UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-19615
TRANSAMERICAN WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3487422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
314 NORTH POST OAK LANE
HOUSTON, TEXAS
77024
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (713) 956-1212
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 periods 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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT MAY 13, 1996
$.001 par value 30,445,791
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1995 and March 31, 1996........................... 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1995 and 1996..................... 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1996..................... 5
Notes to Unaudited Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 14
Item 6. Exhibits and Reports on Form 8-K............................... 14
Signatures ........................................................... 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................................. $ 1,637 $ 1,668
Restricted cash ........................................................................... 783 1,113
Accounts receivable, less allowance for doubtful accounts of $186 ......................... 2,526 2,351
Other current assets ...................................................................... 1,102 781
-------- --------
TOTAL CURRENT ASSETS ................................................................ 6,048 5,913
Restricted cash .............................................................................. 8,931 8,281
Property and equipment, net of accumulated depreciation ...................................... 27,100 28,490
COST IN EXCESS OF FAIR VALUE OF ASSETS ACQUIRED, NET OF ACCUMULATED
AMORTIZATION OF $390 AND $421, RESPECTIVELY .............................................. 2,070 2,039
DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $403 AND
$451,RESPECTIVELY ........................................................................ 2,137 2,089
Long-term contracts in progress, net of allowance for doubtful accounts of
$149 .................................................................................... 826 826
Other assets, net ............................................................................ 314 380
-------- --------
TOTAL ASSETS ........................................................................ $ 47,426 $ 48,018
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................................................................ $ 1,694 $ 1,408
Accrued liabilities and other ............................................................... 1,850 1,912
Current portion of long-term debt ........................................................... 1,726 1,931
Reserve for closure and post-closure costs .................................................. 307 273
-------- --------
TOTAL CURRENT LIABILITIES ................................................................... 5,577 5,524
Long-term debt, less current portion and unamortized discount ................................ 30,210 30,621
Reserve for closure and post-closure costs, less current portion ............................. 3,569 3,398
Other noncurrent liabilities ................................................................. 637 637
-------- --------
TOTAL LIABILITIES ........................................................................... 39,993 40,180
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; 50,000,000 shares authorized; 29,649,124
and 30,065,374, shares issued and outstanding, respectively ................................. 30 30
Additional paid-in capital ................................................................... 25,074 25,246
Retained earnings (deficit) .................................................................. (17,671) (17,438)
-------- --------
TOTAL STOCKHOLDERS' EQUITY .................................................................. 7,433 7,838
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................................. $ 47,426 $ 48,018
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
---------------------
1995 1996
-------- --------
(UNAUDITED)
Revenue .............................................. $ 2,263 $ 4,583
Expenses:
Cost of services ................................... 1,902 2,654
Depreciation and amortization ...................... 350 554
General and administrative ......................... 816 767
Cost of completed acquisition ...................... 150 --
Cost of terminated acquisitions and contracts ...... 215 --
-------- --------
Operating (income) ............................... (1,170) 608
Other income (expense):
Interest expense, net .............................. (673) (648)
Exchange offer charge .............................. (1,644) --
Other income (expense), net ........................ (66) 273
-------- --------
Total other expense .............................. (2,383) (375)
-------- --------
Income (loss) before income taxes .................... (3,553) 233
Provision for income taxes ........................... (35) --
-------- --------
Net income (loss) ................................ $ (3,588) $ 233
======== ========
Income (loss) per common share ....................... $ (0.21) $ 0.01
======== ========
Weighted average common shares outstanding ........... 17,010 30,646
======== ========
See Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------
1995 1996
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES: (UNAUDITED)
<S> <C> <C>
Net income (loss) .......................................................................... $(3,588) $ 233
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization .......................................................... 350 554
Amortization of debt discount and deferred financing costs ............................. 134 86
Closure and post-closure costs ......................................................... 108 (171)
Cost of completed acquisitions ......................................................... 150 --
Loss on investment ..................................................................... 199 --
Cost of terminated acquisitions and contracts ......................................... 215 --
Exchange offer charge ................................................................. 1,644 --
Changes in assets and liabilities:
Accounts receivable .................................................................. (367) 175
Other current assets ................................................................. 215 321
Accounts payable and accrued liabilities ............................................. 531 (295)
Change in long-term contracts in progress ............................................ 249 --
Other, net ........................................................................... 34 (29)
------- -------
Net cash provided (used) by operating activities .......................... (126) 874
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of completed management contracts and acquisition ..................................... (150) --
Costs incurred on possible acquisitions .................................................... (140) (19)
Purchases of property and equipment ........................................................ (1,561) (967)
Other ...................................................................................... 103 (17)
------- -------
Net cash used by investing activities ............................................. (1,748) (1,003)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt ........................................................................... (358) (370)
Proceeds from issuance of stock ............................................................ 2,500 208
Stock issuance costs ....................................................................... (279) --
Use of restricted cash ..................................................................... 1,269 322
------- -------
Net cash provided (used) by financing activities .................................. 3,132 160
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................................... 1,258 31
CASH AND CASH EQUIVALENTS:
Beginning of period ........................................................................ 1,499 1,637
------- -------
End of period .............................................................................. $ 2,757 $ 1,668
======= =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
5
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include
the accounts of TransAmerican Waste Industries, Inc. and its wholly-owned
subsidiaries (the "Company") and have been prepared by the Company without audit
pursuant to the rules and regulations of the Securities and Exchange Commission.
All significant intercompany accounts and transactions have been eliminated.
These unaudited consolidated financial statements reflect, in the opinion of
management, all adjustments (all of which are normal and recurring in nature,
except as disclosed herein) necessary to fairly state the financial position and
the results of operations for the interim periods presented, and the disclosures
herein are adequate to make the information presented not misleading. Operating
results for interim periods are not necessarily indicative of the results that
can be expected for a full year. Certain information related to the Company's
organization, significant accounting policies and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted in this Form 10-Q.
In February 1996, the Company changed its fiscal year end from August
31 to December 31 and accordingly filed a Transition Report on Form 10-K for the
four month period ended December 31, 1995. The comparative unaudited interim
financial statements for the prior year included in this Form 10-Q have been
recast to conform to the change in fiscal year, and therefore represent a
quarterly period that has not been previously presented. These interim financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto contained in the Company's Transition Report on
Form 10-K for the four month period ended December 31, 1995.
2. CHANGE IN ACCOUNTING PRINCIPLE
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Impairment of Long-Lived Assets" as of January 1, 1996. SFAS
No. 121 requires that if a long-lived asset is not expected to generate
sufficient cash flow (undiscounted) to recoup its invested cost, then the asset
value should be written down to fair value. Fair value is typically defined as
the discounted value of the assets expected cash flow. There was no impact on
the Company's Consolidated Financial Statements as a result of the adoption of
this new accounting principle. However, see discussion of crude oil processing
operations at Note 4.
3. EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") have been computed based on the
weighted average number of
6
common equivalent shares outstanding during the applicable periods. For the
three months ended March 31, 1995 common equivalent shares ("Shares"), including
stock options and warrants, did not impact net loss per share as they were
anti-dilutive.
The convertible subordinated debentures are not considered common
equivalent shares and, therefore, are excluded from the primary presentation of
EPS. Assumed conversion is considered for the calculation of fully diluted EPS.
For the three months ended March 31, 1995 and 1996, the assumed conversion of
the Debentures has an anti-dilutive effect on the fully diluted EPS computation
and is excluded from the presentation herein.
The following table reconciles the number of common shares outstanding
with the number of shares used in computing EPS (in thousands):
THREE MONTHS
ENDED MARCH 31,
-----------------
1995 1996
------- -------
Common shares outstanding, end of period ................... 25,456 30,065
Effect of shares issued during the period using
weighted average common shares .................... (8,446) (246)
Effect of shares issuable for stock options and warrants
based on the treasury stock method ................ -- 827
------- -------
Common shares used in computing earnings per share ......... 17,010 30,646
======= =======
4. Commitments and Contingencies
ENVIRONMENTAL MATTERS AND REGULATION. The Company is subject to numerous
rules and regulations at the federal, state and local levels. The Company has
not experienced any significant regulatory problems in the past and believes
that it is in substantial compliance with all applicable rules and regulations.
The Company cannot predict what laws or regulations might exist in the future,
and no assurance can be given that future changes in the law will not have an
adverse impact on the Company's operations. The Company's business generally
requires certain operating permits in order to conduct its operations. The
Company believes it is in material compliance with all of its operating permits.
In recent years, environmental groups and others have pressured applicable
regulatory authorities and have instituted judicial proceedings, to overturn or
block the grant of certain operating permits, or to impose restrictions on
disposal practices. For a description of litigation involving permits relating
to the Chilton County landfill see Litigation below. The Company does not carry
insurance coverage for environmental liability related to its waste disposal
operations. In the event uninsured losses occur, the Company's financial
condition and results of operations could be adversely affected.
CLOSURE AND POST-CLOSURE COSTS. The Company has material financial
obligations relating to closure and post-closure costs for the disposal
facilities it owns or operates. While the precise amount of these future
obligations cannot be determined, the Company has estimated for all its existing
facilities, excluding Haleyville Landfill discussed in Note 6, that the total
costs for final closure and post-closure monitoring for an estimated period of
up to 30 years after closure for cells currently being utilized will approximate
$6.0 million. At March 31, 1996, the Company had accrued approximately $3.7
million for such estimated costs based on airspace utilized to date. The Company
will continue to provide accruals based on engineering estimates, as the
available airspace is utilized. The estimate of the total future liability is
subject to change as it is based on current economic conditions, operational
results, existing regulations and a combination of internal and external
engineering specifications which may not yet have been approved by the
appropriate regulatory authorities.
FINANCIAL ASSURANCE OBLIGATIONS. From time to time the Company may be
required to provide performance bonds or bank letters-of-credit to secure
performance of landfill management and hauling contracts or to secure its
closure and post-closure obligations with respect to its landfills. At March 31,
1996, the
7
Company has provided performance bonds totaling $7.7 million and letters of
credit totaling approximately $200,000 to secure its obligations. The Company
has arranged a $20 million performance bond line of credit, subject to review of
each contract bonded and certain other conditions. In certain cases, the Company
will be required to provide cash deposits.
SETTLEMENT WITH LOWELL HARRELSON. In August 1995, Lowell L. Harrelson
entered into a consulting agreement with the Company to provide solid waste
acquisition and development opportunities to the Company, and contemporaneously
resigned as an officer and director of the Company. In December 1995, the
Company filed a lawsuit against Mr. Harrelson for, among other things, failing
to fully and faithfully execute his duties as an officer and director of the
Company and has discontinued making the consulting payments. Mr. Harrelson filed
counterclaims against the Company for breach of contract and fraud claiming
unspecified damages. In February 1996, a settlement was reached between the
Company and Mr. Harrelson whereby both parties released all claims and the
consulting agreement was deemed terminated effective November 30, 1995. Under
the terms of the agreement, the Company received $275,000. Additionally, all of
Mr. Harrelson's vested options were exercised and all outstanding warrants and
unvested stock options were canceled.
LITIGATION. McGinnes Industrial Maintenance Corporation ("MIMC"), a
wholly owned subsidiary of the Company, has been named as one of approximately
40 co-defendants in a lawsuit styled TAMMY FISHER WHALEN, ET AL. V. AES, INC.,
ET AL., Cause No. 93-CV0211, filed in the District Court of Galveston County,
Texas, 10th Judicial District. The suit consolidated four separate proceedings
filed by seventy-four persons currently or formerly residing on real property
situated approximately five miles or more from the Company's wastewater sludge
treatment facility located in Galveston County, Texas, and names as defendants,
in addition to MIMC, a former director and principal stockholder of the Company
(now deceased), and approximately 40 industrial companies and cities located
along or near the Houston Ship Channel. The suit alleges personal injury and
property damages resulting from alleged releases of hazardous and toxic
substances from the Company's former wastewater sludge treatment facility. In
September 1994, seventeen of the original plaintiffs were dismissed with
prejudice from the litigation. The Company, as well as the other defendants,
have agreed on an out-of-court settlement with the majority of the remaining
plaintiffs. The Company's contribution toward settlement of the consolidated
lawsuit was approximately $30,000. In March 1994, nine additional plaintiffs
filed a petition in intervention in Cause No. 93-CV0211. In October 1995, the
plaintiff-intervenors amended their petition to delete a number of allegations
and causes of actions against defendants. Although there can be no assurance as
to the outcome of any lawsuit, the Company believes that the claims made by
plaintiff-intervenors in this suit are without merit and that the exposure of
the Company in such litigation is minimal. The Company has been advised by its
outside counsel, Ford & Ferraro, L.L.P., to such effect. The Company is
vigorously defending these actions.
In June 1995, certain citizens of Chilton County, Alabama filed a
complaint against the Chilton County Commission and the Company, which claimed
that the Commission failed to comply with certain statutorily mandated
procedures pertaining to 1) the transfer of the Chilton County Landfill from the
County to the Company and 2) the approval of certain subsequent permit
modifications. Each of the parties filed a motion for summary judgment. On
January 11, 1996, the Circuit Court of Chilton County, Alabama entered a final
order granting in part and denying in part each parties' motion for summary
judgment. The transfer of the landfill to the Company was upheld. However, the
claims for which plaintiffs were granted summary judgment relate to certain
permit modifications that increased the allowable daily volume and expanded the
permissible service area of the facility. The Company is appealing that portion
of the order granting partial summary judgment to the plaintiffs. On January 12,
1996, the Circuit Court of Chilton County, Alabama granted a stay of its order
pending appeal, but as a condition of granting the stay imposed a daily volume
limit which is less than the amount reflected on the Company's permit, as
modified. Although there can be no assurance as to the outcome of any
litigation, the Company believes the claims brought by the citizens are without
merit and will vigorously pursue its appeal. If the Company is unsuccessful in
its appeal, and the Company is unable to subsequently obtain a permit
modification reflecting a higher allowable daily volume, which it intends to
seek, it would limit the landfill's volume to the original permitted amount,
thereby reducing volume and revenue below the current level generated under the
8
court's stay.
In addition to the foregoing, the Company is involved in other
litigation incidental to the conduct of its business, none of which management
believes is, individually or in the aggregate, material to the Company's
financial condition or results of operations.
OTHER. Management has been closely monitoring the results of its crude
oil processing operations which have been unprofitable for the past two years.
Based upon Management's estimate of undiscounted cash flows, which incorporates
certain operational enhancements recently implemented by the Company, Management
has concluded that no impairment is presently indicated. However, it is
reasonably possible that Management's estimate of undiscounted cash flows could
change in the near term if the result of the recent operational enhancements do
not meet current expectations, which would result in the need to write-down the
assets of the crude oil processing operations to fair value.
5. DEVELOPMENT SERVICES AGREEMENT
In March 1996, the Company entered into a Development Services
Agreement, with E.C. Development, L.P. ("ECD"), a company controlled by a
director of the Company, whereby ECD will provide the Company with certain
development services related to locating landfill facilities. The agreement has
a five-year term and may be terminated by either party upon 90 days prior
notice. In consideration for these services, ECD received warrants to purchase 2
million shares of common stock at $1.50 per share. The warrants vest fully on
March 1, 2001 as long as ECD is providing services to the Company on that date,
however the vesting accelerates one warrant for every one dollar of direct costs
incurred by ECD in performing services under the agreement. The fair value of
the warrants will be amortized over the term of the agreement. ECD is also
entitled to additional compensation upon the closing of each transaction related
to landfill facilities identified for the Company by ECD. This additional
compensation consists of (i) 50,000 shares of common stock of the Company,
subject to adjustment under certain conditions, (ii) a warrant to purchase
100,000 shares of common stock of the Company at the market price on the trading
day immediately preceding the transaction date, and (iii) $250,000 cash upon the
closing of the financing for the facility or twelve months following the
closing, whichever is sooner.
6. SUBSEQUENT EVENT
HALEYVILLE LANDFILL. On April 10, 1996, the Company completed the
acquisition of the assets of Haleyville Sanitary Landfill, Ltd. ("HSLL") and the
common stock of Peerless Landfill Company ("Peerless"). HSLL and Peerless
managed and held the permits for the Haleyville Landfill (the "Landfill") which
consists of approximately 114 acres located approximately 80 miles northwest of
Birmingham, Alabama. The Company will manage the Landfill, which is owned by the
Solid Waste Disposal Authority for the City of Haleyville (the "Authority")
under a 20-year management agreement. The Landfill is permitted to accept 1,500
tons per day of municipal solid waste in addition to certain types of
non-hazardous industrial waste. The landfill site includes an active 11 acre
construction and demolition landfill which currently accepts approximately 150
tons per day of inert material. Before municipal solid waste can be accepted at
the site, the Company will be required to construct new cells complying with
Subtitle D of the Resource Conservation and Recovery Act of 1976, or obtain
approval from the Alabama Department of Environmental Management for a vertical
expansion over a former landfill located on the landfill site which has been
closed. During the next several months the Company will seek to arrange for
waste disposal contracts to provide the volume of waste required to support its
anticipated level of operations at this facility. There can be no assurances
that such contracts will be obtained.
The purchase price for the acquisition was (i) $1,500,000 cash at
closing, (ii) a royalty of 2.5% of revenue during 1999 and 2000 increasing to 5%
of revenue thereafter, and (iii) an earnout of up to 1,166,667 shares of common
stock of the Company issuable once the Landfill reaches certain volumes of waste
per day,
9
subject to adjustment in cash or stock in 1999 if the value of the shares of
common stock issued by the Company does not achieve a certain minimum value
target. The Company has financed the acquisition and development of this project
with Solid Waste Revenue Bonds ("Bonds") consisting of $7,945,000, 20-year, 8.5%
tax-exempt bonds, and $1,000,000, 5-year, 11.5% taxable bonds. Depending upon
the approval of certain possible permit applications for vertical expansion and
entry into waste disposal contracts, proceeds from the financing will be used
for (i) construction of the new cells, (ii) purchase of equipment and the option
properties, (iii) bonding for closure and post-closure obligations, (iv) debt
service and capitalized interest funds, and (v) debt issuance and certain other
costs for the Haleyville Landfill. The Bonds are secured by a pledge of revenue
derived from the Landfill, and by the management fee income, as defined, from
the Company-managed Chastang landfill until certain criteria are met by the
Landfill.
CENTRAL LANDFILL. The Company completed the acquisition of the Central
Landfill in May 1996. Pursuant to an interim agreement, the Company has operated
the facility and provided construction and improvement capital as well as
landfill development expertise since March 1995. Operations under the interim
agreement were included in the Consolidated Statements of Operations beginning
March 31, 1995. Consideration for the landfill included $50,000 cash and the
333,000 shares of restricted common stock of the Company (valued at $325,000).
If certain revenue targets are obtained and an expansion permit is received, the
Company will pay additional consideration over the next two years totaling $1.7
million, payable in cash and restricted common stock of the Company.
SALE OF SABINE COLLECTION OPERATION. In April 1996, the Company sold its
commercial collection operations in Sabine Parish for $909,000. Consideration
received for the sale was in excess of book value. The Company received a
promissory note and other receivables bearing interest at 8% per annum and
payable in monthly installments beginning in May 1996 and continuing through
April 1, 2004.
The Company and the purchaser of the commercial collection operations
(the "Purchaser") entered into a subcontract ("Subcontract") for the residential
collection contract with the Sabine Parish Police Jury, subject to approval.
Under the terms of the Subcontract, the Company will retain all requirements
specified in its contract with the Sabine Parish Police Jury with regard to
performance bonds and insurance.
The Company has also entered into agreements with the Purchaser to
purchase a portion of the airspace at the Sabine Parish Landfill and to purchase
a portion of the airspace at the LaSalle-Grant Landfill, including transfer
service from the Company's transfer station in Alexandria, Louisiana. As
consideration for these agreements, the Company received a promissory note for
$240,000 bearing interest at 8% per annum payable in monthly installments
through April 2004, and a promissory note for $1,595,000 bearing interest at 8%
per annum payable in monthly installments through April 2001. The notes are
secured by certain assets of the Purchaser.
At the option of the Purchaser, the Company will be required to purchase
the assets used by the Purchaser in its Louisiana operations for $2,600,000,
provided that a certain minimum level of revenue is generated by such operations
for the year ended January 31, 1999.
10
GENERAL
TransAmerican Waste Industries, Inc. (the "Company") is engaged in the
processing and disposal of non-hazardous industrial and municipal solid waste.
The Company has expanded its operations primarily by obtaining long-term
contracts to manage existing municipal landfills and through the acquisition of
existing businesses. The Company believes that recent trends in the regulation
of waste management have created significant opportunities for growth through
acquisition of facilities and operations currently owned by public and private
entities that lack the funding or the expertise to comply with the increasingly
stringent regulation of waste management services.
The following table summarizes the Company's management contracts and
acquisitions completed during the years ended August 31, 1994 and 1995 and
through May 15, 1996:
<TABLE>
<CAPTION>
Type of Total Permitted
Date Name of Business Type of Business Location Transaction Acres Acreage
- ---- ---------------- ---------------- -------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
October Chastang Landfill Municipal solid Mobile, 20-year 467 80
1993 waste ("MSW") and Alabama management
industrial waste contract
landfill
April Sabine Parish MSW landfill Many, 25-year 107 71
1994 Landfill Louisiana management
contract
April Sabine Parish MSW collection Many, 10-year -- --
1994 Hauling(a) Louisiana hauling
contract
May Chilton County MSW landfill Thorsby, Purchase 97 97
1994 Landfill Alabama
September LaSalle-Grant MSW landfill Jena, 25-year 39 39
1994 Parish Landfill Louisiana management
contract
February Central Landfill MSW landfill Carriere, Purchase 20 20
1995 Mississippi
April Mobile C&D Construction and Mobile, 2-year 142 25
1995 Landfill demolition Alabama management
("C&D") landfill contract with
purchase
option
June TransWaste, Inc. Transfer station, Alexandria, Purchase 20 20
1995 Materials recovery Louisiana
facility and hauling
operation
June Hancock County MSW landfill Hancock 20-year 96 96
1995 Landfill County, management
Mississippi contract
July Union County MSW landfill Knoxville, 20-year 90 55
1995 Landfill Tennessee management
contract
April Haleyville MSW and Haleyville, 20-year 265 192
1996 Landfill C&D landfill Alabama management
contract
</TABLE>
(a) This operation was subsequently subcontracted to another party in April
1996, as further discussed in Note 6 to Notes to the Unaudited consolidated
Financial Statements.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995
Revenue increased 103% from $2,263,000 to $4,583,000 from the first
quarter of 1995 to the corresponding quarter of 1996. The increase in revenue is
primarily due to the acquisition of additional management contracts and
businesses in addition to increased waste volumes at existing landfills. The
quarter ended March 31, 1996 includes revenue generated by four additional
management contracts and businesses acquired by the Company since the beginning
of March 1995. Although there can be no assurance, the Company anticipates that
landfill revenue will continue to increase as the Company continues to implement
its strategy of obtaining additional volume at existing sites and obtaining
additional facilities.
Cost of services increased from $1,902,000 to $2,654,000 from
quarter to quarter primarily due to the recently acquired management contracts
and businesses, partly offset by a decrease in certain post closure cost
estimates. As a percentage of revenue, cost of services decreased from 84% to
58% as operating costs are primarily fixed in nature and do not increase
proportionately with an increase in revenue.
General and administrative costs decreased from $816,000 to $767,000
from quarter to quarter. General and administrative costs for the current period
have been reduced by a portion of the settlement of the lawsuit with a former
director/officer of the Company as discussed in Note 4 to the Unaudited
Consolidated Financial Statements. The portion of the settlement which has not
been attributable to a reimbursement of expenses has been reflected in other
income.
Interest expense for the first quarter of 1996 was $648,000 compared
to the prior year amount of $673,000. Reductions in interest expense resulting
from the exchange of debentures for equity in March 1995 were partly offset by
interest expense on additional debt incurred by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The year ended August 31, 1995 was the first full year of the
Company's implementation of its landfill privatization strategy. This program
has required, and will require, a significant investment of cash for the initial
acquisition of management contracts and businesses, the subsequent upgrade and
expansion of the sites and the start-up of operations under the Company's
management. Completion of the Company's various debt and equity financings over
the past two years has enabled the Company to fund this corporate development
and
11
to favorably position the Company's future operations.
The Company intends to fund its existing cash requirements,
including capital projects, for the foreseeable future through cash on hand,
cash generated from its existing operations and the completion of additional
debt or equity financings. For the first quarter of 1996, the Company has
generated positive cash flow from operations of $874,000.
In April 1996, an offering of $7,945,000 principal amount Tax-Exempt
Solid Waste Revenue Bonds and $1,000,000 principal amount Taxable Solid Waste
Revenue Bonds was completed in conjunction with the Haleyville Landfill
acquisition. In addition to the initial purchase price, proceeds from the
financing will be used for (i) construction of new cells, (ii) purchase of
equipment, (iii) bonding for closure and post-closure obligations, (iv) debt
service and capitalized interest funds, and (v) debt issuance and certain other
costs for the Haleyville Landfill, depending upon the approval of certain
possible permit applications for vertical expansion and entry into waste
disposal contracts.
Although the Company will continue to seek additional facilities,
the Company is aggressively pursuing additional waste streams for its existing
facilities. Additional volumes at competitive market prices will substantially
enhance the Company's results of operations as a substantial amount of the
landfill operating costs are fixed in nature and will, therefore, not increase
proportionately as volumes and revenue increase. During the later part of 1995,
the Company entered into contracts at several of its sites with large national
providers of hauling services which has had a favorable impact on revenue and
results of operations since that time. As is customary in the industry, these
contracts generally do not guarantee a minimum volume.
The Company plans to obtain additional landfill management contracts
and to acquire additional businesses in the future. As in the past, the Company
intends to fund this growth through a combination of its cash on hand,
short-term bridge financing, long-term tax-exempt or other debt financing, or by
issuing its Common Stock. The Company's recent financing strategy has included
the use of short-term financing until long-term, low-interest financing could be
arranged. As the Company continues its growth, it will consider all financing
alternatives that may become available.
The Company expects that the operating results of certain of the
Company's landfills will be positively impacted in fiscal 1996 and 1997 by
recent regulatory approval of the Company's application for vertical expansion,
which allows these sites to continue to dispose of waste in existing available
areas of the landfill rather than move to fully-lined areas. This will result in
the deferral of certain capital expenditures while allowing the Company to
utilize existing space which otherwise would be lost.
The Company made $1.0 million in capital expenditures for the three
months ended March 31, 1996 and estimates that it may make up to an additional
$8.0 million in capital expenditures through the balance of the year, primarily
for landfill expansion and improvements and equipment purchases, depending upon
the level of new business obtained by the Company. The Company intends to seek
long-term financing for a majority of its capital expenditure requirements. If
additional financing should not be available, the Company would restrict its
capital expenditures to an amount available for such purposes.
In the future, the Company will also have material financial
obligations relating to closure and post- closure costs for disposal facilities
it owns or operates. While the precise amount of these future obligations cannot
be determined, the Company has estimated that total costs for final closure of
its existing facilities and post-closure monitoring for an estimated period of
up to 30 years after closure will approximate $6.0 million. See Note 4 of the
Notes to Unaudited Consolidated Financial Statements included herein for
information regarding these obligations.
The Company has and will be required from time-to-time to obtain
financial assurance security for performance, closure and post-closure
obligations, a portion of which may be funded with cash deposits or other
collateral. The Company has arranged a $20 million performance bond line of
credit subject to review of each contract bonded and certain other conditions.
In certain cases, the Company will be required to provide cash deposits. The
Company has also entered into various compensation and consulting commitments
which require
12
significant cash payments for 1996.
FINANCIAL CONDITION AT MARCH 31, 1996 COMPARED TO DECEMBER 31, 1995
Cash and cash equivalents at March 31, 1996 were $1.6 million,
representing a break-even cash flow for the quarter ended March 31, 1996.
Property and equipment, net, increased $1.4 million from December
31, 1995 to March 31, 1996 primarily due to capital expenditures during the
quarter for cell development and equipment purchases.
CHANGE IN ACCOUNTING PRINCIPLES
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Impairment of Long-Lived Assets" as of January 1, 1996. SFAS
No. 121 requires that if a long-lived asset is not expected to generate
sufficient cash flow (undiscounted) to recoup its invested cost, then the asset
value should be written down to fair value. Fair value is typically defined as
the discounted value of the assets expected cash flow. Management has been
closely monitoring the results of its crude oil processing operations which have
been unprofitable for the past two years. Based upon Management's estimate of
undiscounted cash flows, which incorporates certain operational enhancements
recently implemented by the Company, Management has concluded that no impairment
is presently indicated. However, it is reasonably possible that Management's
estimate of undiscounted cash flows could change in the near term if the result
of the recent operational enhancements do not meet current expectations, which
would result in the need to write-down the assets of the crude oil processing
operations to fair value.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 4 to Unaudited Consolidated Financial
Statements for a discussion of certain legal proceedings involving the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K dated February 15, 1996 regarding the
decision by the Board of Directors to change the fiscal year of the
Company from August 31 to December 31.
The Company filed a Form 8-K dated April 10, 1996 regarding the
acquisition of the assets of Haleyville Sanitary Landfill, Ltd. and the
common stock of Peerless Landfill Company.
14
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.
TRANSAMERICAN WASTE INDUSTRIES, INC.
By: /S/LANCE C. RUUD
Lance C. Ruud, Senior Vice President and
Chief Financial Officer
May 15, 1996
15
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