FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 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
Milwaukee, Wisconsin 53227
(Address of principal executive offices) (Zip Code)
offices)
Registrant's telephone number,
including area code: (414) 328-2800
Securities registered pursuant
to Section 12(b) of the Act: None
Securities registered pursuant
to Section 12(g) of the Act: Common Stock, $.01 par value;
Common Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports 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 report(s), and (2) has been subject
to such filing requirements for the past 90 days.
Yes[X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 15, 1997. (1)
$325,464,869
Number of shares outstanding of each of the classes of the registrant's
capital stock as of March 15, 1997:
Common Stock, $.01 par value: 17,485,140 shares
________________________
(1) Excludes only shares held by continuing directors and officers of the
registrant as set forth in the registrant's definitive proxy
statement for its 1997 annual meeting of shareholders.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE:
Proxy Statement for 1997 annual meeting of shareholders (incorporated by
reference into Part III, to the extent indicated therein).
<PAGE>
PART I
Unless the context indicates otherwise, references to the number
of the Company's various facilities set forth in this Form 10-K Annual
Report are as of December 31, 1996.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Annual Report on Form 10-K 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 anticipated as of the date
of this report. Shareholders, potential investors and other readers are
urged to consider these factors in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-
looking statements. The forward-looking statements included 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.
Item 1. Business.
General
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, Missouri, Illinois,
Michigan and Iowa. The Company serves over 250,000 residential, commercial
and industrial customers.
As of December 31, 1996, Superior's solid waste operations
consisted of seven Company-owned solid waste landfills, three managed
third party landfills, twenty three solid waste collection operations,
eleven recycling facilities and seven solid waste transfer stations. As
of December 31, 1996, the Company had 12.6 million total cubic yards of
remaining disposal capacity currently permitted at its Company-owned
landfills and 43.4 million total cubic yards of potential additional
disposal capacity in various stages of permitting. The Company's
operating strategy emphasizes the integration of its solid waste
collection and disposal operations and the internalization of waste
collected. The Company also provides other integrated waste services,
most of which are project-based, and many provide additional waste volumes
to the Company's landfills and recycling facilities. These other
integrated waste services include the remediation and disposal of
contaminated soils and similar materials; wastewater biosolids management;
full container consumer product recycling; and temporary storage and
transportation of special and hazardous waste, including household
hazardous waste.
Superior's objective is to be one of the largest and most
profitable fully integrated providers of solid waste collection and
disposal services in each market it serves. The Company's strategy to
achieve this objective is to (i) continue to expand its markets and enter
new markets through the acquisition of other solid waste businesses;
(ii) pursue internal growth opportunities in its current markets; and
(iii) achieve continuing operating improvements in its business.
Superior's principal strategy for future growth is through the acquisition
of additional solid waste disposal and collection operations. The Company
is primarily focused on expanding the geographic scope and residential and
commercial/industrial customer base of its solid waste collection and
disposal operations. The Company believes that its reputation, strategy,
culture and focus make it an attractive buyer to certain acquisition candi-
dates. During 1996, the Company acquired and retained one mercury
recycling business and twelve solid waste businesses, including two solid
waste landfills and ten solid waste collection operations.
On March 13, 1996, the Company completed its initial public
offering of a total of 4,082,500 shares of its Common Stock, of which
3,532,500 shares were sold by the Company and 550,000 shares were sold by
certain shareholders of the Company at a price of $11.50 per share. Of
the net proceeds to the Company from the offering of approximately
$37.2 million, approximately $17.1 million was used to further reduce the
Company's outstanding indebtedness, with the remainder reserved for use
for general corporate purposes, including potential future acquisitions,
capital expenditures and working capital. On June 20, 1996, the Company
filed a registration statement with the Securities and Exchange Commission
covering 2,500,000 shares of its Common Stock which may be issued by
Superior from time to time in connection with the acquisition by the
Company of businesses or properties. At December 31, 1996, 2,385,619
shares remained eligible for issuance under this registration statement.
The shares issuable under this registration statement are generally freely
tradeable by the recipient.
Acquisition Program
In recent years, the solid waste collection and disposal
industry has undergone a period of significant consolidation and
integration. The Company believes that this consolidation and integration
has been caused primarily by three factors: (i) increasingly stringent
environmental regulation and enforcement resulting in increased capital
requirements; (ii) the inability of many smaller operators to achieve the
economies of scale necessary to compete effectively with large integrated
solid waste service providers; and (iii) the evolution of an industry
competitive model which emphasizes providing both collection and
disposal/recycling capabilities. Despite the considerable consolidation
and integration that has occurred in the solid waste industry in recent
years, the Company believes the industry remains primarily regional in
nature and highly fragmented and that there remain a substantial number of
potential acquisition opportunities within the industry.
The Company's three area Operating Vice Presidents, its Chief
Executive Officer and its Chairman of the Board focus a substantial part
of their time on identifying acquisition candidates and consummating
acquisitions. During 1996, the Company expanded its senior management
team to include a Vice President of Market Development who is responsible
for directing the activities of eight full-time market development
managers, five of whom were added to the Company's market development
group in 1996.
From the time the Company was formed in February 1993 through
December 31, 1996, it has acquired and retained thirty one businesses.
During 1996, the Company acquired and retained one recycling business and
twelve solid waste businesses, including the Eau Claire County landfill
and the West County landfill and ten solid waste collection businesses.
The following table sets forth the Company's acquisitions completed and
retained during 1996:
<TABLE>
<CAPTION>
Acquired company Month acquired Principal Location Market area
business
<S> <C> <C> <C> <C>
Wittstock Services, Inc. March 1996 Solid waste Dubuque, IA Northeast
collection Iowa
Arrow Disposal Service, Inc. March 1996 Solid waste Mequon, WI Southeastern
collection Wisconsin
Tom Kraemer Sanitation, Inc. June 1996 Solid waste St. Cloud, MN Central
collection Minnesota
Superior Lamp Recycling, Inc. June 1996 Recycling Port Washington, WI Wisconsin
DC Refuse Service & Recycling, June 1996 Solid waste Sturgeon Bay, WI Northeastern
Inc. collection Wisconsin
All Waste Disposal, Inc. August 1996 Solid waste Milwaukee, WI Southeastern
(Rearload Commercial Routes) collection Wisconsin
Vasko Rubbish Removal, Inc. August 1996 Solid waste St. Cloud, MN Central
collection Minnesota
Eau Claire County Landfill September 1996 Solid waste Eau Claire, WI Northwest
(Superior Seven Mile Creek landfill Wisconsin
Landfill) and Eastern
Minnesota
West County Disposal, Ltd. September 1996 Solid waste Ballwin, MO Eastern
(Superior Oak Ridge Landfill) landfill Missouri
Wilson Refuse, Inc. October 1996 Solid waste Maryland Heights, MO Eastern
collection Missouri
Peninsula Dump-All, Inc. November 1996 Solid waste Sturgeon Bay, WI Northeastern
collection Wisconsin
G.D. LaPlant Sanitation, Inc. December 1996 Solid waste Buffalo, MN Central
collection Minnesota
D&K Refuse and Recycling, Inc. December 1996 Solid waste St. Cloud, MN Central
collection Minnesota
</TABLE>
The Company's acquisition plan focuses on "hub and spoke"
acquisitions in new markets. For example, the acquisition of the West
County Landfill (now known as Superior Oak Ridge Landfill) in Ballwin,
Missouri (approximately 15 miles southwest of St. Louis, Missouri)
represented the acquisition of a disposal "hub" to allow Superior to
service the metropolitan St. Louis service area. Consistent with the
Company's growth philosophy of maximizing and controlling volumes to its
landfills, after its acquisition of the West County Landfill Superior
subsequently acquired two collection operations in the St. Louis market
(one in September 1996 and one in January 1997 not reflected in the above
table).
In 1996, the Company also continued implementation of its market
development plan for Minnesota by acquiring four collection operations in
central Minnesota. The collection operations were integrated with the
Superior FCR Landfill.
The Company's acquisition program also focuses on "tuck in"
acquisitions in its existing markets or the extension of its existing
operations into contiguous markets. During 1996, the Company acquired two
collection operations in the Milwaukee, Wisconsin market which added
density to its existing operations in that market. In addition, the
Company extended the geographic scope of its operations in northeast
Wisconsin and southwest Wisconsin/northeast Iowa by the acquisition of
collection companies in the Door County, Wisconsin and Dubuque, Iowa
markets.
There can be no assurance that the Company will be able to
identify suitable acquisition candidates or, if identified, negotiate
successfully their acquisition. If the Company is successful in
identifying and negotiating suitable acquisitions, there can be no
assurance that any debt or equity financing necessary to complete the
acquisition can be arranged on terms satisfactory to the Company or that
any such financing will not significantly increase the Company's leverage
or result in additional dilution to existing shareholders. Moreover, there
can be no assurance that the Company will be able to integrate
successfully any acquired business, or manage or improve the operating or
administrative efficiencies or productivity of any acquired business.
Failure by the Company to implement successfully its acquisition strategy
will limit the Company's growth potential.
The recent consolidation and integration activity in the solid
waste industry, as well as the difficulties, uncertainties and expense
relating to the development and permitting of solid waste landfills and
transfer stations, has increased competition for the acquisition of
existing solid waste collection, transfer and disposal operations.
Increased competition for acquisition candidates may result in fewer
acquisition opportunities being made available to the Company as well as
less advantageous acquisition terms, including particularly increased
purchase prices. These circumstances may increase acquisition costs to
levels beyond the Company's financial capability or pricing parameters or
which, as to acquisitions made by the Company, may have an adverse effect
on the Company's results of operations. Many of the Company's competitors
for acquisitions are larger, better known companies with significantly
greater resources than the Company. The Company also believes that a
significant factor in its ability to consummate acquisitions will be the
relative attractiveness of its Common Stock as an investment instrument to
potential acquisition candidates. This attractiveness may, in large part,
be dependent upon the relative market price and capital appreciation
prospects of the Common Stock compared to the equity securities of the
Company's competitors.
Current Operations
Introduction
The Company provides the following integrated waste services
from its operating facilities in Wisconsin, Minnesota, Missouri, Illinois
and the Upper Peninsula of Michigan. The Company operates solid waste
collection operations, solid waste transfer stations, recycling
facilities, Company-owned solid waste landfills and managed third party
landfills. The Company also provides other integrated waste services, most
of which are project-based and many provide additional waste volumes to
the Company's landfills and recycling facilities. These other integrated
waste services include the remediation and disposal of contaminated soils
and similar materials; wastewater biosolids management; full container
consumer product recycling; and temporary storage and transportation of
special and hazardous waste, including household hazardous waste. Solid
waste services have been and will remain the Company's core business.
Superior markets its services principally through its facility
managers and direct sales representatives under the direction of area
sales managers. The company also obtains new customers from referral
sources, reputation, and local print marketing. The Company has a diverse
customer base, with no single customer accounting for more than 6% of the
Company's revenues in 1996. The Company does not believe that the loss of
any single customer would have a material adverse effect on the Company's
results of operation.
Solid Waste Collection and Transfer
The Company provides solid waste collection services to over
250,000 residential, commercial and industrial customers. The Company's
collection operations are conducted generally within a 50-mile radius from
its landfills or transfer stations. The Company contracts with local
generators of solid waste and directs the waste to either its own landfill
for disposal; to a third-party landfill; or, for additional handling at
one of its transfer stations or recycling facilities. After compacting
and/or separating at a transfer station, the Company directs the waste to
either its own landfill or a third party landfill. During 1995 and 1996,
approximately 83% and 81% respectively, of the solid waste collected by
the Company was delivered for disposal at its own landfills. Solid waste
collection and transfer services accounted for approximately 45% of the
Company's revenues for 1996, including revenues from disposal services
provided to customers of the Company's collection and transfer units,
compared to approximately 48% in 1995.
The Company's commercial and industrial collection services are
generally performed under one-year to three-year service agreements, and
fees are determined by such factors as collection frequency, type of
equipment and containers furnished, the type, volume and weight of the
waste collected, the distance to the disposal or processing facility and
the cost of disposal or processing.
Substantially all of the Company's municipal solid waste
collection services are performed under contracts with municipalities.
These contracts grant the Company exclusive rights to service all or a
portion of the residential homes in a specified community or provide a
central repository for residential waste drop-off. The Company had over -
240 municipal contracts in place as of December 31, 1996, compared to just
over 200 as of December 31, 1995. No single municipal contract is
individually material to the Company's results of operations. Municipal
contracts in the Company's market areas are typically awarded, at least
initially, on a competitive bid basis and usually range in duration from
one to three years. Fees are based primarily on the frequency and type of
service, the distance to the disposal or processing facility and the cost
of disposal or processing. Municipal collection fees are usually paid
either by the municipalities from tax revenues or through direct service
charges to the residents receiving the service. The Company also
provides subscription residential collection services directly to
households.
The Company's transfer stations receive solid waste collected
primarily from its various collection operations, compact the waste and
transfer the waste to larger Company-owned vehicles for transport to land-
fills. This procedure reduces the Company's costs by improving its
utilization of collection personnel and equipment. During 1996, the
Company constructed and began operations at a new transfer station in Lake
Geneva, Wisconsin which is intended to service the southern Wisconsin and
northern Illinois markets. Approximately 21% of the solid waste accepted
for transfer at the Company's transfer stations in 1996 was from third
parties compared to approximately 23% in 1995. The Company believes that
each of its transfer stations has obtained all necessary permits and has
been operated in compliance in all material respects with applicable
environmental regulations.
Recycling Services
The Company also provides recycling services to customers.
Recycling involves the removal of reusable materials from the waste stream
for processing and sale in various applications. The Company operates
eleven recycling facilities as part of its collection and transfer
operations at which it processes, sorts and recycles paper products,
certain plastics, glass, aluminum and tin cans and certain other items.
The Company also operates a wood pallet recycling operation at its Fort
Atkinson collection facility and curbside residential recycling programs
in connection with its residential collection operations in many
communities. As described below under "Other Integrated Waste Services,"
the Company also provides full container consumer product recycling
services.
The Company attempts to resell recycled waste products in the
most commercially reasonable manner practicable and to pass on
contractually a portion of the commodity pricing risk to its commercial
and industrial clients. In April 1995, the Company entered into a five-
year wastepaper purchase agreement with a national paper company pursuant
to which the paper company agreed to purchase certain grades of recyclable
wastepaper from the Company at above-market prices, subject to certain
minimum floor resale pricing assurances. Under the terms of this
agreement, the Company has the ability to sell up to all, but not less
than 50%, of its supply of certain grades of recyclable wastepaper to such
company. The Company believes these protections help mitigate some of the
variability associated with the resale of its collected and recyclable
wastepaper.
During 1996, the Company processed an average of over 6,900 tons
of recyclable paper and cardboard per month, compared to approximately
5,400 tons per month in 1995. The prices received by the Company for its
recyclable wastepaper declined approximately 66% from 1995 to 1996. As a
result of these price declines, revenues from the collection, processing
and sale of recyclable waste products accounted for approximately 13% of
the Company's revenues in 1996, compared to 15% in 1995.
Solid Waste Landfill Disposal
The Company owns and operates solid waste landfills in
Wisconsin, Minnesota and Missouri. All of the Company's landfills include
leachate collection systems, groundwater monitoring systems and active
methane gas extraction and recovery systems. The Company's landfill
facilities are designed and operated to meet federal, state and local
regulations in all material respects and the Company believes each of its
landfill sites meets or exceeds current applicable state and federal
Subtitle D Regulations in all material respects. None of the Company's
landfills is permitted to accept hazardous waste or is subject to disposal
volume limitations, other than relating to the landfill's respective per-
mitted capacity or hours of operation. In 1996, approximately 37% of the
solid waste disposed of at the Company's landfills was delivered by the
Company compared to approximately 54% in 1995, due to increased volumes
from third party customers in 1996. Other customers are charged "tipping
fees" based on the amount and type of solid waste deposited. The Company
operates licensed bioremediation facilities at several of its landfills
where the concentrations of volatile organic compounds in contaminated
soils are reduced through microbial activities enhanced by pumping air
through the soils. The bioremediated soils are then reused as cover
material at the Company's landfills.
The average daily volume of waste accepted for disposal at the
Company's landfills increased from approximately 3,800 tons per day in
1995 to approximately 6,400 tons per day in 1996. Revenues from landfill
disposal operations increased to approximately 22% of the Company's
revenues in 1996 from approximately 16% of the Company's 1995 revenues,
and does not include revenues from disposal services provided to customers
of the Company's collection, transfer and other integrated waste services
units. The increase in revenues from landfill disposal operations is due
to increased volumes from a disposal contract for a customer's Milwaukee
collection operations, increased volumes of special waste from the
Company's project-driven other integrated waste services, increased third
party disposal volume and higher solid waste volumes from its collection
operations.
The following table provides certain information with respect to
Superior's seven owned and operated landfills as of December 31, 1996:
<TABLE>
<CAPTION>
Approximate
Landfill name and location Month Year Permitted total
acquired opened acreage(1) acreage (1)
<S> <C> <C> <C> <C>
Superior Cranberry Creek landfill, * 1986 34 1,060
Wisconsin Rapids, WI (Central Wisconsin)
Superior Valley Meadows landfill, * 1979 29 600(2)
Fort Atkinson, WI (Southeastern Wisconsin)
Superior Glacier Ridge landfill, March 1993 1986 44 560
Mayville, WI (Eastern Wisconsin)
Superior Emerald Park landfill, November 1994 35 340
Muskego, WI (Milwaukee metropolitan area) 1993
Superior FCR landfill, July 1994 1965 24 362(3)
Buffalo, MN (Minneapolis metropolitan area)
Superior Seven Mile Creek Landfill, September 1978 37 160(4)
Eau Claire, WI (Northwest Wisconsin) 1996
Superior Oak Ridge Landfill, September 1975 126 180(5)
Ballwin, MO (St. Louis metropolitan area) 1996
_______________
* Acquired as part of the Company's original consolidation in 1993.
(1) Permitted acreage represents the portion of the total acreage on
which disposal cells have been constructed (including any that may
have been filled or capped) or may be constructed based upon an
approval issued by the regulatory agency generally authorizing the
development of a landfill on the acreage. The portion of total
acreage that is not currently permitted is not available for waste
disposal.
(2) Does not include approximately 80 acres currently subject to
acquisition by the Company upon exercise of a purchase option.
(3) Does not include approximately 40 acres currently subject to
acquisition by the Company upon exercise of a purchase option.
(4) Does not include approximately 80 acres currently subject to
acquisition by the Company upon exercise of a purchase option.
(5) Includes approximately 125 acres leased by the Company. See -
"Superior Oak Ridge Landfill" and "Properties." Does not include
approximately 58 acres subject to acquisition by the Company upon
exercise of a purchase option.
</TABLE>
Superior Cranberry Creek Landfill. The Superior Cranberry Creek
landfill is located northwest of Wisconsin Rapids, Wisconsin (Central
Wisconsin). As of December 31, 1996, this landfill had approximately 1.51
million cubic yards of estimated remaining disposal capacity available,
including 1.4 million cubic yards of disposal capacity under a vertical
expansion which received final regulatory approval during 1996. A royalty
of $2.3 million was paid to former owners during 1996 for this vertical
expansion. For any horizontal expansion, a royalty amount of $0.40 per
cubic yard, less associated expenses, is payable to the former owners,
subject to a maximum of $2.0 million.
Superior Valley Meadows Landfill. The Superior Valley Meadows
landfill is located south of Fort Atkinson, Wisconsin (50 miles southwest
of Milwaukee). As of December 31, 1996, this landfill had approximately
286,000 cubic yards of estimated remaining disposal capacity available. In
November 1995, the Company filed its initial site report to add an
additional 10.4 million cubic yards of horizontal expansion capacity
adjacent to the current landfill. In March 1996, the Company filed a
feasibility report in connection with the proposed expansion. The Company
subsequently withdrew the feasibility report in order to supplement the
report with additional information requested by the Wisconsin Department
of Natural Resources. The Company is obligated to make cash royalty
payments to the landfill's former owners for permitted expansions of the
landfill. For any vertical expansion, a royalty amount of $2.00 per cubic
yard, less associated expenses, is payable to the former owners. For any
horizontal expansion, a royalty amount of $0.40 per cubic yard, less
associated expenses, is payable to the former owners, subject to a maximum
of $2.0 million.
Superior Glacier Ridge Landfill. The Superior Glacier Ridge
landfill is located south of Mayville, Wisconsin (40 miles northwest of
Milwaukee). As of December 31, 1996, the Superior Glacier Ridge landfill
had approximately 1.46 million cubic yards of estimated remaining disposal
capacity available. In March 1994, the Company initiated horizontal and
vertical expansion plans which would add approximately 2.3 million cubic
yards of additional disposal capacity. A group of local citizens has filed
a petition with the Wisconsin Department of Natural Resources for an
administrative contested case hearing. The petition challenges the
environmental feasibility of the proposed expansion. No royalty payments
to the landfill's former owners are payable in connection with this
expansion; however, any horizontal expansion into the adjacent 120-acre
parcel of property acquired by the Company in 1993 will require the
Company to pay to the property's former owner a royalty amount of $0.50
per cubic yard of permitted expansion, less land acquisition costs if the
permitted expansion is less than 2.75 million cubic yards, up to a maximum
of $1.0 million. The Superior Glacier Ridge landfill property also
contains a licensed construction and demolition waste disposal landfill
which has approximately 5,000 cubic yards of remaining airspace as of
December 31, 1996. It is expected that this construction and demolition
waste disposal landfill will close in mid 1997.
Superior Emerald Park Landfill. The Superior Emerald Park
landfill, which was newly opened in November 1994, is located in Muskego,
Wisconsin (15 miles southwest of Milwaukee). As of December 31, 1996, this
landfill had approximately 2.68 million cubic yards of estimated remaining
disposal capacity available. In September 1995, the Company initiated the
permitting process for an estimated 24.7 million cubic yard vertical and
horizontal expansion at this landfill. The Company is obligated to make
royalty payments of $0.40 per cubic yard of permitted expanded capacity,
less associated expenses, to the former owners of this landfill. Certain
of such royalty payments are payable in shares of Common Stock.
Superior FCR Landfill. The Superior FCR landfill is located in
Buffalo, Minnesota (50 miles northwest of Minneapolis). As of December 31,
1996, the landfill had approximately 961,000 cubic yards of estimated re-
maining disposal capacity available including 650,000 cubic yards of
disposal capacity under a vertical expansion which received final
regulatory approval in July 1996. In connection with this expansion, the
Company is obligated to make royalty payments to the landfill's former
owners of $0.80 per cubic yard of permitted expansion, less associated
expenses, plus royalty payments equaling approximately 5% of the gross
revenues generated from the expanded capacity. In June 1996, the Company
began the permitting process for a 6 million cubic yard vertical and
horizontal expansion. The Company is also obligated to make additional
royalty payments to the landfill's former owners for the proposed
horizontal expansion and for other additional potential future horizontal
expansions.
Superior Oak Ridge Landfill. The Superior Oak Ridge landfill is
located in Ballwin, Missouri (15 miles southwest of St. Louis). The
landfill was acquired in 1996 as the Company's entry into the St. Louis,
Missouri solid waste market. See "Acquisition Program." As of December
31, 1996, the landfill had approximately 3.5 million cubic yards of
estimated remaining disposal capacity available. Approximately 125 acres
occupied in connection with landfill activities is leased from a third
party. Under the terms of the lease, the Company pays the property owner
monthly rental equal to the greater of 3% of the landfill's gross
operating receipts or $3,650. The Company is obligated to pay additional
purchase price to the landfill's former owner in the event the Company
receives necessary permits and approvals to expand the site. The amount
of additional purchase price varies between $0.50 and $1.25 per cubic
yard, depending upon the volume of additional approved airspace. A
portion of the additional purchase price is payable in shares of Common
Stock.
Superior Seven Mile Creek Landfill. The Superior Seven Mile
Creek landfill is located east of Eau Claire, Wisconsin (70 miles east of
Minneapolis/St. Paul). The Company acquired the landfill from Eau Claire
County in September 1996. The privatization of the landfill provides the
Company with disposal capacity to service the northwest Wisconsin and
eastern Minnesota markets. As of December 31, 1996, the landfill had
approximately 2.16 million cubic yards of estimated disposal capacity
available.
All of these potential landfill expansion plans are in varying
stages of planning and development. The permitting process is lengthy,
difficult and expensive, and is often subject to substantial uncertainty
and there can be no assurance that any such permits will be granted.
Management of Third Party Landfills
As of December 31, 1996, the Company managed two biosolid
captive monofills owned by large paper companies and one county-owned
municipal solid waste landfill. A monofill is a landfill which only
accepts one type of waste. One of the monofills is located in Brokaw,
Wisconsin and is managed under a two-year waste hauling and landfill
operation agreement that expires in May 1998. The other monofill is
located in Quinnesec, Michigan and is managed under an agreement which was
extended in 1996 so that it now expires in July 1999. The Company also
operates the Portage County municipal solid waste landfill in Central
Wisconsin under an agreement that expires in December 1997. These
management contracts are not individually or in the aggregate material to
the Company's results of operations.
Other Integrated Waste Services
In order to provide integrated solid waste services to a wide
range of customers, Superior provides a variety of other integrated waste
services, most of which are project-based and many provide additional
waste volumes to the Company's landfills and recycling facilities. These
services include the remediation and disposal of contaminated soils and
similar materials; wastewater biosolids management; full container
consumer product recycling; and temporary storage and transportation of
special and hazardous waste, including household hazardous waste. Revenues
from these other integrated waste services constituted approximately 20%
of the Company's revenues in 1996, compared to approximately 21% in 1995.
The Company's project-based remediation services involve the
removal and transportation of contaminated soil from environmental
remediation projects for disposal at the Company's landfills in compliance
with applicable regulations. The Company also provides value-added
services to bioremediate contaminated soils at its landfills prior to
final disposal. After excavation, the Company uses nutrients and micro-
organisms to naturally remove or reduce contaminants from contaminated
soil before disposing of the remediated soils in its landfills or using
the remediated soils in landfill construction. The Company's environmental
field services, which are provided principally to industrial clients in
Wisconsin, include the containment and cleanup of actual and threatened
releases of hazardous materials into the environment on both a planned and
an emergency response basis. These services include cleanout of wastewater
treatment tanks, cleanup of abandoned oil recycling facilities, cleanup
and demolition of manufacturing facilities and removal and remediation of
underground storage tanks. The Company is the primary standby provider of
environmental emergency spill response services to the WDNR in Eastern and
Central Wisconsin.
The Company's wastewater biosolids operations consist
principally of the removal, transportation, storage and beneficial reuse
through land application of industrial and municipal nonhazardous
wastewater biosolids. The Company contracts with municipalities, paper
mills and food processing plants to remove, transport and dispose of both
municipal and industrial wastewater biosolids. In most cases,
municipalities or industrial processors have on-site wastewater treatment
facilities which pretreat and concentrate biosolid wastes prior to removal
and reuse. In other cases, the Company will transport a generator's
wastewater biosolids from holding tanks or lagoons to a third party
wastewater treatment facility. Land application is generally limited by
state regulations to six months out of the year in Wisconsin.
Consequently, the Company constructed a 1 million gallon permitted
wastewater biosolid storage tank in which it stores certain liquid and
biosolid wastes until they can be land applied during the spring and fall.
The Company operates a full container consumer products
recycling facility at its Fort Atkinson, Wisconsin location. This
operation separates and removes off-specification food and other
nonconforming consumer products from their containers; crushes, cleans,
collects and resells the recyclable containers; and collects, stores and
reuses the liquid and solid contents of the food or other products as
organic fertilizer.
The Company provides nonhazardous "special" waste and hazardous
waste (including household hazardous waste) services, transportation and
temporary storage services to industrial clients principally in Wisconsin.
Nonhazardous special waste is solid waste that generally is not allowed to
be landfilled because it contains excess liquids or is otherwise desired
by the client to be specially handled and manifested for record keeping
purposes. The Company provides its hazardous waste services principally
from its fully-permitted temporary storage facility ("TSF") located in
Port Washington, Wisconsin (approximately 25 miles north of Milwaukee).
Hazardous waste collected by the Company is transported to third party
treatment or disposal facilities which have been selected by the customer
in virtually all cases. The Company also reclaims mercury at its TSF from
discarded mercury-containing items such as utility meters, fluorescent
lights and thermometers. The Company does not typically take title to
collected hazardous waste nor does it handle or accept radioactive wastes,
explosives, certain poisons, certain PCBs and certain other types of
hazardous wastes. The Company does not own or operate, or intend to own or
operate, a hazardous waste disposal facility. Revenues from hazardous
waste transportation and temporary storage services accounted for less
than 5% of the Company's revenues in 1995 and less than 4% of the
Company's revenues in 1996.
Competition
The solid waste management industry is highly competitive, very
fragmented and requires substantial labor and capital resources. Intense
competition exists within the industry not only for collection,
transportation and disposal volume, but also for acquisition candidates.
The industry is currently dominated by four large national waste
companies, WMX Technologies, Inc., Browning-Ferris Industries, Inc., USA
Waste Services, Inc. and Allied Waste Industries, Inc. (which recently
acquired the solid waste operations of Laidlaw Waste Systems, Inc.). The
Company also competes with a number of regional and local companies.
Superior competes for landfill disposal business primarily on
the basis of disposal fees, geographical location and quality of
operations. The Company's ability to obtain landfill disposal volume may
be limited by the fact that some major collection companies also own or
operate their own landfills in the Company's market areas, to which they
send their waste. The Company also competes, to a lesser extent, with
certain municipalities that maintain their own solid waste disposal
operations. These municipalities may have certain advantages over the
Company in financing their operations due to the availability of tax
revenues and tax-exempt financing and there can be no assurance that the
Company can compete successfully against such municipalities.
The Company competes for collection and recycling accounts
primarily on the basis of price and quality of its services. From time to
time, competitors may reduce the price of their services in an effort to
expand market share or to win a competitively bid municipal contract.
These practices may also lead to reduced pricing for the Company's
services or the loss of business. The Company provides substantially all
of its residential collection services under municipal contracts. As is
generally the case in the industry, these contracts are subject to peri-
odic competitive bidding. There can be no assurance that the Company will
be the successful bidder to obtain or retain these contracts.
Incineration of solid waste is not currently a significant
disposal alternative in Wisconsin, but may be in other states which the
Company enters.
Employees
At December 31, 1996, the Company employed approximately 890 full-
time employees. Three employees of one of the Company's subsidiaries are
members of a collective bargaining unit. These employees are not yet
covered by a collective bargaining agreement. The Company considers its
employee relations to be satisfactory.
Regulation
Introduction
The Company is currently subject to extensive and evolving
federal, state and local environmental laws and regulations that have been
enacted in response to technological advances and increased concern over
environmental issues. These regulations not only strictly regulate the
conduct of the Company's operations but also are related directly to the
demand for many of the services offered by the Company.
The regulations affecting the Company are administered by the
EPA and various other federal, state and local environmental, zoning,
health and safety agencies. The Company believes that it is currently in
substantial compliance with applicable federal, state and local laws,
permits, orders and regulations. The Company believes there will continue
to be increased regulation, legislation and regulatory enforcement actions
related to the solid waste services industry. As a result, the Company
attempts to anticipate future regulatory requirements and to plan
accordingly to remain in compliance with the regulatory framework.
In order to develop and operate a landfill, a biosolid storage
facility, a transfer station, most other solid waste facilities or a
hazardous waste TSF, the Company must typically go through several
governmental review processes and obtain one or more permits and often
zoning or other land use approvals. Obtaining these permits and zoning or
land use approvals is difficult, time consuming and expensive and is often
opposed by various local elected officials and citizens' groups. Once
obtained, operating permits generally must be periodically renewed and are
subject to modification and revocation by the issuing agency.
The Company's operating facilities are subject to a variety of
operational, monitoring, site maintenance, closure, post-closure and
financial assurance obligations which change from time to time and which
could give rise to increased capital expenditures and operating costs. In
connection with the Company's expansion of its existing or any newly
acquired landfills, it is often necessary to expend considerable time,
effort and money in complying with the governmental review and permitting
process necessary to maintain or increase the capacity of these landfills.
Governmental authorities have broad power to enforce compliance with these
laws and regulations and to obtain injunctions or impose civil or criminal
penalties in the case of violations. In the ordinary course of its
landfill, transfer station and TSF operations, the Company has from time
to time received notices from regulatory authorities that its operations
may not be in compliance with certain applicable environmental laws and
regulations. Upon receipt of any notices, the Company generally cooperates
with the authorities in an attempt to resolve the issues raised by such
notices and pays the agreed upon fine or penalty. Failure to correct the
problems to the satisfaction of the authorities could lead to curtailed
operations, fines and penalties or even closure of a landfill or other
facility.
In order to transport waste, it is necessary for the Company to
possess one or more permits from state or local agencies. These permits
also must be periodically renewed and are subject to modification and
revocation by the issuing agency.
The principal federal, state and local statutes and regulations
applicable to the Company's various operations are as follows:
The Resource Conservation and Recovery Act of 1976
RCRA regulates the generation, treatment, storage, handling,
transportation and disposal of solid waste and requires states to develop
programs to ensure the safe disposal of solid waste. RCRA divides solid
waste into two groups, hazardous and nonhazardous. Wastes are generally
classified as hazardous if they (i) either (a) are specifically included
on a list of hazardous wastes or (b) exhibit certain hazardous
characteristics and (ii) are not specifically designated as nonhazardous.
Wastes classified as hazardous under RCRA are subject to much stricter
regulation than wastes classified as nonhazardous. Wastes that are
generally classified as nonhazardous waste are household waste and
"special" waste, including items such as petroleum contaminated soils,
asbestos, foundry sand, shredder fluff and most nonhazardous industrial
waste products.
The EPA regulations issued under Subtitle C of RCRA impose a
comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. The
Subtitle C regulations provide standards for generators, transporters and
disposers of hazardous wastes, and for the issuance of permits for sites
where such material is treated, stored or disposed. Subtitle C imposes
detailed operating, inspection, training and emergency preparedness and
response standards, as well as requirements for manifesting, record
keeping and reporting, facility closure, post-closure and financial
responsibilities. These regulations require the Company's TSF to
demonstrate financial assurance for sudden and nonsudden pollution
occurrences. Financial assurance for future closure and post-closure
expenses must also be maintained. The Company believes that its hazardous
waste transportation activities and its TSF comply in all material
respects with the applicable requirements of Subtitle C of RCRA.
In October 1991, the EPA adopted the Subtitle D Regulations
governing solid waste landfills. The Subtitle D Regulations, which
generally became effective in October 1993, include location restrictions,
facility design standards, operating criteria, closure and post-closure
requirements, financial assurance requirements, groundwater monitoring
requirements, groundwater remediation standards and corrective action
requirements. In addition, the Subtitle D Regulations require that new
landfill sites meet more stringent liner design criteria (typically,
composite soil and synthetic liners or two or more synthetic liners)
designed to keep leachate out of groundwater and have extensive collection
systems to carry away leachate for treatment prior to disposal. Grou-
ndwater monitoring wells must also be installed at virtually all landfills
to monitor groundwater quality and, indirectly, the leachate collection
system operation. The Subtitle D Regulations also require, where threshold
test levels are present, that methane gas generated at landfills be
controlled in a manner that protects human health and the environment.
Each state is required to revise its landfill regulations to meet these
requirements or such requirements will be automatically imposed upon it by
the EPA. Each state is also required to adopt and implement a permit
program or other appropriate system to ensure that landfills within the
state comply with the Subtitle D Regulations criteria. Wisconsin,
Minnesota, Missouri and various states into which the Company may enter
have adopted regulations or programs as stringent as, or more stringent
than, the Subtitle D Regulations. Since the Company's operating landfills
are believed by the Company to be in compliance in all material respects
with the strict WDNR, Minnesota Pollution Control Agency, and Missouri
Department of Natural Resources regulations, the Company believes that all
of its present landfill operations meet or exceed the Subtitle D
Regulations in all material respects.
The Federal Water Pollution Control Act of 1972
The Federal Water Pollution Control Act of 1972, as amended
("Clean Water Act"), establishes rules regulating the discharge of
pollutants from a variety of sources, including solid waste disposal sites
and transfer stations, into waters of the United States. If runoff or
collected leachate from the Company's landfills or transfer stations is
discharged into streams, rivers or other surface waters, the Clean Water
Act would require the Company to apply for and obtain a discharge permit,
conduct sampling and monitoring and, under certain circumstances, reduce
the quantity of pollutants in such discharge. Also, virtually all
landfills are required to comply with the EPA's storm water regulations
issued in November 1990, which are designed to prevent possibly
contaminated landfill storm water runoff from flowing into surface waters.
The Company believes that its facilities are in compliance in all material
respects with Clean Water Act requirements, particularly as they apply to
treatment and discharge of leachate and storm water. The Company has
secured or has applied for the required discharge permits under the Clean
Water Act or comparable state-delegated programs. In those instances where
the Company's applications for discharge permits are pending and a final
discharge permit has not been issued, the Company believes it is in
substantial compliance with the applicable substantive standards set by
Wisconsin, Minnesota, Missouri, and adjacent states in its market areas in
administering the Clean Water Act.
The Comprehensive Environmental Response, Compensation and Liability
Act of 1980
CERCLA established a regulatory and remedial program intended to
provide for the investigation and cleanup of facilities from which there
has been, or is threatened, a release of any hazardous substance into the
environment. CERCLA's primary mechanism for remedying such problems is to
impose strict joint and several liability for cleanup of facilities on
current owners and operators of the site, former owners and operators of
the site at the time of the disposal of the hazardous substances, as well
as the generators of the hazardous substances and the transporters who
arranged for disposal or transportation of the hazardous substances. The
costs of CERCLA investigation and cleanup can be very substantial.
Liability under CERCLA does not depend upon the existence or disposal of
"hazardous waste" as defined by RCRA, but can also be founded upon the
existence of even very small amounts of the more than 700 "hazardous
substances" listed by the EPA, many of which can be found in household
waste. If the Company were to be found to be a responsible party for a
CERCLA cleanup, the enforcing agency could hold the Company, or any other
generator, transporter or the owner or operator of the facility,
completely responsible for all investigative and remedial costs even if
others may also be liable. CERCLA also authorizes the imposition of a lien
in favor of the United States upon all real property subject to, or
affected by, a remedial action for all costs for which a party is liable.
CERCLA provides a responsible party with the right to bring legal action
against other responsible parties for their allocable share of
investigative and remedial costs. The Company's ability to get others to
reimburse it for their allocable share of such costs would be limited by
the Company's ability to find other responsible parties and prove the
extent of their responsibility and by the financial resources of such
other parties.
CERCLA requires the EPA to establish an NPL of sites at which
hazardous substances have been or are threatened to be released into the
environment and which require investigation or cleanup. As one of the
sellers' conditions to the Company's March 1993 acquisition of the
Superior Glacier Ridge landfill, Superior was required to accept the
transfer of an adjacent closed landfill listed on the NPL.
The Clean Air Act
The Clean Air Act provides for regulation, through state
implementation of federal requirements, of the emission of air pollutants
from certain landfills based upon the date of the landfill construction
and volume per year of emissions of regulated pollutants. The EPA has
proposed new source performance standards regulating air emissions of
certain regulated pollutants (methane and non-methane organic compounds)
from municipal solid waste landfills. Landfills located in areas with air
pollution problems may be subject to even more extensive air pollution
controls and emission limitations. In addition, the EPA has issued
standards regulating the disposal of asbestos containing materials.
Some of the federal statutes described above contain provisions
authorizing, under certain circumstances, the institution of lawsuits by
private citizens to enforce the provisions of the statutes.
The Occupational Safety and Health Act of 1970
The Occupational Safety and Health Act of 1970, as amended
("OSHA"), authorizes the Occupational Safety and Health Administration to
promulgate occupational safety and health standards. Various of those pro-
mulgated standards, including standards for notices of hazards, safety in
excavation and the handling of asbestos, may apply to certain of the
Company's operations. OSHA regulations set forth requirements for the
training of employees handling, or who may be exposed in the workplace to,
concentrations of asbestos-containing materials that exceed specified
action levels. The OSHA regulations also set standards for employee
protection, including medical surveillance, the use of respirators,
protective clothing and decontamination units, during asbestos demolition,
removal or encapsulation as well as its storage, transportation and
disposal. In addition, OSHA specifies a maximum permissible exposure level
for airborne asbestos in the workplace. The Company has no direct
involvement in asbestos removal or abatement projects. However, asbestos-
containing waste materials are accepted at certain of the Company's
landfills that are authorized to accept such materials, and some of the
Company's collection businesses receive asbestos-containing waste
materials which have already been packaged and labeled. These packages are
loaded onto the Company's vehicles by employees of the asbestos abatement
contractors for transportation to and disposal at the Company's authorized
landfills. Accordingly, OSHA regulations designed to minimize employees'
exposure to airborne asbestos fibers and provide employees with proper
training and protection generally apply to the Company's operations in the
transportation and handling of the asbestos waste. The Company's employees
are trained to respond appropriately in the event there is an accidental
spill or release of the packaged asbestos-containing materials during
transportation or landfill disposal.
State and Local Regulations
Each state in which the Company currently operates, or may
operate in the future, has laws and regulations governing the generation,
storage, treatment, handling, transportation and disposal of solid and
hazardous waste, water and air pollution and, in most cases, the siting,
design, operation, maintenance, closure and post-closure maintenance of
landfills and other solid and hazardous waste management facilities. In
addition, many states including Wisconsin, Missouri and Minnesota, have
programs that require investigation and clean up of sites containing
hazardous materials in a manner comparable to CERCLA. These statutes
impose requirements for investigation and cleanup of contaminated sites
and liability for costs and damages associated with such sites, and some pro-
vide for the imposition of liens on property owned by responsible parties.
Furthermore, many municipalities also have ordinances, local laws and
regulations affecting the Company's operations. These include zoning and
health measures that limit solid waste management activities to specified
sites or activities. In the past, municipalities have enacted flow control
provisions that direct the delivery of solid wastes to specific
facilities, or ban or otherwise restrict the movement of solid wastes
into, or out of, a municipality or state. While such measures have been
previously held to be unconstitutional by the United States Supreme Court,
there are several bills were proposed in previous sessions of Congress
which, if enacted as law, would authorize states or municipalities to
impose some form of flow control. Any such legislation could limit the
Company's ability to route waste in the most profitable manner. Currently,
the only flow control provisions applicable to the Company's operations
are "designation ordinances" enacted by several counties in the
metropolitan Minneapolis-St. Paul area which mandate that most municipal
solid wastes generated in those counties must be disposed of at facilities
owned and operated by the counties. These ordinances, which have recently
been declared to be unconstitutional by the Federal District Court,
restrict the transportation of certain wastes from the Minneapolis-St.
Paul area to the Company's FCR landfill in Buffalo, Minnesota.
The permits or other land use approvals with respect to a
landfill, as well as state or local laws and regulations, may (i) limit a
landfill to accepting waste that originates from a specified geographic
area; (ii) specify the quantity of waste that may be accepted at the
landfill during a given time period; and/or (iii) specify the types of
waste that may be accepted at the landfill. Once an operating permit for a
landfill is obtained, it is generally necessary to renew the permit
periodically.
There has been an increasing trend at the state and local level
to mandate and encourage waste reduction at the source and to provide
waste recycling and limit or prohibit the disposal of certain types of
solid wastes, such as yard wastes, in landfills. The Wisconsin solid waste
laws, for example, have for several years prohibited the landfilling of
lead acid batteries, major appliances, waste oil and yard waste. On
January 1, 1995, Wisconsin substantially limited the landfilling of
certain plastic, aluminum, glass and steel containers, newsprint and
magazines, foam polystyrene packaging, office paper and waste tires. The
enactment of regulations reducing the volume and types of wastes available
for transport to and disposal in landfills has reduced the volume of waste
disposed of by the Company's continuing customers. The Company has
responded to these trends by increasing its emphasis on providing
recycling services to its customers.
Item 2. Property
The Company owns solid waste landfills, solid waste collection
operations, recycling facilities, solid waste transfer facilities, a TSF
and other operating facilities in Wisconsin, Missouri, Illinois, Michigan
and Minnesota. The Company leases its executive offices in suburban
Milwaukee under a lease expiring in 1998. The Company also leases an
office in Fond du Lac, Wisconsin under a seven-year lease and leases
several other offices and truck maintenance facilities, each under short
term leases of one year or less. The Company also leases approximately
125 acres of property occupied by its Superior Oak Ridge landfill in
Ballwin, Missouri. See - "Superior Oak Ridge Landfill." All of the real
estate owned by the Company provides collateral for the Company's
revolving bank credit facility. See Note 6 of Notes to Consolidated
Financial Statements. The Company believes that its existing facilities
are generally adequate for its current needs and requirements.
The Company has numerous waste collection vehicles, trucks and
other equipment used in the removal, transportation and disposal of
wastewater biosolids and numerous bulldozers, compactors, earthmovers and
related heavy equipment and vehicles used in landfill operations.
Item 3. Legal Proceedings
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 was 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, agreed to a settlement with the WDNR,
which was approved by the United States District Court in August 1996. 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. In 1996, the
subsidiaries and most of the other defendants in the private party lawsuit
agreed to the terms of a settlement with the plaintiffs. 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 paid the full
amount of the subsidiaries' share of the settlements.
In connection with its acquisition of the Superior Glacier Ridge
landfill in March 1993, the Company was required by the seller to accept
the transfer of an adjacent closed landfill that is listed on the National
Priority List ("NPL"). A remedial investigation performed by the PRPs
(including the Company) has determined the scope and nature of the con-
tamination at the site and the PRPs have submitted a feasibility study to
the United States Environmental Protection Agency ("EPA") and WDNR which
describes the alternatives for remediating the associated groundwater
contamination. The WDNR has 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 December 31, 1996, the estimated one-time capital cost for the
additional extraction wells was $107,000, and the estimated annual
operating, maintenance and monitoring costs for the new extraction wells,
the landfill cap, the existing gas extraction system and groundwater
monitoring system was $90,000. The operating duration of the proposed
remedial actions 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. Since
December 1995, certain other PRP's have joined into the settlement
agreement. Under the settlement agreement two generator PRPs agreed to
contribute a total of 38% 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 former owners of
the closed landfill. The seller of the Superior Glacier Ridge landfill has
agreed to indemnify the Company against up to $2.8 million for any site
liabilities, including the annual costs of operating, maintaining and
monitoring the closed landfill and any costs that the Company may incur as
a PRP. The seller's potential indemnification obligation is collateralized
currently by 248,552 shares of Common Stock held in escrow. Additionally,
the Company has established specific financial reserves which it believes
are adequate to cover the estimate of the identified remediation costs
which may exceed the amount indemnified. However, there can be no
assurance that the Company's ultimate financial obligations related to
this remediation will not exceed its reserves, which could have a material
adverse effect on the Company's results of operations and financial
condition.
The Company's 1993 federal income tax return is currently the
subject of an Internal Revenue Service audit.
The Company is also a party to various legal proceedings arising
in the ordinary course of its businesses. 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. In the normal course of its businesses, and as a result of the
extensive government regulation of the solid waste services industry, the
Company may periodically become subject to various judicial and
administrative proceedings involving federal, state or local governmental
agencies. From time to time the Company also may be subjected to actions
brought by citizens groups in connection with the permitting of landfills
or transfer stations (see "Solid waste Disposal - Superior Glacier Ridge
Landfill"), or alleging violations of the permits pursuant to which the
Company operates. The Company also may be subject to claims for personal
injury or property damage arising out of accidents involving its vehicles
or at its facilities.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's
shareholders during the fourth quarter of 1996.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "SUPR". The following table sets forth the range
of high and low last sale prices for the Common Stock for the period from
March 8, 1996, the date of its initial public stock offering, through
December 31, 1996. The prices below may reflect interday trading prices
and may include intradealer prices without retail mark up, mark down, or
commission and may not reflect actual transactions.
High Low
1996
First quarter ended March 31, 1996
(from March 8, 1996) $15 $12 3/4
Second quarter ended June 30, 1996 $19 $12 3/4
Third quarter ended September 30, 1996 $17 3/4 $13 1/4
Fourth quarter ended December 31, 1996 $20 1/2 $15 1/2
At March 10, 1997, there were approximately 240 shareholders of
record of the Company's common stock and, based on security position
listings, the Company believes it has in excess of 2,800 beneficial
owners.
The Company has never paid cash dividends on its Common Stock
and has no present intention to pay cash dividends. In addition, the
Company's credit facility prohibits the payment of cash dividends on its
Common Stock. It is the Company's intention to retain earnings to finance
the expansion of its business.
Item 6. Selected Consolidated Financial and Operating Data
The following table presents selected consolidated statement of
operations, balance sheet and other operating data of the Company for the
periods presented. The following selected financial and operating data
were derived from the Company's consolidated financial statements, which
have been audited by Ernst & Young LLP, independent auditors. The
selected consolidated financial data below should be read in conjunction
with the Company's audited consolidated financial statements and notes
thereto at December 31, 1995 and 1996 and for the three years in the
period ended December 31, 1996 and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Years ended December 31,(1)
1992 1993 1994 1995 1996
Statement of Operations Data: (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . $44,943 $67,304 $76,297 $92,592 $109,659
Cost of Operations . . . . . . . . . . . . . . . . . 28,430 39,262 46,417 49,133 57,187
Selling, general and administrative expenses . . . . 8,425 12,106 15,054 15,013 17,272
Depreciation and amortization . . . . . . . . . . . . 4,131 6,180 9,488 12,704 15,511
-------- -------- -------- -------- --------
Operating income from continuing operations . . . . . 3,957 9,756 5,338 15,742 19,689
Interest expense . . . . . . . . . . . . . . . . . . (1,293) (1,531) (2,245) (2,829) (654)
Other income . . . . . . . . . . . . . . . . . . . . 165 228 27 610 1,017
Income from continuing operations before income taxes 2,829 8,453 3,120 13,523 20,052
Income taxes(2) . . . . . . . . . . . . . . . . . . . 1,431 3,343 1,389 5,609 8,271
------- -------- -------- -------- -------
Income from continuing operations(2) . . . . . . . . 1,398 5,110 1,731 7,914 11,781
Income (loss) from discontinued operations, net of
income tax(3) . . . . . . . . . . . . . . . . . . . 108 56 (5,735) (329) --
------- -------- -------- -------- ------
Net income (loss)(2) $1,506 $5,166 $(4,004) $7,585 $11,781
======= ======== ======== ======== ======
Earnings per share from continuing operations(2) $0.18 $0.42 $0.13 $0.59 $0.72
======= ======== ======== ======== ======
Earnings (loss) per share(2) $0.19 $0.42 $(0.30) $0.56 $0.72
======= ======== ======== ======== ======
Weighted average shares outstanding . . . . . . . . . 7,921 12,213 13,534 13,474 16,444
Other Operating Data:
EBITDA(4) . . . . . . . . . . . . . . . . . . . . . . $8,088 $15,936 $14,826 $28,446 $35,200
December 31,
<CAPTION>
1992 1993 1994 1995 1996
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . $971 $3,022 $2,034 $1,373 $16,389
Working capital (deficiency) . . . . . . . . . . . . (4,391) 8,906 12,818 4,710 17,026
Property and equipment, net . . . . . . . . . . . . . 31,259 76,546 80,592 81,026 106,960
Total assets . . . . . . . . . . . . . . . . . . . . 47,273 116,398 126,785 122,763 175,806
Long-term debt, net of current maturities . . . . . . 10,382 27,388 35,794 20,168 1,388
Series A convertible preferred stock . . . . . . . . --- 15,000 15,000 15,000 ---
Total common shareholders' investment . . . . . . . . 8,185 32,922 29,331 36,002 103,868
____________
(1) All financial data for periods ending prior to and on December 31,
1994 have been restated to reflect separately the results of
discontinued operations.
(2) Substantially all of the Company's predecessors were S Corporations
for federal and state income tax purposes through December 31, 1992.
As a result, the responsibility for the Company's income taxes for
1992 was passed through to its shareholders rather than being a
corporate responsibility. Income taxes, income from continuing
operations, net income and earnings per share for 1992 reflect income
tax expense on a pro forma basis as if the Company was a C
Corporation.
(3) Includes estimated losses on disposition of discontinued operations,
net of income taxes of $5,042,000 and $329,000 for 1994 and 1995,
respectively.
(4) EBITDA is defined as operating income from continuing operations,
plus depreciation and amortization.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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 December 31, 1996,
solid waste operations consisted of seven Company-owned solid waste
landfills, three managed third party landfills, twenty three solid waste
collection operations, eleven 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:
1994 1995 1996
Collection 54% 48% 45%
Disposal 18% 16% 22%
Recycling 5% 15% 13%
Other integrated waste services 23% 21% 20%
----- ----- -----
100% 100% 100%
===== ===== =====
The Company's strategy for future revenue growth anticipates an
accelerated acquisition program and continued internal growth.
Results of Operations
Overview
In 1996, revenues increased 18.4% to $109.7 million compared to
$92.6 million in 1995 due primarily to increased volumes of waste received
at the Company's landfills. Income from continuing operations increased
48.9% to $11.8 million in 1996 from $7.9 million in 1995. Earnings per
share from continuing operations increased 22.0% to $0.72 for 1996 from
$0.59 per share for 1995. The weighted average number of common and
common equivalent shares outstanding were 16.4 million for 1996 and 13.5
million for 1995.
The following table sets forth for the years indicated the
percentage of revenues represented by the individual line items reflected
in the Company's condensed consolidated statements of operations:
<TABLE>
<CAPTION>
Period-to-Period
Percentage Relationship Change
to Total Revenues Years Ended
Years Ended December 31, December 31,
1995 vs. 1996 vs.
1994 1995 1996 1994 1995
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 21.4% 18.4%
Cost of operations 60.9 53.1 52.1 5.8% 16.4%
Selling, general and administrative expenses 19.7 16.2 15.8 0.0% 15.0%
Depreciation and amortization 12.4 13.7 14.1 33.9% 22.1%
---- ---- ---- ---- ----
Operating income from continuing operations 7.0 17.0 18.0 195.0% 25.1%
Interest expense (2.9) (3.0) (0.6) 26.0% (76.9%)
Other income -- 0.6 0.9 2,159.2% 66.7%
---- ---- ---- -------- -----
Income from continuing operations before 4.1 14.6 18.3 333.4% 48.3%
income taxes
Income taxes 1.8 6.1 7.6 303.8% 47.5%
---- ---- ----- ------- -----
Income from continuing operations 2.3% 8.5% 10.7% 357.1% 48.9%
==== ==== ===== ======= =====
Revenues
</TABLE>
Revenues increased approximately $17.1 million, or 18.4%, to
$109.7 million in 1996 from $92.6 million in 1995. This increase was
attributable primarily to a 66.6% increase in volumes of wastes collected
and disposed at the Company's landfills. Revenues for 1996 compared to
1995 increased $7.6 million from the impact of businesses acquired. These
increases were achieved despite a decrease of $3.8 million in revenues
from recyclable waste paper sales for 1996 compared to 1995. Daily
disposal volume at the Company's landfills rose to an average of almost
6,400 tons per day in 1996 compared to an average of 3,800 tons per day in
1995. The higher landfill volume was the result of increased volumes
received from a disposal contract for a customer's Milwaukee collection
operations, increased volumes of special waste streams from the Company's
project-driven other integrated waste services, increased third party
disposal volume and higher solid waste volumes from its collection
operations. The Company expects to continue to increase disposal volumes
in 1997, but at a somewhat slower rate of growth.
The $3.8 million decrease in revenues in 1996 from sales of
recyclable waste paper products was comprised of an over $5.6 million
decrease in recycling revenues resulting from a 66% decline in prices
received for these products compared to 1995, partially offset by a 28%
increase in volumes of recyclable waste paper products processed and sold
in 1996 compared to 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 will mitigate in 1997 since average resale prices are expected to
be similar to 1996 levels. The Company's recycling operations remained
profitable 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. Recycling as a percentage of
total revenue decreased to 13% in 1996 from 15% in 1995 as a result of the
decreased prices received for recyclable waste paper products. An
increase in disposal revenue as a percentage of total revenue from 16% in
1995 to 22% in 1996 should result in a more stable revenue base less
affected by changing market conditions for recyclables.
The Company acquired businesses with expected annualized
revenues of approximately $21 million during the course of 1996, with the
majority of the businesses acquired in late third quarter and early fourth
quarter. The Company expects its revenues and income from operations to
increase in 1997 in comparison to those reported historically as a result
of the consummation of these transactions.
Revenues increased approximately $16.3 million, or 21.4%, to
$92.6 million in 1995 from $76.3 million in 1994. This increase was
attributable primarily to the impact of businesses acquired, a significant
increase in the volumes and prices received for recyclable waste products,
primarily wastepaper, the opening of the Superior Emerald Park landfill in
November 1994, the impact of increased collection and disposal volumes
resulting from new municipal and commercial contracts, and price increases
for the Company's environmental remediation and wastewater biosolids project-
related services resulting from its implementation of an improved job
costing system.
Cost of Operations
Cost of operations increased $8.1 million, or 16.4% for 1996
compared to 1995. As a percentage of revenues, cost of operations
improved to 52.1% from 53.1% in 1995. The decrease in cost of operations
as a percentage of revenues resulted primarily from cost efficiencies
generated from vertical expansions at two of the Company's landfills. 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 January 1, 1996.
Cost of operations increased $2.7 million, or 5.8%, for 1995
compared to 1994. As a percentage of revenues, cost of operations
improved to 53.1% in 1995 from 60.9% in 1994. This improvement was the
result of the sale of non-profitable operations, cost controls including
the Company's full implementation of its improved job costing system used
to manage its project-based other integrated waste services, a change in
the mix of project-related other integrated waste services to higher
margin services and new customer contracts.
Selling, General and Administrative Expense ("SG&A")
SG&A increased $2.3 million, or 15.0%, for 1996 compared to
1995. As a percentage of revenues, SG&A decreased to 15.8% in 1996 from
16.2% in 1995. The percentage decline in SG&A was due to the significant
increase in disposal revenues without a need to correspondingly increase
SG&A support functions. 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.
SG&A remained constant at $15.0 million in both 1995 and 1994,
and decreased as a percentage of revenues to 16.2% in 1995 from 19.7% in
1994. The percentage decline in SG&A was due to cost and workforce
reductions and operational consolidations.
Depreciation and Amortization
Depreciation and amortization increased $2.8 million, or 22.1%,
for 1996 compared to 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 increased to 14.1% in 1996 compared to 13.7% in 1995,
reflecting the increase in disposal revenue as a percentage of total
revenue which resulted in additional depletion costs, and also the
depreciation and amortization of the additional assets of businesses
acquired.
Depreciation and amortization increased by $3.2 million, or
33.9%, for 1995 compared to 1994 primarily as a result of the full year
effect of airspace depletion at the Superior Emerald Park and Superior FCR
landfill sites and the depreciation and amortization of the additional
assets of businesses acquired during 1994 and 1995.
Interest Expense
Interest expense decreased $2.2 million, or 76.9%, for 1996
compared to 1995. Interest expense as a percentage of revenues was 0.6% in
1996 compared to 3.0% in 1995. The reduction in interest expense was due
to 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.
Interest expense increased $584,000 to $2.8 million in 1995 from
$2.2 million in 1994. Interest expense as a percentage of revenues was
3.0% in 1995 compared to 2.9% in 1994. This increase was due to higher
interest rates paid by the Company on its outstanding indebtedness, the
allocation of interest expense to its discontinued operations in 1994 and
the capitalization of $332,000 of interest during the 1994 construction
phase of its Emerald Park landfill.
Income Taxes
The Company's effective tax rate decreased to 41.2% for 1996
compared to 41.5% in 1995 and 44.5% in 1994. The decreases were 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 December 31, 1996
reflected approximately $16.4 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 December 31, 1996, the Company had approximately $2.6 million
of long-term and short-term borrowings outstanding and approximately $2.3
million in letters of credit. At December 31, 1996, the ratio of the
Company's long-term debt to total capitalization was 1.3% 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 twelve solid waste businesses, including
two landfills. 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 $15.3 million in cash (net of
cash acquired), $8.3 million in future payments or notes payable, and
114,381 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
will likely be provided from one or more of the following sources:
existing cash balances, cash flow from operations and/or borrowings under
the Company's revolving credit facility. Substantially all of the $50
million facility was available at December 31, 1996. The revolving credit
facility requires the Company to maintain certain financial ratios and
satisfy other requirements, including a prohibition on the payment of cash
dividends. Availability under this facility is based on the Company's
liquidity, cash flow and leverage. Interest is payable monthly based on
the agent bank's base rate or quarterly based on a Eurodollar borrowing
rate, depending upon how advances are drawn, plus a margin. The facility
was increased to $110 million in March, 1997, and matures in March, 2002.
Capital expenditures for 1997 currently are expected to be
approximately $18 million compared to $16.5 million in 1996, which amounts
are primarily allocated to continued spending for landfill expansions. The
Company intends to fund future 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.
The Company also has material financial obligations relating to
closure and post-closure costs or remediation of disposal facilities it
operates or for which it is or may become responsible. While the precise
amounts of these future obligations cannot be determined, at December 31,
1996, the Company estimated the total costs (on a current dollar as
opposed to a discounted present value basis) to be approximately $46
million for final closure of its operating facilities and post closure
monitoring costs pursuant to applicable regulations (generally for a term
of 30 to 40 years after final closure), as well as ongoing remediation.
At December 31, 1996, the Company had accrued $28.1 million for such
projected costs. The Company will provide additional accruals based on
engineering estimates of consumption of permitted landfill airspace over
the useful lives of its landfills. At December 31, 1996, the Company
satisfied its financial assurance obligations to various regulatory
agencies for facilities closure and post-closure obligations, in
Wisconsin, through an environmental protection program underwritten by a
large insurance carrier, in Minnesota, through the use of trust funds on
deposit and, in Missouri, through the use of a corporate guarantee.
Net cash provided by operations for the year ended December 31,
1996 increased to $29.8 million from $25.7 million during 1995. The
increase was primarily due to the $4.2 million increase in net income as
well as the increase in depreciation and amortization, a noncash expense,
of $2.8 million between 1995 and 1996.
Net cash used in investing activities for the year ended
December 31, 1996 increased to $31.5 million from $9.0 million for the
year ended December 31, 1995. The increase was primarily due to $15.3
million of net cash payments for businesses acquired in 1996 compared to
$1.7 million in 1995. Purchases of property and equipment increased $5.0
million to $16.5 million for 1996, primarily due to landfill expansions.
The increase was also due to the absence in 1996 of $4.3 million proceeds
from the 1995 sale of assets of discontinued operations.
Proceeds from the sale of assets of discontinued operations in
1996 were $562,000.
Net cash provided by financing activities in the year ended
December 31, 1996 totaled $16.8 million compared to net cash used in
financing activities of $17.4 million in the year ended December 31, 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.
Quarterly Results
The following table presents the Company's unaudited consolidated
quarterly results and the percentages of revenues represented by the
individual line items reflected in the Company's consolidated statements
of operations for each of the four quarters in the years ended December
31, 1996 and December 31, 1995. This information has been presented on
the same basis as the Company's audited consolidated financial statements
and, in the Company's opinion, contains all necessary adjustments
(consisting only of normal recurring accruals) to present fairly the
Company's unaudited quarterly results when read in conjunction with the
Company's audited consolidated financial statements and notes thereto.
These interim operating results, however, are not necessarily indicative
of the Company's results for any future period.
<TABLE>
<CAPTION>
Three months ended
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $22,315 100.0% $26,553 100.0% $29,719 100.0% $31,072 100.0%
Expenses:
Cost of operations 12,378 55.4 13,646 51.4 14,887 50.1 16,276 52.4
Selling, general and administrative 4,060 18.2 4,005 15.1 4,363 14.7 4,844 15.6
expenses
Depreciation and amortization 3,432 15.4 3,900 14.7 3,853 13.0 4,326 13.9
------- ----- ------ ----- ------ ----- ------ -----
Operating income from continuing 2,445 11.0 5,002 18.8 6,616 22.3 5,626 18.1
operations
Other income:
Interest expense (390) (1.8) (78) (0.3) (69) (0.2) (117) (0.4)
Other income 268 1.2 234 0.9 314 1.0 201 0.6
------ ----- ------ ------ ------ ------ ------ -----
Income from continuing operations 2,323 10.4 5,158 19.4 6,861 23.1 5,710 18.4
before income taxes
Income taxes 958 4.3 2,128 8.0 2,830 9.5 2,355 7.6
------ ----- ------ ------ ------ ------ ------ -----
Net income $1,365 6.1% $3,030 11.4% $4,031 13.6% 3,355 10.8%
====== ===== ====== ====== ====== ====== ====== =====
Earnings per share $0.10 $0,18 $0.24 $0.19
====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three months ended
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $20,341 100.0% $23,745 100.0% $25,076 100.0% $23,430 100.0%
Expenses:
Cost of operations 11,259 55.4 12,277 51.7 12,719 50.7 12,878 55.0
Selling, general and administrative 3,643 17.9 3,556 15.0 3,886 15.5 3,928 16.8
expenses
Depreciation and amortization 2,776 13.6 3,235 13.6 3,338 13.3 3,355 14.3
------- ------- ------- ----- ------- ----- ----- -----
Operating income from continuing 2,663 13.1 4,677 19.7 5,133 20.5 3,269 13.9
operations
Other income:
Interest expense (851) (4.2) (799) (3.4) (637) (2.5) (542) (2.3)
Other income 423 2.1 (59) (0.2) 93 0.3 153 0.7
------- ------- ------- ----- ------ ----- ----- -----
Income from continuing operations 2,235 11.0 3,819 16.1 4,589 18.3 2,880 12.3
before income taxes
Income taxes 944 4.6 1,577 6.6 1,886 7.5 1,202 5.1
------- ------- ------- ----- ----- ----- ----- -----
Income from continuing operations 1,291 6.4 2,242 9.5 2,703 10.8 1,678 7.2
Income (loss) from discontinued
operations, net of income tax 5 -- 12 -- (138) (0.6) (208) (0.9)
------- ------- ------- ------ ------ ------ ------ -----
Net income $1,296 6.4% $2,254 9.5% $2,565 10.2% $1,470 6.3%
======= ======= ======= ====== ====== ====== ======= =====
Earnings per share from continuing
operations $.09 $0.17 $0.20 $0.13
======= ====== ====== ======
Earnings per share $.09 $0.17 $0.19 $0.11
======= ====== ====== ======
</TABLE>
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. Revenues increased during the
fourth quarter of 1996 compared to the third quarter due to the revenue
from acquisitions closed by the Company at the end of the third quarter
and the beginning of the fourth quarter, masking somewhat the effect of
seasonality. Also, certain operating and other fixed costs remain
relatively constant throughout the calendar year, resulting in a similar
seasonality of operating income.
Item 8. Financial Statements and Supplementary Data
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
Superior Services, Inc.
We have audited the accompanying consolidated balance sheets of Superior
Services, Inc. (the Company) as of December 31, 1995 and 1996, and the
related consolidated statements of operations, shareholders' investment
and cash flows for each of the three years in the period ended December
31, 1996. Our audits also include the financial statement schedules listed
in the Index at Item (14a). These financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of the Company at December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
January 31, 1997
<PAGE>
Superior Services, Inc.
Consolidated Balance Sheets
December 31
1995 1996
(In Thousands, Except Share
and Per Share amounts)
Assets
Current assets:
Cash and cash equivalents $1,373 $16,389
Trade accounts receivable 14,518 18,339
Prepaid expenses and other
current assets 2,286 2,750
Net assets of discontinued
operations 849 --
------ ------
Total current assets 19,566 37,478
Property and equipment, net 81,026 106,960
Restricted funds held in trust 7,009 8,035
Other assets 4,202 3,994
Intangible assets, net 10,960 19,339
------ ------
Total assets $122,763 $175,806
======= =======
Liabilities and shareholders'
investment
Current liabilities:
Current maturities of long-term
debt $3,251 $1,253
Trade accounts payable 4,737 6,305
Accrued payroll and related
expenses 2,329 3,127
Other accrued expenses 3,494 9,537
Accrued income taxes 1,045 230
------ ------
Total current liabilities 14,856 20,452
Long-term debt, net of current
maturities 20,168 1,388
Disposal site closure and long-term
care obligation 20,079 28,054
Deferred income taxes 11,581 11,215
Other liabilities 5,077 10,829
Commitments and contingencies
(Note 10)
Convertible preferred stock,
$.01 par value; 500,000 shares
authorized; 311,789 issued and
outstanding in 1995; none
outstanding in 1996 15,000 --
Shareholders' investment:
Common stock, $.01 par value;
100,000,000 shares authorized;
9,886,815 and 17,021,449 issued
and outstanding in 1995 and 1996,
respectively
Additional paid-in capital 99 170
Retained earnings 24,001 80,015
Total shareholders' investment 11,902 23,683
------ ------
Total liabilities and shareholders'
investment 36,002 103,868
------ ------
$122,763 $175,806
======= =======
The accompanying notes are an integral part of these financial statements.
Superior Services, Inc.
Consolidated Statements of Operations
Year ended December 31
1994 1995 1996
(In Thousands, Except Share and
Per Share amounts)
Revenues $76,297 $92,592 $109,659
Expenses:
Cost of operations 46,417 49,133 57,187
Selling, general and administrative
expenses 15,054 15,013 17,272
Depreciation and amortization 9,488 12,704 15,511
------ ------ ------
70,959 76,850 89,970
------ ------ ------
Operating income from continuing
operations 5,338 15,742 19,689
Other income (expense):
Interest expense (2,245) (2,829) (654)
Other income 27 610 1,017
------ ------ ------
Income from continuing operations
before income taxes 3,120 13,523 20,052
Provision for income taxes 1,389 5,609 8,271
------ ------ -------
Income from continuing operations 1,731 7,914 11,781
Discontinued operations (Note 3):
Loss from discontinued operations,
net of income tax (693) -- --
Loss on disposition of discontinued 6
operations, net of income tax (5,042) (329) --
------ ------ -------
Net income (loss) $(4,004) $7,585 $11,781
====== ======= =======
Earnings per share:
Income from continuing operations $.13 $.59 $.72
Loss from discontinued operations (.43) (.03) -
Net income (loss) $(.30) $.56 $.72
======= ======= =======
Weighted average number of common and
common equivalent shares outstanding 13,533,582 13,474,034 16,444,257
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<TABLE>
Superior Services, Inc.
Consolidated Statements of Shareholders' Investment
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
(In Thousands, Except Share Amounts)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 9,943,622 $99 $24,502 $8,321 $32,922
Net loss -- -- -- (4,004) (4,004)
Issuance of common stock 34,098 1 412 --- 413
--------- --- ------ ----- ------
Balance at December 31, 1994 9,977,720 100 24,914 4,317 29,331
Net income -- -- -- 7,585 7,585
Other (90,905) (1) (913) -- (914)
--------- ---- ------ ------ ------
Balance at December 31, 1995 9,886,815 99 24,001 11,902 36,002
Net income -- -- -- 11,781 11,781
Issuance of common stock:
Shares sold to public, net of
offering costs 3,532,500 35 37,195 --- 37,230
Acquisitions 114,381 1 1,893 --- 1,894
Conversion of preferred stock 3,317,890 33 14,967 --- 15,000
Stock options 169,863 2 1,334 --- 1,336
Tax benefit of stock options -- -- 625 --- 625
---------- ----- ------- ------- --------
Balance at December 31, 1996 17,021,449 $170 $80,015 $23,683 $103,868
========== ===== ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
Superior Services, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31
1994 1995 1996
(In Thousands)
<S> <C> <C> <C>
Operating activities $(4,004) $7,585 $11,781
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Loss on disposition of discontinued operations 5,940 --- ---
Depreciation and amortization 9,488 12,704 15,511
Deferred income taxes (1,556) (557) (454)
(Gain) loss on sale of assets 630 (204) 63
Change in operating assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (1,556) (455) (1,651)
Prepaid expenses and other current assets 14 2,661 333
Accounts payable and accrued expenses 1,075 2,429 1,614
Disposal site closure and long-term care obligation 397 2,628 2,265
Other -- (1,101) 290
------ -------- -------
Net cash provided by operating activities 10,428 25,690 29,752
Investing activities
Acquisition of businesses and landfill under
development, net of cash acquired (5,323) (1,651) (15,273)
Purchases of property and equipment (15,923) (11,552) (16,546)
Proceeds from sale of discontinued operations --- 4,295 562
Proceeds from sale of property and equipment 2,047 1,471 661
Increase in restricted funds held in trust (1,755) (1,549) (925)
-------- ------- --------
Net cash used in investing activities (20,954) (8,986) (31,521)
Financing activities
Net proceeds from initial public stock offering --- --- 37,230
Issuance of stock under employee stock plans --- --- 1,961
Proceeds from long-term debt 20,536 5,645 ---
Payments of long-term debt (10,998) (23,010) (22,406)
-------- ------- --------
Net cash provided by (used in) financing activities 9,538 (17,365) 16,785
-------- ------- --------
Net increase (decrease) in cash and cash equivalents (988) (661) 15,016
Cash and cash equivalents at beginning of year 3,022 2,034 1,373
-------- ------- --------
Cash and cash equivalents at end of year $2,034 $1,373 $16,389
======== ======= ========
The accompanying notes are an integral part of these financial statements
</TABLE>
Superior Services, Inc
Notes to Consolidated Financial Statements
December 31, 1996
1. Organization and Basis of Presentation
Superior Services, Inc. (Superior or the Company) is an integrated waste
management services company providing a range of collection, transfer,
transportation, disposal and recycling services to generators of solid
waste and special waste, primarily in Wisconsin, Illinois, Minnesota,
Michigan and Missouri.
The accompanying consolidated financial statements include the accounts of
Superior and its subsidiaries. All significant intercompany transactions
and balances have been eliminated.
2. Accounting Policies and Selected Balance Sheet Information
Revenue Recognition
The Company generates revenue principally by providing collection,
transportation, recycling and disposal services to generators of solid and
special waste. Revenues are recorded as services are provided. Certain
customers are billed in advance and, accordingly, recognition of the
related revenues is deferred until the services are provided.
The Company grants credit to the majority of its customers. Potential loss
amounts associated with the granting of credit are included in
management's estimate of the allowance for doubtful accounts, $676,000 and
$583,000 at December 31, 1995 and 1996, respectively. It is not the policy
of the Company to require collateral from its customers in order to obtain
credit.
Property and Equipment
Property and equipment are stated at cost. Depreciation for financial
reporting purposes is provided using the straight-line method over the
estimated useful lives of the respective assets.
Landfill costs, including engineering and other professional fees, are
amortized using the units-of-production method, which is calculated using
the total units of airspace filled during the year in relation to total
estimated permitted airspace capacity. The determination of airspace usage
and remaining airspace is an essential component in the calculation of
landfill asset depletion. This determination is performed by conducting
annual topographic surveys, typically done in the fourth quarter using
aerial survey techniques, of the Company's landfill facilities to
determine remaining airspace in each landfill. The surveys are reviewed by
the Company's consulting engineers, the Company's internal engineering
staff and its accounting staff. The reevaluation process did not
significantly impact results of operations for any year presented.
Engineering and legal fees paid to third parties incurred to obtain a
disposal facility permit are capitalized as landfill costs and amortized
over the estimated related airspace capacity. These costs are not
amortized until the permit is obtained and operations have commenced. If
the Company determines that the facility cannot be developed, these costs
are charged to expense.
2. Accounting Policies and Selected Balance Sheet Information
(continued)
Intangible Assets
Intangible assets primarily consist of goodwill and covenants not to
compete, acquired in business acquisitions. Goodwill is being amortized
over a 15- to 25-year period. Covenants not to compete are being amortized
over 3- to 10-year periods. Should events or circumstances occur
subsequent to the acquisition of a business which bring into question the
realizable value or impairment of the related intangible asset, the
Company will evaluate the remaining useful life and balance of the asset
and make appropriate adjustments.
Intangible assets consist of the following:
December 31
1995 1996
(In Thousands)
Goodwill $7,586 $16,391
Covenants not to compete 4,317 5,727
Other 2,022 2,600
------ -------
13,925 24,718
Less accumulated amortization 2,965 5,379
------ -------
$10,960 $19,339
======= =======
Other Accrued Expenses
Other accrued expenses consist
of the following:
December 31
1995 1996
(In Thousands)
Real estate and personal
property taxes $643 $1,170
Liabilities for covenants
not-to-compete 466 3,693
Deferred revenue 889 1,965
Insurance 1,240 1,229
Other 256 1,480
------ ------
$3,494 $9,537
====== ======
Disposal Site Closure and Long-Term Care
The Company also has material financial obligations relating to closure
and post-closure costs (long-term care) or remediation of disposal
facilities it operates or for which it is or may become responsible. While
the precise amounts of these future obligations cannot be determined, at
December 31, 1996, the Company estimates the total costs to be
approximately $46 million for remediation, final closure of its current
operating facilities and post-closure monitoring costs pursuant to
applicable regulations (generally for a term of 30 to 40 years after final
closure). The Company's estimate of these costs is expressed in current
dollars and is not discounted to reflect anticipated timing of future
expenditures. The Company had accrued approximately $20,079,000 and
$28,054,000 for such projected costs at December 31, 1995 and 1996,
respectively. The Company will provide additional accruals based on
engineering estimates of consumption of airspace over the useful lives of
the facilities. Restricted funds held in trust at December 31, 1995 and
1996, consist of amounts on deposit with various regulatory bodies and an
environmental protection policy underwritten by a large insurance carrier
which support the Company's financial assurance obligations for its
facilities closure and post-closure cost.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, all short-term
investments with maturities of three months or less are considered cash
equivalents. Supplemental disclosures of cash flow information for each of
the three years are as follows:
December 31
1994 1995 1996
(In Thousands)
Interest paid $2,393 $2,949 $ 800
Income taxes paid 1,820 4,680 8,535
The effects of noncash transactions related to business combinations are
disclosed in Note 4.
Earnings Per Share
Earnings per share (EPS) computations are based on the weighted average
number of shares of common stock outstanding and include the dilutive
effect of stock options using the treasury stock method. The weighted
average number of shares of common stock at December 31, 1994 and 1995
includes the effect of the issuance of 3,317,890 shares of common stock
upon the automatic conversion of the outstanding Series A Convertible
Preferred Stock upon closing of the public offering in March 1996. Shares
of common stock held in escrow pursuant to the indemnification agreements
discussed in Note 10 are included in the number of shares issued and
outstanding for all years presented. The weighted average number of shares
of common stock has been adjusted to reflect the one-for-two reverse stock
split, effective upon the closing of the public offering (See Note 7).
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, stock options granted by the Company during 1995 (12
months immediately preceding the initial filing of the Registration
Statement) have been included as common stock equivalents as if they were
outstanding for all periods presented, whether or not dilutive, because
the sale or option price per share was below the IPO price per share.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, investments in closure trust funds, trade
payables and debt instruments. The book values of cash and cash
equivalents, trade receivables, investments in closure trust funds and
trade payables are considered to be representative of their respective
fair values. None of the Company's debt instruments that are outstanding
as of December 31, 1996, have readily ascertainable market values;
however, the carrying values are considered to approximate their
respective fair values. See Note 6 for the terms and carrying values of
the Company's various debt instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain 1994 and 1995 amounts have been reclassified to conform with the
1996 presentation.
3. Discontinued Operations
As of September 30, 1994, Superior made the determination that
substantially all of its construction and biomedical waste operations
would be sold or closed in order to focus on its solid and special waste
operations. The sale or disposition of construction operations was
completed by the end of 1995. The sale of biomedical waste operations was
completed in the first quarter of 1996.
During 1995, the equipment related to the construction operations was sold
at auction for approximately $4.3 million in cash. The estimated loss on
disposition of the discontinued operations for the year ended December 31,
1995, was $329,000, net of a tax benefit of $220,000, resulting from a
change in estimates regarding the realizable value of assets held for sale
and operating losses through the date of disposal.
The detail of net assets related to the discontinued operations which have
been segregated in the December 31, 1995, consolidated balance sheet is as
follows:
(In Thousands)
Accounts receivable $835
Property and equipment 881
Other assets 54
Accounts payable (221)
Accrued liabilities (461)
Long-term obligations (239)
-----
$849
=====
The operating results have been reported separately as discontinued
operations in the consolidated statements of operations, as follows:
December 31
1994 1995
(In Thousands)
Revenues $7,271 $---
Interest allocated 295 ---
Loss before income taxes (1,064) ---
Income tax benefit (371) ---
Net loss from discontinued
operations (693) ---
Estimated loss on disposition
of discontinued operations,
net of tax (5,042) (329)
Interest expense has been allocated based on the ratio of the operating
assets of the discontinued operations to the total operating assets of
Superior.
The loss on disposition of the discontinued operations as of December 31,
1994, includes approximately $4,650,000 of estimated losses on
disposition, net of income taxes of $1,290,000, and these operations'
operating losses incurred in the fourth quarter of 1994 and an estimate of
losses through the date of expected disposition of approximately $392,000,
net of income taxes of approximately $209,000.
4. Acquisitions
During 1996, the Company acquired eleven businesses and two operational
landfills which were accounted for as purchases. Aggregate consideration
for these acquisitions consisted of $15,273,000 in cash (net of cash
acquired), $8,280,000 in notes payable and 114,381 shares of common stock.
The results of operations of the acquired businesses have been included in
the Company's consolidated financial statements from their respective
acquisition dates.
The unaudited pro forma results of operations below assume that the
acquisitions had occurred at the beginning of each period presented. In
addition to combining the historical results of all the entities, the pro
forma calculations include adjustments for amortization of various
intangibles acquired in conjunction with the acquisitions. However, no
adjustments have been reflected for nonrecurring expenses as a result of
the combination of the entities.
Year ended December 31
1995 1996
(Unaudited and In Thousands)
Total net revenue $113,913 $125,031
Net income 8,305 12,779
Earnings per share .61 .77
During 1995, the Company acquired four businesses which were accounted for
as purchases. Aggregate consideration for these acquisitions consisted of
$1,651,000 in cash and $1,609,000 in notes payable.
During 1994, the Company acquired six businesses, including one operating
landfill, which were accounted for as purchases. Aggregate consideration
for these acquisitions consisted of $5,323,000 in cash and 34,098 shares
of common stock.
As an integral part of certain acquisitions, the former shareholders
signed noncompetition agreements and, in certain situations, key
management members entered into employment agreements to continue in the
management of these businesses. Costs associated with these agreements are
charged to operations over their respective lives.
During 1995, as the result of final valuations pertaining to previous
acquisitions, 90,905 shares of common stock were returned to the Company.
The Company retired these shares.
5. Property and Equipment
Property and equipment consists of the following:
December 31
1995 1996
(In Thousands)
Land and land improvements $49,210 $74,771
Buildings and leasehold
improvements 11,081 12,520
Vehicles and equipment 59,428 71,254
------- -------
119,719 158,545
Less accumulated depreciation and
amortization 38,693 51,585
------- --------
$81,026 $106,960
======= ========
Landfill costs of approximately $46,580,000 and $71,385,000 are included
in land and land improvements at December 31, 1995 and 1996, respectively.
Landfill costs include land held for development, representing various
landfill properties with an aggregate cost of approximately $24,635,000
and $30,696,000 at December 31, 1995 and 1996, respectively, which is not
being amortized.
6. Long-Term Debt
Long-term debt consists of the following:
December 31
1995 1996
(In Thousands)
Revolving credit facility $16,500 $ --
Equipment loan facilities at variable interest
rates (weighted-average interest rate
of 7.09% and 7.93% at December 31, 1995 and
1996, respectively) 5,688 1,607
Industrial revenue bonds at fixed interest
rates of 9.16% to 9.36% 588 438
Equipment loans payable at fixed rates of 9.5%
and 9.7% 310 591
Other 333 5
------- -------
Total long-term debt 23,419 2,641
Less current maturities 3,251 1,253
------- -------
$20,168 $1,388
======= =======
The Company's revolving credit facility provides for a borrowing capacity
up to a maximum of $50,000,000, including letters of credit. Availability
under this facility is based on the Company's liquidity, cash flow and
leverage. Interest is payable monthly based on the agent bank's base rate,
or quarterly based on a Eurodollar borrowing rate plus a margin, depending
upon how advances are drawn. The facility had a weighted average interest
rate of 9.03% at December 31, 1995, and matures in September 1998.
Effective March 1997, the Company's borrowing capacity under the revolving
credit facility was expanded to $110,000,000 and the maturity was extended
to March 2002. In addition to the outstanding borrowings, the Company had
approximately $1,257,000 and $2,280,000 in letters of credit issued under
the facility at December 31, 1995 and 1996, respectively. This facility is
collateralized by substantially all of the Company's assets. The facility
has provisions for the maintenance of certain financial ratios and other
requirements, including a prohibition on the payment of cash dividends.
Maturities of long-term debt, excluding amounts under the revolving credit
facility, for each of the years succeeding December 31, 1996, are as
follows (in thousands):
Year ending December 31:
1997 $1,253
1998 877
1999 311
2000 8
2001 9
Thereafter 183
7. Preferred Stock and Shareholders' Investment
Preferred Stock
Superior is authorized to issue up to 500,000 shares of preferred stock in
one or more undesignated series. In February 1993, the Company issued
331,789 shares of Series A Preferred Stock for $15,000,000 to an investor
group pursuant to a Series A Convertible Preferred Stock Purchase
Agreement (the Agreement).
Pursuant to the 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 public offering. Upon the conversion, all
cumulative dividends in connection with the Preferred Stock were defeased.
Common Stock
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 8, 1996, the effective date of the
initial public offering of the Company's common stock. All common shares,
per share, weighted average shares outstanding and stock option data have
been adjusted to reflect this reverse stock split.
Stock Options
The Company has two incentive stock option plans (the ISO Plans) under
which options for the purchase of up to 1,535,000 shares may be granted at
exercise prices no less than the estimated fair market value of the common
stock on the date of grant. The options generally become exercisable 25%
after one year and an additional 6.25% for each quarter thereafter. After
four years, all options are exercisable. At December 31, 1996, there were
1,223,676 shares available for grants under the ISO Plan. The Company has
also issued options under a nonqualified stock option plan to certain of
its executives. These options have various vesting schedules.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
In determining the effect of FASB Statement No. 123, the Black-Scholes
option pricing model was used with the following weighted-average
assumptions for 1996: risk-free interest rates of 5%, dividend yields of
0%, volatility factors of the expected market price of the Company's
common stock of .49, and a weighted-average expected life of the options
of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for earnings
per share information):
1995 1996
Pro forma net income $5,762 $11,559
Pro forma earnings per
share:
Primary $.43 $.72
Fully diluted $.43 $.71
The following table summarizes the transactions of the Company's Stock
Option Plans for the three-year period ended December 31, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
Weighted-Average
Options Options Options Exercisable Price
<S> <C> <C> <C> <C>
Options outstanding at beginning of
year 890,139 920,973 1,227,748 $8.68
Options granted 60,417 577,466 319,745 14.13
Options exercised --- --- (169,863) 7.86
Options canceled (29,583) (270,691) (70,099) 11.14
------- --------- --------- -----
Options outstanding at end of year 920,973 1,227,748 1,307,531 9.96
======= ========= ========= =====
Weighted-average fair value of options
granted during the year $14.13
======
Numbers of options exercisable at end
of year 964,972 $8.55
======= ======
Options outstanding at December
31, 1996:
Price range $7.70 to $11.50
weighted-average contractual life
of 3.7 years 1,146,231 $8.98
Price range $11.51 to $17.25
weighted-average contractual life
of 9.8 years 161,300 $16.93
--------
1,307,531
=========
</TABLE>
8. Employee Benefit Plans
Prior to April 1, 1994, the Company had certain defined contribution plans
resulting from the merger of the Predecessor Companies which covered
substantially all of their employees and provided for discretionary
contributions. Effective April 1, 1994, the Company adopted a contributory
401(k) plan that covers substantially all of its employees. Contributions
made by the Company under the various plans were $164,000, $205,000 and
$254,000, for the years ending December 31, 1994, 1995 and 1996,
respectively.
9. Income Taxes
The provisions for income taxes attributable to continuing operations for
the years ended December 31, consist of the following:
1994 1995 1996
(In Thousands)
Current:
Federal $998 $4,805 $7,580
State 634 1,239 1,907
----- ------ ------
1,632 6,044 9,487
Deferred:
Federal 18 (344) (972)
State (261) (91) (244)
----- ------ ------
(243) (435) (1,216)
----- ------ ------
Total $1,389 $5,609 $8,271
===== ====== ======
The difference in the provisions for income taxes attributable to
continuing operations and the amounts determined by applying the federal
statutory rate of 34% for 1994 and 35% for 1995 and 1996, to income from
continuing operations before income taxes for the years ended December 31
are as follows:
1994 1995 1996
(In Thousands)
Tax at statutory
rate $1,061 $4,733 $7,018
State income taxes 246 698 1,034
Other 82 178 219
------ ------ ------
$1,389 $5,609 $8,271
====== ====== ======
Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
The deferred income tax balances consist of the following:
December 31
1995 1996
(In Thousands)
Deferred tax liabilities:
Property and equipment basis differences $13,474 $13,295
Cash to accrual adjustment 220 ---
Other 532 1,230
------- -------
Total deferred tax liabilities 14,226 14,525
Deferred tax assets:
Closure and long-term care obligations 1,742 2,190
Other expenses not currently deductible 958 813
State and federal net operating loss
carryforwards 470 485
Other 217 183
------- ------
Total deferred tax assets 3,387 3,671
Valuation allowance for deferred tax assets (235) (235)
------- ------
Net deferred tax assets 3,152 3,436
------- ------
Net deferred tax liabilities $11,074 $11,089
======= =======
Included in prepaid expenses and other current assets are current deferred
tax assets of $507,000 and $126,000 at December 31, 1995 and 1996,
respectively.
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $9.4 million for state income tax purposes which expire in
2008 and 2009.
10. Commitments and Contingencies
Certain shareholders are entitled to receive additional consideration from
the Company in the event of future permitted landfill expansion at two
sites. For permitted vertical expansion at one landfill, the additional
consideration is $2.00 per cubic yard, less associated permitting costs.
For permitted horizontal expansion at both landfills, the additional
consideration is $.40 per cubic yard, less associated permitting costs,
not to exceed $2,000,000 per site.
In connection with certain landfill acquisitions, the sellers are entitled
to receive additional consideration from the Company, if regulatory
approval, as defined, is obtained for expansions of permitted air space.
For permitted vertical and horizontal expansion above certain defined
minimums, the additional consideration varies between approximately $.40
and $1.25 per cubic yard, less associated costs. These amounts, if any,
will be capitalized when paid or payable as additional purchase price. The
Company is obligated to make royalty payments to a landfill's former
owners of 5% of the gross revenues generated from the expanded capacity.
Approximately 125 acres occupied in connection with the landfill
activities is leased from a third party. Under the terms of the lease, the
Company pays the property owner monthly rental equal to the greater of 3%
of the landfill's gross operating receipts or $3,650.
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 was 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, agreed to a settlement with the WDNR, which was approved
by the United States District Court in August 1996. 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. In 1996, the subsidiaries and most of
the other defendants in the private party lawsuit agreed to the terms of a
settlement with the plaintiffs. 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 paid 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) has determined the scope and nature of
the contamination at the site and the PRPs have submitted a feasibility
study to the EPA and WDNR which describes the alternatives for remediating
the associated groundwater contamination. The WDNR has 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 December 31, 1996, the estimated one-
time capital cost 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. As the duration is uncertain, the accrual was not
measured on a discounted basis. In December 1995, the Company entered into
a settlement agreement with certain of the PRPs which allocates the costs
of the remediation. Under the settlement agreement, two generator PRPs
agreed to contribute a total of 38% 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 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 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
The information required by this item is incorporated
herein by reference to the information pertaining thereto set forth in the
definitive Proxy Statement for the Company's 1997 Annual Meeting of
Shareholders scheduled to be held May 13, 1997 ("Proxy Statement"). To
the knowledge of the Company, no director, executive officer or
significant shareholder violated the filing requirements of Section 16(a)
under the Securities Exchange Act of 1934 during the year ended December
31, 1996.
Item 11. Executive Compensation.
The information required by this item is incorporated
herein by reference to the information pertaining thereto set forth under
the caption entitled "Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated
herein by reference to the information pertaining thereto set forth under
the caption entitled "Stock Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item, to the extent
applicable, is incorporated herein by reference to the information
pertaining thereto set forth under the caption entitled "Certain
Transactions" in the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements Form 10-K Page No.
Report of Independent Public Accountants . . . . . . . . . . . 25
Consolidated Balance Sheets as of
December 31, 1995 and 1996 . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Operations
for the years ended December 31, 1994,
1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Shareholders'
Investment for the years ended
December 31, 1994, 1995, and 1996 . . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows
for the years ended December 31, 1994,
1995, and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . 30
2. Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts . . . . . . . 46
Schedules other than those listed above are
omitted because they are not applicable or
not required or because the required information
is included in the consolidated financial statements
or notes thereto.
3. Exhibits. The Exhibits filed with this Form 10-K or incorporated
by reference in this Form 10-K are listed on the attached
Exhibit Index.*
(b) The Company did not file a Form 8-K with the Securities and
Exchange Commission during the fourth quarter of fiscal 1996.
______________________________________
* Exhibits to this Form 10-K will be furnished to shareholders upon
advance payment of a fee of $0.20 per page, plus mailing expenses.
Requests for copies should be addressed to Peter J. Ruud, Vice President,
General Counsel, Superior Services, Inc., 10150 West National Avenue,
Suite 350, West Allis, Wisconsin 53227.
<PAGE>
<TABLE>
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
SUPERIOR SERVICES, INC.
<CAPTION>
(In Thousands)
COL. A COL. B COL. C COL. D COL. D
ADDITIONS
(2)
Balance at Charged to Charged to Balance at
beginning of costs and other end of
DESCRIPTION period expenses accounts Deductions period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts $676 $885 $0 $978 $583
Closure and long-term care
obligations 20,079 2,972 5,710 707 28,054
------- ------- ------- ------- -------
$20,755 $3,857 $5,710 $1,685 $28,637
======= ======= ======= ======= =======
Year ended December 31, 1995
Allowance for doubtful accounts $553 $718 $(20) $575(1) $676
Closure and long-term care
obligations 17,451 2,688 98 158 20,079
------- ------- ------- ------- -------
$18,004 $3,406 $78 733 $20,755
======= ======= ======= ======= =======
Year ended December 31, 1994
Allowance for doubtful accounts $383 $751 $4 $585(1,3) $553
Closure and long-term care
obligations 13,821 2,298 3,402 2,070 17,451
------- ------- -------
$14,204 $3,049 $3,406 $2,655 $18,004
======= ======= =======
_______________________
(1) Doubtful accounts written off
(2) Assumed in acquisitions
(3) Includes $112 of allowances resolved in the disposition of a business
unit.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized,
as of March 24, 1997.
SUPERIOR SERVICES, INC.
By: /s/ G. William Dietrich
G. William Dietrich, President
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities indicated as of March 24,
1997.
By:/s/ Joseph P. Tate
Joseph P. Tate
Chairman of the Board and
Director
By:/s/ G. William Dietrich
G. William Dietrich
President, Chief Executive
Officer and Director
(Principal Executive Officer)
By:/s/ George K. Farr
George K. Farr
Chief Financial Officer
(Principal Financial and
Accounting Officer)
By:/s/ Gary G. Edler
Gary G. Edler
Vice President and Director
By:/s/ Walter G. Winding
Walter G. Winding
Director
By:/s/Francis J. Podvin
Francis J. Podvin
Director
By:/s/ Stephen G. Woodsum
Stephen G. Woodsum
Director
By:/s/ Donald Taylor
Donald Taylor
Director
<PAGE>
SUPERIOR SERVICES, INC.
EXHIBIT INDEX
TO FORM 10-K FOR YEAR ENDED DECEMBER 31, 1996
Exhibit
No. Exhibit Description
3.0 Restated Articles of Incorporation. [Incorporated
by reference to Exhibit 3.0 filed with the
Company's Form S-1 Registration Statement No. 333-
240, dated January 9, 1996, as amended.]
3.1 Restated By-Laws. [Incorporated by reference to
Exhibit 3.1 filed with the Company's Form S-1
Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
4.0 Revolving Credit Agreement, dated as of September
1, 1993 between the Company and The First National
Bank of Boston, LaSalle National Bank and Bank
One, Texas, National Association. [Incorporated by
reference to Exhibit 4.0 filed with the Company's
Form S-1 Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
4.1* First Amendment to Revolving Credit Agreement,
dated as of June 24, 1994 between the Company and
The First National Bank of Boston, LaSalle
National Bank and Bank One, Texas, National
Association. [Incorporated by reference to
Exhibit 4.1 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January
9, 1996, as amended.]
4.2* Second Amendment to Revolving Credit Agreement,
dated as of August 28, 1995, between the Company
and the First National Bank of Boston, LaSalle
National Bank and Bank One, Texas, National
Association. [Incorporated by reference to
Exhibit 4.2 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January
9, 1996, as amended.]
4.3 Third Amendment to Revolving Credit Agreement,
dated as of December 29, 1995, between the Company
and the First National Bank of Boston, LaSalle
National Bank and Bank One, Texas, National
Association. [Incorporated by reference to
Exhibit 4.3 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January
9, 1996, as amended.]
4.4 Rights Agreement dated February 21, 1997 between
the Company and LaSalle National Bank, Chicago,
Illinois. [Incorporated by reference to Exhibit 4.1
to the Company's Current Report on Form 8-K dated
February 28, 1997.]
10.0** Stock Option Agreement, dated as of February 25,
1993 and as amended as of May 5, 1995 and August
15, 1995, and November 29, 1995 between George K.
Farr and the Company. [Incorporated by reference
to Exhibit 10.1 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January
9, 1996, as amended.]
10.1** Stock Option Agreement, dated as of February 14,
1995 and as amended as of May 16, 1995, August 15,
1995 and November 29, 1995 between G. William
Dietrich and the Company. [Incorporated by
reference to Exhibit 10.2 filed with the Company's
Form S-1 Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
10.2** Amendment to Restated Option Agreement dated
November 26, 1996 between G. William Dietrich and
the Company.
10.3** Employment Agreement, dated as of September 1,
1993, and as amended August 15, 1995 between Peter
J. Ruud and the Company. [Incorporated by
reference to Exhibit 10.3 filed with the Company's
Form S-1 Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
10.4** Noncompetition Agreement, dated February 14, 1995,
between G. William Dietrich and the Company.
[Incorporated by reference to Exhibit 10.4 filed
with the Company's Form S-1 Registration Statement
No. 333-240, dated January 9, 1996, as amended.]
10.5** Key Executive Employment and Severance Agreement,
dated August 15, 1995, between G. William Dietrich
and the Company. [Incorporated by reference to
Exhibit 10.5 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January
9, 1996, as amended.]
10.6** Key Executive Employment and Severance Agreement,
dated August 15, 1995, between George K. Farr and
the Company. [Incorporated by reference to Exhibit
10.6 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January
9, 1996, as amended.]
10.7** Key Executive Employment and Severance Agreement,
dated August 15, 1995, between Peter J. Ruud and
the Company. [Incorporated by reference to Exhibit
10.7 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January
9, 1996, as amended.]
10.8** 1993 Incentive Stock Option Plan. [Incorporated
by reference to Exhibit 10.8 filed with the
Company's Form S-1 Registration Statement No. 333-
240, dated January 9, 1996, as amended.]
10.9** Form of Stock Option Agreement under 1993
Incentive Stock Option Plan. [Incorporated by
reference to Exhibit 10.9 filed with the Company's
Form S-1 Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
10.10** 1996 Equity Incentive Plan. [Incorporated by
reference to Exhibit 10.10 filed with the
Company's Form S-1 Registration Statement No. 333-
240, dated January 9, 1996, as amended.]
10.11** Form of Non-Employee Director Non-Qualified Stock
Option Agreement under 1996 Equity Incentive Plan.
[Incorporated by reference to Exhibit 10.11 filed
with the Company's Form S-1 Registration Statement
No. 333-240, dated January 9, 1996, as amended.]
10.12** Form of Key Employee Non-Qualified Stock Option
Agreement under 1996 Equity Incentive Plan.
[Incorporated by reference to Exhibit 10.12 filed
with the Company's Form S-1 Registration Statement
No. 333-240, dated January 9, 1996, as amended.]
10.13** Form of Key Employee Incentive Stock Option
Agreement under 1996 Equity Incentive Plan.
[Incorporated by reference to Exhibit 10.13 filed
with the Company's Form S-1 Registration Statement
No. 333-240, dated January 9, 1996, as amended.]
11 Statement regarding computation of per share
earnings.
21 List of subsidiaries as of December 31, 1996.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
99 Proxy Statement for the Company's 1997 Annual
Shareholders meeting scheduled to be held May 13,
1997. [To be filed with the Commission prior to
120 days after December 31, 1996 and incorporated
by reference herein to the extent indicated in
Part III to this Form 10-K.]
__________
* The exhibits, schedules and ancillary documents to the listed agreement
are not being filed herewith because the Company believes that the
information contained in such exhibits, schedules and ancillary
documents should not be considered material to an investment decision
in the Company. The listed agreement includes a list briefly
identifying the contents of all omitted exhibits, schedules and
ancillary documents. The Company agrees to furnish supplementally to
the Commission (but not to file) a copy of any such exhibit, schedule
or ancillary document upon request.
** This exhibit is a management centered or compensatory plan or
arrangement required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) of Form 10-K.
EXHIBIT 10.2
AMENDMENT TO RESTATED STOCK OPTION AGREEMENT
This Amendment made as of the 26th day of November 1996, by and
between Superior Services, Inc., a Wisconsin Corporation (the "Company")
and G.W. "Bill" Dietrich (the "Employee").
WHEREAS, the Company and the Employee previously entered into a
Restated Stock Option Agreement dated as of November 29, 1995 (the
"Restated Stock Option Agreement"); and
WHEREAS, the parties desire to amend the Restated Stock Option
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. Section 3 of the Restated Stock Option Agreement is amended by (i)
deleting the second sentence in such section, and (ii) deleting the
words "In addition" from the beginning of the third sentence in such
section and substituting therefor the words "Provided, however,
that."
2. Except as set forth herein, the terms of the Restated Stock Option
Agreement shall remain unaltered and in full force and in effect.
In Witness Whereof, the parties have entered into this Amendment as
of the day and year set forth above.
SUPERIOR SERVICES, INC. EMPLOYEE:
By: /s/ Joseph P. Tate /s/ G.W. Dietrich
Joseph P. Tate, Chairman G.W. "Bill" Dietrich
Approved by the Compensation Committee of the Board of Directors:
/s/ Francis J. Podvin
Francis J. Podvin, Chairman
EXHIBIT 11
SUPERIOR SERVICES, INC.
EARNINGS PER SHARE CALCULATIONS
The following table reconciles the number of common shares outstanding
with the number of common shares used in computing earnings per share:
For the Year For the Year
Ended Ended
December 31, December 31,
1995 1996
Common shares outstanding 9,886,815 17,021,449
Effect of using weighted average
common shares during the period 45,704 (944,755)
Effect of shares issued under
stock options 223,625 367,563
Effect of weighted average shares
issuable upon conversion of Series
A Preferred Stock 3,317,890 ---
---------- ----------
Common shares and common share
equivalents used in computing
earnings per share 13,474,034 16,444,257
========== ==========
EXHIBIT 21
SUPERIOR SERVICES, INC.
SUBSIDIARIES
As of December 31, 1996
Jurisdiction
of Percent
Name Incorporation Ownership
Valley Sanitation Co., Inc. Wisconsin 100.0%
Superior Services of Elgin, Inc. Illinois 100.0%
Superior of Wisconsin, Inc. Wisconsin 100.0%
Superior Special Services, Inc. Wisconsin 100.0%
Superior Glacier Ridge, Inc. Wisconsin 100.0%
Land & Gas Reclamation, Inc. Wisconsin 100.0%
Superior Emerald Park Landfill, Inc. Wisconsin 100.0%
Superior Cranberry Creek Landfill, Inc. Wisconsin 100.0%
Superior Construction Services, Inc. Wisconsin 100.0%
Sharps Incinerator of Fort, Inc. Wisconsin 100.0%
** Summit, Inc. Wisconsin 100.0%
** Hardrock, Inc. Wisconsin 100.0%
Superior FCR Landfill, Inc. Minnesota 100.0%
Superior Oak Ridge Landfill, Inc. Missouri 100.0%
Superior Seven Mile Creek Landfill, Inc. Wisconsin 100.0%
Superior of Missouri, Inc. Missouri 100.0%
____________________
** Second-tier subsidiaries
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-4 No. 333-06443 and Form S-8 No. 333-12807) pertaining
to (a) Superior Services, Inc.'s registration of 2,500,000 shares of its
common stock and (b) the Superior Services, Inc. 1996 Equity Incentive
Plan, 1993 Incentive Stock Option Plan and various other individual
Employment, Stock Option and Stock Purchase Agreements of our report dated
January 31, 1997, with respect to the consolidated financial statements
and schedules of Superior Services, Inc. included in this Annual Report
(Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 24, 1997
<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
TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,389
<SECURITIES> 0
<RECEIVABLES> 18,922
<ALLOWANCES> (583)
<INVENTORY> 754
<CURRENT-ASSETS> 34,478
<PP&E> 158,545
<DEPRECIATION> (51,585)
<TOTAL-ASSETS> 175,806
<CURRENT-LIABILITIES> 14,856
<BONDS> 1,388
0
0
<COMMON> 170
<OTHER-SE> 103,698
<TOTAL-LIABILITY-AND-EQUITY> 175,806
<SALES> 0
<TOTAL-REVENUES> 109,659
<CGS> 0
<TOTAL-COSTS> 72,698
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 885
<INTEREST-EXPENSE> 654
<INCOME-PRETAX> 20,052
<INCOME-TAX> 8,271
<INCOME-CONTINUING> 11,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,781
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
