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
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-1363
ENVIROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 34-0617390
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five High Ridge Park, P.O. Box 10309, Stamford, CT 06904-2309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(203) 322-8333
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $.05 The Pacific Stock Exchange
per share Incorporated
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 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 the 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 ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $113,772,905 as of March 21,
1994(1).
The number of shares outstanding of the Registrant's Common
Stock as of the close of business on March 21, 1994 was
40,055,759.
- -------------------------
(1) The market value of the Company's Class G Preferred Stock is
calculated as of March 4, 1994.
<PAGE>
PART I
Item 1. Business.
THE COMPANY
EnviroSource, Inc. (the "Company") supplies industrial
customers with long-term, specialized services, primarily the
recycling, handling, stabilization or landfilling of
environmentally sensitive wastes or by-products. The Company's
principal business units are International Mill Service, Inc.
("IMS"), a leader in metals reclamation and slag recycling for the
steel industry, IMSAMET, an aluminum reclamation and recycling
company, Envirosafe Services, Inc. ("Envirosafe"), a hazardous
waste treatment and disposal company, and Conversion Systems, Inc.
("CSI"), a waste stabilization company.
IMS and IMSAMET constitute the Industrial Environmental
Services segment, and Envirosafe and CSI constitute the Treatment
and Disposal Services segment. With the exception of its IMSAMET
joint ventures, the Company conducts its operations exclusively
through its subsidiaries. References herein to the Company include
its subsidiaries as well as its Ohio predecessor, NEOAX, Inc.,
except where the context requires otherwise. "Note" references
herein are to Notes to Consolidated Financial Statements appearing
elsewhere in this Report.
DEVELOPMENT OF THE COMPANY
The Company's predecessor was originally incorporated in Ohio
in 1915 as White Motor Corporation. Its name was changed to
Northeast Ohio Axle, Inc. when it emerged from reorganization
proceedings in 1983 and was changed again in May 1986 to NEOAX,
Inc. ("NEOAX"). In June 1987, NEOAX reincorporated in Delaware.
On November 14, 1989, the Company changed its name to EnviroSource,
Inc.
EnviroSource's present business units originally represented
a portion of the operations of IU International Corporation ("IU").
Early in 1988, the Company acquired IU with the goal of
establishing a substantial operating company centered primarily on
IMS's stable and growing steel industry business relationships and
prospects. Between March 1988 and the end of 1991, the Company
disposed of all the businesses it had owned prior to the IU
acquisition and virtually all of IU's operations and assets other
than IMS, IMSAMET, Envirosafe and CSI, completing its
transformation into an environmental services company. See Notes
H and M for additional information regarding the development of the
Company.
The 1993 recapitalization described below completed the
refinancing of the Company's remaining IU acquisition indebtedness
and, together with the 1993 restructuring described below, will
facilitate the achievement of significant growth in the Company's
businesses.
THE RECAPITALIZATION
During 1993 the Company completed a comprehensive
recapitalization (the "Recapitalization") designed to increase the
Company's liquidity and capital resources, improve operating and
financial flexibility, reduce interest expense and preferred
dividend requirements, and enhance the Company's ability to pursue
the growth opportunities in its businesses.
On May 13, 1993, the Company sold 6,433,333 shares of Common
Stock and 230,000 shares of Class J Convertible Preferred Stock,
par value $.25 per share (the "Class J Preferred"), to an affiliate
of Freeman Spogli & Co. ("FS&Co.") and another investor
(collectively, the "Investors") as the first step in the
Recapitalization. On August 5, 1993, the Class J Preferred was
automatically converted into 6,900,000 shares of Common Stock upon
the effectiveness of an amendment to the Company's Certificate of
Incorporation increasing to 60,000,000 the number of authorized
shares of Common Stock.
Also on May 13, 1993, the Investors purchased from The Dyson-
Kissner-Moran Corporation ("DKM") and WM Financial Corporation ("WM
Financial") the following: (i) 5,636,568 shares of Common Stock,
(ii) all 107,000 outstanding shares of Class H Preferred Stock, par
value $.25 per share, all of which were immediately exchanged for
3,066,667 newly issued shares of Common Stock, (iii) warrants to
purchase 1,695,652 shares of Common Stock at exercise prices of
$3.50 and $4.00 per share and (iv) an option (subsequently
exercised) to purchase 1,000 shares of Common Stock from DKM for
$3.75 per share. FS&Co. sold a portion of the aforementioned
securities to The IBM Retirement Plan Trust Fund (the "IBM Trust").
The sale of stock and warrants to FS&Co. is hereinafter referred to
as the "FSC Transaction."
On July 1, 1993, the Company sold $220 million principal
amount of 9-3/4% Senior Notes Due 2003 (the "Senior Notes"). A
significant portion of the proceeds from the sale of the Senior
Notes was used to retire $150 million principal amount of the
Company's 14% Extendible Reset Senior Subordinated Notes Due 1998
(the "Subordinated Notes"). The Subordinated Notes were called for
redemption on July 1, 1993 and were redeemed on August 2, 1993.
See Note B for additional information concerning the
Recapitalization.
THE RESTRUCTURING
During the fourth quarter of 1993 the Company took a number of
steps to reduce costs and terminate unprofitable operations. These
steps included (i) terminating certain recycling units, (ii)
discontinuing efforts to obtain a hazardous waste landfill permit
in Pennsylvania and (iii) reorganizing the Envirosafe and CSI
businesses into a new Treatment and Disposal Services business
unit.
The terminated recycling units include two facilities for the
thermal treatment of electric arc steel furnace flue dust to
recover zinc, a pilot plant for the sale of stabilized electric
utility scrubber sludge for use in manufacturing concrete masonry
blocks and two smaller sites. None of the terminated units had
achieved economic feasibility. In addition, CSI is actively
marketing its proprietary process for stabilizing electric arc
steel furnace flue dust, which the Company believes is a better
environmental solution for such waste. In view of the continued
weakness in demand in the hazardous waste disposal industry, the
Company decided to discontinue its efforts to obtain a hazardous
waste landfill permit in Pennsylvania and to sell the proposed
landfill site.
Because the Company concluded that waste stabilization and
disposal activities will be more closely integrated in the future,
the Company also decided to combine its Envirosafe and CSI
businesses into a unified Treatment and Disposal Services business
unit. This reorganized business unit now also constitutes a new
business segment for the Company and replaces the former Hazardous
Waste Disposal Services segment. See "Business Segments" below.
The combination of Envirosafe and CSI reduced staff headcount and
eliminated an office.
As a result of the activities described above, the Company
recorded a $22 million restructuring charge, which after a partial
offset relating to a reduction of other liabilities reduced 1993
operating income by $18.5 million. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and Note C for additional information regarding the
restructuring.
TAX LOSS CARRYFORWARDS
The Company has substantial federal income tax net operating
loss carryforwards. The FSC Transaction produced an "ownership
change" (as defined in the Internal Revenue Code) that limits the
future use of these carryforwards. However, the Company has
estimated that at least $7 million of the tax loss carryforwards
will still be available to offset regular taxable income through
the year 2006. The final amount of this limitation will be
affected by the resolution of various tax issues and the nature and
timing of certain amounts of future income. See Note J.
BUSINESS SEGMENTS
Industrial Environmental Services
IMS. IMS has served the steel industry for more than 55
years. The Company believes IMS increases its customers'
productivity by providing cost-effective and reliable on-site
reclamation of steel and iron and a variety of other specialized
services that are essential to the efficient functioning of steel
mills.
America's steel mills operate in a highly competitive
environment. Services that help to reduce their total process
costs are therefore of significant value. IMS provides recycling
and metal recovery operations under long-term contracts at over 40
steel mill sites in North America, including integrated mills,
mini-mills and specialty mills. Using specially designed
equipment, IMS provides a total recycling solution by processing
slag (a by-product of steel production), recovering valuable
metallics and selling the residual aggregate for road base and
other uses. These services are economically and environmentally
attractive. Moreover, the effective removal of slag on a
continuous basis is critical to a steel mill's ability to remain in
operation. IMS also processes blast furnace scrap through an IMS-
developed iron crushing process, making the scrap metal more
suitable for recycling and improving processing speed, thereby
reducing customers' raw material costs. This process is currently
in place at two locations.
In recent years, IMS has successfully pursued a strategy of
building on its leadership position by offering an expanded range
of services that enhance mill productivity and provide IMS with
growth opportunities. These services include:
- Specialized Materials Handling - IMS has enhanced the
slab hauling process by using rubber-tired carriers that
straddle steel slabs to move them more efficiently
throughout the mill. This service, currently in place at
two integrated steel mills, is significantly more cost-
effective than the traditional rail and crane systems.
- Surface Conditioning - IMS has introduced a proprietary
specialized steel slab surface conditioning process
(called scarfing) that helps its customers increase
product yields and improve product quality, while gaining
measurable cost savings. This service is currently
provided at six steel mills.
Over the past several years, IMS has invested in a number of
significant new capital projects at customer facilities. Such
projects completed or to be completed since late 1991 generated
incremental revenues of $10 million in 1992 and an additional $20
million in 1993.
IMS has a diversified customer base, with approximately 60% of
its revenues coming from integrated steel producers and 40% from
mini-mills and specialty mills. IMS's largest site is at USX's
Gary Works, in Gary, Indiana, the largest integrated steel mill in
the U.S. USX accounted for 17%, 13%, and 11% of the Company's
consolidated revenues in 1993, 1992, and 1991, respectively. Long-
term contracts awarded by USX to IMS in 1991 account for a
substantial portion of the incremental revenues described in the
preceding paragraph. Such contracts expire between 1997 and 2001.
Over the next several years, the maintenance of USX as a customer
will be material to the Company's consolidated revenues and
operating income.
Substantially all of IMS's services are provided on-site at
the steel mill, using IMS employees and equipment. IMS's services
are integrated with operations of the customer, providing for a
strong working partnership. If necessary, most equipment can be
relocated, but this has not often been required as contracts are
generally long-term and IMS has a history of high renewal rates.
Competition in IMS's markets is based primarily on quality of
service, reliability, technology and price. In its core steel
reclamation business, IMS services customers responsible for
approximately one-third of total domestic steel production. IMS
has one major competitor, the Heckett Division of Harsco
Corporation, which the Company estimates has approximately the same
domestic market share, as well as numerous smaller competitors.
The Company believes that IMS's leading market position is based on
its reliability, responsiveness to customer needs, capital
resources and breadth of expertise.
IMSAMET. IMSAMET meets the aluminum industry's needs for
outsourcing, recycling and waste management in a number of ways.
At its Idaho facility, IMSAMET processes a minimum of 80 million
pounds of used aluminum beverage cans ("UBCs") and aluminum scrap
per year pursuant to a long-term contract with Kaiser Aluminum and
Chemical Corporation ("Kaiser") through 1996. In 1993, this modern
and efficient facility processed over 170 million pounds of
material, including approximately 2.8 billion UBCs. Due to the
high cost of primary aluminum production in the U.S., recycled
aluminum is frequently an attractive alternative for manufacturers
such as Kaiser.
Both at its Idaho facility and its 70% owned partnership in
Arizona, IMSAMET reclaims aluminum from dross, a by-product of the
aluminum production process. The dross is loaded into rotary
furnaces where gas heat is applied along with a flux mixture (salt
and potash). After the dross is melted, the molten metal is cast
into ingots and then delivered to customers.
In the fourth quarter of 1993 and in early 1994, IMSAMET
purchased certain assets of two western U.S. dross processors and
increased its dross customer base. IMSAMET has recently begun
construction of a new aluminum dross processing facility in
Wendover, Utah, adjacent to the SALTS facility (described below),
which is scheduled to commence operations in the fall of 1994. A
majority of the equipment recently acquired will be utilized at the
new Utah dross processing facility.
Finally, IMSAMET has a 50% interest in a Utah partnership,
Solar Aluminum Technology Services ("SALTS"), with Reilly
Industries, Inc. ("Reilly") to recycle saltcake into marketable
aluminum metal concentrate, aluminum oxide and salt brine, using a
proprietary wet milling system. Saltcake is a by-product generated
in the recovery of aluminum from dross. Improper disposal of
saltcake poses risks of groundwater contamination, and the cost of
disposal of saltcake in properly designed landfills can be
considerable. SALTS offers a significant benefit to the aluminum
industry by converting the environmental problem of saltcake
disposal into a recycling opportunity. The SALTS facility
commenced operations in March 1992.
UBC recycling is performed mostly by the aluminum producers
themselves, with IMSAMET and one other independent UBC recycler
accounting for a substantial portion of the balance. There are
approximately seven major aluminum dross processors other than
IMSAMET in the U.S., as well as several smaller competitors.
IMSAMET believes that its SALTS joint venture is the only
enterprise successfully recycling saltcake on a commercial scale in
North America.
Treatment and Disposal Services
Envirosafe. Envirosafe has been dedicated to the safe,
economical treatment and disposal of industrial and hazardous
wastes since 1980. It owns major commercial hazardous waste
landfills in Ohio and Idaho -- two of the 19 such landfills that
are currently active in the U.S. Envirosafe's customers include
some of the country's largest chemical, automotive and steel
companies and utilities, as well as numerous government agencies.
Envirosafe has approximately 4.2 million cubic yards of
permitted capacity. In 1992 Envirosafe received final approval to
expand its Ohio facility and in 1993 completed construction of the
first phase of a new 2.3 million cubic yard disposal cell. This
state-of-the-art unit commenced accepting waste in July 1993. The
next phase of construction of this cell is scheduled for completion
in late 1994. In late 1993, Envirosafe received final approval to
expand an active disposal cell at its Idaho facility and completed
construction of the second phase of such cell. Envirosafe's Idaho
and Ohio permits extend through 1998 and 1996, respectively.
Envirosafe's hazardous waste landfill business is
characterized by high barriers to entry resulting from increasingly
stringent environmental legislation and the lengthy and uncertain
permitting process for new facilities. Envirosafe has a limited
number of competitors in the off-site hazardous waste landfill
business, only two of which operate more than two landfills. In
general, the markets for Envirosafe's services are regional. As a
result, each of Envirosafe's landfills competes mainly with four
other landfills in its area.
Envirosafe plans to complete a number of capital projects
during 1994 in order to maintain and enhance its competitive
position. These projects include new debris handling facilities
and expanded stabilization capacity at both the Ohio and Idaho
landfills. The debris handling facilities will enable Envirosafe
to respond to requirements for the processing of contaminated
debris recently promulgated under the Resource Conservation and
Recovery Act ("RCRA"), as amended. In addition, a new rail off-
loading facility was opened in Idaho in May 1993.
During 1993, Envirosafe entered into a new service contract to
operate and maintain a captive landfill for a domestic steel mill.
Envirosafe is exploring additional opportunities for providing
captive landfill services.
Envirosafe and its competitors and customers are subject to a
complex, evolving array of federal, state and local environmental
laws and regulations, which not only can affect the demand for
Envirosafe's services, but could also require Envirosafe to incur
significant costs for such matters as facility upgrading,
remediation or other corrective action, facility closure and post-
closure maintenance and monitoring. It is possible that the future
imposition of such requirements could have a material adverse
effect on Envirosafe's results of operations or financial
condition, but the Company believes that the Consolidated Financial
Statements appropriately reflect all presently known compliance
costs in accordance with generally accepted accounting principles.
Under normal circumstances, Envirosafe would expect to be able to
absorb increased operating compliance costs by increasing prices
charged to customers.
Competition in this industry is based on service, site and
process integrity and the all-in cost of landfill disposal, which
includes transportation costs and taxes. Expanded use of rail
services and planned additions to stabilization services will
further improve Envirosafe's competitive position.
CSI. CSI provides electric utilities with turn-key
design, engineering and installation of systems for the
stabilization of effluent and ash residues produced at coal-fired
power plants. These systems convert the sludge resulting from wet
scrubber removal of sulfur dioxide from power plant emissions into
a concrete-like material suitable for environmentally responsible
landfilling. Once a facility is completed, the customer has the
option to operate the facility itself or have CSI provide ongoing
management.
Since 1991, CSI has been awarded three stabilization contracts
and is actively pursuing bidding opportunities relating to
additional sites expected to install wet scrubbers within the next
several years, either as retrofits or in response to the "Acid
Rain" provisions of the Clean Air Act Amendments of 1990. Although
it is not yet clear how many power plants installing wet scrubbers
will elect or be required to include stabilization units, the
Company believes that its technology will continue to provide the
utility industry with a cost-effective and environmentally
desirable waste management solution.
CSI also stabilizes electric arc furnace flue dust - a
hazardous waste under RCRA generated by steel mills - through the
use of a proprietary technology that renders the flue dust suitable
for landfilling in non-hazardous landfills and for potential reuse.
CSI is the sole licensee of this technology under a license that
expires in 2006. CSI currently operates a flue dust stabilization
facility on-site at the largest domestic mini-mill. CSI is
actively marketing its process to other U.S. mini-mills.
During 1993, CSI applied to the U.S. Environmental Protection
Agency ("USEPA") for a generic delisting of its stabilized flue
dust product, which, if granted, would enable CSI to handle flue
dust treated through its proprietary process as a non-hazardous
waste. USEPA has published proposed rules granting such delisting
and CSI expects that final rules will be forthcoming during 1994.
The generic delisting status for the process will save CSI and its
customers the time and expense involved in petitioning USEPA on a
facility by facility basis for delisting status. USEPA, as well as
the Illinois Department of Environmental Regulation, previously has
granted site specific delistings for this process. The Company
believes that this technology provides an environmentally safer and
more cost-effective solution than the off-site thermal process
currently employed by most of the mini-mill industry.
The market for wet scrubber stabilization units has been
dormant until recently and it is difficult to determine the number
and nature of CSI's viable competitors. However, CSI expects to
encounter increased competition through the decade from wet
scrubber manufacturers as well as from wet scrubber technologies
and processes that do not, or purport not to, require sludge
stabilization units. With the termination of IMS's process for the
thermal treatment of flue dust, CSI's principal competition in
electric arc furnace flue dust stabilization is a single off-site
thermal metal recovery processor, which has accounted for more than
80% of the market nationwide. Competition in these businesses is
based primarily on price, quality of service, technical expertise
and the environmental integrity of the process.
SEGMENT DATA
See Note I for information concerning revenues and operating
income by segment for the years ended December 31, 1993, 1992 and
1991 and the percentage of total revenues contributed by each class
of service of the Company's continuing operations for each such
year.
EMPLOYEES
At March 1, 1994, the Company employed approximately 1,900
persons. A majority of the hourly employees in the Industrial
Environmental Services segment are covered by site specific
collective bargaining agreements with various unions, including the
International Union of Operating Engineers, the United Steelworkers
and the International Brotherhood of Teamsters. Several of these
contracts will be renegotiated in 1994. All other contracts will
be renegotiated in 1995 or thereafter. Approximately 8% of the
Treatment and Disposal Services segment employees are also
unionized. The Company believes it has a good working relationship
with its employees.
Item 2. Properties.
INDUSTRIAL ENVIRONMENTAL SERVICES
IMS has operations providing metal recovery and other services
at steel mills throughout the continental United States and in
Canada. Equipment located at the sites operated by IMS and its
subsidiaries includes prefabricated storage, shop and office
structures, pot carriers, slab haulers, loaders, railcars, cranes,
trucks, metal recovery plants and crushers and other specialized
mobile and stationary equipment used in metal-recovery operations
and industrial service work, most of which is owned. IMSAMET owns
its UBC and dross recycling plant in Idaho and leases land for a
new dross processing facility to be constructed in Utah. Through
a partnership, IMSAMET leases land for its plant in Arizona that is
used to recover metal from aluminum dross. The business units in
this segment lease office space in Arizona, Missouri, Pennsylvania
and Utah.
Management believes that the physical facilities for the
Company's Industrial Environmental Services segment are adequate
for its operations and provide sufficient capacity to meet their
anticipated requirements. The metal recovery and slag processing
installations are generally located at specific customer facilities
and are adequate to handle current levels of customer operations
and anticipated future needs for current customers.
TREATMENT AND DISPOSAL SERVICES
Envirosafe owns substantially all of the land, buildings and
equipment used in its disposal operations, including the following:
active landfills in Oregon, Ohio and near Grand View, Idaho; a clay
mine in Narvon, Pennsylvania; and additional inactive sites or
parcels in Idaho, New Jersey and Pennsylvania that are not planned
for use as hazardous waste landfills. Envirosafe leases office
space in Pennsylvania, Ohio and Idaho. Assuming the timely
completion of subsequent phases under existing permit authority,
Envirosafe expects to maintain ample hazardous waste disposal
capacity through at least the balance of the decade.
CSI owns the building and equipment at one stabilization
facility in Illinois and one in Pennsylvania and leases land for
both facilities. CSI also leases office space in Pennsylvania.
Management believes that the physical facilities for CSI are
adequate for its operations and provide sufficient capacity to meet
its anticipated requirements.
OTHER
The Company's corporate headquarters are located in Stamford,
Connecticut in leased premises.
Item 3. Legal Proceedings.
On March 11, 1993, the City of Oregon, Ohio requested that the
Director of the Ohio Environmental Protection Agency ("OEPA")
modify or revoke Envirosafe's Ohio landfill permit, alleging that
if the Ohio Hazardous Waste Facility Board ("HWFB") had been aware
of certain scientific and technical data developed by Envirosafe,
HWFB would not have approved the issuance of the permit in May
1991. On April 12, 1993, the OEPA Director determined not to
modify or revoke the permit, concluding that the data in question
presented no new or meaningful information in light of other data
already in the record and the final design of the disposal cell
authorized by the permit. On May 12, 1993, the City of Oregon
filed a notice of appeal before the Ohio State Environmental Board
of Review seeking review of the OEPA Director's April 12, 1993
decision. Envirosafe is contesting this appeal vigorously. In
light of the factual findings by the OEPA Director, management does
not believe that the outcome of this matter will have a material
adverse effect on the Company's financial condition or results of
operations.
The Company is a party to litigation and proceedings arising
in the normal course of its present or former businesses, and in
several instances the Company has been named as a potentially
responsible party regarding properties that could be subject to
remedial action under RCRA or the Comprehensive Environmental
Response and Liability Act of 1980, as amended. As to such
matters, the Company is not subject to any administrative or
judicial order requiring material expenditures, and the Company has
determined that it is not likely to be subject to sanctions or held
responsible for material remediation expenditures. In the opinion
of management, the outcome of the matters described in this
paragraph will not have a material adverse effect on the
Company's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
* * *
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers are as follows:
Name Age Position
Ronald P. Spogli 46 Chairman of the Board; Director
Louis A. Guzzetti, Jr. 55 President and Chief Executive
Officer; Director
George E. Fuehrer 45 Senior Vice President, Planning
Aarne Anderson 53 Vice President, Taxes
Jerrold I. Dolinger 47 Vice President, Corporate
Development
James C. Hull 56 Vice President and Chief
Financial Officer
Gene A. Iannazzo 47 Vice President, Corporate
Marketing
George T. Milano 45 Vice President and Controller
Officers are elected annually and hold office until their
successors are elected and qualified.
Ronald P. Spogli became a director and Chairman of the Board
of the Company in May 1993. Mr. Spogli is one of the FS&Co. (a
private investment firm) designees appointed to the Board of
Directors on May 13, 1993. He is a founding partner of FS&Co. Mr.
Spogli is also a director of Calmar Inc., Mac Frugal's
Bargains Close-Outs Inc., Orchard Supply Hardware Stores
Corporation, Buttrey Food and Drug Stores Company and Purity
Supreme, Inc. and a member of the Board of Representatives of
Brylane, L.P.
Louis A. Guzzetti, Jr. has been a director and President and
Chief Executive Officer of the Company since October 1986. From
June 1983 until April 1986, Mr. Guzzetti was employed by United
Brands Company ("United Brands"), a diversified international
company, serving as its Executive Vice President and Chief
Administrative Officer from June 1983 until August 1985 and as
President and Chief Executive Officer of its United Fruit Company
subsidiary from October 1984 until April 1986. He was also a
director of United Brands from August 1984 until June 1986.
George E. Fuehrer has been employed by the Company since 1982
and has served as its Senior Vice President, Planning since May
1989. From June 1988 until May 1989 he served as Senior Vice
President - Finance of the Company. He was its Treasurer from
November 1984 until May 1989. Mr. Fuehrer also served as Vice
President - Finance from February 1984 until June 1988.
Aarne Anderson has been employed by the Company since May
1980, except for the period from August 1983 through April 1984
during which he served as a consultant to the Disposition Assets
Trustee in the Company's reorganization under Chapter 11 of the
Bankruptcy Code. Mr. Anderson was elected Vice President, Taxes in
August 1985.
Jerrold I. Dolinger joined the Company as a Vice President in
May 1988 and has served as Vice President, Corporate Development
since August 1988.
James C. Hull has been the Company's Vice President and Chief
Financial Officer since May 1989, when he joined the Company. From
1975 until May 1989, Mr. Hull was employed by General Host
Corporation, where he held the position of Vice President and
Controller.
Gene A. Iannazzo was appointed Vice President, Corporate
Marketing in December 1992. Mr. Iannazzo also served as Vice
President, Technology and Market Development from October 1989
until June 1990. At all other times since 1972 he has been an
employee of IMS, serving in a variety of marketing and business
development assignments in North and South America. Mr. Iannazzo
first became an officer of IMS in 1985 and was most recently its
Vice President, Business Development from July 1990 until November
1992.
George T. Milano was elected Vice President in June 1988 and
has served as the Company's Controller since May 1987.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock trades on The Nasdaq Stock Market
under the symbol "ENSO" and on the Pacific Stock Exchange under the
symbol "ES". The following table sets forth the high and low sales
prices for the Common Stock for each of the calendar quarters of
1993 and 1992, based upon prices supplied by The National
Association of Securities Dealers ("NASD") Automated Quotation
System ("Nasdaq").
1993 1992
High Low High Low
First Quarter $5.125 $3.250 $3.000 $2.000
Second Quarter 4.625 3.500 4.125 2.250
Third Quarter 4.625 3.000 4.000 2.875
Fourth Quarter 3.500 2.500 5.375 3.500
The Company is not currently in technical compliance with one
of the requirements for continued designation of its Common Stock
as a Nasdaq National Market System security. The NASD indicated to
the Company in March 1992 that it did not intend to commence formal
proceedings to remove the Common Stock from the National Market
System. It is possible that in the future the NASD could seek to
do so, but the NASD has a procedure for seeking exemptions from its
requirements, which the Company would seek to utilize if necessary.
If the Common Stock were removed from the National Market System,
it would continue to be eligible for inclusion in the regular
Nasdaq inter-dealer quotation system.
The Company has not paid a cash dividend on its Common Stock
since the confirmation of its plan of reorganization in November
1983 and has no present plan to pay cash dividends. The Company is
currently prohibited from paying cash dividends on its Common Stock
by its Certificate of Incorporation and its bank credit agreement.
At March 21, 1994 the Company had approximately 3,400 holders
of record of its Common Stock.
<PAGE>
Item 6. Selected Financial Data.
The information presented below should be read in conjunction
with the Consolidated Financial Statements and Notes thereto,
including Note B which describes the 1993 Recapitalization.
<TABLE>
1993 1992 1991 1990 1989
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $271,026 $232,652 $ 223,902 $ 234,781 $ 202,338
Costs and expenses 243,873 206,307 204,957 205,765 179,773
Restructuring charge, net 18,500 (1)
-------- -------- --------- --------- ---------
Operating income 8,653 26,345 18,945 29,016 22,565
Interest income 1,185 1,069 1,576 2,061 7,987
Interest expense (28,863) (33,653) (35,856) (31,500) (37,069)
-------- -------- --------- --------- ---------
(19,025) (6,239) (15,335) (423) (6,517)
Income tax expense 2,549 1,299 1,483 4,246 908
Minority interests 566 3,815 4,370
Less Envirosafe adjustments (2) 4,250
-------- -------- --------- --------- ---------
Income (loss) - continuing operations (21,574) (7,538) (17,384) (8,484) (16,045)
- discontinued operations (15,743) 34,964
- extraordinary items (21,930) 873 3,191
- cumulative effect of
tax accounting change (2,302)
-------- -------- --------- --------- ---------
Net income (loss) $(45,806) $ (7,538) $ (17,384) $ (23,354) $ 22,110
======== ======== ========= ========= =========
Earnings (loss) applicable to
common shares and equivalents $(48,988) $(11,633) $ (22,075) $ (29,067) $ 8,123
Fully diluted earnings (loss) per share:
Continuing operations $ (.73) $ (.52) $ (1.51) $ (1.22) $ (2.36)
Net income (loss) $ (1.44) $ (.52) $ (1.51) $ (2.49) $ .79
Average shares of common
stock outstanding 34,009 22,251 14,572 11,683 8,605
Total assets $427,245 $444,547 $ 450,852 $ 466,894 $ 472,693
Working capital deficiency $(17,396)(3) $ (5,138) $ (5,120) $ (23,877) $ (60,273)
Debt (noncurrent) $235,842 $235,668 $ 229,118 $ 191,401 $ 178,630
Redeemable preferred stock (noncurrent) $ 38,711 $ 43,850 $ 42,070 $ 62,616 $ 60,306
Stockholders' equity $ 14,217 $ 20,549 $ 10,695 $ 3,207 $ 15,004
</TABLE>
<PAGE>
Notes
(1) After tax, the net restructuring charge amounts to $17.6
million or $.52 per share (Note C).
(2) In 1989, the Company decided to retain, and therefore
consolidate, Envirosafe. Prior to that decision, Envirosafe
was accounted for as a "business held for sale" and,
accordingly, the Company deferred its $.9 million share of
Envirosafe's income from continuing operations during the
first half of 1989. At the time of such decision, the
Company recognized as an expense $3.3 million of cumulative
deferred charges.
(3) The 1993 working capital deficiency is due to the $11.9
million current portion of IU acquisition obligations (Note
H), $10.9 million of estimated restructuring costs (Note C),
and the current classification of the $3.4 million paid to
retire Class G preferred stock in March of 1994 (Note E).
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
1993 Versus 1992
Revenues were $38.4 million (16%) higher in 1993, due to
increases of $18.3 million (10%) for Industrial Environmental
Services and $20.1 million (37%) for Treatment and Disposal
Services. The Industrial Environmental Services increase is
attributable primarily to the full year effect of new services
started up in 1991 and 1992 and also to the increased production
volumes at steel mill customers. These increases were partially
offset by the absence of revenue from a maintenance services
contract that was sold in 1992. The Treatment and Disposal
Services increase was due entirely to the timing of billings for
equipment installations under CSI's long-term contracts to
design, supply and construct scrubber sludge stabilization
systems for electric utilities. Revenues from hazardous waste
landfilling were about the same as in 1992, as an increase from
higher volume was offset by a reduction in average prices due to
weak demand that resulted in extremely competitive industry
conditions.
Gross profit increased $1.7 million (3%), due to a $7.8
million (19%) increase at Industrial Environmental Services
reduced by a $6.1 million (31%) decline at Treatment and Disposal
Services. The Industrial Environmental Services increase
resulted from higher volume and new services for steel customers,
partially offset by lower aluminum recycling profit margins,
resulting from a worldwide aluminum glut. The decline at
Treatment and Disposal Services resulted primarily from reduced
profits on CSI's long-term contracts, because the contracts were
in lower-margin equipment installation phases in 1993 compared to
higher-margin design phases in 1992. CSI's return to 1992
profitability levels depends on its ability to secure additional
long-term contracts. In addition, Treatment and Disposal
Services' hazardous waste landfilling profits declined as the
adverse effects of the extremely competitive market conditions
more than offset a $2.1 million reduction in depreciation expense
during the first six months of the year (see Note P).
Selling, general and administrative costs increased $.9
million, primarily due to the absence in 1993 of a $1.1 million
1992 gain on the aforementioned sale of a maintenance services
contract and the assets used in performing the contract. A $1.6
million reduction in permitting expense for a Pennsylvania
landfill site was largely offset by the absence of a $.9 million
1992 net gain from the favorable settlement of a waste disposal
tax dispute.
During the fourth quarter of 1993, the Company explored a
number of business restructuring alternatives, to eliminate loss
operations and reduce costs. As a result of these deliberations,
the Company decided to (i) terminate unprofitable recycling
units, (ii) discontinue efforts to obtain a Pennsylvania
hazardous waste landfill permit, and (iii) reorganize the
Envirosafe and CSI businesses into the Treatment and Disposal
Services business segment. Accordingly, the Company recorded a
$22 million restructuring charge, as follows (in millions):
Total Cash Non-cash
Charge Costs Write-offs
Termination of two flue dust
recycling units and other
unprofitable units $ 15.0 $ 6.3 $ 8.7
Withdrawal of Pennsylvania
permit application and
sale of landfill site 2.7 1.8 .9
Organization of the Treatment and
Disposal Services business
segment 3.2 2.8 .4
Other restructuring costs 1.1 1.1
------- ------- -----
$ 22.0 $ 12.0 $10.0
The terminated recycling units include two facilities for
the thermal treatment of electric arc steel furnace flue dust to
recover zinc, a pilot plant for the sale of stabilized electric
utility scrubber sludge for use in manufacturing concrete masonry
blocks and two smaller sites. None of the terminated units had
achieved economic feasibility. Also, the Company's CSI business
is actively marketing its Super Detox(TM) process for stabilizing
electric arc steel furnace flue dust, which the Company believes
is a better environmental solution for that type of waste. In
view of the continued weakness in demand in the hazardous waste
disposal industry, the Company decided to discontinue its efforts
to obtain a Pennsylvania hazardous waste landfill permit. Since
permit costs for this prospective landfill were expensed as
incurred, the restructuring charge primarily includes costs to
close down and sell the landfill site, where the Company has been
excavating and selling clay. Altogether these activities
incurred 1993 operating losses and costs of $3.3 million, in
addition to the restructuring charge.
Because the Company concluded that waste stabilization and
disposal activities will be more closely integrated in the
future, the Company also decided to combine its Envirosafe and
CSI business units into a unified Treatment and Disposal Services
business segment. The combination reduced staff headcount and
eliminated an office that together would have cost approximately
$2.8 million in 1994. In addition, the Company has taken steps
to reduce its annual corporate headquarters costs by
approximately $1 million, also through a staff reduction.
The non-cash costs listed above primarily represent write-
offs of property, plant and equipment of the terminated units.
The cash costs are primarily to close down operating sites and
terminate employees, most of which will be expended during 1994.
At the same time, the annual savings resulting from the actions
outlined above will approximate $7 million.
The $22 million restructuring charge was partially offset by
a $3.5 million credit resulting from a reduction of liabilities,
recorded in connection with the 1988 acquisition of IU
International Corporation, that the Company expects to settle for
less than previously estimated (Note H). Together, the
restructuring charge and credit reduced 1993 operating income by
$18.5 million ($17.6 million after taxes).
Due to the factors described above, operating income
decreased $17.7 million. However, absent the $18.5 million net
restructuring charge, operating income would have increased $.8
million. This increase includes a $6.4 million improvement for
Industrial Environmental Services, a $6 million decline for
Treatment and Disposal Services and a $.4 million decrease in
corporate headquarters costs.
Interest expense decreased $4.8 million, primarily due to
the Recapitalization (Note B).
Pursuant to Statement of Financial Accounting Standards No.
109, the Company adopted a new method of accounting for income
taxes in the first quarter of 1993. Prior periods were not
restated. The cumulative effect of adopting the new method was a
non-cash charge in the consolidated statement of operations of
$2.3 million as of January 1, 1993. This new method of
accounting is not expected to significantly affect the Company's
reported results in the near future.
Due to the factors described above and a $21.9 million
extraordinary loss from extinguishment of debt resulting from the
Recapitalization (see Note B), the 1993 net loss was $45.8
million. Before the extraordinary loss and the cumulative effect
of the accounting change, the 1993 loss was $21.6 million, after
tax, including the net restructuring charge of $17.6 million,
after tax. These amounts compare to a $7.5 million net loss in
1992.
The impact of inflation on revenues and results of
operations has not been significant.
1992 Versus 1991
Revenues were $8.8 million (4%) higher in 1992, due to
improvements of $5.3 million (11%) for Treatment and Disposal
Services and $3.5 million (2%) for Industrial Environmental
Services. The Treatment and Disposal Services improvement
resulted primarily from a 26% hazardous waste landfilling volume
increase, partially offset by a 10% reduction in average prices.
The Industrial Environmental Services increase was due primarily
to the start-up of new services for steel customers and to a
lesser extent a small volume increase in core services for steel
customers. These increases were partially offset by the absence
of further revenue from a maintenance services contract that was
sold in July 1992.
Gross profit increased $5.5 million (10%), reflecting a $5.8
million (42%) improvement for Treatment and Disposal Services
partially offset by a $.3 million (1%) decline for Industrial
Environmental Services. The Treatment and Disposal Services
improvement resulted from the increased landfilling revenue,
increased profits from CSI's long-term contracts to design,
supply and construct scrubber sludge stabilization systems for
electric utilities, as well as a $1.9 million reduction in
depreciation expense during the last six months of the year (see
Note M). The Industrial Environmental Services results were
attributable to gross profit from the new steel customer services
and higher core services volume, offset by increased costs,
including the costs of starting up the new services, and the
absence of gross profit from the aforementioned maintenance
services contract after its July 1992 sale.
Selling, general and administrative expenses declined by
$1.9 million, primarily due to a $1.1 million gain on the
aforementioned sale of the maintenance services contract and the
assets used in performing the contract, as well as a reduction in
administrative costs due to the acquisition of the 37.5% minority
interest of Envirosafe. A $.7 million increase in landfill
permitting expenses to obtain a Pennsylvania landfill permit was
offset by decreases in other costs. In addition, 1992 results
included a $.9 million net gain, primarily from the favorable
settlement of a waste disposal tax dispute, and 1991 results
included a $.9 million gain from the sale of a non-strategic
asphalt manufacturing plant.
Due to the factors described above, operating income
increased $7.4 million (39%). The increase included a $7.1
million improvement for Treatment and Disposal Services, a $.6
million increase for Industrial Environmental Services, partially
offset by a $.3 million increase in corporate headquarters costs.
Interest expense decreased $2.2 million, primarily due to a
reduction in interest rates and fees. This reduction was
partially offset by the effect of a higher average debt level
during the year, including debt incurred in April 1991 in order
to redeem $20 million of a subsidiary's preferred stock.
Due to the factors described above, the net loss declined
from $17.4 million in 1991 to $7.5 million in 1992.
The impact of inflation on revenues and results of
operations has not been significant.
LIQUIDITY AND CAPITAL RESOURCES
During 1993 the Company completed a comprehensive
Recapitalization that has significantly improved its liquidity
and capital resources. The Recapitalization also increased by
70% the shares of common stock outstanding. See Note B for a
description of the Recapitalization and Note D for a summary of
the terms of the Company's $220 million of 9-3/4% Senior Notes
and its new bank credit facility.
Cash flow provided by operating activities increased to
$35.7 million in 1993 from $29.6 million in 1992. The Company's
liquidity requirements arise primarily from the funding of its
capital expenditures, trust fund payments for Treatment and
Disposal Services, working capital needs and debt service
obligations. Historically, the Company has met these
requirements through cash flows generated by operations and with
additional debt financing.
In 1993 Industrial Environmental Services spent $19.8
million for additions to property, plant and equipment, primarily
for equipment replacements and expansion of services to steel
industry customers. In 1994 the Company expects to spend
approximately the same amount for this segment, to replace
equipment and expand services to the steel and aluminum
industries. As of March 1994, the Company has spent or is
committed to spend $6 million for the 1994 planned additions. In
January 1994, the Company purchased certain assets of an aluminum
dross processor for $5 million, including $2.9 million for
intangible assets.
During 1993 Treatment and Disposal Services spent $13
million for additions to property, plant and equipment, primarily
for landfill development and waste treatment facilities at both
the Ohio and Idaho landfills. The Company expects to spend
somewhat more for this segment in 1994, primarily for landfill
development and the completion of treatment facilities. As of
March 1994, the Company has spent or is committed to spend $13
million for the planned additions.
Treatment and Disposal Services' landfill permits require it
to fund closure and post-closure monitoring and maintenance
obligations by making essentially nonrefundable trust fund
payments. The Company estimates its future trust fund payments
as follows: for the Idaho landfill, approximately $1.1 million
annually through 1998; and for the Ohio landfill, approximately
$7.6 million in each of 1994 and 1995 and $3.9 million in 1996.
Ohio landfill trust fund payments increased significantly in 1993
because a new 2.3 million cubic yard disposal cell was placed in
service. The above payments will satisfy substantially all the
Company's trust fund payment requirements for the foreseeable
future based on current regulations and permitted capacity.
The consolidated balance sheet reflects negative working
capital of $17.4 million at December 31, 1993, including $10.9
million of estimated restructuring costs (Note C) and $11.9
million of estimated IU acquisition obligations (Note H), which
are unrelated to ongoing operations. Negative working capital
also includes $3.4 million paid in March 1994 to retire Class G
preferred stock (Note E).
The Company has not paid dividends on its Class G preferred
stock since July 1990 and is prohibited from paying dividends by
the bank credit facility. The facility permits the Company to
redeem (including accumulated dividends) or retire shares of its
Class G preferred stock with up to $5 million in cash (including
borrowings thereunder) at any time. Subject to a test that
requires improved financial performance, the amount of allowable
Class G retirements progressively increases to a total of $35
million by July 1995. The facility also permits the Company to
redeem shares of its Class G preferred stock with the net cash
proceeds from future issuances of certain capital stock and debt.
In March 1994, the Company retired 30,000 shares of Class G
preferred stock for $3.4 million. Redemption of the remaining
outstanding shares of Class G preferred stock, assuming no
dividends are paid earlier, would require $44.3 million in 1996.
Cash on hand, funds from operations and borrowing capacity
under the bank credit facility are expected to satisfy the
Company's operating and debt service requirements through the
term of the bank facility, as well as provide funds to retire a
portion of the Company's Class G preferred stock. The Company
may be required to issue additional capital stock or debt to
redeem the balance of the Class G preferred stock.
The bank credit facility provides $60 million of revolving
credit borrowing and letter of credit capacity, declining by $5
million on each of July 15, 1996 and 1997 and terminating on July
15, 1998. At December 31, 1993, there were no revolving credit
borrowings and $12.7 million of standby letters of credit were
outstanding.
The Company has substantial deferred tax assets arising from
federal income tax net operating loss carryforwards. The
Recapitalization (described in Note B) produced an "ownership
change" (as defined in the Internal Revenue Code) that limits the
future use of these carryforwards. However, the Company has
estimated that at least $7 million of the tax loss carryforwards
will still be available annually to offset regular taxable income
through the year 2006. The final amount of this limitation will
be affected by the resolution of various tax issues and the
nature and timing of certain amounts of future income. The
Company also has substantial additional deferred tax assets that
will become available to reduce future federal income taxes as
they become deductible for tax purposes. Consequently, the
Company does not expect to pay any federal income taxes for 1994,
and thereafter the Company expects to utilize its deferred tax
assets to reduce substantially its federal income tax payments
over the next several years. See Note J.
See Note O for a discussion of various contingencies,
including environmental compliance matters.
Item 8. Financial Statements and Supplementary Data.
See the financial statements and schedules attached hereto
and listed in Item 14(a)(1) and (a)(2) hereof.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company.
DIRECTORS OF THE COMPANY
Wallace B. Askins (age 63) has been a director of the
Company since 1978. Mr. Askins served as Executive Vice
President and Chief Financial Officer of Armco Inc. ("Armco") (a
manufacturer of steel and other products) from June 1984, and as
a director of Armco from December 1985, until his retirement in
December 1992.
Raymond P. Caldiero (age 59) has served as a director of the
Company since February 1992. Mr. Caldiero has served as Chairman
of Caldiero International, Inc. (a consultant in the areas of
hotel development, lobbying, marketing and sales) since 1989.
From 1973 to 1988, Mr. Caldiero served as Vice President and
Assistant to the President of the Marriott Corporation (a hotel
and restaurant company). He is a director of Capital Bank and
served as a director of Envirosafe from 1987 until February 1992.
Mr. Caldiero became a director of the Company in February 1992
pursuant to the terms of the merger of Envirosafe into a wholly-
owned subsidiary of the Company. The merger agreement required
that the Company appoint to its Board of Directors two of
Envirosafe's independent directors. Mr. Caldiero is one of those
directors.
Louis A. Guzzetti, Jr. (age 55) has been a director and
President and Chief Executive Officer of the Company since
October 1986. From June 1983 until April 1986, Mr. Guzzetti was
employed by United Brands, serving as its Executive Vice
President and Chief Administrative Officer from June 1983 until
August 1985 and as President and Chief Executive Officer of its
United Fruit Company subsidiary from October 1984 until April
1986. He was also a director of United Brands from August 1984
until June 1986.
Jeffrey G. Miller (age 52) was re-elected as a director of
the Company in August 1993. Mr. Miller has been a professor at
Pace University School of Law since 1987. He has also been of
counsel to the Seattle and Washington, D.C. law firm of Perkins
Coie since 1987. Mr. Miller was a director of Envirosafe from
1987 to February 1992. Mr. Miller became a director of the
Company in February 1992 pursuant to the terms of a merger
agreement between Envirosafe and a wholly-owned subsidiary of the
Company. Mr. Miller resigned on May 13, 1993 pursuant to the FSC
Transaction. Later, Mr. Miller became one of three additional
FS&Co. designees appointed to the Board of Directors in
connection with the consummation of the FSC Transaction.
Jon D. Ralph (age 29) became a director of the Company in
August 1993. Mr. Ralph is one of three additional FS&Co.
designees appointed to the Board of Directors in connection with
the consummation of the FSC Transaction. Mr. Ralph joined FS&Co.
in August 1989. Prior to joining FS&Co., Mr. Ralph worked in the
Investment Banking Division of Morgan Stanley & Co. Incorporated.
John M. Roth (age 35) became a director of the Company in
May 1993. Mr. Roth is one of the FS&Co. designees appointed to
the Board of Directors on May 13, 1993. He joined FS&Co. in
March 1988 and became a general partner in March 1993. From 1984
to 1988, Mr. Roth was a Vice President in the Merger and
Acquisition Group of Kidder, Peabody & Co. Incorporated. From
1983 to 1984, Mr. Roth worked as a management consultant with
McKinsey & Company, Inc. Mr. Roth is also a director of Calmar
Inc. and Purity Supreme, Inc. and a member of the Board of
Representatives of Brylane, L.P.
Arthur R. Seder, Jr. (age 73) has served as a director of
the Company since June 1988. Mr. Seder is a consultant in
matters relating to the natural gas industry. He served as
Special Counsel to Columbia Gas Transmission Corporation from
June 1988 until 1992. From 1985 to 1988, he was of counsel to
the Washington, D.C. office of the law firm of Sidley & Austin.
From 1976 until 1985, he was Chairman and Chief Executive Officer
of American Natural Resources Company (a diversified energy and
transportation company).
William H. Sherer (age 40) became a director of the Company
in May 1993. Mr. Sherer is one of the FS&Co. designees appointed
to the Board of Directors on May 13, 1993. He joined FS&Co. in
1988. Prior to joining FS&Co., Mr. Sherer was a Vice President
of the Corporate Finance Department of Kidder, Peabody & Co.
Incorporated. Mr. Sherer is also a director of Duff & Phelps
Corporation and a member of the Board of Representatives of
Brylane, L.P.
J. Frederick Simmons (age 39) became a director of the
Company in May 1993. Mr. Simmons is one of the FS&Co. designees
appointed to the Board of Directors on May 13, 1993. He joined
FS&Co. in 1986 and became general partner in January 1991. Prior
to 1986, Mr. Simmons was Vice President of Bankers Trust
Company's lending group specializing in leveraged buyouts and
health care. Mr. Simmons is also a director of Buttrey Food and
Drug Stores Company, Purity Supreme, Inc. and Orchard Supply
Hardware Stores Corporation.
Ronald P. Spogli (age 46) became a director and Chairman of
the Board of the Company in May 1993. Mr. Spogli is one of the
FS&Co. designees appointed to the Board of Directors on May 13,
1993. He is a founding partner of FS&Co. Mr. Spogli is also a
director of Calmar Inc., Mac Frugal's Bargains Close-Outs Inc.,
Orchard Supply Hardware Stores Corporation, Buttrey Food and Drug
Stores Company and Purity Supreme, Inc. and a member of the Board
of Representatives of Brylane, L.P.
William M. Wardlaw (age 47) became a director of the Company
in August 1993. Mr. Wardlaw is one of three additional FS&Co.
designees appointed to the Board of Directors in connection with
the consummation of the FSC Transaction. Mr. Wardlaw joined
FS&Co. in March 1988 and became a general partner in January
1991. From 1984 to 1988, Mr. Wardlaw was a principal of the law
firm of Riordan & McKinzie. Mr. Wardlaw is also a member of the
Board of Directors of Buttrey Food and Drug Stores Company and
Purity Supreme, Inc.
EXECUTIVE OFFICERS OF THE COMPANY
Reference is made to "Executive Officers of the Company" in
Part I of this Report, which information is incorporated herein
by reference.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires certain officers
and directors of the Company to file reports of ownership and
changes in ownership with the Securities and Exchange Commission
(the "Commission"). To the best of the Company's knowledge, all
required reports were timely filed.
Item 11. Executive Compensation.
The following table sets forth all compensation awarded to,
earned by or paid to the Chief Executive Officer and each of the
other four most highly compensated executive officers of the
Company for the last three completed fiscal years. Information
in the columns labeled "Annual Compensation" and "Long Term
Compensation" is provided for the last three fiscal years and
information in the column labeled "All Other Compensation" is
provided for the 1993 and 1992 fiscal years only.
Summary Compensation Table
Long Term
Annual Compensation Compensation
Number
Name and of Stock All Other
Principal Position Year Salary Bonus Options Compensation
Louis A. Guzzetti, Jr. 1993 $390,750 $ 0 168,000 $20,786 (1)
Chief Executive Officer 1992 367,750 0 0 20,171 (2)
1991 351,250 50,000 30,000 --
Jerrold I. Dolinger 1993 155,625 0 56,000 22,291 (1)(3)
Vice President, 1992 144,438 0 0 22,542 (2)(3)
Corporate Development 1991 137,250 19,000 20,000 --
George E. Fuehrer 1993 172,000 0 76,000 8,615 (1)
Senior Vice President, 1992 161,000 0 0 9,074 (2)
Planning 1991 153,000 20,000 40,000 --
James C. Hull 1993 187,312 0 16,000 18,360 (1)
Vice President and 1992 177,188 0 0 18,737 (2)
Chief Financial Officer 1991 169,000 23,000 20,000 --
Gene A. Iannazzo 1993 138,000 0 8,000 18,160 (1)(3)
Vice President, 1992 132,000 0 0 17,920 (2)(3)
Corporate Marketing 1991 132,000 29,700 5,000 --
(1) Includes Company contributions to accounts in the
EnviroSource, Inc. Savings Plan, as follows: Mr.
Guzzetti, $8,994; Mr. Dolinger, $4,497; Mr. Hull, $8,994;
and Mr. Iannazzo, $8,160 and Company contributions to
accounts in the EnviroSource, Inc. Profit Sharing Plan as
follows: Mr. Guzzetti, $11,792; Mr. Dolinger, $7,794; Mr.
Fuehrer, $8,615; and Mr. Hull, $9,366.
(2) Includes Company contributions to accounts in the
EnviroSource, Inc. Savings Plan, as follows: Mr.
Guzzetti, $8,728; Mr. Dolinger, $4,347; Mr. Hull, $8,728;
and Mr. Iannazzo, $7,920 and Company contributions to
accounts in the EnviroSource, Inc. Profit Sharing Plan as
follows: Mr. Guzzetti, $11,443; Mr. Dolinger, $8,195; Mr.
Fuehrer, $9,074; and Mr. Hull, $10,009.
(3) Includes $10,000 of loan forgiveness. See Item 13 of this
Report "Certain Relationships and Related Transactions -
Employee Loans".
------------------------
The following table sets forth the number and value of
options granted during the fiscal year ended December 31, 1993 to
the Chief Executive Officer and the other four most highly
compensated executive officers of the Company, as well as the per
share exercise price and the expiration date of options granted.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Percent
of Total
Options/
Number of SARs
Securities Granted to Exercise
Underlying Employees or Base Grant Date
Options/SARs in Fiscal Price Expiration Present
Name Granted(#) Year ($/Sh)(1) Date Value($)(2)
<S> <C> <C> <C> <C> <C>
Louis A. Guzzetti, Jr. 88,000(3) 12.8% $4.25 6/16/03 $259,600
80,000 11.6 4.25 6/16/03 236,000
Jerrold I. Dolinger 38,000(3) 5.5 4.25 6/16/03 112,100
18,000 2.6 4.25 6/16/03 53,100
George E. Fuehrer 56,000(3) 8.1 4.25 6/16/03 165,200
20,000 2.9 4.25 6/16/03 59,000
James C. Hull 16,000 2.3 4.25 6/16/03 47,200
Gene A. Iannazzo 8,000 1.2 4.25 6/16/03 23,600
</TABLE>
(1) The exercise price is equal to the closing market price of
the Company's Common Stock on the date of grant.
(2) The grant date present values were determined using the
Black-Scholes pricing model and the following assumptions:
50% expected stock price volatility, 6.36% risk-free rate of
return, zero dividend yield and option exercise at the end
of the 10-year term.
(3) These options vest at the annual rate of 33-1/3% beginning
on the first anniversary of the date of grant. All other
options listed vest at the annual rate of 20% beginning on
the first anniversary of the date of grant.
-------------------------
The following table sets forth the number and value at
December 31, 1993 of all exercisable and unexercisable options
held by the Chief Executive Officer and the other four most
highly compensated executive officers of the Company under the
Company's Incentive Stock Option Plan and the 1993 Stock Option
Plan. In 1993 none of the named executive officers exercised any
options.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/ Options/
SARs at SARs at
FY-End (#) FY-End ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable(1)
Louis A. Guzzetti, Jr. 168,000/195,000 $10,500/$15,750
Jerrold I. Dolinger 24,000/72,000 7,000/10,500
George E. Fuehrer 68,000/93,000 7,000/10,500
James C. Hull 14,000/32,000 7,000/10,500
Gene A. Iannazzo 11,200/13,800 1,750/2,625
(1) The value of unexercised in-the-money options represents the
difference between the fair market value of the underlying
securities as of December 31, 1993 and the exercise price of
such options.
-------------------------------
Mr. Iannazzo is a participant in the International Mill
Service, Inc. Retirement Plan for Salaried Employees (the "IMS
Retirement Plan"), a defined benefit plan. The IMS Retirement
Plan allocates annually to each participant five percent of such
participant's total annual cash compensation (excluding bonuses
in excess of the guideline bonus amount under the EnviroSource,
Inc. Management Compensation Incentive Plan for any year) and
provides for interest to accrue annually at the Pension Benefit
Guaranty Corporation's immediate annuity rate. Mr. Iannazzo is
the only named executive officer who participates in the IMS
Retirement Plan.
The estimated benefits payable to Mr. Iannazzo under the IMS
Retirement Plan upon retirement at normal retirement age is
$37,046 per year for life for a straight life annuity, with other
actuarially equivalent forms of benefit available under such
plan. Normal retirement age is defined in the IMS Retirement
Plan as age 65. All other named executive officers of the
Company participate in the EnviroSource, Inc. Profit Sharing
Plan, a defined contribution plan, contributions under which are
included in the Summary Compensation Table in this Item 11.
DIRECTORS' COMPENSATION
The Company pays each director other than Mr. Guzzetti and
general partners or employees of FS&Co. an annual fee of $15,000
(payable in four equal quarterly installments). The Company also
pays the reasonable expenses of each director in connection with
his attendance at each meeting of the Board of Directors or any
committee thereof. In connection with their election in February
1992 as directors of the Company, each of Messrs. Caldiero and
Miller was granted an option to purchase 20,000 shares of Common
Stock of the Company at an exercise price of $2.625 per share,
which became exercisable in September 1993 and expires in March
2002. Upon his resignation as a director in May 1993, Mr.
Miller's option would have expired within three months. However,
Mr. Miller's option was amended to provide for the continuation
thereof upon his re-election to the Board of Directors on August
5, 1993. On August 5, 1993, Mr. Askins was granted an option to
purchase 20,000 shares of Common Stock of the Company at an
exercise price of $4.25 per share, which becomes exercisable in
August 1995 and expires in August 2003. On November 1, 1993, the
Company granted an option to purchase 20,000 shares of Common
Stock of the Company to Mr. Seder at an exercise price of $4.25
per share, which becomes exercisable in November 1995 and expires
in November 2003. Mr. Seder's previously issued option to
purchase 20,000 shares of Common Stock at an exercise price of
$7.75 was terminated at the same time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation and Stock Option
Committee for 1993 were Messrs. Askins, Caldiero, Roth and
Simmons. Mr. Askins was an executive officer of the Company from
December 1976 until June 1984. The members of the Company's 1993
Stock Option Plan Committee for 1993 were Messrs. Caldiero, Roth
and Simmons.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Company's records, and other information obtained by the
Company from outside sources, indicate that as of March 1, 1994,
unless otherwise stated, the following persons were the
beneficial owners of more than 5% of the outstanding shares of
the Common Stock of the Company.(1)
Number of
Shares Percent
Name and Address Beneficially of
of Beneficial Owner Class Owned Class
FS Equity Common 20,574,079(3) 49.5%
Partners II, L.P. Stock
c/o Freeman Spogli & Co.(2)
11100 Santa Monica Blvd.
Suite 1900
Los Angeles, CA 90025
The IBM Retirement Plan Common 2,871,954(4) 7.1%
Trust Fund Stock
262 Harbor Drive
Stamford, CT 06904
(1) Unless otherwise disclosed, the persons named in the table
have sole voting and investment power with respect to all
shares of equity securities shown as beneficially owned by
them.
(2) FS&Co., as general partner of FS Equity Partners II, L.P.
("FSEP"), has the sole power to vote and dispose of such
shares. Messrs. Roth, Simmons, Spogli and Wardlaw, each of
whom is a director of the Company, and Bradford M. Freeman
are general partners of FS&Co., and as such may be deemed to
be the beneficial owners of the shares of the Company's
Common Stock indicated as owned by FSEP.
(3) Includes 1,469,933 shares issuable upon exercise of warrants
held by FSEP.
(4) Includes 205,200 shares issuable upon exercise of warrants
held by the IBM Trust.
SECURITY OWNERSHIP OF MANAGEMENT
As of March 1, 1994, the following directors, executive
officers and all directors and officers as a group, were the
beneficial owners of shares of Common Stock of the Company.
<TABLE>
Equity Securities of the Company
Beneficially Owned as of
March 1, 1994(1)
Number Percent
Name and Position with Company Class of Shares of Class
<S> <C> <C> <C>
Class A Directors
Louis A. Guzzetti, Jr., President and Common Stock 563,605(3) 1.4%
Chief Executive Officer
Jeffrey G. Miller Common Stock 20,000(3) *
William M. Wardlaw(2) Common Stock 20,574,079(4) 49.5%
Class B Directors
Wallace B. Askins Common Stock 16,356 *
John M. Roth(2) Common Stock 20,574,079(4) 49.5%
Arthur R. Seder, Jr. Common Stock 10,000 *
J. Frederick Simmons(2) Common Stock 20,574,079(4) 49.5%
Class C Directors
Raymond P. Caldiero Common Stock 20,000(3) *
Jon D. Ralph ----- ----- ---
William H. Sherer ----- ----- ---
Ronald P. Spogli, Common Stock 20,574,079(4) 49.5%
Chairman of the Board(2)
Other Four Most Highly Compensated
Executive Officers
Jerrold I. Dolinger Common Stock 84,810(3)(5) *
George E. Fuehrer Common Stock 128,153(3) *
James C. Hull Common Stock 52,520(3) *
Gene A. Iannazzo Common Stock 28,843(3) *
All directors and officers as a group
(17 persons) Common Stock 21,597,950(6) 51.5%
</TABLE>
* Less than 1%
(1) Unless otherwise disclosed, the persons named in the table
have sole voting and investment power with respect to all
shares of equity securities shown as beneficially owned by
them.
(2) All shares shown as beneficially owned are held of record by
FSEP. As general partner of FSEP, FS&Co. has the sole power
to vote and dispose of such shares. Messrs. Roth, Simmons,
Spogli and Wardlaw, each of whom is a director of the
Company, are general partners of FS&Co., and as such may be
deemed to be the beneficial owners of the shares of the
Company's Common Stock indicated as beneficially owned by
each of them.
(3) Includes (i) shares for which options under EnviroSource's
Incentive Stock Option Plan, EnviroSource's 1993 Stock
Option Plan or otherwise are exercisable within 60 days, as
follows: Mr. Dolinger, 28,000 shares; Mr. Fuehrer, 73,000
shares; Mr. Guzzetti, 177,000 shares; Mr. Hull, 16,000
shares; Mr. Iannazzo, 13,000 shares; and Messrs. Caldiero
and Miller, 20,000 shares each; and (ii) shares held through
the EnviroSource, Inc. Savings Plan and the EnviroSource,
Inc. Profit Sharing Plan as of December 31, 1993, as
follows: Mr. Dolinger, 36,810 shares; Mr. Fuehrer, 25,003
shares; Mr. Guzzetti, 81,255 shares; Mr. Hull, 35,020
shares; and Mr. Iannazzo, 15,593 shares.
(4) Includes 1,469,933 shares issuable upon exercise of warrants
held by FSEP.
(5) Excludes 2,000 shares owned by members of Mr. Dolinger's
immediate family as to which Mr. Dolinger disclaims
beneficial ownership.
(6) Includes (i) 394,600 shares for which options under
EnviroSource's Incentive Stock Option Plan, EnviroSource's
1993 Stock Option Plan or otherwise are exercisable within
60 days; (ii) 229,665 shares held through the EnviroSource,
Inc. Savings Plan and the EnviroSource, Inc. Profit Sharing
Plan as of December 31, 1993; (iii) 19,104,146 shares held
of record by FSEP; and (iv) 1,469,933 shares issuable upon
exercise of warrants held by FSEP. See footnote (2) for an
explanation of the relationship between certain directors
and FSEP.
------------------------------
CHANGE OF CONTROL
Not applicable.
Item 13. Certain Relationships and Related Transactions.
THE FSC TRANSACTION
On May 13, 1993, FS&Co., through an affiliate, purchased
certain equity securities of the Company from the Company and DKM
and WM Financial. See Item 1, "Business - The Recapitalization."
In connection with the equity investment, the Company paid FS&Co.
a transaction fee of $3,025,137 and DKM and WM Financial
collectively paid FS&Co. a transaction fee of $1,974,863.
Certain directors of the Company are general partners or
employees of FS&Co. See Item 10, "Directors of the Company."
FINANCING TRANSACTIONS
In 1984, the Company issued $10 million of debentures and a
warrant to purchase 1,000,000 shares of the Company's Common
Stock at an exercise price of $5.00 per share (the "1984
Warrant") to WM Financial for $10 million in cash. The
debentures bore interest at 10% and were payable in annual
installments of $2 million commencing January 1, 1991.
Subsequently, WM Financial assigned the warrant to DKM. Under
the terms of the 1984 Warrant, DKM could purchase 1,000,000
shares at any time through December 31, 1994. However, the
number of shares eligible to be purchased was automatically
reduced by 200,000 shares per year commencing January 1, 1991, to
the extent not previously purchased. In May 1990, these
debentures were exchanged for 1,840,000 shares of the Company's
Common Stock, and in connection with such exchange, the warrant
expiration date was extended to January 1, 1998 and the 200,000
share annual reductions were modified to commence January 1,
1994.
In November 1991, DKM waived certain anti-dilution and
pre-emptive right provisions of the 1984 Warrant in connection
with the Company's acquisition of the minority interest in
Envirosafe. In consideration for such waiver, the Company agreed
to reduce the exercise price of the 1984 Warrant from $5.00 to
$3.50 per share.
In July 1990, the Company issued a warrant to purchase
695,652 shares of the Company's Common Stock at an exercise price
of $5.75 per share (the "1990 Warrant") to DKM in consideration
for DKM's agreement to guarantee up to $12 million of letter of
credit reimbursement obligations of the Company. In connection
with DKM's consent to the April 15, 1991 amendment to the
Company's credit agreement, the Company agreed to reduce the
exercise price of such warrant from $5.75 to $4.00 per share.
As part of the Recapitalization, DKM sold the 1984 Warrant
and the 1990 Warrant to the Investors. Messrs. Spogli, Roth,
Simmons and Wardlaw are each general partners of FS&Co. FS&Co.
sold a portion of each of the 1984 Warrant and the 1990 Warrant
to the IBM Trust. Concurrent with the closing of the FSC
Transaction, the 1984 Warrants were amended to modify the first
200,000 share annual reduction to commence March 31, 1994,
provide for the adjustment of the exercise price under certain
circumstances and provide for a cashless exercise feature. The
1990 Warrants were amended to provide for the adjustment of the
exercise price under certain circumstances and provide for a
cashless exercise feature. See Item 1, "Business - The
Recapitalization," Item 12, "Security Ownership of Management,"
and Note F.
MANAGEMENT AGREEMENT
In 1984, the Company entered into a consulting agreement
with WM Financial pursuant to which WM Financial provided advice
and assistance in connection with corporate and financial
planning and the investigation, development and negotiation of
acquisitions and financing arrangements, for an annual fee of
$400,000. The consulting agreement was terminated upon
consummation of the FSC Transaction.
FS&Co. provides advice and assistance to the Company
regarding corporate and financial planning and the development of
business strategies. The Company does not pay FS&Co. a fee for
such services but has agreed to reimburse FS&Co. for all expenses
incurred in connection with such advice and assistance.
EMPLOYEE LOANS
In 1986, the Company granted Mr. Guzzetti a loan of $500,000
(the "1986 Loan") bearing interest at 7.5% per annum and
repayable in ten equal annual installments. The first $50,000
installment was repaid on March 31, 1988, the second $50,000 on
April 1, 1989 and the third on April 18, 1990. Effective March
31, 1991, the Company agreed to defer the 1991 principal
installment payment and extend the maturity of such loan by one
year. In addition, the Company loaned Mr. Guzzetti $26,250 to
finance the payment of interest on such loan otherwise due on
March 31, 1991, represented by a new note bearing interest at
7.5% per annum and repayable on the date the 1986 Loan is due.
Effective March 31, 1992, the Company agreed to defer the 1992
principal installment payment and extend the maturity of such
loan by an additional year. In addition, the Company loaned Mr.
Guzzetti $26,250 to finance the payment of interest on such loan
otherwise due on March 31, 1992, represented by a new note
bearing interest at 7.5% per annum and repayable on the date the
1986 Loan is due. Effective March 31, 1993, the Company and Mr.
Guzzetti agreed to amend the terms of the 1986 Loan to (i)
increase the principal amount of such loan by the amount of
interest otherwise due on March 31, 1993, (ii) reduce the
interest rate commencing April 1, 1993 to 6% per annum, payable
annually half in cash and half by adding to the principal amount
of the loan on each due date of such interest, (iii) provide for
a lump sum payment of principal and accrued and unpaid interest
thereon on March 31, 1998, in lieu of annual installment
payments, (iv) require payment in full within 30 days of
termination of employment and (v) provide for forgiveness of all
outstanding amounts due in the event Mr. Guzzetti dies while
still employed by the Company. The outstanding principal amount
(including financed interest payments) of the 1986 Loan will be
$445,669 on March 31, 1994.
In connection with Common Stock purchases by certain
executive officers of the Company in January 1989, the Company
loaned $350,000 to Mr. Guzzetti, $220,000 to Mr. Fuehrer, $90,000
to Mr. Anderson, $150,000 to James H. Cornell, former Vice
President, General Counsel and Secretary, and $150,000 to Mr.
Dolinger. All of such indebtedness bears interest payable
annually at the annual rate of 8%, and its principal amount is
payable on the earlier of January 13, 1994 or the date of such
borrower's termination of employment with the Company. As of
April 1, 1991, the Company agreed to increase the principal
amount of such loans by the amount of interest payments otherwise
then due. Effective April 1, 1992, the Company agreed to
increase the principal amount of such loans by the amount of
interest payments otherwise due on April 1, 1992. Effective
April 1, 1993, the Company agreed to (i) increase the principal
amount of such loans by the amount of interest payments otherwise
due on April 1, 1993, (ii) extend the maturity of such loans to
March 31, 1998, (iii) reduce the interest rate payable on such
loans to 6% per annum, payable annually half in cash and half by
adding to the principal amount of such loans on each due date of
such interest, (iv) require payment in full of all outstanding
amounts due under the loans, including accrued interest, within
30 days of termination of employment and (v) provide for
forgiveness of all outstanding amounts due under the loans in the
event of the officer's death while still employed by the Company.
Mr. Cornell's loan, together with accrued and financed interest,
was repaid in full in 1993. The aggregate principal amounts
(including financed interest payments) of such loans will be
$454,126 for Mr. Guzzetti, $285,451 for Mr. Fuehrer, $116,775 for
Mr. Anderson, and $194,626 for Mr. Dolinger on April 1, 1994.
In connection with his relocation to Connecticut in 1989,
the Company loaned an aggregate of $40,000 to Mr. Dolinger. The
Company agreed to forgive one-fourth of such indebtedness in July
1990, 1991, 1992 and 1993. The amount of such forgiveness has
been recorded as income to Mr. Dolinger.
In connection with Mr. Iannazzo's relocation to Connecticut
in 1989, the Company loaned him an aggregate of $40,000. The
Company agreed to forgive one-fourth of such indebtedness in
November 1990, 1991, 1992 and 1993. The amount of such
forgiveness has been recorded as income to Mr. Iannazzo.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Documents Filed as Part of this Report.
(1) Financial Statements.
The following Consolidated Financial Statements of the
Company and its subsidiaries are included in this Report:
Reports of Independent Auditors
Consolidated Balance Sheet at December 31, 1993 and
1992
Consolidated Statement of Operations for the Years
Ended December 31, 1993, 1992 and 1991
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1993, 1992 and 1991
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules.
The following schedules to the Consolidated Financial
Statements of the Company and its subsidiaries are included in
this Report:
Schedule
II - Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees other than
Related Parties
III - Condensed Financial Information of Registrant
IV - Property, Plant and Equipment
VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
VIII - Valuation and Qualifying Accounts
X - Supplementary Income Statement Information
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required or are inapplicable, and therefore have been
omitted, or the required information is disclosed in the
Consolidated Financial Statements.
(3) Exhibits.
2.1 - Second Modified Plan of Reorganization of the
Company (incorporated herein by reference to
Exhibits 1, 2 and 3 to the Company's Current
Report on Form 8-K dated November 30, 1983 (File
No. 1-1363)).
2.2 - Order, dated January 13, 1984, of the United
States District Court for the Northern District
of Ohio (modifying the Second Modified Plan of
Reorganization of the Company) (incorporated
herein by reference to Exhibit 2.2 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1983 (File No. 1-
1363)).
2.3 - Agreement and Plan of Merger, dated as of
November 26, 1991, by and among the Company,
Envirosafe Services, Inc. and ESI Merger Co.
(incorporated herein by reference to Annex A to
the Joint Proxy Statement/Prospectus included in
the Company's Registration Statement on Form S-
4, filed on January 24, 1992 (File No. 33-
45270)).
3.1 - Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (File
No. 1-1363)).
3.2 - Certificate of Amendment to the Certificate of
Incorporation of the Company, dated February 26,
1992 (incorporated herein by reference to
Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1991 (File No. 1-1363)).
3.3 - Certificate of Amendment to the Certificate of
Incorporation of the Company, dated August 5,
1993 (incorporated herein by reference to
Exhibit 4.9 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30,
1993 (File No. 1-1363)).
3.4 - Certificate of Designation of Shares of Class H
Cumulative Preferred Stock of the Company
(incorporated herein by reference to Exhibit 3.2
to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1987 (File
No. 1-1363)).
<PAGE>
3.5 - Certificate of Designation of Shares of Class I
Cumulative Redeemable Preferred Stock, Series A,
Increasing Rate of the Company (incorporated
herein by reference to Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987 (File No. 1-
1363)).
3.6 - Certificate of Designation of Shares of Class I
Cumulative Redeemable Preferred Stock, Series B,
Exchangeable of the Company (incorporated herein
by reference to Exhibit 3.6 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 (File No. 1-1363)).
3.7 - Certificate of Designation of Shares of Class I
Preferred Stock, Series C of the Company
(incorporated herein by reference to Exhibit 3.5
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File
No. 1-1363)).
3.8 - Certificate of Designation of the Preferences of
Class J Convertible Preferred Stock of the
Company (incorporated herein by reference to
Exhibit 3.7 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed June
14, 1993 (File No. 33-62050)).
3.9 - Certificate of Correction to the Certificate of
Designation of the Preferences of Class J
Convertible Preferred Stock of the Company
(incorporated herein by reference to Exhibit 4.8
to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1993 (File
No. 1-1363)).
3.10 - By-Laws of the Company (incorporated herein by
reference to Exhibit C (pages C-1 to C-9) to the
Company's Proxy Statement filed April 24, 1987,
in respect of its 1987 Annual Meeting of
Stockholders (File No. 1-1363)).
3.11 - Amendment to the By-Laws of the Company
(incorporated herein by reference to Exhibit 3.4
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987 (File
No. 1-1363)).
<PAGE>
4.1 - Term Loan Agreement, dated as of December 28,
1990, between West One Bank, N.A., Imsamet of
Idaho, Inc., the Company and International Mill
Service, Inc. (The Company agrees to furnish a
copy of such agreement to the Commission upon
request).
4.2 - Letter Amendment, effective January 28, 1992, to
the Term Loan Agreement to which reference is
made in Exhibit 4.1 to this Annual Report on
Form 10-K. (The Company agrees to furnish a
copy of such amendment to the Commission upon
request.)
4.3 - Loan and Security Agreement, dated as of April
6, 1993, between IMS Funding Corporation and
Greyhound Financial Corporation. (The Company
agrees to furnish a copy of such agreement to
the Commission upon request.)
4.4 - Indenture, dated as of July 1, 1993, between the
Company and United States Trust Company of New
York, as Trustee, relating to the Company's 9-
3/4% Senior Notes due 2003, including the form
of such Notes attached as Exhibit A thereto
(incorporated herein by reference to Exhibit
4.10 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1993
(File No. 1-1363)).
4.5 - Registration Rights Agreement, dated as of May
13, 1993, among the Company, FS Equity Partners
II, L.P., The IBM Retirement Plan Trust Fund and
Enso Partners, L.P. (incorporated herein by
reference to Exhibit 4.29 to Amendment No. 1 to
the Company's Registration Statement on Form S-
1, filed June 14, 1993 (File No. 33-62050)).
4.6 - Warrants to purchase shares of Common Stock of
the Company issued to FS Equity Partners II,
L.P., pursuant to the Stock Purchase Agreement,
dated as of April 16, 1993, among the Company,
The Dyson-Kissner-Moran Corporation, WM
Financial Corporation and FS Equity Partners II,
L.P., as amended (incorporated herein by
reference to Exhibit 4.30 to Amendment No. 1 to
the Company's Registration Statement on Form S-
1, filed June 14, 1993 (File No. 33-62050)).
<PAGE>
4.7 - Warrants to purchase shares of Common Stock of
the Company issued to The IBM Retirement Plan
Trust Fund, pursuant to the Purchase Agreement
and Assignment and Assumption Agreement, dated
as of May 13, 1993, among the Company, FS Equity
Partners II, L.P. and The IBM Retirement Plan
Trust Fund (incorporated herein by reference to
Exhibit 4.31 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed June
14, 1993 (File No. 33-62050)).
4.8 - Warrants to purchase shares of Common Stock of
the Company issued to Enso Partners, L.P.,
pursuant to the Stock Purchase Agreement, dated
as of May 13, 1993, among the Company, The
Dyson-Kissner-Moran Corporation, WM Financial
Corporation and Enso Partners, L.P.
(incorporated herein by reference to Exhibit
4.32 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed June
14, 1993 (File No. 33-62050)).
4.9 - Credit Agreement, dated as of June 24, 1993,
among the Company, International Mill Service,
Inc., the banks parties thereto, Chemical Bank,
Banque Paribas and Credit Lyonnais New York
Branch, as Co-Agents, and Chemical Bank, as
Administrative Agent (incorporated herein by
reference to Exhibit 28.3 to the Company's
Current Report on Form 8-K, dated July 1, 1993
(File No. 1-1363)).
4.10* - First Amendment to the Credit Agreement, dated
as of December 23, 1993, among the Company,
International Mill Service, Inc., the banks
parties thereto, Chemical Bank, Banque Paribas
and Credit Lyonnais New York Branch, as Co-
Agents, and Chemical Bank, as Administrative
Agent.
4.11 - Warrants to purchase 300,000 shares of Common
Stock issued to Chemical Bank, NCNB Texas
National Bank, Banque Paribas, National Bank of
Canada and Royal Bank of Canada (incorporated
herein by reference to Exhibit 10.24 to
Amendment No. 2 to the Company's Registration
Statement on Form S-1, filed October 31, 1991
(File No. 33-42381)).
* Filed herewith.
<PAGE>
10.1 - Restated Incentive Stock Option Plan of the
Company, as amended (incorporated herein by
reference to Exhibit A to the Company's
Registration Statement on Form S-8, filed
January 17, 1989 (File No. 33-26633)).
10.2 - Stock Purchase Agreement, dated as of April 16,
1993, among the Company, The Dyson-Kissner-Moran
Corporation, WM Financial Corporation and FS
Equity Partners II, L.P. (incorporated herein by
reference to Exhibit 4.21 to the Company's Form
8 Amendment to Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 (File
No. 1-1363)).
10.3 - First Amendment to the Stock Purchase Agreement,
dated as of May 13, 1993, among the Company, The
Dyson-Kissner-Moran Corporation, WM Financial
Corporation and FS Equity Partners II, L.P.
(incorporated herein by reference to Exhibit
28.2 to the Company's Current Report on Form 8-
K, dated May 27, 1993 (File No. 1-1363)).
10.4 - Purchase Agreement and Assignment and Assumption
Agreement, dated as of May 13, 1993, among the
Company, FS Equity Partners II, L.P. and The IBM
Retirement Plan Trust Fund (incorporated herein
by reference to Exhibit 28.4 to the Company's
Current Report on Form 8-K, dated May 27, 1993
(File No. 1-1363)).
10.5 - Stock Purchase Agreement, dated as of May 13,
1993, among the Company, The Dyson-Kissner-Moran
Corporation, WM Financial Corporation and Enso
Partners, L.P. (incorporated herein by reference
to Exhibit 28.3 to the Company's Current Report
on Form 8-K, dated May 27, 1993 (File No. 1-
1363)).
10.6 - Promissory Note of Louis A. Guzzetti, Jr., dated
March 31, 1993, amending and replacing the
Promissory Notes dated October 15, 1987, March
31, 1991 and March 31, 1992 and the Letter
Amendments dated April 13, 1991 and May 12,
1992, payable to the Company in the principal
amount of $432,678.50 (incorporated herein by
reference to Exhibit 10.13 to Post-Effective
Amendment No. 1 to the Company's Registration
Statement on Form S-1, filed September 16, 1993
(File No. 33-46930)).
<PAGE>
10.7 - Promissory Notes of Aarne Anderson, James H.
Cornell, Jerrold I. Dolinger, George E. Fuehrer,
George T. Milano and Mr. Guzzetti, dated as of
April 1, 1993, amending and replacing the
Promissory Notes dated January 13, 1989, April
1, 1991 and April 1, 1992, payable to the
Company in the aggregate principal amount of
$1,247,123.80 (incorporated herein by reference
to Exhibit 10.17 to Post-Effective Amendment No.
1 to the Company's Registration Statement on
Form S-1, filed September 16, 1993 (File No. 33-
46930)).
10.8 - Stock Option Agreement, dated March 18, 1992,
between the Company and Raymond P. Caldiero
(incorporated herein by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1992
(File No. 1-1363)).
10.9 - Stock Option Agreement, dated March 18, 1992,
between the Company and Jeffrey G. Miller
(incorporated herein by reference to Exhibit
10.21 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1992
(File No. 1-1363)).
10.10 - Amendment, dated August 5, 1993, to the Stock
Option Agreement, dated March 18, 1992, between
the Company and Jeffrey G. Miller, to which
reference is made in Exhibit 10.9 to this Annual
Report on Form 10-K (incorporated herein by
reference to Exhibit 10.22 to Post-Effective
Amendment No. 1 to the Company's Registration
Statement on Form S-1, filed September 16, 1993
(File No. 33-46930)).
10.11 - Stock Option Agreement, dated August 5, 1993,
between the Company and Wallace B. Askins
(incorporated herein by reference to Exhibit
10.23 to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-1,
filed September 16, 1993 (File No. 33-46930)).
10.12* - Stock Option Agreement, dated November 1, 1993,
between the Company and Arthur R. Seder, Jr.
* Filed herewith.
<PAGE>
10.13 - 1993 Stock Option Plan of the Company
(incorporated herein by reference to Exhibit
10.21 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed June
14, 1993 (File No. 33-62050)).
21.1* - Subsidiaries of the Company.
23.1* - Consent of Ernst & Young.
23.2* - Consent of KPMG Peat Marwick.
(b) Reports on Form 8-K.
During the last quarter of the fiscal year ended
December 31, 1993, the Company filed no Current Reports on Form
8-K.
* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ENVIROSOURCE, INC.
Dated: March 25, 1994 By: /S/ LOUIS A. GUZZETTI, JR.
Louis A. Guzzetti, Jr.
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities indicated
on March 25, 1994.
Signature Title
/S/ LOUIS A. GUZZETTI, JR. President and Chief Executive
Louis A. Guzzetti, Jr. Officer (Principal Executive
Officer) and Director
/S/ JAMES C. HULL Vice President and Chief
James C. Hull Financial Officer (Principal
Financial and Accounting
Officer)
/S/ RONALD P. SPOGLI Chairman of the Board of
Ronald P. Spogli Directors
/S/ WALLACE B. ASKINS Director
Wallace B. Askins
/S/ RAYMOND P. CALDIERO Director
Raymond P. Caldiero
/S/ JEFFREY G. MILLER Director
Jeffrey G. Miller
Director
Jon D. Ralph
/S/ JOHN M. ROTH Director
John M. Roth
/S/ ARTHUR R. SEDER, JR. Director
Arthur R. Seder, Jr.
/S/ WILLIAM H. SHERER Director
William H. Sherer
/S/ J. FREDERICK SIMMONS Director
J. Frederick Simmons
Director
William M. Wardlaw
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
EnviroSource, Inc.
We have audited the accompanying consolidated balance sheet of
EnviroSource, Inc. as of December 31, 1993 and 1992, and the
related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1993. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our
audits. We did not audit the 1991 financial statements of
Envirosafe Services, Inc., a consolidated subsidiary, which
statements reflect total revenues of $37.5 million for the year
ended December 31, 1991. The 1991 financial statements of
Envirosafe Services, Inc. were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it
relates to data included for Envirosafe Services, Inc., is based
solely on the report of the other auditors.
We conducted our audits 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 audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and, in 1991, the report of
other auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of EnviroSource, Inc. at December 31, 1993 and
1992, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, based on our audits and in
1991, the report of other auditors, the related financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note J to the financial statements, in 1993 the
Company changed its method of accounting for income taxes.
ERNST & YOUNG
Stamford, Connecticut
March 2, 1994
<PAGE>
Independent Auditors' Report
The Board of Directors
Envirosafe Services, Inc.:
We have audited the consolidated statements of operations,
shareholders' equity, and cash flows of Envirosafe Services, Inc.
and subsidiaries for the year ended December 31, 1991 (not
presented separately herein). In connection with our audit of
the consolidated financial statements, we have audited the
financial statement schedules of Property, Plant and Equipment
(Schedule V), Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment (Schedule VI) and
the Valuation and Qualifying Accounts (Schedule VIII) for the
year ended December 31, 1991 (not presented separately herein).
These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on
our audits.
We conducted our audits 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 disclosure 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of
operations and cash flows of Envirosafe Services, Inc. and
subsidiaries for the year ended December 31, 1991, in conformity
with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK
Philadelphia, Pennsylvania
February 28, 1992
<PAGE>
EnviroSource, Inc.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31,
1993 1992
ASSETS
Current assets:
Cash and cash equivalents $ 10,582 $ 10,695
Accounts receivable, less allowance
for doubtful accounts of $944
and $1,333 36,196 37,394
Other current assets 8,093 7,577
---------- ---------
Total current assets 54,871 55,666
Property, plant and equipment:
Land and improvements 6,085 7,422
Landfill development 38,303 32,153
Buildings and improvements 15,505 15,246
Machinery and equipment 188,892 176,798
---------- ---------
248,785 231,619
Less allowance for depreciation 107,241 86,048
---------- ---------
141,544 145,571
Goodwill, less amortization 172,166 198,517
Landfill permits, less amortization 24,661 25,967
Closure trust funds and deferred
charges, less amortization 14,909 10,600
Debt issuance costs, less amortization 9,061 2,303
Other assets 10,033 5,923
---------- ---------
$ 427,245 $ 444,547
========== =========
See Notes to Consolidated Financial Statements.
<PAGE>
EnviroSource, Inc.
CONSOLIDATED BALANCE SHEET -- Continued
(Dollars in thousands)
December 31,
1993 1992
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 13,607 $ 11,873
Salaries, wages and related benefits 9,075 7,410
Insurance 7,217 10,932
Interest 1,072 6,105
Estimated restructuring costs 10,900
Other current liabilities 21,904 19,359
Current portion of debt and
redeemable preferred stock 8,492 5,125
--------- ---------
Total current liabilities 72,267 60,804
Long-term debt 235,842 235,668
Other liabilities 66,208 83,676
Redeemable preferred stock 38,711 43,850
Commitments and contingencies
(Notes D and O)
Stockholders' equity:
Class H Cumulative Preferred Stock 27
Common stock, par value $.05 per
share, 60,000,000 shares author-
ized, 40,052,259 shares issued and
outstanding in 1993 and 25,002,454
shares issued in 1992 2,003 1,250
Capital in excess of par value 162,461 129,394
Accumulated deficit (148,605) (100,209)
Treasury stock (8,923)
Stock purchase loans receivable from
officers (840) (990)
Canadian translation adjustment (802)
--------- ---------
Total stockholders' equity 14,217 20,549
--------- ---------
$ 427,245 $ 444,547
========= =========
See Notes to Consolidated Financial Statements.
<PAGE>
EnviroSource, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except for per share amounts)
Years Ended December 31,
1993 1992 1991
Revenues $ 271,026 $ 232,652 $ 223,902
Cost of revenues 208,511 171,803 168,563
Selling, general and admin-
istrative expenses 35,362 34,504 36,394
Restructuring charge, net 18,500
--------- --------- ---------
Operating income 8,653 26,345 18,945
Interest income 1,185 1,069 1,576
Interest expense (28,863) (33,653) (35,856)
--------- --------- ---------
(19,025) (6,239) (15,335)
Income tax expense 2,549 1,299 1,483
Minority interest 566
--------- --------- ---------
Loss before extraordinary loss
and cumulative effect of
accounting change (21,574) (7,538) (17,384)
Extraordinary loss from
extinguishment of debt (21,930)
Cumulative effect of income
tax accounting change (2,302)
--------- --------- ---------
Net loss (45,806) (7,538) (17,384)
Preferred stock dividend
requirements and accretion (3,182) (4,095) (4,691)
--------- --------- ---------
Loss applicable to common
shares and equivalents $ (48,988) $ (11,633) $ (22,075)
========= ========= =========
Loss per share:
Before extraordinary loss
and cumulative effect of
accounting change $ (.73) $ (.52) $ (1.51)
Extraordinary loss (.64)
Cumulative effect of
accounting change (.07)
--------- --------- ---------
Net loss $ (1.44) $ (.52) $ (1.51)
========= ========= =========
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
EnviroSource, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Stock
Purchase
Class H Loans and
Cumulative Capital in Canadian
Preferred Common Excess of Accumulated Treasury Translation
Stock Stock Par Value Deficit Stock Adjustment Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1990 $ 27 $ 696 $ 81,775 $ (69,378) $ (8,923) $ (990) $ 3,207
Warrant price adjustment 350 350
Warrants issued 762 762
Common stock issued
(3,339,345 shares) 167 26,897 27,064
Net loss (17,384) (17,384)
Preferred stock dividends (3,089) (3,089)
Preferred stock accretion (215) (215)
--------- --------- --------- --------- --------- --------- ---------
Balance December 31, 1991 27 863 109,784 (90,066) (8,923) (990) 10,695
Common stock issued
(7,741,243 shares) 387 18,952 19,339
Value attributed to Enviro-
safe stock options becoming
EnviroSource options 658 658
Net loss (7,538) (7,538)
Preferred stock dividends (2,455) (2,455)
Preferred stock accretion (150) (150)
--------- --------- --------- --------- --------- --------- ---------
Balance December 31, 1992 27 1,250 129,394 (100,209) (8,923) (990) 20,549
Common stock issued
(16,460,555 shares) (27) 753 33,067 8,923 42,716
Net loss (45,806) (45,806)
Preferred stock dividends (2,455) (2,455)
Preferred stock accretion (135) (135)
Loan repayment 150 150
Translation adjustment (802) (802)
--------- --------- --------- --------- --------- --------- ---------
Balance December 31, 1993 - $ 2,003 $ 162,461 $(148,605) - $ (1,642) $ 14,217
========= ========= ========= ========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
EnviroSource, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Years Ended December 31,
1993 1992 1991
OPERATING ACTIVITIES
Loss before extraordinary loss and cumu-
lative effect of accounting change $(21,574) $(7,538) $(17,384)
Adjustments to reconcile loss to cash
provided by operations:
Restructuring charge, net 18,500
Depreciation 27,241 24,682 25,161
Amortization 10,782 12,583 12,085
Closure cost amortization and accruals 3,219 2,926 2,316
Net changes in working capital (1,505) (3,850) 444
Other (941) 792 (2,442)
-------- ------- --------
Cash provided by operating activities 35,722 29,595 20,180
-------- ------- --------
INVESTING ACTIVITIES
Property, plant and equipment:
Additions (32,768) (39,126) (25,824)
Proceeds from dispositions 128 4,467 2,441
Landfill permit additions and
closure expenditures (965) (2,657) (3,300)
Closure trust fund payments (5,174) (1,797) (2,211)
Ongoing net cash flows related to
IU acquisition (4,816) 8,372 (2,354)
Disposition of an equity investment 12,000
Refunds (deposits) on equipment
to be leased 4,005 (4,005)
Other 131 (1,066) (2,990)
-------- ------- --------
Cash used by investing activities (43,464) (27,802) (26,243)
-------- ------- --------
FINANCING ACTIVITIES
Sale of common stock 42,716 111
Issuance of debt 238,500 46,915 31,349
Debt issuance costs (9,687)
Debt repayments (247,404) (43,362) (32,112)
Cash portion of extraordinary loss (11,348)
Redemption of preferred stock (5,148) (1,352)
Preferred stock exchange costs (218)
-------- ------- --------
Cash provided (used) by financing
activities 7,629 2,312 (981)
-------- ------- --------
CASH AND CASH EQUIVALENTS
Increase (decrease) during the year (113) 4,105 (7,044)
Beginning of year 10,695 6,590 13,634
-------- -------- --------
End of year $ 10,582 $ 10,695 $ 6,590
======== ======== ========
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements
include the accounts of the Company and its subsidiaries.
Intercompany accounts and transactions have been eliminated.
Certain amounts in prior years' financial statements have been
reclassified to conform with the current year presentation.
Cash equivalents: Cash equivalents are highly liquid investments
with maturities of three months or less when acquired.
Property, plant and equipment: Property, plant and equipment is
stated at cost. For financial reporting purposes, depreciation is
computed by the straight-line method based on the following lives:
buildings -- 10 to 30 years and machinery and equipment -- 3 to 25
years. Landfill development costs are depreciated based on the
ratio of cubic yards of disposal capacity utilized to total cubic
yards of disposal capacity.
Landfill permits: Permit costs for prospective landfills are
expensed until management determines that permitting efforts will
be successful. Costs to acquire or maintain permits for authorized
facilities are deferred and amortized based on the ratio of cubic
yards of disposal capacity utilized to total cubic yards of
disposal capacity. Accumulated amortization was $7.6 million and
$5.5 million at December 31, 1993 and 1992.
Closure trust funds and deferred charges: An Idaho closure trust
fund secures Idaho landfill closure and post-closure obligations,
which are being accrued as liabilities in the balance sheet. The
trust fund is invested in U.S. government and government agency
securities that are carried at cost, which approximates market
value. Interest income is recognized and excess funds, if any,
will revert to the Company.
Ohio landfill trust fund balances represent deferred charges that
are being amortized as part of closure costs. These trusts (also
invested in U.S. government and government agency securities) will
fund the latter stages of closure activity and all post-closure
activity in perpetuity. Excess funds, if any, will revert to the
State of Ohio; accordingly, no interest income is recognized.
Accumulated amortization was $5.8 million and $4.3 million at
December 31, 1993 and 1992.
Closure costs: The estimated costs of the future closure and post-
closure monitoring and maintenance of landfills are amortized or
accrued based on the ratio of cubic yards of disposal capacity
utilized to total cubic yards of disposal capacity. Closure costs
are similar to landfill development costs, but are generally
incurred for aboveground construction. Closure cost accruals of
$8.7 million and $7.6 million are included in other long-term
liabilities at December 31, 1993 and 1992.
Goodwill: The excess of purchase price over fair value of
identified net assets of acquired businesses is recorded as an
asset and amortized using the straight-line method over 40 years.
Accumulated amortization was $32.5 million and $26.9 million at
December 31, 1993 and 1992. Most of the goodwill is identified
with the Company's excellent reputation and long-term relationships
with steel industry customers. The goodwill would not be impaired
unless the Company were to lose a significant number of these
customers. The Company has a history of high customer contract
renewal rates.
Revenues: Most of the Company's revenues are recognized as services
are provided to customers. Revenues of $27.2 million in 1993, $6.7
million in 1992 and $3.5 million in 1991 are from long-term
contracts to design, supply and construct "wet scrubber sludge"
stabilization systems for electric utilities. Revenues from these
contracts are recognized using the percentage-of-completion method,
with progress toward completion measured in labor hours. Such
contracts are segmented between "design and supply" and
"construction", and a separate profit margin is recognized for each
segment. Unbilled revenues of $4.1 million included in accounts
receivable at December 31, 1992, became billable in 1993 as
contract milestones were reached. Other assets includes long-term
contract receivables of $4 million at December 31, 1993 that become
due in 1995.
Postemployment benefits: The requirements of Statement of
Financial Accounting Standards No. 112, to be adopted as of January
1, 1994, will not have a material effect on the Company.
Per share calculations: Per share amounts are based on the
weighted average number of common shares outstanding: 34,009,000
in 1993, 22,251,000 in 1992 and 14,572,000 in 1991. As
anticipated, the Class J preferred stock was automatically
converted into common stock (Note B); accordingly, all common share
and per share amounts reflect it as common stock from its May 13,
1993 issuance. Because there were losses in all years, common stock
equivalents and Class G preferred stock had no dilutive effects.
On May 13, 1993 the Company issued the equivalent of 13,333,333
shares of common stock, including the Class J preferred stock, and
all the outstanding Class H preferred stock was exchanged into
3,066,667 common shares (Note B). Had such transactions taken
place at the beginning of 1993, the per share loss before the
extraordinary loss and the cumulative effect of an accounting
change would have been $.58.
NOTE B -- RECAPITALIZATION
All of the following transactions were completed on May 13, 1993
except for the August 5, 1993 conversion of Class J preferred stock
and replacement of three directors.
- - The Company sold the equivalent of 13,333,333 shares of the
Company's common stock to an affiliate of Freeman Spogli &
Co. ("Freeman Spogli") and another investor for $50 million in
cash ($42.7 million after fees and expenses). The securities
sold were 6,433,333 shares of common stock and 230,000 shares
of a new Class J preferred stock. On August 5, 1993 all the
Class J preferred stock was automatically converted into
6,900,000 shares of common stock upon the effectiveness of an
amendment to the Company's Certificate of Incorporation
increasing the number of authorized common shares to
60,000,000.
- - Freeman Spogli and the other investor purchased from The
Dyson-Kissner-Moran Corporation and WM Financial Corporation
(together "DKM"), for an aggregate purchase price of $32.6
million, the following: (i) 5,636,568 shares of the Company's
common stock, (ii) all 107,000 outstanding shares of the
Company's Class H preferred stock, (iii) warrants to purchase
1,695,652 shares of the Company's common stock at exercise
prices of $3.50 and $4.00 per share, and (iv) an option
(subsequently exercised) to purchase 1,000 shares of the
Company's common stock from DKM for $3.75 per share.
Simultaneous with their purchase, all of the outstanding
shares of Class H preferred stock were exchanged for 3,066,667
newly issued shares of the Company's common stock and the
warrants were amended to provide for their exercise using a
cashless exercise feature.
- - Freeman Spogli sold a portion of the aforementioned securities
to The IBM Retirement Plan Trust Fund (the "IBM Trust"). As
a result of these transactions, Freeman Spogli owns 47.3% and
the IBM Trust owns 6.6% of the total outstanding voting power
of the Company, and DKM no longer owns any interest in the
Company.
- - Four of the 11 members of the Board of Directors were replaced
by designees of Freeman Spogli. Three additional members were
replaced by Freeman Spogli designees at the Company's Annual
Meeting on August 5, 1993.
- - The net proceeds from the equity sale were applied to (i)
redeem for $4.3 million the Class B, D and E preferred stock
held by DKM, (ii) repay $10 million of notes due June 30,
1994, and (iii) reduce bank credit agreement borrowings.
In addition, on July 1, 1993:
- - The Company sold $220 million principal amount of 9-3/4%
Senior Notes for $212.4 million of net proceeds, after
expenses and underwriting discounts and commissions. See Note
D. Most of the proceeds were used to retire the 14%
Subordinated Notes and reduce bank credit agreement borrowings
to zero.
- - The Company entered into a new $60 million bank credit
facility to replace its then existing bank credit agreement.
See Note D.
- - The Company called all of its outstanding 14% Subordinated
Notes for redemption, at a price of 106.2% of principal amount
plus interest through the redemption date. The redemption was
completed on August 2, 1993.
Extraordinary Loss
- - The above transactions resulted in an extraordinary loss from
extinguishment of debt of $21.9 million, consisting of the
unamortized debt discount and issuance costs of the retired
debt and terminated bank credit agreement together with the
redemption premium and other related costs for the 14%
Subordinated Notes.
NOTE C -- RESTRUCTURING CHARGE, NET
In the fourth quarter of 1993, the Company recorded a $22 million
restructuring charge, primarily to (i) terminate recycling
initiatives that have not achieved profitability, (ii) discontinue
efforts to obtain a hazardous waste landfill permit in
Pennsylvania, and (iii) reorganize its Envirosafe and Conversion
Systems units into the Treatment and Disposal Services business
segment. The terminated recycling units (for the thermal treatment
of electric arc steel furnace flue dust to recover zinc and for the
sale of stabilized electric utility scrubber sludge for use in
manufacturing concrete masonry blocks), together with Pennsylvania
permitting efforts and other terminated activities, incurred 1993
operating losses and costs that reduced operating income by $3.3
million. Reorganizing into the Treatment and Disposal Services
business segment has reduced staff headcount and eliminated an
office that together would have cost approximately $2.8 million in
1994. In addition, the Company has taken steps to reduce its
annual corporate headquarters costs by approximately $1 million.
Approximately $10 million of the total restructuring charge
represents anticipated non-cash losses resulting primarily from the
write-off of property, plant and equipment. The charge also
includes $1 million for estimated operating losses while the
discontinued activities are being terminated, mostly during the
first half of 1994, and the remainder represents estimated 1994
cash costs to close down operating sites, most of which will be
expended in 1994.
Based on progress to date, the Company expects to settle certain of
the IU acquisition liabilities recorded for insurance and other
matters (Note H) for less than originally anticipated.
Accordingly, the Company reduced such liabilities by $3.5 million
in the fourth quarter of 1993. The resulting credit to income,
together with the $22 million restructuring charge, amounted to
$17.6 million or $.52 per share, after taxes.
NOTE D -- DEBT
As part of the recapitalization (see Note B), the Company sold $220
million of 9-3/4% Senior Notes and negotiated a new bank credit
facility. Most of the proceeds were used to retire $160 million
principal amount of unsecured notes (effective interest rate
approximately 16.4%) and reduce bank credit agreement borrowings to
zero.
Debt is summarized as follows (in thousands):
December 31,
1993 1992
9-3/4% Senior Notes $ 220,000
1993 Equipment Loan 8,482
Debt repaid in recapitalization $ 222,800
Other 12,447 17,169
---------- ---------
240,929 239,969
Less current maturities 5,087 4,301
---------- ---------
Long-term debt $ 235,842 $ 235,668
========== =========
At December 31, 1993, required principal payments for each of the
succeeding five years are: $5.1 million in 1994, $5 million in
1995, $4.2 million in 1996, $2.5 million in 1997 and $3.7 million
in 1998.
The 9-3/4% Senior Notes (10.3% effective rate including
amortization of issuance costs) are due in 2003 and are redeemable,
in whole or in part, at the Company's option after June 15, 1998 at
104.9% of principal amount, declining to 100% by June 15, 2001. In
addition, the Company may redeem prior to June 15, 1995 up to $55
million principal amount at a price of 109.75% of principal amount
with the net proceeds of an offering of capital stock (as defined).
Upon a change in control (as defined), the Company must offer to
purchase the Senior Notes at 101% of principal amount.
The bank credit facility provides $60 million of revolving credit
borrowing and letter of credit capacity, declining by $5 million on
each of July 15, 1996 and 1997 and terminating on July 15, 1998.
Interest on borrowings is at a bank's prime rate (6% at December
31, 1993) plus 1.5%. Outstanding letter of credit fees are at the
rate of 2% per annum, and there is a .5% per annum commitment fee
on the unutilized portion of the total amount. The facility is
secured by accounts receivable and stock and notes of subsidiaries.
At December 31, 1993, there were no revolving credit borrowings and
$12.7 million of standby letters of credit were outstanding under
this facility.
The bank credit facility prohibits cash dividends and contains
financial covenants that require the Company to meet certain
financial ratios and tests. The bank facility also restricts
retirements of Class G preferred stock as set forth in the next
paragraph and limits 1994 capital expenditures to $42.2 million.
Both the Senior Notes indenture and the bank facility contain
additional restrictions customarily found in such agreements, such
as limits on indebtedness and payments with respect to capital
stock.
The bank facility prohibits the Company from paying dividends on
its Class G preferred stock, but permits the Company to redeem
(including accumulated dividends) or retire shares of its Class G
preferred stock with up to $5 million in cash (including borrowings
thereunder) at any time. Subject to a test that requires improved
financial performance, the amount of allowable Class G retirements
progressively increases to a total of $35 million by July 1995.
The bank facility also permits the Company to redeem shares of its
Class G preferred stock with the net cash proceeds from future
issuances of certain capital stock and debt. In March 1994, the
Company retired 30,000 shares of Class G preferred stock for $3.4
million. Redemption of the remaining outstanding Class G preferred
stock, assuming no dividends are paid earlier, would require $44.3
million in 1996.
On April 6, 1993, the Company entered into a $9.5 million equipment
loan that bears interest at 7.89% (11.7% effective rate) and is
repayable monthly at the rate of $1.4 million per year through
March 1998, with the balance due April 1, 1998.
NOTE E -- REDEEMABLE PREFERRED STOCK
Redeemable preferred stock includes the following (in thousands):
Recorded Values December 31,
Issue 1993 1992 1991
Class G $ 42,116 $ 39,526 $ 36,922
Classes B, D and E 5,148 6,500
---------- ---------- ----------
$ 42,116 $ 44,674 $ 43,422
========== ========== ==========
At December 31, 1993, 338,580 shares of Class G preferred stock,
$.25 par value per share, were outstanding, with a redemption value
of $42.4 million. Each share is convertible into 7.7 shares of
common stock and 2,607,066 shares are reserved for such
conversions; 3,600 shares were converted in 1991. Also in 1991,
pursuant to an exchange offer, 211,750 shares of Class G preferred
stock were exchanged for 2,011,625 shares of common stock. In
March 1994, the Company retired 30,000 shares of Class G preferred
stock for $3.4 million. The Company is required to redeem, at $100
per share plus accrued dividends, the remaining 308,580 shares on
July 15, 1996. Redemption of the Class G preferred stock is
limited by the bank credit facility (Note D).
Class G preferred stock holders are entitled to receive cumulative
quarterly dividends, when declared, at the annual rate of $7.25 per
share. The Company has not declared quarterly dividends that were
otherwise payable beginning in October 1990, and the bank credit
facility prohibits the Company from paying such dividends until
1998 (Note D). Due to dividend arrearages, the holders of the
Class G preferred stock became entitled in 1992 to add two
directors to the Company's Board of Directors, but have not
exercised this right. The December 31, 1993 recorded value and
redemption value of the Class G preferred stock both include
approximately $8.6 million of cumulative and undeclared dividends.
The terms of the Class G preferred stock prohibit dividends on the
Company's common stock.
Upon liquidation, dissolution or winding up of the Company, the
holders of Class G preferred stock are entitled to receive the
redemption value of their shares before any distribution in respect
of the common stock. Each share of Class G preferred stock has one
vote, generally voting as a single class with the shares of common
stock upon all matters presented to the stockholders.
NOTE F -- STOCKHOLDERS' EQUITY
As part of the recapitalization (Note B), the Company issued the
equivalent of 13,333,333 shares of the Company's common stock,
including all 1,410,750 shares held in the treasury, and all
107,000 outstanding shares of Class H Cumulative Preferred Stock,
par value $.25 per share, were exchanged for 3,066,667 shares of
common stock.
In 1991, 2,039,345 shares of common stock were issued in exchange
for and conversion of Class G preferred stock (Note E), and 800,000
shares were issued to DKM in lieu of $2.8 million of interest
payments otherwise due over the following two years on a promissory
note. In 1992, 7,205,000 shares were issued to purchase the 37.5%
Envirosafe minority interest (Note M).
The Company issued 499,993 shares of its common stock to the
noteholders in 1992 and 500,000 shares in 1991 pursuant to the
terms of the Company's previously outstanding 14% Subordinated
Notes, rather than purchase portions of such notes at a premium.
This resulted in stockholders' equity increases of $1.8 million in
1992 and $2 million in 1991.
At December 31, 1993, warrants were outstanding to purchase (i)
695,652 shares of the Company's common stock at $4 per share,
expiring in 1995, and (ii) 1,000,000 shares at $3.50 per share.
The number of shares purchasable under the $3.50 warrants declines
by 200,000 annually on March 31, 1994 and on each January 1
thereafter. The warrants may be exercised using a cashless
exercise feature (by the surrender of shares of common stock
subject to the warrants). Freeman Spogli holds warrants for 87% of
such shares and the IBM Trust holds 12%.
In 1993, a warrant to purchase 55,555 shares of the Company's
common stock was exercised at seven cents per share. Warrants to
purchase an additional 244,445 shares of common stock at seven
cents per share, issued in October 1991 in connection with a credit
agreement amendment, remain outstanding.
A total of 7,747,613 shares of the Company's common stock have been
reserved for the warrants described above, for conversion of
Class G preferred stock (Note E) and for stock options (Note G).
Under the terms of the Senior Notes indenture and bank credit
facility, the Company may not declare or pay dividends or make cash
distributions to the common stockholders.
The Company is authorized to issue 5.3 million shares of preferred
stock, par value $.25 per share, with such terms and conditions as
shall be specified by the Company's Board of Directors.
NOTE G -- STOCK OPTIONS
The Company maintains stock option plans that provide for grants to
key employees of options to purchase up to 3,250,000 shares of the
Company's common stock. Options under the plans may be incentive
stock options or non-qualified stock options. The terms,
conditions and numbers of shares are determined by the Compensation
and Stock Option Committee of the Board of Directors. Incentive
stock options may not be granted at option prices less than the fair
market value of the stock at the time of grant. Non-qualified stock
options may not be granted at option prices less than 50% of the fair
market value at the time of grant. At December 31, 1993, 1,556,850
shares were available for grants under the plans.
As a result of the February 1992 acquisition of the Envirosafe
minority interest (Note M), Envirosafe's outstanding stock options
became options to purchase 700,000 shares of the Company's common
stock at prices ranging from $2.73 to $3.36 per share.
The Company has granted four directors (who are not affiliated with
Freeman Spogli) options outside the option plans to purchase 80,000
shares of the Company's common stock at option prices equal to the
fair market value at the time of grant.
Option activity is summarized below:
Shares
1993 1992 1991
Shares under option at Jan. 1 1,511,600 1,021,100 918,100
Options granted 689,000 144,500 309,600
Envirosafe options that became
EnviroSource options 700,000
Options exercised (at average
exercise prices of $2.50 in
1993 and $3.05 in 1992) (5,000) (36,250)
Options expired or cancelled (552,000) (317,750) (206,600)
--------- --------- ---------
Shares under option at Dec. 31 1,643,600 1,511,600 1,021,100
========= ========= =========
Options exercisable at Dec. 31 618,140 957,300 454,700
========= ========= =========
At December 31, 1993, option prices ranged from $2.13 to $8.38 per
share, and averaged $4.40 per share. These options expire on
various dates from January 1994 through November 2003.
NOTE H - IU ACQUISITION OBLIGATIONS
The Company purchased IU International Corporation ("IU") on March
21, 1988. The Company has certain ongoing obligations resulting
from the IU acquisition that are unrelated to its current
operations.
As described further in Note O, the Company continues to make
payments resulting from IU's Insurance Guarantees made in
connection with its disposition of PIE in 1985. Payments of these
and other IU acquisition obligations for insurance, employee
benefits and other matters, reduced by proceeds from IU asset
dispositions, amounted to $4.8 million in 1993, $8.1 million in
1992 and $2.4 million in 1991. During 1992 the Company obtained
refunds of $16.5 million of federal income taxes paid by IU prior
to its acquisition by the Company. Recovery of these pre-
acquisition IU tax payments and interest thereon was anticipated in
the March 21, 1988 allocation of the IU acquisition cost.
Current liabilities include $11.9 million at December 31, 1993 and
$17.4 million at December 31, 1992 for IU acquisition obligations
for insurance and employees benefits as well as for $5 million of
additional IU acquisition costs. Non-current other liabilities
includes $44.6 million at December 31, 1993 and $66.2 million at
December 31, 1992 for IU acquisition obligations for insurance,
employee benefits and income tax matters. In 1993 IU liabilities
were reduced by $22 million because these liabilities will
ultimately be settled for less than the amounts anticipated in the
allocation of the March 21, 1988 acquisition cost; goodwill was
reduced by $18.5 million related to income taxes and $3.5 million
was credited to income (Note C).
Estimated future annual payments of IU acquisition obligations
amount to approximately $8 million in 1994 and decline annually
thereafter to less than $2 million by 1998.
NOTE I -- BUSINESS SEGMENTS
In 1993, the Company reorganized its business segments consistent
with its restructuring (Note C). Prior periods have been restated
accordingly.
The Company's business segments are: Industrial Environmental
Services, which provides recycling and other specialized services
for the steel and aluminum industries, and Treatment and Disposal
Services, which operates hazardous waste disposal landfills and
provides waste stabilization services for the electric utility,
steel and other industries.
Information by business segment for the three years ended
December 31, 1993 follows (in thousands):
Industrial Treatment
Environ- and Corporate
mental Disposal Head-
Services Services quarters Total
Revenues
1993 $197,268 $ 73,758 $ 271,026
1992 178,932 53,720 232,652
1991 175,495 48,407 223,902
- -----------------------------------------------------------------
Operating income (loss)
1993 - after restructuring
charge, net (Note C) $ 17,926 $ (5,269) $ (4,004) $ 8,653
Restructuring charge,
net subtracted above 14,000 7,600 (3,100) 18,500
1992 25,521 8,321 (7,497) 26,345
1991 24,978 1,201 (7,234) 18,945
- -----------------------------------------------------------------
Identifiable assets
1993 $300,622 $ 111,424 $ 15,199 $ 427,245
1992 326,009 108,036 10,502 444,547
1991 322,969 101,913 25,970 450,852
- -----------------------------------------------------------------
Depreciation and amortization
1993 $ 25,960 $ 11,485 $ 2,963 $ 40,408
1992 24,139 11,478 3,286 38,903
1991 22,254 12,814 3,749 38,817
- -----------------------------------------------------------------
Capital expenditures
1993 $ 19,752 $ 12,963 $ 53 $ 32,768
1992 28,943 10,153 30 39,126
1991 22,844 2,946 34 25,824
Corporate headquarters expenses and assets support both segments
but are not directly associated with either. In 1993, corporate
assets consist principally of cash and cash equivalents and
unamortized debt issuance costs.
Industrial Environmental Services revenues of approximately $47
million in 1993, $30 million in 1992 and $25 million in 1991 were
from one major steel customer. Revenues of approximately $9
million in 1993, $16 million in 1992 and $25 million in 1991 were
from another major steel customer that is a 50%-owned affiliate of
a company of which a member of the Company's Board of Directors was
an officer until December 1992. At December 31, 1993, $19.5
million of consolidated accounts receivable result from services
performed within the domestic steel industry. Foreign operations
are not significant.
The following table sets forth the percentage of total revenue
contributed by each class of services during the three years ended
December 31, 1993:
1993 1992 1991
Industrial recycling 59.4% 64.8% 65.7%
Specialized services 12.0 6.8 3.5
Waste stabilization
and disposal 17.2 20.2 20.1
Stabilization system design,
supply and construction 10.0 2.9 1.6
Discontinued services 1.4 5.3 9.1
NOTE J -- INCOME TAXES
Pursuant to Statement of Financial Accounting Standards No. 109, as
of January 1, 1993 the Company adopted a new method of accounting
for income taxes. Prior periods, accounted for under the
provisions of Accounting Principles Board Opinion No. 11, were not
restated. The cumulative effect of adopting the new method was a
non-cash charge in the consolidated statement of operations of $2.3
million. The resulting $2.3 million liability was eliminated by
the recognition of offsetting tax benefits associated with future
tax deductible payments of liabilities recorded in connection with
the 1988 IU acquisition (Note H). Because these tax benefits are
attributable to deductible temporary differences that existed at
the IU acquisition date, such benefits were applied to reduce
goodwill.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred federal
tax liabilities and assets as of December 31, 1993 are as follows (in
thousands):
Deferred tax liabilities:
Tax over book depreciation plus
IU acquisition purchase price allocation
to property, plant and equipment $ (10,661)
Tax over book landfill permit amortization (3,470)
---------
Total deferred tax liabilities (14,131)
---------
Deferred tax assets:
Net operating loss carryforwards 108,291
Capital loss carryforward 1,855
Insurance accruals that will result in capital
loss deductions 9,361
Other insurance accruals 4,429
Restructuring charge 7,700
Allowance for an uncollectible receivable 4,235
Pension and other post retirement benefits accruals 5,702
Closure accruals 2,866
Book over tax prospective landfill permits cost 1,733
Other accruals 5,309
---------
Total deferred tax assets 151,481
Valuation allowance for deferred tax assets (137,350)
---------
Net deferred tax assets 14,131
---------
Net deferred taxes $ -0-
=========
Deferred tax assets represent reductions of future tax payments
that would otherwise be required when the Company reports taxable
income. The $108.3 million deferred tax asset listed above
represents net operating loss carryforwards of $309 million, which
expire in various years and are limited by a 1993 "ownership
change" as discussed in the next paragraph. The $1.9 million
deferred tax asset represents a capital loss carryforward of $5
million that expires in 2008. All the carryforwards are based on
the Company's consolidated federal income tax returns through 1992
and estimated return amounts for 1993. All the other deferred tax
assets represent items already reflected in the financial
statements that will become available to reduce future federal
income taxes as they become deductible for tax purposes. The
valuation allowance for deferred tax assets increased $17 million
in 1993 due to additional net deferred tax assets generated in 1993
and a one percent federal tax rate increase.
The $309 million of net operating loss carryforwards expire as
follows: $74 million in 1996, $10 million in 1997, $147 million in
1998, $1 million in 2000, $15 million in 2003, $45 million in 2005,
$11 million in 2006 and $6 million in 2008. The recapitalization
described in Note B resulted in an "ownership change" (as defined
in the Internal Revenue Code) that limits the future use of the net
operating loss carryforwards expiring through 2006. However, the
Company has estimated that at least $7 million of such tax loss
carryforwards will still be available annually to offset regular
taxable income through 2006. The final amount of this limitation
will be affected by the resolution of various tax issues and the
nature and timing of certain amounts of future income. The
Internal Revenue Service has not examined the Company's tax returns
for years after 1979. The effects of such examinations on the
Company's tax loss carryforwards, if any, cannot currently be
determined. The Internal Revenue Service is, however, precluded
from assessing any taxes with respect to any year prior to 1987.
A substantial portion of the deferred tax asset arising from net
operating loss carryforwards originated prior to the Company's
November 19, 1983 voluntary bankruptcy reorganization. In
accordance with applicable accounting principles, future tax
benefits associated with the pre-reorganization carryforwards will
be excluded from net income (loss) and credited directly to capital
in excess of par value. The resulting charges in lieu of income
taxes will be reflected as income tax expense in the consolidated
statements of operations, representing taxes that would be accrued
if these pre-reorganization carryforwards were not available. In
addition, the Company has deferred tax assets from post-
reorganization tax loss carryforwards arising both from payment of
IU acquisition obligations and from normal operations. Future tax
benefits associated with carryforwards from payment of IU
acquisition obligations will result in charges in lieu of income
taxes and reductions of goodwill. Future tax benefits associated
with carryforwards from normal operations will reduce income tax
expense. Subject to the limitations described in the preceding
paragraph, upon realization of the net deferred tax assets and
liabilities, the $137.4 million valuation allowance would be
applied as follows: $83.5 million would be credited to capital in
excess of par value, $32.6 million would reduce goodwill and $21.3
million would reduce income tax expense.
The components of income tax expense for continuing operations are
as follows (in thousands):
1993 1992 1991
Current taxes:
Federal $ (137) $ (426)
State $ 2,280 1,158 1,371
Canadian 269 278 277
Deferred federal tax 261
--------- --------- ---------
$ 2,549 $ 1,299 $ 1,483
========= ========= =========
Consolidated income tax expense varies from amounts computed by
applying the United States federal income tax rates (35% in 1993,
34% in 1992 and 1991) for the following reasons (in thousands):
1993 1992 1991
Benefit of pre-tax losses
at statutory rates $ (6,659) $ (2,121) $ (5,214)
Goodwill amortization 1,942 1,907 1,906
Acquisition depreciation
with no tax benefit 320 332
Effect of losses added to tax
loss carryforwards because
tax benefit was not assured 75 3,576
Effects of increased valuation
allowance for deferred tax
assets 5,708
Effects of state and Canadian
income taxes 1,558 837 1,087
Other 281 (204)
--------- --------- ---------
$ 2,549 $ 1,299 $ 1,483
========= ========= =========
Prior to February 28, 1992, the Company owned less than 80% of
Envirosafe. Accordingly, for periods prior to that date the
Company did not include Envirosafe's taxable income in its
consolidated federal income tax returns. The above tax effects of
losses added to tax loss carryforwards are attributable to
operations other than Envirosafe through February 28, 1992, and all
operations thereafter. For periods prior to February 28, 1992,
Envirosafe losses were carried back and used to recover Envirosafe
taxes paid in previous years. In addition to Envirosafe losses
reflected in the 1991 consolidated statement of operations, in 1991
Envirosafe established the tax deductibility of certain permitting
costs that were incurred prior to the Company's acquisition of
Envirosafe and the resulting $1 million income tax benefit was
applied to reduce goodwill.
Canadian income before tax amounted to $.7 million in 1993, $.6
million in 1992 and $.7 million in 1991.
NOTE K -- RETIREMENT PLANS
The Company has several non-contributory defined benefit pension
plans covering certain salaried and hourly employees. The plans
provide pension benefits that are based on varying levels of
service and compensation. Assets of the plans are principally
common stocks, fixed income securities and cash equivalents.
Contributions are based on funding standards established by the
Employee Retirement Income Security Act of 1974.
Net periodic pension cost for defined benefit plans includes the
following (in thousands):
1993 1992 1991
Service cost - benefits
earned during the period $ 1,036 $ 1,100 $ 1,239
Interest cost on projected
benefit obligations 1,458 1,456 1,516
Actual gain on plan assets (2,204) (1,792) (3,381)
Net amortization and deferral 643 215 1,493
--------- --------- ---------
Net periodic pension cost $ 933 $ 979 $ 867
========= ========= =========
The funded status, calculated principally using measurement dates
of October 31, 1993 and 1992, and the liability accrued in the
consolidated balance sheets at December 31, 1993 and 1992 for
defined benefit plans are as shown below (in thousands):
December 31,
1993 1992
Actuarial present value of
benefit obligations:
Vested $ 17,007 $ 17,399
--------- ---------
Accumulated $ 17,100 $ 17,478
--------- ---------
Projected $ 18,055 $ 18,465
Plan assets at fair value 13,799 15,323
--------- ---------
Projected benefit obligations
in excess of plan assets 4,256 3,142
Unrecognized net loss (2,322) (2,252)
Prior service gain not yet recognized
in net periodic pension cost 4,629 5,008
Other 306 128
--------- ---------
Pension liability, principally
noncurrent $ 6,869 $ 6,026
========= =========
The actuarial present value of projected benefit obligations was
determined using discount rates of 7% in 1993 and 8.5% in 1992 and
an average annual long-term rate of increase in compensation levels
of 4.5% in 1993 and 6% in 1992. The expected annual long-term rate
of return on plan assets used in determining net periodic pension
cost was 8.5%.
The Company also sponsors several defined contribution retirement
plans for which contributions and costs are based on percentages of
defined earnings of participating employees. Costs for these plans
amounted to $1.5 million in 1993, $1.4 million in 1992 and $1.1
million in 1991.
In addition, the Company participates in defined benefit multi-
employer pension plans, for which reliable information concerning
the Company's share of related estimated plan benefits and assets
is not available, and defined contribution multi-employer pension
plans. Costs for multi-employer pension plans amounted to $1.7
million in 1993, $1.9 million in 1992 and $2.4 million in 1991.
In addition to pension plans, the Company has several defined
benefit postretirement plans that provide varying amounts of
medical and death benefits, primarily to retired employees.
Pursuant to Statement of Financial Accounting Standards No. 106
("SFAS No. 106"), in the first quarter of 1993 the Company adopted
a new method of accounting for these postretirement benefits. The
cumulative effect of this accounting change is immaterial and will
be recognized on a prospective basis. Under the new method, the
actuarially computed 1993 cost for these plans is $.4 million,
which approximates annual amounts historically recorded on a cash
basis in prior years. The Company funds the postretirement
benefits on a "pay-as-you-go" basis.
At each of December 31, 1993 and 1992, other long-term liabilities
includes approximately $5 million of accrued postretirement benefit
obligations, based on discount rates of 7% in 1993 and 8.5% in
1992. Such amount, recorded in connection with the 1988 IU
acquisition, approximates the accumulated postretirement
obligations under SFAS No. 106.
Future cost increases in health care benefits covered by the plans
are assumed to be 12.5% in 1994, decreasing 1% per year to 4.5% in
2002 and remaining at that level thereafter. Increasing these
rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31,
1993 by $.3 million and would not have a material impact on the
cost for 1993.
NOTE L -- SUPPLEMENTAL CASH FLOW INFORMATION
Amortization in the consolidated statements of cash flows includes
amortization of goodwill and permits together with noncash interest
costs. Net changes in working capital include the following (in
thousands):
1993 1992 1991
Accounts receivable $ 1,270 $ (3,620) $ (3,942)
Other current assets (1,279) 691 2,441
Trade payables and other
current liabilities (1,496) (4,308) 1,740
Receivables and liabilities of
a discontinued operation 3,387 205
--------- --------- ---------
Cash provided (used) $ (1,505) $ (3,850) $ 444
========= ========= =========
Closure trust fund payments include the following activity (in
thousands):
1993 1992 1991
Purchases of investments $ (12,110) $ (6,270) $ (38,507)
Sales of investments 6,936 4,473 36,296
--------- --------- ---------
Net cash used $ (5,174) $ (1,797) $ (2,211)
========= ========= =========
Ongoing net cash flows related to IU acquisition are principally
payments of non-recurring pre-acquisition obligations and in 1992
$16.5 million of income tax refunds (Note H).
The Company paid interest of $30.7 million in 1993, $29 million in
1992 and $29.9 million in 1991, excluding amounts capitalized.
Interest costs of $.6 million in 1993, $.8 million in 1992 and $.6
million in 1991 were capitalized.
The Company paid income taxes, net of refunds, of $1.4 million in
1993 and $.8 million in 1992 and received net refunds of $.1
million in 1991. The 1992 amount excludes the aforementioned $16.5
million refunds of taxes paid by IU prior to its acquisition by the
Company.
In April 1991 the holder of a minority interest preferred stock
exchanged it for a $20 million term loan that was part of the
former bank credit agreement.
NOTE M -- ENVIROSAFE
Purchase of minority interest: Prior to February 28, 1992 the
Company owned 62.5% of Envirosafe Services, Inc. ("Envirosafe").
On February 28, 1992, the Company purchased the 37.5% Envirosafe
minority interest for a total cost of approximately $22 million, by
issuing 7,205,000 shares of the Company's common stock.
Pro forma net losses (unaudited), as if the transaction had
occurred as of the beginning of each year, would be $7.8 million or
$.51 per share in 1992 and $17.9 million or $1.04 per share in
1991. The pro forma amounts reflect the elimination of the
minority interest in Envirosafe's earnings and losses, consolidated
income taxes as if Envirosafe's results had been included in the
Company's consolidated income tax returns and increased landfill
permit and goodwill amortization. The pro forma information is
not necessarily indicative of the results that would have occurred
had the transaction taken place at the beginning of the respective
years.
Landfill development costs: Prior to July 1, 1992, depreciation of
landfill development costs was determined on a cell-by-cell basis
because of uncertainty as to whether the entire Ohio landfill could
be used for hazardous waste. During June 1992, all opportunities
for appeals opposing issuance of Envirosafe's Ohio "Part B" permit
expired, enabling the Company to utilize all the remaining Ohio
landfill capacity for its intended purpose as a hazardous waste
landfill. Accordingly, commencing July 1, 1992, landfill
development costs are being depreciated over the total remaining
capacity of each landfill, which has the effect of reducing
depreciation expense for Ohio cell capacity constructed prior to
July 1, 1992. Lower depreciation expense in the last six months of
1992 increased 1992 operating income by $1.9 million and reduced
the net loss for 1992 by $1.9 million, or $.09 per share. The
impact of depreciation on a total landfill basis rather than a
cell-by-cell basis prior to July 1, 1992 would not have been
material.
NOTE N -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments carried in the
Company's consolidated balance sheets are as follows (in
thousands):
December 31,
1993 1992
Consolidated Balance Fair Carrying Fair Carrying
Sheet Caption Values Amounts Values Amounts
Other current assets $ 2,613 $ 2,613 $ 1,583 $ 1,583
Closure trust fund
(Idaho) 8,174 8,117 6,786 6,586
Other non-current
assets 4,948 5,367 2,568 2,680
Insurance 7,217 7,217 9,632 9,632
Other current
liabilities 8,731 8,731 8,852 8,852
Current portion of
debt and redeemable
preferred stock 8,492 8,492 5,125 5,125
Other non-current
liabilities 13,885 18,677 15,337 19,563
Long-term debt 230,822 235,842 253,650 235,668
Redeemable preferred
stock 33,670 38,711 32,124 43,850
The fair values of financial instruments included in current assets
and liabilities approximate their carrying amounts. The fair
values of fixed-rate long-term debt and Class G redeemable
preferred stock, which are thinly traded, are based on management's
best knowledge of recent trading prices. The fair values of other
non-current assets, liabilities and redeemable preferred stock are
estimated using discounted cash flow analysis and borrowing rates
in the Company's bank credit facility.
As of December 31, 1993 the estimated fair value of the Company's
obligations to deposit $24.5 million in closure trust funds over
the next five years is $21.9 million, using discounted cash flow
analysis and borrowing rates in the Company's bank credit facility.
See Note O.
NOTE O -- COMMITMENTS AND CONTINGENCIES
Future minimum lease payments for non-cancelable operating leases
as of December 31, 1993 amount to $4.8 million in 1994, $4 million
in 1995, $3.1 million in 1996, $2.5 million in 1997, $1.7 million
in 1998 and $2.4 million thereafter. Operating leases are
primarily for office space and machinery and equipment. Rental
expense was $6.9 million in 1993, $6 million in 1992 and $5.5
million in 1991.
In January 1994, the Company purchased certain assets of an
aluminum dross processor for $5 million, including $2.9 million for
intangible assets. In addition, the Company has made commitments
to spend $19 million in 1994 for equipment additions, a new dross
processing facility and hazardous waste landfill development and
treatment facilities. To secure its obligations to close its Idaho
landfill and perform post-closure monitoring and maintenance
procedures for 30 years, the Company must deposit into a closure
trust fund approximately $1.1 million annually through 1998. The
Company is also obligated to make nonrefundable payments into Ohio
closure trust funds of approximately $7.6 million in each of 1994
and 1995 and $3.9 million in 1996 to fund the latter stages of Ohio
landfill closure and all post-closure procedures in perpetuity.
The Company believes these payments together with those previously
made will satisfy substantially all of its closure and post-closure
obligations, based on current regulations and permitted capacity.
At December 31, 1993, the Company was contingently liable for $12.7
million of letters of credit outstanding under its bank credit
agreement, approximately $5 million of which were issued to secure
liabilities already reflected in the consolidated balance sheet.
In connection with IU's disposition of P-I-E Nationwide, Inc.
("PIE") in 1985, IU guaranteed bonds or undertakings made to surety
companies and/or states of the United States in connection with
PIE's self-insurance programs for workers' compensation and other
losses arising through 1987 (the "Insurance Guarantees").
During the fourth quarter of 1990, PIE commenced bankruptcy
proceedings, ceased operations and ceased making payments in
respect of the claims covered by the Insurance Guarantees. These
obligations aggregated an estimated $18.2 million at December 31,
1993, and currently require the Company to make payments averaging
$.5 million per quarter.
Although the Company has the right to receive proceeds from the
liquidation of various classes of PIE assets, the timing and amount
of receipt, if any, cannot be predicted. However, because
sufficient liabilities are reflected in the consolidated balance
sheets and the Company's estimates do not assume any such
liquidation proceeds, the Company's financial condition as reported
at December 31, 1993 will not be adversely affected if IU receives
no proceeds from such liquidation.
PIE's bankruptcy has triggered withdrawal liabilities to certain
multi-employer pension plans estimated by PIE to aggregate $58
million. Early in 1991 the trustee of the largest plan sought
information from the Company for the stated purpose of determining
whether the circumstances of IU's 1985 sale of PIE would justify a
claim against IU for any deficiencies in PIE's payment of such
withdrawal liabilities. However, no such claim has been asserted.
The Company believes no such claim would be warranted. Also in
1991, the same pension plan trustee demanded payment of
approximately $38 million from a more recent owner of most of PIE's
capital stock and such owner in turn demanded an identical amount
from IU. Such owner has made no attempt to pursue its demand. The
Company believes the ultimate outcome of these matters will not
have a material adverse effect on its financial condition or
results of operations.
The U.S. Environmental Protection Agency ("EPA") and applicable
state agencies have issued "Part B" permits under the Resource
Conservation and Recovery Act ("RCRA") to the Company's Ohio and
Idaho landfills. These permits are subject to regulatory review
five years after issuance and may be modified by the applicable
government agencies at any time.
The Company and its competitors and customers are subject to a
complex, evolving array of federal, state and local environmental
laws and regulations. In particular, such regulations can affect
the demand for Treatment and Disposal Services, and could also
require this segment to incur significant costs for such matters as
facility upgrading, remediation or other corrective action and
landfill closure and post-closure maintenance and monitoring.
Under normal circumstances, the segment would expect to be able to
absorb increased operating compliance costs by increasing prices
charged to customers.
On March 11, 1993, the City of Oregon, Ohio requested that the
Director of the Ohio Environmental Protection Agency ("OEPA")
modify or revoke the Company's Ohio landfill permit, alleging that
if the Ohio Hazardous Waste Facility Board ("HWFB") had been aware
of certain scientific and technical data developed by the Company,
HWFB would not have approved the issuance of the permit in May 1991.
On April 12, 1993, the OEPA Director determined not to modify or
revoke the permit, concluding that the data in question presented no
new or meaningful information in light of other data already in the
record and the final design of the disposal cell authorized by the
permit. On May 12, 1993, the City of Oregon filed a notice of appeal
before the Ohio State Environmental Board of Review seeking review of
the OEPA Director's April 12, 1993 decision. The Company is
contesting this appeal vigorously. In light of the factual findings
by the OEPA Director, management does not believe that the outcome of
this matter will have a material adverse effect on the Company's
financial condition or results of operations.
In several instances the Company has been named as a potentially
responsible party regarding properties that could be subject to
remedial action under RCRA or the Comprehensive Environmental
Response and Liability Act of 1980, as amended. As to such
matters, the Company is not subject to any administrative or
judicial order requiring material expenditures, and the Company has
determined that it is not likely to be subject to sanctions or held
responsible for material remediation expenditures. In the opinion
of management, the outcome of the matters described in this
paragraph will not have a material adverse effect on the Company's
financial condition or results of operations.
The Company is a party to litigation, proceedings and other
contested matters, arising in the normal course of its present or
former businesses, for which it is possible that the Company's
exposure could exceed by as much as $3 million the amounts
currently recorded. In the opinion of management, the amounts
recorded adequately reflect the expected outcomes of such matters
and the final outcome of all such matters will not have a material
adverse effect on the Company's financial condition or results of
operations.
NOTE P -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
Mar. 31 June 30 Sept. 30 Dec. 31
1993
Revenues $ 59,864 $ 77,902 $ 66,475 $ 66,785
Gross profit 14,151 18,008 13,418 16,938
Restructuring
charge, net (Note C) (18,500)
Operating income
(loss) 5,345 8,762 5,102 (10,556)
Loss before
extraordinary
loss and cumu-
lative effect
adjustment (3,195) (128) (1,136) (17,115)
Net loss (5,497) (21,624) (1,570) (17,115)
Loss per share
before extra-
ordinary loss
and cumulative
effect adjustment (.18) (.03) (.05) (.44)
- -----------------------------------------------------------------
1992
Revenues $ 55,312 $ 59,976 $ 60,211 $ 57,153
Gross profit 13,365 17,183 16,460 13,841
Operating income 4,605 8,884 8,900 3,956
Net income (loss) (3,878) 206 (472) (3,394)
Loss per share (.26) (.03) (.06) (.19)
- -----------------------------------------------------------------
The restructuring charge, net amounted to $.44 per share in the
quarter ended December 31, 1993.
Lower depreciation increased operating income by $1.2 million in
the first quarter of 1993 and $.9 million in the second quarter of
1993 (see Note M), as compared with the corresponding 1992
quarters. Second quarter 1992 results include a $.9 million net
pre-tax gain, primarily from the favorable settlement of a dispute.
Third quarter 1992 results include a $1.1 million pre-tax gain from
the sale of a maintenance services contract and the assets used in
performing the contract.
<PAGE>
<TABLE>
ENVIROSOURCE, INC. SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Year ended December 31, 1993
(Dollars in thousands)
Balance at
Balance at end of period
beginning Amounts Amounts Not
Name of debtor of period Additions collected forgiven Current current
<S> <C> <C> <C> <C> <C> <C>
Louis A. Guzzetti, Jr. (A) $ 402 $ 40 $ 442
Stock purchase loans (B):
Louis A. Guzzetti, Jr. 350 350
George E. Fuehrer 220 220
James H. Cornell 150 $ 150 -
Jerrold I. Dolinger 150 150
Aarne Anderson 90 90
Interest payment loans (C):
Louis A. Guzzetti, Jr. 58 43 101
George E. Fuehrer 37 27 64
James H. Cornell 25 14 39 -
Jerrold I. Dolinger 25 18 43
Aarne Anderson 15 11 26
Relocation loan:
Jerrold I. Dolinger 10 $ 10 -
---------- ---------- ---------- ---------- --------- ----------
Totals $ 1,532 $ 153 $ 189 $ 10 $ - $ 1,486
========== ========== ========== ========== ========= ==========
</TABLE>
(A) As amended effective March 31, 1993, unsecured loan bearing
interest at 6% per annum, half in cash and half by
increasing the loan balance, and due March 31, 1998.
(B) As amended effective April 1, 1993, unsecured loans bearing
interest at 6% per annum, half in cash and half by
increasing the interest payment loan balances, and due March
31, 1998. Classified as deductions from stockholders'
equity in the consolidated balance sheet.
(C) As amended effective April 1, 1993, unsecured loans bearing
interest at 6% per annum, half in cash and half by
increasing the loan balances, and due March 31, 1998.
<PAGE>
<TABLE>
ENVIROSOURCE, INC. SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Year ended December 31, 1992
(Dollars in thousands)
Balance at
Balance at end of period
beginning Amounts Amounts Not
Name of debtor of period Additions collected forgiven Current current
<S> <C> <C> <C> <C> <C> <C>
Louis A. Guzzetti, Jr. (A) $ 376 $ 26 $ 50 $ 352
Stock purchase loans (B):
Louis A. Guzzetti, Jr. 350 350
George E. Fuehrer 220 220
James H. Cornell 150 150
Jerrold I. Dolinger 150 150
Aarne Anderson 90 90
Interest payment loans (C):
Louis A. Guzzetti, Jr. 28 30 58
George E. Fuehrer 18 19 37
James H. Cornell 12 13 25
Jerrold I. Dolinger 12 13 25
Aarne Anderson 7 8 15
Relocation loan (D):
Jerrold I. Dolinger 20 $ 10 10
---------- ---------- --------- ---------- ---------- ----------
Totals $ 1,433 $ 109 $ - $ 10 $ 60 $ 1,472
========== ========== ========= ========== ========== ==========
</TABLE>
(A) Unsecured loan bearing interest at 7.5% per annum and
payable in annual installments of $50 with the balance due
March 31, 1999, except that no installment was due in 1992.
(B) Unsecured loans bearing interest at 8% per annum and due
January 13, 1994, classified as deductions from
stockholders' equity in the consolidated balance sheet.
(C) Unsecured loans bearing interest at 8% per annum and due
January 13, 1994.
(D) Secured loan bearing interest at 10% per annum and due upon
termination of employment. The loan was forgiven $10
annually.
<PAGE>
<TABLE>
ENVIROSOURCE, INC. SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Year ended December 31, 1991
(Dollars in thousands)
Balance at
Balance at end of period
beginning Amounts Amounts Not
Name of debtor of period Additions collected forgiven Current current
<S> <C> <C> <C> <C> <C> <C>
Louis A. Guzzetti, Jr. (A) $ 350 $ 26 $ 376
Stock purchase loans (B):
Louis A. Guzzetti, Jr. 350 350
George E. Fuehrer 220 220
James H. Cornell 150 150
Jerrold I. Dolinger 150 150
Aarne Anderson 90 90
Interest payment loans (C):
Louis A. Guzzetti, Jr. 28 28
George E. Fuehrer 18 18
James H. Cornell 12 12
Jerrold I. Dolinger 12 12
Aarne Anderson 7 7
Relocation loan (D):
Jerrold I. Dolinger 30 $ 10 $ 10 10
---------- ---------- ---------- ---------- ---------- ----------
Totals $ 1,340 $ 103 $ - $ 10 $ 10 $ 1,423
========== ========== ========== ========== ========== ==========
</TABLE>
(A) Unsecured loan bearing interest at 7.5% per annum and
payable in annual installments of $50 with the balance due
March 31, 1999, except that no installment was due in 1991
and 1992.
(B) Unsecured loans bearing interest at 8% per annum and due
January 13, 1994, classified as deductions from
stockholders' equity in the consolidated balance sheet.
(C) Unsecured loans bearing interest at 8% per annum and due
January 13, 1994.
(D) Secured loan bearing interest at 10% per annum and due upon
termination of employment. The loan was forgiven $10
annually.
<PAGE>
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
EnviroSource, Inc. (Parent Company)
CONDENSED BALANCE SHEET
(In thousands)
December 31,
ASSETS 1993 1992
Current assets:
Cash and cash equivalents $ 4,943 $ 3,931
Other current assets 2,670 2,879
---------- ---------
Total current assets 7,613 6,810
Investments in, net of amounts due
to, consolidated subsidiaries 260,513 223,599
Goodwill, less amortization 11,838 13,435
Debt issuance costs, less amortization 7,376
Other assets 6,162 8,848
---------- ---------
$ 293,502 $ 252,692
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 776 $ 913
Other current liabilities 11,796 15,701
Redeemable preferred stock 3,405 824
---------- ---------
Total current liabilities 15,977 17,438
Long-term debt 220,000 169,800
Other long-term obligations 4,597 1,055
Redeemable preferred stock 38,711 43,850
Commitments and contingencies
(Note 4)
Stockholders' equity 14,217 20,549
---------- ---------
$ 293,502 $ 252,692
========== =========
See Notes to Condensed Financial Information of Registrant.
<PAGE>
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- Continued
EnviroSource, Inc. (Parent Company)
CONDENSED STATEMENT OF OPERATIONS
(In thousands)
December 31,
1993 1992 1991
Revenues $ 8,678 $ 9,420 $ 11,183
Management fee income from
consolidated subsidiaries 102 116 160
Cost of revenues (8,784) (9,899) (10,867)
General and administrative
expense (8,433) (7,646) (8,392)
Restructuring charge (700)
Interest expense:
Consolidated subsidiaries (54,586) (58,462) (77,285)
Other (23,519) (25,710) (27,639)
Interest income:
Consolidated subsidiaries 320 720 5,258
Other 494 338 392
--------- --------- --------
(86,428) (91,123) (107,190)
Income tax benefit 24,616 35,798 38,432
Equity in net income of
consolidated subsidiaries 40,238 47,787 51,374
--------- --------- ---------
Loss before extraordinary loss
and cumulative effect of
accounting change (21,574) (7,538) (17,384)
Extraordinary loss from
extinguishment of debt (21,930)
Cumulative effect of income tax
accounting change (2,302)
--------- --------- ---------
Net loss $ (45,806) $ (7,538) $ (17,384)
========= ========= =========
See Notes to Condensed Financial Information of Registrant.
<PAGE>
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- Continued
EnviroSource, Inc. (Parent Company)
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended December 31,
1993 1992 1991
CASH USED BY OPERATING ACTIVITIES $ (58,321) $ (48,378) $ (65,968)
--------- --------- ---------
INVESTING ACTIVITIES
Ongoing net cash flows related to
IU acquisition (319) (1,652) (2,182)
Additions to property, plant and
equipment (894) (887) (429)
Other (144) (1,538) (1,312)
--------- --------- ---------
Cash used by investing activities (1,357) (4,077) (3,923)
--------- --------- ---------
FINANCING ACTIVITIES
Net cash from consolidated
subsidiaries 1,340 53,879 68,055
Sale of common stock 42,716 111
Issuance of debt 220,000
Debt issuance costs (7,601)
Debt repayments (180,000)
Cash portion of extraordinary loss (10,617)
Redemption of preferred stock (5,148) (1,352)
Other (84) (682)
--------- --------- ---------
Cash provided by financing
activities 60,690 52,554 67,373
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,012 99 (2,518)
Cash and cash equivalents at
beginning of year 3,931 3,832 6,350
--------- --------- ---------
Cash and cash equivalents at
end of year $ 4,943 $ 3,931 $ 3,832
========= ========= =========
See Notes to Condensed Financial Information of Registrant.
<PAGE>
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- Continued
EnviroSource, Inc. (Parent Company)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE 1 -- PARENT COMPANY FINANCIAL STATEMENTS
Parent Company Financial Statements should be read in conjunction
with the consolidated financial statements of the Company.
NOTE 2 -- RECAPITALIZATION
See Note B to the consolidated financial statements for a
description of the recapitalization.
NOTE 3 -- LONG-TERM BORROWINGS
As part of the recapitalization, the Company sold $220 million of
9-3/4% Senior Notes and retired $160 million principal amount of
unsecured notes (effective interest rate approximately 16.4%) and
a $20 million bank term loan. See Note D to the consolidated
financial statements for a description of the 9-3/4% Senior
Notes.
Borrowings under the bank credit agreement are made by a
consolidated subsidiary and are guaranteed by the Company. The
agreement permits cash transfers from the subsidiary to the
Company. See Note D to the consolidated financial statements for
a description of the bank credit agreement.
NOTE 4 -- REDEEMABLE PREFERRED STOCK AND COMMITMENTS AND
CONTINGENCIES
See Notes D, E and O to the consolidated financial statements.
<PAGE>
<TABLE>
ENVIROSOURCE, INC. SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
Balance at Transfers and Balance at
beginning Additions other changes end of
Classification of period at cost Retirements add (deduct) period
1993
<S> <C> <C> <C> <C> <C>
Land and improvements $ 7,422 $ 288 $ 228 $ (1,397) $ 6,085
Landfill development 32,153 6,163 (13) 38,303
Buildings and improvements 15,246 134 16 141 15,505
Machinery and equipment 167,252 671 2,789 12,695 177,829
Construction in process (A) 9,546 25,512 (23,995) 11,063
--------- --------- ------------ -------- ---------
Totals $ 231,619 $ 32,768 $ 3,033 $(12,569)(B) $ 248,785
========= ========= ============ ======== =========
1992
Land and improvements $ 7,279 $ 108 $ 170 $ 205 $ 7,422
Landfill development 29,130 6,298 3,275 32,153
Buildings and improvements 12,966 6 230 2,504 15,246
Machinery and equipment 137,638 1,399 5,836 34,051 167,252
Construction in process (A) 15,302 31,315 (37,071) 9,546
--------- --------- ------------ -------- ---------
Totals $ 202,315 $ 39,126 $ 9,511 $ (311) $ 231,619
========= ========= ============ ======== =========
1991
Land and improvements $ 6,946 $ 60 $ 470 $ 743 $ 7,279
Landfill development 28,755 419 (44) 29,130
Buildings and improvements 11,983 43 161 1,101 12,966
Machinery and equipment 131,421 1,872 7,113 11,458 137,638
Construction in process (A) 5,440 23,430 (13,568) 15,302
--------- --------- ------------ -------- ---------
Totals $ 184,545 $ 25,824 $ 7,744 $ (310) $ 202,315
========= ========= ============ ======== =========
</TABLE>
(A) Reclassified on the consolidated balance sheet to machinery
and equipment.
(B) Assets of recycling units and a landfill site that were
terminated as part of the 1993 restructuring.
<PAGE>
<TABLE>
ENVIROSOURCE, INC. SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
Additions Other
Balance at charged to charges Balance at
beginning costs and add end of
Classification of period expenses Retirements (deduct) period
1993
<S> <C> <C> <C> <C> <C>
Land improvements $ 2,459 $ 436 $ 48 $ (247) $ 2,600
Landfill development 17,894 3,528 21,422
Buildings and leasehold
improvements 3,713 2,881 6 (247) 6,341
Machinery and equipment 61,982 20,396 2,084 (3,416) 76,878
--------- --------- ------------ -------- ---------
Totals $ 86,048 $ 27,241 $ 2,138 $ (3,910)(A) $ 107,241
========= ========= ============ ======== =========
1992
Land improvements $ 1,894 $ 558 $ 37 $ 44 $ 2,459
Landfill development 16,627 4,542 3,275 17,894
Buildings and leasehold
improvements 2,901 937 125 3,713
Machinery and equipment 46,014 18,645 2,633 (44) 61,982
--------- --------- ------------ --------- ---------
Totals $ 67,436 $ 24,682 $ 6,070 $ - $ 86,048
========= ========= ============ ========= =========
1991
Land improvements $ 1,434 $ 460 $ 1,894
Landfill development 10,175 6,452 16,627
Buildings and leasehold
improvements 2,085 921 $ 105 2,901
Machinery and equipment 33,758 17,328 5,072 46,014
--------- --------- ------------ ---------
Totals $ 47,452 $ 25,161 $ 5,177 $ 67,436
========= ========= ============ =========
</TABLE>
(A) Accumulated depreciation of recycling units and a landfill
site that were terminated as part of the 1993 restructuring.
<PAGE>
<TABLE>
ENVIROSOURCE, INC. SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
Additions
Balance at Charged to Charged to Balance at
beginning costs and other end of
of period expenses accounts Deductions (A) period
Description
1993
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,333 $ (127) $ - $ 262 $ 944
1992
Allowance for doubtful accounts $ 1,659 $ 1,193 $ - $ 1,519 $ 1,333
1991
Allowance for doubtful accounts $ 1,654 $ 477 $ - $ 472 $ 1,659
</TABLE>
(A) Amounts written off.
<PAGE>
<TABLE>
ENVIROSOURCE, INC. SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
1993 1992 1991
<S> <C> <C> <C>
Maintenance and repairs $ 26,608 $ 22,589 $ 20,657
Amortization of goodwill $ 5,549 $ 5,610 $ 5,606
Amortization of debt issuance costs and discount $ 3,152 $ 5,318 $ 5,102
Royalties $ 2,746 $ 2,637 $ 2,548
</TABLE>
<PAGE>
EXHIBIT INDEX
Number Exhibit Page
2.1 Second Modified Plan of Reorganization
of the Company (incorporated herein by
reference to Exhibits 1, 2 and 3 to the
Company's Current Report on Form 8-K
dated November 30, 1983 (File No. 1-
1363)).
2.2 Order, dated January 13, 1984, of the
United States District Court for the
Northern District of Ohio (modifying
the Second Modified Plan of
Reorganization of the Company)
(incorporated herein by reference to
Exhibit 2.2 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1983 (File No. 1-
1363)).
2.3 Agreement and Plan of Merger, dated as
of November 26, 1991, by and among the
Company, Envirosafe Services, Inc. and
ESI Merger Co. (incorporated herein by
reference to Annex A to the Joint Proxy
Statement/Prospectus included in the
Company's Registration Statement on
Form S-4, filed on January 24, 1992
(File No. 33-45270)).
3.1 Certificate of Incorporation of the
Company (incorporated herein by reference
to Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1989 (File No.
1-1363)).
3.2 Certificate of Amendment to the
Certificate of Incorporation of the
Company, dated February 26, 1992
(incorporated herein by reference to
Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No. 1-
1363)).
3.3 Certificate of Amendment to the
Certificate of Incorporation of the
Company, dated August 5, 1993
(incorporated herein by reference to
Exhibit 4.9 to the Company's Quarterly
Report on Form 10-Q for the fiscal
quarter ended June 30, 1993 (File No.
1-1363)).
3.4 Certificate of Designation of Shares of
Class H Cumulative Preferred Stock of
the Company (incorporated herein by
reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30,
1987 (File No. 1-1363)).
3.5 Certificate of Designation of Shares of
Class I Cumulative Redeemable Preferred
Stock, Series A, Increasing Rate of the
Company (incorporated herein by
reference to Exhibit 3.5 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987
(File No. 1-1363)).
3.6 Certificate of Designation of Shares of
Class I Cumulative Redeemable Preferred
Stock, Series B, Exchangeable of the
Company (incorporated herein by
reference to Exhibit 3.6 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987
(File No. 1-1363)).
3.7 Certificate of Designation of Shares of
Class I Preferred Stock, Series C of the
Company (incorporated herein by
reference to Exhibit 3.5 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990
(File No. 1-1363)).
3.8 Certificate of Designation of the
Preferences of Class J Convertible
Preferred Stock of the Company
(incorporated herein by reference to
Exhibit 3.7 to Amendment No. 1 to the
Company's Registration Statement on
Form S-1, filed June 14, 1993 (File No.
33-62050)).
3.9 Certificate of Correction to the
Certificate of Designation of the
Preferences of Class J Convertible
Preferred Stock of the Company
(incorporated herein by reference to
Exhibit 4.8 to the Company's Quarterly
Report on Form 10-Q for the fiscal
quarter ended June 30, 1993 (File No.
1-1363)).
3.10 By-Laws of the Company (incorporated
herein by reference to Exhibit C (pages
C-1 to C-9) to the Company's Proxy
Statement filed April 24, 1987, in
respect of its 1987 Annual Meeting of
Stockholders (File No. 1-1363)).
3.11 Amendment to the By-Laws of the Company
(incorporated herein by reference to
Exhibit 3.4 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1987 (File No. 1-
1363)).
4.1 Term Loan Agreement, dated as of
December 28, 1990, between West One
Bank, N.A., Imsamet of Idaho, Inc., the
Company and International Mill Service,
Inc. (The Company agrees to furnish a
copy of such agreement to the
Commission upon request).
4.2 Letter Amendment, effective January 28,
1992, to the Term Loan Agreement to
which reference is made in Exhibit 4.1
to this Annual Report on Form 10-K.
(The Company agrees to furnish a copy
of such amendment to the Commission
upon request.)
4.3 Loan and Security Agreement, dated as
of April 6, 1993, between IMS Funding
Corporation and Greyhound Financial
Corporation. (The Company agrees to
furnish a copy of such agreement to
the Commission upon request.)
4.4 Indenture, dated as of July 1, 1993,
between the Company and United States
Trust Company of New York, as Trustee,
relating to the Company's 9-3/4% Senior
Notes due 2003, including the form of
such Notes attached as Exhibit A thereto
(incorporated herein by reference to
Exhibit 4.10 to the Company's Quarterly
Report on Form 10-Q for the fiscal
quarter ended June 30, 1993 (File No.
1-1363)).
4.5 Registration Rights Agreement, dated as
of May 13, 1993, among the Company, FS
Equity Partners II, L.P., The IBM
Retirement Plan Trust Fund and Enso
Partners, L.P. (incorporated herein
by reference to Exhibit 4.29 to Amendment
No. 1 to the Company's Registration
Statement on Form S-1, filed June 14,
1993 (File No. 33-62050)).
4.6 Warrants to purchase shares of Common
Stock of the Company issued to FS Equity
Partners II, L.P., pursuant to the Stock
Purchase Agreement, dated as of April 16,
1993, among the Company, The Dyson-
Kissner-Moran Corporation, WM Financial
Corporation and FS Equity Partners II,
L.P., as amended (incorporated herein
by reference to Exhibit 4.30 to
Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed
June 14, 1993 (File No. 33-62050)).
4.7 Warrants to purchase shares of Common
Stock of the Company issued to The IBM
Retirement Plan Trust Fund, pursuant
to the Purchase Agreement and Assignment
and Assumption Agreement, dated as of
May 13, 1993, among the Company, FS
Equity Partners II, L.P. and The IBM
Retirement Plan Trust Fund (incorporated
herein by reference to Exhibit 4.31 to
Amendment No. 1 to the Company's
Registration Statement on Form S-1,
filed June 14, 1993 (File No. 33-62050)).
4.8 Warrants to purchase shares of Common
Stock of the Company issued to Enso
Partners, L.P., pursuant to the Stock
Purchase Agreement, dated as of May 13,
1993, among the Company, The Dyson-
Kissner-Moran Corporation, WM Financial
Corporation and Enso Partners, L.P.
(incorporated herein by reference to
Exhibit 4.32 to Amendment No. 1 to
the Company's Registration Statement
on Form S-1, filed June 14, 1993
(File No. 33-62050)).
4.9 Credit Agreement, dated as of June 24,
1993, among the Company, International
Mill Service, Inc., the banks parties
thereto, Chemical Bank, Banque Paribas
and Credit Lyonnais New York Branch, as
Co-Agents, and Chemical Bank, as
Administrative Agent (incorporated herein
by reference to Exhibit 28.3 to the
Company's Current Report on Form 8-K,
dated July 1, 1993 (File No. 1-1363)).
4.10 First Amendment to the Credit EXHIBIT 1
Agreement, dated as of December 23,
1993, among the Company, International
Mill Service, Inc., the banks parties
thereto, Chemical Bank, Banque Paribas
and Credit Lyonnais New York Branch,
as Co-Agents, and Chemical Bank, as
Administrative Agent.
4.11 Warrants to purchase 300,000 shares of
Common Stock issued to Chemical Bank,
NCNB Texas National Bank, Banque
Paribas, National Bank of Canada and
Royal Bank of Canada (incorporated
herein by reference to Exhibit 10.24
to Amendment No. 2 to the Company's
Registration Statement on Form S-1,
filed October 31, 1991 (File No.
33-42381)).
10.1 Restated Incentive Stock Option Plan
of the Company, as amended (incorporated
herein by reference to Exhibit A to
the Company's Registration Statement
on Form S-8, filed January 17, 1989
(File No. 33-26633)).
10.2 Stock Purchase Agreement, dated as of
April 16, 1993, among the Company, The
Dyson-Kissner-Moran Corporation, WM
Financial Corporation and FS Equity
Partners II, L.P. (incorporated herein
by reference to Exhibit 4.21 to the
Company's Form 8 Amendment to Annual
Report on Form 10-K for the fiscal
year ended December 31, 1992
(File No. 1-1363)).
10.3 First Amendment to the Stock Purchase
Agreement, dated as of May 13, 1993,
among the Company, The Dyson-Kissner-
Moran Corporation, WM Financial
Corporation and FS Equity
Partners II, L.P. (incorporated
herein by reference to Exhibit 28.2
to the Company's Current Report on
Form 8-K, dated May 27, 1993
(File No. 1-1363)).
10.4 Purchase Agreement and Assignment and
Assumption Agreement, dated as of May
13, 1993, among the Company, FS Equity
Partners II, L.P. and The IBM
Retirement Plan Trust Fund
(incorporated herein by reference
to Exhibit 28.4 to the Company's
Current Report on Form 8-K, dated May
27, 1993 (File No. 1-1363)).
10.5 Stock Purchase Agreement, dated
as of May 13, 1993, among the
Company, The Dyson-Kissner-Moran
Corporation, WM Financial Corporation
and Enso Partners, L.P. (incorporated
herein by reference to Exhibit 28.3
to the Company's Current Report on
Form 8-K, dated May 27, 1993
(File No. 1-1363)).
10.6 Promissory Note of Louis A. Guzzetti,
Jr., dated March 31, 1993, amending
and replacing the Promissory Notes
dated October 15, 1987, March 31, 1991
and March 31, 1992 and the Letter
Amendments dated April 13, 1991
and May 12, 1992, payable to the
Company in the principal amount of
$432,678.50 (incorporated herein by
reference to Exhibit 10.13 to
Post-Effective Amendment No. 1
to the Company's Registration Statement
on Form S-1, filed September 16, 1993
(File No. 33-46930)).
10.7 Promissory Notes of Aarne Anderson, James
H. Cornell, Jerrold I. Dolinger, George
E. Fuehrer, George T. Milano and Mr.
Guzzetti, dated as of April 1, 1993,
amending and replacing the Promissory
Notes dated January 13, 1989, April
1, 1991 and April 1, 1992, payable to
the Company in the aggregate principal
amount of $1,247,123.80 (incorporated
herein by reference to Exhibit 10.17
to Post-Effective Amendment No. 1 to
the Company's Registration Statement
on Form S-1, filed September 16, 1993
(File No. 33-46930)).
10.8 Stock Option Agreement, dated March 18,
1992, between the Company and Raymond
P. Caldiero (incorporated herein by
reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K
for the fiscal year ended December 31,
1992 (File No. 1-1363)).
10.9 Stock Option Agreement, dated March
18, 1992, between the Company and
Jeffrey G. Miller (incorporated
herein by reference to Exhibit 10.21
to the Company's Annual Report on Form
10-K for the fiscal year ended December
31, 1992 (File No. 1-1363)).
10.10 Amendment, dated August 5, 1993, to the
Stock Option Agreement, dated March 18,
1992, between the Company and Jeffrey G.
Miller, to which reference is made in
Exhibit 10.9 to this Annual Report on
Form 10-K (incorporated herein by
reference to Exhibit 10.22 to
Post-Effective Amendment No. 1 to the
Company's Registration Statement on
Form S-1, filed September 16, 1993
(File No. 33-46930)).
10.11 Stock Option Agreement, dated August
5, 1993, between the Company and Wallace
B. Askins (incorporated herein by
reference to Exhibit 10.23 to
Post-Effective Amendment No. 1 to the
Company's Registration Statement on
Form S-1, filed September 16, 1993
(File No. 33-46930)).
10.12 Stock Option Agreement, dated November EXHIBIT 2
1, 1993, between the Company and
Arthur R. Seder, Jr.
10.13 1993 Stock Option Plan of the Company
(incorporated herein by reference to
Exhibit 10.21 to Amendment No. 1 to
the Company's Registration Statement
on Form S-1, filed June 14, 1993
(File No. 33-62050)).
21.1 Subsidiaries of the Company. EXHIBIT 3
23.1 Consent of Ernst & Young. EXHIBIT 4
23.2 Consent of KPMG Peat Marwick. EXHIBIT 5
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT, dated as of December 23, 1993 (this
"First Amendment"), among the signatories hereto to the Credit
Agreement, dated as of June 24, 1993 (the "Credit Agreement"),
among International Mill Service, Inc., a Pennsylvania
corporation (the "Borrower"), EnviroSource, Inc., a Delaware
corporation (the "Parent"), the lenders parties thereto (the
"Lenders"), Banque Paribas, a banking organization organized
under the laws of the Republic of France, Credit Lyonnais New
York Branch, the New York branch of a banking organization
organized under the laws of the Republic of France, and Chemical
Bank, a New York banking corporation, as co-agents for the
Lenders (in such capacity, the "Co-Agents"), and Chemical Bank,
as administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
W I T N E S S E T H :
WHEREAS, the Borrower has requested and the
Administrative Agent, the Co-Agents and the Lenders have agreed
to amend certain provisions of the Credit Agreement upon the
terms and subject to the conditions set forth herein; and
WHEREAS, the Administrative Agent, the Co-Agents and
the Lenders have agreed to such amendments only upon the terms
and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and
mutual covenants contained herein, the parties hereto hereby
agree as follows:
1. DEFINED TERMS. Terms defined in the Credit
Agreement are used herein with the meanings set forth in the
Credit Agreement unless otherwise defined herein.
2. AMENDMENT OF SUBSECTION 1.1 (DEFINED TERMS).
Subsection 1.1 of the Credit Agreement is hereby amended by
inserting immediately after the phrase "except Cash Equivalents)"
in clause (b) of the definition of "Consolidated Net Income" the
following: ", or any unusual losses or gains attributable to the
events or reversals of liabilities, as the case may be, described
in the proviso contained in subsection 7.1(b)".
3. AMENDMENT OF SUBSECTION 4.11 (TAXES). Subsection
4.11 of the Credit Agreement is hereby amended by inserting after
the phrase "no tax Lien" contained therein the following
parenthetical: "(other than as permitted by subsection 7.3(a))".
4. AMENDMENT OF SUBSECTION 6.1(C) (FINANCIAL
STATEMENTS). Subsection 6.1(c) of the Credit Agreement is hereby
amended by deleting the phrase "showing separately (i) the
Borrower and its Subsidiaries, (ii) CSI, (iii) Imsamet, (iv) ESI
and its Subsidiaries, and (v)" and inserting in lieu thereof the
following: "showing separately (i) the Borrower and its
Subsidiaries, (ii) CSI and ESI and their subsidiaries, (iii)
Imsamet, and (iv)".
5. AMENDMENT OF SUBSECTION 6.1(E) (FINANCIAL
STATEMENTS). Subsection 6.1(e) of the Credit Agreement is hereby
amended by deleting the phrase "entities described in clauses (i)
through (v)" and inserting in lieu thereof the following
"entities described in clauses (i) through (iv)".
6. AMENDMENT OF SUBSECTION 7.1(A) (FINANCIAL CONDITION
COVENANTS - INTEREST COVERAGE). Subsection 7.1(a) of the Credit
Agreement is hereby amended by deleting such subsection in its
entirety and substituting, in lieu thereof, the following:
"(a) INTEREST COVERAGE. Permit the ratio of (i)
Consolidated Net Income plus income taxes and goodwill
amortization deducted in determining such Consolidated Net
Income plus Consolidated Interest Expense to (ii) Cash
Interest for such period to be less than the ratio set forth
opposite such period below as "Interest Coverage":
PERIOD INTEREST COVERAGE
12 month period ending
June 30, 1993 1.00 to 1.0
12 month period ending
September 30, 1993 1.00 to 1.0
12 month period ending
December 31, 1993 1.15 to 1.0
12 month period ending
March 31, 1994 1.20 to 1.0
12 month period ending
June 30, 1994 1.20 to 1.0
12 month period ending
September 30, 1994 1.30 to 1.0
12 month period ending
December 31, 1994 1.35 to 1.0
12 month period ending
March 31, 1995 1.40 to 1.0
12 month period ending
June 30, 1995 1.45 to 1.0
12 month period ending
September 30, 1995 1.50 to 1.0
12 month period ending
December 31, 1995 1.60 to 1.0
12 month period ending
March 31, 1996 1.60 to 1.0
12 month period ending
June 30, 1996 1.60 to 1.0
12 month period ending
September 30, 1996 1.65 to 1.0
12 month period ending
December 31, 1996 1.75 to 1.0
12 month period ending
March 31, 1997 1.80 to 1.0
12 month period ending
June 30, 1997 1.80 to 1.0
12 month period ending
September 30, 1997 1.80 to 1.0
12 month period ending
December 31, 1997 1.80 to 1.0
12 month period ending
March 31, 1998 2.00 to 1.0
12 month period ending
June 30, 1998 2.00 to 1.0."
7. AMENDMENT OF SUBSECTION 7.1(B) (FINANCIAL CONDITION
COVENANTS - MAINTENANCE OF TANGIBLE CAPITAL FUNDS). Subsection
7.1(b) of the Credit Agreement is hereby amended by inserting
immediately at the end of such subsection the following proviso:
"provided, however, that the required amount of
Consolidated Tangible Capital Funds set forth opposite
any period above shall be reduced by the Reduction
Amount, if any, and increased by the Increase Amount,
if any. For purposes of this subsection 7.1(b), (i)
the "Reduction Amount", if any, shall be equal to the
amount (not to exceed $3,000,000) by which any unusual
losses recorded during the fiscal quarter ended
December 31, 1993 relating to certain events
contemplated as of December 23, 1993 and previously
disclosed to the Lenders exceeds the amount of the
reversal of excess liabilities of IU International and
its Subsidiaries during such quarter, regardless of
whether such reversal amount reduces Consolidated
Intangibles or increases Consolidated Net Worth, and
(ii) the "Increase Amount", if any, shall be equal to
the amount by which such reversal amount exceeds such
unusual losses.".
8. AMENDMENT OF SUBSECTION 7.1(C) (FINANCIAL CONDITION
COVENANTS - CASH FLOW COVERAGE). Subsection 7.1(c) of the Credit
Agreement is hereby amended by deleting such subsection in its
entirety and substituting, in lieu thereof, the following:
"(c) CASH FLOW COVERAGE. Permit the ratio of (i)
Adjusted EBITDA for each period set forth below to (ii) Debt
Service for such period to be less than the ratio set forth
opposite such period below as "Cash Flow Coverage":
PERIOD CASH FLOW COVERAGE
12 month period ending
June 30, 1993 0.90 to 1.00
12 month period ending
September 30, 1993 0.60 to 1.00
12 month period ending
December 31, 1993 0.60 to 1.00
12 month period ending
March 31, 1994 0.45 to 1.00
12 month period ending
June 30, 1994 0.25 to 1.00
12 month period ending
September 30, 1994 0.35 to 1.00
12 month period ending
December 31, 1994 0.65 to 1.00
12 month period ending
March 31, 1995 0.70 to 1.00
12 month period ending
June 30, 1995 0.80 to 1.00
12 month period ending
September 30, 1995 0.90 to 1.00
12 month period ending
December 31, 1995 1.00 to 1.00
12 month period ending
March 31, 1996 1.00 to 1.00
12 month period ending
June 30, 1996 1.05 to 1.00
12 month period ending
September 30, 1996 1.10 to 1.00
12 month period ending
December 31, 1996 1.20 to 1.00
12 month period ending
March 31, 1997 1.20 to 1.00
12 month period ending
June 30, 1997 1.25 to 1.00
12 month period ending
September 30, 1997 1.30 to 1.00
12 month period ending
December 31, 1997 1.40 to 1.00
12 month period ending
March 31, 1998 1.40 to 1.00
12 month period ending
June 30, 1998 1.45 to 1.00."
9. AMENDMENT OF SUBSECTION 7.2(C) (LIMITATION ON
INDEBTEDNESS). Subsection 7.2(c) of the Credit Agreement is
hereby amended by deleting the proviso contained therein and
inserting in lieu thereof the following:
"provided that (i) in the case of Intercompany
Indebtedness used to fund such obligations such
Intercompany Indebtedness is evidenced by Intercompany
Notes which are pledged to the Administrative Agent,
for the ratable benefit of the Lenders, pursuant to the
terms of appropriate Pledge Agreements or supplements
thereto and (ii) notwithstanding anything to the
contrary contained herein, IMSALCO shall be permitted
to incur Intercompany Indebtedness not to exceed
$500,000 at any one time outstanding so long as such
Indebtedness is evidenced by Intercompany Notes which
are pledged to the Administrative Agent for the ratable
benefit of the Lenders, pursuant to the terms of
appropriate Pledge Agreements or supplements thereto;"
10. AMENDMENT OF SUBSECTION 7.3(K) (LIMITATION ON
LIENS). Subsection 7.3(k) of the Credit Agreement is hereby
amended by deleting the closing parenthesis immediately before
the word "on" contained therein.
11. AMENDMENT OF SUBSECTION 7.4(D) (LIMITATION ON
GUARANTEE OBLIGATIONS). Subsection 7.4(d) of the Credit
Agreement is hereby amended by inserting a closing parenthesis
after the word "hereof" contained therein.
12. AMENDMENT OF SUBSECTION 7.5 (LIMITATION ON
FUNDAMENTAL CHANGES). Subsection 7.5 of the Credit Agreement is
hereby amended by:
(a) deleting the word "and" at the end of paragraph (c)
of such subsection;
(b) deleting the period at the end of paragraph (d) of
such subsection and substituting, in lieu thereof, the
following: "; and"; and
(c) inserting immediately after paragraph (d) of such
subsection the following new paragraph:
"(e) any one or more Subsidiaries set forth on
Schedule 7.5(e) hereto (a "Listed Subsidiary") may be
liquidated, wound up or dissolved; provided, that such
Listed Subsidiary shall not be permitted to be
liquidated, wound up or dissolved if (i) such
Subsidiary is engaged in any activity other than the
activities it is engaged in as of December 23, 1993 or
(ii) without in any way limiting the foregoing, a
Subsidiary which is not a Listed Subsidiary has been
merged or consolidated into such Listed
Subsidiary."
13. SUBSECTION 7.8 (LIMITATION ON DIVIDENDS).
Subsection 7.8 of the Credit Agreement is hereby amended by:
(a) deleting paragraph (b) in its entirety from such
subsection and inserting, in lieu thereof, the following new
paragraph:
"(b) the Parent may redeem or repurchase its
Class G Preferred Stock if and only if the Parent has
achieved a ratio of (A) EBITDA for the four fiscal
quarter period most recently ended for which financial
statements are available and have been delivered to the
Lenders as required by the terms hereof, less
$15,000,000 to (B) Cash Interest for such period, equal
to or greater than the ratio for such period set forth
on Schedule VII (1) prior to the first anniversary of
the Closing Date, up to an aggregate amount of
$5,000,000, (2) during the period commencing on the
first anniversary of the Closing Date and ending on the
second anniversary of the Closing Date, up to an
aggregate amount of $12,500,000 plus the amount, if
any, permitted under clause (1) above and not used, and
(3) at any time after the second anniversary of the
Closing Date, up to an aggregate amount of $12,500,000
plus the amount, if any, permitted under clauses (1)
and (2) above and not used."; and
(b) deleting paragraph (e) in its entirety from such
subsection and inserting, in lieu thereof, the following new
paragraph:
"(e) the Parent in addition to any redemptions
permitted pursuant to clause (b) above may redeem or
repurchase its Class G Preferred Stock in an aggregate
amount up to $5,000,000.".
14. AMENDMENT OF SUBSECTION 7.10 (LIMITATION ON
INVESTMENTS, LOANS AND ADVANCES). Subsection 7.10 of the Credit
Agreement is hereby amended by (a) deleting clause (f) of such
subsection in its entirety and inserting in lieu thereof the
following:
"(f) deposits into trust funds, or insurance
arrangements in lieu thereof, required to be made in
connection with environmental permits in the ordinary
course of business and consistent with past practice;
and (b) deleting the amount "$2,000,000" contained in clause (h)
of such subsection and inserting in lieu thereof the amount
"$3,400,000".
15. AMENDMENT OF SCHEDULE VII. Schedule VII of the
Credit Agreement is hereby amended by deleting such Schedule in
its entirety and substituting, in lieu thereof, a new Schedule
VII as set forth on Exhibit A attached hereto.
16. SCHEDULE 7.5(e). The Credit Agreement is hereby
further amended by inserting in the appropriate place a new
Schedule 7.5(e) as set forth on Exhibit B attached hereto.
17. AMENDMENT FEE. The Borrower hereby agrees to pay
to the Administrative Agent on the date of effectiveness of this
First Amendment, an amendment fee for the account of each Lender
in an amount equal to 1/8 of 1% of the Revolving Credit
Commitment of such Lender.
18. REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Parent or the Borrower set
forth in the Credit Agreement or which are contained in any
certificate, document or financial or other statement furnished
pursuant to or in connection with the Credit Agreement are true
and correct in all material respects on and as of the date hereof
with the same effect as if made on the date hereof and no Default
or Event of Default has occurred and is continuing under the
Credit Agreement both before and after giving effect to this
Amendment.
19. CONDITIONS TO EFFECTIVENESS. This First Amendment
shall become effective as of the date first above written when
(a) counterparts hereof shall have been duly executed and
delivered by each of the parties hereto and (b) the
Administrative Agent shall have received the fees referred to in
Section 17 hereof.
20. CONTINUING EFFECTS. Except as expressly amended
or waived hereby, each of the Credit Agreement and the other Loan
Documents shall continue to be and shall remain in full force and
effect in accordance with its terms.
21. EXPENSES. The Borrower hereby agrees to pay and
reimburse the Administrative Agent for all of its out-of-pocket
costs and expenses incurred in connection with the negotiation,
preparation, execution, and delivery of this First Amendment,
including the fees and expenses of counsel to the Administrative
Agent.
22. COUNTERPARTS. This First Amendment may be
executed on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and
the same instrument.
23. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
First Amendment to be duly executed and delivered by their proper
and duly authorized officers as of the day and year first above
written.
INTERNATIONAL MILL SERVICE, INC.
By:/S/ LOUIS A. GUZZETTI, JR.
Title: President
ENVIROSOURCE, INC.
By:/S/ LOUIS A. GUZZETTI, JR.
Title: President
CHEMICAL BANK,
as Administrative Agent, as a
Co-Agent and as a Lender
By:/S/ WILLIAM EWING
Title: Managing Director
BANQUE PARIBAS,
as a Co-Agent and as a Lender
By:/S/ BRUCE A CAULEY
Title: Deputy General Manager
By:/S/ PIERRE-JEAN de FILIPIS
Title: General Manager
CREDIT LYONNAIS NEW YORK BRANCH, as
a Co-Agent and as a Lender
By:/S/ FREDERICK HADDAD
Title: Senior Vice President
NATIONSBANK OF TEXAS, N.A.
By:/S/ MARK E. STEPHANZ
Title:
<PAGE>
Exhibit A to the First
Amendment to Credit Agreement
SCHEDULE VII
TO CREDIT AGREEMENT
Redemption Ratios
PERIOD RATIO
12 month period ending
December 31, 1993 2.00 to 1.0
12 month period ending
March 31, 1994 2.00 to 1.0
12 month period ending
June 30, 1994 2.25 to 1.0
12 month period ending
September 30, 1994 2.40 to 1.0
12 month period ending
December 31, 1994 2.45 to 1.0
12 month period ending
March 31, 1995 2.50 to 1.0
12 month period ending
June 30, 1995 2.60 to 1.0
12 month period ending
September 30, 1995 and each 2.65 to 1.0
12 month period ending at the
end of a fiscal quarter ending
thereafter
<PAGE>
Exhibit B to the First
Amendment to Credit Agreement
SCHEDULE 7.5(e)
TO CREDIT AGREEMENT
SUBSIDIARIES THAT MAY BE LIQUIDATED, WOUND UP OR DISSOLVED
Byevalve Company, Ltd. (Delaware)
C. Brewer Terminals, Inc. (Delaware)
C. Brewer Service Corp. (Hawaii)
Envirosafe, Inc. (Delaware)
Envirosafe Management Systems, Inc. (Delaware)
Envirosafe Services of America, Inc. (Delaware)
Envirosafe Services of Pennsylvania, Inc. (Delaware)
Envirosafe Services of Texas, Inc. (Delaware)
EnviroSource Corp. (Wyoming)
Fox Hunt Farms, Inc. (Delaware)
Garden Spot Water Company, Inc. (Pennsylvania)
Gemini Manufacturing Co. (Ohio)
IMS Lycrete Egypt, Ltd. (Delaware)
Imsamet Acquisition Corp. (Delaware)
Intermetal Mexicana S.A. (Mexico)
International Mill Service Limited (Canada)
IU International Corporation (Delaware)
IU North America, Inc. (Delaware)
IU North America Finance, Inc. (Delaware)
IU Terminal Properties, Inc. (Delaware)
Marcus Hook Processing, Inc. (Delaware)
McGraw Construction Company, Inc. (Ohio)
Neoax Investment Corp. (Delaware)
Nosroc Corp. (Pennsylvania)
Soncor Corp. (Delaware)
Waylite Corporation (Pennsylvania)
N.Q. Option 11/93
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated November 1, 1993, between
ENVIROSOURCE, INC. (the "Corporation") and ARTHUR R. SEDER, JR.
(the "Optionee"), who is a Director of the Corporation.
1. Shares Subject to Option. The Corporation hereby
grants to the Optionee a Stock Option to purchase 20,000 shares
of the Common Stock (par value $.05 per share) of the Corporation
(the "Optioned Shares") at a price equal to $4.25 per share.
2. Term and Exercise of Option. The Stock Option hereby
granted (the "Option"), subject to the conditions set forth in
Section 3 hereof, shall become exercisable in full on November 1,
1995, and shall expire and may not be exercised after the
expiration of ten years from the date hereof. The Option may be
exercised from time to time in whole or in part by giving written
notice to the Corporation, which notice shall include the date,
the number of shares as to which the Option is then being
exercised and the aggregate purchase price of such shares. At
the time of exercise of the Option in whole or in part, the
aggregate option price of the shares purchased pursuant thereto
shall be paid in full at the principal office of the Corporation
by payment of the full purchase price in cash.
The Corporation, upon receipt of such option price, will
cause certificates for such shares to be delivered to the person
entitled thereto, registered in the name of the person or persons
so exercising the Option and, if deemed necessary by counsel to
the Corporation, legended pursuant to paragraph 3 hereof. In
addition, the Corporation shall have the right to require a cash
payment upon the exercise of the Option in connection with any
obligation of the Corporation to withhold taxes.
This Agreement shall not be construed as giving the
Optionee any right to be retained as a Director of the
Corporation or to be employed by the Corporation or any
subsidiary.
3. Conditions to Exercise. Exercise of the Option as
hereinabove provided shall be subject to the following express
conditions precedent:
(a) The Optionee shall have remained continuously as
a member of the Board of Directors of the Corporation from
the date of grant of the Option ("Granting Date") until
the date of exercise thereof except that (i) in the event
of the death of the Optionee after the Granting Date and
while a Director of the Corporation, or within three
months after the termination of his services as a Director
either (A) as a result of a vote of stockholders or (B)
otherwise with the written consent of the Corporation, the
Option may be exercised (to the extent that the Optionee
was entitled to do so at the date of his death) at any
time within one year after his death by the executors or
administrators of the Optionee or by any person who shall
have acquired the Option from the Optionee by bequest of
inheritance, and (ii) in the event of the termination
(otherwise than by reason of death) after the Granting
Date of the Optionee's service as a Director either (A) as
a result of a vote of stockholders or (B) otherwise with
the written consent of the Corporation the Option may be
exercised (to the extent the Optionee was entitled to do
so at the termination of his service as a Director) at any
time within three months after such termination but not
thereafter; provided, however, that in no event may the
Option be exercised after the expiration of the term of
the Option.
(b) Unless a registration statement under the
Securities Act of 1933, as amended, shall at the time of
exercise of the Option be in effect with respect to the
Optioned Shares, the Optionee shall have delivered to the
Corporation such assurances as the Corporation may
reasonably request that the Optioned Shares are being
acquired in accordance with the terms of an applicable
exemption from the registration requirements of such Act.
(c) If the shares of Common Stock of the Corporation
or other securities issuable on exercise of the Option are
then listed on any securities exchange, such shares shall
have been authorized for listing on such exchange on
official notice of issuance.
4. Option Non-Transferable. This Option may not be
transferred by the Optionee otherwise than by will or by the laws
of descent and distribution and may be exercised during the
lifetime of the Optionee only by him.
5. Adjustment of Option Price and Number of Optioned
Shares. In the event of any reorganization, recapitalization,
stock split, stock dividend, combination or exchange of shares,
merger, consolidation, sale or exchange of assets, offering of
subscription rights or other similar change in the corporate
structure or capitalization of the Corporation or in its shares,
then and in any such event, the number of Optioned Shares and the
option price per share shall be appropriately adjusted by the
Board of Directors whose determination shall be final.
6. Investment Covenant. The Optionee represents,
covenants and agrees that, unless the Optioned Shares shall have
been registered under the Securities Act of 1933, as amended, or
other Federal or state statutes in effect at the time of
purchase, such Optioned Shares will be acquired by the Optionee
for investment for his own account and not with a view to
distribution and agrees to execute such other and further
instruments as may be required to evidence such investment
intent.
7. Right of Cancellation. Notwithstanding the foregoing
provisions of this Agreement, this Option may be canceled by the
Board of Directors at any time prior to the exercise thereof if
the Board determines that the Optionee has at any time prior to,
or after, the date hereof intentionally committed an act
materially inimical to the interests of the Corporation or of any
subsidiary of the Corporation.
IN WITNESS WHEREOF, the Corporation and the Optionee have
executed this Agreement in duplicate as of the date first above
written.
ENVIROSOURCE, INC.
ATTEST:
/S/ C.E. HUBEN By:/S/ LOUIS A. GUZZETTI, JR.
/S/ ARTHUR R. SEDER, JR.
Optionee
<TABLE>
ENVIROSOURCE, INC.
List of Subsidiaries
As of January 1, 1994
% of voting
State or other securities
jurisdiction owned by
in which immediate
Name of Company organized parent
<S> <S> <C>
EnviroSource, Inc. Delaware
EnviroSource Corp. Wyoming 100
Imsamet Acquisition Corp. Delaware 100
Imsamet of Utah, Inc. Delaware 100
Imsamet of Idaho, Inc. Delaware 100
IU International Corporation Delaware 100
C. Brewer Terminals, Inc. Delaware 100
Envirosafe Services, Inc. Delaware 100
Envirosafe, Inc. Delaware 100
Envirosafe Services of America, Inc. Delaware 100
Envirosafe Services of Idaho, Inc. Delaware 100
Envirosafe Services of Ohio, Inc. Ohio 100
Envirosafe Management Systems, Inc. Delaware 100
Envirosafe Services of Texas, Inc. Delaware 100
Fox Hunt Farms, Inc. Delaware 100
Garden Spot Water Company, Inc. Pennsylvania 100
Marcus Hook Processing, Inc. Delaware 100
IMS Lycrete Egypt, Ltd. Delaware 90(1)
Intermetal Mexicana S.A. Mexico 60(2)
International Mill Service, Inc. Pennsylvania 100
Conversion Systems, Inc. Delaware 100
IMS Funding Corporation Delaware 100
International Mill Service Limited Canada 100
McGraw Construction Company, Inc. Ohio 100
Neoax Investment Corp. Delaware 57(3)
Waylite Corporation Pennsylvania 100
IU North America Finance, Inc. Delaware 100
IU North America, Inc. Delaware 100
Nosroc Corp. Pennsylvania 100
Soncor Corp. Delaware 100
</TABLE>
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(1) 10% owned by an unrelated, third party, citizen of Egypt.
(2) 40% owned by an unrelated, third party, citizen of Mexico.
(3) 43% owned by IU International Corporation.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective
Amendment No. 1 to the Registration Statement (Form S-8 No. 33-
34566) pertaining to the EnviroSource, Inc. Savings Plan,
Registration Statement (Form S-8 No. 33-26633), Post-Effective
Amendment No. 1 to the Registration Statement (Form S-8 No. 33-
1549), and Post-Effective Amendment No. 1 to the Registration
Statement (Form S-8 No. 33-13728), each of which pertains to
EnviroSource, Inc.'s Incentive Stock Option Plan, and the
Registration Statement (Forms S-8 No. 33-46925) pertaining to the
Envirosafe Services, Inc. Stock Option Plan of our report dated
March 2, 1994, with respect to the consolidated financial
statements and schedules of EnviroSource, Inc. included in this
Annual Report (Form 10-K) for the year ended December 31, 1993.
ERNST & YOUNG
Stamford, Connecticut
March 23, 1994
Consent of Independent Auditors
The Board of Directors
Envirosafe Services, Inc.:
We consent to incorporation by reference in Registration
Statements (No. 33-46925 dated April 2, 1992, No. 33-34566 dated
November 20, 1990, No. 33-26633 dated January 17, 1989, No. 33-
1549 dated September 10, 1987, and No. 33-13728 dated September
10, 1987) on Forms S-8 of EnviroSource, Inc. of our report dated
February 28, 1992, relating to the consolidated statements of
operations, shareholders' equity and cash flows and related
schedules of Envirosafe Services, Inc. and subsidiaries for the
year ended December 31, 1991, which report appears in the
December 31, 1993 annual report on Form 10-K of EnviroSource,
Inc.
KPMG PEAT MARWICK
Philadelphia, Pennsylvania
March 23, 1994
