<PAGE>
1996
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-10599
__________________________________
AMERICAN WASTE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1602983
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One American Way, Warren, Ohio 44484-5555
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 856-8800
Indicate by a 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 registrant had 25,015,615 shares of its Class A Common Stock and 5,126,743
shares of its Class B Common Stock outstanding as of November 1, 1996.
==============================================================================
<PAGE>
AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1996 and 1995 (Unaudited)...................... 3
Condensed Consolidated Balance Sheets at September 30, 1996 and
December 31, 1995 (Unaudited)............................................. 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995 (Unaudited)...................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited).......... 6
Item 2. ManagementOs Discussion and Analysis of Financial
Condition and Results of Operations............................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 16
Item 2. Changes in Securities............................................ 17
Item 3. Defaults upon Senior Securities.................................. 17
Item 4. Submission of Matters to a Vote of Security Holders.............. 17
Item 5. Other Information................................................ 17
Item 6. Exhibits and Reports on Form 8-K................................. 17
SIGNATURE.................................................................. 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands exept for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
--------- ------- ------- --------
<S> <C> <C> <C> <C>
Net operating revenues................. $22,317 $21,078 $58,059 $63,574
Cost and expenses:
Cost of operations..................... 17,371 17,736 46,237 54,233
Adjustment for closure and post-closure
monitoring costs...................... -- 9,165 -- 9,165
Selling, general and administrative
expense............................... 3,051 2,535 8,187 7,963
-------- ------- ------- -------
Income (loss) from operations.......... 1,895 (8,358) 3,635 (7,787)
Other income (expense):
Interest expense....................... (47) (224) (118) (781)
Other income, net...................... 147 197 545 592
-------- ------- ------- -------
Income (loss) before income taxes...... 1,995 (8,385) 4,062 (7,976)
Provision (benefit) for income taxes... 717 (2,797) 1,544 (2,592)
-------- ------- ------- -------
Net income (loss)...................... $ 1,278 $(5,588) $ 2,518 $(5,384)
======== ======= ======= =======
Net income (loss) per share............ $ .04 $ (.19) $ .08 $ (.18)
======== ======= ======= =======
Weighted average shares outstanding
(Note 2).............................. 30,313 30,073 30,251 29,967
======== ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------- --------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents.................................................. $ 6,347 $ 5,186
Accounts receivable, net................................................... 13,116 14,481
Refundable income taxes.................................................... -- 5,519
Prepaid expenses and other current assets.................................. 3,328 3,122
-------- --------
Total current assets...................................................... 22,791 28,308
Properties and equipment, less accumulated depreciation
and amortization of $44,485 in 1996 and $40,891 in 1995................... 88,377 78,636
Deposits................................................................... 2,285 5,117
Costs in excess of fair market value of net assets of acquired
businesses, net........................................................... 3,236 3,365
Other assets, net.......................................................... 296 310
-------- --------
Total assets.............................................................. $116,985 $115,736
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt.......................................... $ 301 $ 358
Accounts payable........................................................... 8,887 5,970
Accrued payroll and other compensation... ................................. 1,362 920
Accrued income taxes....................................................... 1,595 166
Other accrued taxes........................................................ 1,517 1,804
Other liabilities and accrued expenses..................................... 2,172 2,959
-------- --------
Total current liabilities................................................. 15,834 12,177
Long-term debt............................................................. 3,314 8,748
Deferred income taxes...................................................... 6,399 6,559
Accrued closure costs and post-closure monitoring costs ................... 18,825 18,519
Other noncurrent liabilities............................................... 2,285 2,488
Shareholders' equity (Note 3):
Preferred stock, no par value.............................................. -- --
Class A Common Stock, no par value......................................... 63,701 63,136
Class B Common Stock, no par value......................................... 781 781
Retained earnings.......................................................... 6,026 3,508
Treasury Stock, Class B Common Stock, at cost.............................. (180) (180)
-------- --------
Total shareholders' equity................................................ 70,328 67,245
-------- --------
Total liabilities and shareholders' equity................................ $116,985 $115,736
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net income (loss).......................................................... $ 2,518 $(5,384)
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization............................................ 5,244 6,602
Provision for accrued closure costs and
post-closure monitoring costs........................................... 492 10,017
Provision for deferred income taxes...................................... (160) --
Provision for losses on accounts receivable.............................. 164 448
Gain on sales of fixed assets............................................ (117) (8)
Changes in assets and liabilities:
Decrease in accounts receivable........................................ 1,201 4,823
Increase in prepaid expenses and other current assets.................. (206) (1,384)
(Increase) decrease in refundable income taxes......................... 5,519 (3,037)
Increase in other assets............................................... (17) (3)
Increase in accounts payable........................................... 2,917 871
Increase (decrease) in accrued payroll and other compensation.......... 442 (606)
Increase (decrease) in accrued income taxes............................ 1,429 (74)
Decrease in other accrued taxes........................................ (287) (262)
Decrease in other liabilities and accrued expenses..................... (222) (882)
Decrease in accrued closure costs and post-closure
monitoring costs..................................................... (186) --
Decrease in other noncurrent liabilities............................... (203) (235)
-------- --------
Net cash provided by operating activities.............................. 18,528 10,886
-------- --------
Investing activities:
Capital expenditures....................................................... (15,635) (7,757)
Proceeds from sales of fixed assets........................................ 927 22
(Increase) decrease in deposits, net....................................... 2,832 (1,412)
-------- --------
Net cash used in financing activities.................................. (11,876) (9,147)
-------- --------
Financing activities:
Proceeds from sale of common stock......................................... -- 6
Proceeds from issuance of long-term debt................................... 2,000 1,366
Repayments of long-term debt............................................... (7,491) (4,220)
-------- --------
Net cash used in investing activities.................................. (5,491) (2,848)
-------- --------
Increase (decrease) in cash and cash equivalents............................ 1,161 (1,109)
Cash and cash equivalents at beginning of year.............................. 5,186 7,347
-------- --------
Cash and cash equivalents at end of period.................................. $ 6,347 $ 6,238
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1996
Note 1. Basis of Presentation
The unaudited condensed consolidated financial statements of American Waste
Services, Inc., and its subsidiaries (collectively the "Company" or "AWS") and
related notes included herein have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted herein consistent with such rules and regulations. The accompanying
unaudited condensed consolidated financial statements and related notes should
be read in conjunction with the consolidated financial statements and related
notes included in the Company's 1995 Annual Report to Shareholders.
In the opinion of management, these unaudited condensed consolidated financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position of the Company as of
September 30, 1996, and the results of operations and cash flows for the interim
periods presented.
The operating results for the interim periods are not necessarily indicative of
the results to be expected for the full year.
Note 2. Net Income Per Share
Net income per share has been computed using the weighted average number of
common and common equivalent shares outstanding each period which amounted to
30,313,000 and 30,073,000 in the third quarter of 1996 and 1995, respectively,
and 30,251,000 and 29,967,000 in the first nine months of 1996 and 1995,
respectively. Common equivalent shares, which represent shares issuable upon
the exercise of outstanding stock options, totaled 171,000 and 158,000 in the
third quarter of 1996 and 1995, respectively, and 156,000 and 53,000 in the
first nine months of 1996 and 1995, respectively.
Note 3. Shareholders' Equity
The Company sponsors a defined contribution profit sharing plan that is
qualified under Section 401(k) of the Internal Revenue Code (the "Plan").
During February 1996, the Company issued 225,874 shares of Class A Common Stock
to the Plan to satisfy its liability of $565,000 for 1995 Company contributions.
Note 4. Debt
At September 30, 1996 the Company had $2 million in borrowings and $8 million in
letters of credit outstanding under its $18 million revolving credit facility.
The letters of credit were utilized to capitalize a captive insurance company,
incorporated and licensed under the laws of the State of Vermont, which issued
an insurance policy to provide the required financial assurances for closure
costs and post-closure monitoring costs to the State of Ohio for the Company's
American and Mahoning landfill facilities. (See Note 6. Closure Costs and Post-
Closure Monitoring Costs.)
6
<PAGE>
Note 5. Legal Matters
On or about October 3, 1991, one shareholder owning 100 shares of stock brought
suit against the Company and others on behalf of himself and a purported class
of other shareholders in the United States District Court for the Southern
District of New York. The suit alleges that the Company, the signatories to the
registration statements filed with the Securities and Exchange Commission during
October 1990, and the Company's underwriters violated federal securities laws in
connection with the Company's public offering of six million shares of Class A
Common Stock in October 1990. Among other things, the suit alleges
misrepresentations and failure to disclose allegedly material information
concerning the nature of the Company's market; the size of the Company's market;
the Company's failure to disclose that its landfills were located within a 50-
mile radius of each other in Ohio, thus making the Company especially vulnerable
to local conditions and competition; the Company's failure to set forth the
present and imminent competition; and the Company's growth. The Plaintiff seeks
damages in an unspecified amount alleged to have arisen in part from the decline
in the price of the Company's stock following the public offering, and
rescission. The Court has not yet determined whether the suit will proceed as a
class action.
A timely Answer was filed on behalf of all defendants and a Motion to Transfer
Venue to the Northern District of Ohio was granted on June 10, 1992. A Motion
for an Undertaking for Costs Pursuant to Section 11(e) of The Securities Act of
1933 was filed in the Northern District of Ohio but denied by the Court. A
Motion to Dismiss the Complaint for failure to state a claim was filed February
1, 1994 on behalf of all defendants but was denied by the Court on August 29,
1994. As a result of the language contained in the Order, on September 29, 1994
a Motion to Limit the Scope of Plaintiffs' Requested Discovery was filed. That
motion was granted, and all proceedings have been stayed pending a decision on
all defendants' Motion for Summary Judgment filed on May 30, 1995. The Company
intends to vigorously defend the claims.
In September 1995, certain subsidiaries of the Company were informed that they
had been identified as potentially responsible parties by the Indiana Department
of Environmental Management ("IDEM") relating to a Fulton County, Indiana,
hazardous waste disposal facility which is subject to remedial action under
Indiana environmental laws. Such identification is based upon the subsidiaries
having been involved in the transportation of hazardous substances to the
facility. These transportation activities occurred prior to the acquisition of
such subsidiaries by the Company. IDEM is seeking to recover and/or allocate
past costs of approximately $1.0 million as well as future costs associated with
further site investigation and remediation activities, which costs could be
substantial. Although a large number of waste generators and other waste
transportation and disposal companies have also been identified as responsible
or potentially responsible parties, because the law assigns joint and several
liability among the responsible parties, any one of them, including the
Company's subsidiaries, could be assessed the entire cost of the remediation.
Currently, no remedy has been selected. As such, the extent of any liability of
any of the Company's subsidiaries is currently unknown.
When the Company concludes that it is probable that a liability has been
incurred, a provision is made in the Company's financial statements for the
Company's best estimate of the liability based on management's judgment and
experience, information available from regulatory agencies, and the number,
financial resources and relative degree of responsibility of other potentially
responsible parties who are jointly and severally liable for remediation of the
site as well as the typical allocation of costs among such parties. If a range
of possible outcomes is estimated and no amount within the range appears to be a
better estimate than any other, then the Company provides for the minimum
7
<PAGE>
amount within the range, in accordance with generally accepted accounting
principles. As such, the Company accrued a liability of approximately $941,000
in the fourth quarter of 1995 relating to this matter and is included in the
Condensed Consolidated Balance Sheets under the caption "Other noncurrent
liabilities."
The Company's estimates are revised, as deemed necessary, as additional
information becomes known. While the measurement of environmental liabilities
is inherently difficult and the possibility remains that technological,
regulatory or enforcement developments, the results of environmental studies or
other factors could materially alter the Company's expectations at any time, the
Company does not anticipate that the amount of any such revisions will have a
material adverse effect on operations or consolidated financial position.
In the ordinary course of conducting its business, the Company also becomes
involved in lawsuits, administrative proceedings and governmental
investigations, including those relating to environmental matters. Some of
these proceedings may result in fines, penalties or judgments being assessed
against the Company which, from time to time, may have an impact on its business
and financial condition. The Company does not believe that such pending
proceedings, individually, or in the aggregate, would have a material adverse
effect on its business or its financial condition.
Note 6. Closure Costs and Post-Closure Monitoring Costs
The United States Environmental Protection Agency's "Subtitle (D) Regulations"
provide minimum design, construction and operating standards for virtually all
landfills in the United States. Furthermore, regulations promulgated by the
Ohio Environmental Protection Agency ("Ohio EPA") require every Ohio landfill to
utilize the "best available technology" with respect to cell preparation and
lining, leachate collection and treatment, and groundwater monitoring as well as
to provide financial assurances adequate to cover closure costs and post-closure
monitoring costs for a period of up to 30 years after the landfill is closed.
As a result of the above-described requirements, the Company has future
financial obligations with regard to closure costs and post-closure monitoring
costs associated with the disposal sites it operates. Although the precise
amount of these future obligations cannot be determined, the Company has
developed procedures to estimate these total projected costs based on currently
available facts, existing technology and presently enacted laws and regulations.
As of December 31, 1995, the Company estimated that the total projected closure
costs and post-closure monitoring costs it will incur for all of its disposal
facilities is approximately $29.9 million; however, in accordance with Ohio's
financial assurance regulations, the Company currently estimates that it will be
required to ultimately provide approximately $32.9 million of financial
assurances to the State of Ohio. At December 31, 1995 the Company had deposited
approximately $5.1 million into trusts for the benefit of the Ohio EPA to fund
the financial assurance requirements for its landfills. During the first nine
months of 1996 the Company utilized insurance to satisfy the financial assurance
requirements for its American and Mahoning landfill facilities. As a result of
using such insurance, in June 1996, the Company received $2.5 million from its
trust fund deposits relating to the American landfill facility, and in July
1996, the Company received $.7 million from its trust fund deposits relating to
the Mahoning landfill facility. In April 1996 the Company deposited
approximately $.3 million into a trust to fund a portion of the current
financial assurance obligation for its East Liverpool landfill facility. The
Company will continue to review and update the underlying assumptions used to
estimate the total projected costs and financial assurance requirements and,
accordingly, such estimates will be subject to periodic revision and adjustment
at least annually.
--------------------------------------------
--------------------------------------------
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion provides information which management believes is
relevant to an assessment and understanding of the operations and financial
condition of American Waste Services, Inc. and its subsidiaries. As used in
this report, the terms "AWS" and "Company" mean American Waste Services, Inc.
and its wholly owned subsidiaries, taken as a whole, unless the context
indicates otherwise. The following discussion should be read in conjunction
with the condensed consolidated financial statements and accompanying notes
included in this report and the consolidated financial statements and related
notes included in the Company's 1995 Annual Report to Shareholders.
Liquidity and Capital Resources
- -------------------------------
During the first nine months of 1996, the Company generated sufficient financial
resources from internal sources and external sources to meet operating needs,
repay indebtedness and fund capital expenditure programs. During the first nine
months of 1996, cash provided from operations totaled $18.5 million compared
with $10.9 million in the first nine months of the prior year.
In December 1994 the Company entered into an $18 million unsecured revolving
credit facility with two banks. Such facility provides for revolving credit
loans during the first three years and/or term loans payable quarterly with a
final maturity date no later than seven years from the date of the agreement.
At the end of the initial three-year term of the agreement, the Company must
convert any outstanding revolving credit loans into term loans payable quarterly
with a final maturity no later than four years from the date thereof. The
agreement also provides for the issuance of letters of credit up to an aggregate
amount of $10 million during the initial three-year term of the agreement.
Borrowings under the agreement bear interest at 3/8% above the prime rate or, at
the Company's option, at a fixed rate above the Eurodollar rate. The agreement
provides for an annual fee of 5/8% on the unused portion of the facility and
requires the Company to maintain certain financial ratios. The amount
outstanding under the revolving credit facility at September 30, 1996 and
December 31, 1995 was $2 million and $7.1 million, respectively. Additionally,
the balance of letters of credit outstanding under the revolving credit facility
at September 30, 1996 and December 31, 1995 was $8.0 million and $-0-,
respectively. The letters of credit were utilized to capitalize a captive
insurance company, incorporated and licensed under the laws of the State of
Vermont, which issued an insurance policy to provide the required financial
assurances for closure and post-closure monitoring costs to the State of Ohio
for the Company's American and Mahoning landfill facilities, as more fully
described below.
During 1996 the Company's capital spending is expected to range from $17 million
to $19 million, approximately $10.4 million of which was committed pursuant to
contracts. During the first nine months of 1996 capital spending totaled $15.6
million which was principally related to continued landfill development and
expansion. Capital expenditures in 1996 relate principally to landfill
development, replacing equipment or acquiring additional equipment primarily to
support the disposal operations, and engineering and construction costs related
to regulatory compliance at the Company's landfills. Compliance with current and
future regulatory requirements may require the
9
<PAGE>
Company, as well as others in the waste management industry, from time to
time to make significant capital and operating expenditures.
As a result of federal and state laws and regulations, the Company has future
financial obligations with regard to closure costs and post-closure monitoring
costs associated with the disposal sites it operates. Although the precise
amount of these future obligations cannot be determined, the Company has
developed procedures to estimate such total projected costs based on currently
available facts, existing technology and presently enacted laws and regulations.
As of December 31, 1995, the Company estimated that the total projected closure
costs and post-closure monitoring costs it will incur for all of its disposal
facilities is approximately $29.9 million; however, in accordance with Ohio's
financial assurance regulations, the Company estimated that it will be required
to ultimately provide $32.9 million of financial assurances to the State of
Ohio. At December 31, 1995 the Company had deposited approximately $5.1 million
into trusts for the benefit of the Ohio Environmental Protection Agency ("Ohio
EPA") to fund the financial assurance requirements for its landfills. During
the first nine months of 1996 the Company utilized insurance to satisfy the
financial assurance requirements for its American and Mahoning landfill
facilities. As a result of using such insurance, in June 1996, the Company
received $2.5 million from its trust fund deposits relating to the American
landfill facility, and in July 1996, the Company received $.7 million from its
trust fund deposits relating to the Mahoning landfill facility. In April 1996
the Company deposited approximately $.3 million into a trust to fund a portion
of the current financial assurance obligation for its East Liverpool landfill
facility. The Company will continue to review and update the underlying
assumptions used to estimate the total projected costs and financial assurance
requirements and, accordingly, such estimates will be subject to periodic
revision and adjustment at least annually.
Management believes that cash provided from operations, the availability of
working capital, the Company's unused portion of its revolving credit facility
and the Company's ability to incur additional indebtedness will be, for the
foreseeable future, sufficient to meet operating requirements, fund debt
repayments, fund present capital expenditure programs and provide for financial
assurance requirements of its disposal facilities.
10
<PAGE>
Results of Operations
- ---------------------
Overall performance
Net operating revenues in the third quarter of 1996 increased 6% to $22.3
million from $21.1 million in the prior year's third quarter. During the third
quarter of 1996 the Company recorded net income of $1.3 million or $.04 per
share compared to a net loss of $5.6 million or $.19 per share for the third
quarter of 1995. For the first nine months of 1996, net operating revenues were
$58.1 million compared with $63.6 million for the first nine months of 1995.
During the first nine months of 1996, the Company recorded net income of $2.5
million, or $.08 per share, compared to a net loss of $5.4 million, or $.18 per
share, for the first nine months of 1995. Net operating revenues and operating
income for the Company's business segments were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net operating revenues:
Integrated waste management and
environmental services............. $17,848 $16,722 $46,085 $51,158
Transportation of general and bulk
commodities........................ 2,948 2,889 9,084 9,674
Other businesses (1)................ 1,521 1,467 2,890 2,742
------- ------- ------- -------
$22,317 $21,078 $58,059 $63,574
======= ======= ======= =======
Operating income (loss) (2):
Integrated waste management and
environmental services............. $ 2,864 $(7,435) $ 7,372 $(4,211)
Transportation of general and bulk
commodities........................ 136 23 283 173
Other businesses (1)................ 467 381 505 314
------- ------- ------- -------
3,467 (7,031) 8,160 (3,724)
Interest expense.................... (47) (224) (118) (781)
Interest income..................... 88 174 309 492
General corporate expenses.......... (1,513) (1,304) (4,289) (3,963)
------- ------- ------- -------
Income (loss) before income taxes... $ 1,995 $(8,385) $ 4,062 $(7,976)
======= ======= ======= =======
</TABLE>
(1) Other businesses include the operation of a public golf course.
(2) Segment operating income reflects the results of operations of each segment
before income taxes, interest income and expense, and items of a general nature
not readily allocable to a separate business segment.
11
<PAGE>
Performance in the Third Quarter of 1996 compared with the Third Quarter of 1995
- --------------------------------------------------------------------------------
Segment performance
Net operating revenues of the Company's primary business segment, integrated
waste management and environmental services, increased to $17.8 million in the
third quarter of 1996 from $16.7 million in the third quarter of the prior year.
The Company's technical environmental services businesses recorded increased net
operating revenues in the third quarter of 1996 compared with the third quarter
of the prior year primarily as a result of increased engineering, consulting and
remediation services. Net operating revenues of the transportation operations
decreased during the third quarter of 1996 compared with the third quarter of
1995 primarily due to a decrease in transportation revenues associated with
hazardous waste. Net operating revenues of the disposal operations, including
disposal brokerage, were flat for the third quarter of 1996 compared with the
third quarter of the prior year.
The integrated waste management and environmental services segment recorded
operating income of $2.9 million in the third quarter of 1996 compared to an
operating loss of $7.4 million in the prior year quarter. The operating loss in
the third quarter of the prior year was primarily the result of a $9.2 million
charge for closure and post-closure monitoring costs recorded by the disposal
group. Excluding the effect of the charge in the prior year quarter, the
increase in operating income of the disposal operations was primarily the result
of lower operating costs of the Company's landfills and, to a lesser extent,
increased disposal volumes. The increase in operating income of the
transportation operations and technical environmental services businesses was
primarily the result of lower operating costs, including decreased depreciation
and amortization. The technical environmental services businesses had recorded
an operating loss in the third quarter of 1995.
The Company's second business segment, the transportation of general and bulk
commodities, recorded net operating revenues of $2.9 million in both the third
quarter of 1996 and 1995. Operating income increased to $136,000 in the third
quarter of 1996 from $23,000 in the third quarter of the prior year primarily as
a result of lower operating costs.
Interest expense
Interest expense was $47,000 in the third quarter of 1996 compared to $224,000
in the third quarter of the prior year. The decrease was primarily attributed
to a reduction in the amount of principal outstanding and lower weighted average
interest rates. During the third quarter of 1996 interest costs totaling
$37,000 were capitalized compared with $253,000 in the third quarter of the
prior year.
General corporate expenses
General corporate expenses were $1.5 million in the third quarter of 1996
compared to $1.3 million in the prior year quarter. This increase is primarily
attributed to performance based compensation.
12
<PAGE>
Net income
The Company recorded net income of $1.3 million in the third quarter of 1996
compared with a net loss of $5.6 million in the third quarter of the prior year
primarily as a result of the foregoing. The provision for income taxes for the
third quarter of 1996 was $.7 million compared with an income tax benefit of
$2.8 million for the third quarter of 1995. The Company's overall effective tax
rate, including the effect of state income tax provisions, was 35.9% in the
third quarter of 1996 compared to 33.4% in the prior year's third quarter. The
change in the effective tax rate was primarily as a result of a decline in the
amortization of costs in excess of fair market value of net assets, which is a
nondeductible item for tax purposes.
Performance in the First Nine Months of 1996 compared with the First Nine Months
- --------------------------------------------------------------------------------
of 1995
- -------
Segment Performance
Net operating revenues of the Company's primary business segment, integrated
waste management and environmental services, decreased to $46.1 million for the
first nine months of 1996 from $51.2 million for the first nine months of the
prior year. The Company's disposal operations, including disposal brokerage,
recorded lower net operating revenues in the first nine months of 1996 compared
with the first nine months of the prior year primarily due to decreased business
of the disposal brokerage operations and a decline in the volume of waste
accepted by the Company's landfills. Net operating revenues of the technical
environmental services business decreased during the first nine months of 1996
compared with the first nine months of 1995 primarily due to a decrease in
remediation services and, to a lesser extent, decreased revenues of the
laboratory and engineering services. Net operating revenues of the
transportation and transportation brokerage operations declined during the first
nine months of 1996 compared with the first nine months of 1995, primarily as a
result of decreased levels of business.
Operating income of the integrated waste management and environmental services
segment was $7.4 million for the first nine months of 1996 compared with an
operating loss of $4.2 million for the first nine months of the prior year. The
operating loss incurred in the first nine months of 1995 was primarily the
result of a $9.2 million charge for closure and post-closure monitoring costs
recorded by the disposal group in the third quarter of 1995. Excluding the
effect of the charge in the prior year, operating income increased primarily as
a result of lower amortization costs of the disposal operations, improved
operating margins associated with the disposal brokerage operations and
decreased operating costs of the transportation operations and technical
environmental services businesses, including lower depreciation and amortization
expenses. The technical environmental services businesses had incurred an
operating loss for the first nine months of 1995.
The Company's second business segment, the transportation of general and bulk
commodities, recorded net operating revenues of $9.1 million in the first nine
months of 1996 compared with $9.7 million in the first nine months of 1995. The
decrease in net operating revenue is primarily the result of transporting
decreased volumes of general and bulk commodities. Operating income increased to
$.3 million in the first nine months of 1996 from $.2 million in the first nine
months of 1995 primarily as a result of lower operating expenses.
13
<PAGE>
Interest expense
Interest expense was $118,000 in the first nine months of 1996 compared to
$781,000 in the first nine months of 1995. The decrease was primarily
attributed to a reduction in the amount of principal outstanding and lower
weighted average interest rates. During the first nine months of 1996 interest
costs totaling $238,000 were capitalized compared with $727,000 in the first
nine months of the prior year.
General corporate expenses
General corporate expenses were $4.3 million in the first nine months of 1996
compared with $4 million in the first nine months of the prior year. This
increase is primarily attributed to increased performance based compensation.
Net income
Net income of $2.5 million was recorded for the first nine months of 1996
compared with a net loss of $5.4 million for the first nine months of the prior
year primarily as a result of the foregoing. The provision for income taxes for
the first nine months of 1996 was $1.5 million compared with an income tax
benefit of $2.6 million for the first nine months of 1995. The Company's
overall effective income tax rate, including the effect of state income tax
provisions, was 38% for the first nine months of 1996 compared with 32.5% for
the first nine months of 1995. The change in the effective tax rate was
primarily a result of a decline in the amortization of costs in excess of fair
market value of net assets, which is a nondeductible item for tax purposes.
Trends and uncertainties
In the ordinary course of conducting its business, the Company becomes involved
in lawsuits, administrative proceedings and governmental investigations,
including those relating to environmental matters. Some of these proceedings
may result in fines, penalties or judgments being assessed against the Company
which, from time to time, may have an impact on its business and financial
condition.
The Company is subject to extensive and evolving environmental laws and
regulations that have been enacted in response to technological advances and the
public's increased concern over environmental issues. As a result, the Company
believes that costs associated with the engineering, construction, ownership and
operation of landfills will increase in the future. Competitive factors may
require the Company to absorb all or a portion of these increased expenses.
The federal government as well as numerous states and local governmental bodies
are increasingly considering, proposing or enacting legislation to either
restrict or impede disposal and/or transportation of waste. A significant
portion of the Company's disposal and transportation revenues are derived from
the disposal or transportation of out-of-state waste. All of the Company's
landfills are located within the State of Ohio. Any regulation restricting or
impeding the transportation of waste, the acceptance of out-of-state waste for
disposal, or which levies significant taxes on the disposal of waste could have
a significant negative effect on the Company.
14
<PAGE>
Competitive pressures within the environmental industry continue to impact the
financial performance of the Company's disposal, transportation and technical
environmental services operations. Increases in additional disposal capacity
within the industry and aggressive pricing strategies of certain competitors
could result in a decline in disposal rates and/or disposal volumes.
Additionally, the Company has experienced a continuing decline in the rates
which customers are willing to pay for its technical environmental and
transportation services because of market conditions and increasing competition.
The Company believes that competitive pressures will continue to impact the
future financial performance of its operations.
During the third quarter of 1996, the Company, through newly organized
subsidiaries, started collection operations for commercial and industrial waste
with the intent to begin residential collection in the near future. The Company
initially intends to target the local markets in which the Company's American
and Mahoning landfills are located.
The Company recently completed the construction of a landfill gas extraction
facility at its American landfill and began production in September 1996. In
November 1996 the Company entered into a contract for the sale of all of the
landfill gas, the principal component of which is methane. The production and
sale of the landfill gas is expected to entitle the Company to qualify for tax
credits from the production of fuel from a nonconventional source. These tax
credits, which under current legislation expire at the end of 2007, could
significantly reduce the Company's overall effective tax rate.
As a result of East Liverpool Landfill, Inc.'s ("ELLI") decision not to further
develop its facility, the East Liverpool landfill has very limited airspace
available for waste disposal, and effective July 1, 1996, ELLI significantly
reduced the quantity of waste accepted for disposal.
________________________________________
________________________________________
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On or about October 3, 1991, one shareholder owning 100 shares of stock
brought suit against the Company and others on behalf of himself and a purported
class of other shareholders in the United States District Court for the Southern
District of New York. The suit alleges that the Company, the signatories to the
registration statements filed with the Securities and Exchange Commission during
October 1990, and the Company's underwriters violated federal securities laws in
connection with the Company's public offering of six million shares of Class A
Common Stock in October 1990. Among other things, the suit alleges
misrepresentations and failure to disclose allegedly material information
concerning the nature of the Company's market; the size of the Company's market;
the Company's failure to disclose that its landfills were located within a 50-
mile radius of each other in Ohio, thus making the Company especially vulnerable
to local conditions and competition; the Company's failure to set forth the
present and imminent competition; and the Company's growth. The Plaintiff seeks
damages in an unspecified amount alleged to have arisen in part from the decline
in the price of the Company's stock following the public offering, and
rescission. The Court has not yet determined whether the suit will proceed as a
class action.
A timely Answer was filed on behalf of all defendants and a Motion to
Transfer Venue to the Northern District of Ohio was granted on June 10, 1992. A
Motion for an Undertaking for Costs Pursuant to Section 11(e) of The Securities
Act of 1933 was filed in the Northern District of Ohio but denied by the Court.
A Motion to Dismiss the Complaint for failure to state a claim was filed
February 1, 1994 on behalf of all defendants but was denied by the Court on
August 29, 1994. As a result of the language contained in the Order, on
September 29, 1994 a Motion to Limit the Scope of Plaintiffs' Requested
Discovery was filed. That motion was granted, and all proceedings have been
stayed pending a decision on all defendants' Motion for Summary Judgment filed
on May 30, 1995. The Company intends to vigorously defend the claims.
In September 1995, certain subsidiaries of the Company were informed that
they had been identified as potentially responsible parties by the Indiana
Department of Environmental Management ("IDEM") relating to a Fulton County,
Indiana, hazardous waste disposal facility which is subject to remedial action
under Indiana environmental laws. Such identification is based upon the
subsidiaries having been involved in the transportation of hazardous substances
to the facility. These transportation activities occurred prior to the
acquisition of such subsidiaries by the Company. IDEM is seeking to recover
and/or allocate past costs of approximately $1.0 million as well as future costs
associated with further site investigation and remediation activities, which
costs could be substantial. Although a large number of waste generators and
other waste transportation and disposal companies have also been identified as
responsible or potentially responsible parties, because the law assigns joint
and several liability among the responsible parties, any one of them, including
the Company's subsidiaries, could be assessed the entire cost of the
remediation. Currently, no remedy has been selected. As such, the extent of any
liability of any of the Company's subsidiaries is currently unknown.
16
<PAGE>
In addition, reference is made to "Item 3. Legal Proceedings" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 for a
description of other legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN WASTE SERVICES, INC.
(Registrant)
Date: 11/12/96 By: /s/ Timothy C. Coxson
---------------------- -------------------------------------------
Timothy C. Coxson, Executive Vice President,
Finance, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3rd QUARTER
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,347
<SECURITIES> 0
<RECEIVABLES> 13,116
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,791
<PP&E> 132,862
<DEPRECIATION> 44,485
<TOTAL-ASSETS> 116,985
<CURRENT-LIABILITIES> 15,834
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0
0
<COMMON> 64,482
<OTHER-SE> 5,846
<TOTAL-LIABILITY-AND-EQUITY> 116,985
<SALES> 58,059
<TOTAL-REVENUES> 58,059
<CGS> 46,237
<TOTAL-COSTS> 54,424
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 118
<INCOME-PRETAX> 4,062
<INCOME-TAX> 1,544
<INCOME-CONTINUING> 2,518
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<EPS-PRIMARY> .08
<EPS-DILUTED> .08
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