-----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, BBbg3M0GxlzgF7Xl8FhmwKvvgJVMirEmUJ31UtaUFxAFPXmuIP3qI1nCGHX9yP+I IG5NIdUR9urFEs/i/hDN+w== 0000950137-04-004247.txt : 20040518 0000950137-04-004247.hdr.sgml : 20040518 20040518170118 ACCESSION NUMBER: 0000950137-04-004247 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040310 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040518 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DANIELSON HOLDING CORP CENTRAL INDEX KEY: 0000225648 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 956021257 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06732 FILM NUMBER: 04816661 BUSINESS ADDRESS: STREET 1: 767 THIRD AVE 5TH FL CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128880347 MAIL ADDRESS: STREET 1: 767 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017-2023 FORMER COMPANY: FORMER CONFORMED NAME: MISSION INSURANCE GROUP INC DATE OF NAME CHANGE: 19900826 FORMER COMPANY: FORMER CONFORMED NAME: MISSION EQUITIES CORP DATE OF NAME CHANGE: 19770921 8-K/A 1 c85616a2e8vkza.txt AMENDMENT TO CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 2 TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 10, 2004 DANIELSON HOLDING CORPORATION --------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 1-6732 95-6021257 ---------- ---------- --------------- (STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NO.) 2 NORTH RIVERSIDE PLAZA SUITE 600 CHICAGO, ILLINOIS 60606 ----------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE) (312) 466-4030 ---------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------------------------------------------------- (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) INFORMATION TO BE INCLUDED IN THE REPORT EXPLANATORY NOTE: This Current Report on Form 8-K/A (Amendment No. 2) amends the Current Report on Form 8-K/A (Amendment No. 1) to the Current Report Form 8-K filed on March 11, 2004 by Danielson Holding Corporation in connection with the acquisition of Covanta Energy Corporation. This Amendment No. 2 is being filed to amend and restate in its entirety Item 7(b) solely to correct computational errors in the formula to calculate foreign taxes related to CPIH, to supplement Item 7(c) of Amendment No. 1, and to update the signature page and Exhibit 99.3. This Form 8-K/A does not reflect events occurring after the filing of Amendment No. 1, or modify or update disclosures therein in any way other than as required to reflect these changes. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (b) Pro Forma Financial Information. The following unaudited pro forma condensed consolidated financial information of the Company that gives effect to the acquisition of Covanta as if it occurred as of the beginning of the applicable periods, filed as Exhibit 99.3 to this Current Report on Form 8-K/A are incorporated by reference herein: (1) Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2003 and the quarter ended March 31, 2004; and (2) Notes to Unaudited Pro Forma Condensed Statements of Consolidated Operations. (c) Exhibits Exhibit No. Exhibit ----------- ------- 2.1 Investment and Purchase Agreement between Danielson Holding Corporation and Covanta Energy Corporation dated December 2, 2003. (Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K dated December 2, 2003 and filed with the Commission on December 5, 2003.)*+ *All schedules to this Exhibit 2.1 have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A list of the omitted schedules appears at the end of Exhibit 2.1 as previously furnished. The Company will supplementally furnish a copy of any omitted schedule to the Commission upon request. 2.2 Note Purchase Agreement between Danielson Holding Corporation and SZ Investments, L.L.C., Third Avenue Trust, on behalf of Third Avenue Value Fund, and D. E. Shaw Laminar Portfolios, L.L.C. dated December 2, 2003 (Incorporated by reference to Exhibit 2.2 to the Company's Form 8-K dated December 2, 2003 and filed with the Commission on December 5, 2003.)**+ ** All schedules to this Exhibit 2.2 have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A list of the omitted schedules appears at the end of Exhibit 2.2 as previously furnished. The Company will supplementally furnish a copy of any omitted schedule to the Commission upon request. 2.3 Amendment to Investment and Purchase Agreement between Danielson Holding Corporation and Covanta Energy Corporation dated February 23, 2004.+ 2.4 First Amendment to Note Purchase Agreement and Consent between Danielson Holding Corporation and SZ Investments, L.L.C., Third Avenue Trust, on behalf of Third Avenue Value Fund, and D. E. Shaw Laminar Portfolios, L.L.C. dated February 23, 2004.+ 4.1 Registration Rights Agreement between Danielson Holding Corporation and SZ Investments, L.L.C., Third Avenue Trust, on behalf of Third Avenue Value Fund Series, and D. E. Shaw Laminar Portfolios, L.L.C. dated December 2, 2003. (Incorporated by reference to Exhibit 4.1 to the Company's Form 8-K dated December 2, 2003 and filed with the Commission on December 5, 2003).+ 10.1 Letter Agreement between Danielson Holding Corporation and D. E. Shaw Laminar Portfolios, L.L.C. dated December 2, 2003. (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K dated December 2, 2003 and filed with the Commission on December 5, 2003).+ 23.1 Consent of Independent Auditors of Danielson Holding Corporation and Subsidiaries, dated May 7, 2004, by Ernst & Young LLP.*** 23.2 Consent of Independent Auditors of American Commercial Lines, LLC and Subsidiaries, dated May 6, 2004, by Ernst & Young LLP.*** 23.3 Consent of Independent Auditors of Covanta Energy Corporation and Subsidiaries, dated May 7, 2004, by Deloitte & Touche LLP.*** 23.4 Consent of Independent Auditors of Quezon Power, Inc. and Subsidiary, dated May 7, 2004, Sycip Gorres Velayo & Co., A Member Practice of Ernst & Young Global.*** 23.5 Consent of Independent Auditors of Danielson Holding Corporation and Subsidiaries dated, May 7, 2004 by KPMG LLP.*** 99.1 Press Release issued by Danielson Holding Corporation, dated March 10, 2004 regarding its acquisition of Covanta Energy Corporation.+ *** 99.2 The Supplemental Financial Information of Quezon Power, Inc., Items 1, 2, 3, 6, 7, 7A, 8, 9, and 9A, and Item 15-(A)-(2) of Part IV to the Covanta Energy Corporation Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 30, 2004, for the fiscal year ended December 31, 2003.*** 99.3 Unaudited pro forma condensed consolidated financial information of the Company. 99.4 Item 1 to the Covanta Energy Corporation Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004.*** + Incorporated by reference to the Company's Current Report on Form 8-K, dated March 10, 2004, which was filed with the Securities and Exchange Commission on March 11, 2004. *** Incorporated by reference to the Company's Form 8-K/A (Amendment No. 1), dated May 10, 2004 and filed with the Securities and Exchange Commission on May 11, 2004. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 18, 2004 DANIELSON HOLDING CORPORATION (Registrant) By: /s/ Philip G. Tinkler ----------------------------- Name: Philip G. Tinkler, Title: Chief Financial Officer DANIELSON HOLDING CORPORATION EXHIBIT INDEX List of Exhibits filed with this Form 8-K/A (Amendment No. 2): Exhibit No. Exhibit - ----------- ------- 99.3 Unaudited pro forma condensed consolidated financial information of the Company. EX-99.3 2 c85616a2exv99w3.txt UNAUDITED PRO FORMA Exhibit 99.3 Unaudited pro forma condensed consolidated financial information of the Company. UNAUDITED PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS The following unaudited pro forma condensed statements of consolidated operations for the quarter ended March 31, 2004 and the fiscal year ended December 31, 2003 are based on historical financial statements of Danielson Holding Corporation ("Danielson") and Covanta Energy Corporation ("Covanta") and give effect to the acquisition of Covanta as if it were consummated on the same terms at the beginning of each period. The historical financial statements have been adjusted for pro forma events that are (1) directly attributable to the transaction, (2) expected to have continuing impact and (3) factually supportable. This unaudited pro forma condensed consolidated financial information should be read in conjunction with: o accompanying notes to the unaudited pro forma condensed statements of consolidated operations o Covanta's separate historical unaudited financial statements as of and for the three months ended March 31, 2004 included in Covanta's Quarterly Report on Form 10-Q o Covanta's separate historical financial statements as of and for the year ended December 31, 2003 included in Covanta's Annual Report on Form 10-K o Danielson's historical unaudited financial statements as of and for the three months ended March 31, 2004 included in Danielson's Quarterly Report on Form 10-Q o Danielson's separate historical financial statements as of and for the year ended December 31, 2003 included in Danielson's Annual Report on Form 10-K The unaudited pro forma condensed financial information is provided for informational purposes only and is not necessarily indicative of the results of operations or financial position of the combined companies that would have occurred had the transactions been consummated at the beginning of the periods presented, nor is it indicative of future operating results or financial position. The unaudited pro forma condensed statements of consolidated operations do not give consideration to expense savings or asset dispositions. The unaudited pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable under the circumstances. These adjustments were based upon the preliminary work of Covanta and financial consultants, as well as other valuation estimates to determine the relative fair values of Covanta's assets and liabilities. Accordingly, the allocation of purchase price is subject to refinement. PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2004 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Covanta January 1 through Covanta Pro Forma March 10, 2004 Deconsolidation Historical Danielson Pro Forma Condensed As Reported of Entities As Adjusted As Reported Adjustments Consolidated ----------------- --------------- ----------- ----------- ----------- ------------ REVENUES: ENERGY AND WATER: Services $ 89,858 $ (5,282) $ 84,576 $ 25,453 $ $ 110,029 Electricity and steam sales 53,307 (535) 52,772 13,521 66,293 Construction revenues 58 58 0 58 Other revenue-net 9 9 2 11 ------------- ----------- ----------- ------------ ----------- ----------- 143,232 (5,817) 137,415 38,976 0 176,391 ------------- ----------- ----------- ------------ ----------- ----------- INSURANCE AND OTHER: Net earned premiums 5,988 5,988 Net investment income 808 808 Net realized investment gains 171 171 Other 18 18 ------------- ----------- ----------- ------------ ----------- ----------- 0 0 0 6,985 0 6,985 ------------- ----------- ----------- ------------ ----------- ----------- TOTAL REVENUES 143,232 (5,817) 137,415 45,961 0 183,376 ------------- ----------- ----------- ------------ ----------- ----------- COSTS AND EXPENSES: ENERGY AND WATER: Plant operating 100,775 (3,632) 97,143 27,322 124,465 Construction costs 73 (59) 14 0 14 Depreciation and amortization 13,426 (786) 12,640 3,495 (16,135)a 16,004 8,779 b 7,225 c Debt service charges, net 13,241 (1,045) 12,196 2,237 (796)d 11,014 (2,623)e Other operating costs and expenses (209) (209) 12 (197) Net loss (gain) on disposition of businesses (175) 175 0 0 0 Selling, general and administrative expenses 7,596 (322) 7,274 1,596 8,870 Other expenses, net (1,924) (1,924) (198) (2,122) Write-down of net assets held for use ------------- ----------- ----------- ------------ ----------- ----------- 132,803 (5,669) 127,134 34,464 (3,550) 158,048 ------------- ----------- ----------- ------------ ----------- ----------- INSURANCE AND OTHER: Net losses and loss adjustment 4,283 4,283 Other 3,291 3,291 ------------- ----------- ----------- ------------ ----------- ----------- 0 0 0 7,574 0 7,574 ------------- ----------- ----------- ------------ ----------- ----------- TOTAL COSTS AND EXPENSES 132,803 (5,669) 127,134 42,038 (3,550) 165,622 ------------- ----------- ----------- ------------ ----------- ----------- Operating income (loss) 10,429 (148) 10,281 3,923 3,550 17,754 ------------- ----------- ----------- ------------ ----------- ----------- Equity in income (loss) of unconsolidated subsidiaries 4,817 142 4,959 1,015 5,974 Interest expense 5,374 (6) 5,368 6,922 (5,368)h 15,878 8,956 i Reorganization items 58,282 58,282 (58,282)k 0 Fresh start adjustments 214,927 214,927 (214,927)k 0 Gain on extinguishment of debt (510,680) (510,680) 510,680 k 0 ------------- ----------- ----------- ------------ ----------- ----------- Income (loss) from continuing operations before income taxes and minority interests 247,343 0 247,343 (1,984) (237,509) 7,850 Income tax benefit (expense) (215,269) (215,269) 368 215,269 k (1,555) (1,923)l Minority interests (2,511) (2,511) (557) (3,068) ------------- ----------- ----------- ------------ ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS $ 29,563 $ 0 $ 29,563 $ (2,173) $ (24,163) $ 3,227 ============= ============ =========== ============ =========== =========== PER COMMON SHARE INFORMATION Earnings (loss) per common share - continuing operations Basic ($0.07) $0.09 Diluted ($0.07) $0.06 Weighted average common shares outstanding and common stock equivalents Basic 31,954 35,837 Diluted 31,954 65,637
FOR THE YEAR ENDED DECEMBER 31, 2003 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Pro Forma Covanta Deconsolidation Covanta Danielson Pro Forma Condensed As Reported of Entities As Adjusted As Reported Adjustments Consolidated ----------------- --------------- ----------- ----------- ----------- ------------ REVENUES: ENERGY AND WATER: Services $ 499,245 $ (28,379) $ 470,866 $ $ $ 470,866 Electricity and steam sales 277,766 (2,103) 275,663 275,663 Construction revenues 13,448 (10,881) 2,567 2,567 Other revenue-net 9 9 9 ------------ ----------- ---------- -------- -------- --------- 790,468 (41,363) 749,105 0 0 749,105 ------------ ----------- ---------- -------- -------- --------- INSURANCE AND OTHER: Net earned premiums 35,851 35,851 Net investment income 4,343 4,343 Net realized investment gains 2,080 2,080 Other 283 283 ------------ ----------- ---------- -------- -------- --------- 0 0 0 42,557 0 42,557 ------------ ----------- ---------- -------- -------- --------- TOTAL REVENUES 790,468 (41,363) 749,105 42,557 0 791,662 ------------ ----------- ---------- -------- -------- --------- COSTS AND EXPENSES: ENERGY AND WATER: Plant operating 500,627 (22,786) 477,841 477,841 Construction costs 20,479 (20,381) 98 98 Depreciation and amortization 71,932 (4,121) 67,811 (67,811)a 64,014 35,114 b 28,900 c Debt service charges, net 76,770 (5,954) 70,816 (5,053)d 55,272 (10,491)e Other operating costs and expenses 2,209 2,209 2,209 Net loss (gain) on disposition of businesses 7,246 7,246 (7,246)f 0 Selling, general and administrative expenses 35,639 (1,735) 33,904 33,904 Other expenses, net (1,119) (15) (1,134) (1,134) Write-down of net assets held for use 16,704 16,704 (16,704)g 0 ------------ ----------- ---------- -------- -------- --------- 730,487 (54,992) 675,495 0 (43,291) 632,204 ------------ ----------- ---------- -------- -------- --------- INSURANCE AND OTHER: Net losses and loss adjustment 36,684 36,684 Other 18,779 18,779 ------------ ----------- ---------- -------- -------- --------- 0 0 0 55,463 0 55,463 ------------ ----------- ---------- -------- -------- --------- TOTAL COSTS AND EXPENSES 730,487 (54,992) 675,495 55,463 (43,291) 687,667 ------------ ----------- ---------- -------- -------- --------- Operating income (loss) 59,981 13,629 73,610 (12,906) 43,291 103,995 ------------ ----------- ---------- -------- -------- --------- Equity in income (loss) of unconsolidated subsidiaries 29,941 (13,588) 16,353 (54,877) (38,524) Interest expense 36,990 (27) 36,963 1,424 (36,963)h 59,121 46,419 i 11,278 j Reorganization items 83,346 (440) 82,906 (82,906)k 0 ------------ ----------- ---------- -------- -------- --------- Income (loss) from continuing operations before income taxes and minority interests (30,414) 508 (29,906) (69,207) 105,463 6,350 Income tax benefit (expense) 12,555 (508) 12,047 (18) (41,026)l (4,775) 24,222 m Minority interests (8,905) (8,905) (8,905) ------------ ----------- ---------- -------- -------- --------- INCOME (LOSS) FROM CONTINUING OPERATIONS $ (26,764) $ 0 $ (26,764) $ (69,225) $ 88,659 $ (7,330) ============ =========== ========== ========= ========= ========= PER COMMON SHARE INFORMATION Earnings (Loss) per common share - continuing operations Basic ($2.25) ($0.20) Diluted ($2.25) ($0.20) Weighted average common shares outstanding and common stock equivalents Basic 30,783 35,904 Diluted 30,783 35,904
NOTE 1 - BASIS OF PRESENTATION As required by the investment and purchase agreement, Covanta filed a proposed plan of reorganization, proposed plan of liquidation for specified non-core businesses, and the related draft disclosure statement, each reflecting the transactions contemplated under the investment and purchase agreement, with the Bankruptcy Court. On March 5, 2004, the Bankruptcy Court confirmed the proposed plans (the "Reorganization Plan"). Under the terms of the investment and purchase agreement, on March 10, 2004, Danielson acquired 100% of Covanta's equity in consideration for approximately $30 million in cash. With the purchase of Covanta, Danielson acquired a leading provider of waste to energy services, independent power production and water and wastewater treatment services in the United States and abroad. Danielson's equity investment and ownership provided Covanta's businesses with improved liquidity and capital resources to finance their business activities and emerge from bankruptcy. Management believes that these factors will enable Danielson to earn an attractive return on its investment. The aggregate purchase price was $47.5 million which includes the cash purchase price of $29.8 million, approximately $6.4 million for professional fees and other estimated costs incurred in connection with the acquisition, and an estimated fair value $11.3 million for Danielson's commitment to sell up to 3 million shares of its Common Stock at $1.53 per share to certain creditors of Covanta. The following table summarizes the preliminary allocation of values to the assets acquired and liabilities assumed at the date of acquisition in conformity with Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations" and SFAS No. 109 "Accounting for Income Taxes". In addition to purchase price allocation adjustments, Covanta's emergence from Chapter 11 proceedings on March 10, 2004 resulted in a new reporting entity and adoption of fresh start accounting as of that date, in accordance with AICPA Statement of Position (SOP) 90-7, "Financial Reporting by Entities in Reorganization Under Bankruptcy Code". These preliminary fair value determinations of the tangible and intangible assets are based on discounted cash flows using currently available information. The excess of the reorganization value over tangible assets and identifiable intangible assets has been reflected as goodwill. Management's estimate of the fair value of long term debt was based on the new principal amounts of recourse debt that was part of the reorganized capital structure of Covanta upon emergence from bankruptcy. The Company has engaged valuation consultants to review its valuation methodology and their work is ongoing. Changes in the fair values of these assets from the current estimated values as well as changes in other assumptions could significantly impact the reported value of goodwill. The summary balance sheet information that follows reflects: (i) reduction of Covanta's property, plant and equipment carrying values; (ii) increase in the carrying value of Covanta's various operation and maintenance agreements and power purchase agreements; (iii) forgiveness of Covanta's pre-petition debt; (iv) issuance of new common stock to Danielson and other items in equity and notes pursuant to the Reorganization Plan; (v) payment of various administrative and other claims associated with Covanta's emergence from Chapter 11; (vi) distribution of cash of $235.5 million to Covanta's pre-petition secured lenders and for the payment of exit costs and funding of reserves; (vii) deferred tax assets principally related to net operating loss carryforwards ("NOLs") from the inclusion of Covanta in Danielson's consolidated federal income tax group; (viii) additional costs and expenses related to Danielson's acquisition of Covanta. These adjustments were based upon the preliminary work of Covanta and financial consultants, as well as other valuation estimates, to determine the relative fair values of Covanta's assets and liabilities. Accordingly, the allocation of purchase price is subject to refinement. Any increase or decrease in the fair value of Covanta's assets, liabilities, commitments, contracts and other items as compared to the information shown herein will change the purchase price allocable to Goodwill and may impact results of consolidated operations due to adjustments in depreciation and amortization or accretion related to the adjusted assets or liabilities.
MARCH 10, 2004 ($000s) -------------- Current Assets $ 529,923 Property, Plant and Equipment 1,034,779 Intangible Assets 318,114 Goodwill 24,470 Other Assets 329,743 ------------ Total Assets Acquired 2,237,029 ------------ Current Liabilities 371,618 Long-term Debt 337,761 Project Debt 847,651 Deferred Income Taxes 305,784 Other Liabilities 326,690 ------------ Total Liabilities Assumed 2,189,504 ------------ Net Assets Acquired $ 47,525 ============
Acquired intangible assets of $318.1 million primarily relate to service agreements on publicly owned waste to energy projects with an approximate sixteen year weighted average useful life. The $24.5 million of goodwill is not expected to be deductible for income tax purposes. Approximately $20.3 million of goodwill has been assigned to Covanta's domestic energy and water operations and $4.2 million to Covanta's international energy operations. The results of operations from Covanta are included in Danielson's consolidated results of operations from March 10, 2004. The attached unaudited pro forma condensed statements of consolidated operations for the quarter ended March 31, 2004 and the fiscal year ended December 31, 2003 have been prepared as if the acquisition of Covanta were consummated on the same terms at the beginning of each of the periods presented. NOTE 2 - PRO FORMA ADJUSTMENTS - -------------------------------------------------------------------------------- (a) Adjustment to reverse Covanta's historical depreciation and amortization. - -------------------------------------------------------------------------------- (b) Adjustment to include new depreciation based on fair values assigned to Covanta's property, plant and equipment as of March 10, 2004. - -------------------------------------------------------------------------------- (c) Adjustment to include new amortization based on fair values assigned to Covanta's acquired intangible assets as of March 10, 2004, primarily service agreements on publicly owned waste to energy projects. - -------------------------------------------------------------------------------- (d) Adjustment to reverse Covanta's historical amortization of bond issuance costs on outstanding debt. - -------------------------------------------------------------------------------- (e) Adjustment to include amortization of the premium on debt based on fair values assigned to Covanta's debt as of March 10, 2004. - -------------------------------------------------------------------------------- (f) Adjustment to reverse gain (loss) on sale of businesses that were sold as part of the Heber plan and other liquidators not part of Covanta business acquired. - -------------------------------------------------------------------------------- (g) Adjustment to reverse historical write-down of net assets held for use related to liquidators not part of Covanta business acquired. - -------------------------------------------------------------------------------- (h) Adjustment to reverse historical interest expense associated with pre-emergence financing of Covanta. - -------------------------------------------------------------------------------- (i) Adjustment to include interest expense based on post-emergence financing of Covanta. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (j) Adjustment to record additional interest expense on convertible notes issued by Danielson to finance the purchase of Covanta. The pro forma adjustment assumes the convertible notes were outstanding for all of 2003 at an interest rate of 12% per annum from January 1, 2003 to July 15, 2003 and 16% per annum for the remainder of 2003. However, Danielson intends to refinance the convertible notes from the proceeds of a rights offering in 2004. Assuming this refinancing occurs on June 30, 2004, approximately $3.2 million of interest expense would be avoided for the second half of 2004. - -------------------------------------------------------------------------------- (k) Adjustment to remove historical reorganization items related to costs resulting from Covanta's bankruptcy proceedings. - -------------------------------------------------------------------------------- (l) Adjustment to record the estimated tax effects associated with the pro forma adjustments to pre-tax income. - -------------------------------------------------------------------------------- (m) Adjustment to record income tax benefits with respect to Danielson's 2003 pre-tax losses from continuing operations to give effect to acquisition of Covanta as if it occurred on January 1, 2003. NOTE 3 - INCOME (LOSS) PER SHARE The pro forma basic income (loss) per common share data have been computed using average number of number of shares of common stock of Danielson, par value $0.10 per share ("Common Stock"), outstanding during the relevant period, adjusted on a pro forma basis for the issuance at the beginning of each period of an aggregate of 5,120,853 shares of common stock to the Bridge Lenders in connection with the $40 million of bridge financing provided for the Covanta acquisition. The pro forma effects associated with the $40 million convertible notes issued for the bridge financing and Danielson's commitment to sell up to 3 million shares of its Common Stock at $1.53 per share to certain creditors of Covanta have been included in the pro forma diluted income (loss) per share to the extent dilutive. NOTE 4 - PENSION COST The fair value adjustments for Covanta's pension and post-retirement benefit plans treats the previously unrecognized prior service cost and net actuarial loss as though they were recognized. No separate adjustment has been made in the unaudited condensed statements of consolidated operations to adjust net periodic pension and post-retirement benefit costs. -----END PRIVACY-ENHANCED MESSAGE-----