<PAGE>
1997
================================================================================
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 March 31, 1997
[ ] 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 25,298,423 shares of its Class A Common Stock and 5,126,743
shares of its Class B Common Stock outstanding as of May 1, 1997.
================================================================================
1
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AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 (Unaudited)......................... 3
Condensed Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 (Unaudited)............................................ 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 (Unaudited)......................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 10
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
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Net operating revenues................................... $ 17,498 $ 16,696
Cost and expenses:
Cost of operations............................... 16,166 14,158
Selling, general and administrative expense...... 2,849 2,379
-------- --------
Income (loss) from operations............................ (1,517) 159
Other income (expense):
Interest expense................................. (32) (29)
Other income, net................................ 130 155
-------- --------
Income (loss) before income taxes........................ (1,419) 285
Provision for income taxes............................... (284) 114
-------- --------
Net income (loss)........................................ $ (1,135) $ 171
======== ========
Net income (loss) per share.............................. $ (.04) $ .01
======== ========
Weighted average shares outstanding (Note 2)............. 30,279 30,076
======== ========
</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>
March 31, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $ 2,297 $ 4,286
Accounts receivable, net.................... 14,188 14,510
Prepaid expenses and other current assets... 2,442 3,216
-------- --------
Total current assets................ 18,927 22,012
Properties and equipment, less accumulated
depreciation and amortization of $47,209
in 1997 and $45,759 in 1996................. 90,737 89,637
Deposits............................................ 2,343 2,314
Costs in excess of fair market value of net
assets of acquired businesses, net............... 3,151 3,193
Other assets, net................................... 272 307
-------- --------
Total assets........................ $115,430 $117,463
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt........... $ 309 $ 305
Accounts payable............................ 5,866 8,495
Accrued payroll and other compensation...... 1,089 1,076
Accrued income taxes........................ 16 315
Other accrued taxes......................... 1,815 2,127
Accrued closure costs and post-closure
monitoring costs......................... 1,124 1,267
Other liabilities and accrued expenses...... 1,928 2,144
-------- --------
Total current liabilities........... 12,147 15,729
Long-term debt...................................... 5,907 3,836
Deferred income taxes............................... 7,718 7,757
Noncurrent accrued closure costs and post-closure
monitoring costs................................. 17,031 16,932
Other noncurrent liabilities........................ 2,265 2,277
Shareholders' equity (Note 3):
Preferred stock, no par value............... -- --
Class A Common Stock, no par value.......... 64,267 63,702
Class B Common Stock, no par value.......... 780 780
Retained earnings........................... 5,495 6,630
Treasury Stock, Class B Common Stock,
at cost.................................. (180) (180)
-------- --------
Total shareholders' equity.......... 70,362 70,932
-------- --------
Total liabilities and shareholders'
equity............................ $115,430 $117,463
======== ========
</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>
Three Months Ended
March 31,
-------------------
1997 1996
------- ---------
<S> <C> <C>
Operating activities:
Net income (loss)........................................................ $ (1,135) $ 171
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization.......................................... 1,722 1,682
Provision for accrued closure costs and post-closure monitoring costs.. 99 245
Provision for deferred income taxes.................................... (39) (53)
Provision for losses on accounts receivable............................ 42 36
Gain on sales of fixed assets.......................................... (23) (15)
Changes in assets and liabilities:
Decrease in accounts receivable....................................... 280 1,011
Decrease in refundable income taxes................................... _ 5,519
Decrease in prepaid expenses and other current assets................. 774 762
Decrease in other assets.............................................. 3 2
Decrease in accounts payable.......................................... (2,629) (1,307)
Increase in accrued payroll and other compensation.................... 13 9
Increase (decrease) in accrued income taxes........................... (299) 132
Decrease in other accrued taxes....................................... (312) (310)
Decrease in accrued closure costs and post closure monitoring costs (143) _
Increase (decrease) in other liabilities and accrued expenses......... 349 (649)
Decrease in other noncurrent liabilities.............................. (12) (67)
------- ---------
Net cash provided (used) by operating activities...................... (1,310) 7,168
------- ---------
Investing activities:
Capital expenditures.................................................... (2,811) (3,482)
Proceeds from sales of fixed assets..................................... 86 590
Increase in deposits, net............................................... (29) (66)
------- ---------
Net cash used in investing activities................................. (2,754) (2,958)
------- ---------
Financing activities:
Proceeds from issuance of long-term debt................................ 2,450 _
Repayments of long-term debt............................................ (375) (6,339)
------- ---------
Net cash provided (used) in financing activities...................... 2,075 (6,339)
------- ---------
Decrease in cash and cash equivalents..................................... (1,989) (2,129)
Cash and cash equivalents at beginning of year............................ 4,286 5,186
------- ---------
Cash and cash equivalents at end of period................................ $ 2,297 $ 3,057
======= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
AMERICAN WASTE SERVICES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1997
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 1996 Annual Report to Shareholders. Certain
prior year amounts have been reclassified to be consistent with the 1997
presentation.
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
March 31, 1997, and the results of operations and cash flows for the three-month
periods ended March 31, 1997 and 1996.
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 (Loss) Per Share
Class A Common Stock and Class B Common Stock are considered as one class of
stock for the calculation of net income (loss) per share. Net income (loss) per
share has been computed using the weighted average number of common and common
equivalent shares outstanding each period which amounted to 30,279,000 and
30,076,000 in the first quarter of 1997 and 1996, respectively. Common
equivalent shares, which represent shares issuable upon the exercise of
outstanding stock options, totaled 24,000 and 78,000 in the first quarter of
1997 and 1996, 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 1997, the Company issued 282,808 shares of Class A Common Stock to the
Plan to satisfy its liability of $565,000 for 1996 Company contributions.
Note 4. Debt
During the first quarter of 1997 the Company borrowed $2.5 million under its
revolving credit facility, primarily to fund capital expenditures for the
collection, disposal and transportation operations. The amount outstanding at
March 31, 1997 under the revolving credit facility was $12.8 million, including
$8.0 million in letters of credit. The letters of credit were utilized to
capitalize a captive insurance company, incorporated and licensed under the laws
of the State of Vermont, which
6
<PAGE>
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 landfill facility. (See Note 6. Closure Costs and Post-
Closure Monitoring Costs.)
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
7
<PAGE>
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 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.
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.
On March 21, 1996, Earth Sciences Consultants, Inc. ("Earth Sciences"), a
subsidiary of the Company, entered into a Professional Services Agreement (the
"PSA") with the S. W. Shattuck Chemical Company, Inc. ("Shattuck") wherein Earth
Sciences agreed to act as the remediation contractor for the Denver radium site,
operable unit VIII, which is owned by Shattuck and located in Denver, Colorado
(the "Project").
Earth Sciences' work on the Project was suspended as a result of a Stop Work
Order issued by the United States Environmental Protection Agency ("US EPA")
from January 22, 1997 until March 20, 1997 due to the discovery of
unanticipated, petroleum contamination on the Project site. On February 14,
1997, Earth Sciences filed a demand for arbitration against Shattuck with the
Denver Regional Office of the American Arbitration Association relating to the
PSA. The demand for arbitration claims, among other things: (i) that Shattuck is
in default and has materially breached its payment obligations to Earth Sciences
by failing to pay outstanding invoices; (ii) that Shattuck has summarily and
wrongfully denied requested change orders; and (iii) that Shattuck has
anticipatorily breached the PSA.
On March 11, 1997, Shattuck filed an Answering Statement and Counterclaims.
Shattuck has denied Earth Sciences' claims and has asserted several
counterclaims including allegations that Earth Sciences has failed to proceed
with the work in accordance with the PSA. American Waste Services, Inc. ("AWS")
was named as a third party respondent to the arbitration proceeding because
under the PSA, AWS guaranteed the performance of Earth Sciences' obligations,
including the payment of any and all liabilities of Earth Sciences.
On March 21, 1997 Earth Sciences received a letter from Shattuck advising Earth
Sciences that the stop work order issued by the US EPA had been lifted and that
Shattuck would be engaging another contractor to complete the project. As a
result, Earth Sciences has demobilized from the Project site.
An arbitration hearing date has been scheduled for the third quarter of 1997 and
the Company is in the process of amending its claims to include all sum of
monies to which the Company currently believes it is entitled. Furthermore, the
Company has requested that the parent corporation of Shattuck guarantee the
payment of all sums awarded to the Company. A resolution of the pending
8
<PAGE>
dispute in favor of the Company could have a material positive effect on the
Company's future financial results. Conversely, failure to resolve the pending
dispute in favor of the Company could have a material adverse effect on the
Company"s future financial results.
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 conditions.
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, 1996, the Company estimated that the total closure costs and post-
closure monitoring costs it will incur for all of its disposal facilities is
approximately $31.2 million; however, in accordance with Ohio's financial
assurance regulations, the Company currently estimates that it will be required
to ultimately provide approximately $32.5 million of financial assurances to the
State of Ohio. The Company utilizes insurance to satisfy the financial assurance
requirements for its American and Mahoning landfill facilities and its tire
monofill facility. The Company uses a trust fund to satisfy the financial
assurance requirements for its East Liverpool landfill facility. In April 1997
the Company deposited approximately $.3 million into the trust to fund a portion
of the current financial assurance obligation for that facility. Such fund,
which is recorded by the Company at cost which approximates market value, is
included in the Consolidated Balance Sheets under the caption "Deposits" and
amounted to approximately $2.3 million at March 31, 1997 and December 31, 1996.
The funds in the trust are invested primarily in short-term securities,
commercial paper or certificates of deposit with investment earnings accruing to
the benefits of the Company. 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.
____________________________________________
____________________________________________
9
<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 term "AWS", or "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 1996 Annual Report to Shareholders.
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature are
intended to be, and are hereby identified as, 'forward looking statements.' The
Company cautions readers that forward looking statements, including, without
limitation, those relating to the Company's future business prospects, revenues,
working capital, liquidity, capital needs, interest costs, and income, are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward looking statements, due to
risks and factors identified herein and from time to time in the Company's
reports filed with the Securities and Exchange Commission.
Liquidity and Capital Resources
During the first quarter of 1997 the Company utilized existing cash and
borrowings under its revolving credit facility to meet operating needs, repay
indebtedness and fund capital expenditure programs. Capital spending totaled
$2.8 million in the first quarter of 1997 which was principally related to the
purchase of equipment for the Company's collection and transportation operations
and continued landfill development. During 1997 the Company's capital spending
is expected to range from $8 million to $10 million, approximately $1.4 million
of which is committed pursuant to contracts. Capital expenditures in 1997 will
relate principally to landfill development, acquiring transportation equipment,
replacing equipment or acquiring additional equipment primarily to support
disposal operations, acquiring equipment associated with collection services,
and engineering and construction costs related to regulatory compliance at the
Company's landfills. Compliance with current and future regulatory requirements
may require the Company, as well as others in the waste management industry,
from time to time to make significant capital and operating expenditures.
The Company maintains an $18 million unsecured revolving credit facility with
two banks. Such facility provides for revolving credit loans and/or term loans
payable quarterly with a final maturity date no later than seven years from the
date of the agreement. On December 31, 2000 the Company must convert any
outstanding revolving credit loans into term loans payable quarterly with a
final maturity date no later than December 31, 2003. The agreement also provides
for the issuance of letters of credit up to an aggregate amount of $13 million
until December 31, 2000.
Borrowings under the amended agreement bear interest at prime or, at the
Company's option, at a fixed rate above the Eurodollar rate. The agreement
provides for an annual fee of 3/8% on the unused portion of the facility and
requires the Company to maintain certain financial ratios. The amount of
borrowings outstanding under the revolving credit facility at March 31, 1997 and
Decem-
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ber 31, 1996 was $4,750,000 and $2,600,000, respectively. The Company also had
$8 million in outstanding letters of credit at March 31, 1997 and December 31,
1996, 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 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, 1996, the Company estimates that the total closure costs and
post-closure monitoring costs it will incur for all of its disposal facilities
is approximately $31.2 million. The Company currently estimates expenditures for
closure and post-closure monitoring costs during 1997 to be $1.3 million. In
accordance with Ohio's financial assurance regulations, the Company currently
estimates that it will be required to ultimately provide $32.5 million of
financial assurances to the State of Ohio relating to such costs; however, such
financial assurances are reduced by actual expenditures. The Company utilized
insurance to satisfy the financial assurance requirements for its American and
Mahoning landfill facilities and its tire monofill facility. The Company uses a
trust fund to satisfy the financial assurance requirements for its East
Liverpool landfill facility. In April 1997 the Company deposited approximately
$.3 million into the trust fund to satisfy the current financial assurance
obligation for that 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.
Currently, the Company is not aggressively pursuing potential acquisition
candidates but will continue to consider acquisitions that make economic sense.
While the Company has not entered into any pending agreements for acquisitions,
it may do so at any time. Such potential acquisitions could be financed by
existing working capital, the use of the Company's existing credit facility,
secured or unsecured debt, issuance of common or preferred stock, or issuance of
a security with characteristics of both debt or equity, any of which could
impact liquidity in the future.
11
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Results of Operations
- ---------------------
Overall performance
Net operating revenues in the first quarter of 1997 increased 4.8% to $17.5
million compared with $16.7 million in the prior year's first quarter. Despite
the increase in net operating revenues in the first quarter of 1997, the Company
recorded a net loss of $1.1 million or a loss of $.04 per share compared to net
income of $.2 million or $.01 per share in the first quarter of 1996. Net
operating revenues and operating income (loss) for the Company's business
segments were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------- --------
<S> <C> <C>
Net operating revenues:
Integrated waste management and environmental services...... $13,994 $13,331
Transportation of general and bulk commodities.............. 3,135 3,096
Other businesses............................................ 369 269
-------- --------
$17,498 $16,696
======== ========
Operating income (loss): (1)
Integrated waste management and environmental services...... $ (73) $ 1,714
Transportation of general and bulk commodities.............. 138 34
Other businesses............................................ (166) (212)
-------- --------
(101) 1,536
Interest expense................................................. (32) (29)
Interest income.................................................. 71 115
General corporate expenses....................................... (1,357) (1,337)
-------- --------
Income (loss) before income taxes................................ $(1,419) $ 285
======== ========
</TABLE>
(1) 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.
Segment performance
Net operating revenues of the Company's primary business segment, integrated
waste management and environmental services, increased to $14 million in the
first quarter of 1997 from $13.3 million in the first quarter of the prior year.
The Company's disposal operations, including disposal brokerage, recorded
increased net operating revenues in the first quarter of 1997 compared with the
first quarter of the prior year primarily due to increased business of the
disposal brokerage operations and increased disposal volumes at the Company's
landfills partially offset by lower average disposal rates. Net operating
revenues of the technical environmental services group decreased during the
first quarter of 1997 compared with the
12
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first quarter of 1996 primarily due to a decrease in the remediation services
business as a result of recognizing very little revenues in conjunction with a
dispute related to a remediation project in Denver, Colorado, partially offset
by increased business of the laboratory services (see "Management's Discussion
and Analysis of Financial Condition and Results of Operations; Trends and
Uncertainties"). Net operating revenues of the transportation group for the
first quarter of 1997 also decreased compared with the first quarter of the
prior year primarily as a result of a decrease in the transportation brokerage
business. Net operating revenues of the collection operations, which the Company
began in the third quarter of 1996, have continued to significantly increase
month to month as the Company continues to penetrate local markets surrounding
the Company's landfills.
The integrated waste management and environmental services segment reported an
operating loss of $.1 million compared to operating income of $1.7 million in
the prior year's quarter, primarily as a result of an operating loss recorded by
the technical environmental services business. The operating loss of the
technical environmental services business was primarily attributed to a
remediation project in Denver, Colorado. The technical environmental services
business incurred significant costs while recognizing very little revenue,
primarily as a result of a stop work order issued by the United States
Environmental Protection Agency from January 22, 1997 until March 20, 1997.
Operating income of the disposal operations decreased compared with the prior
year quarter primarily as a result of higher operating costs experienced at the
Company's Mahoning landfill operations and lower gross margins associated with
the disposal brokerage operations. Operating income of the transportation
operations increased slightly compared to the prior year quarter primarily as a
result of decreased operating costs. The transportation operations also closed a
transportation terminal during the first quarter of 1997 which had high
operating costs as a percentage of net operating revenues.
The Company's second business segment, the transportation of general and bulk
commodities, recorded net operating revenues of $3.1 million in the first
quarter of 1997 and 1996. This business segment recorded operating income of
$138,000 in the first quarter of 1997 compared to $34,000 in the first quarter
of the prior year primarily as a result of the lower operating costs.
Interest expense
Interest expense was $32,000 in the first quarter of 1997 compared to $29,000 in
the first quarter of the prior year. During the
first quarter of 1997 interest costs totaling $103,000 were capitalized compared
with $148,000 in the first quarter of the prior year.
General corporate expenses
General corporate expenses increased slightly in the first quarter of 1997
compared to the first quarter of 1996.
13
<PAGE>
Net income
The Company recorded a net loss of $1.1 million in the first quarter of 1997
compared with net income of $.2 million in the first quarter of 1996. The
Company's overall effective tax rate, including the effect of state income tax
provisions, was 20% in the first quarter of 1997 compared to 40% in the prior
year's first quarter, primarily as a result of tax credits associated with the
production and sale of landfill gas produced at the Company's landfill gas
extraction facility, which tax credits the Company expects to utilize in 1997.
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.
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 further declines in disposal rates and/or disposal volumes
thereby affecting the Company's financial performance. Additionally, a further
decline in the rates which customers are willing to pay for its technical
environmental and transportation services could impact the future financial
performance of the Company's operations.
The Company 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.
14
<PAGE>
In March 1996, the Company entered into an agreement with a customer to provide
certain remediation related services at a site in Denver, Colorado. The volume
of contaminated materials actually requiring remediation greatly exceeded the
amount originally estimated and the agreement provides for payment to the
Company for such additional volume. The customer has refused to make further
payments to the Company. The Company incurred significant costs in the first
quarter of 1997 while recognizing very little revenue, primarily as a result of
a stop work order issued by the United States Environmental Protection Agency
from January 22, 1997 until March 20, 1997. Furthermore, the Company has filed a
demand for arbitration, claiming, among other things, that its customer is in
default and has materially breached its payment obligation. The Company's
customer subsequently filed a counter claim alleging the Company has refused to
proceed with the work in accordance with the contract. The customer has engaged
another contractor to complete the project and the Company has demobilized from
the project site. An arbitration hearing date has been scheduled for the third
quarter of 1997 and the Company is in the process of amending its claims to
include all sums of monies to which the Company currently believes it is
entitled. Furthermore, the Company has requested that the parent corporation of
the customer guarantee the payment of all sums awarded to the Company. Although
there can be no assurance, a resolution of the pending dispute in favor of the
Company could have a material positive effect on the Company's future financial
results. Conversely, an unfavorable resolution could have a material negative
effect on the Company's future financial results.
____________________________________________
____________________________________________
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 21, 1996, Earth Sciences Consultants, Inc. ("Earth Sciences"), a
subsidiary of the Company, entered into a Professional Services Agreement (the
"PSA") with the S. W. Shattuck Chemical Company, Inc. ("Shattuck") wherein Earth
Sciences agreed to act as the remediation contractor for the Denver radium site,
operable unit VIII, which is owned by Shattuck and located in Denver, Colorado
(the "Project").
Earth Sciences' work on the Project was suspended as a result of a Stop Work
Order issued by the United States Environmental Protection Agency ("US EPA")
from January 22, 1997 until March 20, 1997 due to the discovery of
unanticipated, petroleum contamination on the Project site. On February 14,
1997, Earth Sciences filed a demand for arbitration against Shattuck with the
Denver Regional Office of the American Arbitration Association relating to the
PSA. The demand for arbitration claims, among other things: (i) that Shattuck is
in default and has materially breached its payment obligations to Earth Sciences
by failing to pay outstanding invoices; (ii) that Shattuck has summarily and
wrongfully denied requested change orders; and (iii) that Shattuck has
anticipatorily breached the PSA.
On March 11, 1997, Shattuck filed an Answering Statement and Counterclaims.
Shattuck has denied Earth Sciences' claims and has asserted several
counterclaims including allegations that Earth Sciences has failed to proceed
with the work in accordance with the PSA. American Waste Services, Inc. ("AWS")
was named as a third party respondent to the arbitration proceeding because
under the PSA, AWS guaranteed the performance of Earth Sciences' obligations,
including the payment of any and all liabilities of Earth Sciences.
On March 21, 1997 Earth Sciences received a letter from Shattuck advising Earth
Sciences that the stop work order issued by the US EPA had been lifted and that
Shattuck would be engaging another contractor to complete the project. As a
result, Earth Sciences has demobilized from the Project site.
An arbitration hearing date has been scheduled for the third quarter of 1997 and
the Company is in the process of amending its claims to include all sum of
monies to which the Company currently believes it is entitled. Furthermore, the
Company has requested that the parent corporation of Shattuck guarantee the
payment of all sums awarded to the Company. A resolution of the pending dispute
in favor of the Company could have a material positive effect on the Company's
future financial results. Conversely, failure to resolve the pending dispute in
favor of the Company could have a material adverse effect on the Company's
future financial results.
Reference is made to "Item 3. Legal Proceedings" in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 for a description of legal
proceedings.
16
<PAGE>
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on April 29,
1997; however, no vote of security holders occurred with respect to any
matters reportable under this Item 4.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended March
31, 1997.
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: May 14, 1997 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
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