Date: November 1, 2006
Source: Allied Waste Industries, Inc.
Allied Waste Reports Third Quarter 2006 Results
- Price Increases of 6.6% Drive Strong Internal Revenue Growth -
- Operating Margins Expand -
- Earnings Per Share From Continuing Operations Increases to $0.17
from $0.10 -
- Strong -Results Increase Operating Cash Flow to $274 Million -
Allied Waste Industries, Inc. (NYSE: AW), a leading waste services company, today reported financial results for the third quarter ended September 30, 2006. Allied Waste highlighted the following information from its reported financial results:
Internal revenue growth of 7.2% was driven by average price increases of 6.6% and average volume increases of 0.6%;
Operating income increased 10% to $252 million compared to $229 million for the third quarter 2005. The third quarter 2006 operating income includes a $14.5 million charge due to loss on divestitures and asset impairments and an $8 million charge for severance and retirement costs;
Diluted earnings per share from continuing operations increased 70% to $0.17 from $0.10 in the third quarter 2005; and
Cash flow from operations increased 77% to $274 million from $155 million in the third quarter 2005.
"We're pleased with the results for the third quarter, which continue to demonstrate Allied's success in achieving profitable growth," said John Zillmer, Chairman and Chief Executive Officer. "The strong operating results for the quarter were driven by continued momentum from our pricing programs coupled with the tangible benefits from our efficiency and productivity programs."
Revenue for the third quarter ended September 30, 2006 increased to $1.555 billion from $1.477 billion in the third quarter 2005. The increase in revenue resulted from internal growth of 7.2%, reflecting increases in all core lines of business, partially offset by a 1.9% decrease due to divestitures. Core internal revenue growth was comprised of a 6.6% increase in same store average unit price, which includes a 2.2% increase associated with a fuel recovery fee, and a 0.6% increase in same-store volumes. The fuel recovery fee is expected to anniversary in the fourth quarter of 2006.
Operating income for the third quarter 2006 improved to $252 million from $229 million for the third quarter 2005 and operating income as a percent of revenue increased to 16.2%, from 15.5% in the third quarter of 2005. Cost of operations as a percent of revenue decreased 180 basis points to 63.9% from 65.7% in the third quarter 2005 as the Company's cost containment and productivity improvement programs continue to yield positive results in tandem with strong profitable revenue growth. SG&A expenses as a percent of revenue increased to 9.9% from 9.2% in the third quarter 2005 primarily due to an $8 million, or 50 basis point charge in the current period associated with severance and retirement costs.
During the third quarter 2006, the Company recorded a $14.5 million non- cash charge for the loss from the divestiture of certain operations and an asset impairment for a landfill development project that is no longer being pursued. The effective tax rate for the third quarter was approximately 40%. This reflects a benefit of approximately $6 million primarily related to finalizing the 2005 tax return and a benefit of approximately $5 million related to a reduction in the average rate used to record the state tax provision.
Net income increased to $72 million from $58 million in the third quarter 2005 and earnings per share from continuing operations increased to $0.17 from $0.10 for the third quarter 2005.
Cash flow from operations in the third quarter 2006 increased to $274 million from $155 million in the third quarter 2005 driven by the improvements in operating results and changes in working capital. During the third quarter 2006, free cash flow* was $140 million, an increase from $23 million in the third quarter 2005 driven by the improvements in operating results and changes in working capital, along with lower capital spending during the third quarter 2006 compared to 2005.
Mr. Zillmer concluded, "We continue to build on the positive momentum that we have generated over the past year and are committed to an enterprise-wide focus on producing consistent, predictable results and enhancing long-term shareholder value."
Conference Call to be Held Today at 5:00 p.m. ET
Allied Waste will host a conference call related to the third quarter results on Wednesday, November 1st at 5:00 p.m. ET. The call will be broadcast live over the Internet on the Company's website: www.alliedwaste.com. A replay of the call will be available on the site after the call. In addition, the Company has filed supplemental data on Form 8-K that is accessible on the Company's website or through the SEC EDGAR System.
About Allied Waste Industries
Allied Waste Industries, Inc., a leading waste services company, provides collection, recycling and disposal services to residential, commercial and industrial customers in the United States. As of September 30, 2006, the Company operated a network of 299 collection companies, 161 transfer stations, 169 active landfills and 56 recycling facilities in 37 states and Puerto Rico.
* Information Regarding Use of Non-GAAP Financial Measures
In addition to disclosing financial results in accordance with generally accepted accounting principles (GAAP), the Company also discloses operating income before depreciation and amortization and free cash flow, which are non-GAAP measures.
We believe that our presentation of operating income before depreciation and amortization is useful to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund capital expenditures and our ability to incur and service debt. While depreciation and amortization are considered operating costs under GAAP, these expenses are non-cash and primarily represent the allocation of costs associated with long-lived assets acquired or constructed in prior years. Management uses operating income before depreciation and amortization to evaluate the operations of its geographic operating regions. Following is a reconciliation of operating income before depreciation and amortization to operating income:
| ($ in millions) | Three Months Ended September 30, |
Nine Months Ended September 30, |
||
| 2006 | 2005 | 2006 | 2005 | |
| Operating income before depreciation and amortization |
$393.1 | $371.1 | $1,143.4 | $1,096.5 |
| Less: Depreciation and amortization | 141.1 | 142.0 | 430.0 | 416.3 |
| Operating income | $252.0 | $229.1 | $713.4 | $680.2 |
Free cash flow is defined as cash flow from operations, including the impact of the change in disbursements account, which is reflected in financing activities, less capital expenditures, plus proceeds from fixed asset sales and transaction related refinancing charges. Management believes the presentation of free cash flow is useful to investors because it allows them to better assess and understand the Company's ability to meet debt service requirements and the amount of recurring cash generated from operations after expenditures for fixed assets. Free cash flow does not represent the Company's residual cash flow available for discretionary expenditures since we have mandatory debt service requirements and other required expenditures that are not deducted from free cash flow. Free cash flow does not capture debt repayment and/or the receipt of proceeds from the issuance of debt. We use free cash flow as a measure of recurring operating cash flow. The most directly comparable GAAP measure to free cash flow is cash provided by operating activities from continuing operations.
Following is a reconciliation of free cash flow to cash provided by operating activities from continuing operations:
| ($ in millions) | Three Months Ended September 30, |
Nine Months Ended September 30, |
||
| 2006 | 2005 | 2006 | 2005 | |
| Free cash flow | $139.8 | $23.3 | $117.0 | $19.6 |
| Add: Capital expenditures | 138.0 | 207.9 | 509.8 | 491.4 |
| Less: Change in disbursement account |
0.5 | (72.9) | 63.8 | 21.5 |
| Less: Premium on debt repurchases | -- | -- | (37.2) | (49.5) |
| Less: Proceeds from sale of fixed assets |
(4.5) | (3.2) | (11.8) | (10.4) |
| Cash provided by operating activities from continuing operations |
$273.8 | $155.1 | $641.6 | $472.6 |
Allied does not intend for this non-GAAP financial measure to be considered in isolation or as a substitute for GAAP measures. Other companies may define these measures differently.
| ALLIED WASTE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in millions, except per share data and percentages) (unaudited) |
||||
| For the Three Months Ended September 30, 2006 | For the Three Months Ended September 30, 2005 | |||
| % of Revenues | % of Revenues | |||
| Revenue | $1,555.2 | 100.0% | $1,476.9 | 100.0% |
| Cost of operations | 994.0 | 63.9% | 970.4 | 65.7% |
| Selling, general and administrative expenses |
153.6 | 9.9% | 135.4 | 9.2% |
| Depreciation and amortization |
141.1 | 9.1% | 142.0 | 9.6% |
| Loss from divestitures and asset impairments |
14.5 | 0.9% | -- | --% |
| Operating income | 252.0 | 16.2% | 229.1 | 15.5% |
| Interest expense and other | 131.4 | 8.5% | 127.5 | 8.6% |
| Income before income taxes |
120.6 | 7.7% | 101.6 | 6.9% |
| Income tax expense | 48.1 | 3.1% | 52.4 | 3.6% |
| Minority interest | 0.2 | 0.0% | 0.0 | 0.0% |
| Income from continuing operations |
72.3 | 4.6% | 49.2 | 3.3% |
| Discontinued operations, net of tax |
-- | --% | 9.2 | 0.7% |
| Net income | 72.3 | 4.6% | 58.4 | 4.0% |
| Dividends on Series C Preferred Stock |
-- | --% | (5.4) | (0.4)% |
| Dividends on Series D Preferred Stock |
(9.4) | (0.6)% | (9.4) | (0.6)% |
| Net income available to common shareholders |
$62.9 | 4.0% | $43.6 | 3.0% |
| Weighted average common and common equivalent shares(A) |
440.2 | 332.5 | ||
| Diluted income per share from continuing operations(B) |
$0.17 | $0.10 | ||
| Diluted income per share(B) | $0.17 | $0.13 | ||
(A) For the three months ended September 30, 2006, the weighted
average
common and common equivalent shares also include 60.8 million
equivalent shares for the Company's mandatory convertible preferred
stock and 11.3 million equivalent shares for the senior convertible
debentures, because the effect of those shares is dilutive in the
period.
(B) Earnings per share for the three months ended
September 30, 2006 is
calculated using income from continuing operations, adjusted for
the
impact of the convertible securities, divided by 440.2 million shares
as the dilutive impact of the convertible securities is included
in
the share count.
For more information, contact:
Michael Burnett
Senior Vice President, Treasurer
Allied Waste Industries, Inc.
480-627-2785
Web site: www.alliedwaste.com.
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