<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1996
[ ] 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: 1-10727
MID-AMERICAN WASTE SYSTEMS, INC.
DELAWARE 31-1161917
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
1006 WALNUT STREET, CANAL WINCHESTER, OHIO 43110
(614) 833-9155
Indicate by checkmark 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 file
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
outstanding as of MARCH 31, 1996:
27,984,950 PAR VALUE $1.00
1
<PAGE> 2
MID-AMERICAN WASTE SYSTEMS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 1995 and
March 31, 1996 (unaudited) 3
Consolidated Statement of Income (unaudited) for the three
month periods ended March 31, 1995 and 1996 4
Consolidated Statement of Cash Flows (unaudited) for the
three month periods ended March 31, 1995 and 1996 5
Notes to Consolidated Financial Statements (unaudited) 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (unaudited) 12-17
PART II. OTHER INFORMATION
Other Information 18
Signatures 19
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11-Computation of Earnings Per Share 20
</TABLE>
2
<PAGE> 3
MID-AMERICAN WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,602,000 $ 50,355,000
Accounts receivable, less allowances for doubtful
accounts of $409,000 and $442,000 13,723,000 11,242,000
Refundable income taxes 10,691,000 10,691,000
Other receivables 2,078,000 7,876,000
Prepaid expenses and other current assets 5,511,000 5,946,000
Assets held for sale 45,091,000
------------- -------------
Total current assets 85,696,000 86,110,000
------------- -------------
PROPERTY AND EQUIPMENT, less accumulated depreciation
and amortization of $78,582,000 and $83,522,000 355,838,000 352,029,000
------------- -------------
EXCESS OF COST OVER NET ASSETS OF
ACQUIRED BUSINESSES, net of amortization 20,587,000 20,371,000
OTHER INTANGIBLE ASSETS, net of amortization 15,012,000 14,447,000
OTHER ASSETS 38,230,000 39,527,000
------------- -------------
73,829,000 74,345,000
------------- -------------
$ 515,363,000 $ 512,484,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,710,000 $ 10,264,000
Current maturities of notes payable and term obligations 326,309,000 321,791,000
Accrued expenses and taxes 20,848,000 26,817,000
------------- -------------
Total current liabilities 359,867,000 358,872,000
------------- -------------
DEFERRED INCOME TAXES 14,274,000 14,274,000
------------- -------------
OTHER LIABILITIES 31,539,000 35,131,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 2,000,000 shares authorized
none issued
Common stock, $1.00 par value, 50,000,000 shares authorized,
28,038,800 issued in 1995 and 1996 28,039,000 28,039,000
Additional paid-in capital 233,806,000 233,806,000
Accumulated deficit (150,704,000) (157,423,000)
------------- -------------
111,141,000 104,422,000
Deferred compensation (1,243,000)
Treasury stock, 53,850 shares, at cost (215,000) (215,000)
------------- -------------
Total stockholders' equity 109,683,000 104,207,000
------------- -------------
$ 515,363,000 $ 512,484,000
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
MID-AMERICAN WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1995 1996
------------ ------------
<S> <C> <C>
REVENUES:
Collection services $ 27,569,000 $ 24,857,000
Landfill operations 11,623,000 8,837,000
------------ ------------
39,192,000 33,694,000
------------ ------------
EXPENSES:
Operating expenses 18,438,000 19,265,000
Depreciation and amortization 7,621,000 6,376,000
Selling, general and administrative expenses 4,911,000 4,851,000
Other (income) and expense (239,000) 1,258,000
Interest expense 6,721,000 8,663,000
------------ ------------
37,452,000 40,413,000
------------ ------------
Income (loss) before income taxes 1,740,000 (6,719,000)
INCOME TAXES (BENEFIT) 721,000
------------ ------------
NET INCOME (LOSS) $ 1,019,000 $ (6,719,000)
============ ============
NET INCOME (LOSS) PER SHARE $ .04 $ (.24)
============ ============
Common shares and common equivalent shares outstanding 24,780,195 27,984,950
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
MID-AMERICAN WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,019,000 $ (6,719,000)
------------ ------------
Adjustments to reconcile net income (loss) from operations
to net cash provided by operating activities:
Depreciation and amortization 7,621,000 6,376,000
Deferred income taxes 500,000
Amortization of debt issuance and refinancing costs 343,000 375,000
Amortization of deferred compensation 41,000 34,000
Closure and post closure 450,000 393,000
Write-off of deferred compensation 1,209,000
Change in assets and liabilities, net of effects
from acquisitions (6,423,000) 4,746,000
------------ ------------
Total adjustments 2,532,000 13,133,000
------------ ------------
Cash provided by operating activities 3,551,000 6,414,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (7,131,000) (2,386,000)
Proceeds on sales of property and equipment 45,892,000
Other 1,304,000 (3,649,000)
------------ ------------
Cash provided by (used in) investing activities (5,827,000) 39,857,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to notes payable and term obligations 500,000
Payments of notes payable and term obligations (1,541,000) (4,518,000)
Debt issuance and refinancing costs (455,000)
------------ ------------
Cash used in financing activities (1,496,000) (4,518,000)
------------ ------------
Increase (decrease) in cash and cash equivalents (3,772,000) 41,753,000
Cash and cash equivalents, beginning of period 12,206,000 8,602,000
------------ ------------
Cash and cash equivalents, end of period $ 8,434,000 $ 50,355,000
============ ============
Supplemental schedule of non-cash investing and financing activities:
Notes receivable received from disposition of business $ 6,100,000
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
MID-AMERICAN WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
In connection with the Company's restructuring, the Company's
management is in the process of evaluating the carrying value of its costs and
the adequacy of its accruals, the result of which could require significant
additional charges for asset impairment, asset write-downs and additional
accruals. Provision for these charges has not been made since the evaluation
process is in its initial stages and the extent of the charges can not be
quantified at this time. The unaudited financial statements for the three month
period ended March 31, 1995 and 1996 do reflect adjustments that management has
quantified to date.
The unaudited financial statements are presented in accordance with the
requirements of Form 10-Q and do not include all disclosures normally required
by generally accepted accounting principles. Reference should be made to the
Company's consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995 as
filed with the Securities and Exchange Commission for additional disclosures,
including a summary of the Company's accounting policies.
Property and Equipment:
Property and equipment at December 31, 1995 and March 31, 1996
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
---- ----
<S> <C> <C>
Landfills $ 149,930,000 $ 150,188,000
Vehicles and equipment 92,739,000 93,105,000
Buildings, facilities and improvements 42,354,000 42,380,000
Construction in progress - landfills 2,530,000 2,508,000
Future permitted landfill capacity not constructed 148,838,000 144,341,000
Land 3,029,000 3,029,000
------------- -------------
434,420,000 435,551,000
Less accumulated depreciation and amortization (78,582,000) (83,522,000)
------------- -------------
$ 355,838,000 $ 352,029,000
============= =============
</TABLE>
Interest is capitalized on landfill permitting and preparation costs
and other facility construction costs during the periods that these assets are
undergoing activities necessary for their intended use. Interest costs of
$2,768,000 and $408,000 were capitalized during the three month periods ended
March 31, 1995 and 1996, respectively.
Reclassification:
Certain amounts in the 1995 financial statements have been reclassified
to conform with the 1996 presentation.
6
<PAGE> 7
2. LIQUIDITY:
The Company's viability as a going concern is dependent upon the
restructuring of its obligations and asset base, and ultimately, a return to
profitability. In addition, as more fully described in Note 5, the Company is a
party to certain criminal charges and an SEC inquiry in connection with the Gary
landfill. The Company recorded a net loss of $182,558,000 for the year ended
December 31, 1995 and a net loss of $6,719,000 for the three month period ended
March 31, 1996, had negative working capital of $272,762,000 at March 31, 1996
and was in default on certain debt agreements which are classified as current
liabilities in the accompanying balance sheet. If present trends continue and
the Company is unable to obtain relief or otherwise cure the events of default,
the Company may be required to seek protection under federal bankruptcy laws.
The Company's highly leveraged capital structure precludes it from
developing any new landfills, and accordingly, at December 31, 1995 the Company
had sold or written-off all of its investments in development landfill projects.
The Company has also offered for sale various integrated landfill and collection
operations in order to raise cash for purposes of reducing its debt, and in
March 1996, consummated the sale of the assets of its Atlanta operations.
Substantially all proceeds from the sale of assets are restricted for debt
reduction by the terms of the various credit agreements.
The Company's cash provided by operating activities was approximately
$6,414,000 for the three month period ended March 31, 1996. However, the Company
is not able to borrow additional amounts under its existing credit arrangements
and does not believe that cash provided by operating activities in 1996 will be
adequate to fund both the non-discretionary capital expenditure requirements
necessary to maintain its present landfill operations as well as the scheduled
debt service requirements of its notes payable and term obligations.
Primarily as a result of the net losses experienced for the year ended
December 31,1995 and the three month period ended March 31, 1996, the Company
was not in compliance with certain financial covenants and is in default under
its unsecured bank credit agreement, Senior Notes, Senior Subordinated Notes and
certain other debt agreements at March 31, 1996. In addition, the Company did
not make the scheduled payment of approximately $10,719,000 in interest due
February 15, 1996 on the Senior Subordinated Notes. In connection with the sale
of the operating assets of the Atlanta operations on March 26, 1996, the Company
made approximately $9,500,000 in principal payments on the unsecured bank credit
facility and Senior Notes and funded approximately $1,100,000 of letters of
credit. Although the lenders consented to the Atlanta sale, and the use of the
proceeds therefrom, the Company remains in default on all of these debt
arrangements and the outstanding debt balances at December 31, 1995 and March
31, 1996 have been classified as current liabilities.
The Company is continuing discussions with the lender groups in an
effort to finalize a satisfactory restructuring of the unsecured bank credit
agreement, the Senior Notes and the Senior Subordinated Notes. In addition, the
Company continues to pursue both additional asset sales and alternative
financing arrangements, including equity and other long term financing, which
would retire all or a portion of the outstanding senior debt. The Company
believes that, until the refinancing of the unsecured bank credit agreement and
senior notes is finalized, existing cash balances and anticipated cash receipts
should be adequate to cover operating cash disbursements and required capital
expenditures. However if the senior lenders were to accelerate maturity, the
Company would not have sufficient funds to repay the $74,058,000 of Senior Notes
nor the $175,000,000 of Senior Subordinated Notes outstanding at March 31, 1996.
7
<PAGE> 8
3. DIVESTITURES:
On March 26, 1996 the Company completed the sale of its northeast
Atlanta market collection operations and a landfill. These operations
represented $6,051,000 and $5,046,000 of collection services revenues and
$840,000 and $460,000 of landfill operations revenues during the three month
periods ended March 31, 1995 and 1996, respectively. The gross proceeds of
approximately $52,000,000, were used to repay approximately $9,500,000 of
principal and fund $1,100,000 of letters of credit under the unsecured bank
credit agreement and Senior Notes agreements, fund $21,900,000 of closure,
post-closure and performance bonding obligations and the remainder will be used
for working capital needs. The Company realized a loss on the disposition of the
entire market of $10,760,000, which was provided at December 31, 1995, including
costs related to the closure of a smaller Georgia landfill not included in the
sale transaction. In addition, the Company completed the acquisition of one
collection operation and the sales of certain collection operations, landfills
and landfill development projects between March 31, 1995 and December 31, 1995.
The following table summarizes the unaudited consolidated pro forma
results of operations, assuming the 1995 acquisition and sales of collection
operations and landfills had occurred at the beginning of 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1996
---- ----
(IN THOUSANDS, EXCEPT NET
INCOME (LOSS) PER SHARE)
<S> <C> <C>
Revenues $ 30,303 $ 27,007
Net income (loss) $ (141) $ (7,811)
Net income (loss) per share $ (.01) $ (.28)
Common and common equivalent shares outstanding 25,043 27,985
</TABLE>
4. NOTES PAYABLE AND TERM OBLIGATIONS:
Notes payable and term obligations at December 31, 1995 and March 31,
1996 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
---- ----
<S> <C> <C>
Borrowings under unsecured bank
credit agreement $ 3,132,000
8.85% Senior Notes 30,777,000 $ 30,777,000
9.23% Senior Notes 43,281,000 43,281,000
9.75% First Mortgage Revenue Bonds 13,318,000 12,999,000
4.375% Guaranteed Variable Rate
Revenue Bonds 24,400,000 24,400,000
7.75% Development Revenue Bonds 11,665,000 11,543,000
7% Guaranteed Industrial Development
Revenue Bonds 14,000,000 14,000,000
Notes payable, at an average rate of 7.9% due in
monthly and quarterly installments through 2005 10,736,000 9,791,000
12.25% Senior Subordinated Notes 175,000,000 175,000,000
------------ ------------
326,309,000 321,791,000
Less current maturities 326,309,000 321,791,000
------------ ------------
$-0- $-0-
============ ============
</TABLE>
8
<PAGE> 9
At March 31, 1996, the Company was in default under its unsecured bank
credit agreement, Senior Notes Agreement and Senior Subordinated Notes
Agreement. Due to cross default provisions in the Company's other notes payable
and term obligations, the Company has classified all of its outstanding
indebtedness of $321,791,000 as a current liability at March 31, 1996.
Stated maturities of notes payable and term obligations, had the
Company not been in default, would have been as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1996........................................ $ 18,275,000
1997........................................ 21,911,000
1998........................................ 18,438,000
1999........................................ 14,789,000
2000........................................ 11,048,000
Thereafter.................................. 237,330,000
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
In the normal course of its business, and as a result of the extensive
governmental regulation of the solid waste industry, the Company periodically
may become subject to various judicial and administrative proceedings involving
federal, state or local agencies. In these proceedings, the agency may seek to
impose fines on the Company or to revoke or deny renewal of an operating permit
held by the Company. From time to time, the Company also may be subjected to
actions brought by citizens' groups in connection with the permitting of its
landfills or transfer stations, or alleging violations of the permits pursuant
to which the Company operates. Certain federal and state environmental laws
impose strict liability on the Company for such matters as contamination of
water supplies or the improper disposal of hazardous waste. The Company's
operation of landfills subjects it to certain operational, monitoring, site
maintenance, closure and post-closure obligations which could give rise to
increased costs for monitoring and corrective measures. In connection with the
Company's acquisition of existing landfills, it is often necessary to expend
considerable time, effort and money in complying with the permitting process
necessary to increase the capacity of these landfills. Governmental authorities
have the power to enforce compliance with these regulations and to obtain
injunctions or impose fines in a case of violations. During the ordinary course
of its landfill operations, the Company may from time to time receive citations
or notices from such authorities that such operations are not in compliance with
applicable environmental regulations. Upon receipt of such citations or notices,
the Company works with the authorities in an attempt to resolve the issues
raised by such citations or notices. Failure to correct the problems to the
satisfaction of the authorities could lead to curtailed operations or even
closure of the landfill.
The Company has obtained environmental impairment liability insurance
covering claims for sudden or gradual onset environmental damage at certain
landfill sites in amounts mandated by state and federal statutes. If the Company
were to incur liability for environmental damage in excess of its insurance
limits, its financial condition could be adversely affected. The Company carries
a comprehensive general liability insurance policy which management considers
adequate to protect its assets and operations from other risks. The Company also
may be subject to claims for personal injury or property damage arising out of
motor vehicle accidents involving its trucks. The Company currently carries
insurance with policy limits which management believes to be sufficient to cover
this risk.
The Company is usually required to post a performance bond or bank
letter of credit at the time of execution of a municipal residential collection
contract. In addition, the Company has been required to post a surety bond to
secure its obligations to close its landfills in accordance with environmental
regulations. At March 31, 1996, the Company had provided letters of credit
totaling $43,427,000 and surety bonds totaling $57,171,000 to secure the
Company's landfill closure obligations.
9
<PAGE> 10
The Company maintains self-insurance retention limits for its insurance
coverage. Accrued self-insurance costs at December 31, 1995 and March 31, 1996
were $3,182,000 and $3,181,000, respectively.
In 1991, the Company purchased its Cuyahoga Regional Sanitary Landfill
in Cleveland, Ohio and certain collection operations pursuant to an Asset
Purchase Agreement. Under the terms of the Asset Purchase Agreement, the Company
is required to contribute fifty percent (50%) of any settlement judgment or
damage award in excess of $5,500,000 resulting from certain litigation
instituted by Browning-Ferris of Ohio, Inc. ("BFI") against the sellers of such
assets. In October 1995, a judgment was rendered in favor of BFI in such
litigation. In February 1996, the Company made a cash payment of $1,060,000 in
settlement of the litigation. In addition, the Company is required, pursuant to
the Asset Purchase Agreement, to provide payments to the sellers for additional
permitted airspace at the landfill. In 1995, the Company was granted a permit
for 753,000 additional cubic yards of airspace and therefore, the Company is
required to pay approximately $2,300,000 to the sellers which amount has been
accrued in the balance sheets at December 31, 1995 and March 31, 1996 . The
Company is currently negotiating with the sellers regarding certain payments
related to the covenant not to compete and potential future expansions.
In August 1990, the Company entered into an agreement with Muht-Hei,
Inc., a corporation formed by the Campo Band of Mission Indians, to design,
obtain a permit for, construct and operate a new 400-acre landfill located on
the Indians' reservation approximately 50 miles east of San Diego, California
(the "Campo Project"). In 1995, the Company determined that the Campo Project
was no longer economically feasible to continue. The Company has negotiated a
proposed settlement with Muht-Hei, Inc. subject to review and approval by the
tribe's legal counsel and Federal authorities. The proposed settlement calls for
payments totaling $1,150,000 of which $300,000 has been paid through March 31,
1996 and $850,000 to be paid over the next 10 months. The entire amount was
accrued in the balance sheet at December 31, 1995. In addition, the Company will
receive a royalty of $.50 per ton for the life of the site, based on certain
performance criteria and is to be paid if the landfill is constructed.
In August 1994, the Company and a subsidiary filed suit in Lake
Superior Court for Lake County, Indiana against the City of Gary, Indiana, its
Mayor and each of its members of City Council for breach of contract, unjust
enrichment and tortious and intentional interference with contracts arising out
of Gary's failure to abide by the terms of its contract with the Company.
Subsequently, the City of Gary notified the Company that it was terminating its
contract with the Company. In September 1994, the Company filed a lawsuit
against the City of Gary in the United States District Court for the Northern
District of Indiana, Hammond Division, wherein the Company sought an injunction
against the City, prohibiting it from unlawfully using its offices to implement
its interpretation of the contractual agreement between the parties. The Federal
District Court granted a temporary restraining order in favor of the Company.
The Federal District Court later denied a preliminary injunction and dismissed
the Federal case on the basis that the Court did not have jurisdiction. The
Company appealed the decision to the 7th Circuit Court of Appeals which decided
the case on February 22, 1995. The Court of Appeals' decision affirmed the lower
court's dismissal of the suit on the grounds that there was not a violation of
the Company's due process and that the contractual right did not constitute a
"property right" which would have created a federal right to specific
performance of the contract. The Court of Appeals remanded the proceedings to
Federal District Court for findings with respect to fines due the Company from
the City related to the City's failure to comply with an injunction imposed by
the Federal District Court. The Court of Appeals also sent a copy of its opinion
to the United States Attorney for the District of Indiana so that the executive
branch may consider whether to initiate a criminal prosecution against the City
for contempt of the District Court's order and also for perjury. Upon remand of
the civil contempt fines issued to the Federal District Court, the District
Court awarded the Company $110,250 in civil fines and $11,589 in attorney fees.
The Seventh Circuit Court of Appeals on March 7, 1996 upheld this award. The
Company intends to institute proceeding to collect the fines and award of
attorney fees.
10
<PAGE> 11
The Company's state court action in Lake Superior Court remains in
process wherein the Company seeks reimbursement of $4.6 million for remediation
costs of the landfill incurred by the Company pursuant to the terms of the
contract with Gary and lost profits of $10 million to $12 million as a result of
the wrongful termination of the contract between the City and the Company. The
Company also seeks a permanent injunction enjoining the City from taking any
actions in breach of the contract between the parties and for other relief as
the Court deems appropriate. While this case is pending, the Company is not
operating the Gary Landfill.
Investigation Related to Gary Landfill and Political Contributions. The
Company has been involved in an investigation by the United States Attorney for
the Northern District of Indiana into events that relate to the landfill in
Gary, Indiana and certain other political activities in Gary, Indiana and
elsewhere. The Company, through its former President, Mr. White, negotiated the
right to operate the Gary Landfill in 1990, and such operating agreement was
approved by the City Council, the Indiana Department of Environmental Management
and the Lake County Superior Court. The Company has responded to a number of
document subpoenas, and certain of the Company's executive officers (other than
the President) and certain other employees have been requested, and have
testified, before a federal grand jury investigating the matter. Each such
officer or employee has received a letter from the U.S. Attorney specifying that
his or her testimony has been sought "not as a subject or target of the
investigation, but as a witness to matters and events to which he has
knowledge."
The Company entered into plea negotiations with the U.S. Attorney for
the Northern District of Indiana. On April 12, 1996, the grand jury returned
indictments against Mr. White and a former vice president of the Company. The
former officers have been charged with bribery and other violations in
connection with the Company's operations in Gary, Indiana. Mr. White resigned
as an officer and director of the Company on April 12, 1996. On April 29, 1996,
the Company entered into a plea agreement which provides that it will plead
guilty to a single count criminal misdemeanor charge involving campaign
contributions, and its subsidiary that ran the Gary Landfill will plead nolo
contendere to a single count charge under Title 18 U.S.C., Section 666
involving payments to an agent of the City of Gary. The Company believes that
is has accrued an adequate amount for penalties that will be assessed.
SEC Inquiry. The Company has been contacted by the Securities and
Exchange Commission regarding a matter under inquiry related to the Gary
investigation discussed above and has provided documentation to the SEC related
to political contributions.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
The following table presents, for the periods indicated, the percentage
relationship which the various items bear to total revenues and the percentage
increase (decrease) in the dollar amounts of such items:
<TABLE>
<CAPTION>
Percentage Relationship Period-to-Period
To Total Revenues Change
Three Months Ended Three Months Ended
March 31, March 31,
--------- ---------
1995 1996 1996 vs. 1995
---- ---- -------------
Revenue:
<S> <C> <C> <C>
Collection services 70.3% 73.8 % (9.8)%
Landfill operations 29.7 26.2 (24.0)
----- ----- -------
Total revenues 100.0 100.0 (14.0)
----- ----- -------
Expenses:
Operating expenses 47.0 57.2 4.5
Depreciation and amortization 19.4 18.9 (16.3)
Selling, general and
administrative expenses 12.5 14.4 (1.2)
Other (income) and expense (0.6) 3.7 (626.4)
Interest expense 17.1 25.7 28.9
----- ----- ------
Total expenses 95.6 118.9 7.9
----- ----- ------
Income (loss) before income taxes 4.4 (19.9) (486.1)
Income taxes 1.7 NM
----- ----- ----
Net income (loss) 2.6% (19.9)% (759.4)%
===== ====== =======
</TABLE>
12
<PAGE> 13
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Revenues. Total revenues decreased 14.0% from $39,192,000 in 1995 to
$33,694,000 in 1996. This decrease was primarily the result of the divestiture
of certain collection and landfill operations and overall reductions in the
amount of third party waste disposed of at Company-owned landfills.
The 1996 net changes in components of collection services revenues are
as follows:
<TABLE>
<C> <C>
1995 Collection services revenues ... $ 27,569,000
------------
Net changes in components of revenue:
Divestitures ................... (426,000)
Acquisitions ................... 426,000
Volume ......................... (2,793,000)
Price .......................... 81,000
------------
Net decrease ............... (2,712,000)
------------
1996 Collection services revenues ... $ 24,857,000
------------
</TABLE>
Collection services revenues decreased 9.8% from $27,569,000 in 1995 to
$24,857,000 in 1996. Divestitures of collection operations subsequent to March
31, 1995 reduced 1996 revenues by $426,000. During 1995, the Company completed
the acquisition of an integrated collection business located in the Clarksburg,
West Virginia market. This acquisition represented incremental collection
services revenue of $426,000 from 1995 to 1996. Price increases subsequent to
March 31, 1995 increased collection services revenue by $81,000. Competitive
pressures continued to be a significant factor, and the Company experienced
volume decreases of $2,793,000. This decrease was a result of overall volume
decreases in its northeast Atlanta market, which was sold on March 26, 1996, a
drop in industrial volumes, primarily in its Cleveland market, and the loss of
several residential municipal contracts, primarily in the Parkersburg, West
Virginia market.
The 1996 net changes in components of landfill operations revenues are
as follows:
<TABLE>
<C> <C>
1995 Landfill operations revenues ... $ 11,623,000
------------
Net changes in components of revenue:
Volume ......................... (2,336,000)
Price .......................... (450,000)
------------
Net decrease ............... (2,786,000)
------------
1996 Landfill operations revenues ... $ 8,837,000
------------
</TABLE>
Landfill operations revenues decreased 24.0% from $11,623,000 in 1995
to $8,837,000 in 1996. Landfill operations revenues were adversely affected by
overall volume decreases of third-party waste deposited in Company-owned and
operated landfills. The volumes of third-party waste deposited in Company- owned
and operated landfills decreased 154,000 tons from 736,000 tons in 1995 to
582,000 in 1996. The Company expects the trend of decreasing landfill volumes to
continue due to the anticipated May 1996 closure of the Company's Cuyahoga
Regional Sanitary Landfill and the expected loss of a large landfill contract at
the Company's RCC landfill. Aggregate price decreases at Company-owned or
operated landfills decreased landfill operations
13
<PAGE> 14
revenues by $450,000. The average tipping fee charged per ton by the Company's
landfills decreased to $15.18 in 1996 from $15.79 in 1995.
Operating Expenses. Operating expenses increased 4.5% from $18,438,000
in 1995 to $19,265,000 in 1996 and represented 47.0% of total revenues in 1995
compared to 57.2% of total revenues in 1996. These dollar and percentage
increases are primarily due to increased repair and maintenance expense during
the first quarter of 1996 to properly maintain the Company's fleet of collection
vehicles.
Depreciation and Amortization. Depreciation and amortization decreased
$1,245,000 or 16.3% from $7,621,000 in 1995 to $6,376,000 in 1996. These
expenses represented 19.4% and 18.9% of total revenues in 1995 and 1996,
respectively. Depreciation and amortization decreased due to decreased landfill
amortization of $1,104,000, from $3,109,000 in 1995 to $2,005,000 in 1996. This
decrease of landfill amortization is due to decreased volumes of third-party
waste deposited in Company-owned and operated landfills of 154,000 tons from
1995 to 1996. Landfills and landfill acquisition costs are depleted on the
unit-of-production method, which is calculated on the basis of the relationship
between the amount of permitted airspace in the landfills and the amount of that
airspace filled during a particular period. Thus, depreciation and amortization
attributable to landfills will vary with changes in the volume of waste
deposited in and the permitted life of the landfills.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained relatively level, decreasing $60,000 or 1.2%
from $4,911,000 in 1995 to $4,851,000 in 1996. These expenses represented 12.5%
and 14.4% of total revenues in 1995 and 1996, respectively. The Company
anticipates selling, general and administrative expenses to increase during the
remainder of 1996 due to increased legal expenses to be incurred relative to the
investigation of the Gary Landfill and political contributions, as well as the
possible sale to a third party or a restructuring of the Company.
Other Expenses. Other expenses increased $1,497,000 from other (income)
of ($239,000) in 1995 to other expense of $1,258,000 in 1996, and represented
(0.6%) and 3.7% of total revenues in 1995 and 1996, respectively. Other expenses
for 1996 include a charge of $1,209,000 for the write-off of the unamortized
balance of deferred compensation for restricted stock issued in 1993 to
Christopher L. White and Dennis P. Wilburn, former executive officers of the
Company who resigned during March 1996 and April 1996, respectively.
Additionally, severance costs of $275,000, including employee termination and
benefit costs, were recorded by the Company during 1996 for certain employees of
the Company.
Interest Expense. Interest expense increased 28.9% from $6,721,000 in
1995 to $8,663,000 in 1996. Interest expense represented 17.1% and 25.7% of
total revenues in 1995 and 1996, respectively. These dollar and percentage
increases resulted from a decrease of capitalized interest of $2,360,000, from
$2,768,000 in 1995 to $408,000 in 1996 as the Company suspended the
capitalization of interest on certain projects not undergoing development
activities necessary for their intended use. The Company expects this trend of
lower interest capitalization to continue.
Other Income Statement Items. The provision for income taxes resulted
in effective tax rates for 1995 of 41.4%. The Company did not record a provision
for income taxes during 1996 due to the net loss recorded by the Company during
1996 as well as the uncertainty of future taxable income. Differences between
the actual tax expense and the statutory Federal tax rate were due primarily to
provisions for state income taxes, net of the Federal tax benefit, the
nondeductibility for tax purposes of goodwill associated with certain collection
operation acquisitions, and a significant valuation allowance recorded against
the Company's deferred tax asset.
For the reasons discussed above, the Company had a net loss of
$6,719,000 in 1996 compared to net income of $1,019,000 in 1995.
14
<PAGE> 15
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. The Company believes it may be able to pass through to its customers
most cost increases resulting from inflation. However, competitive factors may
require the Company to absorb at least a portion of these cost increases,
particularly during prolonged periods of economic slowdown.
ENVIRONMENTAL AND REGULATORY MATTERS
In 1991, the United States Environmental Protection Agency (the "EPA")
promulgated Solid Waste Disposal Facility Criteria for landfills under Subtitle
D of The Resource Conservation and Recovery Act of 1976 ("Subtitle D
Regulations"). The EPA's Subtitle D Regulations include location standards,
financial assurance standards, groundwater monitoring as well as corrective
action standards. The Subtitle D Regulations became effective for most landfills
on October 9, 1993, with a phase-in period for certain provisions. Additionally,
as a result of Subtitle D Regulations and various state statutes, the Company is
required to maintain landfill sites for mandated periods after closure. The
Company records an accrual (other liabilities) and a charge to operating expense
for estimated post-closure costs over the operating life of the landfills as the
airspace is filled. Accruals for closure and post-closure monitoring and
maintenance activities, which are based on engineers' estimates, cover
expenditures to be incurred after the landfills stop accepting waste. Such
expenditures include a final cap and cover for the site, methane gas and
leachate management and groundwater monitoring. The Company updates engineering
estimates for closure and post-closure costs periodically during the year to
reflect current, as well as future, requirements and proposed regulatory
changes. All of the Company's owned and operated landfills, planned landfill
expansions or new landfill development projects are being engineered to meet or
exceed these requirements.
The Company is responsible for closure and post-closure monitoring and
maintenance costs at its twelve operating landfills and five closed landfills.
Estimated aggregate closure and post-closure costs are fully accrued for the
landfill sites at the time the landfills cease to accept waste and are closed.
At March 31, 1996, the Company estimates that aggregate closure and post-closure
costs, at the time all Company-owned or -operated landfills have reached their
respective capacity, are approximately $110,700,000. These costs are being
expensed over the operating lives of these landfills. Estimated additional costs
of approximately $79,200,000, principally related to final capping and methane
gas control activities expected to occur during the operating lives of these
landfills, are also being expensed over the useful lives of these facilities.
In 1993, the Company substantially completed an extensive capital
expenditure program which (i) significantly increased the Company's disposal
capacity and (ii) brought its landfills into substantial compliance with federal
and state requirements and regulations. As a result, the costs of certain
monitoring systems, which are not currently required to be in compliance with
Subtitle D Regulations (i.e., ground monitoring wells), have already been
incurred by the Company as part of the costs of new expansion permits, and
therefore are not part of the closure and post-closure costs accruals. In
addition, none of the Company's landfills (operating or closed) are connected
with Superfund National Priority Lists or potentially responsible party issues.
The EPA has issued regulations that implement certain requirements of
the 1990 amendments to the Clean Air Act. The Clean Air Act provides for
regulation of the emission of air pollutants from certain landfills based upon
the date of the landfill construction and volume per year of regulated
emissions.
In connection with the construction and expansion of the Company's
landfills, it has attempted to comply with the requirements of the Clean Air Act
and has made capital expenditures relating to these facilities. The Company does
not anticipate any significant additional capital expenditures over those
already incurred. The Company does not anticipate that operating costs will
increase significantly as a result of complying with the Clean Air Act and the
regulations promulgated thereunder.
15
<PAGE> 16
Management believes that the aforementioned environmental matters will
not have a material adverse effect on the financial condition of the Company.
However, the Company's operation of landfills subjects it to certain
operational, monitoring, site maintenance, closure and post-closure obligations
which could give rise to increased costs for monitoring and corrective measures.
The Company has instituted programs to promote compliance with federal, state
and local laws, regulations and permit requirements at each of its owned and
operated landfills, and the Company continues its efforts to anticipate and
respond to future regulatory, legal and permitting developments. The Company
cannot predict the effect of any future enacted federal or state legislation or
regulations on the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of working
capital, payments of principal and interest on its outstanding indebtedness and
capital expenditures. During 1996, the Company's working capital deficit
decreased $1,409,000 from $274,171,000 at December 31, 1995 to $272,762,000 at
March 31, 1996. The Company's cash and cash equivalents balance increased
$41,753,000 from $8,602,000 at December 31, 1995 to $50,355,000 at March 31,
1996. The 1996 working capital and cash and cash equivalents increases were
primarily attributable to the effects of the sale of the Company's northeast
Atlanta market on March 26, 1996 which resulted in proceeds of approximately
$52,000,000. The working capital deficits at December 31, 1995 and March 31,
1996 represent the reclassification of all of the Company's notes payable and
term obligations to a current liability. See-Cash Flow from Investing
Activities.
Cash Flow from Operating Activities. During 1995 and 1996, net cash
provided by operating activities was $3,551 ,000 and $6,414,000, respectively.
Cash flow from operating activities in 1995 increased by $2,863,000 primarily
due to fluctuations in working capital, including an increase in accrued
expenses, primarily accrued interest.
Cash Flow from Investing Activities. During 1995 and 1996, the Company
made expenditures of approximately $7,100,000 and $2,400,000, respectively, for
property and equipment additions. The Company also sold certain collection
operations, property and equipment for proceeds of $45,892,000 in 1996. There
were no dispositions of property and equipment during 1995. The Company's
unsecured bank credit agreement and Senior Notes agreements provide for
limitations on aggregate capital expenditures and acquisitions, as well as
capital expenditure limitations for specific development projects. The Company
expects cash capital expenditures of approximately $20,000,000 (excluding
capitalized interest costs) during 1996 for existing landfill expansion, new
facility construction and equipment additions.
Cash Flow from Financing Activities. The Company's unsecured bank
credit agreement provides for borrowings up to $44,500,000. During March 1996,
the Company repaid the outstanding principal balance of $3,132,000 and funded
$1,100,000 of letters of credit under the credit agreement. At March 31, 1996,
the Company utilized $43,427,000 of the facility for letters of credit, leaving
$1,073,000 of available borrowing capacity under the facility. The Company is in
default under the agreement, and the Company does not currently anticipate that
additional borrowings will be available thereunder. As a result, the Company
will be required to support additional closure, post-closure or other stand-by
obligations with surety bonds to the extent available under its bonding program,
or by cash collateralization. Subsequent to March 31, 1995, the Company was
required to cash collateralize approximately $8,100,000 of such obligations. At
March 31, 1996, the Company had provided various regulatory authorities with
surety bonds of $57,171,000 for landfill closure and post closure obligations.
The Company's current financial position limits its ability to obtain surety
bonds or performance bonds without cash collateralization.
16
<PAGE> 17
During 1996, the Company made debt reductions, including principal
repayments of $4,798,000 of its unsecured bank credit agreement and other notes
payable and term obligations. On April 1, 1996, the Company made a $6,400,000
principal repayment on its 8.85% and 9.23% Senior Notes.
The Company continues to actively pursue various alternatives to
reduce its notes payable and term obligations, including strategic dispositions
of certain assets with proceeds therefrom used to repay notes payable and term
obligations. On March 26, 1996, the Company completed the sale of its northeast
Atlanta market collection operations and a landfill to Republic Industries.
These operations represented $5,046,000 or 20.1% and $464,000 or 5.3% of total
collection services revenues and landfill operations revenues, respectively,
during 1996. The gross proceeds of approximately $52,000,000, subject to certain
holdbacks and contingencies, were used by the Company to (i) repay approximately
$9,500,000 of principal and fund $1,100,000 of letters of credit under the
unsecured bank credit agreement and Senior Notes agreements, (ii) cash
collateralize approximately $6,800,000 of the Company's municipal and landfill
bonding facilities, and (iii) fund closure and post-closure obligations of
approximately $15,100,000 for certain of the Company's landfills. The balance of
the proceeds will be utilized by the Company for working capital and operating
expenses. Management is currently evaluating the sale of other assets, and is
required to use any aggregate proceeds exceeding $3,000,000 in 1996 from such
sales to pay-down its obligations under its unsecured bank credit agreement and
Senior Notes agreements.
At March 31, 1996, the Company was in default under its unsecured bank
credit agreement, Senior Notes agreements and Senior Subordinated Notes
agreement. Due to cross default provisions in the Company's other notes payable
and term obligations, the Company has classified all of its outstanding
indebtedness at March 31, 1996 as a current liability. The Company has failed to
pay the February 15, 1996 installment of interest due on its Senior Subordinated
Notes. Other defaults may exist under its other debt instruments. As a result,
the holders of such debt instruments have the right to accelerate the maturity
of their debt instruments or to take other remedies. No assurance can be given
that the lenders will not accelerate the maturity under these debt instruments
at any time. If such debt instruments were accelerated, the Company does not
currently have sufficient cash or other resources to repay such debt.
The Company's viability as a going concern is dependent upon the
restructuring of its obligations and asset base, and ultimately, a return to
profitability. During the first quarter of 1996, the Company continued to
experience declining landfill pricing and volume, and faces the potential near
term loss of a significant disposal contract in its Pennsylvania market. In
light of these factors, the Company intends to undertake a comprehensive review
of the carrying value of all of its assets and their related future obligations,
the results of which could require the recognition of additional asset
impairment charges.
As more fully described in Note 5 to the Company's Consolidated
Financial Statements, the Company has pled to certain criminal charges in
connection with its Gary landfill and is the subject of an SEC inquiry. The
Company recorded a net loss of $182,558,000 for the year ended December 31, 1995
and a net loss of $6,719,000 for the three month period ended March 31, 1996,
had negative working capital of $272,762,000 at March 31, 1996 and was in
default on certain debt agreements which are classified as current liabilities
in the Company's balance sheet. If present trends continue and the Company is
unable to obtain relief or otherwise cure the events of default, the Company may
be required to seek protection under federal bankruptcy laws.
Provided the debtholders do not accelerate payment of such debt,
management believes that cash from operating activities, cash on hand and income
tax refunds together with proceeds from the sale of its northeast Atlanta market
operations will be sufficient to (i) meet its planned 1996 capital expenditures
of $20,000,000, (ii) meet its 1996 operating cash requirements, (iii) meet its
1996 closure and post-closure obligations, and (iv) meet its 1996 interest
payments (although the Company is not currently paying all such interest). The
Company's debt maturity schedule for 1996 is $321,511,000 due to the
aforementioned defaults. The Company does not have the capital resources to meet
its 1996 required principal payments for its notes payable and term obligations.
17
<PAGE> 18
PART II
OTHER INFORMATION
Item 1. Inapplicable
Item 2. Inapplicable
Item 3. Inapplicable
Item 4. Inapplicable
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit 11. Computation of Earnings Per Share
(b) Reports on Form 8-K
On February 2, 1996, the Company filed a Form 8-K
under Item 5, "Other Events", regarding the sale of
its northeast Atlanta market and the investigation
into the Company's operation of the Gary landfill.
18
<PAGE> 19
SIGNATURES
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.
MID-AMERICAN WASTE SYSTEMS, INC.
(Registrant)
Date: May 15, 1996 By: Gene A. Meredith
------------ --------------------------------------
Gene A. Meredith
Chairman of the Board, President,
Treasurer and Chief Executive Officer
Date: May 15, 1996 By: Richard A. Widders, Jr.
------------ --------------------------------------
Richard A. Widders, Jr.
Vice President-Finance,
Chief Financial and Accounting
Officer and Secretary
19
<PAGE> 1
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1996
---- ----
<S> <C> <C>
Weighted Average Shares Outstanding:
Common shares outstanding
at end of period .............. 24,780,195 27,984,950
========== ============
Weighted number of common shares
outstanding ................... 24,780,195 27,984,950
========== ============
NET INCOME (LOSS) .................. $1,019,000 $ (6,719,000)
========== ============
NET INCOME (LOSS) PER SHARE ........ .04 $ (.24)
========== ============
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 50,355,000
<SECURITIES> 0
<RECEIVABLES> 11,684,000
<ALLOWANCES> 442,000
<INVENTORY> 0
<CURRENT-ASSETS> 86,110,000
<PP&E> 435,551,000
<DEPRECIATION> 83,522,000
<TOTAL-ASSETS> 512,484,000
<CURRENT-LIABILITIES> 358,872,000
<BONDS> 321,791,000
0
0
<COMMON> 28,039,000
<OTHER-SE> 76,168,000
<TOTAL-LIABILITY-AND-EQUITY> 512,484,000
<SALES> 0
<TOTAL-REVENUES> 33,694,000
<CGS> 0
<TOTAL-COSTS> 40,413,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 220,000
<INTEREST-EXPENSE> 8,663,000
<INCOME-PRETAX> (6,719,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,719,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,719,000)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
