SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _________
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.)
1155 Business Center Drive, Horsham, Pennsylvania 19044-3454
(Address of principal executive offices) (Zip Code)
(215) 956-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
------ --
The number of shares outstanding of the Registrant's Common Stock as of the
close of business on November 6, 1998 was 5,813,394.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
--------------------
<TABLE>
<CAPTION>
ENVIROSOURCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,334 $ 9,942
Accounts receivable, less allowance for
doubtful accounts of $701 in 1998 and
$881 in 1997 39,140 33,260
Net deferred income taxes 2,755 2,755
Other current assets 3,751 3,966
--------- ---------
Total current assets 47,980 49,923
Property, plant and equipment, at cost 302,519 288,360
Less allowance for depreciation (155,502) (144,978)
--------- ---------
147,017 143,382
Goodwill, less amortization 129,140 132,766
Closure trust funds and deferred charges,
less amortization 33,190 33,810
Landfill permits, less amortization 22,939 23,849
Net deferred income taxes 12,582 12,582
Debt issuance costs, less amortization 8,472 10,130
Other assets 7,340 6,860
--------- ---------
$ 408,660 $ 413,302
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Envirosource Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS - (continued)
(Dollars in thousands)
September 30, December 31,
1998 1997
-------------------- --------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 11,478 $ 12,194
Salaries, wages and related benefits 8,755 7,173
Insurance obligations 5,098 5,789
Estimated reorganization and
restructuring costs 534 963
Interest 8,264 1,417
Other current liabilities 8,903 9,380
Current portion of debt 5,037 13,786
--------- ---------
Total current liabilities 48,069 50,702
Long term debt:
9 3/4% Senior Notes due 2003 270,000 270,000
Other long term debt 17,982 11,614
Other liabilities 39,399 40,775
Stockholders' equity:
Common stock, par value $.05 per share,
shares authorized - 20,000,000, shares
issued and outstanding - 5,813,394
in 1998 and 5,816,252 in 1997 291 2,036
Capital in excess of par value 175,961 174,194
Accumulated deficit (140,850) (134,132)
Stock purchase loans receivable from
officers (633) (663)
Accumulated other comprehensive income (1,559) (1,224)
--------- ---------
Total stockholders' equity 33,210 40,211
--------- ---------
$ 408,660 $ 413,302
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIROSOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except for per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ----------------------------------
1998 1997 1998 1997
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 57,710 $ 57,149 $180,252 $168,977
Cost of revenues 45,766 45,611 142,516 133,398
Selling, general and
administrative expenses 5,124 5,425 17,252 18,561
Unusual charges 526 500 4,426 500
-------- -------- -------- --------
Operating income 6,294 5,613 16,058 16,518
Interest income 376 315 895 815
Interest expense (7,683) (7,346) (22,790) (21,763)
-------- -------- -------- --------
Loss before income taxes (1,013) (1,418) (5,837) (4,430)
Income tax benefit (expense):
Current (278) (330) (881) (1,042)
Deferred (2,968) (2,109) - 284
-------- -------- -------- --------
Loss from continuing
operations (4,259) (3,857) (6,718) (5,188)
Gain from sale of discontinued
IMSAMET operations, after
taxes 1,300 9,600
-------- -------- -------- --------
Net income (loss) $ (4,259) $ (2,557) $ (6,718) $ 4,412
======== ======== ======== ========
Income (loss) per share:
Continuing operations $ (.73) $ (.66) $ (1.16) $ (.90)
Discontinued operations - .22 - 1.66
-------- -------- -------- --------
Net income (loss) $ (.73) $ (.44) $ (1.16) $ .76
======== ======= ======== ========
Weighted average shares 5,813 5,813 5,813 5,779
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIROSOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended
September 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (6,718) $ 4,412
Adjustments to reconcile net (loss) income
to cash provided by operating activities:
Deferred income taxes 11,716
Gain from sale of IMSAMET (21,600)
Depreciation 20,922 19,558
Amortization 9,339 8,167
Unusual charges, net of payments 1,793 (1,248)
Changes in working capital 69 4,158
Other 1,261 1,198
--------- ---------
Cash provided by operating activities 26,666 26,361
INVESTING ACTIVITIES
Net proceeds from sale of IMSAMET 56,464
Property, plant and equipment:
Additions (28,459) (21,551)
Proceeds from dispositions 1,326 424
Landfill permit additions and closure
expenditures (1,582) (2,790)
Closure trust fund payments (904) (572)
Ongoing net cash flows related to
IU International acquisition (1,722) (10,258)
Other (552) (1,309)
--------- ---------
Cash (used) provided by investing activities (31,893) 20,408
FINANCING ACTIVITIES
Debt issuance 46,000 73,000
Debt repayment (48,381) (117,364)
Debt issuance costs (3,215)
--------- ---------
Cash used by financing activities (2,381) (47,579)
CASH AND CASH EQUIVALENTS
Decrease during the period (7,608) (810)
Beginning of year 9,942 9,678
--------- ---------
End of period $ 2,334 $ 8,868
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring accruals and the unusual charges discussed in Note B)
necessary for a fair presentation have been included. Operating results for the
nine month period ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. The
condensed consolidated balance sheet at December 31, 1997 has been derived from
audited financial statements at that date. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Earnings Per Share: Basic and diluted earnings per share amounts are the same in
- ------------------
1998 and 1997 because there is no dilution when there is a loss from continuing
operations.
In June 1998 the Company completed a 1-for-7 reverse stock split. Numbers of
shares and per share amounts have been restated for all periods presented.
Comprehensive Income: As of January 1, 1998, the Company adopted Statement 130,
- ---------------------
Reporting Comprehensive Income. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components. The adoption
of this Statement had no impact on the Company's net income or stockholders'
equity.
The components of comprehensive income for the three and nine month periods
ended September 30, 1998 and 1997 are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Net income (loss) $(4,259) $(2,557) $(6,718) $ 4,412
Canadian translation adjustment (248) 1 (335) (45)
------- ------- ------- -------
Comprehensive income (loss) $(4,507) $(2,556) $(7,053) $ 4,367
======= ======= ======= =======
Accumulated other comprehensive income consists of Canadian translation
adjustments at September 30, 1998 and December 31, 1997.
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE B - UNUSUAL CHARGES
The Company initiated a profit improvement program in the first quarter of 1998.
Costs incurred during the three month period ended September 30, 1998 totaled
$.5 million and consist primarily of program consulting fees and expenses. Costs
incurred during the nine month period ended September 30, 1998 totaled $4.4
million and consist of $2.3 million to write down excess equipment to its net
realizable value, $1.6 million of program consulting fees and expenses and $.5
million of employee severance. The 1997 unusual charge of $.5 million provided
for the costs to vacate an office.
NOTE C - DISCONTINUED OPERATIONS
In January 1997 the Company sold the capital stock of IMSAMET, Inc., a
wholly-owned subsidiary that performed recycling and waste management services
for the aluminum industry, for $58 million, realizing a pre-tax gain of $19.6
million. In the 1997 third quarter, a purchase price adjustment increased the
pre-tax gain by $2 million for a total pre-tax gain of $21.6 million. After
deferred income tax charges, the 1997 gain amounted to $1.3 million or $.22 per
share in the quarter and $9.6 million or $1.66 per share for the nine month
period. The proceeds from the sale were used to repay revolving credit
borrowings and expenses related to the transaction.
NOTE D - OTHER INFORMATION
As of September 30, 1998, $5.7 million of standby letters of credit and $11
million of revolving credit borrowings were outstanding under the Company's $50
million bank credit facility.
During the nine months ended September 30, 1998 and 1997, the Company paid
interest of $14.6 million and $15 million.
Current income tax expense consists of state and foreign income taxes. During
the nine months ended September 30, 1998 and 1997, the Company made cash income
tax payments, net of refunds, of $1 million and $.9 million.
NOTE E - COMMITMENTS AND CONTINGENCIES
As of September 30, 1998, the Company is committed to spend $9 million for new
operating sites, equipment additions and improvements to waste treatment
facilities. Not all of that amount will be spent this year.
At September 30, 1998, the Company was contingently liable for $5.7 million of
letters of credit outstanding under its bank credit agreement, including $3.9
million that secure liabilities already reflected in the condensed consolidated
balance sheet.
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE E -- COMMITMENTS AND CONTINGENCIES (continued)
The Company must maintain closure trust funds to secure its obligations to close
its landfills and perform post-closure monitoring and maintenance procedures.
Based on current regulations, planned improvements to waste treatment facilities
and permitted capacity, payments into trust funds are not expected to exceed the
reinvestment of Idaho trust fund earnings that the Company includes in interest
income.
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, 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 additional environmental compliance requirements
could have a material adverse effect on the Company's results of operations or
financial condition, but the Company is unable to predict any such future
requirements. The Company believes that the consolidated financial statements
appropriately reflect all presently-known compliance costs in accordance with
generally accepted accounting principles.
The Company is a party to litigation and proceedings arising in the normal
course of its present or former businesses. In the opinion of management, the
outcome of such matters will not have a material adverse effect on the Company's
financial condition or results of operations.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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<TABLE>
<CAPTION>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30
1998
Three months ended better/(worse)
September 30, than 1997
--------------------------------------- -------------------------------
1998 1997 Amount %
--------------- --------------- --------------- ---------------
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues
IMS $ 47,841 $ 46,534 $ 1,307 2.8%
Technologies 9,869 10,615 (746) (7.0%)
-------- -------- -------
$ 57,710 $ 57,149 $ 561 1.0%
======== ======== =======
Gross profit
IMS $ 11,623 $ 10,049 $ 1,574 15.7%
Technologies 321 1,489 (1,168) (78.4%)
-------- -------- -------
$ 11,944 $ 11,538 $ 406 3.5%
======== ======== =======
Operating income (loss)
IMS $ 7,812 $ 6,231 $ 1,581 25.4%
Technologies (730) 559 (1,289) -
Corporate headquarters headquarters (262) (677) 415 61.3%
Unusual charges (526) (500) (26) (5.2%)
-------- -------- -------
$ 6,294 $ 5,613 $ 681 12.1%
======== ======== =======
</TABLE>
IMS quarterly revenues increased primarily because 1997 third quarter
revenues were reduced by the effects of a strike (settled in mid-August 1997) by
a major steel industry customer's employees. The revenue increase was partially
offset by a revenue decrease attributable to an overall steel industry slowdown.
Technologies revenues decreased in the 1998 quarter as compared to 1997. While
the volume of waste processed increased over the prior year, average prices were
lower in 1998 because much of the volume increase was lower-priced cleanup
project business and because the market is very competitive.
IMS gross profit increased due to settlement of the strike and to cost
reductions resulting from the Company's profit improvement program.
Technologies' gross profit decreased due to processing lower-priced cleanup
project business and market conditions noted above.
<PAGE>
Selling, general and administrative expenses decreased as compared to
the 1997 third quarter. The decrease was primarily due to cost reductions
resulting from the Company's profit improvement program and a reduction in legal
fees and expenses attributable to the litigation between the Company and its
largest competitor in the electric arc furnace dust processing market, which was
finally concluded in the 1998 first quarter.
The Company initiated a profit improvement program in the first quarter
of 1998. Unusual charges for the 1998 third quarter totaling $.5 million consist
primarily of program consulting fees and expenses.
Interest expense for the period increased as the overall debt level was
higher in 1998.
Current income tax expense includes state and Canadian income taxes.
Deferred federal income tax expense of $3 million in 1998 and $2.1 million in
1997 (contributing $.51 per share to the quarterly loss in 1998 and $.36 per
share to the quarterly loss from continuing operations in 1997) was recorded to
eliminate the benefit recognized in the first six months of 1998 and
significantly reduce the benefit recognized in the first six months of 1997, due
to lower expected earnings in each year.
The Company sold its IMSAMET subsidiary in January 1997. In the 1997
third quarter, a purchase price adjustment increased the pre-tax gain by $2
million. After a deferred income tax charge, the additional gain amounted to
$1.3 million or $.22 per share. The gain from the sale in 1997 has been
classified as discontinued operations.
Due to the factors described above, the net loss was $4.3 million as
compared with $2.6 million in 1997.
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30
1998
Nine months ended better/(worse)
September 30, than 1997
--------------------------------------- ------------------------------
1998 1997 Amount %
------------------- ---------------- --------------- -----------
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues
IMS $ 146,764 $ 137,086 $ 9,678 7.1%
Technologies 33,488 31,891 1,597 5.0%
--------- --------- --------
$ 180,252 $ 168,977 $ 11,275 6.7%
========= ========= ========
Gross profit
IMS $ 33,356 $ 31,343 $ 2,013 6.4%
Technologies 4,380 4,236 144 3.4%
--------- --------- --------
$ 37,736 $ 35,579 $ 2,157 6.1%
========= ========= ========
Operating income (loss)
IMS $ 21,209 $ 19,657 $ 1,552 7.9%
Technologies 1,071 591 480 81.2%
Corporate headquarters headquarters (1,796) (3,230) 1,434 44.4%
Unusual charges (4,426) (500) (3,926) -
--------- --------- --------
$ 16,058 $ 16,518 $ (460) (2.8%)
========= ========= ========
</TABLE>
IMS revenues increased as compared to the same period of 1997. The majority of
the increase was due to the absence of the 1997 strike (settled in mid-August
1997) by a major steel industry customer's employees. Technologies revenues
increased in the nine month period of 1998 as compared to the same period of
1997. The increase is attributable to processing larger volumes of electric arc
furnace dust (a hazardous waste produced by steel mini-mills) and an unusually
large cleanup project in the second quarter.
IMS gross profit increased as compared to the same period of 1997 due
to the absence of the customer's strike noted above and to the Company's profit
improvement program. However, these improvements were partially offset by the
negative effects of blast furnace outages at the segment's largest customer,
changes in manufacturing practices at several important customers and
significant costs to repair equipment at a major customer. Technologies' gross
profit increased modestly because a major share of that segment's volume
increase was lower-priced cleanup project business.
Selling, general and administrative expenses for the nine month period
of 1998 decreased as compared to the same period of 1997. The decrease was
primarily due to a reduction in legal fees and expenses attributable to the
litigation between the Company and its largest competitor in the electric arc
furnace dust processing market, which was finally concluded in the 1998 first
quarter, and cost reductions resulting from the Company's profit improvement
program.
The Company initiated a profit improvement program in the first quarter
of 1998. Unusual charges for the nine month period of 1998 consist of $4.4
million of costs associated with this program, including $2.3 million to write
down excess equipment to its net realizable value, $1.6 million of program
consulting fees and expenses and $.5 million of employee severance. The 1997
unusual charge provided for the costs to vacate an office.
Interest expense for the nine month period of 1998 increased as the
overall debt level was higher in 1998. While the Company paid down debt with
proceeds from the sale of its IMSAMET subsidiary early in the 1997 first
quarter, in September 1997 the Company issued $50 million of additional 9 3/4%
Senior Notes due 2003.
Current income tax expense includes state and Canadian income taxes.
In 1997 the Company sold its IMSAMET subsidiary for an after-tax gain
of $9.6 million or $1.66 per share. The gain from the sale in 1997 has been
classified as discontinued operations.
Due to the factors described above, the 1998 net loss was $6.7 million
as compared with 1997 net income of $4.4 million.
DEFERRED INCOME TAXES
The Company has determined that it is more likely than not that it will
earn enough taxable income to realize the $15.3 million of deferred tax assets
in its balance sheet over the next several years. Realization of this amount
will require cumulative taxable earnings of approximately $44 million. When the
consolidated results of continuing operations for the four most recent fiscal
years and current nine month period are adjusted by (1) excluding unusual items,
and (2) adding back goodwill amortization (which is not deductible for tax
purposes), the pre-tax earnings, as adjusted, total approximately $33 million
and average $7 million annually. On this basis, the Company would realize $15.3
million of deferred tax assets within approximately six years. On the other
hand, because its net operating loss carryforwards expire well into the future,
the Company would also realize $15.3 million of deferred tax assets if, counting
only profitable years, it earns $44 million of taxable income during the period
ending in 2012, so long as the cumulative amount of such earnings reaches at
least $11 million by 2005, $22 million by 2006, $31 million by 2008, $40 million
by 2009 and $43 million by 2010.
In making its determination that it is more likely than not that it
will earn enough taxable income to realize $15.3 million of net deferred tax
assets, the Company considered (1) its cumulative consolidated results of
operations for the four most recent fiscal years and the first nine months of
1998, (2) ongoing cost savings achieved with its 1996 reorganization, (3)
additional cost savings anticipated from a Company-wide profit improvement
program commenced in 1998, and (4) profit improvements from treating increased
volumes of electric arc furnace dust with its proprietary Super Detox(R)
technology. Factors which could negatively affect this determination would
include (1) loss of a major customer or customers, (2) prolonged work stoppages
at major customers, (3) a major decline in United States steel industry
production, and (4) a material decrease in the level of electric arc furnace
dust currently treated with the Company's proprietary Super Detox(R) technology.
The recoverability of the deferred tax assets will be reevaluated at year-end,
taking into consideration the overall outlook for steel industry production as
well as other factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from the funding
of capital expenditures, the Technologies segment's trust fund payments, working
capital needs and debt service obligations. Historically, the Company has met
such requirements with cash flows generated by operations and with additional
debt financing.
The Company expects 1998 capital expenditures of approximately $35
million, primarily for new IMS operating sites, equipment replacements, new
services, development of additional landfill capacity and improvements to waste
treatment facilities. Through September 30, 1998, the Company spent $28.5
million for capital additions and is committed for an additional $9 million, not
all of which will be spent this year.
<PAGE>
Technologies' landfill permits require the Company to fund closure and
post-closure monitoring and maintenance obligations by maintaining essentially
non-refundable trust funds. Based on current regulations, planned improvements
to waste treatment facilities and permitted capacity, payments into trust funds
are not expected to exceed the reinvestment of Idaho trust fund earnings that
the Company includes in interest income.
Cash on hand, funds from operations and borrowing capacity under the
bank credit facility are expected to satisfy the Company's normal operating and
debt service requirements.
Because its businesses are environmentally-oriented, and therefore
highly regulated, the Company is subject to violations alleged by environmental
regulators and, occasionally, fines. Such violations and fines have not had, and
are not expected to have, a material adverse impact on the Company's business.
It is possible that the future imposition of additional environmental compliance
requirements could have a material adverse effect on the Company's results of
operations or financial condition, but the Company is unable to predict any such
future requirements.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define applicable years. Computer programs
that have date-sensitive software may recognize a date coded "00" as the year
1900 rather than the year 2000. This could result in system failures or
miscalculations that could cause disruptions of operations, including temporary
inability to process transactions.
The Company has completed an assessment of its computer information
systems. In the normal course of business, the Company has purchased new
software packages for most of its computer systems and is currently purchasing
and implementing new software for the rest. By early 1999, all of the Company's
software will either be designed or upgraded, through routine software releases
from reliable software suppliers, to accommodate the Year 2000 transition. The
Company has not incurred and does not anticipate incurring incremental costs for
Year 2000 issues relating to its computer information systems since all updates
or replacements of such systems shall have occurred in the ordinary course of
business.
<PAGE>
The Company is currently assessing its non-information technology
systems, including telecommunications and embedded systems. Many of these
systems will be upgraded in the ordinary course of business, prior to December
31, 1999, and such upgrades are expected to accommodate the Year 2000. The
remaining non-information technology systems will be upgraded or replaced as
necessary to be Year 2000 compliant by December 31, 1999. Currently, the Company
cannot estimate the costs of compliance for non-information technology systems
that would not otherwise be replaced or upgraded in the ordinary course of
business.
The Company is also addressing the Year 2000 activities of its
suppliers and customers. The Company intends to contact significant suppliers
and customers to determine if they are Year 2000 compliant, and if they are not,
to ask when they will be compliant. This information will be used to assess the
extent of interruption that could occur in the Company's operations if a
supplier or customer were non-compliant. There can be no guarantee that failure
to address Year 2000 issues by a third party would not have a material adverse
effect on the Company. However, the Company believes that its communications
with its suppliers and customers will minimize these risks.
The Company's Year 2000 program is based on management's best estimates
of the Company's requirements. However, there can be no guarantee of the success
of the Company's Year 2000 program and actual results could differ materially
from the Company's plans. Factors that could impact implementation of this
program include, but are not limited to, the availability of trained personnel,
the ability to identify and correct all affected applications, and the failure
of third parties on which the Company relies to resolve their Year 2000 issues.
To date, the Company has not made any contingency plans to address Year
2000 risks. Contingency plans will be developed if it appears that the Company
or its significant suppliers or customers will not be Year 2000 compliant and
such noncompliance can be expected to have a material adverse impact on the
Company's operations.
SAFE HARBOR STATEMENT
Some of the statements in Management's Discussion and Analysis of
Financial Condition and Results of Operations are forward-looking statements.
These statements are based on current expectations that involve a number of
risks and uncertainties which could cause actual results to differ materially
from those projected. These forward-looking statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and the financial statements contained therein which include
information describing factors that could cause actual results to differ
materially from those projected in such forward-looking statements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-----------------
In accordance with the recent amendments to Rule 14a-4 and 14a-5 under the
Securities Exchange Act of 1934, written notice of stockholder proposals
submitted outside the processes of Rule 14a-8 for consideration at the 1999
Annual Meeting of Stockholders must be received by the Company on or before
March 17, 1999, in order to be considered timely for purposes of Rule 14a-4. The
persons designated in the Company's proxy statement shall be granted
discretionary authority to vote with respect to any stockholder proposal of
which the Company does not receive timely notice.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) Exhibits.
--------
3.1 - Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Appendix A (pages A-1 to A-3)
to the Company's Proxy Statement filed April 29, 1996, in respect of
its 1996 Annual Meeting of Stockholders (File No. 1-1363)).
3.2 - Amendment of Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Page 2 to the Company's Proxy
Statement filed April 30, 1997, in respect of its 1997 Annual Meeting
of Stockholders (File No. 1-1363)).
3.3 - Amendment of Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Pages 13 and 14 of the Company's
Proxy Statement filed April 30, 1998, in respect of its 1998 Annual
Meeting of Stockholders (File No. 1-1363)).
3.4 - 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)).
3.5 - 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)).
3.6 - By-Laws Amendment Adopted March 26, 1997 By Unanimous Written Consent
of the Board of Directors, Effective June 19, 1997 (incorporated by
reference to Exhibit 3.5 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997 (File No. 1- 1363)).
4.1 - 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)).
4.2 - First Supplemental Indenture, dated as of November 2, 1995, between
the Companyand United States Trust Company of New York, as Trustee,
relating to the Company's 9-3/4% Senior Notes due 2003 (incorporated
herein by reference to Exhibit 4.15 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1995 (File
No. 1-1363)).
4.3 - Second Supplemental Indenture, dated as of September 24, 1997,
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
(incorporated herein by reference to Exhibit 4.5 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1997 (File No. 1-1363).
4.4 - Indenture, dated as of September 30, 1997, 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, Series B, including the
form of such Notes attached as Exhibit A thereto (incorporated herein
by reference to Exhibit 4.6 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 (File No.
1-1363).
4.5 - Registration Rights Agreement, dated as of September 30, 1997, among
the Company and Morgan Stanley Dean Witter, Jeffries & Company, Inc.
and NationsBanc Capital Markets, Inc. (incorporated herein by
reference to Exhibit 4.7 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 (File No.
1-1363)
4.6 - 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)).
4.7 - Loan Agreement, dated as of June 1, 1994, 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).
4.8 - Credit Agreement, dated as of December 19, 1995, among the Company,
International Mill Service, Inc., the lenders parties thereto,
NationsBank, N.A., as Administrative Agent, and Credit Lyonnais as
Syndication Agent (incorporated herein by reference to Exhibit 4.14
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 1-1363)).
4.9 - First Amendment, dated as of May 15, 1996, to the Credit Agreement,
dated as of December 19, 1995, among the Company, International Mill
Service, Inc., the lenders parties thereto, NationsBank, N.A., as
Administrative Agent, and Credit Lyonnais as Syndication Agent
(incorporated herein by reference to Exhibit 4.15 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1996 (File No. 1-1363)).
4.10 - Second Amendment, dated as of December 23, 1996, to the Credit
Agreement, dated as of December 19, 1995, among the Company,
International Mill Service, Inc., the lenders parties thereto,
NationsBank, N.A., as Administrative Agent, and Credit Lyonnais as
Syndication Agent (incorporated herein by reference to Exhibit 4.13
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-1363)).
4.11 - Third Amendment, dated effective as of June 30, 1997, to the Credit
Agreement, dated as of December 19, 1995, among the Company,
International Mill Service, Inc., the lenders parties hereto,
NationsBank, N.A., as Administrative Agent, and Credit Lyonnais as
Syndication Agent (incorporated herein by reference to Exhibit 4.14
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997 (File No. 1-1363)).
4.12 - Fourth Amendment, dated as of September 23, 1997, to the Credit
Agreement, dated as of December 19, 1995, among the Company,
International Mill Service, Inc., the lenders parties thereto,
NationsBank, N.A., as Administrative Agent, and Credit Lyonnais as
Syndication Agent (incorporated herein by reference to Exhibit 4.18
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997 (File No. 1-1363)).
4.13 - Fifth Amendment, dated as of March 5, 1998, to the Credit Agreement,
dated as of December 19, 1995, among the Company, International Mill
Service, Inc., the lenders parties thereto, NationsBank, N.A., as
Administrative Agent, and Credit Lyonnais as Syndication Agent
(incorporated herein by reference to Exhibit 4.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,1997
(File No. 1-1363)).
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 - Promissory Note of Louis A. Guzzetti, Jr., dated March 31, 1998,
payable to the Company, amending and replacing the Promissory Note
dated March 31, 1993 (incorporated herein by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998 (File No. 1-1363)).
10.3 - Promissory Notes of Aarne Anderson, George E. Fuehrer and Mr.
Guzzetti, dated as of March 31, 1998, payable to the Company,
amending and replacing the Promissory Notes dated April 1, 1993
(incorporated herein by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998 (File No. 1-1363)).
10.4 - 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)).
10.5 - 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)).
10.6 - Amendment, dated August 5, 1993, to the Stock Option Agreement, dated
March 18, 1992, between the Company and Jeffrey G. Miller
(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)).
10.7 - 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)).
10.8 - 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)).
10.9 - EnviroSource, Inc. Stock Option Plan for Non-Affiliated Directors,
dated as of January 1, 1995 (incorporated herein by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-1363)).
10.10 - Supplemental Executive Retirement Plan of the Company, effective
January 1, 1995 (incorporated herein by reference to Exhibit 10.19
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-1363)).
10.11 - Employment Agreement, dated November 5, 1996, between the Company
and Aarne Anderson (incorporated herein by reference to Exhibit 10.12
to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996 (File No. 1-1363)).
10.12 - Employment Agreement, dated November 5, 1996, between the Company
and William B. Davis (incorporated herein by reference to Exhibit
10.13 to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1996 (File No. 1-1363)).
10.13 - Employment Agreement, dated November 5, 1996, between the Company and
James C. Hull (incorporated herein by reference to Exhibit 10.14 to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996 (File No. 1-1363))
10.14 - Stock Purchase Agreement, dated November 26, 1996, by and among
IMCO Recycling Inc., IMSAMET, Inc. and EnviroSource, Inc.
(incorporated herein by reference to Exhibit 10.1 to the
Company's Form 8-K filed January 21, 1997 (File No. 1-1363)).
10.15 - Amendment No. 1, dated as of January 21, 1997, to Stock Purchase
Agreement, dated November 26, 1996, by and among IMCO Recycling Inc.,
IMSAMET, Inc. and EnviroSource, Inc.(incorporated herein by reference
to Exhibit 10.2 to the Company's Form 8-K filed January 21, 1997
(File No. 1-1363))
b) REPORTS ON FORM 8-K.
During the quarter ended September 30, 1998, the Company filed no
current reports on Form 8-K.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1998
ENVIROSOURCE, INC.
By: /s/James C. Hull
----------------
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements included in Envirosource's Form 10-Q for the
quarterly period ended September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,334
<SECURITIES> 0
<RECEIVABLES> 39,841
<ALLOWANCES> 701
<INVENTORY> 0
<CURRENT-ASSETS> 47,980
<PP&E> 302,519
<DEPRECIATION> 155,502
<TOTAL-ASSETS> 408,660
<CURRENT-LIABILITIES> 48,069
<BONDS> 287,982
0
0
<COMMON> 291
<OTHER-SE> 32,919
<TOTAL-LIABILITY-AND-EQUITY> 408,660
<SALES> 0
<TOTAL-REVENUES> 180,252
<CGS> 0
<TOTAL-COSTS> 142,516
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,790
<INCOME-PRETAX> (5,837)
<INCOME-TAX> 881
<INCOME-CONTINUING> (6,718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,718)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
