SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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
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
The number of shares outstanding of the Registrant's Common
Stock as of the close of business on October 31, 1995 was
40,194,244.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
EnviroSource, Inc.
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
[CAPTION]
<TABLE>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,307 $ 8,389
Accounts receivable, less allowance
for doubtful accounts of $800
and $616 38,550 45,865
Other current assets 7,523 7,635
---------- ----------
Total current assets 49,380 61,889
Property, plant and equipment, at cost 278,519 282,594
Less allowance for depreciation 120,303 127,124
---------- ----------
158,216 155,470
Goodwill, less amortization 161,743 165,458
Landfill permits, less amortization 22,442 22,739
Closure trust funds and deferred
charges, less amortization 25,391 25,573
Debt issuance costs, less amortization 7,897 8,679
Other assets 12,154 10,370
---------- ----------
$ 437,223 $ 450,178
========== ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
EnviroSource, Inc.
CONSOLIDATED CONDENSED BALANCE SHEET -- Continued
(Dollars in thousands)
[CAPTION]
<TABLE>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 11,201 $ 15,713
Salaries, wages and related benefits 9,541 12,268
Insurance obligations 8,117 8,113
Estimated restructuring costs 2,245 6,337
Interest 6,994 1,543
Other current liabilities 11,918 17,146
Current portion of debt 4,806 9,044
Class G redeemable preferred stock
due July 15, 1996 32,709
---------- ----------
Total current liabilities 87,531 70,164
Long-term debt 256,970 260,423
Other liabilities 61,314 63,674
Class G redeemable preferred stock 31,396
Commitments and contingencies (Note C)
Stockholders' equity:
Common stock, par value $.05 per
share, 60,000,000 shares author-
ized, 40,194,244 shares issued and
outstanding in 1995 and 40,093,759
shares in 1994 2,010 2,005
Capital in excess of par value 162,580 162,573
Accumulated deficit (131,477) (138,148)
Stock purchase loans receivable from
officers (840) (840)
Canadian translation adjustment (865) (1,069)
---------- ----------
Total stockholders' equity 31,408 24,521
---------- ----------
$ 437,223 $ 450,178
========= ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
EnviroSource, Inc.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share amounts)
[CAPTION]
<TABLE>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $64,822 $66,001 $202,178 $187,882
Cost of revenues 47,529 47,443 150,675 137,552
Selling, general and
administrative expenses 5,997 7,506 19,413 23,748
--------- --------- --------- ---------
Operating income 11,296 11,052 32,090 26,582
Interest income 293 214 870 755
Interest expense (6,880) (6,278) (20,655) (18,776)
--------- --------- --------- ---------
Income before income taxes 4,709 4,988 12,305 8,561
Income tax expense:
Taxes payable (438) (511) (1,127) (1,731)
Federal taxes not
payable in cash (1,133) (1,137) (3,152) (1,644)
--------- --------- ---------- --------
Net income 3,138 3,340 8,026 5,186
Preferred stock dividend
requirements, reduced by
retirement gains of $536
in the first half of 1994 (453) (562) (1,355) (1,256)
--------- --------- --------- ---------
Income applicable
to common shares $ 2,685 $ 2,778 $ 6,671 $ 3,930
======= ======= ======== ========
Net income per share $ .07 $ .07 $ .16 $ .10
======= ======= ======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
EnviroSource, Inc.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
[CAPTION]
<TABLE>
Nine months ended
September 30,
----------------
1995 1994
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,026 $ 5,186
Adjustments to reconcile net income to
cash provided by operations:
Income tax expense not payable in cash 3,152 1,644
Depreciation 18,871 18,081
Amortization 5,955 6,232
Closure cost amortization and accruals 1,455 1,993
Restructuring costs (3,946) (4,167)
Changes in working capital 3,050 (2,267)
Other (142) 3,262
-------- --------
Cash provided by operating activities 36,421 29,964
-------- --------
INVESTING ACTIVITIES
Property, plant and equipment additions (22,393) (30,945)
Purchase of intangibles (2,948)
Landfill permit additions and closure
expenditures (542) (303)
Closure trust fund payments (487) (4,306)
Ongoing net cash flows related to
IU acquisition (8,801) (580)
Other (1,479) (1,680)
-------- --------
Cash used by investing activities (33,702) (40,762)
-------- --------
FINANCING ACTIVITIES
Issuance of debt 12,100 17,500
Debt issuance costs (584)
Debt repayment (19,847) (9,826)
Retirement of preferred stock (42) (4,260)
Sale of common stock 12 8
Other (24)
------- -------
Cash (used) provided by financing activities (7,801) 2,838
------- -------
CASH AND CASH EQUIVALENTS
Decrease during the period (5,082) (7,960)
Beginning of year 8,389 10,582
------- ---------
End of period $ 3,307 $ 2,622
======== =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
EnviroSource, Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A. BASIS OF PRESENTATION
- - ---------------------------------
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information.
In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation
have been included. Operating results for the three and nine
month periods ended September 30, 1995 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1995. The consolidated condensed balance
sheet at December 31, 1994 has been derived from audited
financial statements at that date. For further information,
refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
NOTE B. OTHER INFORMATION
- - -----------------------------
Per share amounts are based on the weighted average number of
common shares outstanding and the dilutive effect of stock
options and warrants: 40,508,000 and 40,370,000 for the three
months ended September 30, 1995 and 1994, 40,547,000 and
40,422,000 for the nine months then ended. The Class G
redeemable preferred stock was not dilutive.
At September 30, 1995, $20 million of revolving credit borrowings
were outstanding. In the nine months ended September 30, 1995,
the Company repaid a net $5 million of revolving credit
borrowings, including $4 million that was classified as a current
liability at December 31, 1994.
The Company has received a commitment for a new bank credit
agreement that will enable it to retire the Class G redeemable
preferred stock on or before July 15, 1996.
The Company paid interest of $14.2 million and $12.2 million
during the nine months ended September 30, 1995 and 1994,
excluding $.6 million capitalized in 1994.
Income tax expense payable for the nine months ended September
30, 1995 and 1994 consists of state and foreign income taxes. In
the nine months ended September 30, 1995 and 1994, the Company
made cash income tax payments, net of refunds, of $1.1 million
and $1.4 million.
<PAGE>
EnviroSource, Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE C. COMMITMENTS AND CONTINGENCIES
- - -----------------------------------------
As of September 30, 1995, the Company has commitments to spend $7
million for equipment additions. 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 $1.2 million annually
through 1998. The Company is also obligated to make
nonrefundable payments into Ohio closure trust funds of
approximately $3.4 million in late 1995 and $4 million in early
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 September 30, 1995, the Company was contingently liable for
$8.9 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
condensed balance sheet.
In connection with IU International Corporation's ("IU's") 1985
disposition of P-I-E Nationwide, Inc. ("PIE"), 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. PIE commenced bankruptcy proceedings in 1990 and
ceased making payments in respect of its self-insured claims.
The Company's obligations for these claims aggregate an estimated
$12 million at September 30, 1995, and currently require the
Company to make payments of about $2 million annually. Although
the Company has the right to receive proceeds from the
liquidation of various classes of PIE assets, the amounts and
timing are uncertain. Because sufficient liabilities are
reflected in the consolidated condensed balance sheet and the
Company's estimates do not assume any such liquidation proceeds,
the Company's financial condition as reported at September 30,
1995 will not be adversely affected if the Company receives no
proceeds from such liquidation.
PIE's bankruptcy triggered withdrawal liabilities to certain
multiemployer pension plans, estimated by PIE in 1990 to
aggregate $58 million. In 1991 the trustees 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 the Company for any deficiencies in
PIE's payment of withdrawal liabilities to such plan. Such plan
<PAGE>
EnviroSource, Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE C. COMMITMENTS AND CONTINGENCIES -- Continued
- - -----------------------------------------
did not again contact the Company concerning this matter until
March 15, 1995, when the Company was advised that such plan's
consideration as to whether it would assert a claim is ongoing.
The Company believes no such claim would be warranted and, if
asserted, would contest any such claim vigorously. However,
under the Multiemployer Pension Plan Amendments Act of 1980, a
federal statute governing such plans, the plan trustees could
require the Company to make substantial monthly payments before
any issues are arbitrated or litigated. The Company believes it
will ultimately prevail on the issues. If onerous monthly
payments are imposed by the plan, the Company will take any and
all actions it deems necessary and appropriate to protect itself
until the matter can be arbitrated and/or litigated on its
merits. The Company continues to believe that the underlying
facts and circumstances support a conclusion that these matters
will be resolved with no material adverse effect on its financial
condition.
The Company's Ohio and Idaho facilities hold operating permits
issued by state and federal environmental agencies under the
Resource Conservation and Recovery Act, as amended ("RCRA"), that
require renewal and modification from time to time. The Company
expects that it will obtain the renewals and modifications to its
permits that it requires to continue to provide landfill capacity
in its approved disposal cells well into the next decade.
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 requirements not only
can affect the demand for treatment and disposal services, but
could also require the Company 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 the
Company's results of operations or financial condition, but the
Company believes that the consolidated condensed financial
statements appropriately reflect all presently known compliance
costs in accordance with generally accepted accounting
principles. Under normal circumstances, the Company would expect
to be able to absorb increased operating compliance costs by
increasing prices charged to customers.
The Company is a party to litigation and proceedings arising in
the normal course of its present or former businesses. In the
opinion of management, the outcome of such matters will not have
a material adverse effect on the Company's financial condition or
results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
-----------------------------------
[CAPTION]
<TABLE>
Results of Operations for the Three Months Ended September 30
- - -------------------------------------------------------------
Three months 1995
ended better (worse)
September 30, than 1994
----------------- ---------------
1995 1994 Amount %
------- ------- ------- ----
<S> <C> <C> <C> <C>
(Dollars in thousands)
Revenues
Industrial Environmental
Services $ 55,503 $ 52,514 $ 2,989 6%
Treatment & Disposal
Services 9,319 13,487 (4,168) -31
--------- -------- ---------
$ 64,822 $ 66,001 $ (1,179) -2
======== ======== =========
Gross Profit
Industrial Environmental
Services $ 15,230 $ 14,306 $ 924 6%
Treatment & Disposal
Services 2,063 4,252 (2,189) -51
-------- -------- ---------
$ 17,293 $ 18,558 $ (1,265) -7
======== ======== =========
Operating Income
Industrial Environmental
Services $ 11,673 $ 10,270 $ 1,403 14%
Treatment & Disposal
Services 126 2,220 (2,094) -94
Corporate headquarters (503) (1,438) 935 65
--------- -------- --------
$ 11,296 $ 11,052 $ 244 2
======== ======== ========
</TABLE>
Industrial Environmental Services revenue increased
primarily due to high production volumes resulting from generally
favorable conditions in the steel and aluminum industries and to
the Utah dross processing plant that started up in late 1994.
Treatment & Disposal Services revenue decreased due to a
reduction in landfill disposal volume, resulting from depressed
market conditions, and, to a lesser extent, lower long-term
contract revenue from designing and supplying scrubber sludge
stabilization systems for electric utilities.
Industrial Environmental Services gross profit increased
primarily due to the higher steel industry volumes, reduced
somewhat by a loss at the Utah dross plant. Treatment & Disposal
Services gross profit decreased primarily due to lower landfill
disposal volume and to declining profits during the final stages
of long-term stabilization systems contracts. Continuation of
profits from such contracts ($.9 million in the three months
ended September 30, 1995) depends upon the Company's ability to
secure additional contracts in the fourth quarter of 1995 and
beyond.
Selling, general and administrative expenses were $1.5
million lower in 1995. Industrial Environmental Services costs
were $.5 million lower in 1995 due primarily to headcount
reductions. Corporate headquarters costs were reduced by $.9
million, including a $1.2 million credit due to favorable
settlements related to the 1988 acquisition of IU International
Corporation ("IU"). Because the credit was offset by related
income tax expense, including a $.9 million increase in tax
expense related to IU matters recognized in the previous quarter,
the IU settlements did not increase net income per share.
<PAGE>
Overall income tax expense was about the same in both
quarters because the $.9 million IU-related expense increase was
largely offset by a reduction in the expected 1995 effective tax
rate during the quarter.
Interest expense increased $.6 million, primarily due to a
higher average debt level and because $.2 million of interest was
capitalized in 1994 with no comparable amount in 1995.
Due to the factors described above, 1995 net income was $3.1
million compared with $3.3 million in 1994.
Class G preferred stock dividend requirements in 1995 were
$.1 million lower than in 1994, due to the retirement of 62,800
shares in the fourth quarter of 1994.
[CAPTION]
<TABLE>
Results of Operations for the Nine Months Ended September 30
- - ------------------------------------------------------------
Nine months 1995
ended better (worse)
September 30, than 1994
---------------- --------------
1995 1994 Amount %
------ ------ ------- ----
<S> <C> <C> <C> <C>
(Dollars in thousands)
Revenues
Industrial Environmental
Services $168,685 $152,225 $ 16,460 11%
Treatment & Disposal
Services 33,493 35,657 (2,164) -6
-------- -------- --------
$202,178 $187,882 $ 14,296 8
======== ======== ========
Gross Profit
Industrial Environmental
Services $ 45,618 $ 41,052 $ 4,566 11%
Treatment & Disposal
Services 5,885 9,278 (3,393) -37
-------- -------- --------
$ 51,503 $ 50,330 $ 1,173 2
========= ======== ========
Operating Income
Industrial Environmental
Services $ 34,146 $ 28,409 $ 5,737 20%
Treatment & Disposal
Services 785 2,547 (1,762) -69
Corporate headquarters (2,841) (4,374) 1,533 35
-------- -------- --------
$ 32,090 $ 26,582 $ 5,508 21
======== ======== ========
</TABLE>
Industrial Environmental Services revenue increased
primarily due to high production volumes resulting from generally
favorable conditions in the aluminum and steel industries and the
start-up of a new dross processing plant in Utah. Treatment &
Disposal Services revenue decreased due to a reduction in
landfill disposal volume and lower landfilling prices for
hazardous waste clean-up projects, resulting from depressed
market conditions. These decreases were partially offset by a
higher proportion of higher-priced tonnage requiring
stabilization prior to landfilling, and by increased 1995 long-
term contract billings for equipment installations for electric
utility scrubber sludge stabilization systems.
Industrial Environmental Services gross profit improvements
paralleled the revenue increases except for a loss at the Utah
plant. The Treatment & Disposal Services gross profit reduction
was primarily due to the lower landfilling volume and prices,
<PAGE>
partially offset by improved profits from other services and from
the long-term stabilization system contracts, which are now in
their final stages. Continuation of profits from such contracts
($2.5 million in the nine months ended September 30, 1995)
depends upon the Company's ability to secure additional contracts
in the fourth quarter of 1995 and beyond.
Selling, general and administrative expenses were $4.3
million lower in 1995. Industrial Environmental Services' costs
were $1.6 million lower in 1995 due primarily to headcount
reductions. The $1.2 million improvement at Treatment & Disposal
Services resulted principally from headcount reductions, lower
marketing costs and lower performance-based compensation.
Corporate headquarters costs were reduced by $1.5 million,
including a net $2 million of credits due to favorable
settlements related to the 1988 acquisition of IU, principally
$3.5 million of reductions to insurance obligations, partially
offset by additional provisions for other disputed matters.
After taxes, the net $2 million of IU acquisition-related credits
amounted to $.01 per share.
The lower selling, general and administrative expense and
the net improvements in gross profit resulted in $5.5 million
higher operating income. A $.4 million first quarter 1995
provision for additional Industrial Environmental Services
severance costs was offset by a Treatment & Disposal Services
gain resulting from the sale of its prospective Pennsylvania
landfill site, designated for disposal as part of the Company's
1993 restructuring, for more than previously estimated.
Interest expense increased $1.9 million, primarily due to a
higher average debt level and because $.6 million of interest was
capitalized in 1994 with no comparable amount in 1995.
Income tax expense increased $.9 million because of higher
earnings at the incremental 35% federal tax rate, partially
offset by lower state taxes payable.
Due to the factors described above, 1995 net income was $8
million compared with $5.2 million in 1994.
Class G preferred stock dividend requirements in 1995 were
$.4 million lower than in 1994, due to the retirement of shares
during 1994. The 1994 period benefited from a $.5 million gain
from retiring 38,000 shares of Class G preferred stock, which
amounted to $.01 per share.
Federal Taxes Not Payable in Cash
- - ---------------------------------
Income tax expense includes federal tax expense that will
never be paid in cash. This unusual situation occurs because of
the origins of most of the Company's tax loss carryforwards and
other deferred tax assets.
<PAGE>
As described further in the Company's 1994 Annual Report on
Form 10-K, the Company has substantial federal income tax net
operating loss carryforwards, together with additional deferred
tax assets, that will become available to reduce future income
taxes as the underlying book/tax differences become deductible
for tax purposes. To the extent that the Company's deferred tax
assets arose either prior to its 1983 reorganization or from its
1988 IU acquisition, the Company is required to charge income tax
expense and credit the tax benefits from utilizing these deferred
tax assets to either capital in excess of par value or goodwill.
However, the resulting income tax expense will never be paid in
cash; this amounted to $3.2 million or $.08 per share in the nine
months ended September 1995 and $1.6 million or $.04 per share in
the corresponding 1994 period.
Because it has very substantial federal income tax net
operating loss carryforwards and other deferred tax assets, the
Company expects to pay only federal alternative minimum tax, at
an effective rate of approximately 2%, through 1998. In
addition, it expects to utilize its remaining deferred tax assets
to reduce substantially its federal income tax payments for
several years thereafter.
Liquidity and Capital Resources
- - -------------------------------
Normally, the Company's liquidity requirements arise
primarily from the funding of its capital expenditures, Treatment
& Disposal Services trust fund payments, working capital needs
and debt service obligations. Historically, the Company has met
such requirements with cash flows generated by operations and
with additional debt financing. In addition, the Company's Class
G redeemable preferred stock is due for redemption on July 15,
1996, as discussed further below.
The Company expects to spend approximately $30 million for
capital expenditures in 1995, primarily for equipment additions.
$22.4 million was spent through September 30, 1995 and the
Company is committed for an additional $7 million.
Treatment & 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 $1.2 million
annually through 1998; and for the Ohio landfill, approximately
$3.4 million in late 1995 and $4 million in early 1996.
The consolidated condensed balance sheet reflects negative
working capital of $38.2 million at September 30, 1995, including
$32.7 million of Class G redeemable preferred stock that is due
July 15, 1996. The remaining $5.5 million of negative working
capital is entirely due to $2.2 million of estimated
restructuring costs and $4.9 million of estimated IU acquisition
obligations, both of which are unrelated to ongoing operations.
<PAGE>
After payment of an estimated $1.3 million in the last quarter of
1995, annual IU payments are expected to decline to an estimated
$3 million in 1996 and gradually thereafter to less than $2
million by 1999.
The Company has not paid dividends on its Class G preferred
stock since July 1990 and is prohibited from paying dividends by
its bank credit facility. The bank credit facility, as amended,
permits the Company to redeem (including accumulated dividends)
or retire additional shares of its Class G preferred stock with
up to $2.4 million in cash at any time. Subject to a test that
requires improved financial performance, this limit on additional
Class G retirements increases to $23.7 million. 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. Redemption of the Class G
preferred stock outstanding at September 30, 1995 would require
$34.1 million in 1996, assuming no dividends are paid earlier.
The Company has received a commitment for a new bank credit
agreement that will enable it to retire the Class G redeemable
preferred stock on or before July 15, 1996.
On March 15, 1995, a multiemployer pension plan contacted
the Company concerning a potential claim against the Company for
deficiencies in the payment of withdrawal liabilities by a
subsidiary that was sold by IU prior to the Company's acquisition
of IU in 1988 (see Note C). The Company believes no such claim
would be warranted and, if asserted, would contest any such claim
vigorously. However, under the Multiemployer Pension Plan
Amendments Act of 1980, a federal statute governing such plans,
the plan trustees could require the Company to make substantial
monthly payments before any issues are arbitrated or litigated.
The Company believes it will ultimately prevail on the issues.
If onerous monthly payments are imposed by the plan, the Company
will take any and all actions it deems necessary and appropriate
to protect itself until the matter can be arbitrated and/or
litigated on its merits. The Company continues to believe that
the underlying facts and circumstances support a conclusion that
these matters will be resolved with no material adverse effect on
its financial condition. The ultimate outcome could, however,
result in a charge that is material to results of operations or
cash flows in a single accounting period.
The current 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 September 30, 1995, $20 million
of revolving credit borrowings and $8.9 million of standby
letters of credit were outstanding.
Other than the refinancing of the Class G redeemable
preferred stock, which is currently being arranged, cash on hand,
funds from operations and borrowing capacity under the bank
credit facility are expected to satisfy the Company's normal
operating and debt service requirements.
Because its businesses are environmentally-oriented, and
therefore highly regulated, the Company is subject to violations
alleged by environmental regulators and, occasionally, fines.
Such matters have not had and are not expected to have a material
impact on the Company's business. Environmental compliance is
discussed in Note C.
<PAGE>
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
The Company's bank credit facility prohibits the
Company from declaring and paying dividends on its Class G $7.25
Cumulative Convertible Preferred Stock (the "Class G Stock").
The Company has omitted regular quarterly dividends since October
1990 on the Class G Stock. The total amount of unpaid dividends
on the outstanding shares of the Class G Stock is currently
approximately $9.2 million.
Item 6. Exhibits and Reports on Form 8-K.
(a) 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 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 Quarterly Report on Form 10-Q.
(The Company agrees to furnish a copy of such
agreement 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 - Warrant to purchase shares of Common Stock of the
Company issued to FS Equity Partners II, L.P., dated
May 13, 1993 (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 - Warrant to purchase shares of Common Stock of the
Company issued to The IBM Retirement Plan Trust Fund,
dated May 13, 1993 (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 - Warrant to purchase shares of Common Stock of the
Company issued to Enso Partners, L.P., dated May 13,
1993 (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 (incorporated herein by
reference to Exhibit 4.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993 (File No. 1-1363)).
4.11 - Second Amendment to the Credit Agreement, dated as of
October 20, 1994, 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 4.11 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 1994 (File No. 1-1363).
4.12 - Third Amendment to the Credit Agreement, dated as of
January 13, 1995, 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 4.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-1363)).
4.13 - Warrants to purchase 244,445 shares of Common Stock
issued to Chemical Bank, NCNB Texas National Bank,
Banque Paribas, and National 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)).
4.14 - Loan Agreement between the Industrial Development
Corporation of Owyhee County, Idaho and Envirosafe
Services of Ohio, Inc. relating to $8,500,000
Industrial Revenue Bonds, Series 1994, dated as of
June 1, 1994, and related agreements. (The Company
agrees to furnish a copy of such agreements to the
Commission upon request.)
*4.15 - First Supplemental Indenture, dated as of November 2,
1995, 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.
*4.16 - Amendment, dated as of September 29, 1995, to Warrant
No. 2-1991 to purchase 53,640 shares of Common Stock
issued to NationsBank of Texas, N.A., formerly NCNB
Texas National Bank.
10.1 - EnviroSource, Inc. Stock Option Plan for Non-
Affiliate Directors, dated as of January 1, 1995
(incorporated herein by reference to Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-
1363)).
10.2 - Stock Option Agreement, dated January 1, 1995,
between the Company and Arthur R. Seder, Jr.
(incorporated herein by reference to Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-
1363)).
10.3 - Stock Option Agreement, dated January 1, 1995,
between the Company and Wallace B. Askins
(incorporated herein by reference to Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-
1363)).
10.4 - Stock Option Agreement, dated January 1, 1995,
between the Company and Raymond P. Caldiero
(incorporated herein by reference to Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-
1363)).
10.5 - Stock Option Agreement, dated January 1, 1995,
between the Company and Jeffrey G. Miller
(incorporated herein by reference to Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-
1363)).
10.6 - Supplemental Executive Retirement Plan of the
Company, effective January 1, 1995 (incorporated
herein by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-1363)).
*Filed herewith.
(b) Reports on Form 8-K.
During the quarter ended September 30, 1995, the Company
filed no Current Reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: November 8, 1995
EnviroSource, Inc.
By: /s/ James C. Hull
James C. Hull
Vice President and
Chief Financial
Officer
EXHIBIT INDEX
Number Exhibit Page
4.15 First Supplemental Indenture, dated as of EXHIBIT 1
November 2, 1995, 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.
4.16 Amendment, dated as of September 29, 1995, EXHIBIT 2
to Warrant No. 2-1991 to purchase
53,640 shares of Common Stock issued to
NationsBank of Texas, N.A., formerly NCNB
Texas National Bank.
27.1 Financial Data Schedule EXHIBIT 27
FIRST SUPPLEMENTAL INDENTURE dated as of November 2, 1995
(this "First Supplement") between EnviroSource, Inc., a Delaware corporation
(the "Company"), and United States Trust Company of New York, a New York
corporation, as Trustee (the "Trustee").
Recitals of the Company
-----------------------
A. WHEREAS, the Company and the Trustee have heretofore
executed and delivered an Indenture dated as of July 1, 1993 (the "Indenture")
; and
B. WHEREAS, the Company desires to amend and supplement the
Indenture in accordance with the terms of Section 9.02 thereof and has requested
the Trustee to join in the execution of this First Supplement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth in the Indenture and herein, the Company and the Trustee
hereby amend and supplement the Indenture as follows:
1. All defined terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Indenture.
2. Section 1.01 of the Indenture is hereby supplemented as follows:
Clauses (f) and (g) of the definition of Permitted Liens are hereby
deleted in their entirety and replaced with the following:
(f) Liens securing Indebtedness incurred to finance the construction
or purchase of, or repairs, improvements or additions to, property;
provided, however, that such property can be pledged to secure only
-------- -------
such Indebtedness which is permitted under Section 4.11 reduced
dollar-for-dollar by the outstanding principal amount of Indebtedness
in excess of $60 million secured in reliance on clause (g) of this
definition;
<PAGE>
provided, further, however, that the Lien may not extend to any
-------- -------
property (other than the property purchased, constructed, repaired or
improved or contracts relating to the use of such property and/or
revenues generated by such property) owned by the Company or any
Restricted Subsidiary at the time the Lien is Incurred, and the
Indebtedness secured by the Lien may not be Incurred more than 365
days after the later of the acquisition, completion of construction,
repair, improvement, addition or commencement of full operation of
the property subject to the Lien; and provided, further, however,
-------- -------
that, subject to clause (o) below, any such Lien securing such
Indebtedness Incurred after October 13, 1995 may extend only to
property purchased, constructed, repaired or improved after October
13, 1995 and contracts relating to the use of such property
and revenues generated by such property after such date;
(g) Liens to secure Indebtedness under the Credit Agreement of up to
$100 million in aggregate principal amount outstanding at any one time
and all Guarantees thereof;
3. This First Supplement shall be governed by the laws of the State
of New York and shall become effective as of the date first above written.
4. Except as provided in this First Supplement, the terms and
provisions of the Indenture shall continue to remain in full force and effect
from and after the date hereof.
5. The Recitals set forth above shall be construed as the statement
of the Company and, in accordance with Section 7.04 of the Indenture, the
Trustee assumes no responsibility as to the validity or adequacy of this First
Supplement.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
officers, have executed and delivered this First Supplement as of the day and
year first above written.
ENVIROSOURCE, INC.
By:/s/ James C. Hull
Name: James C. Hull
Title: Vice President
ATTEST:
/s/ C.E. Huben
Name: Christina E. Huben
Title: Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK
By:/s/ Patricia Stermer
Name: Patricia Stermer
Title: Assistant Vice President
ATTEST:
/s/ Cynthia Chaney
Name: Cynthia Chaney
Title: Assistant Vice President
AMENDMENT TO WARRANT
Warrant No. 2-1991
This Amendment to Warrant (the "Amendment") is made as of the 29th day of
September, 1995 by EnviroSource, Inc., a Delaware corporation
(the "Corporation"), and NationsBank of Texas, N.A., a national banking
association, formerly NCNB Texas National Bank ("NationsBank").
WHEREAS, on October 29, 1991 the Corporation granted to NationsBank that
certain Warrant No. 2-1991 ("Warrant No. 2-1991") pursuant to the terms of which
the Corporation granted to NationsBank the right to purchase 53,640 shares (the
"Warrant Shares") of duly authorized, validly issued, fully paid and non-
assessable Common Stock, par value $.05 per share (the "Common Stock"), of the
Corporation, at a purchase price of $.07 per share; and
WHEREAS, the parties desire to amend the Warrant as set forth herein.
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Corporation and NationsBank hereby agree as follows:
1. Modifications to Specific Provisions of the Warrant.
---------------------------------------------------
The following sections of the Warrant are hereby modified as follows:
(a) Section 1.01. Subsections (i) and (ii) of Section 1.01 are
------------
hereby deleted in their entirety and replaced by the following:
"(i) a written notice, in substantially the form of the Subscription
Notice attached as Exhibit A hereto, of such holder's election to
exercise all or part of the purchase rights represented by this
Warrant;
(ii) consideration in the form of (a) an amount equal to the
aggregate Exercise Price for the number of Warrant Shares being
purchased (the "Aggregate Exercise Price"), payable in whole or in
part by certified bank or cashiers check payable to the order of the
Corporation, (b) the surrender of such number of Warrant Shares
with respect to which this Warrant may be exercised as equals the
Aggregate Exercise Price divided by the average closing price of
the Common Stock for the twenty (20) trading days preceding the
date of exercise, rounded to the nearest share, or (c) any
combination of (a) and (b) of this Section 1.01(ii), and"
<PAGE>
(b) Warrant Shares. The number of Warrant Shares set forth on the
--------------
face of the Warrant and to which this Warrant relates shall be reduced to
52,031.
2. Further Modifications. All other terms and conditions set forth in
---------------------
the Warrant shall remain in full force and effect and shall not be amended,
modified or otherwise altered by the terms of this Amendment.
3. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined shall have the meanings ascribed to such terms in the Warrant.
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment
to be signed by a duly authorized officer of all as of the date first written
above.
ENVIROSOURCE, INC.
By: /s/ James C. Hull
James C. Hull
Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ Scott A. Jackson
Title: Vice President
EXHIBIT A
ENVIROSOURCE, INC.
-----------------
SUBSCRIPTION NOTICE
-------------------
The undersigned, the holder of the Warrant to
which this Subscription Notice is attached (the "Warrant"), hereby elects to
exercise rights represented by such Warrant for and to purchase pursuant to the
terms and conditions of the Warrant, ______________ shares of Common Stock, and
herewith makes payment in full, therefore, of $________________ (a) by certified
bank or cashiers check payable to the order of the Corporation in the amount of
$______________, and/or (b) by surrender of ________________ Warrant Shares with
respect to which the Warrant may be exercised pursuant to the terms of Section
1.01(ii) of the Warrant, and requests (i) that certificates for the Warrant
Shares being purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to ____________________________
whose address is _______________________________________________________________
and (ii) if such Warrant Shares shall not include all of the Warrant Shares
issuable as provided in the Warrant, that a new warrant of like tenor and date
for the balance of the Warrant Shares issuable thereunder be delivered to the
undersigned. Terms not otherwise defined herein shall have the same meaning
given them in the Warrant.
Dated: _____________________ __________________________________
Signature Guaranteed:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
EnviroSource, Inc.'s 10-Q for the period ended September 30, 1995, and is
qualified in its entirety by reference to such financial information.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,307
<SECURITIES> 0
<RECEIVABLES> 39,350
<ALLOWANCES> 800
<INVENTORY> 0
<CURRENT-ASSETS> 49,380
<PP&E> 278,519
<DEPRECIATION> 120,303
<TOTAL-ASSETS> 437,223
<CURRENT-LIABILITIES> 87,531
<BONDS> 256,970
<COMMON> 2,010
0
0
<OTHER-SE> 29,398
<TOTAL-LIABILITY-AND-EQUITY> 437,223
<SALES> 0
<TOTAL-REVENUES> 202,178
<CGS> 0
<TOTAL-COSTS> 170,088
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,655
<INCOME-PRETAX> 12,305
<INCOME-TAX> 4,279
<INCOME-CONTINUING> 8,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,026
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
