-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ho3NcthalvkOFFlVn7uXEuTm+sTJ2KCAtsgQGw/8O1Nb3Y7oi64+uSIsIJhPmFlZ lskCqWcUTxc7B5rGtiuwpg== 0000950149-99-001622.txt : 19990903 0000950149-99-001622.hdr.sgml : 19990903 ACCESSION NUMBER: 0000950149-99-001622 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990811 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990902 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASTE CONNECTIONS INC/DE CENTRAL INDEX KEY: 0001057058 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 943283464 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-23981 FILM NUMBER: 99704868 BUSINESS ADDRESS: STREET 1: 2260 DOUGLAS BLVD STREET 2: SUITE 280 CITY: ROSEVILLE STATE: CA ZIP: 95661 BUSINESS PHONE: 9167722221 MAIL ADDRESS: STREET 1: 2260 DOUGLAS BLVD STREET 2: SUITE 280 CITY: ROSEVILLE STATE: CA ZIP: 95661 8-K/A 1 CURRENT REPORT DATED AUGUST 11, 1999 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) August 11, 1999 WASTE CONNECTIONS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation) 0-23981 (Commission File Number) 94-3283464 (IRS Employer Identification No.) 2260 Douglas Boulevard, Suite 280, Roseville, California 95661 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (916) 772-2221 Not Applicable (Former name or former address, if changed since last report.) INFORMATION TO BE INCLUDED IN THE REPORT Item 2. Acquisition or Disposition of Assets On August 25, 1999, Waste Connections, Inc. ("WCI") filed a Form 8-K describing the agreement executed on August 11, 1999 pursuant to which International Environmental Industries, Inc., a Nevada corporation ("IEII"), will merge with and into WCI Acquisition Corporation I, a wholly owned subsidiary of WCI. Certain financial statements of IEII and certain pro forma financial data of WCI were not then available and therefore were not included in the August 25, 1999 8-K filing. WCI hereby amends its Form 8-K filed on August 25, 1999, to include the financial statements and pro forma financial information set forth below in Item 7. 2 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Businesses Acquired. INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. Report of PricewaterhouseCoopers LLP, Independent Accountants Combined Balance Sheets of International Environmental Industries, Inc. and Subsidiary and Its Predecessor and JOS Enterprises, Ltd. as of June 30, 1999 (Unaudited), December 31, 1998 and June 30, 1998 and 1997 Combined Statements of Operations of International Environmental Industries, Inc. and Subsidiary and Its Predecessor and JOS Enterprises, Ltd. for the Six Month Period Ended December 31, 1998, Three Month Period Ended June 30, 1998, Nine Month Period Ended March 31, 1998 and the Years Ended June 30, 1997 and 1996 Combined Statements of Operations of International Environmental Industries, Inc. and Subsidiary and Its Precedessor and JOS Enterprises, Ltd. for the Six Month Period Ended June 30, 1999 (Unaudited), Three Month Period Ended June 30, 1998 and Three Month Period Ended March 31, 1998 (Unaudited) Combined Statements of Stockholders' Equity/Partners' Capital (Deficit) of International Environmental Industries, Inc. and Subsidiary and Its Predecessor and JOS Enterprises, Ltd for the Nine Month Period Ended March 31, 1998 and the Years Ended June 30, 1997 and 1996 Combined Statements of Stockholders' Equity/Partners' Capital (Deficit) of International Environmental Industries, Inc. and Subsidiary and Its Predecessor and JOS Enterprises, Ltd for the Six Month Period Ended June 30, 1999 (Unaudited), the Six Month Period Ended December 31, 1998 and the Three Month Period Ended June 30, 1998 Combined Statements of Cash Flows of International Environmental Industries, Inc. and Subsidiary and Its Precedessor and JOS Enterprises, Ltd. for the Six Month Period Ended December 31, 1998, Three Month Period Ended June 30, 1998, Nine Month Period Ended March 31, 1998 and the Years Ended June 30, 1997 and 1996 Combined Statements of Cash Flows of International Environmental Industries, Inc. and Subsidiary and Its Precedessor and JOS Enterprises, Ltd. for the Six Month Period Ended June 30, 1999 (Unaudited), Three Month Period Ended June 30, 1998 and Three Month Period Ended March 31, 1998 (Unaudited) Notes to Combined Financial Statements 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of International Environmental Industries, Inc. In our opinion, the accompanying combined balance sheets and the related combined statements of operations, stockholders' equity/partners' capital (deficit) and of cash flows present fairly, in all material respects, the financial position of International Environmental Industries, Inc. and subsidiary and JOS Enterprises, Ltd. (the "Companies") as of December 31, 1998 and June 30, 1998 and of Rubbish Removal Incorporated and subsidiaries (the "Predecessor") and JOS Enterprises, Ltd. as of June 30, 1997 and the results of the Companies' operations and their cash flows for the six month period ended December 31, 1998 and for the three month period ended June 30, 1998 and the results of the Predecessor's operations and their cash flows for the nine month period ended March 31, 1998 and for the years ended June 30, 1997 and 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Companies' and the Predecessor's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed above. As explained in Note 3 to the accompanying combined financial statements, ownership of the Predecessor was transferred to International Environmental Industries, Inc. in a contribution transaction as of April 2, 1998. The acquisition of the Predecessor minority interest was accounted for as a purchase, and accordingly, the purchase price was allocated to the assets and liabilities of the Predecessor based upon their estimated fair value at April 2, 1998. Accordingly, the combined financial statements of the Companies are not comparable to those of the Predecessor. As discussed in Note 18 to the accompanying combined financial statements, the Companies and its stockholders and partners have entered into an Acquisition Agreement to sell the common stock and partnership interests of the Companies to Waste Connections, Inc. PRICEWATERHOUSECOOPERS LLP Austin, Texas February 26, 1999, except as to Note 18, which is as of August 19, 1999 4 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED BALANCE SHEETS ASSETS
UNAUDITED PREDECESSOR ----------- ----------- JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 1999 1998 1998 1997 ----------- ----------- ----------- ----------- Current assets: Cash and cash equivalents $ 2,489,099 $ 551,614 $ 4,125,818 $ 375,773 Receivables: Trade, net of allowance of $283,668, $251,008, $186,763 and $163,414 3,757,157 3,149,251 3,594,600 4,344,343 Other 204,003 310,071 194,460 116,746 Due from related parties 1,041,481 195,001 97,581 317,723 Due from officers, directors and employees 291,310 190,233 238,006 84,533 Equipment parts, materials and supplies 448,759 518,549 461,874 805,705 Prepaid expenses 641,019 549,763 680,292 312,886 Deferred income taxes 47,398 150,455 150,821 193,504 Current portion of notes receivable 59,260 81,399 283,669 292,726 Assets held for sale -- 1,000,000 -- -- ----------- ----------- ----------- ----------- Total current assets 8,979,486 6,696,336 9,827,121 6,843,939 ----------- ----------- ----------- ----------- Property and equipment, at cost less accumulated amortization and depreciation 32,600,673 35,605,337 34,834,557 22,108,806 ----------- ----------- ----------- ----------- Other assets: Short-term investments, restricted 100,000 100,000 100,000 100,000 Landfill liner, net 1,688,458 1,136,403 1,383,857 1,090,471 Deferred income taxes -- 24,943 -- -- Notes receivable, net of current portion 120,501 24,452 26,950 359,561 Intangible and other, net 22,881,151 23,678,064 23,553,416 5,819,960 ----------- ----------- ----------- ----------- Total other assets 24,790,110 24,963,862 25,064,223 7,369,992 ----------- ----------- ----------- ----------- Total assets $66,370,269 $67,265,535 $69,725,901 $36,322,737 =========== =========== =========== ===========
(Continued) 2 5 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED BALANCE SHEETS, CONTINUED LIABILITIES AND STOCKHOLDERS' EQUITY/ PARTNERS' CAPITAL (DEFICIT)
UNAUDITED PREDECESSOR ------------ ------------ JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 1999 1998 1998 1997 ------------ ------------ ------------ ------------ Current liabilities: Current portion of long-term debt $ 2,585,890 $ 2,560,184 $ 2,965,159 $ 6,855,061 Current portion of related party notes payable -- -- -- 727,905 Accounts payable 1,412,466 1,094,593 1,062,758 1,592,934 Accrued liabilities: Salaries and wages 251,196 847,359 348,236 304,980 Interest 583,183 641,092 29,547 230,412 Taxes other than income taxes 422,155 297,562 272,930 462,209 Due to stockholder 100,663 112,397 154,201 -- Income taxes payable 279,231 484,248 -- 128,646 Other 407,625 258,226 333,971 346,625 ------------ ------------ ------------ ------------ Total current liabilities 6,042,409 6,295,661 5,166,802 10,649,072 Long-term debt, net of current portion 28,674,909 30,287,625 37,434,551 11,794,039 Related party notes payable, net of current portion 2,000,000 2,000,000 2,000,000 1,674,911 Accrued landfill closure and post-closure costs 767,072 672,187 625,853 507,168 Deferred income taxes 157,456 181,086 6,573,472 1,851,726 Minority interest 856,549 926,159 -- -- Commitments and contingencies Stockholders' equity/partners' capital (deficit): International Environmental Industries, Inc.: Common stock, $0.01 par value; 100,000 shares authorized: 25,000 shares issued and outstanding 250 250 250 -- Additional paid-in capital 18,081,970 18,081,970 18,081,970 -- Retained earnings (accumulated deficit) 9,376,959 8,667,338 (110,996) -- Rubbish Removal Incorporated: Common stock, no par value; 1,000,000 shares authorized; 100,000 shares issued and 75,050 shares outstanding -- -- -- 10,000 Additional paid-in capital -- -- -- 9,727 Retained earnings -- -- -- 10,471,891 Treasury stock; 24,950 shares at cost -- -- -- (750,000) JOS Enterprises, Ltd.: Partners' capital (deficit) 412,695 153,259 (46,001) 104,203 ------------ ------------ ------------ ------------ Total stockholders' equity/partners' capital (deficit) 27,871,874 26,902,817 17,925,223 9,845,821 ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity/partners' capital (deficit) $ 66,370,269 $ 67,265,535 $ 69,725,901 $ 36,322,737 ============ ============ ============ ============
The accompanying notes are an integral part of these combined financial statements. 3 6 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED STATEMENTS OF OPERATIONS
PREDECESSOR -------------------------------------------- SIX MONTH THREE MONTH NINE MONTH PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED ------------ ------------ ------------ ---------------------------- DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30, 1998 1998 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ Revenues $ 17,110,127 $ 9,274,347 $ 27,106,270 $ 32,314,667 $ 23,980,912 Cost of operations (10,798,944) (5,366,699) (16,478,370) (18,385,847) (14,989,716) ------------ ------------ ------------ ------------ ------------ Gross profit 6,311,183 3,907,648 10,627,900 13,928,820 8,991,196 Selling, general and administrative expenses (3,779,764) (2,248,263) (6,219,256) (7,073,601) (5,810,983) Non-recurring charges (1,376,760) (654,070) (314,300) -- -- Impairment loss (329,239) -- (26,120) (220,134) (38,264) Landfill management fee income, net 204,183 81,845 230,976 289,644 213,710 ------------ ------------ ------------ ------------ ------------ Income from operations 1,029,603 1,087,160 4,299,200 6,924,729 3,355,659 Interest expense (1,645,420) (1,156,460) (1,370,648) (1,978,074) (1,515,903) Interest income 69,598 141,393 50,871 125,600 77,294 Equipment lease income, net -- -- -- 157,704 383,597 Gain on sale of subsidiaries 4,486,343 -- -- -- -- Other nonoperating income (expense), net 56,321 (52,783) 242,505 (309,593) (60,431) ------------ ------------ ------------ ------------ ------------ Income before income taxes and minority interest 3,996,445 19,310 3,221,928 4,920,366 2,240,216 Income tax benefit (expense) (Notes 2 and 11) 5,509,931 (138,847) (1,196,286) (1,799,337) (792,957) Minority interest in (income) loss of subsidiaries (466,282) -- -- -- -- ------------ ------------ ------------ ------------ ------------ Net income (loss) $ 9,040,094 $ (119,537) $ 2,025,642 $ 3,121,029 $ 1,447,259 ============ ============ ============ ============ ============
(Continued) 4 7 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED STATEMENTS OF OPERATIONS, CONTINUED
PREDECESSOR ------------------------------ UNAUDITED UNAUDITED ------------- -------------- SIX MONTH THREE MONTH THREE MONTH PERIOD ENDED PERIOD ENDED PERIOD ENDED ------------- ------------- -------------- JUNE 30, 1999 JUNE 30, 1998 MARCH 31, 1998 ------------- ------------- -------------- Revenues $ 16,795,658 $ 9,274,347 $ 9,477,420 Cost of operations (10,104,187) (5,366,699) (6,042,405) ------------ ------------ ------------ Gross profit 6,691,471 3,907,648 3,435,015 Selling, general and administrative expenses (3,530,969) (2,248,263) (2,232,160) Non-recurring charges -- (654,070) (314,300) Impairment loss (47,274) -- -- Landfill management fee income, net 108,616 81,845 84,308 ------------ ------------ ------------ Income from operations 3,221,844 1,087,160 972,863 Interest expense (1,509,879) (1,156,460) (311,253) Interest income -- 141,393 13,740 Other nonoperating income (expense), net (327,220) (52,783) 309,532 ------------ ------------ ------------ Income before income taxes and minority interest 1,384,745 19,310 984,882 Income tax benefit (expense) (Notes 2 and 11) 193,304 (138,847) (477,466) Minority interest in (income) loss of subsidiaries 141,008 -- -- ------------ ------------ ------------ Net income (loss) $ 1,719,057 $ (119,537) $ 507,416 ============ ============ ============
The accompanying notes are an integral part of these combined financial statements. 5 8 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
COMMON STOCK ---------------------------- ADDITIONAL PAR PAID-IN RETAINED TREASURY VALUE CAPITAL EARNINGS STOCK ------------ ------------ ------------ ------------ PREDECESSOR: Balances, June 30, 1995 $ 10,000 $ 9,727 $ 6,461,791 $ (750,000) Net income -- -- 1,217,199 -- Increase in due from stockholders -- -- -- -- ------------ ------------ ------------ ------------ Balances, June 30, 1996 10,000 9,727 7,678,990 (750,000) Net income -- -- 2,792,901 -- Decrease in due from stockholders -- -- -- -- Distributions -- -- -- -- ------------ ------------ ------------ ------------ Balances, June 30, 1997 10,000 9,727 10,471,891 (750,000) Net income for the nine month period ended March 31, 1998 -- -- 1,862,751 -- Distributions -- -- -- -- ------------ ------------ ------------ ------------ Balances, March 31, 1998 $ 10,000 $ 9,727 $ 12,334,642 $ (750,000) ============ ============ ============ ============
TOTAL JOS STOCKHOLDERS' PARTNERS' EQUITY/ PARTNERS' DUE FROM CAPITAL/ CAPITAL STOCKHOLDERS (DEFICIT) (DEFICIT) ------------ ------------ ------------ PREDECESSOR: Balances, June 30, 1995 $ -- $ (418,790) $ 5,312,728 Net income -- 230,060 1,447,259 Increase in due from stockholders (465,000) -- (465,000) ------------ ------------ ------------ Balances, June 30, 1996 (465,000) (188,730) 6,294,987 Net income -- 328,128 3,121,029 Decrease in due from stockholders 465,000 -- 465,000 Distributions -- (35,195) (35,195) ------------ ------------ ------------ Balances, June 30, 1997 -- 104,203 9,845,821 Net income for the nine month period ended March 31, 1998 -- 162,891 2,025,642 Distributions -- (155,556) (155,556) ------------ ------------ ------------ Balances, March 31, 1998 $ -- $ 111,538 $ 11,715,907 ============ ============ ============
(Continued) 6 9 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT), CONTINUED
COMMON STOCK ---------------------------- RETAINED ADDITIONAL EARNINGS/ PAR PAID-IN (ACCUMULATED TREASURY VALUE CAPITAL DEFICIT) STOCK ------------ ------------ ------------ ---------- SUCCESSOR: JOS ENTERPRISES, LTD.: Balances, March 31, 1998 $ -- $ -- $ -- $ -- INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.: Issuance of common stock 250 18,081,970 -- -- Net loss for the three month period ended June 30, 1998 -- -- (110,996) -- Contributions -- -- -- -- Distributions -- -- -- -- ------------ ------------ ------------ ---------- Balances, June 30, 1998 250 18,081,970 (110,996) -- Net income for the six month period ended December 31, 1998 -- -- 8,840,834 -- Distributions -- -- (62,500) -- ------------ ------------ ------------ ---------- Balances, December 31, 1998 250 18,081,970 8,667,338 -- UNAUDITED Net income for the six month period ended June 30, 1999 -- -- 1,459,621 -- Distributions -- -- (750,000) -- ------------ ------------ ------------ ---------- Balances, June 30, 1999 $ 250 $ 18,081,970 $ 9,376,959 $ -- ============ ============ ============ ==========
JOS TOTAL PARTNERS' STOCKHOLDERS' DUE FROM CAPITAL/ EQUITY/ PARTNERS' STOCKHOLDERS (DEFICIT) CAPITAL (DEFICIT) ------------ ------------ ------------ JOS ENTERPRISES, LTD.: Balances, March 31, 1998 $ -- $ 111,538 $ 111,538 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC.: Issuance of common stock -- -- 18,082,220 Net loss for the three month period ended June 30, 1998 -- (8,541) (119,537) Contributions -- 186,000 186,000 Distributions -- (334,998) (334,998) ------------ ------------ ------------ Balances, June 30, 1998 -- (46,001) 17,925,223 Net income for the six month period ended December 31, 1998 -- 199,260 9,040,094 Distributions -- -- (62,500) ------------ ------------ ------------ Balances, December 31, 1998 -- 153,259 26,902,817 UNAUDITED Net income for the six month period ended June 30, 1999 -- 259,436 1,719,057 Distributions -- -- (750,000) ------------ ------------ ------------ Balances, June 30, 1999 $ -- $ 412,695 $ 27,871,874 ============ ============ ============
The accompanying notes are an integral part of these combined financial statements. 7 10 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED STATEMENTS OF CASH FLOWS
PREDECESSOR --------------------------------------- SIX MONTH THREE MONTH NINE MONTH PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED ----------- ----------- ----------- ------------------------- DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30, 1998 1998 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Operating activities: Net income (loss) $ 9,040,094 $ (119,537) $ 2,025,642 $ 3,121,029 $ 1,447,259 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization 860,495 790,643 741,700 459,479 306,536 Depreciation 1,727,200 819,932 2,197,092 2,452,144 1,978,321 Deferred income taxes (6,416,963) 165,345 322,084 371,792 153,288 Minority interest 466,282 -- -- -- -- Non-cash compensation 459,877 -- -- -- -- Gain on sale of subsidiaries (4,486,343) -- -- -- -- Loss on disposal of equipment 18,321 113,983 111,809 112,854 4,642 Loss on asset impairment 329,239 -- 26,120 220,134 38,264 Write-off of long-term investment -- -- -- 113,850 -- Changes in operating assets and liabilities: Trade receivables, net 571,436 (77,983) 851,693 (1,447,138) (280,833) Income taxes receivable -- -- -- 97,994 241,181 Other receivables (115,611) 99,525 (41,543) 94,217 (45,874) Due from officers, directors and employees 47,773 (260,793) (75,174) 45,795 (30,995) Equipment parts, materials and supplies (121,729) 141,834 201,997 (98,036) (362,948) Prepaid expenses 190,166 (283,068) (141,716) 166,699 (46,603) Other current assets -- -- -- 15,696 18,250 Due from related parties (97,420) 47,124 173,018 180,183 (76,741) Accounts payable 31,835 (1,075,995) 575,186 7,993 348,781 Accrued salaries and wages 499,123 193,833 (51,382) (3,063) 150,211 Accrued interest 611,545 (71,512) (129,353) 135,125 12,866 Accrued taxes other than income taxes 24,632 19,286 (254,380) 71,706 199,046 Due to related parties (41,804) 171,688 3,517 -- (38,116) Income taxes payable 484,248 (208,384) 79,738 128,646 -- Other liabilities (75,745) (199,203) 36,014 145,314 (30,313) Accrued landfill closure and post-closure costs 46,334 29,099 89,586 78,550 (8,032) ----------- ----------- ----------- ----------- ----------- Net cash provided by operating activities 4,052,985 295,817 6,741,648 6,470,963 3,978,190 ----------- ----------- ----------- ----------- -----------
(Continued) 8 11 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED STATEMENTS OF CASH FLOWS, CONTINUED
PREDECESSOR ------------------------------------------ SIX MONTH THREE MONTH NINE MONTH PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED ------------ ------------ ------------ --------------------------- DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30, 1998 1998 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ Investing activities: Purchase of property and equipment (3,332,728) (381,524) (3,166,194) (5,505,147) (5,045,215) Acquisitions, less cash acquired (2,596,731) -- (478,958) (3,061,963) -- Purchase of landfill liner -- (2,555) (733,426) (668,292) (312,509) Proceeds from disposal of subsidiaries 5,850,000 -- -- -- -- Proceeds from disposal of equipment 95,045 74,337 663,335 886,616 13,200 Purchase of equipment on operating lease -- -- -- -- (121,312) Maturity of short-term investments -- -- -- -- 10,000 Advances to stockholders -- -- -- -- (275,000) Collection of notes receivable 204,768 25,327 316,341 15,913 200,818 Issuance of notes receivable -- -- -- (203,200) -- Purchase of intangible and other assets (64,428) (95,238) (449,382) (1,274,279) (1,530,955) Proceeds from sale of other assets -- -- 11,480 -- -- ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities 155,926 (379,653) (3,836,804) (9,810,352) (7,060,973) ------------ ------------ ------------ ------------ ------------ Financing activities: Proceeds from borrowings -- 42,174,915 115,291 13,695,100 16,295,775 Principal repayments of borrowings (7,720,615) (37,522,263) (2,063,149) (10,748,584) (12,714,251) Payment of deferred loan costs -- (1,471,203) -- -- -- Contributions -- 186,000 -- -- -- Distributions (62,500) (334,998) (155,556) (35,195) -- ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities (7,783,115) 3,032,451 (2,103,414) 2,911,321 3,581,524 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (3,574,204) 2,948,615 801,430 (428,068) 498,741 Cash and cash equivalents, beginning of period 4,125,818 1,177,203 375,773 803,841 305,100 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents, end of period $ 551,614 $ 4,125,818 $ 1,177,203 $ 375,773 $ 803,841 ============ ============ ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 970,273 $ 1,388,519 $ 1,558,879 $ 1,842,949 $ 1,503,037 ============ ============ ============ ============ ============ Income taxes $ -- $ 250,000 $ 765,000 $ 1,572,697 $ 551,776 ============ ============ ============ ============ ============
(Continued) 9 12 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED STATEMENTS OF CASH FLOWS, CONTINUED
PREDECESSOR ----------------------------------------- SIX MONTH THREE MONTH NINE MONTH PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED ------------- ------------ ------------ -------------------------- DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30, 1998 1998 1998 1997 1996 ------------- ------------ ------------ ----------- ------------ Noncash financing and investing activities: Reclassification of due from stockholders to long-term notes receivable $ -- $ -- $ -- $ 465,000 $ -- ============== ============= ============ ============ ============ Additions to property and equipment financed by notes payable $ 189,000 $ 143,000 $ -- $ 170,000 $ 403,231 ============== ============= ============ ============ ============ Reclassification of property and equipment to landfill liner and equipment under operating lease $ -- $ -- $ -- $ 562,049 $ -- ============== ============= ============ ============ ============ Additions to prepaid expenses financed by notes payable $ 72,000 $ -- $ -- $ -- $ -- ============== ============= ============ ============ ============ Additions to intangible and other assets financed by notes payable $ 31,500 $ -- $ -- $ -- $ -- ============== ============= ============ ============ ============ Additions to other assets by related party receivables $ -- $ 175,943 $ -- $ -- $ -- ============== ============= ============ ============ ============ Additions to property and equipment financed by accounts payable $ -- $ -- $ -- $ -- $ 135,537 ============== ============= ============ ============ ============ Additions to property and equipment by related party receivables $ -- $ -- $ -- $ -- $ 97,740 ============== ============= ============ ============ ============ Reclassification of due from stockholders $ -- $ -- $ -- $ -- $ 190,000 ============== ============= ============ ============ ============
(Continued) 10 13 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED STATEMENTS OF CASH FLOWS, CONTINUED
PREDECESSOR ------------------------------- UNAUDITED UNAUDITED ------------ ------------------------------- SIX MONTH THREE MONTH THREE MONTH PERIOD ENDED PERIOD ENDED PERIOD ENDED ------------ ------------ ------------ JUNE 30, JUNE 30, MARCH 31, 1999 1998 1998 ------------ ------------ ------------ Net cash provided by operating activities $ 3,676,136 $ 295,817 $ 2,275,314 ------------ ------------ ------------ Investing activities: Purchase of property and equipment (577,731) (381,524) (276,941) Purchase of landfill liner -- (2,555) (838,157) Proceeds from sale of assets 1,250,000 74,337 -- Advances to stockholders -- -- -- Collection of notes receivable 115,568 25,327 29,490 Issuance of notes receivable (189,478) -- -- Purchase of intangible and other assets -- (95,238) -- ------------ ------------ ------------ Net cash provided by (used in) investing activities 598,359 (379,653) (1,085,608) ------------ ------------ ------------ Financing activities: Proceeds from borrowings 929,909 42,174,915 -- Principal repayments of borrowings (2,516,919) (37,522,263) (1,696,812) Payment of deferred loan costs -- (1,471,203) -- Contributions -- 186,000 -- Distributions (750,000) (334,998) (27,800) ------------ ------------ ------------ Net cash provided by (used in) financing activities (2,337,010) 3,032,451 (1,724,612) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 1,937,485 2,948,615 (534,906) Cash and cash equivalents, beginning of period 551,614 1,177,203 1,712,109 ------------ ------------ ------------ Cash and cash equivalents, end of period $ 2,489,099 $ 4,125,818 $ 1,177,203 ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,567,808 $ 1,388,519 $ 537,289 ============ ============ ============ Income taxes $ -- $ 250,000 $ -- ============ ============ ============
(Continued) 11 14 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- COMBINED STATEMENTS OF CASH FLOWS, CONTINUED
PREDECESSOR ---------------------------------- UNAUDITED UNAUDITED ------------------------------------------------------ SIX MONTH THREE MONTH THREE MONTH PERIOD ENDED PERIOD ENDED PERIOD ENDED ----------------- ---------------- --------------- JUNE 30, JUNE 30, MARCH 31, 1999 1998 1998 ----------------- ---------------- --------------- Noncash financing and investing activities: Additions to property and equipment financed by notes payable $ -- $ 143,000 $ -- ================= ================ =============== Additions to other assets financed by related party receivables $ -- $ 175,943 $ -- ================= ================ =============== Additions to property and equipment financed by accounts payable $ 18,778 $ -- $ -- ================= ================ ===============
The accompanying notes are an integral part of these combined financial statements. 12 15 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 1. NATURE OF OPERATIONS International Environmental Industries, Inc. ("IEII") was incorporated under the laws of Nevada on February 18, 1998. IEII's wholly-owned subsidiary, Rubbish Removal Incorporated and subsidiaries ("RRI") is a diversified services company, which provides commercial and medical solid waste collection and disposal and recycling services primarily to private sector customers and manages two landfills. RRI also owns and operates a solid waste landfill located in southern New Mexico, with approximately 475 permitted acres and total available permitted disposal capacity of approximately 7.3 million in-place cubic yards. As of June 30, 1999 and December 31, 1998, RRI provides collection service to over 15,000 commercial, industrial and residential customers, primarily in west Texas and southern New Mexico. Rubbish Removal Incorporated's subsidiaries include El Paso Disposal, Inc. ("EPD"), Camino Real Environmental Center, Inc., Medical Compliance Services, Inc. (a Texas corporation), Medical Compliance Services, Inc. (a New Mexico corporation), Medical Technologies, Inc. and Southwest Disposal Corporation. JOS Enterprises, Ltd. ("JOS") is a Texas partnership whose purpose is to acquire, own, lease and manage real estate properties and to engage in other related activities. As of June 30, 1999 and December 31, 1998, substantially all of JOS' real estate holdings are being leased to RRI. IEII, RRI and JOS are collectively referred to as the "Companies" in these notes to combined financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation/Combination The combined financial statements as of June 30, 1999, December 31 and June 30, 1998 and for the six month periods ended June 30, 1999 and December 31, 1998 and for the three month period ended June 30, 1998 include the combined accounts of IEII and its wholly-owned direct and indirect subsidiaries, RRI, since April 1, 1998 (the date of the RRI contribution for financial reporting purposes - see Note 3) and JOS. JOS is an entity under common control with IEII and the majority of its assets are used in the operations of IEII and subsidiary. IEII had no substantive operations until the contribution of RRI and RRI is considered IEII's predecessor for financial reporting purposes. The accompanying combined financial statements as of June 30, 1997 and for the nine month period ended March 31, 1998, and for the years ended June 30, 1997 and 1996 include the results of operations of RRI and JOS. The results of operations of RRI prior to the contribution to IEII have not been adjusted to give effect to the RRI contribution. All intercompany accounts and transactions have been eliminated in consolidation and combination. In the opinion of management of the Companies, the accompanying unaudited interim financial statements as of June 30, 1999 and for the six month period then ended and for the three month period ended March 31, 1998 contain all adjustments necessary to present fairly the financial position of the Companies at June 30, 1999, the results of operations, changes in stockholders' equity/partners' capital and cash flows for the six months ended June 30, 1999 and the three months ended March 31, 1998. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full calendar year. Certain amounts in the June 30, 1998, March 31, 1998 and June 30, 1997 and 1996 financial statements have been reclassified to conform to the current presentation. 13 16 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Use of Estimates in the Preparation of Financial Statements 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 disclosures 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. Concentration of Credit Risk Financial instruments which potentially subject the Companies to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts and notes receivable. Cash deposits are primarily maintained with five banks located in El Paso, Texas and Albuquerque and Las Cruces, New Mexico. Accounts receivable are not collateralized, however, the risk is limited due to the large number of entities comprising the Companies' customer base. The majority of notes receivable are collateralized by real property, vehicles and financial instruments. Uncollateralized notes receivable are closely monitored by management. Fair Value of Financial Instruments Statement of Financial Accounting Standards ("SFAS") 107, "Disclosure About Fair Value of Financial Instruments", requires certain disclosures regarding the fair value of financial instruments. Cash and cash equivalents, receivables, accounts payable, accrued liabilities and amounts due to and from related parties are reflected in the accompanying financial statements at fair value because of the short-term maturity of these instruments. The fair value of long-term debt closely approximates its carrying value as the annual interest rates charged by the lender were renegotiated by the Companies near the balance sheet dates. Long-lived Assets In accordance with SFAS 121, long-lived assets held and used by the Companies are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows of the individual subsidiaries and consolidated/combined undiscounted net cash flows for long-lived assets not identifiable to individual subsidiaries. Cash and Cash Equivalents For the purpose of reporting cash flows, cash and cash equivalents consist of deposits with banks which are unrestricted as to withdrawal or use and all highly liquid investments purchased with original maturities of three months or less. Cash equivalents consisted of short-term savings and repurchase agreements at June 30, 1999, December 31 and June 30, 1998. 14 17 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Equipment Parts, Materials and Supplies Equipment parts, materials and supplies are valued under a method which approximates the lower of cost (first-in, first-out method) or market. Property and Equipment Property and equipment is stated at cost less accumulated depreciation. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred, and amounted to approximately $1,383,000, $1,890,000, $887,000, $1,953,000, $2,272,000 and $1,299,470 for the periods ended June 30, 1999, December 31, June 30 and March 31, 1998 and for the years ended June 30, 1997 and 1996, respectively. Those expenditures which improve or extend the lives of existing assets are capitalized. Upon the sale or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is reflected in operations. Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives which are as follows:
Years ----- Equipment 3-15 Vehicles 5-10 Furniture and office equipment 5-12 Buildings and leasehold improvements 15-40
The landfill land is stated at cost less accumulated amortization. The cost of the landfill land is amortized based on capacity utilized to date as a percentage of capacity available (approximately 12 and 11 percent utilized as of June 30, 1999 and December 31, 1998, respectively). Landfill Liner The cost of each liner used in the landfill is amortized based on actual gate yards of waste placed in the liner during the period as a percentage of estimated liner capacity. Intangible and Other Assets The excess of cost over fair value of net assets of acquired businesses (goodwill) is amortized using the straight-line method over periods generally not exceeding 25 years. The cost of obtaining licenses and permits to operate, including related legal and engineering costs, is amortized over the lives of the licenses and permits, ranging between 5 and 10 years. Deferred costs of obtaining long-term financing are amortized over the related term of the debt using the effective interest method. Minority Interest Minority interest represents the Companies' minority owner's proportionate share of the stockholders' equity of Medical Technologies, Inc. at June 30, 1999 and of Medical Compliance Services, Inc. Texas and New Mexico at December 31, 1998. 15 18 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Income Taxes IEII and its subsidiary file a consolidated Federal income tax return. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is comprised of the federal and state tax payable for the period, including the income portion of Texas franchise tax, and the change during the period in deferred tax assets and liabilities. Income tax expenses and benefits are allocated from IEII to RRI and its subsidiaries on a separate company basis. Effective July 1, 1998, the tax status of all corporate reporting entities (other than Medical Technologies, Inc. and Medical Compliance Services, Inc., Texas and New Mexico) was changed from C-Corporation to S-Corporation, as defined by the Internal Revenue Code. As a result, approximately $6.4 million in net deferred tax liabilities have been reversed and the related effect included in income tax benefit in the combined statements of operations for the six month period ended December 31, 1998. As S-Corporations, the Companies are no longer subject to federal income taxes. In connection with the change in tax status, the fiscal year end of the Companies (other than Medical Technologies, Inc. and Medical Compliance Services, Inc., Texas and New Mexico) was changed from June 30 to December 31. As a partnership, JOS is not subject to federal and state income taxes. Results of operations are allocated to the partners in accordance with the provisions of JOS' Partnership Agreement and reported to each partner on their respective federal and state income tax returns. Distributions of JOS Profits and Losses Distributions of profits and losses are generally made at the end of each calendar year in accordance with the Partnership Agreement which states that such distributions will be determined by the partners and shall be distributed within 30 days of year-end. Segment Reporting The Companies' revenues are derived from one industry segment, which includes integrated waste management services consisting of collection, transfer, disposal, recycling and other miscellaneous services to commercial, industrial, municipal and residential customers located in Texas and New Mexico. Revenue Recognition Revenue from waste hauling and disposal is recognized when the service is provided. Revenue from the management of landfills is recognized in the month that management services are provided. 16 19 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 3. RRI CONTRIBUTION On April 2, 1998, the majority stockholder of RRI purchased the approximately 33% minority interest of RRI for approximately $28.8 million in cash. The acquisition of the minority RRI interest was financed with bank borrowings of $18.5 million and a $10.3 million loan from Hunt Building Corp. ("Hunt"). On April 2, 1998, pursuant to a Loan and Debt Exchange Agreement, Hunt exchanged its $10.3 million loan to the majority stockholder for a 20% interest in RRI out of a portion of stock which the majority stockholder acquired from the former minority stockholder. On the same date, in an Internal Revenue Code Section 351 transaction pursuant to a Contribution Agreement, the majority stockholder transferred his interest in RRI in exchange for assumption by IEII of the acquisition indebtedness represented by the bank borrowing in a transaction governed by Section 304(b)(3)(B) and issuance to the majority stockholder of an 80% interest in IEII and Hunt contributed its 20% interest in RRI to IEII in exchange for issuance to Hunt of a 20% interest in IEII. RRI became a wholly-owned subsidiary of IEII. For financial reporting purposes, the majority stockholder's previous approximately 67% investment in RRI was recorded by IEII at historical cost due to common control of both IEII and RRI by the majority stockholder. The acquisition of the RRI minority interest was accounted for by the purchase method. As a result, the carrying value of landfill assets was increased by $12.6 million and related deferred tax liabilities in the amount of $4.3 million were recorded, as well as goodwill amounting to $16.7 million. 4. PROPERTY AND EQUIPMENT Property and equipment are as follows:
UNAUDITED PREDECESSOR ------------ ------------ JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 1999 1998 1998 1997 ------------ ------------ ------------ ------------ Vehicles and other equipment $ 16,226,341 $ 16,581,507 16,189,882 14,773,195 Containers 7,530,591 7,147,548 6,219,750 5,475,883 Roll-offs and compactors 4,551,463 4,245,220 3,822,563 3,523,513 Vehicles and equipment under capital leases 792,598 1,436,878 1,436,878 1,436,878 Landfill 13,574,063 13,574,063 13,571,784 991,275 Land, buildings and leasehold improvements 5,543,349 5,378,636 5,114,139 5,573,384 Furniture and office equipment 1,185,281 1,060,302 1,040,080 886,701 Construction in progress -- 1,263,288 1,232,410 776,448 ------------ ------------ ------------ ------------ 49,403,686 50,687,442 48,627,486 33,437,277 Less accumulated depreciation and amortization (16,803,013) (15,082,105) (13,792,929) (11,328,471) ------------ ------------ ------------ ------------ $ 32,600,673 $ 35,605,337 $ 34,834,557 $ 22,108,806 ============ ============ ============ ============
17 20 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 4. PROPERTY AND EQUIPMENT, CONTINUED The majority of property and equipment is pledged to one or more creditors to collateralize debt of the Companies. Included in property and equipment at June 30, 1999, December 31 and June 30, 1998 and June 30, 1997 are fully depreciated assets with historical costs of approximately $6,811,000, $6,193,000, $5,206,000 and $3,654,000, respectively. Construction in progress consists primarily of costs incurred in the construction of medical waste processing machines and costs associated with the preparation of a landfill liner not yet ready for use at December 31 and June 30, 1998. 5. LONG-TERM NOTES RECEIVABLE Long-term notes receivable are as follows:
UNAUDITED PREDECESSOR --------- --------- JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 1999 1998 1998 1997 --------- --------- --------- --------- Uncollateralized notes receivable from individuals, due in monthly installments ranging from $550 to $3,000 including interest at rates ranging from 6.0% to 8.75%; maturing from January 1999 to December 2003 $ 145,779 $ 29,345 $ 55,063 $ 53,200 Note receivable from individual -- -- 150,000 150,000 Note receivable from Stewart Enterprises, due in monthly installments of $6,500, including interest at 9.0%; maturing October 1999; collateralized by leasehold improvements and equipment 33,982 76,506 105,556 449,087 --------- --------- --------- --------- 179,761 105,851 310,619 652,287 Less current portion of notes receivable (59,260) (81,399) (283,669) (292,726) --------- --------- --------- --------- $ 120,501 $ 24,452 $ 26,950 $ 359,561 ========= ========= ========= =========
18 21 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 6. INTANGIBLE AND OTHER ASSETS Intangible and other assets are as follows:
UNAUDITED PREDECESSOR ------------ ------------ JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 1999 1998 1998 1997 ------------ ------------ ------------ ------------ Licenses and permits $ 1,431,680 $ 1,452,968 $ 1,924,351 $ 1,900,103 Excess of cost over fair value of net assets acquired 19,235,526 19,436,095 20,101,810 3,418,776 Closure and post-closure care trust 735,000 672,000 626,000 499,000 Covenants not to compete 1,575,667 1,630,000 -- -- Customer lists 180,097 225,684 240,024 240,024 Deferred loan costs 1,242,849 1,507,076 1,506,631 100,906 Other 260,676 340,672 186,469 130,839 ------------ ------------ ------------ ------------ 24,661,495 25,264,495 24,585,285 6,289,648 Accumulated amortization (1,780,344) (1,586,431) (1,031,869) (469,688) ------------ ------------ ------------ ------------ $ 22,881,151 $ 23,678,064 $ 23,553,416 $ 5,819,960 ============ ============ ============ ============
7. LONG-TERM DEBT Under the terms of the Credit Agreement with Marine Midland Bank and other lenders, the Companies have a revolving loan facility under which the Companies may borrow up to $12 million. The revolving loan commitment expires in April 2003. Approximately $930,000 and $0 were outstanding under the revolving loan facility at June 30, 1999 and December 31, 1998, respectively. The Credit Agreement requires the Companies, in addition to other restrictive covenants, to maintain specified minimum interest coverage and fixed charge coverage ratios, maximum debt to earnings before income tax, depreciation and amortization ("EBITDA") ratios, as defined, and minimum rolling twelve month EBITDA amounts. Additionally, the Credit Agreement requires certain mandatory prepayments of amounts outstanding under the Credit Agreement from the Companies' Excess Cash Flow (as defined), if any. 19 22 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 7. LONG-TERM DEBT, CONTINUED Long-term debt is as follows:
UNAUDITED PREDECESSOR ------------ ------------ JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 1999 1998 1998 1997 ------------ ------------ ------------ ------------ Uncollateralized, non-interest bearing notes payable to an individual, due in monthly installments ranging from $525 to $3,150, maturing in October 2003 $ 253,500 $ 282,750 $ -- $ -- Term loans payable to a bank, collateralized by all outstanding common stock of IEII and substantially all assets of the Companies, due in quarterly installments ranging from $550,000 to $975,000, plus interest at a twelve-month, fixed LIBOR rate of 4.9063% plus 2.0% to 2.5%; maturing from April 2005 to October 2005 29,950,000 32,350,000 39,450,000 -- Equipment notes payable, collateralized by vehicles, due in monthly installments of approximately $500 including interest at fixed rates ranging from 8.85% to 12.5%; maturing from June 1999 to December 1999 2,965 5,797 143,156 5,433,243 Obligations under capital leases 124,425 209,262 806,554 1,007,923 Revolving credit agreement 929,909 -- -- 2,613,426 Note payable to Concord -- -- -- 5,723,333 Note payable to former stockholder -- -- -- 585,321 Note payable to bank -- -- -- 2,760,854 Note payable to Waste Mgt., Inc. -- -- -- 525,000 ------------ ------------ ------------ ------------ 31,260,794 32,847,809 40,399,710 18,649,100 Less current portion of long-term debt (2,585,890) (2,560,184) (2,965,159) (6,855,081) ------------ ------------ ------------ ------------ $ 28,674,909 $ 30,287,625 $ 37,434,551 $ 11,794,039 ============ ============ ============ ============
20 23 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 7. LONG-TERM DEBT, CONTINUED Scheduled principal payments on long-term debt from the respective balance sheet dates are as follows:
UNAUDITED ----------- JUNE 30, DECEMBER 31, 1999 1998 ----------- ----------- 1 Year $ 2,585,890 $ 2,560,184 2 Years 2,758,500 2,718,658 3 Years 3,058,500 3,011,717 4 Years 3,558,500 3,433,500 5 Years 3,303,481 3,698,750 Thereafter 15,995,923 17,425,000 ----------- ----------- $31,260,794 $32,847,809 =========== ===========
8. TREASURY STOCK Pursuant to the terms of a Stock Redemption Agreement, on September 22, 1993 RRI purchased 24,950 shares of its common stock for $750,000, representing all of the equity interest in RRI owned by one of three RRI stockholders. 9. RELATED PARTY TRANSACTIONS Amounts due from related parties included in the accompanying combined balance sheets are as follows:
UNAUDITED PREDECESSOR ---------- ---------- JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 1999 1998 1998 1997 ---------- ---------- ---------- ---------- Technology 2100 LP $ 566,375 $ -- $ -- $ -- International Environmental Industries Equipment Co., LP 203,709 -- -- -- Conquest I, LLC 271,397 195,001 -- 86,513 Meribah Corporation -- -- -- 53,166 414 LLC -- -- 97,581 171,165 United Waste Services -- -- -- 6,879 ---------- ---------- ---------- ---------- $1,041,481 $ 195,001 $ 97,581 $ 317,723 ========== ========== ========== ==========
21 24 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 9. RELATED PARTY TRANSACTIONS, CONTINUED The majority interests of International Environmental Industries Equipment Company, LP and Conquest I, LLC are owned by the majority stockholder of the Companies. Notes Payable to Related Parties Notes payable to related parties of $2 million at June 30, 1999, December 31 and June 30, 1998 consist of four notes to related parties. The principal balances and any unpaid accrued interest are due on April 2, 2006. Interest, at annual interest rates ranging from 12% to 15%, is due monthly. These notes are subordinated to the term loans payable to a bank and are not collateralized. 10. NON-RECURRING CHARGES Company Formation In connection with the formation of IEII and the RRI Contribution, the Companies incurred non-recurring charges of approximately $654,000 for the three month period ended June 30, 1998. Included in these amounts were (i) organizational costs related to the formation of IEII (ii) non-debt related legal and professional fees incurred in the Companies' structuring of the IEII/RRI transaction and evaluation of various recapitalization alternatives and (iii) settlement of amounts owed to a former RRI stockholder under a Stock Redemption Agreement. Non-cash Compensation Charge During the six month period ended December 31, 1998, new shares of common stock of Medical Compliance Services, Inc., Texas and New Mexico ("MCS") were issued to an employee as compensation for services performed. The related compensation charge of $840,000 is based on the fair value of the common stock at date of issuance. The compensation charge and related payroll taxes of $536,760 have been reported under non-recurring charges in the accompanying combined statements of operations. Upon issuance of the stock, this employee obtained a 30% ownership interest in MCS. 11. INCOME TAXES Effective July 1, 1998, the tax status of all corporate reporting entities (other than Medical Compliance Services, Inc., Texas and New Mexico) was changed from C-Corporation to S-Corporation, as defined by the Internal Revenue Code. As a result, approximately $6.4 million in net deferred tax liabilities have been reversed and the related effect included in income tax benefit in the combined statement of operations for the six month period ended December 31, 1998. As S-Corporations, the Companies are no longer subject to federal income taxes. 22 25 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 11. INCOME TAXES, CONTINUED The components of income tax expense (benefit) in the combined statements of operations are as follows:
UNAUDITED PREDECESSOR ----------- -------------------------- SIX MONTH SIX MONTH THREE MONTH NINE MONTH PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED ----------- ----------- ----------- ----------- -------------------------- JUNE 30, DECEMBER 31, JUNE 30, MARCH 31, JUNE 30, JUNE 30, 1999 1998 1998 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- ----------- Federal: Current $ (182,128) $ 827,587 $ (53,883) $ 751,982 $ 1,271,975 $ 491,559 Deferred (11,176) (6,416,961) 125,251 284,427 235,847 207,799 State -- 79,443 67,479 159,877 291,515 93,599 ----------- ----------- ----------- ----------- ----------- ----------- $ (193,304) $(5,509,931) $ 138,847 $ 1,196,286 $ 1,799,337 $ 792,957 =========== =========== =========== =========== =========== ===========
A reconciliation of income taxes computed at the Federal statutory rate of 34% and income tax expense is as follows:
PREDECESSOR ------------------------- THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED JUNE 30, 1998 MARCH 31, 1998 ------------------------- ------------------------- AMOUNT RATE AMOUNT RATE ---------- ---------- ---------- ---------- Income tax at statutory rate $ 6,565 34% $1,040,073 34% State taxes 40,441 209% 122,361 4% Non-deductible amortization of goodwill 56,680 294% -- -- Other 35,161 182% 33,852 1% ---------- ---------- ---------- ---------- $ 138,847 719% $1,196,286 39% ========== ========== ========== ==========
PREDECESSOR ------------------------------------------------------- YEAR ENDED ------------------------------------------------------- JUNE 30, 1997 JUNE 30, 1996 ------------------------- ------------------------- AMOUNT RATE AMOUNT RATE ---------- ---------- ---------- ---------- Income tax at statutory rate $1,561,361 34% $ 683,454 34% State taxes 163,786 4% 61,702 4% Other 74,190 1% 47,801 1% ---------- ---------- ---------- ---------- $1,799,337 39% $ 792,957 39% ========== ========== ========== ==========
23 26 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 11. INCOME TAXES, CONTINUED The tax effect of temporary differences that give rise to deferred tax assets and liabilities are as follows:
UNAUDITED PREDECESSOR ----------- ----------- JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 1999 1998 1998 1997 ----------- ----------- ----------- ----------- Deferred tax assets: Allowances and accrued liabilities $ 47,398 $ 129,014 $ 124,990 $ 191,265 Property and equipment -- 32,190 64,084 114,561 Intangible assets -- -- 252,439 132,008 Other -- 10,318 25,831 60,824 ----------- ----------- ----------- ----------- Total deferred tax assets 47,398 171,522 467,344 498,658 ----------- ----------- ----------- ----------- Deferred tax liabilities: Difference in basis of property and equipment (157,456) (177,210) (6,827,155) (2,133,879) Other -- -- (62,840) (23,001) ----------- ----------- ----------- ----------- Total deferred tax liabilities (157,456) (177,210) (6,889,995) (2,156,880) ----------- ----------- ----------- ----------- Net deferred tax assets (liabilities) $ (110,058) $ (5,688) $(6,422,651) $(1,658,222) =========== =========== =========== ===========
Management of the Companies believe that no valuation allowance relating to recorded deferred tax assets is necessary because these assets will be realized through expected future taxable income, including taxable income from reversals of existing taxable temporary differences. As of June 30, 1999 and December 31, 1998, proforma net deferred tax liabilities amounted to approximately $5,406,000 and $5,103,000, respectively. 24 27 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 12. CLOSURE AND POST-CLOSURE CARE COSTS State and Federal laws and regulations require the Companies to place a final cover on its landfill when closed and to perform certain maintenance and monitoring functions at the landfill site for thirty years after closure. The Companies recognize a portion of these costs in each operating period based on the amount of waste received during the period. However, many of the closure and post-closure care costs will be paid only when the landfill is closing or after it is closed. Total landfill closure and post-closure costs for current permitted acres are estimated to be in a range from approximately $2,780,000 to $3,210,000 and will be recognized over the period covered by the landfill permit which will expire March 5, 2007 at a rate of 7 cents per gate yard. Landfill closure and post-closure care costs recognized were approximately $63,000, $60,000, $29,000, $75,000, $34,000 and $0 for the periods ended June 30, 1999, December 31, June 30 and March 31, 1998 and for the years ended June 30, 1997 and 1996, respectively. The Companies have recognized cumulative liabilities amounting to approximately $767,000 and $672,000 relating to these costs at June 30, 1999 and December 31, 1998, respectively. All amounts recognized are based on what it would cost to perform all closure and post-closure care at June 30, 1999 and December 31, 1998. Estimated costs are adjusted using an annual rate of 7%, compounded quarterly. Actual costs may be greater or less than 7% due to inflation. The Companies are required by state and Federal laws and regulations to make annual contributions to finance closure and post-closure care. The Companies have established a trust to fund these costs as directed by the Secretary of the New Mexico Environment Department. Under the renewed trust agreement, the Companies were required to provide a letter of credit in the amount of $100,000. The letter of credit is collateralized by short term investments of $100,000 which have been classified as restricted in the accompanying combined balance sheets. At June 30, 1999 and December 31, 1998, the Companies have paid a cumulative amount of $767,000 and $672,000 to the trust, respectively. The Companies expect that increases in future costs resulting from inflation will be paid from interest earnings on trust investments. However, if interest earnings are inadequate or additional post-closure requirements are determined (due to changes in technology or applicable laws or regulations, for example), these costs will be paid by the Companies and may result in additional charges to future landfill users. The Companies periodically reassess their method and assumptions used to estimate accruals for environmental and landfill costs and adjust such accruals accordingly. Factors considered are changing regulatory requirements, the effects of inflation, changes in operating climates in the regions in which the Companies' facilities are located and the expectations regarding costs of securing environmental services. 13. COMMITMENTS AND CONTINGENCIES Legal Matters The Companies are defendants in legal actions arising from normal business activities. Management believes that those actions are without merit or that the ultimate liability, if any, resulting from them will not materially affect the Companies' combined financial position, results of operations or cash flows. 25 28 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 13. COMMITMENTS AND CONTINGENCIES, CONTINUED Leases The Companies lease certain equipment and vehicles under various noncancelable lease agreements. Following is a summary of future minimum rental payments under capital and operating leases of the Companies from the respective balance sheet dates:
UNAUDITED ----------------------- JUNE 30, 1999 DECEMBER 31, 1998 ----------------------- ---------------------- CAPITAL OPERATING CAPITAL OPERATING LEASES LEASES LEASES LEASES --------- --------- --------- --------- 1 Year $ 84,272 $ 157,683 $ 157,306 $ 410,888 2 Years 38,852 56,397 38,852 56,397 3 Years 9,713 42,297 29,139 56,397 4 Years -- -- -- 14,099 --------- --------- --------- --------- Total minimum lease payments 132,837 $ 256,377 225,297 $ 537,781 ========= ========= Less amounts representing interest (8,412) (16,035) --------- --------- Present value of minimum lease payments $ 124,425 $ 209,262 ========= =========
Rental expense for all operating leases was approximately $276,000, $445,000, $235,000, $703,000, $846,000 and $661,000 for the periods ended June 30, 1999, December 31, June 30 and March 31, 1998 and for the years ended June 30, 1997 and 1996, respectively. 14. DEFINED CONTRIBUTION BENEFIT PLAN Effective August 1, 1992, RRI established the Rubbish Removal, Inc. 401(k) Thrift and Savings Plan covering all full time employees that have completed one year of service and are at least 21 years of age. Participants can elect to contribute up to 15% of their salary, subject to Internal Revenue Code limitations. The Companies may make an additional annual lump sum contribution at the discretion of the Board of Directors. Employee contributions and earnings are 100% vested with the Companies' matching contribution being vested at increasing percentages over seven years of service. The Companies' contributions and administrative expenses were approximately $47,000, $48,000, $28,000, $61,000, $82,000 and $58,000 for the periods ended June 30, 1999, December 31, June 30 and March 31, 1998 and for the years ended June 30, 1997 and 1996, respectively. 26 29 INTERNATIONAL ENVIRONMENTAL INDUSTRIES, INC. AND SUBSIDIARY AND ITS PREDECESSOR AND JOS ENTERPRISES, LTD. ------------- NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION RELATING TO JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED) 15. ACQUISITIONS During the six month period ended December 31, 1998, the Companies acquired certain operating assets of three separate companies for an aggregate purchase price of approximately $2.9 million. Assets acquired included approximately $886,000 in property and equipment, $1.6 million in non-compete agreements and $400,000 in other assets. Approximately $32,000 was recorded as excess of cost over fair value of net assets acquired. 16. SALE OF SUBSIDIARIES On September 1, 1998, RRI entered into an asset sales agreement to sell substantially all operating assets related to waste hauling and medical waste processing of Medical Compliance Services, Inc., Texas and New Mexico ("MCS") for a total sales price of approximately $5.85 million. The sale resulted in a gain of approximately $4.5 million. Assets held for sale at December 31, 1998 consists of approximately $600,000 in property and equipment and $400,000 of other assets. The historical net book value of the property and equipment has been reduced by approximately $329,000 based on fair value at the date of disposal, which was subsequent to December 31, 1998. 17. MERGER OF AFFILIATES Effective January 24, 1999, all assets and liabilities of Medical Compliance, Inc. Texas were transferred to Medical Technologies of New Mexico, Inc. (formerly known as Medical Compliance Services, Inc. New Mexico) at historical net book value. These transactions had no net effect on the financial position or results of operations of the combined group. 18. SUBSEQUENT EVENT On August 11, 1999, the Companies and its stockholders and partners entered into an Acquisition Agreement with Waste Connections, Inc. ("WCI") whereby, subject to all terms and conditions of the Acquisition Agreement, all issued and outstanding common stock and partnership interests of the Companies will be sold to a wholly-owned subsidiary of WCI for cash and shares of Waste Connections, Inc. common stock. Upon the closing date of the Acquisition Agreement, IEII will cease to exist as a legal entity. It is anticipated that this transaction will be completed prior to the end of September 1999. In connection with the acquisition, the term loans payable and amounts owed under the related Credit Agreement with Marine Midland Bank and other lenders and the $2,000,000 of notes payable to related parties will be repaid. 27 30 (b) Pro Forma Financial Information. Waste Connections, Inc. Unaudited Pro Forma Financial Statements Introduction to Unaudited Pro Forma Financial Statements Unaudited Pro Forma Statement of Operations for the year ended December 31, 1998 Unaudited Pro Forma Statement of Operations for the six months ended June 30, 1999 Notes to Unaudited Pro Forma Statement of Operations Unaudited Pro Forma Balance Sheet as of June 30, 1999 Notes to Unaudited Pro Forma Balance Sheet 31 WASTE CONNECTIONS, INC. INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS The Unaudited Pro Forma Statement of Operations for the year ended December 31, 1998 and six months ended June 30, 1999 gives effect to the business combination involving WCI, Columbia Resource Co., LP and Finley-Buttes Limited Partnership ("CRCFBLP") and International Environmental Industries, Inc. and subsidiary JOS Enterprises, Ltd. ("IEII") as if such business combinations occurred on January 1, 1998 and were accounted for using the purchase method of accounting. WCI's historical financial statements have been restated to reflect poolings-of-interests consummated through June 30, 1999. The following Unaudited Pro Forma Balance Sheet as of June 30, 1999 assumes WCI's acquisition of IEII occurred on June 30, 1999. WCI's historical financial statements have been restated to reflect poolings-of-interests consummated through June 30, 1999. WCI has preliminarily analyzed the savings that it expects to be realized by consolidating certain operational and general and administrative functions. WCI has not and cannot quantify all of these savings due to the short period of time since the CRCFBLP and IEII acquisitions occurred. It is anticipated that these savings will be partially offset by the costs of being a publicly held company and the incremental increase in costs related to WCI's corporate management. However, these costs, like the savings they offset, cannot be quantified accurately. Neither the anticipated savings nor the anticipated costs have been included in the Unaudited Pro Forma Financial Statements. The Unaudited Pro Forma Financial Statements include certain adjustments to the historical financial statements, including adjusting depreciation expense to reflect purchase price allocations of the entities acquired by WCI, adjusting interest expense to reflect acquisition-related debt and the related income tax effects of these adjustments. The pro forma adjustments are based on preliminary estimates, available information and certain assumptions and may be revised as additional information becomes available. The Unaudited Pro Forma Financial Statements do not purport to represent what WCI's financial position or results of operations would actually have been if such transactions in fact had occurred on those dates or to project WCI's financial position or results of operations for any future period. Because WCI, IEII and CRCFBLP were not under common control or management for all periods, historical combined results may not be comparable to, or indicative of, future performance. The Unaudited Pro Forma Financial Statements should be read in conjunction with the CRCFBLP and IEII financial statements and notes thereto included elsewhere herein, WCI's consolidated historical financial statements included in its Annual Report on Form 10-K. 32 WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
IEII IEII WASTE PREDECESSORS NINE MONTHS CONNECTIONS, INC. CRCFBLP THREE MONTHS ENDED PRO FORMA CONSOLIDATED COMBINED ENDED 3/31/98 12/31/98 ADJUSTMENTS PRO FORMA ----------------- ------------ -------------- ------------ ----------- ------------ Revenues.................. $ 97,446 $22,511 $ 9,477 $ 26,384 $(7,017)(a) $ 148,801 Operating expenses: Cost of operations...... 70,105 10,675 4,931 14,475 (7,017)(a) 90,598 (46)(b) (2,525)(e) Selling, general and administrative........ 9,672 2,956 2,232 3,237 -- 18,097 Depreciation and amortization.......... 7,822 2,729 1,027 4,196 (683)(c) 13,505 (1,586)(d) Stock compensation...... 632 -- -- -- -- 632 Other operating expenses -- -- 314 2,360 -- 2,674 ----------- ------- ------- -------- ------- ----------- Income from operations.... 9,215 6,151 973 2,116 4,840 23,295 Interest expense.......... (3,299) (1,258) (297) (2,590) (7,230)(f) (14,674) Other income (expense), net..................... 315 29 308 4,489 -- 5,141 ----------- ------- ------- -------- ------- ----------- Income before income taxes and minority interest................ 6,231 4,922 984 4,015 (2,390) 13,762 Income tax provision...... (3,030) -- (477) 5,371 (3,441)(g) (600) 977(h) Minority interest......... -- -- -- (466) (466) ----------- ------- ------- -------- ------- ----------- Income before extraordinary item...... 3,201 4,922 507 8,920 (4,854) 12,696 Extraordinary item -- early extinguishment of debt, net of tax benefit of $264.................... (1,027) -- -- -- -- (1,027) ----------- ------- ------- -------- ------- ----------- Net income................ $ 2,174 $ 4,922 507 8,920 $(4,854) $ 11,669 =========== ======= ======= ======== ======= =========== Redeemable convertible preferred stock accretion............... (917) -- -- -- -- (917) ----------- ------- ------- -------- ------- ----------- Net income applicable to common stockholders..... $ 1,257 $ 4,922 507 8,920 $(4,854) $ 10,752 =========== ======= ======= ======== ======= =========== Basic earnings per share: Income before extraordinary item.... $ 0.22 $ 0.92 Extraordinary item...... (0.10) (0.08) ----------- ----------- Net income per share.... $ 0.12 $ 0.84 =========== =========== Diluted earnings per share: Income before extraordinary item.... $ 0.19 $ 0.80 Extraordinary item...... (0.09) (0.07) ----------- ----------- Net income per share.... $ 0.10 $ 0.73 =========== =========== Shares used in calculating basic earnings per share................... 10,243,628 12,839,781 =========== =========== Shares used in calculating diluted earnings per share................... 12,154,750 14,750,903 =========== ===========
See accompanying notes. 33 WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
WASTE CONNECTIONS, INC. CRCFBLP PRO FORMA CONSOLIDATED COMBINED IEII ADJUSTMENTS PRO FORMA ----------------- ------------ -------------- ----------- ------------ Revenues.................. $72,813 $ 3,822 $16,796 $(1,052)(a) $ 92,379 Operating expenses: Cost of operations...... 46,073 2,935 7,276 (1,052)(a) 53,969 -- -- -- (1,263)(e) -- Selling, general and administrative........ 6,132 1,057 3,531 -- 10,720 Depreciation and amortization.......... 5,598 440 2,719 (255)(c) 7,601 (901)(d) Stock compensation...... 140 -- -- -- 140 Other operating expenses.............. -- -- 47 -- 47 Acquisition related expenses.............. 8,805 -- -- -- 8,805 ------- ------- ------- ------- ----------- Income from operations.... 6,065 (610) 3,223 2,419 11,097 Interest expense.......... (3,187) (141) (1,510) (1,793)(f) (6,631) Other income (expense), net..................... 2 -- (327) -- (325) ------- ------- ------- ------- ----------- Income before income taxes and minority interest................ 2,880 (751) 1,386 626 4,141 Income tax provision...... (4,042) -- 193 (241)(g) (4,328) (238)(h) Minority Interest......... -- -- 141 -- 141 ------- ------- ------- ------- ----------- Net Income................ $(1,162) $ (751) $ 1,720 $ 147 $ (46) ======= ======= ======= ======= =========== Basic earnings per share: $ (0.07) $ 0.00 Diluted earnings per share: $ (0.07) $ 0.00 Shares used in calculating basic earnings per share................... 16,911,480 19,507,643 ========== =========== Shares used in calculating diluted earnings per share................... 16,911,480 19,507,643 ========== ===========
See accompanying notes. 34 WASTE CONNECTIONS, INC. NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS) ASSUMPTIONS. The unaudited pro forma statement of operations for the year ended December 31, 1998 is presented as if the acquisition of CRCFBLP and IEII occurred on January 1, 1998. BUSINESS COMBINATIONS. The acquisition of CRCFBLP and IEII are being accounted for under the purchase method of accounting for business combinations. Certain items affecting the purchase price and its allocation are preliminary. The preliminary purchase price consists of the following:
CRCFBLP IEII ------- ------- Cash paid to shareholders................................. $66,911 35,239 Liabilities assumed....................................... 18,935 53,647 Common stock issued....................................... -- 67,370 Acquisition costs......................................... 316 600 ------- ------- $86,162 156,856 ======= =======
The Company has preliminarily allocated the purchase price as follows:
CRCFBLP IEII ------- ------- Tangible assets purchased, including landfill............. $85,962 133,975 Goodwill.................................................. -- 22,881 Covenant not to compete................................... 200 -- ------- ------- $86,162 156,856 ======= ======= WCI's historical financial statements have been restated to reflect poolings-of-interests consummated through June 30, 1999.
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the unaudited pro forma consolidated statement of operations: (a) Eliminate intercompany revenue and expense between WCI and CRCFBLP. (b) To record CRCFBLP closure and post closure amortization in accordance with the Company's policies. (c) To record CRCFBLP site depletion expense in accordance with the Company's policies. (d) To record IEII depreciation, depletion and amortization expense in accordance with the Company's policies. (e) To reduce officers salaries and benefits to levels provided for in the new employment agreements which were directly attributable to, required elements of, and a condition to the closing of IEII. (f) To record interest expense on the debt obligations incurred by the Company in connection with the acquisition of CRCFBLP and IEII of $5,280 and $1,950 for the year ended December 31, 1998 and $884 and $909 for the six months ended June 30, 1999, respectively. (g) To record income tax benefit (provision) of $(1,968) and $300 for the year ended December 31, 1998 and the six months ended June 30, 1999, respectively, for CRCFBLP which were limited partnerships for income tax purposes for all periods prior to the acquisition by the Company. To record income tax (provision) benefits of $(1,473) and $(541) for the year end December 31, 1998 and the six months ended June 30, 1997 respectively for IEII. (h) To recorded estimate tax benefit (provision) for the year ended December 31, 1998 associated with the pro forma adjustments for CRCFBLP and IEII of $1,820 and $(843) for the year ended December 31, 1998 and $252 and $(490) for the six months ended June 30, 1999. 35 WASTE CONNECTIONS, INC. NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS) PRO FORMA COMBINED PER SHARE DATA. The shares used in computing the unaudited pro forma combined net income per share for the year ended December 31, 1998 are based upon the pro forma number of common shares as summarized in the table below.
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1998 1999 ------------ ---------- Basic Share Count: Company weighted average shares outstanding............... 10,243,628 16,911,490 Shares issued in connection with the acquisition of IEII................................................... 2,596,153 2,596,153 ---------- ---------- Shares used in calculating pro forma combined basic net income (loss) per share................................ 12,839,781 19,507,643 ========== ========== Diluted Share Count: Shares used in calculating the Company's diluted income (loss) per share....................................... 12,154,750 16,911,490 Shares issued in connection with the acquisition of IEII................................................... 2,596,153 2,596,153 ---------- ---------- Shares used in calculating pro forma combined diluted net income (loss) per share................................ 14,750,903 19,507,643 ========== ==========
ACQUISITION COSTS. The Company incurred costs of $916 related to the CRCFBLP and IEII acquisition which have been factored into the purchase price allocation. Costs incurred by CRCFBLP and IEII were expensed as incurred. OTHER The Medical Technologies of New Mexico, Inc. business of IEII was sold on January 24, 1999 and had revenue of $2,452 and an operating loss of $2,204 in 1998 and an operating loss of $599 in 1999. In August of 1999, IEII amended its outside consulting contracts, professional services and third party insurance policies to conform with the Company's practices that produced a reduction in operating costs. On a pro forma basis, operating cost would have been $558 and $269 lower during the year ended December 31, 1998 and six months ended June 30, 1999 respectively. 36 WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA BALANCE SHEET JUNE 30, 1999 (IN THOUSANDS) ASSETS
WASTE CONNECTIONS, INC. PRO FORMA CONSOLIDATED IEII ADJUSTMENTS PRO FORMA ----------------- -------- ----------- --------- Current assets: Cash and equivalents.... $ 10,384 $ 2,489 $ --(1)(3)(5) $ 12,873 Accounts receivable, net................... 19,664 5,293 24,957 Prepaid expenses and other current assets................ 1,958 1,197 -- 3,155 -------- ------- -------- -------- Total current assets.......... 32,006 8,979 40,985 Property and equipment, net..................... 146,865 32,601 90,486(2)(7) 269,952 Intangible assets, net.... 140,519 22,881 163,400 Other assets.............. 4,788 1,909 -- 6,697 -------- ------- -------- -------- $324,178 $66,370 $ 90,486 $481,034 ======== ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable........ $ 17,542 $ 1,412 $ $ 18,954 Deferred revenue........ 3,554 -- -- 3,554 Accrued liabilities..... 10,566 1,262 11,828 Current portion of long-term debt........ 1,961 2,586 (2,586)(3) 1,961 Other current liabilities........... 359 788 -- 1,147 -------- ------- -------- -------- Total current liabilities..... 33,982 6,048 (2,586) 37,444 Long-term debt............ 145,646 30,675 38,425(3) 214,746 Deferred income taxes..... 5,122 157 16,000(7) 21,279 Other long-term liabilities............. 2,336 767 3,103 Minority interest......... -- 857 (857)(6) -- Stockholders' equity: Common stock............ 182 -- 26(4) 208 Additional paid-in capital............... 138,378 18,082 (18,082)(6) 205,722 -- -- 67,344(4) Deferred stock compensation.......... (288) -- -- (288) Retained earnings (deficit)............. (1,180) 9,371 (9,371)(6) (1,180) Other Partners' Capital............... -- 413 (413)(6) -- -------- ------- -------- -------- Total stockholders' equity.......... 137,092 27,866 39,504 204,462 -------- ------- -------- -------- $324,178 $66,370 $ 90,486 $481,034 ======== ======= ======== ========
See accompanying notes. 37 WASTE CONNECTIONS, INC. NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSUMPTIONS. The unaudited pro forma balance sheet as of June 30, 1999 combines the historical balance sheet of Waste Connections, Inc. with the historical balance sheets of CRCFBLP and IEII to be accounted for as a purchase. PRO FORMA ADJUSTMENTS. The following adjustments have been made to the unaudited pro forma consolidated balance sheet. (1) Cash payments to former owners of IEII ($35,239) and payment of acquisition costs. (2) To adjust Property and Equipment to fair market value. (3) To pay off debt obligations of IEII ($33,261). (4) Issuance of 2,596,153 shares of common stock with estimated value of $67,370 in connection with the acquisition of IEII. (5) Record additional long-term debt associated with the acquisition of IEII of $69,100. (6) To eliminate equity and minority interest accounts of IEII. (7) To reserve deferred tax liability associated with the acquisition of IEII. 38 (c) Exhibits. 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.4 Consent of PricewaterhouseCoopers LLP, Independent Accountants 39 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WASTE CONNECTIONS, INC. (Registrant) Date: September 1, 1999 By /s/ Steven F. Bouck Steven F. Bouck Executive Vice President and Chief Financial Officer 40 EXHIBIT INDEX 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.4 Consent of PricewaterhouseCoopers LLP, Independent Accountants EX-23.1 2 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-4 (No. 333-65615) of Waste Connections, Inc. of our report dated February 26, 1999, except as to Note 18, which is as of August 19, 1999, relating to the combined financial statements of International Environmental Industries, Inc. and subsidiary and JOS Enterprises, Ltd. appearing in this Form 8-K/A, dated August 11, 1999. PRICEWATERHOUSECOOPERS LLP Austin, Texas August 31, 1999 EX-23.2 3 CONSENT OF INDEPENDENT ACOUNTANTS 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-4 (No. 333-83825) of Waste Connections, Inc. of our report dated February 26, 1999, except as to Note 18, which is as of August 19, 1999, relating to the combined financial statements of International Environmental Industries, Inc. and subsidiary and JOS Enterprises, Ltd. appearing in this Form 8-K/A, dated August 11, 1999. PRICEWATERHOUSECOOPERS LLP Austin, Texas August 31, 1999 EX-23.3 4 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-72113) of Waste Connections, Inc. of our report dated February 26, 1999, except as to Note 18, which is as of August 19, 1999, relating to the combined financial statements of International Environmental Industries, Inc. and subsidiary and JOS Enterprises, Ltd. appearing in this Form 8-K/A, dated August 11, 1999. PRICEWATERHOUSECOOPERS LLP Austin, Texas August 31, 1999 EX-23.4 5 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-63407) of Waste Connections, Inc. of our report dated February 26, 1999, except as to Note 18, which is as of August 19, 1999, relating to the combined financial statements of International Environmental Industries, Inc. and subsidiary and JOS Enterprises, Ltd. appearing in this Form 8-K/A, dated August 11, 1999. PRICEWATERHOUSECOOPERS LLP Austin, Texas August 31, 1999 -----END PRIVACY-ENHANCED MESSAGE-----