Item 1. BUSINESS
General.
AMETECH, Inc. (the "Company") is an Oklahoma corporation and was formed in 1967.
Moorpark Holdings, Inc., a Delaware corporation ("Moorpark"), and its parent company, Bank of America of Illinois, would be considered to beneficially own 10,367,122 shares, or approximately 75.2% of the 13,785,032 shares of voting securities of the Company issued and outstanding as of April 9, 1996. As a result, Moorpark and its parent companies would be considered to be the controlling persons of the Company. Moorpark has advised the Company that it has acquired such shares as a passive investor and will hold such shares for investment purposes only. See "Security Ownership of Certain Beneficial Owners and Management -- Security Ownership of Certain Beneficial Owners".
On August 17, 1995, the Company, through a wholly-owned subsidiary, Environmental Transportation Services, Inc., an Oklahoma corporation ("ETS"), acquired all of the outstanding capital stock of Dwight Trucking, Inc., a California corporation ("Dwight Trucking"). Dwight Trucking is a transporter of hazardous and non- hazardous waste, with its principal offices and transportation terminal located in Bakersfield, California. In February, 1996, the Company merged Dwight Trucking into ETS and the Company intends to continue to operate the business of transporting hazardous waste and non-hazardous waste from the Bakersfield, California terminal through its subsidiary, ETS. The accompanying combined financial statements for the year ended December 31, 1995, aggregates the results of operations for the Company and Dwight Trucking as if such transaction has occurred on July 1, 1995.
On July 20, 1995, the Company's wholly-owned subsidiary, ETS, acquired substantially all of the assets of Arthur E. Smith & Son Trucking, Inc., a Nebraska corporation ("Smith Trucking"). The assets acquired from Smith Trucking are used in the transportation of hazardous waste from a terminal located in Denver, Colorado. The City of Denver requires a special use permit in order to operate a hazardous waste transportation terminal and to transfer such waste from one truck to another at such terminal. ETS is currently operating its terminal in Denver without having obtained such a special use permit. Failure to obtain such permit will require ETS to relocate its Denver terminal to another city in Colorado in which such a special use permit may be obtained.
Subsequent Events
In March, 1996, the Company's subsidiary, Environmental Transportation Services, Inc. ("ETS"), began leasing from Sullivan Trucking Company, Inc. ("Sullivan"), a certain number of hazardous waste tractors and trailers and has begun to utilize such equipment to transport waste for Sullivan's and ETS' customers. In connection with such lease, ETS is to pay Sullivan approximately $35,000 a month to lease from Sullivan such tractors and trailers and a certain number of roll-off boxes.
In connection with the transaction with Sullivan, the Company has reached a tentative agreement to acquire from Sullivan its customer list, good will, inventory, and other business aspects of Sullivan's hazardous waste transportation business. The Company believes that, in addition to the above-described lease arrangement, the Company will pay Sullivan approximately 1.4 million shares of the Company's common stock and will lease from Sullivan its transportation terminal in Ponca City, Oklahoma, for a term of approximately four (4) years at a rental of $3,800 per month. The Company and Sullivan are in the process of finalizing definitive agreements relating to these transactions.
Segment Information and Foreign and Domestic Operations and Export Sales.
The Company's principal business is providing environmental- related activities consisting primarily of transporting hazardous and non-hazardous waste, and, as a result, the Company believes that it is in only one business segment.
Other than its minority ownership (approximately 10%) in a waste company in Mexico, the Company had no foreign operations or export sales in 1995.
(a) Environmental Business
The Company's principal business (through its subsidiaries) is the transportation of hazardous and non-hazardous waste.
The Company's transportation business is provided primarily to generators and brokers of and disposal companies handling hazardous and non-hazardous waste. The Company's transportation subsidiary generally transports waste from the generator's location to disposal, storage or treatment sites operated and owned by others. The Company currently has transportation terminals in California, Colorado, Florida, Kansas, Ohio, Oklahoma, Tennessee, Texas, Utah, Virginia, and Washington. See "PROPERTIES". In 1995, approximately 95% of the Company's consolidated revenues were related to its transportation operations.
The Company and its subsidiaries own or lease specifically constructed multi-purpose vehicles which are used in the collection and transportation of hazardous and non-hazardous waste. The vehicles used to transport hazardous waste are specially designed tractors and semi-trailers to comply with applicable regulations of the U. S. Department of Transportation ("DOT") relating to the transportation of hazardous waste. The transportation of hazardous waste requires the Company to annually increase and/or update its fleet of these specially designed vehicles.
In the past, the Company, through subsidiaries, also performed brokerage services for certain generator-customers. These services required the Company to act as an intermediary for the generator- customer with the disposal facility. In 1994, the Company decided to deemphasize its brokering services due to the low margins and the potential liability related to such business. As a result, less than 1% of the Company's consolidated revenues for 1995 were related to the Company's brokerage activities.
A subsidiary of the Company operates a non-RCRA storage, bulking and transfer facility located in Green Cove Springs, Florida, under a permit granted by the State of Florida. This facility began operation in May, 1994, and is used to collect, store, and treat solid and semi-solid wastes which are non-hazardous in nature. The waste is then separated, processed and shipped to suitable disposal facilities. In connection with this permit, the Company owns a building on four acres of land. See "PROPERTIES". In addition to business explained above, this subsidiary also brokers non-hazardous waste. Revenues from this subsidiary accounted for approximately 3% and 1% of consolidated revenues in 1995 and 1994, respectively.
(b) Customers
The major customers of the Company in the environmental related business are hazardous waste management companies and hazardous waste brokers. For 1995, approximately 31% of the Company's consolidated revenues were derived from transportation-related activities for Laidlaw Environmental Services, Inc. and its affiliates, as compared to approximately 34% for 1994.
(c) Competition
The environmental services industry is highly fragmented and competition is intense. Competition is based on, among other factors, work quality and timeliness of performance, safety and efficiency, availability of personnel and equipment, and pricing. The Company believes that its expertise and its reputation within the industry for providing timely services allow it to compete effectively. The industry, however, is, and is likely to continue to be, dominated by much larger and better capitalized companies than the Company. Many of the major companies that own disposal
facilities for hazardous and non-hazardous waste, which the Company does not, compete with the Company's transportation subsidiary by offering to their customers transportation services of such waste from the site of generation to their disposal facilities.
(d) Environmental Damages and Personal Injury
The environmental activities involve significant risks inherent in the management of hazardous waste. Although the Company believes that its operations are conducted in a safe and prudent manner, spillage, uncontrolled release or mishandling of hazardous waste could create liability for the Company as the result of environmental damage or personal injury. Such an occurrence could have a material adverse effect on the business and financial condition of the Company.
(e) Regulation and Permits
The transportation business is subject to extensive and increasing federal, state, and local laws and regulations. In addition to imposing requirements on the Company's activities regarding hazardous waste, these regulations require the Company to maintain various permits in order to conduct its current transportation business. Permits are generally required by most, if not all, states for the transportation of hazardous waste in such states. These permits need to be renewed periodically and may be subject to revocation, modification, denial or nonrenewal for various reasons, including failure of the Company's transportation subsidiary to satisfy regulatory concerns. Regulations will require the Company to obtain additional permits in the future to expand its transportation business into new states.
In addition, the State of Florida requires the Company's subsidiary conducting the non-hazardous waste activities in Florida to obtain and maintain a permit to store and process non-hazardous waste at its facility in Florida. See "BUSINESS--Environmental Business".
The City of Denver, Colorado requires a special use permit to operate a hazardous waste terminal to transfer such waste from one truck to another at such terminal. ETS is currently operating its terminal in Denver without having obtained such a special use permit. Failure to obtain such permit will require ETS to relocate its Denver terminal to another city in Colorado in which such a special use permit may be obtained.
Failure by the Company to obtain and maintain necessary permits would have a material adverse effect on its business and financial condition. The Company believes it is in substantial compliance with existing regulatory requirements; however, the Company cannot predict what impact future laws, rules or regulations will have on its business or financial condition. Further, sometimes justifiable
differences in interpretations of laws and regulations could result in unforeseen liabilities. A failure to comply with such laws, rules and regulations could subject the Company to fines and penalties and/or revocation of permits issued by a state, which could have a material adverse effect on the Company.
A discussion of the principal environmental laws affecting the Company's Environmental Business is set forth below.
(i) RCRA and Federal Transportation Laws. The Resource Conservation and Recovery Act, as amended ("RCRA"), provides a comprehensive framework to regulate the generation, transportation, disposal, storage and treatment of hazardous waste. The purpose of RCRA is to control hazardous waste from the time such is generated to the time of disposal. RCRA requires that the Environmental Protection Agency's ("EPA") regulations as to the transportation of hazardous waste be consistent with the federal Department of Transportation ("DOT") regulations under the Hazardous Materials Transportation Act ("HWTA").
RCRA and HMTA regulate any party who transports hazardous waste, whether in interstate or intrastate commerce. These laws and the regulations promulgated thereunder regulate, among other things, the transportation of hazardous waste and provide that such is subject to a manifest system, regulates the record keeping concerning the source and deliver points of hazardous waste, the proper labeling of transported waste, equipment specifications and insurance requirements. In addition, these laws and the regulations promulgated thereunder require that a transporter must deliver waste in accordance with the manifest prepared by the generator of the waste and may only deliver such to a disposal, treatment or storage facility having a RCRA permit or interim status under RCRA.
Demand for the Company's transportation services is substantially dependent upon the continuation of the regulation of the treatment, disposal and transportation of hazardous waste under federal and state laws and regulations. The repeal of these laws or any significant relaxation of their requirements as to the transportation of hazardous waste could significantly reduce the demand for the transportation services offered by the Company and could have a material adverse effect on its business and financial condition.
(ii) Non-Hazardous Waste Management Activities in Florida. The State of Florida has adopted the Florida Solid and Hazardous Waste Management Act ("Florida Act"), which provides, among other things, that no non-hazardous waste management facility shall be constructed, operated, maintained, modified or closed in Florida without first obtaining a permit issued by the Florida Department of Environmental Regulations ("Florida Department"), with certain limited exceptions. In March, 1994, and before the Company's subsidiary began construction or operation of the facility in
Florida, such subsidiary was granted a permit by the Florida Department to construct and operate the non-hazardous waste storage, bulking and transfer facility in Florida. This law and the regulations promulgated thereunder regulate non-hazardous waste management facilities, such as the non-hazardous waste facility being operated by the Company's subsidiary in Florida.
(iii) Health and Safety Regulations. The operations of the Company's Environmental Business are subject to the requirements of the Occupational Safety and Health Act ("OSHA") and comparable state laws. Regulations promulgated under OSHA and the Department of Labor require employers of persons in the transportation and environmental industries, including independent contractors, to implement work practices and personal protection programs in order to protect employees from equipment safety hazards and exposure to hazardous chemicals. It is also anticipated that oversight of the Company's operations by regulatory agencies charged with protecting health and safety will increase, resulting in increased cost and a greater potential for imposition of penalties for noncompliance. The Company has used its best efforts to establish programs for complying with health and safety regulations. While the Company believes it operates safely and prudently, there can be no assurance that accidents will not occur or that the Company will not incur substantial liability in connection with the operation of its business. The Company could, for example, be subjected to litigation in the event of an accident, such as a traffic accident or inhalation of harmful chemicals. To the extent that any such claim was not covered or only partially covered by insurance, the Company could be materially adversely affected.
(iv) Superfund. In 1980, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, commonly known as "Superfund" or "CERCLA", was enacted.
Superfund provides for EPA-coordinated response and removal actions to releases of hazardous substances into the environment, and authorizes the federal government either to clean up facilities at which hazardous substances have created actual or potential environmental hazards or to order persons responsible for the situation to do so. Superfund also provides for the recovery of cost in connection with the clean-up of a site where hazardous substances have been released. Superfund attempts to allocate these responses and other related costs among parties involved in the generation, transportation and disposal of such hazardous substances. Superfund has been interpreted as creating among liable parties strict, joint and several liability for costs of removal and remediation, other necessary response costs and damage to natural resources. Liability under Superfund extends to four categories of parties: (i) owners and operators of a facility from which a release occurs, (ii) persons who owned or operated a facility at the time the hazardous substances were disposed of at such a facility, (iii) persons who arranged for disposal or treatment of a hazardous
substance at or transportation of a hazardous substance to such facility (i.e., generators of such hazardous substances), and (iv) transporters who selected such facility for treatment or disposal of hazardous substances.
Superfund also authorizes (i) private litigants who have incurred response costs in the clean-up of a site contaminated with hazardous substances to bring an action, under certain conditions, for contribution against other parties who may be liable under Superfund, and (ii) authorizes citizens suits under certain conditions against any person, including the United States, who is alleged to be in violation of any standard, regulation, condition or order which has become effective under Superfund.
In addition to Superfund, certain individual states have enacted their own statutory schemes to respond to release of hazardous substances, to order responsible parties to conduct removal action from liable parties. Parties who could be liable under the states' mini-Superfund statutes are generally the same parties that are liable under Superfund.
(f) Insurance
The Company is required to maintain specified types and amounts of insurance in order to conduct its current business of transportation of hazardous and non-hazardous waste. The availability of adequate insurance is a problem faced by the hazarded waste industry as a whole due to the limited number of insurers and the increasing cost of coverage. To the best of the Company's knowledge, the Company currently has insurance sufficient to satisfy all applicable regulatory requirements. Although the Company believes that it will be able to obtain renewals of, or replacements for its existing coverage, there can be no assurance that the Company will be able to maintain insurance in compliance with regulatory requirements. Failure to satisfy these regulatory insurance requirements could have a material adverse effect on the Company's business and financial condition.
(g) Employees
As of December 31, 1995, the Environmental Business of the Company had approximately 150 full-time employees, none of whom were represented by a union.
Item 2.
Item 2. PROPERTIES
The Company's environmental business is conducted through both owned and leased facilities. The Company and/or one of its subsidiaries owns a six-acre tract of land in Oklahoma City, Oklahoma, subject to a mortgage, which contains an office building of approximately 15,000 square feet. This facility is being used by the Company as its executive office, as well as the Company's
Oklahoma City transportation terminal. In addition, the Company owns approximately 7.2 acres of land in LaPorte, Texas, subject to a mortgage, on which the Company's subsidiary has constructed a 14,000 square foot truck terminal. The Company's subsidiary completed construction of the LaPorte terminal in February, 1994.
In addition, the Company and/or its subsidiaries leases transportation terminals in Bakersfield, California; Denver, Colorado; Jacksonville, Florida; Chanute, Kansas; Atoka, Tennessee; Salt Lake City, Utah; Martinsville, Virginia; and, Centralia, Washington. The Company's subsidiary also owns a terminal in Chattanooga, Tennessee, subject to a mortgage. The facilities in Bakersfield, California; Elyria, Ohio; Chattanooga, Tennessee; and LaPorte, Texas, contain office facilities. See "Business-- Regulations and Permits".
Additionally, a subsidiary of the Company owns approximately four acres of land and a 12,000 square foot building in Green Cove Springs, Florida. This facility is used for the bulking and transfer of non-hazardous waste under a permit granted by the State of Florida.
The Company believes that the above properties are suitable and adequate for the Company's presently anticipated needs.
Item 3.
Item 3. LEGAL PROCEEDINGS
In March, 1993, the Company was advised that its insurance carrier had denied coverage relating to a lawsuit filed by seven (7) individuals against Dyna-Turn of Oklahoma Incorporated ("Dyna-Turn") and a subsidiary of the Company, Environmental Transportation Services, Inc. ("ETS"), styled Darrell Stafford, et al. v. Dyna-Turn of Oklahoma Incorporated, et al., pending in the District Court of Oklahoma County, Oklahoma (the "Lawsuit"). The Lawsuit was filed in January, 1992. The plaintiffs were employees of a waste incineration facility and allege that (i) Dyna-Turn generated certain waste contaminated with toxic and hazardous chemicals; (ii) that the waste was transported by ETS, and (iii) that Dyna-Turn was negligent in the generation and ETS was negligent in the transportation of such waste and in failing to warn these plaintiffs of the hazardous nature of the waste. In the Lawsuit, the plaintiffs are alleging that they sustained certain personal injuries and are seeking unspecified damages in excess of $10,000 and punitive damages. The Lawsuit is presently in the discovery stage. The Company believes that it has defenses to the Lawsuit, but at this stage is unable to determine the amount of any potential exposure that it may incur as a result thereof. The Company intends to vigorously defend itself in the Lawsuit. At this time, the Company does not anticipate that the Lawsuit will have a material adverse effect on the Company or its financial condition, but there are no assurances to that effect.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
Item 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following are the executive officers of the Company:
At April 9, 1996, there were 1,143 holders of record of the Company's common stock, par value $.01.
The Company did not declare a cash dividend on its common stock in 1995 or 1994. It is anticipated that for the foreseeable future any earnings which may be generated from the operations of the Company will be used to finance its growth and that cash dividends will not be paid to holders of the common stock of the Company. Any decision by the Board of Directors of the Company to pay cash dividends in the future will depend upon, among other factors, the Company's earnings, financial condition and capital requirements.
Pursuant to the terms of the loan agreement between ETS, the principal operating subsidiary of the Company, and its lender, ETS is prohibited from, among other things, (i) declaring and paying any dividends, (ii) making any distributions on account of its stock, (iii) making any loans to the Company, or (iv) invest in the Company. Since the Company is a holding company, it is dependent upon its subsidiaries to pay dividends and make distributions to the Company before the Company is able to pay any dividends.
Item 6.
Item 6. SELECTED FINANCIAL DATA
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis should be read in conjunction with a review of the Company's December 31, 1995, Consolidated Financial Statements included elsewhere in this Form 10-K.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis should be read in conjunction with a review of the Company's December 31, 1995, Consolidated Financial Statements included elsewhere in this Form 10-K.
Results of Operations Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.
The net loss for 1995 was $362,000, as compared to net income in 1994 of $80,000. This decrease was due primarily to a decrease in the gross margin (revenues less operating costs) of $423,000, increased general and administrative costs of $245,000 and higher interest expense of $272,000.
Total revenues were $17,650,000 and $14,945,000 for 1995 and 1994, respectively, an increase of $2,705,000 or 18%. Revenues from transportation and related activities increased $2,325,000 while waste brokerage revenue decreased $160,000. Additionally, revenues related to BMH Materials, Inc. ("BMH"), the Company's subsidiary involved in the processing, brokering, and disposal of non-hazardous waste in Florida increased $341,000 over 1994. BMH began operations in May 1994. Other revenues consisting of site remediation and training services increased from $174,000 in 1994 to $377,000 in 1995, due to one remediation project.
Transportation and related revenues were $16,751,000 and $14,426,000 for 1995 and 1994, respectively; comprising 95% and 97% of total revenues. This increase is primarily attributable to an increase in transportation revenue of $2,398,000 resulting from the purchase of additional tractors, the purchase of Dwight Trucking, Inc.,("Dwight"), and the addition of tractors owned by owner/operators. The Company's transportation fleet logged 9,700,000 miles for 1995 as compared to 7,400,000 miles for 1994. This increase in miles was partially offset by a decrease in the running mile rate of $0.06.
Waste brokerage revenue decreased $160,000 from 1994 to 1995 as the Company continues to de-emphasize its brokerage business due to the lower margins and the potential liability related to the brokerage business.
Total operating costs increased from $10,082,000 in 1994 to $13,210,000 in 1995. This translates to an increase of 7.3 percentage points when expressed as a percentage of total revenue.
Operating costs related to transportation services increased $3,002,000 from 1994 to 1995. When expressed as a percentage of transportation and related revenues, operating costs were 75% and 66% of revenues for 1994 and 1995, respectively. This increase of nine percentage points is primarily attributable to the lower running mile rate as discussed earlier and to increased owner/operator and trailer rental expenses.
Operating costs for 1995 and 1994 related to waste brokerage services were $8,000 and $133,000, respectively, a decrease of $125,000, as a result of the Company de-emphasizing its brokerage activity as discussed above.
Operating costs related to the Company's non-hazardous waste facility in Florida increased $167,000 from 1994 to 1995. This facility began operations in May, 1994, and the increase is due principally to such facility being in operation a full year for 1995, as compared to seven months in 1994.
Operating costs related to site remediation increased $218,000 due to the project mentioned earlier.
General and administrative expenses increased $245,000, from 1994 to 1995 due primarily to increased travel and contract labor expenses and also to the general and administrative expenses incurred by Dwight.
Other expense decreased $49,000 due primarily to lower consulting fees.
Depreciation expense decreased $106,000 from 1994 to 1995. This decrease was due to increasing the useful life on tractors from seven to ten years which decreased depreciation for 1995 by $408,000.
Interest expense increased $272,000 due to higher interest rates and increased debt.
Results of Operations Year Ended December 31, 1994 Compared to Year Ended December 31, 1993.
The net income for 1994 was $80,000, as compared to a net loss of $184,000 for 1993. This increase of $264,000 was largely attrib- utable to a decrease in bad debt expense from 1993 to 1994 of $595,000, partially offset by a decrease in the gross margin (revenues less operating costs) of $208,000 from 1993 to 1994.
Total revenues were $14,945,000 and $14,377,000 for 1994 and 1993, respectively, an increase of $568,000. Revenues from transportation and related activities increased $997,000 while waste brokerage revenue decreased $752,000. Additionally, revenues related to BMH Materials, Inc. ("BMH"), the Company's subsidiary involved in the processing, brokering, and disposal of non-hazardous waste increased $176,000 over 1993. Other revenues consisting of site remediation and training services increased from zero in 1993 to $147,000 in 1994, due to one remediation project.
Transportation and related revenues were $14,426,000 and $13,429,000 for 1994 and 1993, respectively. These amounts represent 97% and 93% of total revenues for 1994 and 1993. This increase of $997,000 is attributable to 1) an increase in transportation revenue of $322,000; 2) an increase in subcontract and trip-leasing revenue of $518,000; and 3) an increase in other accessorial revenues of $212,000. These increases were partially offset by a decrease in roll-off box rental of $55,000. The Company's transportation fleet logged 7,400,000 miles for 1994, as compared to 7,200,000 for 1993. However, the running mile rate decreased $.01 per mile, partially offsetting the increase in volume.
Waste brokerage revenue decreased $752,000 from 1993 to 1994 as the Company continues to de-emphasize its brokerage business due to the lower margins and the potential liability related to the brokerage business.
Total operating costs were $10,082,000 and $9,306,000 for 1994 and 1993, respectively, an increase of $776,000 which translates to an increase of 2.7 percentage points when expressed as a percentage of sales.
Operating costs related to transportation activities were $9,573,000 in 1994 and $8,439,000 in 1993, an increase of $1,134,000. These costs were 66.4% and 62.8% of transportation revenues in 1994 and 1993, respectively. These costs increased due to increased volume as well as higher operating costs. Some of the higher operating costs include 1) drivers' wages; 2) repair and maintenance costs; 3) owner/operator expenses; and 4) communications costs. Additionally, transportation related operating costs were higher in 1994 due to increased sub-contracting and trip-leasing expenses. The Company anticipates that drivers' wages will continue to increase, and it is unknown at this time whether such increased cost can be offset by increases in transportation revenues.
Operating costs for 1994 and 1993 related to waste brokerage services were $133,0000 and $794,000, respectively, a decrease of $661,000, as a result of the Company de-emphasizing its brokerage activity as discussed above.
Operating costs related to BMH were $215,000 and $7,000 for 1994 and 1993, respectively. This increase is primarily a result of the opening of the Florida non-hazardous waste facility in 1994. See "BUSINESS -- Environmental Business"..
Operating costs related to site remediation and training services were $193,000 and $68,000 for 1994 and 1993, respectively. This increase was largely due to the one remediation project mentioned earlier.
General and administrative expenses decreased $19,000, from $2,304,000 in 1993 to $2,285,000 in 1994. When expressed as a percentage of sales, this results in a decrease of one percentage point from 1993 to 1994. While general and administrative expenses related to transportation activities actually decreased by $123,000, this was offset by BMH's general and administrative costs which increased in 1994 by $104,000, as a result of the start up of the Florida non-hazardous waste facility.
Other expense decreased $688,000 from 1993 to 1994 as shown in the schedule below:
Bad debt expense was higher in 1993 than in 1994, due to the write-off of the loans and accounts receivable related to Green Alternatives, Inc. Additionally, the Company sold some older tractors in 1994, resulting in a gain on sale of equipment of approximately $96,000.
Recently, several major waste management companies have eliminated, or are in the process of eliminating, their trans- portation operations. As a result, it is expected that those waste management companies that have eliminated, or will eliminate, their transportation operations will be employing the services of com- panies, such as the Company, to transport their hazardous and non- hazardous waste. The Company expects that such will have a favor-
able impact on the Company, but there are no assurances to that effect.
Subsequent Events
In March, 1996, the Company's subsidiary, Environmental Transportation Services, Inc. ("ETS"), began leasing from Sullivan Trucking Company, Inc. ("Sullivan"), a certain number of hazardous waste tractors and trailers and has begun to utilize such equipment to transport waste for Sullivan's and ETS' customers. In connection with such lease, ETS is to pay Sullivan approximately $35,000 a month to lease from Sullivan such tractors and trailers and a certain number of roll-off boxes.
In connection with the transaction with Sullivan, the Company has reached a tentative agreement to acquire from Sullivan its customer list, good will, inventory, and other business aspects of Sullivan's hazardous waste transportation business. The Company believes that, in addition to the above-described lease arrangement, the Company will pay Sullivan approximately 1.4 million shares of the Company's common stock and will lease from Sullivan its transportation terminal in Ponca City, Oklahoma, for a term of approximately four (4) years at a rental of $3,800 per month. The Company and Sullivan are in the process of finalizing definitive agreements relating to these transactions.
Liquidity and Capital Resources
Working capital increased from $192,000 at December 31, 1994 to $508,000 at December 31, 1995. This increase resulted primarily from decreased current maturities of long-term debt but was partially offset by cash used to fund certain capital expenditures that were not financed through the Company's existing equipment financing sources and to unprofitable operations. Additionally, working capital increased due to an increase in prepaid expenses of $200,000 related to capitalizing tires (see Note 3 of Notes to Consolidated Financial Statements).
In February 1996, the Company entered into a new credit Agreement, (the "Agreement") with a new lender which provides for a $3,000,000 line of credit for working capital purposes. This line of credit 1) is collateralized by accounts receivable, deposit accounts and certain intangible assets, 2) bears interest at the prime rate published by The Chase Manhattan Bank, N.A. plus 1.875%, and 3) provides for advances at 80% of eligible receivables. The note is due February 6, 1998 and there are no financial covenants associated with the Agreement. The interest on the note is payable monthly and principal payments are made as accounts receivable are collected. At December 31, 1995 and 1994, the Company had borrowed $1,549,000 and $1,559,000, respectively, under the former credit line. At April 10, 1996, the Company had borrowed $2,206,000 under the new line and had $96,000 of unused available borrowing capacity.
In March 1995, the Company entered into a third amended agreement with an equipment lender which was made a part of an existing agreement between the Company and this lender. Under the original agreement, the Company had refinanced a majority of its transportation equipment with this lender in September 1993. The third amended agreement provides for additional equipment financing for up to approximately $2,200,000 of equipment purchases. The terms under this third amendment are substantially the same as those contained in the original agreement. At December 31, 1995, the Company had borrowed $1,846,000 under this agreement. At December 31, 1995, the Company was not in compliance with certain loan covenants contained in the loan agreement. The Company has since renegotiated the loan covenants to accommodate the lower earnings expected in 1996 and is now in compliance with the loan covenants. Additionally, the lender has increased the interest rate by one percentage point. In 1996, The Company paid only the interest portion of the February and March loan payments due to a temporary cash flow shortage. The lender has agreed to let the Company pay the February and March principal payments in September and October 1996.
The Company made capital expenditures of $2,803,000 in 1995, which consisted primarily of transportation equipment. Additionally the Company purchased Dwight and certain assets of SST which required expenditures of $1,626,000 (net of cash acquired).
Effective July 20, 1995, the Company, wholly-owned transportation subsidiary, Environmental Transportation Services, Inc. ("ETS"), purchased from Smith Systems Transportation, Inc. ("SST"), certain of SST's transportation-related assets, which consisted primarily of assets comprising the hazardous waste transportation activities of SST. The Company paid approximately $519,000 for such assets, with approximately $495,000 borrowed by the Company under its equipment line of credit and the balance paid from working capital. In addition, ETS agreed that for a period of three years from July 20, 1995, to pay SST an amount equal to 4% of the net revenues collected and received by ETS from certain of SST's existing customers at the time of such acquisition, with certain limited exceptions, which will be paid from ETS' working capital. ETS did not assume any of the debts, obligations or liabilities of SST in connection with the acquisition of the assets. ETS leased a terminal previously utilized by SST, located in Denver, Colorado.
On August 17, 1995, ETS, the Company's wholly-owned transportation subsidiary, acquired all of the outstanding capital stock of Dwight, located in Bakersfield, California. Dwight is a hazardous waste transporter. Although the transaction was consummated on August 17, 1995 (the "Closing Date"), the parties agreed that for all purposes the transaction was to be deemed effective as of July 1, 1995 ("Effective Date"). The purchase price for the stock of Dwight was approximately $1,272,029 ("Purchase price"), which consisted of (i) $973,000, (ii) approximately
$160,657, which represented the aggregate amount of cash held by Dwight as of the closing, less cash (a) relating to services rendered or performed by Dwight on or after July 1, 1995, and (b) which constitutes deposits for future services, trust funds, escrow accounts or which is owned by parties other than Dwight, (iii) approximately $108,244, which represented an amount equal to ordinary and necessary business expenses of Dwight paid by Dwight from July 1, 1995, to the closing, (iv) $55,229, which represented an amount equal to the outstanding receivables of Dwight as of June 30, 1995, not collected as of the Closing Date (the "Receivables"), less (v) the liabilities of Dwight set forth on Dwight's balance sheet, dated June 30, 1995. At the Closing Date the Company paid approximately $1,216,800 of the Purchase Price, with approximately $160,651 being from cash held by Dwight, $233,144 from working capital and the balance through borrowings under the Company's equipment line of credit. Approximately $55,229 of the Purchase Price, being an amount equal to the Receivables, is to be paid in installments on or before the fifth business day of each month following the Closing Date. The amount of each installment shall be equal to the Receivables actually collected, in good funds, after the Closing Date by Dwight during the previous month. If any Receivables have not been collected by July 31, 1996, Dwight is to assign, without recourse and any representations or warranties, the unpaid Receivables in full satisfaction of the Company's obligation to pay the balance of the Purchase Price. In addition, the Company leased from the sellers of the stock of Dwight the transportation terminal located in Bakersfield, California, for a period of five years, at a rental of $2,900 per month, with an option to extend for another five-year term at a rental of $2,900 per month adjusted for cumulative increase in the consumer price index for the Southern California Region form commencement of the initial five-year lease term.
In February 1996, Carl Anderson, Jr., CEO and acting President, loaned the Company $195,000 bearing interest at 10% per annum. The loan is payable upon demand and the interest is payable monthly. The loan was for the Company's working capital purposes and is unsecured. The current outstanding balance on the loan is $195,000.
In order to generate additional liquidity, the Company is attempting to sell certain assets. With its present working capital line of credit and the anticipated proceeds resulting from the sale of certain assets, together with the collection of its receivables and expected income tax refund, the Company believes that it will be able to meet its presently foreseeable working capital requirements. This is a forward-looking statement and involves a number of uncertainties that could cause actual results regarding the Company's ability to meet its presently foreseeable working capital requirements to differ materially, including, but not limited to, the inability of the Company to sell such assets, the Company not being able to return to profitability in 1996 or its revenues materially decreasing from that anticipated in 1996, the
Company's inability to generate sufficient eligible receivables in order to fully utilize its present working capital line of credit, a material amount of receivables are not collected when anticipated and/or the Company does not receive the tax refund as expected.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company has included the financial statements and supplementary financial information required by this item immediately following Part IV of this report and hereby incorporates by reference the relevant portions of those statements and information into this Item 8.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
Directors.
The Certificate of Incorporation of the Company provides that the number of directors shall be as set forth in the Bylaws, and the Bylaws provide for no less than four (4) nor more than nine (9) directors. Pursuant to the Bylaws, the Board of Directors has set the number of directors at four (4). Each director serves for a term of one (1) year or until their respective successors are duly elected and qualified.
Family Relationships. There are no family relationships between the members of the Board of Directors of the Company.
Compliance with Section 16(a) of the Exchange Act. Based solely on review of copies of the Forms 3, 4 and 5 and amendments thereto furnished to the Company with respect to 1995, or written representations that no such reports were required to be filed with the Securities and Exchange Commission, the Company believes that during 1995 all directors and officers of the Company and beneficial owners of more than ten percent (10%) of any class of equity securities of the Company registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act") filed timely all Forms 3, 4, or 5, as required by Section 16(a) of the Exchange Act, except (i) Jay T. Edwards filed one late Form 3 to report his election to the Company's Board of Directors, and (ii) Mark Helm and Craig Schroder each filed one late Form 3 to report their election as officers of the Company.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The following table shows the aggregate cash compensation which the Company and its subsidiaries paid or accrued to the Chief Executive Officer of the Company. None of the four most highly paid executive officers of the Company received total compensation, including salary and bonus, for the last completed fiscal year in excess of $100,000. The table below includes cash distributed for services rendered during 1995, plus any cash distributed during 1995 for services rendered in a prior year, plus amounts deferred at the election of the named executive officer, less any amount relating to those services previously included in the cash compensation table for a prior year.
401-K. The Company has adopted an Employee Savings Plan ("401- K Plan") for its employees of the Company and its subsidiaries, with certain exceptions. The 401-K Plan provides for employee contribution, and further provides the Company may, in the Company's sole discretion, contribute to the 401-K Plan matching contributions in an amount determined by the Company. Under the 401-K Plan the Company may choose not to make matching contributions. For an employee to be eligible to participate under the 401-K Plan, the employee must complete six months of service, attain the age of 21 years and enter into a written salary reduction agreement with the Company. An employee may not contribute more than 15% of his annual compensation into the 401-K Plan. If the Company, in its sole discretion, decides to make any matching contribution in a particular year, such match will be allocated only to employee participants who make a salary reduction contribution to the 401-K Plan of at least 5% of their compensation during the plan year based on a formula set forth in the 401-K Plan. The employee partici- pants' contributions to the 401-K Plan are 100% vested when made, and any match made by the Company becomes 100% vested when allocated. The employee participant may, at his election, allocate his contribution and the contributions of the Company among one or more of four (4) investment alternatives, including the Company common stock. The Company did not make matching contributions to the 401-K Plan during 1995.
Compensation Pursuant to Stock Option Plans. The Company has adopted an incentive stock option plan (the "Plan") in order to attract, retain and motivate, and to encourage stock ownership by key employees and officers of the Company and its subsidiaries. A Stock Option Committee of the Board of Directors administers the Plan and selects the officers and employees to whom options may be granted and determines the number of shares to be governed by each. None of the executive officers of the Company named in the above Summary Compensation Table were granted options in 1995.
The total number of shares of Company common stock for which options may be granted under the Plan shall be 400,000 shares, less the number of shares subject to options outstanding as of October 3, 1989, and granted on or after June 12, 1980, and prior to October 3, 1989, under the stock option plan then in effect. In the event that options granted under the Plan, or options outstanding on October 3, 1989, under the predecessor to the Plan, shall lapse without being exercised in whole or in part, other options may be granted covering the shares not purchased under such lapsed options. The aggregate fair market value of shares as of the date of the grant with respect to which options are exercisable for the first time may not exceed $100,000. The exercise price of each option granted under the Plan may not be less than 100% of the fair market value of the common stock on the date of the grant (110% in the case of options granted to employees owning more than 10% of common stock of the Company). Each option granted under the Plan will not be exercisable more than 5 years from the date the option is granted.
In addition, the Company has adopted a stock option plan for non-employee directors of the Company ("Non-Employee Director Plan"). Under the Non-Employee Director Plan the Company may grant options to non-employee directors of the Company to purchase up to 100,000 shares of the Company's common stock. The maximum aggregate number of shares of Company common stock which may be subject to options granted under the Non-Employee Director Plan to any one non- employee director may not exceed 20,000 shares. Any option granted under the Non-Employee Director Plan may not exceed a term of five (5) years and the exercise price of such option may not be less than the fair market value of the Company's common stock on the date of the grant. Under the Non-Employee Director Plan, a Stock Option Committee of the Board of Directors supervises the administration of such plan and determines the number of shares to be subject to each option granted under the Non-Employee Director Plan. No options were granted under the Non-Employee Director Plan in 1995.
Compensation of Directors. In 1995, the Company compensated the non-employee directors of the Company in the amount of $500.00 for each meeting of the Board of Directors attended, and compensated Mr. Anderson $1,000.00 per month for his services as Chairman of the Board. Directors that also are employees of the Company or its sub- sidiaries are not paid for serving as a director. The Board of Directors held five (5) meetings during 1995.
Compensation Committee Interlocks and Insider Participation. The compensation of all officers of the Company is set by the Board of Directors. As noted, Carl B. Anderson, Jr. is both a director and an officer of the Company.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following persons or entities are known to the Company to be beneficial owners of more than 5% of the Company's common stock as of April 9, 1996. Due to the requirements of the Securities and Exchange Commission as to the method of determining the amount of shares an individual or entity may beneficially own, the amounts shown below for an individual or entity may also include shares also considered beneficially owned by others.
Security Ownership of Directors and Executive Officers. The following table sets forth the number and percentage of the outstanding shares of the Company's common stock beneficially owned by each current director, each of the officers named in the "Summary Compensation Table" and by all directors and officers as a group as of April 9, 1996. Because of the requirements of the Securities and Exchange Commission as to the method of determining the amount of shares an individual or entity may beneficially own, the amounts shown below for an individual or entity may include shares also considered beneficially owned by others.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the Company's course of business, the Company purchased 20 roll-off boxes in 1995 at an aggregate purchase price of $120,844 from 5-Star Fabrication, Inc. ("5-Star"). In addition, the Company utilizes the services of 5-Star in the repair of the Company's roll-off boxes. Mr. Anderson is the owner of approximately 50% of 5-Star. The The Company believes that its transactions with 5-Star are on a basis which is favorable to the Company.
In February 1996, Carl Anderson, Jr., CEO and acting President, loaned the Company $195,000 bearing interest at 10% per annum. The loan is payable upon demand and the interest is payable monthly. The loan was for the Company's working capital purposes and is unsecured. The current outstanding balance on the loan is $195,000.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following consolidated financial statements of the Company appear immediately following this Part IV:
Report of Independent Certified Public Accountants
Board of Directors AMETECH, Inc.
We have audited the accompanying consolidated balance sheets of AMETECH, Inc. (an Oklahoma corporation) and subsidiaries, as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AMETECH, Inc. and subsidiaries, as of December 31, 1995 and 1994, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for tires in service in 1995.
GRANT THORNTON LLP
Oklahoma City, Oklahoma February 9, 1996 (except for the penultimate paragraph of Note 6, as to which the date is April 12, 1996)
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1994, the Company acquired property and equipment at $62,000 through trade accounts payable.
The Company purchased businesses in the year ended December 31, 1995. In conjunction with the acquisitions, liabilities were assumed as follows:
The accompanying notes are an integral part of these financial statements.
AMETECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
AMETECH, Inc., an Oklahoma corporation, and its subsidiaries (the Company) are engaged primarily in the transportation of hazardous and non-hazardous waste on a nation-wide basis. The Company is a majority owned subsidiary of Moorpark Holding, Inc., a Delaware Corporation. The Company's accounting policies are described below.
Basis of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Environmental Transportation Services, Inc. (ETS), Environmental Field Services, Inc. (EFS), BMH Materials, Inc. (BMH), Dwight Trucking, Inc. (Dwight), and Compliance Training Services, Inc. (CTS), after elimination of significant intercompany transactions and balances.
Accounts Receivable - The Company provides reserves on specific accounts based upon whether the Company reasonably believes that collection of a specific account is questionable plus a general reserve on uncollected balances based on the aging of accounts receivable. If the Company reasonably believes that the collection of a specific account, or a portion thereof, is questionable, after examination of that account, then the Company will reserve that portion on which it feels collection is questionable. The Company provides a bad debt reserve each month based on historically uncollectible amounts as adjusted for current economic conditions. The allowance for estimated uncollectible amounts was $79,000 and $58,000 at December 31, 1995 and 1994, respectively. The Company grants credit to various customers, primarily hazardous waste management companies and hazardous waste brokers, under customary trade terms. To mitigate the risk of credit loss, the Company performs a credit review of new customers and establishes credit limits before extending credit.
Major Customers - At December 31, 1995, one customer accounted for 19% of the accounts receivable balance. During 1995, one customer accounted for 31% of the total revenue. During 1994, one customer accounted for 34% of total revenue and during 1993, one customer accounted for 28% of total revenue.
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (Continued)
Property and Equipment - Depreciation of transportation and other equipment is computed using the straight-line method over the estimated useful lives of the respective assets, which range from three to ten years.
Buildings are depreciated on the straight-line method over 30 years. Expenditures for repairs and maintenance are charged to expense when incurred, whereas major betterments are capitalized.
Inventories - Supply inventory is priced at cost, not in excess of market. Supplies are charged to expense when utilized for repair or maintenance of equipment. Supply inventory of $220,000 and $177,000 at December 31, 1995 and 1994, respectively, are included in other current assets on the Consolidated Balance Sheets.
Income Taxes - Effective January 1, 1993, the Company adopted the Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 required a change from the deferred method to the liability method of accounting for income taxes. Under the liability method, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the carrying amounts and the tax bases of existing assets and liabilities. See note 8.
Earnings (Loss) Per Share - Earnings (Loss) per common share for 1995, 1994, and 1993 are based upon the weighted average number of common shares and dilutive common share equivalents outstanding during the respective years.
Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Intangible Assets - Cost in excess of net assets of businesses acquired is amortized on the straight line basis over a fifteen year period. The Company assesses the recoverability of costs in excess of net assets of businesses acquired by determining whether the amortization of the asset balance over its remaining life can be recovered through the undiscounted future operating cash flows of the acquired operation. The amount of impairment, if any, is based on projected future operating cash flows. The Company believes that no impairment has occurred and that no reduction in the estimated useful life is warranted.
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (Continued)
Tires in Service - The cost of new and replacement tires is capitalized and included in prepaid assets and amortized on a straight-line basis over the estimated useful life of the tires of one to two years.
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
2. FINANCIAL INSTRUMENTS
The following table includes various estimated fair value information as of December 31, 1995 as required by Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS 107). Such information, which pertains to the Company's financial instruments, is based on the requirements set forth in SFAS 107 and does not purport to represent the aggregate net fair value of the Company. The carrying amounts in the table are the amounts at which the financial instruments are reported in the consolidated financial statements.
All of the Company's financial instruments are held for purposes other than trading.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
1. Cash and Cash Equivalents
The carrying amount approximates fair value because the Company has the contractual right to receive immediate payment on the deposit accounts.
2. Notes Receivable
The discounted amount of future cash flows using the rate that the Company would expect to obtain on similar transactions is used to estimate fair value.
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FINANCIAL INSTRUMENTS (Continued)
3. Fixed Rate Long-Term Debt
The discounted amount of future cash flows using the Company's current incremental rate of borrowing for similar liabilities is used to estimate fair value.
4. Floating Rate Long-Term Debt
The carrying amount approximates fair value because interest rates adjust to market rates.
The carrying amounts and estimated fair values of the Company's financial instruments are as follows:
3. CHANGES IN ACCOUNTING PRINCIPLE AND ESTIMATE
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 required a change from the deferred method to the liability method of accounting for income taxes. Prior years were not restated and the cumulative effect of the change, which is $4,000, is shown as a charge to earnings in the 1993 Statement of Operations.
Additionally, the Company changed its method of accounting for replacement tires effective January 1, 1995. The Company now capitalizes the cost of replacement tires to more closely approximate their useful lives. The capitalized cost of the tires is included in prepaid assets and is amortized over the estimated useful life of the tires of one to two years.
Prior years were not restated and the cumulative effect of the change is to decrease the net loss for 1995 by $132,000, net of income taxes of $42,000, or $.01 per share. The pro forma amounts on the income statement show the net earnings (loss) and net earnings (loss) per share as if the new accounting method had been in effect for the periods presented.
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CHANGES IN ACCOUNTING PRINCIPLE AND ESTIMATE (Continued)
Effective January 1, 1995, the Company changed the estimated useful life for tractors from seven to ten years to more closely approximate the useful lives of such assets. The effect of this change was to decrease the net loss for 1995 by $319,000 ($.02 per share), summarized as follows:
4. DISPOSITION OF SUBSIDIARY
In January 1992, the Company sold its wholly owned subsidiary which operated the "One-Call Business." The transaction was valued at approximately $900,000 which included $200,000 in cash, a note receivable for $485,000 payable in monthly installments over seven years, 60,000 shares of the Company's common stock, and an agreement requiring the purchaser to pay an additional $125,000 in the future. The transaction resulted in an approximate gain of $192,000 which is being recognized over the term of the note (through February 1998). $50,000, $27,000 and $23,000 of such gain was recognized in 1995, 1994 and 1993, respectively. The balance of the note receivable and the additional amount due in the future was $290,000 and $388,000 at December 31, 1995 and 1994, respectively. The long-term portion of such amounts are included in Other Assets on the Consolidated Balance Sheets ($197,000 and $288,000 at December 31, 1995 and 1994, respectively) and the current portion of such amounts are included in Accounts Receivable ($93,000 and $100,000 at December 31, 1995 and 1994, respectively).
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM OBLIGATIONS (continued):
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM OBLIGATIONS (continued):
At December 31, 1995, the aggregate yearly maturities due on long- term obligations are as follows:
In October, 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation". Application of SFAS 123 will require the Company to make an election to value stock options under a fair value based method as prescribed by SFAS No. 123 or continue using the method as prescribed by APB Opinion No. 25, "Accounting For Stock Issued to Employees". Initial adoption is required in 1996. The Company has not yet decided on which valuation method will be elected.
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAX EXPENSE
Tax expense consists of the following:
The income tax provision reconciled to the tax computed at the statutory Federal rate was:
AMETECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAX EXPENSE (continued)
Amounts of deferred tax assets, valuation allowance, and deferred tax liabilities at December 31, 1995 and December 31, 1994 are as follows:
At December 31, 1995, the Company has income tax refunds of $312,000 for amounts paid for estimated income taxes and taxes paid in prior years, primarily resulting from the net operating loss carryback provisions of the Internal Revenue code. These amounts are included in Other Current Assets on the Consolidated Balance Sheet.
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The reconciliation of net earnings (loss) to net cash provided by operating activities for the years ended December 31, 1995, 1994, and 1993, is as follows:
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Company had outstanding letters of credit of $216,000. The letters of credit serve as security to obtain licenses in certain states, for uninsured workman's compensation deposits and for performance of services. Such letters of credit reduce the amounts which can be drawn under the Company's $2,000,000 line of credit (Note 6).
The Company is partially uninsured on its workers' compensation insurance for Oklahoma employees. The Company s retention under this plan is $500,000, after which coverage under the excess workers' compensation insurance plan becomes effective. The Company accrues estimated losses monthly based on a review of claims filed and claims incurred but not reported. The claim and premium expense incurred under the partially uninsured workers' compensation plan was $133,000, $58,000 and $48,000 for 1995, 1994 and 1993, respectively.
The Company is also partially uninsured for its employee group health insurance coverage. Under this program, the Company is liable for up to of $35,000 per covered person per year with an aggregate liability not to exceed $450,000 per year for the total group. The excess insurance coverage becomes effective when the aforementioned limits are reached. The Company accrues estimated losses monthly based on a review of claims filed and claims incurred but not reported. The claim and premium expense incurred under the Company's partially uninsured group health insurance plan was $233,000, $250,000 and $218,000 for 1995 1994 and 1993, respectively.
The Company leases transportation terminals and office space under operating lease arrangements. The following is a schedule by year of future minimum lease payments under these operating leases.
Year Ending December 31, Total ___________ ___________
1996 $ 85,000 1997 51,000 1998 30,000 1999 25,000 2000 10,000 ___________ $201,000 ===========
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (Continued)
Total lease expense for the years ended December 31, 1995, 1994, and 1993 was approximately $135,000, $113,000, and $128,000, respectively.
The Company provides an employee savings plan ("401-K Plan") for its employees. The 401-K Plan provides for employee contributions, and further provides the Company may, at its discretion, make a matching contribution to the 401-K Plan in an amount determined by the Company. If the Company decides to make any matching contribution, such match will be allocated only to employee participants who make a salary reduction contribution of at least 5% of their compensation. Under the Company's Plan, up to 10% of the fair market value of the Plan's assets may be used to purchase company stock. The Plan purchased 67,824, 76,662, and 53,444, shares for $16,000, $22,000, and $30,000 in 1995, 1994, and 1993, respectively. There was no Company contribution to the 401-K Plan for 1995, 1994, or 1993.
The Company has employment agreements with certain of its key employees which provide for salary continuation for a specified number of months upon a change of control of the Company. In addition, certain stock options to those employees immediately vest upon a change of control.
On January 3, 1992, seven individual plaintiffs filed a Petition against the Company's transportation subsidiary, Environmental Transportation Services, Inc. ("ETS"), and Dyna- Turn of Oklahoma Incorporated ("Dyna-Turn"), in the District Court of Oklahoma County. The seven plaintiffs, who were employees at a waste incineration facility in Miami, Oklahoma, claim that Dyna-Turn generated solid waste which was contaminated with toxic and hazardous chemicals, and that this solid waste was transported by ETS to the incineration facility for disposal. The plaintiffs claim that Dyna-Turn and ETS were engaged in ultra-hazardous activities during the generation and transportation of the waste, were negligent during the generation and transportation of the waste, and failed to warn the plaintiffs of the hazardous nature of the waste or of its harmful side effects.
The plaintiffs claim they sustained personal injuries and lost earnings and are seeking unspecified actual damages in excess of $10,000 and punitive damages.
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (Continued)
In March 1993, the Company learned that its insurance carrier had denied coverage for the plaintiffs' claims. The Company has instructed its attorneys to vigorously defend the litigation. The case is in its early stages and involves facts yet unknown to the Company. The Company believes that ETS has valid defenses to the plaintiffs' claims, and while the ultimate resolution is unknown, management believes the final outcome will not have a material adverse impact on the Company's financial position or results of operations.
The Company is involved in various other legal actions arising in the normal course of business. After taking into consideration available insurance coverage, legal counsel s evaluation of such actions, and other relevant information, management is of the opinion that their outcome will not have a significant effect on the Company s consolidated financial position or results of operations
11. RELATED PARTY TRANSACTIONS
During 1995, 1994 and 1993, the Company purchased certain fixed assets totaling approximately $147,000, $187,000, and $34,000, respectively from a company partially owned by a director and officer of the Company.
12. ACQUISITION OF ASSETS OF SMITH SYSTEMS TRANSPORTATION, INC.
Effective July 20, 1995, the Company purchased from Smith Systems Transportation, Inc. ("SST"), certain of SST's transportation-related assets, which consisted primarily of assets comprising the hazardous waste transportation activities of SST, for approximately $519,000. Pursuant to the agreement between the Company and SST, the Company is to also pay to SST an amount equal to 4% of net revenues collected and received by ETS from certain of SST's existing customers at time of closing, with certain limited exceptions, during the period of the first three years from the date of the agreement. In the purchase transaction, the Company did not assume any of the liabilities of SST and the operations of the acquisition have been included since July 20, 1995. Such operations do not constitute a significant business acquisition and pro forma results are not presented.
AMETECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. ACQUISITION OF DWIGHT TRUCKING, INC.
Effective July 1, 1995, the Company acquired a hazardous and non-hazardous waste transporter, Dwight Trucking, Inc. ("Dwight"), located in Bakersfield, California. The purchase price was approximately $1,204,000 and has been accounted for as a purchase transaction. As a result the Company has allocated the total cost of the acquisition to the acquired assets and assumed liabilities, based on their relative fair values. The results of operations of Dwight have been included in the Company s consolidated financial statements since July 1, 1995. Cost in excess of the net assets acquired was approximately $323,000 which is included in other assets at December 31, 1995.
In addition, the Company leased from the sellers of the stock of Dwight the transportation terminal located in Bakersfield, California, utilized by Dwight, for a period of five years, at a rental of $2,900 per month, with an option to extend for another five-year term at a rental of $2,900 per month adjusted for cumulative increase in the consumer price index for the Southern California Region from commencement of the initial five-year lease term.
The following summarized pro forma unaudited information assumes the acquisition had occurred on January 1, 1994: