UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-27508
SUPERIOR SERVICES, INC.
(exact name of Registrant as specified in its charter)
Wisconsin 39-1733405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10150 West National Avenue, Suite 350, West Allis, Wisconsin 53227
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (414) 328-2800
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities and
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes_____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of Common Stock of the registrant, par value
$.01 per share, outstanding on August 9, 1996 was 16,754,427.
<PAGE>
SUPERIOR SERVICES, INC.
FORM 10-Q INDEX
For the Quarter Ended June 30, 1996
Page Number
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets . . 3
Condensed Consolidated Statements
of Operations . . . . . . . . . . . . . 4
Condensed Consolidated Statements
of Shareholders' Investment . . . . . . 5
Condensed Consolidated Statements of
Cash Flows . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . 7-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . 10-15
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K. . . 16
SIGNATURES
<PAGE>
Superior Services, Inc.
Condensed Consolidated Balance Sheets
(In Thousands)
December 31, June 30,
1995 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,373 $20,834
Trade accounts receivable 14,518 16,624
Prepaid expenses and other current assets 2,826 2,848
Net assets of discontinued operations 849 -
-------- --------
Total current assets 19,566 40,306
Property and equipment, net 81,026 80,876
Restricted funds held in trust 7,009 7,819
Other assets 4,202 4,371
Intangible assets, net 10,960 12,497
-------- --------
Total assets $122,763 $145,869
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt $3,251 $1,554
Trade accounts payable 4,737 4,012
Accrued payroll and related expenses 2,329 1,890
Other accrued expenses 3,494 4,187
Accrued income taxes 1,045 495
-------- --------
Total current liabilities 14,856 12,138
Long-term debt, net of current maturities 20,168 1,662
Disposal site closure and long-term
care obligations 20,079 21,304
Deferred income taxes 11,581 11,028
Other liabilities 5,077 6,841
Commitments and contingencies
Convertible preferred stock 15,000 -
Shareholders' investment:
Common stock 99 167
Additional paid-in capital 24,001 76,432
Retained earnings 11,902 16,297
-------- --------
Total shareholders' investment 36,002 92,896
-------- --------
Total liabilities and shareholders'
investment $122,763 $145,869
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Superior Services, Inc.
Condensed Consolidated Statements of Operations
(In Thousands, Except Share and Per Share amounts)
(Unaudited)
Three months Six months
ended June 30, ended June 30,
1995 1996 1995 1996
Revenues $23,745 $26,553 $44,086 $48,868
Expenses:
Cost of operations 12,277 13,646 23,536 26,024
Selling, general and
administrative expenses 3,556 4,005 7,199 8,065
Depreciation and amortization 3,235 3,900 6,011 7,332
------- ------- ------- -------
19,068 21,551 36,746 41,421
------- ------- ------- -------
Operating income from
continuing operations 4,677 5,002 7,340 7,447
Other income:
Interest expense (799) (78) (1,650) (468)
Other income (expense) (59) 234 364 502
------- ------- ------- -------
Income from continuing
operations before income taxes 3,819 5,158 6,054 7,481
Provision for income taxes 1,577 2,128 2,521 3,086
------- ------- ------- -------
Income from continuing
operations 2,242 3,030 3,533 4,395
Discontinued operations:
Income from disposition of
discontinued operations,
net of income tax 12 - 17 -
------- ------- ------- -------
Net income $ 2,254 $3,030 $3,550 $4,395
======= ====== ====== ======
Per share:
Income from continuing
operations $0.17 $0.18 $0.26 $0.28
Income from discontinued
operations - - - -
------- ------- ------- -------
Net income $0.17 $0.18 $0.26 $0.28
===== ===== ===== =====
Weighted average number of
common and common equivalent
shares outstanding 13,535,320 17,083,711 13,537,770 15,623,023
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Superior Services, Inc.
Condensed Consolidated Statement of Shareholders' Investment
(In Thousands, Except Share Amounts)
(Unaudited)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
Balance at
December 31, 1995 9,886,815 $99 $24,001 $11,902 $36,002
Net income - - - 4,395 4,395
Conversion of convertible
preferred stock 3,317,890 33 14,967 - 15,000
Issuance of common stock,
net 3,549,132 35 37,464 - 37,499
---------- ---- ------- ------- -------
Balance at June 30, 1996 16,753,837 $167 $76,432 $16,297 $92,896
========== ==== ======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
Superior Services, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
For the six months ended June 30,
1995 1996
OPERATING ACTIVITIES
Net income $3,550 $4,395
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,011 7,332
Deferred income taxes - (553)
Gain on sale of assets (84) (76)
Changes in operating assets and liabilities,
net of effects of acquired businesses:
Accounts receivable (249) (1,285)
Prepaid expenses and other current assets (103) (2)
Accounts payable and accrued expenses 2,313 (1,589)
Disposal site closure and long-term care
obligation 1,228 1,225
Other (1,146) 130
------- ------
Net cash provided by operating activities 11,520 9,577
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (23) (1,234)
Purchases of property and equipment (5,245) (5,990)
Proceeds from sale of discontinued operations 3,412 562
Proceeds from sale of property and equipment 911 394
Funds held in trust (252) (810)
------- ------
Net cash used in investing activities (1,197) (7,078)
FINANCING ACTIVITIES
Net decrease (increase) in short-term borrowings 547 (1,697)
Proceeds from long-term debt 1,000 -
Payments of long-term debt (12,755) (18,589)
Issuance of common stock, net of issuance costs - 37,248
------- ------
Net cash provided by (used in)
financing activities (11,208) 16,962
------- ------
Net increase (decrease) in cash and
cash equivalents (885) 19,461
Cash and cash equivalents at beginning
of period 2,034 1,373
------- ------
Cash and cash equivalents at end of period $1,149 $20,834
====== =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
Superior Services, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Superior Services, Inc. ("Superior" or the "Company") is a regional
integrated solid waste services company providing solid waste collection,
transfer, recycling, and disposal services to customers primarily in
Wisconsin and also in parts of Minnesota, Illinois, Iowa, and Michigan.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. As applicable
under such regulations, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
The Company believes that the presentations and disclosures in the
financial statements included herein are adequate to make the information
not misleading. The financial statements reflect all elimination entries
and normal adjustments which are necessary for a fair statement of the
results for the interim periods presented. Operating results for interim
periods are not necessarily indicative of the results for full years or
other interim periods. It is suggested that the condensed consolidated
financial statements included herein be read in conjunction with the
consolidated financial statements of Superior for the year ended December
31, 1995 and the related notes thereto (the "Financial Statements")
included in the Company's Form S-1 Registration Statement (No. 333-240).
The accompanying condensed consolidated financial statements include
the accounts of Superior and its subsidiaries. All significant
intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
2. Significant Accounting Policies
There have been no significant additions to or changes in accounting
policies of the Company since December 31, 1995. For a description of
these policies, see Note 2 of Notes to Consolidated Financial Statements
in the Company's Form S-1 Registration Statement (No. 333-240).
3. Discontinued Operations
In May 1996, the Company completed the sale of the customer contracts
and certain assets of its biomedical waste collection, transportation, and
disposal operations for approximately $750,000. The biomedical waste
operations have been reported as discontinued since September 1994. No
material adjustments have been required to the estimated loss on
disposition of these operations recorded at that time.
4. Acquisitions
During 1996, the Company acquired four solid waste businesses that
were accounted for as purchases. The Company also acquired the remaining
50% equity interest in a joint venture owned by a subsidiary of the
Company. Consideration for these acquisitions was $1.3 million in cash,
$1.2 million in notes payable and 15,015 shares of Common Stock. These
acquisitions have been accounted for as purchases and, accordingly, the
results of their operations have been included in the Company's financial
statements from their respective dates of acquisition. Pro forma results
of operations are not presented as the amounts do not differ significantly
from historical Company results.
5. Shareholders' Investment
In March 1996, the Company completed an initial public offering in
which it issued 3,532,500 shares of common stock at a price of $11.50 per
share resulting in net proceeds after deduction of underwriting discounts
and commissions and other offering expenses to the Company of
approximately $37,230,000.
A one-for-two reverse stock split declared by the Company's Board of
Directors became effective on March 7, 1996, the effective date of the
initial public offering of the Company's common stock.
Pursuant to the Series A Convertible Preferred Stock Purchase
Agreement, the Series A Preferred Stock holders exercised their rights to
convert their preferred stock into 3,317,890 shares of common stock at the
time of the offering. Upon the conversion, all cumulative dividends in
connection with the Preferred Stock were defeased.
On March 8, 1996, the Company granted employees incentive stock
options exercisable for 135,000 shares of common stock at an $11.50 per
share exercise price. These options generally become exercisable 25%
after one year and an additional 6.25% for each quarter thereafter. The
Company also granted non-qualified stock options exercisable for a total
of 40,000 common shares at an $11.50 per share exercise price to newly
elected independent directors serving on the Company's Board of Directors.
These options vest ratably over an approximate three-year period.
6. Commitments and Contingencies
In January 1994, two of the Company's subsidiaries were named by the
Wisconsin Department of Natural Resources (WDNR) as potentially
responsible parties (PRPs) as a result of their use of a closed landfill.
The closed landfill has been identified by the WDNR to have caused
groundwater contamination, including the contamination or potential
contamination of local drinking water wells. The Company's subsidiaries,
along with most of the other PRPs, have agreed to a settlement with the
WDNR, subject to approval by the federal district court. In addition, the
subsidiaries were named as defendants in a suit commenced in state court
by a group of residents living in the vicinity of the landfill which suit
alleged that private drinking water wells have been contaminated by the
release of pollutants from the site. The subsidiaries and most of the
other defendants in the private party lawsuit have agreed to the terms of
a settlement with the plaintiffs which is subject to approval by the state
court. The settlements with the WDNR and the plaintiffs in the private
lawsuit resolve the subsidiaries' liability relating to the site. The
subsidiaries' general liability insurance carriers which provided coverage
during the relevant periods and the former shareholders of the
subsidiaries have agreed to pay the full amount of the subsidiaries' share
of the settlement.
In connection with an acquisition in March 1993, the Company was
required to accept the transfer of an adjacent closed landfill that is
listed on the National Priorities List (NPL). A remedial investigation
performed by the PRPs (including the Company) determined the scope and
nature of the contamination at the site and the PRPs submitted a
feasibility study to the Environmental Protection Agency and WDNR which
described the alternatives for remediating the associated groundwater
contamination. The WDNR formally approved the remedial alternative
recommended by the PRPs which calls for the installation of two to four
additional gas extraction wells (which would be connected to the existing
gas extraction system at the site) and continued groundwater monitoring.
As of June 30, 1996, the estimated one-time capital costs for the
additional extraction wells was $107,000, together with estimated annual
operating, maintenance and monitoring costs for the new extraction wells,
the landfill cap, the existing gas extraction system and groundwater
monitoring system of $90,000. The operating duration of the proposed
remediation is uncertain, but could be 30 years or longer. In December
1995, the Company entered into a settlement agreement with certain of the
PRPs which allocates the costs of the remediation, monitoring and long
term care. Under the settlement agreement, the generator PRPs agreed to
contribute approximately 43% of future costs for remedial action and the
annual operating, maintenance, and monitoring costs related to the site.
Additional generator PRPs may join in the settlement agreement, which
would further reduce the share of costs allocated to the Company and the
former owners of the closed landfill. The seller has agreed to indemnify
the Company up to $2.8 million for any site liabilities, including the
annual costs of operating, maintaining and monitoring the closed landfill
and any costs the Company may incur as a PRP. The seller's potential
indemnification obligation is collateralized currently by 266,677 shares
of the Company's common stock held in escrow. The $2.8 million
recoverable from the seller is included in other assets. The Company has
established reserves which it believes are adequate to cover the estimate
of identified potential remediation costs.
The Company carries a range of insurance, including a commercial
general liability policy and a property damage policy. The Company
maintains a limited environmental impairment liability policy on its
landfills and transfer stations that provides coverage, on a "claims made"
basis, against certain third party off-site environmental damage. There
can be no assurance that the limited environmental impairment policy will
remain in place or provide sufficient coverage for existing, but not yet
known, third party, off-site environmental liabilities. The Company is
also a party to various legal proceedings arising in the normal course of
business. The Company believes that the ultimate resolution of these
other matters will not have a material adverse effect on the Company's
financial condition or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Management's Discussion and
Analysis are "forward-looking statements" intended to qualify for the safe
harbors from liability established by the Private Securities Litigation
Reform Act of 1995. These forward-looking statements can generally be
identified as such because the context of the statement will include words
such as the Company "believes," "anticipates," "expects" or words of
similar import. Similarly, statements that describe the Company's future
plans, objectives or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties
which are described in close proximity to such statements and which could
cause actual results to differ materially from those currently
anticipated. Shareholders, potential investors and other readers are
urged to consider these factors carefully in evaluating the forward-
looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements made herein
are only made as of the date of this report and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
General
Superior provides solid waste collection, transfer, recycling, and
disposal services to customers primarily in Wisconsin and also in parts of
Minnesota, Illinois, Iowa, and Michigan. The Company also provides other
integrated waste services, most of which are project-based and many of
which provide additional waste volumes to the Company's landfills and
recycling facilities. As of June 30, 1996, solid waste operations
consisted of five Company-owned solid waste landfills, three managed third
party landfills, 21 solid waste collection operations, ten recycling
facilities, and six solid waste transfer stations.
As described more fully below, revenues for the periods presented
were comprised of fees received for the following services:
Three Months Ended Six Months Ended
June 30 June 30
1995 1996 1995 1996
---- ---- ---- ----
Collection 46% 45% 48% 47%
Disposal 15% 23% 15% 20%
Recycling 18% 12% 16% 13%
Other integrated waste services 21% 20% 21% 20%
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
Results of Operations
Overview
Revenues in the 1996 second quarter of $26.5 million increased 11.8%
over the comparable period in the prior year. Net income from continuing
operations increased 34.4% to $3.0 million in the 1996 second quarter of
1996, while earnings per share increased to $0.18 compared to $0.17
reported for the same period in the prior year.
For the first six months of 1996, revenues increased 10.8% to $48.9
million compared to $44.1 million for the same period in the prior year
due primarily to increased volumes of waste received at the Company's
landfills. Operating income from continuing operations as a percentage of
revenue decreased reflecting the impact of significantly lower average
prices received for recyclable waste paper products during the first six
months of 1996 compared to the same period in the prior year. Net income
from continuing operations increased 23.8% to $4.4 million in the first
half of 1996 from $3.6 million in the first half of 1995. Earnings per
share increased to $0.28 for the first six months of 1996 from $0.26 per
share for the same period in 1995.
The following tables sets forth for the periods indicated the
percentage of revenues represented by the individual line items reflected
in the Company's condensed consolidated statements of operations:
Three months Six months
ended June 30, ended June 30,
1995 1996 1995 1996
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of operations 51.7 51.4 53.4 53.3
Selling, general and
administrative expenses 15.0 15.1 16.3 16.5
Depreciation and amortization 13.6 14.7 13.6 15.0
---- ---- ---- ----
Operating income from
continuing operations 19.7 18.8 16.7 15.2
Interest expense 3.4 .3 3.8 .9
Other (income) expense .2 (.9) (.8) (1.0)
---- ---- ---- ----
Income from continuing
operations before income taxes 16.1 19.4 13.7 15.3
Income taxes 6.6 8.0 5.7 6.3
---- ---- ---- ----
Income from continuing operations 9.5% 11.4% 8.0% 9.0%
==== ==== ==== ====
Revenues
Revenues increased approximately $2.8 million, or 11.8%, and $4.8
million, or 10.8%, for the three- and six- month periods, respectively,
ended June 30, 1996 as compared with 1995. These increases for each 1996
period were primarily due to 74% and 67% respective increases in volumes
of wastes collected and disposed at the Company's landfills and $1.1
million and $1.8 million, respectively, from the impact of businesses
acquired since June 30, 1995 for the three- and six- month periods ended
June 30, 1996 compared to the same periods in 1995. These increases were
achieved despite respective decreases of $1.9 million and $2.6 million in
revenues from recyclable waste paper sales for the three- and six- month
periods ended June 30, 1996 compared to the same periods in 1995. Daily
disposal volume at the Company's landfills rose to an average of more than
6,100 tons per day in the 1996 second quarter compared to an average of
3,600 tons per day in the corresponding period last year. The higher
landfill volume was the result of increased third party disposal volume,
increased volumes received from a disposal contract for a customer's
Milwaukee collection operations which began to take full effect in the
first quarter, increased volumes of special waste streams from the
Company's project-driven other integrated waste services and higher solid
waste volumes from collection operations.
The $1.9 million decrease in revenues in the fiscal 1996 quarter from
sales of recyclable waste paper products was comprised of an over $2.5
million decrease in recycling revenues resulting from an 80% decline in
prices received for these products compared to the second quarter of 1995,
partially offset by a 28% increase in volumes of recyclable waste paper
products processed and sold in the 1996 second quarter compared to the
prior year. The approximately $2.6 million decrease in revenues in the
first half of 1996 from sales of recyclable waste paper products was
comprised of an over $3.8 million decrease in recycling revenues resulting
from a 73% decline in prices received for these products in the first half
of 1996 compared to the first half of 1995, partially offset by a 33%
increase in volumes of recyclable waste paper products processed and sold.
The resale prices of, and demand for, recyclable waste products,
particularly wastepaper, can be volatile and subject to changing market
conditions. If resale prices for recyclable waste products remain at
current levels, the Company will likely continue to realize similar
reductions in recycling revenues in the third and fourth quarters of 1996
compared to the corresponding 1995 periods. The Company's recycling
operations remained profitable during the second quarter of 1996 due to
the Company's floor-pricing arrangement with a national paper company
coupled with the cost effectiveness of the Company's processing facilities
and fees received for providing recyclable waste collection services to
its customers.
Cost of Operations
Cost of operations increased $1.4 million, or 11.2%, and $2.5
million, or 10.6%, for the three- and six- month periods ended June 30,
1996, respectively, compared to the same periods in 1995. As a percentage
of revenues, cost of operations remained relatively constant between the
comparable periods. The increase in the dollar amount of cost of
operations was primarily attributable to the costs of collecting and
disposing of the increased volumes of wastes received from additional
products and services provided to new customers, including the operation
of the new businesses acquired after June 30, 1995.
Selling, General and Administrative Expense ("SG&A")
SG&A increased $449,000, or 12.6%, and $866,000, or 12.0%, for the
three-and six-month periods ended June 30, 1996, respectively, compared to
the same periods in 1995. As a percentage of revenues, SG&A increased to
15.1% from 15.0% in the second quarter of 1996 compared to the second
quarter of 1995 and to 16.5% from 16.3% in the first half of 1996 compared
to the first half of 1995 due primarily to increased costs for personnel
necessary to support the Company's acquisition program and to service new
customers, including those associated with the businesses acquired after
June 30, 1995.
Depreciation and Amortization
Depreciation and amortization increased $665,000, or 20.6%, and $1.3
million, or 22.0%, for the three- and six- month periods ended June 30,
1996, respectively, compared to the same periods in 1995, primarily as a
result of increased landfill depletion costs and increased depreciation
costs of the additional assets and businesses acquired after June 30,
1995. As a percentage of revenues, depreciation and amortization increased
to 14.7% from 13.6% in the second quarter of 1996 compared to the second
quarter of 1995 and to 15.0% from 13.6% in the first half of 1996 compared
to the first half of 1995 reflecting the increase in disposal revenue as a
percentage of total revenue which resulted in additional depletion costs,
and also the depreciation of the additional assets of businesses acquired
after June 30, 1995.
Interest Expense
Interest expense decreased $721,000, or 90.2%, and $1.2 million, or
71.6%, for the three- and six- month periods ended June 30, 1996,
respectively, compared to the same periods in 1995. The reduction in
interest expense was due primarily to the reduction in debt resulting
primarily from the application of a portion of the net proceeds from the
Company's March 1996 initial public offering. Additionally, the Company
benefitted from a lower overall interest rate on outstanding borrowings in
1996 as a result of the successful renegotiation of its revolving credit
agreement in December 1995.
Income Taxes
The Company's effective tax rate remained constant at 41.3% in the
three months ended June 30, 1996 compared to the three months ended June
30, 1995. The Company's effective tax rate decreased to 41.3% for the
first half of 1996 compared to 41.6% in the first half of 1995. The
decrease was primarily the result of increased earnings which reduced the
impact of the non-deductible amortization of intangibles related to
businesses acquired.
Liquidity and Capital Resources
In March 1996, the Company completed an initial public offering in
which it issued 3,532,500 shares of common stock at a price of $11.50 per
share. The $37.2 million of net proceeds to the Company from this
offering after deduction of underwriting discounts and commissions and
other offering expenses were used to reduce outstanding debt by $17.1
million. The remainder of the net proceeds will be used for potential
future acquisitions, capital expenditures and working capital. The
Company's balance sheet at June 30, 1996 reflected approximately $20.8
million in cash and cash equivalents. Pending specific application, the
Company has invested the unused net proceeds in short-term interest
bearing securities.
At June 30, 1996, the Company had approximately $3.2 million of
long-term and short-term borrowings outstanding and approximately $2.3
million in letters of credit. At June 30, 1996, the ratio of the
Company's long-term debt to total capitalization was 1.8% compared to
28.3% at December 31, 1995. The reduction was attributable to the use of
the net proceeds from the March 1996 public offering and net cash flow
from operations applied to reduce outstanding indebtedness.
Superior's principal strategy for future growth is through the
acquisition of additional solid waste disposal and collection operations.
Although there can be no assurance that the Company will be able to
complete successfully any such acquisitions, the Company intends to fund
any such future acquisitions in 1996 through the use of one or more of the
following: cash, issuance of capital stock, assumption of indebtedness,
future royalties and/or contingent payments. The cash required to fund
any future acquisitions in 1996 will likely be provided from one or more
of the following sources: remaining proceeds from the Company's initial
public stock offering, cash flow from operations and/or borrowings under
the Company's $50 million revolving credit facility (substantially all of
which was currently available at June 30, 1996).
Capital expenditures for the six months ended June 30, 1996 were $6.0
million compared to $5.3 million for the six months ended June 30, 1995.
Capital expenditures for 1996 are currently expected to be approximately
$13.6 million compared to $11.6 million in 1995. The Company intends to
fund its remaining planned 1996 capital expenditures principally through
internally generated funds and, to a lesser extent, equipment lease
financing. In addition, the Company also anticipates that it may require
substantial additional capital expenditures to facilitate its growth
strategy of acquiring additional solid waste collection and disposal
businesses. If the Company is successful in acquiring additional landfill
disposal facilities, the Company may also be required to make significant
expenditures to bring any such newly acquired disposal facilities into
compliance with applicable regulatory requirements, obtain permits for any
such newly acquired disposal facilities or expand the available disposal
capacity at any such newly acquired disposal facilities. The amount of
these expenditures cannot be currently determined, since they will depend
on the nature and extent of any acquired landfill disposal facilities, the
condition of any facilities acquired and the permitting status of any
acquired sites. In the past, the Company has been able to obtain other
types of financing arrangements, such as equipment lease financing, to
fund its various capital requirements. The Company believes it can
readily access such additional sources of financing as necessary to
facilitate the Company's growth.
Net cash provided by operations for the six months ended June 30,
1996 decreased to $9.6 million from $11.5 million in the six months ended
June 30, 1995. The decrease was primarily due to the change in accounts
payable and accrued expenses between June 30, 1995 and 1996. During the
first six months of 1995, tax payments of $1.2 million were made
reflecting the impact of the net loss in 1994, however, during the first
six months of 1996, payments of $4.1 million were made.
Net cash used in investing activities for the six months ended June
30, 1996 increased to $7.1 million from $1.2 million for the six months
ended June 30, 1995. The increase was primarily due to the $3.4 million
proceeds from the sale of assets of discontinued operations in the second
quarter of 1995 compared to proceeds of $562,000 from the sale of assets
of discontinued operations in the second quarter of 1996. The increase is
also due to $810,000 of payments under its environmental protection
program and contributions of funds held in trust to satisfy the Company's
financial assurance obligations to various regulatory agencies for
landfill facility closure and long-term care requirements in the second
quarter of 1996 compared to payments of $252,000 in the second quarter of
1995, as well as $1.3 million of cash payments for businesses acquired in
the first six months of 1996. Under the environmental protection program,
a large insurance carrier guarantees the Company's financial assurance
obligations to the State of Wisconsin. The Company pays an annual premium
to the carrier, a substantial portion of which is applied to a loss
commutation fund which accumulates at a current market rate of interest
and is made available to the Company to fund its final closure and
long-term care costs.
Net cash provided by financing activities in the six months ended
June 30, 1996 totaled $17.0 million, compared to net cash used in
financing activities of $11.2 million in the six months ended June 30,
1995, reflecting the receipt of $37.2 million in net proceeds from the
initial public offering of the Company's stock in March 1996, a
significant portion of which was used to reduce the Company's outstanding
debt.
Seasonality
The Company's results of operations tend to vary seasonally, with the
first quarter of the year typically generating the least amount of
revenues, and with revenues higher in the second and third quarters,
followed by a decline in the fourth quarter. This seasonality reflects
the lower volume of waste, as well as decreased revenues from
project-based and other integrated waste services during the fall and
winter months, as well as, the operating difficulties experienced during
the protracted periods of cold and inclement weather typically experienced
during the winter in the Upper Midwest. Also, certain operating and other
fixes costs remain relatively constant throughout the calendar year,
resulting in a similar seasonality of operating income.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibits filed with this Form 10-Q report are incorporated
herein by reference to the Exhibit Index accompanying this
report.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
<PAGE>
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.
Superior Services, Inc.
Date August 14, 1996 By: /s/ George K. Farr
George K. Farr
Chief Financial Officer
<PAGE>
SUPERIOR SERVICES, INC.
EXHIBIT INDEX
Second Quarter 1996
Exhibit Number Exhibit Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF SUPERIOR SERVICES, INC.
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 20,834
<SECURITIES> 0
<RECEIVABLES> 17,300
<ALLOWANCES> (676)
<INVENTORY> 770
<CURRENT-ASSETS> 40,306
<PP&E> 125,678
<DEPRECIATION> (44,802)
<TOTAL-ASSETS> 145,869
<CURRENT-LIABILITIES> 12,138
<BONDS> 1,662
0
0
<COMMON> 167
<OTHER-SE> 92,729
<TOTAL-LIABILITY-AND-EQUITY> 145,869
<SALES> 0
<TOTAL-REVENUES> 48,868
<CGS> 0
<TOTAL-COSTS> 33,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 417
<INTEREST-EXPENSE> 468
<INCOME-PRETAX> 7,481
<INCOME-TAX> 3,086
<INCOME-CONTINUING> 4,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,395
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
