5 | ) | |||||||
|
Financing activities —
|
|||||||||||||
|
Net proceeds from sale of
Series C preferred stock
|
— | 333.1 | — | ||||||||||
|
Proceeds from long-term debt, net
of issuance costs
|
3,082.6 | 3,037.1 | 1,044.3 | ||||||||||
|
Repayments of long-term debt
|
(3,609.1 | ) | (3,754.6 | ) | (1,447.5 | ) | |||||||
|
Payments of Series C preferred
stock dividends
|
(21.6 | ) | (10.2 | ) | — | ||||||||
|
Change in disbursement account
|
53.8 | 10.5 | (87.1 | ) | |||||||||
|
Net proceeds from sale of common
stock, exercise of stock options and other
|
5.1 | 98.4 | 2.8 | ||||||||||
|
Cash used for financing activities
from continuing operations
|
(489.2 | ) | (285.7 | ) | (487.5 | ) | |||||||
|
Cash provided by discontinued
operations
|
0.4 | 15.5 | 52.2 | ||||||||||
|
(Decrease) increase in cash and
cash equivalents
|
(376.7 | ) | 265.3 | 21.8 | |||||||||
|
Cash and cash equivalents,
beginning of year
|
444.7 | 179.4 | 157.6 | ||||||||||
|
Cash and cash equivalents, end of
year
|
$ | 68.0 | $ | 444.7 | $ | 179.4 | |||||||
73
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Summary of Significant Accounting
Policies
Allied Waste Industries, Inc., (Allied, we or the Company), a
Delaware corporation, 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 37 states geographically
identified as the Atlantic, Great Lakes, Midstates, Mountain,
North Central, Northeast, Pacific, Southeast and Southwest
regions of the United States.
Principles of consolidation and presentation —
The consolidated financial statements include the accounts of
Allied and its subsidiaries and complies with Financial
Accounting Standards Board (FASB) Interpretation
No. 46 (revised December 2003) (FIN 46). 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 year presentation.
Discontinued operations —
During 2003, we determined that certain operations that were
divested or held for sale as part of our divestiture plan that
was launched in early 2003 were discontinued operations. In
addition, at December 31, 2003, we held for sale certain
operations in Florida which we sold in 2004.
Operations sold in 2004 and 2003 reported as discontinued
operations include businesses in South Carolina, Georgia,
Colorado, New Jersey, Virginia and Florida. We received net
proceeds of $291.7 million ($41.7 million in 2004 and
$250.0 million in 2003) from the transactions which was
used to repay debt.
The accompanying consolidated financial statements and notes
reflect the results of operations, financial position and cash
flows of these operations as discontinued operations. Following
is a summary of the assets held for sale and discontinued
operations on the consolidated balance sheet at
December 31, 2003 (in millions):
| December 31, | |||||
| 2003 | |||||
|
Accounts receivable, net
|
$ | 4.1 | |||
|
Other current assets
|
2.4 | ||||
|
Property and equipment, net
|
9.2 | ||||
|
Other long-term assets
|
28.6 | ||||
|
Total assets
|
$ | 44.3 | |||
|
Current liabilities
|
$ | 3.8 | |||
|
Total liabilities
|
$ | 3.8 | |||
74
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Results of operations for the discontinued operations were as
follows (in millions):
| For the Year Ended December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Revenues
|
$ | 13.4 | $ | 252.7 | $ | 326.5 | ||||||
|
Income (loss) before tax
|
$ | (3.3 | ) | $ | 28.8 | $ | 28.0 | |||||
|
Gain (loss) on divestiture
|
4.7 | (28.8 | ) | — | ||||||||
|
Income tax expense
|
10.1 | 11.7 | 11.2 | |||||||||
|
Cumulative effect of change in
accounting principle, net of tax
|
— | 0.2 | — | |||||||||
|
Discontinued operations, net of tax
|
$ | (8.7 | ) | $ | (11.5 | ) | $ | 16.8 | ||||
75
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business combinations —
All acquisitions in 2004, 2003, and 2002 were accounted for
under the purchase method and are reflected in our results of
operations since the effective date of the acquisition. Under
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 balance sheets and statements of
operations.
The following table summarizes acquisitions for the three years
ended December 31:
| 2004 | 2003 | 2002 | ||||||||||
|
Number of businesses acquired
|
17 | 17 | 13 | |||||||||
|
Total consideration (in millions)
|
$ | 27.7 | $ | 60.5 | $ | 55.4 | ||||||
76
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Receivable realization allowance —
We provide services to approximately 10 million customers
throughout the United States. We perform credit evaluations for
our significant customers and establish a receivable realization
allowance based on the aging of our receivables, payment
performance factors, historical trends and other information. In
general, we reserve 50% of those receivables outstanding 90 to
120 days and 100% of those outstanding over 120 days.
We also review outstanding balances on an account specific
basis, fully reserving the receivable prior to 120 days if
information becomes available indicating we will not receive
payment, and consider the recoverability of written-off
accounts. Our reserve is evaluated and revised on a monthly
basis. In addition, we reserve a portion of revenues as a sales
valuation allowance. We measure this allowance based on our
historical analysis of revenue reversals and credits issued
after the month of billing. Revenue reversals and credits
typically relate to resolution of customer disputes and billing
adjustments. The total allowance as of December 31, 2004
and 2003 for our continuing operations was approximately
$17.0 million and $22.4 million, respectively.
Other assets —
The following table shows the balances included in other assets
as of December 31 (in millions):
| 2004 | 2003 | |||||||
|
Deferred financing costs
|
$ | 92.2 | $ | 103.5 | ||||
|
Landfill closure deposits
|
28.6 | 28.1 | ||||||
|
Notes receivable
|
16.0 | 13.1 | ||||||
|
Deferred contract costs
|
4.4 | 4.4 | ||||||
|
Assets held for sale and
discontinued operations (see Note 1)
|
— | 37.8 | ||||||
|
Other
|
98.2 | 56.5 | ||||||
|
Total
|
$ | 239.4 | $ | 243.4 | ||||
77
78
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accrued capping, closure and post-closure
costs —
Accrued capping, closure and post-closure costs represent an
estimate of the present value of the future obligation incurred
associated with capping, closure and post-closure monitoring of
non-hazardous solid waste landfills we currently own and/or
operate. Site specific capping, closure and post-closure
engineering cost estimates are prepared annually for landfills
owned and/or operated by us for which we are responsible for
capping, closure and post-closure. The present value of
estimated future costs are accrued on a per unit basis as
landfill disposal capacity is consumed. For active landfills,
the impact of changes determined to be changes in estimates,
based on the annual update, are accounted for on a prospective
basis. Changes in estimates for closed landfill sites and fully
incurred capping projects are recognized when determined.
Environmental costs —
We accrue for costs associated with environmental remediation
obligations when such costs are probable and can be reasonably
estimated. 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 can not
reliably be determined. Recoveries of environmental remediation
costs from other parties are recorded when their receipt is
deemed probable. Environmental liabilities and apportionment of
responsibility among potentially responsible parties are
accounted for in accordance with the guidance provided by the
American Institute of Certified Public Accountants Statement of
Position 96-1, Environmental Remediation Liabilities.
Self-Insurance —
We are partially self-insured for commercial general liability,
automobile liability and workers’ compensation insurance
and are fully self-insured for employee group health claims.
Deductible levels for general liability, automobile liability
and workers’ compensation are between $1 million and
$3 million. The deductible portion of the general,
automobile and workers’ compensation liability for unpaid
claims and associated expenses, including claims incurred but
not reported, is determined using actuarial valuations provided
by a third party. We use a third party administrator to track
and evaluate actual claims experience for consistency of data
used in the annual actuarial valuation. We estimate our
liability for incurred but not reported employee health claims
based on our most recent experience with claims paid, including
an estimate of incurred but not reported claims (IBNR). In the
fourth quarter of 2004, our analysis of IBNR reflected an
acceleration of claims processing that resulted in a
$10 million reduction in our IBNR estimate and related
expense for the period. Our self-insurance liabilities are
recorded on an undiscounted basis.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables show the activity and balances related to
accrued self-insurance for the year ended December 31, (in
millions):
| 2004(1) | 2003(1) | |||||||
|
Balance at beginning of year
|
$ | 193.5 | $ | 146.2 | ||||
|
Expense incurred
|
232.6 | 257.3 | ||||||
|
Claims paid for current year program
|
(163.2 | ) | (176.0 | ) | ||||
|
Claims paid for prior years’
program
|
(53.4 | ) | (34.0 | ) | ||||
|
Balance at end of year
|
$ | 209.5 | $ | 193.5 | ||||
|
Less: current portion
|
(77.5 | ) | (78.0 | ) | ||||
| $ | 132.0 | $ | 115.5 | |||||
79
80
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 estimated direct costs,
exclusive of any fixed costs, to service the contractual
arrangements exceed the estimated revenues expected 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.
Non-recurring acquisition accruals —
At the time of an acquisition accounted for under the purchase
method of accounting, we evaluate and record liabilities to
represent our estimate of fair value. Assumed liabilities are
considered in the allocation of purchase price and goodwill
valuation. Liabilities related to restructuring and abandonment
activities, loss contracts or changes in estimates of
environmental, litigation and regulatory compliance costs are
charged to expense in the period in which the acquisition is
completed. Any subsequent changes to these estimates are also
charged to expense in the same line item as the original charge
was recorded. At December 31, 2004 and 2003, we had
approximately $124.6 million and $154.1 million,
respectively, of non-recurring acquisition accruals remaining on
our consolidated balance sheets, consisting primarily of loss
contract, litigation, insurance liabilities and other
commitments associated with the 1999 acquisition of
Browning-Ferris Industries, Inc. (BFI). Expenditures against
non-recurring acquisition accruals in 2004 and 2003 were
$30.0 million and $41.5 million, respectively.
Interest expense and other —
Interest expense and other includes interest paid to third
parties for our debt obligations (net of amounts capitalized),
cash settlement on interest rate swap contracts, interest
income, accretion of debt and amortization of debt issuance
costs, costs incurred to early extinguish debt, non-cash gain or
loss on non-hedge accounting interest rate swap contracts and
the amortization of accumulated other comprehensive loss for
de-designated interest rate swap contracts.
Interest expense capitalized —
We capitalize interest in connection with the construction of
our landfill assets. Actual acquisition permitting and
construction costs incurred related to landfill assets under
active development qualify for interest capitalization. Interest
capitalization ceases when the construction of a landfill asset
is complete and available for use.
During the years ended December 31, 2004, 2003 and 2002, we
incurred gross interest expense (including payments under
interest rate swap contracts) of $601.2 million,
$742.0 million and $794.6 million of which
$13.0 million, $15.7 million and $20.6 million
was capitalized.
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 are as follows (in
millions):
| 2004 | 2003 | 2002 | |||||||||||
|
Supplemental Disclosures —
|
|||||||||||||
|
Interest paid (net of amounts
capitalized)
|
$ | 620.2 | $ | 726.8 | $ | 780.5 | |||||||
|
Income taxes paid, net of (refunds)
|
36.6 | 40.0 | (7.4 | ) | |||||||||
|
Non-Cash Transactions —
|
|||||||||||||
|
Debt incurred or assumed in
acquisitions
|
$ | — | $ | 3.0 | $ | — | |||||||
|
Liabilities incurred or assumed in
acquisitions
|
12.6 | 13.9 | 6.0 | ||||||||||
|
Capital lease obligations incurred
|
4.6 | 8.0 | 6.7 | ||||||||||
|
Dividends on preferred stock
|
5.4 | 80.0 | 77.9 | ||||||||||
|
Conversion of Series A
preferred stock
|
— | 496.6 | — | ||||||||||
81
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and Disclosure, requires that companies that 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.
If we applied the recognition provisions of SFAS 123 using
the Black-Scholes option-pricing model, the resulting pro forma
net income (loss) available to common shareholders, and pro
forma net income (loss) available to common shareholders per
share is as follows (in millions, except per share data):
| For the Years Ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | |||||||||||
|
Net income (loss) available to
common shareholders, as reported
|
$ | 27.7 | $ | (463.5 | ) | $ | 137.2 | ||||||
|
Total stock-based employee
compensation expense determined under fair value based method,
net of tax
|
(7.0 | ) | (9.5 | ) | (13.6 | ) | |||||||
|
Net income (loss) available to
common shareholders, pro forma
|
$ | 20.7 | $ | (473.0 | ) | $ | 123.6 | ||||||
|
Basic earnings (loss) per share:
|
|||||||||||||
|
As reported
|
$ | 0.09 | $ | (2.27 | ) | $ | 0.72 | ||||||
|
Pro forma
|
0.07 | (2.32 | ) | 0.65 | |||||||||
|
Diluted earnings (loss) per share:
|
|||||||||||||
|
As reported
|
$ | 0.09 | $ | (2.27 | ) | $ | 0.71 | ||||||
|
Pro forma
|
0.06 | (2.32 | ) | 0.64 | |||||||||
| For the Years Ended December 31, | ||||||
| 2004 | 2003 | 2002 | ||||
|
Risk free interest rate
|
3.1% | 2.7% | 2.6% | |||
|
Expected life
|
4 years | 4 years | 4 years | |||
|
Dividend rate
|
0% | 0% | 0% | |||
|
Expected volatility
|
58% | 62% | 66% | |||
82
83
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
terms or conditions under which contingently convertible
securities are convertible. The required disclosures are
reflected in the notes to the consolidated financial statements.
In March 2004, the EITF finalized its consensus on EITF Issue
No. 03-6, Participating Securities and the
Two — Class Method under FASB Statement
No. 128, Earnings per Share, (EITF 03-06).
EITF 03-06 clarifies what constitutes a participating
security and requires the use of the two-class method for
computing basic earnings per share when participating
convertible securities exist. EITF 03-06 applied to our
Series A Senior Convertible Preferred Stock that was
converted to common stock during 2003 and is effective for
reporting periods beginning after March 31, 2004. However,
EITF 03-06 had no impact on our determination of earnings
per share in the current or prior periods.
In December 2003, the FASB issued FASB Interpretation
No. 46 (revised December 2003) Consolidation of Variable
Interest Entities (FIN 46R). FIN 46R requires
unconsolidated variable interest entities to be consolidated by
their primary beneficiaries. FIN 46R was effective for
periods ending after December 15, 2003 for public
companies. As of December 31, 2004 and 2003, we had no
material variable interest entities requiring consolidation
under FIN 46R.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), Share-Based Payment. SFAS 123R
requires us to measure the cost of employee services received in
exchange for an award of equity instruments based on the
grant-date fair value of the award. The cost of the employee
services is recognized as compensation cost over the period that
an employee provides service in exchange for the award. We are
currently evaluating the adoption alternatives and expect to
complete our evaluation during the third quarter of 2005. If we
adopt SFAS 123R under the modified prospective method, the
2005 impact would be to decrease income from continuing
operations by approximately $2.5 million, or less than
$.01 per diluted share. These amounts represent the net of
tax expense previously calculated under SFAS 123 for
pro forma purposes for existing stock option awards that
will vest in our third and fourth quarters of 2005. This amount
does not reflect any new awards or modifications to existing
awards that could occur in the future.
2.
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 and improvements (30-40 years), vehicles and
equipment (3-15 years), containers and compactors
(5-10 years) and furniture and office equipment
(4-8 years). We do not assume a residual value on our
depreciable assets. In accordance with SFAS 144, 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 SFAS 144 and
EITF Issue No. 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.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 example, under certain circumstances,
the replacement of vehicle transmissions or engine rebuilds are
capitalized whereas repairs to vehicle brakes are expensed. For
the years ended December 31, 2004, 2003 and 2002,
maintenance and repair expenses charged to cost of operations
were $454.2 million, $409.3 million and
$396.6 million, respectively. When property is retired or
sold, the related cost and accumulated depreciation are removed
from the accounts and any resulting gain or loss is recognized
in cost of operations. For the years ended December 31,
2004, 2003 and 2002, we recognized net pre-tax gains on the
disposal of fixed assets of $4.9 million, $0.2 million
and $5.8 million, respectively.
The following tables show the activity and balances related to
property and equipment from December 31, 2002 through
December 31, 2004 (in millions):
| Property and Equipment | ||||||||||||||||||||||||
| Balance at | Acquisitions, | Transfers | Balance at | |||||||||||||||||||||
| Dec. 31, | Capital | Sales and | Net of | and | Dec. 31, | |||||||||||||||||||
| 2003 | Additions | Retirements | Divestitures | Other(1) | 2004 | |||||||||||||||||||
|
Land and improvements
|
$ | 424.3 | $ | 34.1 | $ | (1.5 | ) | $ | 0.3 | $ | 4.5 | $ | 461.7 | |||||||||||
|
Land held for permitting as
landfills
|
101.7 | 17.7 | — | (1.8 | ) | (8.7 | ) | 108.9 | ||||||||||||||||
|
Landfills
|
3,304.4 | 279.3 | — | 16.6 | 80.6 | 3,680.9 | ||||||||||||||||||
|
Buildings and improvements
|
466.3 | 31.2 | (3.7 | ) | 0.3 | (1.6 | ) | 492.5 | ||||||||||||||||
|
Vehicles and equipment
|
1,747.4 | 144.0 | (63.7 | ) | (1.5 | ) | 0.7 | 1,826.9 | ||||||||||||||||
|
Containers and compactors
|
787.7 | 70.9 | (13.0 | ) | (0.3 | ) | (0.9 | ) | 844.4 | |||||||||||||||
|
Furniture and office equipment
|
43.9 | 5.7 | (1.0 | ) | — | 1.5 | 50.1 | |||||||||||||||||
|
Total
|
$ | 6,875.7 | $ | 582.9 | $ | (82.9 | ) | $ | 13.6 | $ | 76.1 | $ | 7,465.4 | |||||||||||
| Accumulated Depreciation and Amortization | ||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||
| Balance at | and | Acquisitions, | Transfers | Balance at | ||||||||||||||||||||
| Dec. 31, | Amortization | Sales and | Net of | and | Dec. 31, | |||||||||||||||||||
| 2003 | Expense | Retirements | Divestitures | Other(1) | 2004 | |||||||||||||||||||
|
Land and improvements
|
$ | (21.4 | ) | $ | (5.1 | ) | $ | 0.3 | $ | — | $ | 0.2 | $ | (26.0 | ) | |||||||||
|
Landfills
|
(1,337.9 | ) | (256.8 | ) | — | — | 3.6 | (1,591.1 | ) | |||||||||||||||
|
Buildings and improvements
|
(105.6 | ) | (24.6 | ) | 1.9 | 0.3 | (0.1 | ) | (128.1 | ) | ||||||||||||||
|
Vehicles and equipment
|
(910.9 | ) | (178.7 | ) | 58.2 | 3.1 | (4.4 | ) | (1,032.7 | ) | ||||||||||||||
|
Containers and compactors
|
(451.3 | ) | (86.0 | ) | 12.5 | 1.0 | 0.7 | (523.1 | ) | |||||||||||||||
|
Furniture and office equipment
|
(29.7 | ) | (5.7 | ) | 0.9 | — | — | (34.5 | ) | |||||||||||||||
|
Total
|
$ | (2,856.8 | ) | $ | (556.9 | ) | $ | 73.8 | $ | 4.4 | $ | — | $ | (3,335.5 | ) | |||||||||
|
Property and equipment, net
|
$ | 4,018.9 | $ | 26.0 | $ | (9.1 | ) | $ | 18.0 | $ | 76.1 | $ | 4,129.9 | |||||||||||
| (1) | Relates primarily to (i) capitalized interest, (ii) change in our landfill retirement obligation asset for recognition of and adjustments to capping, closure and post-closure costs (see Note 7), and (iii) capitalized leases. |
84
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Property and Equipment | ||||||||||||||||||||||||
| Balance at | Acquisitions, | Transfers | Balance at | |||||||||||||||||||||
| Dec. 31, | Capital | Sales and | Net of | and | Dec. 31, | |||||||||||||||||||
| 2002 | Additions | Retirements | Divestitures | Other(1) | 2003 | |||||||||||||||||||
|
Land and improvements
|
$ | 427.1 | $ | 9.8 | $ | (4.0 | ) | $ | (1.3 | ) | $ | (7.3 | ) | $ | 424.3 | |||||||||
|
Land held for permitting as
landfills
|
114.4 | 12.1 | — | 0.4 | (25.2 | ) | 101.7 | |||||||||||||||||
|
Landfills
|
2,531.3 | 207.0 | — | 41.2 | 524.9 | 3,304.4 | ||||||||||||||||||
|
Buildings and improvements
|
441.3 | 28.1 | (5.6 | ) | (3.4 | ) | 5.9 | 466.3 | ||||||||||||||||
|
Vehicles and equipment
|
1,669.8 | 177.7 | (82.0 | ) | (19.3 | ) | 1.2 | 1,747.4 | ||||||||||||||||
|
Containers and compactors
|
751.9 | 53.5 | (9.6 | ) | (9.8 | ) | 1.7 | 787.7 | ||||||||||||||||
|
Furniture and office equipment
|
43.2 | 3.6 | (2.6 | ) | (0.3 | ) | — | 43.9 | ||||||||||||||||
|
Total
|
$ | 5,979.0 | $ | 491.8 | $ | (103.8 | ) | $ | 7.5 | $ | 501.2 | $ | 6,875.7 | |||||||||||
| Accumulated Depreciation and Amortization | ||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||
| Balance at | And | Acquisitions, | Transfers | Balance at | ||||||||||||||||||||
| Dec. 31, | Amortization | Sales and | Net of | and | Dec. 31, | |||||||||||||||||||
| 2002 | Expense | Retirements | Divestitures | Other(1) | 2003 | |||||||||||||||||||
|
Land and improvements
|
$ | (17.2 | ) | $ | (4.6 | ) | $ | 0.5 | $ | 0.1 | $ | (0.2 | ) | $ | (21.4 | ) | ||||||||
|
Landfills
|
(657.8 | ) | (243.4 | ) | — | — | (436.7 | ) | (1,337.9 | ) | ||||||||||||||
|
Buildings and improvements
|
(87.5 | ) | (21.5 | ) | 2.0 | 1.0 | 0.4 | (105.6 | ) | |||||||||||||||
|
Vehicles and equipment
|
(803.0 | ) | (188.8 | ) | 72.7 | 10.2 | (2.0 | ) | (910.9 | ) | ||||||||||||||
|
Containers and compactors
|
(381.1 | ) | (85.1 | ) | 8.7 | 7.0 | (0.8 | ) | (451.3 | ) | ||||||||||||||
|
Furniture and office equipment
|
(26.7 | ) | (5.6 | ) | 2.4 | 0.2 | — | (29.7 | ) | |||||||||||||||
|
Total
|
$ | (1,973.3 | ) | $ | (549.0 | ) | $ | 86.3 | $ | 18.5 | $ | (439.3 | ) | $ | (2,856.8 | ) | ||||||||
|
Property and equipment, net
|
$ | 4,005.7 | $ | (57.2 | ) | $ | (17.5 | ) | $ | 26.0 | $ | 61.9 | $ | 4,018.9 | ||||||||||
| (1) | Relates primarily to (i) the impact of adoption of SFAS 143 recorded as a cumulative effect of change in accounting principle which was an increase to the gross landfill asset and accumulated amortization for landfills of $409.5 million and $434.6 million, respectively, (ii) changes in our landfill retirement obligation asset for additional capping, closure and post-closure costs (see Note 7) and (iii) purchase accounting adjustments during the allocation period. |
| 3. | Goodwill and Intangible Assets |
85
86
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For example, a significant adverse change in liquidity or the
business environment, unanticipated competition, a significant
adverse action by a regulator or a disposal of a significant
portion of an operating segment could prompt an impairment test
between annual assessments.
We evaluate goodwill for impairment based on fair value of each
geographic operating segment. The calculation of fair value is
subject to judgments and estimates about future events. We
estimate fair value based on projected net cash flows discounted
using a weighted-average cost of capital of approximately 7.15%
in 2004. In addition, we consider an earnings multiple approach,
enterprise value, and overall company market capitalization to
evaluate the reasonableness of our discounted cash flows. The
estimated fair value could change if there were future changes
in our capital structure, cost of debt, interest rates, capital
expenditure levels, ability to perform at levels that were
forecasted or a permanent change to the market capitalization of
our company.
Our geographic operating segment level is an aggregate of
several vertically integrated businesses with similar
operational characteristics. A divestiture of any individual
asset below the geographic operating segment level could result
in a loss. At the time of a divestiture of an individual
business within a geographic operating segment, goodwill is
allocated to that business and a gain or loss on disposal is
derived. Subsequently, the remaining goodwill in the geographic
operating segment that the assets were divested from would be
re-evaluated for realizability, which could result in an
additional loss being recognized.
During 2004, we sold certain operations in two of our then four
geographic operating segments and we allocated approximately
$4.7 million of goodwill related to these operations.
During 2004, approximately $28.1 million of goodwill
related to operations sold in the Southern area classified as
assets held for sale at December 31, 2003 was expensed as
part of discontinued operations. The remaining goodwill in these
geographic operating segments was subsequently evaluated for
realizability and we concluded there was no impairment.
We have incurred non-cash losses on sales of assets when we
believed that re-deployment of the proceeds from the sale of
such assets could reduce debt or improve operations and was
economically beneficial. If we decide to sell additional assets
in the future, we could incur additional non-cash losses on
asset sales.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the activity and balances related to
goodwill from December 31, 2002 through December 31,
2004 (in millions):
| Balance as of | Balance as of | |||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||
| 2003 | Acquisitions | Divestitures | Adjustments(1)(2) | 2004 | ||||||||||||||||
|
Western Area
|
$ | 1,399.6 | $ | — | $ | (3.5 | ) | $ | (1,396.1 | ) | $ | — | ||||||||
|
Central Area
|
1,910.9 | 1.3 | — | (1,912.2 | ) | — | ||||||||||||||
|
Eastern Area
|
2,384.6 | 3.2 | (1.2 | ) | (2,386.6 | ) | — | |||||||||||||
|
Southern Area
|
2,617.9 | 3.1 | — | (2,621.0 | ) | — | ||||||||||||||
|
Atlantic Region
|
— | — | — | 914.9 | 914.9 | |||||||||||||||
|
Great Lakes Region
|
— | — | — | 1,097.7 | 1,097.7 | |||||||||||||||
|
Midstates Region
|
— | — | — | 959.1 | 959.1 | |||||||||||||||
|
Mountain Region
|
— | — | — | 650.7 | 650.7 | |||||||||||||||
|
North Central Region
|
— | — | — | 1,193.5 | 1,193.5 | |||||||||||||||
|
Northeast Region
|
— | — | — | 725.4 | 725.4 | |||||||||||||||
|
Pacific Region
|
— | — | — | 726.1 | 726.1 | |||||||||||||||
|
Southeast Region
|
— | — | — | 872.4 | 872.4 | |||||||||||||||
|
Southwest Region
|
— | — | — | 1,062.2 | 1,062.2 | |||||||||||||||
|
Total
|
$ | 8,313.0 | $ | 7.6 | $ | (4.7 | ) | $ | (113.9 | ) | $ | 8,202.0 | ||||||||
| Balance as of | Balance as of | |||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||
| 2002 | Acquisitions | Divestitures | Adjustments(1) | 2003 | ||||||||||||||||
|
Western Area
|
$ | 1,420.8 | $ | 2.2 | $ | (23.5 | ) | $ | 0.1 | $ | 1,399.6 | |||||||||
|
Central Area
|
1,904.8 | 8.7 | (2.3 | ) | (0.3 | ) | 1,910.9 | |||||||||||||
|
Eastern Area
|
2,453.7 | 0.2 | (71.8 | ) | 2.5 | 2,384.6 | ||||||||||||||
|
Southern Area
|
2,751.1 | 8.2 | (114.4 | ) | (27.0 | ) | 2,617.9 | |||||||||||||
|
Total
|
$ | 8,530.4 | $ | 19.3 | $ | (212.0 | ) | $ | (24.7 | ) | $ | 8,313.0 | ||||||||
| (1) | Amounts primarily relate to reallocation of goodwill in connection with our realignment of field operations, reclassification of goodwill in connection with assets held for sale accounting and purchase accounting adjustments during the allocation period. |
| (2) | Amounts include approximately $113.0 million of adjustments to reduce goodwill for tax contingencies previously recorded in connection with our acquisition of BFI that were presented in other long-term liabilities ($102.4 million) and deferred income taxes ($10.6 million). |
| Gross | Net | ||||||||||||
| Carrying | Accumulated | Carrying | |||||||||||
| Value | Amortization | Value | |||||||||||
|
Non-compete agreements
|
$ | 10.4 | $ | 8.2 | $ | 2.2 | |||||||
|
Other
|
2.3 | 0.3 | 2.0 | ||||||||||
|
Total
|
$ | 12.7 | $ | 8.5 | $ | 4.2 | |||||||
87
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortization expense for the three years ended December 31,
2004, 2003 and 2002 was $1.8 million, $1.9 million and
$2.5 million, respectively. Based upon the amortizable
assets recorded in the balance sheet at December 31, 2004,
amortization expense for each of the next five years is
estimated to be declining from $1.7 million to
$0.2 million.
4.
Long-term Debt
Long-term debt at December 31, 2004 and December 31,
2003 consists of the amounts listed in the following table. The
effective interest rate includes our interest cost incurred, the
effect of interest rate swap contracts, amortization of deferred
debt issuance cost and the amortization or accretion of
discounts or premiums (in millions, except percentages).
| Debt Balance at | Effective Interest Rate | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
|
Revolving credit facility
|
$ | — | $ | — | 5.56 | %* | 5.41 | %* | ||||||||
|
Term loan B
|
1,162.9 | 1,185.0 | 6.07 | 9.83 | ||||||||||||
|
Term loan C
|
245.4 | 250.0 | 6.05 | 7.81 | ||||||||||||
|
Term loan D
|
147.2 | — | 5.85 | — | ||||||||||||
|
Receivables secured loan
|
209.9 | 146.3 | 3.32 | 2.15 | ||||||||||||
|
Senior notes, interest at 5.75%
|
400.0 | — | 5.93 | — | ||||||||||||
|
Senior notes, interest at 6.13%
|
425.0 | — | 6.35 | — | ||||||||||||
|
Senior notes, interest at 6.38%
|
275.0 | — | 6.60 | — | ||||||||||||
|
Senior notes, interest at 6.38%
|
151.5 | 148.4 | 8.34 | 8.34 | ||||||||||||
|
Senior notes, interest at 6.50%
|
350.0 | 350.0 | 4.80 | 4.51 | ||||||||||||
|
Senior notes, interest at 7.38%
|
— | 225.0 | — | 7.90 | ||||||||||||
|
Senior notes, interest at 7.63%
|
600.0 | 600.0 | 7.99 | 7.99 | ||||||||||||
|
Senior notes, interest at 7.88%
|
450.0 | 450.0 | 8.09 | 8.05 | ||||||||||||
|
Senior notes, interest at 7.88%
|
69.4 | 68.7 | 8.77 | 8.77 | ||||||||||||
|
Senior notes, interest at 7.88%
|
— | 874.1 | — | 8.13 | ||||||||||||
|
Senior notes, interest at 8.50%
|
750.0 | 750.0 | 8.78 | 8.77 | ||||||||||||
|
Senior notes, interest at 8.88%
|
600.0 | 600.0 | 9.15 | 9.16 | ||||||||||||
|
Senior notes, interest at 9.25%
|
376.9 | 377.1 | 9.41 | 9.39 | ||||||||||||
|
Debentures, interest at 7.40%
|
289.9 | 287.6 | 8.03 | 8.03 | ||||||||||||
|
Debentures, interest at 9.25%
|
95.8 | 95.6 | 9.48 | 9.48 | ||||||||||||
|
Senior unsecured notes, interest at
7.38%
|
400.0 | — | 7.53 | — | ||||||||||||
|
Senior subordinated convertible
debentures, interest at 4.25%
|
230.0 | — | 4.33 | — | ||||||||||||
|
Senior subordinated notes, interest
at 10.00%
|
195.4 | 1,497.4 | 10.22 | 10.22 | ||||||||||||
|
Solid waste revenue bond
obligations, principal payable through 2031
|
306.1 | 306.2 | 5.21 | 6.04 | ||||||||||||
88
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Debt Balance at | Effective Interest Rate | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
|
Notes payable to banks, finance
companies, and individuals, interest rates of 4.00% to 12.23%,
and principal payable through 2014, secured by vehicles,
equipment, real estate, accounts receivable or stock of certain
subsidiaries
|
8.7 | 8.2 | 6.07 | * | 6.93 | * | ||||||||||
|
Obligations under capital leases of
vehicles and equipment
|
13.5 | 13.2 | 9.30 | * | 8.76 | * | ||||||||||
|
Notes payable to individuals and a
commercial company, interest rates of 6.00% to 9.50%, principal
payable through 2010, unsecured
|
4.4 | 1.3 | 6.55 | * | 8.45 | * | ||||||||||
| 7,757.0 | 8,234.1 | 7.18 | 8.96 | |||||||||||||
|
Less: Current portion
|
327.8 | 249.6 | ||||||||||||||
| $ | 7,429.2 | $ | 7,984.5 | |||||||||||||
| * | reflects weighted average interest rate |
89
90
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
under the institutional letter of credit facility. During the
third quarter of 2004, we reduced our institutional letter of
credit by $2 million to $198 million.
In March 2004, we amended our 2003 Credit Facility to, among
other things, increase our flexibility to fund a $1 billion
tender offer of our 10% senior subordinated notes due 2009
and permit us to incur additional indebtedness and apply the
proceeds of such indebtedness to the repayment of the senior
subordinated notes. In addition, the amendment resulted in
certain guarantor subsidiaries becoming non-guarantors.
In April 2003, we refinanced our 1999 credit facility, which had
consisted of a $1.291 billion revolving credit facility,
due 2005 and $2.226 billion in funded, amortizing senior
secured term loans with varying maturity dates through 2007,
with a $2.9 billion senior secured credit facility (the
2003 Credit Facility) that included a $1.5 billion revolver
due January 2008 (the 2003 Revolver), a $1.2 billion term
loan with final maturity in January 2010 (Term Loan B), and
a $200 million institutional letter of credit facility. In
addition, the 2003 Credit Facility allowed us to establish an
incremental term loan in an amount up to $250 million and
an additional institutional letter of credit facility in an
amount up to $500 million.
In August 2003, we amended our 2003 Credit Facility to
(i) permit the Series A Preferred Stock exchange
transaction (see Note 9) and (ii) permit us to incur
an additional $250 million of term loan indebtedness, an
additional $350 million of senior secured indebtedness and
$400 million of senior unsecured indebtedness, for the
purpose of retiring portions of our outstanding senior
subordinated indebtedness through optional redemption, public
tender offer or open market repurchases.
During the third quarter of 2003, we funded a new
$250 million Term Loan C (Term Loan C) due 2010
under the 2003 Credit Facility and used the proceeds to
repurchase a portion of our 10% senior subordinated notes
in the same amount of principal. In connection with these
repurchases, we paid premiums of approximately
$23.8 million, which are recorded in interest expense and
other.
In November 2003, we completed a second amendment to our 2003
Credit Facility reducing the interest rate for the Term
Loan B, Term Loan C and institutional letter of credit
facility to LIBOR plus 275 basis points. In addition to
re-pricing the term loan facilities, we favorably revised
financial covenants under the 2003 Credit Facility to provide
greater operating flexibility.
The 2003 Credit Facility bears interest at (a) an
Alternative Base Rate, or (b) Adjusted LIBOR, both terms
defined in the 2003 Credit Facility, plus, in either case, an
applicable margin based on our leverage ratio. Proceeds from the
2003 Credit Facility may be used for working capital and other
general corporate purposes, including acquisitions.
We are required to make prepayments on the 2003 Credit Facility
upon completion of certain transactions as defined in the 2003
Credit Facility, including asset sales and issuances of debt
securities. Proceeds from these transactions are required to be
applied to amounts due under the 2003 Credit Facility pursuant
to the credit facility agreement. We are also required to make
prepayments on the 2003 Credit Facility for 50% of any excess
cash flows from operations, as defined.
Senior notes and debentures —
In April 2004, we issued $275 million of 6.375% senior
notes due 2011 to fund a portion of the tender offer of
10% senior subordinated notes due 2009. Interest is payable
semi-annually on
April 15th
and
October 15th
beginning on October 15, 2004. These senior notes have a
make-whole call provision that is exercisable at any time at the
stated redemption price.
91
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, in April 2004, we issued $400 million of
7.375% senior unsecured notes due 2014 to fund a portion of
the tender offer of 10% senior subordinated notes due 2009.
Interest is payable semi-annually on
April 15th
and
October 15th
beginning on October 15, 2004. These notes have a
make-whole call provision that is exercisable any time prior to
April 15, 2009 at the stated redemption price. The notes
may also be redeemed after April 15, 2009 at the stated
redemption prices. These notes along with the $275 million
6.375% senior notes due 2011 are herein collectively
referred to as the April 2004 Senior Notes.
In January 2004, we issued $400 million of
5.75% senior notes due 2011 and $425 million of
6.125% senior notes due 2014 (the January 2004 Senior
Notes) to fund the redemption of $825 million of our
$875 million 7.875% senior notes due 2009. Interest is
payable semi-annually on
February 15th
and
August 15th
beginning on August 15, 2004. The $400 million senior
notes have a make-whole call provision that is exercisable at
any time at the stated redemption price. The $425 million
senior notes have a make-whole call provision that is
exercisable at any time prior to February 15, 2009 at the
stated redemption price. The notes may also be redeemed after
February 15, 2009 at the stated redemption prices.
In November 2003, we issued $350 million of
6.50% senior notes due 2010. These senior notes have a
make-whole call provision that is exercisable at any time at a
stated redemption price. Interest is payable semi-annually on
February 15th
and
August 15th.
We used proceeds of approximately $256.1 million to
repurchase a portion of our 10% senior subordinated notes
in 2003. In connection with these repurchases, we paid premiums
of approximately $23.1 million in 2003. During January
2004, we repurchased $93.9 million of our 10% senior
subordinated notes using the remaining proceeds from the senior
notes and paid premiums of approximately $8.2 million
related to the 2004 repurchases.
On April 9, 2003, we issued $450 million of
7.875% senior notes due 2013 for net proceeds of
approximately $440 million. The senior notes have a no call
provision until 2008. Interest is payable
April 1st and
October 1st of
each year beginning in October 2003.
In November 2002, we issued $375.0 million of
9.25% senior notes due 2012 (the 2002 Senior Notes). The
2002 Senior Notes were issued at a premium of $2.4 million.
These senior notes have a no call provision until 2007. Interest
is payable semi-annually on March 1 and September 1. We
used the net proceeds of $370.6 million from the sale of
these notes to repay term loans under the 1999 Credit Facility
prior to maturity.
In August 2002, we repaid the 2001 subsidiaries line of credit
prior to its maturity in 2006 with cash from operations and
borrowings under the revolver portion of the 1999 Credit
Facility. In connection with this repayment, we paid a
prepayment penalty of $3.2 million.
During 2001, we issued $750 million of 8.50% senior
notes, due 2008 and $600 million of 8.875% senior
notes, due 2008 (together the 2001 Senior Notes). Interest on
the 2001 Senior Notes is payable semi-annually on June 1
and September 1.
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 EITF Issue No. 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, 2004, the remaining
unamortized net discount related to the debt securities of BFI
was $87.1 million.
92
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 6.10% senior notes, 6.375% senior notes and
9.25% debentures assumed from BFI are not redeemable prior
to maturity and are not subject to any sinking fund. In January
2003, the 6.10% senior notes were repaid upon maturity with
cash flow from operations and application of our ending cash
balance.
The 7.40% debentures assumed from BFI 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.
In December 1998, we 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
(together, the 1998 Senior Notes). Interest accrued on the 1998
Senior Notes is payable semi-annually on January 1 and July 1.
The $225 million 7.375% senior notes due 2004 were
repaid in January 2004. In addition, $825 million of the
$875 million 7.875% senior notes due 2009 were
redeemed in February 2004 with the remaining $50 million
redeemed in May 2004, all at a price of 103.938%. The premiums
paid in connection with these redemptions and the write-off of
deferred financing costs of $45.7 million were recorded to
interest expense and other in the first half of 2004.
Receivables secured loan —
We have an accounts receivable securitization program with a
financial institution that allows us to borrow up to
$230 million on a revolving basis under a loan agreement
secured by receivables. We increased our receivables secured
loan program from $175 million to $230 million on
October 1, 2004. Also, as of October 1, 2004 we
increased the amount we borrowed under the loan agreement
secured by receivables by $75 million and extended the
maturity from March 2005 to May 2005. The loan agreement has a
364 day liquidity facility with a three year purchase
commitment, however, we intend to extend the liquidity facility
annually. If we are unable to renew the loan agreement, we would
refinance any amounts outstanding with our revolving credit
facility which matures in 2008 or with other long-term
borrowings. Although we intend to renew the loan agreement in
May 2005 and do not expect to repay the amounts within the next
twelve months, the loan is classified as a current liability
because it has a contractual maturity of less than one year.
The borrowings are secured by our accounts receivable that are
owned by a wholly-owned and fully consolidated subsidiary. This
subsidiary is a separate corporate entity whose assets, or
collateral securing the borrowings, are available first to
satisfy the claims of the subsidiary’s creditors. Under
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities — a Replacement of FASB
Statement 125, the securitization program is accounted
for as a secured borrowing with a pledge of collateral. The
receivables and debt obligation remain on our consolidated
balance sheet. At December 31, 2004, we had outstanding
borrowings under this program of $209.9 million. The
borrowings under this program bear interest at the financial
institution’s commercial paper rate plus an applicable
spread and interest is payable monthly. There is also a fee on
the undrawn portion available for borrowing.
Senior subordinated notes —
In July 1999, we issued $2.0 billion of senior subordinated
notes (the 1999 Notes) that mature in 2009. 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.
93
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the first half of 2004, we completed open market
repurchases and a tender offer of the 1999 Notes in an aggregate
principle amount of $1.149 billion. In connection with
these repurchases and tender offer, we paid premiums of
approximately $87.5 million and wrote-off deferred
financing costs of $13.5 million, both of which were
recorded as a charge to interest expense and other.
During the third and fourth quarters of 2004, we redeemed an
additional $150 million of the 1999 Notes for
$157.5 million. In connection with this redemption, we paid
premiums and fees of approximately $7.8 million and
wrote-off deferred financing costs of $1.6 million, both of
which were recorded as a charge to interest expense and other.
During 2003, we repaid $506.1 million of the 1999 Notes
prior to maturity through open market repurchases. In connection
with these repurchases, we paid premiums of approximately
$46.9 million and wrote-off deferred financing costs of
$6.4 million, both of which were recorded as a charge to
interest expense and other.
Senior subordinated convertible debentures —
In April 2004, we issued $230 million of 4.25% senior
subordinated convertible debentures due 2034 that are unsecured
and are not guaranteed. They are convertible into our common
stock at a conversion price of $20.43 per share totaling
11.3 million shares. Common stock transactions such as cash
or stock dividends, splits, combinations or reclassifications
and issuances at less than current market price will require an
adjustment to the conversion rate as defined per the indenture.
Certain of the conversion features contained in the convertible
debentures are deemed to be embedded derivatives, as defined
under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, however, these embedded
derivatives currently have no value.
These debentures are convertible at the option of the holder
anytime if any of the following occurs: (i) our closing
stock price is in excess of $25.5375 for 20 of 30 consecutive
trading days ending on the last day of the quarter,
(ii) during the five business day period after any three
consecutive trading days in which the average trading price per
debenture is less than 98% of the product of the closing price
for our common stock times the conversion rate, (iii) we
issue a call notice, or (iv) certain specified corporate
events such as a merger or change in control.
We can elect to settle the conversion in stock, cash or a
combination of stock and cash. If settled in stock, the holder
will receive the fixed number of shares based on the conversion
rate except if conversion occurs after 2029 as a result of item
(ii) above, the holder will receive shares equal to the par
value divided by the trading stock price. If settled in cash,
the holder will receive the cash equivalent of the number of
shares based on the conversion rate at the average trading stock
price over a ten day period except if conversion occurs as a
result of item (iv) above, the holder will then receive
cash equal to the par value only.
We can elect to call the debentures at any time after
April 15, 2009 at par for cash only. The holders can
require us to redeem the debentures on April 15th of 2011,
2014, 2019, 2024 and 2029 at par for stock, cash or a
combination of stock and cash at our option. If the debentures
are redeemed in stock, the number of shares issued will be
determined as the par value of the debentures divided by the
average trading stock price over a five day period.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future maturities of long term debt —
Aggregate future scheduled maturities of long-term debt as of
December 31, 2004 are as follows (in millions):
| Maturity | ||||
|
2005(1)
|
$ | 327.8 | ||
|
2006
|
628.7 | |||
|
2007
|
22.9 | |||
|
2008
|
1,532.9 | |||
|
2009
|
216.9 | |||
|
Thereafter
|
5,112.6 | |||
|
Gross Principal
|
7,841.8 | |||
|
Discount, net
|
(84.8 | ) | ||
|
Total Debt
|
$ | 7,757.0 | ||
| (1) | Includes the receivables secured loan which is a 364 day liquidity facility and has a balance of $209.9 million at December 31, 2004. On October 1, 2004, we extended the maturity to May 2005. At that time, we intend to renew the liquidity facility. If we are unable to renew the loan agreement, we intend to refinance any amounts outstanding with our revolving credit facility which matures in 2008 or with other long-term borrowings. Although we intend to renew the loan agreement in May 2005 and do not expect to repay the amounts within the next twelve months, the loan is classified as current because it has a contractual maturity of less than one year. |
| Maturity | Principal | Interest | Total | |||||||||
|
2005
|
$ | 1.7 | $ | 1.2 | $ | 2.9 | ||||||
|
2006
|
0.9 | 1.0 | 1.9 | |||||||||
|
2007
|
0.8 | 0.9 | 1.7 | |||||||||
|
2008
|
0.8 | 0.9 | 1.7 | |||||||||
|
2009
|
0.9 | 0.8 | 1.7 | |||||||||
|
Thereafter
|
8.4 | 4.2 | 12.6 | |||||||||
| $ | 13.5 | $ | 9.0 | $ | 22.5 | |||||||
94
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value of debt and interest rate protection
agreements —
The fair value of our debt and interest rate swap contracts 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 swap contracts 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 (in millions, except percentages):
| Balance at | Fair Value at | Balance at | Fair Value at | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||||
| 2004 | 2004 | 2003 | 2003 | |||||||||||||||
|
Long-Term Debt
|
||||||||||||||||||
|
Fixed Rate Debt:
|
||||||||||||||||||
|
Principal amount
|
$ | 5,894.8 | $ | 5,994.6 | $ | 6,556.0 | $ | 7,079.8 | ||||||||||
|
Weighted average interest rate
|
7.61 | % | 8.52 | % | ||||||||||||||
|
Variable Rate Debt:
|
||||||||||||||||||
|
Principal amount
|
$ | 1,862.2 | $ | 1,881.8 | $ | 1,678.1 | $ | 1,690.7 | ||||||||||
|
Weighted average interest
rate(1)
|
4.70 | % | 3.58 | % | ||||||||||||||
|
Interest Rate
Swaps(2)
|
||||||||||||||||||
|
Non-Cancelable:
|
||||||||||||||||||
|
Notional amount
|
$ | 250.0 | $ | (1.8 | ) | $ | 2,000.0 | $ | (46.5 | ) | ||||||||
|
Weighted average interest rate
|
5.99 | % | 5.69 | % | ||||||||||||||
| (1) | Reflects the rate in effect as of December 31, 2004 and 2003 before the effects of swaps and includes all applicable margins. Actual future rates may vary. |
| (2) | Amount includes our fixed to floating and floating to fixed interest rate swap contracts. See Note 5 for additional discussion. |
| EBITDA(1)/ | ||||||
| From the Quarter Ending | Through the Quarter Ending | Interest | ||||
| March 31, 2005 | 1.95x | |||||
| September 30, 2005 | 2.00x | |||||
| December 31, 2005 | 2.10x | |||||
| June 30, 2006 | 2.15x | |||||
| September 30, 2006 | 2.20x | |||||
| December 31, 2006 | 2.30x | |||||
| March 31, 2007 | 2.40x | |||||
| June 30, 2007 | 2.45x | |||||
| March 31, 2008 | 2.50x | |||||
| June 30, 2008 | 2.60x | |||||
| September 30, 2008 | 2.70x | |||||
| Thereafter | 2.75x | |||||
95
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maximum Leverage:
| Total Debt/ | ||||||
| From the Quarter Ending | Through the Quarter Ending | EBITDA(1) | ||||
| June 30, 2005 | 5.75x | |||||
| December 31, 2005 | 5.50x | |||||
| June 30, 2006 | 5.25x | |||||
| September 30, 2006 | 5.00x | |||||
| December 31, 2006 | 4.75x | |||||
| December 31, 2007 | 4.50x | |||||
| June 30, 2008 | 4.25x | |||||
| Thereafter | 4.00x | |||||
| (1) | EBITDA, which is a non-GAAP measure, used for covenants is calculated in accordance with the definition in our credit facility agreement. In this context, EBITDA is used solely to provide information on the extent to which we are in compliance with debt covenants. |
96
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The $275 million 6.375% Senior Notes due 2011, January
2004 Senior Notes, 2003 Senior Notes, 2002 Senior Notes, 2001
Senior Notes, 1998 Senior Notes and $690 million of senior
notes and debentures assumed from BFI are secured by the stock
of substantially all of BFI subsidiaries along with certain
other Allied subsidiaries and a security interest in the assets
of BFI, its domestic subsidiaries and certain other Allied
subsidiaries. In accordance with the Securities and Exchange
Commission’s (SEC) Rule 3-16 of
Regulation S-X, separate financial statements for BFI are
presented under Item 15 of our Annual Report on
Form 10-K for the year ended December 31, 2004.
Following is a summary of the balance sheets for BFI and the
other Allied subsidiaries that serve as collateral as of
December 31, 2004 (in millions):
| Other Allied | |||||||||||||
| BFI | Collateral(2) | Combined | |||||||||||
|
Condensed Balance
Sheet(1):
|
|||||||||||||
|
Current assets
|
$ | 171.8 | $ | 190.1 | $ | 361.9 | |||||||
|
Property and equipment, net
|
937.9 | 709.4 | 1,647.3 | ||||||||||
|
Goodwill, net
|
3,439.4 | 2,934.5 | 6,373.9 | ||||||||||
|
Other assets, net
|
118.2 | 10.5 | 128.7 | ||||||||||
|
Total assets
|
$ | 4,667.3 | $ | 3,844.5 | $ | 8,511.8 | |||||||
|
Current liabilities
|
$ | 562.3 | $ | 242.4 | $ | 804.7 | |||||||
|
Long-term debt, less current portion
|
5,934.0 | 7.3 | 5,941.3 | ||||||||||
|
Other long-term obligations
|
747.5 | 42.4 | 789.9 | ||||||||||
|
Due from
(to) parent(2)
|
(906.8 | ) | 1,727.3 | 820.5 | |||||||||
|
Total stockholder’s equity
(deficit)
|
(1,669.7 | ) | 1,825.1 | 155.4 | |||||||||
|
Total liabilities and
stockholder’s equity (deficit)
|
$ | 4,667.3 | $ | 3,844.5 | $ | 8,511.8 | |||||||
| (1) | All transactions between BFI and the Other Allied collateral have been eliminated. |
| (2) | Amounts do not include income tax provision which would be an allocation from Allied and reflected in Due to Parent. |
| 5. | Derivative Instruments and Hedging Activities |
97
98
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2004, a liability of $1.8 million is
included in the consolidated balance sheets in other long-term
obligations reflecting the fair market value of our entire
interest rate swap portfolio on that date. The liability will
fluctuate with market interest rates but will reduce to zero
over the term of our interest rate swap contract. The
$1.8 million liability at December 31, 2004 relates to
a contract maturing in March 2005. Fair value variations over
the life of the interest rate swap contracts arise from changes
in market expectations of future interest rates and the time
value of money.
On December 31, 2001, we de-designated $1.5 billion of
notional amount of then outstanding interest rate swap contracts
due to the possibility that future interest rate payments on the
underlying variable rate debt may cease prior to the expiration
of the related interest rate swap contracts. There were no
de-designated interest rate swap contracts prior to
December 31, 2001. No additional interest rate swap
contracts were de-designated after 2001. All of our
de-designated interest rate swap contracts had reached their
contractual maturity by June 30, 2004, and therefore, no
mark-to-market or settlement income or expense was recorded
during the last half of 2004 for these swap contracts.
Designated interest rate swap contracts —
At December 31, 2004, we had a designated interest rate
swap contract (floating to fixed rate) with a notional amount of
$250 million maturing in March 2005. The fair value
liability of this contract at December 31, 2004 was
$1.8 million. Our designated cash flow interest rate swap
contract is effective as a hedge of our variable rate debt. 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
achieving 100% effectiveness. If significant terms do not match
we will assess any ineffectiveness and any ineffectiveness is
immediately recorded in interest expense in our statement of
operations.
Changes in fair value of our designated interest rate swap
contracts are reflected in accumulated other comprehensive loss
(AOCL). At December 31, 2004, a loss of approximately
$1.8 million ($1.3 million, net of tax) is included in
AOCL.
Expense or income related to swap settlements is recorded in
interest expense for the related variable rate debt over the
term of the agreements.
Non-hedge accounting interest rate swap
contracts —
We have had certain interest rate swap contracts that we have
de-designated or elected not to apply hedge accounting to under
SFAS 133. We have elected to not apply hedge accounting to
allow us to have flexibility to repay debt prior to maturity and
to refinance debt when economically feasible. Following is a
description of the accounting for these interest rate swap
contracts.
De-designated interest rate swap contracts. At
December 31, 2004 we had no de-designated interest rate
swap contracts (floating to fixed rate). All of our
de-designated interest rate swap contracts had reached their
contractual maturity by June 30, 2004 and therefore no
amounts were recorded during the last half of 2004 for these
swap contracts. Settlement payments and periodic changes in
market values of our de-designated interest rate swap contracts
are recorded as a gain or loss on derivative contracts included
in interest expense and other in our consolidated statement of
operations. We recorded $15.2 million of net gain related
to changes in market values and $15.3 million of settlement
costs during the first six months of 2004. We recorded
$47.1 million and $2.4 million of net gain related to
changes in market values and $51.9 million and
$59.6 million of settlement costs during the year ended
December 31, 2003 and 2002, respectively.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
When interest rate swap hedging relationships are de-designated
or terminated, any accumulated gains or losses in our AOCL at
the time of de-designation are isolated and amortized over the
remaining original hedged interest payment. For contracts
de-designated, the total amount of loss in AOCL was
approximately $29.8 million ($18.1 million, net of
tax) at December 31, 2002, $6.7 million
($4.3 million, net of tax) at December 31, 2003 and no
balance remaining in AOCL at December 31, 2004. For the
years ended December 31, 2004, 2003 and 2002, we recorded
$6.7 million, $23.1 million and $35.4 million,
respectively, of amortization expense related to the accumulated
losses in AOCL for interest rate swap contracts that were
de-designated at December 31, 2001. The amortization
expense is recorded in interest expense and other. There are no
amounts in AOCL for de-designated contracts at December 31,
2004.
Fair value interest rate swap contracts. During 2004 and
2003, we used fair value interest rate swap contracts (fixed
rate to floating rate) to achieve our targeted mix of fixed and
floating rate debt and we elected not to apply hedge accounting
to these contracts. In the fourth quarter of 2004, we terminated
the outstanding contracts and at December 31, 2004, we had
no fair value interest rate swap contracts outstanding.
Settlement payments and periodic changes in market values of our
fair value interest rate swap contracts are recorded as a gain
or loss on derivative contracts included in interest expense and
other in our statement of operations. We recorded
$1.0 million and $0.9 million of net gain related to
changes in market values and received net settlements of
$6.8 million and $1.1 million during the year ended
December 31, 2004 and 2003, respectively. We had no fair
value interest rate swap contracts in place during 2002.
6.
Accumulated Other Comprehensive Loss
The components of the ending balances of accumulated other
comprehensive loss, as reflected in stockholders’ equity
are shown as follows (in millions):
| December 31, | December 31, | |||||||
| 2004 | 2003 | |||||||
|
Minimum pension liability
adjustment, net of taxes of $45.5 and $47.2
|
$ | (68.1 | ) | $ | (70.7 | ) | ||
|
Interest rate swap contracts
designated, unrealized loss, net of taxes of $0.5 and $12.5
|
(1.3 | ) | (19.5 | ) | ||||
|
Interest rate swap contracts
de-designated, unrealized loss, net of taxes of $2.4
|
— | (4.3 | ) | |||||
|
Accumulated other comprehensive loss
|
$ | (69.4 | ) | $ | (94.5 | ) | ||
| 7. | Landfill Accounting |
99
100
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and the amortization of these costs is based instead on the
costs and capacity of the specific capping event.
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) and capping, closure and
post-closure cost estimates for each landfill. Additionally,
future capacity estimates (sometimes referred to as airspace)
are updated annually using third-party surveys of each landfill
to estimate utilized disposal capacity and remaining disposal
capacity. The overall cost and capacity estimates are reviewed
and approved by senior operations management annually.
Change in accounting principle —
Effective January 1, 2003, we adopted SFAS No. 143,
Accounting for Asset Retirement Obligations
(SFAS 143) which outlines standards for accounting for our
landfill retirement obligations that have historically been
referred to as closure and post-closure. SFAS 143 did not
change the basic accounting principles that the waste industry
has historically followed for accounting for these types of
obligations. In general, the industry has followed the
accounting practice of recognizing a liability on the balance
sheet and related expense as waste is disposed at the landfill
to match operating costs with revenues.
SFAS 143 resulted in a refinement to our industry practices
and caused a change in the mechanics of calculating landfill
retirement obligations and the classification of where amounts
are recorded in the financial statements. Landfill retirement
obligations are no longer accrued through a provision to cost of
operations, but rather by an increase to landfill assets.
Liabilities retained from divested landfills that were
historically accounted for in closure and post-closure
liabilities were reclassified to other long-term obligations
because they were not within the scope of SFAS 143. In
addition, in accordance with SFAS 143, we changed the
classification of certain costs related to capping, closure and
post-closure obligations to other accounts. The most significant
change in classification is that we now record the costs for
methane gas collection systems in the landfill development
assets rather than accrue for those costs as part of the
post-closure liability. Further, the cost of financial assurance
instruments are no longer accrued as part of the post-closure
liability, but rather are expensed as incurred. Under
SFAS 143, each capping event at a landfill is accounted for
separately. Previously, the estimated costs of all capping
events were included in our landfill closure and post-closure
accrual rate.
Upon adoption, SFAS 143 required a cumulative change in
accounting for landfill obligations retroactive to the date the
landfill operations commenced or the date the asset was
acquired. To do this, SFAS 143 required the creation of the
related landfill asset, net of accumulated amortization and an
adjustment to the capping, closure and post-closure liabilities
for cumulative accretion.
At January 1, 2003, we recorded a cumulative effect of a
change in accounting principle of a net gain of approximately
$29.0 million (net of income tax expense of
$19.4 million). In addition, we recorded a decrease in our
capping, closure and post-closure liabilities of approximately
$100.4 million, an increase in other long-term obligations
of approximately $26.9 million, and a decrease in our net
landfill assets of approximately $25.1 million.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the balance sheet changes for landfill
assets and capping, closure and post-closure liabilities at
January 1, 2003 (in millions):
| Balance at | Balance at | |||||||||||
| December 31, | January 1, | |||||||||||
| 2002 | Change | 2003 | ||||||||||
|
Landfill assets
|
$ | 2,531.3 | $ | 409.5 | $ | 2,940.8 | ||||||
|
Accumulated amortization
|
(657.8 | ) | (434.6 | ) | (1,092.4 | ) | ||||||
|
Net landfill assets
|
$ | 1,873.5 | $ | (25.1 | ) | $ | 1,848.4 | |||||
|
Capping, closure, and post-closure
liabilities
|
$ | 594.2 | $ | (100.4 | ) | $ | 493.8 | |||||
| Net Book | ||||||||||||||||||||||||||
| Value of | Capping, | |||||||||||||||||||||||||
| Landfills | Landfill | Closure and | ||||||||||||||||||||||||
| Net Book Value at | Acquired, net of | Development | Post-Closure | Landfill | Net Book Value at | |||||||||||||||||||||
| December 31, 2003 | Divestitures | Costs | Accruals | Amortization | Other(1) | December 31, 2004 | ||||||||||||||||||||
| $ | 1,966.5 | 16.6 | 292.3 | 46.8 | (256.8 | ) | 24.4 | $ | 2,089.8 | |||||||||||||||||
| (1) | Relates primarily to amounts transferred from land or land held for permitting as landfills to landfill (for projects that have met the criteria for probable expansion during 2004). |
| 1. | We have 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). |
101
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 have 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 disposal capacity are considered in
the life-cycle cost of the landfill and reflected in the
calculation of the amortization rate and the rate at which
capping, closure and post-closure is accrued.
We, together with our engineering and legal consultants,
continually monitor the progress of obtaining local, state and
federal approval for each of our expansion permits. If it is
determined that the expansion no longer meets our criteria, the
disposal capacity is removed from our total available disposal
capacity; the costs to develop that disposal capacity; and, the
associated capping, closure and post-closure costs are removed
from the landfill amortization base, and rates are adjusted
prospectively. In addition, any value assigned to probable
expansion capacity is written-off to expense during the period
in which it is determined that the criteria are no longer met.
Capping, closure and post-closure —
In addition to our portfolio of 166 active landfills, we own or
have responsibility for 113 closed landfills no longer accepting
waste. As individual areas within each landfill reach capacity,
we are required to cap and close the areas in accordance with
the landfill site permit. Generally, capping activities include
the installation of compacted clay, geosynthetic liners,
drainage channels, compacted soil layers and vegetative soil
barriers over areas of a landfill where total airspace has been
consumed and waste is no longer being received. Capping
activities occur throughout the life of the landfill.
Closure costs are those costs incurred after a landfill site
stops receiving waste, but prior to being certified as closed.
After the entire landfill site has reached capacity and is
closed, we are required to maintain and monitor the site for a
post-closure period, which generally extends for a period of
30 years. Post-closure requirements include maintenance and
operational costs of the site and monitoring the methane gas
collection systems and groundwater systems, among other
post-closure activities. Estimated costs for capping, closure
and post-closure as required under Subtitle D regulations are
compiled and updated annually for each landfill by local and
regional company engineers. The following table is a summary of
the capping, closure and post-closure costs (in millions):
| December 31, | |||||
| 2004 | |||||
|
Discounted Capping, Closure and
Post-Closure Liability Recorded:
|
|||||
|
Current Portion
|
$ | 71.4 | |||
|
Non-Current Portion
|
557.8 | ||||
|
Total
|
$ | 629.2 | |||
102
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated Remaining Capping, Closure and Post-Closure Costs to
be Expended (in millions):
|
2005
|
$ | 71.4 | ||
|
2006
|
73.5 | |||
|
2007
|
68.7 | |||
|
2008
|
70.9 | |||
|
2009
|
72.9 | |||
|
Thereafter
|
2,815.1 | |||
|
Estimated Remaining Undiscounted
Capping, Closure and Post-Closure Costs to be Expended
|
$ | 3,172.5 | ||
|
Estimated Remaining Discounted
Capping, Closure and Post-Closure Costs to be Expended
|
$ | 1,017.1 | ||
103
104
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
calculate each layer of the recorded liability. Accretion
expense on recorded landfill liabilities is recorded to cost of
operations from the time the liability is recognized until the
costs are paid.
We charged to cost of operations approximately
$48.0 million and $44.3 million, or an average of
$0.61 and $0.58 per ton consumed, related to accretion of
the capping, closure and post-closure liabilities during the
years ended December 31, 2004 and 2003, respectively.
Accretion expense for the year ended December 31, 2002
would have been $42.1 million, or an average of
$0.58 per ton consumed, if we would have been accounting
for capping, closure and post-closure obligations under
SFAS 143 since January 1, 2002. Changes in estimates
of costs or disposal capacity are treated on a prospective basis
except for fully incurred capping events and closed landfills
which are recorded immediately in results of operations.
Landfill maintenance costs —
Daily maintenance costs incurred during the operating life of
the landfill are expensed to cost of operations as incurred.
Daily maintenance costs include leachate treatment and disposal,
methane gas and groundwater system monitoring and maintenance,
interim cap maintenance, environmental monitoring and costs
associated with the application of daily cover materials.
Financial assurance costs —
Costs of financial assurances related to our capping, closure
and post-closure obligations for open and closed landfills are
expensed to cost of operations as incurred.
Environmental costs —
We engage third-party environmental consulting firms to assist
us in conducting environmental assessments of existing landfills
or other properties, and in connection with companies acquired
from third parties.
We cannot determine with precision the ultimate amounts for
environmental liabilities. We make estimates of our potential
liabilities in consultation with our third-party environmental
engineers and legal counsel. These estimates 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.
Our ultimate liabilities for environmental matters may differ
from the estimates used in our assessment to date. We
periodically evaluate the recorded liabilities as additional
information becomes available to ascertain whether the accrued
liabilities are adequate. We have determined that the recorded
undiscounted liability for environmental matters as of
December 31, 2004 and 2003 of approximately
$304.8 million and $337.4 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, 2004 or December 31, 2003. 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
capping, closure and post-closure costs could result in
approximately $20 million of additional liability.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the activity and balances related to
environmental accruals and for capping, closure and post-closure
accruals related to open and closed landfills from
December 31, 2001 through December 31, 2004 (in
millions):
| Balance at | Charges to | Other | Balance at | |||||||||||||||||
| 12/31/01 | Expense | Charges(1) | Payments | 12/31/02 | ||||||||||||||||
|
Environmental accruals
|
$ | 395.4 | $ | — | $ | (2.5 | ) | $ | (27.8 | ) | $ | 365.1 | ||||||||
|
Open landfills capping, closure and
post-closure accruals
|
343.1 | 54.7 | (14.9 | ) | (46.7 | ) | 336.2 | |||||||||||||
|
Closed landfills capping, closure
and post-closure accruals
|
265.8 | 15.8 | 6.6 | (30.2 | ) | 258.0 | ||||||||||||||
|
Total
|
$ | 1,004.3 | $ | 70.5 | $ | (10.8 | ) | $ | (104.7 | ) | $ | 959.3 | ||||||||
| Balance at | Charges to | Other | Balance at | |||||||||||||||||
| 12/31/02 | Expense | Charges(1) | Payments | 12/31/03 | ||||||||||||||||
|
Environmental accruals
|
$ | 365.1 | $ | — | $ | (2.8 | ) | $ | (24.9 | ) | $ | 337.4 | ||||||||
|
Open landfills capping, closure and
post-closure accruals
|
336.2 | 28.0 | 31.3 | (19.1 | ) | 376.4 | ||||||||||||||
|
Closed landfills capping, closure
and post-closure accruals
|
258.0 | 16.3 | (71.7 | ) | (31.1 | ) | 171.5 | |||||||||||||
|
Total
|
$ | 959.3 | $ | 44.3 | $ | (43.2 | ) | $ | (75.1 | ) | $ | 885.3 | ||||||||
| Balance at | Charges to | Other | Balance at | |||||||||||||||||
| 12/31/03 | Expense | Charges(1) | Payments | 12/31/04 | ||||||||||||||||
|
Environmental accruals
|
$ | 337.4 | $ | — | $ | (0.8 | ) | $ | (31.8 | ) | $ | 304.8 | ||||||||
|
Open landfills capping, closure and
post-closure accruals
|
376.4 | 32.6 | 31.4 | (29.8 | ) | 410.6 | ||||||||||||||
|
Closed landfills capping, closure
and post-closure accruals
|
171.5 | 15.4 | 60.5 | (28.8 | ) | 218.6 | ||||||||||||||
|
Total
|
$ | 885.3 | $ | 48.0 | $ | 91.1 | $ | (90.4 | ) | $ | 934.0 | |||||||||
| (1) | Amounts consist primarily of liabilities related to acquired and divested companies, and the cumulative effect of change in accounting principle related to the adoption of SFAS 143 (2003 only) and additions of capping, closure and post-closure liabilities recorded to landfill assets during the period. In 2003 and prior years, liabilities and receivables associated with two closed landfills capping, closure and post-closure obligations that were insured or funded in state regulated trusts were reported as a net value. During 2004, both the receivable and the liability are separately stated. |
| 8. | Employee Benefit Plans |
105
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(San Mateo Pension Plan) were merged into one plan.
However, benefits continue to be determined under each of the
two separate benefit structures. The BFI Pension Plan was
amended on July 30, 1999 to freeze future credited service,
but interest credits continue to accrue. The benefits not frozen
under this plan are based on years of service and the
employee’s compensation. The BFI Pension Plan utilized a
cash balance design.
The San Mateo Pension Plan covers substantially all employees at
this location, but excludes employees who are covered under
collective bargaining agreements under which benefits have been
the subject of good faith bargaining, unless the collective
bargaining agreement otherwise provides for such coverage.
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. The San Mateo Pension Plan was amended in July 2003 to
provide unreduced benefits, under certain circumstances, to
participants who retire on or after January 1, 2004, at or
after a special early retirement date.
Our general funding policy is to make annual contributions to
the plan as determined to be required by the plan’s actuary
and as required by the Employee Retirement Income Security Act
(ERISA). No contributions were required during 2004, 2003, or
2002. No contributions are anticipated for 2005.
Actuarial valuation reports were prepared as of the measurement
dates of September 30, 2004 and 2003, and used as permitted
by SFAS No. 132R, Employers’ Disclosures about
Pensions and Other Postretirement Benefits, for disclosures
included in the tables below.
The following table provides a reconciliation of the changes in
the plan’s benefit obligations and the fair value of plan
assets for the twelve month period ended September 30 (in
millions):
| 2004 | 2003 | |||||||
|
Projected benefit obligation at
beginning of period
|
$ | 338.2 | $ | 299.2 | ||||
|
Service cost
|
0.8 | 0.9 | ||||||
|
Interest cost
|
20.6 | 19.9 | ||||||
|
Amendment costs
|
— | 2.0 | ||||||
|
Curtailment loss
|
1.1 | — | ||||||
|
Actuarial loss
|
8.2 | 28.0 | ||||||
|
Benefits paid
|
(15.9 | ) | (11.8 | ) | ||||
|
Projected benefit obligation at end
of period
|
$ | 353.0 | $ | 338.2 | ||||
|
Fair value of plan assets at
beginning of period
|
$ | 317.4 | $ | 277.6 | ||||
|
Actual return on plan assets
|
37.9 | 51.6 | ||||||
|
Benefits paid
|
(15.9 | ) | (11.8 | ) | ||||
|
Fair value of plan assets at end of
period
|
$ | 339.4 | $ | 317.4 | ||||
|
Funded status
|
$ | (13.6 | ) | $ | (20.8 | ) | ||
|
Unrecognized net actuarial loss
|
115.8 | 123.6 | ||||||
|
Unrecognized prior service cost
|
0.8 | 2.1 | ||||||
|
Prepaid pension asset
|
$ | 103.0 | $ | 104.9 | ||||
106
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides the amounts recognized in the
consolidated balance sheets as of December 31 (in millions):
| 2004 | 2003 | |||||||
|
Prepaid pension asset
|
$ | 103.0 | $ | 104.9 | ||||
|
Accrued benefit liability
|
(114.4 | ) | (120.0 | ) | ||||
|
Net pension liability
|
(11.4 | ) | (15.1 | ) | ||||
|
Intangible assets
|
0.8 | 2.0 | ||||||
|
Accumulated other comprehensive
loss before tax benefit
|
113.6 | 118.0 | ||||||
|
Net amount recognized
|
$ | 103.0 | $ | 104.9 | ||||
| 2004 | 2003 | 2002 | ||||||||||
|
Service cost
|
$ | 0.8 | $ | 0.9 | $ | 0.9 | ||||||
|
Interest cost
|
20.6 | 19.9 | 19.3 | |||||||||
|
Expected return on plan assets
|
(28.0 | ) | (25.9 | ) | (30.4 | ) | ||||||
|
Recognized net actuarial loss
|
7.2 | 8.3 | 2.0 | |||||||||
|
Amortization of prior service cost
|
0.1 | 0.1 | — | |||||||||
|
Curtailment loss
|
1.1 | — | — | |||||||||
|
Net periodic benefit cost (income)
|
$ | 1.8 | $ | 3.3 | $ | (8.2 | ) | |||||
| 2004 | 2003 | 2002 | ||||||||||
|
Increase (decrease) in minimum
pension liability included in other comprehensive income, net of
tax
|
$ | (2.6 | ) | $ | (4.0 | ) | $ | 74.8 | ||||
|
Actual return on plan assets
|
$ | 37.8 | $ | 51.6 | $ | (14.7 | ) | |||||
|
Actual rate of return on plan assets
|
11.9 | % | 19.0 | % | (4.8 | )% | ||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Discount rate
|
6.00 | % | 6.25 | % | 6.75 | % | ||||||
|
Average rate of compensation
increase
|
4.00 | % | 4.00 | % | 4.00 | % | ||||||
|
Expected return on plan assets
|
8.50 | % | 9.00 | % | 9.50 | % | ||||||
107
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of historical actual performance and long-term return
projections from our investment managers, which give
consideration to our asset mix and anticipated length of
obligation of our plan.
We employ a total return investment approach whereby a mix of
equities and fixed income investments are used to maximize the
long-term return of plan assets for a prudent level of risk. The
intent of this strategy is to minimize plan expenses by
outperforming plan liabilities over the long run. Risk tolerance
is established through careful consideration of plan
liabilities, plan funded status, and corporate financial
condition. The investment portfolio contains a diversified blend
of equity and fixed income investments. Furthermore, equity
investments are diversified across U.S. and non-U.S. stocks
as well as growth, value, and small and large capitalizations.
Derivatives may be used to gain market exposure in an efficient
and timely manner; however, derivatives may not be used to
leverage the portfolio beyond the market value of the underlying
investments. Historically, we have not invested in derivative
instruments in our investment portfolio. Investment risk is
measured and monitored on an ongoing basis through annual
liability measurements, periodic asset/liability studies, and
quarterly investment portfolio reviews.
The following table summarizes our plan asset allocation at
September 2004 and 2003, target allocation for 2005, and
expected long-term rate of return by asset category for calendar
year 2004:
| Percentage of | |||||||||||||||||
| Plan Assets at | |||||||||||||||||
| Target | September 30, | Weighted Average Expected | |||||||||||||||
| Allocation | Long-Term Rate of Return for | ||||||||||||||||
| 2005 | 2004 | 2003 | Calendar Year 2004 | ||||||||||||||
|
Equity securities
|
60 | % | 62 | % | 61 | % | 10.2 | % | |||||||||
|
Debt securities
|
40 | % | 38 | % | 39 | % | 7.1 | % | |||||||||
|
Total
|
100 | % | 100 | % | 100 | % | 9.0 | % | |||||||||
|
Benefit payments:
|
||||
|
2003
|
$ | 11.8 | ||
|
2004
|
15.9 | |||
|
Estimated future payments:
|
||||
|
2005
|
$ | 10.2 | ||
|
2006
|
10.7 | |||
|
2007
|
11.4 | |||
|
2008
|
11.7 | |||
|
2009
|
12.4 | |||
|
Years 2010 — 2014
|
77.7 | |||
108
109
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
years of service with the Company must equal at least 63 and
(b) the executive must have completed at least 5 to
20 years of service with the Company. Executives who meet
these and certain other requirements of their agreements will be
entitled to maximum retirement payments for each year during the
ten years following retirement in an amount equal to 60% of
their average base salary during the three consecutive full
calendar years of employment immediately preceding the date of
retirement.
The net periodic benefit cost for this plan, recorded in
selling, general and administrative expenses was
$3.0 million and $0.5 million in 2004 and 2003,
respectively. The benefit cost in 2004 includes amortization of
prior service costs of $2.1 million and a curtailment gain
of $0.6 million related to one executive leaving the plan
during the year. The projected benefit obligation at
December 31, 2004 and 2003 was $15.2 million and
$1.8 million, respectively. The accumulated benefit
obligation at December 31, 2004 and 2003 was
$12.1 million and $1.7 million, respectively. The
primary difference between the projected benefit obligation and
the accumulated benefit obligation is that the projected benefit
obligation includes assumptions about future compensation levels
and the accumulated benefit obligation does not. During 2004,
additions of participants to the SERP increased the obligation
by $14.9 million and the termination of one executive
reduced the obligation by $4.0 million. The SERP is not
funded. At December 31, 2004, we have an accrued liability
for the SERP in the amount of $3.5 million and a minimum
liability and intangible asset in the amount of
$8.6 million recorded on our consolidated balance sheet.
Actuarial assumptions used in the measurement of the obligation
and expense include a discount rate of 6.0% and 6.25% and an
average rate of compensation increase of 3% for
December 31, 2004 and 2003, respectively. Estimated
payments under the plan are approximately $0.4 million in
2005, 2006, and 2007 and approximately $0.6 million in 2008
and 2009. Payments for 2010 through 2014 are anticipated to
total approximately $5.0 million.
401k Plan —
We sponsor the Allied Waste Industries, Inc. 401(k) Plan (401(k)
Plan) a defined contribution plan, which is available to all
eligible employees except those represented under collective
bargaining agreements where benefits have been the subject of
good faith bargaining. Eligible employees may contribute up to
25% of their annual compensation on a pre-tax basis.
Participants’ contributions are subject to certain
restrictions as set forth in the Internal Revenue Code. We match
in cash 50% of employee contributions, up to the first 5% of the
employee’s compensation which is deferred.
Participant’s contributions vest immediately, and the
employer contributions vest in increments of 20% based upon
years of service. Our matching contributions totaled
$9.1 million, $9.4 million, and $9.4 million for
fiscal years 2004, 2003, and 2002, respectively.
Long-Term Incentive Plan —
Effective January 1, 2003, the Management
Development/Compensation Committee of the Board of Directors
granted new long-term performance incentive awards to key
members of management for the fiscal 2003-2004 and 2003-2005
performance periods. On February 17, 2005, incentive goals
and awards were established for the 2005-2007 performance
period. Such awards are intended to provide continuing emphasis
on specified performance goals that the Management Development/
Compensation Committee considers to be important contributors to
long-term stockholder value.
The awards are payable only if we achieve specified performance
goals. The performance goals set by the Management
Development/Compensation Committee may be based upon the metrics
reflecting one or more of the following business measurements:
earnings, cash flow, revenues, financial return ratios, debt
reduction, risk management, customer satisfaction, and total
stock-
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
holder returns, any of which may be measured either in absolute
terms or as compared with another company or companies or with
prior periods. Under certain circumstances, the Management
Development/Compensation Committee has the discretion to adjust
the performance goals that are set for a performance period.
We record an accrual for the award to be paid in the period
earned based on anticipated achievement of the performance
goals. All awards are forfeited if the participant voluntarily
terminates employment or is discharged for cause. Participants
may be given the opportunity to elect to receive some or all of
any payment in the form of shares of our common stock.
9.
Preferred Stock
At December 31, 2004, we had 10 million shares of
preferred stock authorized.
Mandatory Convertible Preferred Stock —
On April 9, 2003, we issued 6.9 million shares of
Series C Mandatory Convertible Preferred Stock
(Series C Preferred Stock), par value $0.10 at $50 per
share, through a public offering for net proceeds of
approximately $333 million. The Series C Preferred
Stock has a dividend rate of 6.25%. The Series C Preferred
Stock is mandatorily convertible on April 1, 2006. On the
conversion date, each share of Series C Preferred Stock
will automatically convert into shares of common stock based on
the following conversion table:
| Applicable Market Value of Common Shares | Conversion Rate | |||
|
Less than or equal to $8.30
|
6.02:1 | |||
|
Between $8.30 and $10.13
|
6.02:1 to 4.94:1 | |||
|
Equal to or greater than $10.13
|
4.94:1 | |||
110
111
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The preferred stock had a redemption price of its then
liquidation preference per share, together with any accrued and
unpaid dividends. Redemption of the Preferred Stock was at our
option in whole, but not in part, at any time on or after
July 30, 2004. We had 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 exceeded
$27 per share.
The preferred shareholders, who were represented by members of
our Board of Directors who were also holders of common stock,
had 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 were required to make an offer to purchase for cash
all shares of Preferred Stock at 101% of liquidation preference
plus accrued but unpaid dividends.
From its issuance through December 18, 2003, approximately
$326.9 million or $327 per share had been added to the
liquidation preference of the preferred stock for accrued but
unpaid dividends.
On December 18, 2003, we exchanged the Series A
Preferred Stock outstanding for 110.5 million shares of our
common stock. The Series A Preferred Stock had a stated
value of $1.327 billion at December 18, 2003, the
exchange date, which represented the original issuance amount
plus cumulative accrued and unpaid dividends.
The terms of the exchange were approved by a special committee
of disinterested directors of our Board of Directors and were
approved by the full Board of Directors. The special committee
was advised by an independent financial advisor in connection
with this transaction. The completion of this transaction was
subject to certain approvals, including approval by our
shareholders. We obtained shareholder approval at a special
meeting of the shareholders held on December 18, 2003.
Under the terms of the exchange agreement, the holders of the
Series A Preferred Stock were restricted from selling the
shares of common stock they receive for one year from the
exchange date.
Due to the change in the original conversion terms, we were
required to quantify the accounting effect of the change in
conversion terms and reduce net income available to common
shareholders by the corresponding amount. Accordingly, we
recorded a non-cash conversion charge of $496.6 million,
which was reflected as a reduction to net income available to
common shareholders, but had no effect on total
stockholders’ equity because offsetting amounts were
recorded to additional paid-in capital. The non-cash conversion
charge was calculated as the market value of the shares of our
common stock issued in excess of the shares of common stock that
the holders of the Series A Preferred Stock could have
converted into under the original terms of the Series A
Preferred Stock. The market value was based on the closing price
of our common stock on the date shareholder approval was
obtained.
10.
Stockholders’ Equity
We had 525 million shares of Allied common stock authorized
at December 31, 2004. The par value of these shares is
$0.01.
On April 9, 2003, we issued 12,048,193 shares of
common stock, par value $0.01, through a public offering for net
proceeds of approximately $94 million. On December 18,
2003, we issued 110.5 million shares of common stock in
exchange for all of the outstanding Series A Preferred
Stock.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the activity and balances related to
our common stock, (net of treasury shares of 0.7 million in
2004 and 0.6 million in 2003 and 2002) for the years ended
December 31 (in millions):
| 2004 | 2003 | 2002 | ||||||||||
|
Balance at beginning of year
|
320.1 | 196.2 | 196.2 | |||||||||
|
Common stock issued, net
|
(4.1 | ) | 122.6 | (0.3 | ) | |||||||
|
Stock options and warrants exercised
|
1.5 | 1.3 | 0.3 | |||||||||
|
Balance at end of year
|
317.5 | 320.1 | 196.2 | |||||||||
| 11. | Stock Plans |
112
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of our stock option plans at
December 31, 2004, 2003 and 2002 and for the years then
ended is presented in the table and narrative below (in
millions):
| Years Ended December 31, | ||||||||||||||||||||||||
| 2004 | 2003 | 2002 | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Exercise | Exercise | Exercise | ||||||||||||||||||||||
| Options | Price | Options | Price | Options | Price | |||||||||||||||||||
|
Options outstanding, beginning of
year
|
20.0 | $ | 12.25 | 19.8 | $ | 12.18 | 16.7 | $ | 12.77 | |||||||||||||||
|
Options granted
|
0.8 | 11.44 | 3.0 | 11.40 | 4.6 | 10.52 | ||||||||||||||||||
|
Options exercised
|
(1.5 | ) | 7.73 | (1.1 | ) | 6.78 | (0.3 | ) | 8.40 | |||||||||||||||
|
Options forfeited or expired
|
(2.6 | ) | 13.55 | (1.7 | ) | 13.35 | (1.2 | ) | 15.17 | |||||||||||||||
|
Options outstanding, end of year
|
16.7 | 12.42 | 20.0 | 12.25 | 19.8 | 12.18 | ||||||||||||||||||
|
Options exercisable, end of year
|
13.4 | 12.76 | 13.9 | 12.70 | 12.2 | 12.48 | ||||||||||||||||||
| Options Outstanding and Exercisable | ||||||||||||||
| Weighted Average | Weighted Average | |||||||||||||
| Range of Exercise Prices | Number Outstanding | Remaining Life | Exercise Price | |||||||||||
| $ 4.27 - $ 9.63 | 1.6 | 4 years | $ | 8.22 | ||||||||||
| $10.00 - $12.25 | 1.3 | 3 years | $ | 10.23 | ||||||||||
| $12.27 - $19.81 | 6.1 | 6 years | $ | 13.59 | ||||||||||
| $20.15 - $26.38 | 1.4 | 4 years | $ | 21.48 | ||||||||||
| Options Outstanding | ||||||||||||||
| Weighted Average | Weighted Average | |||||||||||||
| Range of Exercise Prices | Number Outstanding | Remaining Life | Exercise Price | |||||||||||
| $ 9.03 - $11.00 | 3.7 | 8 years | $ | 10.10 | ||||||||||
| $11.57 - $13.55 | 1.9 | 9 years | $ | 12.27 | ||||||||||
| Options Exercisable | ||||||||||||||
| Weighted Average | Weighted Average | |||||||||||||
| Range of Exercise Prices | Number Outstanding | Remaining Life | Exercise Price | |||||||||||
| $ 9.03 - $11.00 | 2.2 | 8 years | $ | 10.20 | ||||||||||
| $11.57 - $13.55 | 0.8 | 9 years | $ | 12.28 | ||||||||||
113
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Vested:
| Options Outstanding | ||||||||||||||
| Weighted Average | Weighted Average | |||||||||||||
| Range of Exercise Prices | Number Outstanding | Remaining Life | Exercise Price | |||||||||||
| $ 9.03 - $12.06 | 0.3 | 6 years | $ | 9.09 | ||||||||||
| $12.34 - $13.78 | 0.4 | 10 years | $ | 12.69 | ||||||||||
114
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.
Net Income Per Common Share
Net income per common share is calculated by dividing net
income, 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 millions, except per share data):
| For the Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Basic earnings per share
computation:
|
||||||||||||
|
Income from continuing operations
|
$ | 58.0 | $ | 111.2 | $ | 198.3 | ||||||
|
Less: dividends on preferred stock
|
21.6 | 95.6 | 77.9 | |||||||||
|
Less: non-cash conversion of
Series A preferred stock
|
— | 496.6 | — | |||||||||
|
Income (loss) from continuing
operations available to common shareholders
|
$ | 36.4 | $ | (481.0 | ) | $ | 120.4 | |||||
|
Weighted average common shares
outstanding
|
315.0 | 203.8 | 190.2 | |||||||||
|
Basic earnings (loss) per share
from continuing operations
|
$ | 0.12 | $ | (2.36 | ) | $ | 0.63 | |||||
|
Diluted earnings per share
computation:
|
||||||||||||
|
Income from continuing operations
|
$ | 58.0 | $ | 111.2 | $ | 198.3 | ||||||
|
Less: dividends on preferred stock
|
21.6 | 95.6 | 77.9 | |||||||||
|
Less: non-cash conversion of
Series A preferred stock
|
— | 496.6 | — | |||||||||
|
Income (loss) from continuing
operations available to common shareholders
|
$ | 36.4 | $ | (481.0 | ) | $ | 120.4 | |||||
|
Weighted average common shares
outstanding
|
315.0 | 203.8 | 190.2 | |||||||||
|
Dilutive effect of stock, stock
options, warrants and contingently issuable shares
|
4.7 | — | 3.3 | |||||||||
|
Weighted average common and common
equivalent shares outstanding
|
319.7 | 203.8 | 193.5 | |||||||||
|
Diluted earnings (loss) per share
from continuing operations
|
$ | 0.11 | $ | (2.36 | ) | $ | 0.62 | |||||
| For the Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Series A preferred stock
|
— | 68.5 | 66.5 | |||||||||
|
Series C preferred stock
|
38.2 | 24.8 | — | |||||||||
|
Stock options
|
9.8 | 11.7 | 14.6 | |||||||||
|
Senior subordinated convertible
debentures
|
7.8 | — | — | |||||||||
| 13. | Income Taxes |
115
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets, other than non-deductible goodwill, and liabilities. The
differences are measured using the income tax rate in effect
during the year of measurement.
We have federal net operating losses of $481.9 million,
with an estimated tax effect of $168.7 million, available
at December 31, 2004. 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,
2004 that we expect will generate future tax savings of
approximately $142 million. The state net operating losses
will expire at various times between 2005 and 2024 if not used.
We have established a valuation allowance of $107.1 million
for the possibility that some of these state carryforwards may
not be used. The $15.4 million increase in the valuation
allowance in 2004 reflects a $21.9 million increase due to
state net operating loss carryforward benefits in 2004 and a
$19.5 million increase in the valuation allowance
reflecting a reduction in our assessment of utilization due to
changes in estimates, both partially offset by a
$26.0 million decrease in the valuation allowance due to
our decision to implement a change in our legal entity structure
which reduced our available state net operating loss benefits
and increased our assessment of utilization. In addition to the
net operating loss carryforwards, we have federal minimum tax
and other credit carryforwards of approximately
$11.9 million as of December 31, 2004, which are not
subject to expiration.
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 goodwill. The valuation
allowance at December 31, 2004 includes approximately
$26.9 million related to the BFI acquisition, the
subsequent reduction of which would result in an adjustment to
goodwill.
The components of the income tax provision consist of the
following (in millions):
| Year Ended December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Current tax provision (benefit)
|
$ | 25.3 | $ | 18.1 | $ | (0.1 | ) | |||||
|
Deferred provision
|
46.9 | 70.6 | 165.7 | |||||||||
|
Total
|
$ | 72.2 | $ | 88.7 | $ | 165.6 | ||||||
| Year Ended | ||||||||||||
| December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Federal statutory tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
Consolidated state taxes, net of
federal benefit
|
7.2 | 6.0 | 6.1 | |||||||||
|
Interest on tax contingency, net of
tax benefit
|
8.3 | 3.1 | 2.4 | |||||||||
|
Non-deductible write-off of
goodwill and business combination costs
|
0.9 | 0.2 | 3.3 | |||||||||
|
Other permanent differences
|
4.1 | 0.1 | (1.3 | ) | ||||||||
|
Effective tax rate
|
55.5 | % | 44.4 | % | 45.5 | % | ||||||
116
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax asset
(liability) are as follows (in millions):
| December 31, | ||||||||
| 2004 | 2003 | |||||||
|
Deferred tax liability relating
primarily to basis differences in landfills, fixed assets and
other assets
|
$ | (611.3 | ) | $ | (612.9 | ) | ||
|
Deferred tax assets relating to:
|
||||||||
|
Environmental, capping, closure and
post-closure reserves
|
199.3 | 238.6 | ||||||
|
Other reserves
|
93.1 | 69.3 | ||||||
|
Net operating loss and minimum tax
credit carryforwards
|
322.6 | 349.0 | ||||||
|
Valuation allowance
|
(107.1 | ) | (91.7 | ) | ||||
|
Total deferred tax asset
|
507.9 | 565.2 | ||||||
|
Net deferred tax asset (liability)
|
$ | (103.4 | ) | $ | (47.7 | ) | ||
117
118
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $81.6 million ($49.0 million net of tax
benefit). We also received a notification from the IRS proposing
a penalty of 40% of the additional income tax resulting from the
disallowance. Because of several meritorious defenses we believe
the successful assertion of penalties is unlikely.
We expect that sometime in the first half of 2005, the Appeals
Office of the IRS will uphold the disallowance of the capital
loss deduction. If this occurs, we would most likely litigate
the matter in a federal court and we would be required to pay a
deficiency of approximately $50 million for BFI tax years
prior to the acquisition. Thereafter, it would likely take a
couple of years before the court reached a decision and it is
likely that the losing party would appeal the decision to a
court of appeals. A settlement, however, could occur at any time
during the litigation process.
The remaining tax years affected by the capital loss issue are
currently being audited by the IRS. A court decision on the
litigation would resolve the issue in these years as well. If we
were to win the case, the initial payment would be refunded to
us, subject to an appeal. If we were to lose the case, the
deficiency associated with the remaining tax years would be due.
We continue to believe our position is well supported. However,
the potential tax and interest (but not penalties) impact of a
disallowance has been fully reserved on our consolidated balance
sheet. Also, the $50 million payment noted above has been
reclassed from long-term liabilities to current liabilities.
Therefore, with regard to tax and accrued interest through
December 31, 2004, a disallowance would have minimal impact
on our consolidated results of operations. The periodic accrual
of additional interest charged through the time at which this
matter is resolved will continue to affect consolidated results
of operations. In addition, the successful assertion by the IRS
of penalties could have a material adverse impact on our
consolidated liquidity, financial position and results of
operations.
14.
Commitments and Contingencies
Litigation —
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 can reasonably be estimated. We expect
that matters in process at December 31, 2004, which have
not been accrued in the consolidated balance sheets, will not
have a material adverse effect on our consolidated liquidity,
financial position or results from operations.
On August 9, 2004, August 27, 2004, and
September 30, 2004, three putative class action lawsuits
were filed against us and four of our current and former
officers in the U.S. District Court for the District of
Arizona. The lawsuits were consolidated into a single action on
November 22, 2004. On January 14, 2005, the court
entered an order appointing lead plaintiffs, but to date, no
consolidated suit has been filed.
The complaints assert claims against all defendants under
Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder and claims against the
officers under Section 20(a) of the Securities Exchange
Act. The complaints allege that from February 10, 2004, to
July 27, 2004, the defendants caused false and misleading
statements to be issued in our public filings and public
statements regarding our anticipated second quarter 2004
results. The lawsuits seek an unspecified amount of damages.
This action is in its early stages and we are not able to
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
determine whether the outcome will have a material adverse
effect on our consolidated results of operations. We intend to
defend the action vigorously.
In the normal course of conducting our landfill operations, we
are involved in legal and administrative proceedings relating to
the process of obtaining and defending the permits that allow us
to operate our landfills.
In June 1999, neighboring parties and the county drainage
district filed a lawsuit seeking to prevent BFI from obtaining a
vertical elevation expansion permit at one of our landfills in
Texas. In 2001, the expansion permit was granted. The parties
opposing the expansion permit continued to pursue their efforts
in preventing the expansion permit. In November 2003, a judgment
issued by a state trial court in Texas, effectively revoked the
expansion permit that was granted by the Texas Commission on
Environmental Quality in 2001 and would require us to operate
the landfill according to a prior permit granted in 1988. We are
vigorously defending this expansion in the State Court of
Appeals and believe that the merits of our position will
prevail. Operationally, if necessary, we will attempt to obtain
bonding that will allow us to continue to operate the landfill
as usual during the period of appeals, which may continue two
years or longer. If the appeal is not successful, the landfill
may become impaired and we may incur costs to relocate waste to
another landfill and this matter could result in a charge of up
to $50 million to our consolidated statement of operations.
Royalties —
In connection with certain acquisitions, we have entered into
agreements to pay royalties based on waste tonnage disposed at
specified landfills. The payments are generally payable
quarterly and amounts earned, but not paid, are accrued in the
accompanying consolidated balance sheets. Royalties are expensed
as tonnage is disposed of in the landfill.
Lease agreements —
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
as of December 31, 2004 are as follows (in millions):
|
2005
|
$ | 32.4 | ||
|
2006
|
30.0 | |||
|
2007
|
24.7 | |||
|
2008
|
20.2 | |||
|
2009
|
17.6 | |||
|
Thereafter
|
49.8 |
119
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
executives may be entitled to a gross-up of certain excise taxes
incurred, provided that the fair market value of our shares is
at or greater than a specified price as of the date of the
change in control. If an executive’s employment is
terminated under certain circumstances, the executive may be
entitled to continued medical, dental and/or vision coverage,
continued vesting in PARSAP awards and restricted stock units
and continued vesting and exercisability of the executive’s
stock options, and continued coverage under our directors’
and officers’ liability insurance, among other matters. In
addition, certain executives may be entitled to retirement
payments equal to up to 60% of their base salary, paid over a
period of 10 years under our supplemental executive
retirement plan.
Effective October 4, 2004, we entered into an employment
agreement with Charles H. Cotros, in his capacity as Chief
Executive Officer, for a term of not less than one year and not
more than two years. Mr. Cotros may, at his election,
receive up to 50% of his salary in the form of our common stock.
If Mr. Cotros’ employment is terminated under certain
circumstances, within the first year of his employment, we may
be obligated to pay his salary for the remainder of that first
year. We have also agreed to pay Mr. Cotros’ necessary
business expenses, including reimbursement for all reasonable
costs incurred in commuting to the Company’s headquarters,
and to maintain rental housing for Mr. Cotros in the
vicinity of the Company’s headquarters. Mr. Cotros is
not entitled to retirement payments under our supplemental
executive retirement plan.
See Note 15, Related Party Transactions, for discussion of
arrangements with former executives.
Financial assurances —
We are required to provide financial assurances to governmental
agencies under applicable environmental regulations relating to
our landfill operations for capping, closure and post-closure
costs and performance under certain collection, landfill and
transfer station contracts. We satisfy the financial assurance
requirements by providing performance bonds, letters of credit,
insurance policies or trust deposits. Additionally, we are
required to provide financial assurances for our insurance
program and collateral required for certain performance
obligations.
At December 31, 2004 we had the following financial
assurance instruments (in millions):
| Landfill | ||||||||||||||||||||
| Closure/ | Contract | Risk/Casualty | Collateral for | |||||||||||||||||
| Post-Closure | Performance | Insurance | Obligations | Total | ||||||||||||||||
|
Insurance Policies
|
$ | 670.4 | $ | — | $ | — | $ | — | $ | 670.4 | ||||||||||
|
Surety Bonds
|
515.8 | 494.4 | — | — | 1,010.2 | |||||||||||||||
|
Trust Deposits
|
77.7 | — | — | — | 77.7 | |||||||||||||||
|
Letters of
Credit(1)
|
505.7 | 48.7 | 239.4 | 120.9 | 914.7 | |||||||||||||||
|
Total
|
$ | 1,769.6 | $ | 543.1 | $ | 239.4 | $ | 120.9 | $ | 2,673.0 | ||||||||||
| (1) | At December 31, 2004 these amounts were issued under the 2003 Revolver and the institutional letter of credit facility under our 2003 Credit Facility. |
120
121
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Off-balance sheet arrangements —
We have no off-balance sheet debt or similar obligations, other
than operating leases and financial assurance instruments
discussed above which are not debt. We have no transactions or
obligations with related parties that are not disclosed,
consolidated into or reflected in our reported results of
operations or financial position. We do not guarantee any third
party debt.
Guarantees —
We enter into contracts in the normal course of business that
include indemnification clauses. Indemnifications relating to
known liabilities are recorded in the consolidated financial
statements based on our best estimate of required future
payments. Certain of these indemnifications relate to contingent
events or occurrences, such as the imposition of additional
taxes due to a change in the tax law or adverse interpretation
of the tax law, and indemnifications made in divestiture
agreements where we indemnify the buyer for liabilities that may
become known in the future but that relate to our activities
prior to the divestiture. As of December 31, 2004, we
estimate the contingent obligations associated with these
indemnifications to be de minimus.
We have entered into agreements to guarantee to property owners
the value of certain property that is adjacent to landfills.
These agreements have varying terms over varying periods. Prior
to December 31, 2002, liabilities associated with these
guarantees have been accounted for in accordance with
SFAS No. 5, Accounting for Contingencies, in
the consolidated financial statements. Agreements modified or
entered into subsequent to December 31, 2002 are accounted
for in accordance with FIN 45 and were not significant in
2004 and 2003.
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. At December 31, 2004 and 2003,
respectively, employee loans of $0.5 million and
$3.0 million were outstanding to current or former
employees.
In October 2004, our Chairman and Chief Executive Officer
resigned and our employment contract with him was terminated. As
a result of the termination of the contract, he will be entitled
to certain benefits to be paid out primarily over the next three
years. These benefits consist of a continuation of salary and
bonus over the next three years and the vesting of already
granted restricted stock and PARSAP shares, as well as a
continuation of medical benefits for five years. The company
recorded an expense of approximately $15 million related to
these benefits in the fourth quarter of 2004.
In December 2004, our Executive Vice President and Vice Chairman
retired and our employment contract with him was terminated. As
a result, we incurred an expense of approximately
$0.5 million in 2004 primarily relating to the vesting of
already granted restricted stock. In addition, the former Vice
Chairman is expected to receive approximately $3.5 million
in total installment payments over the next ten years under the
SERP (See Note 9).
In December 2004, we reduced the balance of a non-recourse note
receivable due from the executive who was our Chairman and Chief
Executive Officer from 1990 to 1996 using proceeds from pledged
options in our stock. The remaining balance in the amount of
$1.5 million was written off.
In April 2003, our Executive Vice President, General Counsel
repaid a $215,000 loan from the Company. The loan was made in
August 2000.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 2003, our Vice Chairman repaid a $3.5 million
loan from the Company. The loan was made in July 2001, pursuant
to a relocation agreement and was collateralized by real estate.
Interest on the loan was at the applicable federal rate.
16.
Segment Reporting
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
operating income before depreciation and amortization. Operating
income before depreciation and amortization is not a measure of
operating income, operating performance or liquidity under
U.S. GAAP and may not be comparable to similarly titled
measures reported by other companies. Consistent with our
decentralized operating structure, management of the company
uses operating income before depreciation and amortization in
the evaluation of field operating performance as it represents
operational cash flows and is a profit measure of components
that are within the control of the operating units. 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).
We manage our operations through nine geographic operating
segments: Atlantic, Great Lakes, Midstates, Mountain, North
Central, Northeast, Pacific, Southeast and Southwest. Each
region is responsible for managing several vertically integrated
operations, which are comprised of districts. Results by segment
have been restated for previous periods to reflect a change in
organizational structure that was effective October 1, 2004
(see Note 1). The tables below reflect certain information
relating to our continuing operations of our geographic
operating segments for the years ended December 31, 2004,
2003 and 2002 (in millions):
| Operating Income | ||||||||||||||||||||
| Before | Depreciation | |||||||||||||||||||
| Depreciation and | and | Capital | ||||||||||||||||||
| Revenues | Amortization(1) | Amortization | Expenditures | Total Assets | ||||||||||||||||
|
2004:
|
||||||||||||||||||||
|
Atlantic
|
$ | 536.1 | $ | 182.8 | $ | 54.9 | $ | 40.3 | $ | 1,299.0 | ||||||||||
|
Great Lakes
|
526.7 | 180.6 | 77.9 | 61.8 | 1,619.5 | |||||||||||||||
|
Midstates
|
478.1 | 169.1 | 70.8 | 70.0 | 1,453.9 | |||||||||||||||
|
Mountain
|
546.5 | 208.0 | 56.6 | 89.4 | 1,375.1 | |||||||||||||||
|
North Central
|
644.9 | 195.4 | 74.3 | 71.5 | 1,855.5 | |||||||||||||||
|
Northeast
|
703.9 | 141.7 | 41.9 | 42.4 | 1,072.8 | |||||||||||||||
|
Pacific
|
744.6 | 234.9 | 55.1 | 71.4 | 1,272.8 | |||||||||||||||
|
Southeast
|
530.7 | 148.7 | 54.0 | 51.7 | 1,296.1 | |||||||||||||||
|
Southwest
|
611.3 | 182.1 | 58.3 | 73.2 | 1,661.7 | |||||||||||||||
|
Total reportable segments
|
5,322.8 | 543.8 | 571.7 | 12,906.4 | ||||||||||||||||
|
Other(2)
|
39.2 | 15.5 | 11.2 | 587.5 | ||||||||||||||||
|
Total per financial statements
|
$ | 5,362.0 | $ | 559.3 | $ | 582.9 | $ | 13,493.9 | ||||||||||||
122
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Operating Income | ||||||||||||||||||||
| Before | Depreciation | |||||||||||||||||||
| Depreciation and | and | Capital | ||||||||||||||||||
| Revenues | Amortization(1) | Amortization | Expenditures | Total Assets | ||||||||||||||||
|
2003:
|
||||||||||||||||||||
|
Atlantic
|
$ | 523.4 | $ | 179.1 | $ | 49.3 | $ | 40.1 | $ | 1,353.2 | ||||||||||
|
Great Lakes
|
517.1 | 184.2 | 72.2 | 55.3 | 1,247.3 | |||||||||||||||
|
Midstates
|
480.9 | 192.2 | 67.4 | 54.3 | 1,216.8 | |||||||||||||||
|
Mountain
|
551.5 | 206.4 | 52.7 | 62.7 | 1,664.0 | |||||||||||||||
|
North Central
|
629.0 | 210.3 | 78.4 | 65.7 | 1,276.2 | |||||||||||||||
|
Northeast
|
687.5 | 156.9 | 39.0 | 40.0 | 1,669.9 | |||||||||||||||
|
Pacific
|
680.0 | 230.2 | 48.7 | 54.9 | 2,259.5 | |||||||||||||||
|
Southeast
|
543.9 | 163.2 | 58.3 | 45.2 | 926.2 | |||||||||||||||
|
Southwest
|
595.9 | 183.2 | 70.1 | 65.1 | 1,184.1 | |||||||||||||||
|
Total reportable segments
|
5,209.2 | 536.1 | 483.3 | 12,797.2 | ||||||||||||||||
|
Other(2)
|
38.5 | 9.9 | 8.5 | 1,063.7 | ||||||||||||||||
|
Total per financial statements
|
$ | 5,247.7 | $ | 546.0 | $ | 491.8 | $ | 13,860.9 | ||||||||||||
|
2002:
|
||||||||||||||||||||
|
Atlantic
|
$ | 520.2 | $ | 185.5 | $ | 43.8 | $ | 53.1 | $ | 1,438.7 | ||||||||||
|
Great Lakes
|
523.1 | 196.9 | 61.3 | 54.9 | 1,255.7 | |||||||||||||||
|
Midstates
|
499.0 | 214.9 | 57.7 | 60.9 | 1,207.7 | |||||||||||||||
|
Mountain
|
522.4 | 193.8 | 46.7 | 74.2 | 1,673.5 | |||||||||||||||
|
North Central
|
594.8 | 206.9 | 65.2 | 78.9 | 1,244.9 | |||||||||||||||
|
Northeast
|
702.1 | 160.2 | 40.2 | 38.4 | 1,765.0 | |||||||||||||||
|
Pacific
|
658.4 | 224.1 | 42.5 | 48.3 | 2,243.0 | |||||||||||||||
|
Southeast
|
543.4 | 179.6 | 48.0 | 57.4 | 1,084.4 | |||||||||||||||
|
Southwest
|
598.1 | 210.1 | 64.5 | 66.3 | 1,157.9 | |||||||||||||||
|
Total reportable segments
|
5,161.5 | 469.9 | 532.4 | 13,070.8 | ||||||||||||||||
|
Other(2)
|
29.3 | 8.6 | 3.9 | 858.1 | ||||||||||||||||
|
Total per financial statements
|
$ | 5,190.8 | $ | 478.5 | $ | 536.3 | $ | 13,928.9 | ||||||||||||
| (1) | See following table for reconciliation to income from continuing operations before income taxes and minority interest per financial statements. |
| (2) | Amounts relate primarily to our subsidiaries which provide services throughout the organization and not on a region basis. |
123
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of reportable segment primary measure of
profitability to income from continuing operations before income
taxes and minority interest (in millions):
| Year Ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | |||||||||||
|
Total operating income before
depreciation and amortization for reportable segments
|
$ | 1,643.3 | $ | 1,705.7 | $ | 1,772.0 | |||||||
|
Other(1)
|
(197.6 | ) | (125.0 | ) | (83.0 | ) | |||||||
|
Depreciation and amortization
|
559.3 | 546.0 | 478.5 | ||||||||||
|
Non-cash gain on divestiture of
assets
|
— | — | (9.3 | ) | |||||||||
|
Interest expense and other
|
758.9 | 832.9 | 854.0 | ||||||||||
|
Income from continuing operations
before income taxes and minority interest
|
$ | 127.5 | $ | 201.8 | $ | 365.8 | |||||||
| (1) | Amounts relate primarily to our subsidiaries which provide services throughout the organization and not on a region basis. |
| Year Ended December 31, | ||||||||||||||
| 2004 | 2003 | 2002 | ||||||||||||
|
Collection
|
||||||||||||||
|
Residential
|
$ | 1,162.0 | $ | 1,132.8 | $ | 1,112.9 | ||||||||
|
Commercial
|
1,350.4 | 1,373.8 | 1,397.6 | |||||||||||
|
Roll-off(1)
|
1,198.6 | 1,185.6 | 1,203.4 | |||||||||||
|
Recycling
|
208.6 | 202.2 | 204.0 | |||||||||||
|
Total Collection
|
3,919.6 | 3,894.4 | 3,917.9 | |||||||||||
|
Disposal
|
||||||||||||||
|
Landfill
|
642.6 | 633.4 | 586.3 | |||||||||||
|
Transfer
|
436.0 | 400.6 | 384.7 | |||||||||||
|
Total Disposal
|
1,078.6 | 1,034.0 | 971.0 | |||||||||||
|
Recycling — Commodity
|
235.4 | 194.8 | 165.8 | |||||||||||
|
Other
|
128.4 | 124.5 | 136.1 | |||||||||||
|
Total Revenues
|
$ | 5,362.0 | $ | 5,247.7 | $ | 5,190.8 | ||||||||
| (1) | Consists of revenue generated from commercial, industrial and residential customers from waste collected in roll-off containers that are loaded onto collection vehicles. Roll-off containers are generally uncovered containers that range in size from 20 to 40 cubic yards. |
124
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The revenues, income before depreciation and amortization,
depreciation and amortization, capital expenditures and total
assets reported as discontinued operations up to the divestiture
date in 2004 by geographic area are as follows (in millions):
| Income (Loss) | ||||||||||||||||||||
| Before | Depreciation | |||||||||||||||||||
| Depreciation and | and | Capital | Total | |||||||||||||||||
| Revenues | Amortization | Amortization | Expenditures | Assets | ||||||||||||||||
|
2004:
|
||||||||||||||||||||
|
Northeast
|
$ | — | $ | (0.4 | ) | $ | — | $ | — | $ | — | |||||||||
|
Southeast
|
13.4 | (1.7 | ) | 0.7 | — | — | ||||||||||||||
|
Total reportable segments
|
$ | 13.4 | $ | (2.1 | ) | $ | 0.7 | $ | — | $ | — | |||||||||
|
2003:
|
||||||||||||||||||||
|
Atlantic
|
$ | 43.6 | $ | 14.3 | $ | 2.1 | $ | 2.4 | $ | — | ||||||||||
|
Mountain
|
6.4 | 1.7 | 0.5 | (0.2 | ) | — | ||||||||||||||
|
Northeast
|
45.7 | 6.6 | 3.0 | — | — | |||||||||||||||
|
Southeast
|
157.0 | 24.7 | 8.0 | 6.3 | 44.3 | |||||||||||||||
|
Total reportable segments
|
$ | 252.7 | $ | 47.3 | $ | 13.6 | $ | 8.5 | $ | 44.3 | ||||||||||
|
2002:
|
||||||||||||||||||||
|
Atlantic
|
$ | 51.8 | $ | 14.7 | $ | 2.8 | $ | 0.5 | $ | 16.8 | ||||||||||
|
Mountain
|
13.4 | 2.7 | 1.0 | 0.6 | 6.9 | |||||||||||||||
|
Northeast
|
75.6 | 3.1 | 4.6 | 2.8 | 36.5 | |||||||||||||||
|
Southeast
|
185.7 | 33.7 | 9.6 | 2.1 | 67.0 | |||||||||||||||
|
Total reportable segments
|
$ | 326.5 | $ | 54.2 | $ | 18.0 | $ | 6.0 | $ | 127.2 | ||||||||||
125
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17.
Selected Quarterly Financial Data (unaudited)
The following tables summarize the unaudited consolidated
quarterly results of operations as reported for 2004 and 2003
(in millions, except per share amounts):
| First | Second | Third | Fourth | ||||||||||||||
| Quarter | Quarter | Quarter | Quarter | ||||||||||||||
|
2004
|
|||||||||||||||||
|
Revenues
|
$ | 1,274.8 | $ | 1,362.3 | $ | 1,377.7 | $ | 1,347.2 | |||||||||
|
Income (loss) from continuing
operations
|
5.0 | (9.4 | ) | 45.5 | 16.9 | ||||||||||||
|
Net income (loss) available to
common shareholders
(1)
|
(2.4 | ) | (20.6 | ) | 38.7 | 12.0 | |||||||||||
|
Basic earnings (loss) per common
share available to common shareholders:
|
|||||||||||||||||
|
Income (loss) from continuing
operations
|
(0.00 | ) | (0.05 | ) | 0.13 | 0.04 | |||||||||||
|
Net income (loss)
|
(0.01 | ) | (0.07 | ) | 0.12 | 0.04 | |||||||||||
|
Diluted earnings (loss) per common
share available to common shareholders:
|
|||||||||||||||||
|
Income (loss) from continuing
operations
|
(0.00 | ) | (0.05 | ) | 0.13 | 0.04 | |||||||||||
|
Net income (loss)
|
(0.01 | ) | (0.07 | ) | 0.12 | 0.04 | |||||||||||
|
2003
|
|||||||||||||||||
|
Revenues
|
$ | 1,231.1 | $ | 1,342.5 | $ | 1,361.6 | $ | 1,312.5 | |||||||||
|
Income from continuing operations
|
27.5 | 19.1 | 48.5 | 16.1 | |||||||||||||
|
Net income (loss) available to
common shareholders
(2)
|
42.2 | 5.6 | 11.9 | (523.2 | ) | ||||||||||||
|
Basic earnings (loss) per common
share available to common shareholders:
|
|||||||||||||||||
|
Income (loss) from continuing
operations
|
0.04 | (0.03 | ) | 0.11 | (2.29 | ) | |||||||||||
|
Net income (loss)
|
0.22 | 0.03 | 0.06 | (2.38 | ) | ||||||||||||
|
Diluted earnings (loss) per common
share available to common shareholders:
|
|||||||||||||||||
|
Income (loss) from continuing
operations
|
0.04 | (0.03 | ) | 0.11 | (2.29 | ) | |||||||||||
|
Net income (loss)
|
0.22 | 0.03 | 0.06 | (2.38 | ) | ||||||||||||
| (1) | The fourth quarter of 2004 included $18 million ($11 million after tax) of realignment and executive departure costs and a $10 million ($6 million after tax) reduction in employee health claims expense. |
| (2) | We reduced net income available to shareholders by $496.6 million for the non-cash conversion of the Series A Preferred Stock in the fourth quarter of 2003 (see Note 9 for additional discussion). |
| 18. | Condensed Consolidating Financial Statements |
126
127
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sheets as of December 31, 2004 and 2003 and the related
Condensed Consolidating Statements of Operations and Cash Flows
for the years ended December 31, 2004, 2003 and 2002 of
Allied Waste Industries, Inc. (Parent), Allied NA (Issuer), the
guarantor subsidiaries (Guarantors) and the subsidiaries which
are not guarantors (Non-guarantors). Effective March 30,
2004, we amended our 2003 Credit Facility which resulted in
certain non-wholly owned guarantor subsidiaries becoming
non-guarantors. Based on the structure of the senior notes and
certain of BFI’s debt discussed above, this amendment
affected the guarantees of Allied NA’s and BFI’s debt
as well. All prior periods have been restated to reflect the
change in guarantors.
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)
| December 31, 2004 | |||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||
| Parent | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||
|
Current
Assets —
|
|||||||||||||||||||||||||
|
Cash and cash equivalents
|
$ | — | $ | (0.3 | ) | $ | 66.7 | $ | 1.6 | $ | — | $ | 68.0 | ||||||||||||
|
Accounts receivable, net
|
— | — | 614.0 | 54.4 | — | 668.4 | |||||||||||||||||||
|
Prepaid and other current assets
|
— | 0.2 | 50.7 | 68.6 | (37.6 | ) | 81.9 | ||||||||||||||||||
|
Deferred income taxes, net
|
— | — | 98.4 | 5.9 | — | 104.3 | |||||||||||||||||||
|
Total current assets
|
— | (0.1 | ) | 829.8 | 130.5 | (37.6 | ) | 922.6 | |||||||||||||||||
|
Property and equipment, net
|
— | — | 4,106.0 | 23.9 | — | 4,129.9 | |||||||||||||||||||
|
Goodwill, net
|
— | — | 8,129.6 | 72.4 | — | 8,202.0 | |||||||||||||||||||
|
Investment in subsidiaries
|
2,624.2 | 14,079.8 | 380.2 | — | (17,084.2 | ) | — | ||||||||||||||||||
|
Other assets, net
|
— | 101.5 | 43.5 | 1,182.2 | (1,087.8 | ) | 239.4 | ||||||||||||||||||
|
Total assets
|
$ | 2,624.2 | $ | 14,181.2 | $ | 13,489.1 | $ | 1,409.0 | $ | (18,209.6 | ) | $ | 13,493.9 | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||
|
Current Liabilities —
|
|||||||||||||||||||||||||
|
Current portion of long-term debt
|
$ | — | $ | 20.0 | $ | 97.9 | $ | 209.9 | $ | — | $ | 327.8 | |||||||||||||
|
Accounts payable
|
— | 0.1 | 576.2 | 6.5 | — | 582.8 | |||||||||||||||||||
|
Accrued closure, post-closure and
environmental costs
|
— | — | 19.9 | 75.1 | — | 95.0 | |||||||||||||||||||
|
Accrued interest
|
— | 119.3 | 58.1 | 0.5 | (37.6 | ) | 140.3 | ||||||||||||||||||
|
Other accrued liabilities
|
54.4 | 58.5 | 72.0 | 205.2 | — | 390.1 | |||||||||||||||||||
|
Unearned revenue
|
— | — | 216.7 | 4.0 | — | 220.7 | |||||||||||||||||||
|
Total current liabilities
|
54.4 | 197.9 | 1,040.8 | 501.2 | (37.6 | ) | 1,756.7 | ||||||||||||||||||
|
Long-term debt, less current portion
|
— | 6,587.8 | 841.4 | — | — | 7,429.2 | |||||||||||||||||||
|
Deferred income taxes
|
— | — | 217.8 | (10.1 | ) | — | 207.7 | ||||||||||||||||||
|
Accrued closure, post-closure and
environmental costs
|
— | — | 374.3 | 464.7 | — | 839.0 | |||||||||||||||||||
|
Due to/(from) parent
|
(52.5 | ) | 4,797.8 | (4,445.8 | ) | (299.5 | ) | — | — | ||||||||||||||||
|
Other long-term obligations
|
17.4 | 1.8 | 1,658.3 | 69.8 | (1,090.9 | ) | 656.4 | ||||||||||||||||||
|
Stockholders’ equity
|
2,604.9 | 2,595.9 | 13,802.3 | 682.9 | (17,081.1 | ) | 2,604.9 | ||||||||||||||||||
|
Total liabilities and
stockholders’ equity
|
$ | 2,624.2 | $ | 14,181.2 | $ | 13,489.1 | $ | 1,409.0 | $ | (18,209.6 | ) | $ | 13,493.9 | ||||||||||||
128
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)
| December 31, 2003 | |||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||
| Parent | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||
|
Current
Assets —
|
|||||||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 0.1 | $ | 3.2 | $ | 439.0 | $ | 2.4 | $ | — | $ | 444.7 | |||||||||||||
|
Accounts receivable, net
|
— | — | 552.6 | 98.7 | — | 651.3 | |||||||||||||||||||
|
Prepaid and other current assets
|
— | 0.1 | 74.4 | 71.9 | (37.6 | ) | 108.8 | ||||||||||||||||||
|
Deferred income taxes, net
|
— | — | 74.9 | 5.9 | — | 80.8 | |||||||||||||||||||
|
Total current assets
|
0.1 | 3.3 | 1,140.9 | 178.9 | (37.6 | ) | 1,285.6 | ||||||||||||||||||
|
Property and equipment, net
|
— | — | 3,994.1 | 24.8 | — | 4,018.9 | |||||||||||||||||||
|
Goodwill, net
|
— | — | 8,240.6 | 72.4 | — | 8,313.0 | |||||||||||||||||||
|
Investment in subsidiaries
|
2,974.4 | 13,682.9 | 353.4 | — | (17,010.7 | ) | — | ||||||||||||||||||
|
Other assets, net
|
— | 112.2 | 62.5 | 1,153.9 | (1,085.2 | ) | 243.4 | ||||||||||||||||||
|
Total assets
|
$ | 2,974.5 | $ | 13,798.4 | $ | 13,791.5 | $ | 1,430.0 | $ | (18,133.5 | ) | $ | 13,860.9 | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||
|
Current Liabilities —
|
|||||||||||||||||||||||||
|
Current portion of long-term debt
|
$ | — | $ | 243.2 | $ | 6.4 | $ | — | $ | — | $ | 249.6 | |||||||||||||
|
Accounts payable
|
— | 0.3 | 471.7 | 5.5 | — | 477.5 | |||||||||||||||||||
|
Accrued closure, post-closure and
environmental costs
|
— | — | 20.1 | 75.1 | — | 95.2 | |||||||||||||||||||
|
Accrued interest
|
— | 153.5 | 58.0 | 0.2 | (37.6 | ) | 174.1 | ||||||||||||||||||
|
Other accrued liabilities
|
58.8 | 18.9 | 86.1 | 188.8 | — | 352.6 | |||||||||||||||||||
|
Unearned revenue
|
— | — | 215.5 | 3.3 | — | 218.8 | |||||||||||||||||||
|
Total current liabilities
|
58.8 | 415.9 | 857.8 | 272.9 | (37.6 | ) | 1,567.8 | ||||||||||||||||||
|
Long-term debt, less current portion
|
— | 6,915.5 | 922.7 | 146.3 | — | 7,984.5 | |||||||||||||||||||
|
Deferred income taxes
|
— | — | 138.3 | (9.8 | ) | — | 128.5 | ||||||||||||||||||
|
Accrued closure, post-closure and
environmental costs
|
— | — | 328.0 | 462.1 | — | 790.1 | |||||||||||||||||||
|
Due to/(from) parent
|
381.6 | 3,470.5 | (3,682.6 | ) | (169.5 | ) | — | — | |||||||||||||||||
|
Other long-term obligations
|
16.4 | 46.5 | 1,815.1 | 84.7 | (1,090.4 | ) | 872.3 | ||||||||||||||||||
|
Stockholders’ equity
|
2,517.7 | 2,950.0 | 13,412.2 | 643.3 | (17,005.5 | ) | 2,517.7 | ||||||||||||||||||
|
Total liabilities and
stockholders’ equity
|
$ | 2,974.5 | $ | 13,798.4 | $ | 13,791.5 | $ | 1,430.0 | $ | (18,133.5 | ) | $ | 13,860.9 | ||||||||||||
129
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)
| Year Ended December 31, 2004 | |||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||
| Parent | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | — | $ | 5,140.7 | $ | 221.3 | $ | — | $ | 5,362.0 | |||||||||||||
|
Cost of operations
|
— | (0.3 | ) | 3,194.0 | 181.1 | — | 3,374.8 | ||||||||||||||||||
|
Selling, general and administrative
expenses
|
42.5 | — | 456.1 | 42.9 | — | 541.5 | |||||||||||||||||||
|
Depreciation and amortization
|
— | — | 551.1 | 8.2 | — | 559.3 | |||||||||||||||||||
|
Operating (loss) income
|
(42.5 | ) | 0.3 | 939.5 | (10.9 | ) | — | 886.4 | |||||||||||||||||
|
Equity in earnings of subsidiaries
|
(21.9 | ) | (485.6 | ) | (28.3 | ) | — | 535.8 | — | ||||||||||||||||
|
Interest expense (income) and other
|
1.0 | 676.0 | 87.9 | (6.0 | ) | — | 758.9 | ||||||||||||||||||
|
Intercompany interest expense
(income)
|
(84.9 | ) | 54.1 | 108.5 | (77.7 | ) | — | — | |||||||||||||||||
|
Management fees
|
(5.0 | ) | — | 3.6 | 1.4 | — | — | ||||||||||||||||||
|
Income (loss) before income taxes
|
68.3 | (244.2 | ) | 767.8 | 71.4 | (535.8 | ) | 127.5 | |||||||||||||||||
|
Income tax expense (benefit)
|
19.0 | (291.9 | ) | 315.6 | 29.5 | — | 72.2 | ||||||||||||||||||
|
Minority interest
|
— | — | — | (2.7 | ) | — | (2.7 | ) | |||||||||||||||||
|
Net income from continuing
operations
|
49.3 | 47.7 | 452.2 | 44.6 | (535.8 | ) | 58.0 | ||||||||||||||||||
|
Discontinued operations, net of tax
|
— | — | (8.7 | ) | — | — | (8.7 | ) | |||||||||||||||||
|
Net income
|
49.3 | 47.7 | 443.5 | 44.6 | (535.8 | ) | 49.3 | ||||||||||||||||||
|
Dividends on preferred stock
|
(21.6 | ) | — | — | — | — | (21.6 | ) | |||||||||||||||||
|
Net income available to common
shareholders
|
$ | 27.7 | $ | 47.7 | $ | 443.5 | $ | 44.6 | $ | (535.8 | ) | $ | 27.7 | ||||||||||||
130
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)
| Year Ended December 31, 2003 | |||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||
| Parent | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | — | $ | 5,037.0 | $ | 210.7 | $ | — | $ | 5,247.7 | |||||||||||||
|
Cost of operations
|
— | (0.1 | ) | 3,005.0 | 185.2 | — | 3,190.1 | ||||||||||||||||||
|
Selling, general and administrative
expenses
|
16.5 | — | 446.0 | 14.4 | — | 476.9 | |||||||||||||||||||
|
Depreciation and amortization
|
— | — | 541.4 | 4.6 | — | 546.0 | |||||||||||||||||||
|
Operating (loss) income
|
(16.5 | ) | 0.1 | 1,044.6 | 6.5 | — | 1,034.7 | ||||||||||||||||||
|
Equity in earnings of subsidiaries
|
(95.0 | ) | (563.0 | ) | (62.7 | ) | — | 720.7 | — | ||||||||||||||||
|
Interest expense (income) and other
|
1.2 | 757.0 | 81.8 | (7.1 | ) | — | 832.9 | ||||||||||||||||||
|
Intercompany interest expense
(income)
|
(69.7 | ) | 22.9 | 126.1 | (79.3 | ) | — | — | |||||||||||||||||
|
Management fees
|
(5.0 | ) | — | 4.0 | 1.0 | — | — | ||||||||||||||||||
|
Income (loss) before income taxes
|
152.0 | (216.8 | ) | 895.4 | 91.9 | (720.7 | ) | 201.8 | |||||||||||||||||
|
Income tax expense (benefit)
|
23.3 | (311.9 | ) | 341.0 | 36.3 | — | 88.7 | ||||||||||||||||||
|
Minority interest
|
— | — | 1.2 | 0.7 | — | 1.9 | |||||||||||||||||||
|
Net income from continuing
operations
|
128.7 | 95.1 | 553.2 | 54.9 | (720.7 | ) | 111.2 | ||||||||||||||||||
|
Discontinued operations, net of tax
|
— | — | (11.5 | ) | — | — | (11.5 | ) | |||||||||||||||||
|
Cumulative effect of accounting
change, net of tax
|
29.0 | 29.0 | (6.3 | ) | 35.3 | (58.0 | ) | 29.0 | |||||||||||||||||
|
Net income
|
157.7 | 124.1 | 535.4 | 90.2 | (778.7 | ) | 128.7 | ||||||||||||||||||
|
Dividends on preferred stock
|
(95.6 | ) | — | — | — | — | (95.6 | ) | |||||||||||||||||
|
Non-cash conversion of
Series A preferred stock
|
(496.6 | ) | — | — | — | — | (496.6 | ) | |||||||||||||||||
|
Changes in redemption value of
Class B common stock
|
— | — | — | (0.6 | ) | 0.6 | — | ||||||||||||||||||
|
Net income (loss) available to
common shareholders
|
$ | (434.5 | ) | $ | 124.1 | $ | 535.4 | $ | 89.6 | $ | (778.1 | ) | $ | (463.5 | ) | ||||||||||
131
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)
| Year Ended December 31, 2002 | |||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||
| Parent | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | — | $ | 4,982.6 | $ | 208.2 | $ | — | $ | 5,190.8 | |||||||||||||
|
Cost of operations
|
— | — | 2,844.6 | 194.5 | — | 3,039.1 | |||||||||||||||||||
|
Selling, general and administrative
expenses
|
11.9 | 0.5 | 442.1 | 8.2 | — | 462.7 | |||||||||||||||||||
|
Depreciation and amortization
|
— | — | 463.9 | 14.6 | — | 478.5 | |||||||||||||||||||
|
Non-cash gain on divestiture of
assets
|
— | — | (9.3 | ) | — | — | (9.3 | ) | |||||||||||||||||
|
Operating (loss) income
|
(11.9 | ) | (0.5 | ) | 1,241.3 | (9.1 | ) | — | 1,219.8 | ||||||||||||||||
|
Equity in earnings of subsidiaries
|
(187.6 | ) | (620.1 | ) | (18.6 | ) | — | 826.3 | — | ||||||||||||||||
|
Interest expense (income) and other
|
1.6 | 751.7 | 106.6 | (5.9 | ) | — | 854.0 | ||||||||||||||||||
|
Intercompany interest expense
(income)
|
(56.0 | ) | (24.0 | ) | 150.6 | (70.6 | ) | — | — | ||||||||||||||||
|
Management fees
|
(5.0 | ) | — | 4.0 | 1.0 | — | — | ||||||||||||||||||
|
Income (loss) before income taxes
|
235.1 | (108.1 | ) | 998.7 | 66.4 | (826.3 | ) | 365.8 | |||||||||||||||||
|
Income tax expense (benefit)
|
20.0 | (291.3 | ) | 408.8 | 28.1 | — | 165.6 | ||||||||||||||||||
|
Minority interest
|
— | — | 1.9 | — | — | 1.9 | |||||||||||||||||||
|
Net income from continuing
operations
|
215.1 | 183.2 | 588.0 | 38.3 | (826.3 | ) | 198.3 | ||||||||||||||||||
|
Discontinued operations, net of tax
|
— | — | 16.8 | — | — | 16.8 | |||||||||||||||||||
|
Net income
|
215.1 | 183.2 | 604.8 | 38.3 | (826.3 | ) | 215.1 | ||||||||||||||||||
|
Dividends on preferred stock
|
(77.9 | ) | — | — | — | — | (77.9 | ) | |||||||||||||||||
|
Changes in redemption value of
Class B common stock
|
— | — | — | 1.9 | (1.9 | ) | — | ||||||||||||||||||
|
Net income available to common
shareholders
|
$ | 137.2 | $ | 183.2 | $ | 604.8 | $ | 40.2 | $ | (828.2 | ) | $ | 137.2 | ||||||||||||
132
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
| Year Ended December 31, 2004 | |||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||
| Parent | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||
|
Cash provided by (used for)
operating activities from continuing operations
|
$ | (5.2 | ) | $ | (1,094.4 | ) | $ | 1,714.4 | $ | 35.2 | $ | — | $ | 650.0 | |||||||||||
|
Investing activities —
|
|||||||||||||||||||||||||
|
Proceeds from divestitures (cost of
acquisitions), net of cash divested/acquired
|
— | — | 36.2 | — | — | 36.2 | |||||||||||||||||||
|
Capital expenditures, excluding
acquisitions
|
— | — | (573.8 | ) | (9.1 | ) | — | (582.9 | ) | ||||||||||||||||
|
Capitalized interest
|
— | — | (13.0 | ) | — | — | (13.0 | ) | |||||||||||||||||
|
Proceeds from sale of fixed assets
|
— | — | 10.9 | 0.1 | — | 11.0 | |||||||||||||||||||
|
Change in deferred acquisition
costs, notes receivable and other
|
— | — | 10.8 | — | — | 10.8 | |||||||||||||||||||
|
Cash used for investing activities
from continuing operations
|
— | — | (528.9 | ) | (9.0 | ) | — | (537.9 | ) | ||||||||||||||||
|
Financing activities —
|
|||||||||||||||||||||||||
|
Proceeds from long-term debt, net
of issuance costs
|
— | 2,931.1 | — | 151.5 | — | 3,082.6 | |||||||||||||||||||
|
Payments of long-term debt
|
— | (3,514.5 | ) | (6.7 | ) | (87.9 | ) | — | (3,609.1 | ) | |||||||||||||||
|
Payments of preferred stock
dividends
|
(21.6 | ) | — | — | — | — | (21.6 | ) | |||||||||||||||||
|
Change in disbursement account
|
— | — | 53.8 | — | — | 53.8 | |||||||||||||||||||
|
Net proceeds from exercise of stock
options and other, net
|
5.1 | — | — | — | — | 5.1 | |||||||||||||||||||
|
Intercompany between issuer and
subsidiaries
|
21.6 | 1,674.3 | (1,605.3 | ) | (90.6 | ) | — | — | |||||||||||||||||
|
Cash provided by (used for)
financing activities from continuing operations
|
5.1 | 1,090.9 | (1,558.2 | ) | (27.0 | ) | — | (489.2 | ) | ||||||||||||||||
|
Cash provided by discontinued
operations
|
— | — | 0.4 | — | — | 0.4 | |||||||||||||||||||
|
Decrease in cash and cash
equivalents
|
(0.1 | ) | (3.5 | ) | (372.3 | ) | (0.8 | ) | — | (376.7 | ) | ||||||||||||||
|
Cash and cash equivalents,
beginning of year
|
0.1 | 3.2 | 439.0 | 2.4 | — | 444.7 | |||||||||||||||||||
|
Cash and cash equivalents, end of
year
|
$ | — | $ | (0.3 | ) | $ | 66.7 | $ | 1.6 | $ | — | $ | 68.0 | ||||||||||||
133
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
| Year Ended December 31, 2003 | |||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||
| Parent | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||
|
Cash provided by (used for)
operating activities from continuing operations
|
$ | (98.5 | ) | $ | (575.1 | ) | $ | 1,350.8 | $ | 106.7 | $ | — | $ | 783.9 | |||||||||||
|
Investing activities —
|
|||||||||||||||||||||||||
|
Proceed from divestitures (cost of
acquisitions), net of cash divested/acquired
|
— | — | 250.0 | — | — | 250.0 | |||||||||||||||||||
|
Proceeds from sale of fixed assets
|
— | — | 17.5 | — | — | 17.5 | |||||||||||||||||||
|
Capital expenditures, excluding
acquisitions
|
— | — | (483.7 | ) | (8.1 | ) | — | (491.8 | ) | ||||||||||||||||
|
Capitalized interest
|
— | — | (15.7 | ) | — | — | (15.7 | ) | |||||||||||||||||
|
Change in deferred acquisitions
costs, notes receivable and other
|
— | — | (8.4 | ) | — | — | (8.4 | ) | |||||||||||||||||
|
Cash used for investing activities
from continuing operations
|
— | — | (240.3 | ) | (8.1 | ) | — | (248.4 | ) | ||||||||||||||||
|
Financing activities —
|
|||||||||||||||||||||||||
|
Net proceeds from sale of
Series C Preferred Stock
|
333.1 | — | — | — | — | 333.1 | |||||||||||||||||||
|
Proceeds from long-term debt, net
of issuance costs
|
— | 2,870.9 | — | 166.2 | — | 3,037.1 | |||||||||||||||||||
|
Repayments of long-term debt
|
— | (3,570.7 | ) | (164.0 | ) | (19.9 | ) | — | (3,754.6 | ) | |||||||||||||||
|
Payments of Series C preferred
stock cash dividend
|
(10.2 | ) | — | — | — | — | (10.2 | ) | |||||||||||||||||
|
Change in disbursement account
|
— | — | 10.5 | — | — | 10.5 | |||||||||||||||||||
|
Net proceeds from sale of common
stock, exercise of stock options and other
|
98.4 | — | — | — | — | 98.4 | |||||||||||||||||||
|
Intercompany between issuer and
subsidiary
|
(322.8 | ) | 1,272.7 | (704.9 | ) | (245.0 | ) | — | — | ||||||||||||||||
|
Cash (used for) provided by
financing activities from continuing operations
|
98.5 | 572.9 | (858.4 | ) | (98.7 | ) | — | (285.7 | ) | ||||||||||||||||
|
Cash provided by discontinued
operations
|
— | — | 15.5 | — | — | 15.5 | |||||||||||||||||||
|
Increase (decrease) in cash and
cash equivalents
|
— | (2.2 | ) | 267.6 | (0.1 | ) | — | 265.3 | |||||||||||||||||
|
Cash and cash equivalents,
beginning of year
|
0.1 | 5.4 | 171.4 | 2.5 | — | 179.4 | |||||||||||||||||||
|
Cash and cash equivalents, end of
year
|
$ | 0.1 | $ | 3.2 | $ | 439.0 | $ | 2.4 | $ | — | $ | 444.7 | |||||||||||||
134
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
| Year Ended December 31, 2002 | |||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||
| Parent | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||||
|
Cash provided by (used for)
operating activities from continuing operations
|
$ | (2.8 | ) | $ | 104.0 | $ | 864.2 | $ | 11.2 | $ | — | $ | 976.6 | ||||||||||||
|
Investing activities —
|
|||||||||||||||||||||||||
|
Proceeds from divestitures (cost of
acquisitions), net of cash divested/acquired
|
— | — | 31.2 | — | — | 31.2 | |||||||||||||||||||
|
Capital expenditures, excluding
acquisitions
|
— | — | (338.1 | ) | (198.2 | ) | — | (536.3 | ) | ||||||||||||||||
|
Capitalized interest
|
— | — | (20.6 | ) | — | — | (20.6 | ) | |||||||||||||||||
|
Proceeds from sale of fixed assets
|
— | — | 27.2 | 1.4 | — | 28.6 | |||||||||||||||||||
|
Change in deferred acquisition
costs, notes receivable and other
|
— | — | (22.4 | ) | — | — | (22.4 | ) | |||||||||||||||||
|
Cash used for investing activities
from continuing operations
|
— | — | (322.7 | ) | (196.8 | ) | — | (519.5 | ) | ||||||||||||||||
|
Financing activities —
|
|||||||||||||||||||||||||
|
Net proceeds from sale of common
stock, exercise of stock options and other
|
2.8 | — | — | — | — | 2.8 | |||||||||||||||||||
|
Change in disbursement account
|
— | — | (87.1 | ) | — | — | (87.1 | ) | |||||||||||||||||
|
Proceeds from long-term debt, net
of issuance costs
|
— | 861.7 | (10.1 | ) | 192.7 | — | 1,044.3 | ||||||||||||||||||
|
Repayments of long-term debt
|
— | (1,167.7 | ) | (267.8 | ) | (12.0 | ) | — | (1,447.5 | ) | |||||||||||||||
|
Intercompany between issuer and
subsidiary
|
— | 198.5 | (170.0 | ) | (28.5 | ) | — | — | |||||||||||||||||
|
Cash provided by (used for)
financing activities from continuing operations
|
2.8 | (107.5 | ) | (535.0 | ) | 152.2 | — | (487.5 | ) | ||||||||||||||||
|
Cash provided by discontinued
operations
|
— | — | 52.2 | — | — | 52.2 | |||||||||||||||||||
|
Increase (decrease) in cash and
cash equivalents
|
— | (3.5 | ) | 58.7 | (33.4 | ) | — | 21.8 | |||||||||||||||||
|
Cash and cash equivalents,
beginning of year
|
0.1 | 8.9 | 112.7 | 35.9 | — | 157.6 | |||||||||||||||||||
|
Cash and cash equivalents, end of
year
|
$ | 0.1 | $ | 5.4 | $ | 171.4 | $ | 2.5 | $ | — | $ | 179.4 | |||||||||||||
135
136
Item 9.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We
maintain disclosure controls and procedures designed to ensure
that information required to be disclosed in our filings under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported accurately within the time periods
specified in the Securities and Exchange Commission’s
(SEC) rules and forms. As of the end of the period covered
by this report, an evaluation was performed under the
supervision and with the participation of management, including
the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of the design and operation
of our disclosure controls and procedures (pursuant to Exchange
Act Rule 13a-15). Based upon this evaluation, the CEO and
CFO concluded that our disclosure controls and procedures are
effective. The conclusions of the CEO and CFO from this
evaluation were communicated to the Audit Committee.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial
reporting that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Report on Internal Control Over Financial Reporting. Our
management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Under the
supervision and with the participation of our management,
including our principal executive officer and principal
financial officer, we have conducted an evaluation of the
effectiveness of our internal control over financial reporting
based upon the framework in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on our evaluation, our management
has concluded that our internal control over financial reporting
was effective at December 31, 2004.
Management’s assessment of the effectiveness of our
internal controls over financial reporting as of
December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm. PricewaterhouseCoopers LLP has issued an
attestation report on our controls over financial reporting. The
report is included in Item 8 of this Form 10-K.
Item 9B.
Other Information
Not applicable.
PART III
Item 10.
Directors and Executive Officers of the Registrant
Directors
Information about each member of our Directors is set forth
below:
| Director Name | Position Held | Age | Since | |||||||
| Chairman of the Board of Directors and Chief Executive Officer | 67 | 2004 | ||||||||
|
Robert M. Agate
|
Director | 68 | 2000 | |||||||
| Director | 53 | 2000 | ||||||||
| Director | 61 | 2002 | ||||||||
|
Michael S. Gross
|
Director | 43 | 1997 | |||||||
|
Dennis R. Hendrix
|
Director | 65 | 1997 | |||||||
| Director | 56 | 2002 | ||||||||
| Director | 60 | 1990 | ||||||||
| Director | 41 | 1997 | ||||||||
| Director | 44 | 1997 | ||||||||
|
Lawrence V.
Jackson(1)
|
Director | 51 | 2003 | |||||||
|
Warren B.
Rudman(1)
|
Director | 74 | 1997 | |||||||
| (1) | These Directors have independently notified Allied that they will not stand for reelection to the Board of Directors at the annual shareholder meeting, citing other time commitments as the basis for their decisions. |
137
138
firm’s Southwest practice for many years, and also
co-headed the firm’s worldwide energy practice. In
addition, he served as a member of McKinsey’s Board of
Directors. He is a Director of Unocal Corporation, Great Lakes
Chemical Corporation, and Weingarten Realty Investors. He is
also a Board Member of Rice University, St. John’s School,
the Houston Grand Opera, Project GRAD, and Houston United Way.
Michael S. Gross has served as a Director since May 1997.
Mr. Gross is one of the founding principals of Apollo,
which, together with its affiliates, acts as the managing
general partner of the Apollo Investment Funds, private
securities investment funds that holds investments in Allied
Waste. Mr. Gross is Chairman and Chief Executive Officer of
Apollo Investment Corporation and also a Director of Educate,
Inc., SAKS, Inc., SkyTerra Communications, Inc., and United
Rentals, Inc. Mr. Gross is also the Chairman of the Board
of Mt. Sinai Children’s Center Foundation, is a trustee of
the Trinity School, and is a member of the Corporate Advisory
Board for the University of Michigan Business School.
Dennis R. Hendrix has served as a Director since July
1997 and was appointed Lead Director in December 2002. From
November 1990 until his retirement in April 1997, he served as
Chairman of the Board of Directors of PanEnergy Corp.
(PanEnergy) and as PanEnergy’s Chief Executive Officer from
November 1990 until April 1995. Mr. Hendrix was President
and Chief Executive Officer of Texas Eastern Corporation from
1986 to 1989. Mr. Hendrix also serves as a Director of
Newfield Exploration Company, Grant Prideco, Inc., and Duke
Energy.
J. Tomilson Hill has served as a Director since
January 2002. Mr. Hill has held the position of Senior
Managing Director of The Blackstone Group L.P. (Blackstone)
since 1993, and is currently Vice Chairman and Senior Managing
Director of Blackstone and President and Chief Executive Officer
of Blackstone Alternative Asset Management. Blackstone holds
investments in Allied. He is a member of the Council of Foreign
Relations, where he chairs the Investment Subcommittee of the
Finance and Budget Committee, is Vice Chairman of the Board of
Directors of Lincoln Center Theater, and trustee of The
Nightingale-Bamford School and Milton Academy. Mr. Hill is
also a member of the Board of Directors of OpenPeak, Inc. and
the Smithsonian’s Hirshhorn Museum and Sculpture Garden
where he serves as Chairman.
Nolan Lehmann has served as a Director since October
1990. From 1983 to the present, Mr. Lehmann has served as
President of Equus Capital Management Corporation, a registered
investment advisor, and from 1991 to the present he has been
President and a Director of Equus II Incorporated, a
registered public investment company whose stock is traded on
the New York Stock Exchange. Mr. Lehmann is a Director of
Child Advocates of Harris County and also serves as a Director
of several private corporations. Mr. Lehmann is a certified
public accountant.
Howard A. Lipson has served as a Director since May 1997.
Mr. Lipson currently serves as Senior Managing Director of
Blackstone, which he joined in 1988. Blackstone holds
investments in Allied. Prior to joining Blackstone,
Mr. Lipson was a member of the Mergers and Acquisition
Group of Salomon Brothers, Inc. Mr. Lipson is also a
Director of Universal Orlando, Centerplate, Inc., and Columbia
House, and is a member of the Advisory Committee of Graham
Packaging Company.
Antony P. Ressler has served as a Director since May
1997. Mr. Ressler, Managing Partner of Ares Management, was a
co-founder of Ares Management in 1997 and Apollo Management in
1990. Mr. Ressler serves as a Partner in the Ares Private
Equity Group and as an Investment Committee member on all Ares
Funds. Prior to 1990, Mr. Ressler served as a Senior Vice
President in the High Yield Bond Department of Drexel Burnham
Lambert Incorporated, with responsibility for the New
Issue/Syndicate Desk. Mr. Ressler serves on the Boards of
Directors of Ares Capital Corporation (Co-Chairman) and
Samsonite Corporation. Mr. Ressler also serves on the Board of
Directors of several not for profit organizations, including Los
Angeles County’s Alliance for College Ready Public Schools,
Los Angeles County Museum of Art, The Center for Early
Education, The Painted Turtle Camp and the Southern California
Chapter of The Hole in the Wall Gang Camps. Mr. Ressler is
the brother-in-law of Mr. Black who also serves as an
Allied Director.
Lawrence V. Jackson has served as a Director since
January 2003. Mr. Jackson is currently an Executive Vice
President of Wal-Mart stores, Inc. Previously, Mr. Jackson
served as President of Dollar General Corporation from September
2003 until accepting his current position with Wal-Mart in
October 2004. Before that, he was Senior Vice President-Supply
Operations for Safeway, Inc., from 1997 to 2003 and worked for
PepsiCo, Inc. from 1981 to 1997 in various senior positions.
Mr. Jackson also serves as a Director of Radio Shack
Corporation. Mr. Jackson has notified Allied he will not
stand for reelection to the Board of Directors at the annual
shareholder meeting, citing other time commitments as the basis
for his decision.
Warren B. Rudman has served as a Director since July
1997. Mr. Rudman is Of Counsel at the law firm of Paul,
Weiss, Rifkind, Wharton and Garrison LLP where he was a partner
from 1993 through 2002. From 1980 until 1992, Mr. Rudman
served as a United States Senator from New Hampshire. While in
the Senate, Mr. Rudman was Chairman and Vice Chairman of
the Ethics Committee and also served on the Appropriations
Committee, the Intelligence Committee, the Governmental Affairs
Committee and was Vice Chair of the Senate Iran-Contra
Committee. He is also a Director of Collins & Aikman,
Boston Scientific, several funds of the Dreyfus Corporation and
is the Lead Director of Raytheon Company. Mr. Rudman has
served as Chairman of the President’s Foreign Intelligence
Advisory Board, is Co-Chair of the Concord Coalition, and also
serves on the Board of the Council on Foreign Relations, and the
Senior Advisory Committee of the Institute of Politics of the
Kennedy School of Government. Mr. Rudman has notified
Allied he will not stand for reelection to the Board of
Directors at the annual shareholder meeting, citing other time
commitments as the basis for his decision.
Executive Officers
Our executive officers serve at the pleasure of the Board of
Directors and are subject to annual appointment by the Board of
Directors at its first meeting following the annual meeting of
stockholders. Following is a list of all of our executive
officers, and biographical information about our officers
follows the table. Mr. Thomas H. Van Weelden served as
Chairman of the Board of Directors and Chief Executive Officer
through October 4, 2004 and as President through
October 25, 2004. Charles H. Cotros was appointed Chairman
of the Board of Directors and Chief Executive Officer in October
2004. Mr. Thomas W. Ryan, who served as Executive Vice
President and Vice Chairman, retired from Allied in December of
2004. Messrs. Van Weelden and Ryan were no longer employed
by Allied as of December 31, 2004.
| Name | Age | Position Held | ||||
| 67 | Chairman of the Board of Directors and Chief Executive Officer | |||||
|
Donald W. Slager
|
42 | President and Chief Operating Officer | ||||
| 49 | Executive Vice President and Chief Financial Officer | |||||
|
Steven M. Helm
|
56 | Executive Vice President, General Counsel and Corporate Secretary | ||||
|
Donald A. Swierenga
|
45 | Senior Vice President, Operations | ||||
| 55 | Senior Vice President, Controller, and Chief Accounting Officer | |||||
139
140
as District Manager for the Chicago Metro District from 1992 to
1996. Before Allied’s acquisition of National Waste
Services in 1992, he served at National Waste Services as
General Manager from 1990 to 1992 and in other management
positions with that company since 1985.
Peter S. Hathaway has served as Executive Vice President
and Chief Financial Officer since June 2003. Previously,
Mr. Hathaway served as Senior Vice President, Finance from
August 2000 to June 2003, Chief Accounting Officer from February
1995 to January 2001, and as a Vice President from May 1996 to
August 2000. From May 1996 through April 1997, Mr. Hathaway
also served as Treasurer. From September 1991 through February
1995, he was employed by BFI as Controller and Finance Director
for certain Italian operations. From 1979 through September
1991, Mr. Hathaway served in the audit division of Arthur
Andersen LLP in Colorado, Italy and Connecticut, most recently
in the position of Senior Manager.
Steven M. Helm was appointed Executive Vice President,
General Counsel and Corporate Secretary of Allied in January
2005. Prior to that Mr. Helm was Senior Vice President,
General Counsel and Corporate Secretary between June 2003 and
December 2004, and Vice President, Legal and Corporate Counsel
from May 1996 to June 2003. Mr. Helm joined Allied in July
1995 as Corporate Counsel. Prior to joining Allied,
Mr. Helm was a partner with the law firm of Dukes, Martin,
Helm and Ryan Ltd. in Illinois from 1978 to July 1995.
Donald A. Swierenga was named Senior Vice President,
Operations in January 2005. Prior to that he served as Vice
President — Operations from June 2003 to January 2005
and as Western Area Vice President from October 2000 to June
2003. He has also served as Western Regional Vice President from
1997 through 2000, and as a District Manager in Arizona
beginning in 1996. Mr. Swierenga joined BFI in 1981 and
held positions of increasing responsibility including Safety
Manager, Operations Manager and District Manager of BFI’s
Chicagoland operations.
James E. Gray was named Senior Vice President, Controller
and Chief Accounting Officer in January 2005. Prior to that he
served as Controller and Chief Accounting Officer between
January 2001 and January 2005. Prior to joining Allied,
Mr. Gray served as the Chief Financial Officer at Raytheon
Aircraft Company (Raytheon) from 1993 to 2001 and prior to that
held various positions of increasing responsibility at Raytheon.
Audit Committee
The Audit Committee is established in accordance with
Section 3(a)(58)(A) of the Exchange Act of 1934 (the
Exchange Act) and operates under a formal charter that has been
adopted by the Board of Directors. The Audit Committee assists
the Board of Directors in its oversight of our financial
reporting process and consists of Robert M. Agate, Chairman of
the Audit Committee, James W. Crownover, Dennis R. Hendrix and
Nolan Lehmann.
Audit Committee Financial Expert
The Board of Directors has determined that Robert M. Agate,
Chairman of the Audit Committee, qualifies as an “audit
committee financial expert” under the Securities and
Exchange Commission’s (SEC) definition. Mr. Agate
is also independent as that term is defined in
Item 7(d)(3)(iv) of Schedule 14A under the Exchange
Act. Additionally, the Board of Directors has determined that
other members of the Audit Committee also satisfy the criteria
adopted by the SEC for an audit committee financial expert. All
Audit Committee members possess the required level of financial
literacy and at least one member meets the current standard of
requisite financial management expertise as required by the NYSE.
141
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that
complies with all applicable laws and outlines the general
standards of business conduct which all employees, officers and
directors are required to follow.
We have adopted a Code of Ethics for our executive and senior
financial officers, violations of which are required to be
reported to the Audit Committee. The Code of Ethics is filed as
Exhibit 14 to this Form 10-K and posted on our
website, www.alliedwaste.com. If we make any substantive
amendments to the Code of Ethics or grant any waiver from a
provision of the Code of Ethics that applies to our Chief
Executive Officer, Chief Financial Officer, Controller, or Chief
Accounting Officer, we will disclose the nature of such
amendment or waiver on that website or in a report on
Form 8-K.
Shareholder Director Recommendation Policy
The Governance Committee will consider director candidates
recommended by shareholders. Written recommendations must
include (1) the shareholder’s name, address, and
relationship to the nominee, (2) the number of shares held
by the shareholder, with the understanding that the number of
shares held must be at least 2% or more of the outstanding
shares of the company and must have been held by the shareholder
for one year or more, (3) a written statement from the
shareholder and a statement from the nominee, consenting to be
named as a candidate and, if nominated and elected, to serve as
a director, and (4) contact, biographical and business
experience information regarding the nominee. A shareholder
recommendation for a director candidate is not the same as a
shareholder nomination for a director as provided for in our
by-laws.
Shareholder-recommended director candidates are evaluated on the
same basis as all other candidates as discussed above. The
Governance Committee may, in its discretion, interview any
shareholder-recommended director candidate before recommending
him or her for nomination to the Board.
Shareholders wishing to recommend director candidates for
consideration by the Governance Committee may do so by giving
the recommended candidate’s name, biographical data and
qualifications in writing to: Attention: Office of the
Secretary, Allied Waste Industries, Inc.,
15880 N. Greenway-Hayden Loop, Suite 100,
Scottsdale, Arizona 85260. The Company must receive the written
recommendation for consideration between 75 and 120 days
before the anniversary date of this year’s annual meeting.
A shareholder recommendation for a director candidate is not the
same as a shareholder nomination for a director as provided for
in our by-laws.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act, as amended, requires our
executive officers, directors, and persons who own more than 10%
of a registered class of our equity securities, to file reports
of ownership and changes of ownership with the SEC. Executive
Officers, directors and greater than 10% stockholders are
required to furnish us with copies of all Section 16(a)
reports they file.
Based solely on a review of the forms we have received or
prepared, we believe that during the year ended
December 31, 2004, all filing requirements applicable to
the directors, executive officers and greater than 10%
stockholders were timely met.
Item 11.
Executive Compensation
The following table provides summary information about
compensation paid to or earned during the fiscal years ended
December 31, 2004, 2003 and 2002 for (a) each person
who served as our Chief Executive Officer during 2004,
(b) each of the other four most highly compensated
executive officers serving at the end of the fiscal year ended
December 31, 2004, and (c) one additional individual
for whom disclosure would have been provided but for the fact
that he was not serving as an executive officer at the end of
fiscal 2004 (the Named Executive Officers):
SUMMARY COMPENSATION TABLE
| Long-Term Compensation | |||||||||||||||||||||||||||||
| Awards | |||||||||||||||||||||||||||||
| Annual Compensation | Securities | ||||||||||||||||||||||||||||
| Restricted | Underlying | ||||||||||||||||||||||||||||
| Other Annual | Stock | Options/ | All Other | ||||||||||||||||||||||||||
| Name and Position | Year | Salary | Bonus(2) | Compensation(3) | Award(4) | SARs (#) | Compensation(5) | ||||||||||||||||||||||
|
Charles H.
Cotros(1)
|
2004 | $ | 468,000 | $ | — | $ | 18,154 | $ | — | 240,000 | $ | — | |||||||||||||||||
| Chairman of the | 2003 | — | — | — | — | — | — | ||||||||||||||||||||||
| Board of Directors | 2002 | — | — | — | — | — | — | ||||||||||||||||||||||
| and Chief Executive Officer | |||||||||||||||||||||||||||||
|
Donald W. Slager
|
2004 | 688,846 | 200,400 | 80,473 | 624,137 | — | 110,653 | ||||||||||||||||||||||
| President and Chief | 2003 | 587,356 | 210,000 | 56,641 | — | 150,000 | 55,171 | ||||||||||||||||||||||
| Operating Officer | 2002 | 461,250 | 115,250 | 31,906 | — | 75,000 | 26,091 | ||||||||||||||||||||||
| 2004 | 600,192 | 174,000 | 62,198 | 618,807 | — | 33,049 | |||||||||||||||||||||||
| Executive Vice | 2003 | 495,254 | 157,500 | 24,130 | — | 100,000 | — | ||||||||||||||||||||||
| President and Chief | 2002 | 425,250 | 57,625 | 21,159 | — | 60,000 | — | ||||||||||||||||||||||
| Financial Officer | |||||||||||||||||||||||||||||
|
Steven M. Helm
|
2004 | 433,547 | 126,270 | 34,611 | 389,175 | — | — | ||||||||||||||||||||||
| Executive Vice | 2003 | 405,593 | 122,234 | 26,749 | — | — | — | ||||||||||||||||||||||
| President, General | 2002 | 399,750 | 99,938 | 27,905 | — | 40,000 | 13,603 | ||||||||||||||||||||||
| Counsel and | |||||||||||||||||||||||||||||
| Corporate Secretary | |||||||||||||||||||||||||||||
|
Thomas H.
Van Weelden(6)
|
2004 | 1,296,177 | 376,748 | 117,800 | 2,937,137 | — | 1,884,125 | ||||||||||||||||||||||
| Chairman of the | 2003 | 1,226,300 | 367,890 | 92,310 | — | — | 1,078,559 | ||||||||||||||||||||||
| Board of Directors, | 2002 | 1,202,255 | 196,500 | 246,386 | — | 225,000 | 265,612 | ||||||||||||||||||||||
| Chief Executive | |||||||||||||||||||||||||||||
| Officer and President | |||||||||||||||||||||||||||||
|
Thomas W.
Ryan(7)
|
2004 | 609,834 | 177,458 | 77,023 | 443,211 | — | 570,426 | ||||||||||||||||||||||
| Executive Vice | 2003 | 571,990 | 172,508 | 32,522 | — | — | 117,360 | ||||||||||||||||||||||
| President and | 2002 | 563,750 | 140,937 | 39,540 | — | 75,000 | 5,107 | ||||||||||||||||||||||
| Vice Chairman | |||||||||||||||||||||||||||||
| (1) | Charles H. Cotros began his employment in his present capacity in October 2004 and this is reflected in his compensation amounts above. Prior to his appointment to Chairman of the Board of Directors and Chief Executive Officer he served as a member of the Board of Directors for which he received $14,000 compensation and 25,000 options at an exercise price of $12.34 under the 1994 Non-Employee Director Stock Option Plan which are not included in the amounts above. |
| (2) | The 2004 bonus has been calculated and included as 2004 bonus. However, this amount will not be paid until 2005. The 2003 bonus was calculated and paid in 2004 and is being included in 2003, the year in which it was earned. The 2002 bonus was calculated and paid in 2003 and is being included in 2002, the year in which it was earned. |
| (3) | For Mr. Slager, the amounts include $33,444 and $35,584 for costs incurred in connection with the personal use of our aircraft during 2004 and 2003, respectively, and $35,502 for income tax and planning services during 2004. For Mr. Hathaway, the amount in 2004 includes $52,327 for |
142
143
costs incurred for income tax and planning services. For
Mr. Van Weelden, the amounts include $71,927, $61,598 and
$105,476 for costs incurred in connection with the personal use
of our aircraft during 2004, 2003 and 2002, respectively and
$31,825 for income tax and planning services during 2004. For
Mr. Ryan, the amounts in 2004 include $22,190 for costs
incurred in connection with the personal use of our aircraft and
$40,311 for income tax and planning services. The remaining
amounts for all of the executive officers include other
perquisites and personal benefits such as automobile allowance,
personal use of our aircraft, club dues, relocation
reimbursement, housing allowance and income tax and planning
services that did not exceed, in the aggregate for the
individual officers, the minimum reportable amount. In addition
to the compensation discussed in the table above, Mr. Van
Weelden and the Named Executive Officers earned equity
compensation under a long-term incentive plan. See
“Long-Term Incentive Plan — Awards in Last Fiscal
Year.”
(4)
The Company issued restricted stock during April 2000 at a price
of $5.875 to Messrs. Van Weelden, Slager, Hathaway, and
Helm and during July 2000 at a price of $9.625 to
Messrs. Ryan and Hathaway. In February 2004, the Management
Development/Compensation Committee approved the amendment of the
restricted stock agreements, effective July 1, 2004, to
provide that shares of restricted stock begin vesting after four
years (one-seventh after four years and one-seventh each year
thereafter until fully vested after ten years). On
February 5, 2004, the Company issued 41,667, 25,000,
13,333, 50,000 and 20,000 restricted stock units at a price of
$13.78 to Messrs. Slager, Hathaway, Helm, Van Weelden and Ryan,
respectively. Each restricted stock unit entitles the holder to
one share of common stock upon vesting. These restricted stock
units vest evenly over a three-year period. The value of the
restricted stock and restricted stock units at December 31,
2004, based on a closing price of $9.28 per share on that
date, was as follows: Mr. Slager: $3,091,131
(333,096 shares); Mr. Hathaway: $2,936,452
(316,428 shares); Mr. Helm: $1,810,036
(195,047 shares); Mr. Van Weelden: $8,948,574
(964,286 shares) and Mr. Ryan: $2,174,174
(234,286 shares).
(5)
For Mr. Slager, the 2004 and 2003 amounts include $84,561
and $29,080 for the value realized from the exercise of stock
options issued by us. Amounts for 2004, 2003 and 2002 for
Mr. Slager also include principal amounts forgiven of
$26,091 in each year related to a loan made in 1996. For
Mr. Hathaway, the 2004 amount is for the value realized
from the exercise of stock options issued by us. For
Mr. Helm, the 2002 amount includes interest forgiven
annually by us in the amount of $13,603 related to a loan made
in August 2000 that was repaid in 2003. For Mr. Van
Weelden, the 2004, 2003 and 2002 amounts include $1,884,125,
$1,078,559 and $129,342, respectively, for the value realized
from the exercise of stock options issued by us. Also, the
amounts for 2002 include interest of $136,270 forgiven by us
related to loans made in 1996 to Mr. Van Weelden. For
Mr. Ryan, the 2004 amount is for the value realized from
the exercise of stock options issued by us and the 2003 and 2002
amounts represent reimbursement of certain relocation expenses
paid by us.
(6)
Mr. Van Weelden resigned as an executive officer and
director of our company in October 2004.
(7)
Mr. Ryan retired as an executive officer of our company in
December 2004.
Option Grants in Last Fiscal Year. The following table
provides certain information with respect to options granted to
each person who served as our Chief Executive Officer during
2004 and to each of the Named Executive Officers during the
fiscal year ended December 31, 2004 under our
Amended and Restated 1991 Incentive Stock Plan, and the 1994
Non-Employee Director Stock Option Plan:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
| Potential Realizable | ||||||||||||||||||||||||
| Value at Assumed | ||||||||||||||||||||||||
| Number of | Percent of Total | Annual Rates of Stock | ||||||||||||||||||||||
| Securities | Options/SARs | Price Appreciation for | ||||||||||||||||||||||
| Underlying | Granted to | Exercise or | Option Term(3) | |||||||||||||||||||||
| Options/SARs | Employees in | Base Price | Expiration | |||||||||||||||||||||
| Name | Granted (#) | Fiscal Year | (per Share) | Date | 5% | 10% | ||||||||||||||||||
| 240,000 | (1) | 31 | % | $ | 9.06 | 10/04/2010 | $ | 739,504 | $ | 1,677,682 | ||||||||||||||
| 25,000 | (2) | 3 | % | $ | 12.34 | 07/22/2014 | $ | 194,014 | $ | 441,670 | ||||||||||||||
|
Donald W. Slager
|
— | — | — | — | — | — | ||||||||||||||||||
| — | — | — | — | — | — | |||||||||||||||||||
|
Steven M. Helm
|
— | — | — | — | — | — | ||||||||||||||||||
|
Thomas H. Van Weelden
|
— | — | — | — | — | — | ||||||||||||||||||
|
Thomas W. Ryan
|
— | — | — | — | — | — | ||||||||||||||||||
| (1) | These options will vest 50% on April 4, 2005, and 50% on October 4, 2005. In addition, any unvested options will become 100% vested upon termination of Mr. Cotros’ employment unless he is terminated for “cause” or he leaves employment without “good reason”, as those terms are described in Mr. Cotros’ employment agreement. To the extent vested, the vested options will remain exercisable until October 4, 2010, notwithstanding Mr. Cotros’ termination of employment for any reason. |
| (2) | These options were granted under the 1994 Non-Employee Direct Stock Option Plan prior to the date on which Mr. Cotros became an employee of the Company. |
| (3) | Potential gains are net of the exercise price, but before taxes associated with the exercise. Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The assumed 5% and 10% stock price appreciation rates are provided in accordance with the rules of the SEC and do not represent our estimate or projection of the future price of our Common Stock. Actual gains, if any, on stock option exercises will depend upon the future market prices of our Common Stock. |
| Number of Securities | ||||||||||||||||||||||||
| Underlying Unexercised | Value of Unexercised | |||||||||||||||||||||||
| Options/SARs at Fiscal | In-the-Money Options/SARs | |||||||||||||||||||||||
| Shares | Year-End (#) | at Fiscal Year-End(1) | ||||||||||||||||||||||
| Acquired on | Value | |||||||||||||||||||||||
| Name | Exercise (#) | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
| — | $ | — | 25,000 | (2) | 240,000 | $ | — | $ | 52,800 | |||||||||||||||
|
Donald W. Slager
|
16,467 | 84,561 | 499,866 | 125,000 | 56,591 | 25,000 | ||||||||||||||||||
| 4,112 | 33,049 | 494,221 | 86,667 | 180,949 | 16,667 | |||||||||||||||||||
|
Steven M. Helm
|
— | — | 441,667 | 13,333 | 64,309 | — | ||||||||||||||||||
|
Thomas H. Van Weelden
|
232,175 | 1,884,125 | 1,827,825 | 75,000 | — | — | ||||||||||||||||||
|
Thomas W. Ryan
|
156,250 | 570,426 | 68,750 | 25,000 | — | — | ||||||||||||||||||
144
(1)
Calculated by multiplying the number of shares underlying
outstanding in-the-money options by the difference between the
closing sales price of the Common Stock on December 31,
2004 ($9.28 per share) and the exercise price, which ranges
between $4.50 and $9.03 per share. Options are in-the-money
if the fair market value of the underlying Common Stock exceeds
the exercise price of the option.
(2)
These options were granted under the 1994 Non-Employee Director
Stock Option Plan prior to the date on which Mr. Cotros
became an employee of the Company.
Long-Term Incentive Plan — Awards in Last Fiscal
Year. The following table provides certain information with
respect to our Long-Term Incentive Plan (LTIP) during the
fiscal year ended December 31, 2004 with respect to each
person who served as our Chief Executive Officer during 2004 and
the Named Executive Officers:
LONG-TERM INCENTIVE PLANS — AWARDS IN LAST FISCAL
YEAR
| Potential Future Payouts Under Non- | ||||||||||||||||||||
| Stock Price-Based Plans(5) | ||||||||||||||||||||
| Number of Shares, | ||||||||||||||||||||
| Units or Other | Performance or Other Period Until | Threshold | Target | Maximum | ||||||||||||||||
| Name | Rights (#) | Maturation or Payout(1) | ($)(2) | ($)(3) | ($)(4) | |||||||||||||||
| — | — | — | — | — | ||||||||||||||||
|
Donald W. Slager
|
— | Jan. 1, 2003 to Dec. 31, 2004 | — | — | — | |||||||||||||||
| Jan. 1, 2003 to Dec. 31, 2005 | 100,000 | 500,000 | 1,000,000 | |||||||||||||||||
| Jan. 1, 2004 to Dec. 31, 2006 | 150,000 | 750,000 | 1,500,000 | |||||||||||||||||
| — | Jan. 1, 2003 to Dec. 31, 2004 | — | — | — | ||||||||||||||||
| Jan. 1, 2003 to Dec. 31, 2005 | 95,000 | 475,000 | 950,000 | |||||||||||||||||
| Jan. 1, 2004 to Dec. 31, 2006 | 116,000 | 580,000 | 1,160,000 | |||||||||||||||||
|
Steven M. Helm
|
— | Jan. 1, 2003 to Dec. 31, 2004 | — | — | — | |||||||||||||||
| Jan. 1, 2003 to Dec. 31, 2005 | 80,000 | 400,000 | 800,000 | |||||||||||||||||
| Jan. 1, 2004 to Dec. 31, 2006 | 84,180 | 420,900 | 841,800 | |||||||||||||||||
|
Thomas H. Van Weelden
|
— | Jan. 1, 2003 to Dec. 31, 2004 | — | — | — | |||||||||||||||
| Jan. 1, 2003 to Dec. 31, 2005 | 160,000 | 800,000 | 1,600,000 | |||||||||||||||||
| Jan. 1, 2004 to Dec. 31, 2006 | 160,000 | 800,000 | 1,600,000 | |||||||||||||||||
|
Thomas W. Ryan
|
— | Jan. 1, 2003 to Dec. 31, 2004 | — | — | — | |||||||||||||||
| Jan. 1, 2003 to Dec. 31, 2005 | 105,000 | 525,000 | 1,050,000 | |||||||||||||||||
| Jan. 1, 2004 to Dec. 31, 2006 | 105,000 | 525,000 | 1,050,000 | |||||||||||||||||
| (1) | The plan establishes potential future payouts based on performance cycles. The initial 2-year cycle was from January 1, 2003 to December 31, 2004, the first 3-year cycle is from January 1, 2003 to December 31, 2005, and the second 3-year cycle is from January 1, 2004 to December 31, 2006. |
| (2) | The threshold payout is 20% of the target award, if the specified minimum performance levels are met. |
| (3) | The target payout is 100% of the target award, if the specified target performance goals are satisfied. |
| (4) | The maximum payout is 200% of the target award and is based on meeting 100% of the performance goals. |
| (5) | Based upon actual financial results of the company through 2004 and current projections for future years covered under the plan as compared to the goals set forth in each performance period, there will be no payout under the 2003-2004 performance period and it is unlikely that a payout under the 2003-2005 or 2004-2006 performance periods will occur. |
145
146
Chief Executive Officer and the Named Executive Officers shown
above, for the 2003-2004 and 2003-2005 performance periods. In
2004, the Management Development/Compensation Committee granted
long-term incentive awards to certain key members of management,
including the then-Chief Executive Officer and the Named
Executive Officers shown above, for the 2004-2006 performance
period. In January 2005, the Management Development/Compensation
Committee granted new long-term incentive awards to certain key
members of management including the Named Executive Officers,
but excluding the current Chief Executive Officer, for the
2005-2007 performance period. These awards are intended to
provide continuing emphasis on specified performance goals that
the Management Development/Compensation Committee considers to
be important contributors to long-term stockholder value.
The performance goals set by the Management
Development/Compensation Committee for the LTIP may be based
upon the metrics reflecting one or more of the following
business measurements: earnings, cash flow, revenues, financial
return ratios, debt reduction, risk management, customer
satisfaction, and total stockholder returns, any of which may be
measured either in absolute terms or as compared with another
company or companies or with prior periods. The performance
goals for each of the performance cycles currently underway
relate to the achievement of certain EBITDA and debt reduction
goals attributable to normal operating activities. The
Management Development/Compensation Committee believes that
these performance goals are aligned with the long-term
shareholder value creation goals of increasing operating
performance and reducing balance sheet leverage.
The awards are payable only if we achieve specified levels of
(1) EBITDA (earnings before interest, taxes, depreciation,
and amortization) compound annual growth, and (2) average
annual debt reduction, in each case during (a) the two-year
performance period beginning January 1, 2003 and ending
December 31, 2004, (b) the three-year performance
period beginning January 1, 2003 and ending
December 31, 2005, and (c) the three-year performance
period beginning January 1, 2004 and ending
December 31, 2006. The EBITDA compound annual growth goal
is weighted 60% and the average annual debt reduction goal is
weighted 40% for the three-year performance period beginning
January 1, 2005 and ending December 17, 2007. The
Management Development/Compensation Committee will have
discretion to adjust the performance goals for one or more
affected cycles if a major acquisition, divestiture, or other
extraordinary event results in a significant impact on our
ability to achieve such goals.
Actual results between the threshold and target or the target
and maximum are interpolated to calculate the actual payout. No
award will be earned with respect to a goal if performance does
not meet the threshold performance level for such goal. The
goals are independent, however, and a partial award can be
attained even if one threshold is missed. Pro rata awards based
on whole months of active participation and based on actual
results will be paid at the end of the performance period if an
executive’s employment terminates due to death, disability
or retirement. All awards will be forfeited if the executive
voluntarily terminates employment or is discharged for cause.
Participants may be given the opportunity to elect to receive
some or all of any payment in the form of shares of our Common
Stock.
On February 17, 2005, the Management
Development/Compensation Committee adopted an amendment to the
LTIP to clarify that employees who are otherwise eligible to
participate in any of the Company’s non-qualified deferred
compensation plans are permitted to defer LTIP awards in
accordance with the terms of those plans. The LTIP previously
made reference to the Company’s original Executive Deferred
Compensation Plan. As the result of the Company’s adoption
of the 2005 Executive Deferred Compensation Plan, the
Compensation Committee determined that it was in the
Company’s best interests to define the term “Deferred
Compensation Plan” in the LTIP more broadly, to include any
and all deferred compensation plans that the Company maintains
currently or in the future. The amendment does not require
approval by the Company’s stockholders.
147
Recent Developments with Respect to Executive Compensation
2005 RSU Grants
On January 3, 2005, the Company granted 45,000, 30,000,
20,000, 20,000, and 20,000 restricted stock units to
Messrs. Slager, Hathaway, Helm, Swierenga, and Gray,
respectively. These restricted stock units will vest over five
years. The closing price of the Company’s common stock on
January 3, 2005, was $9.09 per share.
Certification of Achievement of 2004 Performance Goals for
Senior Executive Officer Defined Bonus Plan
On February 17, 2005 the Management
Development/Compensation Committee certified that the 2004
non-financial performance goals with respect to the
Company’s Senior Executive Officer Defined Bonus Plan (the
Officer Bonus Plan) had been achieved. The Management
Development/Compensation Committee also determined that the
Company did not meet the 2004 financial performance goals for
year-over-year growth in EBITDA. The Company therefore awarded
annual incentive compensation for non-financial performance, but
did not award any bonus compensation based on Company financial
performance under the Officer Bonus Plan to the Company’s
former Chief Executive Officer and current and former Named
Executive Officers, as set forth in the Summary Compensation
Table.
Certification of Non-Achievement of 2004 Performance Goals
for Long-Term Incentive Plan
On February 17, 2005, the Management
Development/Compensation Committee certified that the Company
had not achieved either (a) the goal with respect to EBITDA
Compound Growth for the 2003-2004 performance cycle (the
2003-2004 Cycle) under the LTIP, or (b) the goal with
respect to Net Annual Debt Reduction for the 2003-2004 Cycle
under the LTIP. Accordingly, the Company did not make any LTIP
awards to the Company’s former Chief Executive Officer and
current and former Named Executive Officers for the 2003-2004
Cycle under the LTIP.
2005 Performance Goals for Senior Management Incentive
Plan
On February 17, 2005, the Management
Development/Compensation Committee approved the 2005 performance
goals for each of the components of the Senior Management
Incentive Plan, formerly the Senior Executive Officer Defined
Bonus Plan (the Senior MIP). The Senior MIP includes two
components for 2005.
One component will continue to utilize a combination of overall
Company financial performance goals and individual performance
goals with the following weightings relative to their target
awards: 75% for overall Company financial performance, based
upon 2005 EBITDA growth, and 25% for individual performance. The
second component will utilize the overall Company financial
performance goals consisting of year-over-year EBITDA growth and
return on invested capital target levels, as well as the
individual performance goals, with the same relative weighting
between Company and individual performance goals as in the case
of the first component. These goals are consistent with the
performance measures established under the Management Incentive
Plan (formerly, the Corporate Defined Bonus Plan), the material
terms of which were previously approved by the Company’s
stockholders. The Company’s Named Executive Officers, other
than the current Chief Executive Officer, as well as certain
other senior executive management personnel, will be eligible
for annual incentive compensation under the Senior MIP based
upon the more favorable outcome of the two components. The
following table provides certain information with respect to
potential future
payouts payable to the Company’s Named Executive Officers
(other than the current Chief Executive Officer) under the
Senior MIP:
| Maximum | ||||
| Name | 2005 Annual Incentive(1) | |||
|
Donald W. Slager
|
$ | 1,125,000 | ||
| 870,000 | ||||
|
Steven M. Helm
|
631,350 | |||
|
Donald A. Swierenga
|
734,250 | |||
| 450,000 | ||||
| (1) | The maximum annual incentive that may be paid to any participant for any year under the plan cannot exceed the lesser of (a) 150% of the participant’s annual base salary or (b) $5,000,000. |
| Name | Potential 2005 Payout | |||
|
Donald W. Slager
|
$ | 200,000 | ||
| 150,000 | ||||
|
Steven M. Helm
|
100,000 | |||
|
Donald A. Swierenga
|
85,000 | |||
| 85,000 | ||||
148
under the LTIP, the material terms of which were previously
approved by the Company’s stockholders. The following table
provides certain information with respect to awards granted to
the Company’s Named Executive Officers, other than the
current Chief Executive Officer, for the 2005-2007 Cycle:
| Potential Future Payouts Under | ||||||||||||
| 2005-2007 Cycle | ||||||||||||
| Name | Threshold(1) | Target(2) | Maximum(3) | |||||||||
|
Donald W. Slager
|
$ | 150,000 | $ | 750,000 | $ | 1,500,000 | ||||||
| 116,000 | 580,000 | 1,160,000 | ||||||||||
|
Steven M. Helm
|
84,180 | 420,900 | 841,800 | |||||||||
|
Donald A. Swierenga
|
60,000 | 300,000 | 600,000 | |||||||||
| 60,000 | 300,000 | 600,000 | ||||||||||
| (1) | The threshold payout is 20% of the target award, if the specified minimum performance goals are satisfied. |
| (2) | The target payout is 100% of the target award, if the specified target performance goals are satisfied. |
| (3) | The maximum payout is 200% of the target award, if the specified stretch performance goals are satisfied. |
| Mr. Cotros | Mr. Slager | Mr. Hathaway | Mr. Helm | Mr. Swierenga | Mr. Gray | |||||||||||||||||||
|
Base Salary
|
$ | 1,872,000 | (1) | $ | 750,000 | $ | 580,000 | $ | 420,900 | $ | 489,500 | $ | 300,000 | |||||||||||
|
2005 Senior Management Incentive
Plan(2)
|
— | 0 to 1,125,000 | 0 to 870,000 | 0 to 631,350 | 0 to 734,250 | 0 to 450,000 | ||||||||||||||||||
|
Transition
Plan(3)
|
— | 200,000 | 150,000 | 100,000 | 85,000 | 85,000 | ||||||||||||||||||
|
2005-2007 LTIP
Cycle(4)
|
— | 0 to 1,500,000 | 0 to 1,160,000 | 0 to 841,800 | 0 to 600,000 | 0 to 600,000 | ||||||||||||||||||
|
Restricted stock
units(5)
|
— | 409,050 | 272,700 | 181,800 | 181,800 | 181,800 | ||||||||||||||||||
| $ | 1,359,050 | $ | 1,002,700 | $ | 702,700 | $ | 756,300 | $ | 566,800 | |||||||||||||||
| to | to | to | to | to | ||||||||||||||||||||
|
Total(6)
|
$ | 1,872,000 | $ | 3,984,050 | $ | 3,032,700 | $ | 2,175,850 | $ | 2,090,550 | $ | 1,616,800 | ||||||||||||
| (1) | Assumes that Mr. Cotros remains employed as the Company’s Chief Executive Officer for all of 2005 at a base salary of $156,000 per month. |
| (2) | Amounts shown represent the range from minimum to maximum potential incentive compensation under the plan. Actual amounts of bonuses, if any, will not be determined and paid until early 2006. |
| (3) | Assumes that the officer receives the full amount payable to him under the Transition Plan. |
| (4) | Amounts shown represent the range from minimum to maximum potential LTIP awards payable under the 2005-2007 Cycle. Actual amounts of LTIP awards, if any, will not be determined and paid until early 2008. |
149
150
(5)
Represents the number of restricted stock units granted to each
executive on January 3, 2005, multiplied by the closing
price of the Company’s common stock on January 3,
2005, which was $9.09 per share.
(6)
Amounts shown do not include other components of total
compensation payable to the Chief Executive Officer and Named
Executive Officers in 2005. Such amounts may include additional
grants of options or restricted stock units, perquisites, the
value realized from stock option exercises or sales of
restricted stock, and other amounts.
Employment Agreements
We have employment agreements with our current Chief Executive
Officer and each of the other Named Executive Officers, as
described below. We also had employment agreements with our
former Chief Executive Officer and former Executive Vice
President and Vice Chairman, also as described below.
Employment Agreement with Charles H. Cotros
On October 4, 2004, we entered into an employment agreement
with Charles H. Cotros under which Mr. Cotros will serve as
our Chairman of the Board of Directors and Chief Executive
Officer. The agreement provides that Mr. Cotros will serve
in those positions for at least one year, but not more than two
years, although either party can decide to terminate the
agreement earlier. Mr. Cotros has agreed to continue
service as a director for at least three years after the
employment agreement terminates, subject to nomination by the
Governance Committee and election by shareholders. As
compensation for his service as Chairman and Chief Executive
Officer, we will pay Mr. Cotros a base salary of
$156,000 per month. Mr. Cotros can elect to receive up
to 50% of his salary in the form of Company common stock. If the
Company terminates Mr. Cotros’ employment
“without cause” or if Mr. Cotros terminates his
employment for “good reason” (as those terms are
defined in the employment agreement) within the first year of
his employment, he will continue to be paid his base salary for
the remainder of that first year.
In connection with his employment agreement, the Company granted
to Mr. Cotros options to acquire 240,000 shares of
Company common stock at an exercise price of $9.06 per
share, which was the closing price of the common stock on
October 4, 2004. The options vest 50% on April 4,
2005, and 50% on October 4, 2005 and, to the extent vested,
will remain exercisable until October 4, 2010,
notwithstanding Mr. Cotros’ termination of employment
for any reason. In addition, any unvested options will be 100%
vested upon termination of Mr. Cotros’ employment
unless he is terminated “for cause” or he leaves
employment without “good reason,” as those terms are
defined in the employment agreement.
Under the employment agreement, Mr. Cotros is entitled to
(a) four weeks paid vacation; (b) participation in all
employee pension and welfare benefit plans and programs
maintained by the Company for the benefit of its employees
generally; (c) reimbursement of Mr. Cotros’
necessary business expenses; (d) reimbursement for all
reasonable costs incurred in commuting from his current homes to
the Company’s headquarters in Scottsdale, Arizona; and
(e) indemnification and directors’ and officers’
insurance coverage. The Company also maintains rental housing
for Mr. Cotros in the Scottsdale area. In addition,
Mr. Cotros has access to the aircraft currently owned or
leased by the Company, subject to its availability, for the
purpose of traveling between the Company’s headquarters in
Scottsdale and Mr. Cotros’ personal residences.
Mr. Cotros’ employment agreement also contains
standard provisions related to confidentiality and proprietary
information, as well as non-competition and non-solicitation
obligations during the employment term and for two years after
his employment terminates.
151
Employment Agreement with Thomas H. Van Weelden
Effective January 1, 2004, we entered into an employment
agreement with Thomas H. Van Weelden that superseded our
previous employment agreement with Mr. Van Weelden. Under
this agreement, Mr. Van Weelden served as our Chief
Executive Officer and Chairman of the Board of Directors at a
base salary of $1,250,000 per year. The employment
agreement also provided that Mr. Van Weelden would be
entitled to (a) annual cash incentive compensation in an
amount to be determined by the Board of Directors, with a target
goal equal to 100% of his base salary; (b) four weeks paid
vacation; (c) automobile allowance of $600 per month;
(d) club membership dues; (e) participation in
incentive, savings, retirement, and stock plans maintained by
the Company for its executive officers; (f) participation
in welfare benefit plans maintained by the Company for the
benefit of its employees generally; (g) reimbursement of
expenses; and (h) indemnification and directors’ and
officers’ insurance coverage.
On October 4, 2004, Mr. Van Weelden resigned as our
Chairman of the Board and Chief Executive Officer. On
October 25, 2004, Mr. Van Weelden resigned as
President and the Company and Mr. Van Weelden terminated
Mr. Van Weelden’s employment agreement, effective
immediately, except for those provisions that have continuing
effect under the terms of the agreement, as amended. As a result
of the termination of the employment agreement (a) Mr. Van
Weelden will be entitled to all of the compensation and benefits
to which he would have been entitled under the employment
agreement, as amended, as if the agreement had continued through
May 30, 2005; (b) effective May 31, 2005,
Mr. Van Weelden will be entitled to all of the severance
compensation and benefits to which he would have been entitled
if he had terminated the agreement for “good reason”
or the Company terminated the agreement “without
cause” (as those terms were defined in the agreement); and
(c) Mr. Van Weelden will be entitled to receive his
annual incentive compensation, if any, for fiscal 2004 in the
same manner and at the same time that other named officers of
the Company are paid their annual incentive compensation for the
fiscal year ending December 31, 2004. Accordingly,
(1) from November 2004 to May 30, 2008, we will pay
Mr. Van Weelden an aggregate of approximately $4,375,000,
representing the equivalent of his salary for 42 months,
(2) from May 31, 2005, to May 30, 2008, we will
pay Mr. VanWeelden an aggregate of approximately
$3,767,000, representing the equivalent of his targeted bonus
for three years, (3) Mr. Van Weelden will also be
entitled to receive health and related benefits over a five-year
period estimated to aggregate approximately $150,000 in total
value, and (4) as a result of the achievement of the 2004
non-financial performance goals, Mr. Van Weelden will
receive a bonus of $376,748 for 2004. In addition, under the
terms of Mr. Van Weelden’s employment agreement, he
will continue to vest in his equity awards for a period of three
years beginning May 31, 2005. Mr. Van Weelden will
remain subject to standard provisions in his employment
agreement related to confidentiality and proprietary
information, and will be subject to non-competition and
non-solicitation obligations for three years after termination
of his employment.
Employment Agreement with Thomas W. Ryan
Effective August 1, 2003, we entered into an employment
agreement with Thomas W. Ryan that superseded our prior
employment agreement with Mr. Ryan. Under this agreement,
Mr. Ryan served as our Executive Vice President and Vice
Chairman at a base salary of $575,000 in 2004. The agreement
provided for a term ending on December 31, 2005. The
employment agreement also provided that Mr. Ryan would be
entitled to (a) annual cash incentive compensation in an
amount to be determined by the Board of Directors, with a target
equal to 100% of his base salary; (b) four weeks paid
vacation; (c) automobile allowance of $600 per month;
(d) club membership dues; (e) participation in
incentive, savings, retirement, and stock plans maintained by
the Company for its executive officers; (f) participation
in welfare benefits offered to employees generally;
(g) reimbursement of expenses; and (h) indemnification
and directors’ and officers’ insurance coverage. Under
the agreement, if Mr. Ryan terminated his employment for
“good reason” or if the Company terminated his
employment, “without cause” (as these terms were
defined in the
152
agreement), we would be obligated to pay an amount equal to two
times the sum of Mr. Ryan’s base salary and targeted
annual incentive compensation for the year in which the
termination occurred.
In December 2004, the Company and Mr. Ryan agreed that
Mr. Ryan would retire from the Company, effective
December 30, 2004, and the Company and Mr. Ryan
terminated Mr. Ryan’s employment agreement effective
as of December 30, 2004. The Company will pay to
Mr. Ryan an aggregate of approximately $3.5 million
(subject to certain contingencies) in installments over a period
of ten years beginning in January 2005 pursuant to an unfunded
supplemental executive requirement benefit plan. The amount is
equal to the full amount of retirement benefits to which
Mr. Ryan would have been entitled under his employment
agreement if he had continued to serve as an officer of the
Company through December 31, 2005. The Company’s
aggregate payments to Mr. Ryan will be less than those that
the Company was obligated to pay under Mr. Ryan’s
employment agreement, however, because the Company ceased paying
Mr. Ryan’s salary on December 30, 2004 rather
than December 31, 2005, and Mr. Ryan will not be
eligible for any new incentive compensation after 2004.
Mr. Ryan will remain subject to standard provisions in the
employment agreement related to confidentiality and proprietary
information, and will be subject to non-competition and
non-solicitation obligations for one year after termination of
his employment.
Employment Agreements with Messrs. Slager, Hathaway,
Helm, Swierenga and Gray
Effective January 1, 2004, we entered into employment
agreements with each of Donald W. Slager, Peter S.
Hathaway, and Steven M. Helm. These agreements superseded
our prior employment agreements with each of these executive
officers. Effective June 1, 2004, we entered into an
employment agreement with Donald A. Swierenga. Effective
January 3, 2001, we entered into an employment agreement
with James E. Gray.
Under these agreements, (a) Mr. Slager currently
serves as our President and Chief Operating Officer;
(b) Mr. Hathaway currently serves as our Executive
Vice President and Chief Financial Officer; (c) Mr. Helm
currently serves as our Executive Vice President, General
Counsel, and Corporate Secretary; (d) Mr. Swierenga
currently serves as our Senior Vice President, Operations; and
(e) Mr. Gray currently serves as our Senior Vice
President, Controller, and Chief Accounting Officer. Under the
agreements, Mr. Slager’s base salary was $668,000 for
2004, Mr. Hathaway’s base salary was $580,000 for
2004, Mr. Helm’s base salary was $420,900 for 2004,
Mr. Swierenga’s base salary was $489,500 for 2004, and
Mr. Gray’s base salary was $291,110 for 2004. The term
of each employment agreement is a continuous period of two
years, such that at any given time the remaining term of the
agreement is two years. The employment agreements also provide
that each executive is entitled to (a) annual cash
incentive compensation in an amount to be determined by the
Board of Directors, with a target goal equal to 100% of the
executive’s base salary for Messrs. Slager, Hathaway,
and Helm and 80% of the executive’s base salary for
Messrs. Swierenga and Gray; (b) four weeks paid
vacation; (c) automobile allowance of $600 per month;
(d) club membership dues; (e) participation in
incentive, savings, retirement, and stock plans maintained by
the Company for its executive officers; (f) participation
in welfare benefit plans maintained by the Company for the
benefit of its employees generally; (g) reimbursement of
expenses; and (h) indemnification and directors’ and
officers’ insurance coverage.
In the event the employment agreement of either
Messrs. Slager, Hathaway, or Helm is terminated by the
executive for “good reason” or by the Company
“without cause” (as those terms are defined in the
agreements), including termination within one year preceding or
18 months following the date on which a “change of
control” (as defined) has occurred, we will be obligated to
pay an amount equal to (i) three times the sum of the
executive’s base salary plus (ii) targeted annual
incentive compensation for the year in which the termination
occurs. In the event the employment agreement of either
Mr. Swierenga or Mr. Gray is terminated by the
executive for “good reason” or by the Company
“without cause” (as defined), including termination
within one year preceding or 18 months following the date
on which a “change of control” (as defined) has
occurred, we will be
obligated to pay an amount equal to (i) two times the sum
of the executive’s base salary plus (ii) the targeted
annual incentive compensation for the year in which the
termination occurs. In addition, the Company and the executive
may mutually agree to terminate his employment agreement
immediately upon his reassignment to a different position with
the Company.
The employment agreements for Messrs. Slager, Hathaway,
Helm, Swierenga, and Gray provide for a partial gross-up for
excise taxes under Section 280G of the Internal Revenue
Code, provided that the price of the Company’s common stock
equals or exceeds an established threshold ($20.70 in 2005), in
connection with the cash payments made in the event of a
termination of their agreements for good reason or without cause
in connection with a change in control. Each of the employment
agreements contains standard provisions relating to
confidentiality and proprietary information, as well as
non-competition and non-solicitation obligations during the
employment term and for up to three years after termination of
employment.
Supplemental Executive Retirement Plan
Under our Supplemental Executive Retirement Plan (SERP), which
was adopted by the Board of Directors effective August 1,
2003, we will pay retirement benefits to certain executives
employed by us. Executives that participate in the SERP are
selected by the Board of Directors. Qualifications to receive
retirement payments under the SERP are outlined in each
executive’s employment agreement. Depending on the terms of
the specific agreement, upon bona fide retirement from Allied
(a) the sum of the executive’s age and years of
service with the company must equal at least 63 and (b) the
executive must have completed at least 5 to 20 years of
service with the Company.
Subject to certain contingencies executives who meet the
requirements will be entitled to maximum retirement payments for
each year during the ten years following retirement in an amount
equal to 60% of his or her average base salary during the three
consecutive full calendar years of employment immediately
preceding the date of retirement. For purposes of the SERP,
years of service include all whole years of employment with
Allied Waste and with any entity acquired by us beginning with
the executive’s initial date of employment with Allied
Waste or the acquired entity. In the event of the
executive’s death prior to the payment of all of the
retirement payments under the SERP, the balance of the payments
will be made to the executive’s surviving spouse or to any
other beneficiary named by the executive.
Pursuant to his Executive Employment Agreement, which became
effective August 1, 2003, Thomas W. Ryan was the only Named
Executive Officer selected by the Board of Directors to
participate in the SERP during 2003. In January 2004, the Board
of Directors approved new employment agreements for
Messrs. Slager, Hathaway, Helm, and Van Weelden under which
those Named Executive Officers were selected by the Board of
Directors to participate in the SERP.
The following table illustrates the potential annual retirement
benefit payable to an executive who participates in the SERP
based on a sample final average compensation. The benefits shown
below are not subject to reduction for Social Security benefits.
| Annual Retirement Benefit After | ||||||||||
| Final Average Compensation(1) | Required Years of Service(2) | |||||||||
| $ | 400,000 | $ | 240,000 | |||||||
| 600,000 | 360,000 | |||||||||
| 800,000 | 480,000 | |||||||||
| 1,000,000 | 600,000 | |||||||||
| 1,200,000 | 720,000 | |||||||||
| 1,400,000 | 840,000 | |||||||||
| (1) | Final average compensation is the average base salary for the three consecutive full calendar years immediately preceding the date of retirement. |
153
154
(2)
This column represents the maximum benefits payable under the
SERP assuming retirement at age 60. The required years of
service for the maximum benefits for Messrs. Slager,
Hathaway, and Helm are 20, 9, and 9, respectively. As
of December 31, 2004 Messrs. Slager, Hathaway, and
Helm had 19, 13, and 9 years of service, respectively
for purposes of SERP. Mr. Van Weelden’s employment
agreement, as amended in October 2004, provides that
Mr. Van Weelden will begin receiving severance compensation
and benefits effective May 31, 2005 and, therefore, will
not be eligible for SERP benefits. Mr. Ryan’s
employment agreement, as amended December 2004, provides that
Mr. Ryan will begin receiving annual SERP benefits in the
amount of $351,615 over a period of ten years, beginning January
2005.
Compensation Committee Interlocks and Insider
Participation
During the fiscal year ended December 31, 2004, the
Management Development/Compensation Committee consisted of
Messrs. Lehman, Jackson, Lipson, Ressler, and Rudman.
Except in the case of Messrs. Lipson and Ressler, none of
these individuals had any contractual or other relationships
with the Company during such fiscal year except as directors.
Mr. Cotros was elected to the Board on July 22, 2004
and was appointed to the Compensation and Governance Committees.
Mr. Cotros was elected Chairman of the Board and Chief
Executive Officer on October 4, 2004 and he resigned from
the Compensation and Governance Committees at that time.
Messrs. Lipson and Ressler are Shareholder Designees (as
defined) under our Shareholder Agreement with Apollo/Blackstone
Investors (see Item 13, Certain Relationship and Related
Transactions).
Compensation of Directors
We currently pay each non-employee Director a cash fee of
$40,000 annually. In 2004, we paid each non-employee Director
$2,000 for each regular and special meeting of the Board of
Directors attended in person, $2,000 for each Committee meeting
attended in person, and $1,000 for each meeting (Board or
Committee, regular or special) attended by telephone. In
addition we reimbursed travel expenses, as appropriate. Employee
Directors do not receive additional compensation for service on
the Board of Directors or its committees.
Under the 1994 Non-Employee Director Stock Option Plan (the
1994 Director Plan), each non-employee Director may elect
to have his cash fees converted into shares of Common Stock at
the market price of the stock on the last day of the quarter for
which the fees are paid. The 1994 Director Plan also
entitles each non-employee Director to receive an option to
purchase 25,000 shares of Common Stock on his initial
election to the Board and an option to
purchase 10,000 shares on each date he is re-elected
by the shareholders. Employee Directors are not eligible to
participate in the 1994 Director Plan, but are eligible to
participate in our other incentive stock plans.
On February 17, 2005, the Board adopted several changes to
the manner in which the Company will compensate its non-employee
Directors. Non-employee Directors will continue to receive their
current annual cash retainers and meeting fees. In addition,
beginning in 2005, the Chairs of the Compensation Committee,
Audit Committee, and Governance Committee will each receive
annual retainers in the amount of $7,500. These annual retainers
are intended to recognize the increased time commitments
required of committee Chairs and to be consistent with
competitive trends and peer company practices.
On February 17, 2005, the Board also amended and restated
the 1994 Director Plan into the proposed 2005 Non-Employee
Director Equity Compensation Plan (2005 Directors’ Plan),
subject to stockholder approval. The 2005 Directors’ Plan
would become effective upon approval by the Company’s
stockholders. The purpose of the 2005 Directors’ Plan is to
appropriately compensate the non-employee Directors for their
increased duties and responsibilities, to encourage greater
direct share ownership, and to be consistent with broader trends
in board compensation and governance. The proposed changes would
increase the number of shares available for grant or
155
award under the plan, and provide for the opportunity to issue
restricted shares and restricted stock units, or
“RSUs”, in addition to stock options.
The proposed changes would increase the aggregate number of
shares of the Company’s common stock available for grant or
award under the 2005 Directors’ Plan by
1,000,000 shares, to a total of 2,750,000 shares. The
2005 Directors’ Plan would permit grants up to the
following limits: (1) a one-time award of restricted stock
or RSUs having a fair market value of up to $200,000 (or the
equivalent value in the form of stock options) upon the initial
election of a Director to the Board of Directors, subject to
vesting (at a rate of one-third per year) over three years
following the date of grant, and (2) annual grants of
restricted stock or RSUs having a fair market value of up to
$80,000 (or the equivalent value in the form of stock options),
subject to vesting in full after one year. The number of option
shares to which a Director would be entitled would be three
times the number of shares of restricted stock or RSUs to which
a Director otherwise would be entitled.
Under the 2005 Directors’ Plan, non-employee Directors also
would be permitted to (a) elect to receive restricted
shares of RSUs in lieu of all or any portion of their annual
cash retainer and meeting fees, and (b) defer the
settlement of their RSUs, if and to the extent permitted under
the terms of any non-qualified deferred compensation plan
sponsored by the Company. Shares obtained as the result of an
election to receive restricted shares or RSUs in lieu of annual
cash retainer and meeting fees would not be subject to vesting.
If the 2005 Directors’ Plan is approved by the
stockholders, the Board intends to make the following grants in
2005: (1) a one-time award of restricted stock or RSUs
having a fair market value of $150,000 (or the equivalent value
in the form of stock options) upon the initial election of a
Director to the Board of Directors, subject to vesting (at a
rate of one-third per year) over three years following the date
of grant, and (2) annual grants of restricted stock or RSUs
having a fair market value of $55,000 (or the equivalent value
in the form of stock options), subject to vesting in full after
one year. Absent approval of the 2005 Directors’ Plan, the
1994 Director Plan will remain in effect and the Company will
continue to grant stock options to non-employee Directors
pursuant to that Plan.
Item 12.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The following table sets forth certain information, derived from
filings with the Securities and Exchange Commission and other
public information, regarding the beneficial ownership of our
Common Stock at February 8, 2005 by: (i) each person
who is known by us to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each of the
current Directors and executive officers named in the Summary
Executive Compensation Table, and (iii) all current
Directors and executive officers as a group. Except as otherwise
indicated below and subject to applicable community property
laws, each owner has sole voting and sole investment powers with
respect to the stock listed.
| Common Stock and | |||||||||
| Common Stock | |||||||||
| Name of Person or Identity of Group(1) | Equivalents(2) | Percentage | |||||||
|
Apollo Investment Fund III, L.P
|
|||||||||
|
Apollo Overseas Partners III,
L.P.
|
|||||||||
|
Apollo (U.K.) Partners III,
L.P.
|
|||||||||
|
Apollo Investment Fund IV, L.P.
|
|||||||||
|
Apollo Overseas Partners IV, L.P.
|
|||||||||
|
Apollo/AW LLC
|
|||||||||
|
c/o Apollo Advisors, II,
L.P.
|
65,739,579 | (3) | 20.7 | % | |||||
|
10250 Constellation Blvd,
Suite 2900
|
|||||||||
|
Blackstone Capital Partners II
and III Merchant Banking Fund L.P.
|
|||||||||
|
Blackstone Offshore Capital
Partners II and III L.P.
|
|||||||||
|
Blackstone Family Investment
Partnership II and III L.P.
|
|||||||||
|
c/o Blackstone Management
Associates II L.L.C
|
47,906,868 | (4) | 15.1 | % | |||||
|
345 Park Avenue,
31st Floor
|
|||||||||
|
Capital Research and Management
Company
|
31,345,200 | 9.9 | % | ||||||
|
333 South Hope Street
|
|||||||||
| 25,000 | (5) | * | |||||||
|
Robert M. Agate
|
95,562 | (6) | * | ||||||
| 65,824,161 | (7) | 20.7 | % | ||||||
| 57,000 | (8) | * | |||||||
|
Michael S. Gross
|
65,862,222 | (7) | 20.7 | % | |||||
|
Dennis R. Hendrix
|
131,539 | (9) | * | ||||||
| 47,936,868 | (10) | 15.1 | % | ||||||
| 172,817 | (11) | * | |||||||
| 48,001,868 | (10) | 15.1 | % | ||||||
| 65,867,001 | (7) | 20.7 | % | ||||||
| 43,283 | (12) | * | |||||||
| 120,448 | (9) | * | |||||||
|
Donald W. Slager
|
535,743 | (13) | * | ||||||
| 501,719 | (14) | * | |||||||
|
Steven M. Helm
|
462,389 | (15) | * | ||||||
|
Thomas H. Van Weelden
|
3,772,168 | (16) | 1.2 | % | |||||
|
Thomas W. Ryan
|
313,888 | (17) | * | ||||||
|
All Directors and executive
officers as a group (17
persons)(3),(4) and(5)-(17)
|
120,337,650 | 37.3 | % | ||||||
| * | Does not exceed one percent. |
| (1) | Unless otherwise indicated, the address of each person or group listed above is 15880 North Greenway-Hayden Loop, Suite 100, Scottsdale, Arizona 85260. |
156
157
(2)
Includes shares of Common Stock that may be acquired upon the
exercise of options within 60 days, shares of restricted
stock that are currently vested or will vest within 60 days
and shares of Common Stock issuable upon conversion of our
Series C Preferred Stock.
(3)
This total represents shares held by Apollo Investment
Fund III, LP (25,461,653 shares, representing 38%),
Apollo Overseas Partners III, LP (1,672,338 shares,
representing 2%), Apollo (UK) Partners III, LP
(1,035,588 shares, representing 2%), Apollo Investment
Fund IV, LP (31,401,337 shares, representing 48%),
Apollo Overseas Partners IV, LP (1,748,663 shares,
representing 3%), and Apollo/AW LLC (4,420,000 shares,
representing 7%), (collectively, the Apollo Investors). Apollo
Advisors II, LP, Apollo Advisors IV, LP and/or Apollo
Management, LP (and together with affiliated investment
managers, Apollo Advisors) which serves as general partner
and/or manager for each of the Apollo Investors, each of which
is affiliated with one another. Messrs. Black, Gross, and
Ressler are principals of Apollo Advisors and each disclaims
beneficial ownership of the indicated shares.
(4)
This total represents shares held by Blackstone Management
Associates II L.L.C. (Blackstone Associates) which serves
as general partner for each of Blackstone Capital
Partners II Merchant Banking Fund L.P
(6,611,545 shares, representing 14%), Blackstone Offshore
Capital Partners II L.P. (1,962,386 shares,
representing 4%), Blackstone Family Investment
Partnership II L.P. (657,937 shares, representing 1%),
Blackstone Capital Partners III Merchant Banking
Fund L.P. (30,668,235 shares, representing 64%), and
Blackstone Offshore Capital Partners III L.P.
(5,686,265 shares, representing 12%) and Blackstone Family
Investment Partnership III L.P. (2,320,500 shares,
representing 5%) (collectively, the Blackstone Investors).
Messrs. Lipson and Hill are Managing Directors of
Blackstone Associates and each disclaims beneficial ownership of
the shares owned by the Blackstone Investors.
(5)
Includes 25,000 shares of Common Stock that may be acquired
on the exercise of options.
(6)
Includes 65,000 shares of Common Stock that may be acquired
on the exercise of options.
(7)
This total includes (i) 65,739,579 shares beneficially
owned by the Apollo Investors, and (ii) 95,000, 95,000 and
65,000 shares that may be acquired on the exercise of
options by each of Messrs. Gross, Ressler and Black,
respectively. Each of Messrs, Gross, Ressler and Black disclaim
beneficial ownership of shares owned by Apollo.
(8)
Includes 45,000 shares of Common Stock that may be acquired
on the exercise of options.
(9)
Includes 95,000 shares of Common Stock that may be acquired
on the exercise of options.
(10)
Includes (i) 47,906,868 shares beneficially owned by
the Blackstone Investors, and (ii) 95,000 and
30,000 shares that may be acquired on the exercise of
options by Messrs. Lipson and Hill, respectively. Each of
Messrs. Lipson and Hill disclaim beneficial ownership of
Blackstone.
(11)
Includes 100,000 shares of Common Stock that may be
acquired on the exercise of options.
(12)
Includes 35,000 shares of Common Stock that may be acquired
on the exercise of options.
(13)
Includes 499,866 shares of Common Stock that may be
acquired on the exercise of options. Excludes 364,207 unvested
restricted stock units because he does not have investment or
voting power for these units.
(14)
Includes 467,333 shares of Common Stock that may be
acquired on the exercise of options. Excludes 338,095 unvested
restricted stock units because he does not have investment or
voting powers for these units.
(15)
Includes 441,667 shares of Common Stock that may be
acquired on the exercise of options. Excludes 210,603 unvested
restricted stock units because he does not have investment or
voting power for these units.
(16)
Includes 1,827,825 shares of Common Stock that may be
acquired on the exercise of options, 914,286 unvested shares of
restricted stock. Includes 460,000 shares of Common Stock
subject to a prepaid variable share forward agreement with JP
Morgan Chase (the Forward Sale Agreement), pursuant to which
Mr. Van Weelden will deliver on November 21, 2005,
part or all
158
of such shares of Common Stock (or, at Mr. Van
Weelden’s option, the cash equivalent of such shares) as
determined by a formula set forth in the Forward Sale Agreement.
Mr. Van Weelden also has entered into a pledge agreement
under which he pledged 460,000 shares of Common Stock to
secure his obligations under the Forward Sale Agreement. Unless
there is a default under the Forward Sale Agreement,
Mr. Van Weelden retains all voting rights with respect to
such shares, and therefore retains beneficial ownership of such
shares, until they are delivered pursuant to the Forward Sale
Agreement. Excludes 33,333 unvested restricted stock units
because he does not have investment or voting power for these
units. Mr. Van Weeldon resigned as an executive officer and
director of the Company in October 2004.
(17)
Includes 68,750 shares of Common Stock that may be acquired
on the exercise of options, 214,286 unvested shares of
restricted stock. Excludes 13,333 unvested restricted stock
units because he does not have investment or voting power for
these units. Mr. Ryan retired as an executive officer of
the Company in December 2004.
Equity Compensation Plan Information as of Fiscal Year-End
We maintain (a) the Amended and Restated 1991 Incentive
Stock Plan, as amended (the 1991 Plan), (b) the 1993
Incentive Stock Plan, as amended (the 1993 Plan), and
(c) the Amended and Restated 1994 Incentive Stock Plan, as
amended (the 1994 Plan). The 1991 Plan, 1993 Plan, and 1994 Plan
provide for the grant of non-qualified stock options, incentive
stock options, shares of restricted stock, shares of phantom
stock, stock bonuses, and certain cash bonuses. The 1991 Plan
also provides for the grant of restricted stock units.
The 1991 Plan limits the maximum number of shares that may be
granted to not more than 10.5% of the number of fully diluted
shares of Common Stock on the date of an award. The 1991 Plan
also limits awards in the form of restricted stock, restricted
stock units, stock bonuses, performance awards, and phantom
stock to not more than 25% of the aggregate shares available to
be awarded or granted under the plan and limits the maximum
number of options granted to any individual under the 1991 Plan
to 500,000 per year. A maximum of 2,000,000 shares of
Common Stock may be granted under the 1994 Plan. The 1994 Plan
also limits the maximum number of awards that may be granted to
any individual under the 1994 Plan to 1,000,000 shares of
Common Stock per year.
As of January 31, 2005, there were 13,973,640 shares
of common stock available for grant under the 1991 Plan and
202,000 shares of common stock available for grant under
the 1994 Plan. The Company can no longer make grants under the
1993 Plan, although outstanding awards under that plan will
remain in effect pursuant to the terms of such awards.
We also maintain the 1994 Director Plan, which currently
provides for the automatic grant of options to acquire
25,000 shares of Common Stock at the time a non-employee
Director is first elected to the Board of Directors and provides
for an annual grant of options to acquire 10,000 shares of
Common Stock to continuing non-employee Directors. There
currently are 292,700 shares of Common Stock available for
grant under the 1994 Director Plan. On February 17,
2005, the Board amended and restated the 1994 Director Plan
into the 2005 Non-Employee Director Equity Compensation Plan,
subject to stockholder approval, as described under
“Compensation of Directors.”
The following table gives information as of the fiscal year
ended December 31, 2004 about compensation plans under
which our equity securities are authorized for issuances, which
includes the 1991 Plan, the 1993 Plan and the 1994 Plan
(collectively, the Incentive Stock Plans), and the
1994 Director Plan.
EQUITY COMPENSATION PLAN INFORMATION
| (c) | ||||||||||||
| (b) | Number of Securities | |||||||||||
| (a) | Weighted-Average | Remaining Available for | ||||||||||
| Number of Securities to be | Exercise Price of | Future Issuance under | ||||||||||
| Issued upon Exercise of | Outstanding | Equity Compensation Plans | ||||||||||
| Outstanding Options, | Options, Warrants | (Excluding Securities | ||||||||||
| Plan Category | Warrants and Rights(1) | and Rights | Reflected in Column (a)) | |||||||||
|
Equity compensation plans approved
by security
holders(1)
|
21,765,901 | $ | 11.11 | 17,044,590 | ||||||||
|
Equity compensation plans not
approved by security holders
|
— | — | — | |||||||||
|
Total
|
21,765,901 | $ | 11.11 | 17,044,590 | ||||||||
| (1) | There are 210,070 stock options outstanding under the American Disposal Services, Inc. 1996 Stock Option Plan (“American Disposal Plan”) which were assumed as part of the merger of American Disposal and us in October 1998. These stock options are held by 71 former employees and consultants of American Disposal, and are exercisable for 346,615 shares of our Common Stock (after giving effect to the exchange ratio provided in the merger). These options have a weighted average exercise price of $20.17 per share. No further awards will be made under the American Disposal Plan. Statistics regarding the assumed options are not included in the above table. |
| Item 13. | Certain Relationships and Related Transactions |
159
160
with two landfills, one in Newton County, Indiana and the other
in Hoopeston, Illinois, that were previously owned by
Messrs. Van Weelden and sold in 1989 to Environmental
Development Corp. (EDC). In July 1992, we acquired EDC and
assumed the obligation to make the royalty payments to
Messrs. Van Weelden and the trust. These royalty payments
are determined based on various factors, including the volume of
the solid waste deposited in the landfills each year, and are
payable for so long as deposits continue to be made at the
landfill. During 2004, we paid $377,746, $240,966, and $20,307
to Thomas H. Van Weelden, James G. Van Weelden, and Thomas H.
Van Weelden’s family trust, respectively. Thomas H. Van
Weelden was furnished a vehicle for his personal use during a
portion of 2004. Upon his termination of employment,
Mr. Van Weelden returned this vehicle to the Company, and
the vehicle was subsequently sold. We have determined that the
fair market value of Mr. Van Weelden’s personal use of
the vehicle was approximately $1,600.
Roger A. Ramsey, former Chief Executive Officer and Chairman of
the Board, retired from the Board in December 2002. At that time
we extended the term of his outstanding stock options, which
Mr. Ramsey received as an employee and Director of Allied,
and they continued to vest and remained exercisable until
December 2004. Mr. Ramsey had a loan of $2.2 million
from us pursuant to a non-recourse promissory note that bore
interest at a rate of 6.625% per year, the due date for
which was extended, in December 2002, from December 31,
2002 to December 31, 2004. Mr. Ramsey exercised
options for 232,175 shares, and paid the net, after-tax
proceeds, in the amount of $735,400, to us in December 2004. The
promissory note was non-recourse with respect to
Mr. Ramsey, other than with respect to the proceeds of the
stock options which had been pledged to secure the loan,
therefore the Company has recorded a charge for the amount of
the uncollateralized portion of the note. Mr. Ramsey is not
obligated to make any further payments to us under the
promissory note.
Our Shareholder Agreement with the Apollo/Blackstone Investors
includes various agreements with the Apollo/Blackstone Investors
relating to their original investment in us in 1997 and their
investment in connection with the acquisition of BFI in 1999.
These agreements, among other things, grant the
Apollo/Blackstone Investors rights to representation on the
Board and to register under the Securities Act of 1933 the offer
and sale of the securities of Allied they hold, and also govern
the voting of these company securities. Following is a summary
of the Third Amended and Restated Shareholders Agreement dated
December 18, 2003:
We are party to the Third Amended and Restated Shareholder
Agreement, dated as of December 18, 2003 (the Shareholders
Agreement), with the Apollo/Blackstone Investors and certain
other shareholders (together with the Apollo/Blackstone
Investors, the Shareholders). The Shareholders Agreement amended
and restated the Shareholders Agreement that was entered into
with the Shareholders at the time they acquired their shares of
Series A Preferred Stock and became effective at the time
of the exchange of 110.5 million shares of common stock for
the shares of Series A Preferred Stock. Under this
Shareholder Agreement we have agreed, until the earlier to occur
of July 31, 2009 or the date upon which the
Apollo/Blackstone Investors own, collectively, less than 10% of
the sum of the shares of common stock they acquired from
TPG Partners, L.P., TPG Parallel, L.P. and Laidlaw
Transportation, Inc. and the 87,295,000 shares of the
common stock issued in connection with the Exchange
(collectively, the Apollo/Blackstone Shares), to nominate and
support the election to the Board of Directors of certain
individuals (the Shareholder Designees) designated by the
Apollo/Blackstone Investors. For so long as the
Apollo/Blackstone Investors beneficially own: (i) 80% or
more of the Apollo/Blackstone Shares, they shall be entitled to
designate five Shareholder Designees; (ii) 60% or more but
less than 80% of the Apollo/Blackstone Shares, they shall be
entitled to designate four Shareholder Designees; (iii) 40%
or more but less than 60% of the Apollo/Blackstone Shares, they
shall be entitled to designate three Shareholder Designees;
(iv) 20% or more but less than 40% of the Apollo/Blackstone
Shares, they shall be entitled to designate two Shareholder
Designees; and (v) 10% or more but less than 20% of the
Apollo/Blackstone Shares, they shall be entitled to designate
one Shareholder Designee; provided, that if, at any time as a
result of our issuance of voting securities, the
Apollo/Blackstone
Investors beneficially own 9% or less of the total voting power
of voting securities then outstanding, the Apollo/Blackstone
Investors shall only be entitled to designate at most three
Shareholder Designees. Currently, Messrs. Black, Gross,
Hill, Ressler and Lipson are the Shareholder Designees
designated by the Apollo/Blackstone Investors.
In the Shareholders Agreement, we agreed to: (i) limit the
number of our executive officers that serve on the Board of
Directors to two; and (ii) nominate persons to the
remaining positions on the Board of Directors who are
recommended by the Governance Committee and are not our
employees, officers or outside counsel or partners, employees,
directors, officers, affiliates or associates of any
Apollo/Blackstone Investors (the Unaffiliated Directors).
Unaffiliated Directors shall be nominated only upon the approval
of a majority vote of the Governance Committee, which will
consist of not more than four Directors, at least two or whom
shall be Shareholder Designees, or such lesser number of
Shareholder Designees as then serves on the Board of Directors.
If the Apollo/Blackstone Investors beneficially own less than
50% of the Apollo/Blackstone Shares, the Governance Committee
shall contain only one number who is a Shareholder Designee.
In the Shareholders Agreement, the Shareholders agreed that,
generally until the earlier to occur of July 31, 2009 or
the date upon which the Apollo/Blackstone Investors own,
collectively, voting securities of the Company which represent
less than 10% of the total voting power of all of our voting
securities on a fully diluted basis, the Shareholders will vote
all voting securities beneficially owned by such persons to
elect the individuals nominated to the board of Directors in
accordance with the provisions of the Shareholders Agreement to
vote all their shares as recommended by a majority of the entire
Board of Directors in connection with mergers, business
combinations and other similar extraordinary transactions, and
otherwise to vote as they wish.
The Shareholders continue to be subject to the same standstill
and restriction on dispositions provisions that were contained
in the previous shareholders agreement. In addition, the
Shareholders Agreement prohibits the Shareholders from disposing
of the 110.5 million shares of common stock they received
in the exchange until December 18, 2004. At the time of the
exchange, we entered into a registration rights agreement with
the holders of the Series A Preferred Stock, which provides
that the shares of common stock received in the exchange
transaction may be included in any registration of securities
requested by the holders of the Series A Preferred Stock.
In addition, we have agreed that these holders may request a
shelf registration of their shares at any time after
December 18, 2004.
Item 14.
Principal Accountant Fees and Services
A summary of the services provided by PricewaterhouseCoopers LLP
for the 2004 and 2003 fiscal years are as follows (in thousands):
| 2004 | 2003 | |||||||
|
Audit
Fees(1)
|
$ | 3,050.4 | $ | 1,874.4 | ||||
|
Audit-Related
Fees(2)
|
758.2 | 842.3 | ||||||
|
Tax
Fees(3)
|
23.5 | 31.0 | ||||||
|
All Other Fees
|
— | — | ||||||
| (1) | Relates to services for the annual financial statement audits included in our Form 10-K, services for the review of the financial statements included in our Form 10-Q, services in connection with capital markets transactions such as comfort letters and consents, and internal control attestation services required in 2004 to comply with the Sarbanes-Oxley legislation. |
| (2) | Includes subsidiary audits, agreed upon procedure audits, financial statement audits in connection with divestitures, assistance with the preparation and planning for our first annual assessment of our internal controls over financial reporting. |
| (3) | Fees were incurred for advice on a tax planning matter. |
161
The Audit Committee’s policy is to pre-approve all audit
and permissible non-audit services provided by the independent
auditors. The Audit Committee will consider annually for
pre-approval a list of specific services and categories of
services, including audit, audit-related, tax and other
services, for the upcoming or current fiscal year. Any service
that is not included in the approved list of services or that
does not fit within the definition of a pre-approved service is
required to be presented separately to the Audit Committee for
consideration at its next regular meeting or, if earlier
consideration is required, by other means of communication.
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Financial Statement Schedules —
Schedule II — Valuation and Qualifying Accounts
(in millions):
| Balance | Charges | Write- | Balance | |||||||||||||||||
| at | to | Other | Offs/ | at | ||||||||||||||||
| 12/31/01 | Expense | Charges(1) | Payments | 12/31/02 | ||||||||||||||||
|
Receivable realization allowance
|
$ | 30.2 | $ | 17.0 | $ | (3.7 | ) | $ | (21.2 | ) | $ | 22.3 | ||||||||
|
Acquisition related severance and
termination costs
|
4.1 | — | — | (2.1 | ) | 2.0 | ||||||||||||||
|
Acquisition related restructuring
costs
|
13.3 | — | (3.1 | ) | (6.9 | ) | 3.3 | |||||||||||||
| Balance | Charges | Write- | Balance | |||||||||||||||||
| at | to | Other | Offs/ | at | ||||||||||||||||
| 12/31/02 | Expense | Charges(1) | Payments | 12/31/03 | ||||||||||||||||
|
Receivable realization allowance
|
$ | 22.3 | $ | 23.6 | $ | 0.1 | $ | (23.6 | ) | $ | 22.4 | |||||||||
|
Acquisition related severance and
termination costs
|
2.0 | — | — | (1.4 | ) | 0.6 | ||||||||||||||
|
Acquisition related restructuring
costs
|
3.3 | — | 0.3 | (1.3 | ) | 2.3 | ||||||||||||||
| Balance | Charges | Write- | Balance | |||||||||||||||||
| at | to | Other | Offs/ | at | ||||||||||||||||
| 12/31/03 | Expense | Charges(1) | Payments | 12/31/04 | ||||||||||||||||
|
Receivable realization allowance
|
$ | 22.4 | $ | 20.0 | $ | (0.3 | ) | $ | (25.1 | ) | $ | 17.0 | ||||||||
|
Acquisition related severance and
termination costs
|
0.6 | — | — | (0.4 | ) | 0.2 | ||||||||||||||
|
Acquisition related restructuring
costs
|
2.3 | — | (0.1 | ) | (0.7 | ) | 1.5 | |||||||||||||
| (1) | Amounts primarily relate to acquired and divested companies. |
162
163
BROWNING-FERRIS INDUSTRIES, INC.
Financial Statements of Browning-Ferris Industries,
Inc. —
Following are the stand-alone financial statements for our
wholly-owned subsidiary, Browning-Ferris Industries, Inc. (BFI).
We are required to provide these financial statements under the
Securities and Exchange Commission’s
(SEC) Rule 3-16 of Regulation S-X. The stock of
substantially all of BFI, along with certain of our other
wholly-owned subsidiaries, collateralizes certain of our
outstanding debt obligations. In Note 4 of our consolidated
financial statements, included under Item 8 of this
Form 10-K, we have provided information on both BFI and the
other Allied subsidiaries that serve as collateral, both on an
individual and combined basis. As of December 31, 2004, the
book value of the assets of the combined entities whose stock
serves as collateral was approximately $8.5 billion, of
which $4.7 billion was BFI and the remaining amount was
other Allied subsidiaries.
Financial Statements and Supplementary Data
| 165 | ||||
| 166 | ||||
| 167 | ||||
| 168 | ||||
| 169 | ||||
| 170 | ||||
| 202 |
164
165
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Allied Waste Industries, Inc.:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Browning-Ferris Industries, Inc. (the
“Company”), a wholly-owned subsidiary of Allied Waste
Industries, Inc. and its subsidiaries at December 31, 2004
and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. These financial
statements and financial statement schedule are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board
(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,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in Note 7 to the consolidated financial
statements, the Company changed its method of accounting for
obligations associated with the retirement of long-lived assets
and the associated asset retirement costs as of January 1,
2003.
Phoenix, Arizona
BROWNING-FERRIS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | |||||||||
| 2004 | 2003 | ||||||||
| (In millions) | |||||||||
| ASSETS | |||||||||
|
Current Assets —
|
|||||||||
|
Cash and cash equivalents
|
$ | 5.4 | $ | 6.5 | |||||
|
Accounts receivable, net of
allowance of $4.1 and $7.5
|
143.1 | 129.7 | |||||||
|
Prepaid and other current assets
|
23.3 | 30.0 | |||||||
|
Total current assets
|
171.8 | 166.2 | |||||||
|
Property and equipment, net
|
937.9 | 917.8 | |||||||
|
Goodwill
|
3,439.4 | 3,630.4 | |||||||
|
Other assets, net
|
118.2 | 137.0 | |||||||
|
Due from parent
|
906.8 | 1,323.5 | |||||||
|
Total assets
|
$ | 5,574.1 | $ | 6,174.9 | |||||
| LIABILITIES AND STOCKHOLDER’S DEFICIT | |||||||||
|
Current Liabilities —
|
|||||||||
|
Current portion of long-term debt
|
$ | 100.7 | $ | 19.2 | |||||
|
Accounts payable
|
136.3 | 118.0 | |||||||
|
Current portion of accrued capping,
closure, post-closure and environmental costs
|
62.9 | 58.0 | |||||||
|
Accrued interest
|
96.5 | 105.9 | |||||||
|
Other accrued liabilities
|
106.5 | 133.3 | |||||||
|
Unearned revenue
|
59.4 | 57.6 | |||||||
|
Total current liabilities
|
562.3 | 492.0 | |||||||
|
Long-term debt, less current portion
|
5,934.0 | 6,282.8 | |||||||
|
Accrued capping, closure,
post-closure and environmental costs, less current portion
|
544.1 | 516.1 | |||||||
|
Other long-term obligations
|
203.4 | 276.5 | |||||||
|
Commitments and contingencies
|
|||||||||
|
Stockholder’s
Deficit —
|
|||||||||
|
Common stock
|
— | — | |||||||
|
Additional paid-in capital
|
— | — | |||||||
|
Accumulated other comprehensive loss
|
(69.4 | ) | (94.5 | ) | |||||
|
Retained deficit
|
(1,600.3 | ) | (1,298.0 | ) | |||||
|
Total stockholder’s deficit
|
(1,669.7 | ) | (1,392.5 | ) | |||||
|
Total liabilities and
stockholder’s deficit
|
$ | 5,574.1 | $ | 6,174.9 | |||||
166
BROWNING-FERRIS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, | ||||||||||||||
| 2004 | 2003 | 2002 | ||||||||||||
| (In millions) | ||||||||||||||
|
Revenues
|
$ | 1,518.7 | $ | 1,546.1 | $ | 1,554.7 | ||||||||
|
Cost of operations (exclusive of
depreciation and amortization shown below)
|
976.2 | 977.3 | 940.1 | |||||||||||
|
Selling, general and administrative
expenses
|
145.1 | 144.7 | 136.7 | |||||||||||
|
Depreciation and amortization
|
148.3 | 131.1 | 116.7 | |||||||||||
|
Non-cash gain on divestiture of
assets
|
— | — | (1.4 | ) | ||||||||||
|
Operating income
|
249.1 | 293.0 | 362.6 | |||||||||||
|
Equity in earnings of
unconsolidated affiliates
|
— | — | (4.9 | ) | ||||||||||
|
Interest expense and other
|
662.7 | 726.5 | 704.2 | |||||||||||
|
Loss before income taxes
|
(413.6 | ) | (433.5 | ) | (336.7 | ) | ||||||||
|
Income tax benefit
|
(147.5 | ) | (161.4 | ) | (119.5 | ) | ||||||||
|
Minority interest
|
(3.4 | ) | 1.2 | 1.2 | ||||||||||
|
Loss from continuing operations
|
(262.7 | ) | (273.3 | ) | (218.4 | ) | ||||||||
|
Income (loss) from discontinued
operations, net of tax
|
(9.4 | ) | (28.2 | ) | 6.4 | |||||||||
|
Cumulative effect of change in
accounting principle, net of tax
|
— | 44.8 | — | |||||||||||
|
Net loss
|
$ | (272.1 | ) | $ | (256.7 | ) | $ | (212.0 | ) | |||||
|
Pro forma amounts, assuming the
change in accounting principle is applied retroactively, and
excluding the cumulative effect of change in accounting
principle in the year of adoption:
|
||||||||||||||
|
Net loss
|
$ | (301.5 | ) | $ | (229.2 | ) | ||||||||
167
BROWNING-FERRIS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT
| Accumulated | |||||||||||||||||||||
| Additional | Other | Total | |||||||||||||||||||
| Common | Paid-In | Comprehensive | Retained | Stockholder’s | |||||||||||||||||
| Stock | Capital | Loss | Deficit | Deficit | |||||||||||||||||
| (In millions) | |||||||||||||||||||||
|
Balance as of December 31, 2001
|
$ | — | $ | — | $ | (85.1 | ) | $ | (829.3 | ) | $ | (914.4 | ) | ||||||||
|
Net loss
|
— | — | — | (212.0 | ) | (212.0 | ) | ||||||||||||||
|
Other comprehensive income, net of
tax:
|
|||||||||||||||||||||
| Net gain deferred on hedging derivatives | — | — | 7.4 | — | 7.4 | ||||||||||||||||
| Net loss on hedging derivatives reclassified to earnings | — | — | 21.3 | — | 21.3 | ||||||||||||||||
|
Minimum pension liability adjustment
|
— | — | (74.8 | ) | — | (74.8 | ) | ||||||||||||||
|
Balance as of December 31, 2002
|
$ | — | $ | — | $ | (131.2 | ) | $ | (1,041.3 | ) | $ | (1,172.5 | ) | ||||||||
|
Net loss
|
$ | — | $ | — | $ | — | $ | (256.7 | ) | $ | (256.7 | ) | |||||||||
|
Other comprehensive income, net of
tax:
|
|||||||||||||||||||||
| Net gain deferred on hedging derivatives | — | — | 18.8 | — | 18.8 | ||||||||||||||||
| Net loss on hedging derivatives reclassified to earnings | — | — | 13.9 | — | 13.9 | ||||||||||||||||
|
Minimum pension liability adjustment
|
— | — | 4.0 | — | 4.0 | ||||||||||||||||
|
Balance as of December 31, 2003
|
$ | — | $ | — | $ | (94.5 | ) | $ | (1,298.0 | ) | $ | (1,392.5 | ) | ||||||||
|
Net loss
|
$ | — | $ | — | $ | — | $ | (272.1 | ) | $ | (272.1 | ) | |||||||||
|
Dividend to parent
|
— | — | — | (30.2 | ) | (30.2 | ) | ||||||||||||||
|
Other comprehensive income, net of
tax:
|
|||||||||||||||||||||
| Net gain deferred on hedging derivatives | — | — | 18.2 | — | 18.2 | ||||||||||||||||
| Net loss on hedging derivatives reclassified to earnings | — | — | 4.3 | — | 4.3 | ||||||||||||||||
|
Minimum pension liability adjustment
|
— | — | 2.6 | — | 2.6 | ||||||||||||||||
|
Balance as of December 31, 2004
|
$ | — | $ | — | $ | (69.4 | ) | $ | (1,600.3 | ) | $ | (1,669.7 | ) | ||||||||
| Comprehensive income — |
| Year Ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | |||||||||||
|
Net loss
|
$ | (272.1 | ) | $ | (256.7 | ) | $ | (212.0 | ) | ||||
|
Other comprehensive income, net of
tax:
|
|||||||||||||
|
Net gain deferred on hedging
derivatives
|
18.2 | 18.8 | 7.4 | ||||||||||
|
Net loss on hedging derivatives
reclassified to earnings
|
4.3 | 13.9 | 21.3 | ||||||||||
|
Minimum pension liability adjustment
|
2.6 | 4.0 | (74.8 | ) | |||||||||
| $ | (247.0 | ) | $ | (220.0 | ) | $ | (258.1 | ) | |||||
168
BROWNING-FERRIS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | |||||||||||
| (In millions) | |||||||||||||
|
Operating activities —
|
|||||||||||||
|
Net loss
|
$ | (272.1 | ) | $ | (256.7 | ) | $ | (212.0 | ) | ||||
|
Discontinued operations, net of tax
|
9.4 | 28.2 | (6.4 | ) | |||||||||
|
Adjustments to reconcile net loss
to cash used for operating activities from continuing
operations —
|
|||||||||||||
|
Provisions for:
|
|||||||||||||
|
Depreciation and amortization
|
148.3 | 131.1 | 116.7 | ||||||||||
|
Non-cash gain on divestiture of
assets
|
— | — | (1.4 | ) | |||||||||
|
Undistributed earnings of equity
investment in unconsolidated affiliates
|
— | — | (4.9 | ) | |||||||||
|
Doubtful accounts
|
2.1 | 6.1 | 3.5 | ||||||||||
|
Accretion of debt and amortization
of debt issuance costs
|
21.7 | 25.9 | 36.4 | ||||||||||
|
Gain on sale of fixed assets
|
(1.6 | ) | (2.1 | ) | (2.7 | ) | |||||||
|
Non-cash reduction in acquisition
accruals
|
(12.2 | ) | (11.2 | ) | (10.7 | ) | |||||||
|
Loss on sale of trade receivables
|
13.4 | 9.3 | — | ||||||||||
|
Non-cash gain on non-hedge
accounting interest rate swap contracts
|
(16.2 | ) | (48.0 | ) | (2.4 | ) | |||||||
|
Amortization of accumulated other
comprehensive loss for de-designated interest rate swap contracts
|
6.7 | 23.1 | 35.4 | ||||||||||
|
Write-off of deferred debt issuance
costs
|
15.3 | 61.0 | 5.9 | ||||||||||
|
Cumulative effect of change in
accounting principle, net of tax
|
— | (44.8 | ) | — | |||||||||
|
Change in operating assets and
liabilities, excluding the effects of purchase
acquisitions —
|
|||||||||||||
|
Accounts receivable, prepaid
expenses, and other assets
|
(22.0 | ) | 53.7 | 41.3 | |||||||||
|
Accounts payable, accrued
liabilities, unearned revenue and other
|
(22.9 | ) | (47.7 | ) | (32.6 | ) | |||||||
|
Capping, closure and post-closure
provision and accretion
|
29.4 | 28.0 | 42.5 | ||||||||||
|
Capping, closure, post-closure and
environmental expenditures
|
(63.3 | ) | (49.2 | ) | (70.7 | ) | |||||||
|
Cash used for operating activities
from continuing operations
|
(164.0 | ) | (93.3 | ) | (62.1 | ) | |||||||
|
Investing activities —
|
|||||||||||||
|
Cost of acquisitions, net of cash
acquired
|
(0.2 | ) | — | (4.2 | ) | ||||||||
|
Proceeds from divestitures, net of
cash divested
|
55.7 | 132.0 | 21.1 | ||||||||||
|
Proceeds from sale of fixed assets
|
3.9 | 6.4 | 5.0 | ||||||||||
|
Capital expenditures, excluding
acquisitions
|
(180.5 | ) | (144.2 | ) | (94.8 | ) | |||||||
|
Capitalized interest
|
(4.0 | ) | (6.3 | ) | (4.5 | ) | |||||||
|
Change in deferred acquisition
costs, notes receivable and other
|
2.2 | (0.9 | ) | (0.7 | ) | ||||||||
|
Cash used for investing activities
from continuing operations
|
(122.9 | ) | (13.0 | ) | (78.1 | ) | |||||||
|
Financing activities —
|
|||||||||||||
|
Proceeds from long-term debt, net
of issuance costs
|
2,122.2 | 2,870.2 | 855.9 | ||||||||||
|
Repayments of long-term debt
|
(2,415.5 | ) | (3,728.8 | ) | (1,172.6 | ) | |||||||
|
Change in disbursement account
|
5.0 | — | (4.4 | ) | |||||||||
|
Change in due from parent
|
582.9 | 1,001.2 | 431.5 | ||||||||||
|
Cash provided by financing
activities from continuing operations
|
294.6 | 142.6 | 110.4 | ||||||||||
|
Cash provided by (used for)
discontinued operations
|
(8.8 | ) | (37.4 | ) | 20.6 | ||||||||
|
Decrease in cash and cash
equivalents
|
(1.1 | ) | (1.1 | ) | (9.2 | ) | |||||||
|
Cash and cash equivalents,
beginning of year
|
6.5 | 7.6 | 16.8 | ||||||||||
|
Cash and cash equivalents, end of
year
|
$ | 5.4 | $ | 6.5 | $ | 7.6 | |||||||
|
Supplemental disclosures:
|
|||||||||||||
|
Interest paid (net of amounts
capitalized)
|
$ | 540.7 | $ | 576.9 | $ | 653.2 | |||||||
|
Capital lease obligations incurred
|
0.1 | 0.2 | 3.8 | ||||||||||
|
Non-cash dividend to parent
|
30.2 | — | — | ||||||||||
169
170
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Summary of Significant Accounting
Policies
Browning-Ferris Industries, Inc. (BFI) is a wholly-owned
subsidiary of Allied Waste Industries, Inc., (Allied or Parent),
a Delaware corporation. Allied is the second largest,
non-hazardous solid waste management company in the United
States, as measured by revenues and provides non-hazardous waste
collection, transfer, recycling and disposal services in
37 states. The business activities of BFI are fully
integrated with the operations of Allied, which is operated
solely as a consolidated entity. As described in Note 4,
these financial statements reflect all of the debt obligations
incurred by Allied to acquire BFI in 1999. Since that time,
Allied has transferred certain assets as discussed below. The
entities that comprise BFI have not historically produced the
operating results and the cash flows required to service all of
the acquisition indebtedness incurred by Allied. As such, BFI is
reliant on its Parent to provide necessary funding to support
its activities. Allied has issued a letter to BFI evidencing its
intent and ability to financially support BFI for a period of at
least one year.
Purpose of financial statements —
The purpose of these financial statements is to provide
information about assets and stock, which collateralize certain
outstanding debt obligations of BFI and the Parent. BFI along
with certain other wholly-owned subsidiaries of Allied (herein
referred to as the Other Allied Collateral) on a combined basis
represents the aggregate collateral. The combined entity
represents all assets that, upon occurrence of any triggering
event or certain other conditions under the collateral
agreements, would be available to satisfy the outstanding debt
obligation. Separate stand-alone financial statements for the
Other Allied Collateral are not presented herein because none of
the subsidiaries within Other Allied Collateral meet the SEC
reporting criteria under Rule 3-16 of Regulation S-X.
Transfer of assets and change in financial statement
presentation —
Prior to 2001, the Other Allied Collateral was wholly-owned by
BFI. Subsequently, the Other Allied Collateral was transferred
to newly created subsidiaries of Allied for organizational
efficiency and other purposes. A collateral waiver was received
from the collateral trustee. The Other Allied Collateral
continues to collateralize the debt. The transfers of assets
described above constitute a change in reporting entity. Prior
to 2004, these changes have been retroactively restated for all
prior periods in accordance with Accounting Principles Board
Opinion No. 20, Accounting Changes. Changes in 2004
were immaterial and, therefore, prior period financial
statements were not restated.
Principles of consolidation and presentation —
All significant intercompany accounts and transactions are
eliminated in the accompanying consolidated financial
statements. BFI is not a registrant with the SEC and is not
subject to the SEC’s periodic reporting requirements,
except as may be required by Rule 3-16 of
Regulation S-X. Certain estimates, including allocations
from the Parent, have been made to provide financial information
for SEC and stand-alone reporting purposes as if BFI were a
registrant. We believe that the presentations and disclosures
herein are adequate to make the information not misleading. In
the opinion of management, all adjustments necessary to fairly
state the financial statements have been reflected.
Discontinued operations —
During 2003, we determined certain operations that were divested
or held for sale as part of our divestiture plan that was
launched in early 2003 were discontinued operations. In
addition, at December 31, 2003, we held for sale certain
operations in Florida which we sold in 2004.
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operations sold in 2004 and 2003 reported as discontinued
operations include businesses in Colorado, New Jersey and
Florida. We received net proceeds of $160.3 million
($41.4 million in 2004 and $118.9 million in 2003)
from the transactions which was used to repay debt.
The accompanying consolidated financial statements and notes
reflect the results of operations, financial position and cash
flows of these operations as discontinued operations. Following
is a summary of the assets held for sale and discontinued
operations on the consolidated balance sheet (in millions):
| December 31, | |||||
| 2003 | |||||
|
Accounts receivable, net
|
$ | 4.1 | |||
|
Other current assets
|
2.4 | ||||
|
Property and equipment, net
|
9.2 | ||||
|
Other long-term assets
|
28.6 | ||||
|
Total assets
|
$ | 44.3 | |||
|
Current liabilities
|
$ | 3.8 | |||
|
Total liabilities
|
$ | 3.8 | |||
| For the Year Ended | ||||||||||||
| December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Revenues
|
$ | 13.4 | $ | 155.5 | $ | 177.4 | ||||||
|
Income (loss) before tax
|
$ | (0.5 | ) | $ | 12.8 | $ | 10.7 | |||||
|
Gain (loss) on divestiture
|
0.8 | (14.7 | ) | — | ||||||||
|
Income tax expense
|
9.7 | 26.5 | 4.3 | |||||||||
|
Cumulative effect of change in
accounting principle, net of tax
|
— | 0.2 | — | |||||||||
|
Discontinued operations, net of tax
|
$ | (9.4 | ) | $ | (28.2 | ) | $ | 6.4 | ||||
171
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business combinations —
All acquisitions in 2004, 2003 and 2002 were accounted for under
the purchase method and are reflected in the results of
operations since the effective date of the acquisition. Under
the purchase method, the cost of the acquired business is
allocated 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 the future consolidated balance sheets and statements of
operations.
The following table summarizes acquisitions for the years ended
December 31:
| 2004 | 2003 | 2002 | ||||||||||
|
Number of businesses acquired
|
1 | 1 | 2 | |||||||||
|
Total consideration (in millions)
|
$ | 0.2 | $ | 0.0 | $ | 4.2 | ||||||
172
173
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and amortized using the effective interest method over the term
of the related debt. Financing costs that are deferred represent
transaction costs directly attributable to obtaining financing.
Other accrued liabilities —
Other accrued liabilities include accrued insurance, accrued
payroll, the current portion of non-recurring acquisition
accruals and other miscellaneous current liabilities.
Accrued capping, closure and post-closure
costs —
Accrued capping, closure and post-closure costs represent an
estimate of the present value of the future obligation
associated with capping, closure and post-closure monitoring of
non-hazardous solid waste landfills we currently own and/or
operate. Site specific capping, closure and post-closure
engineering cost estimates are prepared annually for landfills
owned and/or operated by us for which we are responsible for
capping, closure and post-closure. The present value of
estimated future costs are accrued on a per unit basis as
landfill disposal capacity is consumed. For active landfills,
the impact of changes determined to be changes in estimates,
based on the annual update, are accounted for on a prospective
basis. Changes in estimates for closed landfill sites and fully
incurred capping projects are recognized when determined.
Environmental costs —
We accrue for costs associated with environmental remediation
obligations when such costs are probable and can be reasonably
estimated. 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 cannot
reliably be determined. Recoveries of environmental remediation
costs from other parties are recorded when their receipt is
deemed probable. Environmental liabilities and apportionment of
responsibility among potentially responsible parties are
accounted for in accordance with the guidance provided by the
American Institute of Certified Public Accountants Statement of
Position 96-1, Environmental Remediation Liabilities.
Other long-term obligations —
Other long-term obligations include accruals for contingencies,
self-insurance obligations, the non-current portion of
non-recurring acquisition accruals, net pension liability (see
Note 8), derivative liabilities for interest rate swap
contracts (see Note 5), and other obligations.
Revenue —
Revenues result primarily from 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 landfills
that we operate on behalf of municipalities and others.
Advance billings are recorded as unearned revenue, and revenue
is recognized when services are provided, usually within
90 days.
174
BROWNING-FERRIS 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 estimated direct costs,
exclusive of any fixed costs, to service the contractual
arrangements exceed the estimated 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.
Non-recurring acquisition accruals —
At the time of an acquisition accounted for under the purchase
method of accounting, we evaluate and record liabilities to
represent our estimate of fair value. Assumed liabilities are
considered in the allocation of purchase price and goodwill
valuation. Liabilities related to restructuring and abandonment
activities, loss contracts or changes in estimates of
environmental, litigation and regulatory compliance costs are
charged to expense in the period in which the acquisition is
completed. Any subsequent changes to these estimates are also
charged to expense in the same line item as the original charge
was recorded. At December 31, 2004 and 2003, we had
approximately $113.3 million and $137.8 million,
respectively, of non-recurring acquisition accruals remaining on
our balance sheets, consisting primarily of loss contract,
litigation, insurance liabilities and other commitments
associated with the acquisition of BFI by Allied. Expenditures
against non-recurring acquisition accruals in 2004 and 2003 were
$25.5 million and $36.8 million, respectively.
Interest expense and other —
Interest expense and other includes interest paid to third
parties for our debt obligations (net of amounts capitalized),
cash settlement on interest rate swap contracts, interest
income, accretion of debt and amortization of debt issuance
costs, costs incurred to early extinguish debt, non-cash gain or
loss on non-hedge accounting interest rate swap contracts and
the amortization of accumulated other comprehensive loss for
de-designated interest rate swap contracts. Interest expense and
other is allocated from our Parent and represents the interest
incurred and other costs associated with the debt obligations
that have also been allocated from our Parent (see Note 4).
Interest expense capitalized —
We capitalize interest in connection with the construction of
our landfill assets. Actual acquisition, permitting and
construction costs incurred related to landfill assets under
active development qualify for interest capitalization. Interest
capitalization ceases when the construction of a landfill asset
is complete and available for use.
During the years ended December 31, 2004, 2003 and 2002, we
incurred gross interest expense (including payments under
interest rate swap contracts) of $562.1 million,
$643.1 million and $665.3 million of which
$4.0 million, $6.3 million and $4.5 million were
capitalized.
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. Although we believe that our estimates and assumptions
are reasonable, they are based upon information presently
available and assumptions about the future. Actual results may
differ significantly from the estimates.
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
(SFAS) No. 107, Disclosures About Fair Value of
Financial Instruments (SFAS 107). Our financial
instruments as defined by SFAS 107 include cash, money
market funds, accounts receivable, accounts payable, long-term
debt and derivatives. We have determined the estimated fair
value amounts at December 31, 2004 using available market
information and valuation methodologies. Considerable judgment
is required in interpreting market data to develop the estimates
of fair value. Accordingly, our estimates of fair value 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 Notes 4
and 5 for fair value of debt and derivative instruments).
Stock-based compensation plans —
Certain BFI employees are eligible to participate in the stock
option plans of the Parent. The Parent accounts for stock-based
compensation plans under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees
(APB 25) and the related interpretations, under which no
compensation cost is recorded in 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. Accordingly, during the last three years, we
have recorded no compensation expense for stock options granted
to employees. SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123), as amended by
SFAS No. 148, Accounting for Stock-Based
Compensation — Transition and Disclosure, requires
that companies that do not elect to account for stock-based
compensation as prescribed by this statement, disclose the pro
forma effects on earnings as if SFAS 123 had been adopted.
If the Parent applied the recognition provisions of
SFAS 123 using the Black-Scholes option pricing model, the
resulting pro forma net loss, after allocation of expense to
BFI, is as follows (in millions):
| For the Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Net loss, as reported
|
$ | (272.1 | ) | $ | (256.7 | ) | $ | (212.0 | ) | |||
|
Total stock-based employee
compensation expense determined under fair value based method,
net of tax
|
(1.9 | ) | (3.1 | ) | (2.2 | ) | ||||||
|
Net loss, pro forma
|
$ | (274.0 | ) | $ | (259.8 | ) | $ | (214.2 | ) | |||
175
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with SFAS 123, 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, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Risk free interest rate
|
3.1% | 2.7% | 2.6% | |||||||||
|
Expected life
|
4 years | 4 years | 4 years | |||||||||
|
Dividend rate
|
0% | 0% | 0% | |||||||||
|
Expected volatility
|
58% | 62% | 66% | |||||||||
| 2. | Property and Equipment |
176
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 SFAS 144 and
EITF Issue 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. When property is retired or sold, the
related cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in cost of
operations. For the years ended December 31, 2004, 2003 and
2002, we recognized net pre-tax gains on the disposal of fixed
assets of $1.6 million, $2.1 million and
$2.7 million, respectively.
Property and equipment at December 31, 2004 and 2003 is as
follows (in millions):
| 2004 | 2003 | |||||||
|
Land and improvements
|
$ | 130.3 | $ | 128.0 | ||||
|
Land held for permitting as
landfills
|
13.4 | 11.2 | ||||||
|
Landfills
|
1,064.3 | 971.3 | ||||||
|
Buildings and improvements
|
96.2 | 92.6 | ||||||
|
Vehicles, furniture and equipment
|
352.8 | 333.4 | ||||||
|
Containers and compactors
|
146.0 | 130.6 | ||||||
| 1,803.0 | 1,667.1 | |||||||
|
Accumulated depreciation and
amortization
|
(865.1 | ) | (749.3 | ) | ||||
| $ | 937.9 | $ | 917.8 | |||||
| 3. | Goodwill and Intangible Assets |
177
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At the time of a divestiture of an individual business, goodwill
is allocated to that business and a gain or loss on disposal is
derived. Subsequently, the remaining goodwill is re-evaluated
for realizability, which could result in an additional loss
being recognized.
During 2004, $28.1 million of goodwill related to
operations sold in the Southern Area classified as assets held
for sale at December 31, 2003 was expensed as part of
discontinued operations. The remaining goodwill was subsequently
evaluated for realizability and we concluded there was no
impairment.
We have incurred non-cash losses on sales of assets when we
believed that re-deployment of the proceeds from the sale of
such assets could reduce debt or improve operations and was
economically beneficial. If we decide to sell additional assets
in the future, we could incur additional non-cash losses on
asset sales.
BFI goodwill is accounted for at the Parent company level. We
make an allocation to the entities that were acquired as part of
the BFI acquisition. These entities are included in both BFI and
the Other Allied Collateral. The following table shows the
activity and balances related to the BFI goodwill as recorded by
the Parent from December 31, 2002 through December 31,
2004 (in millions):
| 2004 | 2003 | |||||||
|
Beginning balance
|
$ | 3,630.4 | $ | 3,745.3 | ||||
|
Acquisitions
|
— | 0.1 | ||||||
|
Divestitures
|
(4.4 | ) | (86.3 | ) | ||||
|
Adjustments(1)
|
(186.6 | ) | (28.7 | ) | ||||
|
Ending balance
|
$ | 3,439.4 | $ | 3,630.4 | ||||
| (1) | Amounts primarily relate to write-off of goodwill in connection with assets held for sale accounting, purchase accounting adjustments, and entities transferred to Allied. |
| Gross Carrying | Accumulated | Net Carrying | ||||||||||
| Value | Amortization | Value | ||||||||||
|
Non-compete agreements
|
$ | 0.4 | $ | 0.3 | $ | 0.1 | ||||||
| 4. | Long-term Debt |
178
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
replacement debt instrument, along with the related issuance
costs and interest expense, is presented in these financial
statements.
Long-term debt at December 31, 2004 and 2003 consists of
the amounts listed in the following table. The effective
interest rate includes our interest cost incurred, the effect of
interest rate swap contracts, amortization of deferred debt
issuance cost and the amortization or accretion of discounts or
premiums (in millions, except percentages).
| Effective Interest | ||||||||||||||||
| Debt Balance at | Rate | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
|
Revolving credit facility
|
$ | — | $ | — | 5.56 | %* | 5.41 | %* | ||||||||
|
Term loan B
|
1,162.9 | 1,185.0 | 6.07 | 9.83 | ||||||||||||
|
Term loan C
|
245.4 | 250.0 | 6.05 | 7.81 | ||||||||||||
|
Term loan D
|
147.2 | — | 5.85 | — | ||||||||||||
|
Senior notes, interest at 6.38%
|
275.0 | — | 6.60 | — | ||||||||||||
|
Senior notes, interest at 6.38%
|
151.5 | 148.4 | 8.34 | 8.34 | ||||||||||||
|
Senior notes, interest at 6.50%
|
350.0 | 350.0 | 4.80 | 4.51 | ||||||||||||
|
Senior notes, interest at 7.88%
|
450.0 | 450.0 | 8.09 | 8.05 | ||||||||||||
|
Senior notes, interest at 7.88%
|
69.4 | 68.7 | 8.77 | 8.77 | ||||||||||||
|
Senior notes, interest at 8.50%
|
750.0 | 750.0 | 8.78 | 8.77 | ||||||||||||
|
Senior notes, interest at 8.88%
|
600.0 | 600.0 | 9.15 | 9.16 | ||||||||||||
|
Senior notes, interest at 9.25%
|
376.9 | 377.1 | 9.41 | 9.39 | ||||||||||||
|
Debentures, interest at 7.40%
|
289.9 | 287.6 | 8.03 | 8.03 | ||||||||||||
|
Debentures, interest at 9.25%
|
95.8 | 95.6 | 9.48 | 9.48 | ||||||||||||
|
Senior unsecured notes, interest at
7.38%
|
400.0 | — | 7.53 | — | ||||||||||||
|
Senior subordinated convertible
debentures, interest at 4.25%
|
230.0 | — | 4.33 | — | ||||||||||||
|
Senior subordinated notes, interest
at 10.00%
|
195.4 | 1,497.4 | 10.22 | 10.22 | ||||||||||||
|
Solid waste revenue bond
obligations, principal payable through 2031
|
239.1 | 238.4 | 4.66 | 6.17 | ||||||||||||
|
Notes payable to banks, finance
companies, and individuals, interest rates of 7.25% to 12.23%,
and principal payable through 2021, secured by vehicles,
equipment, real estate, accounts receivable or stock of certain
subsidiaries
|
3.0 | 3.8 | 10.24* | 10.47* | ||||||||||||
|
Notes payable to a commercial
company, interest at 6.00%, principal payable through 2010,
unsecured
|
3.2 | — | 6.00 | — | ||||||||||||
| 6,034.7 | 6,302.0 | |||||||||||||||
|
Less: Current portion
|
100.7 | 19.2 | ||||||||||||||
| $ | 5,934.0 | $ | 6,282.8 | |||||||||||||
| * | reflects weighted average interest rate |
179
180
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Completion of financing plan —
Allied completed a multifaceted financing plan in April 2003
that refinanced the 1999 Credit Facility. The financing plan
included issuance of a receivables secured loan, common stock,
mandatory convertible preferred stock and senior notes, along
with the refinancing of the 1999 Credit Facility, discussed
below. The common stock, mandatory convertible preferred stock
and $450 million of senior notes were issued under
Allied’s shelf registration statement. The aggregate net
proceeds of approximately $867 million from the issuance of
the common stock, preferred stock and $450 million of
senior notes were used to reduce borrowings under the
tranche A, B and C term loans under our 1999 Credit
Facility on a pro-rata basis. In connection with the completion
of the financing plan, we recorded a charge to interest expense
and other of approximately $52.1 million related to the
write-off of deferred and other costs.
Bank credit facility —
At December 31, 2004, Allied’s bank credit facility is
a senior secured credit facility (the 2003 Credit Facility) that
includes: (i) a $1.5 billion revolver due January 2008
(the 2003 Revolver), (ii) a $1.2 billion term loan
(Term Loan B), (iii) a $245 million term loan
(Term Loan C), (iv) a $147 million term loan
(Term Loan D), and (v) a $198 million
institutional letter of credit facility due 2008. Term
Loan D was funded in April 2004. The proceeds of Term
Loan D were used to fund a portion of the tender offer of
the 10% senior subordinated notes due 2009. All of the term
loans under the 2003 Credit Facility mature in 2010. Of the
$1.5 billion available under the 2003 Revolver, the entire
amount may be used to support the issuance of letters of credit.
At December 31, 2004, Allied had no loans outstanding and
$716.7 million in letters of credit outstanding under the
2003 Revolver leaving approximately $783.3 million
available under the 2003 Revolver. In addition, at
December 31, 2004, Allied had $198.0 million in
letters of credit outstanding under the institutional letter of
credit facility. During the third quarter of 2004, Allied
reduced the institutional letter of credit by $2 million to
$198 million.
In March 2004, Allied amended the 2003 Credit Facility to, among
other things, increase its flexibility to fund a $1 billion
tender offer of our 10% senior subordinated notes due 2009
and permit Allied to incur additional indebtedness and apply the
proceeds of such indebtedness to the repayment of the senior
subordinated notes. In addition, the amendment resulted in
certain guarantor subsidiaries becoming non-guarantors.
In April 2003, Allied refinanced the 1999 Credit Facility, which
had consisted of a $1.291 billion revolving credit
facility, due 2005 and $2.226 billion in funded, amortizing
senior secured term loans with varying maturity dates through
2007, with a $2.9 billion senior secured credit facility
that included a $1.5 billion revolver due January 2008, a
$1.2 billion term loan with final maturity in January 2010
(Term Loan B), and a $200 million institutional letter
of credit facility. In addition, the 2003 Credit Facility
allowed us to establish an incremental term loan in an amount up
to $250 million and an additional institutional letter of
credit facility in an amount up to $500 million.
In August 2003, the 2003 Credit Facility was amended to
(i) permit the Series A Preferred Stock exchange
transaction and (ii) permit Allied to incur an additional
$250 million of term loan indebtedness, an additional
$350 million of senior secured indebtedness and
$400 million of senior unsecured indebtedness, for the
purpose of retiring portions of the outstanding senior
subordinated indebtedness through optional redemption, public
tender offer or open market repurchases.
During the third quarter 2003, a new $250 million term loan
(Term Loan C) due 2010 was funded under the 2003 Credit
Facility and the proceeds were used to repurchase a portion of
the 10% senior subordinated notes in the same amount of
principal. In connection with these repurchases,
181
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
premiums of approximately $23.8 million were paid which are
recorded in interest expense and other on our consolidated
statement of operations.
In November 2003, a second amendment to our 2003 Credit Facility
was completed reducing the interest rate for the Term
Loan B, Term Loan C and institutional letter of credit
facility to LIBOR plus 275 basis points. In addition to
re-pricing the term loan facilities, financial covenants under
the 2003 Credit Facility were favorably revised to provide
greater operating flexibility.
The 2003 Credit Facility bears interest at (a) an
Alternative Base Rate, or (b) Adjusted LIBOR, both terms
defined in the 2003 Credit Facility, plus, in either case, an
applicable margin based on Allied’s leverage ratio.
Proceeds from the 2003 Credit Facility may be used for working
capital and other general corporate purposes, including
acquisitions.
The 2003 Credit Facility requires Allied to make prepayments
upon completion of certain transactions as defined in the 2003
Credit Facility, including asset sales and issuances of debt
securities. Proceeds from these transactions are to be applied
to amounts due under the 2003 Credit Facility pursuant to the
credit facility agreement. Allied is also required to make
prepayments on the 2003 Credit Facility for 50% of any excess
cash flows from operations on a consolidated basis, as defined.
Senior notes and debentures —
In April 2004, Allied Waste North America (AWNA), a wholly-owned
subsidiary of Allied, issued $275 million of
6.375% senior notes due 2011 to fund a portion of the
tender offer of 10% senior subordinated notes due 2009.
Interest is payable semi-annually on
April 15th
and
October 15th
beginning on October 15, 2004. These senior notes have a
make-whole call provision that is exercisable at any time at the
stated redemption price.
In addition, in April 2004, AWNA issued $400 million of
7.375% senior unsecured notes due 2014 to fund a portion of
the tender offer of 10% senior subordinated notes due 2009.
Interest is payable semi-annually on
April 15th
and
October 15th
beginning on October 15, 2004. These notes have a
make-whole call provision that is exercisable any time prior to
April 15, 2009 at the stated redemption price. The
notes may also be redeemed after April 15, 2009 at the
stated redemption prices. These notes along with the
$275 million 6.375% senior notes due 2011 are herein
collectively referred to as the April 2004 Senior Notes.
In November 2003, AWNA issued $350 million of
6.50% senior notes due 2010. These senior notes have a
make-whole call provision that is exercisable at any time at a
stated redemption price. Interest is payable semi-annually on
February 15th
and
August 15th
beginning on August 15, 2004. Net proceeds of approximately
$256.1 million were used to repurchase a portion of the
10% senior subordinated notes in 2003. In connection with
these repurchases, premiums of approximately $23.1 million
were paid in 2003. During January 2004, Allied repurchased
$93.9 million of the 10% senior subordinated notes
using the remaining proceeds from the senior notes and paid
premiums of approximately $8.2 million related to the 2004
repurchases.
On April 9, 2003, AWNA issued $450 million of
7.875% senior notes due 2013 for net proceeds of
approximately $440 million. The senior notes have a no call
provision until 2008. Interest is payable
April 1st and
October 1st of
each year beginning October 2003.
In November 2002, AWNA issued $375.0 million of
9.25% senior notes due 2012 (the 2002 Senior Notes). The
2002 Senior Notes were issued at a premium of $2.4 million.
These senior notes have a no call provision until 2007. Interest
is payable semi-annually on March 1 and September 1. The net
182
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
proceeds of $370.6 million from the sale of these notes
were used to repay term loans under the 1999 Credit Facility
prior to maturity.
During 2001, AWNA issued $750 million of 8.50% senior
notes, due 2008 and $600 million of 8.875% senior
notes, due 2008 (together the 2001 Senior Notes). Interest on
the 2001 Senior Notes is payable semi-annually on June 1
and September 1.
In connection with the BFI acquisition on July 30, 1999,
Allied assumed all of BFI’s debt securities with the
exception of commercial paper that was paid off in connection
with the acquisition. Our debt securities were recorded at their
fair market values as of the date of the acquisition in
accordance with EITF 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, 2004, the remaining unamortized net discount
related to these debt securities was $87.1 million.
The 6.10% senior notes, 6.375% senior notes and
9.25% debentures assumed from BFI are not redeemable prior
to maturity and are not subject to any sinking fund. In January
2003, the 6.10% senior notes were repaid upon maturity with
cash flow from operations and application of our ending cash
balance.
The 7.40% debentures assumed from BFI 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.
Senior subordinated notes —
In July 1999, AWNA issued $2.0 billion of senior
subordinated notes (the 1999 Notes) that mature in 2009.
Interest accrues on the 1999 Notes at an interest rate of
10% per annum, payable semi-annually on May 1 and
November 1. These proceeds from the 1999 Notes were used as
partial financing of the acquisition of BFI.
During the first half of 2004, Allied completed open market
repurchases and a tender offer of the 1999 Notes in an aggregate
principle amount of $1.149 billion. In connection with
these repurchases and tender offer, we paid premiums of
approximately $87.5 million and wrote-off deferred
financing costs of $13.5 million, both of which were
recorded as a charge to interest expense and other.
During the third and fourth quarters of 2004, Allied redeemed an
additional $150 million of the 1999 Notes for
$157.5 million. In connection with this redemption, we paid
premiums and fees of approximately $7.8 million and
wrote-off deferred financing costs of $1.6 million, both of
which were recorded as a charge to interest expense and other.
During 2003, Allied repaid $506.1 million of the 1999 Notes
prior to maturity through open market repurchases. In connection
with these repurchases, premiums of approximately
$46.9 million were paid and deferred financing costs of
$6.4 million were written-off to interest expense and other.
Senior subordinated convertible debentures —
In April 2004, Allied issued $230 million of
4.25% senior subordinated convertible debentures due 2034
that are unsecured and are not guaranteed. They are convertible
into Allied’s common stock at a conversion price of
$20.43 per share totaling 11.3 million shares. Common
stock transactions such as cash or stock dividends, splits,
combinations or reclassifications and issuances at less than
current market price will require an adjustment to the
conversion rate as defined per the indenture. Certain of the
conversion features contained in the convertible debentures are
deemed to be
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
embedded derivatives, as defined under SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, however, these embedded derivatives currently
have no value.
These debentures are convertible at the option of the holder
anytime if any of the following occurs: (i) Allied’s
closing stock price is in excess of $25.5375 for 20 of 30
consecutive trading days ending on the last day of the quarter,
(ii) during the five business day period after any three
consecutive trading days in which the average trading price per
debenture is less than 98% of the product of the closing price
for Allied’s common stock times the conversion rate,
(iii) we issue a call notice, or (iv) certain
specified corporate events such as a merger or change in control.
Allied can elect to settle the conversion in stock, cash or a
combination of stock and cash. If settled in stock, the holder
will receive the fixed number of shares based on the conversion
rate except if conversion occurs after 2029 as a result of item
(ii) above, the holder will receive shares equal to the par
value divided by the trading stock price. If settled in cash,
the holder will receive the cash equivalent of the number of
shares based on the conversion rate at the average trading stock
price over a ten day period except if conversion occurs as a
result of item (iv) above, the holder will then receive
cash equal to the par value only.
Allied can elect to call the debentures at any time after
April 15, 2009 at par for cash only. The holders can
require us to redeem the debentures on April 15th of 2011,
2014, 2019, 2024 and 2029 at par for stock, cash or a
combination of stock and cash at our option. If the debentures
are redeemed in stock, the number of shares issued will be
determined as the par value of the debentures divided by the
average trading stock price over a five day period.
Future maturities of long term debt —
Aggregate future scheduled maturities of long-term debt as of
December 31, 2004 are as follows (in millions):
| Maturity | ||||
|
2005
|
$ | 100.7 | ||
|
2006
|
24.4 | |||
|
2007
|
20.8 | |||
|
2008
|
1,531.8 | |||
|
2009
|
215.7 | |||
|
Thereafter
|
4,226.1 | |||
|
Gross Principal
|
$ | 6,119.5 | ||
|
Discount, net
|
(84.8 | ) | ||
|
Total Debt
|
$ | 6,034.7 | ||
183
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value of debt and interest rate protection
agreements —
The fair value of debt and interest rate swap contracts are
subject to change as a result of potential changes in market
rates and prices. The table below provides information about
BFI’s long-term debt and interest rate swap contracts of
Allied that are presented in these financial statements, 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 (in millions, except percentages).
| Balance at | Fair Value at | Balance at | Fair Value at | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||||
| 2004 | 2004 | 2003 | 2003 | |||||||||||||||
|
Long-Term Debt
|
||||||||||||||||||
|
Fixed Rate Debt:
|
||||||||||||||||||
|
Principal amount
|
$ | 4,399.6 | $ | 4,530.9 | $ | 4,787.4 | $ | 5,241.6 | ||||||||||
|
Weighted average interest rate
|
7.92 | % | 8.81 | % | ||||||||||||||
|
Variable Rate Debt:
|
||||||||||||||||||
|
Principal amount
|
$ | 1,635.1 | $ | 1,654.7 | $ | 1,514.6 | $ | 1,527.2 | ||||||||||
|
Weighted average interest
rate(1)
|
4.95 | % | 3.78 | % | ||||||||||||||
|
Interest Rate
Swaps(2)
|
||||||||||||||||||
|
Non-Cancelable:
|
||||||||||||||||||
|
Notional amount
|
$ | 250.0 | $ | (1.8 | ) | $ | 2,000.0 | $ | (46.5 | ) | ||||||||
|
Weighted average interest rate
|
5.99 | % | 5.69 | % | ||||||||||||||
| (1) | Reflects the rate in effect as of December 31, 2004 and 2003 before the effects of swaps and includes all applicable margins. Actual future rates may vary. |
| (2) | Amount includes our fixed to floating and floating to fixed interest rate swap contracts. See Note 5 for additional discussion. |
184
185
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accordance with FIN 45, the guarantees are not recorded in
our consolidated financial statements as they represent
parent-subsidiary guarantees. We do not guarantee any third
party debt.
Collateral —
The 2003 Credit Facility, the senior notes issued by AWNA and
$690 million of senior notes and debentures assumed in
connection with the acquisition of BFI by Allied are secured by
the stock of substantially all of BFI subsidiaries and Other
Allied Collateral and a security interest in the assets of BFI,
its domestic subsidiaries and Other Allied Collateral. At
December 31, 2004, on an aggregate basis, the book value of
all the assets that serve as collateral was $8.5 billion.
5.
Derivative Instruments and Hedging Activities
Consistent with Allied’s risk management policy, interest
rate swap agreements have been entered into for the purpose of
hedging variability of interest expense and interest payments on
long-term variable rate bank debt and maintaining a mix of fixed
and floating rate debt. Allied’s strategy is to use
interest rate swap contracts when such transactions will serve
to reduce our aggregate exposure and meet the objectives of our
risk management policy. These contracts are not entered into for
trading purposes. Allied’s risk management policy requires
that the credit of our counter-parties is evaluated and
counter-party exposure is monitored.
Allied’s risk management policy requires that no less than
70% of the consolidated debt to be fixed, either directly or
effectively through interest rate swap contracts. Approximately
$1.6 billion of the consolidated debt balance has variable
interest rates at December 31, 2004. As of
December 31, 2004, the consolidated interest rate swap
portfolio fixed 15% of the variable rate interest payment
obligation, protecting us from cash flow variations arising from
changes in short term interest rates. Allied believes it is
important to have a mix of fixed and floating rate debt to
provide financing flexibility. At December 31, 2004, the
notional amount of our interest rate swap contract was
$250 million maturing in March 2005. At December 31,
2004, counter-parties for all of our interest rate swap
portfolio were rated Aa3.
At December 31, 2004, a liability of $1.8 million is
included in the consolidated balance sheets in other long-term
obligations reflecting the fair market value of the entire
interest rate swap portfolio on that date. The liability will
fluctuate with market interest rates but will reduce to zero
over the terms of our interest rate swap contract. The
$1.8 million liability at December 31, 2004 relates to
a contract maturing in March 2005. Fair value variations over
the life of the interest rate swap contracts arise from changes
in market expectations of future interest rates and the time
value of money.
On December 31, 2001, Allied de-designated
$1.5 billion of notional amount of then outstanding
interest rate swap contracts due to the possibility that future
interest rate payments on the underlying variable rate debt may
cease prior to the expiration of the related interest rate swap
contracts. There were no de-designated interest rate swap
contracts prior to December 31, 2001. No additional
interest rate swap contracts were de-designated after 2001. All
of the de-designated interest rate swap contracts had reached
their contractual maturity by June 30, 2004, and therefore,
no mark-to-market or settlement income or expense was recorded
during the last half of 2004 for these swap contracts.
Designated interest rate swap contracts —
At December 31, 2004, Allied had a designated interest rate
swap contract (floating to fixed rate) with a notional amount of
$250 million maturing in March 2005. The fair value
liability of this contract
186
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2004 was $1.8 million. Our designated
cash flow interest rate swap contract is effective as a hedge of
our variable rate debt. 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 achieving 100% effectiveness. If significant
terms do not match, any ineffectiveness will be assessed and any
ineffectiveness is immediately recorded in the statement of
operations.
Changes in fair value of designated interest rate swap contracts
are reflected in accumulated other comprehensive loss (AOCL). At
December 31, 2004, approximately $1.8 million
($1.3 million, net of tax) is included in AOCL.
Expense or income related to swap settlements is recorded in
interest expense for the related variable rate debt over the
term of the agreements.
Non-hedge accounting interest rate swap
contracts —
We have had certain interest rate swap contracts that we have
de-designated or elected not to apply hedge accounting under
SFAS 133. We have elected to not apply hedge accounting to
allow us to have flexibility to repay debt prior to maturity and
to refinance debt when economically feasible. Following is a
description of the accounting for these interest rate swap
contracts.
De-designated interest rate swap contracts. At
December 31, 2004, we had no de-designated interest rate
swap contracts (floating to fixed rate). All of our
de-designated interest rate swap contracts had reached their
contractual maturity by June 30, 2004 and therefore, no
amounts were recorded during the last half of 2004 for these
swap contracts. Settlement payments and periodic changes in
market values of de-designated interest rate swap contracts are
recorded as a gain or loss on derivative contracts included in
interest expense and other in the consolidated statement of
operations. We recorded $15.2 million net gain related to
changes in market values and $15.3 million of settlement
costs during the first six months of 2004. We recorded
$47.1 million and $2.4 million of net gain related to
changes in market values and $51.9 million and
$59.6 million of settlement costs during the year ended
December 31, 2003 and 2002, respectively.
When interest rate swap hedging relationships are de-designated
or terminated, any accumulated gains or losses in our AOCL at
the time of de-designation are isolated and amortized over the
remaining original hedged interest payment. For contracts
de-designated, the total amount of loss in AOCL was
approximately $29.8 million ($18.1 million, net of
tax) at December 31, 2002, $6.7 million
($4.3 million, net of tax) at December 31, 2003 and no
balance remaining in AOCL at December 31, 2004. For the
years ended December 31, 2004, 2003 and 2002, we recorded
$6.7 million, $23.1 million and $35.4 million,
respectively, of amortization expense related to the accumulated
losses in AOCL for interest rate swap contracts that were
de-designated at December 31, 2001. The amortization
expense is recorded in interest expense and other. There are no
amounts in AOCL for de-designated contracts at December 31,
2004.
Fair value interest rate swap contracts. During 2004 and
2003, we used fair value interest rate swap contracts (fixed
rate to floating rate) to achieve our targeted mix of fixed and
floating rate debt and we elected not to apply hedge accounting
to these contracts. In the fourth quarter of 2004, we terminated
the outstanding contracts and at December 31, 2004, we had
no fair value interest rate swap contracts outstanding.
Settlement payments and periodic changes in market values of our
fair value interest rate swap contracts are recorded as a gain
or loss on derivative contracts included in interest expense and
other in our statement of operations. We recorded
$1.0 million and $0.9 million of net gain related to
changes in market values and received net settlements of
$6.8 million and
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$1.1 million during the year ended December 31, 2004
and 2003, respectively. We had no fair value interest rate swap
contracts in place during 2002.
6.
Accumulated Other Comprehensive Loss
The components of the ending balances of accumulated other
comprehensive loss, as reflected in stockholder’s deficit
are shown as follows (in millions):
| Years Ended | ||||||||
| December 31, | ||||||||
| 2004 | 2003 | |||||||
|
Minimum pension liability
adjustment, net of taxes of $45.5 and $47.2
|
$ | (68.1 | ) | $ | (70.7 | ) | ||
|
Interest rate swap contracts
designated, unrealized loss, net of taxes of $0.5 and $12.5
|
(1.3 | ) | (19.5 | ) | ||||
|
Interest rate swap contracts
de-designated, unrealized loss, net of taxes of $2.4
|
— | (4.3 | ) | |||||
|
Accumulated other comprehensive loss
|
$ | (69.4 | ) | $ | (94.5 | ) | ||
| 7. | Landfill Accounting |
187
188
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on the balance sheet and related expense as waste is disposed at
the landfill to match operating costs with revenues.
SFAS 143 resulted in a refinement to our industry practices
and have caused a change in the mechanics of calculating
landfill retirement obligations and the classification of where
amounts are recorded in the financial statements. Landfill
retirement obligations are no longer accrued through a provision
to cost of operations, but rather by an increase to landfill
assets. Liabilities retained from divested landfills that were
historically accounted for in closure and post-closure
liabilities were reclassified to other long-term obligations
because they were not within the scope of SFAS 143. In
addition, in accordance with SFAS 143, we changed the
classification of certain costs related to capping, closure and
post-closure obligations to other accounts. The most significant
change in classification is that we now record the costs for
methane gas collection systems in the landfill development
assets rather than accrue for these costs as part of the
post-closure liability. Further, the cost of financial assurance
instruments are no longer accrued as part of the post-closure
liability, but rather are expensed as incurred. Under
SFAS 143, each capping event at a landfill is accounted for
separately. Previously, the estimated costs of all capping
events were included in our landfill closure and post-closure
accrual rate.
Upon adoption, SFAS 143 required a cumulative change in
accounting for landfill obligations retroactive to the date the
landfill operations commenced or the date the asset was
acquired. To do this, SFAS 143 required the creation of the
related landfill asset, net of accumulated amortization and an
adjustment to the capping, closure and post-closure liabilities
for cumulative accretion.
At January 1, 2003, we recorded a cumulative effect of a
change in accounting principle of a net gain of approximately
$44.8 million (net of income tax expense of
$29.8 million). In addition, we recorded a decrease in our
capping, closure and post-closure liabilities of approximately
$106.5 million, an increase in other long-term obligations
of approximately $24.9 million, and a decrease in our net
landfill assets of approximately $7.0 million.
The pro forma liability for capping, closure and post-closure
obligations as of December 31, 2002 and 2001 would have
been $305.8 million and $277.4 million, respectively.
Landfill assets —
We use the units of production method for purposes of
calculating the amortization rate at each landfill. This
methodology divides the remaining costs (including any
unamortized amounts recorded) associated with acquiring,
permitting and developing the entire landfill plus the present
value of the total remaining costs for specific capping events,
closure and post-closure by the total remaining disposal
capacity of that landfill (except for capping costs, which are
divided by the total remaining capacity of the specific capping
event). The resulting per unit amortization rates are applied to
each unit disposed at the landfill and are recorded as expense
for that period. We expensed approximately $81.1 million
and $76.2 million, related to landfill amortization during
the years ended December 31, 2004 and 2003, respectively.
Landfill amortization expense for the year ended
December 31, 2002 would have been $75.5 million if we
had been accounting for landfill retirement obligations under
SFAS 143 since January 1, 2002.
Costs associated with developing the landfill include direct
costs such as excavation, liners, leachate collection systems,
methane gas collection system installation, engineering and
legal fees, and capitalized interest.
We classify total disposal capacity as either permitted (having
received the final permit from the governing authorities) or
probable expansion. Probable expansion disposal capacity has not
yet received final approval from the regulatory agencies, but we
have determined that certain critical
189
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
criteria have been met and the successful completion of the
expansion is highly probable. Our requirements to classify
disposal capacity as probable expansion are as follows:
1.
We have 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 have 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 disposal capacity are considered in
the life-cycle cost of the landfill and reflected in the
calculation of the amortization rate and the rate at which
capping, closure and post-closure is accrued.
We, together with our engineering and legal consultants,
continually monitor the progress of obtaining local, state and
federal approval for each of our expansion permits. If it is
determined that the expansion no longer meets our criteria, the
disposal capacity is removed from our total available disposal
capacity; the costs to develop that disposal capacity; and, the
associated capping, closure and post-closure costs are removed
from the landfill amortization base, and rates are adjusted
prospectively. In addition, any value assigned to probable
expansion capacity is written-off to expense during the period
in which it is determined that the criteria are no longer met.
Capping, closure and post-closure —
As individual areas within each landfill reach capacity, we are
required to cap and close the areas in accordance with the
landfill site permit. Generally, capping activities include the
installation of compacted clay, geosynthetic liners, drainage
channels, compacted soil layers and vegetative soil barriers
over areas of a landfill where total airspace has been consumed
and waste is no longer being received. Capping activities occur
throughout the life of the landfill.
Closure costs are those costs incurred after a landfill site
stops receiving waste, but prior to being certified as closed.
After the entire landfill site has reached capacity and is
closed, we are required to maintain and monitor the site for a
post-closure period, which generally extends for a period of
30 years. Post-closure requirements include maintenance and
operational costs of the site and monitoring the methane gas
collection systems and groundwater systems, among other
post-closure activities. Estimated costs for capping, closure
and post-closure as required under Subtitle D regulations are
compiled and updated annually for each landfill by local and
regional company engineers.
SFAS 143 requires landfill obligations to be recorded at
fair value. Quoted market prices in active markets is the best
evidence of fair value. Since quoted market prices for landfill
retirement obligations are not available to determine fair
value, we use discounted cash flows of capping, closure and
post-closure cost estimates to approximate fair value. The cost
estimates are prepared by our local management and third-party
engineers based on the applicable local, state and federal
regulations and site specific permit requirements and are
intended to approximate fair value.
Capping, closure and post-closure costs are estimated for the
period of performance utilizing estimates a third party would
charge (including profit margins) to perform those activities in
full
190
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
compliance with Subtitle D. If we perform the capping, closure
and post-closure activities internally, the difference between
amounts accrued, based upon third party cost estimates
(including profit margins) and our actual cost incurred is
recognized as a component of cost of operations in the period
earned. An estimate of fair value should include the price that
marketplace participants are able to receive for bearing the
uncertainties in cash flows. However, when utilizing discounted
cash flows, reliable estimates of market risk premiums may not
be obtainable. In our industry, there is no market that exists
for selling the responsibility for capping, closure and
post-closure independent of selling the entire landfill.
Accordingly, we believe that it is not possible to develop a
methodology to reliably estimate a market risk premium and have
excluded a market risk premium from our determination of
expected cash flows for capping, closure and post-closure
liability. Our cost estimates are inflated to the period of
performance using an estimate of inflation which is updated
annually (2.5% was used in both 2004 and 2003).
We discount our capping, closure and post-closure costs using
our credit-adjusted, risk-free rate. Capping, closure and
post-closure liabilities are recorded in layers and discounted
using the credit-adjusted risk-free rate in effect of the time
the obligation is incurred (7.5% in 2004 and 9% for all periods
prior to 2004). The credit-adjusted, risk-free rate is based on
the risk-free interest rate on obligations of similar maturity
adjusted for our own credit rating. Changes in our
credit-adjusted, risk-free rate do not change recorded
liabilities, but subsequently recognized obligations are
measured using the revised credit-adjusted, risk-free rate.
Accretion expense is necessary to increase the accrued capping,
closure and post-closure accrual balance to its future, or
undiscounted, value. To accomplish this, we accrete our capping,
closure and post-closure accrual balance using the same
credit-adjusted, risk-free rate that was used to calculate each
layer of the recorded liability. Accretion expense on recorded
landfill liabilities is recorded to cost of operations from the
time the liability is recognized until the costs are paid.
We charged to cost of operations approximately
$29.4 million and $28.0 million related to accretion
of the capping, closure and post-closure liabilities during the
years ended December 31, 2004 and 2003, respectively.
Accretion expense for the year ended December 31, 2002
would have been $26.3 million if we would have been
accounting for capping, closure and post-closure obligations
under SFAS 143 since January 1, 2002. Changes in
estimates of costs or disposal capacity are treated on a
prospective basis except for fully incurred capping events and
closed landfills which are recorded immediately in results of
operations.
Landfill maintenance costs —
Daily maintenance costs incurred during the operating life of
the landfill are expensed to cost of operations as incurred.
Daily maintenance costs include leachate treatment and disposal,
methane gas and groundwater system monitoring and maintenance,
interim cap maintenance, environmental monitoring and costs
associated with the application of daily cover materials.
Financial assurance costs —
Costs of financial assurances related to our capping, closure
and post-closure obligations for open and closed landfills are
expensed to cost of operations as incurred.
Environmental costs —
We engage third-party environmental consulting firms to assist
us in conducting environmental assessments of existing landfills
or other properties, and in connection with companies acquired
from third parties.
191
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We cannot determine with precision the ultimate amounts for
environmental liabilities. We make estimates of our potential
liabilities in consultation with our third-party environmental
engineers and legal counsel. These estimates 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.
Our ultimate liabilities for environmental matters may differ
from the estimates used in our assessment to date. We
periodically evaluate the recorded liabilities as additional
information becomes available to ascertain whether the accrued
liabilities are adequate. We have determined that the recorded
undiscounted liability for environmental matters as of
December 31, 2004 and 2003 of approximately
$212.5 million and $237.3 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, 2004 or December 31, 2003. 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
capping, closure and post-closure could result in approximately
$12 million of additional liability.
8.
Employee Benefit Plans
Defined Benefit Pension Plans —
We have one qualified defined benefit retirement plan as a
result of Allied’s acquisition of BFI. This plan covers
certain BFI employees in the United States, including some
employees subject to collective bargaining agreements.
During 2002, the BFI Retirement Plan (BFI Pension Plan) and the
Pension Plan of San Mateo County Scavenger Company and
Affiliated Divisions of Browning-Ferris Industries of
California, Inc. (San Mateo Pension Plan) were merged into
one plan. However benefits continue to be determined under each
of the two separate benefit structures. The BFI Pension Plan was
amended on July 30, 1999 to freeze future credited service,
but interest credits continue to accrue. The benefits not frozen
under this plan are based on years of service and the
employee’s compensation. The BFI Pension Plan utilized a
cash balance design.
The San Mateo Pension Plan covers substantially all employees at
this location, but excludes employees who are covered under
collective bargaining agreements under which benefits have been
the subject of good faith bargaining, unless the collective
bargaining agreement otherwise provides for such coverage.
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. The San Mateo Pension Plan was amended in July 2003 to
provide unreduced benefits, under certain circumstances, to
participants who retire on or after January 1, 2004, at or
after a special early retirement date.
Our general funding policy is to make annual contributions to
the plan as determined to be required by the plan’s actuary
and as required by the Employee Retirement Income Security Act
(ERISA). No contributions were required during 2004, 2003, or
2002. No contributions are anticipated for 2005.
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Actuarial valuation reports were prepared as of the measurement
dates of September 30, 2004 and 2003 and used as permitted
by SFAS 132R, Employers’ Disclosures about Pensions
and Other Postretirement Benefits, for disclosures included
in the tables below.
The following table provides a reconciliation of the changes in
the plans’ benefit obligations and the fair value of plan
assets for the twelve month period ended September 30 (in
millions):
| 2004 | 2003 | |||||||
|
Projected benefit obligation at
beginning of period
|
$ | 338.2 | $ | 299.2 | ||||
|
Service cost
|
0.8 | 0.9 | ||||||
|
Interest cost
|
20.6 | 19.9 | ||||||
|
Amendment costs
|
— | 2.0 | ||||||
|
Curtailment loss
|
1.1 | — | ||||||
|
Actuarial loss
|
8.2 | 28.0 | ||||||
|
Benefits paid
|
(15.9 | ) | (11.8 | ) | ||||
|
Projected benefit obligation at end
of period
|
$ | 353.0 | $ | 338.2 | ||||
|
Fair value of plan assets at
beginning of period
|
$ | 317.4 | $ | 277.6 | ||||
|
Actual return on plan assets
|
37.9 | 51.6 | ||||||
|
Benefits paid
|
(15.9 | ) | (11.8 | ) | ||||
|
Fair value of plan assets at end of
period
|
$ | 339.4 | $ | 317.4 | ||||
|
Funded status
|
$ | (13.6 | ) | $ | (20.8 | ) | ||
|
Unrecognized net actuarial loss
|
115.8 | 123.6 | ||||||
|
Unrecognized prior service cost
|
0.8 | 2.1 | ||||||
|
Prepaid pension asset
|
$ | 103.0 | $ | 104.9 | ||||
| 2004 | 2003 | |||||||
|
Prepaid pension asset
|
$ | 103.0 | $ | 104.9 | ||||
|
Accrued benefit liability
|
(114.4 | ) | (120.0 | ) | ||||
|
Net pension liability
|
(11.4 | ) | (15.1 | ) | ||||
|
Intangible assets
|
0.8 | 2.0 | ||||||
|
Accumulated other comprehensive
loss before tax benefit
|
113.6 | 118.0 | ||||||
|
Net amount recognized
|
$ | 103.0 | $ | 104.9 | ||||
192
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides the components of net periodic
benefit cost (income) for the years ended December 31 (in
millions):
| 2004 | 2003 | 2002 | ||||||||||
|
Service cost
|
$ | 0.8 | $ | 0.9 | $ | 0.9 | ||||||
|
Interest cost
|
20.6 | 19.9 | 19.3 | |||||||||
|
Expected return on plan assets
|
(28.0 | ) | (25.9 | ) | (30.4 | ) | ||||||
|
Recognized net actuarial loss
|
7.2 | 8.3 | 2.0 | |||||||||
|
Amortization of prior service cost
|
0.1 | 0.1 | — | |||||||||
|
Curtailment loss
|
1.1 | — | — | |||||||||
|
Net periodic benefit cost (income)
|
$ | 1.8 | $ | 3.3 | $ | (8.2 | ) | |||||
| 2004 | 2003 | 2002 | ||||||||||
|
Increase (decrease) in minimum
pension liability included in other comprehensive income, net of
tax
|
$ | (2.6 | ) | $ | (4.0 | ) | $ | 74.8 | ||||
|
Actual return on plan assets
|
$ | 37.8 | $ | 51.6 | $ | (14.7 | ) | |||||
|
Actual rate of return on plan assets
|
11.9 | % | 19.0 | % | (4.8 | )% | ||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Discount rate
|
6.00 | % | 6.25 | % | 6.75 | % | ||||||
|
Average rate of compensation
increase
|
4.00 | % | 4.00 | % | 4.00 | % | ||||||
|
Expected return on plan assets
|
8.50 | % | 9.00 | % | 9.50 | % | ||||||
193
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes our plan asset allocation at
September 2004 and 2003, target allocation for 2005, and
expected long-term rate of return by asset category for calendar
year 2004:
| Percentage of | |||||||||||||||||
| Plan Assets at | Weighted Average | ||||||||||||||||
| September 30, | Expected Long-Term | ||||||||||||||||
| Rate of Return for | |||||||||||||||||
| Target Allocation 2005 | 2004 | 2003 | Calendar Year 2004 | ||||||||||||||
|
Equity securities
|
60 | % | 62 | % | 61 | % | 10.2 | % | |||||||||
|
Debt securities
|
40 | % | 38 | % | 39 | % | 7.1 | % | |||||||||
|
Total
|
100 | % | 100 | % | 100 | % | 9.0 | % | |||||||||
|
Benefit payments:
|
||||
|
2003
|
$ | 11.8 | ||
|
2004
|
15.9 | |||
|
Estimated future payments:
|
||||
|
2005
|
$ | 10.2 | ||
|
2006
|
10.7 | |||
|
2007
|
11.4 | |||
|
2008
|
11.7 | |||
|
2009
|
12.4 | |||
|
Years 2010 — 2014
|
77.7 |
| 9. | Stockholder’s Deficit |
| Issued and | ||||||||||||
| Outstanding | ||||||||||||
| at | ||||||||||||
| December 31, | ||||||||||||
| Authorized | ||||||||||||
| Shares | 2004 | 2003 | ||||||||||
|
Common stock,
$0.162/3
par value
|
1.0 | 1.0 | 1.0 | |||||||||
194
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10.
Stock Option Plans
Certain employees of BFI are eligible to participate in the
stock option plans provided by Allied. Below is a description of
the plans provided by Allied.
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. The
1991 Plan limits the maximum number of shares that may be
granted to not more than 10.5% of the number of fully diluted
shares of common stock on the date of grant of an award. The
1991 plan also limits awards in the form of restricted stock,
stock bonuses, performance awards and phantom stock to not more
than 25% of the aggregate shares available to be awarded or
granted under the plan and limits the maximum number of options
granted to any employee under the 1991 Plan to 500,000 per
year. In addition, a maximum of 2 million common shares may
be granted under the 1994 Plan. No new equity awards may be
granted or awarded under the 1993 Plan. After taking into
account previously granted awards, awards covering approximately
17.0 million shares of common stock were available under
the Plans at December 31, 2004. The Management
Development/Compensation Committee of the Board of Directors of
Allied generally determines the exercise price, term and other
conditions applicable to each option granted. Options granted
under the Plans, including options granted for 2004, have
typically vested over three years. All of the options granted
under the Plans expire ten years from their grant date.
A summary of the status of the approximate portion of
Allied’s stock option plans that is allocated to BFI at
December 31, 2004, 2003 and 2002 and for the years then
ended is presented in the table and narrative below (in
millions):
| Year Ended December 31, | ||||||||||||||||||||||||
| 2004 | 2003 | 2002 | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Exercise | Exercise | Exercise | ||||||||||||||||||||||
| Options | Price | Options | Price | Options | Price | |||||||||||||||||||
|
Options outstanding, beginning of
year
|
2.5 | $ | 12.25 | 1.4 | $ | 12.18 | 0.8 | $ | 12.77 | |||||||||||||||
|
Options granted
|
0.1 | 11.44 | 1.5 | 11.40 | 0.6 | 10.52 | ||||||||||||||||||
|
Options exercised
|
(0.1 | ) | 7.73 | (0.1 | ) | 6.78 | — | * | 8.40 | |||||||||||||||
|
Options forfeited or expired
|
(0.4 | ) | 13.55 | (0.3 | ) | 13.35 | — | * | 15.17 | |||||||||||||||
|
Options outstanding, end of year
|
2.1 | 12.42 | 2.5 | 12.25 | 1.4 | 12.18 | ||||||||||||||||||
|
Options exercisable, end of year
|
1.7 | 12.76 | 1.7 | 12.70 | 0.4 | 12.48 | ||||||||||||||||||
| * | Amounts less than $100.00 |
195
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize information about stock options
outstanding at December 31, 2004, which are fully vested,
partially vested and non-vested (number outstanding, in
millions):
Fully Vested:
| Options Outstanding and Exercisable | ||||||||||||
| Weighted Average | Weighted Average | |||||||||||
| Range of Exercise Prices | Number Outstanding | Remaining Life | Exercise Price | |||||||||
|
$ 4.27 - $ 9.63
|
0.2 | 4 years | $ | 8.22 | ||||||||
|
$10.00 - $12.25
|
0.1 | 3 years | $ | 10.23 | ||||||||
|
$12.27 - $19.81
|
0.8 | 6 years | $ | 13.59 | ||||||||
|
$20.15 - $26.38
|
0.2 | 4 years | $ | 21.48 | ||||||||
| Options Outstanding | ||||||||||||
| Weighted Average | Weighted Average | |||||||||||
| Range of Exercise Prices | Number Outstanding | Remaining Life | Exercise Price | |||||||||
|
$ 9.03 - $11.00
|
0.5 | 8 years | $ | 10.10 | ||||||||
|
$11.57 - $13.55
|
0.2 | 9 years | $ | 12.27 | ||||||||
| Options Exercisable | ||||||||||||
| Weighted Average | Weighted Average | |||||||||||
| Range of Exercise Prices | Number Outstanding | Remaining Life | Exercise Price | |||||||||
|
$ 9.03 - $11.00
|
0.3 | 8 years | $ | 10.20 | ||||||||
|
$11.57 - $13.55
|
—* | 9 years | $ | 12.28 | ||||||||
| Options Outstanding | ||||||||||||
| Weighted Average | Weighted Average | |||||||||||
| Range of Exercise Prices | Number Outstanding | Remaining Life | Exercise Price | |||||||||
|
$ 9.03 - $12.06
|
—* | 6 years | $ | 9.09 | ||||||||
|
$12.34 - $13.78
|
—* | 10 years | $ | 12.69 | ||||||||
| * | Amounts less than $100,000 |
| 11. | Income Taxes |
196
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
acquisition of the predecessor entity. Allied’s valuation
allowance at December 31, 2004 includes approximately
$26.9 million related to the acquisition of BFI, the
subsequent reduction of which would result in an adjustment to
goodwill. BFI was allocated a portion of Allied’s valuation
allowance based on specific identification to its deferred tax
assets.
The components of the income tax benefit consist of the
following (in millions):
| For the Year Ended December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Current tax provision
|
$ | 17.9 | $ | 19.3 | $ | 3.1 | ||||||
|
Balance of tax benefit
|
(165.4 | ) | (180.7 | ) | (122.6 | ) | ||||||
|
Total
|
$ | (147.5 | ) | $ | (161.4 | ) | $ | (119.5 | ) | |||
| For the Year Ended December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
|
Federal statutory tax rate
|
$ | (143.6 | ) | $ | (152.1 | ) | $ | (118.3 | ) | |||
|
Consolidated state benefit, net of
federal tax
|
(18.3 | ) | (20.2 | ) | (13.6 | ) | ||||||
|
Non-deductible write-off of
goodwill and business combination costs
|
1.1 | — | 2.1 | |||||||||
|
Effect of foreign operations
|
2.8 | 4.2 | 2.5 | |||||||||
|
Interest on tax contingency, net of
tax benefit
|
10.9 | 6.1 | 8.7 | |||||||||
|
Other permanent differences
|
(0.4 | ) | 0.6 | (0.9 | ) | |||||||
|
Effective tax rate
|
$ | (147.5 | ) | $ | (161.4 | ) | $ | (119.5 | ) | |||
197
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities (including any valuation
allowance) are recognized, realized and maintained on a
corporate-wide basis by Allied. Our cumulative tax-effected
temporary differences that have been recorded in due from Parent
on our consolidated balance sheets are as follows:
| December 31, | ||||||||
| 2004 | 2003 | |||||||
|
Cumulative Tax-Effected Future
(Taxable) Deductible Temporary Differences:
|
||||||||
|
Relating primarily to basis
differences in landfills, fixed assets and other assets
|
$ | (200.7 | ) | $ | (140.5 | ) | ||
|
Environmental, capping, closure and
post-closure reserves
|
221.8 | 218.5 | ||||||
|
Other reserves
|
32.4 | 45.8 | ||||||
|
Total
|
$ | 53.5 | $ | 123.8 | ||||
|
Tax-effected state net operating
loss carryforwards
|
$ | 32.3 | $ | 32.4 | ||||
|
Valuation allowance
|
(30.7 | ) | (16.7 | ) | ||||
|
Net carryforwards
|
$ | 1.6 | $ | 15.7 | ||||
198
199
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
by the BFI operating companies was required to be reduced by the
amount of liabilities assumed by the RMCs even though such
liabilities were contingent, and therefore, not liabilities
recognized for tax purposes. Under the IRS view, there was no
capital loss on the sale of the stock since the tax basis of the
stock should have approximately equaled the proceeds received.
We protested the disallowance to the Appeals Office of the IRS
in August 2002.
If the proposed disallowance is upheld, we estimate it could
have a potential total cash impact of up to $310 million
for federal and state taxes plus accrued interest through
December 31, 2004 of approximately $81.6 million
($49.0 million net of tax benefit). We also received a
notification from the IRS proposing a penalty of 40% of the
additional income tax resulting from the disallowance. Because
of several meritorious defenses, we believe the successful
assertion of penalties is unlikely.
We expect that sometime in the first half of 2005, the Appeals
Office of the IRS will uphold the disallowance of the capital
loss deduction. If this occurs, we would most likely litigate
the matter in a federal court and we would be required to pay a
deficiency of approximately $50 million for BFI tax years
prior to the acquisition. Thereafter, it would likely take a
couple of years before the court reached a decision and it is
likely that the losing party would appeal the decision to a
court of appeals. A settlement, however, could occur at anytime
during the litigation process.
The remaining tax years affected by the capital loss issue are
currently being audited by the IRS. A court decision on the
litigation would resolve the issue in these years as well. If we
were to win the case, the initial payment would be refunded to
us, subject to an appeal. If we were to lose the case, the
deficiency associated with the remaining tax years would be due.
We continue to believe our position is well supported. However,
the potential tax and interest (but not penalties) impact of a
disallowance has been fully reserved on Allied’s
consolidated balance sheet and is reflected in the due from
Parent on our consolidated balance sheet. Also, the
$50 million payment noted above has been reclassified from
long-term liabilities to current liabilities on Allied’s
consolidated balance sheet. Therefore, with regard to tax and
accrued interest through December 31, 2004, a disallowance
would have minimal impact on Allied’s consolidated results
of operations. The periodic accrual of additional interest
charged through the time at which this matter is resolved will
continue to affect Allied’s consolidated results of
operations. In addition, the successful assertion by the IRS of
penalties could have a material adverse impact on Allied’s
consolidated liquidity, financial position and results of
operations.
12.
Commitments and Contingencies
Litigations —
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 can reasonably be estimable. We expect
that matters in process at December 31, 2004, which have
not been accrued in the consolidated balance sheets, will not
have a material adverse effect on our consolidated liquidity,
financial position or results of operations.
In the normal course of conducting our landfill operations, we
are involved in legal and administrative proceedings relating to
the process of obtaining and defending the permits that allow us
to operate our landfills.
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1999, neighboring parties and the county drainage
district filed a lawsuit seeking to prevent BFI from obtaining a
vertical elevation expansion permit at one of our landfills in
Texas. In 2001, the expansion permit was granted. The parties
opposing the expansion permit continued to pursue their efforts
in preventing the expansion permit. In November 2003, a judgment
issued by a state trial court in Texas, effectively revoked the
expansion permit that was granted by the Texas Commission on
Environmental Quality in 2001 and would require us to operate
the landfill according to a prior permit granted in 1988. We are
vigorously defending this expansion in the Texas State Court of
Appeals. Operationally, if necessary, we will attempt to obtain
bonding that will allow us to continue to operate the landfill
as usual during the period of appeals, which may continue two
years or longer. If the appeal is not successful, the landfill
may become impaired and we may incur costs to relocate waste to
another landfill and this matter could result in a charge of up
to $50 million to our consolidated statement of operations.
Royalties —
In connection with certain acquisitions, we have entered into
agreements to pay royalties based on waste tonnage disposed at
specified landfills. The payments are generally payable
quarterly and amounts earned, but not paid, are accrued in the
accompanying consolidated balance sheets. Royalties are expensed
as tonnage is disposed of in the landfill.
Lease agreements —
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
at December 31, 2004 are as follows (in millions):
|
2005
|
$ | 12.4 | ||
|
2006
|
3.7 | |||
|
2007
|
2.9 | |||
|
2008
|
2.4 | |||
|
2009
|
2.3 | |||
|
Thereafter
|
11.3 |
200
201
BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
instruments would be valued and recorded in the consolidated
balance sheets if it is probable that we would be unable to
perform our obligations under the financial assurance contracts.
We do not expect this to occur.
Guarantees —
We enter into contracts in the normal course of business that
include indemnification clauses. Indemnifications relating to
known liabilities are recorded in the consolidated financial
statements based on our best estimate of required future
payments. Certain of these indemnifications relate to contingent
events or occurrences, such as the imposition of additional
taxes due to a change in the tax law or adverse interpretation
of the tax law, and indemnifications made in divestiture
agreements where we indemnify the buyer for liabilities that may
become known in the future but that relate to our activities
prior to the divestiture. As of December 31, 2004, we
estimate the contingent obligations associated with these
indemnifications to be de minimus.
We have entered into agreements to guarantee to property owners
the value of certain property that is adjacent to landfills.
These agreements have varying terms over varying periods. Prior
to December 31, 2002, liabilities associated with these
guarantees have been accounted for in accordance with
SFAS No. 5, Accounting for Contingencies, in
the consolidated financial statements. Agreements modified or
entered into subsequent to December 31, 2002 are accounted
for in accordance with FIN 45 and were not significant in
2004 and 2003.
13.
Related Party Transactions
All treasury functions are maintained by Allied. The amount due
from Parent represents proceeds Allied received from the
issuance of certain debt issued in connection with the financing
of the BFI acquisition, in addition to the net advances to
Parent in excess of obligations paid by the Parent on behalf of
BFI. No interest is earned on the amount due from Parent.
We are charged for management, financial and other
administrative services provided during the year by Allied,
including allocations for overhead. Related charges for the
years ended December 31, 2004, 2003 and 2002 were
approximately $29.1 million, $23.3 million and
$24.1 million, respectively, recorded in selling, general
and administrative expenses. In addition, Allied maintains
insurance coverage for us and we were charged for the cost of
insurance $60.3 million, $62.4 million and
$81.9 million during 2004, 2003 and 2002, respectively.
We provide services to, and receive services from, Allied and
subsidiaries of Allied, which are recorded in our consolidated
statement of operations. Related revenues and expenses for the
years ended December 31, 2004, 2003 and 2002 were
approximately $137.8 million, $166.1 million and
$169.8 million, respectively, recorded in revenues, and
$50.6 million, $57.4 million and $45.2 million,
respectively, recorded in cost of operations.
During 2004 and 2003, we sold trade receivables at a discount to
another subsidiary of Allied in connection with Allied’s
receivables secured loan program. In connection with the sale,
we recognized a loss of approximately $13.4 million and
$9.3 million recorded in selling, general and
administrative expenses for the years ended December 31,
2004 and 2003, and recorded a note receivable due from affiliate
of approximately $15.0 million in due from Parent as part
of the initial sale of receivables. Allocated interest income on
the note receivable was approximately $0.9 million and
$0.5 million for the years ended December 31, 2004 and
2003.
In 2001, we entered into lease agreements with certain
subsidiaries of Allied for equipment and vehicles. The
associated lease expense is included in cost of operations for
2004, 2003 and 2002 of approximately $10.3 million,
$10.8 million and $9.9 million, respectively.
Financial Statement Schedules —
Schedule II — Valuation and Qualifying Accounts
(in millions):
| Balance | Charges | Balance | ||||||||||||||||||
| at | to | Other | Write-Offs/ | at | ||||||||||||||||
| 12/31/01 | Expense | Charges(1) | Payments | 12/31/02 | ||||||||||||||||
|
Receivable realization allowance
|
$ | 11.2 | $ | 3.5 | $ | 0.1 | $ | (7.6 | ) | $ | 7.2 | |||||||||
|
Acquisition related severance and
termination costs
|
2.8 | — | — | (1.4 | ) | 1.4 | ||||||||||||||
|
Acquisition related restructuring
costs
|
13.3 | — | (3.1 | ) | (7.0 | ) | 3.2 | |||||||||||||
| Balance | Charges | Balance | ||||||||||||||||||
| at | to | Other | Write-Offs/ | at | ||||||||||||||||
| 12/31/02 | Expense | Charges(1) | Payments | 12/31/03 | ||||||||||||||||
|
Receivable realization allowance
|
$ | 7.2 | $ | 6.1 | $ | (0.2 | ) | $ | (5.6 | ) | $ | 7.5 | ||||||||
|
Acquisition related severance and
termination costs
|
1.4 | — | — | (0.8 | ) | 0.6 | ||||||||||||||
|
Acquisition related restructuring
costs
|
3.2 | — | 0.4 | (1.3 | ) | 2.3 | ||||||||||||||
| Balance | Charges | Balance | ||||||||||||||||||
| at | to | Other | Write-Offs/ | at | ||||||||||||||||
| 12/31/03 | Expense | Charges(1) | Payments | 12/31/04 | ||||||||||||||||
|
Receivable realization allowance
|
$ | 7.5 | $ | 2.1 | $ | 0.8 | $ | (6.3 | ) | $ | 4.1 | |||||||||
|
Acquisition related severance and
termination costs
|
0.6 | — | — | (0.4 | ) | 0.2 | ||||||||||||||
|
Acquisition related restructuring
costs
|
2.3 | — | (0.1 | ) | (0.7 | ) | 1.5 | |||||||||||||
| (1) | Amounts primarily relate to acquired and divested companies. |
| 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 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 Report on Form 8-K filed March 16, 1999 is incorporated herein by reference. | ||
| 3 | .1 | Amended Certificate of Incorporation of Allied. Exhibit 3.1 to the Company’s Report on Form 10-K/ A for the fiscal year ended December 31, 1996 is incorporated herein by reference. | ||
| 3 | .1(i) | 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. | ||
202
| Exhibit No. | Description | |||
| 3 | .1(ii) | Certificate of Amendment of Restated Certificate of Incorporation of Allied dated January 23, 2003. Exhibit 3.1(ii) to the Company’s Report on Form 10-K for the year ended December 31, 2002 is incorporated herein by reference. | ||
| 3 | .2 | Amended and Restated Bylaws of the Company as of May 13, 1997. Exhibit 3.2 to the Company’s Report on Form 10-Q for the quarter ended June 30, 1997 is incorporated herein by reference. | ||
| 3 | .2(i) | Amendment to the Amended and Restated Bylaws of the Company, effective June 30, 1999. Exhibit 3.2 to Allied’s Report on Form 10-K for the year ended December 31, 1999 is incorporated herein by reference. | ||
| 3 | .2(ii) | Amendment No. 2 to the Amended and Restated Bylaws of Allied Waste Industries, Inc., effective June 24, 2003. Exhibit 3.2 to Allied’s Report on Form 10-Q for the quarter ended September 30, 2003 is incorporated herein by reference. | ||
| 3 | .3 | Certificate of Designations of 61/4% Series C Senior Mandatory Convertible Preferred Stock of Allied Waste Industries, Inc., as filed with the Delaware Secretary of State on April 8, 2003. Exhibit 3.01 to Allied’s Current Report on Form 8-K dated April 10, 2003 is incorporated by reference. | ||
| 4 | .1 | Eighth Supplemental Indenture relating to the 81/2% Senior Notes due 2008, dated November 27, 2001, among Allied NA, certain guarantors signature thereto, and U.S. Bank National Association, formerly U.S. Bank Trust National Association, as Trustee. Exhibit 4.1 to Allied’s Registration Statement on Form S-4 (No. 333-82362) is incorporated by reference. | ||
| 4 | .2 | Sixth Supplemental Indenture relating to the 87/8% Senior Notes 2008, dated January 30, 2001, among Allied NA, certain guarantors signatory thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.1 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2001 is incorporated herein by reference. | ||
| 4 | .3 | Amendment No. 1 to Sixth Supplemental Indenture relating to the 87/8% Senior Notes due 2008, dated as of June 29, 2001, 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. 333-61744) is incorporated herein by reference. | ||
| 4 | .4 | 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 | .5 | 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 | .6 | Form of Series B Seven Year Notes. Exhibit 4.25 to Allied’s Report on Form 10Q for the quarter ended March 31, 2004 is incorporated herein by reference. | ||
| 4 | .7 | 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 | .8 | 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 | .9 | 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. | ||
203
| Exhibit No. | Description | |||
| 4 | .10 | 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 | .11 | Seventh Supplemental Indenture relating to the 1998 Senior Notes and the 87/8% Senior Notes due 2008, dated as of June 29, 2001, among Allied NA, certain guarantors signatory thereto and U.S. Bank Trust National Association, as Trustee. Exhibit 4.21 to Allied’s Registration Statement on Form S-4 (No. 333-61744) is incorporated herein by reference. | ||
| 4 | .12 | Restated Indenture relating to debt issued by Browning-Ferris Industries, Inc., dated September 1, 1991, among BFI and First City, Texas-Houston, National Association, as Trustee. Exhibit 4.22 to Allied’s Registration Statement on Form S-4 (No. 333-61744) is incorporated herein by reference. | ||
| 4 | .13 | First Supplemental Indenture relating to the debt issued by Browning-Ferris Industries, Inc., dated July 30, 1999, among Allied, Allied NA, Browning-Ferris Industries, Inc. and Chase Bank of Texas, National Association, as Trustee. Exhibit 4.23 to Allied’s Registration Statement on Form S-4 (No. 333-61744) is incorporated herein by reference. | ||
| 4 | .14 | 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 | .15 | 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 Report on Form 8-K dated August 10, 1999, is incorporated herein by reference. | ||
| 4 | .16 | 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 | .17 | Ninth Supplemental Indenture relating to the 91/4% Senior Notes due 2012, dated November 15, 2002, among Allied NA, certain guarantors signatory thereto, and U.S. Bank National Association as Trustee. Exhibit 10.75 to Allied’s Report on Form 10K for the year ended December 31, 2002. | ||
| 4 | .18 | Registration Rights Agreement, dated as of November 10, 2003, by and among the Company, the Guarantors and the initial purchasers, relating to $350 million aggregate principal amount of 61/2% Senior Notes due 2010. Exhibit 10.4 to Allied’s Report on Form 10-Q for the quarter ended September 30, 2003 is incorporated herein by reference. | ||
| 4 | .19 | Eleventh Supplemental Indenture relating to the 61/2% Senior Notes due 2010, dated November 10, 2003, among Allied NA, certain guarantors signatory thereto, and U.S. Bank National Association as Trustee. Exhibit 10.5 to Allied’s Report on Form 10-Q for the quarter ended September 30, 2003 is incorporated herein by reference. | ||
| 4 | .20 | Twelfth Supplemental Indenture governing the 53/4% Series A Senior Notes due 2011, dated January 27, 2004, among Allied Waste North America, Inc., Allied Waste Industries, Inc., the guarantors party thereto, and U.S. Bank National Association as Trustee. Exhibit 10.58 to Allied Report on Form 10-K for the year ended December 31, 2003. | ||
| 4 | .21 | Thirteenth Supplemental Indenture governing the 61/8% Series A Senior Notes due 2014, dated January 27, 2004, among Allied Waste North America, Inc., Allied Waste Industries, Inc., the guarantors party thereto, and U.S. Bank National Association as Trustee. Exhibit 10.59 to Allied Report on Form 10-K for the year ended December 31, 2003. | ||
204
| Exhibit No. | Description | |||
| 4 | .22 | Second Amended and Restated Registration Rights Agreement, dated as of December 18, 2003, between Allied and the purchasers of the Series A Convertible Preferred Stock and related parties. Exhibit 10.60 to Allied Report on Form 10-K for the year ended December 31, 2003. | ||
| 4 | .23 | Third Amended and Restated Shareholders Agreement, dated as of December 18, 2003, between Allied and the purchasers of the Series A Senior Convertible Preferred Stock and related parties. Exhibit 10.61 to Allied Report on Form 10-K for the year ended December 31, 2003. | ||
| 4 | .24 | Registration Rights Agreement, dated as of April 20, 2004, by and among the Company, the Guarantors and the initial purchasers, relating to $275 million aggregate principal amount of 63/8% Senior Notes due 2011. Exhibit 10.20 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 4 | .25 | Registration Rights Agreement, dated as of April 20, 2004, by and among the Company, the Guarantors and the initial purchasers, relating to $400 million aggregate principal amount of 73/8% Senior Notes due 2014. Exhibit 10.21 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 4 | .26 | Fourteenth Supplemental Indenture governing the 73/8% Series A Senior Notes due 2014, dated April 20, 2004, among Allied Waste North America, Inc., Allied Waste Industries, Inc., the guarantors party thereto, and U.S. Bank National Association as Trustee. Exhibit 10.22 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004 is incorporated herein by reference. | ||
| 4 | .27 | Fifteenth Supplemental Indenture governing the 63/8% Series A Senior Notes due 2011, dated April 20, 2004, among Allied Waste North America, Inc., Allied Waste Industries, Inc., the guarantors party thereto, and U.S. Bank National Association as Trustee. Exhibit 10.23 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 4 | .28 | Indenture, dated as of April 20, 2004, among Allied Waste Industries, Inc., and U.S. Bank Trust National Association, as Trustee, regarding the 41/4% Senior Subordinated Convertible Debentures due 2034 of Allied Waste Industries, Inc. Exhibit 10.24 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004 is incorporated herein by reference. | ||
| 4 | .29 | Tenth Supplemental Indenture governing the 77/8% Senior Notes due 2013, dated April 9, 2003, among Allied Waste North America, Inc., Allied Waste Industries, Inc., the guarantors party thereto, and U.S. Bank National Association as Trustee. Exhibit 10.01 to Allied’s Current Report on Form 8-K dated April 10, 2003 is incorporated by reference. | ||
| 4 | .30 | Form of 81/2% Senior Notes due 2008 (included in Exhibit 4.1). | ||
| 4 | .31 | Form of 87/8% Senior Notes due 2008. Exhibit 4.3 to Allied’s Registration Statement on Form S-4 (no. 333-61744) is incorporated herein by reference. | ||
| 4 | .32 | Form of 10% Series B Senior Subordinated Notes due 2009 (included in Exhibit 4.14). | ||
| 4 | .33* | First Supplemental Indenture, dated as of December 31, 2004, between Browning-Ferris Industries, Inc., BBCO, and JP Morgan Chase Bank, National Association as trustee. | ||
| 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 | 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. | ||
205
| Exhibit No. | Description | |||
| 10 | .3 | 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. | ||
| 10 | .4 | Second Amendment to the 1994 Amended and Restated Non-Employee Directors’ Stock Option Plan of Allied. Exhibit A to Allied’s Definitive Proxy Statement in accordance with Schedule 14A dated April 25, 1995, is incorporated herein by reference. | ||
| 10 | .5 | Third Amendment to the 1994 Amended and Restated Non-Employee Director’s Stock Option Plan dated January 1, 1998. Exhibit 4.41 to Allied’s Quarterly Report on Form 10-Q dated May 15, 2002, is incorporated herein by reference. | ||
| 10 | .6 | Fourth Amendment to the 1994 Amended and Restated Non-Employee Directors’ Stock Option Plan dated January 1, 1998. Exhibit 4.42 to Allied’s Quarterly Report on Form 10-Q dated May 15, 2002, is incorporated herein by reference. | ||
| 10 | .7 | Fifth Amendment to the 1994 Amended and Restated Non-Employee Directors’ Stock Option Plan dated May 26, 1999. Exhibit 4.43 to Allied’s Quarterly Report on Form 10-Q dated May 15, 2002, is incorporated herein by reference. | ||
| 10 | .8 | 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. | ||
| 10 | .9 | Amended and Restated 1991 Incentive Stock Plan. Exhibit 3 to Allied’s Definitive Proxy Statement in accordance with Schedule 14A dated April 18, 2001, is incorporated herein by reference. | ||
| 10 | .10 | First Amendment to the 1991 Incentive Stock Plan dated August 8, 2001, is incorporated herein by reference. | ||
| 10 | .11 | First Amendment to the 1994 Amended and Restated Incentive Stock Plan dated January 1, 1998. Exhibit 4.44 to Allied’s Quarterly Report on Form 10-Q dated May 15, 2002, is incorporated herein by reference. | ||
| 10 | .12 | 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. | ||
| 10 | .13 | Amendment No. 1 to the 1993 Incentive Stock Option Plan dated January 1, 1998. Exhibit 4.45 to Allied’s Quarterly Report on Form 10-Q dated May 15, 2002, is incorporated herein by reference. | ||
| 10 | .14 | Amendment to the Allied Waste Industries, Inc. 1993 Incentive Stock Plan dated June 20, 2000. Exhibit 4.46 to Allied’s Quarterly Report on Form 10-Q dated May 15, 2002, is incorporated herein by reference. | ||
| 10 | .15 | Second Amendment to the 1993 Incentive Stock Plan dated December 12, 2002. Exhibit 10.44 to Allied’s Annual Report on Form 10-K, dated March 26, 2003, is incorporated herein by reference. | ||
| 10 | .16 | First Amendment to the 1994 Incentive Stock Plan dated June 20, 2000 is incorporated herein by reference. | ||
| 10 | .17 | Second Amendment to the 1994 Incentive Stock Plan dated December 12, 2002. Exhibit 10.46 to Allied’s Annual Report on Form 10-K dated March 26, 2003, is incorporated herein by reference. | ||
| 10 | .18 | Restated 1994 Non-Employee Director Stock Plan dated April 3, 2002 incorporated herein by reference. | ||
| 10 | .19 | Sixth Amendment to the 1994 Amended and Restated Non-Employee Director Stock Plan dated April 3, 2002 incorporated herein by reference. | ||
| 10 | .20 | Second Amendment to Restated 1991 Incentive Stock Plan dated December 12, 2002. Exhibit 10.49 to Allied’s Annual Report on Form 10-K dated March 26, 2003, is incorporated herein by reference. | ||
206
| Exhibit No. | Description | |||
| 10 | .21 | Amended and Restated Collateral Trust Agreement, dated April 29, 2003, among Allied NA, certain of its subsidiaries, and JPMorgan Chase Bank, as Collateral Trustee. Exhibit 10.14 to Allied’s Registration Statement on Form S-4 (No. 333-104451) is incorporated herein by reference. | ||
| 10 | .22 | Amended and Restated Shared Collateral Pledge Agreement, dated April 29, 2003, among Allied NA, certain of its subsidiaries, and JP Morgan Chase Bank, as Collateral Trustee. Exhibit 10.13 to Allied’s Registration Statement on Form S-4 (No. 333-104451) is incorporated herein by reference. | ||
| 10 | .23 | Amended and Restated Shared Collateral Security Agreement, dated April 29, 2003, among Allied NA, certain of its subsidiaries, and JP Morgan Chase Bank, as Collateral Trustee. Exhibit 10.12 to Allied’s Registration Statement on Form S-4 (No. 333-104451) is incorporated herein by reference. | ||
| 10 | .24 | Amended and Restated Non-Shared Collateral Security Agreement, dated April 29, 2003, among Allied, Allied NA, certain of its subsidiaries, and JP Morgan Chase Bank, as Collateral Agent. Exhibit 10.10 to Allied’s Registration Statement on Form S-4 (No. 333-104451) is incorporated herein by reference. | ||
| 10 | .25 | Amended and Restated Non-Shared Collateral Pledge Agreement, dated April 29, 2003, among Allied, Allied NA, certain of its subsidiaries, and JP Morgan Chase Bank, as Collateral Agent. Exhibit 10.11 to Allied’s Registration Statement on Form S-4 (No. 333-104451) is incorporated herein by reference. | ||
| 10 | .26 | Amended and Restated Credit Agreement, dated April 29, 2003. Exhibit 10.1 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2003 is incorporated herein by reference. | ||
| 10 | .27 | Amendment to Amended and Restated Credit Agreement, dated as of August 20, 2003. Exhibit 10.01 to Allied’s Current Report on Form 8-K dated August 25, 2003 is incorporated by reference. | ||
| 10 | .28 | Exchange Agreement, dated July 31, 2003, by and among Allied Waste Industries, Inc., and the Parties Listed on Schedule I thereto. Exhibit 1.01 to Allied’s Current Report on Form 8-K dated August 6, 2003 is incorporated by reference. | ||
| 10 | .29 | Executive Employment Agreement between the Company and Thomas W. Ryan effective August 1, 2003. Exhibit 10.1 to Allied’s Report on Form 10-Q for the quarter ended September 30, 2003 is incorporated herein by reference. | ||
| 10 | .30 | Amendment to Amended and Restated Credit Agreement, dated November 20, 2003. Exhibit 99.1 to Allied’s Current Report on Form 8-K dated November 26, 2003 is incorporated by reference. | ||
| 10 | .31 | Executive Employment Agreement between the Company and Thomas H. Van Weelden effective January 1, 2004. Exhibit 10.1 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .32 | Executive Employment Agreement between the Company and Donald W. Slager effective January 1, 2004. Exhibit 10.2 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .33 | Executive Employment Agreement between the Company and Peter S. Hathaway effective January 1, 2004. Exhibit 10.3 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .34 | Executive Employment Agreement between the Company and Steven M. Helm effective January 1, 2004. Exhibit 10.4 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .35 | Long-Term Incentive Plan effective January 1, 2004. Exhibit 10.5 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .36 | Third Amendment to the 1991 Incentive Stock Plan effective February 5, 2004. Exhibit 10.6 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
207
| Exhibit No. | Description | |||
| 10 | .37 | Fourth Amendment to the 1991 Incentive Stock Plan effective February 5, 2004. Exhibit 10.7 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .38 | Amended and Restated 1991 Incentive Stock Plan effective February 5, 2004. Exhibit 10.8 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .39 | Executive Deferred Compensation Plan effective February 5, 2004. Exhibit 10.9 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .40 | Supplemental Executive Retirement Plan effective August 1, 2003. Exhibit 10.10 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .41 | Amendment to the 1993 Incentive Stock Plan — 2004-1, effective February 5, 2004. Exhibit 10.11 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .42 | Amendment to the 1993 Incentive Stock Plan — 2004-2, effective February 5, 2004. Exhibit 10.12 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .43 | Restated 1993 Incentive Stock Plan effective February 5, 2004. Exhibit 10.13 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .44 | Amendment to the 1994 Incentive Stock Plan — 2004-1, effective February 5, 2004. Exhibit 10.14 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .45 | Amendment to the 1994 Incentive Stock Plan — 2004-2, effective February 5, 2004. Exhibit 10.15 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .46 | Restated 1994 Incentive Stock Plan effective February 5, 2004. Exhibit 10.16 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .47 | Restated 1994 Non-Employee Director Stock Plan effective February 5, 2004. Exhibit 10.17 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .48 | Indemnification Agreement — Employees (Specimen Agreement with List of Covered Persons). Exhibit 10.18 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .49 | Indemnification Agreement — Employees (List of Covered Persons). Exhibit 10.2 to Allied’s Report on Form 10-Q for the quarter ended June 30, 2004, is incorporated herein by reference. | ||
| 10 | .50 | Indemnification Agreement — Non-Employee Directors (Specimen Agreement with List of Covered Persons). Exhibit 10.19 to Allied’s Report on Form 10-Q for the quarter ended March 31, 2004, is incorporated herein by reference. | ||
| 10 | .51 | Indemnification Agreement — Non-Employee Directors (List of Covered Persons). Exhibit 10.3 to Allied’s Report on Form 10-Q for the quarter ended June 30, 2004, is incorporated herein by reference. | ||
| 10 | .52 | Third Amendment and Restatement, dated March 30, 2004, to the Credit Agreement, dated as of July 21, 1999, as amended and restated as of August 20, 2003, and further amended and restated as of November 20, 2003. Exhibit 99.1 to Allied’s Current Report on Form 8-K dated April 15, 2004 is incorporated herein by reference. | ||
208
| Exhibit No. | Description | |||
| 10 | .53 | Fourth Amendment dated as of June 16, 2004, to the Credit Agreement dated as of July 21, 1999, as amended and restated as of March 30, 2004. Exhibit 10.1 to Allied’s Report on Form 10-Q for the quarter ended June 30, 2004, is incorporated herein by reference. | ||
| 10 | .54 | Executive Employment Agreement between the Company and Charles H. Cotros effective October 4, 2004. Exhibit 10.1 to Allied’s Report on Form 8-K dated October 6, 2004 is incorporated herein by reference. | ||
| 10 | .55 | Option Agreement between the Company and Charles H. Cotros effective October 4, 2004. Exhibit 10.1 to Allied’s Report on Form 8-K dated October 6, 2004 is incorporated herein by reference. | ||
| 10 | .56 | Amendment to the Executive Employment Agreement between the Company and Thomas H. Van Weelden effective October 4, 2004. Exhibit 10.1 to Allied’s Report on Form 8-K dated October 6, 2004 is incorporated herein by reference. | ||
| 10 | .57 | Second Amendment to Executive Employment Agreement between Allied Waste Industries, Inc. and Thomas H. Van Weelden, effective October 25, 2004. Exhibit 10.03 to Allied’s Report on Form 8-K dated October 26, 2004 is incorporated herein by reference. | ||
| 10 | .58 | Form of Nonqualified Stock Option Agreement under the Amended and Restated 1991 Incentive Stock Option Plan. Exhibit 10.01 to Allied’s Report on Form 8-K dated December 10, 2004 is incorporated herein by reference. | ||
| 10 | .59 | Form of Restricted Stock Units Agreement under the Amended and Restated 1991 Incentive Stock Plan. Exhibit 10.02 to Allied’s Report on Form 8-K dated December 10, 2004 is incorporated herein by reference. | ||
| 10 | .60 | First Amendment to the Amended and Restated 1991 Incentive Stock Plan (As Amended and Restated effective February 5, 2004). Exhibit 10.03 to Allied’s Report on Form 8-K dated December 10, 2004 is incorporated herein by reference. | ||
| 10 | .61* | Form of Nonqualified Stock Option Agreement under the 1994 Amended and Restated Non-Employee Directors Stock Option Plan. | ||
| 10 | .62* | Form of Performance-Accelerated Restricted Stock Agreement under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .63* | Form of the First Amendment to the Performance-Accelerated Restricted Stock Agreement, dated January 1, 2002, under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .64* | Form of the Second Amendment to the Performance-Accelerated Restricted Stock Agreement, dated July 1, 2004, under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .65* | Form of the Restricted Stock Units Agreement under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .66* | Form of the Amendment to the Restricted Stock Units Agreement under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .67* | Receivables Sale Agreement, dated as of March 7, 2003, among Allied Waste North America, Inc, as originators and Allied Receivables Funding Incorporated as buyer. | ||
| 10 | .68* | Credit and Security Agreement, dated as of March 7, 2003, among Allied Receivables Funding Incorporated as borrower, Allied Waste North America, Inc. as servicer, Blue Ridge Asset Funding Corporation as a lender, Wachovia Bank, National Association as a lender group agent and Wachovia Bank, National Association as agent. | ||
| 10 | .69* | Sixth Amendment to Receivable Sale Agreement, effective September 30, 2004. | ||
| 10 | .70* | Seventh Amendment to Credit and Security Agreement, effective September 30, 2004. | ||
| 10 | .71* | 2005 Executive Deferred Compensation Plan, effective December 1, 2004. | ||
| 10 | .72* | Executive Employment Agreement between the Company and James E. Gray, effective January 3, 2001. | ||
209
| Exhibit No. | Description | |||
| 12 | .1* | Ratio of earnings to fixed charges and preferred stock dividends. | ||
| 14 | * | Allied Waste Industries Code of Ethics. | ||
| 21 | * | Subsidiaries of the Registrant. | ||
| 23 | .1* | Consent of PricewaterhouseCoopers LLP. | ||
| 31 | .1* | Section 302 Certifications of Charles H. Cotros, Chairman of the Board of Directors and Chief Executive Officer. | ||
| 31 | .2* | Section 302 Certifications of Peter S. Hathaway, Executive Vice President and Chief Financial Officer. | ||
| 32 | * | Certification Pursuant to 18 U.S.C.§1350 of Charles H. Cotros, Chairman of the Board of Directors and Chief Executive Officer and Peter S. Hathaway, Executive Vice President and Chief Financial Officer. | ||
| * | Filed herewith. |
210
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: February 15, 2005
|
By: /s/ Peter S. Hathaway Executive Vice President and Chief Financial Officer |
| Signature | Title | Date | ||||
|
/s/ Charles H. Cotros |
Director, Chairman of the Board of Directors and Chief Executive Officer (Principal Executive officer) | 2/15/05 | ||||
|
/s/ Peter S. Hathaway |
Executive Vice President and Chief Financial Officer (Principal Financial Officer) | 2/15/05 | ||||
|
/s/ James E. Gray |
Senior Vice President, Controller, and Chief Accounting Officer (Principal Accounting Officer) | 2/15/05 | ||||
|
/s/ Michael Gross |
Director | 2/15/05 | ||||
|
/s/ Dennis Hendrix |
Director | 2/15/05 | ||||
|
/s/ Leon D. Black |
Director | 2/15/05 | ||||
|
/s/ Nolan Lehmann |
Director | 2/15/05 | ||||
|
/s/ Howard A. Lipson |
Director | 2/15/05 | ||||
|
/s/ James W. Crownover |
Director | 2/15/05 | ||||
211
| Signature | Title | Date | ||||
|
/s/ Antony P. Ressler |
Director | 2/15/05 | ||||
|
/s/ Warren B. Rudman |
Director | 2/15/05 | ||||
|
/s/ Lawrence V. Jackson |
Director | 2/15/05 | ||||
|
/s/ J. Tomilson Hill |
Director | 2/15/05 | ||||
|
/s/ Robert Agate |
Director | 2/15/05 | ||||
212
LIST OF EXHIBITS
| Exhibit No. | Description | |||
| 4 | .33* | First Supplemental Indenture, dated as of December 31, 2004, between Browning-Ferris Industries, Inc., BBCO, and JP Morgan Chase Bank, National Association as trustee. | ||
| 10 | .61* | Form of Nonqualified Stock Option Agreement under the 1994 Amended and Restated Non-Employee Directors Stock Option Plan. | ||
| 10 | .62* | Form of Performance-Accelerated Restricted Stock Agreement under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .63* | Form of the First Amendment to the Performance-Accelerated Restricted Stock Agreement, dated January 1, 2002, under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .64* | Form of the Second Amendment to the Performance-Accelerated Restricted Stock Agreement, dated July 1, 2004, under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .65* | Form of the Restricted Stock Units Agreement under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .66* | Form of the Amendment to the Restricted Stock Units Agreement under the Amended and Restated 1991 Incentive Stock Plan. | ||
| 10 | .67* | Receivables Sale Agreement, dated as of March 7, 2003, among Allied Waste North America, Inc, as originators and Allied Receivables Funding Incorporated as buyer. | ||
| 10 | .68* | Credit and Security Agreement, dated as of March 7, 2003, among Allied Receivables Funding Incorporated as borrower, Allied Waste North America, Inc. as servicer, Blue Ridge Asset Funding Corporation as a lender, Wachovia Bank, National Association as a lender group agent and Wachovia Bank, National Association as agent. | ||
| 10 | .69* | Sixth Amendment to Receivable Sales Agreement, effective September 30, 2004. | ||
| 10 | .70* | Seventh Amendment to Credit and Security Agreement, effective September 30, 2004. | ||
| 10 | .71* | 2005 Executive Deferred Compensation Plan, effective December 1, 2004. | ||
| 10 | .72* | Executive Employment Agreement between the Company and James E. Gray, effective January 3, 2001. | ||
| 12 | .1* | Ratio of earnings to fixed charges and preferred stock dividends. | ||
| 14* | Allied Waste Industries Code of Ethics. | |||
| 21* | Subsidiaries of the Registrant. | |||
| 23 | .1* | Consent of PricewaterhouseCoopers LLP. | ||
| 31 | .1* | Section 302 Certifications of Charles H. Cotros, Chairman of the Board of Directors and Chief Executive Officer. | ||
| 31 | .2* | Section 302 Certifications of Peter S. Hathaway, Executive Vice President and Chief Financial Officer. | ||
| 32* | Certification Pursuant to 18 U.S.C.§1350 of Charles H. Cotros, Chairman of the Board of Directors and Chief Executive Officer and Peter S. Hathaway, Executive Vice President and Chief Financial Officer. | |||
| * | Filed herewith. |
213
| This ‘10-K’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 10/4/10 | ||||
| 7/31/09 | ||||
| 4/15/09 | ||||
| 2/15/09 | ||||
| 12/31/08 | ||||
| 9/30/08 | 10-Q, 8-K | |||
| 6/30/08 | 10-Q, 8-K | |||
| 5/30/08 | ||||
| 3/31/08 | 10-Q, 8-K | |||
| 12/31/07 | 10-K, 8-K | |||
| 12/17/07 | 4, 8-K | |||
| 9/30/07 | 10-Q, 8-K | |||
| 6/30/07 | 10-Q, 8-K | |||
| 3/31/07 | 10-Q, 8-K | |||
| 12/31/06 | 10-K, 8-K | |||
| 9/30/06 | 10-Q, 8-K | |||
| 6/30/06 | 10-Q, 8-K | |||
| 4/1/06 | ||||
| 3/31/06 | 10-Q, 8-K | |||
| 12/31/05 | 10-K, 5, 8-K | |||
| 12/20/05 | ||||
| 12/15/05 | 8-K | |||
| 11/21/05 | ||||
| 10/4/05 | ||||
| 9/30/05 | 10-Q, 8-K | |||
| 7/1/05 | ||||
| 6/30/05 | 10-Q, 8-K | |||
| 6/20/05 | ||||
| 6/15/05 | 4 | |||
| 5/31/05 | 8-K | |||
| 5/30/05 | ||||
| 4/4/05 | ||||
| 3/31/05 | 10-Q, 8-K | |||
| Filed on: | 2/18/05 | |||
| 2/17/05 | ||||
| 2/15/05 | SC 13G | |||
| 2/8/05 | 4 | |||
| 2/1/05 | 8-K | |||
| 1/31/05 | ||||
| 1/14/05 | ||||
| 1/3/05 | 3, 4 | |||
| 1/1/05 | ||||
| For Period End: | 12/31/04 | 8-K | ||
| 12/30/04 | ||||
| 12/18/04 | ||||
| 12/15/04 | ||||
| 12/10/04 | 8-K | |||
| 12/1/04 | ||||
| 11/22/04 | 8-K | |||
| 10/26/04 | 8-K | |||
| 10/25/04 | ||||
| 10/22/04 | ||||
| 10/15/04 | ||||
| 10/6/04 | 4, 8-K | |||
| 10/4/04 | 4, 8-K | |||
| 10/1/04 | ||||
| 9/30/04 | 10-Q, 8-K | |||
| 8/27/04 | ||||
| 8/15/04 | ||||
| 8/9/04 | 4 | |||
| 7/30/04 | 4 | |||
| 7/27/04 | 3, 8-K | |||
| 7/22/04 | 3 | |||
| 7/1/04 | 4 | |||
| 6/30/04 | 10-Q, 8-K | |||
| 6/16/04 | ||||
| 6/1/04 | ||||
| 4/20/04 | ||||
| 4/15/04 | 8-K | |||
| 3/31/04 | 10-Q, 4, 8-K | |||
| 3/30/04 | ||||
| 2/10/04 | 8-K | |||
| 2/5/04 | 4 | |||
| 1/27/04 | ||||
| 1/2/04 | ||||
| 1/1/04 | ||||
| 12/31/03 | 10-K, 5, 8-K | |||
| 12/18/03 | 4, DEF 14A | |||
| 12/15/03 | ||||
| 11/26/03 | 8-K | |||
| 11/20/03 | 4 | |||
| 11/10/03 | ||||
| 9/30/03 | 10-Q, 8-K | |||
| 8/25/03 | 8-K | |||
| 8/20/03 | 4 | |||
| 8/6/03 | 3, 8-K, SC 13D/A | |||
| 8/1/03 | ||||
| 7/31/03 | 8-K | |||
| 6/24/03 | ||||
| 4/29/03 | 8-K | |||
| 4/10/03 | 8-K | |||
| 4/9/03 | 8-K | |||
| 4/8/03 | ||||
| 3/31/03 | 10-Q, 424B3, 8-K | |||
| 3/26/03 | ||||
| 3/7/03 | ||||
| 1/23/03 | 8-K, DEF 14A | |||
| 1/1/03 | ||||
| 12/31/02 | 10-K, 8-K, S-3/A | |||
| 12/12/02 | ||||
| 11/15/02 | ||||
| 5/15/02 | 10-Q | |||
| 4/3/02 | ||||
| 1/1/02 | ||||
| 12/31/01 | 10-K | |||
| 11/27/01 | ||||
| 8/8/01 | ||||
| 6/29/01 | ||||
| 4/18/01 | DEF 14A | |||
| 3/31/01 | 10-Q, 10-Q/A | |||
| 1/30/01 | ||||
| 1/18/01 | 8-K | |||
| 1/3/01 | ||||
| 12/31/00 | 10-K, 10-K/A, 5 | |||
| 6/30/00 | 10-Q | |||
| 6/20/00 | ||||
| 12/31/99 | 10-K, DEF 14A | |||
| 12/29/99 | ||||
| 8/10/99 | 4, 8-K, SC 13D | |||
| 7/30/99 | 3, 4 | |||
| 7/21/99 | ||||
| 6/30/99 | 10-Q | |||
| 5/26/99 | DEF 14A, PRE 14A | |||
| 3/16/99 | 8-K | |||
| 3/7/99 | ||||
| 12/23/98 | 8-K | |||
| 10/15/98 | 8-K | |||
| 9/30/98 | 10-Q, DEFA14A | |||
| 8/21/98 | 8-K | |||
| 8/10/98 | 3, 8-K, 8-K/A | |||
| 6/30/98 | 10-Q | |||
| 1/1/98 | ||||
| 6/30/97 | 10-Q, 10-Q/A | |||
| 5/13/97 | ||||
| 4/21/97 | ||||
| 3/31/97 | 10-K, 10-Q | |||
| 12/31/96 | 10-C, 10-K, 10-K/A, 8-K/A | |||
| 9/30/96 | 10-Q | |||
| 5/31/96 | ||||
| 4/8/96 | ||||
| 8/10/95 | ||||
| 4/25/95 | ||||
| 4/28/94 | ||||
| 10/9/93 | ||||
| 4/9/93 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/29/24 Republic Services, Inc. 10-K 12/31/23 154:22M 2/23/23 Republic Services, Inc. 10-K 12/31/22 142:20M 2/11/22 Republic Services, Inc. 10-K 12/31/21 143:19M 2/23/21 Republic Services, Inc. 10-K 12/31/20 153:21M |