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 September 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 November 12, 1996 was 16,981,706.
<PAGE>
SUPERIOR SERVICES, INC.
FORM 10-Q INDEX
For the Quarter Ended September 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, September 30,
1995 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,373 $13,133
Trade accounts receivable 14,518 18,527
Prepaid expenses and other
current assets 2,826 2,925
Net assets of discontinued operations 849 -
------- -------
Total current assets 19,566 34,585
Property and equipment, net 81,026 103,046
Restricted funds held in trust 7,009 7,956
Other assets 4,202 4,187
Intangible assets, net 10,960 14,521
------- -------
Total assets $122,763 $164,295
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt $3,251 $2,071
Trade accounts payable 4,737 5,371
Accrued payroll and related expenses 2,329 2,463
Other accrued expenses 3,494 5,836
Accrued income taxes 1,045 3,045
------- -------
Total current liabilities 14,856 18,786
Long-term debt, net of current maturities 20,168 2,001
Disposal site closure and long-term
care obligations 20,079 27,022
Deferred income taxes 11,581 11,127
Other liabilities 5,077 8,399
Commitments and contingencies
Convertible preferred stock 15,000 -
Shareholders' investment:
Common stock 99 167
Additional paid-in capital 24,001 76,465
Retained earnings 11,902 20,328
------- -------
Total shareholders' investment 36,002 96,960
------- -------
Total liabilities and shareholders'
investment $122,763 $164,295
======== ========
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 Nine months
ended Sept. 30, ended Sept. 30,
1995 1996 1995 1996
Revenues $25,076 $29,719 $69,162 $78,587
Expenses:
Cost of operations 12,719 14,887 36,255 40,911
Selling, general and
administrative
expenses 3,886 4,363 11,085 12,428
Depreciation and
amortization 3,338 3,853 9,349 11,185
------- ------- ------- -------
19,943 23,103 56,689 64,524
------- ------- ------- -------
Operating income from
continuing operations 5,133 6,616 12,473 14,063
Other income:
Interest expense (637) (69) (2,287) (537)
Other income 93 314 457 816
------- ------- ------- -------
Income from continuing
operations before
income taxes 4,589 6,861 10,643 14,342
Provision for income
taxes 1,886 2,830 4,407 5,916
------- ------- ------- -------
Income from continuing
operations 2,703 4,031 6,236 8,426
Discontinued operations:
Loss from disposition
of discontinued
operations, net of
income tax (138) - (121) -
------- ------- ------- -------
Net income $2,565 $4,031 $6,115 $8,426
====== ====== ====== ======
Per share:
Income from continuing
operations $0.20 $0.24 $0.46 $0.52
Income from
discontinued
operations (0.01) - (0.01) -
------- ------- ------- -------
Net income $0.19 $0.24 $0.45 $0.52
===== ===== ===== =====
Weighted average number
of common and common
equivalent shares
outstanding 13,420,613 17,086,385 13,498,709 16,110,431
========== ========== ========== ==========
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 - - - 8,426 8,426
Conversion of
convertible
preferred stock 3,317,890 33 14,967 - 15,000
Issuance of common
stock, net 3,552,066 35 37,497 - 37,532
---------- ---- ------- ------- -------
Balance at
September 30, 1996 16,756,771 $167 $76,465 $20,328 $96,960
========== ==== ======= ======= =======
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 nine months
ended September 30,
1995 1996
OPERATING ACTIVITIES
Net income $6,115 $8,426
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,349 11,185
Deferred income taxes - (454)
Gain on sale of assets (193) (57)
Changes in operating assets and liabilities,
net of effects of acquired businesses:
Accounts receivable (1,774) (2,553)
Prepaid expenses and other current assets 1,014 (32)
Accounts payable and accrued expenses 2,473 2,942
Disposal site closure and long-term
care obligation 1,951 1,783
Other (1,701) 129
------- -------
Net cash provided by operating activities 17,234 21,369
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (1,574) (13,442)
Purchases of property and equipment (7,199) (12,594)
Proceeds from sale of discontinued operations 3,489 562
Proceeds from sale of property and equipment 1,090 425
Funds held in trust (819) (846)
------- -------
Net cash used in investing activities (5,013) (25,895)
FINANCING ACTIVITIES
Net decrease (increase) in short-term borrowing 547 (1,180)
Proceeds from long-term debt 4,007 -
Payments of long-term debt (18,029) (19,816)
Issuance of common stock, net of issuance costs - 37,282
------- -------
Net cash provided by (used in) financing
activities (13,475) 16,286
------- -------
Net increase (decrease) in cash and
cash equivalents (1,254) 11,760
Cash and cash equivalents at beginning
of period 2,034 1,373
------- -------
Cash and cash equivalents at end of period $780 $13,133
==== =======
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, Michigan and
Missouri. 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
Through September 30, 1996, the Company had acquired eight 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
$13.6 million in cash, $3.2 million in future payments or notes payable,
and 15,015 shares of Common Stock. In connection with a landfill
acquisition, the seller is entitled to receive additional consideration
from the Company, if regulatory approval, as defined, is obtained for
expansions of permitted air space. This contingent consideration averages
$1.00 per cubic yard for additional permitted airspace. These amounts, if
any, will be capitalized when paid or payable as additional purchase price.
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 to the Company of approximately
$37,230,000 after deduction of underwriting discounts and commissions and
other offering expenses.
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 to independent directors
serving on the Company's Board of Directors exercisable for a total of
40,000 shares of Common Stock at an $11.50 per share exercise price.
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 September 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 248,552 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.
<PAGE>
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, Michigan and Missouri. 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 September 30, 1996, solid waste
operations consisted of seven Company-owned solid waste landfills, three
managed third party landfills, 22 solid waste collection operations, ten
recycling facilities and seven 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 Nine Months Ended
September 30 September 30
1995 1996 1995 1996
Collection 47% 44% 48% 46%
Disposal 15% 22% 15% 21%
Recycling 15% 12% 16% 13%
Other integrated waste services 23% 22% 21% 20%
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
Results of Operations
Overview
Revenues in the 1996 third quarter of $29.7 million increased 18.5%
over the comparable period in the prior year. Income from continuing
operations increased 49.1% to $4.0 million in the third quarter of 1996,
while earnings per share from continuing operations increased 20% to $0.24
compared to $0.20 reported for the same period in the prior year. The
weighted average number of common and common equivalent shares outstanding
were 17.1 million for the three months ended September 30, 1996 and 13.4
million for the three months ended September 30, 1995. The increase was
primarily the result of the initial public offering completed in March
1996 which increased outstanding shares by 3.5 million.
For the first nine months of 1996, revenues increased 13.6% to $78.6
million compared to $69.2 million for the same period in the prior year
due primarily to increased volumes of waste received at the Company's
landfills. Net income from continuing operations increased 35.1% to $8.4
million in the first nine months of 1996 from $6.2 million in the first
nine months of 1995. Earnings per share from continuing operations
increased 13% to $0.52 for the first nine months of 1996 from $0.46 per
share for the same period in 1995. The weighted average number of common
and common equivalent shares outstanding were 16.1 million for the nine
months ended September 30, 1996 and 13.5 million for the nine months ended
September 30, 1995. The increase was primarily the result of the initial
public offering completed in March 1996 which increased outstanding shares
by 3.5 million.
The following table 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 Nine months
ended Sept. 30, ended Sept. 30,
1995 1996 1995 1996
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of operations 50.7 50.1 52.4 52.1
Selling, general and
administrative expenses 15.5 14.7 16.0 15.8
Depreciation and amortization 13.3 13.0 13.5 14.2
---- ---- ---- ----
Operating income from
continuing operations 20.5 22.3 18.0 17.9
Interest expense 2.5 0.2 3.3 0.7
Other (income) expense (0.3) (1.0) (0.7) (1.0)
---- ---- ---- ----
Income from continuing
operations before
income taxes 18.3 23.1 15.4 18.2
Income taxes 7.5 9.5 6.4 7.5
---- ---- ---- ----
Income from continuing
operations 10.8% 13.6% 9.0% 10.7%
===== ===== ==== =====
Revenues
Revenues increased approximately $4.6 million, or 18.5% and $9.4
million, or 13.6%, for the three- and nine-month periods, respectively,
ended September 30, 1996 compared with the same periods in 1995. These
increases for each 1996 period were primarily due to 47.3% and 58.6%
respective increases in volumes of wastes collected and disposed at the
Company's landfills. Revenues for each 1996 period compared to the same
periods in 1995 increased $1.4 million and $3.2 million, respectively,
from the impact of businesses acquired. These increases were achieved
despite respective decreases of $1.2 million and $3.7 million in revenues
from recyclable waste paper sales for the 1996 three- and nine-month
periods compared to the same periods in 1995. Daily disposal volume at
the Company's landfills rose to an average of more than 7,100 tons per day
in the 1996 third quarter compared to an average of 4,800 tons per day in
the corresponding period last year. The higher landfill volume was the
result of increased volumes received from a disposal contract for a
customer's Milwaukee collection operations, increased third party disposal
volume, 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 $1.2 million decrease in revenues in the third quarter of 1996
from sales of recyclable waste paper products was comprised of an over
$1.6 million decrease in recycling revenues resulting from an 72% decline
in prices received for these products compared to the third quarter of
1995, partially offset by a 25% increase in volumes of recyclable waste
paper products processed and sold in the 1996 third quarter compared to
the prior year period. The approximately $3.7 million decrease in
revenues in the first nine months of 1996 from sales of recyclable waste
paper products was comprised of an over $5.4 million decrease in recycling
revenues resulting from a 73% decline in prices received for these
products in the first nine months of 1996 compared to the first nine
months of 1995, partially offset by a 30% increase in volumes of
recyclable waste paper products processed and sold compared to the same
period in 1995. The resale prices of, and demand for, recyclable waste
products, particularly wastepaper, can be volatile and subject to changing
market conditions. The Company believes that the adverse effects of the
significant decline in recyclable waste paper products may mitigate in the
1996 fourth quarter since average resale prices had declined to levels
similar to current resale prices by November 1995. The Company's
recycling operations remained profitable during the third 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.
As of the date of this report, the Company has acquired businesses
with expected annualized revenues of approximately $19 million during the
course of 1996, approximately $15 million of which was consummated during
the third and early fourth quarters of 1996. The Company expects its
revenues and income from operations to increase in comparison to those
reported historically as a result of the consummation of these
transactions.
Cost of Operations
Cost of operations increased $2.2 million, or 17.0% and $4.7 million,
or 12.8%, for the three- and nine-month periods ended September 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 September 30, 1995 and January 1,
1995, respectively.
Selling, General and Administrative Expense ("SG&A")
SG&A increased $477,000, or 12.3% and $1.3 million, or 12.1%, for the
three- and nine-month periods ended September 30, 1996, respectively,
compared to the same periods in 1995. As a percentage of revenues, SG&A
decreased to 14.7% from 15.5% in the third quarter of 1996 compared to the
third quarter of 1995 and to 15.8% from 16.0% in the first nine months of
1996 compared to the first nine months of 1995. While SG&A decreased as a
percentage of revenues, the actual dollars increased primarily due 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.
Depreciation and Amortization
Depreciation and amortization increased $515,000, or 15.4% and $1.8
million, or 19.6%, for the three- and nine-month periods ended September
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. As a percentage
of revenues, depreciation and amortization decreased to 13.0% from 13.3%
in the third quarter of 1996 compared to the third quarter of 1995 due to
lower depletion costs at one of the landfills. The depletion costs were
lower as additional disposal capacity was gained at one of the Company's
landfills as a result of additional settlement and recompaction of the
waste in a portion of the site. Depreciation and amortization increased
to 14.2% from 13.5% in the first nine months of 1996 compared to the first
nine months 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.
Interest Expense
Interest expense decreased $568,000, or 89.2%, and $1.7 million, or
76.5%, for the three- and nine-month periods ended September 30, 1996,
respectively, compared to the same periods in 1995. The reduction in
interest expense was due primarily to the reduction in debt resulting from
the application of a portion of the net proceeds from the Company's March
1996 initial public offering to repay indebtedness. 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 fairly constant at 41.2% in
the three months ended September 30, 1996 compared to 41.1% in the three
months ended September 30, 1995. The Company's effective tax rate
decreased to 41.2% for the first nine months of 1996 compared to 41.4% in
the first nine months 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 has been and will continue to
be used for potential future acquisitions, capital expenditures and
working capital. The Company's balance sheet at September 30, 1996
reflected approximately $13.1 million in cash and cash equivalents
compared to $1.4 million at December 31, 1995. Pending specific
application, the Company has invested the unused net proceeds in
short-term interest bearing securities.
At September 30, 1996, the Company had approximately $4.1 million of
long-term and short-term borrowings outstanding and approximately $2.3
million in letters of credit. At September 30, 1996, the ratio of the
Company's long-term debt to total capitalization was 2% 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 further reduce outstanding indebtedness.
Superior's principal strategy for future growth is through the
acquisition of additional solid waste disposal and collection operations.
During 1996, the Company acquired eight solid waste businesses. 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 $13.6 million in cash, $3.2 million in future payments or
notes payable, and 15,015 shares of Common Stock. Although there can be
no assurance that the Company will be able to complete successfully any
acquisitions, the Company intends to fund any such future acquisitions
through the use of cash, 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 September 30, 1996).
Capital expenditures for the nine months ended September 30, 1996
were $12.6 million compared to $7.2 million for the nine months ended
September 30, 1995 primarily due to increased spending for landfill
expansions. Capital expenditures for the fourth quarter of 1996 are
currently expected to be approximately $1.0 million. 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 nine months ended September
30, 1996 increased to $21.4 million from $17.2 million in the nine months
ended September 30, 1995. The increase was primarily due to the $2.3
million increase in net income as well as the increase in depreciation and
amortization of $1.8 million between 1995 and 1996.
Net cash used in investing activities for the nine months ended
September 30, 1996 increased to $25.9 million from $5.0 million for the
nine months ended September 30, 1995. The increase was primarily due to
$13.4 million of net cash payments for businesses acquired in the first
nine months of 1996 compared to $1.6 million in the first nine months of
1995. Purchases of property and equipment increased $5.4 million to $12.6
million for the nine months ended September 30, 1996. The comparable
period increase was also due to the absence in the fiscal 1996 nine-month
period of $3.5 million proceeds from the 1995 sale of assets of
discontinued operations. Proceeds from the sale of assets of discontinued
operations in the first nine months of 1996 were $562,000.
Net cash provided by financing activities in the nine months ended
September 30, 1996 totaled $16.3 million, compared to net cash used in
financing activities of $13.5 million in the nine months ended September
30, 1995. This increase reflected 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
fixed costs remain relatively constant throughout the calendar year,
resulting in a similar seasonality of operating income.
<PAGE>
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
September 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 November 14, 1996 By: /s/ George K. Farr
George K. Farr
Chief Financial Officer
<PAGE>
SUPERIOR SERVICES, INC.
EXHIBIT INDEX
Third 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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 13,133
<SECURITIES> 0
<RECEIVABLES> 19,110
<ALLOWANCES> (583)
<INVENTORY> 782
<CURRENT-ASSETS> 34,585
<PP&E> 150,865
<DEPRECIATION> (47,819)
<TOTAL-ASSETS> 164,295
<CURRENT-LIABILITIES> 18,786
<BONDS> 2,001
0
0
<COMMON> 167
<OTHER-SE> 96,793
<TOTAL-LIABILITY-AND-EQUITY> 164,295
<SALES> 0
<TOTAL-REVENUES> 78,587
<CGS> 0
<TOTAL-COSTS> 52,096
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 684
<INTEREST-EXPENSE> 537
<INCOME-PRETAX> 14,342
<INCOME-TAX> 5,916
<INCOME-CONTINUING> 8,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,426
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
