SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
******************************************************************************
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) DECEMBER 6, 1994
CANONIE ENVIRONMENTAL SERVICES CORP.
(exact name of registrar as specified in its charter)
DELAWARE Number 0-14992 38-2294876
(State or other jurisdiction Commission File (IRS Employer
incorporation or organization) identification No.)
13455 Noel Road, Suite 1500, Dallas, Texas 75240
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 770-1800
<PAGE>
The undersigned hereby amends Item 7, of its Report on Form 8-K, filed December
6, 1994, for the purpose of filing certain exhibits required by such report in
which registrant reported the acquisition of the capital stock of Riedel
Environmental Services, Inc.
Item 7(a). Amendment to include audited consolidated financial statements of
Riedel Environmental Services, Inc. as follows:
Consolidated Balance sheets at December 31,1993 and 1992
Consolidated Statements of Operations for the years ended
December 31, 1993, 1992 and 1991
Consolidated Statement of Shareholders Equity for the years
ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991
Notes to the consolidated Financial Statements
Unaudited Consolidated Financial Statements for the nine
months ended September 30, 1994 and 1993
Item 7 (b). Amendment to include pro forma financial information.
Item 7 (c). Exhibit 23 Consent of Arthur Andersen LLP
Exhibit 23 Consent of Price Waterhouse LLP
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANONIE ENVIRONMENTAL SERVICES CORP.
(Registrant)
By: William T. Campbell
-----------------------------------------
William T. Campbell, Vice-President & Controller
Date: February 3, 1995
<PAGE>
ITEM 7(A)
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993 AND 1992
TOGETHER WITH AUDITORS' REPORT
<PAGE>
Report of Independent Public Accountants
To the Shareholder of
Riedel Environmental Services, Inc.:
We have audited the accompanying consolidated balance sheets of Riedel
Environmental Services, Inc. (an Oregon corporation and a wholly owned
subsidiary of Columbia Western Inc., formerly Riedel Environmental
Technologies Inc.) and its subsidiary as of December 31, 1993 and 1992, and
the related consolidated statements of operations, shareholder's equity and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements 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 financial statements referred to above present fairly,
in all material respects, the financial position of Riedel Environmental
Services, Inc. and its subsidiary as of December 3l, 1993 and 1992 and the
results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Portland, Oregon,
March 25, 1994 (except with respect to the
matters discussed in Note 13 as to which
the date is February 1, 1995)
<PAGE>
Report of Independent Accountants
March 25, 1992
To the Shareholder of
Riedel Environmental Services, Inc.
In our opinion, the accompanying consolidated statements of income, of
shareholder's deficit and of cash flows present fairly, in all material
respects, the results of operations and cash flows of Riedel Environmental
Services, Inc. (a wholly owned subsidiary of Riedel Environmental
Technologies, Inc.) for the year ended December 31, 1991, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Portland, Oregon
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1993 AND 1992
(In thousands)
A S S E T S
-----------
1993 1992
CURRENT ASSETS: ------ ------
Cash $ 405 $ 231
Accounts receivable, net of allowance for doubtful
accounts of $963 in 1993 and $919 in 1992 22,823 19,133
Inventory 905 942
Prepaid expenses and other current assets 477 564
Insurance deposits 3,187 2,934
-------- -------
Total current assets 27,797 23,804
-------- -------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization 6,441 7,339
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED,
net of accumulated amortization of $378 in 1993 and
$324 in 1992 972 1,026
OTHER ASSETS, net 26 110
------- -------
Total assets $35,236 $32,279
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable to bank $ - $ 1,015
Current maturities of long-term debt 698 605
Accounts payable 15,023 13,215
Accrued payroll and related liabilities 3,512 2,531
Accrual for estimated litigation settlement 1,500 807
Other accrued liabilities 1,250 1,045
Advances from Parent, net 2,342 1,621
Parent debt guaranteed by RES 4,549 2,025
------- -------
Total current liabilities 28,874 22,864
------- -------
LONG-TERM DEBT 77 72
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value; 5,000 shares authorized and
issued 307 307
Net allocation of debt and certain expenses from Parent 4,797 3,982
Retained earnings 1,181 5,054
------- -------
Total shareholder's equity 6,285 9,343
------- -------
Total liabilities and shareholder's equity $35,236 $32,279
======= =======
The accompanying notes are an integral part of these balance sheets.
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In thousands)
1993 1992 1991
CONTINUING OPERATIONS: ------- ------- -------
Revenues $76,683 $80,042 $68,091
Direct costs 58,438 60,246 50,983
------- ------- -------
Gross profit 18,245 19,796 17,108
Selling, general and administrative expenses 19,972 16,512 18,068
Restructuring expense 508 - -
------- ------- -------
Operating income (loss) from continuing
operations (2,235) 3,284 (960)
Interest expense (770) (868) (1,300)
Other income (expense), net (868) 92 20
-------- ------- -------
Income (loss) from continuing operations
before income taxes (3,873) 2,508 (2,240)
Income tax provision (benefit) - - -
-------- ------- -------
Income (loss) from continuing operations (3,873) 2,508 (2,240)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued entities - - (375)
Loss from disposal of discontinued entities - - (247)
-------- ------- -------
Loss from discontinued operations - - (622)
-------- ------- --------
NET INCOME (LOSS) $(3,873) $ 2,508 $(2,862)
======== ======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In thousands)
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES: -------- ------- --------
Net income (loss) $(3,873) $ 2,508 $(2,862)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities-
Depreciation and amortization 1,274 1,301 1,955
Allocation of certain expenses from Parent 3,339 3,045 2,962
Loss on disposal of discontinued operations - - 247
Provision for losses on accounts receivable 322 61 579
Loss (gain) on disposal of property, plant
and equipment 1 (43) 14
Write-down of assets to net realizable value 684 - -
Cash provided (used) by current assets and
liabilities:
Accounts receivable (4,012) (6,137) 14,847
Amounts due from affiliates - - 95
Inventory (58) (18) 166
Prepaid expenses and other current 87 (172) 126
Insurance deposits (253) (1,913) (61)
Other assets - - (28)
Accrual for estimated litigation settlement 693 (193) 1,000
Accounts payable, accrued payroll and
related liabilities and other accrued
liabilities 3,785 4,719 (1,568)
------ ------ ------
Net cash provided by operating activities 1,989 3,158 17,472
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and
equipment 5 409 14
Proceeds from sale of assets of discountinued
operations - 1,266 -
Purchase of property, plant and equipment (718) (898) (604)
------- ------- ------
Net cash provided (used) by investing
activities (713) 777 (590)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (reduction) addition to advances from Parent 721 2,530 (15,491)
Proceeds from issuance of debt - 700 -
Principal payments on note payable to bank (1,015) (1,666) -
Principal payments on long-term debt (808) (5,436) (1,380)
------- ------- -------
Net cash used by financing activities (1,102) (3,872) (16,871)
------- ------- --------
NET INCREASE IN CASH 174 63 11
CASH AT BEGINNING OF YEAR 231 168 157
------- ------- -------
CASH AT END OF YEAR $ 405 $ 231 $ 168
======= ======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In thousands)
Net Allocation Total
of Debt and Shareholder's
Common Stock, Certain Expenses Retained Equity
No Par Value From Parent Earnings (Deficit)
------------- --------------- -------- ------------
BALANCE, December 31, 1990 $ 307 $ - $ 5,408 $ 5,715
Net change in allocation
of debt and certain
expenses from Parent - (6,159) - (6,159)
Net loss - - (2,862) (2,862)
---- ------- ------- -------
BALANCE, December 31, 1991 307 (6,159) 2,546 (3,306)
Net change in allocation
of debt and certain
expenses from Parent - 10,141 - 10,141
Net income - - 2,508 2,508
---- ------- ------- -------
BALANCE, December 31, 1992 307 3,982 5,054 9,343
Net change in allocation
of debt and certain
expenses from Parent - 815 - 815
Net loss - - (3,873) (3,873)
---- ------- ------- -------
BALANCE, December 31, 1993 $307 $ 4,797 $ 1,181 $ 6,285
==== ======= ======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
1. BASIS OF PRESENTATION:
---------------------
Consolidation
- - - -------------
The consolidated financial statements include the accounts of Riedel
Environmental Services, Inc. (RES or Company) and its wholly owned
subsidiaries, Western Compliance Services, Inc. and in 1993 World Security
Services Corporation. Western Compliance Services, Inc. was sold in 1992
(see Note 3). All significant intercompany accounts and transactions have
been eliminated. RES was a wholly owned subsidiary of Riedel Environmental
Technologies Inc. On November 15, 1994, Riedel Environmental Technologies
Inc. changed its name to Columbia Western Inc. (CWI or Parent) and entered
into an agreement to sell RES to Canonie Environmental Services Corp. (see
Note 13).
Allocation of Parent Debt
- - - -------------------------
CWI had a line of credit with a bank which was used, among other things, to
fund the working capital needs of RES. The line of credit and amounts
outstanding under it were guaranteed by RES and other CWI subsidiaries and
was secured by substantially all of RES' assets (see Note 13).
As a result of RES' guarantee of the debt, and for the purposes of filing
with the Securities and Exchange Commission effective in fiscal year 1991,
the amounts outstanding on the bank line of credit have been recorded in the
RES consolidated balance sheets under the caption parent debt guaranteed by
RES with a corresponding reduction in shareholder's equity. Amounts
outstanding on the bank line of credit were $4,549,000 and $2,025,000 as of
December 31, 1993 and 1992, respectively. In addition, an allocation of
interest expense of $672,000, $650,000 and $493,000 related to the line of
credit has also been reflected in the accompanying consolidated statements of
operations for the years ended December 31, 1993, 1992 and 1991, respectively
with a corresponding increase in shareholder's equity. The line of credit also
included guarantees by RES of letters of credit (LOC) at December 31, 1993.
The LOC commitments included a letter of credit for $5,117,000 to support
$5,000,000 of CWI 1990 Series One Bonds payable (in July 1994 CWI was relieved
of these bonds pursuant to a legal settlement) and $1,613,000 in LOC's that
were issued to provide security for RES bonding purposes.
Interest on the line of credit was at the bank s prime rate plus 3.5 percent
with a minimum rate in 1993 and 1992 of 10.5 percent and 10.0 percent,
respectively. The interest rate was 10.5 percent at December 31, 1993 and
10.0 percent at December 31, 1992. At December 31, 1991, interest on the line
of credit was at the bank's prime rate plus 1 percent or a rate related to
London Interbank Offered Rate, both subject to a minimum rate of 9.0 percent
(9.0 percent at December 31, 1991).
CWI and, in turn, the Company's serious cash deficiencies created by CWI's
recurring losses in 1993, as well as losses of the Company, caused payables to
CWI and the Company s vendors to be extended, which reduced CWI's and,
therefore, the Company s credit availability and caused its costs of operations
and borrowings to increase. In late December 1993, CWI made its bank aware
that CWI had breached its line of credit agreement through certain over-
<PAGE>
borrowings. In order for the bank to continue the lending relationship at this
critical period, CWI agreed to enter into a process to seek investors or buyers
for RES and/or CWI. Advances of additional credit post-December 1993 were
predicated upon, among other benchmarks, demonstrable progress in both areas.
On January 6, 1994, the bank granted CWI an extension of its credit agreement
through April 1, 1994. Then, on February 28, 1994, the bank, subject to
continued tight restrictions and operational and sale process benchmarks
(primarily for another CWI subsidiary), further extended CWI's limited
borrowing facility until May 31, 1994. The line-of-credit agreement was
further extended to September 30, 1994 and again to November 21, 1994 when the
line of credit expired and was paid off from a portion of the proceeds from the
sale of RES (see Note 13).
Allocation of Certain Expenses from Parent
- - - ------------------------------------------
Also for purposes of filing with the Securities and Exchange Commission and,
in addition to the allocation of interest expense related to the bank line of
credit discussed above, effective January 1, 1991, the accompanying consolidated
financial statements include the allocation of certain expenses incurred by CWI.
These certain expenses consist of officers and employee salaries, insurance,
rent and other expenses which benefit RES. The total amount of other expenses
allocated to RES, on a specific identification basis, and included in selling,
general and administrative expenses, with a corresponding increase to
shareholder's equity, was $2,667,000, $2,395,000 and $2,469,000 for the years
ended December 31, 1993, 1992 and 1991, respectively. Management believes that
the allocation is reasonable. These costs may not be indicative of the costs
which RES would have incurred had it been an independent public company during
these periods.
Transactions With CWI
- - - ---------------------
RES entered into transactions with CWI. These transactions include primarily
cash advances to and from CWI for operating purposes, purchases of equipment
and allocation of certain insurance expenses. RES used an intercompany
account referred to in the accompanying financial statements as advances from
parent, net to record the transactions with CWI. CWI did not charge interest
expense to RES for intercompany transactions.
The average intercompany balances which reflected a net payable to CWI for the
years ended December 31, 1993, 1992 and 1991 were approximately $5,355,000,
$4,376,000 and $11,155,000, respectively.
Reclassification
- - - ----------------
Certain amounts have been reclassified in the accompanying balance sheets from
previously reported balance sheet amounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Inventory
- - - ---------
Inventory consists of supplies which are stated at the lower of cost (first-in,
first-out) or market.
<PAGE>
Property, Plant and Equipment
- - - -----------------------------
Property, plant and equipment are stated at cost less accumulated depreciation
and amortization. Assets under capital lease are recorded at the present value
of future minimum lease payments and are amortized over the period of the lease.
Depreciation is provided on the straight-line method. Depreciation is based on
the following estimated useful lives -
Building and improvements 6 - 31.5 years
Machinery and equipment 2 - 18 years
Excess of Cost Over Fair Value of Net Assets Acquired
- - - -----------------------------------------------------
On December 31, 1986, the Company purchased substantially all of the assets of
Peterson Maritime Services, Inc. for approximately $2.8 million. The excess of
cost over the fair value of net assets acquired of $1,350,000 is being amortized
on the straight-line method over 25 years.
Revenue Recognition for Contracts
- - - ---------------------------------
Revenue from time and material contracts is recognized as the work is performed
at the rates provided in the contracts. Revenue from cost-reimbursement
contracts is recorded as costs are incurred and include estimated earned fees
in the proportion that costs incurred to date bear to total estimated costs.
The fees under certain government contracts may be increased or decreased in
accordance with cost or performance incentive provisions which measure actual
performance against established targets or other criteria. Such incentive fee
awards or penalties are included in revenue at the time RES receives
notification from the customer.
Income Taxes
- - - ------------
The results of operations of the Company are reported for federal and state
income tax purposes in consolidated tax returns filed by CWI. Due to CWI's net
operating loss (NOL) carryforward, no income tax provision, benefit or deferred
income taxes were allocated to RES in 1992 and 1991 as they have been offset by
CWI's NOL. The use of this method in 1992 and 1991 to allocate the income tax
provision/benefit to RES does not result in amounts that are significantly
different from the income tax provision /benefit that would have been recorded
if the Company had accounted for its income taxes on a stand-alone basis. The
Company changed its method of accounting for income taxes effective January 1,
1993 in accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109). Previously, the Company accounted for
income taxes in accordance with Statement of Financial Accounting Standards No.
96, Accounting for Income Taxes (SFAS 96). Under SFAS 109, deferred tax assets
and liabilities are recorded based on the tax effected difference between the
tax basis of assets and liabilities and their carrying amount for financial
reporting purposes, referred to as temporary differences, using enacted
marginal income tax rates.
The Company adopted SFAS 109 on a prospective basis. There was no material
effect on the Company as a result of adopting SFAS 109. In accordance with
SFAS 109 and effective for the year ended December 31, 1993, the Company
accounts for its income taxes on a stand alone basis. No benefit for income
taxes was recorded for the year ended December 31, 1993 since the Company was
in a net operating loss carryforward position.
<PAGE>
In initially adopting SFAS 109, the Company estimated its net deferred tax
asset at $1.6 million. In accordance with SFAS 109, a valuation allowance was
recorded to reduce net deferred tax assets to zero at the date of adoption.
Accordingly, there was no cumulative effect on operations as a result of
adopting SFAS 109.
Consolidated Statements of Cash Flows
- - - -------------------------------------
Supplemental consolidated statements of cash flow information, including
amounts related to discontinued operations in 1992 and 1991, are as follows-
Year Ended December 31,
-----------------------
1993 1992 1991
------ ------ ------
(in thousands)
Cash paid for:
Interest $ 30 $ 221 $ 1,300
Income taxes 14 11 116
Noncash financing and investing activities:
Capital lease assets and obligations incurred 115 231 10
Accounts payable converted to notes payable
or long-term debt 791 813 -
Change in allocation of Parent debt guaranteed
by RES with corresponding increase
(decrease) in shareholder's equity (2,524) 7,096 (9,121)
Transfer of fixed assets to Parent through
advances from Parent - 2,730 -
Certain Expense Items
- - - ---------------------
The accompanying consolidated statement of operations reflects certain expense
items which have been recorded in various expense captions in the statement.
Included in selling, general and administrative expenses is $906,000 for a
change in estimate of the amount required to settle a contract dispute with the
United States Environmental Protection Agency (USEPA) regarding pollution self-
insurance. With this additional charge, $1.5 million was reserved for
settlement at December 31, 1993 (see Notes 10 and 13). Included in other income
(expense), net is a charge of $816,000 related to the Missouri flood of 1993 and
the write off of an investment in a Taiwan joint venture. Restructuring expense
is associated with a restructuring plan being implemented by the Company which
includes estimates of closure costs for certain offices.
3. DISCONTINUED OPERATIONS:
------------------------
Effective December 31, 1991, the Company adopted a plan to dispose of Western
Compliance Services, Inc. which offered services to store and dispose of
hazardous materials. At December 31, 1991, the Company has reported this
business as discontinued operations. Accordingly, the consolidated financial
statements of the Company have been classified to report separately the
operating results of this discontinued operation.
The net assets of the discontinued operation held for sale at December 31, 1991
totaled $1,266,000 and consisted of current assets, property, plant and
equipment, other noncurrent assets and current and noncurrent liabilities.
<PAGE>
Western Compliance Services, Inc. incurred a loss from operations of $375,000
during 1991. The Company sold Western Compliance Services, Inc. in February
1992 and received net proceeds from the sale of approximately $1,266,000 and
incurred a $247,000 loss on operations after the discontinuance date.
4. ACCOUNTS RECEIVABLE:
--------------------
Accounts receivable, net, consist of the following -
December 31,
----------------
1993 1992
------ ------
(in thousands)
United States Government:
Amounts billed $ 2,982 $ 5,260
Recoverable costs and accrued profit on
progress completed - not billed 10,802 6,025
------- -------
13,784 11,285
Commercial customers:
Amounts billed 7,383 5,780
Recoverable costs and accrued profit on
progress completed - not billed 1,656 2,068
------- -------
9,039 7,848
------- -------
$22,823 $19,133
======= =======
Recoverable costs and accrued profit not billed represent revenue recognized on
contracts for which billings have not been presented to customers. For time and
material contracts, which represent the majority of the Company's revenues,
these recoverable costs and accrued profit amounts are approved by a customer
representative each day or at least weekly. The unbilled amounts are normally
billed within 30 days of their accrual. As the on-site approval by the customer
representative represents tacit pre-approval of the billings, the Company
considers these recoverable costs and accrued profit as accounts receivable.
At December 31, 1993 and 1992, RES had contracts with the EPA for Emergency
Response Cleanup Services (ERCS) for the EPA's Zone 4A comprising 15 midwestern
states, and for the EPA's Region 5 comprising 6 states bordering the Great
Lakes. Under the ERCS Contracts, the Company is the prime contractor for
scheduled and emergency removal of hazardous substances. For the years ended
December 31, 1993, 1992 and 1991, revenue from the EPA accounted for
approximately 47 percent, 40 percent and 35 percent, respectively, of total
revenues from continuing operations.
At December 31, 1993 and 1992, accounts receivable are primarily concentrated
with U.S. Government agencies and customers in the petrochemical, transportation
and manufacturing industries. Based upon the Company's established credit
policies, management does not believe there is any undue risk to the Company as
a result of doing business with selected customers in these industries.
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT:
-----------------------------
Property, plant and equipment consist of the following -
December 31,
-----------------
1993 1992
------- -------
(in thousands)
Land and improvements $ 2,090 $ 2,090
Buildings and improvements 2,281 2,578
Machinery and equipment 10,968 10,893
------- -------
15,339 15,561
Less- Accumulated depreciation and amortization (8,898) (8,222)
------- -------
$ 6,441 $ 7,339
======== =======
Substantially all property, plant and equipment was pledged as security on CWI
debt (see Notes 1, 7 and 13).
6. NOTE PAYABLE TO BANK:
---------------------
As of December 31, 1992, the Company had a $1.0 million short-term bank note
used to finance a purchase of an office and warehouse facility. The note was
secured by property and accounts receivable and bore interest at the prime
interest rate plus 3.5 percent with a minimum rate of 10 percent (10 percent
at December 31, 1992). The note was paid off in full in 1993.
7. LONG-TERM DEBT:
---------------
Long-term debt consists of the following -
December 31,
--------------
1993 1992
------ ------
(in thousands)
Note payable, interest at 10%, due June 1994 $ 511 $ 152
Note payable, secured by a building, interest at
at prime plus 3% (9% at December 31, 1993 and
1992) payable through 1994 monthly 117 367
Other, interest at 9.0 % to 12.9%, due 1994 to 1996 147 158
----- -----
775 677
Less current maturities 698 605
----- -----
$ 77 $ 72
===== =====
Maturities on long-term debt subsequent to December 31, 1994, are as follows
(in thousands)-
1995 $ 59
1996 18
Thereafter -
-----
77
=====
<PAGE>
8. LONG-TERM LEASES:
-----------------
The Company has various noncancelable operating leases for land and buildings
and for machinery and equipment. These leases have terms of 1-9 years. Some
leases also have options to renew for an additional five years. Total rent
expense for all operating leases amounted to approximately $1,175,000,
$1,249,000 and $1,222,000 in 1993, 1992 and 1991, respectively.
Minimum future obligations on leases at December 31, 1993 are as follows (in
thousands) -
Operating
Leases
---------
1994 $ 1,068
1995 750
1996 420
1997 76
1998 9
Thereafter 3
-------
Total minimum obligations $ 2,326
=======
9. INCOME TAXES:
-------------
In accordance with SFAS 109, the Company determined that deferred tax assets,
deferred tax liability and valuation allowance as of December 31, 1993 were as
follows (in thousands) -
Deferred tax assets:
Valuation reserves $ 505
Accrual for estimated litigation settlement 600
Payroll-related accruals 972
Net operating loss carryforwards 2,010
Other 143
-------
Deferred tax assets 4,230
Valuation allowance (4,011)
-------
Deferred tax asset, net 219
Deferred tax liability - depreciation (219)
-------
Net deferred tax asset (liability) $ -
=======
In accordance with SFAS 109, a valuation allowance was recorded to reduce the
net deferred tax asset to zero.
10. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company has purchased the maximum limits of pollution liability insurance
available to it on a cost-effective basis in the current insurance marketplace.
However, the insurance may not be sufficient to cover all claims that may arise,
and insurance carriers may not continue to make coverage available to the
Company. As such, the Company is self-insured for a portion of its pollution
liability coverage. A partially or completely uninsured claim, if successful
and if large enough, could have a material adverse effect on the Company. The
Company is not aware of any claim in excess of current insurance coverage.
<PAGE>
The EPA has disputed certain billings by RES for RES' costs of its pollution
liability insurance. These insurance costs, provided on a self-insured basis,
were billed by RES to the EPA as part of negotiated fixed rates on certain of
RES' contracts with the EPA which expired in 1991. RES believes that all
dealings with the EPA under its contracts have been proper and in full
compliance with all applicable rules and regulations. The EPA has estimated the
amounts billed for such self-insurance to the EPA, through the end of the
contracts in 1991, at approximately $3.8 million. RES disagrees with the EPA's
calculation of the amounts billed for self-insured pollution liability and
estimates that costs billed were only $1.9 million. To date, the EPA has not
issued a contracting officer s opinion decision (COD) which is required in order
to effect an EPA claim. A COD would enable the EPA to withhold funds from RES
in the amount specified in the COD. If a COD is issued, RES would appeal and
would initiate procedures allowed by federal regulations to prevent the EPA from
withholding any funds.
In May 1993, the United States Department of Justice (DOJ) filed suit against
RES for failing to provide the EPA full and complete information regarding
insurance availability during EPA contract 7334 negotiations in 1987 - United
States of America v. Riedel Environmental Services, Inc. (United States District
Court for the District of Oregon, Case No. 93-558-JO). The complaint alleges
various claims including fraud and failure to inform the EPA of a 1987 insurance
quote, subsequent purchase of insurance, and failure to reduce rates which were
fixed in the contract. The complaint seeks compensatory damages of $1.5 million
(which are subject to trebling), civil penalties of $10,000 for each of the
hundreds of allegedly false invoices submitted under the contract, as well as
costs and attorney fees. The EPA is RES' largest customer and RES is seeking
resolution to all aspects of this dispute through negotiations with the DOJ and
EPA. In February 1994, RES offered a settlement totaling $1.5 million to the
EPA. In the offer, RES agreed to forego receivables related to indirect cost
rate recovery totaling $900,000 the first year, and to pay the EPA $200,000 in
each of the next three years. The EPA is reviewing the offer and is performing
certain audit procedures. The ultimate outcome of this matter cannot be
determined at the present time. At December 31, 1993, RES has an accrual of
$1.5 million recorded to provide for such settlement or any loss arising from
this matter. (See Note 13 for subsequent event - update of settlement
discussions.)
In November 1991, RES was served with a complaint in the matter of Atlantic
Richfield Company v. Torger L. Oaas et al (United States District Court for the
District of Montana, Civil Action No. CV-90-75-BU-PGH) in which Atlantic
Richfield Company (ARCO) alleges that RES negligently performed certain clean-up
activities at the Montana Pole and Treating Plant Superfund site in Silverbow
County, Montana. RES has filed counterclaims for contribution by ARCO if RES
is found liable to ARCO for any portion of the response costs incurred by ARCO.
This case is now in the discovery phase. The case filed against RES by ARCO
was consolidated with an action filed by the United States against ARCO, and
the consolidated proceedings were trifurcated into three phases involving
(1) the liability of ARCO and other potentially responsible parties to the
United States, (2) the amount of the liability of those parties to the United
States, and (3) the liability of certain parties, including RES, for
contribution to ARCO and other parties potentially responsible to the United
States. The consolidated cases are now in Phase (1). RES may be required to
participate in discovery during Phase (2), but it is expected that RES' active
involvement in the consolidated cases will commence, if at all, only during
Phase (3). The amounts of RES' potential liability to ARCO cannot be determined
until the liability of ARCO, if any, to the United States is determined. RES
has tendered the claim to the EPA under the terms of its contract which requires
<PAGE>
the EPA to indemnify RES for work performed by RES. Management does not believe
the litigation will have a material adverse effect on the Company's financial
position or its results of operations.
In August 1991, RES, on behalf of one of its subcontractors, Vesta, Inc.,
submitted a claim to the EPA in the amount of $1.2 million for work performed
at the Rocky Boy site pursuant to RES' ERCS contract. In November 1991, RES
submitted to the EPA its own claims with respect to the Rocky Boy site in the
total amount of $273,000. The EPA has contended that the work was not done in
full compliance with the contract. On January 3, 1994, the EPA issued a decision
on the Vesta claims, denying substantially all these claims. Vesta appealed the
EPA decision to the Department of Interior Board of Contract Appeals (IBCA) in
the name of RES and is awaiting a final decision. RES' claim is still pending
before the EPA. RES may submit an additional claim to the EPA with respect to
the Rocky Boy site. Management believes that the matter will not have a material
adverse effect on the Company's financial position or its results of operations
(see Note 13 - Subsequent Events).
In February 1992, RES was served with a complaint in U.S. District Court, for
the District of South Dakota in the case Tri-State Mint, Inc. and Robert W. Hoff
v. Riedel Environmental Services, Inc. Tri-State Mint and its owner, Hoff, are
claiming approximately $2.7 million dollars in damages because of RES' allegedly
supplying the State of South Dakota with false test information for the State's
environmental clean-up cost lawsuit against Tri-State Mint. The State settled
its case with Tri-State Mint, with Tri-State Mint paying a fine based on the
site pollution. In March 1993, RES received a summary judgment in its favor in
this matter, however, the judgment has been appealed and the Company is awaiting
a decision. The Company believes it has no liability and that the matter will
not have a material adverse effect on the Company's financial position or its
results of operations.
In 1993, Edward Moore, individually and doing business as Merco (Edward Moore,
etc., et al. v. Riedel Environmental Services, Inc. et al., Los Angeles County
Superior Court Case No. NC 010877) filed a complaint against a number of
defendants, including RES, for alleged improper disposal of contaminated soils,
toxic waste and hazardous materials to plaintiff's property at the Brent
Petroleum site in Long Beach, California. Plaintiff seeks damages in excess of
$5 million. The matter is in the discovery phase. Management does not believe
the litigation will have a material adverse effect on the Company's financial
position or its results of operations.
In November 1993, second amended complaints and initial complaints were filed
in the Circuit Court of the State of Mississippi, County of Jackson, which
included the Company along with a number of other defendants in claims pending
in 27 separate civil actions. These civil actions involve approximately 219
plaintiffs and include two wrongful death claims. Plaintiffs allege that the
Company was negligent in certain transferring and clean-up activities of the
chemical diethylamine, released from an overturned tanker in Jackson County,
Mississippi. The Company rejects every allegation and intends to vigorously
defend itself. The matter is in the discovery phase. Management does not
believe the litigation will have a material adverse effect on the Company's
financial position or its results of operations.
In March 1994, RES received notice from the EPA Office of Inspector General for
Audits (OIG) that it will perform a review to provide an opinion on RES'
financial capability to perform on government contracts. The review will
include an evaluation of RES' existing and future financial capabilities to
continue operations. Management has presented financial analysis and forecasts
<PAGE>
to the OIG, in order to facilitate its review. Management believes that, with
its plans for restructuring, the EPA will continue its contractual relationships
with RES. However, if the OIG concludes that RES is not financially capable of
continuing its operations, and RES' EPA contracts are suspended, revoked or not
renewed, it would have a material adverse effect on the Company's financial
position or its results of operations (see Note 13 - Subsequent Events).
The Company has not received final approval of its indirect cost rates used in
pricing and billing federal contracts for 1986 through 1993. Audit reports
relating to 1986 through 1989 costs have been issued and allowability of certain
costs are being questioned. Based upon review of audit results and advice of
government contracting experts, management does not expect that the final
approved rates will result in any material adverse effect on the Company's
financial position or its results of operations.
In the normal course of business, the Company is involved in various claims,
pending actions and audits of contracts by customers. In the opinion of
management, any recovery or liability resulting from matters now pending would
not have a material adverse effect on the Company's consolidated financial
position or its results of operations.
11. RELATED PARTY TRANSACTIONS:
---------------------------
The Company enters into certain transactions with Willamette-Western Inc. (WW)
and affiliates, whereby RES is charged for facilities, equipment and services.
WW owns a majority of CWI common stock which had been pledged as collateral
against WW's borrowings. These charges totaled approximately $216,000, $876,000
and $872,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
In addition, RES charged WW and affiliates for contract services which totaled
approximately $88,000, $98,000 and $2,099,000 for the years ended December 31,
1993, 1992 and 1991, respectively. RES also charged CWI and CWI's subsidiaries
for contract services which resulted in revenues approximating $277,000, $68,000
and $643,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
Gross profits recognized on these contract services totaled approximately
$45,000, $17,000 and $158,000 for the years ended December 31, 1993, 1992 and
1991, respectively.
12. EMPLOYEE BENEFIT PLANS:
-----------------------
In 1992 and 1991, RES employees were participants in CWI's employee benefit
plans. CWI maintained a profit sharing plan providing for contributions by
CWI's subsidiaries in such amounts as CWI's Board of Directors would annually
determine. There was no charge to operations for the profit sharing plan in
1992 and 1991. CWI also maintained a salary deferral retirement plan which
allowed participants to make contributions to the plan on a pretax salary
reduction basis in accordance with the provisions of Section 401(k) of the
Internal Revenue Code. All employees except those covered by a collective
bargaining agreement are eligible to participate in both plans. Effective
September 30, 1991, the Company amended the salary deferral retirement plan to
no longer require the Company to match 50 percent of employee contributions
(maximum Company contribution was 2.5 percent of employee salaries). The charge
to operations for the salary deferral retirement plan was approximately $145,000
in 1991 (none in 1992).
Effective January 1, 1993, CWI merged its retirement programs for all salaried
and hourly employees of the Company, except those covered by a collective
<PAGE>
bargaining agreement or another benefit plan, into one new plan. Although
technically one plan, the new retirement program has the same features of the
previous plans. There was no charge to operations for this merged plan in 1993.
The Company maintains a salary incentive compensation plan providing for
payments by the Company to salaried employees based on certain Company financial
and individual employee performance factors established on an annual basis. All
salaried employees, excluding plan administrators, are eligible for the plan.
There was no charge to continuing operations for the plan in 1993,1992 and 1991.
13. SUBSEQUENT EVENTS:
------------------
On November 15, 1994, the shareholders of CWI agreed to sell 100 percent of the
stock of RES to Canonie Environmental Services Corp. (Canonie) for $17.5 million
in cash, subject to certain adjustments which could increase or decrease that
amount. Upon consummation of the transaction, a portion of the proceeds were
used to repay amounts outstanding under CWI's bank line-of-credit at which time
all pledges of RES assets and RES guarantees were released by CWI's bank.
On November 18, 1994, RES, Canonie and the United States Department of Justice
(DOJ) entered into a settlement agreement on DOJ's complaint against RES
regarding insurance matters in RES' EPA contract 7334 which expired in 1991.
The resolution of this complaint ends RES' longstanding dispute with respect to
costs that it charged EPA under the contract for the self-insured portion of
pollution liability coverage. The agreement requires RES to pay $2.8 million
to the EPA. $280,000 was paid in November 1994, with the balance plus interest
(at a rate of 7 percent) to be paid in 11 quarterly installments beginning
February 15, 1995 of approximately $235,000, with the balance due November 15,
1997. The agreement allows EPA to offset any monies due RES under contract
7334 against the obligation. The $2.52 million note, guaranteed by Canonie,
requires a second lien on certain real property and fixed assets of RES.
In November 1994, RES reached an agreement on its $273,000 claim against the EPA
for work performed at the Rocky Boy site pursuant to RES EPA contract 7334 which
expired in 1991. RES had also filed a $1.2 million claim against the EPA on
behalf of one of its subcontractors, Vesta,Inc., with the Department of Interior
Board of Contract Appeals. Portions of RES' claim settlement may vary from the
amounts stated in the agreement due to government audits; however, RES expects
the amount, including interest, to be approximately $250,000. This amount is
required to be offset against the $2.52 million note to the EPA discussed above.
On May 11,1994, the EPA Office of Inspector General issued its report concerning
the financial capability of RES (see Note 10). The report concluded that RES
will have difficulty meeting its near-term financial obligations and continue
performing on government contracts without obtaining a commitment for continued
bank financing and obtaining new sources of capital. The report states that RES'
financial condition is not considered favorable in the near-term because of the
impact on RES' financial condition as a result of losses, debts and financial
distress of CWI. At the time the report was issued, CWI had not yet obtained
the extension of its bank line of credit agreement, nor had it completed the
sale of RES to Canonie discussed above. As a result of the review, the Company
is required to regularly update the EPA with respect to its financial status.
EPA continues to award work under its contracts consistent with past practices.
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(UNAUDITED)
9/30/94 9/30/93
------- -------
Revenues $ 49,126 $ 58,090
Direct costs 36,352 43,129
-------- --------
Gross profit 12,774 14,961
Selling, general and administrative expenses 10,985 14,027
------- -------
Earnings before interest, other expense and
income taxes 1,789 934
Interest expense, net 633 497
Other expense, net - 128
------- ------
Income before income taxes 1,156 309
Income tax provision (benefit) - -
------- ------
Net income $ 1,156 $ 309
======= ======
See Accompanying Note
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands)
(UNAUDITED)
Period ended
9/30/94 9/30/93
------- -------
ASSETS
Current assets:
Cash $ 499 $ 378
Accounts receivable, net of allowance for doubtful
accounts of $540 - 1994 and $730 - 1993 18,333 20,061
Inventory 789 1,164
Prepaid expenses and other current assets 277 799
Insurance deposits 2,588 3,358
------- -------
Total current assets 22,486 25,760
Property, plant and equipment, net of accumulated
depreciation and amortization 5,659 6,961
Excess of cost over fair value of net assets
acquired, net of accumulated amortization of
$418 - 1994 and $365 - 1993 932 985
Other assets, net 21 45
------- -------
Total assets $29,098 $33,751
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 140 $ 532
Accounts payable 6,956 10,814
Accrued payroll and related liabilities 3,106 3,887
Accrual for estimated litigation settlement 2,300 687
Other accrued liabilities 922 1,000
Advances from Parent, net 1,556 2,896
Parent debt guaranteed by RES 6,299 5,216
------- -------
Total current liabilities 21,279 25,032
Long-term debt 33 53
Shareholder's equity:
Common stock, no par value; 5,000 shares authorized
and issued 307 307
Net allocation of debt and certain expenses from
Parent 5,141 2,995
Retained earnings 2,338 5,364
------- -------
Total shareholder's equity 7,786 8,666
------- -------
Total liabilities and shareholder's equity $29,098 $33,751
======= =======
See Accompanying Note
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Increase (decrease) to cash
(UNAUDITED)
Period ended
9/30/94 9/30/93
------- -------
Cash flows from operating activities:
Net income $ 1,156 $ 309
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 731 958
Allocation of certain expenses from Parent 2,095 2,205
Provision for losses on accounts receivable 277 2,306
Loss (gain) on disposal of property, plant and
equipment 27 (2)
Write-down of assets to net realizable value - 200
Cash provided (used) by current assets and
liabilities:
Accounts receivable 4,213 (3,234)
Inventory 116 (222)
Prepaid expenses and other current assets 200 (33)
Insurance deposit 599 (424)
Other assets 5 13
Accrual for estimated litigation settlement 1,050 (120)
Accounts payable, accrued payroll and related
liabilities and other accrued liabilities (8,977) (1,090)
-------- --------
Net cash provided by operating activities 1,492 866
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 208 4
Purchase of property, plant and equipment (144) (594)
------- -------
Net cash provided (used) by investing activities 64 (590)
Cash flows from financing activities:
Net addition to (reduction in) advance from Parent (786) 1,239
Principal payments on other note payable to bank - (1,015)
Principal payments on long-term debt (676) (353)
------- -------
Net cash used by financing activities (1,462) (129)
Net increase in cash 94 147
Cash at beginning of period 405 231
------- -------
Cash at end of period $ 499 $ 378
====== ======
See Accompanying Note
<PAGE>
RIEDEL ENVIRONMENTAL SERVICES, INC.
Note to Consolidated Financial Statements
(Unaudited)
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
by Riedel Environmental Services, Inc. (the Company) pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The Company believes the
disclosures made herein are adequate to make the information presented not
misleading. The financial statements reflect all material adjustments which are
all of a normal, recurring nature and, in the opinion of management, necessary
for a fair presentation. These financial statements should be read in
conjunction with the Company's Consolidated Financial Statements for the Years
Ended December 31, 1993, 1992, and 1991 and the Notes to the consolidated
financial statements included therein. The results of operations for the nine-
month period ended September 30, 1994, are not necessarily indicative of the
results for the full fiscal year. For further information concerning commitments
and contingencies and subsequent events, refer to footnotes nos. 10 and 13 in
the audited consolidated financial statements for the years ended December 31,
1993 and 1992.
<PAGE>
ITEM 7 (B)
<PAGE>
Item 7(b) Proforma financial information
<TABLE>
Canonie Environmental Services Corp.
Pro Forma Condensed Consolidated Statement of Operations (Unaudited)
Nine Months Ended NOVEMBER 30, 1994
(In Thousands)
Nine Months
-------------
<CAPTION>
Canonie BCM RES Pro Forma Pro Forma
11/30/94 11/30/94 9/30/94 Adjustments Results
-------- -------- -------- (Note 2) --------
<S> <C> <C> <C> <C> <C>
Revenues $55,071 $39,543 $49,126 ($2,693) (a)(b) $141,047
Cost of revenue 47,914 32,488 36,352 (2,610) (a)(b) 114,144
-------- ------- -------- -------- --------
Gross profit 7,157 7,055 12,774 (83) (a) 26,903
Selling and administrative 5,239 8,532 10,985 (2,661) (c)(d)(e) 22,095
Interest 147 614 633 1,255 (f)(g)(h) 2,649
Goodwill amortization 581 (i) 581
------- ------- -------- -------- --------
Income (loss) before income taxes and
share in unconsolidated affliate 1,771 (2,091) 1,156 742 1,578
Income tax expense (benefit) 354 415 (j) 769
-------- -------- -------- -------- --------
Income (loss) before share in unconsol.
affliate 1,417 (2,091) 1,156 327 809
Share in unconsolidated affliate 489 489
-------- -------- -------- -------- --------
Net income (loss) 1,906 (2,091) 1,156 327 1,298
Less: Preferred stock dividend (5%)
and accretion of preferred stock to
redemption value 87 306 (k) 393
-------- -------- -------- -------- --------
Income applicable to common shares $1,819 ($2,091) $1,156 $21 $905
-------- -------- -------- -------- --------
Weighted average number of common
and common equivalent shares
outstanding 5,832 5,832
Earnings per share $0.31 (l) $0.16
See Accompanying notes
</TABLE>
<PAGE>
Item 7(b). Pro Forma financial information
<TABLE>
CANONIE ENVIRONMENTAL SERVICES CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(UNAUDITED)
Twelve Months Ended FEBRUARY 28, 1994
(In Thousands)
<CAPTION> Pro Forma
Canonie BCM RES Adjustment Pro Forma
2/28/94 12/31/93 12/31/93 (Note 2) Results
------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 59,461 $ 62,117 $ 76,683 $ (3,780)(a) $ 194,481
Cost of revenue 49,492 55,691 58,438 (4,133)(a) 159,488
-------- -------- -------- --------- ---------
Gross profit 9,969 6,426 18,245 353 (a) 34,993
Selling and administrative 12,282 12,629 19,972 (2,535)(c)(d)(e) 42,348
Special charges 4,263 - 508 - 4,771
Interest 412 928 770 1,819(f)(g)(h) 3,929
Other expenses - - 868 868
Goodwill amortization - - - 773(i) 773
-------- -------- -------- -------- ---------
Income (loss) before income taxes and
share in unconsolidated affliate (6,988) (7,131) (3,873) 296 (17,696)
Income tax expense (benefit) 135 (2,645) - 259(j) (2,251)
-------- -------- -------- -------- --------
Income (loss) before share in
unconsolidated affliate (7,123) (4,486) (3,873) 37 (15,445)
Share in unconsolidated affliate (2,876) - - - (2,876)
--------- -------- -------- -------- ---------
Net income (loss) (9,999) (4,486) (3,873) 37 (18,321)
Less: Preferred stock dividend (5%)
and accretion of preferred stock to
redemption value - - - 523(k) 523
--------- --------- --------- ------- ----------
Income applicable to common stock $ (9,999) $ (4,486) $ (3,873) $ (486) $ (18,844)
========= ========= ========= ======= ==========
Weighted average number of common and
common equivalent shares outstanding 5,701 - - - 5,701
Earnings per share $ (1.75) - - (l) - $ (3.31)
See accompanying notes.
</TABLE>
<PAGE>
Item 7 (b) Pro Forma Financial Information (Cont.)
Canonie Environmental Services Corp.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(Dollar Amounts in Thousands)
NOTE 1. GENERAL
Canonie Environmental Services Corp. (The "Company") completed the purchase of
all the outstanding common stock of BCM Engineers, Inc. (BCM) on September 28,
1994 for a total purchase price of approximately $ 13.0 million. Additionally,
the Company purchased from Riedel Environmental Technologies, Inc. all of the
capital stock of Riedel Environmental Services, Inc. ("RES"), an Oregon
corporation on November 21, 1994. The purchase price, paid in cash, was
approximately $19.1 million, subject to verification of balance sheet items to
reflect the final adjusted contract price. The unaudited pro forma condensed
consolidated statement of operations for the nine months ended November 30, 1994
combines the results of operations of the Company and BCM for the nine months
ended November 30, 1994 and the results of operations of RES for the nine months
ended September 30, 1994. The unaudited pro forma condensed consolidated
statement of operations for the twelve months ended February 28, 1994 combines
the results of the Company for the twelve months ended February 28, 1994 and the
results of operations of BCM and RES for the twelve months ended December 31,
1993. Both pro forma statements of operations have been prepared as if the
acquisition had taken place on March 1, 1993.
The pro forma adjustments are based upon available information and upon certain
assumptions that management believes are reasonable in the circumstances. The
unaudited pro forma information does not purport to be indicative of the results
that actually would have occurred if the acquisitions had been made on the date
indicated, or which may be expected to occur in the future by reason of such
acquisition. Further, no effect has been given in the pro forma information for
consolidation cost savings and other synergistic benefits expected to be
realized subsequent to the consummation of the acquisitions and the combining of
the businesses.
The unaudited pro forma information should be read in conjunction with the notes
thereto and the audited condensed consolidated financial statements of the
Company as set forth in its annual Report on Form 10-K for the year ended
February 28, 1994, as well as the Form 10-Q of the Company for the nine months
ended November 30, 1994 and the consolidated financial statements of RES
included herein.
<PAGE>
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
The pro forma adjustments to the historical statements of operations are as
follows:
(a) To eliminate BCM laboratory revenues and operating results. Upon
consummation of the acquisition the BCM laboratory will be recorded
in assets held for sale.
1993 1994
(12 Mos) (9 Mos)
-------- --------
Revenues $ 3,780 $ 2,125
Operating Costs 4,133 2,042
-------- --------
Operating Income (Loss) $ (353) $ 83
========= ========
(b) To eliminate inter-company revenues of $568 in 1994 resulting from a
contract between BCM and RES.
(c) To reverse expenses of $1089 in 1993 and $471 in 1994 incurred in
connection with BCM's ESOP which was terminated as of the date of
acquisition.
(d) To reverse $1806 in 1993 and $2435 in 1994 of settlement costs in
connection with a pre-acquisition claim and allocated SG&A from RES's
parent.
(e) To record depreciation expense of $360 in 1993 and $245 in 1994 related
to adjustments to state fixed assets at estimated fair market value on
the acquisition dates of BCM and Riedel.
(f) To record over the three year term of the loan agreement, amortization of
$481 in 1993 and $361 in 1994, of approximately $400 and $1200 of loan
origination costs incurred in connection with the acquisition of RES and
BCM respectfully.
(g) To record $375 of interest expense in 1993 at approximately 7 1/2% and
$319 of expense in 1994 at approximately 8 1/2% on average long-term
borrowings of approximately $5,000 incurred in connection with the
acquisition of BCM.
(h) To record RES interest expense of $963 in 1993 and $575 in 1994 on various
borrowings aggregating $19.1 million incurred in connection with the
acquisition of RES.
(i) To record $773 in 1993 and $581 in 1994 of amortization of cost in excess
of net assets of business acquired of $23,180 over 30 years in connection
with the acquisition of BCM and RES.
(j) To reflect the tax effect of the above entries, at a 35% effective tax
rate. The tax calculation differs from the calculation used for developing
pro forma information in the company's 10-Q for the quarter ended November
30, 1994 due to certain non-deductible expenses included in the pro forma
statement of operations.
<PAGE>
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT (cont.)
(k) To record $523 in 1993 and $306 in $1994 of preferred stock dividend (5%)
and accretion of preferred stock to redemption value in connection with
the acquisition of BCM.
(l) The earnings per share calculation for 1993 and 1994 exclude the dilutive
impact of the common share equivalents (3,050) underlying the convertible
sub-debt.
<PAGE>
ITEM 7 (C)
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 33-86586) of Canonie
Environmental Services Corp of our report on the financial statements
of Riedel Environmental Services, Inc. dated March 25, 1992 for the
year ended December 31, 1991 appearing in the Current Report on Form
8-K/A of Canonie Environmental Services Corp. dated February 3, 1995.
PRICE WATERHOUSE LLP
February 1, 1995
Portland, Oregon
<PAGE>
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our reports on the financial statements of Riedel
Environmental Services, Inc. for the years ended December 31, 1993 and
1992, included in this Form 8-K/A, into the Company's previously filed
Registration Statement File No. 33-86586.
ARTHUR ANDERSON LLP
Portland, Oregon,
February 1, 1995
<PAGE>
