Date: February 15, 2007
Source: Allied Waste Industries, Inc.
Allied Waste Industries, Inc. (NYSE: AW), a leading waste services company, today reported financial results for the fourth quarter and full-year ended December 31, 2006. Allied Waste highlighted the following information from its reported quarterly financial results:
- Internal revenue growth of 4.0% was driven by average price increases of 4.8%, partially offset by a decrease in volume of 0.8%;
- Operating income increased 8.1% to $254 million compared to $235 million for the fourth quarter 2005 and the operating margin expanded by 100 basis points in the quarter, compared with 2005. The fourth quarter 2006 operating income includes an $8 million charge due to asset impairments;
- Reported fourth quarter 2006 diluted earnings from continuing operations of $0.00 per share includes a $0.16 charge for income tax related matters and a $0.01 charge due to asset impairments. Before these charges, fourth quarter diluted earnings were $0.17 per share. Prior year fourth quarter EPS of $0.15 per share includes a $0.03 benefit for tax related matters;
- Cash flow from operations increased 17% to $280 million from $240 million in the fourth quarter 2005; and
- Debt, net of cash, was reduced by $146 million during the fourth quarter 2006.
"We are pleased with the strength of Allied's operating and financial results for both the fourth quarter and full year 2006," said John Zillmer, Chairman and Chief Executive Officer. "We continued to expand our revenue base through profitable growth, while we improved our operating margin, cash flow, and return on invested capital. We believe that our 2006 achievements provide a solid foundation upon which we can continue to improve our operating results and cash flow again in 2007."
Revenue for the fourth quarter ended December 31, 2006, was $1.494 billion, an increase of 1.8% from $1.468 billion in the fourth quarter 2005. The increase in revenue resulted from internal growth of 4.0%, partially offset by a 2.2% decrease due to net divestitures and non-core revenue. Core internal revenue growth was comprised of a 4.8% increase in same store average unit price, which includes a 0.8% increase associated with a fuel recovery fee, partially offset by a 0.8% decrease in same-store volumes, primarily due to the year-over-year reduction in roll-off volumes from hurricane impacted regions.
Operating income for the fourth quarter 2006 increased 8.1% to $254 million, compared with $235 million for the fourth quarter 2005. Operating income as a percent of revenue increased 100 basis points to 17.0%, from 16.0% in the fourth quarter of 2005. Gross margin* for the quarter was 36.8%, an increase of 200 basis points over fourth quarter 2005, as the Company's cost containment and productivity improvement programs continued to yield positive results in tandem with strong profitable revenue growth. SG&A expenses as a percent of revenue increased to 9.9% from 9.3% in the fourth quarter 2005 primarily due to salary and incentive compensation increases, and increased franchise taxes. Also, included in fourth quarter 2006 operating income is an $8 million non-cash charge for impaired assets primarily related to a decision to discontinue development and/or operations at two landfill sites and a charge related to the relocation of the Company's Operations Support Center.
In the fourth quarter, the Company increased its income tax provision by $58 million, primarily resulting from interest charges on previously recorded tax liabilities currently under review by income tax authorities and from adjustments to state tax matters. This reduced reported earnings for the quarter by $0.16 per share.
Cash flow from operations in the fourth quarter 2006 increased 17% to $280 million from $240 million in the fourth quarter 2005 driven by the improvements in operating income and changes in working capital. During the fourth quarter 2006, free cash flow* was $148 million, an increase from $89 million in the fourth quarter 2005 driven by the improvements in operating income and lower capital spending.
Allied Waste also highlighted the following information from its reported financial results for the full year ended December 31, 2006:
- Internal revenue growth of 6.7% exceeded the original goal of 5% and was driven by 5.9% price growth and 0.8% volume growth;
- Operating income for the year was $967 million, an increase of 5.6% compared with $916 million for 2005;
- Operating income before depreciation and amortization, divestitures and impairments* increased 6.1% to $1.559 billion compared to $1.470 billion for 2005;
- Cash flow from operations increased 29.3% to $922 million compared with $713 million for 2005;
- Free cash flow* for the year more than doubled to $265 million compared with $108 million for 2005, driven by the improvements in operating income and a benefit from working capital;
- Efficient capital investment of $670 million supported ongoing operations, yet was $30 million below initial 2006 guidance; and
- Debt, net of cash, was reduced by $219 million, to $6.8 billion.
2007 OUTLOOK
Allied Waste also announced its outlook for the full year 2007 including the following:
- Revenue growth of approximately 3% to 4%, comprised of price growth of 3% to 4% and volume growth of 0% to 1%;
- Operating income of approximately $1.025 billion to $1.075 billion;
- Depreciation and amortization of approximately $600 million;
- Operating cash flow of approximately $975 million to $1,025 million, including the impact of the change in disbursements account, which is reflected in financing activities;
- Capital expenditures of approximately $700 million;
- Free cash flow* of approximately $300 million to $325 million;
- Dividends on preferred stock of approximately $40 million; and
- Debt repayment of approximately $260 million to $285 million.
Allied Waste has filed supplemental data on Form 8-K that is accessible on the Company's website or through the SEC EDGAR System.
Allied Waste will host a conference call related to the fourth quarter results on Thursday, February 15th at 5:00 p.m. ET. The call will be broadcast live over the Internet on the Company's website: www.alliedwaste.com. A replay of the call will be available on the site after the call.
Allied Waste Industries, Inc., a leading waste services company, provides collection, recycling and disposal services to residential, commercial and industrial customers in the United States. As of December 31, 2006, the Company operated a network of 304 collection companies, 161 transfer stations, 168 active landfills and 57 recycling facilities in 37 states and Puerto Rico.
*Information Regarding Use of Non-GAAP Financial Measures
In addition to disclosing financial results in accordance with generally accepted accounting principles (GAAP), the Company also discloses gross profit before depreciation and amortization (revenue less cost of operations) which is used in computing gross margin, operating income before depreciation and amortization, divestitures and impairments and free cash flow, which are non-GAAP measures.
We believe that our presentation of gross profit before depreciation and amortization is useful to investors because it is an indicator of the strength and performance of our ongoing business operations, including the ability to grow revenue and manage the associated direct costs. While selling, general and administrative costs, depreciation and amortization and loss from divestitures and asset impairments are considered components of operating income under GAAP, management uses gross profit before depreciation and amortization to evaluate business growth and the efficiency of our operations. Following is a reconciliation of gross profit before depreciation and amortization to operating income:
($ in millions) Three Months Twelve Months
Ended December 31, Ended December 31,
2006 2005 2006 2005
Gross profit before
depreciation and
amortization $549.2 $510.3 $2,154.5 $1,989.1
Less: Selling, general
and administrative
expenses 147.9 136.9 595.3 519.2
Less: Depreciation
and amortization 139.3 138.1 569.3 554.4
Less: Loss from
divestitures and
asset impairments 8.0 -- 22.5 --
Operating income $254.0 $235.3 $967.4 $915.5
We believe that our presentation of operating income before depreciation and amortization, divestitures and impairments is useful to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund capital expenditures and our ability to incur and service debt. While depreciation and amortization are considered operating costs under GAAP, these expenses are non-cash and primarily represent the allocation of costs associated with long-lived assets acquired or constructed in prior years. Management uses operating income before depreciation and amortization to evaluate the operations of our geographic operating regions. Following is a reconciliation of operating income before depreciation and amortization, divestitures and impairments to operating income:
($ in millions) Three Months Twelve Months
Ended December 31, Ended December 31,
2006 2005 2006 2005
Operating income before
depreciation and
amortization,
divestitures and
impairments $401.3 $373.4 $1,559.2 $1,469.9
Less: Loss from
divestitures and asset
impairments 8.0 -- 22.5 --
Operating income before
depreciation and
amortization 393.3 373.4 1,536.7 1,469.9
Less: Depreciation and
amortization 139.3 138.1 569.3 554.4
Operating income $254.0 $235.3 $967.4 $915.5
Free cash flow is defined as cash flow from operations, including the impact of the change in disbursements account, which is reflected in financing activities, less capital expenditures, plus proceeds from fixed asset sales and transaction related refinancing charges. Management believes the presentation of free cash flow is useful to investors because it allows them to better assess and understand the Company's ability to meet debt service requirements and the amount of recurring cash generated from operations after expenditures for fixed assets. Free cash flow does not represent the Company's residual cash flow available for discretionary expenditures since we have mandatory debt service requirements and other required expenditures that are not deducted from free cash flow. Free cash flow does not capture debt repayment and/or the receipt of proceeds from the issuance of debt. We use free cash flow as a measure of recurring operating cash flow. The most directly comparable GAAP measure to free cash flow is cash provided by operating activities from continuing operations.
Following is a reconciliation of free cash flow to cash provided by operating activities from continuing operations:
($ in millions) Three Months Twelve Months
Ended December 31, Ended December 31,
2006 2005 2006 2005
Free cash flow $147.6 $88.8 $264.6 $108.4
Add: Capital
expenditures 159.5 204.5 669.3 695.9
Less: Change in
disbursement account (16.5) (43.4) 47.3 (21.9)
Less: Premium on debt
repurchases -- -- (37.2) (49.5)
Less: Proceeds from
sale of fixed assets (10.6) (9.9) (22.4) (20.3)
Cash provided by
operating activities
from continuing
operations $280.0 $240.0 $921.6 $712.6
Following is a reconciliation of the 2007 free cash flow outlook to cash provided by operating activities from continuing operations (in millions):
2007 Outlook
Free cash flow $300-325
Add: Capital expenditures 700
Cash provided by operating activities including
the impact of the change in disbursement account 1,000-1,025
Less: Change in disbursement account 0-25
Cash provided by operating activities from
continuing operations $975-1,025
Allied does not intend for these non-GAAP financial measures 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 For the Three
Months Ended Months Ended
December 31, % of December 31, % of
2006 Revenues 2005 Revenues
Revenue $1,494.3 100.0% $1,468.0 100.0%
Cost of operations 945.1 63.2% 957.7 65.2%
Selling, general and
administrative expenses 147.9 9.9% 136.9 9.3%
Depreciation and
amortization 139.3 9.3% 138.1 9.5%
Loss from divestitures
and asset impairments(A) 8.0 0.6% -- --%
Operating income 254.0 17.0% 235.3 16.0%
Interest expense and other 130.0 8.7% 130.3 8.8%
Income before income
taxes 124.0 8.3% 105.0 7.2%
Income tax expense(B) 114.1 7.6% 37.6 2.6%
Minority interest 0.1 0.0% 0.5 0.0%
Income from continuing
operations 9.8 0.7% 66.9 4.6%
Discontinued operations,
net of tax -- --% 0.6 0.0%
Cumulative effect of
change in accounting
principle, net of tax -- --% (0.8) (0.1)%
Net income 9.8 0.7% 66.7 4.5%
Dividends on Series C
Preferred Stock -- --% (5.4) (0.4)%
Dividends on Series D
Preferred Stock (9.4) (0.7)% (9.4) (0.6)%
Net income available to
common shareholders $0.4 0.0% $51.9 3.5%
Weighted average common
and common equivalent shares 369.7 449.7
Diluted income per share
from continuing
operations (C) $0.00 $0.15
Diluted income per share(C) $0.00 $0.15
(A) Loss from divestitures and asset impairments of $8.0 (or $0.01 per
share) primarily related to a decision to discontinue development
and/or operations at two landfill sites and the relocation of the
company's operations support center.
(B) Income tax expense for 2006 includes $58.2 million (or $0.16 per
share) consisting of: $21 million of interest charges on previously
recorded liabilities currently under review by the applicable taxing
authorities, $14 million in adjustments relating to state tax matters
attributable to prior years, a $12 million increase in our valuation
allowance for state net operating loss carry-forwards, and $11 million
relating primarily to adjustments of state income taxes. Income tax
expense for 2005 includes a $12.6 million (or $0.03 per share) benefit
primarily driven by state income taxes and provision to return
adjustments.
(C) Earnings per share for the three months ended December 31, 2006 is
calculated using income from continuing operations, adjusted for the
impact of the convertible securities, divided by the share base, as
the dilutive impact of the convertible securities is included in the
share count.
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in millions, except per share data and percentages)
(unaudited)
For the Year For the Year
Ended Ended
December 31, % of December 31, % of
2006 Revenues 2005 Revenues
Revenue $6,028.8 100.0% $5,734.8 100.0%
Cost of operations 3,874.3 64.3% 3,745.7 65.3%
Selling, general and
administrative expenses 595.3 9.9% 519.2 9.1%
Depreciation and
amortization 569.3 9.4% 554.4 9.6%
Loss from divestitures
and asset impairments(A) 22.5 0.4% -- --%
Operating income 967.4 16.0% 915.5 16.0%
Interest expense and
other(B) 567.9 9.4% 588.0 10.3%
Income before
income taxes 399.5 6.6% 327.5 5.7%
Income tax expense(C) 238.5 3.9% 133.9 2.3%
Minority interest 0.1 0.0% (0.2) (0.0)%
Income from
continuing operations 160.9 2.7% 193.8 3.4%
Discontinued operations,
net of tax -- --% 10.8 0.2%
Cumulative effect of
change in accounting
principle, net of tax -- --% (0.8) (0.0)%
Net income 160.9 2.7% 203.8 3.6%
Dividends on Series
C Preferred Stock (5.4) (0.1)% (21.6) (0.4)%
Dividends on Series
D Preferred Stock (37.5) (0.6)% (30.4) (0.6)%
Net income available
to common shareholders $118.0 2.0% $151.8 2.6%
Weighted average common
and common equivalent shares 359.3 330.1
Diluted income per share
from continuing operations $0.33 $0.43
Diluted income per share $0.33 $0.46
(A) Loss from divestitures and asset impairments of $22.5 (or $0.04 per
share) primarily related to a decision to discontinue development
and/or operations at three landfill sites, asset sales completed as a
result of our market rationalization focus and the relocation of the
company's operations support center.
(B) Interest expense and other includes $41.3 million (or $0.07 per share)
and $62.6 million (or $0.11 per share), for 2006 and 2005,
respectively, related to the write-off of deferred financing costs and
premiums paid in conjunction with the early repayment of debt.
(C) Income tax expense for 2006 includes $58.2 million (or $0.16 per
share) consisting of: $21 million of interest charges on previously
recorded liabilities currently under review by the applicable taxing
authorities, $14 million in adjustments relating to state tax matters
attributable to prior years, a $12 million increase in our valuation
allowance for state net operating loss carry-forwards, and $11 million
relating primarily to adjustments of state income taxes. Income tax
expense for 2005 includes a $34.6 million (or $0.10 per share) benefit
primarily driven by the then pending sales of certain operations and
provision to return adjustments.
For more information, contact:
James P. Zeumer
Senior Vice President, Public Affairs, Communications and Investor Relations
Allied Waste Industries, Inc.
480-627-2785
www.alliedwaste.com.
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