1997
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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, 1997
[ ] 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 25,300,278 shares of its Class A Common Stock and 5,124,888
shares of its Class B Common Stock outstanding as of November 1, 1997.
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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, 1997 and 1996 (Unaudited).................... 3
Condensed Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996 (Unaudited)........................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 (Unaudited).................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)........ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 17
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................................ 18
SIGNATURE.................................................................. 19
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands except for per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Net operating revenues................... $ 22,405 $ 22,317 $ 59,003 $ 58,059
Cost and expenses:
Cost of operations....................... 16,908 17,371 48,342 46,237
Selling, general and administrative
expense................................ 3,821 3,051 9,690 8,187
--------- --------- --------- ---------
Income from operations................... 1,676 1,895 971 3,635
Other income (expense):
Interest expense......................... (100) (47) (215) (118)
Other income, net........................ 393 147 865 545
--------- --------- --------- ---------
Income before income taxes............... 1,969 1,995 1,621 4,062
Provision for income taxes............... 443 717 373 1,544
--------- --------- --------- ---------
Net income............................... $ 1,526 $ 1,278 $ 1,248 $ 2,518
========= ========= ========= =========
Net income (loss) per share.............. $ .05 $ .04 $ .04 $ .08
========= ========= ========= =========
Weighted average shares outstanding
(Note 2)............................... 30,425 30,313 30,379 30,251
========= ========= ========= =========
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,
1997 1996
------------- ------------
Assets
- ------
Current assets:
Cash and cash equivalents...................................... $ 2,013 $ 4,286
Accounts receivable, net....................................... 16,231 14,510
Prepaid expenses and other current assets...................... 3,312 3,216
-------- --------
Total current assets.......................................... 21,556 22,012
Properties and equipment, less accumulated depreciation
and amortization of $49,970 in 1997 and $45,759 in 1996........ 92,952 89,637
Deposits........................................................ 2,722 2,314
Costs in excess of fair market value of net assets of acquired
businesses, net................................................ 3,065 3,193
Other assets, net............................................... 247 307
-------- --------
Total assets.................................................. $120,542 $117,463
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt.............................. $ 282 $ 305
Accounts payable............................................... 7,048 8,495
Accrued payroll and other compensation......................... 1,368 1,076
Accrued income taxes........................................... 278 315
Other accrued taxes............................................ 1,190 2,127
Accrued closure costs and post-closure costs................... 162 1,267
Other liabilities and accrued expenses......................... 2,434 2,144
-------- --------
Total current liabilities..................................... 12,762 15,729
Long-term debt.................................................. 7,982 3,836
Deferred income taxes........................................... 7,615 7,757
Accrued closure costs and post-closure monitoring costs......... 17,287 16,932
Other noncurrent liabilities.................................... 2,151 2,277
Shareholders' equity (Note 3):
Preferred stock, no par value.................................. -- --
Class A Common Stock, no par value............................. 64,267 63,702
Class B Common Stock, no par value............................. 780 780
Retained earnings.............................................. 7,878 6,630
Treasury Stock, Class B Common Stock, at cost.................. (180) (180)
-------- --------
Total shareholders' equity................................... 72,745 70,932
-------- --------
Total liabilities and shareholders' equity................... $120,542 $117,463
======== ========
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,
-------------------------------
1997 1996
------- --------
Operating activities:
Net income (loss)....................................................... $ 1,248 $ 2,518
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization......................................... 5,699 5,244
Provision for accrued closure costs and
post-closure monitoring costs........................................ 354 492
Provision for deferred income taxes................................... (162) (160)
Provision for losses on accounts receivable........................... 718 164
Gain on sales of fixed assets......................................... (262) (117)
Changes in assets and liabilities:
Decrease in accounts receivable.................................... (2,439) 1,201
Increase in prepaid expenses and other current assets.............. (96) (206)
(Increase) decrease in refundable income taxes..................... -- 5,519
Increase in other assets........................................... (6) (17)
Increase (decrease) in accounts payable............................ (1,447) 2,917
Increase in accrued payroll and other compensation................. 292 442
Increase (decrease) in accrued income taxes........................ (37) 1,429
Decrease in other accrued taxes.................................... (937) (287)
Increase (decrease) in other liabilities and accrued expenses...... 855 (222)
Decrease in accrued closure costs and post-closure
monitoring costs................................................ (1,105) (186)
Decrease in other noncurrent liabilities........................... (96) (203)
------- --------
Net cash provided by operating activities.......................... 2,579 18,528
------- --------
Investing activities:
Capital expenditures.................................................... (8,991) (15,635)
Proceeds from sales of fixed assets..................................... 425 927
(Increase) decrease in deposits, net.................................... (409) 2,832
------- --------
Net cash used in investing activities.............................. (8,975) (11,876)
------- --------
Financing activities:
Proceeds from issuance of long-term debt................................ 5,950 2,000
Repayments of long-term debt............................................ (1,827) (7,491)
------- --------
Net cash used in financing activities................................ 4,123 (5,491)
------- --------
Increase (decrease) in cash and cash equivalents......................... (2,273) 1,161
Cash and cash equivalents at beginning of year........................... 4,286 5,186
------- --------
Cash and cash equivalents at end of period............................... $ 2,013 $ 6,347
======= ========
See accompanying notes to condensed consolidated financial statements.
5
AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1997
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 1996 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, 1997, 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
30,425,000 and 30,313,000 in the third quarter of 1997 and 1996, respectively,
and 30,379,000 and 30,251,000 in the first nine months of 1997 and 1996,
respectively. Common equivalent shares, which represent shares issuable upon
the exercise of outstanding stock options, totaled -0- and 171,000 in the third
quarter of 1997 and 1996, respectively, and 10,000 and 156,000 in the first nine
months of 1997 and 1996, 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 1997, the Company issued 282,808 shares of Class A Common Stock
to the Plan to satisfy its liability of $565,000 for 1996 Company contributions.
Note 4. Debt
During the first nine months of 1997 the Company borrowed $4.4 million under its
revolving credit facility, primarily to fund capital expenditures for the
collection, disposal and transportation operations. The amount outstanding at
September 30, 1997 under the revolving credit facility was $15.2 million,
including $8.2 million in letters of credit. 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 and its tire monofill facility. (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 alleged 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 alleged
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
sought 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.
On September 26, 1997 the Court granted the defendants' Motion for Summary
Judgment and dismissed Plaintiff's case. On October 25, 1997, pursuant to the
federal rules of appellate procedure, Plaintiff filed a Notice of Appeal.
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. During the third quarter of 1997, the
Company's subsidiaries became parties to an Agreed Order for Remedial
Investigation/Feasibility Study and the Four County Landfill Site Participation
Agreement ("Participation Agreement"). A large number of waste generators and
other waste transportation and disposal companies have also been identified as
responsible or potentially responsible parties; however, because the law assigns
joint and several liability among the responsible parties, although unlikely,
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 ultimate 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 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. The Company's estimates are revised,
as deemed necessary, as additional information becomes known. The Company
anticipates obtaining additional information over the next several months by
reason of, among other things, having entered into the Participation Agreement.
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
7
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.
The Company has resolved its previously disclosed dispute with The S.W. Shattuck
Company, Inc. ("Shattuck") regarding a remediation project in Denver, Colorado.
Although the settlement requires Shattuck to pay the Company less than the
amount requested by the Company in the arbitration proceeding resulting in a $.5
million pre-tax charge in the third quarter of 1997, the resolution provides for
payment assurances from Shattuck's shareholder and also provides for the Company
to perform additional services for Shattuck with regard to the project on a time
and materials basis at the Company's standard rates. The charge is included in
the Condensed Consolidated Statements of Operations for the three months ended
September 30, 1997 and nine months ended September 30, 1997 under the caption
"Selling, general and administrative expense."
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
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 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, 1996, the Company estimated that the total closure costs and post-closure
costs it will incur for all of its disposal facilities is approximately $31.2
million; however, in accordance with Ohio's financial assurance regulations, the
Company currently estimates that it will be required to ultimately provide
approximately $32.7 million of financial assurances to the State of Ohio. The
Company utilizes insurance to satisfy the financial assurance requirements for
its American and Mahoning landfill facilities and its tire monofill facility.
The Company uses a trust fund to satisfy the financial assurance requirements
for its East Liverpool landfill facility. In April 1997 the Company deposited
approximately $.3 million into the trust to fund a portion of the current
financial assurance obligation for that facility. Such fund, which is recorded
by the Company at cost which approximates market value, is included in the
Consolidated Balance Sheets under the caption "Deposits" and amounted to
approximately $2.7 million and $2.3 million at September 30, 1997 and December
31, 1996, respectively. The funds in the trust are invested primarily in short-
term securities, commercial paper or certificates of deposit with investment
earnings accruing to the benefits of the Company. 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
Note 7. Other
During the third quarter of 1997, the Company recorded a favorable pre-tax
adjustment of $.9 million to "Other accrued taxes" as a result of a settlement
of disputed real estate taxes associated with the Company's East Liverpool
landfill for the years 1992 through 1997. This adjustment is included in the
Condensed Consolidated Statements of Operations for the three months ended
September 30, 1997 and the nine months ended September 30, 1997 under the
caption "Cost of operations."
During the third quarter of 1997 the Company also recognized $.3 million of pre-
tax income as a result of a payment from a customer in consideration for the
Company releasing the customer from future contractual disposal obligations.
This amount is included in the Condensed Consolidated Statements of Operations
for the three months ended September 30, 1997 and nine months ended September
30, 1997 under the caption "Other income."
____________________________________________
____________________________________________
9
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 term "AWS", or "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 1996 Annual Report to Shareholders.
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature are
intended to be, and are hereby identified as, 'forward looking statements.' The
Company cautions readers that forward looking statements, including, without
limitation, those relating to the Company's future business prospects, revenues,
working capital, liquidity, capital needs, interest costs, and income, are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward looking statements, due to
risks and factors identified herein and from time to time in the Company's
reports filed with the Securities and Exchange Commission.
Liquidity and Capital Resources
- -------------------------------
During the first nine months of 1997 the Company utilized existing cash and
borrowings under its revolving credit facility to meet operating needs, repay
indebtedness and fund capital expenditure programs. Capital spending totaled
$9.0 million for the first nine months of 1997 which was principally related to
the purchase of equipment for the Company's collection and transportation
operations and continued landfill development. During 1997 the Company's
capital spending is expected to range from $10 million to $12 million. Capital
expenditures in 1997 will relate principally to landfill development, acquiring
transportation equipment, replacing equipment or acquiring additional equipment
to support disposal operations, acquiring equipment associated with collection
services, and engineering and construction costs related to regulatory
compliance at the Company's landfills. Compliance with current and future
regulatory requirements may require the Company, as well as others in the waste
management industry, from time to time to make significant capital and operating
expenditures.
The Company maintains an $18 million unsecured revolving credit facility with
two banks. Such facility provides for revolving credit loans and/or term loans
payable quarterly with a final maturity date no later than December 31, 2003.
On December 31, 2000 the Company must convert any outstanding revolving credit
loans into term loans payable quarterly with a final maturity date no later than
December 31, 2003. The agreement also provides for the issuance of letters of
credit up to an aggregate amount of $13 million until December 31, 2000. On
July 15, 1997, the Company amended the agreement to increase the borrowing
capacity under the facility to $23 million until December 31, 1997 at which time
the Company's borrowing capacity under the credit facility will revert back to
$18 million.
Borrowings under the agreement bear interest at prime or, at the Company's
option, at a fixed rate above the Eurodollar rate. The agreement provides for
an annual fee of 3/8% on the unused portion of the facility and requires the
Company to maintain certain financial ratios. The amount of borrowings
outstanding under the revolving credit facility at September 30, 1997 and
December 31, 1996 was $7.0 million and $2.6 million, respectively. The Company
also had $8.2 million and $8.0 million in outstand-
10
ing letters of credit at September 30, 1997 and December 31, 1996, 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 costs to the State of Ohio for the Company's American and Mahoning
landfill facilities and its tire monofill facility.
As a result of federal and state laws and regulations, the Company has future
financial obligations with regard to closure costs and post-closure 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, 1996, the Company estimated that the total closure costs and post-
closure costs it will incur for all of its disposal facilities is approximately
$31.2 million. The Company currently estimates expenditures for closure and
post-closure costs during 1997 to be $1.3 million. In accordance with Ohio's
financial assurance regulations, the Company currently estimates that it will be
required to ultimately provide $32.7 million of financial assurances to the
State of Ohio relating to such costs; however, such financial assurances are
reduced by actual expenditures. The Company utilized insurance to satisfy the
financial assurance requirements for its American and Mahoning landfill
facilities and its tire monofill facility. The Company uses a trust fund to
satisfy the financial assurance requirements for its East Liverpool landfill
facility. In April 1997 the Company deposited approximately $.3 million into
the trust fund to satisfy the current financial assurance obligation for that
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.
Currently, the Company is not aggressively pursuing potential acquisition
candidates but will continue to consider acquisitions that make economic sense.
While the Company has not entered into any pending agreements for acquisitions,
it may do so at any time. Such potential acquisitions could be financed by
existing working capital, the use of the Company's existing credit facility,
secured or unsecured debt, issuance of common or preferred stock, or issuance of
a security with characteristics of both debt or equity, any of which could
impact liquidity in the future.
11
Results of Operations
- ---------------------
Overall performance
Net operating revenues in the third quarter of 1997 were $22.4 million compared
with $22.3 million in the prior year's third quarter. During the third quarter
of 1997 the Company recorded net income of $1.5 million or $.05 per share
compared with net income of $1.3 million or $.04 per share for the third quarter
of 1996. For the first nine months of 1997, net operating revenues were $59
million compared with $58.1 million for the first nine months of 1996. During
the first nine months of 1997, the Company recorded net income of $1.2 million,
or $.04 per share, compared with net income of $2.5 million, or $.08 per share,
for the first nine months of 1996. 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,
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- -------
Net operating revenues:
Integrated waste management and
environmental services............. $17,573 $17,848 $46,297 $46,085
Transportation of general and bulk
commodities........................ 3,245 2,948 9,704 9,084
Other businesses (1)................ 1,587 1,521 3,002 2,890
------- ------- ------- -------
$22,405 $22,317 $59,003 $58,059
======= ======= ======= =======
Operating income (loss) (2):
Integrated waste management and
environmental services............. $ 2,690 $ 2,864 $ 4,663 $ 7,372
Transportation of general and bulk
commodities........................ 148 136 505 283
Other businesses (1)................ 596 467 669 505
------- ------- ------- -------
3,434 3,467 5,837 8,160
Interest expense.................... (100) (47) (215) (118)
Interest income..................... 73 88 211 309
General corporate expenses.......... (1,438) (1,513) (4,212) (4,289)
------- ------- ------- -------
Income (loss) before income taxes... $ 1,969 $ 1,995 $ 1,621 $ 4,062
======= ======= ======= =======
(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.
12
Performance in the Third Quarter of 1997 compared with the Third Quarter of 1996
- --------------------------------------------------------------------------------
Segment performance
Net operating revenues of the Company's primary business segment, integrated
waste management and environmental services, decreased to $17.6 million in the
third quarter of 1997 from $17.8 million in the third quarter of the prior year.
Net operating revenues of the technical environmental services businesses
decreased during the third quarter of 1997 compared with the third quarter of
1996 primarily due to a significant decline in the level of engineering,
consulting and remediation services provided, partially offset by a slight
increase in laboratory services. Net operating revenues of the disposal
operations, including disposal brokerage, increased slightly compared to the
prior year quarter primarily as a result of an increase in the disposal
brokerage business partially offset by a decrease in the disposal volumes
accepted at the Company's landfills and slightly lower average disposal rates.
Net operating revenues of the transportation operations increased in the current
quarter compared with the prior year quarter primarily as a result of an
increase in transportation brokerage and an increase in revenues associated with
the transportation of hazardous waste. Net operating revenues of the Company's
collection services increased significantly in the current quarter compared with
the prior year quarter because the Company's collection operations had just
begun in the third quarter of 1996.
The integrated waste management and environmental services segment reported
operating income of $2.7 million in the current quarter compared with operating
income of $2.9 million in the prior year quarter. The decrease was primarily
attributable to an operating loss incurred in the third quarter of 1997 by the
technical environmental services business compared with operating income in the
prior year quarter. The operating loss incurred by the technical environmental
services business was primarily attributable to a settlement of a dispute
regarding a remediation project in Denver, Colorado which resulted in a pre-tax
charge of $.5 million. Also contributing to the operating loss was a reduction
in net operating revenues from engineering, consulting and remediation services.
The disposal operations recorded increased operating income in the third quarter
of 1997 compared with the prior year quarter primarily as a result of
recognizing pre-tax income of $.9 million relating to a settlement of disputed
real estate taxes associated with the Company's East Liverpool landfill for the
years 1992 through 1997. The disposal operations also recognized $.3 million of
pre-tax income as a result of a payment from a customer in consideration for the
Company releasing the customer from future contractual obligations. Operating
income of the disposal operations also increased as a result of an increase in
disposal brokerage business. The transportation operations recorded a slight
increase in operating income in the third quarter of 1997 compared to the prior
year primarily as a result of an increase in the Company's transportation
brokerage business.
The Company's second business segment, the transportation of general and bulk
commodities, recorded net operating revenues of $3.2 million in the third
quarter of 1997 compared with $2.9 million in the third quarter of 1996.
Operating income increased to $148,000 in the third quarter of 1997 from
$136,000 in the third quarter of the prior year primarily as a result of
increased business.
13
Interest expense
Interest expense was $100,000 in the third quarter of 1997 compared to $47,000
in the third quarter of the prior year. The increase was primarily attributed
to an increase in the amount of principal outstanding under the Company's
revolving credit facility. During the third quarter of 1997 interest costs
totaling $119,000 were capitalized compared with $37,000 in the third quarter of
the prior year.
General corporate expenses
General corporate expenses were $1.4 million in the third quarter of 1997
compared to $1.5 million in the prior year quarter.
Net income
The Company recorded net income of $1.5 million in the third quarter of 1997
compared with net income of $1.3 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 1997 was $.4 million compared with $.7 million for the third
quarter of 1996. The Company's overall effective tax rate, including the effect
of state income tax provisions, was 22.5% in the third quarter of 1997 compared
to 35.9% in the prior year's third quarter. The effective tax rate decreased as
a result of tax credits associated with the sale of landfill gas produced at the
Company's landfill gas extraction facility, which credits the Company expects to
utilize in 1997.
Performance in the First Nine Months of 1997 compared with the First Nine Months
- --------------------------------------------------------------------------------
of 1996
- -------
Segment Performance
Net operating revenues of the Company's primary business segment, integrated
waste management and environmental services were $46.3 million for the first
nine months of 1997 compared with $46.1 million for the first nine months of the
prior year. The Company's transportation operations recorded increased net
operating revenues primarily as a result of an increase in the transportation of
hazardous and industrial waste. Net operating revenues of the Company's
collection services were significantly higher in the first nine months of 1997
compared with the first nine months of 1996 because the Company's collection
operations did not commence until the third quarter of 1996. The Company's
technical environmental services businesses recorded lower net operating
revenues in the first nine months of 1997 compared with the first nine months of
the prior year primarily as a result of a significant decline in the level of
engineering, consulting and remediation services provided. The disposal
operations recorded slightly lower net operating revenues for the first nine
months of 1997 compared with the first nine months of the prior year primarily
as a result of a decrease in the disposal brokerage business and lower average
disposal rates partially offset by an increase in the volume of waste accepted
at the Company's landfills.
Operating income of the integrated waste management and environmental services
segment was $4.7 million for the first nine months of 1997 compared with $7.4
million for the first nine months of 1996. The decrease in operating income was
primarily the result of a significant operating loss
14
incurred by the technical environmental services business for the first nine
months of 1997 compared with operating income for the first nine months of 1996.
The operating loss of the technical environmental services business was
primarily attributed to losses incurred during the first quarter of 1997 in
connection with a remediation project in Denver, Colorado as well as a pre-tax
charge of $.5 million during the third quarter of 1997 relating to the
settlement of a dispute regarding the project. The operating loss of the
technical environmental services business was also attributed to decreased
levels of engineering, consulting and remediation services provided. The
disposal operations recorded increased operating income for the first nine
months of 1997 compared with the first nine months of the prior year, primarily
as a result of recognizing pre-tax income of $.9 million relating to a
settlement of disputed real estate taxes associated with the Company's East
Liverpool landfill for the years 1992 through 1997 and the Company recognizing
$.3 million of pre-tax income as a result of a payment from a customer in
consideration for the Company releasing the customer from future contractual
obligations. This increase was partially offset by a decrease in operating
income of the Company's disposal brokerage operations. Operating income of the
transportation operations increased in the first nine months of 1997 compared to
the first nine months of the prior year primarily as a result of increased
transportation of hazardous and industrial waste. The collection services, which
commenced operations in the third quarter of 1996, incurred an operating loss
for the first nine months of 1997.
The Company's second business segment, the transportation of general and bulk
commodities, recorded net operating revenues of $9.7 million in the first nine
months of 1997 compared with $9 million in the first nine months of 1996. The
increase in net operating revenue is primarily the result of transporting
increased volumes of general and bulk commodities. Operating income increased
to $.5 million in the first nine months of 1997 from $.3 million in the first
nine months of 1996 primarily as a result of the increase in the volume of
business.
Interest expense
Interest expense was $215,000 in the first nine months of 1997 compared to
$118,000 in the first nine months of 1996. The increase was primarily
attributed to an increase in the amount of principal outstanding under the
Company's revolving credit facility. During the first nine months of 1997
interest costs totaling $332,000 were capitalized compared with $238,000 in the
first nine months of the prior year.
General corporate expenses
General corporate expenses were $4.2 million in the first nine months of 1997
compared with $4.3 million in the first nine months of the prior year.
Net income
The Company recorded net income of $1.2 million for the first nine months of
1997 compared with net income of $2.5 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 1997 was $.3 million compared with $1.5
15
million for the first nine months of 1996. The Company's overall effective
income tax rate, including the effect of state income tax provisions, was 23%
for the first nine months of 1997 compared with 38% for the first nine months of
1996. The effective tax rate decreased as a result of tax credits associated
with the sale of landfill gas produced at the Company's landfill gas extraction
facility, which tax credits the Company expects to utilize in 1997.
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.
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 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.
The Company operates a landfill gas extraction facility at its American landfill
that 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.
____________________________________________
____________________________________________
16
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 alleged 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 alleged
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 sought
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.
On September 26, 1997 the Court granted the defendants' Motion for
Summary Judgement and dismissed Plaintiff's case. On October 25, 1997,
pursuant to the federal rules of appellate procedure, Plaintiff filed a
Notice of Appeal.
The Company has resolved its previously disclosed dispute with The S.W.
Shattuck Company, Inc. ("Shattuck") regarding a remediation project in
Denver, Colorado. Although the settlement requires Shattuck to pay the
Company less than the amount requested by the Company in the
arbitration proceeding resulting in a $.5 million pre-tax charge in the
third quarter of 1997, the resolution provides for payment assurances
from Shattuck's shareholder and also provides for the Company to
perform additional services for Shattuck with regard to the project on
a time and materials basis at the Company's standard rates.
Reference is made to "Item 3. Legal Proceedings" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 for a
description of 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
17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
September 15, 1997 - Settlement with The S. W. Shattuck Company
regarding a remediation project in Denver, Colorado.
September 26, 1997 - Securities litigation dismissed.
18
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: November 12, 1997 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)
19