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 December 31, 1998
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 February 8, 1998,
there were 24,134,973 shares of $.01 par value Common Stock outstanding.
<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>
December 31, September 30,
1998 1998
------------- -------------
Assets
<S> <C> <C>
Current assets:
Cash $18,089 $39,752
Marketable securities 5,552 5,552
Trust accounts, current portion 1,940 1,940
Accounts receivable, less allowance for doubtful
accounts of $2,361 at December 31, 1998 and $2,202
at September 30, 1998 46,648 49,789
Parts and supplies 2,322 2,200
Prepaid expenses 3,697 2,640
--------- ---------
Total current assets 80,248 101,873
--------- ---------
Property and equipment:
Land 46,481 46,103
Landfills 29,766 29,419
Buildings and improvements 47,630 47,422
Vehicles and equipment 138,018 130,190
Construction in progress 8,951 6,291
--------- ---------
Total property and equipment 270,846 259,425
Less accumulated depreciation and amortization 115,483 111,791
--------- ---------
Property and equipment, net 155,363 147,634
--------- ---------
Franchises, permits and other intangibles, net 81,353 73,016
Trust accounts 34,723 34,250
Deferred financing costs, net 6,584 6,920
Other assets 7,373 8,168
--------- ---------
Total other assets 130,033 122,354
--------- ---------
Total assets $365,644 $371,861
========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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, Continued
(in thousands)
(unaudited)
<CAPTION>
December 31, September 30,
1998 1998
------------- -------------
Liabilities and Stockholder's Equity
<S> <C> <C>
Current liabilities:
Current portion:
Long-term debt $457 $337
Capital lease obligations 1,035 1,114
Accounts payable 9,902 7,984
Accrued expenses 43,405 57,873
Income taxes payable 93 90
Deferred revenues 2,788 2,703
Other accrued liabilities 3,621 3,731
--------- ---------
Total current liabilities 61,301 73,832
--------- ---------
Long-term debt 176,021 174,080
Obligations under capital leases 818 910
Deferred income taxes 5,207 5,259
Landfill closure liability 25,779 25,938
Postretirement medical benefits 33,767 33,601
Other liabilities 14,559 14,244
--------- ---------
Total liabilities 317,452 327,864
--------- ---------
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 (93,878) (96,928)
Accumulated other comprehensive deficit (2,189) (2,115)
--------- ---------
70,552 67,576
Less net scheduled contribution to the ESOP (22,360) (23,579)
--------- ---------
Total stockholder's equity 48,192 43,997
--------- ---------
Total liabilities and stockholder's equity $365,644 $371,861
========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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 INCOME
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended
December 31
1998 1997
--------- ---------
<S> <C> <C>
Revenues $83,326 $88,453
Cost of operations:
Operating expenses 59,009 64,037
Depreciation and amortization 5,083 4,982
ESOP compensation expense 1,834 3,555
General and administrative 8,775 8,125
--------- ---------
Total cost of operations 74,701 80,699
Operating income 8,625 7,754
Interest expense (6,514) (6,451)
Interest income 890 812
Other income, net 49 180
--------- ---------
Income before income taxes 3,050 2,295
Income tax expense - -
--------- ---------
Net income $3,050 2,295
========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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 three months ended December 31, 1998
(in thousands)
(unaudited)
<CAPTION>
Accumulated Net
Additional other scheduled
Common Stock paid-in Accumulated comprehensive contribution
Shares Amount capital deficit deficit to the ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1998 $24,135 $241 $166,378 ($96,928) ($2,115) ($23,579) $43,997
Net income - - - 3,050 - - 3,050
Other comprehensive loss,
net of tax - - - - (74) - (74)
Contributions to reduce
ESOP debt - - - - - 1,219 1,219
-------- ------- --------- ---------- -------- --------- --------
Balances, December 31, 1998 $24,135 $241 $166,378 ($93,878) (2,189) ($22,360) $48,192
======== ======= ========= ========== ======== ========= ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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>
Nine Months Ended
December 31
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,050 $2,295
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 5,083 4,982
ESOP compensation expense 1,834 3,555
Senior notes interest and amortized financing costs (5,480) (5,349)
Other (648) 1,164
Changes in assets and liabilities, net of
effects of acquisitions and dispositions (5,775) (16,647)
--------- ---------
Net cash used in operating activities (1,936) (10,000)
--------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment (10,218) (3,614)
Payment for businesses acquired (9,360) -
Proceeds from dispositions 37 134
Other 50 92
--------- ---------
Net cash used in investing activities (19,491) (3,388)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt and capitalized leases (384) (349)
Proceeds from other debt 148 -
--------- ---------
Net cash used in financing activities (236) (349)
--------- ---------
Net decrease in cash and cash equivalents (21,663) (13,737)
Cash and cash equivalents, beginning balance 39,752 32,330
--------- ---------
Cash and cash equivalents, ending balance $18,089 $18,593
========= =========
Supplemental cash flow information:
Interest $12,088 $11,902
========= =========
Income taxes - -
========= =========
Schedule of noncash investing and financing activities:
Debt issued and liabilities assumed in acquisitions $2,578 -
========= =========
<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. ("Norcal") and its subsidiaries (collectively, Norcal and
its subsidiaries are referred to herein as 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, 1998. 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 in California.
The Company's services include refuse collection, recycling and other waste
diversion, transfer station and hauling operations, and operation of Company-
owned landfills 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) Long-term Debt
<TABLE>
Long-term debt at December 31, 1998 and September 30, 1998 is
summarized as follows:
(in thousands)
<CAPTION>
December 31 September 30
------------ ------------
<S> <C> <C>
Senior Notes due November 15, 2005, interest at 13.5% $171,092 $171,004
Note payable for business acquired due in monthly
installments through 2016, interest imputed at 8.75% 1,613 1,622
Convertible notes payable for business acquired, due
in eight quarterly installments beginning
December 2001, interest imputed at 8.5% 1,804 -
Notes payable to former shareholders, due in monthly
installments through 2017, interest at 6% to 8.5% 719 734
Other Notes 1,250 1,057
---------- ----------
Total debt 176,478 174,417
Less current portion 457 337
---------- ----------
Long-term debt $176,021 $174,080
========== ==========
</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. In the event of a change
in control of the Company, the Company would be required to offer to purchase
the Senior Notes. The Senior Notes are unsecured and rank pari passu in right
of payment to all existing and future senior indebtedness of the Company. The
Senior 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 13.5%, however, 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>
In conjunction with the private debt offering, the Company entered into a
new Credit Agreement (the "Credit Agreement") with a group of lenders and
BankBoston, N.A., as Agent. The Credit Agreement, as amended, provides
for a revolving credit facility in an amount of up to $97.5 million
(depending upon certain financial ratios), up to $25.0 million of which may
be used for letters of credit. At December 31, 1998, the Company had utilized
$2.1 million of its credit facility for letters of credit and had availability
under the Credit Agreement (based on limitations imposed by certain financial
ratios) of $58.8 million along with $22.9 million which may be utilized for
additional letters of credit. Changes in availability under the Credit
Agreement are a function of changes in operating results, among other things.
In addition, certain covenant measures become more restrictive over time,
and maximum availability decreases by $2.5 million per quarter. The first
reduction occurred December 31, 1998 and reductions continue each quarter
until expiration of the Credit Agreement.
(4) 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.
(5) Commitments and Contingencies
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 San Francisco operations of the
Company. The strike was resolved on April 26, 1997 when Local 350 voted
to accept a five-year contract. A provision of the new contract related to an
increase in pension benefits. The Company believes that it was agreed that
the increase to certain pension benefits was to be prospective. Subsequently,
Local 350 asserted that it understood the increase to be retroactive.
The Company has served upon Local 350 a demand to arbitrate this dispute
under the terms of the collective bargaining agreement between the parties.
Arbitration is scheduled to begin on May 12, 1999.
If Local 350 were to prevail in the arbitration discussed above, the Company
estimates that the accumulated benefit obligation (ABO) as of September 30,
1998 would increase by an additional $9.1 million which would generally result
in an increase to the pension intangible asset with a corresponding offset to
the accrued pension liability. In addition, if Local 350 were to prevail, the
Company's estimated incremental increase in its annual accurals for employee
benefits would be approximately $2.4 million for pension and medical costs.
The above estimates are based on a discount rate of 6.75%. The discount rate
applied under generally accepted accounting principles ("GAAP") fluctuates
with market conditions. A change in the discount rate can result in significant
adjustments to the ABO.
On February 3, 1998, the Company received a determination letter from the
Department of Industrial Relations of the State of California ("DIR") adverse
to the Company. The DIR ruled that the operation of San Bernardino County
Landfills is a public work within the meaning of the labor code and therefore
subject to prevailing wage laws for construction. This determination was in
response to a request by the Company for a determination after the Southern
California Labor/Management Operating Engineers Contract Compliance
Committee filed a Complaint (Case No. 4002639/001) with the Long Beach
office of the Division of Labor Standards Enforcement. The Complaint
alleged that the Company is not paying prevailing wages and benefits
required for a public work by the Labor Code to those persons employed by
the Company to operate the landfills in San Bernardino County.
<PAGE>
The Company filed an appeal of the DIR's ruling with the Director of the
DIR (the "Director") on March 4, 1998. On July 27, 1998, the Director
issued a decision affirming the DIR's initial determination that the
operation of the San Bernardino County Landfills is a public work and
therefore subject to prevailing wage laws. However, the Director rejected
the automatic adoption of general construction industry prevailing wage
rates for landfill operators and referred the matter to the Labor
Commissioner of the Division of Labor Standards Enforcement (the
"Commissioner") for a determination as to the prevailing wage for landfill
operators such as those employed by the Company in San Bernardino County.
The Commissioner has heard evidence in the matter. The hearing is scheduled
to resume for a partial day on February 24, 1999 with the next and final day
of the hearing expected to be in the second half of March 1999. The Company
can not predict the outcome of this matter by the Commissioner's rate
determination process. If the Company is unable to satisfactorily resolve
this matter with the Commissioner, the Company would likely pursue
litigation. If the Company is ultimately unsuccessful in its efforts to
achieve a favorable outcome, it could have a material adverse impact on the
financial condition and results of operations of the Company.
(6) Year 2000 Compliance
The Company has underway a project to review and modify, as necessary, its
computer applications, hardware and other equipment to make them Year 2000
compliant. The Company has also initiated formal communications with
suppliers, contractors, financial institutions and other third parties
having a substantial relationship to its business to determine the extent
to which the Company may be vulnerable to such third parties' failures to
achieve Year 2000 compliance.
Failure to achieve Year 2000 compliance by the Company, its suppliers,
contractors, financial institutions and other third parties with which
the Company has material relationships could negatively affect the Company's
ability to conduct business for an extended period. There can be no
assurance that all information technology systems and components will be
fully Year 2000 compliant; in addition, other companies on which the
Company's systems and operations rely may or may not be fully compliant on
a timely basis, and any such failure could have a material adverse impact
on the financial condition, cash flow and results of operations of the
Company.
(7) Income Taxes
The Company has elected to become taxable as an S Corporation effective
October 1, 1998. In addition, in connection with the Company's S Corporation
election the Company also elected, for income tax purposes only, to treat a
substantial number of its subsidiaries as divisions of the Company.
Generally, the income of an S Corporation (including its divisions) is not
subject to federal income taxation at the corporate level, but, instead,
the income of the S Corporation is passed through and reported directly
on the tax returns of the S Corporation shareholders. However, because the
sole sharholder of the Company, the Norcal Waste Systems, Inc. Employee
Stock Ownership Plan and Trust (the "ESOP"), is a tax-exempt employee
stock ownership plan, it also will not be subject to tax on its allocable
share of the Company's taxable income. As a result of the S Corporation
election and the evaluation of potential built-in gains, the Company had
no changes to its total deferred tax liability during the quarter and
consequently there was no income tax expense for the three months ended
December 31, 1998.
<PAGE>
(8) Comprehensive Income
Effective October 1, 1998, the Company has adopted SFAS No. 130, "Reporting
Comprehensive Income" which establishes standards for the reporting of
comprehensive income and its components in financial statements.
Comprehensive income consists of net income and other gains and losses
affecting stockholder's equity that, under generally accepted accounting
principles, are excluded from net income. The components of comprehensive
income for the interim periods presented is as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Net Income $3,050 $2,295
Other comprehensive income (loss):
Unrealized gains (losses) on
trust accounts, net of tax (74) 74
---------- --------
Total comprehensive income $2,976 $2,369
========== ========
</TABLE>
(9) Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
<PAGE>
Item II. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 maintain rates sufficient to cover costs,
inability to obtain timely rate increases, inability to reduce costs related
to loss of revenues, fluctuations in commodities prices, changes in
environmental regulations or related laws, inability to settle union labor
contract disputes, comptetition, failure to achieve Year 2000 compliance,
consequences of the Company's S Corporation election or changes in laws
affecting the Company's S Corporation status. 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.
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 Company
used the proceeds from this 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 this offering, the Company entered into a
new bank credit agreement providing for a revolving credit facility with a
maximum availability of $100.0 million (reduced to $97.5 million as of
December 31, 1998), of which up to $25.0 million may be used for letters or
credit. These transactions are collectively referred to as the "Refinancing
Transaction."
The following discussion pertains to the Company's operations for the three
months ended December 31, 1998 and 1997 and should be read in conjunction
with the unaudited consolidated financial statements and related notes
thereto included elsewhere herein, and the Company's September 30, 1998
audited consolidated financial statements contained in the Company's Annual
Report for the fiscal year ended September 30, 1998.
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
operates 15 landfills in California, four of which it owns, 11 of which are
owned by local governmental entities and four of which are owned by local
governmental entities. The Company currently serves an estimated 460,000
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, landfill project and subcontractor costs,
disposal fees paid to third parties, fuel, equipment maintenance and rentals,
engineering, consulting and other professional services and other direct
costs of operations. Also included are accruals for future landfill closure
and corrective action costs, consistent with regulatory requirements.
General and administrative expenses include management salaries,
administrative and clerical overhead, professional services costs and other
fees and expenses.
ESOP compensation expense includes amounts contributed by the Company to the
ESOP to allow the ESOP to repay its intercompany loans to the Company
along with amounts to fund distributions to retired, terminated or
withdrawing participants. The total contributions are subject to various
limitations imposed by the Internal Revenue Code of 1986, as amended,
and are generally tax deductible. The debt repayments by the ESOP result
in allocation of Company common stock to ESOP participants' accounts
pursuant to an allocation formula.
<PAGE>
Results of Operations
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
Summary Statements of Operations
Operating Comparison
(in thousands)
<CAPTION>
Relationship to
Total Revenue Period to Period
Three Months Ended Change
December 31, December 31, 1998
1998 1997 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Collection and disposal operations 78.3% 70.0% 3,263 5.3%
Third party landfill management services 17.7% 25.1% -7,787 -33.3%
Recycled commodities sales 4.0% 4.9% -1,003 -23.0%
------- ------ ------- -------
Total revenues 100.0% 100.0% -5,127 -5.8%
Cost of operations:
Operating expenses 70.8% 72.4% -5,028 -7.9%
Depreciation and amortization 6.1% 5.6% 101 2.0%
ESOP compensation expense 2.2% 4.0% -1,721 -48.4%
General and administrative 10.5% 9.2% 650 8.0%
------- ------ ------- -------
Total cost of operations 89.6% 91.2% -5,998 -7.4%
------- ------ ------- -------
Operating income 10.4% 8.8% 871 11.2%
Interest expense -7.8% -7.3% -63 1.0%
Interest income 1.1% 0.9% 78 9.6%
Other income, net 0.0% 0.2% -131 -72.8%
------- ------ ------- -------
Income before income taxes 3.7% 2.6% 755 32.9%
Income tax expense 0.0% 0.0% - -
------- ------ ------- -------
Net income 3.7% 2.6% 755 32.9%
======= ====== ======= =======
</TABLE>
Three months ended December 31, 1998 and 1997
Revenues. Revenues for the three months ended December 31, 1998 decreased
$5.1 million (5.8%) to $83.3 million from $88.4 million for the three months
ended December 31, 1997. The decrease in revenues was due to lower third
party landfill management services revenues and recycled commodities sales
revenues, partially offset by higher waste collection and disposal revenues.
Third party landfill management revenues decreased $7.4 million due primarily
to a $6.4 million decrease in project related activity in San Bernardino
County compared to the prior year and from reduced activity of $1.1 million
in San Diego as the Company ceased operations of the San Diego County landfills
on March 31, 1998, when the new owner assumed operations. Waste collection and
disposal revenues increased $3.3 million, approximately $1.6 million due to
general volume increases, $1.2 million due to operations acquired in Los
Angeles in October and November 1998 and the remainder due to rate increases
in several service areas. Recycled commodities sales revenues decreased $1.0
million due to lower commodity prices.
Operating Expenses. Operating expenses for the three months ended December 31,
1998 decreased $5.0 million (7.9%) to $59.0 million from $64.0 million for the
three months ended December 31, 1997. As a percentage of revenues, operating
expenses decreased to 70.8% for the three months ended December 31, 1998 from
72.4% for the three months ended December 31, 1997. Project and subcontractor
related costs decreased $5.7 million as a result of decreased activity in San
Bernardino County which were partially offset by higher disposal costs of $0.7
million due primarily to operations acquired in October and November 1998.
<PAGE>
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 for the three months
ended December 31, 1998 decreased $1.7 million (48.4%) to $1.8 million from
$3.5 million for the three months ended December 31, 1997. The Company has
accrued ESOP expense based upon scheduled loan payments which do not include
prepayments of additional principal which occurred in the prior year.
General and Administrative. General and administrative expenses for the three
months ended December 31, 1998 increased $0.7 million (8.0%) to $8.8 million
from $8.1 million for the three months ended December 31, 1997. As a percentage
of revenues, general and administrative expenses increased to 10.5% for the
three months ended December 31, 1998 from 9.2% for the three months ended
December 31, 1997. The increased costs were primarily due to wage increases.
Operating Income. Operating income increased $0.9 million (11.2%) to $8.6
million for the three months ended December 31, 1998 from $7.7 million for
the three months ended December 31, 1997. As a percentage of revenues,
operating income increased to 10.4% for the three months ended December 31,
1998 from 8.8% for the three months ended December 31, 1997. The primary
cause of the increase in operating income for the three months ended December
31, 1998 was the lower ESOP compensation expense described above partially
offset by lower earnings due to lower landfill management activities in
Southern California.
Income Tax Expense. There was no income tax expense for the three months
ended December 31, 1998 or 1997. The Company experienced an effective rate
of zero for the three months ended December 31, 1998 as a result of the
Company's S Corporation election, effective October 1, 1998 and anticipated
results of operations from the Company's four subsidiaries which did not
elect to become divisions of the S Corporation. The Company experienced an
effective rate of zero for the three months ended December 31, 1997 as a
result of realizing certain of its deferred tax assets for which a valuation
allowance had been previously established.
Net Income. Net income increased $0.8 million to $3.1 million for the three
months ended December 31, 1998 from $2.3 million for the three months ended
December 31, 1997. Net income for the three months ended December 31, 1998
was due to higher operating income described above.
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 $18.9 million at December 31,
1998 compared to $28.0 million at September 30, 1998. The decrease in
working capital is due to a reduction in cash balances resulting from
investing activities during the three months ended December 31, 1998.
As part of the Refinancing Transaction the Company entered into the Credit
Agreement that provides for up to $97.5 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.
Letters of credit under the Credit Agreement are limited to a maximum of
$25.0 million. The Credit Agreement expires in November 2000. At December
31, 1998, the Company had utilized $2.1 million of the credit facility
provided by the Credit Agreement for letters of credit and had availability
under the Credit Agreement of approximately $58.8 million for borrowings
unrelated to letters of credit, with an additional $22.9 million available
for letters of credit. Certain acquisitions could increase availability for
borrowings unrelated to letters of credit under the Credit Agreement, due
to the Company's ability to include certain pro forma financial information
of acquired entities in calculating its financial ratios to determine
availability. Changes in availability under the Credit Agreement are a
function of changes in operating results, among other things. In addition,
certain covenant measures become more restrictive over time, and the
maximum availability decreases by $2.5 million per quarter until
expiration of the Credit Agreement.
<PAGE>
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.
The Senior Notes mature in November 2005. As of December 31, 1998, interest
on the Senior Notes accrued at the rate of 13.5% per annum. However, the
interest rate on the Senior Notes is subject to decrease to 12.5% at such
time the Company (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.
Cash Flow from Operating Activities. Cash used by operating activities was
$1.9 million for the three months ended December 31, 1998 compared to cash
used of $10.0 million for the same period last year. The large use of cash
for the three months ended December 31, 1997 was primarily due to
accelerated payments of accounts payable at December 31, 1997 and an
increase in accounts receivable as a percentage of sales.
Cash Flow from Investing Activities. Cash used in investing activities was
$19.5 million for the three months ended December 31, 1998 compared to cash
used of $3.4 million for the same period last year. During the current
period, the Company used $10.2 million on capital expenditures, primarily
vehicles, containers and other equipment compared to $3.6 million for
vehicles, containers, other equipment and computer software in the same
period last year. In October and November 1998, the Company also used $9.4
million to purchase the stock of one solid waste collection company and
substantially all of the assets of two other solid waste collection
companies in Southern California.
Cash Flow from Financing Activities. Cash used in financing activities was
$0.2 million for the three months ended December 31, 1998 compared to $0.3
million for the three months ended December 31, 1997. Activity in both
periods consisted primarily of scheduled note and capital lease payments.
Certain Other Cash Requirements. The Company is in discussions with the
City of San Francisco regarding plans for increased diversion of waste
from disposal at landfills as well as the construction and/or relocation
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. The Company and the City are continuing
to negotiate the nature, scope and financing of this project. The Company
cannot predict the timing or outcome of these discussions. Over the term
of the Senior Notes, the Company may need to invest substantial capital
to acquire or construct waste processing facilities, household hazardous
waste facilities, maintenance and administrative complexes, and equipment.*
The Company intends to seek continued rate recovery for amounts expended
on any projects and may seek to finance such capital expenditures through
additional secured borrowings, including up to $30.0 million of borrowing
for certain "Designated Capital Expenditures" (as defined in the
Indenture).*
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.
<PAGE>
Inflation, Prevailing Economic Conditions and Certain Operations
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 may also affect 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 San Francisco
operations of the Company. The strike was resolved on April 26, 1997
when Local 350 voted to accept a five-year contract. A provision of
the new contract related to an increase in pension benefits. The Company
believes that it was agreed that the increase to certain pension benefits
was to be prospective. Subsequently, Local 350 asserted that it
understood the increase to be retroactive. On February 10, 1998, the
Company filed a petition for order compelling arbitration in U.S. District
Court for the Northern District of California entitled Norcal Waste
Systems, Inc., Golden Gate Disposal and Recycling Inc. and Sunset
Scavenger Company v. Sanitary Truck Drivers and Helpers Union Local
350, IBT to arbitrate this dispute under the terms of the collective
bargaining agreement between the parties. On May 29, 1998, the Court
ruled in the Company's favor and directed the parties to proceed with
arbitration. Arbitration is scheduled to begin on May 12, 1999.
Under generally accepted accounting principles ("GAAP") any deficiency
between the liability for pension benefits (defined as the Accumulated
Benefit Obligation ("ABO")) and the market value of plan assets can
result in a charge to the minimum pension liability in the equity
section of the Company's balance sheet. If Local 350 were to prevail in
the arbitration discussed above, the Company estimates that the ABO as
of September 30, 1998 would increase by an additional $9.1 million which
would generally result in an increase to the pension intangible asset
with a corresponding offset to the accrued pension liability. In addition,
if Local 350 were to prevail, the Company's estimated incremental increase
in its annual accruals for employee benefits would be approximately $2.4
million for pension and medical costs. The above estimates are based on a
discount rate of 6.75%. The discount rate applied under GAAP fluctuates
with market conditions. A change in the discount rate can result in
significant adjustments to the ABO.
Although the ultimate outcome of such proceeding cannot be determined at
this time and the results of these legal proceedings cannot be predicted
with certainty, the Company, after consultation with outside labor counsel,
believes it should prevail and therefore the resolution of this matter
will not have a material adverse effect on the financial condition or
results of operations of the Company. However, if the Company does not
prevail, there could be a material adverse impact on the financial
condition and results of operations of the Company. Arbitration could
conclude that there has been no meeting of the minds on this provision
of the contract and the provision could have to be renegotiated. If the
matter is not satisfactorily renegotiated, the Company could be subject
to another work stoppage.*
Included in the five-year contract referred to above, is an aggregate
13.4% wage increase. The first year cost of the contract was included
in the rate effective March 1, 1997 in San Francisco. The Company
generally intends to seek rate recovery of scheduled future cost
increases through the rate setting process as appropriate.* 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 levels at historical levels.
The Company's subsidiary, City Garbage Company of Eureka, Inc., is
currently in discussion with the County of Humboldt over sums due
under the Solid Waste Disposal Agreement which expired on September
28, 1998 ("Humboldt Agreement"). The Humboldt Agreement provides
for payments relating to the final period of operations and for
long-term environmental contingencies such as certain corrective
action costs and closure and post-closure maintenance costs. The
proposed actions and projected expenses were developed by
independent consulting engineers and have been approved or
submitted for approval to the applicable California regulatory
agencies. The items in the termination payment and interim
<PAGE>
closure/post-closure payment which are disputed by the County
of Humboldt total approximately $5 million. The Company
anticipates that it will be required to take legal action
against Humboldt County to enforce its rights to this sum under
the Humboldt Agreement Although the outcome of legal action is
inherently uncertain, the Company believes that it is likely to
recover a substantial majority of the amounts for which it has
requested reimbursement.
The Company anticipates lower revenue and operating income as a
result of the loss in January 1999 of tonnage from a city in San
Bernardino County whose waste represented approximately 15% of the
total tonnage received at the San Bernardino sites during the
Company's fiscal year ended September 30, 1998.* The impact to the
Company's second quarter of the fiscal year could be a reduction of
up to $1.0 million in revenue.* The loss of tonnage could have a
material adverse impact on the Company's operating income for the
second quarter as well as for future periods.* The impact to
operating income will be a function of the extent to which the revenue
reduction can be mitigated with corresponding decreases in operating
costs as well as adjustments to the compensation rate per ton. There
can be no assurance that the Company will be successful in reducing
the impacts of the reduction in volume.
Due to the Company's concentration in California, cyclical
economic conditions in California will have an impact on the
Company's results.* A significant economic downturn in
California could have an adverse impact on the Company's
results of operations.
Seasonality
The Company's revenues tend to be lower during winter due to decreased
volume at the Company's transfer stations, waste collection, and
landfill operations than during spring and summer (third and fourth
fiscal quarters) when higher volumes of certain types of waste, such
as construction and demolition debris are generated.* In addition,
project management revenues tend to be lower during winter as a result
of unfavorable construction conditions. Unusual changes in weather
patterns can also affect the operating results on a quarter to quarter
basis.
Year 2000 Compliance
Many computer systems and software applications may experience problems
handling dates beyond the year 1999. Computer systems and other equipment
with embedded chips or processors have historically used two digits,
rather than four, to define a specific year. These systems would be
unable to determine whether the digits "00" referred to the year 1900
or 2000. This could result in system failures or miscalculations as a
result of systems being unable to process accurately certain data before,
during or after the year 2000. This could potentially cause disruptions to
the Company's various activities and operations.
The Company has implemented a new third-party package of integrated financial
applications which the vendor has represented is Year 2000 compliant. As a
result, the Company believes that its general ledger, accounts payable,
fixed assets, inventory management, human resources, payroll, contract
management, job costing, purchasing and equipment management systems are
Year 2000 compliant. The Company is in the process of renovating its
remaining legacy systems which include customer billing and customer
service support systems. The Company has completed the necessary code
renovation and has begun its validation stage by testing, verifying and
validating the performance, functionality, and integration of these
systems. The Company anticipates that this testing of legacy related
systems will be completed by June 30, 1999.
The Company is also investigating the Year 2000 compliance efforts of
suppliers, contractors, financial institutions and other third parties
with whom the Company does business and has material relationships to
attempt to mitigate any adverse impact on the Company's operations from
significant compliance problems that may be experienced by such parties
or as a result of embedded systems. The Company plans to monitor this
through periodic meetings with and questionnaires to suppliers, customers
and other third parties.
The Company is developing contingency plans, which are expected to be
completed by the end of September 1999, to identify potential problems
and mitigate the impact on its operations of potential failures of
mission-critical systems arising from the Year 2000 issue. These plans
will be designed to protect the Company's assets, continue safe
operations, and enable the resumption of any interrupted operations
<PAGE>
in a timely and efficient manner. Contingency planning for Year 2000
issues is complicated by the possibility of multiple and simultaneous
incidents, which could significantly impede efforts to respond to
emergencies and resume normal business functions. Such incidents
may be outside of the Company's control, for example, if third parties
with whom the Company does business and has material relationships do
not successfully address their own material Year 2000 problems.
To date, the Company has spent an immaterial amount in effecting Year
2000 compliance. The Company anticipates that its remaining costs in
effecting such compliance will not exceed $400,000, the majority of
which costs are attributable to the internal costs of employee and
management time.
Factors, many of which are outside the control of the Company, that
could affect the Company's ability to be Year 2000 compliant by the
end of 1999 include: the failure of suppliers, contractors, financial
institutions, customers, governmental entities and others to achieve
compliance; the continued availability of the internal and external
resources necessary for the Company to complete Year 2000 compliance;
and the inability or failure to identify all critical Year 2000 issues
or to develop appropriate contingency plans for all Year 2000 issues
that ultimately may arise.
The foregoing disclosure is based on the Company's current
expectation, estimates and projections, which could ultimately
prove to be inaccurate. Because of uncertainties, the actual effects
of the Year 2000 issues to the Company may be different from the
Company's current assessment. While the Company believes that its
Year 2000 project will adequately address its internal issues, the
failure of the Company's suppliers, customers and other third parties
to adequately address the issue could result in disruption to the
Company's operations and have a material adverse impact on its
results of operations, cash flow and financial condition, the
extent of which the Company cannot yet determine.
Accounting and Other Matters
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which requires
financial information to be reported on the basis that is used
internally for evaluating segment performance and deciding how to
allocate resources to segments. The standard must be adopted by
the end of fiscal 1999. The Company is currently evaluating the
disclosures required under this new standard.
In February 1998, the FASB issued SFAS No. 132, "Disclosures about
Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pension and other postretirement benefits
to the extent practical and requires additional information on changes
in the benefit obligations and fair values of plan assets. The
standard must be adopted by the end of fiscal 1999. The Company is
currently evaluating the disclosures required under this new standard.
The Internal Revenue Service's audit of the Company's income tax
returns for the fiscal years ended September 30, 1992 through 1994,
which was initiated in 1996, is ongoing. During 1998, the California
Franchise Tax Board initiated an audit of the Company's income tax
returns for the fiscal years ended September 30, 1993 and 1994.
The Company has elected to become taxable as an S corporation effective
October 1, 1998. In addition, in connection with the Company's S
Corporation election the Company also elected, for income tax purposes
only, to treat a substantial number of its subsidiaries as divisions
of the Company. Generally, the income of an S Corporation (including
its divisions) is not taxable at the corporate level, but, instead,
the income of the S Corporation is passed through and reported
directly on the tax returns of the S Corporation shareholders.
However, because the sole shareholder of the Company, the Norcal
Waste Systems, Inc. Employee Stock Ownership Plan and Trust (the
"ESOP"), is a tax-exempt employee stock ownership plan, it also
will not be subject to tax on its allocable share of the Company's
taxable income. Although S Corporations generally are not subject
to corporate-level income taxes, the Company, for so long as it
retains its status as an S Corporation, will be subject to (a)
potential income taxes related to the disposition of, or the
realization of income with respect to, certain built-in gain assets
(that is, any asset, such as real estate or securities, with a fair
market value greater than its tax basis as of October 1, 1998 or
income reported which relates to taxable periods prior to the
Company becoming an S Corporation, including, for example, income
subsequently reported by reason of a pre-existing change in
accounting method) which is recognized within 10 years from the
date of the election and (b) state income taxes at a rate of 1.5%.
Deferred tax assets and liabilities are eliminated when a taxable
<PAGE>
enterprise becomes a non-taxable enterprise and the effect of
recognizing or eliminating deferred tax assets or liabilities is
charged or credited to income tax expense in income from continuing
operations. Corporations that elect S Corporation status generally
are subject to tax under built-in gains provisions as previously
discussed and thus would be required to continue to recognize
deferred taxes associated with built-in gains. Deferred taxes
related to built-in gains for the Company include deferred taxes
for anticipated sales of real estate and other assets. In
addition, for subsidiaries of the Company that have not elected
to become Qualified Subchapter S Corporation Subsidiaries,
deferred taxes are maintained for existing tax liabilities. As
a result of the S Corporation election and the evaluation of
potential built-in gains, the Company had no changes to its total
deferred tax liability during the quarter and consequently there
was no income tax expense for the three months ended December
31, 1998.
However, it should be noted that on February 1, 1999, as part of
its fiscal year 2000 federal budget plan, the Clinton
Administration introduced a proposal which would subject employee
stock ownership plans, such as the ESOP, to current taxation on
their allocable share of an S Corporation's taxable income
(subject to the availability of deductions for certain
distributions by the ESOP to ESOP participants). This proposal,
if enacted in its current form, would be effective no sooner
than the fiscal year beginning October 1, 1999 for the Company
and the ESOP. There is no way to predict whether any such proposal
will ultimately be enacted into law, or when such a change in law
might be effective. If the legislation is enacted in its current
form, the Company could be subject to taxation at historical rates.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Litigation Regarding the ESOP Notes
In 1995, the Company and the ESOP settled litigation that had been brought
against them, together with (among others) certain financial institutions
as to which Norcal and/or the ESOP have certain indemnification obligations,
by certain former holders of prior notes issued by the ESOP (the
"Settlement"). The litigation was entitled Abraham, et al. v. Norcal Waste
Systems, Inc., et al., No. C94-3076 CAL, and was filed in the United States
District Court for the Northern District of California. Pursuant to the
Settlement, the claims against all defendants, including Norcal and the
ESOP, were dismissed with prejudice, with the exception of certain of
plaintiffs' claims against one of those financial institutions, as to which
the litigation proceeded. The court ruled that the Settlement was fair and
made in good faith, and barred any claims by that financial institution,
among others, against Norcal and the ESOP for equitable indemnity or
contribution relating to plaintiffs' released claims. That financial
institution later brought claims against Norcal and the ESOP relating
to the Settlement and alleging that Norcal and the ESOP have
post-Settlement indemnity obligations to the institution. After court
rulings in favor of Norcal and the ESOP, the financial institution
dismissed its remaining claims without prejudice to bringing them again.
In January 1999, the court granted summary judgment in favor of the
financial institution on all remaining claims of plaintiffs against
the financial institution. Should that financial institution attempt
to bring any further claims against Norcal or the ESOP related to the
Settlement or indemnity (following any appeal from the court's rulings
or otherwise), Norcal believes that such claims would have no merit and
that, it is unlikely that any liability on such claims would materially
exceed the amount of the financial institution's legal fees and expenses
following the Settlement which legal fees and expenses could be substantial.
San Francisco Union Arbitration.
See discussion relating to the Company's request for arbitration with Local
350 in San Francisco which appears in note 5 to the Consolidated Financial
Statements in Part 1 hereof and incorporated herein by reference.
DIR Determination Letter.
See discussion relating to the determination letter from the DIR received by
Company which appears in note 5 to the Consolidated Financial Statements
in Part 1 hereof and incorporated herein by reference.
Also see the Company's Annual Report for the year ended September 30, 1998.
<PAGE>
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On December 3, 1998, at a regular meeting of the Administrative Committee of
the Norcal Waste Systems, Inc. Employee Stock Ownership Plan (the " ESOP"),
the Committee approved the S Corporation election on behalf of the ESOP, as
sole shareholder of the Company.
Item 5. Other Information
None
Item 6. Exhibits and Certain Reports
(a) Exhibits:
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
NORCAL WASTE SYSTEMS, INC.
(Company)
/s/ Mark R. Lomele
Mark R. Lomele
Senior Vice President and
Chief Financial Officer
Dated: February 11, 1999
<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
THREE MONTHS ENDED DECEMBER 31, 1998 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 18,089
<SECURITIES> 5,552
<RECEIVABLES> 51,009
<ALLOWANCES> 2,361
<INVENTORY> 2,322
<CURRENT-ASSETS> 80,248
<PP&E> 270,846
<DEPRECIATION> 115,483
<TOTAL-ASSETS> 365,644
<CURRENT-LIABILITIES> 61,301
<BONDS> 176,021
0
0
<COMMON> 241
<OTHER-SE> 47,951
<TOTAL-LIABILITY-AND-EQUITY> 365,644
<SALES> 0
<TOTAL-REVENUES> 83,326
<CGS> 0
<TOTAL-COSTS> 74,352
<OTHER-EXPENSES> (939)
<LOSS-PROVISION> 349
<INTEREST-EXPENSE> 6,514
<INCOME-PRETAX> 3,050
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,050
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,050
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
