SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 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 77056-3609
(Address of Principal Executive Offices) (Zip Code)
(713) 623-8777
(Registrant's Telephone Number, Including Area Code)
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 [ ].
The number of shares of Common Stock of the Registrant, par value $.01 per
share, outstanding at July 10, 1996 was 38,663,944.
REPORT INDEX
PART AND ITEM NO. PAGE NO.
- ----------------- --------
PART I - Financial Information
Item 1 - Financial Statements
General Information .................................................. 1
Condensed Consolidated Balance Sheets as of
May 31, 1996 (unaudited) and August 31, 1995 ....................... 2
Condensed Consolidated Statements of Operations for the Nine and
Three Months Ended May 31, 1996 and 1995 (unaudited) ............... 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended May 31, 1996 and 1995 (unaudited) ................ 4
Notes to Condensed Consolidated Financial Statements (unaudited) ..... 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 8
PART II - Other Information
Item 6 - Exhibits and Reports on Form 8-K ............................11
PART I, FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GENERAL INFORMATION
The Condensed Consolidated Financial Statements herein have been prepared
by the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). As applicable under such
regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
presentation and disclosures herein are adequate to make the information not
misleading, and the financial statements reflect all elimination entries and
normal adjustments which are necessary for a fair statement of the results for
the nine and three months ended May 31, 1996 and 1995.
Operating results for interim periods are not necessarily indicative of
the results for full years. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements for the year ended August 31, 1995 and the related notes thereto
included in the Company's Annual Report on Form 10-K filed with the SEC.
ALLWASTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
May 31, August 31,
1996 1995
----------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................................ $ 320 $ 4,029
Receivables, net ..................................................................... 80,605 80,065
Prepaid expenses ..................................................................... 4,713 3,609
Deferred taxes and other current assets .............................................. 12,224 10,216
--------- ---------
Total current assets ............................................................ 97,862 97,919
--------- ---------
INVESTMENTS .............................................................................. 10,619 --
PROPERTY AND EQUIPMENT ................................................................... 245,107 230,291
Less -- Accumulated depreciation ..................................................... (113,421) (99,193)
--------- ---------
131,686 131,098
--------- ---------
GOODWILL, net ............................................................................ 87,713 88,122
NOTES RECEIVABLE AND OTHER ASSETS ........................................................ 15,215 8,943
NET ASSETS OF DISCONTINUED OPERATIONS .................................................... -- 46,151
--------- ---------
Total assets .................................................................... $ 343,095 $ 372,233
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................................... $ 19,609 $ 28,737
Accrued liabilities
Income taxes payable ........................................................... 4,247 2,595
Other .......................................................................... 41,462 36,291
Current maturities of long-term and convertible subordinated debt .................... 6,638 3,371
--------- ---------
Total current liabilities ....................................................... 71,956 70,994
--------- ---------
LONG-TERM DEBT ........................................................................... 91,979 120,535
CONVERTIBLE SUBORDINATED DEBT ............................................................ 35,006 41,972
DEFERRED INCOME TAXES AND OTHER LIABILITIES .............................................. 12,493 10,441
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ......................................................................... 398 396
Additional paid-in capital ........................................................... 55,534 54,958
Unearned compensation related to outstanding restricted stock ........................ (779) --
Retained earnings .................................................................... 81,559 73,999
Treasury stock ....................................................................... (5,051) (1,062)
--------- ---------
Total shareholders' equity ..................................................... 131,661 128,291
--------- ---------
Total liabilities and shareholders' equity ..................................... $ 343,095 $ 372,233
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
ALLWASTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
May 31, May 31,
------------------------ ------------------------
1996 1995 1996 1995
----------- ---------- ---------- ----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
REVENUES ................................................ $ 286,807 $ 247,662 $ 98,731 $ 86,638
COST OF OPERATIONS ...................................... 215,783 180,529 73,110 63,254
--------- --------- --------- ---------
Gross profit ...................................... 71,024 67,133 25,621 23,384
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ............ 58,274 50,083 18,942 17,819
INTEREST EXPENSE ........................................ (7,327) (5,680) (2,506) (2,080)
INTEREST INCOME ......................................... 773 299 280 100
OTHER INCOME, net ....................................... 1,263 156 535 227
--------- --------- --------- ---------
Income from continuing operations before
income tax provision and minority interest ...... 7,459 11,825 4,988 3,812
INCOME TAX PROVISION .................................... (3,580) (5,376) (2,443) (1,679)
MINORITY INTEREST, net of taxes ......................... 62 154 38 37
--------- --------- --------- ---------
Income from continuing operations ................. 3,941 6,603 2,583 2,170
Discontinued Operations
Income from glass recycling operations,
net of applicable income taxes ......... -- 2,491 -- 872
Gain on sale of glass recycling operations,
net of applicable income taxes ......... 3,764 -- -- --
--------- --------- --------- ---------
Net income ................................ $ 7,705 $ 9,094 $ 2,583 $ 3,042
========= ========= ========= =========
NET INCOME PER COMMON SHARE:
Continuing operations ............................. $ .10 $ .17 $ .07 $ .06
Discontinued operations ........................... .10 .07 -- .02
--------- --------- --------- ---------
Net income per common share ............... $ .20 $ .24 $ .07 $ .08
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING .... 39,262 38,605 39,063 38,698
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
ALLWASTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
May 31,
-----------------------------
1996 1995
------------ --------------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 7,705 $ 9,094
Reconciliation of net income to cash provided by (used in) operating activities -
Depreciation and amortization .............................................. 23,546 20,570
Gain on sale of glass recycling operations ................................. (3,764) --
Gain on sale of property and equipment ..................................... (821) (731)
Unearned compensation - restricted stock ................................... 95 --
Change in assets and liabilities, net of effect of acquisitions
accounted for as purchases -
Receivables, net ................................................ (1,176) (1,459)
Prepaid expenses and other current assets ....................... (2,108) 1,151
Notes receivable and other assets ............................... 25 374
Accounts payable and accruals ................................... (6,887) 3,692
Deferred income taxes and other liabilities ..................... (251) 298
-------- --------
Cash provided by operating activities ................................. 16,364 32,989
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock ......................................... 553 1,089
Proceeds from borrowings ........................................................ 85 10,156
Principal payments on borrowings ................................................ (32,569) (878)
Purchases of treasury stock ..................................................... (5,482) --
-------- --------
Cash provided by (used in) financing activities ....................... (37,413) 10,367
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of glass recycling operations ................................ 41,500 --
Additions to property and equipment ............................................. (23,265) (33,960)
Purchase of investment .......................................................... (2,619) --
Proceeds from sale of property and equipment .................................... 2,893 2,339
Payments for acquisitions accounted for as purchases, net of cash acquired ...... (1,113) (7,791)
Cash provided by discontinued operations ........................................ -- (3,256)
-------- --------
Cash provided by (used in) investing activities ....................... 17,396 (42,668)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ...................................................... (56) (154)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................... (3,709) 534
CASH AND CASH EQUIVALENTS, beginning of period ....................................... 4,029 3,020
-------- --------
CASH AND CASH EQUIVALENTS, end of period ............................................. $ 320 $ 3,554
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Significant Accounting Policies --
The Condensed Consolidated Financial Statements include the accounts of
Allwaste, Inc. and its subsidiaries (the "Company"). There have been no
significant changes in the accounting policies of the Company during the periods
presented. For a description of these policies, see Note 1 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended August 31, 1995. Prior period amounts in the Condensed
Consolidated Financial Statements and Notes to Condensed Consolidated Financial
Statements have been restated to reflect the Company's glass recycling
operations as a discontinued operation, as discussed in Note 7. Additionally,
certain prior period amounts have been reclassified to conform with the current
period presentation.
(2) Acquisitions and Investments --
During the first nine months of fiscal year 1996, the Company completed
three business acquisitions accounted for using the purchase method for
consideration of $1.3 million in cash and promissory notes. Additionally, the
Company made a minority investment of $2.6 million in preferred stock, common
stock and common stock warrants in a company that provides leak sealing and
valve restoration services. Such investment is accounted for using the cost
method and is included as "Investments" in the accompanying Condensed
Consolidated Balance Sheets. See Note 7 for further discussion regarding
investments.
(3) Income Taxes --
With respect to continuing operations, income tax provisions for interim
periods are estimated based upon projections of the annual effective tax rates.
Certain assumptions have been made in this regard in estimating the effective
tax rate for fiscal 1996, the outcome of which may not be resolved until the end
of the fiscal year. The effective tax rate of 48% for the nine months ended May
31, 1996 reflects the estimated U.S. federal and state income taxes and foreign
taxes on the earnings of the Company's foreign subsidiaries.
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 Condensed Consolidated Balance
Sheets, deferred tax assets and liabilities are netted within each tax
jurisdiction. The following table sets forth the gross deferred tax assets
(liabilities) recorded (in thousands):
May 31, August 31,
1996 1995
------------ -----------
Current deferred tax assets ............. $ 10,518 $ 8,512
Non-current deferred tax assets ......... 3,470 5,003
Valuation allowance ..................... (1,230) (1,156)
------------ -----------
Total deferred tax assets .......... 12,758 12,359
------------ -----------
Current deferred tax liabilities ........ -- --
Non-current deferred tax liabilities .... (15,267) (14,998)
------------ -----------
Total deferred tax liabilities ..... $(15,267) (14,998)
------------ -----------
Net deferred tax liabilities ............ $ (2,509) $ (2,639)
============ ===========
The components of the net deferred tax assets (liabilities) are as follows
(in thousands):
May 31, August 31,
1996 1995
-------- --------
Depreciation and amortization ................ $(14,041) $(12,807)
Financial reserves and accruals
not yet deductible ........................ 11,532 10,168
-------- --------
Total ................................... $ (2,509) $ (2,639)
======== ========
(4) Net Income Per Common Share --
Net income per common share has been computed based on the weighted average
number of shares of Common Stock and Common Stock equivalents outstanding. The
calculation of fully-diluted net income per common share is not materially
different from the primary calculation. The following table presents the primary
weighted average number of shares outstanding for the nine and three months
ended May 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended Ended
May 31, May 31,
------------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Common shares outstanding,
beginning of fiscal period ............... 39,359 37,741 39,359 37,741
Weighted average number of common
shares outstanding:
Stock options, treasury stock method .. 73 322 30 282
Purchased companies ................... 24 609 25 710
Exercise of stock options ............. 98 183 136 215
Purchases of common stock ............. (292) (250) (487) (250)
------ ------ ------ ------
Total weighted average common shares
outstanding ............................. 39,262 38,605 39,063 38,698
====== ====== ====== ======
</TABLE>
(5) Long-Term Debt --
The Company has a revolving credit agreement which 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. As of July 10, 1996, after
utilizing $30.1 million of the credit facility for letters of credit to secure
certain insurance obligations and performance bonds, the Company had available
borrowing capacity under the agreement of $37 million. Borrowing availability is
subject to the Company maintaining certain minimum financial ratios.
(6) Incentive Plan --
On October 26, 1995, the Company's Board of Directors adopted a limited
incentive plan (the "Plan") for certain key employees ("Participants") of the
Company. Under this plan, each Participant that purchases shares of the
Company's Common Stock, based on a designated percentage of the Participant's
annual salary (the "Qualifying Shares"), is granted a number of shares of
restricted stock equal to two times the number of Qualifying Shares purchased by
the Participant. On completion of the purchase by a Participant, the
Compensation Committee may, in its discretion and under the Company's Amended
and Restated 1989 Replacement Non-qualified Stock Option Plan, grant to such
Participant an option to purchase a number of shares of Common Stock equal to
four times the number of Qualifying Shares purchased by the Participant. Shares
of Common Stock issued under this Plan are treasury shares. At May 31, 1996,
200,032 shares of restricted stock and options to purchase 400,064 shares of
Common Stock have been granted to Participants. Additionally, 49,686 shares of
Common Stock and 99,372 options were earned and not yet issued.
The market value of shares awarded under this plan was $874,475 at May 31,
1996. These amounts were recorded as unearned compensation related to
outstanding restricted stock and are shown as a separate component of
Shareholders' Equity. Unearned compensation is being amortized to expense over
the vesting period and amounted to $95,400 in the nine month period ended May
31, 1996.
(7) Discontinued Operations --
In September 1995, the Company sold its glass recycling operations, now
Strategic Holdings, Inc. ("SHI"), to a company formed by Equus II Incorporated
("Equus"), a Houston-based, publicly-traded business development company. In
January 1996, the Company and Equus reached an agreement in principle with
respect to certain post-closing issues which were unresolved on the date of the
sales transaction. The total consideration, as adjusted, was $56.1 million,
including $41.5 million in cash, $8.0 million of 6.5% redeemable Series A
preferred stock payable in 2002, and a $6.6 million 11% subordinated note
receivable due in 2002. The preferred stock, which is included in "Investments"
in the accompanying Condensed Consolidated Balance Sheets, and notes receivable
obtained as consideration are payable by SHI, an affiliate of Equus. The Company
also received warrants to purchase shares of SHI Common Stock, providing the
Company the right to own up to approximately 33% of the outstanding stock of
SHI. The Company 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 consideration, if any, is not presently determinable. The Company
recorded a gain on the sale of its glass recycling operations of $3.8 million,
net of estimated applicable income taxes of $1.6 million in the first quarter of
fiscal 1996. The recorded gain and applicable income taxes are estimates which
are subject to the finalization of certain post-closing issues, including the
agreement discussed above. Revenues of the glass recycling operations, net of
intercompany sales, were $50.9 million and $18.6 million for the nine and three
months ended May 31, 1995, respectively.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For supplemental information, it is suggested that "Management's Discussion
and Analysis of Financial Condition and Results of Operations" be read in
conjunction with the corresponding section included in the Company's Annual
Report on Form 10-K for the year ended August 31, 1995. The following
information has been restated for all periods discussed to exclude the Company's
discontinued glass recycling operations.
NINE AND THREE MONTHS ENDED MAY 31, 1996 AND 1995
REVENUES - The Company's consolidated revenues increased by 16% and 14% for
the nine and three months ended May 31, 1996, respectively, compared to the
corresponding periods in fiscal 1995. Of the Company's total revenue growth,
approximately $17.3 million and $5.7 million for the nine and three month
periods ended May 31, 1996, respectively, was internally-generated. The
following is a summary of revenues by major service line (in thousands):
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended Ended
May 31, May 31,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ON-SITE INDUSTRIAL MANAGEMENT
SERVICES
Hydroblasting and gritblasting .... $ 54,593 $ 44,057 $ 19,341 $ 15,143
Air-moving and liquid vacuuming ... 51,365 45,133 17,651 15,579
Dredging and dewatering ........... 13,224 15,951 3,572 4,840
Other ............................. 38,466 30,018 13,252 11,928
---------- ---------- ---------- ----------
Subtotal ........................ 157,648 135,159 53,816 47,490
---------- ---------- ---------- ----------
CONTAINER SERVICES .................... 35,941 37,628 12,638 12,735
EXCAVATION AND SITE REMEDIATION
SERVICES ............................ 33,363 24,959 11,471 9,102
TRANSPORTATION, ROLL-OFF AND
TANK RENTAL SERVICES ................ 26,820 31,627 8,657 10,178
ALL OTHER SERVICES .................... 33,035 18,289 12,149 7,133
---------- ---------- ---------- ----------
Total ........................... $ 286,807 $ 247,662 $ 98,731 $ 86,638
========== ========== ========== ==========
</TABLE>
On-site industrial management services revenues increased $22.5 million or
17% and $6.3 million or 13% in the nine and three months ended May 31, 1996,
respectively, as compared with the corresponding periods in fiscal 1995.
Approximately $8.4 million and $1.7 million of the nine and three month
increases in these service revenues was attributable to acquisitions. The
internally generated revenue increases were primarily due to increased tank
cleaning and other related services provided to the refining and petrochemical
industry in the United States and to the offshore oil and gas exploration and
production industry in the Gulf of Mexico area. Dredging and dewatering revenues
decreased $2.7 million or 17% for the nine month period and $1.3 million or 26%
for the three month period, due to a decline in activity related to these
services along the Pacific and Gulf coasts and the downsizing of the dredging
service line in the southeastern United States.
Container services revenues decreased $1.7 million or 4% in the nine month
period and $97,000 or 1% in the three month period ended May 31, 1996, compared
with the corresponding periods in fiscal 1995. These decreases were primarily
attributable to the nonrecurrance of wastewater projects in Louisiana that
elevated revenues in the nine month period ended May 31, 1995.
Excavation and site remediation services revenues increased $8.4 million or
34% and $2.4 million or 26% in the nine and three month periods ended May 31,
1996 compared to the corresponding periods in fiscal 1995 due primarily to
increased market penetration in the Louisiana pulp and paper industry, increases
in mining and environmental remediation services and a significant public works
contract in Alabama.
Transportation, roll-off and tank rental services revenues decreased $4.8
million or 15% and $1.5 million or 15% in the nine and three month periods ended
May 31, 1996 compared to the corresponding periods in fiscal 1995. These
decreases were primarily attributable to lower volumes in hauling services in
Louisiana, Georgia and Alabama and declines in related roll-off box rentals in
Texas.
The Company's 15 other industrial service lines had aggregate revenue
increases of $14.7 million or 81% and $5.0 million or 70% in the nine and three
months ended May 31, 1996, respectively, as compared with the corresponding
periods in fiscal 1995. These increases primarily resulted from increases in
sewer restoration services, a new service line offered as a result of an
acquisition in May 1995.
GROSS PROFIT MARGINS - Consolidated gross profit, as a percentage of
revenues ("gross margin"), decreased 2% to 25% for the nine months and 1% to 26%
for the three months ended May 31, 1996, compared with the corresponding periods
in fiscal 1995. The decline was a result of a higher volume of lower margin
subcontract work, primarily in excavation and site remediation, increased
depreciation, and lower margins in the container service line due to reduced
revenue levels.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES - SG&A expenses
increased $8.2 million or 16% and $1.1 million or 6% for the nine and three
months ended May 31, 1996, respectively, compared with the same periods in
fiscal 1995. The incremental increases in SG&A from purchase acquisitions were
$4.5 million or 55% and $1.2 million or 109% for the nine and three month
periods, respectively. SG&A as a percent of revenue declined 2% to 19% in the
three months ended May 31, 1996. This decrease was primarily attributable to
cost reductions as a result of the restructuring program implemented earlier in
the fiscal year.
INTEREST EXPENSE AND OTHER INCOME - Interest expense from continuing
operations increased by $1.6 million and $426,000 during the nine and three
months ended May 31, 1996, respectively, as compared with the same periods in
fiscal 1995. For the nine and three month periods ended May 31, 1995, $1.2
million and $451,000 respectively of interest was allocated to the net income
from discontinued operations. Debt levels for the nine month period ended May
31, 1996 remained consistent with the corresponding period in fiscal 1995.
Interest income and other income, net, increased $1.6 million in the nine month
period and $488,000 in the three month period as a result of interest earned on
the 11% subordinated note receivable and dividends earned on the 6.5% redeemable
Series A preferred stock received from the sale of the glass recycling
operations and dividends earned on the Company's investment in a leak sealing
and valve restoration services company.
INCOME TAXES - The effective income tax rates for the nine months ended May
31, 1996 and 1995 were 48% and 46%, respectively, while the tax rates for the
three months ended May 31, 1996 and 1995 were 49% and 44%, respectively. The
effective tax rates were higher than the statutory Federal rate of 35% primarily
due to the effect of the nondeductibility of a portion of meal and entertainment
expenses, the nondeductible amortization of a portion of the Company's goodwill,
state income taxes and Canadian earnings which are taxed at a higher statutory
rate.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended May 31, 1996, operating activities provided cash
of $16.4 million primarily due to net earnings of $7.7 million which included
non-cash depreciation and amortization charges of $23.5 million. Financing
activities utilized cash of $37.4 million, primarily due to the repayment of
long-term debt of $32.6 million and the purchase of treasury stock of $5.5
million. During the three month period ended May 31, 1996, the Company reduced
long-term debt by $10.7 million. Investing activities for the nine month period
ended May 31, 1996 provided cash of $17.4 million, primarily from proceeds on
the sale of the glass recycling operations of $41.5 million, partially offset by
capital expenditures of $23.3 million.
At May 31, 1996, the Company had cash and cash equivalents of $320,000 and
working capital of $25.9 million. Since August 31, 1995, the Company reduced
uninvested cash by approximately $3.7 million. The Company financed its cash
requirements through its cash flow from operations and bank borrowings. The
Company's credit facility provides an unsecured $160 million revolving line of
credit 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. As of July 10, 1996, after utilizing $30.1 million of the
credit facility for letters of credit to secure certain insurance obligations
and performance bonds, available borrowing capacity under the agreement was $37
million. Borrowing availability is subject to the Company maintaining certain
minimum financial ratios.
Long-term obligations decreased $33.5 million primarily due to cash
provided by operating activities and the proceeds received from the sale of the
glass recycling operations, partially offset by cash requirements relating to
$23.3 million of capital expenditures, $2.6 million of investments, $1.1 million
of cash paid for acquisitions and $5.5 million in treasury stock purchases
during the nine month period ended May 31, 1996. In the three month period ended
May 31, 1996, the Company made capital expenditures of $3.6 million. The Company
anticipates that it will invest an additional $5 million in capital expenditures
in the three month period ending August 31, 1996.
Shareholders' equity increased $3.4 million to $131.7 million as a result
of net income earned during the nine months ended May 31, 1996. The $7.7 million
net income included $3.8 million of net gain from the sale of the glass
recycling operation. The shareholders' equity increase was partially offset by
$5.5 million of treasury stock purchases.
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. In the nine months ended May 31, 1996,
the Company has repurchased 1,220,400 shares of its Common Stock at an average
cost of $4.49 per share. Subsequent to third quarter, the Company has
repurchased 50,000 additional shares of its Common Stock at an average cost of
$4.25 per share. Future repurchases of the Company's Common Stock will be
dependent on prevailing market conditions and other investment opportunities.
FISCAL 1996 OUTLOOK
Significantly all of the Company's revenues from its services are generated
on a "call-up" or "drive-up" basis or from irregularly scheduled customer
turnarounds and outages. There is neither a significant amount of backlog for
the Company's services, nor are there any significant long-term contracts that
require its customers to utilize a minimum level of the Company's services. The
Company is also affected by business cycles experienced by its industrial
customer bases and by changes in environmental laws and regulations or by
changes in the interpretation or enforcement of such laws and regulations. The
Company's customers have a significant capacity in the short-term to defer
industrial cleaning, maintenance and disposal services. Deferrals can occur
either due to a reduction in maintenance or capital funds, customer budget
restraints or, conversely, increased demand for a customer's products that make
it impractical to perform cleaning and maintenance on anticipated schedules.
These factors make it difficult to predict, on a quarterly basis, the demand for
the Company's services.
Internal growth is expected to come from new market penetration in
industrial and environmental services. To facilitate internal 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.
The Company is also focusing on cost control and gross margin expansion
over the remainder of fiscal 1996. The Company intends to implement selected
price increases when market conditions permit and as a by-product of value-added
selling efforts. The Company anticipates savings as a result of a restructuring
earlier this fiscal year and ongoing cost-reduction initiatives to impact the
results of operations in the fourth quarter of the current fiscal year.
The Company has clearly defined the industrial customer as the focus of its
business strategy. The Company's first quarter sale of its glass recycling
operations has allowed it to narrow its focus on providing services to the
industrial customer and 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. The Company will
continue to evaluate its complement of services offered and allocate capital
accordingly.
The impact of inflation on the Company has been minimal.
PART II, OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
No. Description
------- -----------
* 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).
* 3.2 -- Amendment to Amended and Restated Certificate of Incorporation of
Allwaste, effective January 20, 1995.
* 3.3 -- 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 Form 10-K").
* 4.1 -- Specimen Common Stock certificate.
* 4.2 -- Specimen debenture certificate (Exhibit 4.2 to the 1992 Form
10-K).
* 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).
* 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 Form 10-K").
* 10.2 -- Employment Agreement dated October 17, 1994, between Robert M.
Chiste and Allwaste (Exhibit 10.6 to the 1994 Form 10-K).
* 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).
* 10.4 -- Allwaste Target 2000: One, Two, Four Plan.
* 10.5 -- 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).
* 10.6 -- Credit Agreement dated as of November 30, 1993, as amended, by
and among Allwaste, the Financial Institutions signatory thereto,
and Texas Commerce Bank National Association, a national banking
association, as Agent. (Exhibit 10.10 to the 1994 Form 10-K).
* 10.7 -- Agreement and First Amendment to Credit Agreement dated
January 21, 1994, by and among Allwaste, the Financial
Institutions signatory thereto, and Texas Commerce Bank National
Association, a national banking association, as Agent.
* 10.8 -- Agreement and Second Amendment to Credit Agreement dated
March 20, 1994, by and among Allwaste, the Financial Institutions
signatory thereto, and Texas Commerce Bank National Association,
a national banking association, as Agent.
* 10.9 -- Agreement and Third Amendment to Credit Agreement dated May 31,
1994, by and among Allwaste, the Financial Institutions signatory
thereto, and Texas Commerce Bank National Association, a national
banking association, as Agent.
*10.10 -- Agreement and Fourth Amendment to Credit Agreement dated
October 18, 1994, by and among Allwaste, the Financial
Institutions signatory thereto, and Texas Commerce Bank National
Association, a national banking association, as Agent.
*10.11 -- Agreement and Fifth Amendment to Credit Agreement dated
August 31, 1995, by and among Allwaste, the Financial
Institutions signatory thereto, and Texas Commerce Bank National
Association, a national banking association, as Agent.
*10.12 -- First Amendment to Employment Agreement dated as of October 26,
1995, between Robert M. Chiste and Allwaste. (Exhibit 10.6 to the
Allwaste Annual Report on Form 10-K (File No. 1-11008) for the
fiscal year ended August 31, 1995, filed November 30, 1995 (the
"1995 Form 10-K").
10.13 -- Agreement and Sixth Amendment to Credit Agreement dated
February 29, 1996, by and among Allwaste, the financial
institutions signatory thereto and Texas Commerce Bank National
Association, a national banking association, as Agent (Filed
herewith).
27.1 -- Financial Data Schedule (Filed herewith).
- ------------
* Asterisk indicates exhibits incorporated by reference as shown.
(b) Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements 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.
Dated: July 11, 1996 By: /s/ T. WAYNE WREN, JR.
T. Wayne Wren, Jr.
Senior Vice President -
Chief Financial Officer
and Treasurer
EXHIBIT 10.13
AGREEMENT AND SIXTH AMENDMENT TO CREDIT AGREEMENT
(February 29, 1996)
THIS AGREEMENT AND SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment")
is made and entered into as of February 29, 1996 by and among ALLWASTE, INC.
(the "COMPANY"), a Delaware corporation, EACH OF THE FINANCIAL INSTITUTIONS
SIGNATORY HERETO (individually, a "BANK" and collectively, the "BANKS"), TEXAS
COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), a national banking association
acting as agent for the Banks (in such capacity, together with its successors in
such capacity, the "AGENT"), and NATIONSBANK OF TEXAS, N.A., a national banking
association, as co-agent under the Credit Agreement (as defined hereinafter) (in
such capacity, the "CO-AGENT").
RECITALS:
A. The Company, the Agent and the Banks have entered into a Credit
Agreement dated as of November 30, 1993 (which such Credit Agreement, as the
same may have heretofore been amended, modified, supplemented and restated from
time to time, is hereinafter called the "CREDIT AGREEMENT").
B. The Company, the Agent, the Co-Agent and the Banks now desire to
amend the Credit Agreement in certain respects as provided hereinbelow.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth, and for other good
and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties hereto do hereby agree as follows:
1. FIXED CHARGE COVERAGE RATIO AMENDED. Section 5.3(c) of the Credit
Agreement is hereby amended in its entirety to be and read as follows:
"(c) have at all times a FIXED CHARGE COVERAGE RATIO of not less
than (1) 1.00 to 1.00 at all times from and including November 30, 1995
through and including August 31, 1996 and (2) 1.10 to 1.00 at all times
thereafter;"
2. CAPITAL EXPENDITURE LIMITATIONS ADDED. The Credit Agreement is hereby
amended by adding thereto a new Section 6.15 which shall be and read as
follows:
"6.15 CAPITAL EXPENDITURES. Make expenditures for fixed or capital
assets on a consolidated basis during (a) the two (2) consecutive fiscal
quarters of the Company ending May 31, 1996 in excess of $12,500,000 in
the aggregate and (b) the three (3) consecutive fiscal quarters of the
Company ending August 31, 1996 in excess of $18,000,000 in the aggregate;
PROVIDED, that, in calculating said amount for any such period,
expenditures for fixed or capital assets made by Subsidiaries of the
Company, which were acquired during such period and accounted for as a
pooling of interest, shall not be included to the extent that such
expenditures were made prior to the time of acquisition). For purposes of
determining the amount of expenditures made by the Company during any such
period, such expenditures shall include the cost of any revenue producing
equipment (including all vehicles) subject to any operating lease entered
into during such period."
3. AMENDMENT FEE PROVISIONS AMENDED. Section 2.16 of the Credit Agreement
is hereby amended by adding thereto after the word "waiver" where it appears in
the first sentence of that Section the phrase:
"(including a waiver of any violation of capital expenditure limits
imposed from time to time pursuant to SECTION 6.15 hereof)"
In addition, Section 2.16 is amended to change the reference to Section
6.14 to Section 6.15 of the Credit Agreement.
NOTWITHSTANDING SECTION 2.16 OF THE CREDIT AGREEMENT, AS AMENDED BY THIS
SECTION, with respect to this Amendment, only, the amendment fee to be paid by
the Company to each Bank simultaneously with the execution and delivery of this
Amendment, shall be equal to one-eighth of one percent (1/8%) of such Bank's
Commitment as of the date hereof.
4. GUARANTY PROTECTION PROVISIONS AMENDED. Section 5.11 of the Credit
Agreement is hereby amended by adding to the end thereof the following new
sentence:
"Notwithstanding the foregoing, if the Rolling Four Quarter for any such
day ends on February 29, 1996, May 31, 1996 or August 31, 1996, the phrase
"twenty percent (20%)" where it appears in the foregoing sentence shall be
deemed to be and read "twenty-two percent (22%)"."
5. NON-GUARANTEEING SUBSIDIARY REPRESENTATIONS. The Company hereby
warrants and represents to the Agent, the Co-Agent and the Banks that all of the
Company's Subsidiaries which are Foreign Subsidiaries or Partially Owned
Subsidiaries as of the date of this Amendment which have not executed either a
Guaranty or a Joinder Agreement are identified as such on SCHEDULE I attached
hereto. The aggregate of the Net Income before taxes for the Rolling Four
Quarters as of the date hereof of all of the Non-Guaranteeing Subsidiaries does
not exceed as of the date hereof twenty-two percent (22%) of the Net Income
before taxes of the Company and its Subsidiaries on a consolidated basis for
such Rolling Four Quarters, nor does the aggregate of the Net Book Value of the
assets of such Subsidiaries exceed twenty-two percent (22%) of the Net Book
Value of the assets of the Company and its Subsidiaries on a consolidated basis
as of the date hereof. All of the Dormant Subsidiaries are designated as such on
SCHEDULE I attached hereto.
6. DELIVERY OF CERTIFICATES OF EXISTENCE, GOOD STANDING, ETC. With respect
to each Guarantor, the Company hereby agrees to deliver to the Agent, within
thirty (30) days after the date hereof, certificates from the appropriate public
officials of each of the states where such Guarantor is incorporated and
conducts its business as to the continued existence, good standing and authority
to do business in those states.
7. CONDITIONS. No part of this Amendment shall become effective until the
Company shall have delivered (or shall have caused to be delivered) to the Agent
each of the following, in Proper Form:
(a) a certificate from the Secretary of State or other appropriate
public official of the State of Delaware as to the continued
existence and good standing of the Company in the State of Delaware;
(b) a certificate from the Secretary of State or other appropriate
public official of the State of Texas as to the qualification of the
Company to do business in the State of Texas;
(c) a certificate from the Office of the Comptroller of the State
of Texas as to the good standing of the Company in the State
of Texas;
(d) a legal opinion from the general counsel for the Company and the
Current Guarantors acceptable to the Agent in its sole and
absolute discretion;
(e) certificates dated as of the date hereof of the Secretary or any
Assistant Secretary of the Company and each of the Guarantors as of
the date hereof, and such other documents and information as the
Banks may request;
(f) a Consent, in Proper Form, executed by of all of the Guarantors to
the execution and delivery of this Amendment and such other related
matters as the Banks may reasonably require;
(g) a Notice of Entire Agreement, DTPA Waiver and Release of Claims
executed by the Company and each of the Guarantors as of the date
hereof, and
(h) the amendment fee payable to each Bank a party to the Credit
Agreement prior to the date hereof in the amount set opposite such
Bank's signature line herein.
8. REPRESENTATIONS TRUE; NO DEFAULT. The Company represents and warrants
that the representations and warranties contained in Section 4 of the Credit
Agreement and in the other Loan Documents are true and correct in all material
respects on and as of the date hereof as though made on and as of such date. The
Company hereby certifies that no Default or Event of Default under the Credit
Agreement or any of the other Loan Documents has occurred and is continuing as
of the date hereof.
9. RATIFICATION. Except as expressly amended hereby, the Credit Agreement
and the other Loan Documents shall remain in full force and effect. In the event
of any conflict between this Amendment and the Credit Agreement or any of the
other Loan Documents (or any earlier modification of any of them), this
Amendment shall control. The Credit Agreement, as hereby amended, and all rights
and powers created thereby or thereunder and under the other Loan Documents are
in all respects ratified and confirmed and remain in full force and effect.
10. DEFINITIONS AND REFERENCES. Terms used herein which are defined in the
Credit Agreement or in the other Loan Documents shall have the meanings therein
ascribed to them. The term "Credit Agreement" as used in the Credit Agreement,
the other Loan Documents or any other instrument, document or writing furnished
to the Agent, the Co-Agent or any of the Banks by the Company shall mean the
Credit Agreement as hereby amended.
11. MISCELLANEOUS. This Amendment (a) shall be binding upon and inure to
the benefit of the Company, the Banks, the Agent, the Co-Agent and their
respective successors, assigns, receivers and trustees (provided, however, that
the Company shall not assign its rights hereunder without the prior written
consent of the Agent); (b) may be modified or amended only by a writing signed
by each party; (c) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA; (d) may be executed
in several counterparts, and by the parties hereto on separate counterparts, and
each counterpart, when so executed and delivered, shall constitute an original
agreement, and all such separate counterparts shall constitute but one and the
same agreement; and (e) together with the other Loan Documents, embodies the
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior agreements, consents and
understandings relating to such subject matter. The headings herein shall be
accorded no significance in interpreting this Amendment.
IN WITNESS WHEREOF, the Company, the Banks, the Agent and the Co-Agent
have caused this Amendment to be signed by their respective duly authorized
officers, effective as of the date which first appears hereinabove.
ALLWASTE, INC.,
a Delaware corporation
By: /s/ T. WAYNE WREN
T. Wayne Wren,
Senior Vice President
ATTEST:
/s/ WILLIAM L. FIEDLER
William L. Fiedler, Secretary
Attachments:
SCHEDULE I - Non-guaranteeing Subsidiaries
and Dormant Subsidiaries
Amendment Fee: $50,000 TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national
banking association,
as a Bank and as Agent
By: /s/ RICHARD L. ESDORN, III
Richard L. Esdorn, III,
Senior Vice President
Amendment Fee: $37,500 NATIONSBANK OF TEXAS, N.A.,
a national banking association,
as a Bank and as Co-Agent
By: /s/ RICHARD L. NICHOLS, JR.
Name: Richard R. Nichols, Jr.
Title: Vice President
Amendment Fee: $12,500 BANK OF AMERICA TEXAS, N.A.,
a national banking association
By: /s/ VICTOR N. TEKELL
Victor N. Tekell, Vice President
Amendment Fee: $18,750 FIRST INTERSTATE BANK OF TEXAS,
N.A, a national banking
association
By: /s/ DAVID M. ANDERSON
Name: David M. Anderson
Title: Vice President
Amendment Fee: $18,750 THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
Amendment Fee: $25,000 COMERICA BANK - TEXAS,
a Texas banking association
By: /s/ MITCHELL SCHULMAN
Mitchell Schulman,
Vice President
Amendment Fee: $25,000 LTCB TRUST COMPANY, a New York
Trust Company
By: /s/ JOHN J. SULLIVAN
Name: John J. Sullivan
Title: Executive Vice President
Amendment Fee: $12,500 ABN AMRO BANK N.V., HOUSTON
AGENCY
By: ABN AMRO North America, Inc.,
as agent
By: /s/ LILA JORDAN
Name: Lila Jordan
Title: Vice President & Director
By: /s/ DIEGO PUIGGARI
Name: Diego Puiggari
Title: Vice President & Director
<PAGE>
ALLWASTE, INC.
SCHEDULE I
CALIGO REINGUNGSGES M.B.H. (AUSTRIAN)
770950 ONTARIO LIMITED (CANADIAN)
ALLWASTE ENVIRONMENTAL SERVICES OF SARNIA, LTD. (CANADIAN)
ALLWASTE OF CANADA LTD. (CANADIAN)
CALIGO RECLAMATION LTD. (CANADIAN)
CANADIAN CARGO CLEAN, LTD. (CANADIAN) (DORMANT)
ENVIRO-JET SYSTEMS, INC. (CANADIAN)
HONEY-BEE SANITATION INC. (CANADIAN)
ALLWASTE SERVICIOS INDUSTRIALES DE CONTROL ECOLOGICO, S.A. DE C.V. (MEXICAN)
ALLWASTE TANK SERVICES, S.A. DE C.V. (MEXICAN)
CALIGO DE MEXICO, S.A. DE C.V. (MEXICAN)
ALLWASTE ASBESTOS ABATEMENT OF NEW ENGLAND, INC. (DORMANT)
ALLWASTE ENVIRONMENTAL SERVICES/NORTH CENTRAL, INC., AN ILLINOIS CORPORATION
(DORMANT)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 320
<SECURITIES> 0
<RECEIVABLES> 83,182
<ALLOWANCES> 2,577
<INVENTORY> 1,794
<CURRENT-ASSETS> 97,862
<PP&E> 245,107
<DEPRECIATION> (113,421)
<TOTAL-ASSETS> 343,095
<CURRENT-LIABILITIES> 71,956
<BONDS> 139,478
0
0
<COMMON> 398
<OTHER-SE> 131,263
<TOTAL-LIABILITY-AND-EQUITY> 343,095
<SALES> 286,807
<TOTAL-REVENUES> 286,807
<CGS> 215,783
<TOTAL-COSTS> 215,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,327)
<INCOME-PRETAX> 7,521
<INCOME-TAX> (3,580)
<INCOME-CONTINUING> 3,941
<DISCONTINUED> 3,764
<EXTRAORDINARY> 0
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