<PAGE>
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 June 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 August 2, 1994:
Common Stock: 15,959,968
Class A Common Stock: 50,829,159
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the
Three Months Ended June 30, 1994 and 1993 3
Condensed Consolidated Statements of Operations for the
Six Months Ended June 30, 1994 and 1993 4
Condensed Consolidated Balance Sheets at June 30, 1994
and December 31, 1993 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1994 and 1993 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 26
SIGNATURE 27
2
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------
Three Months Ended June 30,
--------------------------
1994 1993
- - ------------------------------------------------------------
<S> <C> <C>
REVENUES $68,644 $75,878
COSTS AND EXPENSES
Operating 46,969 52,185
General and administrative 5,763 5,622
Depreciation and amortization 10,216 10,497
Unusual items -- (758)
------- -------
Income from Operations 5,696 8,332
OTHER INCOME (EXPENSE)
Other income, primarily interest 692 695
Interest expense (5,433) (7,249)
------- -------
Income Before Income Taxes 955 1,778
Provision for Income Taxes 95 275
------- -------
Net Income $ 860 $ 1,503
======= =======
INCOME PER COMMON SHARE $ .01 $ .02
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 66,789 66,788
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------
Six Months Ended June 30,
-------------------------
1994 1993
- - ------------------------------------------------------------
<S> <C> <C>
REVENUES $128,410 $143,565
COSTS AND EXPENSES
Operating 88,745 100,109
General and administrative 11,119 11,338
Depreciation and amortization 19,535 19,996
Unusual items -- (5,321)
-------- --------
Income from Operations 9,011 17,443
OTHER INCOME (EXPENSE)
Other income, primarily interest 1,252 1,680
Interest expense (11,159) (15,307)
-------- --------
(Loss)Income Before Income Taxes (896) 3,816
Provision for Income Taxes 219 525
-------- --------
Net(Loss)Income $ (1,115) $ 3,291
======== ========
(LOSS)INCOME PER COMMON SHARE $ (.02) $ .05
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 66,789 66,788
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
June 30, December 31,
1994 1993
-------------------------
(Unaudited)
- - ----------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 33,021 $ 44,553
Accounts receivable
Trade, less allowances of
$915 and $1,062, respectively 30,277 28,573
Other 2,533 2,977
Divestiture proceeds held in escrow 183 11,287
Net assets held for sale 8,179 11,030
Other current assets 10,552 10,085
-------- --------
Total current assets 84,745 108,505
-------- --------
PROPERTY AND EQUIPMENT, less
accumulated depreciation and
amortization of $144,764 and
$128,730, respectively 355,094 357,011
-------- --------
OTHER ASSETS
Funds held for escrow requirements
and construction 28,580 31,954
Other 32,420 36,152
-------- --------
Total other assets 61,000 68,106
-------- --------
$500,839 $533,622
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------
June 30, December 31,
1994 1993
-----------------------
(Unaudited)
- - -----------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
obligations $ 19,370 $ 29,748
Trade accounts payable 8,197 9,344
Accrued liabilities 22,246 30,448
Other current liabilities 6,303 8,898
------- --------
Total current liabilities 56,116 78,438
LONG-TERM OBLIGATIONS,
LESS CURRENT MATURITIES 250,473 261,803
OTHER NONCURRENT LIABILITIES 41,189 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 (271,490) (270,375)
-------- --------
157,211 158,323
Treasury stock, at cost -
Class A Common Stock, 400 shares;
Common Stock, 369,200 shares (4,150) (4,150)
-------- --------
Total stockholders' equity 153,061 154,173
-------- --------
$500,839 $533,622
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------
Six Months Ended June 30,
--------------------------
1994 1993
- - -----------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by continuing
operations $ 9,816 $11,592
Net cash used in discontinued operations -- (1,635)
------- -------
Net cash provided by operating
activities 9,816 9,957
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (15,165) (19,323)
Proceeds from disposition of assets 1,206 12,087
Decrease in funds held in escrow 14,219 223
Other 658 (7)
Proceeds from sale of discontinued
operations -- 4,500
------- -------
Net cash provided by (used in) investing
activities 918 (2,520)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term
obligations (22,139) (18,335)
Receipt of funds previously used to replace
letters of credit -- 10,243
Other (127) --
------- -------
Net cash used in financing activities (22,266) (8,092)
------- -------
Net decrease in cash and cash equivalents (11,532) (655)
Cash and cash equivalents at beginning
of period 44,553 45,899
------- -------
Cash and cash equivalents at end of
period $33,021 $45,244
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
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 six-month periods ended June
30, 1994 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1994.
8
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE B - DIVESTITURES
The following are summarized operating results of the businesses whose assets
are held for sale at June 30, 1994, which are included in the results of
operations (in thousands):
<TABLE>
<CAPTION>
-------------- --------------
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
-------------- --------------
<S> <C> <C> <C> <C>
Revenues $1,543 $1,755 $2,894 $3,595
Income (loss) from operations 5 (338) (187) (497)
</TABLE>
Also included in the results of operations for the three-and six-month
periods ended June 30, 1993 are revenues of $3,330,000 and $9,315,000 and
income from operations of $390,000 and $517,000, excluding the net gain from
divestitures of $4,860,000 included in unusual items, from the businesses
that were sold during 1993.
In the first quarter of 1994, the Company sold land in Ohio for $443,000 in
cash which approximated its book value. As a result of a change in the
marketability of one of the operations held for sale, at June 30, 1994, the
Company reclassified the assets and related contract loss reserve for this
operation from assets held for sale to their respective balance sheet
classifications. Additionally, $453,000 of operating losses incurred during
the six-month period ended June 30, 1994, by businesses whose assets are
currently held for sale, were offset against the allowance for losses.
Net assets held for sale consist of the following (in thousands):
<TABLE>
<CAPTION>
------------------------
June 30, December 31,
1994 1993
------------------------
<S> <C> <C>
Inventories and prepaid expenses $ 158 $ 724
Property and equipment, net 12,469 16,260
Intangibles and other noncurrent assets 583 743
------- -------
13,210 17,727
Less allowance for losses 5,031 6,697
------- -------
Net assets held for sale $ 8,179 $11,030
======= =======
</TABLE>
9
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE C - CURRENT ACCRUED LIABILITIES
Current accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
------------------------
June 30, December 31,
1994 1993
------------------------
<S> <C> <C>
Shareholder litigation costs,
principally legal fees $ 2,727 $ 4,239
Compensation 3,424 3,797
Insurance 3,676 7,308
Taxes, other than income 3,428 3,979
Other 8,991 11,125
------- -------
$22,246 $30,448
======= =======
</TABLE>
NOTE D - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
------------------------
June 30, December 31,
1994 1993
------------------------
<S> <C> <C>
11.45% Senior notes $140,878 $152,843
11.95% Senior notes 18,919 20,525
Industrial revenue bonds 91,400 95,200
Noninterest-bearing notes 6,768 7,686
Other notes payable and equipment loans 9,620 12,979
Capital lease obligation 2,258 2,318
-------- --------
269,843 291,551
Less current maturities 19,370 29,748
-------- --------
$250,473 $261,803
======== ========
</TABLE>
The aggregate estimated payments of long-term obligations, including
scheduled maturities and associated pro-rata payments, for the twelve-month
periods ending June 30, 1995 through 1999 are: 1995 - $19,370,000; 1996 -
$153,456,000; 1997 - $58,318,000; 1998 - $35,604,000; and 1999 - $1,530,000.
10
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As discussed more fully in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993, in July 1993, the Company executed
comprehensive amendments to its bank credit facility (the "Credit Facility")
and note purchase agreements (the "Senior Notes"). The amendments to the
Credit Facility and Senior Notes (collectively as amended, the "Amended
Agreements") provided that, at the option of the Company, the scheduled
aggregate principal payments of $28,722,000 on the Senior Notes originally
due in 1993 and 1994 could be deferred until July 1, 1995. Through August 1,
1994, $27,117,000 of such principal payments had been made. The Company
anticipates that the $1,605,000 remaining principal payments and $21,843,000
of associated pro rata payments will be deferred until July 1, 1995, provided
that these amounts are not paid from divestiture proceeds prior to that date.
Scheduled maturities on industrial revenue bonds ("IRBs") prior to July 1,
1995 will also reduce the principal payments and pro rata amounts by
$8,764,000.
In addition to the remaining unpaid deferred amounts and estimated pro rata
payments, the Amended Agreements require aggregate payments of $75,000,000 on
July 1, 1995. These payments are to be applied pro rata against the
remaining principal payments originally due on the Senior Notes and to reduce
IRBs supported by letters of credit issued under the Credit Facility. The
Company has begun discussions with its current lending group on modifications
to the Amended Agreements which are anticipated to include, among other
things, changes in the scheduled payments, including the $75,000,000 payment
and any unpaid deferred amounts due on July 1, 1995. The Company is also
considering refinancing with other lending institutions as an alternative to
modifying the Amended Agreements. Management currently anticipates
completing the modification of the Amended Agreements or an alternative
refinancing prior to March 31, 1995. The payments due on July 1, 1995, less
the amounts expected to be paid prior to that date from divestiture proceeds,
are included in long-term obligations in the accompanying condensed
consolidated balance sheets. Beginning in the third quarter of 1994, these
obligations will be classified as current liabilities until such time as the
Company has either entered into an agreement to modify the Amended Agreements
or completed an alternative refinancing. In the event that a modification of
the Amended Agreements or refinancing is not achieved, the liquidity and
operations of the Company would be materially, adversely affected.
NOTE E - 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.
11
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the first quarter of 1994, the Company and the sellers reached an
agreement to settle these obligations for $1,680,000 in cash and a promissory
note of $500,000 payable on July 1, 1994. The $3,370,000 excess has been
applied to reduce the net book value of the assets acquired, primarily
property and equipment.
NOTE F - INCOME TAXES
The provision for income taxes for the three- and six-month periods ended
June 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
net operating loss carryforwards.
NOTE G - 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 $152,000,000 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.
12
<PAGE>
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>
------------------------
June 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 21,946 18,114
------- -------
$23,104 $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 H - CONTINGENCIES
Between March 18, 1992 and May 7, 1992, various Company shareholders filed
twenty-three actions, which were subsequently consolidated and amended into a
single action, 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 "Federal Class
Action"). The significant part of this action, 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. One of the
original twenty-three complaints, Yeager v. Rangos, et al., C.A. No. 92-1081,
also asserts derivative claims on behalf of the Company (which is named as a
nominal defendant) for breach of fiduciary duty against certain of its
officers and directors and for negligence against its former auditors (the
"Federal Derivative Action").
13
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In addition, three parallel lawsuits have been filed in state courts. Two
derivative actions, asserting waste and mismanagement claims on behalf of the
Company against certain of its officers and directors, have been filed in the
Delaware Court of Chancery for New Castle County (the "Delaware Derivative
Actions") and are pending under the caption In Re: Chambers Development
Company, Inc. Shareholders Litigation, Consolidated C.A. No. 12508. One
purported class action, alleging state securities law and common law claims,
has been filed in the Court of Common Pleas of Allegheny County, Commonwealth
of Pennsylvania, under the caption Integrated Investments, Inc., et al. v.
Chambers Development Company, Inc., et al., No. G.D. 92-7036 (the "State
Class Action").
The complaints in the Federal and State Class Actions allege that the
Company, in publicly disseminated materials, intentionally or negligently
misstated its earnings during the class period, thereby deceiving the
Company's shareholders and others with respect to its growth prospects and
profitability. In particular, the plaintiffs allege that the Company's
earnings were improperly increased by capitalizing certain costs and expenses
in violation of generally accepted accounting principles, in part through the
use of a formula which arbitrarily allocated indirect costs and expenses to
landfill and development activities. In addition, the plaintiffs allege that
the Company had an inadequate information system and failed to maintain the
records necessary to support the capitalization of such costs and expenses.
The Federal Class Action claims assert violations of section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder,
section 11 of the Securities Act of 1933 and negligent misrepresentation
against the Company. Claims under sections 12(2) and 20(a) of the Securities
Act of 1933 have been asserted against the Company's officers and directors
who are named as defendants, but not against the Company. The State Class
Action asserts similar violations of the Pennsylvania securities laws. These
actions seek to recover damages in an unspecified amount which the class
members allegedly sustained by purchasing the Company's securities at
artificially inflated prices, as well as related relief.
The section 11 claims relate to the sale in April 1989 of 2.85 million shares
of the Company's Class A Common Stock at $25 per share (equivalent to 5.7
million shares of its Class A Common Stock at $12.50 per share after a
subsequent two-for-one stock split), the issuance in September 1989 of $110
million principal amount of the Company's 6 3/4% Convertible Subordinated
Debentures Due September 15, 2004 (subsequently converted into Class A Common
Stock on or about September 16, 1991 at $21.125 per share), and the sale in
June 1991 of 7 million shares of the Company's Class A Common Stock at
$24.875 per share, and may be asserted by plaintiffs who, subject to certain
conditions, are able to trace their purchases to these offerings. The
section 10(b) fraud and negligent misrepresentation claims relate to these
three offerings and open market transactions, whether or not the plaintiffs
are able to trace their purchases to a specific offering. The Company has
14
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
been advised by its counsel that the plaintiffs have alleged that the
restatement of the Company's 1990 and 1989 consolidated financial statements
is an admission that they were materially misstated. However, the Company
has also been advised by its counsel that the Company's former auditors and
former chief financial officer have contended that the Company's prior
consolidated financial statements were fairly presented in accordance with
generally accepted accounting principles. If a plaintiff were to establish
that the Company's consolidated financial statements were materially
misstated, the Company would be liable for statutorily prescribed damages
under section 11 (subject to a causation defense in which the Company bears
the burden of proving that some or all of the loss resulted from factors
other than the misstatement and subject to the statute of limitations
defense) and for damages established by case law under section 10(b) and the
common law claims if that plaintiff were able to establish the remaining
elements of those claims and the Company had no affirmative defense.
The Federal Derivative Action and the Delaware Derivative Actions assert,
inter alia, that the Company's officers and directors committed acts of
waste, mismanagement and breach of fiduciary duty by allegedly instituting or
approving the Company's accounting policies relating to capitalization of
certain costs and expenses for the purpose of increasing their salaries,
fees, stock and other benefits. These actions, which seek recovery of
unspecified damages on behalf of the Company, allege that the Company has
been damaged because it has become exposed to the risk of an adverse judgment
or settlement in the class actions, that it has and will incur costs to
defend the class actions, and that it has suffered injury to its reputation.
The twenty-three separate actions comprising the Federal Class Action have
been consolidated, and the plaintiffs have filed amended consolidated class
action complaints. On February 23, 1994, the court substantially denied the
motion for summary judgment of the Company and its officers and directors to
dismiss the complaint in the Federal Class Action. In April 1994, the
Company filed its answers in the Federal Class Action. Since April 1994,
several status/settlement conferences have been held before the court, and
discovery is ongoing.
The Company intends to defend vigorously each of these actions. The outcome
of these actions is not presently determinable; accordingly, no provision for
any liability that may result from the resolution of these actions has been
recorded. In the event that the Company is unsuccessful in its defense, the
result would have a material adverse effect on the Company.
Shortly after the Company's March 17, 1992 announcement of a change in
accounting method, the Securities and Exchange Commission (the "SEC")
initiated an informal investigation into the possibility that persons or
entities had traded in the Company's securities on the basis of inside
information prior to the announcement and with respect to the Company's
accounting policies concerning capitalization and the accuracy of its
15
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
financial statements. 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) and 13(a) and (b) of the Securities Exchange Act of
1934 and various rules promulgated thereunder. The Company is cooperating
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., seeking a special and preliminary
injunction to enjoin the defendants from allegedly tortiously interfering
with the plaintiffs' permit modification application and with certain
engineers developing the application for a landfill which the Company was in
the process of purchasing. On March 2, 1993, the plaintiffs filed an amended
complaint seeking rescission and damages relating to certain contracts
entered into between the plaintiffs and a subsidiary of the Company with
respect to the sale of a landfill and the prior sale of a waste collection
and hauling company in eastern Pennsylvania previously owned by one of the
plaintiffs. The plaintiffs allege that they were induced to enter into these
contracts for the sale of the landfill and the waste collection and hauling
company based upon false and misleading statements made by the Company as to
its financial condition and future prospects. The Company defendants have
filed an answer generally denying the allegations of the complaint and have
counterclaimed against the Chrin entities for breach of contract and are
seeking damages. Discovery on this matter has commenced.
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
16
<PAGE>
CHAMBERS DEVELOPMENT COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 date upon the appeal
has been set for October 4, 1994.
On February 5, 1993, an action was filed in the Circuit Court of Kanawha
County, West Virginia, under the caption Lenzi, et al. v. Chambers of West
Virginia, Inc., et al. This action was brought by two individuals who claim
to have been owners of a majority interest in the corporation which owned the
LCS landfill until it was sold to the Company in 1989. The plaintiffs allege
that they were induced to sell the stock of the corporation which owned the
landfill to the Company and to accept royalty payments based on the amounts
of waste deposited in the landfill, as part of the consideration for the
sale, as a result of false and misleading statements made by the Company as
to its financial condition and future prospects. This action seeks to
enjoin the Company from disposing of its interest in the landfill, to impose
a constructive trust, and to rescind the sale or, in the alternative, to
obtain compensatory damages of approximately $21.5 million plus punitive
damages. On March 22, 1993, the Company filed an answer generally denying
the allegations of the complaint and a motion to dismiss the complaint.
Additionally, the Company filed a counterclaim against the plaintiffs seeking
compensatory and punitive damages resulting from misrepresentations and
omissions of fact made by the plaintiffs which induced the Company to proceed
with this acquisition. On June 7, 1994, the Court, on its own motion,
dismissed the plaintiffs' action without prejudice on the basis of
inactivity. If plaintiffs move successfully to reinstate the action, and if
the parties are unable to reach a satisfactory resolution of the claims, the
Company would intend to defend vigorously this action and to prosecute its
counterclaim.
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
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.
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 statements.
17
<PAGE>
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 six months ended June 30, 1994,
as compared with the six months ended June 30, 1993.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Percentage
1994 1993 Decrease
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES 100% 100% (11)%
COSTS AND EXPENSES
Operating 69 70 (11)
General and administrative 9 8 (2)
Depreciation and amortization 15 14 (2)
Unusual items -- (4) (100)
-----------
Income from Operations 7 12 (48)
OTHER INCOME (EXPENSE)
Other income, primarily interest 1 1 (25)
Interest expense (9) (11) (27)
-----------
(Loss) Income Before Income Taxes (1) 2
Provision for Income Taxes -- -- (58)
-----------
Net (Loss) Income (1)% 2%
===========
</TABLE>
18
<PAGE>
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 six
months ended June 30, 1994 as compared with the six months ended June 30,
1993 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30, Percentage
1994 1993 Change
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
Collection Services $ 53,131 $ 62,022 (14)%
Disposal Services (Landfills) 41,878 36,892 14
Transfer Stations 24,699 27,229 (9)
Incinerator 4,759 4,554 4
Recycling Services 3,943 3,553 11
Divestitures -- 9,315 (100)
-------- --------
Total $128,410 $143,565 (11)
======== ========
</TABLE>
Revenues for the first six months of 1994 decreased by $15.2 million. The 11%
decrease in revenues, as discussed in detail below, resulted from a 7%
decrease related to divestitures and a 4% decrease related to pricing.
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 $9.3 million in the first six months of
1994. In addition, on December 31, 1993, the Company sold its two transfer
stations in Morris County, New Jersey, but is continuing to operate the
transfer stations at a reduced rate until the county's long-term solid waste
system is in operation or December 31, 1996, if later.
Landfill revenues for the first six months of 1994 increased by $5.0 million,
or 14%, 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 ended on November 30, 1993.
In addition, both collection and disposal revenues for the first six 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
Jersey, incinerator also included the transportation and disposal of ash
19
<PAGE>
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. Revenues also declined due to a decrease in waste
volume in the first six months of 1994 from the Company's New York City
sludge contract and severe weather conditions in the mid-Atlantic and
northeast markets during January and portions of February 1994.
OPERATING COSTS AND EXPENSES
Operating costs and expenses, which decreased by $11.4 million to $88.7
million from $100.1 million, also decreased slightly as a percentage of
revenues in the first six months of 1994 to 69% as compared with 70% 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 $7.7
million in the first six 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 and the Company's New York City sludge
contract, as previously discussed. The severe weather conditions, however,
resulted in higher operating costs during the first quarter of 1994.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased slightly as a percentage of
revenues from 8% in the first six months of 1993 to 9% for the comparable
period of 1994, while decreasing by $0.2 million or 2%. The dollar decrease
in the first six 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 from a former officer of the Company
(see Note H to the accompanying condensed consolidated financial statements,
"Contingencies").
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased as a percentage of revenues to 15% in
the first six months of 1994 from 14% for the same period of 1993, while
decreasing by $0.5 million. 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
Unusual items of $5.3 million in the first six months of 1993 resulted
primarily from the gain on sale of certain businesses as part of the
Company's divestiture program.
20
<PAGE>
OTHER INCOME, PRIMARILY INTEREST
Other income, primarily interest, declined to $1.3 million during the first
six months of 1994, as compared with $1.7 million during the same period in
1993, due to a decrease in amounts invested and lower interest rates.
INTEREST EXPENSE
Interest expense decreased to $11.2 million for the first six months of 1994
as compared with $15.3 million for the first six 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 $1.3 million and $1.7 million during the first
six months of 1994 and 1993, respectively. Interest costs, excluding the
effect of capitalized interest, decreased to $12.5 million for the first six
months of 1994 as compared with $17.0 million during the same period of 1993.
The decrease in interest costs is attributable to the reduced level of debt
outstanding and lower interest rates on industrial revenue bonds in the first
six months of 1994.
INCOME TAXES
The provision for income taxes for the first six 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 operating
loss carryforwards.
NET (LOSS) INCOME
The net loss was $1.1 millon for the first six months of 1994, as compared
with net income of $3.3 million for the first six months of 1993. Included
in net income for the first six months of 1993 was a net unusual items credit
of $5.3 million. Excluding this net credit, results for the first six months
of 1993 would have been a net loss of $2.0 million compared with a net loss
for the first six months of 1994 of $1.1 million, for an improvement of $0.9
million. This improvement resulted primarily from a decrease in interest
expense partially offset by a decrease in income from operations, as
discussed above.
THREE MONTHS ENDED JUNE 30, 1994
Revenues for the three months ended June 30, 1994, decreased to $68.6 million
as compared with $75.9 million for the three months ended June 30, 1993.
Approximately $3.3 million of this decrease in revenues is attributable to
the 1993 sales by the Company of the collection and hauling operations,
transfer station and landfill referred to above. Net income decreased by
$0.6 million to $0.9 million for the three months ended June 30, 1994 as
compared with $1.5 million for the three months ended June 30, 1993. Net
income for the three months ended June 30, 1993 included an unusual items
credit of $0.8 million, primarily related to the Company's divestiture
program.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1994, cash and cash equivalents decreased by
$11.6 million, from $44.6 million at December 31, 1993 to $33.0 million at
June 30, 1994. Working capital decreased by $1.4 million, to $28.6 million
at June 30, 1994. Cash flow activity for the first six months of 1994
included $9.8 million provided by operating activities and $0.9 million
provided by investing activities, offset by $22.3 million utilized in
financing activities.
Investing activities in the first six months of 1994 included escrow activity
of $14.2 million, primarily proceeds from the disposition of businesses in
late 1993, net of $2 million placed in escrow. Investing activities also
included $15.2 million utilized for capital expenditures.
Cash used in financing activities during the first six months of 1994
consisted principally of $22.1 million of principal payments on long-term
obligations, $6.7 million of which was obtained from the receipt of proceeds
from the disposition of assets in late 1993 and early 1994.
As discussed more fully in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993, in July 1993, the Company executed
comprehensive amendments to its bank credit facility (the "Credit Facility")
and note purchase agreements (the "Senior Notes"). The amendments to the
Credit Facility and Senior Notes (collectively as amended, the "Amended
Agreements") provided that, at the option of the Company, the scheduled
aggregate principal payments of $28,722,000 on the Senior Notes originally
due in 1993 and 1994 could be deferred until July 1, 1995. Through August 1,
1994, $27,117,000 of such principal payments had been made. The Company
anticipates that the $1,605,000 remaining principal payments and $21,843,000
of associated pro rata payments will be deferred until July 1, 1995, provided
that these amounts are not paid from divestiture proceeds prior to that date.
Scheduled maturities on industrial revenue bonds ("IRBs") prior to July 1,
1995 will also reduce the principal payments and pro rata amounts by
$8,764,000.
In addition to the remaining unpaid deferred amounts and estimated pro rata
payments, the Amended Agreements require aggregate payments of $75,000,000 on
July 1, 1995. These payments are to be applied pro rata against the
remaining principal payments originally due on the Senior Notes and to reduce
IRBs supported by letters of credit issued under the Credit Facility. The
Company has begun discussions with its current lending group on modifications
to the Amended Agreements which are anticipated to include, among other
things, changes in the scheduled payments, including the $75,000,000 payment
and any unpaid deferred amounts due on July 1, 1995. The Company is also
considering refinancing with other lending institutions as an alternative to
modifying the Amended Agreements. Management currently anticipates
completing the modification of the Amended Agreements or an alternative
refinancing prior to March 31, 1995. The payments due on July 1, 1995, less
the amounts expected to be paid prior to that date from divestiture proceeds,
are included in long-term obligations in the accompanying condensed
22
<PAGE>
consolidated balance sheets. Beginning in the third quarter of 1994, these
obligations will be classified as current liabilities until such time as the
Company has either entered into an agreement to modify the Amended Agreements
or completed an alternative refinancing. In the event that a modification of
the Amended Agreements or refinancing is not achieved, the liquidity and
operations of the Company would be materially, adversely affected.
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, tax refunds 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 August 1, 1994, the Company had $6.9 million of industrial
revenue bond funds remaining in escrow. 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.
However, given the Company's current liquidity position, 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 expenditures to be incurred after a landfill ceases to accept
23
<PAGE>
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 $152,000,000 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 June 30, 1994, accrued liabilities for all closure and post-closure
monitoring and maintenance costs totaled $23.1 million, of which $1.2 million
is classified as a current liability in the accompanying condensed
consolidated balance sheets. 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.
24
<PAGE>
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 and in Note H to the accompanying condensed consolidated
financial statements, 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
"Federal Class Action"). 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 have also been filed in federal and state
courts on behalf of the Company (which is named as a nominal defendant) for
breach of fiduciary duty against certain of its officers and directors and
for negligence against its former auditors. In April 1994, the Company filed
its answers in the Federal Class Action. Since April 1994, several
status/settlement conferences have been held before the court, and discovery
is ongoing.
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 intends to file an appeal of that decision to the Third
Circuit Court of Appeals.
As previously reported in the Company's 1993 Annual Report on Form 10-K,
George R. Johannes, former Executive Vice President-Finance of the Company,
filed a demand for arbitration, claiming approximately $1,200,000 in
severance benefits pursuant to employment agreements dated October 6, 1992,
and February 3, 1993. In May 1994, the arbitrator
denied the claim by Mr. Johannes for severance benefits, while granting his
claim for attorney's fees.
25
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
As reported in the Company's Form 10-Q for the period ended March
31, 1994, at the Annual Meeting of Stockholders of the Company held on
May 4, 1994, the holders of the majority of the voting power of the
shares of the Company's Common Stock and Class A Common Stock, voting
together as a single class, re-elected John G. Rangos, Jr. for a
three-year term on the Board of Directors. The holders of shares of
Class A Common Stock also re-elected William E. Moffett to a three-
year term on the Board of Directors. The votes were cast as follows:
<TABLE>
<CAPTION>
Votes
Name Votes For Withheld
<S> <C> <C>
John G. Rangos, Jr. 198,908,645 1,846,372
William E. Moffett 43,396,335 1,202,128
</TABLE>
Continuing on the Board of Directors were John G. Rangos, Sr.,
Michael J. Peretto, Alexander W. Rangos, Joseph G. Stotlemyer, John M.
Arthur and Peter J. Gibbons.
26
<PAGE>
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: August , 1994 By: William Rodgers, Jr.
Senior Vice President and
Chief Financial Officer
27
