FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-19009
AMETECH, Inc.
_____________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Oklahoma 73-0766924
_______________________ __________________________________
(State of Incorporation) (I.R.S. Employer Identification No.)
1813 Southeast 25th
Oklahoma City, Oklahoma 73129
________________________ ________
(Address of Principal (Zip Code)
Executive Offices)
Registrant's Telephone Number, Including Area Code:
(405) 677-8781
______________
Indicate by check mark whether the Registrant (1) has filed all
reports required 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 the reports), and
(2) has been subject to such filing requirements for the past 90
days. YES X NO
____ _____
As of November 12, 1996, the Registrant had 13,817,121 shares of
common stock issued and outstanding (excluding 115,000 shares of
common stock held as treasury stock).
<PAGE>
FORM 10-Q OF AMETECH, INC.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page
Item 1. Financial Statements.................... 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................... 12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings....................... 19
Item 3. Defaults Upon Senior Securities......... 19
Item 4. Submission of Matters to a Vote of
Security Holders................... 20
Item 6. Exhibits and Reports on Form 8-K........ 20
SIGNATURES ........................................ 21
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
____________________
The accompanying Consolidated Balance Sheet as of September 30,
1996 and the related Statements of Operations and Retained Earnings
and Statements of Cash Flows for the three and nine month periods
ended September 30, 1996 and 1995 are unaudited. In the opinion of
management, all adjustments have been included. Such adjustments
consisted of normal, recurring items. Interim results are not
necessarily indicative of results for a full year. The
Consolidated Statements of Operations and Retained Earnings for the
three and nine month periods ended September 30, 1995, have been
restated to reflect the change in the method of accounting for
replacement tires effective January 1, 1995. The Financial
Statements and notes are presented as permitted by Form 10-Q and do
not contain certain information included in the Company s annual
financial statements and notes; therefore, these financial
statements should be read in conjunction with the notes to the
financial statements contained in the Company s Annual Report on
Form 10-K for the year ended December 31, 1995 which are
incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
AMETECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
____________ ___________
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 0 $ 74,000
Accounts receivable 4,462,000 3,538,000
Prepaid expenses 868,000 429,000
Other 311,000 646,000
__________ ___________
Total Current Assets 5,641,000 4,687,000
__________ ___________
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation
of $9,531,000 and $9,742,000 at
September 30, 1996, and December 31,
1995, respectively:
Transportation equipment 8,347,000 9,479,000
Buildings and other 686,000 2,061,000
___________ ___________
9,033,000 11,540,000
___________ ___________
OTHER ASSETS, net of accumulated
amortization of $344,000 and
$325,000 at September 30, 1996,
and December 31, 1995,
respectively 399,000 499,000
___________ ___________
$15,073,000 $16,726,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMETECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
____________ ___________
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $ 1,943,000 $ 2,053,000
Current maturities of long-term
obligations 4,246,000 2,126,000
___________ ___________
Total Current Liabilities 6,189,000 4,179,000
___________ ___________
DEFERRED INCOME TAXES 1,093,000 1,365,000
___________ ___________
LONG-TERM OBLIGATIONS, net of current
maturities 3,512,000 6,242,000
___________ ___________
STOCKHOLDERS' EQUITY:
Common stock of $.01 par value;
25,000,000 shares authorized at
September 30, 1996, and December 31,
1995; 13,932,121 and 13,874,206
shares issued and outstanding at
September 30, 1996, and December 31,
1995, respectively 139,000 139,000
Additional paid-in capital 2,994,000 2,985,000
Retained earnings 1,255,000 1,925,000
___________ ___________
4,388,000 5,049,000
Less - Treasury Stock (115,000 shares at
September 30, 1996, and December 31,
1995), at cost 109,000 109,000
___________ ___________
Total Stockholders' Equity 4,279,000 4,940,000
___________ ___________
$15,073,000 $16,726,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMETECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
September 30,
___________________________
1996 1995
___________ ___________
(restated)
<S> <C> <C>
REVENUES $ 4,434,000 $ 4,966,000
___________ ____________
COSTS AND EXPENSES:
Operating costs 3,572,000 3,658,000
General and administrative expense 558,000 734,000
Depreciation and amortization 385,000 506,000
Interest expense 225,000 208,000
Other expense (income), net 136,000 (28,000)
___________ ___________
4,876,000 5,078,000
___________ ___________
EARNINGS (LOSS) BEFORE INCOME TAXES (442,000) (112,000)
___________ ___________
INCOME TAX EXPENSE (BENEFIT):
Current 153,000 (153,000)
Deferred (293,000) 140,000
___________ ___________
(140,000) (13,000)
___________ ___________
NET EARNINGS (LOSS) (302,000) (99,000)
RETAINED EARNINGS AT BEGINNING
OF PERIOD 1,557,000 2,498,000
___________ ___________
RETAINED EARNINGS AT END OF PERIOD $ 1,255,000 $ 2,399,000
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (Loss) per common share $ (0.02) $ (0.01)
=========== ===========
Weighted average shares outstanding 13,808,220 13,745,429
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMETECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Nine Months Ended
September 30,
___________________________
1996 1995
(restated)
___________ ___________
<S> <C> <C>
REVENUES $13,822,000 $13,263,000
___________ ____________
COSTS AND EXPENSES:
Operating costs 11,017,000 9,539,000
General and administrative expense 1,674,000 1,872,000
Depreciation and amortization 1,359,000 1,381,000
Interest expense 669,000 507,000
Other expense (income), net 78,000 (61,000)
___________ ___________
14,797,000 13,238,000
___________ ___________
EARNINGS (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD (975,000) 25,000
___________ ___________
INCOME TAX EXPENSE (BENEFIT):
Current (33,000) (161,000)
Deferred (272,000) 206,000
___________ ___________
(305,000) 45,000
___________ ___________
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING METHOD (670,000) (20,000)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD - 132,000
___________ ___________
NET EARNINGS (LOSS) (670,000) 112,000
RETAINED EARNINGS AT BEGINNING
OF PERIOD 1,925,000 2,287,000
___________ ___________
<PAGE>
RETAINED EARNINGS AT END OF PERIOD $ 1,255,000 $ 2,399,000
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Loss before cumulative effect of
change in accounting method $ (0.05) $ (0.00)
Cumulative effect of change in
accounting method - 0.01
__________ ___________
Earnings (Loss) per common share $ (0.05) $ 0.01
=========== ===========
Weighted average shares outstanding 13,791,697 13,728,389
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMETECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
___________________________
1996 1995
____________ ____________
<S> <C> <C>
Cash Flows From Operating Activities:
Cash collected from customers $12,908,000 $12,314,000
Interest paid (669,000) (513,000)
Interest received 33,000 47,000
Cash paid to employees and other
suppliers of goods and services (13,223,000) (10,563,000)
Income taxes refunded (paid) 270,000 (80,000)
___________ ___________
Net Cash Provided (Used) by Operating
Activities (681,000) 1,205,000
___________ ___________
Cash Flows From Investing Activities:
Additions to property and equipment (331,000) (3,950,000)
Proceeds from disposal of equipment 1,459,000 126,000
Proceeds from sale of subsidiary 0 18,000
Acquisition costs (7,000) (107,000)
Payments received on notes receivable 87,000 158,000
___________ ___________
Net Cash Provided (Used) in Investing
Activities 1,208,000 (3,755,000)
___________ ___________
Cash Flows From Financing Activities:
Proceeds of long-term debt 1,109,000 3,918,000
Payments on long-term debt (1,719,000) (1,399,000)
Sale of unissued stock 9,000 14,000
___________ ___________
Net Cash Provided (Used) by Financing
Activities (601,000) 2,533,000
___________ ___________
Net Decrease in Cash and
Cash Equivalents (74,000) (17,000)
___________ ___________
Cash and Cash Equivalents at
Beginning of Period 74,000 45,000
___________ ___________
Cash and Cash Equivalents at
End of Period $ 0 $ 28,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
AMETECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions are eliminated.
2. EARNINGS PER SHARE
Earnings per common share are based upon the weighted average
number of common shares outstanding during the respective
three and nine month periods. All outstanding stock options
are considered anti-dilutive and are not included in the
calculation for earnings per share.
3. RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
The reconciliation of net earnings (loss) to net cash provided
by operating activities for the nine-month periods ended
September 30, 1996 and 1995 is as follows:
Nine Months Ended September 30,
______________________________
1996 1995
____________ ____________
<S> <C> <C>
Net Earnings (Loss) $ (670,000) $ 112,000
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 1,359,000 1,381,000
Gain on sale of subsidiary (28,000) (44,000)
(Gain)loss on sale of property 46,000 (17,000)
Change in assets and liabilities:
Increase in accounts receivable (914,000) (949,000)
Increase in prepaid expenses (439,000) (468,000)
(Increase) Decrease in other assets 98,000 (48,000)
Increase (Decrease) in accounts
payable and accrued liabilities (110,000) 1,043,000
Deferred income taxes (35,000) 146,000
Write-off of bad debts 0 41,000
Other 12,000 8,000
__________ _________
$ (681,000) $1,205,000
========== =========
</TABLE>
4. CHANGE IN ACCOUNTING ESTIMATE
Effective September 1, 1996, the Company elected to change the
estimated useful life for trailers from ten to fifteen years
to more closely approximate the useful life of such assets.
<PAGE>
4. CHANGE IN ACCOUNTING ESTIMATE (continued)
<TABLE>
<CAPTION>
The effect of this change was to decrease the net loss for the
nine months ended September 30, 1996 by $53,000 ($0.00 per
share), summarized as follows:
<S> <C>
Effect of life of trailers $78,000
Less: Tax effect of change 24,000
_______
$53,000
=======
</TABLE>
<TABLE>
<CAPTION>
Effective January 1, 1995, the Company elected to change the
estimated useful life of tractors from seven to ten years to
more closely approximate the useful life of such assets. The
effect of this change was to increase net income for the nine
months ended September 30, 1995 by $178,000 ($.01 per share),
summarized as follows:
<S> <C>
Effect of life of tractors $316,000
Less: Tax effect of change 138,000
________
Increase in net income $178,000
========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
On January 3, 1992, seven individual plaintiffs filed a
Petition against the Company s transportation subsidiary,
Environmental Transportation Services, Inc. ( ETS ), and Dyna-
Turn of Oklahoma Incorporated ( Dyna-Turn ), in the District
Court of Oklahoma County. The seven plaintiffs, who were
employees at a waste incineration facility in Miami, Oklahoma,
claim that Dyna-Turn generated solid waste which was
contaminated with toxic and hazardous chemicals, and that this
solid waste was transported by ETS to the incineration
facility for disposal. The plaintiffs claim that Dyna-Turn and
ETS were engaged in ultra-hazardous activities during the
generation and transportation of the waste, and failed to warn
the plaintiffs of the hazardous nature of the waste or of its
harmful side effects.
The plaintiffs claim they sustained personal injuries and lost
earnings and are seeking unspecified actual damages in excess
of $10,000 and punitive damages.
In March 1993, the Company was informed by its insurance
carrier that it was denying coverage for the plaintiffs
claims. The Company has instructed its attorneys to
vigorously defend the litigation. The Company believes that
ETS has valid defenses to the plaintiffs claims, but at this
stage of litigation, the Company is unable to determine the
amount of its potential exposure to loss, if any.
<PAGE>
5. COMMITMENTS AND CONTINGENCIES (continued)
The Company has an equipment lending arrangement with
Associates Commercial Corporation ("ACC") under which the
Company owed approximately $1,200,000 as of September 30,
1996. The Company was unable to make its scheduled payments
for September and October, 1996; however, ACC agreed to a
sixty (60) day extension on principal payments which also
included the adding of the September and October installments
to the end of the respective notes. The Company is seeking a
similar extension regarding the November, 1996, installment.
The Company was advised by its major transportation equipment
lender, The CIT Group/Capital Equipment Group, Inc. ("CIT"),
via letter dated October 28, 1996, that the Company was in
default for failure to make past due principal payments in the
amount of $351,638.46, and that the Company must pay this
amount by October 31, 1996. In addition, the Company was
unable to make the October and November, 1996, payments, and
it continues to be in default. The Company is currently
negotiating with CIT regarding possible cure of its default on
the equipment loans; however, as of the date of this report,
an agreement has not been reached with CIT. As of the date of
this report, the Company does not know if it will be able to
reach an agreement with CIT to cure the default in a manner
acceptable to the Company and CIT. In the event the Company
cannot reach an acceptable agreement with CIT to cure the
Company's default, the Company does not have sufficient
liquidity or available resources which would enable it to
immediately repay the debt to CIT, and therefore, should such
agreement with CIT not be reached, the Company would have to
be granted time by CIT to sell certain assets that secure the
CIT loan on terms which would not be detrimental to the
Company, or seek external sources of financing to make
repayment to CIT, or, if no resolution can be reached with CIT
or if the Company is unable to obtain financing to repay CIT,
the Company would have to consider taking steps necessary to
protect itself from CIT's seizing assets of the Company or
otherwise attempting to collect immediate repayment on its
loan. The Company has begun looking for replacement financing
to CIT, but as of this date has not been able to secure such.
If there is not a resolution with CIT, or, if there is no
resolution and the Company is unable to secure financing to
pay CIT on terms acceptable to the Company, the Company may
have to take such steps necessary to protect the Company from
actions that CIT could take against the Company, such as
requesting the appropriate court to protect the Company from
its creditors.
<PAGE>
5. COMMITMENTS AND CONTINGENCIES (continued)
The Company is agreeable to selling certain of its
transportation equipment that currently secures CIT's loan and
to use the proceeds to reduce the outstanding balance of such
loan if CIT would agree, among other things, to waive the
default, and the Company is able to do such in a manner that
would not be detrimental to the Company. As a result of this
default, the Company has reclassified approximately $1,909,000
from long-term liabilities to short-term liabilities. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
In February 1996, the Company entered into a new revolving
working capital line of credit agreement ("Associates
Agreement") with Associates Commercial Corporation
("Associates"), which provides for a $3,000,000 line of credit
for working capital purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations
--Liquidity and Capital Resources." At September 30, 1996,
the Company had borrowed approximately $2,214,000 under the
Associates Agreement. Under the terms of the Associates
Agreement, the Company's inability to meet debts as they
mature is an "Event of Default." Associates has agreed, by
letter dated December 5, 1996 (the "Letter"), that for a
period of ninety (90) days from the date of such Letter that
the Company shall not be deemed to be in default under the
Associates Agreement by reason of the default under the CIT
equipment loan in order to assist the Company with its efforts
to resolve the default issues with CIT. Since Associates (i)
has not made any demands upon the Company as of the date of
this report as a result of the Company's default under its
loan with CIT, (ii) has given the Company ninety (90) days to
resolve its default with CIT and (iii) continues to provide
financing under the Associates Agreement, the Company has not
made any effort to replace the working capital line of credit
with Associates. As a result of the Letter, the Company
continues to classify approximately $2,214,000 under the
Associates Agreement as long-term liabilities.
In November 1995, ETS was sued by an individual who alleged
that ETS breached his written employment agreement. On
August 30, 1996, the court entered a final judgment against
ETS in favor of the plaintiff in the amount of approximately
$124,000, finding that ETS was liable to the plaintiff for
payment of compensation for the two years of the employment
agreement. Through November 14, 1996, the Company has paid
$35,000 of the judgment. Of the remaining balance, $46,000 is
due immediately and the balance is being paid in monthly
installments of approximately $4,000. The Company has not
paid, as of the date of this report, any of the remaining
balance and is in default of such payment obligations. The
plaintiff has taken, and may continue to take, legal action
against the Company to enforce the judgment as to the
remaining unpaid balance.
<PAGE>
Item 2. Management s Discussion and Analysis of Financial
Condition and Results of Operations
________________________________________________________
Results of Operations
_____________________
Quarter Ended September 30, 1996, Compared to Quarter Ended
September 30, 1995
___________________________________________________________________
The net loss for the quarter ended September 30, 1996 was $302,000,
as compared to a net loss of $99,000 for the quarter ended
September 30, 1995. This increase in net losses of $203,000 was
primarily attributable to a decrease in the gross margin (revenues
less operating costs) of $446,000.
Total revenues were $4,434,000 and $4,966,000 for the quarters
ended September 30, 1996 and 1995, respectively. This decrease of
$532,000 was largely attributable to a decrease in transportation
and related revenues of $403,000 due largely to a decrease in the
Company s running mile rate of ($.13) per mile and to decreased
activity generated by the Company s transportation subsidiary s
California operation, which was acquired effective July 1, 1995.
The decrease in the running mile rate is due to continuing
competitive pressures, while the decrease in revenues generated by
the Company s subsidiary s California operation is due to a
softening in the hazardous waste transportation market as well as
a driver shortage in that area.
Non-transportation related revenues decreased $129,000 from the
third quarter of 1995 to the third quarter of 1996 due to decreased
revenues generated by BMH Materials, Inc. ( BMH ), the Company s
non-hazardous waste processing subsidiary located in Green Cove
Springs, Florida.
Operating costs were $3,572,000 and $3,658,000 for the third
quarters of 1996 and 1995, respectively. This represents an
increase of 7.3% when expressed as a percentage of total revenues.
Operating costs relating to transportation services were $3,543,000
and $3,600,000 for the quarters ended September 30, 1996 and 1995,
respectively. These amounts represent approximately 79.8% and
74.3% of transportation and related revenues for the respective
quarters of 1996 and 1995. This increase in the percentage of
operating costs to revenues from 1995 to 1996 is due largely to the
lower running mile rate as discussed earlier.
Non-transportation operating costs decreased $29,000 from the third
quarter of 1995 to the third quarter of 1996 due to reduced
activity of the Company s non-hazardous waste processing subsidiary
located in Florida as discussed earlier.
<PAGE>
General and administrative expenses decreased $92,000 from the
third quarter of 1995 to the third quarter of 1996 due to lower
personnel and travel and entertainment costs.
Depreciation expenses decreased $121,000 from 1995 to 1996 due to
the Company changing the estimated useful life for its trailers
from ten to fifteen years to more closely approximate the useful
life of such assets. This change was effective July 1, 1996.
Other expenses increased $164,000 from 1994 to 1995 due primarily
to losses recognized on the sale of (1) the Company s
transportation subsidiary s facility located in LaPorte, Texas and
(2) the non-hazardous waste processing facility located in Green
Cove Springs, Florida.
Interest expense increased $66,000 due to increased debt and higher
interest rates.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
___________________________________________________________________
The net loss for the nine months ended September 30, 1996 was
$670,000 as compared to net income of $112,000 for the nine months
ended September 30, 1995. This decrease in net income of $782,000
is primarily attributable to a decrease in the gross margin of
$919,000 as well as increased interest costs of $162,000. These
decreases in net income were partially offset by a decrease in
general and administrative expense of $198,000.
Total revenues through September 30, 1996 were $13,822,000 as
compared to $13,263,000 through September 30, 1995, an increase of
$559,000. This increase was due to an increase in transportation
and related revenues of $1,280,000 due, in part, to revenues
generated by the Company s transportation subsidiary s California
operation, which was acquired effective July 1, 1995, and the
Company s subsidiary s Colorado operation, the assets of which were
acquired in July 1995. Additionally, the Company s transportation
subsidiary generated increased miles during the first nine months
of 1996 due to operating additional transportation equipment. The
increase in volume resulting from the additional equipment was
partially offset by a decrease in the running mile rate of ($.16)
per mile due to continuing competitive pressures. Other
transportation related revenues increased $119,000.
Non-transportation related revenues decreased $713,000 from 1995 to
1996 due to decreased revenues generated by the Company s non-
hazardous waste transfer facility located in Florida and to a
decrease in revenues recorded by the Company s remediation
subsidiary which started a remediation project in March, 1995,
which was completed in May, 1995. This remediation subsidiary is
currently inactive.
<PAGE>
Total operating costs were $11,017,000 and $9,539,000 for the nine
month periods ended September 30, 1996 and 1995, respectively.
These amounts represent approximately 79.7% and 71.9% of total
revenues for the respective nine month periods of 1996 and 1995, an
increase of 7.8%.
Operating costs related to transportation services were $10,925,000
and $8,937,000 (approximately 79.7% and 71.9% of transportation and
related revenues) for the nine month periods ended September 30,
1996, and 1995, respectively. The increase in the percentage of
operating costs to revenues from 1995 to 1996 is attributable to
the lower running mile rate as discussed earlier and to increased
variable transportation costs.
Operating costs not related to transportation services decreased
$502,000 from 1995 to 1996 due to the reduced activity at the
Company s subsidiary s non-hazardous waste transfer facility
located in Florida discussed earlier and to reduced operating costs
associated with the Company s remediation subsidiary which had
started a remediation project in March 1995, which project was
completed in May, 1995.
General and administrative expenses decreased $198,000 from 1995 to
1996 due largely to reduced personnel and travel and entertainment
expenses. These reductions in expenses were partially offset by
increased general and administrative expenses associated with the
Company s transportation subsidiary s California operation.
Depreciation expenses decreased $22,000 due to the Company changing
the useful life on its trailers from ten to fifteen years as
discussed earlier. This decrease was partially offset by the
Company s transportation subsidiary s California operation s
depreciation expense and to depreciation associated with the assets
purchased relating to the Company s transportation subsidiary s
Colorado operation.
Other expenses increased $139,000 from 1995 to 1996 due primarily
to losses recognized on the sale of (1) the Company s
transportation subsidiary s facility located in LaPorte, Texas and
(2) the non-hazardous waste processing facility located in Green
Cove Springs, Florida.
Interest expenses increased $162,000 from 1995 to 1996 due to
increased debt and higher interest rates.
Liquidity and Capital Resources
_______________________________
Working capital decreased from $508,000 at December 31, 1995 to a
negative $548,000 at September 30, 1996. This decrease of
approximately $1,056,000 has resulted primarily from reclassifying
<PAGE>
the long-term portion of certain equipment debt to current
liabilities as discussed below. See Note 5 to Notes to
Consolidated Financial Statements.
The Company's transportation subsidiary has an equipment financing
arrangement with The CIT/Equipment Financing, Inc. ("CIT"). As of
September 30, 1996, the principal amount owing to CIT for the
purchase of transportation equipment is $3,500,000. The loan is
secured by certain transportation equipment of the Company. This
equipment loan is payable in monthly principal payments of
$135,000, plus interest. In the first quarter of 1996, the Company
paid only the interest portion of the February and March loan
payments to CIT due to a cash flow shortage. CIT and the Company
then entered into an agreement whereby the Company had to pay the
February and March principal payments in September and October
1996. Additionally, CIT increased the interest rate by one
percentage point for the remaining term of such loans by CIT, and
the Company and CIT entered into a letter agreement whereby the
Company agreed to pay CIT $105,500 by September 30, 1996, and
$105,500 by December 31, 1996, in addition to its regular monthly
payments to CIT. The Company has been unable to make its September
and October, 1996, principal payments as agreed and also has not
made its regular monthly principal payments for August, September,
October, and November, 1996. As a result, the Company received a
letter dated October 28, 1996 from CIT stating that the Company was
in default for past due principal payments in the amount of
$351,638.46 and that this amount must be paid by October 31, 1996.
The Company was unable to make this payment and continues to be in
default. The Company is currently negotiating with CIT regarding
possible cure of its default on the equipment loans; however, as of
the date of this report, the Company and CIT have not reached an
agreement. As of the date of this report, the Company does not
know if it will be able to reach an agreement with CIT to cure the
default in a manner acceptable to the Company and CIT. In the
event the Company cannot reach an acceptable agreement with CIT to
cure the Company's default, the Company does not have sufficient
liquidity or available resources which would enable it to
immediately repay the debt to CIT, and therefore, should such
agreement with CIT not be reached, the Company would have to be
granted time by CIT to sell certain assets that secure the CIT loan
in a manner in which such sale would not be detrimental to the
Company, or seek external sources of financing to make repayment to
CIT, or, if no resolution can be reached with CIT or if the Company
is unable to obtain financing to repay CIT, the Company would have
to consider taking steps necessary to protect itself from CIT
seizing assets of the Company or otherwise attempting to collect
immediate repayment of such loan. The Company has begun looking
for replacement financing to CIT, but as of the date of this report
has not been able to secure such. If there is not a resolution
with CIT, or, if there is no resolution and the Company is unable
to secure financing to pay CIT on terms acceptable to the Company,
the Company may have to take such steps necessary to protect the
<PAGE>
Company from actions that CIT could take against the Company, such
as requesting the appropriate court to protect the Company from its
creditors. The Company is searching for a new equipment lender to
replace CIT but, as of the date of this report, has not been able
to secure such.
The Company is agreeable to liquidating certain of the
transportation equipment that currently secures CIT's loan and to
use the proceeds to reduce the outstanding balance of such loans if
CIT would agree, among other things, to waive the default and allow
the Company to sell such in a manner that would not be detrimental
to the Company. As a result of this default, the Company has
reclassified approximately $1,909,000 from long-term liabilities to
short-term liabilities.
In February 1996, the Company entered into a new revolving working
capital line of credit agreement (the Associates Agreement ) with
Associates which provides for a $3,000,000 line of credit for
working capital purposes. See "Notes to Consolidated Financial
Statements--5. Commitments and Contingencies." This line of
credit: 1) is collateralized by accounts receivable, deposit
accounts and certain intangible assets; 2) bears interest at the
prime rate published by The Chase Manhattan Bank, N.A. plus 1.875%;
and 3) provides for advances at 80% of eligible receivables. The
note is due February 6, 1998. The interest on the note is payable
monthly and principal payments are made as accounts receivable are
collected. At September 30, 1996 the Company had borrowed
$2,214,000 under the Associates Agreement, and at December 31,
1995, the Company had borrowed $1,549,000 under the former working
capital credit agreement which has been paid. Under the terms of
the Associates Agreement, the Company's inability to meet debts as
they mature is an "Event of Default." Associates has agreed by
letter dated December 5, 1996 (the "Letter") that for a period of
ninety (90) days from the date of such Letter that the Company
shall not be deemed to be in default under the Associates Agreement
by reason of the default under the CIT equipment loan in order to
assist the Company with its efforts to resolve the default issues
with CIT. Since Associates (i) has not made any demands upon the
Company as of the date of this report as a result of the Company's
default under its loan with CIT, (ii) has given the Company ninety
(90) days to resolve its default with CIT and (iii) continues to
lend to the Company under the Associates Agreement, the Company has
not made any effort to replace the working capital line of credit
with Associates. As of the date of this report, the Company does
not know if it would be able to replace its working capital line of
credit, if necessary.
The Company has an equipment lending arrangement with Associates
Commercial Corporation ("ACC") under which the Company owed
approximately $1,200,000 as of September 30, 1996. The Company was
unable to make its scheduled payments for September, October, and
November, 1996; however, ACC has agreed to a sixty (60) day
<PAGE>
extension on principal payments which also included the adding of
the September and October installments to the end of the respective
notes. The Company is seeking a similar extension regarding the
November installment.
In February 1996, Carl Anderson, Jr., Chief Executive Officer and
acting President, loaned the Company $195,000 bearing interest at
10% per annum. The principal balance of the loan is payable on
demand, but no later than February 1, 2001, with interest payable
monthly. The loan was for working capital purposes and is secured
by a mortgage on the Company s property in Oklahoma City, Oklahoma.
The outstanding balance on this loan at September 30, 1996 was
$177,000.
The Company s transportation subsidiary, ETS, has entered into two
lease agreements with Sullivan s Trucking Company, Inc.
( Sullivan ), effective March 1, 1996, whereby ETS is leasing a
certain number of hazardous waste tractors, trailers and roll-off
boxes from Sullivan. ETS has used this equipment to transport
waste for Sullivan s and ETS customers. In connection with such
leases, ETS is to pay Sullivan $8,684 per month for twenty four
months on one lease and $28,803 per month for forty-eight months on
the other lease. ETS began making payments on both of these leases
March 1, 1996. Subsequently, ETS and Sullivan agreed to terminate
the twenty-four (24) month lease effective August 1, 1996, and ETS
has returned all equipment subject to the lease to Sullivan.
The Company has reached an agreement in principle to acquire from
Sullivan certain customer lists, goodwill, inventory, and other
business aspects of Sullivan s hazardous waste transportation
business. Upon closing of this transaction, as currently
contemplated, the Company will pay Sullivan 1,309,221 shares of the
Company s common stock and will lease from Sullivan its
transportation terminal in Ponca City, Oklahoma for a term of four
years at a rental of $3,800 per month.
The Company s accounts payable continue to age beyond normal terms.
As of September 30, 1996, the Company's accounts payable in excess
of sixty days were approximately $258,000 and in excess of ninety
days were approximately $335,000.
In order to generate additional liquidity, in August, 1996, the
Company sold one of the facilities owned by ETS and a facility
owned by another subsidiary that processed non-hazardous waste
located in Florida. The Company realized net proceeds (after the
payment of a certain mortgage and closing costs) from these
transactions of approximately $650,000. In addition, the Company
received approximately $275,000 as a tax refund in September, 1996.
All of the proceeds received by the Company referred to in this
paragraph were applied by the Company to reduce the outstanding
balance under the Company's working capital line of credit. If the
Company is able to reach a satisfactory agreement with CIT relating
<PAGE>
to the transportation equipment loan, it believes, as of the date
of this report, that it will be able to meet its presently
foreseeable working capital requirements. If the Company is unable
to reach such agreement with CIT, the Company does not believe that
it will be able to meet its presently foreseeable working capital
requirements.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
_________________
There are no additional material legal proceedings pending against
the Company and/or its subsidiaries not previously reported by the
Company in Part I, Item 3 of its Form 10-K for the fiscal year
ended December 31, 1995, which Item 3 is incorporated herein by
reference, except as discussed below.
On November 22, 1995, the Company s transportation subsidiary,
Environmental Transportation Services, Inc. ( ETS ) was sued by
Richard K. Larson for breach of an alleged employment contract.
The case was and is pending in the United States District Court,
Northern District of Texas, and is styled Richard K. Larson v.
Environmental Transportation Services, Inc. In August, 1996, the
court rendered a judgment in this matter for the plaintiff against
ETS in the amount of approximately $124,000. Through November 14,
1996, the Company has paid $35,000 of the judgment. Of the
remaining balance, $46,000 is due immediately and the balance is to
be paid in monthly installments of approximately $5,000. The
Company is in default on its installment payments. See "Notes to
Consolidated Financial Statements--Note 5. Commitments and
Contingencies" and Management s Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
Capital Resources.
Item 3. Defaults Upon Senior Securities.
_______________________________
The Company is currently in default on its lending agreement with
its principal transportation equipment lender, CIT. As of
September 30, 1996, the principal amount owing to CIT for the
purchase of equipment is $3,500,000. As a result of this default,
the Company has reclassified approximately $1,909,000 owed to CIT
from long-term liabilities to current liabilities. See "Notes to
Consolidated Financial Statements -- Note 5. Commitments and
Contingencies" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
<TABLE>
<CAPTION>
At the Company's 1996 Annual Meeting of Shareholders held on July
18, 1996, the following four (4) members of the Board of Directors
were reelected for a term of three (3) years, as follows:
Number of Number of
Shares to Abstentions
Number of Withhold and Broker
Name Shares "FOR" "Authority" "Non-Votes"
_____________________ ____________ ___________ ___________
<S> <C> <C> <C>
Carl B. Anderson, Jr. 12,541,084 118,825 -
James E. Brown 12,552,009 107,900 -
Jay T. Edwards 12,558,009 101,900 -
Allen G. Poppino 12,558,409 101,500 -
</TABLE>
<TABLE>
<CAPTION>
At the Annual Meeting, the selection of Grant Thornton, certified
public accountants, as independent auditor of the Company for 1996
was ratified by the shareholders, as follows:
Number of Number of
Shares to Abstentions
Number of "Withhold and Broker
Shares "FOR" Authority" Non-Votes
<S> <C> <C>
12,573,984 4,825 81,000
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Letter from Associates TransCapital Services
to Environmental Services, Inc., dated
December 5, 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K - The Company did not file any
reports on Form 8-K during the quarter ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Company has caused
the undersigned, duly authorized, to sign this report on its behalf
on the 13th day of December, 1996.
AMETECH, Inc.
By /s/ Carl B. Anderson, Jr.
______________________________
Carl B. Anderson, Jr.
Chief Executive Officer
By /s/ Kerry Willingham
______________________________
Kerry Willingham
Controller
(Principal Financial Officer)
BALL:\A-C\AMETECH\10Q\996\EDGAR\10Q
</TABLE>
Associates TransCapital Services
a division of Associates Commercial Corporation
300 E. Carpenter Freeway, 17th Plaza
Irving, Texas 75062
December 5, 1996
Environmental Transportation Services, Inc.
c/o AMETECH, Inc.
Post Office Box 36118
Oklahoma City, Oklahoma 73136
Re: Transportation Accounts Financing and Security
Agreement dated as of February 6, 1996
("Transportation Agreement")
Dear Ladies and Gentlemen:
This letter is to confirm, pursuant to our previous conversations,
that Associates TransCapital Services ("Associates") agrees that
notwithstanding anything to the contrary contained in Section 8.01
of that certain Transportation Accounts Financing and Security
Agreement by and between Environmental Transportation Services, Inc.
("ETS") and Associates, for ninety (90) days from the date of this
letter, ETS shall not be deemed to be in default by reason of the
default under that certain Loan and Security Agreement dated April
27, 1993 between ETS and The CIT Group/Capital Equipment Financing,
Inc. ("CIT"), as amended ("CIT Agreement"). This letter is granted
in order to assist ETS and AMETECH, Inc. with their efforts to
resolve their current problems with CIT and for no other reason.
Except as specifically set forth herein, this letter is not intended
to and shall not limit any rights or remedies available to
Associates under the Transportation Accounts Financing and Security
Agreement.
Very truly yours,
Associates TransCapital Services
a division of Associates Commercial
Corporation
By: /s/ Kerry Loven
________________________________
Kerry Loven
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> $ 0
<SECURITIES> 0
<RECEIVABLES> 4,662,000
<ALLOWANCES> 0
<INVENTORY> 205,000
<CURRENT-ASSETS> 5,641,000
<PP&E> 18,564,000
<DEPRECIATION> 9,531,000
<TOTAL-ASSETS> 15,073,000
<CURRENT-LIABILITIES> 6,189,000
<BONDS> 3,512,000
0
0
<COMMON> 139,000
<OTHER-SE> 4,140,000
<TOTAL-LIABILITY-AND-EQUITY> 15,073,000
<SALES> 0
<TOTAL-REVENUES> 13,822,000
<CGS> 0
<TOTAL-COSTS> 12,691,000
<OTHER-EXPENSES> 1,437,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 669,000
<INCOME-PRETAX> (975,000)
<INCOME-TAX> (305,000)
<INCOME-CONTINUING> (670,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (670,000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
