<PAGE>
This Quarterly Report is filed by Norcal Waste Systems, Inc.
pursuant to certain contractual requirements and not
pursuant to the Securities Exchange Act of 1934
and the rules and regulations thereunder.
QUARTERLY REPORT
For the quarterly period ended March 31, 1997
NORCAL WASTE SYSTEMS, INC.
(Exact name of company as specified in its charter)
CALIFORNIA 94-2922974
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Thomas Mellon Circle, Suite 304
San Francisco, California 94134
- --------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (415) 330-1000
----------------
Norcal Waste Systems, Inc. is currently 100% owned by an employee stock
ownership plan.
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date. On May 14, 1997, there
were 24,134,973 shares of $.01 par value Common Stock outstanding.
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<CAPTION>
March 31, September 30,
1997 1996
---------- -------------
Assets
<S> <C> <C>
Current assets:
Cash $17,285 $14,378
Marketable securities 5,552 6,889
Trust accounts, current portion 3,808 4,066
Accounts receivable, less allowance for doubtful
accounts of $1,746 at March 31, 1997 and $1,611
at September 30, 1996 37,410 37,554
Other receivables 2,536 1,566
Parts and supplies 2,551 2,434
Prepaid expenses 3,868 3,836
-------- --------
Total current assets 73,010 70,723
-------- --------
Property and equipment:
Land 44,565 42,691
Landfills 24,481 24,481
Buildings and improvements 45,646 43,189
Vehicles and equipment 110,261 107,822
Construction in progress 3,518 4,412
-------- --------
Total property and equipment 228,471 222,595
Less accumulated depreciation and amortization 90,996 85,448
-------- --------
Property and equipment, net 137,475 137,147
-------- --------
Franchises, permits and other intangibles, net 78,167 76,166
Trust accounts 27,224 24,209
Prepaid pension costs 2,835 3,090
Deferred financing costs, net 8,932 9,636
Other assets 472 264
-------- --------
Total other assets 117,630 113,365
-------- --------
$328,115 $321,235
======== ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<CAPTION>
March 31, September 30,
1997 1996
---------- -------------
Liabilities and Stockholder's Equity
<S> <C> <C>
Current liabilities:
Current portion:
Long-term debt $296 $354
Capital lease obligations 986 935
Accounts payable 9,057 12,133
Accrued expenses 45,041 44,632
Deferred revenues 3,102 2,722
Other accrued liabilities 5,036 5,091
-------- --------
Total current liabilities 63,518 65,867
-------- --------
Long-term debt 174,062 172,386
Obligations under capital leases 2,559 3,065
Deferred income taxes 11,990 12,503
Landfill closure liability 19,733 18,668
Postretirement medical benefits 33,146 33,318
Other liabilities 10,905 9,311
-------- --------
Total liabilities 315,913 315,118
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value; 100,000,000 shares
authorized;
24,134,973 shares issued and outstanding 241 241
Additional paid-in-capital 166,378 166,378
Accumulated deficit (112,105) (112,915)
Unrealized gains and losses on securities (212) 581
-------- --------
54,302 54,285
Less net scheduled contribution to the ESOP (42,100) (48,168)
-------- --------
Total stockholder's equity 12,202 6,117
-------- --------
$328,115 $321,235
======== ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues $75,947 $69,801 $151,068 $137,403
Cost of operations:
Operating expenses 53,306 50,018 108,106 96,479
Depreciation and amortization 4,981 4,692 9,612 9,430
ESOP compensation expense 3,510 1,793 6,950 3,543
General and administrative 8,367 7,949 16,151 14,924
------- ------- -------- --------
Total cost of operations 70,164 64,452 140,819 124,376
Operating income 5,783 5,349 10,249 13,027
Interest expense (6,446) (6,266) (12,700) (11,479)
Gain(loss) on dispositions, net 97 (738) 107 (826)
Settlement of litigation - - - (3,648)
Other income 1,422 410 3,154 273
------- ------- -------- --------
Income (loss) from operations
before income taxes and
extraordinary item 856 (1,245) 810 (2,653)
Income tax expense - - - -
------- ------- -------- --------
Income (loss) before
extraordinary item 856 (1,245) 810 (2,653)
Extraordinary gain on early
extinguishment of long-term
debt net of $0 income taxes - - - 31,379
------- ------- -------- --------
Net income (loss) $856 $(1,245) $810 $28,726
======= ======= ======== ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the six months ended March 31, 1997
(in thousands)
(unaudited)
<CAPTION>
Unrealized Net
Additional gains and scheduled
Common Stock paid-in Accumulated losses on contribution
Shares Amount capital deficit securities to the ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1996 24,135 $241 $166,378 ($112,915) $581 ($48,168) $6,117
Contributions to reduce
ESOP debt, net - - - - - 6,068 6,068
Net income - - - 810 - - 810
Net activity on available
for sale securities - - - - (793) - (793)
------- -------- --------- ---------- ---------- --------- ---------
Balances, March 31, 1997 24,135 $241 $166,378 ($112,105) ($212) ($42,100) $12,202
======= ======== ========= ========== ========== ========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Six Months Ended
March 31
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $810 $28,726
Extraordinary gain on early extinguishment of
long-term debt - (31,379)
--------- --------
Income (loss) before extraordinary gain 810 (2,653)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,612 9,430
ESOP compensation expense 6,950 3,322
Senior notes interest and amortized financing costs 787 8,510
Other (2,144) 1,588
Changes in assets and liabilities, net of
effects of acquisitions and dispositions (3,548) (11,883)
--------- --------
Net cash provided by operating activities 12,467 8,314
--------- --------
Cash flows from investing activities:
Acquisitions of property and equipment (7,879) (10,484)
Payment for business acquired (2,677) -
Proceeds from dispositions 278 724
Withdrawals from restricted cash and trust accounts - 9,554
Proceeds from the sales of marketable securities 1,350 -
Other 52 (327)
--------- --------
Net cash used in investing activities (8,876) (533)
--------- --------
<PAGE>
Cash flows from financing activities:
Proceeds from senior debt - 170,172
Principal payments on long-term debt and capitalized
leases (684) (97,130)
Principal payments on subordinated debt - (73,061)
Proceeds from long-term debt and capitalized leases - 676
Deferred financing costs - (9,524)
--------- --------
Net cash used in financing activities (684) (8,867)
--------- --------
Net increase (decrease) in cash 2,907 (1,086)
Cash, beginning balance 14,378 8,416
--------- --------
Cash, ending balance $17,285 $7,330
========= ========
Supplemental schedule of net cash paid for:
Interest $12,049 $2,330
========= ========
Income taxes - $3,379
========= ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
Notes to Consolidated Financial Statements
(1) General
The interim consolidated financial statements presented herein include Norcal
Waste Systems, Inc. and its subsidiaries (the "Company"). These interim
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and the notes thereto, which
include information as to significant accounting policies, for the year
ended September 30, 1996. Such interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments necessary
(consisting of items of a normal recurring nature) for a fair presentation of
the Company's interim financial position, results of operations, and cash
flows. Results of operations for interim periods are not necessarily
indicative of those of a full year.
(2) Nature of Business
Through its subsidiaries, the Company provides integrated waste services to
residential, commercial, municipal and industrial customers throughout
California. The Company's services include refuse collection, recycling and
other waste diversion, transfer station and hauling operations, and operation
of Company-owned and third party landfill management services (including
engineering and construction management services). The Company continues to
be, with limited exceptions, the sole provider of commercial and residential
refuse collection for the City and County of San Francisco.
(3) Business Acquisition
On November 18, 1996, the Company completed the acquisition of substantially
all of the assets of a solid waste business in Butte County. Results of
operations of this entity have been included in the consolidated financial
statements from the acquisition date. The Company paid $2.6 million in cash
and issued a note with a face value of $2.0 million repayable over 20 years
at 6.5% interest. The note was discounted to $1.7 million to yield an imputed
rate of 8.75%. The purchase price was allocated to the assets acquired based
on estimates of their relative fair value. As a result, the financial
information included in the Company's consolidated financial statements is
subject to adjustment prospectively as subsequent revisions to the fair value,
if any, are determined.
<PAGE>
(4) Long-term Debt and Subordinated Notes Refinancing
<TABLE>
Long-term debt at March 31, 1997 and September 30, 1996 is summarized
as follows:
(in thousands)
<CAPTION>
March 31 September 30
----------- ------------
<S> <C> <C>
Senior Notes due November 15, 2005, interest
at 13.0% adjusting to 13.5% by November 16, 1997
if certain conditions are not met $170,531 $170,392
Note payable for business acquired due in monthly
installments through 2016, interest imputed at 8.75% 1,676 -
Notes payable to former shareholders, due in
monthly installments through 2017, interest
at 6% to 8.5% 821 850
Other Notes 1,330 1,498
---------- -----------
Total debt 174,358 172,740
Less current portion 296 354
---------- -----------
Long-term debt $174,062 $172,386
========== ===========
</TABLE>
On November 21, 1995, the Company completed a private debt offering of $175.0
million in Senior Notes (the "Senior Notes"). The Senior Notes mature in
November 2005 with interest payable semi-annually. The Senior Notes are
redeemable at the option of the Company, in whole or in part, at any time
during or after November 2000. Prior to this date, the Senior Notes may be
partially redeemed in the event of a public offering, or would be required
to be redeemed in the event of a change in control of the Company. The Senior
Notes are unsecured and rank pari passu in right of payment to all existing
and future senior indebtedness of the Company. The Notes are guaranteed, on
a senior unsecured basis, by the Company's wholly-owned subsidiaries. The
Indenture governing the Senior Notes contains provisions which, among other
things, (i) limit the Company's and its subsidiaries' ability to declare or
pay dividends or other distributions (other than dividends or distributions
payable to Norcal or any wholly owned subsidiary of Norcal), (ii) limit the
purchase, redemption or retirement of capital stock and (iii) limit the
incurrence of additional debt. In September 1996, the Company completed the
exchange of all of its outstanding privately-placed Senior Notes for Senior
Notes with identical terms and provisions, which exchange was registered
under the Securities Act of 1933. The interest rate on the Senior Notes is
currently 13.0% and will increase .25% per annum on each of May 16, 1997 and
November 16, 1997 to a maximum of 13.5%. The interest rate reverts to 12.5%
if Norcal (in one or more transactions) offers to purchase (whether or not
any actual purchases are made) or redeems an aggregate of $25.0 million in
principal amount of Senior Notes out of the proceeds of equity sales.
<PAGE>
The Company received net proceeds of $170.2 million (after original issue
discount of $4.8 million) in connection with the sale of the Senior Notes.
The Company used the proceeds from the Senior Notes, proceeds from the
liquidation of an indemnification trust and cash balances to repay $94.0
million of long-term debt, $2.2 million of capital leases, redeem and/or
extinguish subordinated notes for $73.1 million and make an additional $3.6
million payment in connection with the settlement of litigation. The
recorded value of the subordinated notes was $102.9 million, accordingly
the Company recorded an extraordinary gain of $31.4 million in November 1995.
Deferred financing costs at March 31, 1997 include commissions and other
costs related to the offering and new Credit Agreement (see below) and are
amortized over the life of the Senior Notes and new Credit Agreement using
the straight-line method.
In conjunction with the private debt offering, the Company entered into a new
Credit Agreement (the "Credit Agreement") with a group of lenders and the
First National Bank of Boston as Agent. The agreement, as amended, provides
for a revolving credit facility in an amount of up to $100.0 million
(depending upon certain financial ratios), up to $25.0 million of which
may be used for letters of credit. At March 31, 1997, the Company had utilized
$6.8 million of its credit facility for letters of credit and had availability
under the agreement (based on limitations imposed by certain financial ratios)
of $29.2 million along with $18.2 million which may be utilized for additional
letters of credit. On May 12, 1997, the Company and its group of lenders
amended the Credit Agreement pertaining to the treatment of ESOP prepayments
in the calculation of the Net Worth covenant. Giving effect to the amendment,
availability at March 31, 1997, under the agreement would have been $55.2
million.
(5) Guarantee of Securities
Norcal is a holding company and has no independent operations other than
those relating to its subsidiaries. The Senior Notes are guaranteed by all
wholly owned subsidiaries of Norcal. The guarantees of the guarantors are
full, unconditional and joint and several. Separate financial statements
of each guarantor have not been presented since management has determined
such separate financial statements are not material to investors.
(6) Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the fiscal 1997 presentation.
<PAGE>
Item II. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion pertains to the Company's operations for the three
and six months ended March 31, 1997 and 1996 and should be read in
conjunction with the Company's September 30, 1996 audited consolidated
financial statements contained in the Company's Form 10-K for the fiscal
year ended September 30, 1996, and the unaudited consolidated financial
statements and related notes thereto included elsewhere herein. On November
21, 1995, the Company issued 12.5% Series A Senior Notes in an aggregate
principal amount of $175.0 million, for which it received proceeds, after
original issue discount, of approximately $170.2 million (the "Offering").
The Company used the proceeds from the Offering (less certain associated
expenses), together with certain cash balances, to retire approximately
$199.1 million of its then outstanding indebtedness and certain of the ESOP's
indebtedness to third parties. Concurrent with the Offering, the Company
entered into a new bank credit agreement providing for a revolving credit
facility with a maximum availability of $100.0 million, of which up to $25.0
million may be used for letters of credit.
Forward Looking Statements. Those statements followed by an asterisk (*) are
forward looking statements. Any such statements should be considered in light
of various risks and uncertainties that could cause results to differ
materially from expectations, estimates or forecasts expressed. These risks
and uncertainties include, but are not limited to: changes in general
economic conditions, inability to obtain timely rate increases sufficient to
cover costs, fluctuations in commodities prices, changes in the amount of
ESOP compensation expense recorded by the Company, changes in environmental
regulations or related laws and competition. The Company does not undertake
to update any forward-looking statement that may be made from time to time by
it or on its behalf.
Introduction
Norcal Waste Systems, Inc. ("Norcal") and its subsidiaries (collectively
referred to herein as the "Company")provide solid waste management services
throughout California, including collection, transfer, disposal, landfill
management, recycling and other waste services. The Company owns 5 landfills
and operates an additional 22 for local government entities. The Company
currently serves an estimated 440,000 customers.
The Company's revenues are comprised primarily of fees charged to residential,
commercial, municipal and industrial customers for the collection and disposal
of solid waste, disposal fees (known as "tipping fees") charged to third
party waste collectors who dispose of solid waste at the Company's transfer
stations and landfills, fees charged to third party landfill owners for
landfill operations and solid waste systems management activities and revenues
generated from the sale of recyclable materials.
Operating expenses include labor, disposal fees paid to third parties, fuel,
equipment maintenance and rental, engineering, consulting and other
professional services and other direct costs of operating collection,
recycling, transfer station, hauling and landfill operations. Also included
are accruals for future landfill closure, post-closure and corrective action
costs, consistent with regulatory requirements. General and administrative
expenses include management salaries, administrative and clerical overhead
costs, professional services costs and other fees and expenses. ESOP
compensation expense reflects in part the cost of the shares to be released
by the ESOP as determined by the contributions to be made to the ESOP by the
Company. ESOP compensation expense also includes amounts contributed by the
Company to the ESOP to fund distributions to retired, terminated or
withdrawing participants.
<PAGE>
The following tables present, for the periods indicated, the percentage
relationship to total consolidated revenues, along with the period to
period change in dollars and percentages:
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
Summary Statements of Operations
<CAPTION>
Three Months Ended Six Months Months
Ended March 31, 1997 Ended March 31, 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenues:
Waste collection and
disposal operations 78.0% 78.2% 77.0% 80.9%
Third party landfill
management operations 16.9% 15.0% 18.1% 12.5%
Recycled commodities sales 5.1% 6.8% 4.9% 6.6%
-------- -------- -------- --------
Total revenues 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Cost of operations:
Operating expenses 70.2% 71.7% 71.6% 70.2%
Depreciation and amortization 6.6% 6.7% 6.4% 6.9%
ESOP compensation expense 4.6% 2.6% 4.6% 2.6%
General and administrative 11.0% 11.3% 10.6% 10.8%
-------- -------- -------- --------
Total cost of operations 92.4% 92.3% 93.2% 90.5%
-------- -------- -------- --------
Operating income 7.6% 7.7% 6.8% 9.5%
Interest expense -8.5% -9.0% -8.4% -8.3%
Gain (loss) on dispositions, net 0.1% -1.1% 0.1% -0.6%
Settlement of litigation - - - -2.7%
Other income 1.9% 0.6% 2.0% 0.2%
-------- -------- -------- --------
Income (loss) from operations
before income taxes and
extraordinary item 1.1% -1.8% 0.5% -1.9%
Income tax expense - - - -
-------- -------- -------- --------
Income (loss) before
extraordinary item 1.1% -1.8% 0.5% -1.9%
-------- -------- -------- --------
Extraordinary gain on early
extinguishment of long-term
debt net of $0 income taxes - - - 22.8%
-------- -------- -------- --------
Net income (loss) 1.1% -1.8% 0.5% 20.9%
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
Summary Statements of Operations
(in thousands)
<CAPTION>
Period to period change Period to period change
for the Three Months for the Six Months
Ended March 31, 1997 Ended March 31, 1997
$ % $ %
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues:
Waste collection and
disposal operations 4,635 8.5% 5,170 4.7%
Third party landfill
management operations 2,350 22.4% 10,080 58.6%
Recycled commodities sales (839) -17.8% (1,585) -17.6%
-------- -------- -------- --------
Total revenues 6,146 8.8% 13,665 9.9%
-------- -------- -------- --------
Cost of operations:
Operating expenses 3,288 6.6% 11,627 12.1%
Depreciation and amortization 289 6.2% 182 1.9%
ESOP compensation expense 1,717 95.8% 3,407 96.2%
General and administrative 418 5.3% 1,227 8.2%
-------- -------- -------- --------
Total cost of operations 5,712 8.9% 16,443 13.2%
-------- -------- -------- --------
Operating income 434 8.1% (2,778) -21.3%
Interest expense (180) -2.9% (1,221) -10.6%
Gain (loss) on dispositions, net 835 113.1% 933 113.0%
Settlement of litigation - - 3,648 100.0%
Other income 1,012 246.8% 2,881 1055.3%
-------- -------- -------- --------
Income (loss) from operations
before income taxes and
extraordinary item 2,101 168.8% 3,463 130.5%
Income tax expense - - - -
-------- -------- -------- --------
Income (loss) before
extraordinary item 2,101 168.8% 3,463 130.5%
-------- -------- -------- --------
Extraordinary gain on early
extinguishment of long-term
debt net of $0 income taxes - - (31,379) -100.0%
-------- -------- -------- --------
Net income (loss) 2,101 168.8% (27,916) -97.2%
======== ======== ======== ========
</TABLE>
<PAGE>
Three months ended March 31, 1997 and 1996
Revenues. Revenues for the three months ended March 31, 1997 increased $6.1
million (8.8%) to $75.9 million from $69.8 million for the three months ended
March 31, 1996. The increase in revenues was primarily due to higher waste
collection and disposal revenues and third party landfill management services
revenues partially offset by lower recycled commodities sales revenues. Waste
collection and disposal revenues were higher due to unusual flood clean-up and
disposal activities in the Central Valley of California, rate increases in
several service areas (primarily an 11.0% increase in San Francisco, effective
March 1, 1997) and from operations acquired in November 1996. Third party
landfill management services revenues were higher due to a contractual rate
increase for landfill management activities in San Bernardino County.
Recycling revenues were down due to lower commodity prices and the elimination
of a recycling program in one service area in October 1996.
Operating expenses. Operating expenses for the three months ended March 31,
1997 increased $3.3 million (6.6%) to $53.3 million from $50.0 million for the
three months ended March 31, 1996. As a percentage of revenues, operating
expenses decreased to 70.2% for the three months ended March 31, 1997 from
71.7% for the three months ended March 31, 1996. The increased costs were
primarily due to a higher payroll and related costs as a result of actual and
anticipated union wage increases as well as additional labor related to
unusual flood clean-up and disposal activities. Disposal costs were higher
due to higher volumes and tipping fee increases. Fuel costs were higher due
to increased fuel prices. These increased operating costs were partially offset
by lower recycling purchases due to lower pricing for recyclable commodities
and the elimination of a recycling program in one service area in October 1996.
ESOP compensation expense. ESOP compensation expense is primarily based on the
cost of shares allocated as determined by the Company's contribution to the
ESOP, along with contributions to fund distributions to retired, terminated
and withdrawing participants. ESOP compensation expense increased $1.7 million
for the three month period ended March 31, 1997, as compared to the same period
in 1996. ESOP compensation expense for the period ended March 31, 1997 included
approximately $1.8 million resulting from an anticipated tax deductible
contribution to be made to the ESOP that would allow the ESOP to prepay a
portion of its loans to the Company.* No such accrual was made for the three
months ended March 31, 1996 as the Company made a prepayment contribution to
the ESOP and recorded a corresponding expense for the entire fiscal year in
September 1996.
General and administrative. General and administrative expenses for the three
months ended March 31, 1997 increased $0.4 million (5.3%) to $8.4 million. As
a percentage of revenues, general and administrative expenses decreased to
11.0% for the three months ended March 31, 1997 from 11.3% for the three
months ended March 31, 1996. The increased costs were due primarily to higher
professional services due to increased legal and other corporate matters.
Operating Income. Operating income increased $0.4 million (8.1%) to $5.8
million for the three months ended March 31, 1997. The primary causes of the
increase in operating income for the three months ended March 31, 1997 were
the higher revenues due to the flood related clean-up and disposal and rate
increases partially offset by the substantially higher ESOP compensation
expense.
Interest expense. Interest expense increased to $6.4 million for the three
months ended March 31, 1997 from $6.3 million for the three months ended March
31, 1996. The increase is due to the higher interest rate on the Senior Notes
in the current period.
(Gain) loss on dispositions. The Company incurred a loss of $0.7 million in
March 1996 resulting from the sale/exchange of real estate.
Other income. Other income increased $1.0 million to $1.4 million for the
three months ended March 31, 1997 from $0.4 million for the three months
ended March 31, 1996. Other income for the current period included $1.0
million from a third party in connection with a dispute over a landfill
engineering matter at one of its landfills.
Income tax expense. There was no income tax expense for the three months
ended March 31, 1997 or 1996. The Company has experienced an effective tax
rate of zero for the three months ended March 31, 1997 and 1996 as a result
of realizing certain of its deferred tax assets for which a valuation
allowance had previously been established.
Net income (loss). Net income was $0.9 million for the three months ended
March 31, 1997 and is primarily attributable to other income described above.
Six months ended March 31, 1997 and 1996
Revenues. Revenues for the six months ended March 31, 1997 increased $13.7
million (9.9%) to $151.1 million from $137.4 million for the six months ended
March 31, 1996. The increase in revenues was primarily due to higher
third party landfill management services revenues and waste collection and
disposal revenues partially offset by lower recycled commodities sales
revenues. Third party landfill management services revenues were higher due to
expanded landfill operations and solid waste management activities in San
Bernardino County along with a contractual rate increase effective July 1,
1996. Waste collection and disposal revenues were higher due to unusual
flood clean-up and disposal activities in the Central Valley of California,
rate increases in several service areas (primarily an 11.0% increase in San
Francisco, effective March 1, 1997) and from operations acquired in November
1996. Recycling revenues were down due to lower commodity prices and the
elimination of a recycling program in one service area in October 1996.
Operating expenses. Operating expenses for the six months ended March 31, 1997
increased $11.6 million (12.1%) to $108.1 million from $96.5 million for the
six months ended March 31, 1996. As a percentage of revenues, operating
expenses increased to 71.6% for the six months ended March 31, 1997 from
70.2% for the six months ended March 31, 1996. These increased costs were
primarily due to a higher level of project and subcontractor related costs
associated with the contract for expanded third party landfill management
services in San Bernardino County, including increased costs for new personnel
and management infrastructure. Payroll and related costs were higher as a
result of actual and anticipated union wage increases as well as additional
labor costs related to unusual flood clean-up and disposal activities.
Disposal costs were higher due to higher volumes and tipping fee increases.
Fuel costs were higher due to increased fuel prices. These increased operating
costs were partially offset by lower recycling purchases due to lower pricing
for recyclable commodities and the elimination of a recycling program in one
service area in October 1996.
ESOP compensation expense. ESOP compensation expense is primarily based on the
cost of shares allocated as determined by of the Company's contribution to the
ESOP, along with contributions to fund distributions to retired, terminated
and withdrawing participants. ESOP compensation expense increased $3.4 million
for the six month period ended March 31, 1997, as compared to the same period
in 1996. ESOP compensation expense for the period ended March 31, 1997 was
higher due to an anticipated tax deductible contribution to be made to the
ESOP that would allow the ESOP to prepay a portion of its loans to the
Company.* No such accrual was made for the six months ended March 31, 1996 as
the Company made a prepayment contribution to the ESOP and recorded a
corresponding expense for the entire fiscal year in September 1996.
General and administrative. General and administrative expenses for the six
months ended March 31, 1997 increased $1.2 million (8.2%) to $16.2 million.
As a percentage of revenues, general and administrative expenses decreased to
10.6% for the six months ended March 31, 1997 from 10.8% for the six months
ended March 31, 1996. The increased costs were due primarily to higher
professional services due to increased legal and other corporate matters.
Operating Income. Operating income for the six months ended March 31, 1997
decreased $2.8 million (21.3%) to $10.2 million from $13.0 million for the
six months ended March 31, 1996. The primary cause of the decrease in
operating income was the substantially higher ESOP compensation expense.
Interest expense. Interest expense increased to $12.7 million for the six
months ended March 31, 1997 from $11.5 million for the six months ended March
31, 1996. The increase is due to the interest associated with the Senior Notes
issued in November 1995, along with a higher effective interest rate on
the Senior Notes in the current period.
(Gain) loss on dispositions. The Company incurred a loss of $0.7 million in
March 1996 resulting from the sale/exchange of real estate.
Settlement of litigation. Settlement of litigation for the six months ended
March 31, 1996 reflects the payment of $3.6 million made to the holders of
ESOP notes.
Other income. Other income increased $2.9 million to $3.2 million for the six
months ended March 31, 1997 from $0.3 million for the six months ended March
31, 1996. The increase in other income was due to gains from the sale of
marketable securities of $1.3 million and $1.0 million from a third party in
connection with a dispute over a landfill engineering matter at one of its
landfills.
Income tax expense. There was no income tax expense for the six months ended
March 31, 1997 or 1996. The Company has experienced an effective tax rate of
zero for the six months ended March 31, 1997 and 1996 as a result of realizing
certain of its deferred tax assets for which a valuation allowance had
previously been established.
Extraordinary gain. The Company recorded an extraordinary gain of $31.4
million for the six months ended March 31, 1996 as a result of the early
extinguishment of subordinated notes.
Net income (loss). Net income was $0.8 million for the six months ended
March 31, 1997 and is primarily attributable to other income described
above. The net income for the six months ended March 31, 1996 is primarily
attributable to the extraordinary gain.
Liquidity and Capital Resources
The Company's cash requirements consist principally of working capital
requirements, interest on outstanding indebtedness, capital expenditures
and deposits to trust funds to satisfy certain environmental statutes and
regulations. The Company had working capital of $9.5 million at March 31,
1997 compared to $4.9 million at September 30, 1996.
In addition to the improvements in working capital, as part of the refinancing
transaction the Company entered into a Credit Agreement that provides for up
to $100.0 million of additional borrowings which, subject to certain
limitations and covenant restrictions (including financial ratios), can be
drawn by the Company to fund ongoing operations, invest in capital equipment
and/or facilities and to finance acquisitions. At March 31, 1997 the Company
had utilized $6.8 million of its credit facility for letters of credit and had
availability under the agreement (based on limitations imposed by certain
financial ratios) of $29.2 million along with $18.2 million which may be
utilized for additional letters of credit. On May 12, 1997, the Company and
its group of lenders amended the Credit Agreement pertaining to the treatment
of ESOP prepayments in the calculation of the Net Worth covenant. Giving
effect to the amendment, availability at March 31, 1997, under the agreement
would have been $55.2 million. Changes in availability under the Credit
Agreement are a function of, among other things, changes in operating results,
and availability is expected to be adversely affected by the disallowance of
ESOP expense reimbursement in San Francisco.
In September 1996, the Company applied for a 14.9% increase to its collection
and disposal rates in the City of San Francisco with the Refuse Collection and
Disposal Rate Board (the "Rate Board"). In February 1997, the Rate Board
issued two rate orders (the "Orders") approving an 11.0% rate increase to
the Company's refuse collection rates effective March 1, 1997. The Orders
disallowed 50% of the ESOP expense requested by the Company for rate
reimbursement and after March 1, 1998, ESOP expense will be fully disallowed.
The Rate Board also directed the Department of Public Works ("DPW") to examine
solid waste rate setting methods in other jurisdictions and to propose
changes to the Board of Supervisors in the current system for regulation of
refuse collection and disposal in San Francisco. A significant modification to
the rate setting methodology could have a material adverse financial impact on
the Company's operating results and financial condition. The Company intends
to propose a new rate setting methodology for its San Francisco operations in
connection with recycling programs it will propose to address state mandated
recycling requirements.* See Certain Other Cash Requirements.
The Indenture governing the Senior Notes contains provisions which, among
other things, (i) limit the Company's and its subsidiaries' ability to
declare or pay dividends or other distributions (other than dividends or
distributions payable to Norcal or any wholly owned subsidiary of Norcal or,
in certain cases, the ESOP), (ii) limit the purchase, redemption or retirement
of capital stock and (iii) limit the incurrence of certain additional debt. At
March 31, 1997, the Company had the ability to incur approximately $8.5
million in additional debt under the Indenture.
Cash Flow from Operating Activities. Cash provided by operating activities was
$12.5 million for the six months ended March 31, 1997 compared to $8.3 million
for the same period last year. The increase was primarily due to income from
operations of $0.8 million for 1997 compared to a loss of $2.7 million in
1996. As a result of the Orders, annual operating income and cash flow will
be adversely affected by as much as $4.0 million in future years (the amount
of ESOP expense recovery denied reimbursement.)* While in any particular
period the Company's cash flow from operations may be adversely affected by
the semi-annual interest payment on the Senior Notes, the Company expects
future cash flow generated from operating activities and available financing
will be adequate to support ongoing activities of the Company for the next 18
months.*
Cash Flow from Investing Activities. Cash used in investing activities was
$8.9 million for the six months ended March 31, 1997 compared to cash used
of $0.5 million for the same period last year. During the current period, the
Company utilized $2.6 million to purchase substantially all of the assets
of a solid waste collection company in Butte County in November 1996, used
$7.9 million for capital expenditures, and generated $1.3 million from the
sale of marketable securities. For the comparable period last year, the
Company generated $6.8 million from the liquidation of trust funds that were
released upon termination of an indemnification trust by current and former
directors of the Company. In addition, $2.7 million was received from
restricted cash accounts which were released upon completion of the
Refinancing Transaction and applied to the then outstanding debt balance.
The Company also generated $0.7 million from the sale of miscellaneous assets
and used $10.5 million for capital expenditures.
Cash Flow from Financing Activities. During the six months ended March 31,
1997, the Company used $0.7 million compared to a use of cash of $8.9 million
for the comparable period last year. Current year activity included scheduled
note and capital lease payments while in 1995 the Company completed the
Refinancing Transaction which resulted in $8.4 million of cash used in
financing activities.
Certain Other Cash Requirements. The Company is in discussions with the City
of San Francisco regarding plans for the construction of materials recovery
and other facilities for use in connection with the Company's San Francisco
operations and to facilitate compliance with mandated recycling requirements.
If the Company and the City reach agreement on the scope and terms of the
project, the Company believes construction of the facilities could begin in
12 to 18 months from that time. Over the term of the Senior Notes, the Company
estimates it will need to invest substantial capital to acquire waste
processing and household hazardous waste facilities, maintenance and
administrative complexes and equipment, including those necessary to meet
mandated recycling requirements. The Company intends to seek continued rate
recovery, potentially through a new rate making methodology in San Francisco,
for amounts expended on these projects and will seek to finance such costs
through additional secured borrowings, including $30.0 million of borrowing
for certain "Designated Capital Expenditures" (as defined in the Indenture)
and/or alternative financing mechanisms as allowed under the Indenture.*
The Company expects it will expend approximately $1.7 million to upgrade and
enhance the Company's information systems over the next 12 to 18 months.*
Environmental Regulations
The Company's business activities are subject to extensive and evolving
regulation under complex federal, state and local laws for the protection
of public health and the environment. These laws, and the numerous regulatory
bodies responsible for interpreting and enforcing them, impose significant
restrictions and requirements on the Company and also impact the
municipalities the Company serves and operators of non-owned landfills used by
the Company. The Company believes that this regulation will continue in the
future.*
Various federal and state regulations require owners or operators of solid
waste landfill sites to provide financial assurances for the closure and
post-closure monitoring and maintenance of these sites. The Company uses
independent engineers to assist it in assessing the estimates of future
costs of complying with such regulations. A significant portion of the
landfill closure and post-closure liability relates to the leachate and
groundwater management and remediation. There are many unknowns and
uncertainties which may affect the accuracy of the Company's estimates,
including potential changes to and interpretations of regulatory requirements
and incomplete data with respect to projected volumes, quality and cost of
treatment among others. Accordingly, estimates for closure and post-closure
management and remediation of leachate and contaminated groundwater could be
subject to periodic and substantial revision as the Company's knowledge
increases concerning these factors.
Inflation and Prevailing Economic Conditions
Historically, the Company has experienced cost increases due to the effects
of inflation on its operating expenses, particularly the cost of compensation
and benefits, and the replacement of or additions to property and equipment.
Fuel costs which fluctuate with inflation and other market conditions also
have affected operating results. Most of the Company's operations are subject
to rate setting processes which allow for the recovery of certain costs
including labor and fuel. However, inflationary increases in operating costs
may cause the Company to incur lower operating margins, at least until such
time as new rates can be implemented. Rate adjustments, if approved, can take
several months.*
On April 24, 1997, employees represented by the Sanitary Truck Drivers and
Helpers Union Local 350 International Brotherhood of Teamsters ("Local 350")
initiated a strike against certain of the Company's San Francisco operations.
On April 26, 1997, employees of Local 350 voted to accept a five-year contract
which provides for an aggregate 13.3% wage increase and certain amendments to
provide early retirement and increase other benefits. The first-year cost of
the contract is included in the rate recently approved in San Francisco and
the Company intends to seek rate recovery of scheduled future cost increases
through the rate setting process.* There can be no assurance that the Company
will succeed in obtaining timely rate increases sufficient to cover all costs
or sufficient to maintain profit margins at historic levels.
As a result of changes in pension benefits negotiated as part of the San
Francisco labor contract, the accumulated benefit obligation may exceed the
plan assets by up to several million dollars by the end of the fiscal year.
Under generally accepted accounting principles this would be reflected as a
reduction of stockholders equity similar to prior years. This adjustment, if
necessary, is subject to many factors including but not limited to; the
discount rate, the performance of plan assets, and participation rate
assumptions, among others.
Due to the Company's concentration in California, cyclical economic conditions
in California may have an impact on the Company's results.* The Company is
unable to determine the significance a California economic downturn would
have on its operations.
Seasonality
The Company's revenues tend to be higher during spring and summer (third and
fourth fiscal quarters) than fall and winter when lower volumes of certain
types of waste, such as yard clippings and construction and demolition
debris are generated. This typically results in decreased volume at the
Company's transfer stations, waste collection, and landfill operations
during the winter.*
Accounting Matters
In October 1995, Statement of Financial Accounting Standard No. 123
"Accounting for Stock Based Compensation" (SFAS No. 123) was issued. This
Statement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25 (APB 25) Accounting for Stock Issued to
Employees. The Company has concluded it will continue to utilize the method
of accounting prescribed by APB 25 and adopt only the disclosure requirements
of SFAS No. 123 by providing pro forma disclosure of net income.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
IRS Dispute.
In addition to the agreements previously reported with respect to the audit
by the Internal Revenue Service (the "Service") of the Company's income tax
returns for the fiscal years ending September 30, 1988 through 1991, the
Company and the Service have reached an agreement in principle regarding the
deductibility of postretirement health and welfare benefits paid to former
employee-shareholders. As a result of this compromise agreement, the
Company's aggregate income tax deductions related to the provision of
postretirement health and welfare benefits to former employee-shareholders
will be reduced to some extent. The Company believes that this agreement
as well as other adjustments agreed to with the Service will not have a
material adverse impact on the Company's financial condition or cash flow.
Litigation Regarding the ESOP Notes.
See the Company's quarterly report for the period ended December 31, 1996
regarding this matter.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On April 18, 1997, San Diego County (the "County") issued a Descriptive
Memorandum for the sale of its solid waste assets. If the County succeeds
in selling the solid waste assets, the contract between the Company and the
County whereby the Company manages the County's solid waste assets could be
terminated. The Company believes the contract termination would not have a
material adverse effect on the Company's financial condition, results of
operations or cash flow.*
<PAGE>
Item 6. Exhibits and Certain Reports
(a) Exhibits:
10.1 Third Amendment to Revolving Credit Agreement, dated
May 12, 1997.
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
On April 25, 1997, the Company filed a current report relating to the
initiation of a strike against certain operations in San Francisco. On
April 28, 1997, the Company filed a current report relating to a contract
agreement ending the union strike in San Francisco.
SIGNATURES
NORCAL WASTE SYSTEMS, INC.
(Company)
/s/ Mark R. Lomele
Mark R. Lomele
Senior Vice President and
Chief Financial Officer
Dated: May 15, 1997
EXHIBIT 10.1
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Third Amendment")
is made and entered into as of the 12th day of May, 1997, by and among
NORCAL WASTE SYSTEMS, INC., a California corporation (the "Borrower"), its
Subsidiaries (other than the Excluded Subsidiaries) (collectively, the
"Guarantors"), BANKBOSTON, N.A. (f/k/a The First National Bank of Boston),
a national banking association (in its individual capacity, "BKB"), and the
other financial institutions party hereto (collectively, the "Banks"), and
BKB as the agent for the Banks (in such capacity, the "Agent").
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent entered into
a Revolving Credit Agreement dated as of November 21, 1995 (as heretofore
amended, the "Credit Agreement"), pursuant to which the Banks extended credit
to the Borrower on the terms set forth therein;
WHEREAS, the parties desire to amend the Credit Agreement on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree to amend the Credit Agreement as follows:
1. Definitions. Capitalized terms used herein without definition shall have
the meanings assigned to such terms in the Credit Agreement.
2. Amendment to Section 1 of the Credit Agreement.
(a) Section 1 of the Credit Agreement is hereby amended by inserting therein
the following newly defined term in the appropriate alphabetical sequence:
Scheduled ESOP Amortization. With respect to each fiscal year, the Borrower's
ESOP expense generated by contributions from time to time to the ESOP Account
(referred to in the most recent financial statements of the Borrower delivered
pursuant to Section 6.4 hereof), which contributions shall be in a maximum
amount of $9,794,885 per fiscal year, commencing with the fiscal year ended
September 30, 1996 and ending with the fiscal year ending September 30, 2008,
for the purpose of enabling the ESOP to repay its loans from the Borrower.
3. Amendment to Section 8.3 of the Credit Agreement. Section 8.3 of the Credit
Agreement is hereby amended by deleting said section in its entirety and
replacing it with the following new section:
Section 8.3. Consolidated Net Worth.
The Borrower and the Guarantors will not permit Consolidated Net Worth at any
time to be less than the sum of (a) Consolidated Net Worth (including any net
gains attributable to the refinancing of the Borrower's existing Indebtedness)
reflected on the balance sheet delivered to the Agent on the Closing Date and
dated as of such date minus $5,000,000, plus (b) on a cumulative basis
determined quarterly at the end of each fiscal quarter commencing with the
fiscal quarter ending December 31, 1995, seventy-five percent (75%) of (i)
Consolidated Net Income, plus (ii) any decrease in the "Scheduled Contribution
to ESOP Account" as reflected on the most recent financial statements of the
Borrower delivered in accordance with Section 6.4 hereof other than any such
decreases resulting from the Scheduled ESOP Amortization (to the extent that
the sum of clauses (i) and (ii) yields a positive number) (or in the event
that the Senior Debt Rating at the end of such fiscal quarter is BB+ or
better, then only fifty percent (50%) of the sum of clauses (i) and (ii)
with respect to such quarter shall be added), plus (c) one hundred percent
(100%) of the amount by which Consolidated Net Worth is increased by equity
issuances (or in the event that the Senior Debt Rating is BB+ or better at
the time of such equity issuance, then only seventy-five percent (75%) of
such amount shall be added), plus (d) one hundred percent (100%) of any
decrease from the Closing Date in the "Pension Liability Adjustment Account"
as reflected on the most recent financial statements of the Borrower
delivered pursuant to Section 6.4 hereof, plus (e) the lesser of (i) the
aggregate Scheduled ESOP Amortization, and (ii) one hundred percent (100%)
of any decrease from the Closing Date in the "Scheduled Contribution to ESOP
Account" as reflected on the most recent financial statements of the
Borrower delivered pursuant to Section 6.4 hereof. Further, the amount of
required minimum Consolidated Net Worth required hereunder shall decrease
by one hundred percent (100%) of any increases from the Closing Date in the
"Pension Liability Adjustment Account" as reflected on the most recent
financial statements of the Borrower delivered in accordance with Section
6.4 hereof, provided that at the time of such calculation the "Pension
Liability Adjustment Account" is less than (i) $12,000,000 during the
period commencing on the Closing Date and ending on September 30, 1998
and (ii) $10,000,000 for any period occurring thereafter.
4. Amendment to Exhibit C of the Credit Agreement. The Credit Agreement is
hereby further amended by deleting Exhibit C thereto in its entirety and
replacing it with Exhibit C attached hereto.
5. Representations and Warranties. The Borrower and the Guarantors jointly
and severally represent and warrant as follows:
(a) The execution and delivery of this Third Amendment and the Credit
Agreement, as modified by this Third Amendment, and the performance of
the transactions contemplated hereby and thereby (i) are within the
corporate authority of the Borrower and each of the Guarantors, (ii)
have been duly authorized by all necessary corporate proceedings on the
part of the respective Borrower or Guarantor, (iii) do not conflict with
or result in any material breach or contravention of any provision of law,
statute, rule or regulation to which the Borrower or any Guarantor is
subject or any judgment, order, writ, injunction, license or permit
applicable to the Borrower or any Guarantor so as to materially adversely
affect the assets, business or any activity of the Borrower and the
Guarantors as a whole, and (iv) do not conflict with any provision of the
corporate charter or bylaws of the Borrower or any Guarantor or any
agreement or other instrument binding upon the Borrower or any Guarantor.
There have been no amendments to the charter documents or bylaws of the
Borrower or any Guarantor since November 21, 1995, except as otherwise
disclosed to the Banks.
(b) The execution and delivery of this Third Amendment and the Credit
Agreement, as modified by this Third Amendment, and the performance of
the transactions contemplated hereby and thereby will result in valid
and legally binding obligations of the Borrower and the Guarantors
party thereto enforceable against each in accordance with the respective
terms and provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting generally the enforcement of creditors
rights and except to the extent that availability of the remedy of
specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding therefor may be brought.
(c) The execution and delivery by the Borrower and the Guarantors of this
Third Amendment and the Credit Agreement, as modified by this Third
Amendment, and the consummation by the Borrower and the Guarantors of the
transactions contemplated hereby and thereby do not require any approval
or consent of, or filing with, any governmental agency or authority other
than those already obtained.
(d) The representations and warranties contained in the Credit Agreement
or in any document or instrument delivered pursuant to or in connection
with the Credit Agreement or this Third Amendment were true as of the date
as of which they were made and are true at and as of the Effective Date
(as such term is defined in Section 11 hereof) with the same effect as if made
at and as of that time (except to the extent of changes resulting from
(i) transactions contemplated or permitted by the Credit Agreement,
(ii) changes disclosed to and approved by the Agent and the Banks, as
applicable, and (iii) changes occurring in the ordinary course of
business which singly or in the aggregate are not materially adverse,
and except to the extent that such representations and warranties relate
expressly and solely to an earlier date).
(e) The Borrower and the Guarantors have performed and complied, and have
caused the Borrower's Subsidiaries to perform and comply, with all terms
and conditions in the Credit Agreement and this Third Amendment, required
to be performed or complied with by them prior to or at the Effective Date,
and no Default or Event of Default or condition which would result in a
Default or Event of Default has occurred and is continuing.
6. Ratification, etc. Except as expressly amended hereby, the Credit
Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all
respects and shall continue in full force and effect. Each of the
Guarantors hereby confirms that the guaranty contained in Section 27 of the
Credit Agreement and its Guaranteed Obligations remain in full force
and effect. This Third Amendment and the Credit Agreement shall hereafter
be read and construed together as a single document, and all references
in the Credit Agreement, any other Loan Document or any agreement or
instrument related to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended by this Third Amendment.
7. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT
REFERENCE TO CONFLICT OF LAWS) AND SHALL TAKE EFFECT AS A SEALED INSTRUMENT
IN ACCORDANCE WITH SUCH LAWS.
8. Counterparts. This Third Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but
all of which counterparts taken together shall be deemed to constitute
one and the same instrument.
9. Headings. Headings or captions used in this Third Amendment are for
convenience of reference only and shall not define or limit the
provisions hereof.
10. Expenses. The Borrower and the Guarantors hereby jointly and
severally agree to pay to the Agent, on demand by the Agent, all
reasonable out-of-pocket costs and expenses incurred or sustained
by the Agent in connection with the preparation of this Third
Amendment (including reasonable legal fees).
11. Effectiveness. This Third Amendment shall become effective upon
the execution and delivery by the Borrower, the Guarantors, the Agent
and the Majority Banks of this Third Amendment (the "Effective Date").
IN WITNESS WHEREOF, the parties have executed this Third Amendment
under seal as of the date first above written.
THE BORROWER:
NORCAL WASTE SYSTEMS, INC.
By: /s/ MICHAEL J. SANGIACOMO
Michael J. Sangiacomo
President
THE GUARANTORS:
ALTA ENVIRONMENTAL SERVICES, INC.
ALTA EQUIPMENT LEASING CO., INC.
AUBURN PLACER DISPOSAL SERVICE
B & J DROP BOX
BUONATERRA, INC.
BUTTE DISPOSAL & RECYCLING, INC.
CITY GARBAGE COMPANY OF EUREKA
CONSOLIDATED ENVIRONMENTAL INDUSTRIES, INC.
DEL NORTE DISPOSAL, INC.
DEL NORTE RECOVERY, INC.
DIXON SANITARY SERVICE
ENVIROCAL, INC.
EXCEL ENVIRONMENTAL, INC.
FOOTHILL DISPOSAL CO., INC.
GOLDEN GATE DISPOSAL & RECYCLING COMPANY
INTEGRATED ENVIRONMENTAL SYSTEMS, INC.
LOS ALTOS GARBAGE COMPANY
MACOR, INC.
MASON LAND RECLAMATION COMPANY, INC.
NORCAL/SAN BERNARDINO, INC.
By: /s/ MICHAEL J. SANGIACOMO
Michael J. Sangiacomo
President
NORCAL/SAN DIEGO, INC.
NORCAL SERVICE CENTER, INC.
NORCAL WASTE SERVICES OF SACRAMENTO, INC.
NORCAL WASTE SOLUTIONS, INC.
NORCAL WASTE SYSTEMS OF SOUTHERN CALIFORNIA, INC.
OROVILLE SOLID WASTE DISPOSAL, INC.
SAN BRUNO GARBAGE CO., INC.
SANITARY FILL COMPANY
SOUTH VALLEY REFUSE DISPOSAL, INC.
SOUTHERN HUMBOLDT DISPOSAL SERVICE, INC.
SUNSET PROPERTIES, INC.
SUNSET SCAVENGER COMPANY
VACAVILLE SANITARY SERVICE
VALLEJO GARBAGE SERVICE, INC.
WEST COAST RECYCLING CO.
WESTERN PLACER RECOVERY COMPANY
YUBA SUTTER DISPOSAL, INC.
ZANKER ROAD RESOURCE MANAGEMENT CO.
By: /s/ MICHAEL J. SANGIACOMO
Michael J. Sangiacomo
President
TRI-COUNTY DEVELOPMENT CO., a general partnership
By: NORCAL WASTE SYSTEMS, INC., General Partner
By: /s/ MICHAEL J. SANGIACOMO
Michael J. Sangiacomo
President
By: ENVIROCAL, INC., General Partner
By: /s/ MICHAEL J. SANGIACOMO
Michael J. Sangiacomo
President
VACAVILLE FILL, a general partnership
By: ALTA ENVIRONMENTAL SERVICES, INC., General Partner
By: /s/ MICHAEL J. SANGIACOMO
Michael J. Sangiacomo
President
By: B & J DROP BOX, General Partner
By: /s/ MICHAEL J. SANGIACOMO
Michael J. Sangiacomo
President
THE BANKS AND AGENT:
BANKBOSTON, N.A. (f/k/a The First National Bank of Boston), individually
and as Agent
By: /s/ TIMOTHY M. LAURION
Timothy M. Laurion
Vice President
THE BANK OF NOVA SCOTIA
By: /s/ ERIC M. KNIGHT
Eric M. Knight
Relationship Manager
BANQUE PARIBAS
By: /s/ NANCI MEYER
Nanci H. Meyer
Assistant Vice President
By: /s/ LYNNE A. LUEDERS
Lynne Lueders
Vice President
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ DAN DOBRJANSKYJ
Dan Dobrjanskyj
Assistant Vice President
By: /s/ ANTHONY HEYMAN
Anthony Heyman
Assistant Treasurer
FUJI BANK
By:
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/ T. MORGAN EDWARDS II
T. Morgan Edwards II
Deputy General Manager
By: /s/ BRYAN REED
Bryan Reed
Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ JULIE BLOOMFIELD
Julie B. Bloomfield
Vice President
WELLS FARGO BANK, N.A.
By:
Peter W. Clark
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED FINANCIAL STATEMENTS OF NORCAL WASTE SYSTEMS, INC., FOR
THE SIX MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
(IN THOUSANDS EXCEPT PER SHARE DATA.)
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 17,285
<SECURITIES> 5,552
<RECEIVABLES> 41,692
<ALLOWANCES> 1,746
<INVENTORY> 2,551
<CURRENT-ASSETS> 73,010
<PP&E> 228,471
<DEPRECIATION> 90,996
<TOTAL-ASSETS> 328,115
<CURRENT-LIABILITIES> 63,518
<BONDS> 176,621
0
0
<COMMON> 241
<OTHER-SE> 11,961
<TOTAL-LIABILITY-AND-EQUITY> 328,115
<SALES> 0
<TOTAL-REVENUES> 151,068
<CGS> 0
<TOTAL-COSTS> 140,286
<OTHER-EXPENSES> (3,261)
<LOSS-PROVISION> 533
<INTEREST-EXPENSE> 12,700
<INCOME-PRETAX> 810
<INCOME-TAX> 0
<INCOME-CONTINUING> 810
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 810
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
