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, 1994
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. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $110,275,636 as of March 30,
1995(1).
The number of shares outstanding of the Registrant's Common
Stock as of the close of business on March 30, 1995 was
40,098,559.
-------------------------
(1) The market value of the Company's Class G $7.25 Cumulative
Convertible Preferred Stock is based on a recent trade.
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 segments are the Industrial Environmental
Services segment, which provides metals reclamation, recycling
and other specialized services for the steel and aluminum
industries, and the Treatment and Disposal Services segment,
which provides hazardous waste treatment and disposal services
and waste stabilization services for industrial and governmental
customers.
The Company conducts its operations exclusively through its
subsidiaries. International Mill Service, Inc. and its
subsidiaries ("IMS") and IMSAMET, Inc. and its subsidiaries
("IMSAMET") constitute the Industrial Environmental Services
segment, and EnviroSource Treatment & Disposal Services, Inc.
("TDS"), through its Envirosafe and Conversion Systems
subsidiaries, constitutes the Treatment and Disposal Services
segment.
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 the Company'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 the present Industrial Environmental
Services and Treatment and Disposal Services segments, completing
its transformation into an environmental services company. See
Note H for additional information regarding the development of
the Company.
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.
In May 1993, the Company sold the equivalent of 13.3 million
shares of Common Stock to an affiliate of Freeman Spogli & Co.
("FS&Co.") and another investor (collectively, the "Investors")
as the first step in the Recapitalization. At the same time, 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, and (iii) warrants
to purchase 1,695,652 shares of Common Stock at exercise prices
of $3.50 and $4.00 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. and
the subsequent related transfers of stock are hereinafter
referred to as the "FSC Transaction." As a result of the FSC
Transaction, FS&Co. owns approximately 48% of the Common Stock of
the Company.
In July 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"). See Note C for additional
information concerning the Recapitalization.
During the fourth quarter of 1993 and through 1994 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 Conversion Systems businesses
into the new TDS business unit.
As a result of the activities described above, the Company
recorded a $22 million restructuring charge, which, after a
partial offset resulting from the favorable settlement of IU
acquisition 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 B for
additional information regarding the restructuring.
Tax Loss Carryforwards
The Company has substantial federal income tax net operating
loss carryforwards. Although the FSC Transaction produced an
"ownership change" (as defined in the Internal Revenue Code) that
could limit the future use of these carryforwards, based on a
comprehensive study of its overall tax position, the Company
believes that sufficient tax loss carryforwards will be
available, together with its other deferred tax assets, to enable
it to pay only federal alternative minimum tax, at an effective
rate of approximately 2%, through 1998. In addition, the Company
expects to utilize its tax loss carryforwards and other deferred
tax assets to reduce substantially its federal income tax
payments for several years thereafter. See Note J.
Business Segments
Industrial Environmental Services
Steel Industry Services. The Company has served the steel
industry for more than 55 years. The Company believes it
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 iron scrap
through an IMS-developed iron crushing process.
In recent years, the Company 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.
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%, 17%
and 13% of the Company's consolidated revenues in 1994, 1993
and 1992 respectively. Long term contracts governing the
related services 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
steel mills, using IMS employees and equipment. IMS's services
are integrated with the operations of its customers, providing
for strong working partnerships. 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.
Aluminum Industry Services. Through its IMSAMET business
units, the Company meets the aluminum industry's needs for
outsourcing, recycling and waste management in a number of ways.
At its Idaho facility, the Company processes used aluminum
beverage cans ("UBCs") and aluminum dross and scrap for Kaiser
Aluminum and Chemical Corporation ("Kaiser") and other customers.
In 1994, this modern and efficient facility processed over 200
million pounds of material, including approximately 1.9 billion
UBCs. Due to the high energy requirements and costs of primary
aluminum production in the U.S., as well as IMSAMET's ability to
deliver aluminum in molten form, recycled aluminum is frequently
an attractive alternative for manufacturers such as Kaiser.
At its Idaho facility, its new Utah facility (described
below) and its 70% owned partnership in Arizona, the Company
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 sows and then delivered to customers.
In the fourth quarter of 1993 and in early 1994, the Company
purchased certain assets of two western U.S. dross processors and
increased its dross customer base. In the fourth quarter of
1994, IMSAMET completed construction and began operation of a new
aluminum dross processing facility in Wendover, Utah, adjacent to
the SALTS facility (described below). A majority of the
equipment acquired in late 1993 and early 1994 has been utilized
at the new Utah dross processing facility.
The Company also 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.
Competition. 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/Multiserv
West 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.
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 five major aluminum dross processors other than
IMSAMET in the U.S., as well as several smaller competitors.
The Company believes that it is the largest aluminum dross
processor west of the Rocky Mountains. The Company also believes
that its SALTS joint venture is the only enterprise successfully
recycling saltcake on a commercial scale in North America.
Treatment and Disposal Services
As mentioned above, in the fourth quarter of 1993 the Company
decided to combine the business units comprising the Treatment
and Disposal Services segment in order to reduce costs and take
advantage of the synergies resulting from merging the experience
and expertise developed by Envirosafe and Conversion Systems.
During 1994, the Company completed the steps necessary to
effectuate this reorganization, including a reduction of
personnel and the formation of a new parent entity, EnviroSource
Treatment & Disposal Services, Inc.
TDS, through its Envirosafe and Conversion Systems business
units, has been dedicated to the safe, economical treatment and
disposal of industrial and hazardous wastes since 1976. Through
its Envirosafe subsidiaries, TDS 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 4.0 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 second phase of construction of this cell was
completed in December 1994 and approval to accept waste was
obtained in January 1995. 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 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's hazardous waste treatment
and disposal services business is somewhat seasonal, with the
first quarter of the year tending to be slower depending
primarily on winter weather conditions.
The Company completed a number of capital projects during
1994 in order to maintain and enhance its competitive position.
These projects included a new state-of-the-art stabilization and
debris handling facility that opened in Ohio in June 1994 and a
new debris handling facility and expanded stabilization capacity
at the Idaho landfill. The debris handling facilities have
enabled Envirosafe to respond to requirements for the processing
of contaminated debris recently promulgated under RCRA. In
addition, a new rail transfer facility was opened in Idaho in May
1993.
Envirosafe and its competitors and customers are subject to a
complex, evolving array of federal, state and local environmental
laws and regulations. Such requirements not only can affect the
demand for Envirosafe's 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 TDS'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.
Stringent interpretation of environmental laws and regulations
governing hazardous waste treatment and disposal facilities by
state and federal regulators also subjects Envirosafe to
violations and fines from time to time, none of which has been
material to the Company. In fact, the Company believes that it
has one of the best environmental compliance records in the
industry.
During 1993, TDS entered into a new service contract to
operate and maintain a captive landfill for a domestic steel
mill. TDS is exploring additional opportunities for providing
captive landfill services.
TDS's Conversion Systems unit 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 Conversion Systems provide ongoing management.
Since 1991, Conversion Systems has been awarded four
stabilization system construction contracts and intends to pursue
bidding opportunities relating to additional sites expected to
install wet scrubbers within the next several years, 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.
Conversion Systems also is the sole licensee of a proprietary
technology (Super Detox (R)) for stabilizing electric arc furnace
flue dust - a hazardous waste under RCRA generated by steel mills
- that renders the flue dust suitable for landfilling in non-
hazardous landfills and for potential reuse. Conversion Systems
currently operates a flue dust stabilization facility on-site at
the largest domestic mini-mill. TDS is actively marketing this
process to other U.S. mini-mills for both on-site stabilization
facilities at steel mills and stabilization and landfilling at
its Envirosafe facilities. During 1994 and early 1995, TDS
entered into five new contracts to receive and process flue dust
at its Envirosafe facilities.
During 1993, Conversion Systems applied to the U.S.
Environmental Protection Agency ("USEPA") for a generic delisting
of Super Detox (R) stabilized flue dust, which, if granted, would
enable Conversion Systems 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 the first half of
1995. The generic delisting status for the process will save
Conversion Systems 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 a large portion of the mini-mill industry.
Competition. The Company's hazardous waste treatment and
disposal business is characterized by intense competition.
Envirosafe has a limited number of competitors in the off-site
hazardous waste landfill business, only two of which operate more
than two landfills, and several competitors engaged in the
treatment or stabilization of hazardous waste. Competition in
this industry is based on service, site and process integrity and
the all-in cost of disposal, which includes treatment,
stabilization and transportation costs and taxes. Expanded use
of rail services and additions to stabilization services will
further improve Envirosafe's competitive position. The market
for hazardous waste services generally is geographically broad,
but is narrowed depending on factors such as the types of waste a
facility is permitted to accept, the types of services offered by
a facility, the cost of operation of a facility and the proximity
of the facility to the customer.
TDS'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. 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, TDS
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. 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, 1994, 1993 and
1992 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, 1995, the Company employed approximately 1,850
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 1995. All
other contracts will be renegotiated in 1996 or thereafter.
Approximately 17% of the Treatment and Disposal Services segment
hourly 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 its new dross processing facility in
Utah. Through a partnership, IMSAMET leases land for its plant
in Arizona that is used to recover metal from aluminum dross.
SALTS owns the property on which it conducts its operations in
Utah. 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; and additional inactive sites or parcels in Idaho, New
Jersey and Pennsylvania that are not planned for use as
hazardous waste landfills. Conversion Systems owns the building
and equipment at one stabilization facility in Illinois and one
in Pennsylvania and leases land for both facilities. TDS 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.
Management believes that the physical facilities for TDS 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.
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, Compensation 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.
* * *
Executive Officers of the Company
The Company's executive officers are as follows:
Name Age Position
Ronald P. Spogli 47 Chairman of the Board; Director
Louis A. Guzzetti, Jr. 56 President and Chief Executive
Officer; Director
George E. Fuehrer 46 Senior Vice President, Planning
Aarne Anderson 54 Vice President, Taxes
William B Davis 44 Vice President and Treasurer
Jerrold I. Dolinger 48 Vice President, Corporate
Development
Christina E. Huben 39 General Counsel and Secretary
James C. Hull 57 Vice President and Chief
Financial Officer
George T. Milano 46 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 Mac Frugal's Bargains Close-Outs
Inc., Orchard Supply Hardware Stores Corporation, and Buttrey
Food and Drug Stores Company.
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. Since October 1994, Mr. Fuehrer also has served as
Executive Vice President of IMSAMET. 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. Mr. Anderson was
elected Vice President, Taxes in August 1985.
William B. Davis was elected Vice President of the Company in
February 1995 and has been Treasurer of the Company since
September 1991. Mr. Davis joined the Company in July 1987 as
Assistant Treasurer.
Jerrold I. Dolinger joined the Company as a Vice President in
May 1988 and has served as Vice President, Corporate Development
since August 1988.
Christina E. Huben has been the Company's General Counsel and
Secretary since October 1993. Ms. Huben joined the Company as
Corporate Counsel in January 1989 and became Assistant General
Counsel in September 1991.
James C. Hull has been the Company's Vice President and Chief
Financial Officer since May 1989, when he joined the Company.
George T. Milano was elected Vice President in June 1988 and
has served as the Company's Controller since May 1987.
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 1994 and 1993, based upon prices supplied by The
National Association of Securities Dealers ("NASD") Automated
Quotation System ("Nasdaq").
<TABLE>
<CAPTION>
1994 1993
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $4.50 $3.125 $5.125 $3.25
Second Quarter 3.75 2.75 4.625 3.50
Third Quarter 4.125 2.797 4.625 3.00
Fourth Quarter 3.75 3.125 3.50 2.50
</TABLE>
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 30, 1995 the Company had approximately 3,300
holders of record of its Common Stock.
Item 6. Selected Financial Data.
The information presented below should be read in conjunction
with the Consolidated Financial Statements and Notes
thereto, including Note C which describes the 1993
Recapitalization.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $259,515 $271,026 $232,652 $223,902 $234,781
Costs and expenses 219,796 243,873 206,307 204,957 205,765
Restructuring charge, net (1) 18,500
------- ------- ------- ------- -------
Operating income 39,719 8,653 26,345 18,945 29,016
Interest income 992 1,185 1,069 1,576 2,061
Interest expense (25,372) (28,863) (33,653) (35,856) (31,500)
------- ------- ------- ------- -------
15,339 (19,025) (6,239) (15,335) (423)
Income tax expense 4,280 2,549 1,299 1,483 4,246
Minority interests 566 3,815
------- ------- ------- ------- -------
Income (loss) - continuing operations 11,059 (21,574) (7,538) (17,384) (8,484)
- discontinued operations (15,743)
- extraordinary items (21,930) 873
- cumulative effect of
tax accounting change (2,302)
------- ------- ------- ------- -------
Net income (loss) $ 11,059 $(45,806)$ (7,538) $(17,384) $(23,354)
Income (loss) applicable to
common shares and equivalents $ 10,457 $(48,988)$(11,633) $(22,075) $(29,067)
Income (loss) per share:
Continuing operations $ 0.26 $ (.73)$ (.52) $ (1.51) $ (1.22)
Net income (loss) $ 0.26 $ (1.44)$ (.52) $ (1.51) $ (2.49)
Average common shares and equivalents 40,292 34,009 22,251 14,572 11,683
Total assets $450,178 $427,245 $444,547 $450,852 $466,894
Working capital deficiency (2) $ (8,275) $(17,396)$ (5,138) $ (5,120) $(23,877)
Debt (noncurrent) $260,423 $235,842 $235,668 $229,118 $191,401
Redeemable preferred stock (noncurrent) $ 31,396 $ 38,711 $ 43,850 $ 42,070 $ 62,616
Stockholders' equity $ 24,521 $ 14,217 $ 20,549 $ 10,695 $ 3,207
Notes
(1) After tax, the net restructuring charge amounted to $17.6 million or $.52 per share (Note B).
(2) The 1994 working capital deficiency is due to the $12 million current portion of IU acquisition
obligations (Note H), $6.3 million of estimated restructuring costs (Note B), and the
current classification of the $4 million of bank revolving credit borrowings voluntarily repaid
in January 1995.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
1994 Versus 1993
Revenues are $11.5 million (4%) lower in 1994, reflecting a
reduction of $20.7 million (28%) for Treatment and Disposal
Services partially offset by an increase of $9.2 million (5%) for
Industrial Environmental Services. The Treatment and Disposal
Services decrease results from a $20.4 million decline in
revenues from long-term contracts to design, supply and construct
scrubber sludge stabilization systems for electric utilities,
because 1993 included billings for major equipment installations
under two contracts that are now completed. The effects of
reduced hazardous waste landfilling prices, caused by extremely
competitive industry conditions, were largely offset by an
increased proportion of higher-priced waste streams that require
stabilization before landfilling. The Industrial Environmental
Services increase is attributable to increased production volumes
at steel mill customers and to the significant improvement in
aluminum industry conditions during the second half of 1994 that
resulted in increased prices and volume. These increases were
partially offset by the absence of revenue ($3.9 million in 1993)
from operations that were terminated as part of the 1993
restructuring.
Gross profit increased $8.4 million (13%), reflecting
improvements of $7 million (14%) at Industrial Environmental
Services and $1.4 million (11%) at Treatment and Disposal
Services. The Industrial Environmental Services gross profit
increase is principally due to the higher production volumes of
steel mill customers, the improved conditions in the aluminum
industry (which more than offset start-up costs at the new Utah
dross processing plant) and the absence of losses ($1.8 million
in 1993) from operations that were terminated as a part of the
1993 restructuring. Treatment and Disposal Services landfilling
volumes and gross profits were sharply lower during the first
half of 1994, primarily due to severe winter weather conditions
that slowed environmental clean-up activity. Most of the volume
decline was recovered during the second half of the year. That,
coupled with the benefits of the 1993 restructuring, stimulated a
significant recovery of gross profit despite continued
competitive industry conditions and higher costs associated with
waste streams requiring stabilization. Treatment and Disposal
Services' other operations also improved throughout the year, due
partly to the absence of losses ($.9 million in 1993) from
operations that were terminated in the 1993 restructuring and
particularly from profits on a long-term stabilization system
contract that commenced in the middle of the year. Continuation
of the 1994 profit levels from such long-term contracts will
depend upon the Company's ability to secure additional contracts.
Selling, general and administrative costs decreased $4.1
million, primarily due to savings resulting from headcount
reductions and other steps taken in the 1993 restructuring.
Due to the factors described above, operating income
increased $12.6 million (46%), before subtracting the $18.5
million net restructuring charge from 1993 operating income. The
increase includes $7.4 million for Industrial Environmental
Services, $4 million for Treatment and Disposal Services and a
$1.2 million reduction in corporate headquarters costs.
Interest expense decreased $3.5 million, primarily due to the
1993 recapitalization. The recapitalization also increased by
18% the average shares of common stock outstanding.
Due to the factors described above, 1994 net income is $11.1
million compared with a 1993 net loss of $45.8 million. The 1993
loss was $4 million before all the one-time charges: $17.6
million net after-tax restructuring charge, $21.9 million debt
extinguishment loss and $2.3 million cumulative effect of a tax
accounting change. The status of the 1993 restructuring is
discussed separately below.
Preferred stock dividend requirements were lower in 1994 than
in 1993 due to the 1993 exchange of the Class H preferred stock
for common stock and retirements of Class G preferred stock
during 1994. In 1994 the Company also recorded a $1.7 million
gain from purchasing and retiring 100,800 shares of Class G
preferred stock.
The impact of inflation on revenues and results of operations
has not been significant.
Income Tax Expense
Income tax expense of $4.3 million in 1994 consists of $2.6
million of state and Canadian taxes payable and $1.7 million of
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.
As described further in Note J, 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 $1.7 million in 1994.
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.
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 was
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 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 long-term stabilization system contracts, because the
contracts were in lower-margin equipment installation phases in
1993 compared to higher-margin design phases in 1992. In
addition, Treatment and Disposal Services' hazardous waste
landfilling profits declined as a $2.1 million benefit from lower
depreciation rates was more than offset by the adverse effects of
the extremely competitive market conditions.
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.
In 1993 the Company recorded a $22 million restructuring
charge, which is discussed separately below. This charge was
partially offset by a $3.5 million credit resulting from a
reduction of liabilities, recorded in connection with the 1988 IU
acquisition, 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 in 1993. However, absent the $18.5
million net restructuring charge, operating income would have
increased $.8 million. This increase included 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
1993 recapitalization (Note C).
Due to the factors described above, a $21.9 million
extraordinary debt extinguishment loss resulting from the 1993
recapitalization (Note C), and the $2.3 million cumulative effect
of a tax accounting change (Note J), 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.
1993 Restructuring
In the fourth quarter of 1993, the Company recorded a $22
million restructuring charge 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. The discontinued
activities incurred 1993 operating losses and costs of $3.3
million, in addition to the restructuring charge. The
restructuring charge included $12 million of expected cash costs,
$6.3 million of which had not yet been paid as of December 31,
1994, as follows (in millions):
<TABLE>
<CAPTION>
Expected Costs Changes Estimated
Cash Incurred in Remaining
Costs in 1994 Estimates Costs
<S> <C> <C> <C> <C>
Termination of two flue
dust recycling units
and other unprofitable
units $ 6.3 $(2.1) $ .3 $ 4.5
Withdrawal of Pennsylvania
permit application and
sale of landfill site 1.8 (.1) (1.1) .6
Organization of the
Treatment and Disposal
Services business
segment 2.8 (2.4) .2 .6
Other restructuring costs 1.1 (1.1) .6 .6
---- --- --- ---
$ 12.0 $ (5.7) $ - $ 6.3
</TABLE>
The changes in estimates shown above occurred primarily
because cash costs for the withdrawal of the Pennsylvania permit
application and the expected sale of the landfill site have been
lower than anticipated and severance costs have been higher than
anticipated. Overall severance costs increased by $.9 million to
$3 million because 15 (11%) more positions, at higher salary
levels, were eliminated than originally anticipated.
The decommissioning of one flue dust recycling unit and the
disposal of related residual waste have been delayed by the
customer's environmental problems; the Company currently expects
to conclude the decommissioning and waste disposal during 1995.
The Company is still negotiating certain unresolved aspects of
its withdrawal from the other flue dust customer; completion is
expected in 1995. The sale of the Pennsylvania landfill site
was completed in March 1995. In addition, estimated remaining
costs include rent for excess leased space that has not been
subleased and ongoing severance payouts. In the opinion of
management, the $6.3 million recorded liability for remaining
costs is adequate.
Liquidity and Capital Resources
The Company's liquidity requirements arise primarily from the
funding of its capital expenditures, Treatment and Disposal
Services trust fund payments, working capital needs and debt
service obligations. The Company must also fund the remaining
costs of its 1993 restructuring. Historically, the Company has
met such requirements with cash flows generated by operations and
with additional debt financing.
In 1994 Industrial Environmental Services spent $21.8 million
for additions to property, plant and equipment, primarily for
equipment replacements and an aluminum dross processing plant in
Utah. Treatment and Disposal Services spent $17.4 million for
additions to property, plant and equipment, primarily for
landfill development and waste treatment facilities at both the
Ohio and Idaho landfills. In 1995 the Company expects capital
expenditures of approximately $25 million, primarily for
equipment replacements.
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 $1.2 million
annually through 1998, and for the Ohio landfill, approximately
$3.4 million in 1995 and $4 million in 1996.
The consolidated balance sheet reflects negative working
capital of $8.3 million at December 31, 1994, due entirely to
$6.3 million of estimated restructuring costs and $12 million of
estimated IU acquisition obligations, both of which are unrelated
to ongoing operations. After payment of the $12 million in 1995,
estimated annual IU payments are expected to decline to
approximately $3 million in 1996 and gradually thereafter to less
than $2 million by 1999. Also included in current liabilities is
$4 million of bank revolving credit borrowings that the Company
elected to repay in January 1995.
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. In 1994 the Company spent $11.3
million to purchase and retire 100,800 shares of Class G
preferred stock. 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 $2.5
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 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. Redemption of the Class G
preferred stock outstanding at December 31, 1994 would require
$34.1 million in 1996, assuming no dividends are paid earlier.
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 N). 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.
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 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
expects to refinance 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, 1994, $25 million of revolving credit
borrowings ($4 million of which was repaid in January) and $11.5
million of standby letters of credit were outstanding.
Recently, there has been considerable discussion in the press
about derivative financial instruments. The Company has not used
any derivatives since 1992, but considers the use of such
instruments when appropriate to mitigate risks.
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 N.
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.
PART III
Item 10. Directors and Executive Officers of the Company.
Reference is made to the information set forth under the
headings (i) "Election of Directors" and "Compliance with Section
16(a) of the Securities Act of 1934" in the Company's Proxy
Statement to be filed pursuant to Regulation 14A under the
Securities Act of 1934 within 120 days after December 31, 1994
and (ii) "Executive Officers of the Registrant" in Part I of this
Annual Report on Form 10-K, which information is incorporated
herein by reference.
Item 11. Executive Compensation.
Reference is made to the information set forth under the
heading "Executive Compensation" in the Company's Proxy Statement
to be filed pursuant to Regulation 14A under the Securities Act
of 1934 within 120 days after December 31, 1994, which
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Reference is made to the information set forth under the
heading "Security Ownership of Certain Beneficial Owners" in the
Company's Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Act of 1934 within 120 days after December
31, 1994, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Reference is made to the information set forth under the
heading "Certain Transactions" in the Company's Proxy Statement
to be filed pursuant to Regulation 14A under the Securities Act
of 1934 within 120 days after December 31, 1994, which
information is incorporated herein by reference.
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:
Report of Independent Auditors
Consolidated Balance Sheet at December 31, 1994 and 1993
Consolidated Statement of Operations for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1994, 1993 and 1992
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992
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:
Schedules
I - Condensed Financial Information of Registrant
II - Valuation and Qualifying Accounts
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.
(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)).
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 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,
1994 (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.
4.13 - 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)).
4.14 - Loan Agreement between the Industrial
Development Corporation of Owyhee County, Idaho
and Envirosafe Services of Idaho, Inc. relating
to $8,500,000 Industrial Revenue Bonds, Series
1994. (The Company agrees to furnish a copy of
such agreement to the Commission upon request.)
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 $445,669.00 (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, 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 $1,089,903.00 (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.
(incorporated herein by reference to Exhibit
10.12 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30,
1994 (File No. 1-1363)).
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)).
10.14* - EnviroSource, Inc. Stock Option Plan for Non-
Affiliated Directors, dated as of January 1,
1995.
10.15* - Stock Option Agreement, dated January 1, 1995,
between the Company and Arthur R. Seder, Jr.
10.16* - Stock Option Agreement, dated January 1, 1995,
between the Company and Wallace B. Askins.
10.17* - Stock Option Agreement, dated January 1, 1995,
between the Company and Raymond P. Caldiero.
10.18* - Stock Option Agreement, dated January 1, 1995,
between the Company and Jeffrey G. Miller.
10.19* - Supplemental Executive Retirement Plan of the
Company, effective January 1, 1995.
21.1* - Subsidiaries of the Company.
23.1* - Consent of Ernst & Young.
* Filed herewith.
(b) Reports on Form 8-K.
During the last quarter of the fiscal year ended December
31, 1994, the Company filed no Current Reports on Form 8-K.
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 31, 1995 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 31, 1995.
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/ MARK J. DORAN Director
Mark J. Doran
/S/ JEFFREY G. MILLER Director
Jeffrey G. Miller
/S/ JON D. RALPH Director
Jon D. Ralph
/S/ JOHN M. ROTH Director
John M. Roth
/S/ CHARLES P. RULLMAN, JR. Director
Charles P. Rullman, Jr.
/S/ ARTHUR R. SEDER, JR. Director
Arthur R. Seder, Jr.
/S/ J. FREDERICK SIMMONS Director
J. Frederick Simmons
<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, 1994 and 1993, and the
related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1994. 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 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of EnviroSource, Inc. at December 31, 1994 and
1993, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, 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 LLP
Stamford, Connecticut
February 14, 1995
<PAGE>
<TABLE>
EnviroSource, Inc.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,389 $ 10,582
Accounts receivable, less allowance
for doubtful accounts of $616
and $944 45,865 36,196
Other current assets 7,635 8,093
------- -------
Total current assets 61,889 54,871
Property, plant and equipment:
Land and improvements 1,807 1,779
Landfill development 47,219 42,477
Buildings and improvements 30,755 19,637
Machinery and equipment 202,813 184,892
------- -------
282,594 248,785
Less allowance for depreciation 127,124 107,241
------- -------
155,470 141,544
Goodwill, less amortization 165,458 172,166
Landfill permits, less amortization 22,739 24,661
Closure trust funds and deferred
charges, less amortization 25,573 14,909
Debt issuance costs, less amortization 8,679 9,061
Other assets 10,370 10,033
------- --------
$ 450,178 $ 427,245
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
EnviroSource, Inc.
CONSOLIDATED BALANCE SHEET -- Continued
(Dollars in thousands)
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 15,713 $ 13,607
Salaries, wages and related benefits 12,268 9,075
Insurance obligations 8,113 7,217
Estimated restructuring costs 6,337 10,900
Other current liabilities 18,689 22,976
Current portion of debt and in 1993
redeemable preferred stock 9,044 8,492
------- -------
Total current liabilities 70,164 72,267
Long-term debt 260,423 235,842
Other liabilities 63,674 66,208
Class G redeemable preferred stock 31,396 38,711
Commitments and contingencies (Note N)
Stockholders' equity:
Common stock, par value $.05 per
share, 60,000,000 shares author-
ized, 40,093,759 shares issued and
outstanding in 1994, 40,052,259
in 1993 2,005 2,003
Capital in excess of par value 162,573 162,461
Accumulated deficit (138,148) (148,605)
Stock purchase loans receivable from
officers (840) (840)
Canadian translation adjustment (1,069) (802)
------- -------
Total stockholders' equity 24,521 14,217
------- -------
$ 450,178 $ 427,245
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
EnviroSource, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except for per share amounts)
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Revenues $ 259,515 $ 271,026 $ 232,652
Cost of revenues 188,583 208,511 171,803
Selling, general and
administrative expenses 31,213 35,362 34,504
Restructuring charge, net 18,500
------- ------- -------
Operating income 39,719 8,653 26,345
Interest income 992 1,185 1,069
Interest expense (25,372) (28,863) (33,653)
------- ------- -------
15,339 (19,025) (6,239)
Income tax expense:
Taxes payable 2,576 2,549 1,299
Federal taxes not
payable in cash 1,704
------- ------- -------
Income (loss) before extraordi-
nary loss and cumulative
effect of accounting change 11,059 (21,574) (7,538)
Extraordinary debt
extinguishment loss (21,930)
Cumulative effect of income
tax accounting change (2,302)
------- ------- -------
Net income (loss) 11,059 (45,806) (7,538)
Preferred stock dividend
requirements, reduced by
retirement gains of $1,685
in 1994 (602) (3,182) (4,095)
------- ------- -------
Income (loss) applicable to
common shares and equivalents $ 10,457 $(48,988) $(11,633)
======== ======== ========
Income (loss) per share:
Before extraordinary loss
and cumulative effect of
accounting change $ 0.26 $ (.73) $ (.52)
Extraordinary loss (.64)
Cumulative effect of income
tax accounting change (.07)
------- ------- -------
Net income (loss) $ 0.26 $ (1.44) $ (.52)
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
EnviroSource, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
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, 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
and accretion (2,605) (2,605)
----- ------- ------- ------- ----- ----- ------
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
and accretion (2,590) (2,590)
Loan repayment 150 150
Translation adjustment (802) (802)
----- ------- ------- ------- ----- ----- ------
Balance December 31, 1993 - 2,003 162,461 (148,605) - (1,642) 14,217
Common stock issued
(41,500 shares) 2 112 114
Net income 11,059 11,059
Preferred stock dividends
and accretion (2,287) (2,287)
Preferred stock retirement gains 1,685 1,685
Translation adjustment (267) (267)
----- ------- ------- ------- ----- ------ ------
Balance December 31, 1994 $ 2,005 $162,573 $(138,148) $ (1,909) $ 24,521
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
EnviroSource, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <c)
OPERATING ACTIVITIES
Income (loss) before extraordinary
loss and cumulative effect of
accounting change $ 11,059 $(21,574) $(7,538)
Adjustments to reconcile income (loss)
to cash provided by operations:
Income tax expense not payable in cash 1,704
Restructuring charge (5,686) 18,500
Depreciation 24,352 27,241 24,682
Amortization 8,669 10,782 12,583
Closure cost amortization and accruals 3,004 3,219 2,926
Changes in working capital (4,079) (1,505) (3,850)
Other 2,993 (941) 792
------ ------ ------
Cash provided by operating activities 42,016 35,722 29,595
INVESTING ACTIVITIES
Property, plant and equipment:
Additions (39,261) (32,768) (39,126)
Proceeds from dispositions 594 128 4,467
Purchase of intangibles (3,417)
Landfill permit additions and
closure expenditures (1,199) (965) (2,657)
Closure trust fund payments (12,866) (5,174) (1,797)
Ongoing net cash flows related to
IU acquisition (2,471) (4,816) 8,372
Other (2,203) 131 2,939
------ ------ ------
Cash used by investing activities (60,823) (43,464) (27,802)
FINANCING ACTIVITIES
Sale of common stock 114 42,716 111
Issuance of debt 41,500 238,500 46,915
Debt issuance costs (643) (9,687)
Debt repayment (13,035) (247,404) (43,362)
Cash portion of extraordinary loss (11,348)
Retirement of preferred stock (11,322) (5,148) (1,352)
------ ------ ------
Cash provided by financing activities 16,614 7,629 2,312
------ ------ ------
CASH AND CASH EQUIVALENTS
Increase (decrease) during the year (2,193) (113) 4,105
Beginning of year 10,582 10,695 6,590
------ ------ ------
End of year $ 8,389 $ 10,582 $10,695
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
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.
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: Costs to acquire and maintain landfill permits
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 $9.6 million and $7.6
million at December 31, 1994 and 1993.
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 $8.1 million and $5.8
million at December 31, 1994 and 1993.
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 $9.6 million and $8.7 million are
included in other long-term liabilities at December 31, 1994 and
1993.
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 $37.5 million and $32.5 million at
December 31, 1994 and 1993. Most of the goodwill is identified
with the Company's excellent reputation and long-term
relationships with steel industry customers. The carrying value
of goodwill will be reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that the
goodwill will not be recoverable, as determined based on
anticipated cash flows over the remaining amortization period,
the carrying value of the goodwill will be reduced based on the
discounted present value of the anticipated cash flows. As
income tax benefits attributable to acquisitions of businesses
are recognized, they are credited to reduce goodwill.
Revenues: Most of the Company's revenues are recognized as
services are provided to customers. Revenues of $6.9 million in
1994, $27.2 million in 1993 and $6.7 million in 1992 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. In 1994 $2.7 million of
long-term contract receivables included in other assets at
December 31, 1993 were collected. Another $1.3 million of
long-term contract receivables (construction contract
"retentions") at December 31, 1993 are due in 1995 and are
included in accounts receivable at December 31, 1994.
Postemployment benefits: Adoption of Statement of Financial
Accounting Standards No. 112 on January 1, 1994 did not have a
material effect on the Company.
Per share calculations: Primary and fully diluted per share
amounts are equal and are based on the weighted average number of
common shares outstanding, and in 1994 the dilutive effect of
stock options and warrants: 40,292,000 in 1994, 34,009,000 in
1993 and 22,251,000 in 1992. The Class G preferred stock was not
dilutive.
On May 13, 1993 the Company issued the equivalent of 13,333,333
shares of common stock and all the outstanding Class H preferred
stock was exchanged into 3,066,667 common shares (Note C). 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 -- 1993 RESTRUCTURING CHARGE, NET
1993 - In the fourth quarter of 1993, the Company recorded a $22
million restructuring charge, primarily to (i) terminate
recycling initiatives that had 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. Approximately $10
million of the total restructuring charge represented non-cash
losses resulting primarily from the write-off of property, plant
and equipment. The charge also included $1 million for estimated
operating losses to be incurred before the discontinued
activities could be terminated, and the remainder represented
estimated cash costs to close down the operating sites.
In 1993 the Company also concluded that it would 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.
1994 - As they were being terminated in the first quarter of
1994, the discontinued activities incurred operating losses of
$.5 million, which were charged to the restructuring accrual.
During 1994 the Company had more headcount reductions, at higher
salary levels, than originally anticipated. Consequently,
severance costs have been higher than anticipated (and the
ongoing cost savings greater than originally anticipated), and
costs to discontinue efforts to obtain a hazardous waste landfill
permit and for the expected sale of the Pennsylvania landfill
site have been less than anticipated, by approximately the same
amounts. In the opinion of management, the $6.3 million recorded
liability for remaining costs is adequate.
NOTE C -- 1993 RECAPITALIZATION
On May 13, 1993:
- 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
shares of a new class of preferred stock which was
automatically converted into 6,900,000 shares of common
stock on August 5, 1993.
- 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 owned 47.3% and the IBM Trust owned 6.6% of the total
outstanding voting power of the Company, and DKM no longer
owned any interest in the Company. Six of the 11 members
of the Board of Directors are partners or employees of
Freeman Spogli.
- 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. Most of
the proceeds were used to retire the Company's 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.
- 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 debt
extinguishment loss 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 D -- DEBT
Debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
9-3/4% Senior Notes $ 220,000 $ 220,000
Bank Credit Facility 25,000
Industrial revenue bond financings,
equipment loans and other 24,467 20,929
------- -------
269,467 240,929
Less current maturities 9,044 5,087
------- --------
Long-term debt $ 260,423 $ 235,842
</TABLE>
At December 31, 1994, required principal payments for each of the
succeeding five years are: $9 million in 1995 (including $4
million of bank revolving credit borrowings voluntarily repaid in
January 1995), $4.2 million in 1996, $2.5 million in 1997, $24.7
million in 1998 and $.7 million in 1999.
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 (8.5% at
December 31, 1994) 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, 1994, $25 million of
revolving credit borrowings and $11.5 million of standby letters
of credit were outstanding under this facility.
The bank 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 1995 capital expenditures to $33 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, as amended, 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 $2.5 million in cash
(including borrowings thereunder) at any time. Subject to a test
that requires improved financial performance, this limit on Class
G retirements (with borrowings thereunder) increases to $23.7
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.
Redemption of the Class G preferred stock outstanding at December
31, 1994 would require $34.1 million in 1996, assuming no
dividends are paid earlier.
Industrial revenue bond financings of $9.4 million carry a
weighted average effective interest rate of 9.3%. Equipment
loans and other debt carry a weighted average effective interest
rate of 11.7% and are secured with equipment.
NOTE E -- REDEEMABLE PREFERRED STOCK
Redeemable preferred stock includes the following (in thousands):
<TABLE>
<CAPTION>
Recorded Values December 31,
Issue 1994 1993 1992
<S> <C> <C> <C>
Class G $ 31,396 $ 42,116 $ 39,526
Classes B, D and E 5,148
------ ------ ------
$ 31,396 $ 42,116 $ 44,674
</TABLE>
At December 31, 1994, 237,780 shares of Class G preferred stock,
$.25 par value per share, were outstanding, with a redemption
value of $31.5 million. Each share is convertible into 7.7
shares of common stock and 1,830,906 shares are reserved for such
conversions. In 1994, the Company repurchased and retired
100,800 shares of Class G preferred stock for $11.3 million. The
Company is required to redeem the remaining shares, at $100 per
share plus accrued dividends, on July 15, 1996. Redemption of
the Class G preferred stock is limited by the bank credit
facility (Note D).
Class G preferred stockholders 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, 1994 recorded value and
redemption value of the Class G preferred stock both include
approximately $7.8 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 1993 recapitalization (Note C), the Company issued
the equivalent of 13,333,333 shares of the Company's common
stock, 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.
On February 28, 1992 the Company increased its ownership of
Envirosafe Services, Inc. to 100% when it purchased the 37.5%
minority interest for a total cost of approximately $22 million,
by issuing 7,205,000 shares of common stock. Also in 1992, the
Company issued 499,993 shares of common stock to the noteholders
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 a stockholders' equity increase
of $1.8 million in 1992.
Warrants are outstanding to purchase (i) 695,652 shares of the
Company's common stock at $4 per share, expiring July 1, 1995,
and (ii) 600,000 shares at $3.50 per share. The number of shares
purchasable under the $3.50 warrants declines by 200,000 on
January 1, 1996 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 addition, warrants to purchase 244,445 shares of common stock
at seven cents per share are outstanding. In 1993 a warrant to
purchase 55,555 shares of the Company's common stock was
exercised at seven cents per share.
A total of 6,781,388 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 5.4 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 options to
key employees for the purchase of shares of the Company's common
stock. Incentive stock options or non-qualified stock options
are permitted. 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, 1994, 1,386,000 shares
were available for future grants.
As a result of the February 1992 acquisition of the Envirosafe
minority interest (Note F), Envirosafe's outstanding stock
options became options to purchase 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:
<TABLE>
<CAPTION>
Shares
1994 1993 1992
<S> <C> <C> <C>
Shares under option at Jan. 1 1,643,600 1,511,600 1,021,100
Options granted 48,740 689,000 144,500
Envirosafe options that became
EnviroSource options 700,000
Options exercised (at average
exercise prices of $2.74 in
1994, $2.50 in 1993 and
$3.05 in 1992) (41,500) (5,000) (36,250)
Options expired or cancelled (376,455) (552,000) (317,750)
--------- --------- ---------
Shares under option at Dec. 31 1,274,385 1,643,600 1,511,600
Options exercisable at Dec. 31 612,200 618,140 957,300
</TABLE>
At December 31, 1994, option prices ranged from $2.50 to $8.38
per share, and averaged $4.44 per share. These options expire on
various dates from March 1997 through March 2004.
Subject to shareholder approval, the Company also has adopted a
stock option plan for outside directors. Under the plan, on
January 1, 1995 the four directors who qualify each were granted
options to purchase 5,000 shares of the Company's common stock
for $3.31 per share, and will be granted options for 5,000 shares
at the prior year-end market price on each January 1 thereafter.
In addition, the plan allows these directors to elect to receive
below-market options in lieu of their annual directors' fees.
All options granted under the plan become exercisable on the
following January 1. 750,000 shares are reserved for grants
under this plan.
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.
Current liabilities include $12 million at December 31, 1994 and
$11.9 million at December 31, 1993 for IU acquisition
obligations, in each case including $5 million for untendered IU
shares. The rest of these amounts represent ongoing obligations
for insurance (including the PIE payments described in Note N),
employee benefits and other matters. After payment of the $12
million in 1995, estimated annual payments are expected to
decline to approximately $3 million in 1996 and gradually
thereafter to less than $2 million by 1999. Such payments will
be reduced by any IU-related recoveries. Payments on such
obligations, reduced by recoveries from IU asset dispositions,
amounted to $2.5 million in 1994, $4.8 million in 1993 and $8.1
million in 1992. In 1992 the Company also obtained refunds of
$16.5 million of federal income taxes paid by IU prior to its
acquisition by the Company, together with interest thereon, which
were anticipated in the March 21, 1988 allocation of the IU
acquisition cost.
Non-current other liabilities includes $41.4 million at December
31, 1994 and $44.6 million at December 31, 1993 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 B).
NOTE I -- BUSINESS SEGMENTS
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, 1994 follows (in thousands):
<TABLE>
<CAPTION>
Industrial Treatment
Environ- and Corporate
mental Disposal Head-
Services Services quarters Total
<S> <C> <C> <C> <C>
Revenues
1994 $ 206,477 $ 53,038 $259,515
1993 197,268 73,758 271,026
1992 178,932 53,720 232,652
Operating income (loss)
1994 - after restructuring
charge reclassifications
(Note B) $ 38,724 $ 6,919 $(5,924) $ 39,719
Restructuring charge
reclassifications sub-
tracted (added) above 580 (580)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1993 - after restructuring
charge, net (Note B) 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
Identifiable assets
1994 $301,188 $135,697 $13,293 $450,178
1993 300,622 111,424 15,199 427,245
1992 326,009 108,036 10,502 444,547
Depreciation and amortization
1994 $ 24,045 $ 10,387 $ 931 $ 35,363
1993 25,960 11,485 2,963 40,408
1992 21,966 11,478 5,459 38,903
Capital expenditures
1994 $ 21,755 $ 17,428 $ 78 $ 39,261
1993 19,752 12,963 53 32,768
1992 28,943 10,153 30 39,126
</TABLE>
Corporate headquarters expenses and assets support both segments
but are not directly associated with either. Corporate assets
consist principally of cash and cash equivalents and unamortized
debt issuance costs.
Industrial Environmental Services revenues of approximately $45
million in 1994, $47 million in 1993 and $30 million in 1992 were
from one major steel customer. At December 31, 1994, $20.8
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 revenuea
contributed by each class of services during the three years
ended December 31, 1994:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Industrial recycling 67.3% 59.4% 64.8%
Specialized services 12.3 12.0 6.8
Waste stabilization
and disposal 17.8 17.2 20.2
Stabilization system design,
supply and construction 2.6 10.0 2.9
Discontinued services 1.4 5.3
</TABLE>
NOTE J -- INCOME TAXES
The components of income tax expense are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Taxes payable:
State $ 2,310 $ 2,280 $ 1,158
Canadian 266 269 278
Federal (137)
Federal taxes not
payable in cash 1,704
----- ----- -----
$ 4,280 $ 2,549 $ 1,299
</TABLE>
Income tax expense varies from amounts computed by applying the
United States federal income tax rate (35% in 1994 and 1993, 34%
in 1992) for the following reasons (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Expense (benefit) of pre-tax
income (loss) at statutory
rate $ 5,369 $(6,659) $(2,121)
Goodwill amortization 1,751 1,942 1,907
Acquisition depreciation
with no tax benefit 320
Effect of (reducing) increasing
deferred tax valuation
allowance (4,375) 5,708
Effects of state and Canadian
income taxes 1,535 1,558 837
Other 356
----- ----- -----
$ 4,280 $ 2,549 $ 1,299
</TABLE>
Canadian income before tax amounted to $.7 million in 1994 and
1993 and $.6 million in 1992.
In 1994 income tax expense includes $1.7 million that will never
be paid in cash. This expense is due to the origins of the
majority of the Company's federal tax loss carryforwards, and is
described in the following paragraphs.
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. Total deferred federal tax liabilities,
assets and the valuation allowance net to zero and, therefore, do
not appear in the consolidated balance sheet. They are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Deferred tax liabilities $ (19,549) $ (16,873)
Deferred tax assets 150,738 154,141
Valuation allowance (131,189) (137,268)
------- -------
Net deferred taxes $ -0- $ -0-
</TABLE>
In 1994 the valuation allowance was reduced by $6.1 million
because (i) certain deferred tax assets were recognized (as
restructuring costs (Note B) and IU acquisition obligation
payments became deductible for tax purposes) and (ii) additions
to deferred tax liabilities made the realization of remaining
deferred tax assets more likely. $4.4 million of the $6.1
million valuation allowance reduction was credited to reduce 1994
income tax expense. The other $1.7 million was credited to
reduce goodwill, because the underlying temporary differences
were attributable to the IU acquisition (Note H). In 1993 both
net deferred tax assets and the valuation allowance increased by
$17 million, due primarily to additional deferred tax assets
(principally arising from the 1993 restructuring charge and a
1993 tax net operating loss) and to the one percent federal tax
rate increase.
Significant components of the Company's deferred federal tax
liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation plus
IU acquisition purchase price
allocation to property, plant
and equipment $ (11,472) $ (12,494)
Tax over book post-closure deductions (4,536) (909)
Tax over book landfill permit
amortization (3,541) (3,470)
------- -------
Total deferred tax liabilities (19,549) (16,873)
Deferred tax assets:
Net operating loss carryforwards 111,913 109,074
Capital loss carryforwards 4,410 3,710
Allowance for a doubtful receivable
and insurance accruals that would
result in capital losses 11,032 12,075
Other insurance accruals 5,539 5,723
Restructuring charge 3,294 7,700
Pension and other postretirement
benefits accruals 5,351 5,702
Closure cost accruals 3,161 2,866
Other accruals 6,038 7,291
------- -------
Total deferred tax assets 150,738 154,141
Valuation allowance (131,189) (137,268)
------- -------
Net deferred tax assets 19,549 16,873
------- -------
Net deferred taxes $ -0- $ -0-
</TABLE>
Deferred tax assets represent reductions of future tax payments
that would otherwise be required as the Company reports taxable
income. The $111.9 million deferred tax asset listed above
represents net operating loss carryforwards of $320 million,
which expire in various years as discussed in the next paragraph.
Most of the $4.4 million deferred tax asset representing capital
loss carryforwards expires in 1998. All the carryforwards are
based on the Company's consolidated federal income tax returns
through 1993 and estimated return amounts for 1994. 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 $320 million of net operating loss carryforwards expire as
follows: $76 million in 1996, $10 million in 1997, $147 million
in 1998, $1 million in 2000, $15 million in 2003, $46 million in
2005, $11 million in 2006, $6 million in 2008 and $8 million in
2009. The recapitalization described in Note C resulted in an
"ownership change" (as defined in the Internal Revenue Code) that
could limit the future use of the net operating loss
carryforwards that expire through 2006. However, based on a
comprehensive study of its overall federal tax position, the
Company believes that sufficient tax loss carryforwards will be
available, together with its other deferred tax assets, to enable
it to pay only federal alternative minimum tax, at an effective
rate of approximately 2%, through 1998. In addition, it expects
to utilize its deferred tax assets to reduce substantially its
federal income tax payments for several years thereafter. 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.
A substantial portion of the deferred tax asset arising from net
operating loss carryforwards originated prior to the Company's
1983 reorganization. In accordance with applicable accounting
principles, future tax benefits associated with the
pre-reorganization carryforwards will be excluded from net income
and credited to capital in excess of par value. The Company also
has deferred tax assets arising from post-reorganization tax loss
carryforwards that result from paying IU acquisition obligations.
Future tax benefits associated with these carryforwards will also
be excluded from net income, and will be credited to goodwill.
Both these types of carryforwards result in income tax expense
that will never be payable in cash. Future tax benefits from
post-reorganization carryforwards arising from normal operations
will reduce income tax expense. Subject to the limitations
discussed in the preceding paragraph and the Company's ability to
generate sufficient future taxable income, upon realization of
the net deferred tax assets and liabilities, the $131.2 million
valuation allowance would be applied as follows: $83.4 million
would be credited to capital in excess of par value, $29.2
million would be credited to reduce goodwill and $18.6 million
would reduce income tax expense.
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
income 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 IU acquisition. Because these
tax benefits were attributable to deductible temporary
differences that existed at the IU acquisition date, such
benefits were applied to reduce goodwill.
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. The
Company's 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):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 868 $ 1,036 $ 1,100
Interest cost on projected
benefit obligations 1,276 1,458 1,456
Actual gain on plan assets (238) (2,204) (1,792)
Net amortization and deferral (1,083) 643 215
----- ----- -----
Net periodic pension cost $ 823 $ 933 $ 979
</TABLE>
The funded status, calculated principally using measurement dates
of October 31, 1994 and 1993, and the liability accrued in the
consolidated balance sheet for defined benefit plans are as shown
below (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested $ 16,841 $ 17,007
Accumulated $ 16,854 $ 17,100
Projected $ 16,963 $ 18,055
Plan assets at fair value 13,841 13,799
------ ------
Projected benefit obligations
in excess of plan assets 3,122 4,256
Unrecognized net loss (2,301) (2,322)
Prior service gain not yet recognized
in net periodic pension cost 4,702 4,629
Other 182 306
------ ------
Pension liability $ 5,705 $ 6,869
</TABLE>
The actuarial present value of projected benefit obligations was
determined using discount rates of 8.5% in 1994 and 7% in 1993.
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 1994 and 1993 and $1.4 million
in 1992.
In addition, for the benefit of certain unionized employees, 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 1994 and 1993 and $1.9 million in 1992.
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
changed its method of accounting for these postretirement
benefits. The cumulative effect of this accounting change was
immaterial and is being recognized on a prospective basis. The
actuarially computed cost for these plans amounted to $.4 million
in both 1994 and 1993, 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.
The Company also participates in several defined contribution
multi-employer plans that provide health care and other welfare
benefits to certain unionized employees during their working
lives and after retirement. Costs for these plans, which
includes both current and postretirement benefit costs, amounted
to $1.6 million in 1994, $1.4 million in 1993 and $1.3 million in
1992.
At each of December 31, 1994 and 1993, other long-term
liabilities includes approximately $5 million of accrued
postretirement benefit obligations, based on discount rates of
8.5% in 1994 and 7% in 1993. 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 13% in 1995, decreasing 1% per year to 6%
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,
1994 by $.3 million and would not have had a material impact on
the cost for 1994.
NOTE L -- SUPPLEMENTAL CASH FLOW INFORMATION
Amortization in the consolidated statement of cash flows includes
amortization of goodwill and permits together with noncash
interest costs.
Changes in working capital include the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Accounts receivable $ (8,483) $ 1,270 $ (3,620)
Other current assets 38 (1,279) 691
Trade payables and other
current liabilities 4,366 (1,496) (4,308)
Receivables and liabilities of
a discontinued operation 3,387
----- ----- -----
Cash used $ (4,079) $ (1,505) $ (3,850)
</TABLE>
Closure trust fund payments include the following activity (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Purchases of investments $ (16,193) $ (12,110) $ (6,270)
Sales of investments 3,327 6,936 4,473
------ ------ -----
Net cash used $ (12,866) $ (5,174) $ (1,797)
</TABLE>
Ongoing net cash flows related to the 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 $23.7 million in 1994, $30.7 million
in 1993 and $29 million in 1992, excluding amounts capitalized.
Interest costs of $.6 million in 1994 and in 1993 and $.8 million
in 1992 were capitalized.
The Company paid income taxes, net of refunds, of $1.6 million in
1994, $1.4 million in 1993 and $.8 million in 1992. The 1992
amount excludes the aforementioned $16.5 million refunds of taxes
paid by IU prior to its acquisition by the Company.
NOTE M -- FINANCIAL INSTRUMENTS
The Company has not utilized any derivative financial instruments
since an interest rate swap and an interest rate collar matured
in 1992. The Company considers the use of such instruments when
appropriate to mitigate risks.
The estimated fair values of financial instruments carried in the
Company's consolidated balance sheet are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
Consolidated Balance Fair Carrying Fair Carrying
Sheet Caption Values Amounts Values Amounts
<S> <C> <C> <C> <C>
Other current assets $ 780 $ 780 $ 2,613 $ 2,613
Closure trust fund
(Idaho) 9,333 9,748 8,174 8,117
Other non-current
assets 2,479 2,499 4,948 5,367
Insurance obligations 8,713 8,713 7,217 7,217
Other current
liabilities 6,692 6,692 8,731 8,731
Current portion of
debt and redeemable
preferred stock 9,044 9,044 8,492 8,492
Other non-current
liabilities 9,944 14,689 13,885 18,677
Long-term debt 233,582 260,423 230,822 235,842
Redeemable preferred
stock 27,345 31,396 33,670 38,711
</TABLE>
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 and liabilities are estimated
using discounted cash flow analysis and borrowing rates in the
Company's bank credit facility.
As of December 31, 1994 the estimated fair value of the Company's
obligations to pay $12.2 million into closure trust funds over
the next four years is $10.5 million, using discounted cash flow
analysis and borrowing rates in the Company's bank credit
facility. See Note N.
NOTE N -- COMMITMENTS AND CONTINGENCIES
Future minimum lease payments for non-cancelable operating leases
as of December 31, 1994 amount to $6.5 million in 1995, $5.7
million in 1996, $5.1 million in 1997, $4.2 million in 1998, $2.8
million in 1999 and $1.7 million thereafter. Operating leases
are primarily for office space and machinery and equipment.
Rental expense was $7.8 million in 1994, $6.9 million in 1993 and
$6 million in 1992.
The Company has made commitments to spend $15 million in 1995 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 1995 and $4 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, 1994, the Company was contingently liable for
$11.5 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 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
$13 million at December 31, 1994, 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 balance sheet and the Company's
estimates do not assume any such liquidation proceeds, the
Company's financial condition as reported at December 31, 1994
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 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
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 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, 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, Compensation 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.
NOTE O -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Mar. 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
1994
Revenues $ 58,423 $ 63,458 $ 66,001 $ 71,633
Gross profit 14,049 17,723 18,558 20,602
Operating income 6,255 9,275 11,052 13,137
Net income (loss) (470) 2,316 3,340 5,873
Income (loss)
per share (.02) .05 .07 .16
1993
Revenues $ 59,864 $ 77,902 $ 66,475 $ 66,785
Gross profit 14,151 18,008 13,418 16,938
Restructuring
charge, net (Note B) (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)
</TABLE>
In 1994 preferred stock retirement gains amounted to $.01 per
share in the March quarter and $.03 per share in the December
quarter.
Full year income tax expense resulted in a lower overall
effective rate than originally expected in 1994. Consequently,
1994 fourth quarter net income benefited by $1 million or $.02
per share due to a reduction in the amount of income tax expense
provided earlier in 1994.
The restructuring charge, net amounted to $.44 per share in the
1993 fourth quarter.
<PAGE>
<TABLE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
EnviroSource, Inc. (Parent Company)
CONDENSED BALANCE SHEET
(In thousands)
<CAPTION>
December 31,
ASSETS 1994 1993
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,631 $ 3,493
Other current assets 785 789
------- -------
Total current assets 4,416 4,282
Investments in, net of amounts due
to, consolidated subsidiaries 277,120 277,417
Debt issuance costs, less amortization 6,897 7,376
Other assets 1,951 2,110
------- -------
$ 290,384 $ 291,185
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 595 $ 360
Other current liabilities 9,121 11,152
Redeemable preferred stock 3,405
------- -------
Total current liabilities 9,716 14,917
Long-term debt 220,000 220,000
Other long-term obligations 4,751 3,340
Redeemable preferred stock 31,396 38,711
Commitments and contingencies (Note 5)
Stockholders' equity 24,521 14,217
------- -------
$ 290,384 $ 291,185
See Notes to Condensed Financial Information of Registrant.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- Continued
EnviroSource, Inc. (Parent Company)
CONDENSED STATEMENT OF OPERATIONS
(In thousands)
<CAPTION>
December 31,
1994 1993 1992
<S> <C> <C> <C>
Management fee income from
consolidated subsidiaries $ 102 $ 116
General and administrative
expense $ (6,178) (7,073) (7,476)
Restructuring charge (400)
Interest expense:
Consolidated subsidiaries (62,785) (54,586) (58,462)
Other (22,069) (23,519) (25,710)
Interest income:
Consolidated subsidiaries 2,475 778 1,166
Other 318 492 335
------ ----- ------
(88,239) (84,206) (90,031)
Income tax benefit 34,575 24,616 35,798
Equity in net income of
consolidated subsidiaries 64,723 38,016 46,695
------ ------ ------
Income (loss) before extraordinary
loss and cumulative effect of
accounting change 11,059 (21,574) (7,538)
Extraordinary debt
extinguishment loss (21,930)
Cumulative effect of income tax
accounting change (2,302)
------ ------ ------
Net income (loss) $ 11,059 $ (45,806) $ (7,538)
See Notes to Condensed Financial Information of Registrant.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- Continued
EnviroSource, Inc. (Parent Company)
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
CASH USED BY OPERATING ACTIVITIES $(50,217) $(57,974) $(47,478)
INVESTING ACTIVITIES
Ongoing net cash flows related to
IU acquisition (1,330) (319) (1,652)
Additions to property, plant and
equipment (75) (53) (30)
Other (134) (1,063)
------ ------- ------
Cash used by investing activities (1,539) (372) (2,745)
FINANCING ACTIVITIES
Net cash from (to) consolidated
subsidiaries 63,102 (1,430) 51,891
Sale of common stock 114 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 (11,322) (5,148) (1,352)
Other (84)
------ ------- ------
Cash provided by financing
activities 51,894 57,920 50,566
------ ------- ------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 138 (426) 343
Cash and cash equivalents at
beginning of year 3,493 3,919 3,576
------ ------- ------
Cash and cash equivalents at
end of year $ 3,631 $ 3,493 $ 3,919
See Notes to Condensed Financial Information of Registrant.
</TABLE>
<PAGE>
SCHEDULE I
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 -- RECLASSIFICATION OF PRIOR PERIOD RESULTS
Effective December 31, 1994, all of the assets of the only
operating division of the Parent Company were contributed to a
wholly-owned subsidiary of the Company. Consequently, the
financial position, results of operations and cash flows of the
division are accounted for on an equity basis. Prior years'
financial statements have been reclassified to conform with the
current year presentation.
NOTE 3 -- RECAPITALIZATION
See Note C to the consolidated financial statements for a
description of the 1993 recapitalization.
NOTE 4 -- LONG-TERM BORROWINGS
As part of the 1993 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 facility 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 facility.
NOTE 5 -- REDEEMABLE PREFERRED STOCK AND COMMITMENTS AND
CONTINGENCIES
See Notes D, E and N to the consolidated financial statements.
<PAGE>
<TABLE>
ENVIROSOURCE, INC. SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
<CAPTION>
Additions
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts Deductions (A) period
<S> <C> <C> <C> <C>
1994
Allowance for doubtful $ 944 $ 143 $ 471 $ 616
accounts
1993
Allowance for doubtful
accounts $ 1,333 $ (127) $ 262 $ 944
1992
Allowance for doubtful
accounts $ 1,659 $ 1,193 $ 1,519 $ 1,333
(A) Amounts written off.
</TABLE>
<PAGE>
EXHIBIT INDEX
Number Exhibit Page
4.12 Third Amendment to the Credit EXHIBIT 1
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.
10.14 EnviroSource, Inc. Stock Option EXHIBIT 2
Plan for Non-Affiliated
Directors, dated as of January
1, 1995.
10.15 Stock Option Agreement, dated EXHIBIT 3
January 1, 1995, between the
Company and Arthur R. Seder, Jr.
10.16 Stock Option Agreement, dated EXHIBIT 4
January 1, 1995, between the
Company and Wallace B. Askins.
10.17 Stock Option Agreement, dated EXHIBIT 5
January 1, 1995, between the
Company and Raymond P. Caldiero.
10.18 Stock Option Agreement, dated EXHIBIT 6
January 1, 1995, between the
Company and Jeffrey G. Miller.
10.19 Supplemental Executive Retirement EXHIBIT 7
Plan of the Company, effective
January 1, 1995.
21.1 Subsidiaries of the Company. EXHIBIT 8
23.1 Consent of Ernst & Young. EXHIBIT 9
27.1 Financial Data Schedule. EXHIBIT 27
THIRD AMENDMENT TO CREDIT AGREEMENT
THIRD AMENDMENT, dated as of January 13, 1995 (this
"Third Amendment"), among the signatories hereto to the Credit
Agreement, dated as of June 24, 1993 (as previously amended by
that certain First Amendment thereto, dated as of December 23,
1993, and that certain Second Amendment thereto, dated as of
October 20, 1994, 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 subsection 7.8 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 amendment 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. Subsection 7.8(e) (Limitation on Dividends).
Subsection 7.8 (e) of the Credit Agreement is hereby amended by
deleting the dollar amount "$11,500,000" where it appears therein
and inserting in lieu thereof the dollar amount "$13,725,000".
3. Amendment Fee. The Borrower hereby agrees to pay
to the Administrative Agent on the date of effectiveness of this
Third Amendment, an amendment fee for the ratable account of each
Lender in an aggregate amount equal to $60,000.
4. Representations and Warranties. Other than with
respect to certain recorded unusual losses during the fiscal
quarter ended December 31, 1993, which losses have been disclosed
to the Administrative Agent, the Co-Agents and the Lenders and
may be deemed to constitute a "development or event which has had
or could reasonably be expected to have a Material Adverse
Effect" since March 31, 1993 under subsection 4.2 of the Credit
Agreement (as to which the Parent and the Borrower make no
representation or warranty), 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 Third Amendment.
5. Conditions to Effectiveness. This Third 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 3 hereof.
6. 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.
7. 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 Third Amendment,
including the fees and expenses of counsel to the Administrative
Agent.
8. Counterparts. This Third 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.
9. GOVERNING LAW. THIS THIRD 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
Third 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/ JAMES C. HULL
Title: Vice President
ENVIROSOURCE, INC.
By: /S/ JAMES C. HULL
Title: Vice President
CHEMICAL BANK,
as Administrative Agent, as a
Co-Agent and as a Lender
By: /S/ WILLIAM J. CAGGIANO
Title: Managing Director
BANQUE PARIBAS,
as a Co-Agent and as a Lender
By: /S/ PIERRE-JEAN DE FILIPPIS
Title: General Manager
By: /S/ J. N. MACDOWELL
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH, as
a Co-Agent and as a Lender
By: /S/ FRED HADDAD
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By: /S/ SCOTT JACKSON
Title: Vice President
ENVIROSOURCE, INC.
STOCK OPTION PLAN FOR NON-AFFILIATE DIRECTORS
SECTION 1. Purpose of Plan.
The purpose of this Stock Option Plan for Non-Affiliate
Directors (the "Plan") of EnviroSource, Inc., a Delaware
corporation (the "Company"), is to provide present and
prospective directors of the Company who are not affiliated with
the Company with the opportunity to obtain equity ownership
interests in the Company through the exercise of stock options.
SECTION 2. Persons Eligible Under Plan.
Participation in this Plan is limited to non-affiliate
directors. A non-affiliate director (referred to herein as a
"Director") is a director of the Company who, at the time stock
options are granted to him or her under the Plan, is not an
employee of the Company or of any subsidiary of the Company and
is not an employee, partner or significant stockholder in any
entity having "control" over or with the Company, as such term is
defined in the federal securities laws and regulations..
SECTION 3. Administration.
This Plan shall be administered by a Committee (the
"Committee") of three disinterested (as such term is defined in
Rule 16b under the Securities Exchange Act of 1934, as amended
(the "Act")) members of the Board of Directors (the "Board") of
the Company. The grant of options (the "Options") to purchase
shares of Common Stock, par value $.05 per share, of the Company
(the "Common Shares") under this Plan and the amount, price and
nature of the awards shall be automatic as described in Section
4. However, subject to the provisions of this Plan, the
Committee, in its sole and absolute discretion, is authorized to
do all things necessary or desirable in connection with the
administration of this Plan, including, without limitation, the
following:
(i) subject to Section 8, adopt, amend and rescind rules
and regulations relating to this Plan;
(ii) determine whether, and the extent to which, adjustments
are required pursuant to Section 7 hereof; and
(iii) interpret and construe, and make factual
determinations with respect to, this Plan and the terms and
conditions of any Option granted hereunder; all of such
determinations and interpretations to be final and binding on all
parties.
SECTION 4. Terms and Conditions of Options.
(a) Amount, Exercise Price and Exercisability of Automatic
Annual Grants. Each Director shall automatically be granted, as
of January 1 of each year (the "Date of Grant"), an Option (an
"Automatic Option") to purchase 5,000 Common Shares (subject to
adjustment as provided in Section 7). The exercise price for
each Automatic Option granted pursuant to this Section 4(a) shall
be the Fair Market Value (as defined below) of the Common Shares
at the close of business on the business day preceding the Date
of Grant (the "Exercise Price"). For all purposes hereunder, the
"Fair Market Value" of a Common Share on any day shall be equal
to the last sale price per Common Share on such day or, in case
no such sale takes place on such day, the average of the closing
bid and asked prices in either case as reported in the
over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System or such
other system then in use. An Automatic Option granted under this
Plan shall vest and become exercisable on, and only if the
recipient of the Automatic Option (the "Optionee") continues to
serve as a Director until, the January 1 following the Date of
Grant of such Automatic Option.
(b) Amount, Exercise Price and Exercisability of Grants in
Lieu of Annual Retainer Fees. In addition to the grants made
pursuant to Section 4(a), each Director shall have the right,
exercisable on or before January 1 of each year (the "Election
Date"), to make an irrevocable election to receive an Option (a
"Retainer Option") in lieu of 100%, but not less than 100%, of
the Director's Retainer (as defined hereafter) for such year.
Such election must be in writing and signed by the Director
making the election. The number of Common Shares for which a
Retainer Option granted pursuant to this Section 4(b) is
exercisable shall be equal to the amount of the Retainer divided
by 20% of the Fair Market Value of the Common Shares on the date
of grant of such Retainer Option (the "Retainer Option Date of
Grant") which shall be the six-month anniversary of the Election
Date. The exercise price (the "Retainer Option Exercise Price")
for a Retainer Option granted pursuant to this Section 4(b) shall
be 80% of the Fair Market Value of the Common Shares at the close
of business on the Retainer Option Date of Grant. A Director's
"Retainer" is the cash retainer that is not dependent upon
attendance at meetings or service as a chairperson and which is
fixed by the Board from time to time. If a Director's membership
on the Board terminates for any reason during a year when an
election is made to receive a Retainer Option under this
subsection 4(b), the number of shares subject to such Retainer
Option shall be reduced to reflect the pro-rata portion of the
Retainer he otherwise would have received for his actual period
of service for such year. Notwithstanding the preceding
sentence, a Retainer Option granted under this Plan shall become
exercisable on the January 1 following the Retainer Option Date
of Grant of such Retainer Option.
(c) Manner of Exercise. Any vested and exercisable Option
shall be exercised by the holder thereof by giving written
notice, signed by such holder, to the Company stating the number
of Common Shares with respect to which the Option is being
exercised, accompanied by payment in full of the aggregate
exercise price in cash or by check payable to the Company. No
Option may be exercised with respect to any fractional shares;
cash shall be paid in lieu of fractional shares. As promptly as
practicable following the receipt of a notice hereunder, the
Company shall issue a stock certificate registered in the name of
the Optionee exercising such Option, representing the number of
Common Shares issued to such Optionee upon exercise of the
Option.
(d) Termination or Expiration. Each Option shall expire on
the earlier of the tenth anniversary of the date of grant or one
year after the date the Optionee ceases to be a director of the
Company.
(e) Transferability. Neither the Option nor any interest
therein may be sold, assigned, conveyed, gifted, pledged,
hypothecated or otherwise transferred in any manner other than by
will or the laws of descent and distribution. During the
recipient's lifetime, an Option may only be exercised by the
Optionee or the Optionee's guardian or legal representative.
(f) Payment of Withholding Taxes. If the Company is
obligated by law to withhold an amount on account of any federal,
state or local tax imposed as a result of the exercise of the
Option (such amount shall be referred to herein as the
"Withholding Liability"), the Optionee shall, on the first date
upon which the Company becomes obligated to pay the Withholding
Liability to the appropriate taxing authority, pay the
Withholding Liability to the Company in full in cash or by check.
(g) Stock Exchange Requirements; Applicable Laws.
Notwithstanding anything to the contrary in this Plan, no Common
Shares purchased upon exercise of an Option, and no certificate
representing all or any part of such shares, shall be issued or
delivered if (a) such shares have not been admitted to listing
upon official notice of issuance on each stock exchange upon
which shares of that class are then listed or (b) in the opinion
of counsel of the Company, such issuance or delivery would cause
the Company to be in violation of or to incur liability under any
federal, state or other securities law, or any requirement of any
stock exchange listing agreement to which the Company is a party,
or any other requirement of law or of any administrative or
regulatory body having jurisdiction over the Company. It is the
Company's intent that this Plan comply in all respects with Rule
16b-3 of the Act, and any regulations promulgated thereunder. If
any provisions of this Plan is later found not to be in
compliance with Rule 16b-3, such provisions shall be deemed null
and void. All grants and exercises of Options under this Plan
shall be executed in accordance with the requirements of Section
16 of the Act, and amended, and any regulations promulgated
thereunder.
(h) Stock Option Agreement. Each grant of an Option under
this Plan shall be evidenced by an agreement duly executed on
behalf of the Company and the Optionee, dated as of the
applicable Date of Grant. Each such agreement shall set forth
the number of Common Shares subject to the Option, the Exercise
Price, the date upon which the Option becomes exercisable and
such other terms and provisions not inconsistent with this Plan
as the Committee shall determine and shall incorporate by
reference the terms and conditions of this Plan.
SECTION 5. Stock Subject to Plan.
(a) The maximum number of Common Shares that may be issued
pursuant to all Options granted under this Plan is 750,000,
subject to adjustment as provided in Section 7 hereof (such
maximum number, as so adjusted, shall be referred to herein as
the "Share Limitation").
(b) Notwithstanding Sections 4(a) and (b) of this Plan, no
Option shall be granted under this Plan unless, on the date of
grant, the sum of (i) the maximum number of Common Shares
issuable at any time pursuant to such Option, plus (ii) the
number of Common Shares that have previously been issued pursuant
to the exercise of Options granted under this Plan, plus (iii)
the maximum number of Common Shares that may be issued at any
time thereafter pursuant to the exercise of Options granted under
this Plan that are outstanding on such date, does not exceed the
Share Limitation.
SECTION 6. Duration of Plan.
(a) No Options shall be granted under this Plan after
December 31, 2004. Although Common Shares may be issued after
December 31, 2004 pursuant to Options granted prior to such date,
no Common Shares shall be issued under this Plan after December
31, 2014.
SECTION 7. Adjustments for Changes in Capitalization.
If the outstanding securities of the class then subject to
this Plan are increased, decreased, changed into or exchanged for
a different number or kind of shares of the Company through
reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, upon proper
authorization of the Board of Directors, an appropriate and
proportionate adjustment shall be made in (a) the number and type
of shares or other securities or cash or other property that may
be acquired pursuant to Options theretofore granted under this
Plan and (b) the maximum number and type of shares or other
securities that may be issued pursuant to Options thereafter
granted under this Plan.
SECTION 8. Amendment and Termination of Plan.
The Committee may amend or terminate this Plan at any time
and in any manner. However, (a) no such amendment or termination
shall deprive the recipient of any Option theretofore granted
under this Plan, without the consent of such recipient, of any of
his or her rights thereunder or with respect thereto, (b) no such
amendment shall be effective without the approval of the
stockholders of the Company, if stockholder approval of the
amendment is then required pursuant to Rule 16b-3 under the Act,
or the applicable rules of any securities exchange, and (c) to
the extent prohibited by Rule 16b-3(c)(2)(ii)(B) under the Act,
this Plan may not be amended more than once every six months.
SECTION 9. Effective Date of Plan.
This Plan shall be effective as of January 1, 1995;
provided, however, that no Common Shares shall be issued under
this Plan until it has been approved, directly or indirectly, by
the affirmative votes of the holders of a majority of the
securities of the Company present, or represented and entitled to
vote, at a meeting duly held in accordance with the laws of the
State of Delaware.
SECTION 10. No Rights as Stockholder and Rights of
Directors.
Neither the recipient of an Option under this Plan nor an
Optionee's successor or successors in interest shall have rights
as a stockholder of the Company with respect to any Common Shares
subject to an Option granted to such person until the date of
issuance of a stock certificate for such Common Shares. Neither
this Plan, nor the granting of an Option hereunder, nor any other
action taken pursuant to this Plan shall constitute or be
evidence of any agreement or understanding, express or implied,
that a Director has a right to continue as a Director for any
period of time or at any particular rate of compensation.
SECTION 11. Governing Law.
This Plan and all rights and obligations under this Plan
shall be construed in accordance with and governed by the laws of
the State of Delaware.
DIR-OP:95
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of January 1, 1995,
between ENVIROSOURCE, INC. (the "Corporation") and ARTHUR R.
SEDER, JR. (the "Optionee"), who is a Director of the
Corporation.
1. Shares Subject to Option. Pursuant to the
provisions of the EnviroSource, Inc. Stock Option Plan for
Non-Affiliate Directors, adopted by the Board of Directors of the
Corporation as of January 1, 1995 (the "Plan"), the Corporation
hereby grants to the Optionee a Stock Option to purchase 5,000
shares of the Common Stock (par value $.05 per share) of the
Corporation (the "Optioned Shares") at a price equal to $3.3125
per share. The foregoing grant is subject to stockholder
approval of the Plan at the Corporation's 1995 Annual Meeting.
The Optionee acknowledges receipt of a copy of the Plan, all
terms and conditions of which are incorporated herein by
reference.
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
January 1, 1996, 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 as a result of a vote of
stockholders or otherwise, 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 as a result of a vote of
stockholders or otherwise 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 upon 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. If the outstanding securities of the class then subject
to this Option are increased, decreased, changed into or
exchanged for a different number or kind of shares of the
Company through reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock
split, upon proper authorization of the Board of Directors, an
appropriate and proportionate adjustment shall be made in the
number and type of Optional Shares.
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
DIR-OP:95
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of January 1, 1995,
between ENVIROSOURCE, INC. (the "Corporation") and WALLACE B.
ASKINS (the "Optionee"), who is a Director of the Corporation.
1. Shares Subject to Option. Pursuant to the
provisions of the EnviroSource, Inc. Stock Option Plan for
Non-Affiliate Directors, adopted by the Board of Directors of the
Corporation as of January 1, 1995 (the "Plan"), the Corporation
hereby grants to the Optionee a Stock Option to purchase 5,000
shares of the Common Stock (par value $.05 per share) of the
Corporation (the "Optioned Shares") at a price equal to $3.3125
per share. The foregoing grant is subject to stockholder
approval of the Plan at the Corporation's 1995 Annual Meeting.
The Optionee acknowledges receipt of a copy of the Plan, all
terms and conditions of which are incorporated herein by
reference.
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
January 1, 1996, 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 as a result of a vote of
stockholders or otherwise, 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 as a result of a vote of
stockholders or otherwise 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 upon 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. If the outstanding securities of the class then subject
to this Option are increased, decreased, changed into or
exchanged for a different number or kind of shares of the Company
through reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, upon proper
authorization of the Board of Directors, an appropriate and
proportionate adjustment shall be made in the number and type of
Optional Shares.
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/ WALLACE B. ASKINS
Optionee
DIR-OP:95
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of January 1, 1995,
between ENVIROSOURCE, INC. (the "Corporation") and RAYMOND P.
CALDIERO (the "Optionee"), who is a Director of the Corporation.
1. Shares Subject to Option. Pursuant to the
provisions of the EnviroSource, Inc. Stock Option Plan for
Non-Affiliate Directors, adopted by the Board of Directors of the
Corporation as of January 1, 1995 (the "Plan"), the Corporation
hereby grants to the Optionee a Stock Option to purchase 5,000
shares of the Common Stock (par value $.05 per share) of the
Corporation (the "Optioned Shares") at a price equal to $3.3125
per share. The foregoing grant is subject to stockholder
approval of the Plan at the Corporation's 1995 Annual Meeting.
The Optionee acknowledges receipt of a copy of the Plan, all
terms and conditions of which are incorporated herein by
reference.
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
January 1, 1996, 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 as a result of a vote of
stockholders or otherwise, 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 as a result of a vote of
stockholders or otherwise 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 upon 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. If the outstanding securities of the class then subject
to this Option are increased, decreased, changed into or
exchanged for a different number or kind of shares of the Company
through reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, upon proper
authorization of the Board of Directors, an appropriate and
proportionate adjustment shall be made in the number and type of
Optional Shares.
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/ RAYMOND P. CALDIERO
Optionee
DIR-OP:95
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of January 1, 1995,
between ENVIROSOURCE, INC. (the "Corporation") and JEFFREY G.
MILLER (the "Optionee"), who is a Director of the Corporation.
1. Shares Subject to Option. Pursuant to the
provisions of the EnviroSource, Inc. Stock Option Plan for
Non-Affiliate Directors, adopted by the Board of Directors of the
Corporation as of January 1, 1995 (the "Plan"), the Corporation
hereby grants to the Optionee a Stock Option to purchase 5,000
shares of the Common Stock (par value $.05 per share) of the
Corporation (the "Optioned Shares") at a price equal to $3.3125
per share. The foregoing grant is subject to stockholder
approval of the Plan at the Corporation's 1995 Annual Meeting.
The Optionee acknowledges receipt of a copy of the Plan, all
terms and conditions of which are incorporated herein by
reference.
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
January 1, 1996, 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 as a result of a vote of
stockholders or otherwise, 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 as a result of a vote of
stockholders or otherwise 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 upon 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. If the outstanding securities of the class then subject
to this Option are increased, decreased, changed into or
exchanged for a different number or kind of shares of the Company
through reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, upon proper
authorization of the Board of Directors, an appropriate and
proportionate adjustment shall be made in the number and type of
Optional Shares.
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/ JEFFREY G. MILLER
Optionee
ENVIROSOURCE, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In recognition of the valuable services provided to
EnviroSource, Inc. and its affiliates by certain key employees,
the Board of Directors wishes to provide additional retirement
benefits to those individuals whose benefits under the
EnviroSource, Inc. Profit Sharing Plan and the Retirement Plan
for Salaried Employees of International Mill Service, Inc. are
restricted by operation of the provisions of the Internal Revenue
Code of 1986, as amended. It is the intent of the Company to
provide these benefits under the terms and conditions hereinafter
set forth.
ARTICLE 1
Definitions
1.1 "Accrued Benefit" means the benefit determined pursuant
to Article 3.
1.2 "Beneficiary" means the person(s) designated by a
Participant under (a) the Profit Sharing Plan or, (b)
if no such designation is made, under the IMS Plan or
(c) if no such designations are made, the Participant's
surviving spouse or, if there is no surviving spouse,
his estate.
1.3 "Board" means the Board of Directors of EnviroSource,
Inc. or any authorized committee of such board.
1.4 "Code" means the Internal Revenue Code of 1986, as
amended.
1.5 "Committee" means the committee appointed by the Board
to administer the Plan.
1.6 "Company" means EnviroSource, Inc. and each of its
subsidiaries that has elected to cover its Employees
hereunder by resolution of its board of directors.
1.7 "Company Contribution" means the actual contribution
made by the Company to the Profit Sharing Plan or the
amount credited to a Participant's account in the IMS
Plan, as the case may be, for any Plan Year on behalf
of a Participant.
1.8 "Effective Date" means January 1, 1994.
1.9 "Employee" means any individual employed on a regular,
salaried basis by the Company.
1.10 "IMS Plan" means the Retirement Plan for Salaried
Employees of International Mill Service, Inc.
1.11 "Individual Account" means the account established
pursuant to Section 3.1.
1.12 "Participant" means any Employee who satisfies the
eligibility requirements set forth in Article 2. In
the event of the death or incompetency of a
Participant, the term shall means his personal
representative or guardian.
1.13 "Profit Sharing Plan" means the EnviroSource, Inc.
Profit Sharing Plan.
1.14 "Plan" means the EnviroSource, Inc. Supplemental
Executive Retirement Plan, as set forth herein, as the
same may be amended from time to time.
1.15 "Plan Year" means the calendar year.
ARTICLE 2
Eligibility
2.1 Any Employee who is a participant in the Profit Sharing
Plan or the IMS Plan, as the case may be, whose Company
Contribution is limited by Code Sections 415 or
401(a)(17), and who does not participate in any other
Company sponsored supplemental executive retirement
plan shall participate in the Plan.
2.2 Notwithstanding the above, no Participant will be
eligible to receive benefits under this Plan if he
violates the terms and conditions of any employment
contract, service contract, or any agreement relating
to matters of confidentiality of the Company or
competition with the Company, or if he is convicted of
a felony or is culpable with respect to any other
matter which is determined by the Board to be contrary
to the best interests of the Company.
ARTICLE 3
Individual Account Supplement
3.1 The Company shall create and maintain an unfunded
Individual Account for each Participant to which it
shall credit the amounts described in this Article 3.
3.2 For each Plan Year beginning on or after the Effective
Date, the Company shall credit the Participant's
Individual Account with an amount equal to the excess
over the Company Contribution of the amount that would
have been contributed to the Profit Sharing Plan or
credited to the Participant's account in the IMS Plan,
as the case may be, by the Company on behalf of the
Participant if it were not for the limitations of
Section 401(a)(17) of the Code. Such credit shall be
made as of the same date(s) as contributions are made
to the Profit Sharing Plan for such Plan Years.
3.3 As of the last day of each calendar quarter during each
Plan Year, the Company shall credit the Participant's
Individual Account with interest on the opening
balance, and from the date(s) made on any credits
pursuant to Section 3.2, in the Participant's
Individual Account at the effective yield credited to a
participant's cash balance under the IMS Plan with
respect to the corresponding Plan Year.
ARTICLE 4
Distributions of Benefit Supplement
4.1 The balance of the Participant's Individual Account
under Article 3 shall be paid in a lump sum at the same
time as the benefits are paid to the Participant under
the Profit Sharing Plan or the IMS Plan, as the case
may be. If the Participant is due an additional credit
under Section 3.2 or 3.3 to the Participant's
Individual Account in the year in which the balance of
the Individual Account becomes payable hereunder, the
additional credit will be paid to the Participant as
soon as it is practical to determine the amount.
ARTICLE 5
Death Benefit
5.1 In the event of a Participant's death, disability or
termination of employment prior to the payment in full
of the Participant's benefit pursuant to Article 4, the
Participant or the Participant's Beneficiary, as the
case may be, will receive a lump sum distribution equal
to the balance of the Participant's Individual Account
as of the date of the Participant's death, disability
or termination of employment. If the Participant is
due any additional credit to the Participant's
Individual Account for the Plan Year in which the
balance of the Individual Account becomes payable
hereunder, the additional credit will be paid to the
Participant's beneficiary as soon as practicable.
ARTICLE 6
Vesting
6.1 The balance of a Participant's Individual Account shall
vest in accordance with the vesting schedule set forth
in the Profit Sharing Plan.
ARTICLE 7
Funding
7.1 The Board may, but shall not be required to, authorize
the establishment of a trust by the Company to serve as
the funding vehicle for the benefits described herein.
In any event, the Company's obligations hereunder
shall constitute general, unsecured obligations,
payable solely out of its general assets, and no
Participant shall have any right to any specific
assets of the Company.
ARTICLE 8
Administration
8.1 The Committee shall have full power and authority to
interpret and administer this Plan and the Committee's
actions in doing so shall be final, conclusive and
binding on all persons interested in the Plan. The
Committee may from time to time adopt rules and
regulations governing this Plan. Any action required
of the Company or the Board under the Plan shall be
made in the Company's or the Board's sole discretion,
not in a fiduciary capacity, and need not be uniformly
applied to similarly situated persons. Any such action
shall be final, conclusive and binding on all persons
interested in the Plan.
ARTICLE 9
Amendment
9.1 The Board, by written resolution, shall have the right
to amend or modify the Plan at any time in any manner
whatsoever; provided, however, that no amendment shall
operate to reduce the amounts previously credited to a
Participant's Individual Account.
ARTICLE 10
Termination
10.1 Continuance of the Plan is completely voluntary and is
not assumed as a contractual obligation of the Company.
The Board, by written resolution, shall have the right
at any time to discontinue the Plan; provided, however,
that the termination shall not operate to reduce the
amounts previously credited to a Participant's
Individual Account.
ARTICLE 11
Miscellaneous
11.1 Subject to Section 2.1, nothing contained herein (a)
shall be deemed to exclude a Participant from any
compensation, bonus, pension, insurance, severance pay
or other benefit to which he otherwise is or might
become entitled to as an Employee or (b) shall be
construed as conferring upon a Participant the right to
continue in the employ of the Company in any capacity.
11.2 Any amounts payable by the Company hereunder shall not
be deemed salary or other compensation to a Participant
for the purposes of computing benefits to which he may
be entitled under any other arrangements established by
the Company for the benefit of its employees.
11.3 The rights and obligations created hereunder shall be
binding on a Participant's heirs, executors and
administrators and on the successors and assigns of the
Company.
11.4 The Plan shall be construed in accordance with and
governed by the laws of the State of Delaware.
11.5 The rights of any Participant under this Plan are
personal and may not be assigned, transferred, pledged
or encumbered. Any attempt to do so shall be void.
11.6 Neither the Company nor any member of the Board or the
Committee shall be responsible or liable in any manner
to any Participant, Beneficiary or any person claiming
through them for any benefit or action taken or omitted
in connection with the granting of benefits, the
continuation of benefits or the interpretation and
administration of this Plan.
ENVIROSOURCE, INC.
List of Subsidiaries
As of March 1, 1995
% of
State voting
or other securities
jurisdiction owned by
in which immediate
Name of Company organized parent
EnviroSource, Inc. Delaware
EnviroSource Corp. Wyoming 100
IMSAMET, Inc. Delaware 100
Imsamet of Idaho, Inc. Delaware 100
Imsamet of Utah, Inc. Delaware 100
IU International Corporation Delaware 100
C. Brewer Terminals, Inc. Delaware 100
EnviroSource Treatment &
Disposal Services, Inc. Delaware 100
ETDS, Inc. Delaware 100
Conversion Systems, Inc. Delaware 100
Envirosafe Services of
Idaho, Inc. Delaware 100
Envirosafe Services of
North America, 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
Marcus Hook Processing, Inc. Delaware 100
IMS Lycrete Egypt, Ltd. Delaware 90(1)
International Mill Service, Inc. Pennsylvania 100
IMS Funding Corporation Delaware 100
International Mill Service Limited Canada 100
McGraw Construction Company, Inc. Ohio 100
Neoax Investment Corp. Delaware 54(2)
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
----------
(1) 10% owned by an unrelated, third party, citizen of Egypt.
(2) 46% is owned by IU International Corporation and 54% is owned
by International Mill Service, Inc.
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,
Registration Statement (Form S-8 No. 33-46925) pertaining to the
Envirosafe Services, Inc. Stock Option Plan, and the
Registration Statement (Form S-8 No. 33-53019) pertaining to the
EnviroSource, Inc. 1993 Stock Option Plan of our report dated
February 14, 1995 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, 1994.
ERNST & YOUNG LLP
Stamford, Connecticut
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ENVIROSOURCE, INC.'S FORM 10-K FOR THE PERIOD ENDED DECEMBER 31,
1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 8,389
<SECURITIES> 0
<RECEIVABLES> 46,481
<ALLOWANCES> 616
<INVENTORY> 0
<CURRENT-ASSETS> 61,889
<PP&E> 282,594
<DEPRECIATION> 127,124
<TOTAL-ASSETS> 450,178
<CURRENT-LIABILITIES> 70,164
<BONDS> 260,423
<COMMON> 2,005
31,396
0
<OTHER-SE> 22,516
<TOTAL-LIABILITY-AND-EQUITY> 450,178
<SALES> 0
<TOTAL-REVENUES> 259,515
<CGS> 0
<TOTAL-COSTS> 188,583
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,372
<INCOME-PRETAX> 15,339
<INCOME-TAX> 4,280
<INCOME-CONTINUING> 11,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,059
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
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