<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From________________ To _________________
Commission File Number 1-9108
CHAMBERS DEVELOPMENT COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 25-1214958
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10700 FRANKSTOWN ROAD
PITTSBURGH, PENNSYLVANIA
15235
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(412) 242-6237
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---------- ----------
Number of shares of common stock outstanding as of November 1, 1994:
Common Stock: 15,959,968
Class A Common Stock: 50,829,159
<PAGE> 2
CHAMBERS DEVELOPMENT COMPANY, INC.
<TABLE>
<CAPTION>
INDEX
Page
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1994 and 1993 3
Condensed Consolidated Statements of Operations for the
Nine Months Ended September 30, 1994 and 1993 4
Condensed Consolidated Balance Sheets at September 30,
1994 and December 31, 1993 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1994 and 1993 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition 19
and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports 29
SIGNATURE
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
- - ------------------------------------------------------------
Three Months Ended September 30,
-------------------------------
1994 1993
- - ------------------------------------------------------------
<S> <C> <C>
REVENUES $67,136 $75,274
COSTS AND EXPENSES
Operating 46,110 48,313
General and administrative 5,078 5,936
Depreciation and amortization 9,351 11,071
Unusual items - operations -- (11,532)
-------- -------
Income from Operations 6,597 21,486
OTHER INCOME (EXPENSE)
Unusual items - Shareholder
litigation settlement and
other litigation related costs (74,100) (5,000)
Other income, primarily interest 511 1,152
Interest expense (5,652) (7,451)
-------- -------
(Loss) Income Before Income Taxes (72,644) 10,187
Provision for Income Taxes 75 660
-------- -------
Net (Loss) Income $(72,719) $ 9,527
======== =======
(LOSS) INCOME PER COMMON SHARE $ (1.09) $ .14
======== =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 66,789 66,788
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
- - ------------------------------------------------------------
Nine Months Ended September 30,
------------------------------
1994 1993
- - ------------------------------------------------------------
<S> <C> <C>
REVENUES $195,546 $218,839
COSTS AND EXPENSES
Operating 134,855 148,422
General and administrative 16,197 17,274
Depreciation and amortization 28,886 31,067
Unusual items - operations -- (16,853)
-------- --------
Income from Operations 15,608 38,929
OTHER INCOME (EXPENSE)
Unusual items - Shareholder
litigation settlement and other
litigation related costs (74,100) (5,000)
Other income, primarily interest 1,763 2,832
Interest expense (16,811) (22,758)
-------- --------
(Loss) Income Before Income Taxes (73,540) 14,003
Provision for Income Taxes 294 1,185
-------- --------
Net (Loss) Income $(73,834) $ 12,818
======== ========
(LOSS) INCOME PER COMMON SHARE $ (1.11) $ .19
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 66,789 66,788
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
- - ----------------------------------------------------------------
September 30, December 31,
1994 1993
--------------------------
(Unaudited)
- - ----------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 39,946 $ 44,553
Accounts receivable
Trade, less allowances of
$1,077 and $1,062, respectively 30,007 28,573
Other 12,477 2,977
Divestiture proceeds held in escrow 536 11,287
Net assets held for sale 8,104 11,030
Other current assets 8,715 10,085
-------- --------
Total current assets 99,785 108,505
-------- --------
PROPERTY AND EQUIPMENT, less
accumulated depreciation and
amortization of $151,853 and
$128,730, respectively 358,242 357,011
-------- --------
OTHER ASSETS
Funds held for escrow requirements
and construction 24,399 31,954
Other 31,067 36,152
-------- --------
Total other assets 55,466 68,106
-------- --------
$513,493 $533,622
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Per Share Amounts)
- - ------------------------------------------------------------------
September 30, December 31,
1994 1993
--------------------------
(Unaudited)
- - ------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
obligations $ 40,919 $ 29,748
Trade accounts payable 10,841 9,344
Accrued liabilities 59,713 30,448
Other current liabilities 5,813 8,898
-------- --------
Total current liabilities 117,286 78,438
LONG-TERM OBLIGATIONS,
LESS CURRENT MATURITIES 227,526 261,803
ACCRUED SHAREHOLDER LITIGATION SETTLEMENT 45,000 --
OTHER NONCURRENT LIABILITIES 43,339 39,208
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred Stock - authorized
10,000,000 shares; no par value;
no shares issued -- --
Class A Common Stock - authorized
100,000,000 shares; par value $.50
per share; issued 50,829,559 and
50,742,377 shares, respectively 25,415 25,371
Common Stock - authorized 50,000,000
shares; par value $.50 per share;
convertible into Class A Common
Stock; issued 16,329,168 and
16,415,750 shares, respectively 8,165 8,208
Additional paid-in capital 395,121 395,119
Accumulated deficit (344,209) (270,375)
-------- --------
84,492 158,323
Treasury stock, at cost -
Class A Common Stock, 400 shares;
Common Stock, 369,200 shares (4,150) (4,150)
-------- --------
Total stockholders' equity 80,342 154,173
-------- --------
$513,493 $533,622
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
<TABLE>
<CAPTION>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
- - ------------------------------------------------------------------
Nine Months Ended September 30,
------------------------------
1994 1993
- - ------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by continuing
operations $27,416 $22,399
Net cash used in discontinued operations -- (1,877)
------- -------
Net cash provided by operating
activities 27,416 20,522
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (27,904) (29,279)
Proceeds from disposition of assets 3,127 13,078
Decrease in funds held in escrow 16,606 1,415
Other 706 (547)
Proceeds from sale of discontinued
operations -- 4,500
------- -------
Net cash used in investing activities (7,465) (10,833)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term
obligations (23,931) (19,662)
Receipt of funds previously used to replace
letters of credit -- 10,243
Other (627) (784)
------- -------
Net cash used in financing activities (24,558) (10,203)
------- -------
Net decrease in cash and cash equivalents (4,607) (514)
Cash and cash equivalents at beginning
of period 44,553 45,899
------- -------
Cash and cash equivalents at end of
period $39,946 $45,385
======= =======
NONCASH FINANCING ACTIVITIES
Capital lease obligations $ 182 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A - FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Chambers Development Company, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X
of the Securities and Exchange Commission. They do not include all information
and footnotes which would be required by generally accepted accounting
principles for complete financial statements. These financial statements
should be read in conjunction with the consolidated financial statements and
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993. In the opinion of management, these financial statements
contain all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of financial position, results of operations
and cash flows for the periods presented. Operating results for the three- and
nine-month periods ended September 30, 1994 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1994.
Certain reclassifications have been made to prior periods' financial statements
to conform to current periods' classifications.
NOTE B - PROPOSED SETTLEMENT OF SHAREHOLDER LITIGATION
As discussed in the Company's financial statements for the year ended December
31, 1993, between March 18, 1992 and May 7, 1992, various Company shareholders
filed actions in the United States District Court for the Eastern District of
Pennsylvania asserting federal securities fraud claims and pendent state law
claims against the Company, certain of its officers and directors, its former
auditors, and the underwriters of its securities. The significant part of
these actions, as amended and consolidated on November 4, 1992, under the
caption In Re: Chambers Development Company, Inc. Shareholders Litigation,
Civil Action No. 92-0679, and brought on behalf of a claimed class of
purchasers of the Company's securities between March 18, 1988 and October 20,
1992, is the allegation that the decrease in the Company's stock price during
the period from the Company's March 17, 1992 announcement of a change in
accounting method relating to capitalization of certain costs and expenses
through its October 20, 1992 announcement of a $362 million reduction in
retained earnings as of December 31, 1991, as compared to the amount previously
reported, and a restatement of its 1990 and 1989 consolidated financial
statements, was caused by the Company's misrepresentation of its earnings and
financial condition. Derivative claims were also filed in federal and state
courts on behalf of the Company (which was named as a nominal defendant) for
breach of fiduciary duty against certain of its officers and directors and for
negligence against its former auditors.
On November 18, 1994, the Company and shareholder representatives executed
memoranda of understanding to settle and dismiss the class actions and
derivative actions. Pursuant thereto, the parties intend to prepare and submit
to the court a formal settlement agreement providing for the payment
8
<PAGE> 9
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
by the Company to the plaintiff class of $80,000,000. Of that amount,
$10,000,000 would be paid from proceeds of the Company's directors and officers
liability insurance policy, and $70,000,000 would be paid by the Company in two
installments following final court approval, the first in the amount of
$25,000,000 to be paid five days after such approval and the second in the
amount of $45,000,000 to be paid one year after such approval. John G. Rangos,
Sr., Chairman and Chief Executive Officer of the Company, has agreed as part of
the settlement to contribute to the Company the headquarters property presently
leased by the Company, subject to assumption or discharge by the Company of an
existing mortgage. The settlement will be subject to certain customary
conditions, including court approval, and to the refinancing of the Company's
principal borrowings.
In the third quarter of 1994, the Company accrued $70,000,000 for the
cost of the proposed settlement and $4,100,000 for other litigation related
costs as a charge to unusual items as a component of other income (expense)
(see Note I). The $10,000,000 to be paid from the proceeds of the Company's
directors and officers liability insurance policy, has been recorded as a
current asset and is included in accounts receivable-other at September 30,
1994. Pursuant to the terms of the memoranda of understanding, $45,000,000 has
been classified as a noncurrent liability and $39,100,000 is included in
current liabilities, including the other litigation related costs (see Note D).
While the Company believes the above-mentioned accruals and charges are
adequate to provide for the proposed settlement, these amounts are estimates
and actual amounts will depend on the outcome of future events. If such
estimated amounts are not adequate, additional charges against income would be
provided when such determinations are made.
NOTE C - DIVESTITURES
As part of the Company's divestiture program, during 1994 the Company sold a
recycling operation, a building and a parcel of land for a total of $2,090,000
in cash. No gains or losses were recognized due to the establishment of an
allowance for divestiture losses in prior years.
As a result of changes in the Company's assessment of the marketability of one
of its operations intended for divestiture, in the second quarter of 1994 the
Company reclassified $1,309,000 of assets for that operation, net of a related
contract loss reserve, from assets held for sale to their respective balance
sheet classifications.
The remaining assets held for sale at September 30, 1994 include an undeveloped
permitted landfill site and a hauling and transfer station operation as to
which the Company intends to cease operations. Included in the results of
operations are revenues, for this hauling and transfer
9
<PAGE> 10
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
operation, of $1,152,000 and $1,726,000 for the three months ended September
30, 1994 and 1993, respectively, and $3,328,000 and $4,818,000 for the nine
months ended September 30, 1994 and 1993, respectively. Operating losses
incurred by this operation have been charged to the previously established
allowance for divestiture losses.
The following are summarized operating results of the businesses that were sold
during 1994 and 1993 which are included in the results of operations. These
results exclude the gains from divestitures of $12,328,000 and $17,188,000
included in unusual items for the three- and nine-month periods ended September
30, 1993 (in thousands):
<TABLE>
<CAPTION>
------------------ ------------------
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
------------------ ------------------
<S> <C> <C> <C> <C>
Revenues $ 449 $ 4,272 $1,330 $14,400
Income (loss) from operations 99 100 (14) 315
</TABLE>
Net assets held for sale consist of the following (in thousands):
<TABLE>
<CAPTION>
---------------------------
September 30, December 31,
1994 1993
---------------------------
<S> <C> <C>
Inventories and prepaid expenses $ 92 $ 724
Property and equipment, net 10,046 16,260
Intangibles and other noncurrent assets 497 743
------- -------
10,635 17,727
Less allowance for losses 2,531 6,697
------- -------
Net assets held for sale $ 8,104 $11,030
======= =======
</TABLE>
10
<PAGE> 11
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE D - CURRENT ACCRUED LIABILITIES
Current accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
--------------------------
September 30, December 31,
1994 1993
--------------------------
<S> <C> <C>
Shareholder litigation settlement $35,000 $ --
Legal fees and other litigation
related costs 5,533 4,239
Insurance 4,187 7,308
Other 14,993 18,901
------- -------
$59,713 $30,448
======= =======
</TABLE>
NOTE E - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
--------------------------
September 30, December 31,
1994 1993
--------------------------
<S> <C> <C>
11.45% Senior notes $140,462 $152,843
11.95% Senior notes 18,863 20,525
Industrial revenue bonds 91,400 95,200
Noninterest-bearing notes 6,969 7,686
Other notes payable and equipment loans 8,524 12,979
Capital lease obligation 2,227 2,318
-------- --------
268,445 291,551
Less current maturities 40,919 29,748
-------- --------
$227,526 $261,803
======== ========
</TABLE>
The aggregate estimated payments of long-term obligations for the twelve-month
periods ending September 30, 1995 through 1999 are: 1995 - $40,919,000; 1996 -
$67,660,000; 1997 - $154,175,000; 1998 - $2,492,000; and 1999 - $1,544,000.
11
<PAGE> 12
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In July 1993, the Company executed comprehensive amendments to its bank credit
facility (the "Credit Facility") and note purchase agreements (the "Senior
Notes"). On November 18, 1994, the Company reached an agreement in principle
regarding additional amendments (the "Amendments") to its Credit Facility and
Senior Note agreements which, subject to final documentation, include waivers
(with respect to noncompliance of consolidated working capital, consolidated
tangible net worth and financial statement delivery covenants) and revisions
to the terms and conditions of the Credit Facility and Senior Note agreements,
principally with respect to payment terms and compliance covenants.
The Amendments provide that 90% of the $74,421,000 scheduled payments
previously due on July 1, 1995 be deferred until July 1, 1996, with further
deferral to December 31, 1996, at the Company's option, of up to 75% of the
$95,512,000 scheduled payments previously due on October 31, 1995 and December
30, 1995 and all of the $95,512,000 scheduled payments due on October 31, 1996
and December 30, 1996. Certain of such scheduled payments due in 1995 and 1996
will be reduced by pro rata payments made prior to the scheduled payment dates.
The non-deferred portion of these scheduled payments will be applied to reduce
Senior Note obligations, industrial revenue bond obligations and letters of
credit issued under the Credit Facility. The Amendments also provide that the
remaining originally scheduled principal payments on the Senior Notes due after
1996 become due on December 31, 1996.
The Amendments require, however, that the Company reduce Senior Note and Credit
Facility obligations by a total of $60,000,000, primarily through the payment
of the non-deferred portions of the scheduled payments discussed above and
other scheduled payments, between August 31, 1994 and December 31, 1995, of
which $20,000,000 must occur by January 31, 1995. Of this amount, $13,189,000
was paid to date. Portions of the remaining required payments are expected to
be satisfied by currently available funds and operating cash flow, and in the
absence of a refinancing of the Senior Note and Credit Facility obligations
during 1995, the Company will need to complete additional divestitures to
satisfy any remaining payments. Under the Amendments, the Company is also
required to pay to the holders of the Senior Notes and the Credit Facility
banks, the amount by which its daily average unrestricted cash balance exceeds
$40,000,000 for any calendar month, and a minimum of 50% of the net proceeds
from specified divestitures as permitted by the Amendments, which proceeds will
be applied to the $60,000,000 discussed above.
The Company anticipates completing a refinancing of the Senior Note and Credit
Facility obligations by April 30, 1995. At the time of refinancing, the
Company may be required to pay an early redemption premium to the Senior Note
holders (the "Premium") based on the difference between the interest rates on
the Senior Notes and an adjusted U.S. Treasury securities rate having a similar
maturity. Based on current interest rates on U.S. Treasury securities, on
April 30, 1995 the Premium would be approximately $5,691,000.
12
<PAGE> 13
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Amendments also require payment of escalating extension fees by the Company
to the Senior Note holders and Credit Facility banks, based upon the principal
amounts outstanding as of the beginning of each calendar quarter, until such
time as the existing debt under these agreements has been retired. Such
extension fees are expected to aggregate approximately $652,000 through April
30, 1995.
The total of the extension fees and the Premium is an estimate and the actual
amount will depend on the actual time of the refinancing and the average
principal amounts outstanding under the Senior Notes through that period. The
extension fees and the Premium will be charged to expense during the period
ending with the refinancing. A fee of approximately $673,000 is payable upon
execution of the Amendments.
The Amendments also provide, under certain conditions, for the issuance to the
Senior Note holders and Credit Facility banks, at nominal consideration, shares
of the Company's Class A Common Stock. In the event the Company has not
refinanced the Senior Note and Credit Facility obligations prior to October 1,
1995, 4% of the Company's then issued and outstanding common stock becomes
issuable. An additional 4% of the Company's then issued and outstanding common
stock becomes issuable if the Company has not refinanced prior to April 1,
1996.
The Amendments contain financial covenants which require the Company to
maintain minimum levels of tangible net worth, working capital and quarterly
cash flows from operations. The Amendments also prohibit the incurrence of
additional indebtedness and the payment of cash dividends, and limit annual
cash capital expenditures.
The Company believes that a refinancing cannot be obtained without the
settlement of certain litigation (see Note B). Further, the payments required
under the settlement of the shareholder litigation described in Note B would
require the refinancing of the Senior Notes and Credit Facility obligations.
In the event a refinancing is not achieved, the liquidity and operations of the
Company would be materially, adversely affected.
NOTE F - BUSINESS COMBINATIONS
In 1991, the Company acquired a medical, special and municipal waste
incineration facility. Included in the original purchase price was a
promissory note of $1,550,000 payable in May 1993 and a $4,000,000 contingent
payment, net of $1,013,000 in related discounts. At December 31, 1993, such
obligations were included in current maturities of long-term obligations and
other noncurrent liabilities, respectively.
13
<PAGE> 14
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In 1994, the Company settled these obligations by the payment of $2,180,000 to
the sellers. The $3,370,000 excess of the recorded liability over the
settlement has been applied to reduce the net book value of the assets
acquired, primarily property and equipment.
NOTE G - INCOME TAXES
The provision for income taxes for the three- and nine-month periods ended
September 30, 1994 and 1993 represents current state and local income taxes.
There was no provision for federal income taxes as a result of the Company's
loss and net operating loss carryforwards.
NOTE H - ENVIRONMENTAL COSTS AND LIABILITIES
The Company's operation within the environmental services industry subjects it
to future financial obligations with regard to closure and post-closure
monitoring and site maintenance costs associated with the solid waste landfills
it operates. The Company's engineers estimate such costs based on the
technical requirements of the U.S. Environmental Protection Agency's Subtitle D
regulations and the proposed air emissions standards under the Clean Air Act,
as they are being applied on a state-by-state basis.
Final closure and post-closure monitoring and site maintenance costs represent
the costs related to cash expenditures to be incurred after a landfill ceases
to accept waste and closes. Such costs include final capping of the site and
site inspections, groundwater monitoring, leachate management, methane gas
control and maintenance costs to be incurred for up to 30 years after the
facility closes. Final closure and post-closure monitoring and site
maintenance costs are estimated to be approximately $140,000,000 at the time
all Company landfills have reached their respective capacity. The accrual for
these costs is recorded as airspace at the respective landfill site is
consumed.
In addition, the Company expects to incur other closure costs, principally
related to capping and methane gas control activities, during the operating
lives of the landfill sites. The accrual for these costs is also recorded as
airspace at the respective landfill site is consumed.
14
<PAGE> 15
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Accrued liabilities for all closure and post-closure monitoring and maintenance
costs are as follows (in thousands):
<TABLE>
<CAPTION>
----------------------------
September 30, December 31,
1994 1993
----------------------------
<S> <C> <C>
Current portion, included in
accrued liabilities $ 1,158 $ 1,858
Noncurrent portion, included in
other noncurrent liabilities 23,321 18,114
------- -------
$24,479 $19,972
------- -------
</TABLE>
The Company periodically reviews and updates the underlying assumptions used to
determine such estimates and, accordingly, the estimate of total projected
costs is subject to periodic revision and adjustment.
NOTE I - UNUSUAL ITEMS
In the third quarter of 1994, the Company recorded a charge of $74,100,000 for
the proposed settlement of shareholder litigation and other litigation related
costs (see Note B).
During the third quarter of 1993, the Company recorded an additional charge for
professional fees of $5,000,000 related to the Company's defense of the
shareholder litigation as an unusual item of other income (expense).
Unusual items--operations for the three- and nine-month periods ended
September 30, 1993 included net gains of $12,328,000 and $17,188,000,
respectively, on the disposition of assets and net charges of $796,000 and
$335,000, respectively, as a result of the re-evaluation of the Company's
divestiture program.
NOTE J - CONTINGENCIES
Shortly after the Company's March 17, 1992 announcement of a change in
accounting method, the SEC initiated an informal investigation with respect to
the Company's accounting practices concerning capitalization of certain costs
and expenses and the accuracy of its financial statements and into the
possibility that persons or entities had traded in the Company's securities on
the basis of inside information prior to the announcement. On September 30,
1992, a formal order of investigation was issued by the SEC with respect to
potential violations by the Company and others of sections 10(b), 13(a)
15
<PAGE> 16
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
and 13 (b) of the Securities Exchange Act of 1934 and various rules promulgated
thereunder. The Company has cooperated with the investigation through the
production of documents and by providing witnesses pursuant to the SEC's
request.
The American Stock Exchange and the Chicago Board of Options Exchange have
informed the Company that they are conducting investigations into trading
activity on their respective exchanges in the Company's securities and in put
options on the Company's securities prior to the March 17, 1992 announcement.
On December 4, 1992, the Company was served with a grand jury subpoena out of
the United States District Court for the Eastern District of New York seeking
production of public filings and reports disseminated to its shareholders,
documents referring to the preparation of its financial statements and other
materials. The Company has responded to the subpoena by producing documents.
The grand jury investigation is ongoing and it appears to be focusing on issues
similar to those raised by the civil litigation and the SEC investigation
described above.
The Company is cooperating with each of the investigations referred to in the
three preceding paragraphs.
In December 1992, an action was filed in the Court of Common Pleas of
Northampton County, Commonwealth of Pennsylvania, captioned Charles Chrin and
Nicholas Chrin, individually and trading as Chrin Bros., et al. v. Chambers
Development Company, Inc., et al., claiming, inter alia, that the plaintiffs
were induced into entering into certain purchase and sale agreements based upon
false and misleading statements made by the Company as to its financial
condition and future prospects. The Company subsequently filed an answer and
counterclaim for breach of contract. In November 1994, the parties reached a
settlement whereby plaintiffs paid the Company $1,200,000 and forgave all
remaining non-compete payments totaling $525,000 that were to have been paid by
the Company in 1994, 1995 and 1996 to various individuals; however, such
individuals will continue to be bound by the terms of their respective
non-compete agreements. The settlement will be recorded in the fourth quarter
of 1994.
A lawsuit entitled McKenzie, et al. v. Chambers Waste Systems of South
Carolina, Inc., et al. was filed in the South Carolina Court of Common Pleas
for the Fifth Judicial Circuit, in June 1992, in which the plaintiffs claimed
damages as the result of an alleged breach of contract and conspiracy to harm
them with respect to a parcel of real property. Although the complaint did not
quantify the damages, subsequent answers to interrogatories indicate that the
plaintiffs allege the damages to be approximately $13,000,000. The lawsuit
arises out of a letter of intent between the plaintiffs and the Company which
was entered into in May 1989. The letter of intent contemplated a potential
purchase by the Company of certain real property in South Carolina for use as a
landfill, with the purchase price to be
16
<PAGE> 17
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
approximately $1,000,000, plus royalties based upon tonnage received after
construction and operation of the landfill. The Company intends to file a
motion for summary judgment, and to defend vigorously this action. The outcome
of this action is not presently determinable.
A declaratory judgment action entitled Morel, et al. v. Chambers Waste Systems
of Florida, Inc., was filed on September 29, 1994 in the Circuit Court of the
Fifteenth Judicial Circuit of Florida in and for Palm Beach County, Florida.
The plaintiffs are asking the court to declare that they are entitled to
royalty payments from the Company as calculated by a percentage of gross
revenues derived from the Company's landfill located at Berman Road in
Okeechobee County, Florida, as well as from any landfill that may be sited in
the future by the Company on nearby property. The Company has responded by
seeking, among other things, a declaration that any writing or document that
the plaintiffs contend such royalty entitlement is based upon is void, voidable
or otherwise of no effect or, alternatively, that any royalty payments be
solely based upon the nearby property to the Company's landfill, when a
landfill is developed, if ever, on such property. The outcome of this action is
not presently determinable.
On July 29, 1993, the Circuit Court of Berkeley County, West Virginia, issued
an order requiring the Company to obtain the approval of the Berkeley County
Commission in order to continue operation of its LCS landfill. In November
1993, the Supreme Court of West Virginia accepted the Company's appeal of the
lower court order and granted a continuing stay of the order pending decision
by the state Supreme Court upon the appeal. A hearing was held upon the appeal
on October 4, 1994 and a decision is pending.
The previously reported lawsuit captioned Lenzi, et al. v. Chambers of West
Virginia, Inc., et al., filed in the Circuit Court of Kanawha County, West
Virginia in February 1993, has been settled and dismissed. As previously
reported, the plaintiffs alleged that they were induced in 1989 to sell the
stock of the corporation which owned the LCS landfill to Chambers and to accept
royalty payments, based on the amount of waste deposited in the landfill, in
reliance upon false and misleading statements made by the Company as to its
financial condition and future prospects. The Company filed a counterclaim
seeking damages as a result of misrepresentations and omissions of fact made by
the plaintiffs which induced the Company to proceed with this acquisition. The
plaintiffs had sought damages in the amount of approximately $21,500,000 plus
punitive damages. The settlement reached with the plaintiffs involved
primarily the payment by the Company of approximately $600,000, representing
accrued royalties plus interest, substantially all of which was previously
accrued by the Company.
On July 23, 1993, a former officer of the Company filed a Demand for
Arbitration with the Pittsburgh, Pennsylvania, office of the American
Arbitration Association claiming approximately $1,200,000 in severance
17
<PAGE> 18
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
benefits pursuant to employment agreements dated October 6, 1992 and February
3, 1993. In May 1994, the arbitrator denied the claim by the former officer
for severance benefits, while granting his claim for attorney's fees.
An action entitled Gordon Ellis v. Chambers Development Company, Inc., et al.,
filed in the Court of Common Pleas of Allegheny County, Pennsylvania, in
September 1993, involves a former employee of the Company. The complaint
alleges that the Company failed to pay contractually required severance and
benefits to Mr. Ellis upon his termination, and that the Company also failed to
pay a promised bonus. The amounts of the claimed severance and bonus are
$340,000 and $50,000, respectively. The Company intends to defend vigorously
this action.
Other lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company from time to time. Although the outcome of these
matters cannot be predicted with certainty, management of the Company believes
that disposition of these other lawsuits, claims and proceedings which are
pending or asserted will not have a material adverse effect on the Company's
financial condition or liquidity. Given the Company's level of operating
results, future resolution of these matter may have a material effect on
results of operations for interim and annual periods.
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth the items in the condensed consolidated
statements of operations as a percentage of revenues, and the percentage change
in dollar amounts of the items for the nine months ended September 30, 1994, as
compared with the nine months ended September 30, 1993.
<TABLE>
<CAPTION>
Nine Months Ended Percentage
September 30, Increase
1994 1993 (Decrease)
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES 100% 100% (11)%
COSTS AND EXPENSES
Operating 69 68 (9)
General and administrative 8 8 (6)
Depreciation and amortization 15 14 (7)
Unusual items-operations -- (8) (100)
-----------
Income from Operations 8 18 (60)
OTHER INCOME (EXPENSE)
Unusual items-Shareholder
litigation settlement and
other litigation related costs (38) (2)
Other income, primarily interest 1 1 (38)
Interest expense (9) (10) (26)
-----------
(Loss) Income Before Income Taxes (38) 7
Provision for Income Taxes -- (1) (75)
-----------
Net (Loss) Income (38)% 6%
===========
</TABLE>
19
<PAGE> 20
REVENUES
The following table sets forth revenues of the Company by each of the principal
lines of ongoing business and for divested businesses for the nine months ended
September 30, 1994 as compared with the nine months ended September 30, 1993
(dollar amounts in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Percentage
September 30, Increase
1994 1993 (Decrease)
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
Collection Services $ 80,143 $ 92,612 (13)%
Disposal Services (Landfills) 63,828 58,735 9
Transfer Stations 38,232 41,414 (8)
Incinerator 7,152 7,150 --
Recycling Services 4,861 4,528 7
Divestitures 1,330 14,400 (91)
-------- --------
Total $195,546 $218,839 (11)
======== ========
</TABLE>
Revenues for the first nine months of 1994 decreased by $23.3 million. The 11%
decrease in revenues, as discussed in detail below, resulted from a 6% decrease
related to divestitures, a 4% decrease related to pricing and a 1% decrease
related to volume. During 1993, the Company sold six collection and hauling
operations, one transfer station and one landfill, with a resulting decrease in
revenues attributable to those operations of $13.1 million in the first nine
months of 1994. On December 31, 1993, the Company also sold its two transfer
stations in Morris County, New Jersey, but is continuing to operate them at a
reduced revenue rate until the county's long-term solid waste system is in
operation or December 31, 1996, if later.
Landfill revenues for the first nine months of 1994 increased by $5.1 million,
or 9%, which was primarily attributable to increased volume at the Company's
landfill in Okeechobee County, Florida, and new waste volume at the Company's
landfill in Amelia County, Virginia, which opened in May 1993. Landfill
revenues were also enhanced by additional special waste volume, which consists
of nonhazardous waste materials such as sewage sludges, contaminated soils,
incinerator ash and industrial residues. Landfill volume growth was partially
offset by reduced pricing at certain of the Company's landfills and the loss of
revenues associated with the Company's contract with the Passaic County
Utilities Authority, which was terminated by the Authority on November 30,
1993. (See Part II, Item 1. Legal Proceedings.)
In addition, both collection and disposal revenues for the first nine months of
1994 were reduced as a result of the Company's new contract with Bergen County,
New Jersey. The Company's previous contract to dispose of that county's solid
waste either to a Company landfill or to the Essex County, New
20
<PAGE> 21
Jersey, incinerator also included the transportation and disposal of ash
generated by the Essex County incinerator. In December 1993, the Company was
awarded a new three-year agreement at a reduced rate from the prior contract
for the municipal solid waste from Bergen County, New Jersey, commencing on
March 1, 1994. The contract for the transportation and disposal of ash
generated by the Essex County incinerator was awarded to a competitor effective
March 16, 1994.
OPERATING COSTS AND EXPENSES
Operating costs and expenses, which decreased by $13.5 million to $134.9
million from $148.4 million, also increased slightly as a percentage of
revenues in the first nine months of 1994 to 69% as compared with 68% in the
comparable period of 1993.
During 1993, the Company sold certain operations, with a resulting decrease in
operating costs and expenses attributable to those operations of $10.3 million
in the first nine months of 1994. In addition, costs for disposal of waste at
third-party landfills and transportation expenses were reduced as a result of
the decrease in waste volume received by the Company from the Essex County, New
Jersey, incinerator, as previously discussed, and the Company's New York City
sludge contract.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses remained constant as a percentage of
revenues at 8% for the first nine months of 1994 as compared to the same period
of 1993, while decreasing by $1.1 million or 6%. The dollar decrease in the
first nine months of 1994 reflects the continued benefit of the Company's
reorganization efforts in 1992 and 1993, partially offset by legal fees related
to a Demand for Arbitration proceedings related to a former officer of the
Company (see Note J to the accompanying condensed consolidated financial
statements).
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased as a percentage of revenues to 15% in
the first nine months of 1994 from 14% for the same period of 1993, while
decreasing by $2.2 million or 7%. The dollar decrease reflects the sale of
certain of the Company's operations and the effect of increases to projected
airspace resulting from future expansions of existing landfill sites, partially
offset by higher landfill construction cost amortization associated with volume
increases at the Company's landfills.
UNUSUAL ITEMS
In the three months ended September 30, 1994, the Company recorded a charge of
$74,100,000 for the proposed settlement of shareholder litigation and other
litigation related costs (see Note B).
21
<PAGE> 22
During the nine months ended September 30, 1993, the Company recorded a charge
for additional professional fees of $5,000,000 related to the Company's defense
of the shareholder litigation. Unusual items--operations for that nine month
period included net gains of $17,188,000 on the disposition of assets and
net charges of $335,000, as a result of the re-evaluation of the Company's
divestiture program.
OTHER INCOME, PRIMARILY INTEREST
Other income, primarily interest, declined to $1.8 million during the first
nine months of 1994, as compared with $2.8 million during the same period in
1993, due primarily to a decrease in amounts invested.
INTEREST EXPENSE
Interest expense decreased to $16.8 million for the first nine months of 1994
as compared with $22.8 million for the first nine months of 1993. Interest
expense in each period was less than total interest charges as a result of
interest capitalization related to the Company's development of landfills.
Capitalized interest totaled $2.1 million and $2.5 million during the first
nine months of 1994 and 1993, respectively. Interest costs, excluding the
effect of capitalized interest, decreased to $18.9 million for the first nine
months of 1994 as compared with $25.3 million during the same period of 1993.
The decrease in interest costs is attributable primarily to the reduced level
of debt outstanding.
INCOME TAXES
The provision for income taxes for the first nine months of 1994 and 1993
represents provisions for state and local income taxes. There was no provision
for federal income taxes as a result of the Company's loss and net operating
loss carryforwards.
NET (LOSS) INCOME
Net loss was $73.8 millon for the first nine months of 1994, as compared with
net income of $12.8 million for the first nine months of 1993. Included in net
loss for the first nine months of 1994 are charges for unusual items of $74.1
million. Excluding unusual items in both periods, net income for the first
nine months of 1994 was $0.3 million compared to net income of $1.0 million for
the first nine months of 1993.
22
<PAGE> 23
THREE MONTHS ENDED SEPTEMBER 30, 1994
Revenues for the three months ended September 30, 1994, decreased to $67.1
million as compared with $75.3 million for the three months ended September 30,
1993. Approximately $3.8 million of this decrease in revenues is attributable
to the 1993 sales by the Company of the collection and hauling operations,
transfer station, landfill and recycling operation referred to above. Net loss
for the three months ended September 30, 1994 was $72.7 million as compared
with net income of $9.5 million for the three months ended September 30, 1993.
Included in net loss for the three months ended September 30, 1994 are charges
for unusual items of $74.1 million as previously discussed. Net income for the
three months ended September 30, 1993 included unusual items in the net
amount of a $6.5 million credit.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1994, cash and cash equivalents decreased by
$4.6 million, to $39.9 million. Working capital decreased by $47.6 million to
a deficit of $17.5 million primarily as a result of liabilities recorded in
connection with the proposed settlement of shareholder litigation. Cash flow
activity for the first nine months of 1994 included $27.4 million provided by
operating activities, which was offset by the sum of $7.5 million used in
investing activities and $24.6 million used in financing activities.
Investing activities in the first nine months of 1994 included cash from
escrow activity of $16.6 million, primarily proceeds from the disposition of
businesses in late 1993. Investing activities also included $27.9 million
utilized for capital expenditures.
Cash used in financing activities during the first nine months of 1994
consisted primarily of $23.9 million of principal payments on long-term
obligations.
In July 1993, the Company executed comprehensive amendments to its bank credit
facility (the "Credit Facility") and note purchase agreements (the "Senior
Notes"). On November 18, 1994, the Company reached an agreement in principle
regarding additional amendments (the "Amendments") to its Credit Facility and
Senior Note agreements which, subject to final documentation, include waivers
(with respect to noncompliance of consolidated working capital, consolidated
tangible net worth and financial statement delivery covenants) and revisions
to the terms and conditions of the Credit Facility and Senior Note agreements,
principally with respect to payment terms and compliance covenants.
The Amendments provide that 90% of the $74,421,000 scheduled payments
previously due on July 1, 1995 be deferred until July 1, 1996, with further
deferral to December 31, 1996, at the Company's option, of up to 75% of the
$95,512,000 scheduled payments previously due on October 31, 1995 and December
30, 1995 and all of the $95,512,000 scheduled payments due on October 31, 1996
and December 30, 1996. Certain of such scheduled payments
23
<PAGE> 24
due in 1995 and 1996 will be reduced by pro-rata payments made prior to the
scheduled payment dates. The non-deferred portion of these scheduled payments
will be applied to reduce Senior Note obligations, industrial revenue bond
obligations and letters of credit issued under the Credit Facility. The
Amendments also provide that the remaining originally scheduled principal
payments on the Senior Notes due after 1996 become due on December 31, 1996.
The Amendments require, however, that the Company reduce Senior Note and Credit
Facility obligations by a total of $60,000,000, primarily through the payment
of the non-deferred portions of the scheduled payments discussed above and
other scheduled payments, between August 31, 1994 and December 31, 1995, of
which $20,000,000 must occur by January 31, 1995. Of this amount, $13,189,000
was paid to date. Portions of the remaining required payments are expected to
be satisfied by currently available funds and operating cash flow, and in the
absence of a refinancing of the Senior Note and Credit Facility obligations
during 1995, the Company will need to complete additional divestitures to
satisfy any remaining payments. Under the Amendments, the Company is also
required to pay to the holders of the Senior Notes and the Credit Facility
banks, the amount by which its daily average unrestricted cash balance exceeds
$40,000,000 for any calendar month, and a minimum of 50% of the net proceeds
from specified divestitures as permitted by the Amendments, which proceeds will
be applied to the $60,000,000 discussed above.
The Company anticipates completing a refinancing of the Senior Note and Credit
Facility obligations by April 30, 1995. At the time of refinancing, the
Company may be required to pay an early redemption premium to the Senior Note
holders (the "Premium") based on the difference between the interest rates on
the Senior Notes and an adjusted U.S. Treasury securities rate having a similar
maturity. Based on current interest rates on U.S. Treasury securities, on
April 30, 1995 the Premium would be approximately $5,691,000. The Amendments
also require payment of escalating extension fees by the Company to the Senior
Note holders and Credit Facility banks, based upon the principal amounts
outstanding as of the beginning of each calendar quarter, until such time as
the existing debt under these agreements has been retired. Such extension fees
are expected to aggregate approximately $652,000 through April 30, 1995.
The total of the extension fees and the Premium is an estimate and the actual
amount will depend on the actual time of the refinancing and the average
principal amounts outstanding under the Senior Notes through that period. The
extension fees and the Premium will be charged to expense during the period
ending with the refinancing. A fee of approximately $673,000 is payable upon
execution of the Amendments.
The Amendments also provide, under certain conditions, for the issuance to the
Senior Note holders and Credit Facility banks, at nominal consideration, shares
of the Company's Class A Common Stock. In the event the Company has not
refinanced the Senior Note and Credit Facility obligations prior to
24
<PAGE> 25
October 1, 1995, 4% of the Company's then issued and outstanding common stock
becomes issuable. An additional 4% of the Company's then issued and
outstanding common stock becomes issuable if the Company has not refinanced
prior to April 1, 1996.
The Amendments contain financial covenants which require the Company to
maintain minimum levels of tangible net worth, working capital and quarterly
cash flows from operations. The Amendments also prohibit the incurrence of
additional indebtedness and the payment of cash dividends and limit annual cash
capital expenditures.
The Company believes that a refinancing cannot be obtained without the
settlement of certain litigation (see Note B). Further, the payments required
under the settlement of the shareholder litigation described in Note B would
require the refinancing of the Senior Note and Credit Facility obligations. In
the event a refinancing is not achieved, the liquidity and operations of the
Company would be materially, adversely affected.
As discussed in Note B to the condensed consolidated financial statements on
November 18, 1994, the Company and shareholder representatives executed
memoranda of understanding to settle and dismiss the class actions and
derivative actions relative to the litigation discussed therein. Pursuant
thereto, the parties intend to prepare and submit to the court a formal
settlement agreement providing for the payment by the Company to the plaintiff
class of $80,000,000. Of that amount, $10,000,000 would be paid from proceeds
of the Company's directors and officers liability insurance policy, and
$70,000,000 would be paid by the Company in two installments following final
court approval, the first in the amount of $25,000,000 to be paid five days
after such approval and the second in the amount of $45,000,000 to be paid one
year after such approval.
The Company has expended substantial amounts of capital to establish an
integrated waste services business, from waste collection enterprises to
disposal facilities, to meet the long-term needs of the communities and
customers it services. Historically, the Company has also expended capital to
acquire additional waste services businesses, to fund property and equipment
needs for internal expansion and to develop the infrastructure of its
landfills. The infrastructure expenditures with respect to each site have been
in major part nonrecurring, being required at the initial phase at each site in
order to prepare the site for the receipt of waste and to support the
operations of the landfill throughout its useful life. However, the Company
will continue to incur capital expenditures with respect to the construction of
cells at existing sites to accommodate the daily receipt of waste and to ensure
compliance with environmental and other regulations.
Management believes that the operation of the currently existing sites plus a
combination of existing cash, asset sales and construction escrow fund
withdrawals will support the operational requirements of the Company, including
the construction of additional cells for the receipt of waste. As of November
1, 1994, the Company had $4.9 million of industrial revenue bond funds
remaining in escrow, of which, unexpended amounts as of December 31,
25
<PAGE> 26
1994, if any, are to be used to reduce the corresponding industrial revenue
bonds. Funds supporting those sites which the Company has under development
have previously been generated from capital markets and through project
financing from industrial revenue bond sources. Given the Company's current
liquidity position, however, new development will be selectively limited for
the foreseeable future as the Company concentrates on maximizing cash generated
from its existing operations.
The existence of litigation arising from the Company's revision of previously
announced financial results for 1991 and the restatement of its prior years'
financial statements has inhibited the Company in obtaining funds from debt or
equity offerings. Therefore, it is the view of management that, in the near
term, there will be reduced development of additional new landfill sites, other
than those developed in cooperation with governmental entities under project
financing arrangements.
The Company's operation within the environmental services industry also
subjects it to future financial obligations with regard to closure and
post-closure monitoring and site maintenance costs associated with the solid
waste landfills it operates. The Company's engineers estimate such costs based
on the technical requirements of the U.S. Environmental Protection Agency's
Subtitle D regulations and the proposed air emissions standards under the Clean
Air Act, as they are being applied on a state-by-state basis.
Final closure and post-closure monitoring and site maintenance costs represent
the costs related to cash expenditures to be incurred after a landfill ceases
to accept waste and closes. Such costs include final capping of the site and
site inspections, groundwater monitoring, leachate management, methane gas
control and maintenance costs to be incurred for up to 30 years after the
facility closes. Final closure and post-closure monitoring and site
maintenance costs are estimated to be approximately $140,000,000 at the time
all Company landfills have reached their respective capacity. The accrual for
these costs is recorded as airspace at the respective landfill site is
consumed.
In addition, the Company expects to incur other closure costs, principally
related to capping and methane gas control activities, during the operating
lives of the landfill sites. The accrual for these costs is also recorded as
airspace at the respective landfill site is consumed.
As of September 30, 1994, accrued liabilities for all closure and post-closure
monitoring and maintenance costs totaled $24.5 million, of which $1.2 million
is classified as a current liability in the accompanying condensed consolidated
balance sheet. The Company periodically reviews and updates the underlying
assumptions used to determine such estimates and, accordingly, the estimate of
total projected costs is subject to periodic revision and adjustment.
26
<PAGE> 27
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, between March 18, 1992 and May 7, 1992, various Company
shareholders filed actions in the United States District Court for the Western
District of Pennsylvania asserting federal securities fraud claims and pendent
state law claims against the Company, certain of its officers and directors,
its former auditors, and the underwriters of its securities. The significant
part of these actions, as amended and consolidated on November 4, 1992, under
the caption In Re: Chambers Development Company, Inc. Shareholders Litigation,
Civil Action No. 92-0679, and brought on behalf of a putative class of
purchasers of the Company's securities between March 18, 1988 and October 20,
1992, is the allegation that the decrease in the Company's stock price during
the period from the Company's March 17, 1992 announcement of a change in
accounting method relating to capitalization of certain costs and expenses
through its October 20, 1992 announcement of a $362 million reduction in
retained earnings as of December 31, 1991, as compared to the amount previously
reported, and a restatement of its 1990 and 1989 consolidated financial
statements, was caused by the Company's misrepresentation of its earnings and
financial condition. Derivative claims were also filed in federal and state
courts on behalf of the Company (which was named as a nominal defendant) for
breach of fiduciary duty against certain of its officers and directors and for
negligence against its former auditors.
On November 18, 1994, the Company and shareholder representatives executed
memoranda of understanding to settle and dismiss the class actions and
derivative actions. Pursuant thereto, the parties intend to prepare and submit
to the court a formal settlement agreement providing for the payment by the
Company to the plaintiff class of $80,000,000. Of that amount, $10,000,000
would be paid from proceeds of the Company's directors and officers liability
insurance policy, and $70,000,000 would be paid by the Company in two
installments following final court approval, the first in the amount of
$25,000,000 to be paid five days after such approval and the second in the
amount of $45,000,000 to be paid one year after such approval. John G. Rangos,
Sr., Chairman and Chief Executive Officer of the Company, has agreed as part of
the settlement to contribute to the Company the headquarters property presently
leased by the Company. The settlement will be subject to certain customary
conditions, including court approval, and to the refinancing of the Company's
principal borrowings.
Shortly after the aforementioned March 17, 1992 announcement by the Company of
a change in accounting method, the Securities and Exchange Commission (the
"SEC") initiated an informal investigation with respect to the Company's
accounting practices concerning capitalization of certain costs and expenses,
and the accuracy of its financial statements and into the possibility
27
<PAGE> 28
that persons or entities had traded in the Company's securities on the basis of
inside information prior to the announcement. On September 30, 1992, a formal
order of investigation was issued by the SEC with respect to potential
violations by the Company and others of sections 10(b), 13(a) and 13(b) of the
Securities Exchange Act of 1934 and various rules promulgated thereunder. The
Company has cooperated with the investigation through the production of
documents and by providing witnesses pursuant to the SEC's request.
As previously reported in the Company's 1993 Annual Report on Form 10-K, the
Company filed an action on August 31, 1992, in the United States District Court
for the Western District of Pennsylvania against the Passaic County (New
Jersey) Utilities Authority (the "Authority"), seeking an injunction and,
subsequently, damages arising from the Authority entering into a long-term
disposal contract with a third party in breach of the Authority's long-term
disposal contract with the Company. On June 29, 1994, the District Court
granted summary judgment to the Authority on the Company's motion for damages.
The Company filed a notice of appeal of that decision with the Third Circuit
Court of Appeals on August 18, 1994.
As previously reported, in December 1992, an action was filed in the Court of
Common Pleas of Northampton County, Commonwealth of Pennsylvania, captioned
Charles Chrin and Nicholas Chrin, individually and trading as Chrin Bros., et
al. v. Chambers Development Company, Inc., et al., claiming, inter alia, that
the plaintiffs were induced into entering into certain purchase and sale
agreements based upon false and misleading statements made by the Company as to
its financial condition and future prospects. The Company subsequently filed
an answer and counterclaim for breach of contract. In November 1994, the
parties reached a settlement whereby plaintiffs paid the Company $1,200,000 and
forgave all remaining non-compete payments totaling $525,000 that were to have
been paid by the Company in 1994, 1995 and 1996 to various individuals;
however, such individuals will continue to be bound by the terms of their
respective non-compete agreements.
A lawsuit entitled McKenzie, et al. v. Chambers Waste Systems of South
Carolina, Inc., et al. was filed in the South Carolina Court of Common Pleas
for the Fifth Judicial Circuit, in June 1992, in which the plaintiffs claimed
damages as the result of an alleged breach of contract and conspiracy to harm
them with respect to a parcel of real property. Although the complaint did not
quantify the damages, subsequent answers to interrogatories indicate that the
plaintiffs allege the damages to be approximately $13,000,000. The lawsuit
arises out of a letter of intent between the plaintiffs and Chambers which was
entered into in May 1989. The letter of intent contemplated a potential
purchase by Chambers of certain real property in South Carolina for use as a
landfill, with the purchase price to be approximately $1,000,000,
28
<PAGE> 29
plus royalties based upon tonnage received after construction and operation of
the landfill. The Company intends to file a motion for summary judgment and to
defend vigorously this action.
The previously reported lawsuit captioned Lenzi, et al. v. Chambers of West
Virginia, Inc., et al., filed in the Circuit Court of Kanawha County, West
Virginia, in February 1993, has been settled and dismissed. As previously
reported, the plaintiffs alleged that they were induced in 1989 to sell the
stock of the corporation which owned the LCS landfill to Chambers and to accept
royalty payments, based on the amount of waste deposited in the landfill, in
reliance upon false and misleading statements made by Chambers as to its
financial condition and future prospects. Chambers filed a counterclaim
seeking damages as a result of misrepresentations and omissions of fact made by
the plaintiffs which induced Chambers to proceed with this acquisition. The
plaintiffs had sought damages in the amount of approximately $21,500,000
million plus punitive damages. The settlement reached with the plaintiffs
involved primarily the payment by Chambers of approximately $600,000,
representing accrued royalties plus interest.
ITEM 6. EXHIBITS AND REPORTS.
(a) The following exhibit is attached hereto:
22.1 - Subsidiaries of the Company
27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant
during the quarter ended September 30, 1994.
29
<PAGE> 30
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHAMBERS DEVELOPMENT COMPANY, INC.
Date: November 21, 1994 By:William Rodgers, Jr.
Senior Vice President and
Chief Financial Officer
<PAGE> 31
EXHIBITS
TO
FORM 10-Q
CHAMBERS DEVELOPMENT COMPANY, INC.
QUARTER ENDED SEPTEMBER 30, 1994
<PAGE> 32
Exhibit Index
22.1 Subsidiaries of the Company
27 Financial Data Schedule
<PAGE> 1
Exhibit 22.1
<TABLE>
<CAPTION>
SUBSIDIARIES OF CHAMBERS DEVELOPMENT COMPANY, INC.
COMPANY NAME JURISDICTION OF INCORPORATION
<S> <C>
Chambers Clearview Environmental
Landfill, Inc. (9) Mississippi
Chambers Development Europe B.V. (11) Netherlands
Chambers Development of Ohio, Inc. Ohio
Chambers Development of Virginia, Inc. (6) Virginia
Chambers Environmental Systems Hellas S.A. (12) Greece
Chambers Enterprises, Inc. Pennsylvania
Chambers International, Inc. Delaware
Chambers Laurel Highlands Landfill, Inc. (7) Pennsylvania
Chambers Maplewood Landfill, Inc. (6) Virginia
Chambers Medical Technologies, Inc. (2/12/85 Incorporation) Pennsylvania
Chambers Medical Technologies, Inc. (4/26/91 Incorporation) Pennsylvania
Chambers Medical Technologies of
South Carolina, Inc. (8) South Carolina
Chambers New Jersey Land, Inc. (4) New Jersey
Chambers Oakridge Landfill, Inc. (3) South Carolina
Chambers Orange County Landfill, Inc. (13) Florida
Chambers Resources, Inc. Pennsylvania
Chambers Richland County Landfill, Inc. (3) South Carolina
Chambers Services, Inc. Delaware
Chambers Smyrna Landfill,Inc. (2) Georgia
Chambers Waste Systems of California, Inc. California
Chambers Waste Systems of Florida, Inc. Florida
Chambers Waste Systems of Mississippi, Inc. Mississippi
Chambers Waste Systems of New York, Inc. New York
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Chambers Waste Systems of North Carolina, Inc. North Carolina
Chambers Waste Systems of Ohio, Inc. Ohio
Chambers Waste Systems of New Jersey, Inc. (4) New Jersey
Chambers Waste Systems of Rhode Island, Inc. Rhode Island
Chambers Waste Systems of South Carolina, Inc. South Carolina
Chambers Waste Systems of Texas, Inc. Texas
Chambers Waste Systems of Virginia, Inc. Virginia
Chambers of Asia, Limited (11) Hong Kong
Chambers of Delaware, Inc. Delaware
Chambers of Georgia, Inc. Georgia
Chambers of Hong Kong Limited (14) Hong Kong
Chambers of Illinois, Inc. Illinois
Chambers of Indiana, Inc. Indiana
Chambers of New Jersey Inc. New Jersey
Chambers of New Jersey Recycling, Inc. (4) New Jersey
Chambers of Maryland, Inc. Maryland
Chambers of Massachusetts, Inc. Massachusetts
Chambers of Mississippi, Inc. (10) Mississippi
Chambers of Pennsylvania, Inc. Pennsylvania
Chambers of Tennessee, Inc. Tennessee
Chambers of West Virginia, Inc. West Virginia
China Harbour-Chambers Environmental
Services, Limited (16) Hong Kong
Dauphin Meadows, Inc. Pennsylvania
The H. Sienknecht Co. (15) Tennessee
LCS Services, Inc. (5) West Virginia
William H. Martin, Inc. Pennsylvania
Morris County Transfer Station, Inc. (4) New Jersey
Rail-It Corporation Illinois
Rail-It Limited Partnership Illinois
Remote Landfill Services, Inc. (15) Tennessee
CDC Services, Inc. (formerly Security Bureau, Inc.) Delaware
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Southern Alleghenies Disposal Service, Inc. (1) Pennsylvania
U.S. Services Corporation Pennsylvania
U.S. Utilities Services Corporation (1) Pennsylvania
</TABLE>
- - ------------------------------------------------------------------
(1) Subsidiary of U.S. Services Corporation
(2) Subsidiary of Chambers of Georgia, Inc.
(3) Subsidiary of Chambers Waste Systems of South Carolina, Inc.
(4) Subsidiary of Chambers of New Jersey Inc.
(5) Subsidiary of Chambers of West Virginia, Inc.
(6) Subsidiary of Chambers Waste Systems of Virginia, Inc.
(7) Subsidiary of Chambers of Pennsylvania, Inc.
(8) Subsidiary of Chambers Medical Technologies, Inc.
(9) Subsidiary of Chambers of Mississippi, Inc.
(10) Subsidiary of Chambers Waste Systems of Mississippi, Inc.
(11) Subsidiary of Chambers International, Inc.
(12) Subsidiary of Chambers Development Europe, B.V.
(13) Subsidiary of Chambers Waste Systems of Florida, Inc.
(14) Subsidiary of Chambers of Asia, Limited
(15) Subsidiary of Chambers of Tennessee, Inc.
(16) 50% Owned by Chambers of Hong Kong, Limited and
50% Owned by China Harbour Environmental Company Limited
(ALL SUBSIDIARIES are 100% OWNED except as noted)
Business address for all Companies: 10700 Frankstown Road
Pittsburgh, Pennsylvania 15235
2205b
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Article 5 FDS for 3rd Quarter 1994 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 39,946
<SECURITIES> 0
<RECEIVABLES> 31,084
<ALLOWANCES> 1,077
<INVENTORY> 0
<CURRENT-ASSETS> 99,785
<PP&E> 510,095
<DEPRECIATION> 151,853
<TOTAL-ASSETS> 513,493
<CURRENT-LIABILITIES> 117,286
<BONDS> 227,526
<COMMON> 33,580
0
0
<OTHER-SE> 50,912
<TOTAL-LIABILITY-AND-EQUITY> 513,493
<SALES> 195,546
<TOTAL-REVENUES> 195,546
<CGS> 179,938
<TOTAL-COSTS> 179,938
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,811
<INCOME-PRETAX> (73,540)
<INCOME-TAX> 294
<INCOME-CONTINUING> (73,834)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73,834)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
