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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended AUGUST 31, 1995 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 1-11016
ALLWASTE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2427167
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
5151 SAN FELIPE, SUITE 1600
HOUSTON, TEXAS 77056
(Address of Principal Executive Offices) (Zip Code)
(713) 623-8777
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
COMMON STOCK, PAR VALUE $.01 PER SHARE
7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2014
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
NEW YORK STOCK EXCHANGE, INC.
NEW YORK STOCK EXCHANGE, INC.
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of shares of Common Stock on the New
York Stock Exchange on November 22, 1995, was approximately $173 million.
The number of shares of Common Stock of the Registrant outstanding on
November 22, 1995 was 39,674,429.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT
Notice and Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held January 19, 1996.
INCORPORATED AS TO
Part III: Items 10, 11, 12 and 13
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<PAGE>
FORM 10-K REPORT INDEX
<TABLE>
<CAPTION>
PAGE NO.
10-K PART AND ITEM NO. --------
<S> <C> <C>
PART I
Item 1. Business .................................................................... 1
Item 2. Properties .................................................................. 7
Item 3. Legal Proceedings ........................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders ......................... 8
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters ...... 9
Item 6. Selected Financial Data ..................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................. 11
Item 8. Financial Statements and Supplementary Data ................................. 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .................................................................. 34
PART III
Item 10. Directors and Executive Officers of the Registrant .......................... 35
Item 11. Executive Compensation ...................................................... 35
Item 12. Security Ownership of Certain Beneficial Owners and Management .............. 35
Item 13. Certain Relationships and Related Transactions .............................. 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............. 36
</TABLE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Allwaste, Inc. provides integrated industrial and environmental cleaning
and maintenance services primarily in the United States, Canada and Mexico.
Unless the context otherwise requires, references to the "Company" or "Allwaste"
refer to Allwaste, Inc., a Delaware corporation incorporated on August 21, 1986,
and its subsidiaries, affiliates and predecessors.
The Company, through its operating subsidiaries and affiliates, provides
to its industrial and commercial customers a range of industrial and
environmental services, including: on-site industrial cleaning and waste
management services; waste transportation and processing; wastewater
pretreatment; site remediation; maintenance services; turnaround and outage
services; container cleaning and repair services; emergency spill response
services; and other general plant support services.
Effective September 1, 1995, the Company sold its glass recycling
operations through the sale of all the issued and outstanding capital stock of
its wholly-owned subsidiary, ARI Glass Newco, Inc. ("ARI"), to Equus Acquisition
Company (now Strategic Materials Holding, Inc., "SMHI") and another affiliate of
Equus II Incorporated (together, "Equus"). As consideration for the sale of the
shares of common stock of ARI to Equus, the Company received an aggregate of
$57.1 million, consisting of (i) $42.5 million in cash, (ii) a 12% Subordinated
Note due 2002 in the original principal amount of $6.61 million, (iii) 8,000,000
shares of the 7% redeemable Series A Preferred Stock, redemption value $1.00 per
share, of SMHI, and (iv) a stock purchase warrant exercisable to purchase up to
2,153,846 shares of the common stock of SMHI, par value $.001 per share (the
"SMHI Common Stock"), which shares represented approximately 35% of the
outstanding shares of SMHI Common Stock. The Company has since transferred to
certain members of the SMHI management group stock purchase warrants exercisable
to purchase an aggregate of 184,615 shares, or 3%, of SMHI Common Stock. See
also "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 of Notes to Consolidated Financial Statements.
The Company has, in the past, divided its operations into three industry
segments: environmental services, recycling and container services. With the
completion of the sale of the Company's glass recycling operations, the Company
has combined the prior industry segments of environmental services and container
services into a single operation. The following table presents the percentage of
total revenues for each of the Company's principal service lines for each of the
fiscal years ended August 31, 1995, 1994 and 1993, excluding the Company's
discontinued glass recycling operations.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
ON-SITE INDUSTRIAL AND WASTE MANAGEMENT SERVICES
<S> <C> <C> <C>
Air-moving and liquid vacuuming .............................................. 18% 19% 19%
Hydroblasting and gritblasting ............................................... 18% 19% 19%
Dredging and dewatering ...................................................... 6% 6% 7%
Other ........................................................................ 13% 10% 10%
--- --- ---
Subtotal ................................................................... 55% 54% 55%
--- --- ---
CONTAINER SERVICES ............................................................. 14% 16% 15%
TRANSPORTATION, ROLL-OFF AND TANK RENTAL SERVICES .............................. 12% 13% 15%
EXCAVATION AND SITE REMEDIATION SERVICES ....................................... 11% 9% 9%
ALL OTHER SERVICES ............................................................. 8% 8% 6%
--- --- ---
Total ...................................................................... 100% 100% 100%
=== === ===
</TABLE>
Since its initial public offering in December 1986, the Company has
pursued a strategy of acquiring local independent operators within the
industrial service industry, thereby creating, through consolidation,
opportunities to benefit from economies of scale, professional management,
shared marketing techniques and greater access to capital. To date, the Company
has acquired over 90 businesses through this strategy. See "Business Expansion
Program" and Note 2 of Notes to Consolidated Financial Statements.
Despite its historical growth through acquisitions, the Company has, in
recent years, experienced more internal growth than acquisition-related growth.
See "Business Expansion Program." The Company has focused on realizing increased
internal growth primarily by providing solution-oriented and preventive services
that focus on improving customer efficiency and profitability, transferring
technology and knowledge among the Company's various operating locations,
implementing national marketing programs that target major industries served by
the Company, introducing services in new geographic areas and developing
services that address environmental concerns associated with new
-1-
products. The Company recently launched ALLIES(TM), a new approach of
collaboration between the Company and its customers that focuses on creating
flexible and innovative solutions to a customer's problems and stresses the
Company's services as an economically-efficient outsourcing alternative that can
maximize a customer's competitive role in the emerging global market. See " --
Marketing."
The Company's operations are subject to stringent federal, state and local
governmental regulation. Because of the evolving and uncertain nature of these
often complex regulations, the Company cannot predict the effect, if any, that
the enactment, amendment, repeal or enforcement of applicable governmental
statutes or rules and regulations will have on the Company's operations. See "
- -- Government Regulation" and "Legal Proceedings -- Environmental Proceedings."
Legislation and governmental regulations relating to the protection of the
environment, both existing and future, may also require the Company to outlay
certain capital expenditures to purchase or replace certain equipment and to
upgrade certain facilities. It is anticipated that such capital expenditures, if
any, will not have a material effect on the Company's financial position or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources."
Unless the context indicates otherwise, all statistical and financial
information included in Items I, II and III of this Report is given as of August
31, 1995 and excludes the Company's discontinued glass recycling operations.
BUSINESS SERVICES
ON-SITE INDUSTRIAL AND WASTE MANAGEMENT SERVICES. The largest component of
the Company's business is the provision of industrial cleaning and waste
management services at customer facilities. The Company provides industrial
cleaning and waste management services from approximately 98 locations in North
America (four of which are in Canada) and is currently providing such services
under long-term contracts at customers' facilities at an additional 11 locations
in North America. The Company provides a number of specialized services for the
handling and processing of solid, industrial and hazardous wastes, including
air-moving and liquid vacuuming, hydroblasting and gritblasting, dredging,
dewatering and sludge processing, sludge pumping, chemical cleaning and jet
rodding.
Air-moving is an efficient method of removing and handling industrial
wastes or salvageable materials contained in customers' tanks, containers or
other process configurations by means of pneumatic conveyance or vacuuming with
controlled air velocity. The Company performs its air-moving services using
truck and trailer-mounted air-moving equipment. Typically, the Company's
air-mover truck is driven onto the customer's facility near the actual work
site. The Company's employees extend pipe and/or hose from the air-mover truck
into the customer's tank, container or other process configuration holding the
waste or salvageable material. The material is then conveyed into the air-mover
truck or container for transportation to a proper customer-designated disposal
site.
The Company's hydroblasting services are performed using high-pressure
pumps capable of achieving water pressures of up to 35,000 pounds per square
inch. Hydroblasting is an effective method of removing hard deposits from
surfaces, such as heat exchangers, boilers, aboveground storage tanks and
pipelines, that may be unsuitable for other conventional cleaning techniques.
Gritblasting, although similar to hydroblasting, utilizes both abrasive and
non-abrasive media to clean surfaces. Gritblasting is often used to clean
electrostatic precipitators and boilers and prepare metal surfaces for
protective coatings and non-destructive testing. In many cases, hydroblasting or
gritblasting can be used as an alternative to chemical cleaning.
The Company's dewatering services involve the use of centrifuges, filter
presses and belt presses to separate liquids from solids, a process typically
utilized to minimize disposal volumes. These services are frequently used to
process the waste generated by tank cleaning or dredging services.
CONTAINER SERVICES. The Company conducts container services operations
from 31 locations (three of which are in Canada). The Company's container
services operations can be divided into three distinct components: cleaning,
inspection and repair. Over-the-highway tank-trailers, railcar tanks and
intermodal containers and intermediate bulk containers ("IBCs") require thorough
cleaning before shipping a new or different product. The Company also inspects
all cleaned containers, in accordance with applicable governmental regulations,
to insure no product or moisture remains in the cleaned container. The Company
provides repair services for tank-trailer units, intermodal containers and IBCs.
The Company believes that its container services business is the largest
non-carrier operation in the industry in terms of total revenues and number of
containers serviced.
TRANSPORTATION, ROLL-OFF AND TANK RENTAL SERVICES. The Company provides
both short and long-distance transportation of hazardous and non-hazardous
wastes from customer sites to customer-designated landfills, recycling and
reclamation facilities, and treatment, storage and disposal facilities. The
Company provides these transportation services primarily on a unit-price or
per-loaded mile basis. At certain locations, the Company owns air-tight,
water-tight roll-off containers of various sizes, which it utilizes to collect
and transport materials within the customer's facility
-2-
or to customer-designated disposal sites. The Company also operates liquid tank
transports equipped with vacuum pumps. Most of the Company's liquid tank
transports are certified for the transportation of hazardous materials.
EXCAVATION AND SITE REMEDIATION SERVICES. The Company's excavation and
site remediation services involve the use of heavy equipment such as bulldozers
and scrapers for the purpose of grading or otherwise restructuring existing
terrain. The Company primarily provides these services to industrial customers
for site preparation, construction and maintenance of industrial settlement
ponds and lagoons, including the periodic cleaning or remediation of such ponds
and lagoons. The Company also provides these services in connection with the
construction of landfills.
WASTEWATER PRETREATMENT. The Company currently operates, as part of its
container services group, four facilities that accept non-hazardous commercial
and industrial waste products, primarily from third parties. Waste products
received and treated at the Company's facilities include wastewaters, sludges
and hydrocarbon-bearing liquids. The Company processes a variety of materials at
these facilities, including solid waste landfill leachate, restaurant
grease-trap wastes, petroleum-contaminated wastewaters, commercial sandtrap or
sump wastes, food-processing wastewaters and a variety of industrial
wastewaters.
CUSTOMERS
The Company provides industrial and environmental services to four primary
industry groups: the petrochemical and refining, electric power, pulp and paper
and automotive industries. All four of these industry groups utilize the
Company's on-site industrial cleaning and waste management services. The Company
also provides extensive excavation, sludge dewatering and transportation-related
services to its petrochemical and refining and electric power industry
customers. The Company provides certain industrial services to commercial
businesses; steel, mining and manufacturing customers; and governmental agencies
and municipalities. The Company has customarily provided tank-trailer cleaning
services to contract carriers who own trucks that have been used to transport
hazardous and non-hazardous substances and has been increasingly providing
tank-trailer cleaning services to chemical manufacturers. Chemical manufacturers
represent the Company's primary customer for its railcar tank cleaning and IBC
cleaning services. No single customer accounted for more than 10% of the
Company's consolidated revenues for the fiscal years ended August 31, 1995, 1994
and 1993, and the loss of any single customer would not have a material adverse
effect on the financial position of the Company taken as a whole.
The Company seeks to enter into master service agreements or
project-specific contracts with its industrial and environmental services
customers. Under these master service agreements, the customer issues purchase
orders for requested services, if any, on an as-needed basis. In the
alternative, the Company receives stand-alone purchase orders, pursuant to which
customers order services for a short-term project, with jobs typically lasting
from one to several days. The Company generally provides its industrial services
at prescribed rates, subject to negotiation with the customer, or based on
competitive bidding. The Company often provides excavation and site remediation
services under fixed-price, unit-price or time-and-materials based contracts.
The Company typically provides container services on a "first come, first
served" basis and maintains a published price list for its container services.
MARKETING
The Company utilizes a combination of sales representatives, facility
managers and other designated management employees to solicit business from
industrial customers and tank transportation fleets. The Company has also
implemented national marketing programs designed to increase penetration of
three of the Company's largest customer groups: the petrochemical and refining,
electric power and pulp and paper industries. The Company provides a number of
complementary services from various operating locations to customers in certain
major industries. Through concentrated marketing of the full range of industrial
cleaning and waste management and transportation services to these customers and
focusing on broadening the scope of the services it can offer its customers from
a wide range of locations, the Company expects to increase its penetration of
these industries. Given the strict environmental rules and regulations
applicable to generators and transporters of hazardous wastes, in marketing its
container services, the Company emphasizes its state-of-the-art wastewater
pretreatment systems and computerized residual waste tracking systems in order
to alleviate customers' concerns regarding proper treatment of wastes for which
they are responsible. The Company also encourages customers to utilize the
Company's container services facilities as their dispatch locations to minimize
"dead-head" miles to and from the cleaning location.
As part of its focus on its national marketing strategy, the Company
recently launched the Allwaste's Integrated Environmental Services (ALLIES(TM))
program, an approach of collaboration between the Company and its customers that
is being implemented by the Company's operating locations on a national level.
ALLIES(TM) encourages the Company's operating managers to focus on creating
flexible and innovative solutions to a customer's problems and to stress the
Company's services as an economically-efficient outsourcing alternative that can
maximize a customer's competitive position in the emerging global market.
Because the Company believes that one of its chief advantages
-3-
over its competitors is the wide number of complementary service lines that it
can offer its customers, the Company intends for the ALLIES(TM) program, with
its emphasis on the Company as a solution-oriented, customer-focused provider of
industrial and environmental services, to provide the Company with a stronger
national identity. Rather than competing solely on the basis of hourly rate, the
Company's overall marketing strategy, and the focus of the ALLIES(TM) program,
is to provide a "value-added" service, primarily decreasing a customer's plant
downtime through higher levels of productivity; decreasing disposal costs by
recovering, recycling and/or minimizing waste volumes; and improving unit
operating efficiency by increasing heat transfer and unit run time and reducing
unscheduled downtime through preventive maintenance. The Company believes that
this focus has a positive impact on its customers' profitability, thereby
contributing to their competitive position.
COMPETITION
The industrial services industry is highly competitive and fragmented. The
Company believes that it is one of the largest industrial service companies in
the country in terms of total revenues, geographic coverage and depth of service
capability. The Company faces competition from local owner-operated service
contractors and from national and regionally-based companies that perform a
variety of industrial and environmental services. Competition for industrial
services is based primarily on hourly rates, productivity, innovative approaches
and quality of service. The Company attempts to add value through providing a
safer and more efficient level of service to differentiate itself from
competitors.
The Company also experiences competition in providing container services
from independently-owned and operated facilities and certain large tank-trailer
transport companies that also operate tank cleaning facilities. Three large
tank-trailer transport companies have numerous cleaning facilities throughout
the United States and are also major customers of the Company. The important
competitive factors in the Company's container services operations are
geographic location, efficient service, price and the ability to satisfy the
customers' concerns regarding proper waste disposal.
GOVERNMENT REGULATION
The Company provides its customers with services designed to increase
environmental protection by cleaning and removing materials or substances from
its customers' equipment or sites that must be properly handled, recycled, or
removed from the sites for ultimate disposal. The Company's customers are
subject to regulation under a complex conglomeration of local, state and federal
statutes, codes and regulations that govern the handling, processing, use,
treatment, storage, transportation and disposal of non-hazardous and hazardous
materials and wastes. A core component of the Company's business is advising and
assisting its customers in complying with this complex regulatory system; thus,
the central tenet of the Company's business philosophy is that its operations
will meet, and in most cases exceed, the requirements imposed by this regulatory
system. This commitment ensures that the Company's customers, as well as the
Company itself, are in full compliance with the environmental regulatory system.
Although there are many statutory requirements that apply to the Company
and its customers, the principal regulatory schemes within which the Company
must operate are: the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. ss. 9601, ET SEQ., as amended ("CERCLA"); the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, ET SEQ., as amended
("RCRA"); the Hazardous Materials Transportation Uniform Safety Act, 49 App.
U.S.C. ss. 2001, ET SEQ.; the regulations promulgated by the United States
Department of Transportation ("USDOT"); and the Occupational Health and Safety
Act, 29 U.S.C. ss.651, ET. SEQ. (the "OSHA Act"). The Company's wholly-owned
Canadian subsidiaries are subject to similar Canadian regulations.
CERCLA imposes, without regard to fault or negligence, liability on the
generators of hazardous materials, on the owners and operators of treatment,
storage and disposal sites and sites where hazardous materials are emitted,
released or discharged, either by accident or design, and on companies that
transport hazardous materials from generators to recycling, reclamation or
disposal sites. With the exception of certain of the container service
facilities, the Company generates hazardous wastes at its operating locations in
DE MINIMIS quantities and solely in connection with its business operations. At
certain of its container services locations, hazardous wastes may be generated
as a result of the Company's heel management program (discussed below). The
Company does not own or operate hazardous waste disposal sites. Consequently, it
has minimal potential liability under CERCLA with respect to such issues. As a
transporter of hazardous materials, however, the Company is potentially
responsible for the cleanup and remediation at any site to which it transports
hazardous materials. In addition, although the Company does not own or operate
any landfills, the Company does contract with, on behalf of its customers, the
owners and operators of non-hazardous (also known as solid waste) and hazardous
landfills. Under CERCLA, the Company is potentially responsible as an "arranger
for disposal" under these circumstances. To protect against liability under
CERCLA as either a transporter or an "arranger for disposal", the Company works
with its customers to ensure that such sites are carefully selected prior to the
use of such facilities and also attempts to protect itself
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through its contractual relationship with its customers. The Company's employees
that are involved with the handling, processing or transportation of hazardous
materials are required to participate in approved safety and emergency response
training under the OSHA Act.
RCRA imposes liability on the owners and operators of facilities that are
used to store, treat or dispose of hazardous materials and imposes "cradle to
grave" liability on the generators of hazardous materials. The Company does not
own or operate any facility that requires a RCRA Part B permit, which removes
the Company from the jurisdiction of the most complex and costly areas of
compliance under RCRA. Since the Company generates only DE MINIMIS quantities of
hazardous materials at its operating locations, with the exception of the
container services locations discussed below, the Company's potential liability
under RCRA is limited. However, since waste materials are recycled, reclaimed
and stored at several of the Company's facilities, the Company is required to
comply with the RCRA regulations with respect to those facilities. Most
significantly, RCRA imposes a stringent set of regulations on the
identification, storage, treatment, transportation and disposal of wastes. Thus,
when handling, processing and transporting a customer's wastes, the Company must
carefully observe these regulations. To minimize potential liability under RCRA,
the Company works closely with its customers to ensure that the wastes generated
by the customer have been properly identified so that such wastes can be
appropriately handled, processed and transported and also attempts to protect
itself through its contractual relationship with its customers.
With respect to the Company's container services operations, the Company
has potential liability under both CERCLA and RCRA as a generator, storer and
disposer of certain materials that the Company drains or melts from containers
("heels" as they are referred to in the industry). In some instances, the
Company may be considered to be the generator of those heels that may be
classified as hazardous wastes (within the meaning of applicable regulations).
The Company has instituted a heel management program to minimize this potential
liability under both CERCLA and RCRA. When an over-the-highway tank trailer,
railcar tank, intermodal container or IBC arrives at one of the Company's
container services facilities, the Company correctly identifies the last
substance hauled in a given container and "empties" the container in accordance
with applicable governmental regulations. All such heels are collected in an
approved manner, labeled as hazardous wastes, if applicable, manifested and
transported by a licensed waste transporter to an approved treatment, recycling
or disposal facility, all in accordance with applicable law. The container
cleaning procedures and the cleaning materials utilized depend largely on the
configuration of the container being cleaned and the last material transported
in such container. The Company's cleaning systems capture all water, chemical
and residue produced from preflushing, final rinsing and steaming. This
wastewater is pretreated and discharged into the sewer system in accordance with
local requirements. The Company then collects, labels and manifests all solid
residues generated by the pretreatment of wastewater and all contaminated
cleaning solvents and transports them to approved treatment, recycling or
disposal sites through a licensed waste transporter.
The Company's business depends, in part, on the issuance of permits from
state and federal agencies to allow the Company to transport hazardous
materials, to operate certain of the Company's equipment and to operate the
Company's container cleaning and wastewater pretreatment facilities. The Company
believes that it will be able to obtain and retain the applicable and necessary
permits from governmental authorities. The majority of these permits are
required to be renewed annually, and accordingly, such permits may be subject to
revocation, modification or denial. There can be no assurance that the Company
will receive necessary permits on a timely basis or that such permits will not
be revoked, modified or denied. The Company believes, however, that it has
sufficient duplicity of permits so that the loss of any one permit or group of
permits would not have a material adverse effect on the Company's financial
position or results of operations.
In connection with several of the Company's service lines, there are
significant, but often unforeseeable, inherent business risks that may
materially impact the Company's operations, including, but not limited to: (i)
the potential that the Company will handle, process, transport or dispose of
material that has been misidentified by its customer, resulting in unanticipated
exposure to hazardous wastes by the Company's employees and/or disposal of such
wastes at an unsuitable facility; (ii) the potential for governmental actions at
the local, state or federal level that impose unforeseen restrictions on the
handling, transportation or disposal of waste, which actions may result in
declining volumes of waste that may be handled, treated, or transported by the
Company's existing service lines; and (iii) the potential imposition of
liability on the Company for the historical use of a landfill, and the
corresponding allocation of responsibility on the Company for the costs of
remediating such facilities.
The Company may not always be able to accurately assess significant
business risks related to regulatory compliance because of its inability to
predict the future enactment of additional environmental regulations or the
amendment, modification or repeal of existing statutes or regulations.
Frequently, public pressure causes local, state or federal regulators to act
precipitously, with the result that newly-enacted legislation or regulations may
contradict existing regulations. Consequently, although the Company makes a
significant effort to monitor and to participate in anticipated regulatory,
political and legal developments that may affect its operations, it is very
difficult for the Company to predict the enactment, amendment, repeal or
modification of applicable statutes, rules and regulations
-5-
pertaining to the protection of the environment or the effect that such actions
will have on its financial position or results of operations.
The complexity of environmental regulations offers the Company vast
potential to provide expanded services to its customers, particularly with
respect to the Company's industrial cleaning and waste management and waste
minimization service lines. Under the current regulatory scheme, the Company's
customers are facing increasing restrictions on the generation, treatment,
processing and disposal of non-hazardous and hazardous materials. For example,
changes to the RCRA regulations have increased the types of materials that may
no longer be disposed in landfills, which has caused the Company's customers to
find alternative treatment methods for such materials. Similarly, changes over
the last few years in the RCRA regulations have resulted in the closure of many
landfills, which closures have increased the demand for the development of a
process that will minimize the types and amounts of materials required to be
disposed in landfills.
The Company may also experience increased business potential as a result
of the increasing scrutiny placed on companies that provide industrial and
environmental services. Many states have successfully enacted legislation that
allows the state permitting authorities to consider the "fitness" of a permit
applicant. Consequently, companies with a history of environmental violations
have been, and will likely continue to be, unable to renew the permits that
allow them to transport and/or operate as environmental service companies in
certain jurisdictions. The inability of the Company's competitors to withstand
similar scrutiny should offer the Company increased potential to attract new
customers in marketplaces affected by these statutes. Although there can be no
assurance that the Company will be able to successfully withstand scrutiny under
such "applicant fitness" statutes or regulations in the future or in all
jurisdictions that may enact such legislation, to date the Company has not
encountered any significant difficulty in meeting the requirements of these
statutes and has been able to obtain required permits notwithstanding the
increased level of scrutiny.
BUSINESS EXPANSION PROGRAM
The Company is seeking to expand its service capabilities through the
addition of selected service lines at existing locations, acquisitions of
existing businesses and the establishment of Company-owned start-up operations
in strategic geographic marketplaces. A major factor in the growth of the
Company has been its acquisition program; however, management expects an
important portion of future growth will be achieved through investment in
start-up operations and internal expansion of existing operations.
INTERNAL GROWTH. The Company has and will continue to open new facilities
with its own resources, equipment and personnel. With respect to its on-site
industrial cleaning and waste management operations, the Company seeks to add
service lines to existing locations as customer demand dictates needs for such
additional services. The Company also seeks to expand its customers' awareness
of its service capabilities through national marketing programs targeted to
specific industry groups. See " -- Marketing." The Company expects to expand its
IBC service capacity and to upgrade its wastewater pretreatment capabilities to
handle additional third party waste streams.
The Company has also started four internal ventures to explore expansion
of its service capabilities to its industrial customers. These ventures into
industrial water and wastewater services, energy services, contract labor
services and leak sealing and valve restoration services target specific
services that the Company believes represent substantial opportunities for
internal growth. Additionally, the Company expects to continue to pursue
investment opportunities pursuant to which it would acquire minority ownership
or otherwise partner with other business entities to expand its service
capabilities for its industrial customers.
ACQUISITIONS. The Company intends to continue pursuing opportunities to
acquire the stock or assets of suitable industrial and environmental service
businesses for consideration consisting of cash, convertible subordinated notes,
promissory notes, common stock of the Company (the "Common Stock") or some
combination thereof. The Company may supplement the acquisition of small local
companies or companies engaged in complementary service lines by acquiring
larger companies that would be attractive to the Company's customer base. There
can be no assurance that the Company will be able to successfully complete any
such acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
A significant portion of any shares of Common Stock issued in connection
with acquisitions is typically restricted as to resale, generally for two years.
The Company also often requires as a condition of an acquisition that the prior
owners of the acquired business enter into non-competition agreements and that
the key members of existing management of the acquired business contract,
through employment agreements, to remain as managers of the acquired business.
For additional information regarding the Company's acquisitions, see Note 2 of
Notes to Consolidated Financial Statements.
-6-
INSURANCE AND BONDING
The Company maintains insurance coverage for normal business risks,
including workers' compensation for its employees and auto and general liability
insurance, including products and completed operations coverage. Comprehensive
insurance for environmental accidents and pollution occurring at the Company's
facilities has been expensive and difficult to obtain, and certain policies
purchased by the Company specifically exclude certain perils and/or operations
that could give cause for such claims. Effective as of September 1, 1995, the
Company has purchased pollution liability coverage for its container services
operations. Should the Company experience difficulty in obtaining adequate
insurance coverage at reasonable rates in the future, this could have a material
adverse effect on the Company's financial position or results of operations. To
date, the Company has never incurred significant fines, penalties or liabilities
for pollution, environmental damage or toxic torts. However, a successful
liability claim for which the Company is only partially insured or completely
uninsured could have a material adverse effect on the Company's financial
position and results of operations.
The Company cannot predict the future availability or cost of insurance.
The Company's total cost of property and casualty insurance, including workers'
compensation premiums, was $14.8 million, $10.1 million and $10.7 million for
the fiscal years ended August 31, 1995, 1994 and 1993, respectively. The
increased cost in fiscal 1995 is attributable to the overall increase in the
size of the Company and a significant increase in the adverse development of
existing claims, offset by a reduction in fixed costs and the positive impact of
the Company's safety programs implemented in the three previous years.
A substantial portion of the Company's current and prior year insurance
coverages are "high deductible" or retrospective policies in which the Company,
in many cases, is responsible for the payment of incurred claims up to specified
individual and aggregate limits, over which a third party insurer is
contractually liable for any additional payment of such claims. Accordingly, the
Company bears certain economic risks related to these coverages. On a continual
basis, and as of each balance sheet date, the Company records an accrual equal
to the estimated costs expected to result from incurred claims plus an estimate
of claims incurred but not reported as of such date based on the best available
information at such date. However, the nature of these claims is such that
actual development of the claims may vary significantly from the estimated
accruals. All changes in the accrual estimates are accounted for on a
prospective basis and can have a significant impact on the Company's financial
position or results of operations.
Certain of the Company's customers require the Company to post performance
bonds that are equivalent to the full amount of the contracts and guarantee
their completion. Although the Company has previously obtained bonds through
relationships with various sureties, there can be no assurance that these
relationships will continue or that the Company will not be forced to seek
alternative sources for bonding.
EMPLOYEES
As of August 31, 1995, the Company had a total of 4,057 full-time
employees. At 12 of the Company's service operations, the Company is, or is
anticipated to be, bound by collective bargaining agreements governing the
Company's relationship with its labor force at such locations. These agreements
apply to approximately 248 of the Company's employees and expire at various
times from 1996 to 1998, when they will have to be renegotiated in accordance
with applicable law. No prediction can be made as to the ultimate outcome of
such negotiations, although the Company's management knows of no reason why
agreements could not be reached. Additionally, management believes that any
failure to come to terms in such negotiations would not have a material adverse
effect on the Company's financial position or results of operations. The Company
believes its employee relations are good.
ITEM 2. PROPERTIES
More than half of the Company's operating locations in its industrial and
environmental services business are leased premises under written agreements
that expire at various times through 2004. The majority of the leases have
renewal options at the Company's option for six month to fifteen-year periods.
The Company owns its industrial service facilities in 29 locations. Management
does not anticipate any major problems in negotiating new leases on expiration
of any existing leases. However, should any problems arise, management believes
that it will be able to obtain adequate facilities on terms acceptable to the
Company since these operations are all in industrial marketplaces.
-7-
ITEM 3. LEGAL PROCEEDINGS
In the normal course of its operations, the Company can become involved in
a variety of legal disputes. Currently, the Company is a defendant in several
legal proceedings, including workers' compensation matters and minor business
disputes, the majority of which are being handled or are expected to be handled
by the Company's insurance carriers. The Company believes that a decision
adverse to the Company in any one or all of these proceedings would not have a
material effect on the Company's financial position or results of operations.
ENVIRONMENTAL PROCEEDINGS
While the Company's paramount goal is to conduct its operations in
compliance with all applicable statutes and regulations, in the normal course of
operations, the Company, as with all other companies engaged in the industrial
and environmental service business, has been and may continue to be the subject
of enforcement proceedings initiated by local, state and federal regulatory
authorities. In general, such proceedings allege technical violations of
licenses or permits under which the Company operates and often are the result of
either a misunderstanding with respect to the applicability of a particular
regulation or a difference in opinion between the Company and a regulatory
agency with respect to the interpretation of a regulation. These enforcement
proceedings can result in the imposition of fines and/or penalties on the
Company, and the agreement, by the Company, to change certain operating
practices and procedures to more closely comply with the interpretation of the
environmental regulations favored by the local, state or federal regulatory
agency. Although the Company's experience to date has been that such proceedings
have not had, either individually or in the aggregate, a material adverse effect
on the Company's financial position or results of operations, there can be no
assurance that a future proceeding will not have such a material adverse effect.
Various subsidiaries of the Company have been identified as Potentially
Responsible Parties ("PRPs") at sites listed on the United States Environmental
Protection Agency's ("EPA") National Priorities List ("NPL"), which identifies
sites that have been selected for remedial activity by the EPA under CERCLA (the
NPL is sometimes referred to as the "Superfund List"). In addition, various
subsidiaries of the Company have been sent information requests by EPA, seeking
to determine whether or not such subsidiaries have been involved with additional
sites on the NPL. The Company's responsibility as a PRP, if any, at these
additional sites has not been determined. All NPL sites at which the Company has
been identified as a PRP, or for which the Company has been requested to submit
information, are disposal sites owned and operated by third parties and are
sites to which the Company is one of multiple parties (sometimes in excess of
one hundred) alleged to have transported material. However, when a subsidiary of
the Company has been formally identified as a PRP, such subsidiaries have
uniformly been identified as DE MINIMIS contributors to such sites, and the
Company's management anticipates that its status at additional sites at which it
may be named as a PRP in the future would be similar. The Company's status as a
DE MINIMIS contributor will entitle its subsidiaries to consider settlements
extended by the EPA and/or those parties that have been identified as
significant contributors to such sites. Prior to accepting such a settlement,
the Company's management will review its subsidiary's role with respect to each
site, the amount and types of materials transported by the subsidiary to the
site, and the availability of indemnification protection from the subsidiary's
customers whose waste was sent to the site. As a result of this review, as well
as the Company's continual review of such exposures, the Company may elect to
accrue for an anticipated settlement of such Superfund proceeding. The majority
of Superfund proceedings involve several years of negotiation between the group
of parties identified as PRPs and EPA; therefore, the actual expenditure for a
PRP settlement occurs years, if not decades, after the use of the NPL site and
typically years after notification of potential liability as a PRP. Based on the
Company's prior experience at NPL sites, the Company's management anticipates
that it will accept DE MINIMIS settlements at any site at which it is identified
as a PRP. In addition, it is anticipated that such settlements will not have a
material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended August 31, 1995.
-8-
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "ALW." The following table sets forth the range of high and low per
share sales prices for the Company's Common Stock for the Company's two most
recently completed fiscal years:
HIGH LOW
---------- ----------
Fiscal 1994 --
First quarter ended November 30, 1993 .......... $ 5.000 $ 4.000
Second quarter ended February 28, 1994 ......... 5.250 4.375
Third quarter ended May 31, 1994 ............... 6.000 4.875
Fourth quarter ended August 31, 1994 ........... 7.000 5.500
Fiscal 1995 --
First quarter ended November 30, 1994 .......... $ 7.500 $ 5.875
Second quarter ended February 28, 1995 ......... 6.125 4.750
Third quarter ended May 31, 1995 ............... 6.375 5.125
Fourth quarter ended August 31, 1995 ........... 5.875 5.000
According to the Company's transfer agent, on November 22, 1995, there
were 2,947 holders of record of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's credit facility prohibits the payment of cash dividends. The policy of
the Board of Directors at this time is to retain earnings to provide funds for
the growth of the Company.
-9-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data below includes the accounts of all companies
acquired through August 31, 1995. The businesses, all of which were acquired in
transactions accounted for as purchases during the past five years, are included
from their respective dates of acquisition. The selected financial data has been
restated for all years presented to display the Company's glass recycling
business as a discontinued operation.
The Selected Financial Data should be read in conjunction with the
accompanying Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues .................................................. $ 344,245 $ 286,861 $ 243,591 $ 182,214 $ 136,740
Cost of operations ........................................ 254,596 204,492 173,844 125,886 96,349
--------- --------- --------- --------- ---------
Gross profit .............................................. 89,649 82,369 69,747 56,328 40,391
Write-downs of operating equipment ........................ 6,908 -- -- -- --
Selling, general and administrative expenses .............. 72,976 59,020 53,033 40,408 28,672
Interest expense .......................................... (8,785) (5,617) (4,798) (3,984) (2,538)
Interest and other income (expense), net .................. (3,097) (818) 1,250 276 939
--------- --------- --------- -------- -------
Income (loss) from continuing operations before income
taxes ..................................................... (2,117) 16,914 13,166 12,212 10,120
Income tax provision ...................................... 2,170 6,725 5,465 4,885 3,515
Minority interest ......................................... 408 407 -- -- --
--------- --------- --------- --------- ---------
Income (loss) from continuing operations .................. (3,879) 10,596 7,701 7,327 6,605
Income from discontinued operations, net of
applicable income taxes ................................. 2,773 2,501 2,464 4,218 3,077
--------- --------- --------- --------- ---------
Net income (loss) ......................................... $ (1,106) $ 13,097 $ 10,165 $ 11,545 $ 9,682
========= ========= ========= ========= =========
Net income (loss) per common share
Continuing operations ................................ $ (.10) $ .29 $ .21 $ .21 $ .19
Discontinued operations .............................. .07 .07 .07 .12 .09
--------- --------- --------- --------- ---------
Net income (loss) per common share ........................ $ (.03) $ .36 $ .28 $ .33 $ .28
========= ========= ========= ========= =========
Weighted average common shares outstanding ................ 38,805 36,852 36,307 35,330 34,908
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Working capital ........................................... $ 26,925 $ 25,579 $ 12,233 $ 14,692 $ 15,187
Property and equipment, net ............................... 131,098 108,956 89,730 71,707 58,020
Total assets .............................................. 372,233 309,263 259,965 196,001 155,519
Long-term obligations ..................................... 172,948 134,630 101,041 72,865 54,959
Shareholders' equity ...................................... 128,291 121,218 105,196 90,038 75,575
Cash dividends declared per common share .................. -- -- -- -- --
</TABLE>
-10-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" has been restated for all periods discussed to exclude the
Company's discontinued glass recycling operations. For information regarding
acquisitions and dispositions made by the Company, refer to Notes 2 and 3,
respectively, of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
REVENUES -- The Company's consolidated revenues grew by 20% from fiscal
1994 to 1995 and by 18% from fiscal 1993 to 1994. From fiscal 1994 to 1995,
approximately 57% of the revenue growth was from internal sources with the
balance of 43% coming externally. Of the Company's total revenue growth from
fiscal 1993 to 1994, approximately 74% of such growth was internally-generated
and 26% was derived from external sources. The following is a summary of
revenues by major service line:
1995 1994 1993
---- ---- ----
ON-SITE INDUSTRIAL AND WASTE MANAGEMENT SERVICES
Air-moving and liquid vacuuming ........................... 18% 19% 19%
Hydroblasting and gritblasting ............................ 18% 19% 19%
Dredging and dewatering ................................... 6% 6% 7%
Other ..................................................... 13% 10% 10%
--- --- ---
Subtotal ................................................ 55% 54% 55%
--- --- ---
CONTAINER SERVICES .......................................... 14% 16% 15%
TRANSPORTATION, ROLL-OFF AND TANK RENTAL SERVICES ........... 12% 13% 15%
EXCAVATION AND SITE REMEDIATION SERVICES .................... 11% 9% 9%
ALL OTHER SERVICES .......................................... 8% 8% 6%
--- --- ---
Total ................................................... 100% 100% 100%
=== === ===
During fiscal 1994, overall demand increased for day-to-day service and
project work due to an improvement in the general economy and work deferrals
from fiscal 1993 that were performed in fiscal 1994. Internal revenue growth
benefited from a strong turnaround season in the refining industry, and strong
outage seasons in the utility industry in the Northeastern and Western United
States. Revenues in the Southeastern United States increased due to an
improvement in the offshore oil and gas exploration and production industry. Due
to the effects of the general economic recovery, demand also increased within
the automotive industry in Canada. The remaining $11.4 million or 26% revenue
increase resulted from companies acquired during fiscal 1993 and 1994.
Airmoving and liquid vacuuming revenues increased $8.7 million or 19% in
fiscal 1994 primarily due to the previously discussed internal growth. Container
services revenues increased $7.6 million or 20% in fiscal 1994 as a result of
primarily volume increases in IBC and tank trailer cleaning and $1.8 million in
acquisition-related growth. Hydroblasting and gritblasting revenues increased
$6.4 million or 14% in fiscal 1994 with $1.4 million in acquisition related
growth and $5.0 million in internal growth due to the factors previously stated.
Excavation and site remediation revenues increased $4.2 million or 20% in fiscal
1994 primarily due to internal growth in the pulp and paper industry business in
the Eastern United States. Dredging and dewatering revenues increased $2.4
million or 15% primarily due to internal growth in the refining and
petrochemical industry in the Gulf Coast.
The Company's 13 other industrial service lines had aggregate revenue
increases of $14.0 million or 18% in fiscal 1994. These increases primarily
occurred in labor services, spill response, scaffolding and construction.
Emergency spill response work increased primarily as a result of pipeline
ruptures caused by the severe earthquake in southern California in mid-January
1994.
In general, the strong surge in business activity that began in fiscal
1994 continued into the first half of fiscal 1995. The Company began to
experience a weakening in business activity during the latter part of fiscal
1995. Specifically, the Company experienced a decline in turnaround activity in
the refining and petrochemical industry, particularly in the Pacific Coast
region of the United States. During fiscal 1995, the strongest increase in
internally-generated revenue occurred in the Southeastern United States as
operations in that area of the country benefited from increased penetration of
the pulp and paper and refining and petrochemical industries in Louisiana and a
significant public works project in Alabama. Additionally, the Company completed
a significant dewatering and roll-off
-11-
transportation project in Louisiana. The remaining $24.8 million or 43% revenue
increase resulted from companies acquired during fiscal 1994 and 1995.
Excavation and site remediation revenues increased $11.4 million or 45% in
fiscal 1995 primarily due to increased market penetration in the Louisiana pulp
and paper industry and a significant public works contract in Alabama.
Hydroblasting and gritblasting revenues increased $7.7 million or 14% in fiscal
1995 as a result of increased tank cleaning and gritblasting services provided
to the refining and petrochemical industry in the Southeastern United States and
to the offshore oil and gas exploration and production industry in the Gulf of
Mexico, respectively. Air-moving and liquid vacuuming revenues increased $7.4
million or 14% in fiscal 1995. Approximately $4.2 million or 57% of the increase
in this service line is attributable to acquisition growth. The remaining
increase is due to overall higher levels of turnaround activity along the Gulf
Coast, increased penetration of the refining market in Hawaii and a
non-recurring governmental clean-up job. These increases were partially offset
by less spill response work and a lower level of turnaround activity in the
refining industry in the Pacific Coast region. Container service revenues
increased $4.8 million or 11% in fiscal 1995. Approximately $1.2 million or 25%
of the increase in container services revenues is due to revenues generated by
the Company's Atlanta wastewater pretreatment plant, which was accounted for on
the equity method of accounting in the prior year previous to the Company's
ownership increase in late fiscal 1994. The remaining increase in this service
line is due to expansion of IBC service capabilities and a significant
wastewater pretreatment project in Louisiana. Dredging and dewatering revenues
increased $3.6 million or 19% as a result of acquisitions and a significant
project for a refining customer in Louisiana.
In fiscal 1995, the Company's 24 other industrial service lines had
aggregate revenue increases of $22.5 million or 39%. These increases primarily
occurred in the service lines of sewer rehabilitation, transportation, roll-off
and tank rental, labor, scaffolding, chemical cleaning, underground utility
locating and air monitoring.
GROSS PROFIT MARGINS -- Gross profit, as a percentage of revenues ("gross
margin"), for fiscal 1993, 1994 and 1995 was 29%, 29% and 26%, respectively.
Although the Company's gross margin was flat at 29% from fiscal 1993 to
fiscal 1994, a decline of 3% to 26% was experienced in fiscal 1995.
Approximately one-third of the margin decline is attributable to unusually high
development of existing risk insurance claims under the Company's high
deductible and retrospective risk management programs. Such decline was
partially offset by the Company's record year in fiscal 1995 for safety
performance. Margins were also affected by a higher mix of lower margin
subcontract and disposal revenues and a significant loss on a governmental
transportation project. Gross margins in the Company's Pacific Coast operations
were adversely affected by lower volumes and lower pricing in the California
refinery market and the nonrecurrence of high margin spill response work caused
by the severe earthquake in Southern California in January 1994. The container
services gross margin was adversely affected by inclusion of the results of the
Company's Atlanta wastewater pretreatment facility which had low margins and had
previously been accounted for under the equity method of accounting in fiscal
1994 and by lower margins at railcar operations that were primarily caused by a
change in revenue mix.
WRITE-DOWNS OF OPERATING EQUIPMENT
During fiscal 1995, the Company booked write-downs in recognition of the
permanent impairment of certain operating assets totaling $6.9 million. The
affected assets included certain operating equipment in Mexico and California, a
wastewater pretreatment facility, equipment relating to two small businesses
which were exited and various owned facilities held for sale.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES
The Company's SG&A expense as a percentage of revenues was 22% during the
fiscal year 1993 and 21% for fiscal years 1994 and 1995. SG&A expenses increased
11% from $53.0 million in fiscal 1993 to $59.0 million in fiscal 1994 and
increased 24% to $73.0 million in fiscal 1995. The increased expense in fiscal
1994 is primarily attributable to the growth of the industrial services
operations and to the acquisition of businesses during the year. SG&A related to
acquisitions completed subsequent to fiscal 1992 contributed approximately 20%
of the increase from fiscal 1993 to 1994. The remainder of the increase for
fiscal 1994 is due to SG&A expenses of internal start-up locations, including
the Company's Mexican operations, costs related to the Company's safety and
management incentive plans and direct overhead expenses related to the internal
expansion of the Company's operations. In fiscal 1993, SG&A expenses included
significant legal costs associated with protecting the Company's interests
relating to a previous acquisition which was favorably settled in early fiscal
1994.
Incremental SG&A from acquisitions completed subsequent to fiscal 1993
contributed approximately 30% of the increase from fiscal 1994 to fiscal 1995. A
significant part of the remaining increase is attributable to higher bad debt
expenses, the write-off of unrealizable organizational costs relating to a
realignment of the Company's Mexico joint ventures and higher legal and
professional fees. The Company also increased its staffing to support its sales,
safety and
-12-
compliance programs and to maintain strong financial systems and controls. These
increases in SG&A were partially offset by lower costs relating to the Company's
management incentive compensation plans.
INTEREST EXPENSE -- Interest expense increased $.8 million from fiscal
1993 to 1994 and $3.2 million from fiscal 1994 to 1995. In fiscal 1994, the
increase in interest expense is primarily the result of higher average debt
levels required to fund acquisitions and capital expenditures required for
internal growth. In the second half of fiscal 1994, the Company experienced
higher average interest rates than in the corresponding prior year period. In
fiscal 1995, the increase in interest expense was caused by a balanced
combination of the above-mentioned higher average debt levels and higher average
interest rates.
INTEREST AND OTHER INCOME (EXPENSE), NET -- For the years ended August 31,
1993, 1994 and 1995, interest income was $338,000, $484,000 and $402,000,
respectively. Other income for fiscal 1993 primarily reflects a $3.0 million
gain on sale of the Company's IBC leasing operations in December 1992, partially
offset by a $2.1 million pretax loss recorded in connection with the Company's
decision to terminate management service agreements and acquire three
investor-owned industrial services companies previously operated by the Company,
and other charges totaling $.4 million.
Other income for fiscal 1994 consists of a $2.7 million gain on the sale
of the Company's investment in the common stock of Sanifill, Inc. and a $1.4
million gain, net of related fiscal 1994 legal expenses, on the settlement of a
lawsuit associated with protecting the Company's interests relating to a
previous acquisition. Included in other expense for fiscal 1994 is $2.4 million
in write-offs relating to notes receivable and other reserves arising from the
sale of businesses. Additionally, in the first quarter of fiscal 1994, the
Company recorded $1.0 million in losses relating to its investment in a
wastewater pretreatment facility, a gain of $.5 million on the sale of a joint
venture interest, and other charges totaling $.7 million. Other expense for
fiscal 1994 also includes $1.8 million in net operating losses recorded on the
equity method of accounting at a wastewater pretreatment facility.
Other expense in fiscal 1995 is primarily attributable to $1.0 million in
allowances provided for a note receivable and the write-off of the Company's
remaining investment of $2.0 million in previously-owned businesses. Also, the
Company settled a lawsuit for $.6 million related to its previously discontinued
asbestos abatement business.
INCOME TAXES -- The effective income tax rates for the years ended August
31, 1993 and 1994 were 42% and 40%, respectively. The effective rates were
higher than the statutory federal rate of 35% for fiscal 1994 and 34% for fiscal
1993, primarily due to the effect of nondeductible amortization of goodwill,
state income taxes and Canadian earnings which are taxed at a higher statutory
rate. The effective tax rate in 1994 was reduced by $1.4 million of nontaxable
income received in fiscal 1994.
In fiscal 1995, the Company recorded a tax provision of $2.2 million
despite a pre-tax loss of $2.1 million. Such tax provision was attributable to
the above-mentioned items, nondeductible meals and entertainment and valuation
allowances relating to the Company's Mexico joint ventures.
FINANCIAL CONDITION
Shareholders' equity increased from $121.2 million at August 31, 1994 to
$128.3 million at August 31, 1995. Long-term obligations increased from $134.6
million to $172.9 million. At August 31, 1995, $120.1 million was outstanding
under the Company's revolving credit agreement, representing an increase of
$35.7 million in net borrowings during fiscal 1995. These borrowings, along with
$38.1 million in cash from operating activities, were used primarily to fund
capital expenditures ($47.2 million) and cash consideration paid to the former
owners of acquired businesses ($20.7 million). Additionally, there was a $5.0
million net increase in convertible subordinated debt issued as partial
consideration for businesses acquired during fiscal 1995, which was offset by a
$1.0 million decrease in deferred income tax liability in fiscal 1995, and
long-term obligations which became current during fiscal 1995.
On September 1, 1995, the Company completed the sale of its glass
recycling operations. Of the total sales price of $57.1 million, the Company
received $42.5 million in cash which was utilized to reduce borrowings under the
Company's revolving credit facility. Working capital increased from $25.6
million at August 31, 1994 to $26.9 million at August 31, 1995, reflecting
increased overall levels of activity which resulted in an increase in trade
receivables, lower current maturities of long-term debt and the working capital
related to the businesses acquired during fiscal 1995. These increases were
partially offset by higher insurance accruals and a decline in prepaid income
taxes.
-13-
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during fiscal 1994 and 1995 were $34.1 million and
$47.2 million, respectively. Capital expenditures in 1995 were primarily related
to purchases of operating equipment for existing service lines expanded to other
locations or for expansion of service lines in existing markets. The Company
anticipates capital expenditure requirements for existing operations of
approximately $36.0 million in fiscal 1996. The Company's fiscal 1996 capital
expenditure and acquisition programs will be funded from a combination of cash
flows from operating activities and utilization of the Company's revolving
credit facility. The Company has in the past and may in the future issue its own
stock and/or its convertible subordinated notes to former owners as
consideration for acquired businesses. The Company considers its financial
resources adequate to fund its capital expenditures and anticipated acquisition
levels for fiscal 1996.
In December 1993, the Company entered into a revolving credit agreement
with a group of banks. This agreement, as amended in August 1995, provides an
unsecured $160 million revolving credit line to the Company through January 31,
1999, at which time any outstanding borrowings convert to a term loan due in
equal quarterly installments through January 31, 2003. Unutilized borrowing
capacity was $23.3 million at November 22, 1995.
In October 1994, the Company entered into an interest rate swap agreement
through June 1997 to potentially lower the overall cost of borrowings. The
agreement which modified $30 million of 7.25% fixed rate debt to a LIBOR-based
floating rate plus .24% debt, was terminated on May 31, 1995. The $.5 million
received in the termination transaction will be recorded as a reduction of
interest expense over the remaining life of the original agreement.
In July 1995, the Board of Directors authorized the Company to repurchase
up to 5,000,000 shares of the Company's Common Stock, either in the open market
or in privately negotiated transactions. Subsequent to August 31, 1995, the
Company has repurchased 288,300 shares of its stock at an average cost of $4.80
per share. Future repurchases of the Company's Common Stock will be dependent
upon prevailing market conditions and other investment opportunities.
FLUCTUATIONS IN RESULTS OF OPERATIONS
Certain customers have varying levels of demand for the Company's services
based on the time of year. Most of the Company's service lines tend to be
slowest in the winter months (the Company's second quarter). Services provided
to electric utility customers are typically performed in the fall and spring
when demand for electricity is reduced and maintenance work can be performed
more efficiently. Likewise, services provided to refining and petrochemical
customers tend to be greater in the fall and spring when most planned
turnarounds at customer plants occur. See also Note 13 of Notes to Consolidated
Financial Statements for quarterly financial data. In addition, the Company's
acquisition program can affect not only future results and rates of growth but
also previously reported results because of restatements if acquisitions are
accounted for as poolings-of-interests.
The impact of inflation on the Company has been minimal.
FISCAL 1996 OUTLOOK
Management expects to continue to achieve strong revenue growth in fiscal
1996 through a combination of internal growth programs and acquisitions.
Internal growth is expected to come from new market penetration in industrial
and environmental services, the continued expansion of service lines in existing
operations and the expansion of wastewater pretreatment capabilities at existing
container services facilities. As a facilitator of revenue growth, the Company
has launched its ALLIES(TM) marketing program which is an integrated approach to
selling the Company's full range of services, primarily to national customers.
The ALLIES(TM) program focuses on the themes of partnering, value-added service
and customer profit improvement.
Another area of focus in fiscal 1996 will be cost control and margin
expansion. In this regard, it is the Company's intention to push for selected
price increases where market conditions permit and as a by-product of
value-added selling efforts. Also, the Company has identified certain expenses
that it anticipates will be opportunities for cost reduction.
The Company has clearly defined the industrial customer as the focus of
its business strategy. On September 1, 1995, the Company completed the sale of
its former glass recycling operations in order to narrow its focus on providing
services to the industrial customer and to provide additional capital for
expansion of this core business. During fiscal 1996, the Company is developing
new opportunities to serve the industrial customer independently or through
partnering arrangements in the areas of water and wastewater management, energy
services, contract labor services and leak sealing and valve restoration
services.
-14-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allwaste, Inc.:
We have audited the accompanying Consolidated Balance Sheets of Allwaste,
Inc. (a Delaware corporation) and subsidiaries as of August 31, 1995 and 1994,
and the related Consolidated Statements of Operations, Shareholders' Equity and
Cash Flows for each of the three years in the period ended August 31, 1995.
These Consolidated Financial Statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Consolidated
Financial Statements 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 Consolidated Financial Statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Consolidated 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 financial position of Allwaste,
Inc. and subsidiaries as of August 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 17, 1995
-15-
<PAGE>
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
AS OF AUGUST 31,
---------------------
1995 1994
-------- --------
(Restated)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents ......................................... $ 4,029 $ 3,020
Receivables, net of allowance for doubtful accounts ............... 80,065 64,876
Prepaid expenses .................................................. 3,609 7,106
Deferred taxes and other current assets ........................... 10,216 3,992
------- -------
Total current assets ........................................ 97,919 78,994
------- -------
PROPERTY AND EQUIPMENT, at cost ...................................... 230,291 190,577
Less -- Accumulated depreciation .................................. (99,193) (81,621)
------- -------
131,098 108,956
------- -------
GOODWILL, net of accumulated amortization ............................ 88,122 66,110
NOTES RECEIVABLE ..................................................... 4,893 6,390
OTHER ASSETS ......................................................... 4,050 6,895
NET ASSETS OF DISCONTINUED OPERATIONS ................................ 46,151 41,918
------- -------
Total assets ................................................ $ 372,233 $ 309,263
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................................ $ 28,737 $ 17,428
Accrued liabilities
Payroll and related benefits ................................. 8,282 9,561
Worker's compensation insurance .............................. 11,686 6,383
Other insurance .............................................. 5,550 4,741
Income taxes and other ....................................... 13,368 7,798
Current maturities of long-term and convertible subordinated debt 3,371 7,504
------- -------
Total current liabilities ................................... 70,994 53,415
------- -------
LONG-TERM DEBT ....................................................... 120,535 85,258
CONVERTIBLE SUBORDINATED DEBT ........................................ 41,972 37,672
DEFERRED INCOME TAXES AND OTHER LIABILITIES .......................... 10,441 11,700
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, 500,000 shares authorized, none issued or
outstanding .................................................. -- --
Common Stock, $.01 par value, 100,000,000 shares authorized,
39,609,429 and 37,740,971 shares issued in 1995 and 1994,
respectively ................................................. 396 376
Additional paid-in capital ...................................... 54,958 47,482
Retained earnings ............................................... 73,999 74,422
Treasury Stock, at cost, 250,000 shares ........................ (1,062) (1,062)
------- -------
Total shareholders' equity ................................. 128,291 121,218
------- -------
Total liabilities and shareholders' equity ................. $ 372,233 $ 309,263
========= =========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-16-
<PAGE>
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Years Ended August 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(Restated) (Restated)
<S> <C> <C> <C>
REVENUES .............................................................................. $ 344,245 $ 286,861 $ 243,591
COST OF OPERATIONS .................................................................... 254,596 204,492 173,844
------- ------- -------
Gross profit ..................................................................... 89,649 82,369 69,747
WRITE-DOWNS OF OPERATING EQUIPMENT .................................................... 6,908 -- --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .......................................... 72,976 59,020 53,033
INTEREST EXPENSE ...................................................................... (8,785) (5,617) (4,798)
INTEREST INCOME ....................................................................... 402 484 338
OTHER INCOME (EXPENSE), net ........................................................... (3,499) (1,302) 912
------- ------- -------
Income (loss) from continuing operations before income taxes ..................... (2,117) 16,914 13,166
INCOME TAX PROVISION .................................................................. 2,170 6,725 5,465
MINORITY INTEREST ..................................................................... 408 407 --
Income (loss) from continuing operations ......................................... (3,879) 10,596 7,701
Income from discontinued operations, net of applicable income taxes .............. 2,773 2,501 2,464
------- ------- -------
Net income (loss) ........................................................... $ (1,106) $ 13,097 $ 10,165
NET INCOME (LOSS) PER COMMON SHARE:
Continuing operations ............................................................ $ (.10) $ .29 $ .21
Discontinued operations .......................................................... .07 .07 .07
------- ------- -------
Net income (loss) per common share .......................................... $ (.03) $ .36 $ .28
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-17-
<PAGE>
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
NUMBER ADDITIONAL SHARE-
OF PAID-IN RETAINED TREASURY HOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
-------- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1992 ........... 35,458 $ 355 $ 37,328 $ 52,355 $ -- $ 90,038
Net income ......................... -- -- -- 10,165 -- 10,165
Issuance of Common Stock for
purchased businesses and 787 8 3,969 -- -- 3,977
earnouts
Issuance of Common Stock
pursuant to stock option
plans, including tax benefit
to Company .................... 128 -- 660 -- -- 660
Purchases of treasury stock ........ -- -- -- -- (454) (454)
Issuance of Common Stock and
treasury stock to acquire
property and equipment ........ 367 4 1,140 (198) 454 1,400
Change in cumulative
translation adjustment ........ -- -- -- (590) -- (590)
------ --------- --------- --------- ---------- ---------
BALANCE, AUGUST 31, 1993 ........... 36,740 367 43,097 61,732 -- 105,196
Net income ......................... -- -- -- 13,097 -- 13,097
Issuance of Common Stock for
purchased businesses .......... 934 9 4,093 -- -- 4,102
Issuance of Common Stock
pursuant to stock option
plans, including tax benefit
to Company .................... 67 -- 292 -- -- 292
Treasury Stock acquired in lawsuit
settlement .................... -- -- -- -- (1,062) (1,062)
Change in cumulative
translation adjustment ........ -- -- -- (407) -- (407)
------ --------- --------- --------- ---------- ---------
BALANCE, AUGUST 31, 1994 ........... 37,741 376 47,482 74,422 (1,062) 121,218
Net loss ........................... -- -- -- (1,106) -- (1,106)
Issuance of Common Stock for
acquired businesses ........... 1,432 15 5,079 810 -- 5,904
Issuance of Common Stock
pursuant to stock option
plans, including tax benefit
to Company .................... 436 5 2,397 -- -- 2,402
Change in cumulative
translation adjustment ........ -- -- -- (127) -- (127)
------ --------- --------- --------- ---------- ---------
BALANCE, AUGUST 31, 1995 ........... 39,609 $ 396 $ 54,958 $ 73,999 $ (1,062) $ 128,291
====== ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-18-
<PAGE>
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) ................................................................ $ (1,106) $ 13,097 $ 10,165
Reconciliation of net income (loss) to cash
provided by operating activities -
Depreciation and amortization ............................................... 28,286 23,459 20,397
Write-downs of assets ....................................................... 6,908 -- --
Allowances on notes receivable .............................................. 1,000 790 --
Write-downs of investments .................................................. 1,950 950 2,150
Gain on sales of property and equipment ..................................... (777) (146) (3,354)
Equity in losses of unconsolidated partnership .............................. -- 2,805 --
Gain on sale of Common Stock investment ..................................... -- (2,688) --
Common Stock received in lawsuit settlement ................................. -- (1,062) --
Change in assets and liabilities, net of effect
of acquisitions accounted for as purchases -
Receivables ...................................................... (10,787) (9,412) (9,824)
Prepaid expenses, deferred taxes
and other current assets .................................... (2,309) (2,556) (773)
Notes receivable and other assets ................................ 722 (3,310) (6,007)
Accounts payable ................................................. 8,278 (13) 6,597
Accrued liabilities .............................................. 7,170 (2,067) 3,234
Deferred income taxes and other liabilities ...................... (1,259) 1,521 7,810
------ ------ ------
Cash provided by operating activities .................................. 38,076 21,368 30,395
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of Common Stock .......................................... 2,279 292 602
Proceeds from borrowings ......................................................... 35,986 33,248 23,107
Principal payments on borrowings ................................................. (6,893) (10,807) (9,573)
Purchases of Common Stock ........................................................ -- -- (454)
------ ------ ------
Cash provided by financing activities .................................. 31,372 22,733 13,682
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .............................................. (47,193) (34,145) (30,536)
Proceeds from sales of property and equipment .................................... 2,394 2,112 1,575
Proceeds from sale of business ................................................... -- -- 5,000
Payments for acquisitions accounted for as purchases, net
of cash acquired of $1,337, $241 and $466 ................................... (19,320) (7,468) (14,224)
Proceeds from sale of investment in marketable security .......................... -- 2,982 --
Cash used in discontinued operations ............................................. (4,233) (7,013) (7,235)
Other ............................................................................ -- -- (1,830)
------ ------ ------
Cash used in investing activities ...................................... (68,352) (43,532) (47,250)
------ ------ ------
EFFECT OF EXCHANGE RATE CHANGES ....................................................... (87) (407) (351)
------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................................... 1,009 162 (3,524)
CASH AND CASH EQUIVALENTS, beginning of year .......................................... 3,020 2,858 6,382
------ ------ ------
CASH AND CASH EQUIVALENTS, end of year ................................................ $ 4,029 $ 3,020 $ 2,858
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-19-
<PAGE>
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of Allwaste,
Inc. ("Allwaste" or the "Company) and all of its wholly-owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. Prior year amounts in the Consolidated Financial
Statements and Notes to Consolidated Financial Statements have been restated to
reflect the Company's glass recycling operations as a discontinued operation, as
discussed in Note 3. Additionally, certain prior year amounts have been
reclassified to conform with the fiscal 1995 presentation.
REVENUE RECOGNITION
Revenues are recorded as services are performed. Revenues derived from
services provided under fixed-price contracts are recognized on a
percentage-of-completion basis, using the cost-to-cost method. If it is
determined that a contract may result in a loss, a provision for the loss is
accrued at such time.
INVENTORIES
Inventories are stated at the lower of average cost or market. Amounts are
removed from inventory using the estimated average cost per unit method. The
inventory balances at August 31, 1995 and 1994 were $1.8 million and $2.0
million, respectively. Inventories are included in deferred taxes and other
current assets in the Consolidated Balance Sheets.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides
depreciation over the estimated useful lives of the depreciable assets using the
straight-line method as follows:
YEARS
-------
Buildings .................................................... 10 - 30
Service equipment and related vehicles ....................... 2 - 20
Other ........................................................ 3 - 10
The cost of major improvements are capitalized. Expenditures for
maintenance, repairs and minor improvements are expensed as incurred.
Maintenance and repairs were $13.6 million, $11.9 million and $9.4 million for
the years ended August 31, 1995, 1994 and 1993, respectively. When property and
equipment are sold or retired, the remaining cost and accumulated depreciation
are removed from the accounts and the resulting gain or loss is included in the
results of operations.
Interest is capitalized in connection with the construction of major
facilities and equipment. The capitalized interest is recorded as part of the
asset to which it relates and is depreciated over the asset's estimated useful
life. Capitalized interest primarily relates to improvements and expansions at
container services facilities and was $319,000, $141,000 and $144,000 for the
years ended August 31, 1995, 1994 and 1993, respectively.
GOODWILL
Goodwill represents the excess of the aggregate price paid by the Company
in the acquisition of businesses accounted for as purchases over the fair market
value of the net assets acquired (see Note 2). Goodwill is being amortized on a
straight-line basis over 40 years. The Company continually evaluates whether
subsequent events or circumstances have occurred that indicate the remaining
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill may be
impaired, the Company uses an estimate of the business component's undiscounted
net income over the remaining life of the goodwill in measuring whether the
goodwill is recoverable. Management believes that there have been no events or
circumstances which warrant revision to the remaining useful life or which
affect the recoverability of goodwill. Accumulated amortization at August 31,
1995 and 1994 was $6.6 million and $4.9 million, respectively.
-20-
<PAGE>
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes"
which was adopted in the first quarter of fiscal 1994. The implementation of
SFAS No. 109 did not have a material effect on the Company's consolidated
financial position or its results of operations.
Deferred tax assets and liabilities are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities. On the accompanying Consolidated Balance Sheets,
current and non-current deferred tax assets and liabilities are netted within
each tax jurisdiction. The following table sets forth the gross deferred tax
assets (liabilities) recorded as of August 31 (in thousands):
1995 1994
------ ------
Current deferred tax assets .................... $ 8,512 $ 3,622
Non-current deferred tax assets ................ 5,003 1,496
Valuation allowance ............................ (1,156) --
-------- --------
Total deferred tax assets ................. 12,359 5,118
Current deferred tax liabilities ............... -- (1,755)
Non-current deferred tax liabilities ........... (14,998) (12,529)
-------- --------
Total deferred tax liabilities ............ (14,998) (14,284)
Net deferred tax liabilities ................... $ (2,639) $ (9,166)
======== ========
The Company is required to record valuation allowances for deferred tax
assets where management believes it is more likely than not that the tax benefit
will not be realized. Accordingly, the Company established valuation allowances
against certain deferred tax assets; primarily those attributable to the
Company's net operating losses of its joint ventures in Mexico.
POSTEMPLOYMENT BENEFITS
The Company adopted SFAS No. 112 "Employers' Accounting for Postemployment
Benefits" in the first quarter of fiscal 1995. There were no liabilities related
to postemployment benefits provided to former or inactive employees, their
beneficiaries, and covered dependents after employment but before retirement at
August 31, 1995.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures are expensed or capitalized based upon their
future economic benefit. Costs which improve a property, as compared with the
condition of the property when originally constructed or acquired, and costs
which prevent future environmental contamination are capitalized. Costs related
to environmental damage resulting from operating activities subsequent to
acquisition are expensed. Liabilities for these expenditures are recorded when
it is probable that obligations have been incurred and the amounts can be
reasonably estimated.
MINORITY INTEREST
During fiscal 1993, the Company contributed cash in exchange for an
aggregate 60% joint venture interest in each of two companies in Mexico. A
Mexican company owns the remaining 40% interest in each entity. One of the
companies performs various industrial services, including site remediation and
aboveground storage tank cleaning services. The primary operations of the other
company are underground storage tank testing services.
For financial reporting purposes, the joint ventures' assets and
liabilities are consolidated with those of the Company. The Mexican company's
minority interests, $.4 million at August 31, 1995 and $.7 million at August 31,
1994, are included in the Company's Consolidated Balance Sheets in deferred
income taxes and other liabilities. The joint venture experienced pre-tax losses
of $1.2 million in fiscal 1995, excluding the effect of write-downs of certain
operating equipment and $.9 million in fiscal 1994, net of the minority
partner's interest in such losses.
FOREIGN CURRENCY TRANSLATION
The Company's Canadian and Mexican subsidiaries maintain their books and
records in Canadian dollars and Mexican pesos, respectively. Assets and
liabilities of these operations are translated into U.S. dollars at the exchange
rate in effect at the end of each accounting period, and income and expense
accounts are translated at the average exchange rate prevailing during the
period. Gains and losses resulting from such translation are included as a
separate
-21-
component of shareholders' equity. Gains and losses from transactions
in foreign currencies are credited or charged to income currently and are not
significant.
INVESTMENT ACTIVITY
In fiscal 1993 and for most of fiscal 1994, the Company owned a 40%
interest in a wastewater pretreatment facility and recorded such investment
using the equity method of accounting. Prior to increasing its ownership in late
fiscal 1994, the Company's equity in losses of this partnership were $1.8
million and $.2 million for the years ended August 31, 1994 and 1993,
respectively, and are included in other income (expense), net in the
accompanying Consolidated Statements of Operations. Additionally, in fiscal
1994, the Company recorded $1.0 million in losses relating to its investment in
this facility which is recorded in other income (expense), net in the
accompanying Consolidated Statements of Operations.
The Company acquired 181,000 shares of Sanifill, Inc. ("Sanifill"), a
publicly traded corporation involved in the collection and disposal of solid
waste, pursuant to a private offering in 1989 at an average cost of $1.62 per
share. In November 1993, the Company sold all of its shares of Sanifill. The
sale resulted in a pretax gain of $2.7 million which is reflected in other
income (expense), net in the accompanying Consolidated Statements of Operations.
The Company operated three investor-owned industrial service companies
under separate management service agreements. In February 1993, the Company
decided to terminate the agreements and acquired the companies from the investor
groups in consideration of the assumption of the liabilities of each entity. In
connection with the termination of the management service agreements and the
acquisition of the companies, the Company recognized a nonrecurring pretax loss
of approximately $2.1 million for the year ended August 31, 1993 in other income
(expense), net in the accompanying Consolidated Statements of Operations. A
non-employee former member of the Board of Directors of the Company owned a 25%
interest in one of the companies, and the brother of the Chairman of the Board
of Directors of the Company owned a 13% and 17% interest, respectively, in two
of the companies.
In August 1991, as consideration for the sale of its asbestos abatement
division to IAM/Environmental, Inc. ("IAM"), the Company accepted notes
receivable of $2.9 million. During January 1994, the Company negotiated an
exchange of the above-mentioned notes receivable for redeemable preferred stock
of IAM. Prior to the above-mentioned exchange, the Company recorded an allowance
for potential uncollectibility of the notes of approximately $.9 million during
the first fiscal quarter of 1994. In fiscal 1995, the Company reduced its
investment in IAM to zero. The related write-off of $2.0 million is recorded in
other income (expense), net in the accompanying Consolidated Statements of
Operations. The investment is reflected in other assets in the accompanying 1994
Consolidated Balance Sheet at the net book value of the surrendered notes
receivable.
The Company continues to guarantee a $3.5 million bank line of credit for
IAM through January 1997 unless earlier cancellation of the guarantee is
triggered by specified events. IAM's borrowing capacity under the line of credit
is restricted by a percentage of the amount of qualified trade receivables
available for use as collateral.
SPECIAL CHARGES
During fiscal 1995, the Company recorded special charges of $11.9 million.
Such charges include $6.9 million of charges classified as write-downs of
operating equipment in the accompanying Consolidated Statements of Operations.
These write-downs relate to the permanent impairment of certain operating
equipment in Mexico and California, a wastewater pretreatment facility,
equipment relating to two small businesses exited and various owned facilities
held for sale. Included in SG&A expenses in the accompanying Consolidated
Statements of Operations is $1.1 million of charges primarily representing the
write-off of organizational expenses relating to the Mexico joint ventures. The
Consolidated Statements of Operations also reflects $.6 million in interest
expense relating to the write-off of previously unamortized loan costs in
connection with the bank amendment to the revolving credit facility completed in
August 1995. Other income (expenses), net in the accompanying Consolidated
Statements of Operations reflects $3.6 million in charges relating to an
allowance provided for a note receivable and the write-off of the Company's
remaining investment in IAM and another previously-owned business, as well as
the settlement of a lawsuit related to the previously discontinued asbestos
abatement business. Certain of the charges relating to the Mexico joint venture
are partially offset by the minority interest effect of such charges.
CASH FLOW REPORTING
Highly liquid debt instruments with an original maturity of three months
or less are considered to be cash equivalents. Cash payments for interest during
1995, 1994 and 1993 were $10.0 million, $6.3 million and $5.6 million,
respectively, and cash payments for income taxes during 1995, 1994 and 1993 were
$4.5 million, $8.4 million and $3.4 million, respectively.
-22-
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". In October 1994, SFAS 114
was amended by SFAS No. 118 "Accounting for Impairment of a Loan - Income
Recognition and Disclosure". The Company is required to adopt SFAS No. 114, as
amended by SFAS No. 118, in fiscal 1996. Management believes that the adoption
of SFAS No. 114 and SFAS No. 118 will not have a material effect on the
Company's financial position or results of operations.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of". The
Company is required to adopt SFAS No. 121 for fiscal 1997. Management has not
yet determined what impact, if any, the adoption of SFAS No. 121 will have on
the Company's financial position or results of operations.
(2) ACQUISITIONS --
Under the purchase method of accounting, the results of acquired
businesses are included with the Company from their respective acquisition
dates. The following table summarizes the Company's business acquisitions
accounted for under the purchase method (dollars in thousands):
<TABLE>
<CAPTION>
CASH AND CONVERTIBLE SHARES OF
BUSINESSES PROMISSORY SUBORDINATED COMMON TOTAL
PURCHASED NOTES NOTES STOCK CONSIDERATION
---------- ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Fiscal 1995 13 $ 23,231 $ 4,985 1,426,096 $ 36,766
Fiscal 1994 9 7,875 534 934,290 12,511
Fiscal 1993 6 15,548 4,775 251,763 21,417
</TABLE>
The allocations of the purchase price to the fair market value of the net
assets acquired in the fiscal 1995 acquisitions are based on preliminary
estimates of fair market value and may be revised when additional information
concerning asset and liability valuations is obtained.
As an integral part of each of the above acquisitions, all former
shareholders signed non-compete agreements and key management entered into
agreements with the Company to continue managing these businesses.
In connection with six acquisitions made from fiscal 1991 through 1995,
the Company agreed to make contingent payments to the former owners over periods
up to five years based on formulas in the respective acquisition agreements. At
the Company's option these payments may be made in either cash or common stock
of the Company. At August 31, 1995, the maximum aggregate amount of contingent
payments was $4.2 million. In management's opinion, based on the current
performance levels of the individual acquisitions involved, the ultimate
settlement of these contingent payment obligations is likely to be substantially
less than the $4.2 million maximum aggregate. Approximately $.3 million in
contingent payments were made during 1995. Amounts earned under the terms of
these agreements are recorded as additional goodwill and amortized over the
remaining amortization period.
(3) DISCONTINUED OPERATIONS --
In September 1995, the Company sold its glass recycling operations to a
company formed by Equus II Incorporated, a Houston-based, publicly-traded
business development company. The consideration totaled $57.1 million, including
$42.5 million in cash, $8.0 million of 7% redeemable Series A preferred stock
payable in 2002, and a $6.6 million 12% subordinated note receivable due in
2002. The preferred stock and notes receivable obtained as consideration are
payable by Strategic Materials Holdings, Inc. an affiliate of Equus II
Incorporated. The Company also received warrants for common stock providing a
right to own up to 32% in the new company. Allwaste may receive additional
consideration in the form of an adjustment to the purchase price in the event
that Equus' internal rate of return, as defined, exceeds certain predetermined
targets. The amount of such additional compensation, if any, is not presently
determinable. The consideration is also subject to certain post-closing
adjustments which may be significant and which are not determinable at this
time. Accordingly, the amount of the anticipated gain on the glass recycling
transaction is not reasonably estimable. Revenues of the glass recycling
operations, net of intercompany sales, were $70.0, $63.2 and $58.2 million for
fiscal years ended 1995, 1994 and 1993, respectively.
-23-
<PAGE>
The net assets of the glass recycling operations consisted of the
following (in thousands):
AUGUST 31,
-----------------------
1995 1994
-----------------------
Net working capital ............................ $ 7,726 $ 7,054
Property and equipment, net .................... 21,335 17,918
Goodwill and other assets ...................... 19,264 18,341
Long-term debt ................................. 440 98
Deferred income taxes and other ................ 1,734 1,297
Income from discontinued operations in the Consolidated Statements of
Operations is presented net of allocated interest expense of $1,569,000,
$1,047,000 and $621,000 and net of applicable income taxes of $1,825,000,
$1,596,000 and $1,341,000 for fiscal years 1995, 1994 and 1993, respectively.
The interest was allocated based upon the net assets of the glass recycling
operations in relation to the Company's consolidated net assets plus general
corporate debt.
(4) RECEIVABLES --
Receivables included in current assets consisted of the following (in
thousands):
AUGUST 31,
------------------------
1995 1994
------------------------
Trade accounts ................................... $ 80,619 $ 62,755
Employees ........................................ 996 581
Other ............................................ 2,133 4,190
-------- --------
83,748 67,526
Less -- Allowance for doubtful accounts .......... (3,683) (2,650)
-------- --------
$ 80,065 $ 64,876
======== ========
Notes receivable recorded as non-current assets consisted of the following
(in thousands):
AUGUST 31,
------------------------
1995 1994
------------------------
Notes receivable from employees ................ $ 2,483 $ 2,331
Notes receivable from sale of
discontinued asbestos abatement
operation .................................... 2,888 2,888
Notes receivable from sale of
businesses ................................... 790 1,415
Other .......................................... 522 546
------- -------
6,683 7,180
Less -- Loss reserves .......................... (1,790) (790)
------- -------
$ 4,893 $ 6,390
======= =======
-24-
<PAGE>
(5) DEBT --
LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
---------------------
1995 1994
---------------------
<S> <C> <C>
Revolving credit agreement ......................................... $ 120,079 $ 84,410
Notes payable to individuals in connection with
acquisitions of businesses (See Note 2), banks and financial
institutions, weighted average interest rate of 7.5% at August 31,
1995, payable in
various installments through 1999 ................................ 1,142 1,853
--------- ---------
121,221 86,263
Less -- Current maturities .............................................. (686) (1,005)
--------- ---------
$ 120,535 $ 85,258
========= =========
</TABLE>
Revolving credit agreement
In December 1993, the Company replaced its previous credit agreement by
entering into a revolving credit agreement with a group of banks. This
agreement, as amended in August 1995, provides an unsecured $160 million
revolving credit line to the Company through January 31, 1999, at which time any
outstanding borrowings convert to a term loan due in equal quarterly
installments through January 31, 2003. Interest on outstanding borrowings is
charged, at the Company's option, at the banks' prime rate (8 3/4% at August 31,
1995), adjusted Eurodollar Rate or the banks' reserve adjusted certificate of
deposit rate (CD rate) plus 0% to 1.625% as determined by the calculation of the
debt to cash flow ratio (as defined). A commitment fee of .25% is payable on the
unused portion of the line. Three of the banks participating in the revolving
credit agreement have also extended to the Company uncommitted, short-term lines
of credit with interest rates which may be more favorable to the Company than
those available under the revolving credit agreement. As of August 31, 1995, the
Company had $120.1 million outstanding under the revolving credit agreement and
the uncommitted lines of credit and had utilized $25 million of the facility for
letters of credit to secure certain insurance obligations and performance bonds.
Under the terms of the agreement, the Company must maintain a minimum fixed
charge coverage ratio (as defined) and certain other minimum financial ratios.
Borrowing availability is subject to the Company meeting minimum leverage and
other ratios. As of November 22, 1995, unutilized borrowing capacity, as defined
under the agreement, was $23.3 million. The credit agreement prohibits the
payment of cash dividends.
Maturities of long-term debt outstanding at August 31, 1995 are as follows
(in thousands):
For the year ending August 31 --
1996 686
1997 326
1998 119
1999 30,030
2000 30,020
Thereafter 60,040
--------
$121,221
========
-25-
<PAGE>
CONVERTIBLE SUBORDINATED DEBT
Convertible Subordinated Debentures
In June 1989, the Company completed a public offering of $30.0 million of
7.25% Convertible Subordinated Debentures due June 1, 2014 (the "Debentures");
net proceeds to the Company were $28.7 million. Direct offering costs related to
the Debentures are included in other assets in the accompanying Consolidated
Balance Sheets and are being amortized over the term of the Debentures. The
Debentures are convertible by the holder, at any time, into shares of the
Company's Common Stock at a price of $11.94 per share and are redeemable for
cash at the option of the Company. The Debentures provide for annual mandatory
sinking fund payments equal to 5% of the aggregate principal amount of the
Debentures issued, commencing June 1, 1999. Interest is payable semi-annually,
on June 1 and December 1.
In October 1994, the Company entered into an interest rate swap agreement
through June 1997 to potentially lower the overall cost of borrowings. The
agreement modified the $30.0 million of 7.25% fixed rate debt to a LIBOR-based
floating rate plus .24% debt, which was reset quarterly. On May 31, 1995, the
Company terminated the agreement and will record the $.5 million received as a
reduction of interest expense over the remaining term of the original swap.
Convertible Subordinated Notes
During fiscal years 1995 and 1994, the Company issued $5.0 million and
$7.0 million, respectively, of additional convertible subordinated notes to
former owners of certain acquired businesses (the "Notes") as partial
consideration of the acquisition purchase price. The Company has $2.7 million of
similar notes outstanding from prior years. The Notes bear interest, payable
quarterly, at a weighted average rate of 6.1% and are convertible by the holder
into shares of the Company's Common Stock at a weighted average price of $7.16
per share. The Notes are redeemable for cash or the Company's Common Stock at
the option of the Company at any time after one year of issuance.
Maturities of the Notes outstanding at August 31, 1995 are as follows (in
thousands):
For the year ending August 31 --
1996 $ 2,685
1997 6,987
1998 4,985
-------
$14,657
=======
(6) INCOME TAXES --
The Company and its United States ("U.S.") subsidiaries file a
consolidated federal income tax return. Acquired entities file appropriate tax
returns through their respective acquisition dates (absent certain
administrative elections) and thereafter are included in the Company's
consolidated return. Foreign income taxes consist primarily of Canadian federal
and provincial taxes attributable to the Company's Canadian subsidiaries.
Foreign pretax book income (loss) net of certain intercompany interest
expense and other items was ($432,474) (consisting of a Mexican loss of
($1,318,703) and Canadian income of $886,229), $1,239,000 and $2,589,000 for the
years ended August 31, 1995, 1994 and 1993, respectively.
-26-
<PAGE>
Federal, state and foreign income tax provisions are as follows (in
thousands):
FOR THE YEARS ENDED AUGUST 31,
----------------------------------
1995 1994 1993
-------- -------- --------
Federal --
Current $ 6,536 $ 1,599 $ 1,376
Deferred (6,260) 3,819 2,498
------- ------- -------
276 5,418 3,874
------- ------- -------
State --
Current 1,494 584 561
Deferred (430) 179 19
------- ------- -------
1,064 763 580
------- ------- -------
Foreign --
Current 667 840 1,087
Deferred 163 (24) (60)
------- ------- -------
830 816 1,027
------- ------- -------
$ 2,170 $ 6,997 $ 5,481
======= ======= =======
The differences in the income taxes provided and the amount determined by
applying the U.S. federal statutory rate to income before income taxes are
summarized as follows:
FOR THE YEARS ENDED AUGUST 31,
------------------------------
1995 1994 1993
-------- -------- --------
Federal income tax at statutory rate 35% 35% 34%
Effect of valuation allowance ...... (55) -- --
State income taxes, net of benefit
for federal deduction ............ (33) 3 3
Effect of meals and entertainment
limitation ....................... (21) -- --
Effect of nondeductible amortization
of goodwill ...................... (16) 2 3
Effect of nondeductible expenses ... (7) -- --
Foreign income taxes at higher rates (3) 1 1
Other .............................. (3) (1) 1
---- ---- ----
(103)% 40% 42%
==== ==== ====
Deferred income tax expense results principally from the use of different
capital recovery and revenue and expense recognition methods for tax and
financial accounting purposes. The sources of these temporary differences and
related tax effect were as follows (in thousands):
FOR THE YEARS ENDED AUGUST 31,
---------------------------------
1995 1994 1993
-------- -------- --------
Depreciation and amortization $ 901 $ 1,361 $ 2,538
Accruals and reserves not
deductible until paid ...... (5,186) 1,926 34
Write-downs of assets ........ (1,580) -- --
Sale of IBC leasing operations (305) (222) (188)
Other, net ................... (357) 909 73
------- ------- -------
Total deferred income
taxes provided (benefited) . $(6,527) $ 3,974 $ 2,457
======= ======= =======
-27-
<PAGE>
Prepaid income taxes of $1.2 million and $4.1 million are included in
prepaid expenses at August 31, 1995 and 1994, respectively.
(7) SHAREHOLDERS' EQUITY --
PREFERRED STOCK
The Company can issue up to 500,000 shares of Preferred Stock, none of
which are issued or outstanding. The Board of Directors is authorized to provide
for the issuance of the Preferred Stock in series, to establish the number of
shares to be included in each such series and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions, thereof. This includes, among other things, any
voting rights, conversion privileges, dividend rates, redemption rights, sinking
fund provisions and liquidation rights which shall be superior to the Common
Stock. No holder of Preferred Stock will have preemptive rights.
STOCK OPTION PLANS
In January 1995, the Company's stockholders approved the Amended and
Restated 1989 Replacement Non-Qualified Stock Option Plan (the "Plan"), which
increased the number of shares issuable under the Plan from 3,000,000 shares to
4,500,000 shares. Under the Plan and notwithstanding certain restrictions placed
upon grants of options to persons subject to Section 16(a) of the Securities
Exchange Act of 1934, through August 31, 1999, all forfeited, expired and
exercised options automatically become available for grants of new options under
the Plan; therefore, the number of granted option shares plus those remaining
available for grant shall remain constant at 4,500,000 through such date. Stock
options are granted under the Plan at an exercise price which equals the fair
market value of the Common Stock on the date of grant or on the date which marks
the occurrence of the event pursuant to which the options are granted.
At August 31, 1995, options were outstanding under the Plan at prices
ranging from $3.88 to $10.88 per share, of which 1,618,886 option shares were
exercisable. Subsequent to August 31, 1995, an additional 391,950 options were
granted under the Plan at the per share exercise price of $4.75.
In October 1992, the Company's Board of Directors adopted a supplemental
option plan ("Supplemental Plan") to enable the Company to fulfill obligations
to former employees. A total of 1,500,000 shares are issuable under the amended
Supplemental Plan. At August 31, 1995, options were outstanding under the
Supplemental Plan at prices ranging from $.50 to $10.88 per share, of which
785,646 option shares were exercisable.
The following table summarizes stock option activity of the Company's
stock option plans for each of the three years ended August 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Options outstanding, beginning of year 3,422,925 3,153,791 2,785,562
Granted ............................ 1,895,400 871,740 858,000
Exercised .......................... (430,526) (66,377) (128,450)
Forfeited and canceled ............. (667,528) (536,229) (361,321)
---------- ---------- -----------
Options outstanding, end of year ..... 4,220,271 3,422,925 3,153,791
========== ========== ===========
Option prices per share:
Granted ............................ $ 4.00 - 6.25 $ 4.00 - 6.75 $ 4.13 - 5.50
Exercised .......................... $ 4.00 - 5.88 $ 4.00 - 5.63 $ .50 - 5.88
Forfeited and canceled ............. $ 4.00 - 12.19 $ 4.00 - 12.19 $ .50 - 12.19
</TABLE>
TREASURY STOCK
In October 1993, the Company reached a settlement of a lawsuit with a
former owner of an acquired business and other parties. In exchange for a full
and complete release of all claims against the parties, the Company received
$982,500 in cash and 250,000 shares of the Company's Common Stock. This
transaction resulted in a gain of $1.4 million, net of related fiscal 1994 legal
expenses, which is reflected in other income (expense), net in the Consolidated
Statements of Operations.
In July 1995, the Board of Directors of the Company approved a Stock
Repurchase Plan which authorizes management of the Company to repurchase up to
5,000,000 shares of common stock. Subsequent to August 31, 1995, the Company
purchased 288,300 shares of its common stock under this plan at an average price
of $4.80 per share.
-28-
<PAGE>
(8) COMMITMENTS AND CONTINGENCIES --
LEASE COMMITMENTS
The Company has entered into various operating lease agreements, primarily
for office space, service facilities and service equipment utilized for
operations. Minimum annual rental payments under noncancellable operating leases
as of August 31, 1995 were as follows (in thousands):
For the year ending August 31 --
1996 $ 3,942
1997 3,375
1998 2,691
1999 1,939
2000 1,372
Thereafter 2,899
-------
$16,218
=======
Rental expense under operating leases was $15.1 million, $11.8 million and
$6.7 million for the years ended August 31, 1995, 1994 and 1993, respectively.
These amounts include a service facility leased from the Company's Chairman of
the Board of Directors, for which rental expense was $126,000, $90,000 and
$84,000 for the years ended August 31, 1995, 1994 and 1993, respectively.
LEGAL MATTERS
In the normal course of its operations, the Company can become involved in
a variety of legal disputes. Currently, the Company is a defendant in several
legal proceedings, including worker's compensation matters and minor business
disputes, the majority of which are being handled or are expected to be handled
by the Company's insurance carriers. As a company that handles and transports
hazardous waste, the Company is involved in various administrative and court
proceedings under environmental laws and regulations relating to permit
applications, operating authorities and alleged liabilities related to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980.
Management of the Company believes that a decision adverse to the Company in any
one or in all of these proceedings would not have a material effect on the
financial position or the results of operations of the Company.
INSURANCE
The Company maintains worker's compensation insurance for its employees
and other coverages for normal business risks. A substantial portion of the
Company's current and prior year insurance coverages are "high deductible" or
retrospective policies in which the Company, in many cases, is responsible for
the payment of incurred claims up to specified individual and aggregate limits,
over which a third party insurer is contractually liable for any additional
payment of such claims. Accordingly, the Company bears certain economic risks
related to these coverages. On a continual basis, and as of each balance sheet
date, the Company records an accrual equal to the estimated costs expected to
result from incurred claims plus an estimate of claims incurred but not reported
as of such date based on the best available information at such date. However,
the nature of these claims is such that actual development of the claims may
vary significantly from the estimated accruals. All changes in the accrual
estimates are accounted for on a prospective basis and can have a significant
impact on the Company's financial position or results of operations.
Insurance for environmental accidents and pollution has historically been
expensive and difficult to obtain. The Company currently maintains insurance for
environmental accidents and pollution relating to the performance of services at
customer locations. To date, the Company has never incurred significant fines,
penalties or liabilities for pollution, environmental damage or toxic torts.
However, in the event a claim is successful against the Company for pollution or
toxic tort liability for which the Company is only partially insured or
completely uninsured, there could be a material adverse effect on the Company.
-29-
<PAGE>
(9) RETIREMENT PLANS --
Effective October 1, 1990, the Company established a defined contribution
employee benefit plan, the Allwaste Retirement Savings Plan, which covered
substantially all full-time non-union U.S. employees having at least one year of
service. On July 1, 1995, the Company adopted the Allwaste Employee Retirement
Plan (the "Retirement Plan"), which amended and restated the Allwaste Retirement
Savings Plan. Eligible employees may contribute up to 15% of their compensation,
subject to certain Internal Revenue Code limitations. The Company matches 50% of
each participant's contributions up to 3% of eligible compensation. Retirement
Plan participants may select among six investment options, one of which is the
Company's Common Stock. At August 31, 1995, the Retirement Plan held 419,346
shares of the Company's Common Stock (market value of $2.3 million) which
represented 29.4% of the Retirement Plan's assets. In addition to the Plan, the
Company maintains three other defined contribution employee benefit plans which
cover a small group of union employees. Defined contribution expense related to
all plans for the Company was $620,000, $509,000 and $429,000 for fiscal years
1995, 1994 and 1993, respectively.
(10) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS --
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to do so.
The Company's notes receivable are estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Long-term investments are based on the carrying value of the asset.
The Company's long-term debt and convertible subordinated debt are
estimated based on quotations obtained from broker-dealers who make markets in
these and similar securities. The bank credit facilities are based on floating
interest rates and, as such, the carrying amount is a reasonable estimate of
fair value.
Letters of credit are based on the face amount of the related obligations
and performance bonds.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------------------------
1995 1994
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Notes receivable ............. $ 4,893 $ 4,428 $ 7,639 $ 6,976
Long-term investments ........ -- -- 1,950 1,950
Long-term debt and convertible
subordinated debentures .... 165,878 162,126 130,434 127,878
Letters of credit ............ -- 25,072 -- 16,006
</TABLE>
-30-
<PAGE>
(11) NET INCOME (LOSS) PER COMMON SHARE --
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of Common Stock and equivalents
outstanding during the year as shown below (in thousands, except per share
data):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income (loss) from continuing operations,
net of income taxes ............................... $ (3,879) $ 10,596 $ 7,701
Income from discontinued operations,
net of applicable income taxes .................... 2,773 2,501 2,464
-------- -------- --------
Net income (loss) ................................... $ (1,106) $ 13,097 $ 10,165
======== ======= =======
Shares outstanding, beginning
of year ........................................... 37,741 36,740 35,458
Weighted average number of common shares outstanding:
Stock options, treasury stock method ............ 290 188 185
Purchased companies,
including earnouts ............................ 816 132 657
Exercise of stock options ....................... 208 4 87
Treasury stock and other, net ................... (250) (212) (80)
-------- -------- --------
Total weighted average common
shares outstanding ................................ 38,805 36,852 36,307
======== ======== ========
Net income (loss) per common share:
Continuing operations ............................. $ (.10) $ .29 $ .21
Discontinued operations ........................... .07 .07 .07
-------- -------- --------
Net income (loss) per common share .................. $ (.03) $ .36 $ .28
======== ======== ========
</TABLE>
Fully diluted net income per common share is not presented for any period
as it is not materially different from the above primary calculations.
Common stock equivalents include stock options to purchase Common Stock.
The convertible subordinated debt is not a common stock equivalent and does not
have a dilutive effect on net income (loss) per common share for any of the
three years presented.
-31-
<PAGE>
(12) BUSINESS OPERATIONS AND GEOGRAPHIC INFORMATION --
The primary business of the Company involves the provision of on-site
waste management, container, waste transportation, excavation and site
remediation and wastewater pretreatment services to the industrial customer. The
Company's operations are primarily located in the United States, Canada and
Mexico, as summarized below (in thousands):
<TABLE>
<CAPTION>
UNITED
STATES CANADA MEXICO TOTAL
-------- -------- --------- --------
1995 --
<S> <C> <C> <C> <C>
Revenues $322,644 $ 20,484 $ 1,117 $344,245
Operating income (loss) 11,253 1,375 (2,863) 9,765
Total assets 359,507 12,257 469 372,233
1994 --
Revenues $263,210 $ 22,611 $ 1,040 $286,861
Operating income (loss) 22,165 2,690 (1,506) 23,349
Total assets 297,063 9,578 2,622 309,263
1993 --
Revenues $222,166 $ 21,425 $ -- $243,591
Operating income 13,650 3,064 -- 16,714
Total assets 248,139 8,851 2,975 259,965
</TABLE>
-32-
<PAGE>
(13) QUARTERLY FINANCIAL DATA (UNAUDITED) --
The table below sets forth consolidated operating results by fiscal
quarter for the years ended August 31, 1995 and 1994 excluding the Company's
discontinued glass recycling operations (in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
1995 --
<S> <C> <C> <C> <C>
Revenues ......................... $ 82,591 $ 78,433 $ 86,638 $ 96,583
Gross profit ..................... 22,846 20,903 23,384 22,516
Net income (loss)
Continuing operations .......... 2,926 1,507 2,170 (10,482)
Discontinued operations ........ 794 825 872 282
-------- -------- -------- --------
$ 3,720 $ 2,332 $ 3,042 $(10,200)
======== ======== ======== ========
Net income (loss) per common share
Continuing operations .......... $ .08 $ .04 $ .06 $ (.27)
Discontinued operations ........ .02 .02 .02 .01
-------- -------- -------- --------
$ .10 $ .06 $ .08 $ (.26)
======== ======== ======== ========
1994 --
Revenues ......................... $ 69,354 $ 66,386 $ 77,206 $ 73,915
Gross profit ..................... 18,234 18,829 22,939 22,367
Net income
Continuing operations .......... 2,617 1,805 3,016 3,159
Discontinued operations ........ 249 155 1,025 1,071
-------- -------- -------- --------
$ 2,866 $ 1,960 $ 4,041 $ 4,230
======== ======== ======== ========
Net income per common share
Continuing operations .......... $ .07 $ .05 $ .08 $ .08
Discontinued operations ........ .01 -- .03 .03
-------- -------- -------- --------
$ .08 $ .05 $ .11 $ .11
======== ======== ======== ========
</TABLE>
Due to changes in weighted average common shares outstanding, the sum of
the quarterly per share amounts for fiscal 1995 and 1994 do not equal earnings
per share for the respective years.
-33-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-34-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The above items will be included in the Company's proxy statement to be
filed within 120 days after the close of the fiscal year end in connection with
the 1996 Annual Shareholders' Meeting.
-35-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS.
Report of Independent Public Accountants
Consolidated Balance Sheets as of August 31, 1995 and 1994
Consolidated Statements of Operations for the years ended August 31, 1995,
1994 and 1993
Consolidated Statements of Shareholders' Equity for the years ended August
31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended August 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES.
Report of Independent Public Accountants on Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is provided in the Consolidated Financial Statements
or notes thereto.
3. EXHIBITS.
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. EXHIBIT INSERT NUMBER *
------- -------------- ----------
<S> <C> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of
Allwaste, Inc. ("Allwaste") effective February 22, 1990.
(Exhibit 3.1 to the Allwaste Quarterly Report on Form
10-Q (File No. 0-15217) for the fiscal quarter ended
February 28, 1990 is hereby incorporated by reference.)
3.2 -- Corrected Bylaws of Allwaste (Exhibit 3.2 to the
Allwaste Annual Report on Form 10-K (File No. 1-11008)
for the fiscal year ended August 31, 1992, filed
November 27, 1992 (the "1992 10-K"), is hereby
incorporated by reference.)
4.1 -- Specimen Common Stock certificate (Exhibit 4.1 to the
1992 10-K is hereby incorporated by reference.)
4.2 -- Specimen debenture certificate (Exhibit 4.2 to the 1992
10-K is hereby incorporated by reference.)
4.3 -- Form of Indenture between Allwaste and Texas Commerce
Trust Company of New York dated June 1, 1989, relating
to certain debentures of Allwaste. (Exhibit 4.1 to the
Allwaste Quarterly Report on Form 10-Q (File No.
0-15217) for the fiscal quarter ended May 31, 1989 is
hereby incorporated by reference.)
</TABLE>
-36-
<PAGE>
3. EXHIBITS.
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. EXHIBIT INSERT NUMBER *
------- -------------- ----------
<S> <C> <C> <C>
10.1 -- Employment Agreement dated October 23, 1986, between R.L.
Nelson, Jr. and Allwaste. (Exhibit 10.1 to the Allwaste
Annual Report on Form 10-K (File No. 1-11008) for the
fiscal year ended August 31, 1994, filed November 29, 1994
(the "1994 10-K"), is hereby incorporated by reference.)
10.2 -- Employment Agreement dated October 17, 1994, between
Robert M. Chiste and Allwaste. (Exhibit 10.6 to the 1994
10-K is hereby incorporated by reference.)
10.3 -- Allwaste Amended and Restated 1989 Replacement
Non-Qualified Stock Option Plan. (Exhibit A to the
Allwaste proxy statement relating to its 1995 annual
meeting of stockholders, filed December 20, 1994, is
hereby incorporated by reference.)
10.4 -- Allwaste Employee Retirement Plan. (Exhibit 4.3
to the Post-Effective Amendment No. 1 to Registration
Statement on Form S-8 (File No. 33-37684), filed August 7,
1995, is hereby incorporated by reference.)
10.5 -- Credit Agreement dated as of November 30, 1993, as
amended, by and among Allwaste, Inc., a Delaware
corporation, the Financial Institutions signatory thereto,
and Texas Commerce Bank National Association, a national
banking association, as Agent. (Exhibit 10.10 to the 1994
10-K is hereby incorporated by reference.)
10.6 -- First Amendment to Employment Agreement dated as of
October 26, 1995, between Robert M. Chiste and Allwaste.
(Filed herewith.)
11.1 -- Calculation of Net Income Per Common Share. (See Note 11
of Notes to Consolidated Financial Statements of Allwaste,
Inc. and Subsidiaries.)
21.1 -- Subsidiaries of Allwaste, Inc. (Filed herewith.)
23.1 -- Consent of Arthur Andersen LLP to incorporation by
reference of the report in this Form 10-K into the
Allwaste, Inc. previously filed Form S-4 and S-8
Registration Statements. (Filed herewith.)
27.1 -- Financial Data Schedule. (Filed herewith.)
</TABLE>
- ---------------
* This information appears only in the manually signed and sequentially
numbered original.
-37-
(B) REPORTS ON FORM 8-K.
Allwaste, Inc. (the "Company") Current Report on Form 8-K dated September
1, 1995, filed on September 15, 1995, and the Company's Current Report on Form
8-K/A dated and filed on November 14, 1995, related to the disposition of the
Company's glass recycling operations.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 33-46048 (filed February 28, 1992), 33-37684 (filed November 8, 1990),
33-55210 (filed December 1, 1992), 33-61639 (filed August 7, 1995) and 33-61641
(filed August 7, 1995):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
-38-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To Allwaste, Inc.:
We have audited in accordance with generally accepted auditing standards,
the Consolidated Financial Statements of Allwaste, Inc. and subsidiaries
included in this Form 10-K, and have issued our report thereon dated November
17, 1995. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in Part IV,
Item 14 (a)(2) for Allwaste, Inc. and subsidiaries are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Houston, Texas
November 17, 1995
-39-
<PAGE>
SCHEDULE II
ALLWASTE, INC. AND SUBSIDIARIES (1)
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE, CHARGED TO ACQUISITIONS BALANCE,
BEGINNING COSTS AND ACCOUNTED FOR DEDUCTIONS END OF
DESCRIPTION OF YEAR EXPENSES AS PURCHASES (2) YEAR
- ------------------------------- ----------- ------------ --------------- ------------ ----------
Allowance for Doubtful
Accounts Receivable
<S> <C> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1993: $ 2,178 $ 734 $ 414 $ (851) $ 2,475
YEAR ENDED AUGUST 31, 1994: $ 2,475 $ 1,355 $ 46 $(1,226) $ 2,650
YEAR ENDED AUGUST 31, 1995: $ 2,650 $ 2,900 $ 89 $(1,956) $ 3,683
Allowance for Doubtful
Notes Receivable
YEAR ENDED AUGUST 31, 1993: $ -- $ -- $ -- $ -- $ --
YEAR ENDED AUGUST 31, 1994: $ -- $ 790 $ -- $ -- $ 790
YEAR ENDED AUGUST 31, 1995: $ 790 $ 1,000 $ -- $ -- $ 1,790
- ----------
</TABLE>
(1) Restated to exclude the discontinued glass recycling operations; see Note 3
of Notes to Consolidated Financial Statements.
(2) Uncollectible accounts written off, net of recoveries on accounts previously
written off.
-40-
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, Allwaste, Inc., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALLWASTE, INC.
By: /s/ ROBERT M. CHISTE
Robert M. Chiste, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, Allwaste, Inc., and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------- --------------------------------- -----------------
/s/ ROBERT M. CHISTE President and Chief Executive November 22, 1995
Robert M. Chiste Officer (Principal Executive
Officer); Director
/s/ DARREN B. MILLER Vice President - Treasurer November 22, 1995
Darren B. Miller (Principal Financial Officer and
Principal Accounting Officer)
/s/ R. L. NELSON, JR. Chairman of the Board November 22, 1995
R.L. Nelson, Jr.
/s/ MICHAEL A. BAKER Director November 22, 1995
Michael A. Baker
/s/ DAVID H. BATCHELDER Director November 22, 1995
David H. Batchelder
/s/ RICARDO J. BESQUIN L. Director November 22, 1995
Ricardo J. Besquin L.
/s/ JOHN U. CLARKE Director November 22, 1995
John U. Clarke
Robert L. Knauss Director November 22, 1995
/s/ THOMAS J. TIERNEY Director November 22, 1995
Thomas J. Tierney
/s/ T. MICHAEL YOUNG Director November 22, 1995
T. Michael Young
-41-
EXHIBIT 10.6
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (the "Amendment") is made
and entered into as of this 26th day of October, 1995, by and between Allwaste,
Inc., a Delaware corporation (the "Company"), and Robert M. Chiste (the
"Employee").
WHEREAS, the Company and the Employee are parties to an Employment
Agreement dated October 17, 1994 (the "Agreement") which is attached hereto as
ADDENDUM 1 and is incorporated herein in its entirety by reference, pursuant to
which the Employee has performed certain services to the Company; and
WHEREAS, as additional compensation for services provided by the
Employee pursuant to the Agreement, the Agreement provided that the Employee
would be entitled to receive an annual cash bonus of $150,000 for each of his
first four years of employment with the Company, such bonuses being payable
subject to the Company meeting certain performance targets; and
WHEREAS, in recognition of the Employee's valuable contributions to the
Company in connection with the Company's recent sale of its glass recycling
operations, the Company desires to amend the Agreement to provide, and the
Employee desires to accept, additional compensation for the Employee in the form
of restricted shares of the Company's common stock in lieu of the cash bonuses.
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises and representations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged herein, the
Company and the Employee agree as follows:
1. Subparagraph 2(b)(ii) of the Agreement is hereby amended
by deleting the subparagraph in its entirety and substituting the following
in replacement thereof:
(ii) In addition to the bonus described in subparagraph
2(b)(i) hereof, the Employee shall be entitled to receive
126,316 shares (the "Shares") of the Company's common stock,
par value $.01 per share (the "Common Stock"), such Shares to
vest cumulatively as follows: 31,579 of the Shares shall vest
on October 26, 1996; 31,579 of the Shares shall vest on
October 26, 1997; 31,579 of the Shares shall vest on October
26, 1998; and the remainder, 31,579 of the Shares, shall vest
on October 26, 1999. The Employee acknowledges that such
shares shall be restricted shares, subject to forfeiture as
provided in the Restricted Stock Agreement attached hereto as
EXHIBIT A and incorporated herein in its entirety by
reference.
2. Subparagraph 6(c)(ii) of the Agreement is hereby amended
by deleting the subparagraph in its entirety and substituting the following
in replacement thereof:
(ii) In the event of the termination of this Agreement
pursuant to subparagraph 6(b)(i) or in the event of the
termination of this Agreement by the Company as permitted
under subparagraph 6(b)(iii) hereof, all rights and
obligations of the Company and the Employee under the
Agreement shall cease immediately, except that: (i) the
Employee's obligations under paragraphs 3, 4, 5 and 7 hereof
shall survive such termination; (ii) the Shares granted to the
Employee pursuant to Section 2(b)(ii) hereof shall continue to
vest as provided herein; and (iii) the Employee shall be
entitled to continue to receive payment of his base salary at
the then current rate for the next two (2) succeeding years,
and thereafter, the Employee shall have no right to receive
any compensation hereunder.
3. Except as modified by this Amendment, all other terms of the
Agreement shall continue in full force and effect without modification.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Employment Agreement in duplicate originals, effective as of October 26, 1995.
ALLWASTE, INC.
By: William L. Fiedler
Vice President, General Counsel and Secretary
ROBERT M. CHISTE
Robert M. Chiste
Exhibit 21.1
ALLWASTE, INC.
Subsidiaries as of November 29, 1995
<TABLE>
<CAPTION>
JURISDICTION OF
ORGANIZATION NAMES UNDER WHICH DOES BUSINESS
----------------- ---------------------------------
<S> <C> <C>
Ace/Allwaste Environmental Services of Indiana, Inc. Illinois
Allies Staffing, Inc. Delaware Allies Staffing Group, Inc.
All Safety and Supply, Inc. Texas
Allwaste Access Services, Inc. Colorado
Allwaste Asbestos Abatement, Inc. Delaware
Allwaste Asbestos Abatement Holdings, Inc. Delaware
Allwaste Asbestos Abatement of New England, Inc. Massachusetts
Allwaste of Canada, Ltd. Ontario, Canada Allwaste Tank Cleaning of Canada, Ltd.
Sail View Ventures
Caligo
Allwaste Container Services
Allwaste Environmental Services, Inc. Delaware
Allwaste Environmental Services/Central Florida, Inc. Delaware
Allwaste Environmental Services/Chesapeake, Inc. Maryland Allwaste Environmental Services/Delaware
Valley
Allwaste Environmental Services/North Atlantic, Inc. Delaware
Allwaste Environmental Services/North Central, Inc. Illinois
Allwaste Environmental Services/North Central, Inc. Iowa
Allwaste Environmental Services/South Central, Inc. Colorado
Allwaste Environmental Services/West Coast, Inc. California Allwaste Processing & Services
Cleaning & Pumping Specialists
CPS-Allwaste
Allwaste of Southern California
Allwaste of Northern California
Western/Allwaste
Allwaste Environmental Services of Atlanta, Inc. Georgia Allwaste Services of South Georgia, Inc.
Allwaste/Cartersville, Inc.
Allwaste Environmental Services of Denver, Inc. Colorado
Allwaste Environmental Services of Louisiana, Inc. Louisiana Roussel Environmental Services, Inc.
Allwaste Environmental Services of Missouri, Inc. Delaware
Allwaste Environmental Services of Ohio, Inc. Ohio
Allwaste Environmental Services of Oklahoma, Inc. Oklahoma
Allwaste Environmental Services of Sarnia, Ltd. Ontario, Canada
Allwaste Environmental Services of Texas, Inc. Texas Allwaste Dredging Services
Allwaste Services of Tyler
J. King
Allwaste Plant Access Services
Allwaste Scaffold Services
Tex Blast Sandblasting
Enviroganics
Impact
Allwaste Explosive Services, Inc. Colorado Yenter Environmental Safety Services
Yenter Environmental Services
Allwaste Intermountain Plant Services, Inc. Delaware
Allwaste/NAL, Inc. Arizona
Allwaste of Hawaii, Ltd. Hawaii SmithService Hawaii
Allwaste Oilfield Services, Inc. Louisiana
Allwaste Railcar Cleaning, Inc. Delaware
Allwaste Recovery Systems, Inc. Georgia Allwaste Recovery Systems of Dallas
Allwaste Recovery Systems of Denver
Allwaste Recovery Systems of Baton Rouge
Allwaste Services of Birmingham, Inc. Alabama Allwaste Services of Decatur, Inc.
Allwaste Services of Charlotte, Inc. North Carolina
Allwaste Services of El Paso, Inc. Delaware
Allwaste Services of Memphis, Inc. Tennessee
Allwaste Services of Mobile, Inc. Alabama
Allwaste Services of Savannah, Inc. Georgia
Allwaste Services of Virginia, Inc. Virginia
Allwaste Servicios Industriales de Control
Ecologico S.A. de C.V. Mexico
Allwaste Tank Cleaning, Inc. Georgia Allwaste Container Services, Inc.
Allwaste Tank Services, Inc.
Allwaste Tank Services S.A. de C.V. Mexico
Allwaste Transportation and Remediation, Inc. California
Allwaste/Whiting, Inc. Delaware
ALRC, Inc. Delaware
ALW Enterprises, Inc. Delaware
APLC, Inc. Delaware
BEC/Allwaste, Inc. Alabama
Brown Williams Construction, Inc. Florida
Bryson Environmental Services, Inc. Alabama
Caligo de Mexico, S.A. de C.V. Mexico
Caligo, Ltd. Pennsylvania
Caligo Reclamation, Ltd. Ontario, Canada
Caligo Reingungsges m.b.H. Austria
Canadian Cargo Clean, Ltd. Ontario, Canada
Clean America, Inc. Maryland Clean America, Inc. of Maryland
Allwaste Mid-Atlantic
CPC Heat Exchanger Services, Inc. California
Enviro-Jet Systems, Inc. Ontario, Canada
Honey-Bee Sanitation, Inc. Ontario, Canada Allwaste Services of Windsor
Allwaste Services of London
Hydrowash Recycling Systems, Inc. Texas
Industrial Construction Services Co., Inc. Alabama
Industrial Pond Services, Inc. Washington
J. D. Meagher/Allwaste, Inc. Massachusetts
James & Luther Services, Inc. Delaware
Jesco Industrial Services, Inc. Kentucky
Madsen-Barr-Allwaste, Inc. Florida
Oil Recycling, Inc. North Dakota
Oneida Asbestos Abatement, Inc. Delaware
Oneida Asbestos Removal, Inc. New York
Roussel Rental Equipment, Inc. Louisiana
770950 Ontario Limited Ontario Canada Caligo
Southern Scaffold, Inc. Tennessee
Thompson Environmental Management, Inc. Delaware
Western Hydro Vac, Inc. Arizona
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated November 17, 1995, included in
this Form 10-K, into the Allwaste, Inc. previously-filed Form S-4 Registration
Statement File Nos. 33-44129 and 33-56715 and Form S-8 Registration Statements
File Nos. 33-46048, 33-37684, 33-55210, 33-61639 and 33-61641.
ARTHUR ANDERSEN LLP
Houston, Texas
November 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS CONTAINED IN THE COMPANY'S 10-K FOR THE
FISCAL YEAR ENDED AUGUST 31, 1995 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> AUG-31-1995
<PERIOD-END> AUG-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 97,919
<PP&E> 230,291
<DEPRECIATION> 99,193
<TOTAL-ASSETS> 372,233
<CURRENT-LIABILITIES> 70,994
<BONDS> 172,948
<COMMON> 396
0
0
<OTHER-SE> 127,895
<TOTAL-LIABILITY-AND-EQUITY> 372,233
<SALES> 344,245
<TOTAL-REVENUES> 344,245
<CGS> 254,596
<TOTAL-COSTS> 254,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8,785)
<INCOME-PRETAX> (2,117)
<INCOME-TAX> 2,170
<INCOME-CONTINUING> (3,879)
<DISCONTINUED> 2,773
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,106)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
