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Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-28652
AMERICAN DISPOSAL SERVICES, INC.
Delaware 13-3858494
745 McClintock - Suite 305
Burr Ridge, Illinois 60521
(630) 655-1105
----------------
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 X No
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 - 8,872,159 shares as of October 31, 1996
===============================================================================
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995
Condensed Consolidated Statements of Operations - Three months ended
September 30, 1996 and 1995; Nine months ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows - Nine months ended
September 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
2
<PAGE>
Part I. Financial Information
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (includes restricted cash of
$2,738 and $156) $ 5,046 $ 6,539
Trade receivables, net 8,575 6,331
Other current assets 1,226 998
--------------- ---------------
Total current assets 14,847 13,868
Property, plant, and equipment, net 89,189 81,250
Other assets:
Cost over fair value of assets acquired, net 27,564 15,739
Other intangible and deferred assets, net 3,931 1,896
Other assets 1,760 1,940
--------------- ---------------
$ 137,291 $ 114,693
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable due to stockholder $ - $ 12,500
Accounts payable 3,227 3,185
Accrued liabilities and deferred revenues 6,508 3,562
Current portion of long-term debt and capital lease
obligations 3,108 3,440
--------------- ---------------
Total current liabilities 12,843 22,687
Long-term debt and capital lease obligations, net of current
portion 58,207 48,789
Accrued environmental and landfill costs 7,214 6,214
Deferred income taxes 1,240 1,240
Redeemable preferred stock of subsidiary - 1,908
Total stockholders' equity (8,825,365 and 5,662,865
shares of common stock issued and outstanding) 57,787 33,855
--------------- ---------------
$ 137,291 $ 114,693
=============== ===============
</TABLE>
See accompanying notes.
3
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 15,122 $ 8,929 $ 40,299 $ 19,864
Cost of operations 8,100 4,827 21,270 11,406
Selling, general and administrative expenses 2,037 1,603 6,085 3,830
Depreciation and amortization 3,321 1,597 8,984 3,663
---------- ---------- ---------- ----------
Operating income 1,664 902 3,960 965
Interest expense, net 1,374 658 4,431 1,715
Other income 30 - 67 -
---------- ---------- ---------- ----------
Income (loss) before income taxes
and extraordinary item 320 244 (404) (750)
Income tax benefit (expense) (93) (265) 62 (109)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item 227 (21) (342) (859)
Extraordinary loss, net of income tax benefit - - (476) -
---------- ---------- ---------- ----------
Net income (loss) 227 (21) (818) (859)
Preferred stock dividend requirement of
subsidiary - (63) (109) (126)
---------- ---------- ---------- ----------
Net income (loss) applicable to common
stockholders $ 227 $ (84) $ (927) $ (985)
========== ========== ========== ==========
Net income (loss) per share:
Income (loss) before extraordinary item $ .03 $ (.02) $ (.07) $ (.32)
Extraordinary loss, net of income tax
benefit - - (.07) -
---------- ---------- ---------- ----------
Net income (loss) applicable to common
stockholders $ .03 $ (.02) $ (.14) $ (.32)
========== ========== ========== ==========
Weighted average common stock
and common stock equivalent
shares outstanding 8,457 3,656 6,775 3,042
========== ========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1996 1995
---------- ----------
<S> <C> <C>
Operating activities:
Net loss $ (818) $ (859)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Extraordinary loss, net of income tax benefit 476 -
Depreciation and amortization 8,984 3,663
Provision for environmental and landfill costs 429 161
Net changes in working capital (154) 66
---------- ----------
Net cash provided by operating activities 8,917 3,031
---------- ----------
Investing activities:
Capital expenditures (11,961) (5,049)
Cost of acquisitions (17,879) (22,272)
---------- ----------
Net cash used in investing activities (29,840) (27,321)
---------- ----------
Financing activities:
Net proceeds from issuance of common stock 24,901 -
Proceeds of indebtedness, net of issuance cost 72,574 13,744
Repayments of indebtedness (63,099) (9,350)
Repayment of note payable to stockholder (12,500) -
Net proceeds from issuance of common stock of subsidiary - 19,500
Net proceeds from issuance of preferred stock of subsidiary - 1,908
Preferred stock redemption (1,950) -
Preferred stock dividends (109) (126)
Payments under capital lease obligations (387) (47)
---------- ----------
Net cash provided by financing activities 19,430 25,629
---------- ----------
(Decrease) increase in cash and cash equivalents (1,493) 1,339
Cash and cash equivalents (including restricted cash)
at beginning of period 6,539 739
---------- ----------
Cash and cash equivalents (including restricted cash)
at end of period $ 5,046 $ 2,078
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine month periods ended
September 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. 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Related Party Interest Expense
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Charterhouse Equity Partners II, L.P. $ - $ - $ 621 $ -
========= ========= ========= =========
</TABLE>
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 nine months ended September 30, 1995
assuming the CDI Acquisition had occurred on January 1, 1995, were as follows
(dollars in thousands, except per share data):
6
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995
(Unaudited)
4. CDI Acquisition (Continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue 15,122 11,814 40,299 33,008
Operating income (loss) 1,664 (92) 3,960 697
Net income (loss) applicable to common
shareholders 227 (1,638) (927) (2,934)
Pro forma income (loss) per share of
common stock .03 (.19) (.14) (.43)
Weighted average common stock and
common stock equivalent shares
outstanding 8,457 8,457 6,775 6,775
</TABLE>
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. In August 1996, this credit agreement
was renegotiated to provide for borrowings of up to $110 million. The Credit
Facility consists of a $25 million term loan, $10 million revolving loan, and
$75 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 various loans and lines of credit under the
Credit Facility bear interest at rates per annum equal to, at the Company's
discretion, either: (i) the higher of (a) the federal funds rate plus 1/2 of 1%
and (b) the prime rate, plus an applicable margin ranging from 0% to 1.5%; or
(ii) the LIBOR, plus an applicable margin ranging from 1.25% to 3.00%, and have
maturities ranging from 2001 to 2003. 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 the May refinancing, the Company recognized
an extraordinary loss, net of income tax benefit, of $476,000, representing
unamortized deferred debt issuance costs.
7
<PAGE>
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 26 acquisitions
from January 1993 through September 1996, including 9 hauling companies acquired
in the nine months ended September 30, 1996 (the "1996 Acquisitions"). 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,
"Managements' 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 1934 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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
Collection (1) 46.0% 49.7% 42.1% 55.1%
Transfer 1.9 3.9 2.1 6.9
Landfill (1) 51.7 45.4 55.5 37.1
Other 0.4 1.0 0.3 0.9
------ ------ ------ ------
Total Revenues 100.0% 100.0% 100.0% 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
8
<PAGE>
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 the three months ended September 30, 1996,
94% of the total tonnage collected by the Company was disposed of at
Company-owned landfills. For the nine months ended September 30, 1996, 93% of
the total tonnage collected by the Company was disposed of at Company-owned
landfills. This represents approximately 34% and 31% of the total tonnage
disposed of at Company-owned landfills in the three and nine months ended
September 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
31, 1995 and September 30, 1996, accruals for landfill closure and post-closure
costs (including costs assumed through acquisitions) were approximately $6.2
million and $7.2 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
than 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues..................................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of operations........................... 53.5 54.1 52.8 57.4
Selling, general and administrative expenses. 13.5 17.9 15.1 19.3
Depreciation and amortization expenses....... 22.0 17.9 22.3 18.4
---------- ---------- ---------- ----------
Operating income............................. 11.0 10.1 9.8 4.9
Interest expense, net........................ 9.1 7.3 11.0 8.6
Other income................................. 0.2 - 0.2 -
Income tax provision (benefit)............... 0.6 3.0 (0.2) 0.6
Extraordinary loss, net of income tax benefit - - 1.2 -
---------- ---------- ---------- ----------
Net income (loss).......................... 1.5 % (0.2)% (2.0)% (4.3)%
========== ========== ========== ==========
EBITDA margin (1) 33.0 % 28.0 % 32.1 % 23.3 %
========== ========== ========== ==========
</TABLE>
(1) EBITDA margin represents operating income plus depreciation and amortization
divided by revenues.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
REVENUES. Revenues for the three months ended September 30, 1996 were
$15.1 million compared to $8.9 million for the three months ended
9
<PAGE>
September 30, 1995. The increase in revenue is due primarily to the effects of
the CDI Acquisition and the 1996 Acquisitions.
COST OF OPERATIONS. Cost of operations for the three months ended September
30, 1996 was $8.1 million compared to $4.8 million for the three months ended
September 30, 1995. This increase was attributable primarily to the associated
increase in revenues described above. As a percentage of revenues, cost of
operations was 53.5% in the 1996 period compared to 54.1% 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
hauling operations), with landfill revenues increasing from $4.0 million to $7.8
million and from 45.4% to 51.7% 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
$2.0 million for the three months ended September 30, 1996 compared to $1.6
million for the three months ended September 30, 1995. The aggregate increase in
SG&A expenses resulted from expenses associated with the CDI Acquisition and the
1996 Acquisitions. As a percentage of revenues, SG&A expenses decreased 13.5% in
the 1996 period from 17.9% in the 1995 period. The decrease in SG&A expenses as
a percentage of revenues is due primarily to a significant increase in revenue
producing assets.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
for the three months ended September 30, 1996 was $3.3 million compared to $1.6
million for the three months ended September 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 17.9% for the three months ended September 30, 1996 and
September 30, 1995, respectively. The increase in the September 1996 period
compared to the September 1995 period is due to a higher concentration of the
Company's assets in landfills following the CDI Acquisition.
NET INTEREST EXPENSE. Net interest expense was $1.4 million for the three
months ended September 30, 1996 compared to $658,000 for the three months ended
September 30, 1995. This increase is attributable to additional debt incurred to
complete the CDI Acquisition and the 1996 Acquisitions.
INCOME TAXES. The Company recorded an income tax provision of $93,000 for
the three months ended September 30, 1996 compared to a $265,000 income tax
provision for the three months ended September 30, 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
REVENUES. Revenues for the nine months ended September 30, 1996 were $40.3
million compared to $19.9 million for the nine months ended September 30, 1995.
This increase in revenues is due, primarily, to having the effect of the CDI
Acquisition in the full nine months ended September 30, 1996 versus a limited
impact in the period ended September 30, 1995. Additionally, the Company
completed nine acquisitions during the period ended September 30, 1996, which
added $2.1 million in revenue for this period.
COST OF OPERATIONS. Cost of operations for the nine months ended September
30, 1996 was $21.3 million compared to $11.4 million for the nine months ended
September 30, 1995. This increase was attributable primarily to the increase in
revenues described above. As a percentage of revenues, cost of operations
decreased to 52.8% in the 1996 period from 57.4% 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
hauling operations), with landfill revenues increasing from $7.4 million to
10
<PAGE>
$22.4 million and from 37.1% to 55.5% 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
$6.1 million for the nine months ended September 30, 1996 compared to $3.8
million for the nine months ended September 30, 1995. The aggregate increase in
SG&A expenses resulted from expenses associated with the CDI Acquisition and the
effect of the 1996 Acquisitions. As a percentage of revenues, SG&A expenses
decreased to 15.1% in the 1996 period from 19.3% in the 1995 period. The
decrease in SG&A expenses as a percentage of revenues is due primarily to a
significant increase in revenue producing assets while corporate level personnel
and other related expenses increased moderately. SG&A expenses in future periods
should be positively affected by savings of approximately $300,000 per annum due
to the termination of the Company's management agreement with an affiliate of
its principal stockholder upon the closing of the Company's initial public
offering.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
for the nine months ended September 30, 1996 was $9.0 million compared to $3.7
million for the nine months ended September 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 22.3% and 18.4% for the nine months ended September 30, 1996 and
September 30, 1995, respectively. The relatively high percentages are primarily
due to the configuration of the Wheatland Landfill during the nine months ended
September 30, 1995 and the higher concentration of the Company's assets in
landfills following the CDI Acquisition during the nine months ended September
30, 1996.
NET INTEREST EXPENSE. Net interest expense was $4.4 million for the nine
months ended September 30, 1996 compared to $1.7 million for the nine months
ended September 30, 1995. This increase is attributable to additional debt
incurred to complete the CDI Acquisition and the 1996 Acquisitions.
INCOME TAXES. The Company recorded an income tax benefit of $62,000 for the
nine months ended September 30, 1996 and an income tax provision of $109,000 for
the nine months ended September 30, 1995 primarily due to the effects of
differences in the treatment of goodwill for book and tax purposes.
EXTRAORDINARY LOSS. In connection with the refinancing of its Credit
Facility in May 1996, the Company recognized an extraordinary loss, net of
federal tax benefit, of $476,000, representing the write-off of 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 and bank financing. There can be no assurances that such financing will
continue to be available.
Operating activities provided net cash of $8.9 million in the nine months
ended September 30, 1996 compared to $3.0 million in the nine months ended
September 30, 1995 reflecting the increased operating contribution of the
Company.
Investing activities used net cash of $29.8 million and $27.3 million in the
nine months ended September 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
nine months ended September 30, 1996, the Company spent $12.0 million in
11
<PAGE>
capital expenditures, of which $5.8 million was for cell development. In
connection with the acquisition of nine hauling companies during the nine months
ended September 30, 1996 the Company required $19.9 million in debt and equity
financing. 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 $19.4 million and $25.6 million in
the nine months ended September 30, 1996 and 1995, 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 Trusts 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 August 1996, the Company increased 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
(reduced to $37.5 million commencing August 1, 1997 to the extent the
facility is then unused) for acquisitions. At October 31, 1996 the Company had
borrowed $59.8 million under the $110 million Credit Facility.
Effective July 25, 1996, the Company completed a public offering of
2,750,000 shares 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 $24.9 million.
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.
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 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
a. The Company filed a Financial Data Schedule (Exhibit-27) for the period
ended September 30, 1996 electronically, only.
b. The Company filed a Form 8-K dated August 26, 1996 (Reporting Items
5 and 7).
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 hereunto duly authorized.
AMERICAN DISPOSAL SERVICES, INC.
Date: November 14, 1996 /s/ Scott H. Flamm
-------------------
Scott H. Flamm
Senior Vice President and Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<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> 5,046
<SECURITIES> 0
<RECEIVABLES> 8,575
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,847
<PP&E> 89,189
<DEPRECIATION> 0
<TOTAL-ASSETS> 137,291
<CURRENT-LIABILITIES> 12,843
<BONDS> 58,207
0
0
<COMMON> 57,787
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 137,291
<SALES> 0
<TOTAL-REVENUES> 40,299
<CGS> 0
<TOTAL-COSTS> 36,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,431
<INCOME-PRETAX> (404)
<INCOME-TAX> (62)
<INCOME-CONTINUING> (342)
<DISCONTINUED> 0
<EXTRAORDINARY> (476)
<CHANGES> 0
<NET-INCOME> (818)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> 0
</TABLE>
