<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No.3)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 22, 1998
WASTE SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4203626
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
0-25998
(Commission File Number)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
(Address of principal executive offices) (zip code)
(781) 862-3000 Phone
(781) 862-2929 Fax
(Registrant's telephone number, including area code)
This document contains a total of 2 pages.
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On May 22, 1998, Waste Systems International, Inc. ("WSI" or the "Company")
acquired Eagle Recycling, Inc. and Horvath Sanitation, Inc., (collectively,
"Eagle Companies") which are based in Altoona, Pennsylvania pursuant to the
terms of a Stock Purchase Agreement dated March 3, 1998 by and among Bestin
H.S.A., Jacques Khodara and Harry K. Benjamin (collectively the "Shareholders"
or "Sellers") and the Company. The description of the acquisition transaction
set forth herein is qualified it its entirety by the Stock Purchase Agreement.
Pursuant to the Stock Purchase Agreement, the Registrant purchased all of the
outstanding shares of the Eagle Companies for approximately $20.7 million in
cash, stock and the assumption of debt. The acquisition has been accounted for
using the purchase method of accounting.
The transaction includes all of the assets and liabilities relating to the
operation of the Eagle Companies. The acquired assets were used by the
Shareholders in the solid waste collection and recycling business.
Item 7. Financial Statements and Pro Forma Financial Information and Exhibits.
The following consolidated financial statements, pro forma financial information
and exhibits are filed as part of this report:
A. Consolidated Financial Statements for the Eagle Companies.
1. Consolidated Financial Statements for Eagle Recycling Inc.
and Subsidiary as of March 31, 1998 (unaudited).
2. Consolidated Financial Statements for Eagle Recycling Inc.
and Subsidiary as of December 31, 1997 and 1996 (audited).
B. Pro forma financial information.
1. Pro forma Combined Condensed Statement of Operations for the
three months ended March 31, 1998 (unaudited) and Combined
Condensed Balance Sheet as of March 31, 1998 (unaudited).
2. Pro forma Combined Condensed Statement of Operations for the
year ended December 31, 1997 (unaudited).
1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
WASTE SYSTEMS INTERNATIONAL, INC.
Date: August 28, 1998 By: /s/ Philip Strauss
----------------- -------------------
Philip Strauss
Chairman, Chief Executive Officer
and President(Principal Executive
Officer)
Date: August 28, 1998 By: /s/ Bob Rivkin
---------------- ---------------
Bob Rivkin
Executive Vice President -
Acquisitions, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
2
<PAGE>
Item 7. Financial Statements and Pro Forma Financial Information and Exhibits.
Item 7.(A)(1) Consolidated Financial Statements for Eagle Recycling, Inc. and
Subsidiary as of March 31, 1998 (unaudited).
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Condensed Consolidated Financial Statements (Unaudited)
March 31, 1998
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Table of Contents
March 31, 1998
- --------------------------------------------------------------------------------
Page
Condensed Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets (Unaudited).............................2
Consolidated Statements of Income and
Retained Earnings (Unaudited).....................................4
Consolidated Statements of Cash Flows (Unaudited)...................5
Notes to Consolidated Financial Statements (Unaudited)....................6
- --------------------------------------------------------------------------------
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Consolidated Balance Sheets (Unaudited)
March 31, 1998
- --------------------------------------------------------------------------------
Assets 1998
- --------------------------------------------------------------------------------
Current assets:
Cash $221,434
Accounts receivable (less
allowance for doubtful accounts
of $100,000) 510,931
Packaged recycled material 17,173
Deferred income taxes 40,300
- --------------------------------------------------------------------------------
Total current assets 789,838
- --------------------------------------------------------------------------------
Property, plant, and equipment:
Land and garage building 24,873
Equipment and vehicles 2,862,156
Office equipment 34,276
- --------------------------------------------------------------------------------
2,921,305
Less accumulated depreciation (740,573)
- --------------------------------------------------------------------------------
Net property, plant, and equipment 2,180,732
- --------------------------------------------------------------------------------
Other assets:
Goodwill (net of amortization) 2,532,641
Noncompete agreements (net of
amortization) 1,845,184
Organization expense (net of
amortization) 596
- --------------------------------------------------------------------------------
Total other assets 4,378,421
- --------------------------------------------------------------------------------
Total assets $7,348,991
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
2
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Consolidated Balance Sheets (Unaudited), Continued
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 1998
- --------------------------------------------------------------------------------
Current liabilities:
Notes payable $562,896
Accounts payable 244,127
Accrued liabilities 100,987
- --------------------------------------------------------------------------------
Total current liabilities 908,010
- --------------------------------------------------------------------------------
Long-term liabilities:
Deferred income taxes 193,569
Notes payable - net of current portion 5,331,543
Notes payable - stockholders 531,599
Accrued interest - stockholders 30,078
- --------------------------------------------------------------------------------
Total long-term liabilities 6,086,789
- --------------------------------------------------------------------------------
Minority interest 98,816
- --------------------------------------------------------------------------------
Stockholders' equity:
Common stock, authorized 1,000 shares,
without par value, 100 shares issued
and outstanding 10,000
Retained earnings 245,376
- --------------------------------------------------------------------------------
Total stockholders' equity 255,376
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $7,348,991
- --------------------------------------------------------------------------------
3
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Consolidated Statements of Income and Retained Earnings (Unaudited)
Three months ended March 31, 1998
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
Revenues 1,511,400
- --------------------------------------------------------------------------------
Cost of Operations:
Operating expenses 1,013,267
Depreciation and amortization 214,241
- --------------------------------------------------------------------------------
Total cost of operations 1,227,508
- --------------------------------------------------------------------------------
Gross profit 283,792
Selling, general, and administrative expenses 151,452
- --------------------------------------------------------------------------------
Income from operations 132,340
- --------------------------------------------------------------------------------
Other income (expense):
Interest income -
Interest expense 124,615
Gain (loss) on sale of assets -
- --------------------------------------------------------------------------------
Total other income (expense) 124,615
- --------------------------------------------------------------------------------
Income before income tax and minority interest 7,725
- --------------------------------------------------------------------------------
Income tax expense:
Current 2,538
Deferred -
- --------------------------------------------------------------------------------
2,538
- --------------------------------------------------------------------------------
Net income 5,187
Retained earnings, beginning of period 240,189
- --------------------------------------------------------------------------------
Retained earnings, end of period $245,376
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three months ended March 31, 1998
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $5,187
- --------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 214,341
Changes in assets and liabilities:
Increase in accounts receivables (152,907)
Decrease in other current assets 48,592
Decrease in accounts payable (33,333)
Increase in accrued interest 916
Decrease in other current liabilities (23,438)
Increase in deferred taxes -
- --------------------------------------------------------------------------------
Total adjustments 54,171
- --------------------------------------------------------------------------------
Net cash provided by operating activities 59,358
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant, and equipment -
Payments for businesses acquired (2,705,246)
- --------------------------------------------------------------------------------
Net cash used in investing activities (2,705,246)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable 2,903,005
Payments on stockholder loans (220,518)
Payments on notes payable -
- --------------------------------------------------------------------------------
Net cash provided by financing activities 2,682,487
- --------------------------------------------------------------------------------
Net increase in cash 36,599
Cash, beginning of period 184,835
- --------------------------------------------------------------------------------
Cash, end of period $221,434
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
Description of Business
The Company operates a waste hauling service with headquarters in
Altoona, Pennsylvania and customers located exclusively in Altoona and
surrounding areas. The Company is a combination of numerous smaller
companies which have been purchased since June 1992.
Principles of Consolidation
The consolidated financial statements include the financial statements
of Eagle Recycling, Inc. and its 75%-owned operating subsidiary,
Horvath Sanitation, Inc. Significant intercompany balances and
transactions have been eliminated in consolidation.
Interim Financial Statements
The condedsed interim financial statements reflect all adjustments
(which include only normal recurring adjustments), which in the opinion
of management, are necessary to present fairly the financial position
at March 31, 1998, and results of operations for the three months then
ended. The March 31, 1998 financial statements do not reflect any
adjustments to deferred income taxes and minority interest amounts at
December 31, 1997, which adjustments are not material
The results of operations for the period ended March 31, 1998 are not
necessarily indicative of the operating results for a full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(2) Acquisitions
The Company has entered into three asset purchase agreements since
March 31, 1998 with various trash haulers in south central
Pennsylvania. The aggregate purchase price of these asset purchase
agreements was approximately $2,900,000 and were accounted for under
purchase accounting. The assets acquired consisted of vehicles and
equipment, and covenants not to compete. The excess of the purchase
price over the fair value of the acquired assets has been recorded as
goodwill.
(Continued)
6
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(2) Continued
The following pro forma, condensed, combined balance sheet assumes that
three acquisitions occurred at March 31, 1998 and the pro forma,
condensed, combined statements of operations assumes that the 1998
acquisitions occured at the beginning of 1998. In addition, the pro
forma, condensed, combined statements of operations also includes the
effect of acquisitions during the three month period ended March 31,
1998 as if they had occurred at the beginning of 1998. This financial
information does not purport to be indicative of what would have
occured had the acquisitions been made at the beginning of 1998, or of
the results which may occur in the future.
Pro forma Condensed Combined Balance Sheet
(Unaudited)
March 31, 1998
-----------------------------------------------------------------------
Eagle Recycling Acquisitions Pro forma
-----------------------------------------------------------------------
Assets
Current assets: $790,000 - 790,000
Property, plant, and
equipment, net 2,181,000 605,000 2,786,000
Intangible assets 4,378,000 2,295,000 6,673,000
-----------------------------------------------------------------------
Total assets $7,349,000 2,900,000 10,249,000
-----------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities $908,000 - 908,000
Long-term debt 5,863,000 2,900,000 8,763,000
Other noncurrent 322,000 - 322,000
Stockholders' equity 256,000 - 256,000
-----------------------------------------------------------------------
Total liabilities and
stockholders' equity $7,349,000 2,900,000 10,249,000
-----------------------------------------------------------------------
Pro forma Condensed Combined Statement of Operations
(Unaudited)
Three Months Ended March 31, 1998
-----------------------------------------------------------------------
Eagle Recycling Acquisitions Pro forma
-----------------------------------------------------------------------
Revenues $1,511,000 589,000 2,100,000
Operating costs and expenses 1,285,000 246,000 1,531,000
Depreciation and amortization 164,000 528,000 692,000
Interest expense 125,000 190,000 315,000
Net income (63,000) (375,000) (438,000)
-----------------------------------------------------------------------
The pro forma results include amortization of intangibles presented
above and interest expense on debt assumed issued to finance the
purchases.
(Continued)
7
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(3) Change in Company Ownership
The stockholders of Eagle Recycling, Inc. and Horvath Sanitation, Inc.
sold their stock to WSI Pennsylvania Holdings, Inc. on May 22, 1998.
8
<PAGE>
Item 7.(A)(2) Consolidated Financial Statements for Eagle Recycling, Inc. and
Subsidiary as of December 31, 1997 and 1996 (audited).
EAGLE RECYCLING, INC. AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Table of Contents
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
Page
Independent Auditors' Report..............................................1
Consolidated Financial Statements:
Consolidated Balance Sheets.........................................2
Consolidated Statements of Income and Retained Earnings.............4
Consolidated Statements of Cash Flows...............................5
Notes to Consolidated Financial Statements................................6
- --------------------------------------------------------------------------------
<PAGE>
Independent Auditors' Report
Board of Directors
Eagle Recycling, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Eagle Recycling,
Inc. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income and retained earnings, 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 the
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eagle Recycling,
Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
June 5, 1998
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
Assets 1997 1996
- --------------------------------------------------------------------------------
Current assets:
Cash $184,835 148,957
Accounts receivable (less
allowance for doubtful accounts
of $100,000 in 1997 and
$60,000 in 1996) 358,024 269,029
Related party deposit receivable 40,000 30,000
Packaged recycled material 17,173 -
Prepaid expense 8,592 3,544
Deferred income taxes 40,300 24,180
- --------------------------------------------------------------------------------
Total current assets 648,924 475,710
- --------------------------------------------------------------------------------
Property, plant, and equipment:
Land and garage building 24,873 24,873
Equipment and vehicles 1,826,312 1,343,050
Office equipment 29,872 29,269
- --------------------------------------------------------------------------------
1,881,057 1,397,192
Less accumulated depreciation 647,962 449,802
- --------------------------------------------------------------------------------
Net property, plant, and equipment 1,233,095 947,390
- --------------------------------------------------------------------------------
Other assets:
Goodwill (net of amortization) 1,539,517 584,986
Noncompete agreements (net of
amortization) 1,294,471 562,774
Organization expense (net of
amortization) 1,165 3,440
- --------------------------------------------------------------------------------
Total other assets 2,835,153 1,151,200
- --------------------------------------------------------------------------------
Total assets $4,717,172 2,574,300
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
2
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Consolidated Balance Sheets, Continued
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 1997 1996
- --------------------------------------------------------------------------------
Current liabilities:
Notes payable $562,896 202,903
Accounts payable 277,460 203,283
Related party payable 50,000 -
Deferred revenue 44,869 -
Accrued liabilities 29,556 3,253
- --------------------------------------------------------------------------------
Total current liabilities 964,781 409,439
- --------------------------------------------------------------------------------
Long-term liabilities:
Deferred income taxes 193,569 118,454
Notes payable - net of current portion 2,428,538 962,746
Notes payable - stockholders 752,117 817,876
Accrued interest - stockholders 29,162 7,391
- --------------------------------------------------------------------------------
Total long-term liabilities 3,403,386 1,906,467
- --------------------------------------------------------------------------------
Minority interest 98,816 70,370
- --------------------------------------------------------------------------------
Stockholders' equity:
Common stock, authorized 1,000 shares,
without par value, 100 shares issued
and outstanding 10,000 10,000
Retained earnings 240,189 178,024
- --------------------------------------------------------------------------------
Total stockholders' equity 250,189 188,024
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $4,717,172 2,574,300
- --------------------------------------------------------------------------------
3
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Consolidated Statements of Income and Retained Earnings
Years ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Revenues $4,331,740 3,226,175
- --------------------------------------------------------------------------------
Cost of Operations:
Operating expenses 2,750,645 2,169,484
Depreciation and amortization 455,165 299,629
- --------------------------------------------------------------------------------
Total cost of operations 3,205,810 2,469,113
- --------------------------------------------------------------------------------
Gross profit 1,125,930 757,062
Selling, general, and administrative expenses 664,409 498,249
- --------------------------------------------------------------------------------
Income from operations 461,521 258,813
- --------------------------------------------------------------------------------
Other income (expense):
Interest income 2,015 2,736
Interest expense (299,295) (174,466)
Gain (loss) on sale of assets 2,259 (3,913)
- --------------------------------------------------------------------------------
Total other income (expense) (295,021) (175,643)
- --------------------------------------------------------------------------------
Income before income tax and minority interest 166,500 83,170
- --------------------------------------------------------------------------------
Income tax expense:
Current 16,894 17,315
Deferred 58,995 19,744
- --------------------------------------------------------------------------------
75,889 37,059
- --------------------------------------------------------------------------------
Income before minority interest 90,611 46,111
Minority interest in earnings of subsidiary (28,446) (9,948)
- --------------------------------------------------------------------------------
Net income 62,165 36,163
Retained earnings, beginning of year 178,024 141,861
- --------------------------------------------------------------------------------
Retained earnings, end of year $240,189 178,024
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $62,165 36,163
- --------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 455,165 299,629
Provision for doubtful accounts 40,000 60,000
Minority interest in earnings of subsidiary 28,446 9,948
(Gain) loss on sale of equipment (2,259) 3,913
Changes in assets and liabilities:
Increase in accounts receivables (128,995) (84,594)
Increase in other current assets (32,221) (30,544)
Increase in accounts payable 74,177 90,107
Increase (decrease) in accrued interest 21,771 (67,350)
Increase (decrease) in other current
liabilities 121,172 (9,077)
Increase in deferred taxes 58,995 19,744
- --------------------------------------------------------------------------------
Total adjustments 636,251 291,776
- --------------------------------------------------------------------------------
Net cash provided by operating activities 698,416 327,939
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of equipment 28,937 18,800
Purchase of property, plant, and equipment (112,090) (166,290)
Payments for businesses acquired (2,339,411) (541,534)
- --------------------------------------------------------------------------------
Net cash used in investing activities (2,422,564) (689,024)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable 2,162,400 607,985
Payments on stockholder loans (31,553) -
Payments on notes payable (370,821) (185,481)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 1,760,026 422,504
- --------------------------------------------------------------------------------
Net increase in cash 35,878 61,419
Cash, beginning of year 148,957 87,538
- --------------------------------------------------------------------------------
Cash, end of year $184,835 148,957
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
Description of Business
The Company operates a waste hauling service with headquarters in
Altoona, Pennsylvania and customers located exclusively in Altoona and
surrounding areas. The Company is a combination of numerous smaller
companies which have been purchased since June 1992.
Principles of Consolidation
The consolidated financial statements include the financial statements
of Eagle Recycling, Inc. and its 75%-owned operating subsidiary,
Horvath Sanitation, Inc. Significant intercompany balances and
transactions have been eliminated in consolidation. The 25% interest in
Horvath Sanitation, Inc. has been reported as a minority interest in
the Company's consolidated balance sheet, and the related earnings have
been reported as minority interest in earnings of subsidiary on the
consolidated statement of income and retained earnings.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation expense
is computed using the straight-line method over estimated useful lives
between 3 and 7 years, except for building, which is depreciated over
15 years. Salvage value is excluded when calculating depreciation on
certain trucks and containers.
Additions, improvements, and expenditures for maintenance that
significantly extend the useful lives of equipment are capitalized.
Other expenditures for maintenance and repairs are expensed.
When property or equipment is sold or retired, the original cost is
removed from the asset account together with the related accumulated
depreciation. Gains or losses resulting from these transactions are
included in income or expense.
Goodwill and Noncompete Agreements
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, generally 10 to 15 years. Noncompete
agreements entered into in connection with acquired companies are
amortized on a straight-line basis over the noncompete period,
generally 5 to 15 years. The Company reviews its intangibles and other
long-lived assets for impairment when events and circumstances indicate
that the carrying amount of those assets may not be recoverable. The
primary indicators of recoverability are the associated current and
forecasted undiscounted operating cash flows. If the review indicates
that impairment has occurred, the asset will be reduced to its
estimated recoverable value.
(Continued)
6
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Continued
Advertising
Advertising is expensed as incurred.
Revenue
Hauling revenue is recognized during the time period service takes
place. Recycling revenue is recognized when the recyclables are
delivered or packaged for delivery to the recycling vendor. Deferred
revenue on the consolidated balance sheet represents amounts billed
prior to the service period.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(Continued)
7
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidate Financial Statements
- --------------------------------------------------------------------------------
(2) Notes Payable
The Company's long-term debt consists of the following:
<TABLE>
<C> <C>
Balance as of Balance as of
December 31, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------
$765,000 original bank term note payable, proceeds used for business
acquisitions, payable in monthly installments of $15,418 interest and
principal, secured by all Company assets and requiring certain current and
income ratios for which the Company is in compliance or has received
waivers as of December 31, 1997. Variable interest rate (prime
rate plus 1.75%) at December 31, 1997 and 1996 was 10.25% and 10%. $442,383 575,046
$200,000 original bank term note payable, proceeds used for a business
acquisition, payable in monthly installments of $3,251 interest and
principal, secured by all Company assets. Variable interest rate (prime
rate plus 1.0%) at December 31, 1997 and 1996 was 9.5% and 9.25%. 172,598 194,255
$260,000 original bank term note payable, proceeds used for a business
acquisition, payable in monthly installments of $5,414 interest and
principal, secured by all Company assets. Variable interest rate (prime
rate plus 1.0%) at December 31, 1997 and 1996 was 9.5% and 9.25%. 212,110 170,316
$69,000 original bank term note payable, proceeds used for a truck purchase,
payable in monthly installments of $1,465 interest and principal, secured
by the truck purchased. Variable interest rate (prime
rate plus 1.0%) at December 31, 1997 and 1996 was 9.5% and 9.25%. 50,170 62,330
Seller financed note payable used to purchase a garage in 1996 payable in
monthly installments of $350 interest and principal, secured by garage
purchased. Interest rate fixed at 5.8%. 10,205 13,703
Seller financed note payable, used for a business acquisition. - 150,000
Seller financed note payable, used for equipment acquisition. Secured by
equipment purchased. Expected to be paid during 1998. 7,400 -
$152,800 original bank term note payable, proceeds used for a business
acquisition, payable in monthly installments of $3,204 interest and
principal, secured by all Company assets. Variable interest rate
(prime rate plus 1.0%) at December 31, 1997 was 9.5%. 134,193 -
$320,000 original bank term note payable, proceeds used for a business
acquisition, payable in monthly installments of $6,800 interest and
principal, secured by all Company assets. Variable interest rate
(prime rate plus 1.0%) at December 31, 1997 was 9.5%. 282,277 -
(Continued)
8
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(2) Continued
Balance as of Balance as of
December 31, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------
$1,750,000 original bank term note payable, proceeds used for a business
acquisition, payable in monthly installments of $28,726 interest and
principal, secured by all Company assets. Additionally, a security was
pledged as specific collateral by a stockholder. Variable interest rate
(prime rate plus 1.0%) at December 31, 1997 was 9.5%.
The stockholder providing the additional collateral is paid $3,646 a
month for his pledge for as long as the pledge exists. $1,680,098 -
$135,000 unsecured minority interest stockholder notes payable, proceeds used to
start Company and acquire another business, $110,000 has no set repayment
terms with remaining $25,000 payable in monthly installments of $406
interest and principal. Interest fixed at 12%. This debt is subordinated to
bank debt, and bank approval is needed
to amend these notes payable arrangements. 122,257 121,367
$350,000 unsecured stockholder note payable, proceeds used for a business
acquisition, payable in monthly installments of $5,688 interest and
principal. Interest fixed at 12%. 264,936 299,141
$391,000 unsecured stockholder notes payable, proceeds used to start Company and
acquire another business, $366,000 has no set repayment terms with
remaining $25,000 payable in monthly installments of $906 interest and
principal. Interest fixed at 12%. This debt is subordinated to bank debt,
and bank approval is needed to amend
these notes payable arrangements. 364,924 397,367
- -------------------------------------------------------------------------------------------------------------
Total notes payable $ 3,743,551 $1,983,525
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a summary of principal maturities of long-term debt
during the next five years:
1998 $562,896
1999 612,897
2000 628,895
2001 526,084
2002 414,534
-------------------------------------------------------
All bank debt is with one local bank lender.
(Continued)
9
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(3) Line of Credit
The Company has a line of credit agreement with a local bank. The
amount available under the agreement was $31,000 at December 31, 1997.
Interest is due at prime plus 1.5% (10% at December 31, 1997). The
total amount of the line of credit was available at December 31, 1997
and 1996.
(4) Description of Leasing Arrangements
The Company leases its office and garage facilities under month to
month leases. The Company has a $40,000 deposit with a related company
through common ownership with the minority interest stockholder and
pays $3,000 a month for real estate rental. Additionally, the Company
has guaranteed a term note payable amounting to $158,161 at December
31, 1997 related to this property. The payments are $1,891 per month,
principal and interest, and are current at December 31, 1997. The
Company leases five other properties with oral or written month to
month leases and one property with an annual lease with an option to
renew annually. Future minimum lease payments under the noncancelable
operating leases with initial or remaining terms of one year or more
are as follows:
1998 $32,230
1999 and thereafter -
------------------------------------------
(5) Other Assets
Goodwill and noncompete agreements relate to numerous trash hauling
businesses that have been acquired since the Company started in 1992.
While these assets are amortized over estimated useful lives,
management believes that no material impairment of the carrying value
of these assets exists at December 31, 1997.
As of As of
December 31, 1997 December 31, 1996
---------------------- -------------------
Noncompete Noncompete
Goodwill agreements Goodwill agreements
-----------------------------------------------------------------------
Cost $1,683,477 1,667,217 653,476 774,093
Less accumulated
amortization 143,960 372,746 68,490 211,319
-----------------------------------------------------------------------
Net $1,539,517 1,294,471 584,986 562,774
-----------------------------------------------------------------------
(6) Statement of Cash Flows
The Company paid $277,524 and $241,816 for interest and $17,964 and
$21,855 for income taxes (net of refunds) in 1997 and 1996,
respectively.
(Continued)
10
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) Income Taxes
The provision for income taxes consisted of the following:
1997 1996
-----------------------------------------------------------------------
Current:
Federal $9,977 9,257
State 6,917 8,058
-----------------------------------------------------------------------
16,894 17,315
-----------------------------------------------------------------------
Deferred:
Federal 46,405 15,484
State 12,590 4,260
-----------------------------------------------------------------------
58,995 19,744
-----------------------------------------------------------------------
$75,889 37,059
-----------------------------------------------------------------------
The Companies file separate federal and state income tax returns.
The Company's effective income tax rate varies from the federal income
tax computed at the statutory rate of 35% for 1997 and 1996 as a result
of the following items:
1997 1996
-----------------------------------------------------------------------
Federal tax at statutory rate $58,275 29,110
State income tax, net of
federal benefit 12,875 8,130
Expiration of state net
operating loss carryforwards 28,898 -
Change in valuation allowance (18,705) (2,780)
Nondeductible costs 1,051 246
Benefit of graduated tax rates (11,064) (4,201)
Other 4,559 6,554
-----------------------------------------------------------------------
$75,889 37,059
-----------------------------------------------------------------------
The significant components of deferred income tax expense attributable
to income from continuing operations for the years ended December 31,
1997 and 1996 are as follows:
1997 1996
-----------------------------------------------------------------------
Deferred tax expense (exclusive of
the effects of other components
below) $77,700 22,524
Decrease in beginning-of-the-year
balance of the valuation
allowance for deferred tax assets (18,705) (2,780)
-----------------------------------------------------------------------
$58,995 19,744
-----------------------------------------------------------------------
(Continued)
11
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
1997 1996
-----------------------------------------------------------------------
Deferred tax assets
Bad debts $40,300 24,180
Federal net operating loss
carryforwards 18,616 10,738
State net operating loss
carryforwards 2,315 28,898
Other - 8,708
-----------------------------------------------------------------------
Total gross deferred tax assets 61,231 72,524
Less valuation allowance (20,931) (39,636)
-----------------------------------------------------------------------
Total net deferred tax assets 40,300 32,888
-----------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization 188,250 127,162
Other 5,319 -
------------------------------------------------------------------------
Total gross deferred tax liabilities 193,569 127,162
------------------------------------------------------------------------
Net deferred tax liability $(153,269) (94,274)
------------------------------------------------------------------------
The net deferred tax liability is included on the consolidated balance
sheet as follows:
1997 1996
------------------------------------------------------------------------
Current deferred income
tax asset - net $40,300 24,180
Noncurrent deferred income
tax liability - net (193,569) (118,454)
------------------------------------------------------------------------
$(153,269) (94,274)
------------------------------------------------------------------------
The valuation allowance for deferred tax assets as of January 1, 1997
and 1996 was $39,636 and $42,416, respectively. The net change in the
total valuation allowance for the years ended December 31, 1997 and
1996 were decreases of $18,705 and $2,780, respectively. In assessing
the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. In order to fully realize the
deferred tax asset, Eagle Recycling, Inc. will need to generate future
federal taxable income of approximately $55,000 prior to the expiration
of the federal net operating loss carryforwards which expire in 2006
through 2012. Eagle Recycling, Inc. will need to generate future state
taxable income of approximately $23,000 prior to the expiration of the
state net operating loss
(Continued)
12
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) Continued
carryforwards in 2000. Based upon the level of historical taxable
income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these
deductible differences, net of the existing valuation allowances at
December 31, 1997. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
(8) Stockholder Agreements
An agreement was reached by the Company to pay one of the stockholders
$50,000 for consulting services performed during 1997, which is
reported as a related party payable at December 31, 1997 on the
consolidated balance sheet.
A five-year employment agreement exists with an officer/stockholder
beginning September 15, 1997 with provisions for compensation,
termination, and a non-competition arrangement.
Additionally, a stockholders' agreement exists allowing each
stockholder right of first refusal on any stock transfer, permitting
stock transfers and providing procedures for the corporation to sell
its entire business.
(9) Acquisitions
The Company has entered into six asset purchase agreements since
January 1, 1998 with various trash haulers in south central
Pennsylvania. The aggregate purchase price of these asset purchase
agreements was approximately $5,577,000 and were accounted for under
purchase accounting. The assets acquired consisted of vehicles and
equipment, and covenants not to compete. The excess of the purchase
price over the fair value of the acquired assets has been recorded as
goodwill.
The following pro forma, condensed, combined balance sheet assumes that
the 1998 acquisitions occurred at December 31, 1997 and the pro forma,
condensed, combined statement of operations assumes that the 1998
acquisitions occurred at the beginning of 1997. In addition, the pro
forma, condensed, combined statement of operations also includes the
effect of acquisitions during 1997 as if they had occurred at the
beginning of 1997. This financial information does not purport to be
indicative of what would have occurred had the acquisitions been made
at the beginning of 1997, or of the results which may occur in the
future.
(Continued)
13
<PAGE>
EAGLE RECYCLING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) Continued
Pro forma Condensed Combined Balance Sheet
(Unaudited)
December 31, 1997
-------------------------------------------------------------------------
Eagle Recycling Acquisitions Pro forma
-------------------------------------------------------------------------
Assets
Current assets: $648,924 - 648,924
Property, plant, and
equipment, net 1,233,095 1,614,351 2,847,446
Intangible assets 2,835,153 3,963,000 6,798,153
-------------------------------------------------------------------------
Total assets $4,717,172 5,577,351 10,294,523
-------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities $964,781 1,478,851 2,443,632
Long-term debt 3,180,655 4,098,500 7,279,155
Other noncurrent 321,547 - 321,547
Stockholders' equity 250,189 - 250,189
-------------------------------------------------------------------------
Total liabilities and
stockholders' equity $4,717,172 5,577,351 10,294,523
-------------------------------------------------------------------------
Pro forma Condensed Combined Statement of Operations
(Unaudited)
Year ended December 31, 1997
-------------------------------------------------------------------------
Eagle Recycling Acquisitions Pro forma
-------------------------------------------------------------------------
Revenues $4,331,740 4,474,204 8,805,944
Operating costs and expenses 3,515,115 3,173,911 6,689,026
Depreciation and amortization 455,165 899,336 1,354,501
Interest expense 299,295 807,666 1,106,961
Net income 62,165 (406,709) (344,544)
-------------------------------------------------------------------------
Pro forma Condensed Combined Balance Sheet
(Unaudited)
December 31, 1996
-------------------------------------------------------------------------
Eagle Recycling Acquisitions Pro forma
-------------------------------------------------------------------------
Assets
Current assets: $497,510 - 648,924
Property, plant, and
equipment, net 947,390 2,164,714 3,112,104
Intangible assets 1,151,200 6,136,625 7,287,825
-------------------------------------------------------------------------
Total assets $2,574,300 8,301,339 10,875,639
-------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities $409,439 1,478,851 1,888,290
Long-term debt 1,780,622 6,822,488 8,603,110
Other noncurrent 196,215 - 196,215
Stockholders' equity 188,024 - 188,024
-------------------------------------------------------------------------
Total liabilities and
stockholders' equity $2,547,300 8,301,339 10,875,639
-------------------------------------------------------------------------
Pro forma Condensed Combined Statement of Operations
(Unaudited)
Year ended December 31, 1997
-------------------------------------------------------------------------
Eagle Recycling Acquisitions Pro forma
-------------------------------------------------------------------------
Revenues $3,226,175 5,366,085 8,592,260
Operating costs and expenses 2,718,653 3,833,429 6,552,082
Depreciation and amortization 299,629 1,123,389 1,423,018
Interest expense 171,730 934,684 1,106,414
Net income 36,163 (525,417) (489,254)
-------------------------------------------------------------------------
The pro forma results include amortization of intangibles presented
above and interest expense on debt assumed issued to finance the
purchases.
(10) Change in Company Ownership
The stockholders of Eagle Recycling, Inc. and Horvath
Sanitation, Inc. sold their stock to WSI Pennsylvania Holdings, Inc.
on May 22, 1998.
- --------------------------------------------------------------------------------
<PAGE>
Item 7.(B) Financial Statements and Pro Forma Financial Information
and Exhibits.
Pro Forma Combined Condensed Financial Statements as of March 31, 1998 and
December 31, 1997 (Unaudited).
On May 22, 1998, Waste Systems International, Inc. ("WSI" or the "Company")
acquired Eagle Recycling, Inc. and Horvath Sanitation, Inc., (collectively,
"Eagle Companies") which are based in Altoona, Pennsylvania pursuant to the
terms of a Stock Purchase Agreement dated March 3, 1998. Pursuant to the
terms of the Stock Purchase Agreement, WSI purchased all of the outstanding
shares of the Eagle Companies for approximately $20.7 million in cash and the
assumption of debt.
The following unaudited Pro Forma Combined Condensed Financial Statements are
based on historical Consolidated Financial Statements of Waste Systems
International, Inc., ("WSI') and give effect to the acquisition of the Eagle
Companies.
The March 31, 1998 Proforma Combined Condensed Balance Sheet assumes that the
acquisition occurred at March 31, 1998 and the Pro Forma Combined Condensed
Statement of Operations assumes that the acqusition occurred at the beginning of
1998. The December 31, 1997 Pro Forma Combined Condensed Balance Sheet assumes
that the acquisition occurred at December 31, 1997 and the Pro Forma Combined
Condensed Statement of Operations assumes that the acqusition occurred at the
beginning of 1997.
The Pro Forma Financial Data may not be indicative of what the financial
condition of WSI would have been, had the transaction to which such data gives
effect been completed on the date assumed, nor are such data necessarily
indicative of the financial condition of WSI that may exist in the future.
The following unaudited Pro Forma information should be read in conjunction with
the notes thereto, and the consolidated financial statements and notes of WSI
for the three months ended March 31, 1998 included in the Company's March 31,
1998 Form 10Q filing and the year ended December 31, 1997 included in the
Company's December 31, 1997 Form 10K filing, as amended, and the historical
financial statements of the Eagle Companies appearing elsewhere in this filing.
The Eagle Companies Condensed Consolidated Balance Sheet includes the Pro Forma
effects of various transactions. See Note 2 to the Eagle Companies March 31,
1998 Consolidated Financial Statements and Note 9 to the December 31,1997
Consolidated Financial Statements elsewhere in this filing.
<PAGE>
Item 7. (B) (1)
Waste Systems International, Inc.
Pro Forma Combined Condensed Balance Sheet
March 31, 1998
(Unaudited)
<TABLE>
<C> <C> <C> <C>
Waste Systems Eagle Pro forma
International, Companies Adjustments Total
Inc.
---------------------------------------------------------------
Assets:
Cash and equivalents $894,000 $221,000 $39,300,000 (2) $40,415,000
Accounts and notes receivable 1,066,000 511,000 1,577,000
Other current assets 1,536,000 58,000 (40,000)(3) 1,554,000
Property and equipment 14,339,000 2,786,000 17,125,000
Advances and deposits 2,302,000 - (2,200,000)(5) 102,000
Other noncurrent assets 3,741,000 6,673,000 13,065,000(1)(4)(5)23,479,000
---------------------------------------------------------------
Total Assets $23,878,000 $10,249,000 $50,125,000 $84,252,000
===============================================================
Liabilities and stockholders' equity:
Current portion of debt $7,905,000 $563,000 (563,000)(4) $7,905,000
Accounts payable 1,005,000 244,000 1,249,000
Accrued expenses and other current
liabilities 1,507,000 101,000 1,608,000
Long term debt 6,970,000 8,763,000 60,000,000 (2) 66,970,000
(8,763,000)(4)
Other noncurrent liabilities 1,691,000 322,000 (194,000)(3) 1,720,000
(99,000)(3)
Stockholders' equity 4,800,000 256,000 247,000 (3) 4,800,000
(503,000)(1)
----------------------------------------------------------------
Total liabilities and stockholders
equity $23,878,000 $10,249,000 $10,825,000 $84,252,000
================================================================
</TABLE>
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
The Eagle Companies Condensed Consolidated Balance Sheet includes the Pro Forma
effects of various transactions. See Note 2 to the Eagle Companies March 31,
1998 Consolidated Financial Statements elsewhere in this filing.
(1) Reflects the acquisition of the Eagle Companies accounted for using the
purchase method for total consideration of $20,700,000.
The allocation of purchase price was based on preliminary estimated
values and will be subject to final adjustment.
The purchase price was allocated as follows:
Life
----------
Property and equipment $2,800,000 3-10 Years
Covenants not to compete 750,000 3-10 Years
Customer lists 2,200,000 10 Years
Workplace in force 420,000 2 Years
Goodwill 14,530,000 25 Years
-----------
$20,700,000
===========
The entire purchase price of $20,700,000 was assumed to be paid out of long
term borrowing.
(2) Reflects the Company's $60 million Subordinated Debt Offering of which
approximately $20.7 million was used to purchase the Eagle Companies.
(3) Reflects the elimination of deferred tax assets and liabilities and minority
interest of the Eagle Companies as a result of the acquisition by Waste
Systems International, Inc. and its net operating loss carryforward
position.
(4) Reflects the payoff of Eagle Companies outstanding debt.
(5) Reflects a $2.2 million deposit on the acquisition of the Eagle Companies
by WSI.
<PAGE>
Item 7. (B)(1) - Continued
Waste Systems International, Inc.
Pro Forma Combined Condensed Statement of Operations
Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<C> <C> <C> <C> <C>
Waste Systems Eagle Pro forma
International, Companies Combined Adjustments Total
Inc.
-----------------------------------------------------------------------------------
Sales $1,528,000 $2,100,000 $3,628,000 $3,628,000
Costs and expenses 2,070,000 1,413,000 3,483,000 3,483,000
Depreciation and amortization 374,000 692,000 1,066,000 322,000 (1) 1,388,000
Interest expense, net 434,000 315,000 749,000 797,000 (2) 1,546,000
----------------------------------------------------------------------------------
Net income $(1,350,000) $(320,000) $(1,670,000) $1,119,000 $(2,789,000)
==================================================================================
</TABLE>
Notes to Unaudited Pro Forma Combined Condensed Statement of Operations for the
three months ended March 31, 1998
The Eagle Companies Condensed Statement of Operations include the pro forma
effects of various acquisitions. See Note 2 to the March 31, 1998 Eagle
Companies Consolidated Financial Statements elsewhere in this filing.
(1) To reflect the adjustment to depreciation and amortization based on the
valuation of the assets acquired.
(2) To reflect interest expense on the $60 million Subordinated notes of which
approximately $20.7 million was used to purchase the Eagle
Companies, net of a reduction in the Eagle Companies' interest expense
on debt used to finance various acquisitions using WSI's
borrowing rate of 7%.
<PAGE>
Item 7 (B)(2)
<TABLE>
Waste Systems International, Inc.
Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 1997
Unaudited
<C> <C> <C> <C> <C>
Waste Systems Eagle Pro forma
International, Companies Combined Adjustments Total
Inc.
-----------------------------------------------------------------------------------
Sales $3,458,000 $8,806,000 $12,264,000 $12,264,000
Costs and expenses 7,000,000 6,689,000 13,689,000 (28,000)(1) 13,661,000
Depreciation and amortization 692,000 1,355,000 2,047,000 739,000 (2) 2,786,000
Interest expense, net 1,355,000 1,107,000 2,462,000 3,146,000 (3) 5,608,000
----------------------------------------------------------------------------------
Net income $(5,589,000) $(345,000) $(5,934,000) $3,857,000 $(9,791,000)
==================================================================================
</TABLE>
Notes to Unaudited Pro Forma Combined Condensed Statement of Operations for the
Year Ended December 31, 1997 The Eagle Companies operations includes the pro
forma effects of various acquisitions. See note 9 to the Eagle Companies
Consolidated Financial Statements elsewhere in this filing.
(1) To reflect the elimination of the minority interest at Eagle Recycling as a
result of WSI acquiring 100% of the Eagle Companies.
(2) To reflect the adjustment to depreciation and amortization based on the
valuation of the assets acquired.
(3) To reflect interest expense on the $60 million Subordinated notes of which
approximately $20.7 million was used to purchase the Eagle
Companies, net of a reduction in the Eagle Companies' interest expense
on debt used to finance various acquisitions using WSI's
borrowing rate of 7%.