<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 11, 1999
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-23981
(Commission File Number)
94-3283464
(IRS Employer Identification No.)
2260 Douglas Boulevard, Suite 280, Roseville, California 95661
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 772-2221
Not Applicable
(Former name or former address, if changed since last report.)
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets
On August 25, 1999, Waste Connections, Inc. ("WCI") filed a Form 8-K
describing the agreement executed on August 11, 1999 pursuant to which
International Environmental Industries, Inc., a Nevada corporation ("IEII"),
will merge with and into WCI Acquisition Corporation I, a wholly owned
subsidiary of WCI. Certain financial statements of IEII and certain pro forma
financial data of WCI were not then available and therefore were not included
in the August 25, 1999 8-K filing. WCI hereby amends its Form 8-K filed on
August 25, 1999, to include the financial statements and pro forma financial
information set forth below in Item 7.
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS
PREDECESSOR AND JOS ENTERPRISES, LTD.
Report of PricewaterhouseCoopers LLP, Independent Accountants
Combined Balance Sheets of International Environmental Industries, Inc. and
Subsidiary and Its Predecessor and JOS Enterprises, Ltd. as of June 30, 1999
(Unaudited), December 31, 1998 and June 30, 1998 and 1997
Combined Statements of Operations of International Environmental Industries,
Inc. and Subsidiary and Its Predecessor and JOS Enterprises, Ltd. for the Six
Month Period Ended December 31, 1998, Three Month Period Ended June 30, 1998,
Nine Month Period Ended March 31, 1998 and the Years Ended June 30, 1997 and
1996
Combined Statements of Operations of International Environmental Industries,
Inc. and Subsidiary and Its Precedessor and JOS Enterprises, Ltd. for the Six
Month Period Ended June 30, 1999 (Unaudited), Three Month Period Ended June
30, 1998 and Three Month Period Ended March 31, 1998 (Unaudited)
Combined Statements of Stockholders' Equity/Partners' Capital (Deficit) of
International Environmental Industries, Inc. and Subsidiary and Its
Predecessor and JOS Enterprises, Ltd for the Nine Month Period Ended March 31,
1998 and the Years Ended June 30, 1997 and 1996
Combined Statements of Stockholders' Equity/Partners' Capital (Deficit) of
International Environmental Industries, Inc. and Subsidiary and Its
Predecessor and JOS Enterprises, Ltd for the Six Month Period Ended June 30,
1999 (Unaudited), the Six Month Period Ended December 31, 1998 and the Three
Month Period Ended June 30, 1998
Combined Statements of Cash Flows of International Environmental Industries,
Inc. and Subsidiary and Its Precedessor and JOS Enterprises, Ltd. for the Six
Month Period Ended December 31, 1998, Three Month Period Ended June 30, 1998,
Nine Month Period Ended March 31, 1998 and the Years Ended June 30, 1997 and
1996
Combined Statements of Cash Flows of International Environmental Industries,
Inc. and Subsidiary and Its Precedessor and JOS Enterprises, Ltd. for the Six
Month Period Ended June 30, 1999 (Unaudited), Three Month Period Ended June
30, 1998 and Three Month Period Ended March 31, 1998 (Unaudited)
Notes to Combined Financial Statements
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
International Environmental Industries, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, stockholders' equity/partners' capital
(deficit) and of cash flows present fairly, in all material respects, the
financial position of International Environmental Industries, Inc. and
subsidiary and JOS Enterprises, Ltd. (the "Companies") as of December 31, 1998
and June 30, 1998 and of Rubbish Removal Incorporated and subsidiaries (the
"Predecessor") and JOS Enterprises, Ltd. as of June 30, 1997 and the results of
the Companies' operations and their cash flows for the six month period ended
December 31, 1998 and for the three month period ended June 30, 1998 and the
results of the Predecessor's operations and their cash flows for the nine month
period ended March 31, 1998 and for the years ended June 30, 1997 and 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Companies' and the Predecessor's
management; our responsibility is to express an opinion on these financial
statements based on our audits. 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 provide a reasonable basis for the opinion expressed
above.
As explained in Note 3 to the accompanying combined financial statements,
ownership of the Predecessor was transferred to International Environmental
Industries, Inc. in a contribution transaction as of April 2, 1998. The
acquisition of the Predecessor minority interest was accounted for as a
purchase, and accordingly, the purchase price was allocated to the assets and
liabilities of the Predecessor based upon their estimated fair value at April 2,
1998. Accordingly, the combined financial statements of the Companies are not
comparable to those of the Predecessor.
As discussed in Note 18 to the accompanying combined financial statements, the
Companies and its stockholders and partners have entered into an Acquisition
Agreement to sell the common stock and partnership interests of the Companies to
Waste Connections, Inc.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
February 26, 1999, except as to Note 18, which is as of
August 19, 1999
<PAGE> 4
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
UNAUDITED PREDECESSOR
----------- -----------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,489,099 $ 551,614 $ 4,125,818 $ 375,773
Receivables:
Trade, net of allowance of $283,668,
$251,008, $186,763 and $163,414 3,757,157 3,149,251 3,594,600 4,344,343
Other 204,003 310,071 194,460 116,746
Due from related parties 1,041,481 195,001 97,581 317,723
Due from officers, directors and employees 291,310 190,233 238,006 84,533
Equipment parts, materials and supplies 448,759 518,549 461,874 805,705
Prepaid expenses 641,019 549,763 680,292 312,886
Deferred income taxes 47,398 150,455 150,821 193,504
Current portion of notes receivable 59,260 81,399 283,669 292,726
Assets held for sale -- 1,000,000 -- --
----------- ----------- ----------- -----------
Total current assets 8,979,486 6,696,336 9,827,121 6,843,939
----------- ----------- ----------- -----------
Property and equipment, at cost less
accumulated amortization and depreciation 32,600,673 35,605,337 34,834,557 22,108,806
----------- ----------- ----------- -----------
Other assets:
Short-term investments, restricted 100,000 100,000 100,000 100,000
Landfill liner, net 1,688,458 1,136,403 1,383,857 1,090,471
Deferred income taxes -- 24,943 -- --
Notes receivable, net of current portion 120,501 24,452 26,950 359,561
Intangible and other, net 22,881,151 23,678,064 23,553,416 5,819,960
----------- ----------- ----------- -----------
Total other assets 24,790,110 24,963,862 25,064,223 7,369,992
----------- ----------- ----------- -----------
Total assets $66,370,269 $67,265,535 $69,725,901 $36,322,737
=========== =========== =========== ===========
</TABLE>
(Continued)
2
<PAGE> 5
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED BALANCE SHEETS,
CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY/ PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
UNAUDITED PREDECESSOR
------------ ------------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current liabilities:
Current portion of long-term debt $ 2,585,890 $ 2,560,184 $ 2,965,159 $ 6,855,061
Current portion of related party notes payable -- -- -- 727,905
Accounts payable 1,412,466 1,094,593 1,062,758 1,592,934
Accrued liabilities:
Salaries and wages 251,196 847,359 348,236 304,980
Interest 583,183 641,092 29,547 230,412
Taxes other than income taxes 422,155 297,562 272,930 462,209
Due to stockholder 100,663 112,397 154,201 --
Income taxes payable 279,231 484,248 -- 128,646
Other 407,625 258,226 333,971 346,625
------------ ------------ ------------ ------------
Total current liabilities 6,042,409 6,295,661 5,166,802 10,649,072
Long-term debt, net of current portion 28,674,909 30,287,625 37,434,551 11,794,039
Related party notes payable, net of current portion 2,000,000 2,000,000 2,000,000 1,674,911
Accrued landfill closure and post-closure costs 767,072 672,187 625,853 507,168
Deferred income taxes 157,456 181,086 6,573,472 1,851,726
Minority interest 856,549 926,159 -- --
Commitments and contingencies
Stockholders' equity/partners' capital (deficit):
International Environmental Industries, Inc.:
Common stock, $0.01 par value; 100,000
shares authorized: 25,000 shares
issued and outstanding 250 250 250 --
Additional paid-in capital 18,081,970 18,081,970 18,081,970 --
Retained earnings (accumulated deficit) 9,376,959 8,667,338 (110,996) --
Rubbish Removal Incorporated:
Common stock, no par value; 1,000,000
shares authorized; 100,000 shares
issued and 75,050 shares outstanding -- -- -- 10,000
Additional paid-in capital -- -- -- 9,727
Retained earnings -- -- -- 10,471,891
Treasury stock; 24,950 shares at cost -- -- -- (750,000)
JOS Enterprises, Ltd.:
Partners' capital (deficit) 412,695 153,259 (46,001) 104,203
------------ ------------ ------------ ------------
Total stockholders' equity/partners'
capital (deficit) 27,871,874 26,902,817 17,925,223 9,845,821
------------ ------------ ------------ ------------
Total liabilities and stockholders'
equity/partners' capital (deficit) $ 66,370,269 $ 67,265,535 $ 69,725,901 $ 36,322,737
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
3
<PAGE> 6
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------
SIX MONTH THREE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
------------ ------------ ------------ ----------------------------
DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30,
1998 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 17,110,127 $ 9,274,347 $ 27,106,270 $ 32,314,667 $ 23,980,912
Cost of operations (10,798,944) (5,366,699) (16,478,370) (18,385,847) (14,989,716)
------------ ------------ ------------ ------------ ------------
Gross profit 6,311,183 3,907,648 10,627,900 13,928,820 8,991,196
Selling, general and administrative expenses (3,779,764) (2,248,263) (6,219,256) (7,073,601) (5,810,983)
Non-recurring charges (1,376,760) (654,070) (314,300) -- --
Impairment loss (329,239) -- (26,120) (220,134) (38,264)
Landfill management fee income, net 204,183 81,845 230,976 289,644 213,710
------------ ------------ ------------ ------------ ------------
Income from operations 1,029,603 1,087,160 4,299,200 6,924,729 3,355,659
Interest expense (1,645,420) (1,156,460) (1,370,648) (1,978,074) (1,515,903)
Interest income 69,598 141,393 50,871 125,600 77,294
Equipment lease income, net -- -- -- 157,704 383,597
Gain on sale of subsidiaries 4,486,343 -- -- -- --
Other nonoperating income (expense), net 56,321 (52,783) 242,505 (309,593) (60,431)
------------ ------------ ------------ ------------ ------------
Income before income taxes and
minority interest 3,996,445 19,310 3,221,928 4,920,366 2,240,216
Income tax benefit (expense)
(Notes 2 and 11) 5,509,931 (138,847) (1,196,286) (1,799,337) (792,957)
Minority interest in (income) loss of subsidiaries (466,282) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 9,040,094 $ (119,537) $ 2,025,642 $ 3,121,029 $ 1,447,259
============ ============ ============ ============ ============
</TABLE>
(Continued)
4
<PAGE> 7
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED STATEMENTS OF OPERATIONS,
CONTINUED
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------
UNAUDITED UNAUDITED
------------- --------------
SIX MONTH THREE MONTH THREE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------- ------------- --------------
JUNE 30, 1999 JUNE 30, 1998 MARCH 31, 1998
------------- ------------- --------------
<S> <C> <C> <C>
Revenues $ 16,795,658 $ 9,274,347 $ 9,477,420
Cost of operations (10,104,187) (5,366,699) (6,042,405)
------------ ------------ ------------
Gross profit 6,691,471 3,907,648 3,435,015
Selling, general and administrative expenses (3,530,969) (2,248,263) (2,232,160)
Non-recurring charges -- (654,070) (314,300)
Impairment loss (47,274) -- --
Landfill management fee income, net 108,616 81,845 84,308
------------ ------------ ------------
Income from operations 3,221,844 1,087,160 972,863
Interest expense (1,509,879) (1,156,460) (311,253)
Interest income -- 141,393 13,740
Other nonoperating income (expense), net (327,220) (52,783) 309,532
------------ ------------ ------------
Income before income taxes and
minority interest 1,384,745 19,310 984,882
Income tax benefit (expense)
(Notes 2 and 11) 193,304 (138,847) (477,466)
Minority interest in (income) loss of subsidiaries 141,008 -- --
------------ ------------ ------------
Net income (loss) $ 1,719,057 $ (119,537) $ 507,416
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
5
<PAGE> 8
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
ADDITIONAL
PAR PAID-IN RETAINED TREASURY
VALUE CAPITAL EARNINGS STOCK
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PREDECESSOR:
Balances, June 30, 1995 $ 10,000 $ 9,727 $ 6,461,791 $ (750,000)
Net income -- -- 1,217,199 --
Increase in due from stockholders -- -- -- --
------------ ------------ ------------ ------------
Balances, June 30, 1996 10,000 9,727 7,678,990 (750,000)
Net income -- -- 2,792,901 --
Decrease in due from stockholders -- -- -- --
Distributions -- -- -- --
------------ ------------ ------------ ------------
Balances, June 30, 1997 10,000 9,727 10,471,891 (750,000)
Net income for the nine month period
ended March 31, 1998 -- -- 1,862,751 --
Distributions -- -- -- --
------------ ------------ ------------ ------------
Balances, March 31, 1998 $ 10,000 $ 9,727 $ 12,334,642 $ (750,000)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
JOS STOCKHOLDERS'
PARTNERS' EQUITY/ PARTNERS'
DUE FROM CAPITAL/ CAPITAL
STOCKHOLDERS (DEFICIT) (DEFICIT)
------------ ------------ ------------
<S> <C> <C> <C>
PREDECESSOR:
Balances, June 30, 1995 $ -- $ (418,790) $ 5,312,728
Net income -- 230,060 1,447,259
Increase in due from stockholders (465,000) -- (465,000)
------------ ------------ ------------
Balances, June 30, 1996 (465,000) (188,730) 6,294,987
Net income -- 328,128 3,121,029
Decrease in due from stockholders 465,000 -- 465,000
Distributions -- (35,195) (35,195)
------------ ------------ ------------
Balances, June 30, 1997 -- 104,203 9,845,821
Net income for the nine month period
ended March 31, 1998 -- 162,891 2,025,642
Distributions -- (155,556) (155,556)
------------ ------------ ------------
Balances, March 31, 1998 $ -- $ 111,538 $ 11,715,907
============ ============ ============
</TABLE>
(Continued)
6
<PAGE> 9
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT),
CONTINUED
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- RETAINED
ADDITIONAL EARNINGS/
PAR PAID-IN (ACCUMULATED TREASURY
VALUE CAPITAL DEFICIT) STOCK
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
SUCCESSOR:
JOS ENTERPRISES, LTD.:
Balances, March 31, 1998 $ -- $ -- $ -- $ --
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.:
Issuance of common stock 250 18,081,970 -- --
Net loss for the three month period
ended June 30, 1998 -- -- (110,996) --
Contributions -- -- -- --
Distributions -- -- -- --
------------ ------------ ------------ ----------
Balances, June 30, 1998 250 18,081,970 (110,996) --
Net income for the six month period
ended December 31, 1998 -- -- 8,840,834 --
Distributions -- -- (62,500) --
------------ ------------ ------------ ----------
Balances, December 31, 1998 250 18,081,970 8,667,338 --
UNAUDITED
Net income for the six month period
ended June 30, 1999 -- -- 1,459,621 --
Distributions -- -- (750,000) --
------------ ------------ ------------ ----------
Balances, June 30, 1999 $ 250 $ 18,081,970 $ 9,376,959 $ --
============ ============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
JOS TOTAL
PARTNERS' STOCKHOLDERS'
DUE FROM CAPITAL/ EQUITY/ PARTNERS'
STOCKHOLDERS (DEFICIT) CAPITAL (DEFICIT)
------------ ------------ ------------
<S> <C> <C> <C>
JOS ENTERPRISES, LTD.:
Balances, March 31, 1998 $ -- $ 111,538 $ 111,538
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.:
Issuance of common stock -- -- 18,082,220
Net loss for the three month period
ended June 30, 1998 -- (8,541) (119,537)
Contributions -- 186,000 186,000
Distributions -- (334,998) (334,998)
------------ ------------ ------------
Balances, June 30, 1998 -- (46,001) 17,925,223
Net income for the six month period
ended December 31, 1998 -- 199,260 9,040,094
Distributions -- -- (62,500)
------------ ------------ ------------
Balances, December 31, 1998 -- 153,259 26,902,817
UNAUDITED
Net income for the six month period
ended June 30, 1999 -- 259,436 1,719,057
Distributions -- -- (750,000)
------------ ------------ ------------
Balances, June 30, 1999 $ -- $ 412,695 $ 27,871,874
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
7
<PAGE> 10
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------
SIX MONTH THREE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
----------- ----------- ----------- -------------------------
DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30,
1998 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss) $ 9,040,094 $ (119,537) $ 2,025,642 $ 3,121,029 $ 1,447,259
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization 860,495 790,643 741,700 459,479 306,536
Depreciation 1,727,200 819,932 2,197,092 2,452,144 1,978,321
Deferred income taxes (6,416,963) 165,345 322,084 371,792 153,288
Minority interest 466,282 -- -- -- --
Non-cash compensation 459,877 -- -- -- --
Gain on sale of subsidiaries (4,486,343) -- -- -- --
Loss on disposal of equipment 18,321 113,983 111,809 112,854 4,642
Loss on asset impairment 329,239 -- 26,120 220,134 38,264
Write-off of long-term investment -- -- -- 113,850 --
Changes in operating assets and liabilities:
Trade receivables, net 571,436 (77,983) 851,693 (1,447,138) (280,833)
Income taxes receivable -- -- -- 97,994 241,181
Other receivables (115,611) 99,525 (41,543) 94,217 (45,874)
Due from officers, directors and employees 47,773 (260,793) (75,174) 45,795 (30,995)
Equipment parts, materials and supplies (121,729) 141,834 201,997 (98,036) (362,948)
Prepaid expenses 190,166 (283,068) (141,716) 166,699 (46,603)
Other current assets -- -- -- 15,696 18,250
Due from related parties (97,420) 47,124 173,018 180,183 (76,741)
Accounts payable 31,835 (1,075,995) 575,186 7,993 348,781
Accrued salaries and wages 499,123 193,833 (51,382) (3,063) 150,211
Accrued interest 611,545 (71,512) (129,353) 135,125 12,866
Accrued taxes other than income taxes 24,632 19,286 (254,380) 71,706 199,046
Due to related parties (41,804) 171,688 3,517 -- (38,116)
Income taxes payable 484,248 (208,384) 79,738 128,646 --
Other liabilities (75,745) (199,203) 36,014 145,314 (30,313)
Accrued landfill closure and
post-closure costs 46,334 29,099 89,586 78,550 (8,032)
----------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities 4,052,985 295,817 6,741,648 6,470,963 3,978,190
----------- ----------- ----------- ----------- -----------
</TABLE>
(Continued)
8
<PAGE> 11
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED STATEMENTS OF CASH FLOWS,
CONTINUED
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------
SIX MONTH THREE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
------------ ------------ ------------ ---------------------------
DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30,
1998 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investing activities:
Purchase of property and equipment (3,332,728) (381,524) (3,166,194) (5,505,147) (5,045,215)
Acquisitions, less cash acquired (2,596,731) -- (478,958) (3,061,963) --
Purchase of landfill liner -- (2,555) (733,426) (668,292) (312,509)
Proceeds from disposal of subsidiaries 5,850,000 -- -- -- --
Proceeds from disposal of equipment 95,045 74,337 663,335 886,616 13,200
Purchase of equipment on operating lease -- -- -- -- (121,312)
Maturity of short-term investments -- -- -- -- 10,000
Advances to stockholders -- -- -- -- (275,000)
Collection of notes receivable 204,768 25,327 316,341 15,913 200,818
Issuance of notes receivable -- -- -- (203,200) --
Purchase of intangible and other assets (64,428) (95,238) (449,382) (1,274,279) (1,530,955)
Proceeds from sale of other assets -- -- 11,480 -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities 155,926 (379,653) (3,836,804) (9,810,352) (7,060,973)
------------ ------------ ------------ ------------ ------------
Financing activities:
Proceeds from borrowings -- 42,174,915 115,291 13,695,100 16,295,775
Principal repayments of borrowings (7,720,615) (37,522,263) (2,063,149) (10,748,584) (12,714,251)
Payment of deferred loan costs -- (1,471,203) -- -- --
Contributions -- 186,000 -- -- --
Distributions (62,500) (334,998) (155,556) (35,195) --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities (7,783,115) 3,032,451 (2,103,414) 2,911,321 3,581,524
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (3,574,204) 2,948,615 801,430 (428,068) 498,741
Cash and cash equivalents, beginning
of period 4,125,818 1,177,203 375,773 803,841 305,100
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 551,614 $ 4,125,818 $ 1,177,203 $ 375,773 $ 803,841
============ ============ ============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 970,273 $ 1,388,519 $ 1,558,879 $ 1,842,949 $ 1,503,037
============ ============ ============ ============ ============
Income taxes $ -- $ 250,000 $ 765,000 $ 1,572,697 $ 551,776
============ ============ ============ ============ ============
</TABLE>
(Continued)
9
<PAGE> 12
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED STATEMENTS OF CASH FLOWS,
CONTINUED
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------------
SIX MONTH THREE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
------------- ------------ ------------ --------------------------
DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30,
1998 1998 1998 1997 1996
------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Noncash financing and investing activities:
Reclassification of due from
stockholders to long-term notes receivable $ -- $ -- $ -- $ 465,000 $ --
============== ============= ============ ============ ============
Additions to property and equipment
financed by notes payable $ 189,000 $ 143,000 $ -- $ 170,000 $ 403,231
============== ============= ============ ============ ============
Reclassification of property and equipment to
landfill liner and equipment under operating lease $ -- $ -- $ -- $ 562,049 $ --
============== ============= ============ ============ ============
Additions to prepaid expenses
financed by notes payable $ 72,000 $ -- $ -- $ -- $ --
============== ============= ============ ============ ============
Additions to intangible and other assets
financed by notes payable $ 31,500 $ -- $ -- $ -- $ --
============== ============= ============ ============ ============
Additions to other assets by related party receivables $ -- $ 175,943 $ -- $ -- $ --
============== ============= ============ ============ ============
Additions to property and equipment financed by
accounts payable $ -- $ -- $ -- $ -- $ 135,537
============== ============= ============ ============ ============
Additions to property and equipment by related
party receivables $ -- $ -- $ -- $ -- $ 97,740
============== ============= ============ ============ ============
Reclassification of due from stockholders $ -- $ -- $ -- $ -- $ 190,000
============== ============= ============ ============ ============
</TABLE>
(Continued)
10
<PAGE> 13
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED STATEMENTS OF CASH FLOWS,
CONTINUED
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------
UNAUDITED UNAUDITED
------------ -------------------------------
SIX MONTH THREE MONTH THREE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------ ------------ ------------
JUNE 30, JUNE 30, MARCH 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net cash provided by operating activities $ 3,676,136 $ 295,817 $ 2,275,314
------------ ------------ ------------
Investing activities:
Purchase of property and equipment (577,731) (381,524) (276,941)
Purchase of landfill liner -- (2,555) (838,157)
Proceeds from sale of assets 1,250,000 74,337 --
Advances to stockholders -- -- --
Collection of notes receivable 115,568 25,327 29,490
Issuance of notes receivable (189,478) -- --
Purchase of intangible and other assets -- (95,238) --
------------ ------------ ------------
Net cash provided by (used in) investing activities 598,359 (379,653) (1,085,608)
------------ ------------ ------------
Financing activities:
Proceeds from borrowings 929,909 42,174,915 --
Principal repayments of borrowings (2,516,919) (37,522,263) (1,696,812)
Payment of deferred loan costs -- (1,471,203) --
Contributions -- 186,000 --
Distributions (750,000) (334,998) (27,800)
------------ ------------ ------------
Net cash provided by (used in) financing activities (2,337,010) 3,032,451 (1,724,612)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,937,485 2,948,615 (534,906)
Cash and cash equivalents, beginning of period 551,614 1,177,203 1,712,109
------------ ------------ ------------
Cash and cash equivalents, end of period $ 2,489,099 $ 4,125,818 $ 1,177,203
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,567,808 $ 1,388,519 $ 537,289
============ ============ ============
Income taxes $ -- $ 250,000 $ --
============ ============ ============
</TABLE>
(Continued)
11
<PAGE> 14
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
COMBINED STATEMENTS OF CASH FLOWS,
CONTINUED
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------
UNAUDITED UNAUDITED
------------------------------------------------------
SIX MONTH THREE MONTH THREE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
----------------- ---------------- ---------------
JUNE 30, JUNE 30, MARCH 31,
1999 1998 1998
----------------- ---------------- ---------------
<S> <C> <C> <C>
Noncash financing and investing activities:
Additions to property and equipment financed by notes payable $ -- $ 143,000 $ --
================= ================ ===============
Additions to other assets financed by related party receivables $ -- $ 175,943 $ --
================= ================ ===============
Additions to property and equipment financed by accounts payable $ 18,778 $ -- $ --
================= ================ ===============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
12
<PAGE> 15
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
1. NATURE OF OPERATIONS
International Environmental Industries, Inc. ("IEII") was incorporated
under the laws of Nevada on February 18, 1998. IEII's wholly-owned
subsidiary, Rubbish Removal Incorporated and subsidiaries ("RRI") is a
diversified services company, which provides commercial and medical
solid waste collection and disposal and recycling services primarily to
private sector customers and manages two landfills. RRI also owns and
operates a solid waste landfill located in southern New Mexico, with
approximately 475 permitted acres and total available permitted disposal
capacity of approximately 7.3 million in-place cubic yards. As of June
30, 1999 and December 31, 1998, RRI provides collection service to over
15,000 commercial, industrial and residential customers, primarily in
west Texas and southern New Mexico.
Rubbish Removal Incorporated's subsidiaries include El Paso Disposal,
Inc. ("EPD"), Camino Real Environmental Center, Inc., Medical Compliance
Services, Inc. (a Texas corporation), Medical Compliance Services, Inc.
(a New Mexico corporation), Medical Technologies, Inc. and Southwest
Disposal Corporation.
JOS Enterprises, Ltd. ("JOS") is a Texas partnership whose purpose is to
acquire, own, lease and manage real estate properties and to engage in
other related activities. As of June 30, 1999 and December 31, 1998,
substantially all of JOS' real estate holdings are being leased to RRI.
IEII, RRI and JOS are collectively referred to as the "Companies" in
these notes to combined financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation/Combination
The combined financial statements as of June 30, 1999, December 31 and
June 30, 1998 and for the six month periods ended June 30, 1999 and
December 31, 1998 and for the three month period ended June 30, 1998
include the combined accounts of IEII and its wholly-owned direct and
indirect subsidiaries, RRI, since April 1, 1998 (the date of the RRI
contribution for financial reporting purposes - see Note 3) and JOS.
JOS is an entity under common control with IEII and the majority of its
assets are used in the operations of IEII and subsidiary. IEII had no
substantive operations until the contribution of RRI and RRI is
considered IEII's predecessor for financial reporting purposes. The
accompanying combined financial statements as of June 30, 1997 and for
the nine month period ended March 31, 1998, and for the years ended June
30, 1997 and 1996 include the results of operations of RRI and JOS. The
results of operations of RRI prior to the contribution to IEII have not
been adjusted to give effect to the RRI contribution. All intercompany
accounts and transactions have been eliminated in consolidation and
combination.
In the opinion of management of the Companies, the accompanying
unaudited interim financial statements as of June 30, 1999 and for the
six month period then ended and for the three month period ended March
31, 1998 contain all adjustments necessary to present fairly the
financial position of the Companies at June 30, 1999, the results of
operations, changes in stockholders' equity/partners' capital and cash
flows for the six months ended June 30, 1999 and the three months ended
March 31, 1998. The results of operations for the six months ended June
30, 1999 are not necessarily indicative of the results to be expected
for the full calendar year.
Certain amounts in the June 30, 1998, March 31, 1998 and June 30, 1997
and 1996 financial statements have been reclassified to conform to the
current presentation.
13
<PAGE> 16
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Use of Estimates in the Preparation of Financial Statements
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 disclosures 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.
Concentration of Credit Risk
Financial instruments which potentially subject the Companies to
concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments and accounts and notes receivable.
Cash deposits are primarily maintained with five banks located in El
Paso, Texas and Albuquerque and Las Cruces, New Mexico.
Accounts receivable are not collateralized, however, the risk is limited
due to the large number of entities comprising the Companies' customer
base. The majority of notes receivable are collateralized by real
property, vehicles and financial instruments. Uncollateralized notes
receivable are closely monitored by management.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") 107, "Disclosure
About Fair Value of Financial Instruments", requires certain disclosures
regarding the fair value of financial instruments. Cash and cash
equivalents, receivables, accounts payable, accrued liabilities and
amounts due to and from related parties are reflected in the
accompanying financial statements at fair value because of the
short-term maturity of these instruments. The fair value of long-term
debt closely approximates its carrying value as the annual interest
rates charged by the lender were renegotiated by the Companies near the
balance sheet dates.
Long-lived Assets
In accordance with SFAS 121, long-lived assets held and used by the
Companies are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived
assets, the recoverability test is performed using undiscounted net cash
flows of the individual subsidiaries and consolidated/combined
undiscounted net cash flows for long-lived assets not identifiable to
individual subsidiaries.
Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents
consist of deposits with banks which are unrestricted as to withdrawal
or use and all highly liquid investments purchased with original
maturities of three months or less. Cash equivalents consisted of
short-term savings and repurchase agreements at June 30, 1999, December
31 and June 30, 1998.
14
<PAGE> 17
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Equipment Parts, Materials and Supplies
Equipment parts, materials and supplies are valued under a method which
approximates the lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Expenditures for maintenance, repairs and minor renewals are charged to
expense as incurred, and amounted to approximately $1,383,000,
$1,890,000, $887,000, $1,953,000, $2,272,000 and $1,299,470 for the
periods ended June 30, 1999, December 31, June 30 and March 31, 1998 and
for the years ended June 30, 1997 and 1996, respectively. Those
expenditures which improve or extend the lives of existing assets are
capitalized. Upon the sale or other disposition of assets, the cost and
related accumulated depreciation are removed from the accounts and the
resulting gain or loss, if any, is reflected in operations.
Depreciation of property and equipment is provided using the
straight-line method over the estimated useful lives which are as
follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Equipment 3-15
Vehicles 5-10
Furniture and office equipment 5-12
Buildings and leasehold improvements 15-40
</TABLE>
The landfill land is stated at cost less accumulated amortization. The
cost of the landfill land is amortized based on capacity utilized to
date as a percentage of capacity available (approximately 12 and 11
percent utilized as of June 30, 1999 and December 31, 1998,
respectively).
Landfill Liner
The cost of each liner used in the landfill is amortized based on actual
gate yards of waste placed in the liner during the period as a
percentage of estimated liner capacity.
Intangible and Other Assets
The excess of cost over fair value of net assets of acquired businesses
(goodwill) is amortized using the straight-line method over periods
generally not exceeding 25 years. The cost of obtaining licenses and
permits to operate, including related legal and engineering costs, is
amortized over the lives of the licenses and permits, ranging between 5
and 10 years. Deferred costs of obtaining long-term financing are
amortized over the related term of the debt using the effective interest
method.
Minority Interest
Minority interest represents the Companies' minority owner's
proportionate share of the stockholders' equity of Medical Technologies,
Inc. at June 30, 1999 and of Medical Compliance Services, Inc. Texas and
New Mexico at December 31, 1998.
15
<PAGE> 18
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Income Taxes
IEII and its subsidiary file a consolidated Federal income tax return.
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is comprised of the
federal and state tax payable for the period, including the income
portion of Texas franchise tax, and the change during the period in
deferred tax assets and liabilities.
Income tax expenses and benefits are allocated from IEII to RRI and its
subsidiaries on a separate company basis.
Effective July 1, 1998, the tax status of all corporate reporting
entities (other than Medical Technologies, Inc. and Medical Compliance
Services, Inc., Texas and New Mexico) was changed from C-Corporation to
S-Corporation, as defined by the Internal Revenue Code. As a result,
approximately $6.4 million in net deferred tax liabilities have been
reversed and the related effect included in income tax benefit in the
combined statements of operations for the six month period ended
December 31, 1998. As S-Corporations, the Companies are no longer
subject to federal income taxes. In connection with the change in tax
status, the fiscal year end of the Companies (other than Medical
Technologies, Inc. and Medical Compliance Services, Inc., Texas and New
Mexico) was changed from June 30 to December 31.
As a partnership, JOS is not subject to federal and state income taxes.
Results of operations are allocated to the partners in accordance with
the provisions of JOS' Partnership Agreement and reported to each
partner on their respective federal and state income tax returns.
Distributions of JOS Profits and Losses
Distributions of profits and losses are generally made at the end of
each calendar year in accordance with the Partnership Agreement which
states that such distributions will be determined by the partners and
shall be distributed within 30 days of year-end.
Segment Reporting
The Companies' revenues are derived from one industry segment, which
includes integrated waste management services consisting of collection,
transfer, disposal, recycling and other miscellaneous services to
commercial, industrial, municipal and residential customers located in
Texas and New Mexico.
Revenue Recognition
Revenue from waste hauling and disposal is recognized when the service
is provided. Revenue from the management of landfills is recognized in
the month that management services are provided.
16
<PAGE> 19
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
3. RRI CONTRIBUTION
On April 2, 1998, the majority stockholder of RRI purchased the
approximately 33% minority interest of RRI for approximately $28.8
million in cash. The acquisition of the minority RRI interest was
financed with bank borrowings of $18.5 million and a $10.3 million loan
from Hunt Building Corp. ("Hunt"). On April 2, 1998, pursuant to a Loan
and Debt Exchange Agreement, Hunt exchanged its $10.3 million loan to
the majority stockholder for a 20% interest in RRI out of a portion of
stock which the majority stockholder acquired from the former minority
stockholder. On the same date, in an Internal Revenue Code Section 351
transaction pursuant to a Contribution Agreement, the majority
stockholder transferred his interest in RRI in exchange for assumption
by IEII of the acquisition indebtedness represented by the bank
borrowing in a transaction governed by Section 304(b)(3)(B) and issuance
to the majority stockholder of an 80% interest in IEII and Hunt
contributed its 20% interest in RRI to IEII in exchange for issuance to
Hunt of a 20% interest in IEII. RRI became a wholly-owned subsidiary of
IEII.
For financial reporting purposes, the majority stockholder's previous
approximately 67% investment in RRI was recorded by IEII at historical
cost due to common control of both IEII and RRI by the majority
stockholder. The acquisition of the RRI minority interest was accounted
for by the purchase method. As a result, the carrying value of landfill
assets was increased by $12.6 million and related deferred tax
liabilities in the amount of $4.3 million were recorded, as well as
goodwill amounting to $16.7 million.
4. PROPERTY AND EQUIPMENT
Property and equipment are as follows:
<TABLE>
<CAPTION>
UNAUDITED PREDECESSOR
------------ ------------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Vehicles and other equipment $ 16,226,341 $ 16,581,507 16,189,882 14,773,195
Containers 7,530,591 7,147,548 6,219,750 5,475,883
Roll-offs and compactors 4,551,463 4,245,220 3,822,563 3,523,513
Vehicles and equipment under
capital leases 792,598 1,436,878 1,436,878 1,436,878
Landfill 13,574,063 13,574,063 13,571,784 991,275
Land, buildings and leasehold
improvements 5,543,349 5,378,636 5,114,139 5,573,384
Furniture and office equipment 1,185,281 1,060,302 1,040,080 886,701
Construction in progress -- 1,263,288 1,232,410 776,448
------------ ------------ ------------ ------------
49,403,686 50,687,442 48,627,486 33,437,277
Less accumulated depreciation
and amortization (16,803,013) (15,082,105) (13,792,929) (11,328,471)
------------ ------------ ------------ ------------
$ 32,600,673 $ 35,605,337 $ 34,834,557 $ 22,108,806
============ ============ ============ ============
</TABLE>
17
<PAGE> 20
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
4. PROPERTY AND EQUIPMENT, CONTINUED
The majority of property and equipment is pledged to one or more
creditors to collateralize debt of the Companies. Included in property
and equipment at June 30, 1999, December 31 and June 30, 1998 and June
30, 1997 are fully depreciated assets with historical costs of
approximately $6,811,000, $6,193,000, $5,206,000 and $3,654,000,
respectively.
Construction in progress consists primarily of costs incurred in the
construction of medical waste processing machines and costs associated
with the preparation of a landfill liner not yet ready for use at
December 31 and June 30, 1998.
5. LONG-TERM NOTES RECEIVABLE
Long-term notes receivable are as follows:
<TABLE>
<CAPTION>
UNAUDITED PREDECESSOR
--------- ---------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Uncollateralized notes receivable from individuals, due in
monthly installments ranging from $550 to $3,000
including interest at rates ranging from 6.0% to
8.75%; maturing from January 1999 to December 2003 $ 145,779 $ 29,345 $ 55,063 $ 53,200
Note receivable from individual -- -- 150,000 150,000
Note receivable from Stewart Enterprises, due in monthly
installments of $6,500, including interest at 9.0%;
maturing October 1999; collateralized by leasehold
improvements and equipment 33,982 76,506 105,556 449,087
--------- --------- --------- ---------
179,761 105,851 310,619 652,287
Less current portion of
notes receivable (59,260) (81,399) (283,669) (292,726)
--------- --------- --------- ---------
$ 120,501 $ 24,452 $ 26,950 $ 359,561
========= ========= ========= =========
</TABLE>
18
<PAGE> 21
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
6. INTANGIBLE AND OTHER ASSETS
Intangible and other assets are as follows:
<TABLE>
<CAPTION>
UNAUDITED PREDECESSOR
------------ ------------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Licenses and permits $ 1,431,680 $ 1,452,968 $ 1,924,351 $ 1,900,103
Excess of cost over fair value
of net assets acquired 19,235,526 19,436,095 20,101,810 3,418,776
Closure and post-closure
care trust 735,000 672,000 626,000 499,000
Covenants not to compete 1,575,667 1,630,000 -- --
Customer lists 180,097 225,684 240,024 240,024
Deferred loan costs 1,242,849 1,507,076 1,506,631 100,906
Other 260,676 340,672 186,469 130,839
------------ ------------ ------------ ------------
24,661,495 25,264,495 24,585,285 6,289,648
Accumulated
amortization (1,780,344) (1,586,431) (1,031,869) (469,688)
------------ ------------ ------------ ------------
$ 22,881,151 $ 23,678,064 $ 23,553,416 $ 5,819,960
============ ============ ============ ============
</TABLE>
7. LONG-TERM DEBT
Under the terms of the Credit Agreement with Marine Midland Bank and
other lenders, the Companies have a revolving loan facility under which
the Companies may borrow up to $12 million. The revolving loan
commitment expires in April 2003. Approximately $930,000 and $0 were
outstanding under the revolving loan facility at June 30, 1999 and
December 31, 1998, respectively.
The Credit Agreement requires the Companies, in addition to other
restrictive covenants, to maintain specified minimum interest coverage
and fixed charge coverage ratios, maximum debt to earnings before income
tax, depreciation and amortization ("EBITDA") ratios, as defined, and
minimum rolling twelve month EBITDA amounts.
Additionally, the Credit Agreement requires certain mandatory
prepayments of amounts outstanding under the Credit Agreement from the
Companies' Excess Cash Flow (as defined), if any.
19
<PAGE> 22
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
7. LONG-TERM DEBT, CONTINUED
Long-term debt is as follows:
<TABLE>
<CAPTION>
UNAUDITED PREDECESSOR
------------ ------------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Uncollateralized, non-interest bearing notes payable to an
individual, due in monthly installments ranging from $525 to
$3,150, maturing in October 2003 $ 253,500 $ 282,750 $ -- $ --
Term loans payable to a bank, collateralized by all outstanding
common stock of IEII and substantially all assets of the
Companies, due in quarterly installments ranging from $550,000
to $975,000, plus interest at a twelve-month, fixed LIBOR rate
of 4.9063% plus 2.0% to 2.5%; maturing from April 2005 to
October 2005 29,950,000 32,350,000 39,450,000 --
Equipment notes payable, collateralized by vehicles, due in monthly
installments of approximately $500 including interest at fixed
rates ranging from 8.85% to 12.5%; maturing from June 1999 to
December 1999 2,965 5,797 143,156 5,433,243
Obligations under capital leases 124,425 209,262 806,554 1,007,923
Revolving credit agreement 929,909 -- -- 2,613,426
Note payable to Concord -- -- -- 5,723,333
Note payable to former stockholder -- -- -- 585,321
Note payable to bank -- -- -- 2,760,854
Note payable to Waste Mgt., Inc. -- -- -- 525,000
------------ ------------ ------------ ------------
31,260,794 32,847,809 40,399,710 18,649,100
Less current portion of
long-term debt (2,585,890) (2,560,184) (2,965,159) (6,855,081)
------------ ------------ ------------ ------------
$ 28,674,909 $ 30,287,625 $ 37,434,551 $ 11,794,039
============ ============ ============ ============
</TABLE>
20
<PAGE> 23
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
7. LONG-TERM DEBT, CONTINUED
Scheduled principal payments on long-term debt from the respective
balance sheet dates are as follows:
<TABLE>
<CAPTION>
UNAUDITED
-----------
JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
1 Year $ 2,585,890 $ 2,560,184
2 Years 2,758,500 2,718,658
3 Years 3,058,500 3,011,717
4 Years 3,558,500 3,433,500
5 Years 3,303,481 3,698,750
Thereafter 15,995,923 17,425,000
----------- -----------
$31,260,794 $32,847,809
=========== ===========
</TABLE>
8. TREASURY STOCK
Pursuant to the terms of a Stock Redemption Agreement, on September 22,
1993 RRI purchased 24,950 shares of its common stock for $750,000,
representing all of the equity interest in RRI owned by one of three RRI
stockholders.
9. RELATED PARTY TRANSACTIONS
Amounts due from related parties included in the accompanying combined
balance sheets are as follows:
<TABLE>
<CAPTION>
UNAUDITED PREDECESSOR
---------- ----------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Technology 2100 LP $ 566,375 $ -- $ -- $ --
International Environmental
Industries Equipment Co., LP 203,709 -- -- --
Conquest I, LLC 271,397 195,001 -- 86,513
Meribah Corporation -- -- -- 53,166
414 LLC -- -- 97,581 171,165
United Waste Services -- -- -- 6,879
---------- ---------- ---------- ----------
$1,041,481 $ 195,001 $ 97,581 $ 317,723
========== ========== ========== ==========
</TABLE>
21
<PAGE> 24
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
9. RELATED PARTY TRANSACTIONS, CONTINUED
The majority interests of International Environmental Industries
Equipment Company, LP and Conquest I, LLC are owned by the majority
stockholder of the Companies.
Notes Payable to Related Parties
Notes payable to related parties of $2 million at June 30, 1999,
December 31 and June 30, 1998 consist of four notes to related parties.
The principal balances and any unpaid accrued interest are due on April
2, 2006. Interest, at annual interest rates ranging from 12% to 15%, is
due monthly. These notes are subordinated to the term loans payable to a
bank and are not collateralized.
10. NON-RECURRING CHARGES
Company Formation
In connection with the formation of IEII and the RRI Contribution, the
Companies incurred non-recurring charges of approximately $654,000 for
the three month period ended June 30, 1998. Included in these amounts
were (i) organizational costs related to the formation of IEII (ii)
non-debt related legal and professional fees incurred in the Companies'
structuring of the IEII/RRI transaction and evaluation of various
recapitalization alternatives and (iii) settlement of amounts owed to a
former RRI stockholder under a Stock Redemption Agreement.
Non-cash Compensation Charge
During the six month period ended December 31, 1998, new shares of
common stock of Medical Compliance Services, Inc., Texas and New Mexico
("MCS") were issued to an employee as compensation for services
performed. The related compensation charge of $840,000 is based on the
fair value of the common stock at date of issuance. The compensation
charge and related payroll taxes of $536,760 have been reported under
non-recurring charges in the accompanying combined statements of
operations. Upon issuance of the stock, this employee obtained a 30%
ownership interest in MCS.
11. INCOME TAXES
Effective July 1, 1998, the tax status of all corporate reporting
entities (other than Medical Compliance Services, Inc., Texas and New
Mexico) was changed from C-Corporation to S-Corporation, as defined by
the Internal Revenue Code. As a result, approximately $6.4 million in
net deferred tax liabilities have been reversed and the related effect
included in income tax benefit in the combined statement of operations
for the six month period ended December 31, 1998. As S-Corporations, the
Companies are no longer subject to federal income taxes.
22
<PAGE> 25
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
11. INCOME TAXES, CONTINUED
The components of income tax expense (benefit) in the combined
statements of operations are as follows:
<TABLE>
<CAPTION>
UNAUDITED PREDECESSOR
----------- --------------------------
SIX MONTH SIX MONTH THREE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
----------- ----------- ----------- ----------- --------------------------
JUNE 30, DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30,
1999 1998 1998 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Federal:
Current $ (182,128) $ 827,587 $ (53,883) $ 751,982 $ 1,271,975 $ 491,559
Deferred (11,176) (6,416,961) 125,251 284,427 235,847 207,799
State -- 79,443 67,479 159,877 291,515 93,599
----------- ----------- ----------- ----------- ----------- -----------
$ (193,304) $(5,509,931) $ 138,847 $ 1,196,286 $ 1,799,337 $ 792,957
=========== =========== =========== =========== =========== ===========
</TABLE>
A reconciliation of income taxes computed at the Federal statutory rate
of 34% and income tax expense is as follows:
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
JUNE 30, 1998 MARCH 31, 1998
------------------------- -------------------------
AMOUNT RATE AMOUNT RATE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income tax at
statutory rate $ 6,565 34% $1,040,073 34%
State taxes 40,441 209% 122,361 4%
Non-deductible
amortization of
goodwill 56,680 294% -- --
Other 35,161 182% 33,852 1%
---------- ---------- ---------- ----------
$ 138,847 719% $1,196,286 39%
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------------------
YEAR ENDED
-------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996
------------------------- -------------------------
AMOUNT RATE AMOUNT RATE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income tax at
statutory rate $1,561,361 34% $ 683,454 34%
State taxes 163,786 4% 61,702 4%
Other 74,190 1% 47,801 1%
---------- ---------- ---------- ----------
$1,799,337 39% $ 792,957 39%
========== ========== ========== ==========
</TABLE>
23
<PAGE> 26
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
11. INCOME TAXES, CONTINUED
The tax effect of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
UNAUDITED PREDECESSOR
----------- -----------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Allowances and accrued
liabilities $ 47,398 $ 129,014 $ 124,990 $ 191,265
Property and equipment -- 32,190 64,084 114,561
Intangible assets -- -- 252,439 132,008
Other -- 10,318 25,831 60,824
----------- ----------- ----------- -----------
Total deferred tax
assets 47,398 171,522 467,344 498,658
----------- ----------- ----------- -----------
Deferred tax liabilities:
Difference in basis of
property and equipment (157,456) (177,210) (6,827,155) (2,133,879)
Other -- -- (62,840) (23,001)
----------- ----------- ----------- -----------
Total deferred tax
liabilities (157,456) (177,210) (6,889,995) (2,156,880)
----------- ----------- ----------- -----------
Net deferred tax
assets (liabilities) $ (110,058) $ (5,688) $(6,422,651) $(1,658,222)
=========== =========== =========== ===========
</TABLE>
Management of the Companies believe that no valuation allowance relating
to recorded deferred tax assets is necessary because these assets will
be realized through expected future taxable income, including taxable
income from reversals of existing taxable temporary differences.
As of June 30, 1999 and December 31, 1998, proforma net deferred tax
liabilities amounted to approximately $5,406,000 and $5,103,000,
respectively.
24
<PAGE> 27
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
12. CLOSURE AND POST-CLOSURE CARE COSTS
State and Federal laws and regulations require the Companies to place a
final cover on its landfill when closed and to perform certain
maintenance and monitoring functions at the landfill site for thirty
years after closure. The Companies recognize a portion of these costs in
each operating period based on the amount of waste received during the
period. However, many of the closure and post-closure care costs will be
paid only when the landfill is closing or after it is closed. Total
landfill closure and post-closure costs for current permitted acres are
estimated to be in a range from approximately $2,780,000 to $3,210,000
and will be recognized over the period covered by the landfill permit
which will expire March 5, 2007 at a rate of 7 cents per gate yard.
Landfill closure and post-closure care costs recognized were
approximately $63,000, $60,000, $29,000, $75,000, $34,000 and $0 for the
periods ended June 30, 1999, December 31, June 30 and March 31, 1998 and
for the years ended June 30, 1997 and 1996, respectively. The Companies
have recognized cumulative liabilities amounting to approximately
$767,000 and $672,000 relating to these costs at June 30, 1999 and
December 31, 1998, respectively.
All amounts recognized are based on what it would cost to perform all
closure and post-closure care at June 30, 1999 and December 31, 1998.
Estimated costs are adjusted using an annual rate of 7%, compounded
quarterly. Actual costs may be greater or less than 7% due to inflation.
The Companies are required by state and Federal laws and regulations to
make annual contributions to finance closure and post-closure care. The
Companies have established a trust to fund these costs as directed by
the Secretary of the New Mexico Environment Department. Under the
renewed trust agreement, the Companies were required to provide a letter
of credit in the amount of $100,000. The letter of credit is
collateralized by short term investments of $100,000 which have been
classified as restricted in the accompanying combined balance sheets. At
June 30, 1999 and December 31, 1998, the Companies have paid a
cumulative amount of $767,000 and $672,000 to the trust, respectively.
The Companies expect that increases in future costs resulting from
inflation will be paid from interest earnings on trust investments.
However, if interest earnings are inadequate or additional post-closure
requirements are determined (due to changes in technology or applicable
laws or regulations, for example), these costs will be paid by the
Companies and may result in additional charges to future landfill users.
The Companies periodically reassess their method and assumptions used to
estimate accruals for environmental and landfill costs and adjust such
accruals accordingly. Factors considered are changing regulatory
requirements, the effects of inflation, changes in operating climates in
the regions in which the Companies' facilities are located and the
expectations regarding costs of securing environmental services.
13. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Companies are defendants in legal actions arising from normal
business activities. Management believes that those actions are without
merit or that the ultimate liability, if any, resulting from them will
not materially affect the Companies' combined financial position,
results of operations or cash flows.
25
<PAGE> 28
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
13. COMMITMENTS AND CONTINGENCIES, CONTINUED
Leases
The Companies lease certain equipment and vehicles under various
noncancelable lease agreements. Following is a summary of future minimum
rental payments under capital and operating leases of the Companies from
the respective balance sheet dates:
<TABLE>
<CAPTION>
UNAUDITED
-----------------------
JUNE 30, 1999 DECEMBER 31, 1998
----------------------- ----------------------
CAPITAL OPERATING CAPITAL OPERATING
LEASES LEASES LEASES LEASES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1 Year $ 84,272 $ 157,683 $ 157,306 $ 410,888
2 Years 38,852 56,397 38,852 56,397
3 Years 9,713 42,297 29,139 56,397
4 Years -- -- -- 14,099
--------- --------- --------- ---------
Total minimum lease payments 132,837 $ 256,377 225,297 $ 537,781
========= =========
Less amounts representing interest (8,412) (16,035)
--------- ---------
Present value of minimum lease
payments $ 124,425 $ 209,262
========= =========
</TABLE>
Rental expense for all operating leases was approximately $276,000,
$445,000, $235,000, $703,000, $846,000 and $661,000 for the periods
ended June 30, 1999, December 31, June 30 and March 31, 1998 and for the
years ended June 30, 1997 and 1996, respectively.
14. DEFINED CONTRIBUTION BENEFIT PLAN
Effective August 1, 1992, RRI established the Rubbish Removal, Inc.
401(k) Thrift and Savings Plan covering all full time employees that
have completed one year of service and are at least 21 years of age.
Participants can elect to contribute up to 15% of their salary, subject
to Internal Revenue Code limitations. The Companies may make an
additional annual lump sum contribution at the discretion of the Board
of Directors. Employee contributions and earnings are 100% vested with
the Companies' matching contribution being vested at increasing
percentages over seven years of service.
The Companies' contributions and administrative expenses were
approximately $47,000, $48,000, $28,000, $61,000, $82,000 and $58,000
for the periods ended June 30, 1999, December 31, June 30 and March 31,
1998 and for the years ended June 30, 1997 and 1996, respectively.
26
<PAGE> 29
INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.
AND SUBSIDIARY AND ITS PREDECESSOR
AND JOS ENTERPRISES, LTD.
-------------
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 1999 IS UNAUDITED)
15. ACQUISITIONS
During the six month period ended December 31, 1998, the Companies
acquired certain operating assets of three separate companies for an
aggregate purchase price of approximately $2.9 million. Assets acquired
included approximately $886,000 in property and equipment, $1.6 million
in non-compete agreements and $400,000 in other assets. Approximately
$32,000 was recorded as excess of cost over fair value of net assets
acquired.
16. SALE OF SUBSIDIARIES
On September 1, 1998, RRI entered into an asset sales agreement to sell
substantially all operating assets related to waste hauling and medical
waste processing of Medical Compliance Services, Inc., Texas and New
Mexico ("MCS") for a total sales price of approximately $5.85 million.
The sale resulted in a gain of approximately $4.5 million.
Assets held for sale at December 31, 1998 consists of approximately
$600,000 in property and equipment and $400,000 of other assets. The
historical net book value of the property and equipment has been reduced
by approximately $329,000 based on fair value at the date of disposal,
which was subsequent to December 31, 1998.
17. MERGER OF AFFILIATES
Effective January 24, 1999, all assets and liabilities of Medical
Compliance, Inc. Texas were transferred to Medical Technologies of New
Mexico, Inc. (formerly known as Medical Compliance Services, Inc. New
Mexico) at historical net book value. These transactions had no net
effect on the financial position or results of operations of the
combined group.
18. SUBSEQUENT EVENT
On August 11, 1999, the Companies and its stockholders and partners
entered into an Acquisition Agreement with Waste Connections, Inc.
("WCI") whereby, subject to all terms and conditions of the Acquisition
Agreement, all issued and outstanding common stock and partnership
interests of the Companies will be sold to a wholly-owned subsidiary of
WCI for cash and shares of Waste Connections, Inc. common stock. Upon
the closing date of the Acquisition Agreement, IEII will cease to exist
as a legal entity. It is anticipated that this transaction will be
completed prior to the end of September 1999.
In connection with the acquisition, the term loans payable and amounts
owed under the related Credit Agreement with Marine Midland Bank and
other lenders and the $2,000,000 of notes payable to related parties
will be repaid.
27
<PAGE> 30
(b) Pro Forma Financial Information.
Waste Connections, Inc. Unaudited Pro Forma Financial Statements
Introduction to Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1998
Unaudited Pro Forma Statement of Operations for the six months ended
June 30, 1999
Notes to Unaudited Pro Forma Statement of Operations
Unaudited Pro Forma Balance Sheet as of June 30, 1999
Notes to Unaudited Pro Forma Balance Sheet
<PAGE> 31
WASTE CONNECTIONS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
The Unaudited Pro Forma Statement of Operations for the year ended December
31, 1998 and six months ended June 30, 1999 gives effect to the business
combination involving WCI, Columbia Resource Co., LP and Finley-Buttes Limited
Partnership ("CRCFBLP") and International Environmental Industries, Inc. and
subsidiary JOS Enterprises, Ltd. ("IEII") as if such business combinations
occurred on January 1, 1998 and were accounted for using the purchase method of
accounting. WCI's historical financial statements have been restated to
reflect poolings-of-interests consummated through June 30, 1999.
The following Unaudited Pro Forma Balance Sheet as of June 30, 1999
assumes WCI's acquisition of IEII occurred on June 30, 1999. WCI's historical
financial statements have been restated to reflect poolings-of-interests
consummated through June 30, 1999.
WCI has preliminarily analyzed the savings that it expects to be realized
by consolidating certain operational and general and administrative functions.
WCI has not and cannot quantify all of these savings due to the short period of
time since the CRCFBLP and IEII acquisitions occurred. It is anticipated that
these savings will be partially offset by the costs of being a publicly held
company and the incremental increase in costs related to WCI's corporate
management. However, these costs, like the savings they offset, cannot be
quantified accurately. Neither the anticipated savings nor the anticipated costs
have been included in the Unaudited Pro Forma Financial Statements.
The Unaudited Pro Forma Financial Statements include certain adjustments to
the historical financial statements, including adjusting depreciation expense to
reflect purchase price allocations of the entities acquired by WCI, adjusting
interest expense to reflect acquisition-related debt and the related income tax
effects of these adjustments.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The Unaudited Pro Forma Financial Statements do not purport
to represent what WCI's financial position or results of operations would
actually have been if such transactions in fact had occurred on those dates or
to project WCI's financial position or results of operations for any future
period. Because WCI, IEII and CRCFBLP were not under common control or
management for all periods, historical combined results may not be comparable
to, or indicative of, future performance. The Unaudited Pro Forma Financial
Statements should be read in conjunction with the CRCFBLP and IEII financial
statements and notes thereto included elsewhere herein, WCI's consolidated
historical financial statements included in its Annual Report on Form 10-K.
<PAGE> 32
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
IEII IEII
WASTE PREDECESSORS NINE MONTHS
CONNECTIONS, INC. CRCFBLP THREE MONTHS ENDED PRO FORMA
CONSOLIDATED COMBINED ENDED 3/31/98 12/31/98 ADJUSTMENTS PRO FORMA
----------------- ------------ -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 97,446 $22,511 $ 9,477 $ 26,384 $(7,017)(a) $ 148,801
Operating expenses:
Cost of operations...... 70,105 10,675 4,931 14,475 (7,017)(a) 90,598
(46)(b)
(2,525)(e)
Selling, general and
administrative........ 9,672 2,956 2,232 3,237 -- 18,097
Depreciation and
amortization.......... 7,822 2,729 1,027 4,196 (683)(c) 13,505
(1,586)(d)
Stock compensation...... 632 -- -- -- -- 632
Other operating expenses -- -- 314 2,360 -- 2,674
----------- ------- ------- -------- ------- -----------
Income from operations.... 9,215 6,151 973 2,116 4,840 23,295
Interest expense.......... (3,299) (1,258) (297) (2,590) (7,230)(f) (14,674)
Other income (expense),
net..................... 315 29 308 4,489 -- 5,141
----------- ------- ------- -------- ------- -----------
Income before income
taxes and minority
interest................ 6,231 4,922 984 4,015 (2,390) 13,762
Income tax provision...... (3,030) -- (477) 5,371 (3,441)(g) (600)
977(h)
Minority interest......... -- -- -- (466) (466)
----------- ------- ------- -------- ------- -----------
Income before
extraordinary item...... 3,201 4,922 507 8,920 (4,854) 12,696
Extraordinary
item -- early
extinguishment of debt,
net of tax benefit of
$264.................... (1,027) -- -- -- -- (1,027)
----------- ------- ------- -------- ------- -----------
Net income................ $ 2,174 $ 4,922 507 8,920 $(4,854) $ 11,669
=========== ======= ======= ======== ======= ===========
Redeemable convertible
preferred stock
accretion............... (917) -- -- -- -- (917)
----------- ------- ------- -------- ------- -----------
Net income applicable to
common stockholders..... $ 1,257 $ 4,922 507 8,920 $(4,854) $ 10,752
=========== ======= ======= ======== ======= ===========
Basic earnings per share:
Income before
extraordinary item.... $ 0.22 $ 0.92
Extraordinary item...... (0.10) (0.08)
----------- -----------
Net income per share.... $ 0.12 $ 0.84
=========== ===========
Diluted earnings per
share:
Income before
extraordinary item.... $ 0.19 $ 0.80
Extraordinary item...... (0.09) (0.07)
----------- -----------
Net income per share.... $ 0.10 $ 0.73
=========== ===========
Shares used in calculating
basic earnings per
share................... 10,243,628 12,839,781
=========== ===========
Shares used in calculating
diluted earnings per
share................... 12,154,750 14,750,903
=========== ===========
</TABLE>
See accompanying notes.
<PAGE> 33
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE
CONNECTIONS, INC. CRCFBLP PRO FORMA
CONSOLIDATED COMBINED IEII ADJUSTMENTS PRO FORMA
----------------- ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.................. $72,813 $ 3,822 $16,796 $(1,052)(a) $ 92,379
Operating expenses:
Cost of operations...... 46,073 2,935 7,276 (1,052)(a) 53,969
-- -- -- (1,263)(e) --
Selling, general and
administrative........ 6,132 1,057 3,531 -- 10,720
Depreciation and
amortization.......... 5,598 440 2,719 (255)(c) 7,601
(901)(d)
Stock compensation...... 140 -- -- -- 140
Other operating
expenses.............. -- -- 47 -- 47
Acquisition related
expenses.............. 8,805 -- -- -- 8,805
------- ------- ------- ------- -----------
Income from operations.... 6,065 (610) 3,223 2,419 11,097
Interest expense.......... (3,187) (141) (1,510) (1,793)(f) (6,631)
Other income (expense),
net..................... 2 -- (327) -- (325)
------- ------- ------- ------- -----------
Income before income
taxes and minority
interest................ 2,880 (751) 1,386 626 4,141
Income tax provision...... (4,042) -- 193 (241)(g) (4,328)
(238)(h)
Minority Interest......... -- -- 141 -- 141
------- ------- ------- ------- -----------
Net Income................ $(1,162) $ (751) $ 1,720 $ 147 $ (46)
======= ======= ======= ======= ===========
Basic earnings per share: $ (0.07) $ 0.00
Diluted earnings per
share: $ (0.07) $ 0.00
Shares used in calculating
basic earnings per
share................... 16,911,480 19,507,643
========== ===========
Shares used in calculating
diluted earnings per
share................... 16,911,480 19,507,643
========== ===========
</TABLE>
See accompanying notes.
<PAGE> 34
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
ASSUMPTIONS. The unaudited pro forma statement of operations for the year
ended December 31, 1998 is presented as if the acquisition of CRCFBLP and IEII
occurred on January 1, 1998.
BUSINESS COMBINATIONS. The acquisition of CRCFBLP and IEII are being
accounted for under the purchase method of accounting for business combinations.
Certain items affecting the purchase price and its allocation are preliminary.
The preliminary purchase price consists of the following:
<TABLE>
<CAPTION>
CRCFBLP IEII
------- -------
<S> <C> <C>
Cash paid to shareholders................................. $66,911 35,239
Liabilities assumed....................................... 18,935 53,647
Common stock issued....................................... -- 67,370
Acquisition costs......................................... 316 600
------- -------
$86,162 156,856
======= =======
</TABLE>
The Company has preliminarily allocated the purchase price as follows:
<TABLE>
<CAPTION>
CRCFBLP IEII
------- -------
<S> <C> <C>
Tangible assets purchased, including landfill............. $85,962 133,975
Goodwill.................................................. -- 22,881
Covenant not to compete................................... 200 --
------- -------
$86,162 156,856
======= =======
WCI's historical financial statements have been restated to
reflect poolings-of-interests consummated through
June 30, 1999.
</TABLE>
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma consolidated statement of operations:
(a) Eliminate intercompany revenue and expense between WCI and CRCFBLP.
(b) To record CRCFBLP closure and post closure amortization in accordance with
the Company's policies.
(c) To record CRCFBLP site depletion expense in accordance with the Company's
policies.
(d) To record IEII depreciation, depletion and amortization expense in
accordance with the Company's policies.
(e) To reduce officers salaries and benefits to levels provided for in the new
employment agreements which were directly attributable to, required
elements of, and a condition to the closing of IEII.
(f) To record interest expense on the debt obligations incurred by the Company
in connection with the acquisition of CRCFBLP and IEII of $5,280 and $1,950
for the year ended December 31, 1998 and $884 and $909 for the six months
ended June 30, 1999, respectively.
(g) To record income tax benefit (provision) of $(1,968) and $300 for the year
ended December 31, 1998 and the six months ended June 30, 1999,
respectively, for CRCFBLP which were limited partnerships for income tax
purposes for all periods prior to the acquisition by the Company. To record
income tax (provision) benefits of $(1,473) and $(541) for the year end
December 31, 1998 and the six months ended June 30, 1997 respectively for
IEII.
(h) To recorded estimate tax benefit (provision) for the year ended December
31, 1998 associated with the pro forma adjustments for CRCFBLP and IEII of
$1,820 and $(843) for the year ended December 31, 1998 and $252 and $(490)
for the six months ended June 30, 1999.
<PAGE> 35
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
PRO FORMA COMBINED PER SHARE DATA. The shares used in computing the
unaudited pro forma combined net income per share for the year ended December
31, 1998 are based upon the pro forma number of common shares as summarized in
the table below.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Basic Share Count:
Company weighted average shares outstanding............... 10,243,628 16,911,490
Shares issued in connection with the acquisition of
IEII................................................... 2,596,153 2,596,153
---------- ----------
Shares used in calculating pro forma combined basic net
income (loss) per share................................ 12,839,781 19,507,643
========== ==========
Diluted Share Count:
Shares used in calculating the Company's diluted income
(loss) per share....................................... 12,154,750 16,911,490
Shares issued in connection with the acquisition of
IEII................................................... 2,596,153 2,596,153
---------- ----------
Shares used in calculating pro forma combined diluted net
income (loss) per share................................ 14,750,903 19,507,643
========== ==========
</TABLE>
ACQUISITION COSTS. The Company incurred costs of $916 related to the
CRCFBLP and IEII acquisition which have been factored into the purchase price
allocation. Costs incurred by CRCFBLP and IEII were expensed as incurred.
OTHER
The Medical Technologies of New Mexico, Inc. business of IEII was sold
on January 24, 1999 and had revenue of $2,452 and an operating loss of $2,204 in
1998 and an operating loss of $599 in 1999.
In August of 1999, IEII amended its outside consulting contracts,
professional services and third party insurance policies to conform with the
Company's practices that produced a reduction in operating costs. On a pro forma
basis, operating cost would have been $558 and $269 lower during the year ended
December 31, 1998 and six months ended June 30, 1999 respectively.
<PAGE> 36
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1999
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
WASTE
CONNECTIONS, INC. PRO FORMA
CONSOLIDATED IEII ADJUSTMENTS PRO FORMA
----------------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents.... $ 10,384 $ 2,489 $ --(1)(3)(5) $ 12,873
Accounts receivable,
net................... 19,664 5,293 24,957
Prepaid expenses and
other current
assets................ 1,958 1,197 -- 3,155
-------- ------- -------- --------
Total current
assets.......... 32,006 8,979 40,985
Property and equipment,
net..................... 146,865 32,601 90,486(2)(7) 269,952
Intangible assets, net.... 140,519 22,881 163,400
Other assets.............. 4,788 1,909 -- 6,697
-------- ------- -------- --------
$324,178 $66,370 $ 90,486 $481,034
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........ $ 17,542 $ 1,412 $ $ 18,954
Deferred revenue........ 3,554 -- -- 3,554
Accrued liabilities..... 10,566 1,262 11,828
Current portion of
long-term debt........ 1,961 2,586 (2,586)(3) 1,961
Other current
liabilities........... 359 788 -- 1,147
-------- ------- -------- --------
Total current
liabilities..... 33,982 6,048 (2,586) 37,444
Long-term debt............ 145,646 30,675 38,425(3) 214,746
Deferred income taxes..... 5,122 157 16,000(7) 21,279
Other long-term
liabilities............. 2,336 767 3,103
Minority interest......... -- 857 (857)(6) --
Stockholders' equity:
Common stock............ 182 -- 26(4) 208
Additional paid-in
capital............... 138,378 18,082 (18,082)(6) 205,722
-- -- 67,344(4)
Deferred stock
compensation.......... (288) -- -- (288)
Retained earnings
(deficit)............. (1,180) 9,371 (9,371)(6) (1,180)
Other Partners'
Capital............... -- 413 (413)(6) --
-------- ------- -------- --------
Total
stockholders'
equity.......... 137,092 27,866 39,504 204,462
-------- ------- -------- --------
$324,178 $66,370 $ 90,486 $481,034
======== ======= ======== ========
</TABLE>
See accompanying notes.
<PAGE> 37
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSUMPTIONS. The unaudited pro forma balance sheet as of June 30, 1999
combines the historical balance sheet of Waste Connections, Inc. with the
historical balance sheets of CRCFBLP and IEII to be accounted for as a purchase.
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma consolidated balance sheet.
(1) Cash payments to former owners of IEII ($35,239) and payment of
acquisition costs.
(2) To adjust Property and Equipment to fair market value.
(3) To pay off debt obligations of IEII ($33,261).
(4) Issuance of 2,596,153 shares of common stock with estimated value of
$67,370 in connection with the acquisition of IEII.
(5) Record additional long-term debt associated with the acquisition of
IEII of $69,100.
(6) To eliminate equity and minority interest accounts of IEII.
(7) To reserve deferred tax liability associated with the acquisition of
IEII.
<PAGE> 38
(c) Exhibits.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.4 Consent of PricewaterhouseCoopers LLP, Independent Accountants
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WASTE CONNECTIONS, INC.
(Registrant)
Date: September 1, 1999 By /s/ Steven F. Bouck
Steven F. Bouck
Executive Vice President and
Chief Financial Officer
<PAGE> 40
EXHIBIT INDEX
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.4 Consent of PricewaterhouseCoopers LLP, Independent Accountants
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 (No. 333-65615) of Waste Connections, Inc. of our report
dated February 26, 1999, except as to Note 18, which is as of August 19, 1999,
relating to the combined financial statements of International Environmental
Industries, Inc. and subsidiary and JOS Enterprises, Ltd. appearing in this Form
8-K/A, dated August 11, 1999.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
August 31, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 (No. 333-83825) of Waste Connections, Inc. of our report
dated February 26, 1999, except as to Note 18, which is as of August 19, 1999,
relating to the combined financial statements of International Environmental
Industries, Inc. and subsidiary and JOS Enterprises, Ltd. appearing in this Form
8-K/A, dated August 11, 1999.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
August 31, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-72113) of Waste Connections, Inc. of our report
dated February 26, 1999, except as to Note 18, which is as of August 19, 1999,
relating to the combined financial statements of International Environmental
Industries, Inc. and subsidiary and JOS Enterprises, Ltd. appearing in this Form
8-K/A, dated August 11, 1999.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
August 31, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-63407) of Waste Connections, Inc. of our report
dated February 26, 1999, except as to Note 18, which is as of August 19, 1999,
relating to the combined financial statements of International Environmental
Industries, Inc. and subsidiary and JOS Enterprises, Ltd. appearing in this Form
8-K/A, dated August 11, 1999.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
August 31, 1999
