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Articles from 1998 In November


Clash of the Titans

When the old USA Waste purchased Waste Management Inc. (WMI), Oak Brook, Ill., earlier this year, it underscored a key principle of the waste management industry: Anybody can be bought.

Then again, the fact that a smaller company bought a bigger company should come as no surprise. Mergers and acquisitions have characterized the waste management industry for 30 years, ever since the old WMI and Browning-Ferris Industries (BFI), Houston, first discovered that growth has two parts: selling new collection accounts and buying accounts in the form of other companies with revenue streams. Trash collectors have been buying each other ever since.

Where will it all stop? How are mergers and acquisitions altering the industry's structure and stability? Is the current buying and selling spree a shake-out that will leave four or five major companies to collect waste across the country? Is this an industry just doomed or blessed to pass through endless cycles of consolidation?

It is difficult to imagine a model of the waste business that explains what drives it to merge and acquire. Most industries begin to consolidate when the market matures or stops growing. At that point, industry players only can grow by buying other companies and their market shares.

The waste industry is different. "Two or three years ago, estimates said the solid waste industry was a $32 billion market," says Peter Ruud, vice president-administration and corporate secretary for Superior Services Inc., Milwaukee. "But today, estimates say the industry has grown to $36 billion and will continue to grow to $50 billion in the next decade."

Trash has been growing for 30 years and promises to continue growing as increasing numbers of people throw out increasing amounts of garbage. Clearly, waste markets have not yet matured, and it is impossible to rely on conventional industry models to understand what is happening.

"Fragmented industries tend to have a lot of consolidation, too," says Richard Ilsley, a partner with the Chicago-based consulting firm of Meridian Sales Development Specialists. "In many fragmented industries, such as the executive placement industry, every company does the same kind of work. So it is relatively easy for a consolidator to integrate other companies into its operation, install uniform operating practices and gain the benefits of higher revenues and lower costs. But it only works if the consolidators are expert operators."

That seems to be what is happening in the waste industry today: Expert operators have become top consolidators. In the late 1960s, executives at BFI and WMI realized they could grow by consolidating a fragmented industry in which the same fundamental operating principles applied to all collection and disposal companies. On the strength of that idea, these two companies roared through the '70s into the '80s until brimming landfills and shortages in disposal capacity brought government policymakers into the picture.

"About 20 years ago, as a country, we began to examine the way we manage solid waste," says Joseph S. Fusco, vice president of communications for Casella Waste Systems Inc., Rutland, Vt. "In the early 1980s, we underwent a massive policy change. The most visible element of this change was the federal Resources Conservation and Recovery Act (RCRA), which passed in the early 1980s and instituted Subtitle D Landfill regulations.

"We went from an environment where every small town had a dump to [one where we had] technically sophisticated, regional landfills," he continues. "We also decided not to throw everything away and to begin to recycle wastes in an organized fashion with engineered material recovery facilities. In other words, we changed from an inexpensive way of managing waste to a process that was very capital intensive, knowledge intensive, technically intensive and management intensive.

"When this happened, many waste management companies and divisions of local governments either were unwilling or unable to make the capital investments necessary to meet those new standards," Fusco says. The result was a second era of waste management industry consolidation led by companies with capital, such as BFI and WMI, and companies that found ways to get capital by going public, such as Chambers, Mid-America and United.

Capital considerations and financial management capabilities drove consolidation activity through the middle and late 1980s, says Henry Hirvela, vice president and chief financial officer of Allied Waste Industries Inc., Scottsdale, Ariz. Consolidators with capital found it possible to take advantage of what Hirvela calls the "supposed" landfill shortage.

"Two large companies, BFI and WMI, also pursued a growth strategy through diversification into other businesses such as hazardous waste and recycling," adds Tod C. Holmes, senior vice president and chief financial officer of Republic Services Inc., Fort Lauderdale, Fla. "Along with those moves came heavy bureaucracies and more centralized management philosophies."

That left the door open for other well-capitalized companies to initiate a third phase of industry mergers and acquisitions by adopting a strategy to become the low-cost provider in particular markets.

"We're going back to that old-time religion," says Allied's Hirvela. "Today's merger and acquisition activity is a back-to-the-basics move led by companies with operating expertise, such as [the former] USA Waste.

"We're part of this group, too," Hirvela continues. "Today's consolidators are characterized by a strong operating culture. We know how to run trucks, collect trash and operate landfills. Operations people are in control, while financial management has become part of the support structure."

Indeed, an Allied market entry generally features a strategy built on an understanding of trash problems and management. For example, in 1992, Allied executives sniffed out a garbage problem in Chicago: Imminent landfill closings would soon force disposal activities outward into the surrounding region. Whatever company owned the regional disposal capacity necessary to Chicago's future would own a large portion of the city's waste management business.

Allied moved quickly and entered the Chicago market by purchasing two landfills, two collection operations and one transfer station in each of these Illinois cities: Chicago, East Moline and Hoopeston.

Next, Allied acquired six Chicago collection companies to feed its new landfills, tucking each company into its Chicago operation.

Moving outward, Allied acquired collection and transfer assets in and near the city, adding revenues, expanding the company's market share, and increasing operational efficiencies.

Since entering the Chicago market in 1992, Allied has acquired 32 collection companies, eight transfer stations and four landfills. The company also has developed two additional landfills, accessible from Chicago in northwest Indiana, which have enhanced the company's disposal capabilities in that state.

Targeting Rational Operations The Allied example applies the principles important to successful waste management consolidation in the late 1990s: Waste management consolidation is more than buying the revenues of individual companies.

To make everything work out for the long term, a company must buy a rational operating system. Revenue streams from collection operations are important but may have little real value if, for example, it costs too much to dispose of the trash. A rational operating system includes a source of revenue from collections, plus a low-cost means of disposal.

Allied has proven to be one of the most disciplined practitioners of this art, having organized the markets it has purchased in a way that has produced an internalization rate of more than 70 percent.

With variations on this theme, today's major consolidators, including Allied, Republic Services, Milwaukee-based Superior Services, Raleigh, N.C.-based Waste Industries and the new WMI (which continues to consolidate with its recent purchase of Eastern Environmental Services, Mt. Laurel, N.J.) are transforming the consolidation process from something akin to a financial roulette game into a business based on rationally conceived operating markets.

Two other consolidators, Casella Waste Systems and Roseville, Calif.-based Waste Connections Inc. have moved this strategy out of the metropolitan regions into suburban and rural communities. Both have applied the model of purchasing rational operating markets to the special management problems created by small, spread-out population centers.

Lonnie Poole, Waste Industries' chief executive officer, notes another important wrinkle in today's consolidation market. "In the past, most companies were growing primarily through mergers and acquisitions," he says. "They really didn't give much consideration to selling any of their operations. What we see today are net buyers and net sellers. Some are selling operations that they no longer want or need. At the same time, they are acquiring operations they do need. This is a major shift in how consolidation is occurring."

The Never-Ending Story? Rational or not, all consolidation movements have limits. Where will this phase of industry consolidation end?

If the total current waste management market amounts to operations worth $36 billion, representatives of the different consolidating companies say that the available acquisition targets comprise a pool of companies worth between $8 billion and $12 billion. The remainder of the market consists of private companies that may or may not sell and of municipal or regional authorities that exhibit little interest in privatizing.

"Consolidation has an end-game," says Ronald Mittelstaedt, president and chief executive officer of Waste Connections. "If you think of it as a football game, I would say that the game is in the middle of the third quarter for most urban markets. In the rural and suburban markets, where we operate, I don't think it's half-time yet."

Republic Services' Holmes holds a different view. "I think this is more of a continual cycle," he says. "There always will be another game or another season, with new, small, private companies entering the market and finding a low-cost niche.

"Whether there are $8 billion or $12 billion in private companies out there right now, the total never will go down to zero, because the market always will replenish itself," Holmes continues.

What will change, and indeed has changed in the current market, according to Holmes, is the size of the individual acquisition targets. Companies with revenues of $100 million and $200 million are disappearing from the market, leaving companies with $20 million to $40 million in revenues as the current targets.

Another factor influencing the length of the consolidation game involves the privatization market's potential. While some municipalities and operating authorities seem prone to privatization, others prefer to run their own operations - at least for the time being. But that could change. "Many local governments across the country are asking whether they want to put taxpayers' money at risk by running a highly competitive business in which they have no particular expertise," says Casella's Fusco.

Perhaps this trend will grow, leading to more consolidation opportunities. "Right now, not a lot of local governments think this way, and not a lot of companies think this way," Fusco continues. "Still, there is a lot of self-examination going on."

The Stock Market's Wild Ride While solid waste market factors may extend the current era of waste industry consolidation, other factors may change the rules of the game and the companies involved.

For example, the stock market fell by nearly 20 percent between summer and fall of this year. No one knows what will happen next. "To the extent that you do stock deals, multiple contractions in the price of your stock will dampen your appetite to use stock in acquiring other companies," says Allied's Hirvela. Holmes of Republic Services believes that price-to-earnings multiples prices will determine how stock market volatility will affect mergers and acquisitions in the coming months. "If you have a high multiple, say 40, and you are acquiring someone with a lower multiple, your stock is cheap currency," he says. "That's the game of pooling."

As stock prices fall, so do price-to-earnings multiples. For a buyer using stock, a transaction suddenly appears more expensive. For a seller, a stock offer suddenly looks less valuable.

"This kind of stock market volatility could make sellers turn to cash," says Holmes - a development that would suit Republic, given its high cash reserves and policy of acquiring companies for cash. While the stock market has created issues about the relative values of stock and cash in the acquisition process, the Securities and Exchange Commission (SEC) reportedly is considering a policy change that would eliminate pooled accounting acquisitions.

Pooled accounting purchases use stock as currency and enable buyers and sellers to consolidate balance sheet assets and liabilities, tax free, by simply adding items together.

The pooled accounting method differs from purchase acquisition in which cash serves as the transaction currency. Under purchase accounting, the amount of the purchase price over fair market value must show up on the balance sheet as good will.

In the world of trash, good will accounts for as much as 80 percent to 90 percent of the purchase price of a company. So it seems that changing from pooling to purchasing might affect the merger and acquisition landscape. "If you believe that earnings per share drive stock prices, then a change from pooling to purchasing would dampen your acquisition activity because higher stock multiples produce better earnings per share results in an acquisition," says Allied's Hirvela. "But if cash flow is all important to you, it won't matter what method you use because there is no impact on cash flow."

Hirvela thinks that an SEC change mandating purchase accounting will level the playing field. Such a change will make reported earnings appear to be lower. But everyone will have the same problem. "It may make it harder for smaller growth companies with high multiples," Hirvela says. "But eventually, life will go on."

Stock market volatility and possible accounting changes represent short-term stumbles in the trash industry's march to consolidation.

Over the long haul, which in this industry may be two or three years, merger and acquisition momentum will continue to consolidate the consolidators. "In some urban markets, WMI has consolidated the entire public company marketplace," says Waste Connections' Mittelstaedt. "Eighteen months ago, there were nine companies where now there is one. In the overall market, the number of consolidator companies is down to eight. I think by the year 2000, the number will be down to four or five." Mittelstaedt won't speculate as to which four or five consolidators will be left standing. Who would? Because after all, the truth is that anyone can be bought.

How to Select a Portable Concrete Recycling System

When shopping for a road-portable concrete recycling system, consider the equipment's efficiency, mobility, durability and maintenance. These key factors determine the price/quality quotient and profit/payback expectations for each system in your operation and market.

Because profitability relies on low equipment downtime, it is important to know the manufacturer's track record, watch the equipment in action and talk with current customers before buying.

Avoid the "one plant does everything" syndrome. Make sure the manufacturer can provide what you need; don't let it try to sell you just what it has available. Although a customized plant might cost a little extra money, in the long term, it can pay for itself many times over.

The crusher should be a primary impactor designed for recycling. Recycling impactors have a reduction ratio of as much as 30-to-1 in a closed circuit, are faster and give more control over product size than jaw crushers. They are built to crush materials that contain wire mesh, reinforcing rods, dowel pins and other steel items.

A powerful electromagnet should be mounted on top of the discharge conveyor to pull steel from the crushed materials. To ensure efficient material flow, the magnet should be positioned in line with the discharge conveyor.

If you plan to crush construction and demolition debris, you may not want to pulverize the feed. Pulverized materials make downstream separation more difficult, and pulverizing wood tends to contaminate the smaller products.

Your system should include options such as picking stations to remove certain loose materials and an air classifier for wood and paper removal.

Some road-portable systems - including crushing plants, discharge conveyors, screen plants and return conveyors - can be set up in less than a day without crane assistance. Key elements to a fast set-up are a skid-on hopper and independent hydraulic legs - not jacks - that provide solid support with infinite, accurate height adjustment.

The system's supplier can help you determine the optimum size of the crushing plant and system components based on your material mix, tons per hour requirements and other needs. An oversized plant can be wasteful in terms of the initial cost and, to a lesser extent, the operating cost. An undersized plant can be a disaster in terms of excessive feed preparation, inadequate production capacity, high downtime and lost profits.

A well-engineered recycling system should operate efficiently for many years with minimum maintenance. Compare each manufacturer's maintenance recommendations carefully and make sure wear parts will be easy to replace. For example, a hydraulically operated split housing on the impactor will save hours of downtime in replacing wear parts such as blow bars.

Electrical control systems range from manual, push-button types to automated, computerized types. Any system you purchase should meet Occupational Safety and Health standards, and, for safety and efficiency, you should be able to control the entire recycling system from the operator's station. The system also should have quick-disconnect fittings for fast, accurate assembly.

The equipment supplier should be available for the system's set-up, training and start-up, and should provide a good operation and maintenance manual written specifically for your system.

Finally, remember that experience is everything. Ask how many systems the manufacturer has built and how many are still in operation. Be extremely wary of any manufacturer that must be coaxed to give you a list of customer contacts.

The Construction Materials Recycling Association (CMRA), a non-profit, education trade group, provides its members with a compre- hensive list of literature and other information on recycled construction materials and represents members at trade shows and seminars.

The CMRA provided comments to the U.S. Environmental Protection Agency regarding its recent construction waste and demolition debris (C&D) recycling waste characterization study. The association currently is trying to find ways to develop more markets for recycled C&D waste.

For more information, contact the CMRA at P.O. Box 644, Lisle, Ill. 60532. Phone: (630) 548-4510. Fax: (630) 548-4511. E-mail: [email protected]

Spinning Software Solutions

In the early '80s, as computers were starting to change the way the world did business, almost no software had been developed for the solid waste industry.

Today, industry-specific software can do almost everything from capturing scale customer data to generating invoices - functions that can create neat statistical analyses that track garbage trucks on the fly.

Unless you are starting from ground zero, integrating software into an existing system is every bit as important as finding a software package tailored to the way you do business. "It's difficult to take anything off the shelf and assume it's just going to pop right in. That's not realistic," says Bill McConkey of Mobile Computing, Mississauga, Ontario, Canada.

McConkey notes that the biggest value that software companies tout is the ability to integrate their packages into each customer's particular business practice.

Not integrating software packages just creates islands of automated tasks - ultimately defeating the purpose of computer automation. No one knows about these islands better than Karen Hochede, systems administrator for the city of Tucson, Ariz., which serves approximately 450,000 residents.

Two years ago, the Tucson sanitation department was using a stand-alone proprietary application, which required several hand-generated reports. The city's move to a UNIX-based application, purchased from PC Automation, Waterloo, Ontario, Canada, has increased the system's speed and has allowed the department to multi-task and generate ad hoc reports using applications such as Microsoft Access.

The city of Tucson isn't the only operation that has changed its high-tech tools. Before 1989, Magic Disposal, an Egg Harbor Township, N.J.-based, family owned hauling company and transfer station, performed all business functions on two Apple IIs with applications written by the office manager's father.

Today, the company has five UNIX-based stations (purchased from Solid Waste Technologies, Jamesburg, N.J., and integrated with existing scale software), 250 customers, including Atlantic City casinos, and one transfer station.

But Delores Welcz, the office manager, wasn't always convinced that she had made the right choice. Moving from a system the company had been using for six years to what the family considered to be "a monster" was difficult.

Both Welcz and her mother were terrified that they would fail to produce invoices during the transition. However, she concedes, "if we didn't just do it, we would be 'Appling' till the end of time."

Welcz need not have feared: The transition to the new system took only one day, and the invoices were sent out the following day.

Ticket to Ride "The key to automation is integration," says Patrick Sweeney of Transcomp Systems Inc., Orange, Calif.

To this end, software appears to be moving in two distinct directions. One trend revolves around technologies developed by Microsoft, and the other revolves around connectivity and communication.

"You are either on the Microsoft train or on the open-systems train," Mobile Computing's McConkey says. "Open systems" refer to packages that are networked with phone lines and can use Internet and Java technologies. The Microsoft/Windows faction is a devoted group that appreciates the platform's simple graphic user interface.

"In our search for software, we found that there weren't too many [packages] that were truly Windows-based," says Sam McNeiland, sanitation superintendent for the city of Edmond, Okla., just outside of Oklahoma City.

Edmond, which has a fleet of eight automated trucks, four front-end loaders and two roll-offs, serves 22,000 homes and 5,500 businesses. It contracts with one of eight landfills in a 60 square mile radius.

Until recently, the sanitation department had been using a suite of home-grown computer applications, including databases and route sheets.

However, Year 2000 (Y2K) compliance sent the department searching for an alternative. [For more information on Y2K, also known as the "Millennium Bug," and to see if your systems are susceptible, see "Ghost in the Machine," World Wastes June 1998, page 38.]

"We've got big problems looming in the future, so we're in the midst of changing software," says McNeiland, who hopes to be online by December 1998.

However, many of the software packages that McNeiland reviewed were oriented around an accounting package - the one function that the city didn't need. "We have the world's best bill collection system: If you don't pay your garbage bill, we shut off your electricity," McNeiland says.

The city is working with Transcomp, but is only adding routing and customer service functions to its current system. "Route profitability [analysis] is not something that is easy for us to do unless we use our Big Chief notepad and a Crayola," McNeiland says.

In the future, the department hopes to compensate its drivers based on profit sharing rather than on an hourly wage, he adds.

McNeiland expects customer service and efficiency to improve with the software because it will allow a transaction to be complete when a customer service representative hangs up the phone.

In this new Windows environment, representatives can switch between screens in multiple applications, a capability that facilitates quick action while the customer is still on the phone. On the old system, a representative had to handle one transaction three or four times and risk error, due to the difficulty of running more than one application simultaneously.

Eventually, McNeiland hopes to expand the software's use to aid in truck routing.

The Open-System Side For the past 15 years, the city of Toronto has been riding the open-system train to manage its solid waste.

Eleven software upgrades later, the current generation handles all of the billing for the city's curbside trash and recycling pick-up service.

It has connected all 10 of the city's transfer stations, which are centralized, across a wide-area Integrated Services Digital Network, through the city's administration system.

Toronto's twelfth upgrade will rely even more on connectivity and increased capacity for handling data when the city and six surrounding municipalities join to form a "megacity."

"Obviously, the data requirements are going to grow with the size of the city," says David Carter, Toronto's weigh scale coordinator.

Part of the newest upgrade will involve replacing the present operating system with LINUX, a character-based system, which Carter says can run a relational database without compromising speed.

"Some sites are processing 1,000 vehicles a day," Carter says. "At one minute per vehicle, it is easy to see that there won't be enough minutes in the day [to accommodate the transactions]." Last year, corporate accounts and individuals paying cash accounted for $42 million in revenue. "We don't want to turn any of that money away," Carter says.

The relational database also provides statistical analyses on drivers and crews. "With that information, [managers can] hire and fire guys daily," Carter says.

While true real-time applications are possible, they are not common, especially in the Pacific Northwest, according to Penny Erickson, operations superintendent for Metro Regional Environmental Management, Portland, Ore.

Frequent storms and, consequently, line outages make real-time applications impractical because failures mean downtime.

Like the city of Toronto, Metro Portland, which serves the Portland region, uses its software in a semi-real-time application, in which the agency's downtown office is connected to its two transfer stations.

It uses a software package from Information Systems Inc., Baltimore, which is deigned to track and process scale transactions.

Although a Windows-based version of the software is available, Metro officials chose the DOS-based version because they believed that DOS would be more efficient at processing Metro's high number of transactions (600,000 customers and 750,000 tons of trash a year).

"Some of the graphically based applications spend a lot of time on output to the screen, which can require a lot of processor time simply to keep the screen updated," says Mark Wills of PC Automation.

"But in reality," he adds, "there's so much hardware horsepower available today, that [slow processing time] is not always an issue."

Client-server technology also can compensate for longer processing time that is typical of graphic-intensive applications by taking part of the processing burden off of the client machine, freeing it up for the next task.

Metro, which has been online for 12 years, reports that computer automation has enabled it to maximize its customer service staff by reducing the number of employees needed to weigh in trucks.

Additionally, the radio tag system, in which truck identifications are recorded from radio frequencies, has allowed the transfer stations to expand their operating hours without increasing cost.

But there still is room for improvement, says Erickson, who would like an update capable of different rate structures. "The commercial customer is less expensive," she explains. "It takes longer to service residences."

The price of a software system varies with the size of the order and whether or not the organization requires special programming.

"But hardware is the majority of the expense, not software," says Erickson, who notes that Metro currently pays a $5,000 annual licensing fee to use the software at its two transfer stations.

If there is one common thread tying solid waste software end-users together, it's better customer service made possible by computer automation.

Improved customer service is what prompted Ventura, Calif.-based E.J. Harrison and Son to abandon its proprietary system in 1992 and adopt a new billing software.

Today, this 60-year-old, family run hauler, which has been automated for 10 years, boasts a system consisting of an AS400 server connected to Windows clients. The company uses a Soft-Pak (San Diego) system in conjunction with a route-optimizing application from RouteSmart, Columbia, Md.

"Before [implementing the system], we were limited in customer service because we needed certain employees for certain areas, and they could only handle those [particular] calls," says Controller Mike Marostica. "Now, with the new system, anybody in the office can take any call."

Superior Services Inc.

Formed in 1992 with the consolidation of 22 waste management business in the upper Midwest, Superior Services has joined the ranks of leading regional consolidators through more than 80 subsequent acquisitions in 12 states, including Alabama, Florida, Illinois, Iowa, Michigan, Minnesota, Missouri, New Jersey, Ohio, Pennsylvania, West Virginia and Wisconsin.

Today, the Milwaukee-based company's operations include 22 owned or operated landfills, 50 collection operations, 16 recycling facilities and 19 transfer stations serving more than 650,000 residential, commercial, municipal and industrial customers.

Superior's revenues reached $191.6 million during 1997, and current annualized revenues total just under $300 million.

The company's current rate of growth was sparked by a March 1996 initial public offering that raised $37.2 million and a follow-on offering in September 1997 that brought in an additional $117 million in capital.

Superior drew on these resources to acquire 26 companies in 1997. This year, the acquisition pace has increased, with 26 acquisitions being completed through September. Superior takes a traditional hub-and-spoke approach to evaluating acquisitions, identifying a hub disposal facility, building collection and transfer spokes around it, then filling in with tuck-ins. This strategy has enabled Superior to build a relatively high internalization rate of 68 percent.

"Tuck-ins are an important part of our strategy," says Peter Ruud, the company's vice president-administration and corporate secretary. "Tuck-ins enable us to follow through in a particular market by building margin improvements."

legislation: Court Says Client Have Right to Access Their legal Files

After the owner of a commercial waste hauling firm decided to hand over the company's legal business to a new attorney, he broke the news to his then-current lawyer and asked for the company's legal files.

To his surprise, the lawyer refused, saying he would turn over only copies of court papers and, if necessary, copies of correspondence and memorandums addressed to the client, but not notes, internal memos, documents and other background materials that the lawyer prepared or used in providing advice to the client.

Not too many years ago, law firms freely turned over the contents of their files whenever clients asked them to do so. Nowadays, however, lawyers contend that they own the files, even where clients have paid in full huge fees for the work.

A couple of years ago, a prominent New York City law firm and one of its former clients began a protracted fight over access to the client's files. The dispute ended only after the highest court in New York state ruled in favor of the client - a decision consistent with decrees, opinions and orders by courts, and lawyer disciplinary boards in at least 10 other states where clients enjoy almost complete access to their legal files.

Meanwhile, courts and professional panels elsewhere have agreed with lawyers who have argued that they own their notes and internal memos, and that compelling them to surrender these papers would stifle their creative thinking. Sometimes, however, even in the half-dozen states with lawyer-friendly rules, a client can obtain its files whenever it can show that it must examine them to understand what the law firm has done.

The fight over files may reflect the growing distrust between lawyers and clients, who increasingly are using the courts to resolve issues ranging from fee disputes to quality of services. Indeed, the dispute before the New York court involved a claim by the client that it needed to review the law firm's files to investigate the basis for a possible malpractice suit against its former lawyers.

The malpractice suit, which the client eventually filed and still is pending, alleges that the law firm negotiated with a party on behalf of the client but never told the client that the firm was actively soliciting legal business from the other party at the same time.

The client lost the records case in two lower courts, but pressed forward with the appeal. For its part, the law firm argued that lawyers have a legitimate interest in protecting their "internal" thought processes. Otherwise, the firm said in papers it filed, lawyers would "think twice" before putting on paper any "critical views of their client's actions, credibility or integrity." Access to files should not turn on whether a client paid its legal bills, the firm said, but whether it actually needs the files. As the firm saw it, the client already had all the files necessary to understand the firm's work.

In its ruling handed down last December, New York's high court said that a client's access to its files is part of a client's right to "openness and conscientious disclosure" from its lawyers.

Incidentally, the commercial waste hauler eventually received all of its files - but not before it threatened to file suit against its former lawyer.

Agreements The Southeastern Public Service Authority, Chesapeake, Va., has become a U.S. environmental Protection Agency Landfill Methane Outreach Program partner.

Waste Management Inc., Houston, has named Leach Co., Oshkosh, Wis., as the sole rear-loader supplier for the next three years.

Industrial Services of America Inc., Louisville, Ky., has made an agreement with Southern Salvage Scrap Metals, Harriman, Tenn., to offer recycling services.

recycling: Improvements in Dynamics Mold Recycled Plastics' Future

Recycled plastics demand in the United States is projected to increase 10 ercent annually to 2.8 billion pounds in the year 2000, according to The Freedonia Group Inc., an industrial market research firm based in Cleveland. Growth will be based upon expanded collection networks, improved sorting and processing technologies, and further end-product development.

Projected recycled plastics growth will be significantly slower than in the past because of factors such as changing consumer attitudes toward recycling and shifts away from politically driven legislation, according to Freedonia's 1997 "Plastics Recycling" study. However, high-density polyethylene (HDPE) and polyethylene terepthalate (PET) will remain the dominant resins, accounting for two-thirds of all recycled resins, because they are easily collected and segregated.

Advances in plastics recycling will depend on factors such as continued public interest and lower recycled resin prices. Lower prices result in part from sorting and processing machinery improvements in applications such as packaging household and institutional cleaners.

Recycled plastics also cost less than virgin resins, offer similar quality and provide image and marketing advantages. Counteracting influences include low virgin resin prices and over-capacity in virgin resins such as PET. Changing political climates also signify a weakening of legislative recycling efforts, which already has been witnessed in vanguard states such as California and Florida, the report notes.

Freedonia expects recycled HDPE demand to expand based on opportunities in large volume bottle and film uses, and rapid growth in smaller volume plastic lumber, pallet and other markets.

Recycled PET demand will be driven by growing collection rates and expanded markets. Consumers will be the dominant users, especially with anticipated applications in polyester fiber and fiberfill in home furnishing, apparel production processes and carpet fiber, and with growing use as insulation and cushioning for winter jackets, comforters and other textile products. Recycled PET is ideal for fibers because they require less expensive grades and processing than resins, the report says.

HDPE is relatively easy to recycle, and the demand for products made from it will heighten its growth. For example, bottles are the leading HDPE product, and their demand is expected to increase nearly 11 percent annually through 2002. Strong demand will continue for recycled natural bottles, although more growth is anticipated for pigmented bottle sources such as motor oil, shampoo and cosmetics.

Bottles also will remain the dominant use of PET because they are easily available and easy to collect, and there has been rapid growth in carbonated soft drink bottling applications. Custom bottle sources will remain at lower levels but still will exhibit higher growth rates because of the increased collection of plastic bottles for products such as salad oils.

Tray and other packaging sources also are expected to expand rapidly as consumers increasingly recycle trays, bowls and other packaging from frozen food preparations and similar products.

Packaging, the major source of recycled plastics, is expected to remain the market leader because of its widespread bottle and film applications, and its growing food contact applications as a result of advanced supercleaning and depolymerization technologies.

Motor vehicle markets are expected to grow at a below-average pace because of battery market saturation and low recycling rates for engineered resins such as nylon and polycarbonate.

Overall, bottle and film uses seem to provide the best opportunities for recycled plastics in packaging. These uses are ideally suited to closed-loop recycling, the preferred method for dealing with plastic wastes. Bottle markets for recycled plastics primarily consist of HDPE and high-purity PET. Film and sheet applications will be stimulated by greater use in products such as retail shopping bags and trash bags. And, foamed packaging, strapping and pallets will provide smaller volume but high-growth opportunities for recycled plastics.

"Plastics Recycling is available from The Freedonia Group Inc., 767 Beta Dr., Cleveland, Ohio 44143. Phone: (440) 684-9600. Fax: (440) 646-0484. E-mail: [email protected] Website: www.freedoniagroup.com

Acquisitions IESI Corp., Haltom City, Texas, has acquired the hauling assets from 12 companies in Arkansas, Georgia, New York and Texas that are expected to generate annual revenues of approximately $14,500,000. This includes: Arkansas Waste Inc. and Cherokee Sanitary Landfill, Hardy, Ark.; Fiddler's Green Inc., Herber Springs, Ark.; Central Texas Waste Systems Inc., Austin; Waste Watchers Inc., Dallas; Mac-Pac Disposal Inc., Houston; Spartan Dismantling Corp., New York; and two companies in North Georgia that serve Paulding, Douglas and Cobb Counties. IESI also has acquired three collection and recycling companies in New York City - Dellvena Group, Vibro Group Inc. and the LaCavella Group.

U.S. Filter Corp., Bradley, Ill., has acquired Gardiner Equipment Co. Inc., Houston.

Acquisition Waste Connections Inc., Roseville, Calif., has closed on seven acquisitions representing annual revenues of approximately $6 million. The acquired businesses include: Affiliated Waste Services and Wolff's Trashmasher in Nebraska; Dee's Dumpster and County Garbage in Utah; Harrells Septic in Oregon; Youngclaus Enterprises in California; and Evergreen Waste Systems in Washington State.

Agreement Mack Trucks Inc., Allentown, Pa., and Cummins Engine Co. Inc., Columbus, Ind., have announced a long-term agreement making Cummins the exclusive engine supplier for Mack customers that require electronic engines smaller or larger than those offered in Mack's line.

World Wastes Launches New Website ATLANTA - World Wastes readers now can get solid waste information online. Unveiled this month, worldwastes.com features daily headline news, article archives, links to other solid waste-related sites and advertising information.

Visitors to the site can search for industry information by subject category, subscribe to World Wastes magazine and send questions and comments to the editorial and sales staff.

For more information, log onto the site [http://www.worldwastes.com] or contact: World Wastes Editor/Publisher Bill Wolpin, 6151 Powers Ferry Road, Atlanta, Ga. 30339. Phone: (770) 618-0112. Fax: (770) 618-0349. E-mail: [email protected]

Allied Waste Industries Inc.

When Allied Waste, Scottsdale, Ariz., completes its merger with American Disposal Services, Burr Ridge, Ill., in the fourth quarter of this year, the combination will form the third-largest solid waste company in the nation.

Annualized revenues after the merger will total approximately $1.5 billion. The company will have a leading market presence in 25 states located largely in the Midwest and South, with 109 collection companies, 67 transfer stations and 69 landfills. Through June 30, 1998, the company's assets also included 29 recycling facilities.

A leading consolidator in the solid waste industry, Allied acquired 132 companies between 1991 and 1997. Including the American Disposal acquisition, Allied has brought approximately 35 companies into the fold through the third quarter of 1998.

Allied's acquisition strategy aims to increase revenues with domestic acquisitions, including tuck-ins and new market entries. In its search for compatible companies, Allied focuses on a strict business model of vertical integration. Under this model, the company seeks acquisitions that will assure that company collections can be disposed of in company landfills.

Consequently, Allied boasts an industry-leading internalization rate in the 70 percent range. "Our target is 80 percent internalization," says Henry Hirvela, Allied's vice president and chief financial officer. Operating expertise drives Allied's management philosophy. "We're a garbage company," Hirvela says. "Our senior executives grew up in the business managing collections, running trucks and operating landfills."

In practice, this philosophy has led to decentralized day-to-day operational decision-making supported by centralized finance and management information systems.

According to Allied's 1997 annual report, "Our business is a local business and the best business decisions are made by the people in touch with the local markets."

What's brewing on Baker Road?

While the Reed Creek Wastewater Treatment Plant in Augusta, Ga., is surrounded by some of the highest priced real estate in metro Augusta, the Baker Road Landfill in neighboring Columbia County is void of neighbors.

"Heck, you couldn't get someone to buy a 12-by-50 [foot] trailer and put it on a lot next to us," says Don Bartles, Columbia County's solid waste manager.

But, according to this quick-witted Southern gentleman whose manners are as impeccable as his 20 years of solid waste experience, the only difference between the 30 million gallon per day water purifying facility and the 320 ton per day landfill is the slight difference in the facilities' titles: The word "treatment" is noticeably absent from Baker Road's name.

However, that might be about to change. In this small, rural community, just a stone's throw away from where the world-famous Masters golf tournament is held, Baker Road Landfill is testing the same treatment technology practiced by Reed Creek's wastewater plant.

In fact, the science being developed by Columbia County's Aerobic Landfill Bioreactor (ALB) at Baker Road may shape the future of solid waste facilities and regulations to come.

They Built a Landfill; Nobody Cam Bartles doesn't mince words when he admits that poor planning was the reason behind Columbia County's decision to remain in the landfill business.

"When Columbia County committed to build a Subtitle D landfill in 1993, it literally was because it had no other options," Bartles recalls. "We were running out of airspace and [local leaders] waited until too late to put together any other viable options to manage the incoming solid waste. Continuing in the landfill business was a decision by default."

After forming a solid waste authority, Columbia County went to the bond market and sold $7 million in revenue bonds to finance construction of the county's first 8-acre, Subtitle D cell.

All looked well at the beginning. However, in less than six months, the county found itself watching as three critical events in the solid waste industry jeopardized the Baker Road Landfill's fate.

"Although the Carbone vs. Clarkstown ruling occurred in 1994, the effects didn't dawn on us until after we'd sold the bonds to build the landfill," Bartles says. "The fallout began to hit our authority when we started asking ourselves, 'What will happen now that the garbage belongs to individuals at the curb rather than to the county?'"

Then, six months before Columbia County opened its first cell at Baker Road, one of the area's largest waste haulers gave Bartles and his peers a taste of life in the post-Carbone era. The large, vertically integrated company built a "marketplace" transfer station within 20 miles of the Baker Road Landfill and, according to Bartles, instantly "whacked $500,000 a year in revenues" from the county's solid waste budget.

"[This company] immediately took traffic that had been coming into Columbia County and high-tailed it out-of-state," Bartles says.

The third and potentially fatal blow to Columbia County's landfill program was delivered in mid-1995. Bartles and his staff had counted on capturing approximately 150 tons of additional daily waste from neighboring rural counties to the west and south.

"We knew [those counties] were going to close their landfills, not because they were smarter than us, but because they just didn't have the money to meet Subtitle D," Bartles explains.

However, instead of patronizing Columbia County's landfill, these neighboring governments bid out their collection needs to private haulers that, in turn, carried the waste someplace other than the Baker Road Landfill.

By the time the initial $3 million cell at Baker Road was complete, Bartles was facing a $500,000 annual revenue shortfall and depleting waste streams.

Tomatoes, Hot dogs and Grandma To safeguard the new landfill's future, Bartles and the solid waste authority pursued a two-pronged management approach: immediate survival and a long-range plan.

"We asked ourselves, 'How are we going to be sure that the facility we've bought and paid for will remain cost-effective?'" Bartles says. "However, we knew we had to be careful when we used words like 'cost-effective.' It's like the word 'love.' You can love hot dogs, and you can love your grandmother, but there are definitely different degrees of love." The same is true, he says, of determining a project's "cost-effectiveness."

In late 1994, ALB, a new solid waste treatment technology being developed by the U.S. Department of Energy's (DOE) Southeast Technology Center in Augusta, caught Bartles' attention.

Similar to the technology used in wastewater treatment plants, the principle behind ALB is to make the microorganisms present in the waste healthier and hungrier by feeding them air and water.

"They eat more, quicker and more frequently," Bartles explains. "Nature's doing what we want it to do, but in an accelerated fashion."

By 1996, ALB was ready for testing on an actual landfill. The DOE's goal was to see if a landfill could isolate a strain of microorganisms that feed on carbons, a major component of municipal solid waste, either by creating a "designer bug" or by feeding existing ones.

A waste characterization study performed on Columbia County's waste stream found that it was 75 percent organically based, making the Baker Road Landfill ripe for the project.

"The bug wants anything from a tomato to a pair of pants," Bartles says. "Treated two-by-fours and concrete aren't on its menu."

The DOE offered Columbia County a $250,000 grant to become the guinea pig of a one-year pilot program to actively treat the county's landfilled waste instead of just storing it.

The theory was exciting to Bartles, but he still had to battle to get the county and the Georgia Environmen-tal Protection Division (EPD) to agree with the DOE on the project's viability. "Can you imagine convincing elected officials to embrace something as off-the-wall as bugs eating garbage?" Bartles says.

County officials, concerned about Baker Road's future and about what they would do with their waste once the landfill capacity was gone, agreed to work with the DOE. However, the Georgia EPD dug in its heels, forcing Baker Road officials to spend the project's first seven months making pledges and promises in order to win state approval.

"They made us cover every base - indemnification, monitoring, bonds, leachate running off-site, removing leachate from the liner, etc.," Bartles says. "But, to their credit, they did allow us to implement the project through a minor modification to the landfill's operating permit."

Let the Cooking Begin In January 1997, work began in earnest on the landfill's second 8-acre cell over the first 8-foot lift of waste.

The DOE's "designer-bug" concept was scrapped due to cost, so project coordinators focused instead on enhancing the Baker Road Landfill's environment for existing microorganisms to accelerate the degradation process.

Half of the cell received ALB's heated air and leachate treatment. For comparison, the remaining four acres received only leachate recirculation.

Using a 5-horsepower motor with a blower, ambient air was pumped into the landfill's leachate collection system. The air then was filtered through pantyhose and forced out of the system up through the waste mass.

Leachate re-entered the cell via 20 vertical wells with varying depths. A 2-inch PVC pipeline fed leachate from the facility's storage tank to a half-inch feed line with a pressure-controlled emitter, delivering one gallon of leachate per hour.

This irrigation system mirrored native peach orchards' technology, which injects moisture directly into the ground instead of spraying it into the atmosphere. The ALB-treated cell's moisture content averaged between 30 percent to 40 percent.

Because of the time lost spent haggling with state regulators, Columbia County's one-year pilot program had lapsed to five months, which was not enough time to achieve and maintain the ideal 140 degree temperature for a "good cook" and, most importantly, the desired 10 percent reduction in volume.

In May 1997, the county and its contractor, American Technologies Inc. (ATI), Oak Ridge, Tenn., agreed to a six-month extension of the pilot program to compensate for the delay in starting the project. In January 1998, despite achieving a less-than-desirable 5 percent drop of the cell's floor, the county and ATI agreed to grant the pilot a second six-month extension, citing the positive effects on the landfill's methane gas generation rates and leachate strength.

"To be considered a success, we had to see the floor drop 10 percent," Bartles says. "Despite the failure of the first [six-month] extension, the solid waste authority knew that this [project] needed time to run its course."

A payment performance provision negotiated between Columbia County and ATI meant that the contractor would receive no payment if the floor dropped less than 4 percent. If the volume was reduced 4 percent to 6 percent, ATI would receive 50 percent of its payment. And it only would receive full payment if the floor dropped more than 6 percent.

If At First You Don't Succeed ... By the time the pilot was extended a second six months, program coordinators had gathered enough empirical data to recognize their mistakes. "We were having good cooks, but the missing ingredient was weight," Bartles explains.

Because the pilot was being conducted over the cell's first 8-foot layer of waste, the area didn't have enough volume to make a noticeable difference in the reduction of the cell's floor.

"We knew [the failure] couldn't be attributed to consumption of waste by the bugs because the scientific data was indicating ideal temperatures, clean leachate and the production of CO2 [carbon dioxide]," Bartles says.

"These were all indicators that the organic mass that the air and leachate were traveling through was being consumed," he continues. "Otherwise, we'd have been producing CH4 [methane], and the leachate would have been getting dirtier instead of cleaner."

Stacking waste higher and increasing the production of air through vertical wells in 50-foot grids became the project team's next course of action. Program coordinators decided to duplicate the infrastructure with as little manhours and material as possible as the cell grew.

"There's not a thing out there - except for the pumps - that you could not buy at a hardware store," Bartles says. "The manhours alone didn't justify going back and recovering the wells as the cell increased in size. We decided to put them out there and cover them up. Vertical wells moved upward like the layers of a cake."

As the pilot finally came to a close in July 1998, program coordinators realized another critical factor that had hurt the program's success: A "state of starved air" had prohibited microorganisms from reaching their maximum health.

"We needed a bigger air delivery system," Bartles explains. "We weren't delivering all the air the bugs could use.

"But with more air, the temperature is liable to increase, and you've got a lot of materials [in the landfill] with different flash point levels," he explains. "It's a fine line."

If and when the pilot program becomes a permanent fixture at the Baker Road Landfill, Bartles says he will increase the size of the air delivery system and the monitoring.

At press time, the pilot's results were being compiled for county commissioners to decide the program's future. "It's no guarantee that we'll go to the next level," Bartles concedes. "Whatever we do, though, will have to be paid for through the landfill's tipping fee. So, that will come down to what the market can bear."

But, whatever ALB's fate at Baker Road, there's no denying that Bartles has acquired some mind-boggling precepts about the technology's future and its role in the landfilling of solid waste.

"One of the reasons that I and other staff members have embraced, nurtured and supported [the ALB program] is because we see its potential," Bartles says.

According to this solid waste veteran, the majority of the costs in operating a landfill are tied up in building it and purchasing the equipment - both expensive endeavors for items that depreciate and eventually render themselves useless.

"But, technology appreciates," Bartles says. "You tweak it and adjust it, and it performs better. For example, a compactor's iron always will depreciate, while the technology's per-unit cost always will get better."

The Baker Road Landfill's 16-acre footprint has a lifecycle cost of $33 million, of which $11 million is principle and interest payments and another $11 million represents closure and post-closure costs.

"One-third of the facility's lifecycle cost occurs after the cash register is closed and after we quit taking trash," Bartles says.

If ALB is successful in stabilizing waste mass so that it no longer reacts with air and water, Bartles is convinced that he will have a strong argument with state regulators to reduce his facility's closure and post- closure requirements.

"We're talking serious coins here," Bartles says. "If you've stabilized the waste mass so that it's no longer a threat to the environment, it's, in effect, neutralized.

"Considering that, why shouldn't I be allowed to reduce the number of years [required for] monitoring and sampling it?" he says.

Bartles acknowledges that, without the backing of empirical data, getting state regulators to buy into a reduction in closure and post-closure requirements will be a tough sell. "But, I'd love to see it happen because at one time in the state of Georgia, every county had a landfill," he says. "That means we've got 300-plus ticking time bombs out there. What if we could render all of them inert and non-reactive?"

Of the Baker Road Landfill's $32.50 per ton tipping fee, $22 per ton is used to service debt and to accrue funds for closure and post-closure needs.

If ALB can return 15 percent more life to the Baker Road Landfill, Bartles estimates that the 115,800 additional tons he'll be able to landfill on a liner that's paid for will net him $2.5 million in profit.

"We all know the liner will be around [for a long time], so let's use it more than once and recoup additional revenue on our initial capital expenditure," Bartles says.

Love Thy Neighbor The positive image ALB has generated in the local community and with state regulators has been a blessing to Bartles' solid waste program. Visitors have journeyed to the Baker Road Landfill from as far away as Vietnam and Korea, where land is scarce and growth rates are high.

"What's the most feared words a citizen can hear from a landfill?" Bartles asks these visitors. "'Hi, neighbor.'"

Visitors snicker. "People laugh, but why?" Bartles says. "There's no difference between what we're doing at the landfill and what the facility treating 30 million gallons of flush water each day is doing.

"I look at it like this: There's two waste products in a household. One comes in a bag, and the other you flush," he says. "Which facility would you rather live next door to?"

Browning-Ferris Industries Inc.

One of the founding companies of the solid waste management industry, BFI's customer base spans 48 states and Canada. Customers include 940 commercial and industrial accounts and seven million households.

Revenues for fiscal 1997 reached nearly $5.8 billion, up only several million from 1996 - ranking Houston-based BFI as the country's second-largest solid waste company.

With a presence in 130 markets in North America, the company's operating facilities include 275 collection operations, 100 landfills, 100 transfer stations, approximately 100 material recovery facilities and 28 medical waste treatment centers.

With these facilities, BFI's internal collection-to-disposal rate lies at 48 percent.

Originally built through consolidation, BFI has largely exited the acquisition market since the end of its fiscal 1996 accounting year.

At that time, management announced a strategic shift from a focus on external growth through acquisitions to a focus on internal growth measured by cash flow and return on gross assets. Testifying to this shift, in fiscal 1997, company acquisitions numbered only about 20 tuck-ins.

Cost-cutting, reduced capital expenditures and divestitures enabled BFI to reduce its long-term debt by nearly $1 billion during fiscal 1997, to approximately $1.68 billion.

Lower costs also enabled the company to undertake a major acquisition program: buying back its own stock.

"There could be some over-value in some of the acquisitions that are going on now, and we feel our money is put to better use in buying back stock," says Barbara Brescian, BFI's divisional vice president of public relations. "So far, we've purchased about $1.5 billion of our own stock, and in July 1998, we announced our intentions to buy back another $750 million of BFI stock."

On the other hand, BFI is not closed to the idea of acquisitions. "If we see an acquisition that we feel has a value that we want to pay, we'll take a hard look at it," Brescian says.