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lend to our industry. This covenant is known as the "Fixed Charge Covenant" or "FCC" and is simply a
<br />measure of how much cash a company has at any given period as compared to its obligation to pay
<br />principal and interest on its loans due during that period. Obviously, a company with only a 1:1 ratio
<br />would be seen as a significant risk to the bank since the slightest upset would make such a company
<br />unable to pay its debts (and below that, such payment would be impossible). So, banks typically require
<br />that a company maintain cash positions at least 120% greater than all its "Fixed Charges". The calculation
<br />is expressed as "EBITDA" ("Earnings Before Interest, Taxes, Depreciation & Amortization") less
<br />distributions to owners (to enable them to pay subchapter S taxes) divided by principal and interest
<br />payments.
<br />These numbers include the 4.01% rate increase already granted by the City of San Leandro as well as the
<br />new labor costs as of December 1, 2014.
<br />Figure I
<br />ALAMEDA COUNTY INDUSTRIES
<br />TWO LABOR SHIFTS WITHOUT REVENUE RATE INCREASES
<br />FINANCIAL STATEMENT COVENANTS
<br />YEARS ENDING JUNE 30, 2015 THROUGH JUNE 30, 2020
<br />2015 2016 2017 2018 2019 2020
<br />Net Income
<br />$ (277,293)
<br />$ (1,853,881) $
<br />(1,765,802) $
<br />(1,640,630)
<br />$ (1,700,357) $
<br />(1,239,795)
<br />Depreciation
<br />2,980,158
<br />2,887,141
<br />2,726,049
<br />2,562,513
<br />2,487,614
<br />1,876,944
<br />Amortization
<br />51,955
<br />42,988
<br />42,988
<br />42,583
<br />40,363
<br />29,110
<br />Interest expense
<br />465,326
<br />432,421
<br />339,220
<br />245,973
<br />182,855
<br />142,744
<br />Income taxes
<br />29,065
<br />48,336
<br />53,912
<br />58,078
<br />60,555
<br />72,017
<br />EBITDA
<br />$ 3,249,211
<br />$ 1,557,005 $
<br />1,396,368 $
<br />1,268,517
<br />$ 1,071,030 $
<br />881,020
<br />Principal payments
<br />City of San Leandro principal payments
<br />Interest expense
<br />Distributions
<br />FIXED CHARGES 2,849,963 4,091,861 4,020,051 2,735,311 1,832,807 1,721,381
<br />2,384,637
<br />465,326
<br />3,585,463 3,580,020 2,385,982 1,543,989 1,470,000
<br />73,977 100,811 103,355 105,963 108,637
<br />432,421 339,220 245,973 182,855 142,744
<br />FIXED CHARGE COVERAGE RATIO
<br />1.14 0.38 0.35 0.46 0.58 0.51
<br />As you can see, the Company is projected to be barely able to pay its debt service this year and will be in
<br />violation of the Fixed Charge Covenant Ratio. However the company, will not be able to make future
<br />payments unless further rate adjustments are made and, in fact, the Company would not be even close to
<br />being able to pay its bills. The bank would quickly declare a default and it is hard to foresee any other
<br />result than liquidation. There is a sense of urgency here in that the bank credit facility expires in June of
<br />this year. With that being said the company will need to be able to show the bank financial projections
<br />sufficient to meet fixed charge coverage ratios. This will require commitments from the cities of adequate
<br />rate increases as well as restructuring of debt with the bank
<br />Summary and Solution
<br />Alameda County Industries appreciates the support of the City of San Leandro in implementing the
<br />interim solution described and hopes it will have the support of San Leandro in a permanent solution
<br />which will allow the payment to our MRF employees of the new wage scales as agreed to in the L.O.U.
<br />with Local 6 while keeping the Company in compliance with its bank covenants. Alameda County
<br />Industries is requesting that the city of San Leandro adopt an initial rate increase of 4.3 percent specific
<br />to the increased labor costs. This coupled with future incremental increases as outlined above should
<br />provide sufficient revenue now and in the future for the company to re -negotiate its debt and continue
<br />providing service to San Leandro as well as pay future wage increases. The Waste and Recycling
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