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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From ______________ to _________________
Commission file number 0-28652
AMERICAN DISPOSAL SERVICES, INC. (Exact name of registrant
- -----------------------------------------------------
as specified in its charter)
Delaware 13-3858494
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
745 McClintock - Ste 305
Burr Ridge, Illinois 60521 (Address of
- ------------------------------------------- -----------------
principal executive offices) (Zip Code)
(630) 655-1105
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- ------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
--- ---
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value - 8,839,401 shares as of August 9, 1996
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AMERICAN DISPOSAL SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations - Three months ended June 30,
1996 and 1995; Six months ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows - Six months ended June 30,
1996 and 1995
Notes to the Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
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Part I. Financial Information
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (includes restricted cash
of $512 and $156) $ 2,010 $ 6,539
Trade receivables, net 7,623 6,331
Other current assets 854 998
-------- ---------
Total current assets 10,487 13,868
Property, plant, and equipment, net 83,230 81,250
Other assets:
Cost over fair value of assets acquired, net 19,222 15,739
Other intangible and deferred assets, net 3,599 1,896
Other assets 2,240 1,940
--------- ---------
$118,778 $114,693
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable due to stockholder $ - $ 12,500
Accounts payable 2,484 3,185
Accrued liabilities and deferred revenues 4,183 3,562
Current portion of long-term debt and capital lease
obligations 3,108 3,440
--------- ---------
Total current liabilities 9,775 22,687
Long-term debt and capital lease obligations,
net of current portion 68,108 48,789
Accrued environmental and landfill costs 7,053 6,214
Deferred income taxes 1,240 1,240
Redeemable preferred stock of subsidiary - 1,908
Total stockholders' equity (5,676,901 shares of
common stock issued and outstanding) 32,602 33,855
--------- ---------
$118,778 $114,693
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
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AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- --------------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues $13,453 $ 5,901 $ 25,177 $10,935
Cost of operations 7,062 3,532 13,170 6,579
Selling, general and administrative expenses 2,113 1,147 4,048 2,227
Depreciation and amortization 2,945 1,082 5,663 2,066
------- ------- -------- -------
Operating income 1,333 140 2,296 63
Interest expense,net 1,440 552 3,057 1,063
Other non-operating income (expense) 41 (2) (37) (6)
-------- ------- -------- -------
Loss before income taxes
and extraordinary item (148) (410) (724) (994)
Income tax benefit (provision) (5) - 155 156
-------- ------- -------- -------
Loss before extraordinary item (153) (410) (569) (838)
Extraordinary loss, net (476) - (476) -
-------- ------- -------- -------
Net loss (629) (410) (1,045) (838)
Preferred stock dividend
requirement of subsidiary (46) (63) (109) (63)
Net loss applicable to common stockholders $ (675) $ (473) $(1,154) $ (901)
-------- ------- -------- -------
-------- ------- -------- -------
Net loss per share:
Loss before extraordinary item $ (.03) $ (.14) $ (.12) $ (.30)
Extraordinary loss (.08) - (.08) -
-------- ------- -------- -------
Net loss applicable to common stockholders $ (.11) $ (.14) $ (.20) $ (.30)
-------- ------- -------- -------
-------- ------- -------- -------
Weighted average common stock
and common stock equivalent
shares outstanding 5,864 3,020 5,864 2,795
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
See accompanying notes.
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AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net loss $ (1,154) $ (901)
Extraordinary loss, net 476 -
Depreciation and amortization 5,663 2,066
Provision for environmental and landfill costs 264 157
Net changes in working capital (2,283) (367)
--------- ---------
Net cash provided by operating activities 2,966 955
--------- ---------
Investing activities:
Capital expenditures (6,610) (2,112)
Cost of acquisitions (3,096) (8,332)
--------- ---------
Net cash used in investing activities (9,706) (10,444)
--------- ---------
Financing activities:
Proceeds of indebtedness, net of issuance cost 70,164 10,104
Repayments of indebtedness (52,866) (2,348)
Repayment of note payable to stockholder (12,500) -
Net proceeds from issuance of common stock of subsidiary - 9,007
Net proceeds from issuance of preferred stock of subsidiary - 1,908
Preferred stock redemption (1,950) -
Other (637) (142)
--------- ---------
Net cash provided by financing activities 2,211 18,529
--------- ---------
(Decrease) increase in cash and cash equivalents (4,529) 9,040
Cash and cash equivalents at beginning of period 6,539 739
--------- ---------
Cash and cash equivalents at end of period $ 2,010 $ 9,779
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
4
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AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
(Unaudited)
1. FORMATION AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six -month periods ended June 30, 1996, are not
necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1996. These financial statements should be read in
conjunction with the consolidated financial statements, including the notes
thereto, for the fiscal year ended December 31, 1995 included in the
Company's Registration Statement on Form S-1.
Effective January 1, 1996, the stockholders of ADS, Inc. and County
Disposal, Inc. (CDI) exchanged their shares for shares of a newly created
holding company by the name of American Disposal Services, Inc. (the
Company). This share exchange (the Exchange) qualifies as a transfer of
companies under common control and, accordingly, the transaction has been
accounted for at historical cost in a manner similar to pooling of interest
accounting. The financial statements have been prepared as if the Exchange
occurred on December 31, 1994.
2. RELATED PARTY INTEREST EXPENSE
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
------- ------ ------ ------
(In thousands)
Charterhouse Equity Partners II, L.P. $ 262 $ - $ 621 $ -
------- ------ ------ ------
------- ------ ------ ------
3. ENVIRONMENTAL MATTERS
See note 8 of Notes to the Consolidated Financial Statements included in
the Company's Registration Statement on Form S-1 for a description of
environmental matters.
4. CDI ACQUISITION
As described in Note 3 of the Notes to the Consolidated Financial
Statements included in the Company's Registration Statement on Form S-1 the pro
forma results of operations for the three and six months ended June 30, 1995
assuming the CDI Acquisition had occurred on January 1, 1995, were as follows
(in thousands, except per share data):
Three Six
Months Months
Ended Ended
June 30, June 30,
1995 1995
------ ------
Revenue $ 11,188 $ 21,194
Operating income 189 301
Net loss applicable to common shareholders (1,090) (2,138)
Pro forma loss per share of common stock (.19) (.36)
Weighted average common stock and common stock
equivalent shares outstanding 5,864 5,864
-------- --------
-------- --------
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5. REFINANCING OF CREDIT FACILITY
In May 1996, the Company negotiated a new credit agreement with
Internationale Nederlanden (U.S.) Capital Corporation (ING), as administrative
agent, and Morgan Guaranty Trust Company of New York, as document agent, that
provides for borrowings of up to $87 million to finance acquisitions and provide
working capital, which was used to repay the existing credit agreements with
Bank of America and ING, as well as the note payable to stockholder and
redeemable preferred stock of subsidiary. The facility consists of a $38
million term loan A, $25 million term loan B, $7 million revolving loan, and $17
million acquisition facility. The rate of interest is equal to either a base
rate plus an applicable margin or the London Interbank Offered Rate (LIBOR) plus
an applicable margin. The base rate is the higher of the Federal Funds Rate
plus 0.5% or the prime rate. Term loan A bears an interest rate of the base
rate plus 1.25% or LIBOR plus 2.75% and is due in quarterly installments
beginning in December 1996 through June 2001. Term loan B bears an interest
rate of the base rate plus 1.75% or LIBOR plus 3.25% and is due in quarterly
installments beginning in December 1996 through June 2003. The revolving loan
bears an interest rate of the base rate plus 1.00% or LIBOR plus 2.50% and
matures on June 30, 2001. The acquisition facility bears an interest rate of
the base rate plus 1.50% or LIBOR plus 3.00% and is due in quarterly
installments beginning in September 1988 through March 2000. The revolving loan
and acquisition facility provide for commitment fees of 1/2% per annum on the
unused portions. The facility is secured by substantially all of the assets of
the Company. Under terms of the credit agreement, the Company is subject to
various debt covenants, including maintenance of certain financial ratios and
other restrictions. The Credit Facility requires the Company to use 50% of the
proceeds of any equity offering to repay a portion of the term loans. In
connection with this refinancing, the Company recognized an extraordinary loss,
net of federal tax benefit, of $476,000, representing unamortized deferred debt
issuance costs.
6. SUBSEQUENT EVENT Effective July 25, 1996, the Company completed an
initial public offering of 2,750,000 shares of common stock at a price of $9
per share. In addition, the underwriters exercised their over-allotment
option in full resulting in the issuance of an additional 412,500 shares of
common stock. This resulted in net proceeds to the Company of approximately
$25.4 million.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited condensed Consolidated Financial Statements and the related notes
thereto included elsewhere herein.
INTRODUCTION
The Company has adopted an acquisition-based growth strategy that focuses
on: (i) the identification and acquisition of solid waste landfills located in
secondary markets that are within approximately 125 miles of significant
metropolitan centers; and (ii) securing dedicated waste streams for such
landfills by the acquisition or development of transfer stations and the
acquisition of collection companies. The Company has completed 23 acquisitions
since January 1993. In 1995, the company acquired three landfills in Illinois,
Ohio and Pennsylvania and a hauling company in Pennsylvania (the "CDI
Acquisition"). All of these acquisitions were accounted for under the purchase
method of accounting for business combinations. Accordingly, the amortization
of goodwill and landfill airspace reflects the fair market value of the
Company's assets at the time of their acquisition, and the results of operations
for such acquired businesses are included in the Company's financial statements
only from the applicable date of acquisition. As a result, the Company believes
its historical results of operations for the periods presented are not directly
comparable.
FORWARD LOOKING STATEMENTS
Certain information contained in this Quarterly Report on Form 10-Q,
including, without limitation information appearing under Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934). Factors set forth under the caption "Risk Factors" in the Company's
Registration Statement on Form S-1 could affect the Company's actual results
and could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company in this Quarterly Report on Form 10-Q.
GENERAL
The Company's revenues are attributable primarily to fees charged to
customers for waste collection, transfer and disposal services. The Company's
collection services are generally provided under direct agreements with its
customers or pursuant to contracts with municipalities. Commercial and
municipal contract terms, where used, generally range from one to five years and
commonly have automatic renewal options. A relatively small portion of such
agreements also provide for the prepayment of certain fees, which are reflected
as deferred revenues. The table below shows for the periods indicated, the
percentage of the Company's total revenues attributable to services provided:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
------- ------- ------- -------
Collection (1) 40.3% 56.2% 40.0% 60.4%
Transfer 2.6% 9.7% 2.2% 9.4%
Landfill (1) 57.1% 33.1% 57.8% 29.4%
Other - 1.0% - .8%
------- ------- ------- -------
Total Revenues 100.0% 100.0% 100.00% 100.0%
------- ------- ------- -------
------- ------- ------- -------
(1) The portion of collection revenues attributable to disposal charges
for waste collected by the Company and disposed of at the Company's landfills
has been excluded from collection revenues and included in landfill revenues.
A component of the Company's business strategy is to maximize
internalization of waste it collects and thereby realize higher margins from its
operations. By disposing of waste at Company-owned landfills, the Company
retains the margin generated through disposal operations that would otherwise be
earned by third-party landfills. For both the three and six months ended June
30, 1996, 99% of the total tonnage
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collected by the Company was disposed of at Company-owned landfills. This
represents approximately 32% and 31% of the total tonnage disposed of at
Company-owned landfills in the three and six months ended June 30, 1996,
respectively.
The Company has estimated that, as of December 31, 1995, total costs for
post-closure activities, including cap maintenance, groundwater monitoring,
methane gas control and recovery and leachate treatment/disposal for up to 30
years after closure in certain cases, will approximate $11.3 million. In
addition, the Company has estimated that, as of December 31, 1995, closure costs
expected to occur during the operating lives of these facilities and expensed
over these facilities' useful lives will approximate $28.4 million. At
December, 1995 and June 30, 1996, accruals for landfill closure and post-closure
costs (including costs assumed through acquisitions) were approximately $6.2
million and $7.1 million, respectively. The accruals reflect relatively young
landfills with estimated remaining lives, based on current waste flows, that
range from 4 to 46 years, and an estimated average remaining life of greater
that 20 years.
RESULTS OF OPERATIONS
The following table sets forth items in the Company's consolidated
statement of operations as a percentage of revenues for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- -------------------
1996 1995 1996 1995
------- ------- ------- --------
Revenues.................. 100.0% 100.0% 100.0% 100.0%
Cost of operations........ 52.4% 59.9% 52.3% 60.2%
Selling, general and
administrative expenses.. 15.7% 19.4% 16.1% 20.4%
Depreciation and
amortization expenses.... 22.0% 18.3% 22.5% 18.9%
------- ------- ------- --------
Operating income (loss)... 9.9% 2.4% 9.1% 0.5%
Interest expense, net..... 11.1% 9.4% 12.0% 9.6%
Income tax (benefit)...... -- -- ( 0.6)% (1.4)%
Extraordinary loss, net
of income tax............ 3.5% -- 1.9% --
------- ------- ------- --------
Net loss............. (4.7)% (7.0)% (4.2)% (7.7)%
------- ------- ------- --------
------- ------- ------- --------
EBITDA margin............. 31.8% 20.7% 31.6% 19.5%
------- ------- ------- --------
------- ------- ------- --------
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUES. Revenues for the three months ended June 30, 1996 were
$13.5 million compared to $5.9 million for the three months ended June 30,
1995. The increase in revenues is due primarily to the effects of the CDI
Acquisition. Revenues of $8.5 million for the 1996 period were generated from
the companies acquired, while revenues attributable to existing operations
decreased by $300,000, which was due primarily to the lapse of an exclusive
contract with a transfer station in Oklahoma.
COST OF OPERATIONS. Cost of operations for the three months ended June
30, 1996 was $7.1 million compared to $3.5 million for the three months ended
June 30, 1995. This increase was attributable primarily to the associated
increase in revenues described above. As a percentage of revenues, cost of
operations decreased to 52.4% in the 1996 period from 59.9% in the 1995 period.
The resulting increase in margins was due primarily to the Company's higher
proportion of landfill operations (which generally have higher
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margins than hauling operations), with landfill revenues increasing from $2.0
million to $7.7 million and from 33.1% to 57.1 % as a percentage of revenues.
Margins also increased because of increased operating efficiencies resulting
from the consolidation of hauling operations and the opening of new transfer
stations in the Company's Missouri region.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
to $2.1 million for three months ended June 30, 1996 compared to $1.1 million
for the three months ended June 30, 1995. The aggregate increase in SG&A
expenses resulted from expenses associated with the CDI Acquisition, and an
increase in personnel and other expenses related to the anticipated growth of
the Company. As a percentage of revenues, SG&A expenses decreased to 15.7% in
the 1996 period from 19.4% in the 1995 period. The decrease in SG&A expenses
as a percentage of revenues is due partially to a significant increase in
revenue producing assets while corporate level personnel and other related
expenses increased moderately.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the three months ended June 30, 1996 was $3.0 million compared to
$1.1 million for the three months ended June 30, 1995. The increase in
depreciation and amortization expense is due primarily to the CDI Acquisition
which significantly increased landfill airspace amortization and provision
for closure costs, and, to a lesser extent, the capital expenditures
associated with such acquisition. As a percentage of revenues, depreciation
and amortization expense was 22.0% and 18.3% for the three months ended June
30, 1996 and June 30 1995, respectively. The increase in the June 1996
period compared to the June 1995 period is due to the high concentration of
the Company's assets in landfills following the CDI Acquisition. Net fixed
assets increased to $83.2 million at June 30, 1996 from $81.3 million at
December 31, 1995 and goodwill, net of accumulated amortization expense,
increased to $19.2 million at June 30, 1996 from $15.7 million at December
31, 1995.
NET INTEREST EXPENSE. Net interest expense was $1.5 million for the
three months ended June 30, 1996 compared to $552,000 for the three months ended
June 30, 1995. The increase is attributable to additional debt incurred to
complete the CDI Acquisition.
INCOME TAXES. The Company recorded an income tax expense of $5,000
for the three months ended June 30, 1996 compared to a $155,000 income tax
benefit for the three months ended June 30, 1995.
EXTRAORDINARY LOSS. In connection with the refinancing of its credit
facility, the Company recognized an extraordinary loss, net of federal tax
benefit, of $476,000, during the three months ended June 30, 1996
representing unamortized debt issuance cost.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUES. Revenues for the six months ended June 30, 1996 were $25.2
million compared to $10.9 million for the six months ended June 30, 1995. The
increase in revenues is due primarily to the effects of the CDI Acquisition.
Revenues of $15.7 million for the 1996 period were generated from the companies
acquired, while revenues attributable to existing operations decreased by
$900,000, which was due primarily to the lapse of an exclusive contract with a
transfer station in Oklahoma.
COST OF OPERATIONS. Cost of operations for the six months ended June
30, 1996 was $13.2 million compared to $6.6 million for the six months ended
June 30, 1995. This increase was attributable primarily to the associated
increase in the revenues described above. As a percentage of revenues, cost
of operations
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decreased to 52.3% in the 1996 period from 60.2% in the 1995 period. The
resulting increase in margins was due primarily to the Company's higher
proportion of landfill operations (which generally have higher margins than
disposal operations), with landfill revenues increasing from $3.3 million to
$14.5 million and from 29.4% to 57.8% as a percentage of revenues. Margins
also increased because of increased operating efficiencies resulting from the
consolidation of hauling operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
SG&A expenses increased to $4.0 million for the six months ended June 30, 1996
compared to $2.2 million for the six months ended June 30, 1995. The aggregate
increase in SG&A expenses resulted from expenses associated with the CDI
Acquisition, and an increase in personnel and other expenses related to the
anticipated growth of the Company. As a percentage of revenues, SG&A expenses
decreased to 16.1% in the 1996 period from 20.4% in the 1995 period. The
decrease in SG&A expense as a percentage of revenues is due partially to a
significant increase in revenue producing assets while corporate level personnel
and other related expenses increased moderately.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the six months ended June 30, 1996 was $5.7 million compared to
$2.1 million for the six months ended June 30, 1995. The increase in
depreciation and amortization expense is due primarily to the CDI Acquisition
which significantly increased landfill airspace amortization and provision
for closure costs, and, to a lesser extent, the capital expenditures
associated with such acquisition. As a percentage of revenues, depreciation
and amortization expense was 22.5% and 18.9% for the six months ended June
30, 1996 and June 30, 1995, respectively. The relatively high percentages
are primarily due to the configuration of the Wheatland landfill during the
six months ended June 30, 1995 and to the high concentration of the
Company's assets in landfills following the CDI Acquisition during the six
months ended June 30, 1996.
NET INTEREST EXPENSE. Net interest expense was $3.0 million for the six
months ended June 30, 1996 compared to $1.1 million for the six months ended
June 30, 1995. This increase is attributable to additional debt incurred to
complete the CDI Acquisition.
INCOME TAXES. The Company recorded an income tax benefit of $156,000 for
both the six months ended June 30, 1996 and 1995.
EXTRAORDINARY LOSS. In connection with the refinancing of its credit
facility, the Company recognized an extraordinary loss, net of federal tax
benefit, of $476,000, during the period ended June 30, 1996 representing
unamortized debt issuance cost.
LIQUIDITY AND CAPITAL RESOURCES
Due to the capital intensive nature of the solid waste industry, the
Company has used, and expects to continue using, substantially all cash
generated from operations to fund acquisitions, capital expenditures and
landfill development. Certain operating equipment has also been acquired
using leases which have short and medium-term maturities. As a result, the
Company has incurred working capital deficits in the past. Historically, the
Company has satisfied its acquisition, capital expenditure and working
capital needs primarily through equity infusions from its principal
stockholders and bank financing. There can be no assurances that such
financing will continue to be available.
Operating activities provided net cash of $3.0 million in the six months
ended June 30, 1996 compared to $955,000 in the six month period ended June 30,
1995 reflecting the increased operating profitability of the Company.
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Investing activities used net cash of $9.7 million and $10.4 million in
the six months ended June 30, 1996 and 1995, respectively. The Company's
capital expenditure and working capital requirements have increased
significantly, reflecting the Company's rapid growth by acquisition and
development of revenue producing assets, and will increase further as the
Company continues to pursue its acquisition based growth strategy. During
the six months ended June 30, 1996, the Company spent $6.6 million in capital
expenditures, of which $3.3 million was for cell development. In connection
with the acquisition of six hauling companies during the six months ended
June 30, 1996 the Company required $3.1 million in bank debt. In 1996, the
Company expects to spend approximately $13.2 million for capital expenditures
of which $8.1 million is anticipated to be used for cell development. The
increase in cell development costs in 1996 over 1995 will be due to the
Company's ownership of the acquired companies' landfills for the entire year
and the fact that increased volumes at the landfills will cause cell
development to occur prior to the winter season when construction activities
cease.
Financing activities provided net cash of $2.2 million and $18.5 million in
the 1996 and 1995 periods, respectively.
In May 1996, the Company entered into the $87 million Credit Facility with
Internationale Nederlanden (U.S.) Capital Corporation ("ING") as administrative
agent, and Morgan Guaranty Trust Company of New York ("Morgan"), as
documentation agent, which repaid all of the Company's then existing bank debt
and a portion of a note payable to a stockholder, and redeemed the preferred
stock of a subsidiary.
In July 1996, the Company received a commitment letter from ING and
Morgan to increase the Credit Facility from $87 million to $110 million. The
increased facility will provide a $25 million term loan, a $10 million
working capital facility and a $75 million expansion facility for
acquisitions. At August 1996 the Company had borrowed $61,431,000 under the
$87 million Credit Facility.
The Company intends to satisfy its interest obligations as well as
future capital expenditures and working capital requirements, with cash flows
from operations and borrowings under the Credit Facility. However, the
Company may need to raise additional capital to fund the acquisition and
integration of additional solid waste businesses. The Company may raise such
funds through bank financings or public or private offerings of its
securities. There can be no assurances that such funds will be available on
commercially reasonable terms or at all.
Effective July 25, 1996, the Company completed an initial public
offering of 2,750,000 shares of common stock at a price of $9 per share. In
addition, the underwriters exercised their over-allotment option in full
resulting in the issuance of an additional 412,500 shares of common stock.
This resulted in a net proceeds to the Company of approximately $25.4 million.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. Consistent with industry practice, most of the Company's
contracts provide for a pass through of certain costs, including increases in
landfill tipping fees and, in some cases, fuel costs. The Company therefore
believes it should be able to implement price increases sufficient to offset
most cost increases resulting from inflation. However, competitive factors
may require the Company to absorb at least a portion of these cost increases,
particularly during periods of high inflation. The Company is unable to
determine the future impact of a sustained economic slowdown.
SEASONALITY
The Company's revenues tend to be somewhat lower in the winter months.
This is primarily attributable to the fact that: (i) the volume of waste
relating to construction and demolition activities tends to
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increase in the spring and summer months; and (ii) the volume of industrial
and residential waste in the regions where the Company operates tends to
decrease during the winter months. In addition, particularly harsh weather
conditions may delay the development of landfill capacity and otherwise
result in the temporary suspension of certain of the Company's operations and
could materially adversely affect the Company's overall business, financial
condition and results of operations.
12
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Not applicable
13
<PAGE>
Signatures
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 DISPOSAL SERVICES, INC.
Date: August 13, 1996 /s/ Scott H. Flamm
---------------------------------------
Scott H. Flamm
Senior Vice President and Chief Financial Officer
14
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