-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cxb6tUHUgoog3DfjdmGhtixsA9qDwo4ExPlji1T6p/XBG0Ufv3+tPfQBSO+EE0Yw VQ/V/WuKnl6/bOYF0yJ2hA== 0000950132-96-000692.txt : 19961113 0000950132-96-000692.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950132-96-000692 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN WASTE SERVICES INC CENTRAL INDEX KEY: 0000866730 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 341602983 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10599 FILM NUMBER: 96659504 BUSINESS ADDRESS: STREET 1: ONE AMERICAN WAY CITY: WARREN STATE: OH ZIP: 44484 BUSINESS PHONE: 2168568800 10-Q 1 FORM 10-Q 1996 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________ FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1996 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-10599 __________________________________ AMERICAN WASTE SERVICES, INC. (Exact name of registrant as specified in its charter) Ohio 34-1602983 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) One American Way, Warren, Ohio 44484-5555 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (330) 856-8800 Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The registrant had 25,015,615 shares of its Class A Common Stock and 5,126,743 shares of its Class B Common Stock outstanding as of November 1, 1996. ============================================================================== AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1996 and 1995 (Unaudited)...................... 3 Condensed Consolidated Balance Sheets at September 30, 1996 and December 31, 1995 (Unaudited)............................................. 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 (Unaudited)...................... 5 Notes to Condensed Consolidated Financial Statements (Unaudited).......... 6 Item 2. ManagementOs Discussion and Analysis of Financial Condition and Results of Operations............................... 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 16 Item 2. Changes in Securities............................................ 17 Item 3. Defaults upon Senior Securities.................................. 17 Item 4. Submission of Matters to a Vote of Security Holders.............. 17 Item 5. Other Information................................................ 17 Item 6. Exhibits and Reports on Form 8-K................................. 17 SIGNATURE.................................................................. 18 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (in thousands exept for per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 --------- ------- ------- -------- Net operating revenues................. $22,317 $21,078 $58,059 $63,574 Cost and expenses: Cost of operations..................... 17,371 17,736 46,237 54,233 Adjustment for closure and post-closure monitoring costs...................... -- 9,165 -- 9,165 Selling, general and administrative expense............................... 3,051 2,535 8,187 7,963 -------- ------- ------- ------- Income (loss) from operations.......... 1,895 (8,358) 3,635 (7,787) Other income (expense): Interest expense....................... (47) (224) (118) (781) Other income, net...................... 147 197 545 592 -------- ------- ------- ------- Income (loss) before income taxes...... 1,995 (8,385) 4,062 (7,976) Provision (benefit) for income taxes... 717 (2,797) 1,544 (2,592) -------- ------- ------- ------- Net income (loss)...................... $ 1,278 $(5,588) $ 2,518 $(5,384) ======== ======= ======= ======= Net income (loss) per share............ $ .04 $ (.19) $ .08 $ (.18) ======== ======= ======= ======= Weighted average shares outstanding (Note 2).............................. 30,313 30,073 30,251 29,967 ======== ======= ======= =======
See accompanying notes to condensed consolidated financial statements. 3 AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (in thousands)
September 30, December 31, 1996 1995 -------- -------- Assets - ------ Current assets: Cash and cash equivalents.................................................. $ 6,347 $ 5,186 Accounts receivable, net................................................... 13,116 14,481 Refundable income taxes.................................................... -- 5,519 Prepaid expenses and other current assets.................................. 3,328 3,122 -------- -------- Total current assets...................................................... 22,791 28,308 Properties and equipment, less accumulated depreciation and amortization of $44,485 in 1996 and $40,891 in 1995................... 88,377 78,636 Deposits................................................................... 2,285 5,117 Costs in excess of fair market value of net assets of acquired businesses, net........................................................... 3,236 3,365 Other assets, net.......................................................... 296 310 -------- -------- Total assets.............................................................. $116,985 $115,736 ======== ======== Liabilities and Shareholders' Equity - ------------------------------------ Current liabilities: Current portion of long-term debt.......................................... $ 301 $ 358 Accounts payable........................................................... 8,887 5,970 Accrued payroll and other compensation... ................................. 1,362 920 Accrued income taxes....................................................... 1,595 166 Other accrued taxes........................................................ 1,517 1,804 Other liabilities and accrued expenses..................................... 2,172 2,959 -------- -------- Total current liabilities................................................. 15,834 12,177 Long-term debt............................................................. 3,314 8,748 Deferred income taxes...................................................... 6,399 6,559 Accrued closure costs and post-closure monitoring costs ................... 18,825 18,519 Other noncurrent liabilities............................................... 2,285 2,488 Shareholders' equity (Note 3): Preferred stock, no par value.............................................. -- -- Class A Common Stock, no par value......................................... 63,701 63,136 Class B Common Stock, no par value......................................... 781 781 Retained earnings.......................................................... 6,026 3,508 Treasury Stock, Class B Common Stock, at cost.............................. (180) (180) -------- -------- Total shareholders' equity................................................ 70,328 67,245 -------- -------- Total liabilities and shareholders' equity................................ $116,985 $115,736 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)
Nine Months Ended September 30, ----------------------------- 1996 1995 -------- -------- Operating activities: Net income (loss).......................................................... $ 2,518 $(5,384) Reconciliation of net income to cash provided by operating activities: Depreciation and amortization............................................ 5,244 6,602 Provision for accrued closure costs and post-closure monitoring costs........................................... 492 10,017 Provision for deferred income taxes...................................... (160) -- Provision for losses on accounts receivable.............................. 164 448 Gain on sales of fixed assets............................................ (117) (8) Changes in assets and liabilities: Decrease in accounts receivable........................................ 1,201 4,823 Increase in prepaid expenses and other current assets.................. (206) (1,384) (Increase) decrease in refundable income taxes......................... 5,519 (3,037) Increase in other assets............................................... (17) (3) Increase in accounts payable........................................... 2,917 871 Increase (decrease) in accrued payroll and other compensation.......... 442 (606) Increase (decrease) in accrued income taxes............................ 1,429 (74) Decrease in other accrued taxes........................................ (287) (262) Decrease in other liabilities and accrued expenses..................... (222) (882) Decrease in accrued closure costs and post-closure monitoring costs..................................................... (186) -- Decrease in other noncurrent liabilities............................... (203) (235) -------- -------- Net cash provided by operating activities.............................. 18,528 10,886 -------- -------- Investing activities: Capital expenditures....................................................... (15,635) (7,757) Proceeds from sales of fixed assets........................................ 927 22 (Increase) decrease in deposits, net....................................... 2,832 (1,412) -------- -------- Net cash used in financing activities.................................. (11,876) (9,147) -------- -------- Financing activities: Proceeds from sale of common stock......................................... -- 6 Proceeds from issuance of long-term debt................................... 2,000 1,366 Repayments of long-term debt............................................... (7,491) (4,220) -------- -------- Net cash used in investing activities.................................. (5,491) (2,848) -------- -------- Increase (decrease) in cash and cash equivalents............................ 1,161 (1,109) Cash and cash equivalents at beginning of year.............................. 5,186 7,347 -------- -------- Cash and cash equivalents at end of period.................................. $ 6,347 $ 6,238 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 1996 Note 1. Basis of Presentation The unaudited condensed consolidated financial statements of American Waste Services, Inc., and its subsidiaries (collectively the "Company" or "AWS") and related notes included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted herein consistent with such rules and regulations. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company's 1995 Annual Report to Shareholders. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company as of September 30, 1996, and the results of operations and cash flows for the interim periods presented. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year. Note 2. Net Income Per Share Net income per share has been computed using the weighted average number of common and common equivalent shares outstanding each period which amounted to 30,313,000 and 30,073,000 in the third quarter of 1996 and 1995, respectively, and 30,251,000 and 29,967,000 in the first nine months of 1996 and 1995, respectively. Common equivalent shares, which represent shares issuable upon the exercise of outstanding stock options, totaled 171,000 and 158,000 in the third quarter of 1996 and 1995, respectively, and 156,000 and 53,000 in the first nine months of 1996 and 1995, respectively. Note 3. Shareholders' Equity The Company sponsors a defined contribution profit sharing plan that is qualified under Section 401(k) of the Internal Revenue Code (the "Plan"). During February 1996, the Company issued 225,874 shares of Class A Common Stock to the Plan to satisfy its liability of $565,000 for 1995 Company contributions. Note 4. Debt At September 30, 1996 the Company had $2 million in borrowings and $8 million in letters of credit outstanding under its $18 million revolving credit facility. The letters of credit were utilized to capitalize a captive insurance company, incorporated and licensed under the laws of the State of Vermont, which issued an insurance policy to provide the required financial assurances for closure costs and post-closure monitoring costs to the State of Ohio for the Company's American and Mahoning landfill facilities. (See Note 6. Closure Costs and Post- Closure Monitoring Costs.) 6 Note 5. Legal Matters On or about October 3, 1991, one shareholder owning 100 shares of stock brought suit against the Company and others on behalf of himself and a purported class of other shareholders in the United States District Court for the Southern District of New York. The suit alleges that the Company, the signatories to the registration statements filed with the Securities and Exchange Commission during October 1990, and the Company's underwriters violated federal securities laws in connection with the Company's public offering of six million shares of Class A Common Stock in October 1990. Among other things, the suit alleges misrepresentations and failure to disclose allegedly material information concerning the nature of the Company's market; the size of the Company's market; the Company's failure to disclose that its landfills were located within a 50- mile radius of each other in Ohio, thus making the Company especially vulnerable to local conditions and competition; the Company's failure to set forth the present and imminent competition; and the Company's growth. The Plaintiff seeks damages in an unspecified amount alleged to have arisen in part from the decline in the price of the Company's stock following the public offering, and rescission. The Court has not yet determined whether the suit will proceed as a class action. A timely Answer was filed on behalf of all defendants and a Motion to Transfer Venue to the Northern District of Ohio was granted on June 10, 1992. A Motion for an Undertaking for Costs Pursuant to Section 11(e) of The Securities Act of 1933 was filed in the Northern District of Ohio but denied by the Court. A Motion to Dismiss the Complaint for failure to state a claim was filed February 1, 1994 on behalf of all defendants but was denied by the Court on August 29, 1994. As a result of the language contained in the Order, on September 29, 1994 a Motion to Limit the Scope of Plaintiffs' Requested Discovery was filed. That motion was granted, and all proceedings have been stayed pending a decision on all defendants' Motion for Summary Judgment filed on May 30, 1995. The Company intends to vigorously defend the claims. In September 1995, certain subsidiaries of the Company were informed that they had been identified as potentially responsible parties by the Indiana Department of Environmental Management ("IDEM") relating to a Fulton County, Indiana, hazardous waste disposal facility which is subject to remedial action under Indiana environmental laws. Such identification is based upon the subsidiaries having been involved in the transportation of hazardous substances to the facility. These transportation activities occurred prior to the acquisition of such subsidiaries by the Company. IDEM is seeking to recover and/or allocate past costs of approximately $1.0 million as well as future costs associated with further site investigation and remediation activities, which costs could be substantial. Although a large number of waste generators and other waste transportation and disposal companies have also been identified as responsible or potentially responsible parties, because the law assigns joint and several liability among the responsible parties, any one of them, including the Company's subsidiaries, could be assessed the entire cost of the remediation. Currently, no remedy has been selected. As such, the extent of any liability of any of the Company's subsidiaries is currently unknown. When the Company concludes that it is probable that a liability has been incurred, a provision is made in the Company's financial statements for the Company's best estimate of the liability based on management's judgment and experience, information available from regulatory agencies, and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of the site as well as the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, then the Company provides for the minimum 7 amount within the range, in accordance with generally accepted accounting principles. As such, the Company accrued a liability of approximately $941,000 in the fourth quarter of 1995 relating to this matter and is included in the Condensed Consolidated Balance Sheets under the caption "Other noncurrent liabilities." The Company's estimates are revised, as deemed necessary, as additional information becomes known. While the measurement of environmental liabilities is inherently difficult and the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies or other factors could materially alter the Company's expectations at any time, the Company does not anticipate that the amount of any such revisions will have a material adverse effect on operations or consolidated financial position. In the ordinary course of conducting its business, the Company also becomes involved in lawsuits, administrative proceedings and governmental investigations, including those relating to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against the Company which, from time to time, may have an impact on its business and financial condition. The Company does not believe that such pending proceedings, individually, or in the aggregate, would have a material adverse effect on its business or its financial condition. Note 6. Closure Costs and Post-Closure Monitoring Costs The United States Environmental Protection Agency's "Subtitle (D) Regulations" provide minimum design, construction and operating standards for virtually all landfills in the United States. Furthermore, regulations promulgated by the Ohio Environmental Protection Agency ("Ohio EPA") require every Ohio landfill to utilize the "best available technology" with respect to cell preparation and lining, leachate collection and treatment, and groundwater monitoring as well as to provide financial assurances adequate to cover closure costs and post-closure monitoring costs for a period of up to 30 years after the landfill is closed. As a result of the above-described requirements, the Company has future financial obligations with regard to closure costs and post-closure monitoring costs associated with the disposal sites it operates. Although the precise amount of these future obligations cannot be determined, the Company has developed procedures to estimate these total projected costs based on currently available facts, existing technology and presently enacted laws and regulations. As of December 31, 1995, the Company estimated that the total projected closure costs and post-closure monitoring costs it will incur for all of its disposal facilities is approximately $29.9 million; however, in accordance with Ohio's financial assurance regulations, the Company currently estimates that it will be required to ultimately provide approximately $32.9 million of financial assurances to the State of Ohio. At December 31, 1995 the Company had deposited approximately $5.1 million into trusts for the benefit of the Ohio EPA to fund the financial assurance requirements for its landfills. During the first nine months of 1996 the Company utilized insurance to satisfy the financial assurance requirements for its American and Mahoning landfill facilities. As a result of using such insurance, in June 1996, the Company received $2.5 million from its trust fund deposits relating to the American landfill facility, and in July 1996, the Company received $.7 million from its trust fund deposits relating to the Mahoning landfill facility. In April 1996 the Company deposited approximately $.3 million into a trust to fund a portion of the current financial assurance obligation for its East Liverpool landfill facility. The Company will continue to review and update the underlying assumptions used to estimate the total projected costs and financial assurance requirements and, accordingly, such estimates will be subject to periodic revision and adjustment at least annually. -------------------------------------------- -------------------------------------------- 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion provides information which management believes is relevant to an assessment and understanding of the operations and financial condition of American Waste Services, Inc. and its subsidiaries. As used in this report, the terms "AWS" and "Company" mean American Waste Services, Inc. and its wholly owned subsidiaries, taken as a whole, unless the context indicates otherwise. The following discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes included in this report and the consolidated financial statements and related notes included in the Company's 1995 Annual Report to Shareholders. Liquidity and Capital Resources - ------------------------------- During the first nine months of 1996, the Company generated sufficient financial resources from internal sources and external sources to meet operating needs, repay indebtedness and fund capital expenditure programs. During the first nine months of 1996, cash provided from operations totaled $18.5 million compared with $10.9 million in the first nine months of the prior year. In December 1994 the Company entered into an $18 million unsecured revolving credit facility with two banks. Such facility provides for revolving credit loans during the first three years and/or term loans payable quarterly with a final maturity date no later than seven years from the date of the agreement. At the end of the initial three-year term of the agreement, the Company must convert any outstanding revolving credit loans into term loans payable quarterly with a final maturity no later than four years from the date thereof. The agreement also provides for the issuance of letters of credit up to an aggregate amount of $10 million during the initial three-year term of the agreement. Borrowings under the agreement bear interest at 3/8% above the prime rate or, at the Company's option, at a fixed rate above the Eurodollar rate. The agreement provides for an annual fee of 5/8% on the unused portion of the facility and requires the Company to maintain certain financial ratios. The amount outstanding under the revolving credit facility at September 30, 1996 and December 31, 1995 was $2 million and $7.1 million, respectively. Additionally, the balance of letters of credit outstanding under the revolving credit facility at September 30, 1996 and December 31, 1995 was $8.0 million and $-0-, respectively. The letters of credit were utilized to capitalize a captive insurance company, incorporated and licensed under the laws of the State of Vermont, which issued an insurance policy to provide the required financial assurances for closure and post-closure monitoring costs to the State of Ohio for the Company's American and Mahoning landfill facilities, as more fully described below. During 1996 the Company's capital spending is expected to range from $17 million to $19 million, approximately $10.4 million of which was committed pursuant to contracts. During the first nine months of 1996 capital spending totaled $15.6 million which was principally related to continued landfill development and expansion. Capital expenditures in 1996 relate principally to landfill development, replacing equipment or acquiring additional equipment primarily to support the disposal operations, and engineering and construction costs related to regulatory compliance at the Company's landfills. Compliance with current and future regulatory requirements may require the 9 Company, as well as others in the waste management industry, from time to time to make significant capital and operating expenditures. As a result of federal and state laws and regulations, the Company has future financial obligations with regard to closure costs and post-closure monitoring costs associated with the disposal sites it operates. Although the precise amount of these future obligations cannot be determined, the Company has developed procedures to estimate such total projected costs based on currently available facts, existing technology and presently enacted laws and regulations. As of December 31, 1995, the Company estimated that the total projected closure costs and post-closure monitoring costs it will incur for all of its disposal facilities is approximately $29.9 million; however, in accordance with Ohio's financial assurance regulations, the Company estimated that it will be required to ultimately provide $32.9 million of financial assurances to the State of Ohio. At December 31, 1995 the Company had deposited approximately $5.1 million into trusts for the benefit of the Ohio Environmental Protection Agency ("Ohio EPA") to fund the financial assurance requirements for its landfills. During the first nine months of 1996 the Company utilized insurance to satisfy the financial assurance requirements for its American and Mahoning landfill facilities. As a result of using such insurance, in June 1996, the Company received $2.5 million from its trust fund deposits relating to the American landfill facility, and in July 1996, the Company received $.7 million from its trust fund deposits relating to the Mahoning landfill facility. In April 1996 the Company deposited approximately $.3 million into a trust to fund a portion of the current financial assurance obligation for its East Liverpool landfill facility. The Company will continue to review and update the underlying assumptions used to estimate the total projected costs and financial assurance requirements and, accordingly, such estimates will be subject to periodic revision and adjustment at least annually. Management believes that cash provided from operations, the availability of working capital, the Company's unused portion of its revolving credit facility and the Company's ability to incur additional indebtedness will be, for the foreseeable future, sufficient to meet operating requirements, fund debt repayments, fund present capital expenditure programs and provide for financial assurance requirements of its disposal facilities. 10 Results of Operations - --------------------- Overall performance Net operating revenues in the third quarter of 1996 increased 6% to $22.3 million from $21.1 million in the prior year's third quarter. During the third quarter of 1996 the Company recorded net income of $1.3 million or $.04 per share compared to a net loss of $5.6 million or $.19 per share for the third quarter of 1995. For the first nine months of 1996, net operating revenues were $58.1 million compared with $63.6 million for the first nine months of 1995. During the first nine months of 1996, the Company recorded net income of $2.5 million, or $.08 per share, compared to a net loss of $5.4 million, or $.18 per share, for the first nine months of 1995. Net operating revenues and operating income for the Company's business segments were as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 ------- ------- ------- ------- Net operating revenues: Integrated waste management and environmental services............. $17,848 $16,722 $46,085 $51,158 Transportation of general and bulk commodities........................ 2,948 2,889 9,084 9,674 Other businesses (1)................ 1,521 1,467 2,890 2,742 ------- ------- ------- ------- $22,317 $21,078 $58,059 $63,574 ======= ======= ======= ======= Operating income (loss) (2): Integrated waste management and environmental services............. $ 2,864 $(7,435) $ 7,372 $(4,211) Transportation of general and bulk commodities........................ 136 23 283 173 Other businesses (1)................ 467 381 505 314 ------- ------- ------- ------- 3,467 (7,031) 8,160 (3,724) Interest expense.................... (47) (224) (118) (781) Interest income..................... 88 174 309 492 General corporate expenses.......... (1,513) (1,304) (4,289) (3,963) ------- ------- ------- ------- Income (loss) before income taxes... $ 1,995 $(8,385) $ 4,062 $(7,976) ======= ======= ======= =======
(1) Other businesses include the operation of a public golf course. (2) Segment operating income reflects the results of operations of each segment before income taxes, interest income and expense, and items of a general nature not readily allocable to a separate business segment. 11 Performance in the Third Quarter of 1996 compared with the Third Quarter of 1995 - -------------------------------------------------------------------------------- Segment performance Net operating revenues of the Company's primary business segment, integrated waste management and environmental services, increased to $17.8 million in the third quarter of 1996 from $16.7 million in the third quarter of the prior year. The Company's technical environmental services businesses recorded increased net operating revenues in the third quarter of 1996 compared with the third quarter of the prior year primarily as a result of increased engineering, consulting and remediation services. Net operating revenues of the transportation operations decreased during the third quarter of 1996 compared with the third quarter of 1995 primarily due to a decrease in transportation revenues associated with hazardous waste. Net operating revenues of the disposal operations, including disposal brokerage, were flat for the third quarter of 1996 compared with the third quarter of the prior year. The integrated waste management and environmental services segment recorded operating income of $2.9 million in the third quarter of 1996 compared to an operating loss of $7.4 million in the prior year quarter. The operating loss in the third quarter of the prior year was primarily the result of a $9.2 million charge for closure and post-closure monitoring costs recorded by the disposal group. Excluding the effect of the charge in the prior year quarter, the increase in operating income of the disposal operations was primarily the result of lower operating costs of the Company's landfills and, to a lesser extent, increased disposal volumes. The increase in operating income of the transportation operations and technical environmental services businesses was primarily the result of lower operating costs, including decreased depreciation and amortization. The technical environmental services businesses had recorded an operating loss in the third quarter of 1995. The Company's second business segment, the transportation of general and bulk commodities, recorded net operating revenues of $2.9 million in both the third quarter of 1996 and 1995. Operating income increased to $136,000 in the third quarter of 1996 from $23,000 in the third quarter of the prior year primarily as a result of lower operating costs. Interest expense Interest expense was $47,000 in the third quarter of 1996 compared to $224,000 in the third quarter of the prior year. The decrease was primarily attributed to a reduction in the amount of principal outstanding and lower weighted average interest rates. During the third quarter of 1996 interest costs totaling $37,000 were capitalized compared with $253,000 in the third quarter of the prior year. General corporate expenses General corporate expenses were $1.5 million in the third quarter of 1996 compared to $1.3 million in the prior year quarter. This increase is primarily attributed to performance based compensation. 12 Net income The Company recorded net income of $1.3 million in the third quarter of 1996 compared with a net loss of $5.6 million in the third quarter of the prior year primarily as a result of the foregoing. The provision for income taxes for the third quarter of 1996 was $.7 million compared with an income tax benefit of $2.8 million for the third quarter of 1995. The Company's overall effective tax rate, including the effect of state income tax provisions, was 35.9% in the third quarter of 1996 compared to 33.4% in the prior year's third quarter. The change in the effective tax rate was primarily as a result of a decline in the amortization of costs in excess of fair market value of net assets, which is a nondeductible item for tax purposes. Performance in the First Nine Months of 1996 compared with the First Nine Months - -------------------------------------------------------------------------------- of 1995 - ------- Segment Performance Net operating revenues of the Company's primary business segment, integrated waste management and environmental services, decreased to $46.1 million for the first nine months of 1996 from $51.2 million for the first nine months of the prior year. The Company's disposal operations, including disposal brokerage, recorded lower net operating revenues in the first nine months of 1996 compared with the first nine months of the prior year primarily due to decreased business of the disposal brokerage operations and a decline in the volume of waste accepted by the Company's landfills. Net operating revenues of the technical environmental services business decreased during the first nine months of 1996 compared with the first nine months of 1995 primarily due to a decrease in remediation services and, to a lesser extent, decreased revenues of the laboratory and engineering services. Net operating revenues of the transportation and transportation brokerage operations declined during the first nine months of 1996 compared with the first nine months of 1995, primarily as a result of decreased levels of business. Operating income of the integrated waste management and environmental services segment was $7.4 million for the first nine months of 1996 compared with an operating loss of $4.2 million for the first nine months of the prior year. The operating loss incurred in the first nine months of 1995 was primarily the result of a $9.2 million charge for closure and post-closure monitoring costs recorded by the disposal group in the third quarter of 1995. Excluding the effect of the charge in the prior year, operating income increased primarily as a result of lower amortization costs of the disposal operations, improved operating margins associated with the disposal brokerage operations and decreased operating costs of the transportation operations and technical environmental services businesses, including lower depreciation and amortization expenses. The technical environmental services businesses had incurred an operating loss for the first nine months of 1995. The Company's second business segment, the transportation of general and bulk commodities, recorded net operating revenues of $9.1 million in the first nine months of 1996 compared with $9.7 million in the first nine months of 1995. The decrease in net operating revenue is primarily the result of transporting decreased volumes of general and bulk commodities. Operating income increased to $.3 million in the first nine months of 1996 from $.2 million in the first nine months of 1995 primarily as a result of lower operating expenses. 13 Interest expense Interest expense was $118,000 in the first nine months of 1996 compared to $781,000 in the first nine months of 1995. The decrease was primarily attributed to a reduction in the amount of principal outstanding and lower weighted average interest rates. During the first nine months of 1996 interest costs totaling $238,000 were capitalized compared with $727,000 in the first nine months of the prior year. General corporate expenses General corporate expenses were $4.3 million in the first nine months of 1996 compared with $4 million in the first nine months of the prior year. This increase is primarily attributed to increased performance based compensation. Net income Net income of $2.5 million was recorded for the first nine months of 1996 compared with a net loss of $5.4 million for the first nine months of the prior year primarily as a result of the foregoing. The provision for income taxes for the first nine months of 1996 was $1.5 million compared with an income tax benefit of $2.6 million for the first nine months of 1995. The Company's overall effective income tax rate, including the effect of state income tax provisions, was 38% for the first nine months of 1996 compared with 32.5% for the first nine months of 1995. The change in the effective tax rate was primarily a result of a decline in the amortization of costs in excess of fair market value of net assets, which is a nondeductible item for tax purposes. Trends and uncertainties In the ordinary course of conducting its business, the Company becomes involved in lawsuits, administrative proceedings and governmental investigations, including those relating to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against the Company which, from time to time, may have an impact on its business and financial condition. The Company is subject to extensive and evolving environmental laws and regulations that have been enacted in response to technological advances and the public's increased concern over environmental issues. As a result, the Company believes that costs associated with the engineering, construction, ownership and operation of landfills will increase in the future. Competitive factors may require the Company to absorb all or a portion of these increased expenses. The federal government as well as numerous states and local governmental bodies are increasingly considering, proposing or enacting legislation to either restrict or impede disposal and/or transportation of waste. A significant portion of the Company's disposal and transportation revenues are derived from the disposal or transportation of out-of-state waste. All of the Company's landfills are located within the State of Ohio. Any regulation restricting or impeding the transportation of waste, the acceptance of out-of-state waste for disposal, or which levies significant taxes on the disposal of waste could have a significant negative effect on the Company. 14 Competitive pressures within the environmental industry continue to impact the financial performance of the Company's disposal, transportation and technical environmental services operations. Increases in additional disposal capacity within the industry and aggressive pricing strategies of certain competitors could result in a decline in disposal rates and/or disposal volumes. Additionally, the Company has experienced a continuing decline in the rates which customers are willing to pay for its technical environmental and transportation services because of market conditions and increasing competition. The Company believes that competitive pressures will continue to impact the future financial performance of its operations. During the third quarter of 1996, the Company, through newly organized subsidiaries, started collection operations for commercial and industrial waste with the intent to begin residential collection in the near future. The Company initially intends to target the local markets in which the Company's American and Mahoning landfills are located. The Company recently completed the construction of a landfill gas extraction facility at its American landfill and began production in September 1996. In November 1996 the Company entered into a contract for the sale of all of the landfill gas, the principal component of which is methane. The production and sale of the landfill gas is expected to entitle the Company to qualify for tax credits from the production of fuel from a nonconventional source. These tax credits, which under current legislation expire at the end of 2007, could significantly reduce the Company's overall effective tax rate. As a result of East Liverpool Landfill, Inc.'s ("ELLI") decision not to further develop its facility, the East Liverpool landfill has very limited airspace available for waste disposal, and effective July 1, 1996, ELLI significantly reduced the quantity of waste accepted for disposal. ________________________________________ ________________________________________ 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings On or about October 3, 1991, one shareholder owning 100 shares of stock brought suit against the Company and others on behalf of himself and a purported class of other shareholders in the United States District Court for the Southern District of New York. The suit alleges that the Company, the signatories to the registration statements filed with the Securities and Exchange Commission during October 1990, and the Company's underwriters violated federal securities laws in connection with the Company's public offering of six million shares of Class A Common Stock in October 1990. Among other things, the suit alleges misrepresentations and failure to disclose allegedly material information concerning the nature of the Company's market; the size of the Company's market; the Company's failure to disclose that its landfills were located within a 50- mile radius of each other in Ohio, thus making the Company especially vulnerable to local conditions and competition; the Company's failure to set forth the present and imminent competition; and the Company's growth. The Plaintiff seeks damages in an unspecified amount alleged to have arisen in part from the decline in the price of the Company's stock following the public offering, and rescission. The Court has not yet determined whether the suit will proceed as a class action. A timely Answer was filed on behalf of all defendants and a Motion to Transfer Venue to the Northern District of Ohio was granted on June 10, 1992. A Motion for an Undertaking for Costs Pursuant to Section 11(e) of The Securities Act of 1933 was filed in the Northern District of Ohio but denied by the Court. A Motion to Dismiss the Complaint for failure to state a claim was filed February 1, 1994 on behalf of all defendants but was denied by the Court on August 29, 1994. As a result of the language contained in the Order, on September 29, 1994 a Motion to Limit the Scope of Plaintiffs' Requested Discovery was filed. That motion was granted, and all proceedings have been stayed pending a decision on all defendants' Motion for Summary Judgment filed on May 30, 1995. The Company intends to vigorously defend the claims. In September 1995, certain subsidiaries of the Company were informed that they had been identified as potentially responsible parties by the Indiana Department of Environmental Management ("IDEM") relating to a Fulton County, Indiana, hazardous waste disposal facility which is subject to remedial action under Indiana environmental laws. Such identification is based upon the subsidiaries having been involved in the transportation of hazardous substances to the facility. These transportation activities occurred prior to the acquisition of such subsidiaries by the Company. IDEM is seeking to recover and/or allocate past costs of approximately $1.0 million as well as future costs associated with further site investigation and remediation activities, which costs could be substantial. Although a large number of waste generators and other waste transportation and disposal companies have also been identified as responsible or potentially responsible parties, because the law assigns joint and several liability among the responsible parties, any one of them, including the Company's subsidiaries, could be assessed the entire cost of the remediation. Currently, no remedy has been selected. As such, the extent of any liability of any of the Company's subsidiaries is currently unknown. 16 In addition, reference is made to "Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 for a description of other legal proceedings. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None 17 SIGNATURE Pursuant to the requirements 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. AMERICAN WASTE SERVICES, INC. (Registrant) Date: 11/12/96 By: /s/ Timothy C. Coxson ---------------------- ------------------------------------------- Timothy C. Coxson, Executive Vice President, Finance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer and Duly Authorized Officer) 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3rd QUARTER 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 6,347 0 13,116 0 0 22,791 132,862 44,485 116,985 15,834 0 0 0 64,482 5,846 116,985 58,059 58,059 46,237 54,424 0 0 118 4,062 1,544 2,518 0 0 0 2,518 .08 .08
-----END PRIVACY-ENHANCED MESSAGE-----