UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Fee Required)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(No Fee Required)
FOR THE TRANSITION PERIOD FROM TO
-------- -------
COMMISSION FILE NUMBER 0-14881
WASTE RECOVERY, INC.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 75-1833498
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
309 S. PEARL EXPRESSWAY, DALLAS, TX 75201
(Address of Principal Executive Offices) (Zip Code)
(214) 741-3865
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12 (b) of the Act:
NONE
Securities Registered Pursuant to Section 12 (g) of the Act:
COMMON STOCK (NO PAR VALUE PER SHARE)
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Number of shares of Registrant's Common Stock, no par value per share,
outstanding as of March 31, 1997: 17,442,621
The approximate aggregate market value of voting stock held by non-affiliates of
the Registrant (based on average of the closing bid and asked price of March 24,
1997) was $21,827,915. For purposes of this computation, all officers,
directors and 10% beneficial owners are deemed to be affiliates. Such
determination should not be deemed an admission that such officers, directors or
10% beneficial owners are in fact affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrant's Proxy Statement for 1997 Annual Meeting of
Shareholders, to be filed within 120 days of December 31, 1996, are incorporated
by reference in Part III, Items 10, 11, 12 and 13.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
- -------------------------------------------------
Certain statements in this Form 10-K under "Item 1. Business", "Item 3. Legal
Proceedings", "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations", and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of Waste
Recovery, Inc. (the "Company" or "Registrant") to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions; competition; success of operating
initiatives; development and operating costs; adverse publicity; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or failure to comply with, government regulations; and other factors
referenced in this Form 10-K.
ITEM 1. BUSINESS
Special Note: Certain statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Reform Act. See "Special
Note Regarding Forward-Looking Statements" for additional factors relating to
such statements.
GENERAL
- -------
Waste Recovery, Inc. is a specialized service and process company operating in
the environmental services industry. The Company is involved in all aspects of
scrap tire disposal and in conversion of scrap tires, through a proprietary
process, into a uniform, high quality, wire-free, tire-derived fuel (TDF).
The Company believes it is the largest firm in the United States specializing in
disposal and recycling of scrap tires into a high quality fuel supplement.
Presently, the Company has TDF producing facilities operating in Portland,
Oregon; Houston, Texas; Atlanta, Georgia; Philadelphia, Pennsylvania;
Marseilles, Illinois; Dupo, Illinois; and Concord, North Carolina.
The Company was organized in 1982 to acquire the assets of two operations in
Portland, Oregon, one of which had been producing TDF since 1976. The Houston
facility began producing TDF in 1986, and the Atlanta operation in 1988. In
March 1995 the Company acquired Domino Salvage, Tire Division, Inc. ("Domino")
and after the addition of specific, proprietary processing equipment, Domino
began producing a quality TDF in late 1995. The two Illinois facilities became
operational in late 1995 and were originally owned and operated by Waste
Recovery-Illinois (WR-Illinois), a general partnership of which the Company was
a partner. In December of 1996, WR-Illinois became a wholly-owned subsidiary
upon the Company's acquisition of its partner's interest in the general
2
partnership (see Part II, Item 5, Purchase of Interest in WR-Illinois). The
Concord facility was purchased by the Company in December of 1996 and conducts
business as U.S. Tire Recycling Partners, L.P. The Concord facility operates a
scrap tire monofill and primarily markets processed material for civil
engineering purposes.
The Company has made investments in facilities and developed expertise in the
areas of tire collection and disposal. The system is flexible in order to
serve as a disposal service for scrap tire sources ranging from current scrap
tire generators, such as tire dealers, all the way to large, sometimes
long-abandoned, scrap tire piles. Scrap tire pick-up service must be regular
and on a time schedule sufficiently predictable in order to minimize the
storage requirements of the scrap tire generators and to provide continuity
of supply to TDF users.
The Company uses its tire shredding equipment and handling systems for the
production of a high grade TDF. In addition to improving systems and
equipment, the Company has worked to make TDF more acceptable as a fuel
supplement. Generally, the permitting process required before a utility or
other industrial fuel user may start burning TDF depends on many factors, such
as location, fuel volumes and mix, the traditional fuels being supplemented,
types of burners, boilers and fuel handling systems. The Company uses its
experience in the TDF supplement business to help customers obtain permits and
to equip their facilities to most efficiently use TDF as a fuel supplement.
Waste Recovery pursues an integrated approach to scrap tire disposal and
conversion of scrap tires into TDF and works to increase the total number of TDF
users in order to increase demand for the Company's TDF. The Company has not
historically had a significant amount of backlog orders for TDF.
The Company's TDF competes against a different mix of traditional fuels and
electric power sources in various regions of the country. In the Pacific
Northwest, industry is served by hydroelectric systems that provide electric
power at a low enough rate that fossil fuel burning co-generation power systems
are not justified at industrial plants. Thus, the pulp and paper mills typical
of this region require fuel essentially for the production of heat and steam for
use in their manufacturing process. Much of this fuel is provided from their
own "Hog Fuel," or wood waste from the logging, debarking and sawing operations.
TDF is a well-suited supplement to this internally generated fuel, especially
during the winter and spring months when waste wood fuel is wet.
In the Southwest, TDF competes primarily with natural gas as a supplemental fuel
in steam generation facilities. Despite natural gas being relatively
inexpensive in recent years, the Company's business in this region has continued
to grow. Due to the Baytown plant's location near marine transportation
alternatives and the Company's participation in the Texas Waste Tire Recycling
Program which provides reasonable disposal fees, the Company has been able to
develop TDF markets outside the State of Texas.
In December 1996, the Company concluded the acquisition of U.S. Tire Recycling
Partners, L.P. (U.S. Tire), a large collector and processor of scrap tires in
the Southeast, located in Concord, North Carolina (see Part II, Item 5, Purchase
of U.S. Tire Recycling Partners, L.P.). U.S. Tire operates a scrap tire
monofill and also processes material for sale into recycled rubber markets.
During 1997, the Company plans to upgrade this facility's technology and
3
marketing techniques which should allow it to obtain a larger share of the
tire-derived product market in the Southeast. The pulp and paper industries
in the Southeast typically require a much greater proportion of on-site
generated power because they generate much more of their own electric power.
Since the bulk of this power is traditionally coal-based, TDF is well-suited
as a competitive energy source in the region, primarily due to the fact that
TDF's handling and burning characteristics are the closest to coal. The
Company's Concord facility will give the Company the opportunity to further
expand in this market as the facility's processing capabilities are increased
and improved.
The two Illinois facilities are the first of the Company's plants that are
economically justified due solely to having traditional, coal burning electric
utilities as the primary recipients of the TDF plants' output. Other industrial
boilers that utilize coal as a primary source of energy have also begun to
review and consider use of TDF as a supplemental fuel.
The Company completed its acquisition of the general partnership interest in
WR-Illinois held by Riverside Caloric Company (RCC), a wholly-owned
subsidiary of NIPSCO Industries, Inc., in December of 1996 (see Part II, Item
5, Purchase of Interest in WR-Illinois). WR-Illinois was a general
partnership created to construct and operate two TDF producing facilities in
Illinois. The partnership was created after the Company obtained a contract
to supply a large Illinois electric utility with 60,000 tons of TDF per year.
WR-Illinois' operations were consolidated beginning December 1, 1996 (see
notes 1, 2 and 9 of the financial statements of the Company).
OPERATIONS
- ----------
The Company's seven scrap tire processing plants charged tip fees for the
collection of more than 28 million scrap tires in 1996. Approximately 60% of
the casings were obtained through the Company's own collection network, which
collects from retail stores or supplies collection trailers to major scrap tire
generators, and through arrangements with tire manufacturers for factory
rejects. Many of these casings were delivered by independent operators. The
Company is not dependent on any single supplier for scrap tires. No one
independent collector or generator accounted for more than 5% of the casings
processed by the Company during 1996.
Scrap tires collected by the Company for a fee are processed into various forms
of tire-derived material, the bulk of which is sold as TDF. In general, the TDF
production process consists of conveying whole tires to a primary shredder which
cuts them into thin strips. These strips are processed into a chip form and
then passed through a magnetic separator to remove most of the bead wire and
steel belting. The resulting product is a chip of rubber compound nominally
less than two inches in any dimension and 98% free of bead wire. Most of the
processing equipment by which scrap tires are converted into TDF has been
designed or extensively modified by the Company's own technical personnel. The
Company continually endeavors to improve its process economics and product
quality. During 1996, the Company installed wire recycling systems at its
Baytown, Texas, Atlanta, Georgia, and Portland, Oregon facilities. These
systems, designed and constructed by the Company, allow the facilities to
operate waste-free, i.e., there is no waste residue from the manufacturing
process, thus improving profit margins. These systems were also included in
both of the Company's Illinois facilities when they were constructed in 1995.
4
Since 1982, the Company has been refining and improving its production process
and has improved tire shredding techniques, equipment durability, and the
process for removal of most of the steel wire in scrap tires. The Company has
developed proprietary metering devices for use by TDF customers to control the
flow of TDF as a fuel supplement to maximize TDF utilization within each
customer's particular requirements and the framework of existing environmental
constraints.
Approximate Annual Shredding Capacities (Based on 16 hrs./day, 252 days/yr.):
Approximate Utilization
Percentage in 1996
------------------
Portland TDF Plant 6.0 Million PTE's 97%
Houston TDF Plant 7.0 Million PTE's 34%
Atlanta TDF Plant 7.0 Million PTE's 54%
Philadelphia TDF Plant 4.0 Million PTE's 50%
Dupo TDF Plant 7.5 Million PTE's 36%
Marseilles TDF Plant 7.5 Million PTE's 37%
Concord Plant 6.0 Million PTE's 94%
PTE's are Passenger Tire Equivalents
The Company's production capacity has increased to 45 million PTE's as of
December 31, 1996, from 25 million as of December 31, 1995 and 20 million as of
December 31, 1994. This increase was obtained through the establishment of the
two new facilities in Illinois and the acquisition of the Philadelphia and
Concord facilities. Although TDF sales represent a small portion of the
Company's revenues, they provide the primary outlet for the Company's processed
material that supports the Company's growth. TDF sales accounted for 10%, 7%,
and 9% of total company revenues for 1996, 1995 and 1994, respectively, and wire
sales were 2% for 1996 and 0% for both 1995 and 1994, whereas tipping fees,
hauling and other services accounted for 88%, 93% and 91% of total Company
revenues for 1996, 1995 and 1994, respectively.
SEASONALITY
- -----------
Historically, the Company's TDF sales volume has been seasonal in the Pacific
Northwest, with volumes diminishing between June and November of each year when
the major customers in that region, pulp and paper mills, need less fuel
supplementation than in the winter and spring months when their waste wood fuel
is wet. However, as the Company has expanded with facilities throughout the
country, the impact of seasonal fluctuations in the Pacific Northwest region has
diminished considerably compared to previous years.
The Company believes WR-Illinois' contract with Illinois Power Company for the
sale of 60,000 tons per year of TDF which has a term through July 1, 1999, as
well as growing the Company's client base in the South and Southeast, will help
to dampen seasonal fluctuations over the foreseeable future. The Company has
also began supplying TDF to additional utility and industrial customers in the
Midwest, further mitigating seasonal fluctuations of TDF sales.
5
SCRAP-TIRE MARKET
- -----------------
The Rubber Manufacturing Association (RMA) estimates that approximately 350
million passenger tire equivalents (PTE's) (equivalent to approximately 255
million tire units) were scrapped in 1996.
As the result of establishing wire recycling systems, the average yield for the
Company in the TDF process increased in 1996 to one ton of product from
approximately 107 PTE's as opposed to 130 in 1995 without the wire systems.
Thus, if all tires scrapped in a year were converted to TDF, the potential
output would be approximately 3.3 million tons - more than 30 times the
Company's 1996 tonnage sales of TDF. Even after allowing for the 15% of tires
scrapped annually that are used in other applications, the scrap tire supply, in
general, should not have a limiting effect on the Company's ability to continue
its growth for the foreseeable future. This calculation does not take into
account the additional "raw material" represented by abandoned tire piles which
further increases the potential TDF output.
Demand for TDF appears to be growing, especially in the utility industry
based on the Company's experience with this type of customer over the last
three years. Certain of the benefits of TDF, such as high BTUs, low cost,
and reduced sulfur emissions, have contributed to increased TDF utilization
by electric power generating facilities. Management believes there are
continuing opportunities to increase demand for this fuel. One example of
this is the agreement with the Illinois Power Company. Under the terms of
the Company's contract, the Illinois Power Company will burn up to 7.5
million reprocessed tires, or 60,000 tons of TDF, per year at its Baldwin
Power Station (Baldwin). This figure, which constitutes about 60% of the
tires annually discarded in Illinois, equates to only 2% of the energy needs
at the Baldwin plant. WR-Illinois has recently entered into an agreement
with Wisconsin Power and Light, further establishing itself in this growing
market segment. The agreement with Wisconsin Power & Light calls for the
delivery of up to 24,000 tons of TDF over a thirteen month period beginning
January 1997.
GOVERNMENT REGULATION
- ---------------------
The Company works within a network of government regulations and programs at
both the scrap tire supply side and the TDF supply side of the business. Due to
the recognized fire and mosquito-borne health hazards associated with stockpiles
of scrap tires and the desire to curtail additional growth of stockpiles, more
restrictive regulation with respect to the disposal of current generation of
scrap tires has been implemented at all levels of jurisdiction with increasing
intensity in recent years.
In the past couple of years, legislation has had a significant effect on the
Company's Houston operation. The State of Texas collects $2 for each new
passenger tire and $3.50 for each new truck tire sold. The proceeds fund the
clean-up of abandoned tire piles, as well as the disposal of current scrap tire
generation, and are the source of the $.85 per weighed tire unit (18.7 lbs.)
paid to licensed and registered scrap tire processors. The Company was one of
the first processors registered in 1992, and has been the only processor in the
state to recycle all of the scrap tires it has received under the program. The
Company was under the State of Texas' allocation program until September 1995,
at which time the allocation system was eliminated and now allows qualified
processors to process tires on an unlimited basis. However, the Company's
ability to increase tire flow into its facility was restrained since this
legislation allowed competitors to stockpile scrap tire material and continue to
receive compensation from the State.
6
The result was the creation of large piles of shredded tires across the
State. In efforts to curtail the growth of these shred piles, this
legislation was amended as of January 1, 1996 to require end-use markets
such as TDF markets, for example, for scrap tires collected. Although the
effective date of the requirement for end-use markets was January 1, 1996,
the State allowed a "grace period" for scrap tire processors to continue
operating without end-use markets. This grace period ended December 31, 1996.
The burning of TDF is subject to regulation by federal, state and local
governmental agencies. Generally, the Company and its customers must comply
with established mandatory disposal regulations and safety guidelines. TDF
customers must comply with certain emissions and ash content standards, and with
the requirements of the U.S. Environmental Protection Agency and certain
portions of the Clean Air Act. It is anticipated that initial permit
applications to burn TDF in new states will be thoroughly scrutinized by
regulatory bodies for emissions standards and ash content compliance. The
Company has developed historical information from its current customer base, as
well as from the numerous trial burns it has been associated with, which
provides a potential advantage in working with customers in their contacts with
regulatory agencies.
COMPETITION
The scrap tire disposal and recycling industry is highly fragmented.
Participants include the divisions of a few large companies and many small
operators who, for the most part, either stockpile tires or shred and landfill
them. One of the largest collectors and processors of scrap tires into fuel on
the East Coast is Emanuel Tire Company in Baltimore, Maryland. Archer Daniels
Midland Company of Decatur, Illinois, one of the largest scrap tire processors
in Illinois, processes tires it receives into supplemental fuel for its own use.
In the Southwest, the implementation of legislation in Texas in 1992 fostered
the establishment of approximately 20 new tire processors. Many of these
processors are still active, but recently several laws have been implemented
that provide that (i) as of September 1, 1995, limitations are removed on the
number of PTE's that the Company can process and receive payment for on a
monthly basis and, (ii) as of January 1, 1996, only tire processors with an
end-use market may qualify for reimbursement from the State of Texas.
These laws place pressure on the Company's competitors to produce and
market a better quality tire chip than is required by current State of
Texas specifications. The Company is the only processor in Texas to have
marketed all material it has processed and believes that with the increased
liability of the State of Texas from growing shred piles produced by other
processors, the Company is well positioned and should ultimately benefit
from increased market share of scrap tire disposal services.
Browning Ferris Industries, Inc. ("BFI") entered the scrap tire processing
business through the acquisition of Maust Tire Recyclers of Savage, Minnesota in
1991. BFI, headquartered in Houston, Texas, is one of the largest waste
disposers in the United States and operates tire processing facilities in the
states of Minnesota and Georgia.
The Company's primary competition for the acquisition of scrap tire casings
comes from the companies mentioned above, numerous individual collectors, and
Lakin General. Lakin is a large collector of scrap tires on a national level.
Lakin's primary business is the "culling" out of usable casings from the scrap
flow and selling them into secondary markets as used tires. The Company, at
some locations, is a recipient of scrap from Lakin.
7
The Company recognizes that its operations and expansions are and will be
subject to competition from other companies, some of whom have substantially
greater financial, marketing, research and development, and personnel resources
than the Company. However, the Company believes that it can effectively compete
on the basis of its expertise in the logistics of tire disposal and TDF
production technology. The Company's newly-constructed TDF plants will
incorporate process equipment design modifications that improve operating
efficiency as compared with the original Portland operation. The Company
believes that its processing costs and reliability are better than those
achievable by competitors using commercially available tire processing
equipment.
PATENTS AND PROPRIETARY PROTECTION
The Company owns the United States patents set forth in the following table:
Patent No. Title/Description Issue Date
---------- ----------------- -----------
4,374,573 Apparatus for Shredding Rubber Tires and Other Waste 02/22/83
Materials
4,519,550 Material Guide and Clearer for Commuting Apparatus 05/28/85
4,560,112 Scrap Shredding Apparatus Having Clearing Rings and 12/24/85
Method for Sharpening Same
4,561,467 Triple Gate Valve 12/31/85
4,714,201 Tire Processing Apparatus and Method 12/22/87
4,750,437 Method for Disposal of Waste Materials by 06/14/88
Incineration
4,804,031 Apparatus for Removing Tires From Wheels 02/14/89
4,806,056 Modular Fuel Metering Apparatus and Method 02/21/89
The Company owns the Canadian patents (and pending applications) set forth in
the following table:
Patent No. Title/Description Issue Date
---------- ----------------- ----------
1,220,461 Scrap Shredding Apparatus Having Clearing Rings 04/14/87
and Method for Sharpening Same
1,279,051 Tire Processing Apparatus and Method Pending
The Company's service mark "Making Waste a Resource" was federally registered
with the U.S. Patent and Trademark Office on July 5, 1983. The patents set
forth in the foregoing tables afford some protection in the areas in which the
Company intends to concentrate. Management believes, however, that its know-how
and regular improvements to equipment and procedures are equally important in
the waste-to-energy business.
In 1988, pursuant to its industrial development bond financing for construction
of the Atlanta plant, the Company licensed its technology, including such
patents, to the indenture trustee. In 1993, the Company licensed such
technology to the Illinois Partnership in connection with the construction of
the two facilities in Illinois.
EMPLOYEES
As of December 31, 1996, the Company had 314 full-time employees, of whom 279
were in operations and the balance in administration, sales, planning and
engineering. None of the employees are covered by collective bargaining
agreements, and the Company believes its relations with its employees are
generally good.
8
EXECUTIVE OFFICERS OF THE COMPANY
All executives hereunder are elected annually in accordance with the by-laws and
serve until their successors are elected and qualified. There are no family
relationships among any of the Company's executive officers. For a more
detailed description of the Company's executive officers, please see the
information under the caption "Executive Officers of the Company" in the
Company's Proxy Statement to be filed under Regulation 14A within 120 days
after December 31, 1996.
Name Age Position Held With Registrant
---- --- -----------------------------
MARTIN B. BERNSTEIN 63 Chairman of the Board of Directors
THOMAS L. EARNSHAW 42 President and Chief Executive Officer
ROBERT L. THELEN 58 Senior Vice President - Engineering
MARK W. HOPE 43 Senior Vice President
C. RON McNUTT 52 Senior Vice President
DAVID G. GREENSTEIN 37 Senior Vice President
The positions and offices of the executive officers of the Registrant are as
follows:
MARTIN B. BERNSTEIN was elected Chairman of the Board of Directors of the
Company at the February 13, 1997 Board of Directors meeting. Mr. Bernstein
joined the Board of the Company in December of 1996 in connection with the
Company's acquisition of U.S. Tire.
THOMAS L. EARNSHAW was elected President and Chief Executive Officer, as well as
a Director, of the Company at the March 1, 1990 Board of Directors meeting. Mr.
Earnshaw joined the Company at its inception in 1982. He was elected Vice
President-Operations in 1985 and Executive Vice President-Operations in 1987.
ROBERT L. THELEN has been with the Company since 1982, and is one of the
Company's original founders. He is responsible for the design and improvement
of plant equipment, plant construction, and technical assistance to customers.
He was elected Vice President-Engineering in 1989, a Director in 1990, and
Executive Vice President-Engineering in May, 1991.
MARK W. HOPE joined the Company at its inception in 1982. He was Vice President
of the Company's Northwest Region prior to accepting his current position.
C. RON MCNUTT joined the Company on April 2, 1996 as Senior Vice President of
Operations. He had been an operations officer in the waste paper industry prior
to joining the Company.
DAVID G. GREENSTEIN joined the Company in December of 1996 in connection with
the Company's acquisition of U.S. Tire. He also serves as President of the
Company's U.S. Tire subsidiary.
[End of Page]
9
ITEM 2. PROPERTIES
The Company currently occupies the following properties:
Sq. Footage of Owned or Lease Current Monthly
Location and Description Building Expiration Rental
------------------------ -------- ---------- ------
PORTLAND, OREGON:
25,000 sq. ft. paved property with metal 1,000 12/31/99 $872
manufacturing building
45,000 sq. ft. property with metal fabrication 4,800 12/31/99 $3,200
and maintenance building
20,000 sq. ft. graveled lot - 5/31/99 $800
Office and shop on 1.2 acres 8,000 7/31/99 $2,200
HOUSTON (HARRIS COUNTY), TEXAS:
Production facility on 9 acres partially paved 13,800 Owned -
with metal building
ATLANTA, GEORGIA:
Production facility on 3 acres partially paved 4,800 12/31/97 $2,785 with metal building
PHILADELPHIA, PENNSYLVANIA
4 acres of land holding processing facility 1,500 2/28/05 $3,200
DALLAS, TEXAS:
Office space 4,500 2/28/00 $2,765
DUPO, ILLINOIS:
Production facility on 10 acres partially 12,000 11/30/14 $1,000
paved with metal building
MARSEILLES, ILLINOIS:
Production facility on 6.8 acres partially 9,600 Owned -
paved with two metal buildings
CONCORD, NORTH CAROLINA:
Production facility on 87 acres with office 5,600 Owned -
and shop
In Portland, Oregon the Company occupies a 1,500 square foot building and 400
square feet of office space on the second floor of the 4,800 square foot metal
fabrication building which serves as its administrative offices. The
administrative offices of the Houston, Atlanta, Philadelphia, Dupo, Marseilles
and Concord facilities are in office trailers of approximately 600 square feet.
The Company's executive offices occupy approximately 4,500 square feet in
Dallas, Texas. The Company believes that its facilities are adequate for its
immediate needs, and that it has the capacity to accommodate significant
additional volume at its tire shredding plants.
ITEM 3. LEGAL PROCEEDINGS
Special Note: Certain statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Reform Act. See "Special
Note Regarding Forward-Looking Statements" for additional factors relating to
such statements.
The Company is involved in routine litigation arising in the ordinary course of
business. In the opinion of management, such matters would not have a material
adverse effect on the financial condition or the results of operations of the
Company.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company shareholders during the fourth
quarter of 1996.
[End of Page]
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's no par value Common Stock is presently being traded on the
over-the-counter market.
Trading commenced on July 17, 1986 and the Registrant's common shares were
quoted on the NASDAQ system until February 20, 1990 at which time the Common
Stock was delisted as a result of the Company's failure to meet applicable
capital and surplus requirements. The following table sets forth the range of
bid and ask prices for the Registrant's Common Stock during the periods
indicated:
High Low
---- ---
Quarter Ended Bid Ask Bid Ask
------------- --- --- --- ---
03/31/95 1 1 1/2 1/2 1
06/30/95 1 5/8 2 1/8 1/2 15/16
09/30/95 1 11/16 2 1/8 7/8 1 5/16
12/31/95 1 3/8 1 7/8 3/4 1 1/16
03/31/96 1 3/8 1 9/16 1 1 5/32
06/30/96 1 13/16 2 1 1 1/4
09/30/96 1 1/2 1 9/16 1 1/16 1 1/4
12/31/96 2 5/16 2 3/8 1 1/2 1 5/8
(a) The quotations set out above represent prices between dealers and do not
include retail mark-up, mark-down or commissions and may not represent
actual transactions. Prior to termination by NASDAQ (February 20, 1990),
such quotations were received from NASDAQ. Quotations after such time
are obtained from the National Quotation Bureau.
(b) The approximate number of record holders (not including participants in
securities position listings) of the Registrant's common shares as of
March 31, 1997 was 454.
(c) To date, the Registrant has not paid any dividends on its Common Stock.
Future dividends, if any, will be paid in compliance with the Company's
loan agreements. The Company has outstanding 203,580 shares of its 7%
cumulative preferred stock. Prior to payment of a dividend on its Common
Stock, all dividends accumulated on such preferred stock must be paid.
The Company does not anticipate paying dividends on its Common Stock in
the foreseeable future.
RIGHTS OFFERING
The Company distributed nontransferable subscription rights (the "Rights") to
subscribe for an aggregate of 3,238,857 shares of its Common Stock for an
offering price of $0.75 per share (the "Subscription Price") to the holders of
record of the Common Stock at the close of business on April 14, 1995 (the
"Record Date"), and to certain holders of the Company's convertible debentures,
provided that on or before June 7, 1995 (the "Conversion Date") such debenture
holders converted the debentures to Common Stock (collectively, the "Eligible
12
Shareholders"). The Eligible Shareholders received in this offering two
Rights for each five shares of Common Stock held on the Record Date or the
Conversion Date. Each Right entitled the holder to subscribe for and
purchase one share of Common Stock upon payment of the Subscription Price.
Each Right also entitled the holder to subscribe for additional shares of
Common Stock available in this offering that were not subscribed and paid for
by other Eligible Stockholders under the basic subscription privilege.
At the conclusion of the Rights offering on June 26, 1995, the full amount of
the subscription had been exercised; 3,238,857 shares of Common Stock were
issued and $2.2 million in capital was raised for specific equipment
improvements and working capital. In conjunction with the offering, $265,000
plus accrued interest of $17,951 of the convertible, subordinated debentures
were converted at the rate of $0.875 per share into 323,373 shares of Common
Stock.
PURCHASE OF U.S. TIRE RECYCLING PARTNERS, L.P.
The Company issued 3,242,997 shares of unregistered Common Stock, $1,850,000
of convertible subordinated notes, and promissory notes in the aggregate
amount of $605,035 as consideration for the purchase of U.S. Tire Recycling
Partners, L.P. in December 1996. The Company also issued 243,224
unregistered shares of Common Stock to a third party as compensation for
services rendered as financial advisor to the Company in connection with the
acquisition of U.S. Tire. The convertible subordinated notes are convertible
at $2.50 per share and have an interest rate of 5% per annum in 1996 and
1997, 6% in 1998 and 7% in 1999 and 2000. Interest is paid quarterly with
principal payments beginning on March 31, 1999 in the amount of $500,000, and
$450,000 on September 30, 1999, March 31, 2000 and September 30, 2000.
Principal amounts are subject to reduction if certain cash flow tests are not
met by the Company's U.S. Tire subsidiary. The Company has undertaken to
register the shares of Common Stock received by the sellers of U.S. Tire in
mid-1997 (see 1997 Registration Statement under this Item 5).
PURCHASE OF INTEREST IN WR-ILLINOIS
The Company issued 1,100,000 shares of unregistered Common Stock to acquire
Riverside Caloric Company's (RCC) 55% interest in WR-Illinois in December of
1996. The Company formed the Partnership in 1993 with RCC (a wholly-owned
subsidiary of NIPSCO Industries, Inc.) to build two production facilities in
Illinois. The Company owned 45% of the partnership prior to acquiring RCC's
interest. The Company has undertaken to register the shares of Common Stock
received by NIPSCO Industries, Inc. in this transaction in mid-1997 (see 1997
Registration Statement under this Item 5).
ISSUANCE OF COMMON STOCK AND WARRANTS
On December 24, 1996 and December 26, 1996, the Company sold 1,050,000 shares
of unregistered Common Stock for $1.45 per share in a private placement. In
connection with issuing this stock, warrants to purchase a like amount were
also sold for $0.05 per share. This sale was made to qualifying individuals,
of which one was Mr.
13
Michael Dodge, a director of the Company. Mr. Dodge purchased 300,000 shares
of unregistered Common Stock for $1.45 per share and $0.05 per warrant. The
Company has undertaken to register the shares of Common Stock received by the
investors in this private placement in mid-1997 (see 1997 Registration
Statement under this Item 5).
1997 REGISTRATION STATEMENT
In the agreement to acquire U.S. Tire, the Company agreed to file a
registration statement with the Securities and Exchange Commission to
register shares issued to the sellers of U.S. Tire after its 1996 Form 10-K
is filed. The shares of Common Stock issued to NIPSCO and those sold in the
December private placement were given the right to be included in this
filing. The Company anticipates that this filing will be completed on or
about May of 1997.
[End of Page]
14
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data has been derived from the consolidated
financial statements and should be read in conjunction with and are qualified
by reference to "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Item 7 and the Consolidated Financial
Statements and related Notes included in Item 8.
For the Years Ended December 31,
--------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
OPERATING DATA
TDF sales $1,242,464 $1,114,975 $ 1,104,691 $ 1,080,172 $ 1,589,405
Wire sales - - - - 397,701
Disposal and other revenues 6,820,392 7,625,518 11,320,714 13,059,751 14,687,426
---------- ---------- ----------- ----------- -----------
Total revenues 8,062,856 8,740,493 12,425,405 14,139,923 16,674,532
Operating expenses and
depreciation 5,790,747 6,902,545 9,753,225 12,098,884 13,103,362
General and administrative
expenses 1,559,784 1,660,449 2,099,579 2,568,094 3,171,418
---------- ---------- ----------- ----------- -----------
Income from operations 712,325 177,499 572,601 (527,055) 399,752
Interest expense, net 353,396 352,835 378,761 457,202 375,093
Other (income) expense (248,880) (67,340) 10,567 (380,066) (935,795)
Minority interest in income 360,766 87,617 - - -
Loss in equity of Partnership - - 20,260 322,630 668,504
---------- ---------- ----------- ----------- -----------
Income (loss) before income
taxes and extraordinary items 247,043 (195,613) 163,013 (926,821) 291,950
Income tax benefit (expense) (100,000) - 447,543 - (8,850)
---------- ---------- ----------- ----------- -----------
Income (loss) before
extraordinary item 147,043 (195,613) 610,556 (926,821) 283,100
Extraordinary item utilization of
income tax carry forwards*** 100,000 - - - -
---------- ---------- ----------- ----------- -----------
Net income (loss) $ 247,043 $ (195,613) $ 610,556 $ (926,821) $ 283,100
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Net income (loss) per share:
Income (loss) before
extraordinary item $ .00 $ (.08) $ .06 $ (.12) $ .01
Extraordinary item .02 - - - -
---------- ---------- ----------- ----------- -----------
Net income (loss) $ .02** $ (.08)** $ .06** $ (.12)** $ .01
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------**
Weighted average number of
common and dilutive common
equivalent shares outstanding 4,354,995 4,040,199 7,762,817 9,132,359 11,856,758
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
OTHER DATA
Earnings before interest, taxes,
depreciation & amortization
(EBITDA+) $1,297,310 $ 899,619 $1,236,758 $ 486,089 $ 1,861,493
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
EBITDA as a percentage of
revenues 16% 10% 10% 3% 11%
--- --- --- -- ---
--- --- --- -- ---
Tons of TDF sold during
the period ended (unaudited) 59,494 62,156 62,564 72,961 102,929
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
BALANCE SHEET DATA
Total assets $5,394,772 $5,876,105 $ 8,745,077 $10,732,399 $28,391,800
Total long-term debt $2,294,758* $2,065,509* $ 4,002,585 $ 4,409,249 $12,053,395
Total shareholders' equity
(deficit) $ (225,049) $ (362,932) $ 1,258,819 $ 2,899,006 $ 8,329,123
15
+The Company believes that EBITDA is a useful common yardstick for
measuring the capacity of companies to generate cash without reference to
how they are capitalized, how they account for significant non-cash charges
for depreciation and amortization associated with assets used in the
business, the bulk of which are long-lived assets, or what their tax
attributes may be. Additionally, since EBITDA is a basic source of funds
not only for growth but to service indebtedness, lenders in both the
private and public debt markets use EBITDA as a significant determinant of
borrowing capacity.
*Includes long-term debt then classified as short-term debt as a result
of the Company's noncompliance during such period with certain financial
covenants in its debt agreement.
**Undeclared dividends on cumulative preferred stock of $142,895,
$142,502, $142,502, $142,506, and $142,896 at December 31, 1992, 1993, 1994,
1995, and 1996 respectively, have been added to net loss or subtracted from
net income for purposes of computing net income (loss) per common share.
***The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes", January 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Special Note: Certain statements set forth below under this caption
constitute "forward-looking statements" within the meaning of the Reform Act.
See "Special Note Regarding Forward-Looking Statements" for additional
factors relating to such statements.
GENERAL COMMENTS
The Company owns and operates plants in Portland, Oregon, Houston, Texas,
Atlanta, Georgia, Philadelphia, Pennsylvania, Dupo, Illinois, Marseilles,
Illinois and Concord, North Carolina. During 1993 and until January 1994,
the Portland facility was owned by Waste Recovery Partners, Ltd., a limited
partnership, of which the Company had a 65% ownership position and served as
the managing partner. Effective January 1, 1994, KCT converted its limited
partnership interests in the partnership into 2.6 million unregistered shares
of the Company's Common Stock which equated to approximately 35% of the fully
diluted outstanding Common Stock at the time of conversion. Late in 1994,
construction began on the Dupo and Marseilles tire processing plants which
began operations in late 1995. These plants were originally owned by the
Illinois Partnership, of which the Company owned a 45% interest and was the
managing partner until December of 1996 when the Company acquired its
partner's interest in the partnership. See "Item 5 - Market for Registrant's
Stock and Related Security Holder Matters -- Purchase of Interest in
WR-Illinois."
Regional services are coordinated from the operating bases mentioned above.
Operations encompass full-service scrap tire disposal and the recycling of
tires into a supplemental fuel form. The Company generates revenues from
scrap tire disposal fees, hauling of scrap tires, sales of used tires in the
used tire market, the sale of wire extracted from processed tires and from
the sale of TDF. At the plants, scrap tires are converted and refined into
TDF, a high BTU supplemental fuel that is sold primarily to major domestic
cement and paper manufacturers as well as electrical generating stations.
The Concord facility operates a scrap tire monofill and primarily markets
processed material for civil engineering purposes.
16
During the past three years, the effects of inflation on the Company's
operations have been negligible.
In the last three years, the Company has experienced significant growth.
1995 was a particularly important year with the acquisition of Domino and the
Company's entry into the Illinois and surrounding Midwest scrap tire markets
with the construction of the two Illinois plants. The Company has grown from
a scrap tire processing capacity of 20 million PTE's in 1994 to over 45
million PTE's in 1996. The Company grew considerably more with the
acquisitions of the unowned 55% interest in WR-Illinois and U.S. Tire, both
in December 1996. See "Item 5 - Market for Registrant's Stock and Related
Security Holder Matters --Purchase of Interest in WR-Illinois" and "--
Purchase of U.S. Tire Recycling Partners, L.P." Operating results and cash
flow in 1996 were an improvement over 1995 as the Company took action to
manage this growth and increase efficiency and profitability. It is the
Company's goal to grow through the acquisition of small tire disposal
businesses and consolidate the capability and resources of those businesses
with the intent of providing a single-source tire disposal service to
customers on a national basis. Management is aware that to achieve this
goal, the Company must have sufficient working capital, the ability to obtain
new capital, a high-quality management team, and an availability of scrap
tire disposal businesses to purchase.
The growth that began in 1995 proved to be a challenge for the Company as it
went from three established plants to a total of six plants by December 31,
1995. Domino, which was acquired in March 1995, had to be restructured and
rebuilt to enable it to produce a quality TDF product. Upon completing these
capital improvements, an unexpected soft demand for TDF in the Northeast
resulted in poor TDF sales at Domino in 1995, a trend that continued into
1996. The Company has, however, continued to supply TDF to a utility in New
Jersey, and the TDF market in the Northeast appears to be improving. If the
TDF market improves as expected, the Domino plant should achieve the levels
of productivity and sales originally anticipated by management.
During the fourth quarter of 1995, the Company began operations at the two
new Illinois facilities constructed outside of Chicago and St. Louis. The
facilities were originally scheduled to open before the summer of 1995;
however, due to a late start in 1994 as a result of bad weather and flooding
in the Midwest region in early 1995, the plants were not completed and
operational until September 1995. The late entry into the scrap tire market
and the following winter months severely hampered marketing efforts and tire
flow. The performance of the Illinois plants suffered during this startup
phase as they established themselves in the region's scrap tire market. By
mid-1996 tire flow had increased significantly, and with changes in Illinois
scrap tire legislation, tire flow increased even more by July 1996.
Performance at the Illinois plants consistently improved during the rest of
the year and by year-end, the facilities had increased their operations to a
50% capacity utilization level. The Company believes that the TDF market in
the Midwest is strong, as evidenced by a new TDF supply contract with
Wisconsin Power and Light, which will be supplied by the Marseilles plant.
Continued growth in tire flow at the Illinois plants should provide these
facilities with the ability to take advantage of the growing TDF market
throughout 1997 and following years. The Illinois operations took a positive
turn towards profitability in 1996 and this trend is expected to continue
through 1997 as tire flow and productivity levels steadily increase, allowing
the Company to take further advantage of the growing TDF markets in the
Midwest region.
17
Another significant event of 1996 was the acquisition of U.S. Tire. This
scrap tire processor located in Concord, North Carolina operates a scrap tire
collection network throughout the state and surrounding Eastern corridor as
well as a scrap tire monofill. While the U.S. Tire facility landfills the
majority of scrap tires collected, other revenues are generated through tire
grading activities where collected tires are sold in used tire markets, and
the sale of processed scrap tires as a tire-derived product for civil
engineering purposes. With a tire flow of over 5 million PTE's annually and
historically strong operating results, the U.S. Tire facility should
significantly contribute to the positive trend towards consistent
profitability the Company has taken in 1996.
The Company's Portland facility continues to maintain a strong position in
the scrap tire market in the Northwest. The fourth quarter marks a period of
transition for this plant as management began restructuring the facility's
collection network to increase efficiency and lower costs. The facility also
began a tire pile remediation project in the State of Washington in April
1996 that is expected to be completed in November 1997. This project
involves the clean-up of approximately four million PTE's and 22 million
pounds of shredded tires. Installation of a wire recycling system, as
previously noted, was completed at the Portland plant in December 1996.
While the scrap steel market is softer than expected for the wire product
generated in Portland, the elimination of disposal costs previously
associated with the wire residue along with new revenues generated from wire
sales should improve the operating results of this plant.
The Baytown facility showed strong improvement in TDF sales and disposal fees
primarily as a result of the elimination of the State of Texas' scrap tire
allocation program. Within Texas, the Company is now allowed to collect as
many scrap tires as can be processed and sold. As the Baytown facility
completed its third full quarter of wire production as of December 31, 1996,
wire sales were strong as the response from the scrap steel industry for the
Company's wire product has been very favorable in this region. The Company
maintains its position of being the only processor in the State of Texas to
completely recycle all scrap tires received under the Texas program. It
appears that this facility is well positioned for the future as Texas
legislation beginning in 1997 requires all scrap tire collectors to have
end-use markets for the scrap tire material they generate.
In 1996, the Atlanta facility had increased TDF sales with the addition of a
new customer and increased consumption by the facility's existing customer
base. With the continued acceptance of TDF as a supplemental fuel by
solid-fuel burning industries in the region, TDF sales are expected to remain
consistent and should continue to strengthen in the future. Like Portland
and Baytown, a wire recycling system was installed in June of 1996. Revenue
received from scrap wire product in this region notably exceeds associated
production costs. The Atlanta plant, however, experienced a setback in
November 1996 when a portion of the plant was disabled by a mechanical fire.
The section of the plant not damaged by the fire has allowed the facility to
continue to receive an uninterrupted flow of scrap tires from its existing
customer base while the plant is rebuilt. The tires received are shredded
and then landfilled, with most of the landfilling activity occurring at the
Company's new U.S. Tire facility. The landfilling alternative provided by
the U.S. Tire facility has allowed the Company to hold costs down while the
Atlanta plant is rebuilt. As the facility was adequately insured and much of
the damaged equipment already fully depreciated, a gain on involuntary
conversion of assets was recognized in the fourth quarter. Since the Company
18
has been able to maintain an uninterrupted tire flow, the Atlanta facility is
expected to resume complete operations in mid-April 1997 when rebuilding
efforts are scheduled to be completed.
While 1995 was indicative of the Company's struggle with the tremendous
growth that occurred since 1994, 1996 reflects the Company's move toward its
goal of achieving positive operating results and improved cash flow.
Management is highly aware of the need to carefully manage the recent growth
of the Company and maintain a course towards the consistent profitability
necessary to sustain continued growth and ensure the Company's ability to
service its debt.
A recap of the Company's operating results before income taxes follows:
1996 1995 1994
---- ---- ----
Operating income (loss) $ 399,752 $(527,055) $ 572,601
Interest expense (net) (375,093) (457,202) (378,761)
Gains on sales of equipment and other income 311,576 380,066 175,675
Gain (loss) on involuntary conversion of
assets 624,219 - (186,242)
Equity in loss from Partnership operations (668,504) (322,630) (20,260)
--------- --------- ---------
Income (loss) before income taxes $ 291,950 $(926,821) $ 163,013
--------- --------- ---------
--------- --------- ---------
[End of Page]
19
1996 VS. 1995 VS. 1994
The table below summarizes the activity of the Company as well as the basic
revenue categories for the last three years:
1996 1995 1994
---- ---- ----
TDF Tons Sold 102,929 72,961 62,564
Passenger Tire Equivalents Received (Tons) 162,926 132,793 108,165
TDF Sales $ 1,589,405 $ 1,080,172 $ 1,104,691
Wire Sales $ 397,701 - -
Disposal and Hauling Fees $14,687,426 $13,059,751 $11,320,714
TDF Inventory - Year End (Tons) 15,402 8,194 14,477
The Company's total revenues of $16,674,532 for 1996 were 18% higher than the
$14,139,923 received in 1995, and 34% higher than the $12,425,405 received in
1994. This increase is the result of a 47% and 44% increase in TDF sales,
and a 13% and 30% increase in disposal fees, hauling, and other revenue over
1995 and 1994, respectively, as well as sales of wire product for the first
time in 1996 generated from the newly installed wire systems. Tons of TDF
sold were improved in 1996 for an increase of 41% over 1995 and 65% over
1994. The average TDF price of $15.44 per ton was an improvement in 1996
over $14.80 for 1995 as the Company continued to develop new markets for its
TDF. Compared to 1994 at $17.64, however, the 1996 price per ton was still
down. Management believes the upward trend in TDF prices should continue
based on a steady increase in the demand for TDF. Tire flow also increased,
showing an improvement of 23% from 1994 to 1995 and 23% from 1995 to 1996.
The increases contributed to improved disposal and hauling fees in 1995 and
1996. TDF inventory increased as a result of higher production levels and
the increase in PTE's received but is also reflective of a full year of
operation at six facilities as opposed to three in 1994. In addition to a
healthier tire flow at the Company's plants, the acquisitions of Domino in
1995 and WR-Illinois and U.S. Tire in December 1996 contributed to the
increase in disposal, hauling and other revenues.
The table below compares cost elements as a percentage of revenues (Revs.) over
the last three years:
% of % of % of
1996 Revs. 1995 Revs. 1994 Revs.
---- ----- ---- ----- ---- -----
Total Variable
Operating Expenses $11,908,912 71% $11,143,176 79% $9,058,241 73%
Depreciation 1,194,450 7% 955,708 7% 694,984 6%
----------- -- ----------- -- ---------- --
Total Operating Expenses $13,103,362 78% $12,098,884 86% $9,753,225 79%
----------- -- ----------- -- ---------- --
----------- -- ----------- -- ---------- --
Operating expenses decreased significantly in 1996 as a percentage of revenues
compared to 1995. The decrease is primarily the result of the wire reclamation
systems. Higher tire flow and increased production efficiency, as well as the
elimination of wire disposal costs at the Baytown, Atlanta, and Portland plants,
also contributed to the improvement over 1995 and 1994. Prior to installation
of the wire systems, the Company incurred costs to dispose of the wire waste
residue. As a result of the wire systems installed in 1996, not only was this
cost eliminated, but a
20
new source of revenue was generated through the sale of the wire product to
the scrap steel industry. This trend is expected to show continued
improvement as 1997 will represent a full year of operations for the wire
systems.
Depreciation expense increased in 1996 compared to 1995 primarily as a result
of the new wire systems installed in the Atlanta, Baytown, and Portland
plants throughout 1996. The acquisition of WR-Illinois and U.S. Tire in
December 1996 also contributed to this increase. Depreciation expense as a
percentage of revenues remained unchanged compared to 1995.
Depreciation charges increased significantly from 1994 to 1995 in dollar
terms due to a 24% addition of property plant and equipment, 55% of which
relates to the acquisition of Domino. The percentage relationship of
operating expense to revenues also was affected by the acquisition of Domino
and the lack of revenues it generated during the period the facility was
being rebuilt. Costs to operate the Atlanta plant were relatively higher in
1995 due to mechanical problems that affected its production efficiency.
General and administrative expense increased $603,324 in 1996 compared to
1995, and increased $468,515 in 1995 compared to 1994. The increases are due
to the acquisitions of Domino in 1995, and WR-Illinois and U.S. Tire in
December 1996, as well as increased staffing at the plant and corporate
levels, higher salaries and health insurance costs, and other administrative
costs from the overall increase in corporate activities as a result of the
growth of the Company. Interest expense decreased in 1996 compared to 1995
primarily due to the conversion of the subordinated convertible debentures on
July 1, 1996 (see note 12 of the financial statements of the Company), and
the capitalization of interest in connection with the construction and
installation of the wire systems in the Atlanta, Baytown, and Portland plants
in 1996. Interest expense increased in 1995 due to additional debt from the
acquisition of Domino and the interest accrued on the remaining convertible
debentures. Interest expense comprised 3% of total revenues compared with
4% in 1995 and 3% in 1994.
% of % of % of
1996 Revs. 1995 Revs. 1994 Revs.
---- ----- ---- ----- ---- -----
General and
Administrative $3,171,418 19% $2,568,094 18% $2,099,579 17%
Interest Expense 447,176 3% 517,986 4% 400,314 3%
Interest Income (72,083) - (60,784) - (21,553) -
---------- -- ---------- -- ---------- --
$3,546,511 22% $3,025,296 22% $2,478,340 20%
---------- -- ---------- -- ---------- --
---------- -- ---------- -- ---------- --
LIQUIDITY AND CAPITAL RESOURCES
Improved operations and corresponding net income for 1996, as well as the
conversion of the subordinated debentures, the private placement sale of
Common Stock in December 1996, and the acquisitions of WR-Illinois and U.S.
Tire have all contributed to the Company's stronger equity position as of the
end of 1996.
Management remains sensitive to the risks that the Company will not have the
financial strength to take advantage of opportunities that are developing.
It is anticipated that with operating results continuing their 1996
improvement, the Company will be able to adequately fund its working capital
requirements for at least the next twelve months. Capital expenditures for
1997 are expected to be lower than the past two years as all of the plants'
machinery and
21
equipment are in good working order, and the wire reclamation systems were
fully installed in 1996. These two factors should continue to reduce
operating costs. The Company will continue to explore ways to improve its
financial position to capitalize in the growth that has developed over the
past year.
Capital expenditures totaled approximately $1.7 million in 1996. The
increase in capital expenditures is primarily due to the wire systems
installed in Atlanta, Baytown, and Portland, and the construction of a tire
shredder for use in a major tire pile clean-up project. The Company also
purchased two pieces of heavy equipment for the Baytown and Domino plants.
The Company's strategy for operations and growth continues to be based on
continuous improvement in both process and logistical equipment, control of
production costs, and increased marketing of TDF and reclaimed wire.
The Company's working capital balance at December 31, 1996 was a deficit of
$27,018. This deficit is primarily the result of current installments due on
the Illinois bonds and related accrued interest which were included in the
consolidated financial statements as a result of the WR-Illinois acquisition
on December 1, 1996. Current liabilities also includes deferred grant
revenue (see note 15 of the financial statements of the Company) from
WR-Illinois at December 31, 1996.
The Domino debt was modified to extend the first annual payment of $200,000,
which was due March 21, 1996, to twelve equal monthly principal installments
of $16,666 beginning September 21, 1996. The second installment of $225,000
has been extended to May 1997.
Effective June 30, 1996, the convertible subordinated debentures in the
amount of $495,000 plus accrued interest of $46,564 were converted into
618,930 shares of Common Stock.
In February 1996, the Company switched financial institutions and was able to
secure a preferred interest rate of prime less .5% on its term note in the
amount of $1.1 million, which remains guaranteed by the Goodyear Tire and
Rubber Company.
These modified debt agreements should allow the Company to better manage its
cash flow to match the revenue stream.
Management believes that 1996 results reflect the positive effects of an
increased tire flow and stronger TDF market. The acquisitions of WR-Illinois
and U.S. Tire are expected to contribute to the continuation of this positive
trend. Debt service charges continue to increase annually as the Company
experiences high growth. However, management still believes that the
Company's operating strategies are on the right track, and they continue to
have confidence in the future potential for the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item begin at page F-1 hereof.
22
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
-None-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1996.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial statements are listed in the "Index to Consolidated
Financial Statements for Waste Recovery, Inc." on page F-1 of
this Form 10-K.
(a) 2. Exhibits are listed on page E-1 through E-4 of this Form 10-K.
EXHIBIT
NUMBER EXHIBIT
------- -------
3.1 Amended and Restated Articles of Incorporation filed
July 5, 1988, with the Secretary of State of Texas,
incorporated herein by reference to Exhibit 3.4 to the
Company's Form 10-K filed March 24, 1989.
3.2 Articles of Amendment to the Articles of Incorporation
filed June 8, 1990, with the Secretary of State of
Texas, incorporated herein by reference to Exhibit 3.5
to the Company's Form 10-K filed March 27, 1991.
3.3 By-Laws, amended and restated as of March 10, 1992,
incorporated herein by reference to Exhibit 3.6 to the
Company's Form 10-K filed March 26, 1992.
4.1 Form of Common Stock Certificate of Registrant,
incorporated herein by reference to the Company's
Form S-1, as amended, filed July 15, 1986.
4.2 Indenture of Trust dated April 1, 1988, between
Development Authority of Fulton County and Citizens
and Southern Trust Company (Georgia), National
Association, as Trustee, incorporated herein by
reference to Exhibit 4.2 to the Company's report on
Form 8-K filed June 1, 1988.
4.6 Form of 10% Convertible Subordinated Debenture due
March 15, 1996, incorporated herein by reference to
Exhibit 4.6 to the Company's report on Form 8-K filed
October 5, 1994.
10.6 Agreement dated May 9, 1986, between Registrant and
The Goodyear Tire and Rubber Company, incorporated
herein by reference to Exhibit 10.32 to the Company's
Amendment No. 1 to Form S-1 filed July 1, 1986.
10.7 Lease Agreement dated January 15, 1988, between
Southern Metal Finishing Company, Inc. and the
Registrant, incorporated herein by reference to
Exhibit 10.37 to the Company's Form 10-K filed
March 25, 1988.
10.8 Indemnity Agreement dated January 29, 1988, by the
Registrant and Southern Metal Finishing Company, Inc.,
incorporated herein by reference to Exhibit 10.38 to
the Company's Form 10-K filed March 25, 1988.
24
EXHIBIT
NUMBER EXHIBIT
------- -------
10.10 Estoppel Deed, dated December 28, 1989, between the
Registrant as Grantor, and Tex A. Perkins, et al., as
Grantee, incorporated herein by reference to
Exhibit 10.64 to the Company's Form 10-K filed
March 26, 1990.
10.11 Lease of Real Property, dated January 1, 1990, between
the Registrant, as Lessee, and Tex A. Perkins, et al.,
as Lessor, incorporated herein by reference to
Exhibit 10.65 to the Company's Form 10-K filed
March 26, 1990.
10.12 Warranty Deed, dated February 7, 1990, between Tex A.
Perkins, et al., as Grantor, and Wayne Easley, as
Grantee, incorporated herein by reference to
Exhibit 10.66 to the Company's Form 10-K filed
March 26, 1990.
10.13 Assignment of Lease, dated February 7, 1990, from
Tex A. Perkins, et al., as Assignor, and Wayne Easley,
as Assignee, incorporated herein by reference to
Exhibit 10.68 to the Company's Form 10-K filed
March 26, 1990.
10.14 The Registrant's 1989 Stock Plan for Employees,
effective March 6, 1989, and approved by the
Registrant's shareholders at the 1989 Annual Meeting,
incorporated herein by reference to Exhibit 10.73 to
the Company's Form 10-K filed March 26, 1990.
10.15 Amendment No. 1 to the Registrant's 1989 Stock Plan
for Employees, incorporated herein by reference to
Exhibit 10.15 to the Company's Form 10-K filed
March 28, 1996.
10.16 Nonqualified Stock Option Agreement dated April 4,
1990, granted by the Registrant to Allan Shivers, Jr.
for 200,000 shares, incorporated herein by reference
to Exhibit 10.77 to the Company's Form 10-K filed
March 27, 1991.
10.17 Form of Nonqualified Stock Option Agreement for grants
to employees made January 7, 1991, incorporated herein
by reference to Exhibit 10.89 to the Company's
Form 10-K filed March 26, 1992.
10.18 Form of Incentive Stock Option Agreement for grants to
employees made October 1, 1991, incorporated herein by
reference to Exhibit 10.90 to the Company's Form 10-K
filed March 26, 1992.
10.19 1992 Stock Plan for Non-Employee Directors,
incorporated herein by reference to Exhibit 4.8 of the
Company's Form S-8 filed May 8, 1992.
10.20 Form of Nonqualified Stock Option Agreement for grants
to non-employee directors made January 4, 1991,
incorporated herein by reference to Exhibit 10.88 to
the Company's Form 10-K filed March 26, 1992.
25
EXHIBIT
NUMBER EXHIBIT
------- -------
10.21 Indemnity and Security Agreement, dated June 1, 1990,
between Registrant and The Goodyear Tire and Rubber
Company, incorporated herein by reference to
Exhibit 10.82 to the Company's Form 10-K filed
March 27, 1991.
10.22 Amendment to Lease of Real Property dated April 25,
1991, between the Registrant, as Lessee, and George
Glanz, as Lessor, incorporated herein by reference to
Exhibit 10.86 to the Company's Form 10-K filed
March 26, 1992.
10.23 Agreement (for supply of TDF) between the Registrant
and Illinois Power Company dated October 12, 1993,
(paragraph 4 of Exhibit 10.007 is subject to a request
for confidential treatment), incorporated herein by
reference to Exhibit 10.007 to the Company's report on
Amendment No. 1 to Form 8-K/A filed December 14, 1993.
10.24 Leasehold Commercial Deed of Trust, Security
Agreement, Fixture Filing, Financing Statement, and
Assignment of Leases and Rents dated September 20,
1994, executed by the Registrant as Grantor, for the
benefit of NationsBank of Georgia N.A. as Trustee,
incorporated herein by reference to Exhibit 10.021 to
the Company's Form 10-K filed March 30, 1995.
10.25 Stock Purchase Agreement for the purchase by the
Registrant of the outstanding stock of Domino Salvage,
Tire Division, Inc., dated March 21, 1995,
incorporated herein by reference to Exhibit 10.024 to
the Company's Form 10-K filed March 30, 1995.
10.26 Loan Agreements dated April 1, 1988, between
Development Authority of Fulton County and the
Registrant, incorporated herein by reference to
Exhibit 28.2 to the Company's report on Form 8-K filed
June 1, 1988.
10.27 Promissory Note dated April 1, 1988, from the
Registrant to Development Authority of Fulton County,
incorporated herein by reference to Exhibit 28.3 to
the Company's report on Form 8-K filed June 1, 1988.
10.28 Leasehold Deed to Secure Debt and Security Agreement
dated April 1, 1988, between the Registrant and the
Trustee, incorporated herein by reference to
Exhibit 28.5 to the Company's report on Form 8-K filed
June 1, 1988.
10.29 First Amendment to Lease Agreement dated April 1,
1988, between Southern Metal Finishing Company, Inc.
and the Registrant, incorporated herein by reference
to Exhibit 28.6 to the Company's report on Form 8-K
filed June 1, 1988.
10.30 Assignment of Contracts dated April 1, 1988, between
the Registrant and Development Authority of Fulton
County, incorporated herein by reference to
Exhibit 28.7 to the Company's report on Form 8-K filed
June 1, 1988.
26
EXHIBIT
NUMBER EXHIBIT
------- -------
10.31 Promissory Note dated February 29, 1996, executed by
the Registrant as maker payable to Texas Commerce Bank
National Association in principal amount of
$1,119,309.01.(1)
10.32 Note Purchase Agreement dated February 29, 1996,
between The Goodyear Tire and Rubber Company and Texas
Commerce Bank National Association.(1)
10.33 Form of Convertible Subordinated Debenture Conversion
Agreements effective July 1, 1996.(1)
10.34 Form of Warrant to Purchase Common Stock of Waste
Recovery, Inc. as of July 1, 1996, as Exhibit "A" to
the Convertible Subordinated Debenture Conversion
Agreements included herein in Exhibit 10.47.(1)
10.35 Dodge Common Stock and Warrant Purchase Agreement
dated December 24, 1996 between Waste Recovery, Inc.
and Michael C. Dodge.(1)
10.36 Common Stock and Warrant Purchase Agreement dated
December 26, 1996 by and among Waste Recovery, Inc.
and Bette Nagelberg, Ronald I. Heller, Rachel Heller,
Ronald I. Heller as custodian for Evan Heller,
Delaware Charter Guaranty & Trust Co. FBO, and
R. Anthony Cioffari.(1)
10.37 Agreement and Plan of Reorganization dated as of the
30th day of September 1996 by and among Waste
Recovery, Inc., New U.S. Tire Recycling Corp.,
U.S. Tire Recycling Partners, L.P., Bodner/Greenstein
Capital Holdings, Inc., Tirus, Inc., Tirus Associates,
L.L.C., Environmental Venture Fund, L.P., Argentum
Capital, L.P., and Certain Shareholders, incorporated
herein by reference to Exhibit 1.1 of the Company's
current report on From 8-K filed December 20, 1996.
10.38 Partnership Purchase Agreement dated as of
December 16, 1996, between Riverside Caloric Company,
Waste Recovery, Inc., and Waste Recovery-Illinois,
L.L.C., incorporated herein by reference to
Exhibit 1.2 of the company's current report on
Form 8-K filed December 20, 1996.
10.39 Deed of Trust and Security Agreement between New
U.S. Tire Recycling Corp. (a wholly-owned subsidiary
of the Registrant) as Grantor, and the former partners
and shareholders of U.S. Tire Recycling Partners, L.P.
as Beneficiary.(1)
10.40 Letter Agreement between Waste Recovery, Inc. and
Cameron & Associates relating to the retention of
Cameron & Associates as financial advisor in
connection with the acquisition of U.S. Tire.(1)
11.1 Statement regarding computation of per share earnings -
See page F-5 of this Form 10-K which is incorporated
herein by reference.
21.1 Subsidiaries of the Registrant.(1)
27
EXHIBIT
NUMBER EXHIBIT
------- -------
23 Consent of Independent Accountants.(1)
27.1 Financial Data Schedule.(1)
99.1 The Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders, incorporated herein by
reference pursuant to Rule 12b-32 of the Securities
Exchange Act of 1934. Definitive copies of such Proxy
Statement to be filed under Regulation 14A within
120 days after December 31, 1996.
(1)Filed herewith
(b) (i) On December 9, 1996, the Company filed a current report on
Form 8-K pursuant to Item 2 thereof, reporting the acquisitions
of U.S. Tire Recycling Partners, L.P. and Waste
Recovery-Illinois, general partnership.
[End of Page]
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below on April 15, 1997, by
the following duly authorized person on behalf of the Company.
WASTE RECOVERY, INC.
(Registrant)
Date: April 15, 1997 By: /s/ THOMAS L. EARNSHAW
-------------------------------------
Thomas L. Earnshaw
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Thomas L. Earnshaw and Donald R.
Phillips, and each of them, such individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Form 10-K under
the Securities Exchange Act of 1934, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any
of them, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements to the Securities Exchange Act of 1934, this
report has been signed below on April 15, 1997, by the following persons on
behalf of the Registrant in the capacities indicated.
/s/ THOMAS L. EARNSHAW /s/ ROGER W. COPE
-------------------------------------- -----------------------------
By: Thomas L. Earnshaw By: Roger W. Cope, Director
President and Chief Executive
Officer (Principal Executive Officer), /s/ MICHAEL C. DODGE
Treasurer (Principal Financial and -----------------------------
Accounting Officer), and Director By: Michael C. Dodge, Director
/s/ JOHN C. KERR
-----------------------------
/s/ MARTIN B. BERNSTEIN By: John C. Kerr, Director
--------------------------------------
By: Martin B. Bernstein, Director /s/ STEVEN E. MACINTYRE
-----------------------------
By: Steven E. MacIntyre, Director
/s/ ANDREW M. BODNER /s/ ROBERT L. THELEN
-------------------------------------- -----------------------------
By: Andrew M. Bodner, Director By: Robert L. Thelen, Director
/s/ W. DAVID WALLS
-----------------------------
/s/ CRANDALL S. CONNORS By: W. David Walls, Director
--------------------------------------
By: Crandall S. Connors, Director
29
PAGE
----
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR WASTE RECOVERY, INC.
- -------------------------------------------------------------------
Reports of Independent Accountants F-1
Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-8
Schedule II. Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are not required, not
applicable, or the required information is presented in the accompanying
financial statements.
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors and
Stockholders of Waste Recovery, Inc.
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Waste
Recovery, Inc. and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of U.S. Tire Recycling Partners, L.P., a wholly-owned subsidiary,
which statements reflect total assets of $4,466,037 at December 31, 1996, and
total revenues of $470,540 for the one month period ended December 31, 1996.
Those statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for U.S. Tire Recycling Partners, L.P., is based solely on the
report of the other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 31, 1997
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To The Partners of U.S. Tire Recycling Partners, L.P.
Concord, North Carolina
We have audited the accompanying balance sheet of U.S. Tire Recycling Partners,
L.P. (a limited partnership) as at December 31, 1996, and the related statements
of income, partners' capital and cash flows for the month then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U.S. Tire Recycling Partners,
L.P. as at December 31,1996, and the results of its operations and its cash
flows for the month then ended.
COHEN & ROSEN, P.C.
New York, New York
January 24, 1997
F-2
WASTE RECOVERY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
---- ----
Current Assets:
Cash and cash equivalents $ 1,892,427 $ 726,562
Accounts receivable, less allowance for doubtful accounts
of $51,017 and $27,083, respectively (notes 13 and 24) 2,736,388 1,887,426
Other receivables (notes 3 and 21) 1,061,958 5,758
Inventories (notes 4 and 13) 1,239,483 645,651
Other current assets (note 5) 355,958 149,912
------------ ------------
Total current assets 7,286,214 3,415,309
------------ ------------
Property, plant and equipment (notes 6, 7, 10, 13 and 18) 24,226,392 11,700,255
Less accumulated depreciation (7,923,939) (6,840,820)
------------ ------------
Net property, plant and equipment 16,302,453 4,859,435
------------ ------------
Restricted cash and cash equivalents (notes 8, 10 and 13) 1,914,795 998,035
Investment in Waste Recovery - Illinois (notes 2 and 9) - 258,539
Bond and debt issuance costs, less accumulated amortization
of $181,275 and $153,287, respectively 147,059 175,046
Deferred income taxes (note 20) 447,543 447,543
Goodwill, less accumulated amortization of $102,787 and
$41,164, respectively 1,895,678 507,695
Other assets 398,058 70,797
------------ ------------
$28,391,800 $10,732,399
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
F-3
WASTE RECOVERY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
-------- ----------
Current Liabilities:
Current installments of bonds payable (note 10) $883,024 $-
Notes payable (note 11) 632,003 28,945
Convertible subordinated debentures (note 12) - 40,000
Current installments of long-term debt (note 13) 998,719 427,552
Current installments of capital lease obligations (note 7) 111,982 93,423
Accounts payable (note 19) 3,269,300 1,996,857
Bond interest payable 219,781 -
Accrued wages and payroll taxes 247,576 174,753
Other accrued liabilities 637,836 372,800
Deferred grant revenue (notes 9 and 15) 313,011 43,476
----------- ----------
Total current liabilities 7,313,232 3,177,806
----------- ----------
Bonds payable, noncurrent (note 10) 7,567,795 -
Convertible subordinated debentures, noncurrent (note 12) - 495,000
Long-term debt, excluding current installments (note 13) 4,069,498 3,591,376
Obligations under capital leases, excluding current
installments (note 7) 104,017 178,797
Deferred grant revenue, noncurrent (notes 9 and 15) 696,050 246,338
Notes payable (note 11) 312,085 144,076
----------- ----------
Total liabilities 20,062,677 7,833,393
----------- ----------
Stockholders' Equity (notes 12, 14, 16, 17, 18 and 19):
Cumulative preferred stock, $1.00 par value, 250,000
shares authorized, 203,580 issued and outstanding in 1996 and
1995 (liquidating preference $14.61 per share, aggregating
$2,974,525, and $13.91 per share, aggregating $2,831,629,
in 1996 and 1995, respectively) 203,580 203,580
Preferred stock, $1.00 par value, authorized and unissued
9,750,000 shares in 1996 and 1995 - -
Common stock, no par value, authorized 30,000,000 shares,
17,322,121 and 10,830,170 shares issued and outstanding
in 1996 and 1995, respectively 407,800 407,800
Additional paid-in capital 18,467,427 13,320,410
Accumulated deficit (10,675,804) (10,958,904)
----------- ----------
8,403,003 2,972,886
Treasury stock, at cost, 103,760 common shares (73,880) (73,880)
----------- ----------
Total stockholders' equity 8,329,123 2,899,006
----------- ----------
Commitments and contingencies (notes 7, 9, 14, 23 and 26)
$28,391,800 $10,732,399
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
F-4
WASTE RECOVERY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Revenues (note 24):
Tire-derived fuel sales $1,589,405 $1,080,172 $1,104,691
Wire sales 397,701 - -
Disposal fees, hauling and other revenue (note 19) 14,687,426 13,059,751 11,320,714
------------- ------------- ------------
Total revenues 16,674,532 14,139,923 12,425,405
Operating expenses 11,908,912 11,143,176 9,058,241
------------- ------------- ------------
4,765,620 2,996,747 3,367,164
General and administrative expenses 3,171,418 2,568,094 2,099,579
Depreciation and amortization 1,194,450 955,708 694,984
------------- ------------- ------------
399,752 (527,055) 572,601
Other income (expense):
Interest income 72,083 60,784 21,553
Interest expense (447,176) (517,986) (400,314)
Other income (note 9) 302,306 355,360 9,697
Gains on sales of property and equipment 9,270 24,706 165,978
Gain (loss) on involuntary conversion of assets
(note 21) 624,219 - (186,242)
Equity in loss from partnership operations (note 9) (668,504) (322,630) (20,260)
------------- ------------- ------------
(107,802) (399,766) (409,588)
Income (loss) before income taxes 291,950 (926,821) 163,013
Income tax benefit (expense) (note 20) (8,850) - 447,543
Net income (loss) 283,100 (926,821) 610,556
Undeclared cumulative preferred stock dividends 142,896 142,506 142,502
------------- ------------- ------------
Net income (loss) available to common
shareholders $140,204 $(1,069,327) $468,054
------------- ------------- ------------
------------- ------------- ------------
Net income (loss) per share $.01 $(.12) $.06
------------- ------------- ------------
------------- ------------- ------------
Weighted average number of common and dilutive
common equivalent shares outstanding 11,856,758 9,132,359 7,762,817
------------- ------------- ------------
------------- ------------- ------------
See accompanying notes to consolidated financial statements.
F-5
WASTE RECOVERY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1996, 1995 and 1994
Cumulative
Preferred Stock Common Stock Additional
--------------- ------------ Paid-In
Shares Par Value Shares Par Value Capital
------ --------- ------ --------- -------
Balances at December 31, 1993 203,580 $203,580 4,143,959 $407,800 $9,749,707
Conversion of Waste Recovery
Partners, Ltd. interests - - 2,660,323 - 807,900
Stock issued to Directors - - 4,361 - 6,000
Options exercised under incentive
stock option plan - - 3,500 - 2,885
Options exercised by financial
advisors - - 325,000 - 186,910
Reduction in note receivable
charged - - - - -
Net income
- - - - -
---------- ---------- ---------- ---------- ----------
Balances at December 31, 1994 203,580 $203,580 7,137,143 $407,800 $10,753,402
Stock issued to Directors - - 27,366 - 15,900
Options exercised under stock
option plan - - 44,800 - 11,648
Conversion of subordinated
debentures - - 382,004 - 334,252
Rights offering to common
shareholders - - 3,238,857 - 2,205,208
Net loss - - - - -
---------- ---------- ---------- ---------- ----------
Balances at December 31, 1995 203,580 $203,580 10,830,170 $407,800 $13,320,410
Stock issued to Directors - - 10,806 - 12,000
Options exercised under incentive
stock option plan - - 178,000 - 71,477
Stock issued in connection with
U.S. Tire acquisition - - 3,486,221 - 2,086,000
Stock issued in connection with
WR-Illinois acquisition - - 1,100,000 - 869,000
Conversion of subordinated
debentures - - 666,924 - 583,559
Warrants issued to subordinated
debenture holders upon - - - - 10,000
conversion
Sale of common stock and warrants - - 1,050,000 - 1,514,981
Net income - - - - -
---------- ---------- ---------- ---------- ----------
Balances at December 31, 1996 203,580 $203,580 17,322,121 $407,800 $18,467,427
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Note Total
Accumulated Treasury Receivable for Stockholders'
Deficit Stock Stock Sold Equity/(Deficit)
------- ----- ---------- ----------------
Balances at December 31, 1993 $(10,642,639) $(73,880) $(7,500) $(362,932)
Conversion of Waste Recovery
Partners, Ltd. interests - - - 807,900
Stock issued to Directors - - - 6,000
Options exercised under incentive
stock option plan - - - 2,885
Options exercised by financial
advisors - - - 186,910
Reduction in note receivable
charged to compensation expense - - 7,500 7,500
Net income 610,556 - - 610,556
------------ -------- -------- ----------
$(10,032,083) $(73,880) $- $1,258,819
Balances at December 31, 1994
- - - 15,900
Stock issued to Directors
Options exercised under stock - - - 11,648
option plan
Conversion of subordinated - - - 334,252
debentures
Rights offering to common - - - 2,205,208
shareholders (926,821) - - (926,821)
------------ -------- -------- ----------
$(10,958,904) $(73,880) $- $2,899,006
Balances at December 31, 1995 - - - 12,000
Stock issued to Directors - - - 71,477
Options exercised under incentive
stock option plan - - - 2,086,000
Stock issued in connection with
U.S. Tire acquisition - - - 869,000
Stock issued in connection with
WR-Illinois acquisition - - - 583,559
Conversion of subordinated
debentures - - - 10,000
Warrants issued to subordinated
debenture holders upon
conversion - - - 1,514,981
Sale of common stock and warrants
Net income 283,100 - - 283,100
------------ -------- -------- ----------
Balances at December 31, 1996 (10,675,804) $(73,880) $- $8,329,123
------------ -------- -------- ----------
------------ -------- -------- ----------
See accompanying notes to consolidated financial statements.
F-6
WASTE RECOVERY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 283,100 $ (926,821) $ 610,556
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Charge-off of other receivables - 28,582 -
Depreciation and amortization 1,132,827 1,515,759 1,149,878
Gains on sales of property and equipment (9,270) (24,706) (165,978)
Amortization of goodwill 61,623 41,164 -
Deferred income taxes - - (447,543)
Interest imputed on discounted note payable 18,009 13,508 -
Equity in loss from partnership operations 668,504 322,630 20,260
Stock issued to Directors 12,000 12,000 -
Warrants issued to debenture holders 10,000 - -
Changes in assets and liabilities:
Accounts receivable 95,492 143,420 (1,002,815)
Note and other receivables (1,049,211) - (401,816)
Inventories (255,773) (663,057) (721,117)
Other current assets (183,616) 107,163 (11,591)
Other assets (11,333) 75,157 (31,736)
Accounts payable 846,740 (387,772) 1,019,420
Payable to/receivable from affiliate (1,058,266) (25,846) 81,083
Accrued liabilities 86,371 (45,920) 301,566
Bond interest payable 43,956 - -
Deferred revenue (147,644) 289,814 -
Other (19,604) 12,546 -
----------- ----------- -----------
Net cash provided by operating activities 523,905 487,621 400,167
----------- ----------- -----------
Cash flows from investing activities:
Proceeds received on note and other receivables - 490,320 100,000
Proceeds from sales of property, plant and
equipment 7,813 78,000 205,737
Purchases of property, plant and equipment (1,625,475) (1,681,169) (804,790)
Net cash received in connection with the purchase
of WR-Illinois 64,744 - -
Net cash received in connection with the purchase
of U.S. Tire 315,744 - -
Cash placed in restricted accounts (52,084) (530,200) (238,400)
Cash payments out of restricted accounts 516,931 38,686 90,000
Purchase of Domino Salvage, Tire Division, Inc.,
net of cash received of $16,165 - (170,019) -
Investment in Waste Recovery - Illinois -
----------- ----------- -----------
Net cash used by investing activities (772,327) (1,774,382) (976,174)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 298,405 64,764 242,673
Payment of notes payable (150,382) (206,734) (223,091)
Proceeds from issuance of convertible
subordinated debentures 85,000 - -
Payment upon maturity of convertible
subordinated debentures (85,000) - -
Proceeds from issuance of long-term debt - 88,230 95,637
Repayment of long-term debt (222,669) (297,013) (198,591)
Repayment of capital lease obligations (97,525) (117,798) (175,262)
Issuance of convertible subordinated debentures - - 800,000
Proceeds from issuance of common stock and
warrants 1,586,458 2,220,756 155,795
----------- ----------- -----------
Net cash provided by financing activities 1,414,287 1,752,205 697,161
----------- ----------- -----------
Net increase in cash and cash equivalents 1,165,865 465,444 121,154
Cash and cash equivalents at beginning of year 726,562 261,118 139,964
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,892,427 $ 726,562 $ 261,118
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-7
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND OPERATIONS. Waste Recovery, Inc. (the Company or
WRI) is a tire recovery company that specializes in processing
scrap tires into a refined fuel supplement more commonly
referred to as tire-derived fuel (TDF). The Company generates
income from the sale of TDF and wire, and from tipping fees
charged for the disposal of tires.
The Company is incorporated in the State of Texas and has its
headquarters in Dallas, Texas. The operating plants are in
Portland, Oregon, Houston, Texas, Atlanta, Georgia,
Philadelphia, Pennsylvania, Dupo, Illinois, Marseilles,
Illinois and Concord, North Carolina.
The Company entered into an agreement as of November 29, 1993,
to form a joint venture in a partnership, Waste Recovery -
Illinois, an Illinois general partnership (Illinois
partnership), in which it owned a 45% interest. Riverside
Caloric Company (RCC), an Indiana corporation, owned 55% of
the Illinois partnership. In December 1996, the Company
acquired RCC's 55% ownership interest in WR-Illinois (see note 2).
In December 1996, the Company acquired U.S. Tire Recycling
Partners, L.P., a scrap tire collector which recycles tires
and operates a scrap tire monofill (see note 2).
On March 21, 1995, the Company acquired 100% of the
outstanding stock of Domino Salvage, Tire Division, Inc.
(Domino), a scrap tire recycling company located in
Conshohocken, Pennsylvania, a suburb of Philadelphia (see note 2).
(b) PRINCIPLES OF CONSOLIDATION. For 1996, the consolidated financial
statements include the financial statements of Waste
Recovery-Illinois, L.L.C. (WR-Illinois), a wholly-owned
subsidiary of the Company and its affiliates which was
purchased in December 1996 (see note 2), and the financial
statements of U.S. Tire Recycling Partners, L.P. (U.S. Tire),
a wholly-owned subsidiary of the Company and its affiliates
which was purchased in December 1996 (see note 2). The 1996
consolidated financial statements include the operations of
WR-Illinois and U.S. Tire for the period December 1, 1996
through December 31, 1996.
For 1996 and 1995, the consolidated financial statements
include the financial statements of Domino Salvage, Tire
Division, Inc., a wholly-owned subsidiary of the Company,
which was purchased on March 21, 1995 (see note 2). The 1995
consolidated financial statements include the operations of
Domino for the period March 21, 1995 through December 31,
1995.
F-8
Effective January 1, 1994, the limited partners of Waste
Recovery Partners, Ltd. converted their limited partnership
interests into 2.6 million unregistered shares of WRI Common
Stock. Due to this conversion, the operations of Waste
Recovery Partners, Ltd. became wholly-owned by the Company.
The 1994 consolidated financial statements reflect the
operations of the combined entities.
All significant intercompany balances and transactions have
been eliminated in consolidation. The Company's investment in
and equity in earnings of WR-Illinois were accounted for by
the equity method until the December 1, 1996 acquisition date
(see notes 2 and 9).
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(c) CASH AND CASH EQUIVALENTS. The Company considers all unrestricted
cash and highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(d) INVENTORIES. Parts inventory represents primarily the cost of the
grinder knives and machinery parts used in the TDF
manufacturing process. These inventories are stated at cost
(first-in, first-out) and are depreciated over the useful
lives of these parts, generally six to eighteen months. TDF
inventory is stated at the lower of cost or market. Cost is
determined using a weighted average cost method.
(e) PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are
stated at cost. Property, plant and equipment acquired in
connection with the purchase of WR-Illinois and U.S. Tire were
recorded at fair value. Property and equipment under capital
leases are stated at the lower of the present value of minimum
lease payments or fair value of the asset at the inception of
the lease.
Depreciation of property, plant and equipment is calculated
using the straight-line method over the estimated useful lives
of the assets (generally three to ten years). Property, plant
and equipment held under capital leases and leasehold
improvements are amortized using the straight-line method over
the shorter of the lease term or estimated useful life of the
asset.
(f) BOND ISSUANCE COSTS. Bond issuance costs are recorded at cost and
amortized over the life of the associated debt using the
effective interest method.
F-9
(g) GOODWILL. The Company assesses the recoverability of goodwill by
determining whether the amortization of the asset balance over
its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The
amount of impairment, if any, is measured based on the
estimated fair value of the operation. Goodwill associated
with the purchase of Domino of $548,859 (see note 2) is being
amortized on a straight-line basis over ten years. Goodwill
associated with the purchases of WR-Illinois of $947,712 and
U.S. Tire of $501,894 is being amortized over 20 and 15 years,
respectively.
(h) OTHER ASSETS. Patents, which are included in other assets, are
recorded at cost and amortized over a fifteen-year period
using the straight-line method. Site license and permits in
connection with the U.S. Tire landfill operation were recorded
at their fair value as of the acquisition date of U.S. Tire,
and are being amortized using the straight-line method over
their estimated useful lives ranging from five to fifteen
years.
(i) DEFERRED GRANT REVENUE. WR-Illinois has an agreement whereby it
has received $1,000,000 in grants from the State of Illinois
with the successful completion of certain pieces of equipment
at the Illinois plants. As of December 31, 1995, WR-Illinois
had received $800,000 from these grants; the remaining
$200,000 was received in January 1996. The grant award is
being amortized, beginning when the plants were placed in
operation, through the term of the grants, which expire July
31, 1999.
In 1995, WR-Illinois also received $365,903 through a grant
awarded to Illinois Power Company for the construction and
installation of a metering unit at Illinois Power. At
December 31, 1995, 20% of the total amount of the grant was
retained pending satisfaction of certain operational
requirements. WR-Illinois received payment for the retainage
of approximately $91,000 in 1996. Ownership of the metering
unit reverts to Illinois Power at the end of the contract.
(j) INCOME TAXES. Deferred taxes are recognized for the tax
consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on
deferred taxes for a change in tax rates is recognized in
income in the period that includes the enactment date. In
addition, future tax benefits are recognized to the extent
that realization of such benefits is more likely than not. A
valuation allowance is provided for a portion or all of the
deferred tax assets when there is sufficient uncertainty
regarding the Company's ability to recognize the benefits of
the assets in future years.
F-10
(k) NET INCOME (LOSS) PER COMMON SHARE. Net income per common share is
computed based on the weighted average number of common and
equivalent shares outstanding during each period. Common
stock equivalents include shares issuable upon exercise of the
Company's stock options. For the years ended December 31,
1996, 1995 and 1994, the weighted average number of shares
considered to be outstanding were 11,856,758 and 9,132,359 and
7,762,817, respectively. Fully diluted earnings per share is
not presented because the effect of considering any
potentially dilutive securities is immaterial.
Net income or loss is adjusted by the effect of undeclared
dividends on preferred stock of $142,896, $142,506 and
$142,502 for the years ended December 31, 1996, 1995 and 1994,
respectively. The effect was to: (1) reduce the net income
per common share by $0.01 in 1996, (2) increase the net loss
per common share by $0.02 in 1995, and (3) reduce the net
income per common share by $0.02 in 1994.
(l) STATEMENTS OF CASH FLOWS. The Company paid $425,964, $469,903 and
$377,558 for interest in 1996, 1995 and 1994, respectively.
No income taxes were paid during 1996, 1995 or 1994. See note
22 for further discussion of noncash transactions.
(m) RECENT ACCOUNTING PRONOUNCEMENTS. In 1995, the Financial
Accounting Standards Board (FASB) issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
the Long-Lived Assets to be Disposed of" and Statement No.
123, "Accounting for Stock-Based Compensation." Both
statements are required for adoption in 1996.
Statement No. 121 requires the review of long-lived assets for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. An impairment loss will be recognized if the sum
of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the
asset. The amount of the impairment loss will be measured as
the difference between the carrying amount of the asset and
its estimated fair value. Based on its most recent analysis,
the Company believes no impairment existed at December 31,
1996.
Statement No. 123 establishes accounting and reporting standards
for various stock-based compensation plans. Statement No. 123
encourages the adoption of a fair value based method of
accounting for employee stock options, but permits continued
application of the accounting method prescribed by Accounting
Principles Board Opinion No. 25 (Opinion 25), "Accounting for
Stock Issued to Employees." Entities that continue to apply
the provisions of Opinion 25 must make pro forma disclosures
of net income and earnings per share as if the fair value
based method
F-11
of accounting had been applied. In 1996, the Company adopted
this statement on a disclosure basis only.
In February 1997, the FASB issued Statement No. 128, "Earnings Per
Share." This statement is required for adoption in 1997. The
Company does not anticipate its adoption to be material to the
consolidated financial statements.
(n) RECLASSIFICATIONS. Certain prior year amounts have been
reclassified to conform with the current year presentation.
NOTE 2. ACQUISITIONS
In December 1996, WRI acquired from Riverside Caloric Company (RCC) its
55% interest in the Waste Recovery-Illinois general partnership, in
which the Company owned the remaining 45% interest (see note 9).
Also in December 1996, WRI through its subsidiaries acquired all of the
partnership interests in U.S. Tire Recycling Partners, L.P. (U.S.
Tire), which collects and processes scrap tires, and operates a scrap
tire monofill in Concord, North Carolina.
On March 21, 1995, WRI acquired 100% of the outstanding stock of Domino
Salvage, Tire Division, Inc., (Domino), a scrap tire recycling
company located in Conshohocken, Pennsylvania, a suburb of
Philadelphia. WRI invested approximately $500,000 during 1995 into
Domino to bring Domino's scrap tire recycling capacity up to 5
million passenger tire equivalents (PTE's) per year. Reconstruction
of the plant was completed in late 1995, and the plant became fully
operational in early 1996.
The acquisitions were accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired and
liabilities assumed based on estimated fair values at the date of
acquisition. The results of operations of WR-Illinois, U.S. Tire,
and Domino have been included in the Company's consolidated
statements of operations from the date of acquisition through
December 31, 1996.
[End of Page]
F-12
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the assets acquired and liabilities assumed follows:
WR-Illinois U.S. Tire Domino
----------- ----------- ---------
Current assets $ 829,328 $ 907,438 $ 134,996
PP&E 7,981,325 1,967,838 650,765
Other assets 1,462,517 195,960 -
Debt and notes payable (8,115,000) (1,271,958) (368,149)
Deferred revenue (1,025,225) - -
Accounts payable and accrued
liabilities (558,964) (349,118) (96,452)
----------- ----------- ---------
$ 573,981 $ 1,450,160 $ 321,160
----------- ----------- ---------
----------- ----------- ---------
The following unaudited pro forma summary presents the consolidated
results of the Company's operations as if the acquisitions had
occurred at the beginning of the periods presented. The information
does not purport to be indicative of the results that actually would
have been obtained if the operations were combined during the periods
presented and is not intended to be a projection of future results or
trends.
For the year ended For the year ended For the year ended
December 31, 1996 December 31, 1995 December 31, 1994
Unaudited Unaudited Unaudited
--------- --------- ---------
Revenues $24,583,814 $20,042,222 $13,244,316
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) $ (749,435) $ (961,502) $ 838,678
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss)
per share $ (0.06) $ (0.11) $ 0.11
----------- ----------- -----------
----------- ----------- -----------
The Company purchased RCC's interest in WR-Illinois in exchange for
1.1 million unregistered shares of Common Stock of the Company (see
note 17).
The Company purchased U.S. Tire in exchange for 3,242,997
unregistered shares of Common Stock (see note 17), contingent
Convertible Subordinated Notes in the amount of $1,850,000 (see note
14), and notes payable (see note 11) in the amount of $605,035. The
debt is secured by the assets of U.S. Tire. Additionally, the Company
issued 243,224 unregistered shares of Common Stock to a third party
as compensation for services rendered as financial advisor to the
Company in connection with the acquisition of U.S. Tire (see notes 17
and 19).
The Company purchased Domino for approximately $867,000, including
legal costs, with an initial cash payment to the former shareholders
of $100,000. The Company is withholding an additional $50,000,
payment of which is contingent upon resolution of certain events.
The remaining payments will be made as follows:
1997 379,222
1998 275,000
--------
$654,222
--------
--------
F-13
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective March 21, 1996, this note was modified to commence monthly
installment payments on September 21, 1996, in the amount of
$16,666 per month for twelve consecutive months. Effective March
20, 1997, this note was modified to change the due date of the
second installment of $225,000 to May 21, 1997. The third
installment of $275,000 is to remain due on March 21, 1998. This
note bears interest at the rate of 1% over prime and the note is
secured by the assets and the stock of Domino (included in note
13). The new terms of the modified agreement are reflected in the
above remaining payments schedule. The acquisition also includes a
five-year employment agreement with the former President and owner
of Domino.
NOTE 3. OTHER RECEIVABLES
Included in other receivables at December 31, 1996 is a receivable for
$985,000 from an insurance company for property damage and business
interruption insurance related to the Atlanta fire (see note 21).
The Company received $650,000 of this amount in January and
February 1997. Final payment is expected to be received in the
second quarter of 1997.
NOTE 4. INVENTORIES
Inventory components at December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
Manufactured fuel inventory $ 281,938 $228,303
Manufactured wire inventory 27,761 -
Work in process 293,070 12,324
Parts inventory 636,714 405,024
---------- --------
$1,239,483 $645,651
---------- --------
---------- --------
NOTE 5. OTHER CURRENT ASSETS
Other current assets at December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
Prepaid insurance $259,443 $ 94,395
Other 96,515 55,517
-------- --------
$355,958 $149,912
-------- --------
-------- --------
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 are
summarized as follows:
1996 1995
---- ----
Land $ 2,389,580 $ 574,280
Buildings 2,912,415 50,145
Tire processing equipment 14,346,593 7,049,520
Hauling equipment 1,435,781 1,047,327
Metering units 817,785 340,338
Shop tools and yard equipment 209,177 341,981
Furniture and fixtures 313,294 207,661
Leasehold improvements 1,530,602 1,467,722
Construction in progress 271,165 621,281
----------- -----------
$24,226,392 $11,700,255
----------- -----------
----------- -----------
F-14
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Approximately $68,000 of capitalized interest is included in tire
processing equipment in connection with the construction of the
wire systems in 1996.
NOTE 7. LEASES
The Company leases certain property and equipment under capital leases
and certain other property and equipment is leased under
noncancelable operating leases which expire over the next five
years. Property and equipment include the following amounts for
capital leases at December 31, 1996 and 1995:
1996 1995
---- ----
Hauling equipment $210,829 $282,462
Tire processing equipment 107,574 107,574
Furniture and fixtures 57,533 66,204
-------- --------
375,936 456,240
Less accumulated depreciation (145,474) (130,040)
-------- --------
$230,462 $326,200
-------- --------
-------- --------
A summary of the minimum rental commitments under noncancelable
operating leases and the present value of future minimum capital
lease payments as of December 31, 1996 is as follows:
Capital Operating
Leases Leases
------- ---------
Year ending December 31:
1997 $127,973 $ 459,669
1998 89,568 365,866
1999 23,472 183,825
2000 5,831 137,776
2001 - 48,331
Thereafter - 17,426
-------- ----------
246,844 $1,212,893
Less: amount representing interest 30,845 ----------
-------- ----------
Present value of minimum lease payments $215,999
--------
--------
Total rent expense for operating leases for the years ended
December 31, 1996, 1995 and 1994 was $1,136,209, $813,397 and
$696,750, respectively.
NOTE 8. RESTRICTED CASH
Under terms of various debt agreements (see notes 10 and 13), the
Company is required to maintain cash balances which have certain
withdrawal restrictions. Amounts on deposit at December 31, 1996
and 1995 consisted of certificates of deposit or money market
accounts as follows:
F-15
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Release
1996 1995 Date
---- ---- ----
Atlanta plant financing debt reserve $ 390,000 $390,000 2007
Illinois plant financing debt reserve (see note 10) 1,362,174 - 2004
Secured operating permits 93,853 93,853 -
Repair and maintenance fund 49,275 14,182 2007
Illinois financial assurance trust 19,493 - -
Security for Illinois debt (see note 10) - 500,000 -
---------- --------
$1,914,795 $998,035
---------- --------
---------- --------
Under terms of the bond agreements (see note 10), WR-Illinois is
required to maintain cash balances for the debt service reserve
funds which have certain withdrawal restrictions. Interest earned
on this restricted cash may only be used for payment of current
debt service on the bonds.
Pursuant to provisions in the loan agreement, funds were disbursed
from the repair and maintenance fund in 1996 and 1995.
In connection with the guaranty by the Company of the bonds sold by
Waste Recovery - Illinois in September 1994, certain holders of
long-term debt of the Company required that an additional $195,000
of collateral be placed in the plant financing debt reserve. The
Company utilized some of the funds obtained from the private
placement of its convertible subordinated debentures for this
purpose (see note 12). The Company was also required to provide to
these debt holders an additional lien of $600,000 on its Portland
facility.
NOTE 9. INVESTMENT IN WASTE RECOVERY - ILLINOIS
Effective December 1, 1996, the Company acquired from Riverside Caloric
Company (RCC) its 55% interest in the Waste Recovery-Illinois
general partnership, in which the Company owned the remaining 45%
interest (see note 2). Until the December 1, 1996 acquisition date,
the Company's investment in WR-Illinois was accounted for under the
equity method of accounting.
Waste Recovery - Illinois was formed to jointly build and operate two
tire-derived fuel processing facilities in Dupo and Marseilles,
Illinois. The facilities cost approximately $5 million each and
began operation in late 1995. Waste Recovery - Illinois has a five
year contract to supply Illinois Power Company with 60,000 tons of
TDF annually which represents 50% of the facilities' estimated
production capacity.
F-16
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Waste Recovery - Illinois completed the sale of $8.875 million in solid
waste disposal revenue bonds as of September 27, 1994. The
proceeds of the bonds were used to finance the construction of the
two facilities. The Company is guarantor on the bonds and, as
managing partner of the Illinois partnership until the December 1,
1996 acquisition date, was subject to receive administrative fees
of $4,000 per month plus a management fee based on net income, as
defined. During 1996 and 1995, the Company collected management
fees of $36,000 and $12,000, respectively.
Under the equity method of accounting, the Company recognized $668,504,
$322,630 and $20,260 as losses from partnership operations for the
years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1995, the Company's investment in the Illinois
partnership includes $258,680 in inventories which were transferred
to the Partnership at cost.
RCC contributed $2 million and the Company contributed a license of its
technology and assigned the Illinois partnership all of its right,
title and interest in the five-year contract with Illinois Power
Company. In 1995, the Company received $750,000 upon reaching
certain performance objectives for the construction of equipment
used by the Illinois partnership upon the startup of the
facilities. Until the December 1, 1996 acquisition date, 55% of
this fee, representing the percentage of the Illinois partnership
not owned by the Company, was recognized in other income for the
eleven months ending November 30, 1996 and the year ended December
31, 1995. The remaining 45% had been recorded as deferred revenue
to be recognized such that it would offset the Company's interest
in the excess depreciation expense recorded by WR-Illinois related
to this portion of the cost of the plants. The remaining
unrecognized portion of deferred revenue at December 1, 1996 was
included in the purchase price for WR-Illinois and allocated to the
assets and liabilities acquired on December 1, 1996.
NOTE 10. BONDS PAYABLE
To provide funding for the construction of the Dupo and Marseilles
plants, WR-Illinois entered into two loan agreements: 1) $4,845,000
with the Southwestern Illinois Development Authority (SWIDA) and
2) $4,030,000 with the Upper Illinois River Valley Development
Authority (UIRVDA) (together, the Bonds), respectively. The Bonds
were issued through the Solid Waste Disposal Revenue Bonds, Series
1994 (Waste Recovery - Illinois Project) dated September 1, 1994,
under an Indenture of Trust. The proceeds to the Partnership were
to fund a debt service reserve fund, to pay the costs of issuing
the Bonds, to pay interest during construction, and to finance the
cost of the construction of buildings and related improvements and
the acquisition and installation of machinery, equipment and
related property, all constituting industrial, commercial and solid
waste disposal facilities located at Dupo and Marseilles, Illinois.
F-17
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
The notes bear interest at 6.5% per annum with interest payable
February 1 and August 1 each year, beginning February 1, 1995.
Principal payments are due annually on February 1 beginning in 1996
through 2004.
The notes are collateralized by the property, plant and equipment of
WR-Illinois, $1,362,174 in restricted cash (see note 8), and are
guaranteed by Waste Recovery, Inc. Future minimum payments as of
February 1 each year are as follows:
YEAR SWIDA UIRVDA TOTAL
---- ----- ------ -----
1997 $ 440,000 $ 365,000 $ 805,000
1998 470,000 390,000 860,000
1999 500,000 415,000 915,000
2000 530,000 440,000 970,000
2001 565,000 470,000 1,035,000
Thereafter 1,925,000 1,605,000 3,530,000
---------- ---------- ----------
Total $4,430,000 $3,685,000 $8,115,000
Bond Premium 183,233 152,586 335,819
---------- ---------- ----------
Total Bonds Payable $4,613,233 $3,837,586 $8,450,819
---------- ---------- ----------
---------- ---------- ----------
Bond premium represents the purchase adjustment recorded to reflect
the bonds at market on December 1, 1996 when the Company acquired
WR-Illinois (see note 2). Amortization of $7,153 was recorded for the
year ended December 31, 1996.
NOTE 11. NOTES PAYABLE
In connection with the purchase of U.S. Tire (see note 2), the Company
issued promissory notes payable to the sellers in the aggregate amount
of $605,035. The note is non-interest bearing and payable in two
installments with the first installment of $455,035 due February 1,
1997, and the final installment of $150,000 due March 31, 1998. The
final installment is subject to adjustment based on certain performance
criteria of the U.S. Tire subsidiary.
The Company finances insurance premiums under note agreements providing
for fixed monthly principal and interest payments due over terms not to
exceed nine months. Balances outstanding under such note agreements
aggregated $176,968 and $28,945 at December 31, 1996 and 1995,
respectively.
With the acquisition of Domino (see note 2), the Company assumed debt
to an affiliate of Domino in the original amount of $180,095. The
terms of this note provide for interest and principal to be deferred
until January 1, 1998, at which time monthly principal and interest
payments are to be made at prime over a two-year term. Consequently,
this note has been recorded as of March 21, 1995 (acquisition date) at
its present value of $130,569, discounted at a rate of ten percent.
The present value at December 31, 1995 was $144,076.
F-18
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 12. CONVERTIBLE SUBORDINATED DEBENTURES
Effective September 30, 1994, the Company privately placed with
accredited investors and certain shareholders $800,000 of 10%
convertible subordinated debentures due March 15, 1996. The debentures
were convertible at the option of the registered holders in minimum
amounts of $10,000 at any time prior to maturity at the rate of one
share of Common Stock for each $.875 in debenture principal and accrued
interest amount. The indebtedness evidenced by the debentures is
subordinate to all senior indebtedness of the Company and is unsecured.
As of December 31, 1994, none of these debentures had been converted.
In conjunction with the Rights Offering (see note 19) in June 1995,
$265,000 of the subordinated convertible debentures, plus accrued
interest of $17,951, were converted at the rate of $.875 per share
into 323,373 shares of Common Stock. At the first interest payment
date, September 15, 1995, the remaining debenture holders elected to
convert interest due on the debentures in the amount of $51,301 to
58,631 shares of Common Stock.
As of the original maturity date, March 15, 1996, $40,000 of the
convertible subordinated debentures plus interest of $1,995 were
converted at the rate of $.875 per share into 47,994 shares of Common
Stock. The remaining $495,000 in debentures were exchanged for similar
debentures which carried an interest rate of 18% and a maturity date of
January 31, 1997. Other terms and conversion privileges were the same
as in the original debentures. On July 1, 1996, the outstanding
$495,000 in debentures plus accrued interest of $46,564 were converted
at the rate of $.875 per share into 618,930 shares of Common Stock.
Upon conversion, the debenture holders also received warrants to
purchase an additional 304,425 shares of Common Stock with an exercise
price equal to market at the date of conversion. The warrants expire
July 1, 1998.
[End of Page]
F-19
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 13. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the
following:
1996 1995
---- ----
10.5% note payable to corporation; due on various dates through
December 2007; interest payable semi-annually* $1,560,000 $1,635,000
Prime plus .5% note payable to bank; due December 2004,
guaranteed by The Goodyear Tire & Rubber Company;
principal and interest payable monthly** 1,019,309 1,128,329
Mortgage payable to corporation, interest at prime rate; due July
2003; principal and interest payable monthly 940,476 -
Notes payable to banks with interest rates ranging from 8% to
10.5%; expiring through November 2000; principal and
interest payable monthly 321,755 -
7.6% note payable to Small Business Administration; due May
2001; principal and interest payable monthly 210,065 248,554
Prime plus 1% note payable to former Domino shareholders;
payments due beginning September 1996 (see note 2); due
March 1998 654,222 700,000
Prime plus 1% note payable to bank; due July 1998; principal of
$5,917 plus interest due monthly 112,417 183,418
7.9% note payable to financial institution; due April 28, 2001;
principal and interest payable monthly 85,166 -
7.9% note payable to financial institution; due April 28, 2001;
principal and interest payable monthly 82,541 -
13.25% notes payable to financial institution; due September
1997; principal and interest payable monthly 31,137 66,103
7.9% note payable to financial institution; due November 1997;
principal and interest payable monthly 22,726 45,749
9% note payable to bank; due May 10, 2000; principal and
interest payable monthly 18,456 -
Notes payable to finance companies with interest rates from
8.95% to 12%, expiring through June 1997; principal and
interest payable monthly 4,994 -
10.5% note payable to financial institution; due August 1997;
principal and interest payable monthly 4,953 11,775
---------- ----------
5,068,217 4,018,928
Less:
Current installments of long-term debt 998,719 427,552
---------- ----------
Long-term debt $4,069,498 $3,591,376
---------- ----------
---------- ----------
*The Loan Agreement contains various restrictions, including a
prohibition against the payment of dividends when such payment would
cause an event of default, as defined, and financial ratio maintenance
requirements, which includes minimum working capital and net worth
requirements. As of December 31, 1996 the Company was in compliance
with all required covenants.
**As of February 29, 1996, this note was transferred to another bank;
principal of $10,000 plus interest is payable monthly; the term and
guarantor remain unchanged. The interest rate with the original bank
was prime plus 1%.
F-20
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Debt is secured by substantially all of the Company's accounts
receivable, inventories and property, plant and equipment and $390,000
of the restricted cash accounts (see note 8).
The aggregate maturities of long-term debt at December 31, 1996 are as
follows:
Year ending December 31:
1997 $ 998,719
1998 837,455
1999 620,806
2000 485,134
2001 425,601
Thereafter 1,700,502
----------
$5,068,217
----------
----------
NOTE 14. CONVERTIBLE SUBORDINATED NOTES
In connection with the purchase of U.S. Tire (see note 2), the Company
issued convertible subordinated notes in the aggregate amount of
$1,850,000 payable to the former partners and shareholders of U.S.
Tire. The notes bear interest at an annual rate of 5% for the first
twelve months, 6% for the second twelve months and 7% until maturity.
Principal payments are due in the amounts of $500,000 on March 31,
1999, $450,000 on September 30, 1999, $450,000 on March 31, 2000 and
$450,000 on September 30, 2000.
The holders of the notes have the right at their option, at any time
after September 30, 1997, to convert all but not less than all of the
principal amount of the notes then outstanding into Common Stock of the
Company at the price of $2.50 per share, provided that such election to
convert shall be agreed upon unanimously by the holders of the notes
then outstanding.
The convertible subordinated note agreements provide for adjustments as
reductions to the principal amount of the notes based on certain
minimum future cash flow of U.S. Tire, as defined. In accordance with
APB Opinion No. 16, the convertible subordinated notes are treated as
"contingent consideration", and accordingly, have not been recorded as
a liability as of December 31, 1996, and will remain unrecorded until
such time as the contingency is resolved or the contingency period
expires. Interest payments on the convertible subordinated notes
during the contingency period are recorded as a deferred charge. If
the contingency is resolved in favor of the note holders, the
contingent consideration and deferred interest will be recorded as an
additional cost of the assets acquired (goodwill) and amortized
prospectively over its remaining life.
F-21
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 15. DEFERRED GRANT REVENUE
WR-Illinois (Grantee) entered into two grant agreements with the
Illinois Department of Commerce and Community Affairs (Department)
(formerly, the Illinois Department of Energy and Natural Resources) as
of June 1, 1994. The Department administers the Used Tire Recovery
Program which offers financial incentives for projects which reuse,
recycle or recover energy from Illinois used or scrap tires.
WR-Illinois requested funding assistance to build its TDF processing
plants in Dupo and Marseilles, Illinois. The Department agreed to
provide grants towards WR-Illinois' "projects", as defined. The Grantee
agreed that at least 30% of the scrap tires it processes will come from
Illinois sources, and that a minimum of one million Illinois PTE's
(passenger tire equivalents), as defined, will be collected and
processed annually at each plant. The Department awarded the Grantee
$1,000,000 towards specified equipment ($500,000 at each plant). As of
December 31, 1996, the full amount of the grants has been received.
The grant agreements require WR-Illinois to maintain the equipment for
the purpose as originally set forth in the agreement, to provide the
Department with semi-annual reports, and to meet certain other listed
criteria.
WR-Illinois received additional funding through a grant of
approximately $450,000 awarded by the Department to Illinois Power
Company for the construction of a TDF metering unit at its Baldwin
Power Plant. This award is being amortized over the remainder of the
contract with Illinois Power Company, which expires July 1999.
As of December 31, 1996, $1,009,061 of the total grant money received
is recorded as deferred grant revenue in the accompanying balance sheet
and is being amortized to income through July 31, 1999, at
approximately $32,000 per month.
NOTE 16. STOCK OPTIONS AND WARRANTS
1989 INCENTIVE STOCK OPTION PLAN
In 1989, the Company adopted the 1989 Incentive Stock Option Plan for
employees (the Incentive Plan). The purpose of the Incentive Plan is
to provide certain key employees of the Company with a proprietary
interest in the Company through the granting of options, restricted
stock or other stock rights. The Company has reserved 1,550,000 shares
of Common Stock for issuance upon exercise of such options and rights
issued pursuant to this Plan.
The terms and amounts of options are determined by the Board of
Directors. The Incentive Plan provides that option prices will be no
less than 50% (or 100% depending on the type of option) of the
F-22
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
fair market value per share at the grant date. The aggregate fair
market value of Common Stock underlying an incentive stock option
determined at the date of the grant shall not exceed $100,000 in the
year in which the options are first exercisable. All options issued to
date have terms of ten years and vest either immediately or over a five
year period.
Shares of Common Stock issued under the Incentive Plan as restricted
stock are determined by the Board of Directors. Restrictions, including
forfeiture provisions and consideration for issuance of such shares, are
determined by the Board of Directors. The consideration to be received
by the Company for issuance of such restricted stock shall be no more
than 50% of the fair market value at the date of the grant.
The Incentive Plan also provides that the Board of Directors may grant
stock appreciation rights (SARs) entitling the grantee, upon exercise of
such rights, to receive cash from the Company equal to the increase of
the fair market value of the Common Stock of the Company times the
number of units of SARs exercised subsequent to the date of grant. As
of December 31, 1996, no restricted stock or SARs had been granted.
The terms of the grants, including the grantees, are administered by a
Stock Option Committee which was formed by the Board of Directors.
The stock options discussed herein were granted at the market price at
the date of grant, thus no compensation expense has been recorded.
NONQUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS
During 1988 and 1991, the Company granted nonqualified stock options to
non-employee directors (the Nonqualified Issuances) for continued
service to the Company. Such options were exercisable through December
1993 and January 1996, respectively.
In 1990, the Company entered into an agreement with the Chairman of the
Company's Board of Directors granting him options to purchase 200,000
shares of Common Stock at $.41 per share for a seven-year period ending
April 3, 1997. Such options may only be exercised once the Company has
achieved twelve months of profitability or in the event of a change in
control. These options became exercisable in 1992 as the Company
achieved twelve months of profitability. As of December 31, 1996,
100,000 of the aforementioned options had been exercised.
1992 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
At the 1992 Annual Meeting, the shareholders approved the 1992 Stock
Plan for Non-Employee Directors (the Directors Plan). Pursuant to such
plan, non-employee directors of the Company receive
F-23
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
annually (1) after the annual meeting, a stock option to purchase 2,500
shares of Common Stock so long as the Company's net income for the
fiscal year just ended improved over the prior year, and (2) in
January, a Common Stock grant valued at $2,000 for service as a
director if attendance criteria are met. Such plan terminates
January 31, 2000 and 250,000 shares were reserved by the Company for
grants thereunder. Under this plan, 10,806, 12,366 and 4,361 shares
were issued for the years ended December 31, 1996, 1995 and 1994,
respectively. The option terms are ten years and vest immediately.
WARRANT ISSUANCES
In 1995, 100,000 warrants were issued to an investment company. These
warrants are exercisable in 1996 at $0.86 per share. The warrants
expire July 1, 1998.
See note 17 for warrant issuances in 1996.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that statement. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants in 1996 and
1995, respectively; no dividend yield, expected volatility of 73.2%
and 74.3%, risk free interest rates of 6.7% and 6.1% and expected lives
of 8.4 years each.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information:
1996 1995
---- ----
As Reported Pro forma As Reported Pro forma
----------- --------- ----------- -----------
Income (loss) applicable to common share $140,204 $(32,893) $(1,069,327) $(1,123,281)
Income (loss) per common share $0.01 $0.00 $(0.12) $(0.12)
The effects of applying SFAS No. 123 in this pro forma
disclosure are not indicative of future amounts as SFAS No.
123 does not apply to awards prior to 1995 and additional
awards are anticipated in future years.
[End of Page]
F-24
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of stock option transactions under the Incentive
Plan and Directors Plan, as well as Nonqualified Issuances, is
as follows:
1996 1995 1994
---- ---- ----
Weighted- Weighted- Weighted-
Average Average Average
Excercise Excercise Excercise
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- ---------
Outstanding at beginning of year......... 761,100 $0.83 565,900 $0.69 572,400 $0.69
Granted............................. 214,900 1.30 275,000 1.01 - -
Exercised.......................... (178,000) 0.40 (59,800) 0.26 (3,500) 0.90
Forfeited........................... (58,100) 1.12 (20,000) 0.73 (3,000) 1.19
-------- -------- --------
Outstanding at end of year............... 739,900 $1.05 761,100 $0.83 565,900 $0.69
Exercisable at end of year............... 559,900 $1.07 516,100 $0.76 565,900 $0.69
Weighted-average fair value of
options granted during the year....... $0.96 $1.12
The following table summarizes information about the fixed
price stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable
---------------------------------------------------- -------------------------------
Shares Weighted-Average Shares
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ----------- ---------------- ---------------- ----------- ----------------
$0.41 100,000 0.3 years $0.41 100,000 $0.41
$0.75 87,500 6.1 years $0.75 87,500 $0.75
$0.98-$1.11 245,000 8.5 years 0.99 65,000 1.01
$1.19 25,000 9.3 years 1.19 25,000 1.19
$1.31-$1.41 192,400 9.4 years 1.32 192,400 1.32
$1.57 90,000 6.4 years 1.57 90,000 1.57
----------- -----------
$0.41-$1.57 739,900 7.13 years $1.05 559,900 $1.07
----------- -----------
----------- -----------
At December 31, 1996, 833,800 shares were available for grant
as options or incentive grants under the Incentive Plan and
225,000 shares were available for grant as options under the
Directors Plan.
NOTE 17. STOCKHOLDERS' EQUITY
On December 26, 1996, the Company sold 750,000 shares of unregistered
Common Stock and 750,000 warrants to purchase Common Stock at a price
of $1.45 per share and $0.05 per warrant. The exercise price of the
warrants is $2.06, which equals the quoted market price for the
Company's Common Stock on December 26, 1996. The warrants expire
December 26, 2000.
F-25
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 24, 1996, the Company sold 300,000 shares of unregistered
Common Stock and 300,000 warrants to purchase Common Stock at a price
of $1.45 per share and $0.05 per warrant (see note 20). The exercise
price of the warrants is $2.06, which equals the quoted market price
for the Company's Common Stock on December 24, 1996. The warrants
expire December 24, 2000.
In December 1996, the Company issued 1.1 million shares of unregistered
Common Stock in connection with the acquisition of WR-Illinois (see
note 2).
In December 1996, the Company issued 3,486,221 shares of unregistered
Common Stock in connection with the acquisition of U.S. Tire (see notes
2 and 19). Included in the 3,486,221 shares issued are 243,224 shares
issued to a third party as compensation for services rendered as
financial advisor to the Company in connection with the acquisition of
U.S. Tire.
As a condition of the acquisition of U.S. Tire, the Company has
committed to file a registration statement with the Securities and
Exchange Commission to register shares issued to the sellers of U.S.
Tire. The shares of Common Stock issued to NIPSCO and those sold in
the December private placement were given the right to be included in
this filing. The Company anticipates this filing will be completed in
May 1997.
In 1990, the Company issued 203,580 shares of 7% cumulative preferred
stock redeemable at the Company's option for $10 per share. No
dividends were declared or paid on such preferred stock in 1996, 1995
or 1994. Accordingly, undeclared dividends on cumulative preferred
stock aggregated $938,725 at December 31, 1996 which represents $4.61
per share of such stock outstanding. Dividends on cumulative preferred
stock have been added to net loss or deducted from net income for
purposes of computing per common share amounts.
NOTE 18. RIGHTS OFFERING
The Company completed a rights offering on June 26, 1995,
which distributed nontransferable subscription rights to
eligible stockholders, as defined, to subscribe to the
Company's Common Stock at an offering price of $.75. This
"Rights Offering" raised approximately $2.2 million in
capital, which is being utilized for specific equipment
improvements at each of the Company's facilities, including
Domino. The Company issued 3,238,857 shares of Common Stock
with this rights offering.
NOTE 19. RELATED PARTY TRANSACTIONS
In 1996, the Company incurred a consulting fee of $20,000 to a
director in connection with the private placement sale of
unregistered Common Stock of the Company (see note 17).
F-26
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the acquisition of U.S. Tire (see note 2),
the Company paid a third party, which is a shareholder of the
Company and the Company's public relations firm, 243,224
shares of Common Stock of the Company for its assistance as a
financial advisor in arranging and facilitating the
acquisition of U.S. Tire. A director of the Company, as an
employee of the Company's financial advisor, received $175,000
in connection with his assistance to the Company's financial
advisor in closing the U.S. Tire transaction.
In 1996, the Company loaned $40,000 to an officer of the
Company. The loan is non-interest bearing and is expected to
be repaid within twelve months.
In 1996, the Company sold to a director 300,000 shares of
unregistered Common Stock and warrants to purchase an
additional 300,000 shares of Common Stock at a purchase price
of $1.45 per share and $0.05 per warrant, respectively. The
exercise price of the warrants equals the quoted market price
of the Company's Common Stock on the date the warrants were
purchased.
The Company received fees of $535,000 in 1995 and $556,000 in
1994 for accepting and hauling scrap tires from a significant
stockholder. In 1996, the customer was no longer a
significant stockholder.
In 1994, in lieu of directors' fees, 4,361 shares of the
Company's Common Stock were issued to the outside directors.
In 1995, the outside directors received $36,000 ($6,000 each)
as compensation for services, $6,000 ($1,000 each) for
attendance at Board of Directors meetings, and a total of
12,366 shares of Common Stock as described in note 16. In
1996, for attendance at Board of Directors meetings, a total
of 10,806 shares of Common Stock were issued to the outside
directors.
The Company incurred $60,000 in consulting fees to certain
directors for assistance with the sale of the Waste Recovery -
Illinois bonds, which was recorded in 1994 and paid in 1995.
Included in accounts payable at December 31, 1995 is $55,237 due to
Waste Recovery - Illinois. During 1995, the Company disposed of
approximately 7,514 tons of tires at the Partnership's Dupo,
Illinois plant and incurred disposal fees to the partnership in
the amount of $336,382.
NOTE 20. INCOME TAXES
For the year ended December 31, 1994, the Company adjusted its
gross deferred tax asset, including a reduction in the
valuation allowance of $508,761, which reflected the expected
utilization of the net operating loss carry forwards that were
previously expected to expire unutilized. The net operating
loss carry forwards were expected to be utilized based on
projected positive results from operations. The net
F-27
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
change in the deferred tax asset of $447,543 represented a tax
benefit for the year ended December 31, 1994.
The provision (benefit) for income taxes consists of the
following components for the year ended December 31:
1996 1995 1994
---- ---- ----
Current:
Federal $ - $ - $ -
State 8,850 - -
-------- -------- --------
Total current 8,850 - -
-------- -------- --------
Deferred:
Deferred taxes (119,278) 284,862 61,218
Deferred tax asset valuation
allowance 119,278 (284,862) (508,761)
-------- -------- --------
Total deferred - - (447,543)
-------- -------- --------
$ 8,850 $ - $(447,543)
-------- -------- --------
-------- -------- --------
Total income tax expense (benefit) differs from the amount computed by
applying the U.S. federal income tax rate of 34% to income before
income taxes for the following reasons:
1996 1995 1994
---- ---- ----
U.S. federal income tax,
at statutory rates $ 96,254 $(315,119) $ 55,424
Penalties 220 20,216 13,418
Amortization of goodwill 20,115 13,996
Change in valuation allowance (119,278) 284,862 (508,761)
State income tax 8,850 - -
Other 2,689 (3,955) (7,624)
---------- ---------- ---------
$ 8,850 $ - $(447,543)
---------- ---------- ---------
---------- ---------- ---------
The deferred tax assets (liabilities) are comprised of the
following at December 31, 1996 and 1995:
1996 1995
---- ----
Deferred tax assets:
Net operating loss carry forwards 2,622,220 $2,451,107
Depreciation 312,269 361,297
Deferred grant revenues 91,587 106,188
Accruals for financial reporting
purposes currently not deductible
for tax 32,104 48,527
Capitalization of general and
administrative costs for tax 62,098 16,505
Carrying differences for investment
in Illinois 269,386 114,814
Other 13,080 9,924
---------- ----------
Gross deferred tax asset 3,402,744 3,108,362
Valuation allowance (2,686,877) (2,660,819)
---------- ----------
715,867 447,543
---------- ----------
Deferred tax liabilities:
Book/tax basis in fixed assets and
deferred gain (268,324) -
---------- ----------
Gross deferred tax liabilities (268,324) -
---------- ----------
Net deferred tax asset $ 447,543 $ 447,543
---------- ----------
---------- ----------
F-28
WASTE RECOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1996, the Company has approximately $7.156
million in net operating loss carry forwards which expire between
the years 2002 and 2011. The deferred tax asset recorded at
December 31, 1995 and 1996, is based on the expected utilization
of net operating loss carry forwards based on projected
positive results. Due to changes in ownership which occurred in
1996, there will be an annual limitation of approximately $1
million on the amount of net operating losses available to offset
future taxable income.
As a result of the December 1996 acquisitions discussed in Note 2, a
deferred tax asset of $145,336 was set up in the opening balance
sheet. A valuation allowance for the full amount of the deferred
tax asset was also set up in the opening balance sheet.
NOTE 21. INVOLUNTARY CONVERSION OF ASSETS
On November 26, 1996, the Atlanta plant sustained damage due to a
mechanical fire. As a result, TDF and wire production ceased for
the remainder of the year. The shredding machinery and equipment
was not damaged, thus allowing the plant to continue accepting
scrap tires for disposal which were then shredded and disposed of.
As of December 31, 1996, the plant was in the process of being
rebuilt. Completion of the rebuild is expected by mid-April 1997,
at which time the plant will be fully operational. This
involuntary conversion of assets has been recognized in the
year ending December 31, 1996, as follows:
Estimated insurance proceeds to be received on property $ 901,815
Net book value of property destroyed (151,844)
---------
Gain on involuntary conversion of property 749,971
Estimated insurance proceeds from business
interruption insurance 83,333
Costs incurred in clean-up (209,085)
---------
Net gain on involuntary conversion $ 624,219
---------
---------
The estimated insurance proceeds are included in other receivables
(see note 3) at December 31, 1996, of which $650,000 was received
in January and February 1997.
[End of Page]
F-29
On August 7, 1994, the Baytown (outside Houston, Texas) plant
sustained substantial damage due to a fire. Consequently, the
plant's operations were shut down from that time until the last week
of December 1994. During this period, the plant incurred a major
renovation and clean-up. This involuntary conversion of assets has
been recognized in the year ending December 31, 1994, as follows:
Net insurance proceeds received on property $ 372,137
Net book value of property destroyed (8,750)
----------
Gain on involuntary conversion of property 363,387
Estimated insurance proceeds from business
interruption insurance 120,000
Cost incurred in clean-up and remediation (669,629)
----------
Net loss on involuntary conversion of
assets $ (186,242)
----------
----------
The renovation of the Baytown plant was completed in late December
1994. The cost of the renovation is included in plant, property and
equipment in the amount of $263,035 at December 31, 1994.
The Company applied for business interruption insurance to cover the
loss of operating revenues during the time the plant was shut down.
The claim was not processed until the fall of 1995; of the $120,000
recorded as receivable in the accompanying 1994 financial statements,
only $91,418 was received and the difference of $28,582 was recorded
as an expense during 1995.
NOTE 22. NONCASH TRANSACTIONS
During 1996, the Company had the following noncash transactions
which have been excluded from the statements of cash flows:
Increase
(Decrease)
-----------
Additions of equipment under capital lease $ (41,304)
New capital lease obligations 41,304
Convertible, subordinated debentures converted
to common stock 535,000
Interest on debentures converted to common stock 48,559
Decrease in debentures payable (535,000)
Decrease in interest payable on debentures (48,559)
-----------
$ --
-----------
-----------
In addition to the above noncash transactions during 1996, see note
2 regarding the assets and liabilities acquired and the additional
debt incurred with the acquisition of WR-Illinois, U.S. Tire and
Domino.
F-30
NOTE 23. SIGNIFICANT CONTRACTS
WR-Illinois entered into a contract with Illinois Power Company on
October 12, 1993, to supply it with 60,000 tons of TDF per year for a
period of five years. If WR-Illinois is unable to fulfill this
requirement, the Company will sell TDF produced at its other
facilities to Illinois Power. Sales to Illinois Power of TDF
produced at the Dupo facility began in September 1995.
NOTE 24. BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers are located throughout the United States.
Five customers accounted for significant Company sales for the years
ended December 31:
1996 1995 1994
---------- ---------- ----------
Customer one $2,940,000 $2,221,000 $1,506,000
Customer two 1,840,000 1,604,000 1,566,000
Customer three 364,000 2,999,000 3,041,000
Customer four 566,000 535,000 556,000
Customer five 257,000 832,000 750,000
---------- ---------- ----------
Total $5,967,000 $8,191,000 $7,419,000
---------- ---------- ----------
---------- ---------- ----------
In addition to these customers, which are all significant entities,
the Company does business with a variety of companies with diverse
credit risk. The Company does not generally require collateral or
other security from its customers and has historically encountered
very little loss on its receivables.
NOTE 25. PROFIT SHARING PLAN
Effective January 1, 1995, the Company adopted the Waste Recovery,
Inc. 401(k) Plan (the Plan), a defined contribution plan. Employees
who have completed six months of service and have attained the age
of twenty-one are eligible to become participants in the Plan.
Participants may contribute up to 15% of their compensation, as
defined, annually. Company contributions to the Plan are determined
at the discretion of the Board of Directors. No contributions were
made during the years ended December 31, 1996 and 1995.
NOTE 26. LITIGATION AND CONTINGENCIES
The Company is a party to certain lawsuits which are generally
incidental to its business. Management does not believe the
ultimate resolution of such matters will have a significant effect
on the Company's financial position and, therefore, no liabilities
have been recorded in the accompanying consolidated financial
statements.
Like other waste management companies, the Company's operations are
subject to extensive and changing federal and state environmental
regulations governing emissions into the atmosphere,
F-31
wastewater discharges, solid and hazardous waste management
activities and site restoration and abandonment activities. As of
December 31, 1996, no such costs had been accrued and management
does not believe the effects of the aforementioned activities will
have a material effect on the Company's financial statements.
NOTE 27. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's current assets, restricted cash and
accounts payable approximates the recorded amounts because of the
liquidity and short maturity of these instruments.
It is not practicable to estimate the fair value of the Company's
long-term debt and notes payable as they are unique as debt
instruments for which there is no public market.
[End of Page]
F-32
SCHEDULE II
WASTE RECOVERY, INC.
VALUATION AND QUALIFYING ACCOUNTS
Additions
---------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Year Expenses Accounts Deductions Year(1)
----------- ---- -------- -------- ---------- -------
Year ended December 1994:
Allowance for doubtful accounts $30,318 $36,063 $ - $41,381 $25,000
------- ------- ---- ------- -------
------- ------- ---- ------- -------
Year ended December 1995:
Allowance for doubtful accounts $25,000 $38,917 $ - $36,834 $27,083
------- ------- ---- ------- -------
------- ------- ---- ------- -------
Year ended December 1996:
Allowance for doubtful accounts $27,083 $63,554 $ - $39,620 $51,017
------- ------- ---- ------- -------
------- ------- ---- ------- -------
(1) Amount represents the allowance for doubtful accounts, a contra account
to trade accounts receivable.
S-1
INDEX TO EXHIBITS
-----------------
Exhibit
Number Exhibit
- ------- -------
3.1 Amended and Restated Articles of Incorporation filed July 5, 1988,
with the Secretary of State of Texas, incorporated herein by reference
to Exhibit 3.4 to the Company's Form 10-K filed March 24, 1989.
3.2 Articles of Amendment to the Articles of Incorporation filed June 8,
1990, with the Secretary of State of Texas, incorporated herein by
reference to Exhibit 3.5 to the Company's Form 10-K filed March 27,
1991.
3.3 By-Laws, amended and restated as of March 10, 1992, incorporated
herein by reference to Exhibit 3.6 to the Company's Form 10-K filed
March 26, 1992.
4.1 Form of Common Stock Certificate of Registrant, incorporated herein
by reference to the Company's Form S-1, as amended, filed July 15,
1986.
4.2 Indenture of Trust dated April 1, 1988, between Development Authority
of Fulton County and Citizens and Southern Trust Company (Georgia),
National Association, as Trustee, incorporated herein by reference
to Exhibit 4.2 to the Company's report on Form 8-K filed June 1,
1988.
4.6 Form of 10% Convertible Subordinated Debenture due March 15, 1996,
incorporated herein by reference to Exhibit 4.6 to the Company's
report on Form 8-K filed October 5, 1994.
10.6 Agreement dated May 9, 1986, between Registrant and The Goodyear Tire
and Rubber Company, incorporated herein by reference to Exhibit 10.32
to the Company's Amendment No. 1 to Form S-1 filed July 1, 1986.
10.7 Lease Agreement dated January 15, 1988, between Southern Metal
Finishing Company, Inc. and the Registrant, incorporated herein by
reference to Exhibit 10.37 to the Company's Form 10-K filed March 25,
1988.
10.8 Indemnity Agreement dated January 29, 1988, by the Registrant and
Southern Metal Finishing Company, Inc., incorporated herein by
reference to Exhibit 10.38 to the Company's Form 10-K filed March 25,
1988.
10.10 Estoppel Deed, dated December 28, 1989, between the Registrant as
Grantor, and Tex A. Perkins, et al., as Grantee, incorporated herein
by reference to Exhibit 10.64 to the Company's Form 10-K filed
March 26, 1990.
10.11 Lease of Real Property, dated January 1, 1990, between the Registrant,
as Lessee, and Tex A. Perkins, et al., as Lessor, incorporated herein
by reference to Exhibit 10.65 to the Company's Form 10-K filed
March 26, 1990.
10.12 Warranty Deed, dated February 7, 1990, between Tex A. Perkins, et al.,
as Grantor, and Wayne Easley, as Grantee, incorporated herein by
reference to Exhibit 10.66 to the Company's Form 10-K filed March 26,
1990.
10.13 Assignment of Lease, dated February 7, 1990, from Tex A.
Perkins, et al., as Assignor, and Wayne Easley, as Assignee,
incorporated herein by reference to Exhibit 10.68 to the
Company's Form 10-K filed March 26, 1990.
E-1
Exhibit
Number Exhibit
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10.14 The Registrant's 1989 Stock Plan for Employees, effective March 6,
1989, and approved by the Registrant's shareholders at the 1989 Annual
Meeting, incorporated herein by reference to Exhibit 10.73 to the
Company's Form 10-K filed March 26, 1990.
10.15 Amendment No. 1 to the Registrant's 1989 Stock Plan for Employees,
incorporated herein by reference to Exhibit 10.15 to the Company's
Form 10-K filed March 28, 1996.
10.16 Nonqualified Stock Option Agreement dated April 4, 1990, granted by
the Registrant to Allan Shivers, Jr. for 200,000 shares, incorporated
herein by reference to Exhibit 10.77 to the Company's Form 10-K
filed March 27, 1991.
10.17 Form of Nonqualified Stock Option Agreement for grants to employees
made January 7, 1991, incorporated herein by reference to Exhibit
10.89 to the Company's Form 10-K filed March 26, 1992.
10.18 Form of Incentive Stock Option Agreement for grants to employees
made October 1, 1991, incorporated herein by reference to Exhibit
10.90 to the Company's Form 10-K filed March 26, 1992.
10.19 1992 Stock Plan for Non-Employee Directors, incorporated herein by
reference to Exhibit 4.8 of the Company's Form S-8 filed May 8, 1992.
10.20 Form of Nonqualified Stock Option Agreement for grants to
non-employee directors made January 4, 1991, incorporated herein by
reference to Exhibit 10.88 to the Company's Form 10-K filed March 26,
1992.
10.21 Indemnity and Security Agreement, dated June 1, 1990, between
Registrant and The Goodyear Tire and Rubber Company, incorporated
herein by reference to Exhibit 10.82 to the Company's Form 10-K
filed March 27, 1991.
10.22 Amendment to Lease of Real Property dated April 25, 1991, between
the Registrant, as Lessee, and George Glanz, as Lessor, incorporated
herein by reference to Exhibit 10.86 to the Company's Form 10-K
filed March 26, 1992.
10.23 Agreement (for supply of TDF) between the Registrant and Illinois
Power Company dated October 12, 1993, (paragraph 4 of Exhibit 10.007
is subject to a request for confidential treatment), incorporated
herein by reference to Exhibit 10.007 to the Company's report on
Amendment No. 1 to Form 8-K/A filed December 14, 1993.
10.24 Leasehold Commercial Deed of Trust, Security Agreement, Fixture
Filing, Financing Statement, and Assignment of Leases and Rents
dated September 20, 1994, executed by the Registrant as Grantor, for
the benefit of NationsBank of Georgia N.A. as Trustee, incorporated
herein by reference to Exhibit 10.021 to the Company's
Form 10-K filed March 30, 1995.
10.25 Stock Purchase Agreement for the purchase by the Registrant of the
outstanding stock of Domino Salvage, Tire Division, Inc., dated
March 21, 1995, incorporated herein by reference to Exhibit 10.024
to the Company's Form 10-K filed March 30, 1995.
10.26 Loan Agreements dated April 1, 1988, between Development Authority of
Fulton County and the Registrant, incorporated herein by reference
to Exhibit 28.2 to the Company's report on Form 8-K filed June 1,
1988.
E-2
Exhibit
Number Exhibit
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10.27 Promissory Note dated April 1, 1988, from the Registrant to
Development Authority of Fulton County, incorporated herein by
reference to Exhibit 28.3 to the Company's report on Form 8-K filed
June 1, 1988.
10.28 Leasehold Deed to Secure Debt and Security Agreement dated April 1,
1988, between the Registrant and the Trustee, incorporated herein by
reference to Exhibit 28.5 to the Company's report on Form 8-K filed
June 1, 1988.
10.29 First Amendment to Lease Agreement dated April 1, 1988, between
Southern Metal Finishing Company, Inc. and the Registrant,
incorporated herein by reference to Exhibit 28.6 to the Company's
report on Form 8-K filed June 1, 1988.
10.30 Assignment of Contracts dated April 1, 1988, between the Registrant
and Development Authority of Fulton County, incorporated herein by
reference to Exhibit 28.7 to the Company's report on Form 8-K filed
June 1, 1988.
10.31 Promissory Note dated February 29, 1996, executed by the Registrant
as maker payable to Texas Commerce Bank National Association in
principal amount of $1,119,309.01.(1)
10.32 Note Purchase Agreement dated February 29, 1996, between The Goodyear
Tire and Rubber Company and Texas Commerce Bank National
Association.(1)
10.33 Form of Convertible Subordinated Debenture Conversion Agreements
effective July 1, 1996.(1)
10.34 Form of Warrant to Purchase Common Stock of Waste Recovery, Inc. as
of July 1, 1996, as Exhibit "A" to the Convertible Subordinated
Debenture Conversion Agreements included herein in Exhibit 10.47.(1)
10.35 Dodge Common Stock and Warrant Purchase Agreement dated December 24,
1996 between Waste Recovery, Inc. and Michael C. Dodge.(1)
10.36 Common Stock and Warrant Purchase Agreement dated December 26, 1996
by and among Waste Recovery, Inc. and Bette Nagelberg, Ronald I.
Heller, Rachel Heller, Ronald I. Heller as custodian for Evan Heller,
Delaware Charter Guaranty & Trust Co. FBO, and R. Anthony Cioffari.(1)
10.37 Agreement and Plan of Reorganization dated as of the 30th day of
September 1996 by and among Waste Recovery, Inc., New U.S. Tire
Recycling Corp., U.S. Tire Recycling Partners, L.P., Bodner/Greenstein
Capital Holdings, Inc., Tirus, Inc., Tirus Associates, L.L.C.,
Environmental Venture Fund, L.P., Argentum Capital, L.P., and
Certain Shareholders, incorporated herein by reference to Exhibit 1.1
of the Company's current report on From 8-K filed December 20, 1996.
10.38 Partnership Purchase Agreement dated as of December 16, 1996,
between Riverside Caloric Company, Waste Recovery, Inc., and
Waste Recovery-Illinois, L.L.C., incorporated herein by reference
to Exhibit 1.2 of the company's current report on Form 8-K filed
December 20, 1996.
10.39 Deed of Trust and Security Agreement between New U.S. Tire Recycling
Corp. (a wholly-owned subsidiary of the Registrant) as Grantor, and
the former partners and shareholders of U.S. Tire Recycling
Partners, L.P. as Beneficiary.(1)
10.40 Letter Agreement between Waste Recovery, Inc. and Cameron & Associates
relating to the retention of Cameron & Associates as financial advisor
in connection with the acquisition of U.S. Tire.(1)
E-3
Exhibit
Number Exhibit
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11.1 Statement regarding computation of per share earnings - See page F-5
of this Form 10-K which is incorporated herein by reference.
21.1 Subsidiaries of the Registrant.(1)
23 Consent of Independent Accountants.(1)
27.1 Financial Data Schedule.(1)
99.1 The Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders, incorporated herein by reference pursuant to
Rule 12b-32 of the Securities Exchange Act of 1934. Definitive
copies of such Proxy Statement to be filed under Regulan 14A
within 120 days after December 31, 1996.
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(1) Filed herewith.
E-4