-----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, JLBJMdcywdSufzFVj7mYF3WwsnIRSndRaUx4pOrmAhVVEXv5iro8Ckb1nzA4B00+ OBIWnTCzsKRv05SJiIeFCQ== 0000847468-98-000024.txt : 19980805 0000847468-98-000024.hdr.sgml : 19980805 ACCESSION NUMBER: 0000847468-98-000024 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980522 ITEM INFORMATION: FILED AS OF DATE: 19980804 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASTE SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0000847468 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 954203626 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-25998 FILM NUMBER: 98676861 BUSINESS ADDRESS: STREET 1: 420 BEDFORD STREET STREET 2: SUITE 300 CITY: LEXINGTON STATE: MA ZIP: 02173 BUSINESS PHONE: 7818623000 MAIL ADDRESS: STREET 1: 420 BEDFORD STREET STREET 2: SUITE 300 CITY: LEXINGTON STATE: MA ZIP: 02173 FORMER COMPANY: FORMER CONFORMED NAME: BIOSAFE INTERNATIONAL INC DATE OF NAME CHANGE: 19950504 FORMER COMPANY: FORMER CONFORMED NAME: ZOE CAPITAL CORP DATE OF NAME CHANGE: 19920703 8-K/A 1 8-K/A AMENDMENT #2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No.2) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) May 22, 1998 WASTE SYSTEMS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 95-4203626 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 0-25998 (Commission File Number) 420 Bedford Street, Suite 300 Lexington, Massachusetts 02173 (Address of principal executive offices) (zip code) (781) 862-3000 Phone (781) 862-2929 Fax (Registrant's telephone number, including area code) This document contains a total of 2 pages. Item 2. Acquisition or Disposition of Assets. On May 22, 1998, Waste Systems International, Inc. ("WSI" or the "Company") acquired Eagle Recycling, Inc. and Horvath Sanitation, Inc., (collectively, "Eagle Companies") which are based in Altoona, Pennsylvania pursuant to the terms of a Stock Purchase Agreement dated March 3, 1998 by and among Bestin H.S.A., Jacques Khodara and Harry K. Benjamin (collectively the "Shareholders" or "Sellers") and the Company. The description of the acquisition transaction set forth herein is qualified it its entirety by the Stock Purchase Agreement. Pursuant to the Stock Purchase Agreement, the Registrant purchased all of the outstanding shares of the Eagle Companies for approximately $20.7 million in cash, stock and the assumption of debt. The acquisition has been accounted for using the purchase method of accounting. The transaction includes all of the assets and liabilities relating to the operation of the Eagle Companies. The acquired assets were used by the Shareholders in the solid waste collection and recycling business. Item 7. Financial Statements and Pro Forma Financial Information and Exhibits. The following consolidated financial statements, pro forma financial information and exhibits are filed as part of this report: A. Consolidated Financial Statements for the Eagle Companies. 1. Consolidated Financial Statements for Eagle Recycling Inc. and Subsidiary as of March 31, 1998 (unaudited). 2. Consolidated Financial Statements for Eagle Recycling Inc. and Subsidiary as of December 31, 1997 and 1996 (audited). B. Pro forma financial information. 1. Pro forma Combined Condensed Statement of Operations for the three months ended March 31, 1998 (unaudited) and Combined Condensed Balance Sheet as of March 31, 1998 (unaudited). 2. Pro forma Combined Condensed Statement of Operations for the year ended December 31, 1997 and Combined Condensed Balance Sheet as of December 31, 1997 (unaudited). 1 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WASTE SYSTEMS INTERNATIONAL, INC. Date: August 3, 1998 By: /s/ Philip Strauss ----------------- ------------------- Philip Strauss Chairman, Chief Executive Officer and President(Principal Executive Officer) Date: August 3, 1998 By: /s/ Bob Rivkin ---------------- --------------- Bob Rivkin Executive Vice President - Acquisitions, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) 2 Item 7. Financial Statements and Pro Forma Financial Information and Exhibits. Item 7.(A)(1) Consolidated Financial Statements for Eagle Recycling, Inc. and Subsidiary as of March 31, 1998 (unaudited). EAGLE RECYCLING, INC. AND SUBSIDIARY Condensed Consolidated Financial Statements (Unaudited) March 31, 1998 EAGLE RECYCLING, INC. AND SUBSIDIARY Table of Contents March 31, 1998 - -------------------------------------------------------------------------------- Page Condensed Consolidated Financial Statements (Unaudited): Consolidated Balance Sheets (Unaudited).............................2 Consolidated Statements of Income and Retained Earnings (Unaudited).....................................4 Consolidated Statements of Cash Flows (Unaudited)...................5 Notes to Consolidated Financial Statements (Unaudited)....................6 - -------------------------------------------------------------------------------- EAGLE RECYCLING, INC. AND SUBSIDIARY Consolidated Balance Sheets (Unaudited) March 31, 1998 - -------------------------------------------------------------------------------- Assets 1998 - -------------------------------------------------------------------------------- Current assets: Cash $221,434 Accounts receivable (less allowance for doubtful accounts of $100,000) 510,931 Packaged recycled material 17,173 Deferred income taxes 40,300 - -------------------------------------------------------------------------------- Total current assets 789,838 - -------------------------------------------------------------------------------- Property, plant, and equipment: Land and garage building 24,873 Equipment and vehicles 2,862,156 Office equipment 34,276 - -------------------------------------------------------------------------------- 2,921,305 Less accumulated depreciation (740,573) - -------------------------------------------------------------------------------- Net property, plant, and equipment 2,180,732 - -------------------------------------------------------------------------------- Other assets: Goodwill (net of amortization) 2,532,641 Noncompete agreements (net of amortization) 1,845,184 Organization expense (net of amortization) 596 - -------------------------------------------------------------------------------- Total other assets 4,378,421 - -------------------------------------------------------------------------------- Total assets $7,348,991 - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 2 EAGLE RECYCLING, INC. AND SUBSIDIARY Consolidated Balance Sheets (Unaudited), Continued - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity 1998 - -------------------------------------------------------------------------------- Current liabilities: Notes payable $562,896 Accounts payable 244,127 Accrued liabilities 100,987 - -------------------------------------------------------------------------------- Total current liabilities 908,010 - -------------------------------------------------------------------------------- Long-term liabilities: Deferred income taxes 193,569 Notes payable - net of current portion 5,331,543 Notes payable - stockholders 531,599 Accrued interest - stockholders 30,078 - -------------------------------------------------------------------------------- Total long-term liabilities 6,086,789 - -------------------------------------------------------------------------------- Minority interest 98,816 - -------------------------------------------------------------------------------- Stockholders' equity: Common stock, authorized 1,000 shares, without par value, 100 shares issued and outstanding 10,000 Retained earnings 245,376 - -------------------------------------------------------------------------------- Total stockholders' equity 255,376 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $7,348,991 - -------------------------------------------------------------------------------- 3 EAGLE RECYCLING, INC. AND SUBSIDIARY Consolidated Statements of Income and Retained Earnings (Unaudited) Three months ended March 31, 1998 - -------------------------------------------------------------------------------- 1998 - -------------------------------------------------------------------------------- Revenues 1,511,400 - -------------------------------------------------------------------------------- Cost of Operations: Operating expenses 1,013,267 Depreciation and amortization 214,241 - -------------------------------------------------------------------------------- Total cost of operations 1,227,508 - -------------------------------------------------------------------------------- Gross profit 283,792 Selling, general, and administrative expenses 151,452 - -------------------------------------------------------------------------------- Income from operations 132,340 - -------------------------------------------------------------------------------- Other income (expense): Interest income - Interest expense 124,615 Gain (loss) on sale of assets - - -------------------------------------------------------------------------------- Total other income (expense) 124,615 - -------------------------------------------------------------------------------- Income before income tax and minority interest 7,725 - -------------------------------------------------------------------------------- Income tax expense: Current 2,538 Deferred - - -------------------------------------------------------------------------------- 2,538 - -------------------------------------------------------------------------------- Net income 5,187 Retained earnings, beginning of period 240,189 - -------------------------------------------------------------------------------- Retained earnings, end of period $245,376 - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 4 EAGLE RECYCLING, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Three months ended March 31, 1998 - -------------------------------------------------------------------------------- 1998 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $5,187 - -------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 214,341 Changes in assets and liabilities: Increase in accounts receivables (152,907) Decrease in other current assets 48,592 Decrease in accounts payable (33,333) Increase in accrued interest 916 Decrease in other current liabilities (23,438) Increase in deferred taxes - - -------------------------------------------------------------------------------- Total adjustments 54,171 - -------------------------------------------------------------------------------- Net cash provided by operating activities 59,358 - -------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property, plant, and equipment - Payments for businesses acquired (2,705,246) - -------------------------------------------------------------------------------- Net cash used in investing activities (2,705,246) - -------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from notes payable 2,903,005 Payments on stockholder loans (220,518) Payments on notes payable - - -------------------------------------------------------------------------------- Net cash provided by financing activities 2,682,487 - -------------------------------------------------------------------------------- Net increase in cash 36,599 Cash, beginning of period 184,835 - -------------------------------------------------------------------------------- Cash, end of period $221,434 - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 5 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) - -------------------------------------------------------------------------------- (1) Summary of Significant Accounting Policies Description of Business The Company operates a waste hauling service with headquarters in Altoona, Pennsylvania and customers located exclusively in Altoona and surrounding areas. The Company is a combination of numerous smaller companies which have been purchased since June 1992. Principles of Consolidation The consolidated financial statements include the financial statements of Eagle Recycling, Inc. and its 75%-owned operating subsidiary, Horvath Sanitation, Inc. Significant intercompany balances and transactions have been eliminated in consolidation. Interim Financial Statements The condedsed interim financial statements reflect all adjustments (which include only normal recurring adjustments), which in the opinion of management, are necessary to present fairly the financial position at March 31, 1998, and results of operations for the three months then ended. The March 31, 1998 financial statements do not reflect any adjustments to deferred income taxes and minority interest amounts at December 31, 1997, which adjustments are not material The results of operations for the period ended March 31, 1998 are not necessarily indicative of the operating results for a full year. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) Acquisitions The Company has entered into three asset purchase agreements since March 31, 1998 with various trash haulers in south central Pennsylvania. The aggregate purchase price of these asset purchase agreements was approximately $2,900,000 and were accounted for under purchase accounting. The assets acquired consisted of vehicles and equipment, and covenants not to compete. The excess of the purchase price over the fair value of the acquired assets has been recorded as goodwill. (Continued) 6 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Condensed Consolidated Financial Statements (Unaudited) (2) Continued The following pro forma, condensed, combined balance sheet assumes that three acquisitions occurred at March 31, 1998 and the pro forma, condensed, combined statements of operations assumes that the 1998 acquisitions occured at the beginning of 1998. In addition, the pro forma, condensed, combined statements of operations also includes the effect of acquisitions during the three month period ended March 31, 1998 as if they had occurred at the beginning of 1998. This financial information does not purport to be indicative of what would have occured had the acquisitions been made at the beginning of 1998, or of the results which may occur in the future. Pro forma Condensed Combined Balance Sheet (Unaudited) March 31, 1998 ----------------------------------------------------------------------- Eagle Recycling Acquisitions Pro forma ----------------------------------------------------------------------- Assets Current assets: $790,000 - 790,000 Property, plant, and equipment, net 2,181,000 605,000 2,786,000 Intangible assets 4,378,000 2,295,000 6,673,000 ----------------------------------------------------------------------- Total assets $7,349,000 2,900,000 10,249,000 ----------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities $908,000 - 908,000 Long-term debt 5,863,000 2,900,000 8,763,000 Other noncurrent 322,000 - 322,000 Stockholders' equity 256,000 - 256,000 ----------------------------------------------------------------------- Total liabilities and stockholders' equity $7,349,000 2,900,000 10,249,000 ----------------------------------------------------------------------- Pro forma Condensed Combined Statement of Operations (Unaudited) Year ended December 31, 1997 ----------------------------------------------------------------------- Eagle Recycling Acquisitions Pro forma ----------------------------------------------------------------------- Revenues $1,511,000 589,000 2,100,000 Operating costs and expenses 1,285,000 246,000 1,531,000 Depreciation and amortization 164,000 528,000 692,000 Interest expense 125,000 190,000 315,000 Net income (63,000) (375,000) (438,000) ----------------------------------------------------------------------- The pro forma results include amortization of intangibles presented above and interest expense on debt assumed issued to finance the purchases. (Continued) 7 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Condensed Consolidated Financial Statements (Unaudited) - -------------------------------------------------------------------------------- (3) Change in Company Ownership The stockholders of Eagle Recycling, Inc. and Horvath Sanitation, Inc. sold their stock to WSI Pennsylvania Holdings, Inc. on May 22, 1998. 8 Item 7.(A)(2) Consolidated Financial Statements for Eagle Recycling, Inc. and Subsidiary as of December 31, 1997 and 1996 (audited). EAGLE RECYCLING, INC. AND SUBSIDIARY Consolidated Financial Statements December 31, 1997 and 1996 (With Independent Auditors' Report Thereon) EAGLE RECYCLING, INC. AND SUBSIDIARY Table of Contents December 31, 1997 and 1996 - -------------------------------------------------------------------------------- Page Independent Auditors' Report..............................................1 Consolidated Financial Statements: Consolidated Balance Sheets.........................................2 Consolidated Statements of Income and Retained Earnings.............4 Consolidated Statements of Cash Flows...............................5 Notes to Consolidated Financial Statements................................6 - -------------------------------------------------------------------------------- Independent Auditors' Report Board of Directors Eagle Recycling, Inc. and Subsidiary: We have audited the accompanying consolidated balance sheets of Eagle Recycling, Inc. and subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income and retained earnings, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eagle Recycling, Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP June 5, 1998 EAGLE RECYCLING, INC. AND SUBSIDIARY Consolidated Balance Sheets December 31, 1997 and 1996 - -------------------------------------------------------------------------------- Assets 1997 1996 - -------------------------------------------------------------------------------- Current assets: Cash $184,835 148,957 Accounts receivable (less allowance for doubtful accounts of $100,000 in 1997 and $60,000 in 1996) 358,024 269,029 Related party deposit receivable 40,000 30,000 Packaged recycled material 17,173 - Prepaid expense 8,592 3,544 Deferred income taxes 40,300 24,180 - -------------------------------------------------------------------------------- Total current assets 648,924 475,710 - -------------------------------------------------------------------------------- Property, plant, and equipment: Land and garage building 24,873 24,873 Equipment and vehicles 1,826,312 1,343,050 Office equipment 29,872 29,269 - -------------------------------------------------------------------------------- 1,881,057 1,397,192 Less accumulated depreciation 647,962 449,802 - -------------------------------------------------------------------------------- Net property, plant, and equipment 1,233,095 947,390 - -------------------------------------------------------------------------------- Other assets: Goodwill (net of amortization) 1,539,517 584,986 Noncompete agreements (net of amortization) 1,294,471 562,774 Organization expense (net of amortization) 1,165 3,440 - -------------------------------------------------------------------------------- Total other assets 2,835,153 1,151,200 - -------------------------------------------------------------------------------- Total assets $4,717,172 2,574,300 - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 2 EAGLE RECYCLING, INC. AND SUBSIDIARY Consolidated Balance Sheets, Continued - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity 1997 1996 - -------------------------------------------------------------------------------- Current liabilities: Notes payable $562,896 202,903 Accounts payable 277,460 203,283 Related party payable 50,000 - Deferred revenue 44,869 - Accrued liabilities 29,556 3,253 - -------------------------------------------------------------------------------- Total current liabilities 964,781 409,439 - -------------------------------------------------------------------------------- Long-term liabilities: Deferred income taxes 193,569 118,454 Notes payable - net of current portion 2,428,538 962,746 Notes payable - stockholders 752,117 817,876 Accrued interest - stockholders 29,162 7,391 - -------------------------------------------------------------------------------- Total long-term liabilities 3,403,386 1,906,467 - -------------------------------------------------------------------------------- Minority interest 98,816 70,370 - -------------------------------------------------------------------------------- Stockholders' equity: Common stock, authorized 1,000 shares, without par value, 100 shares issued and outstanding 10,000 10,000 Retained earnings 240,189 178,024 - -------------------------------------------------------------------------------- Total stockholders' equity 250,189 188,024 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $4,717,172 2,574,300 - -------------------------------------------------------------------------------- 3 EAGLE RECYCLING, INC. AND SUBSIDIARY Consolidated Statements of Income and Retained Earnings Years ended December 31, 1997 and 1996 - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Revenues $4,331,740 3,226,175 - -------------------------------------------------------------------------------- Cost of Operations: Operating expenses 2,750,645 2,169,484 Depreciation and amortization 455,165 299,629 - -------------------------------------------------------------------------------- Total cost of operations 3,205,810 2,469,113 - -------------------------------------------------------------------------------- Gross profit 1,125,930 757,062 Selling, general, and administrative expenses 664,409 498,249 - -------------------------------------------------------------------------------- Income from operations 461,521 258,813 - -------------------------------------------------------------------------------- Other income (expense): Interest income 2,015 2,736 Interest expense (299,295) (174,466) Gain (loss) on sale of assets 2,259 (3,913) - -------------------------------------------------------------------------------- Total other income (expense) (295,021) (175,643) - -------------------------------------------------------------------------------- Income before income tax and minority interest 166,500 83,170 - -------------------------------------------------------------------------------- Income tax expense: Current 16,894 17,315 Deferred 58,995 19,744 - -------------------------------------------------------------------------------- 75,889 37,059 - -------------------------------------------------------------------------------- Income before minority interest 90,611 46,111 Minority interest in earnings of subsidiary (28,446) (9,948) - -------------------------------------------------------------------------------- Net income 62,165 36,163 Retained earnings, beginning of year 178,024 141,861 - -------------------------------------------------------------------------------- Retained earnings, end of year $240,189 178,024 - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 4 EAGLE RECYCLING, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended December 31, 1997 and 1996 - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $62,165 36,163 - -------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 455,165 299,629 Provision for doubtful accounts 40,000 60,000 Minority interest in earnings of subsidiary 28,446 9,948 (Gain) loss on sale of equipment (2,259) 3,913 Changes in assets and liabilities: Increase in accounts receivables (128,995) (84,594) Increase in other current assets (32,221) (30,544) Increase in accounts payable 74,177 90,107 Increase (decrease) in accrued interest 21,771 (67,350) Increase (decrease) in other current liabilities 121,172 (9,077) Increase in deferred taxes 58,995 19,744 - -------------------------------------------------------------------------------- Total adjustments 636,251 291,776 - -------------------------------------------------------------------------------- Net cash provided by operating activities 698,416 327,939 - -------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sale of equipment 28,937 18,800 Purchase of property, plant, and equipment (112,090) (166,290) Payments for businesses acquired (2,339,411) (541,534) - -------------------------------------------------------------------------------- Net cash used in investing activities (2,422,564) (689,024) - -------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from notes payable 2,162,400 607,985 Payments on stockholder loans (31,553) - Payments on notes payable (370,821) (185,481) - -------------------------------------------------------------------------------- Net cash provided by financing activities 1,760,026 422,504 - -------------------------------------------------------------------------------- Net increase in cash 35,878 61,419 Cash, beginning of year 148,957 87,538 - -------------------------------------------------------------------------------- Cash, end of year $184,835 148,957 - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 5 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements December 31, 1997 and 1996 - -------------------------------------------------------------------------------- (1) Summary of Significant Accounting Policies Description of Business The Company operates a waste hauling service with headquarters in Altoona, Pennsylvania and customers located exclusively in Altoona and surrounding areas. The Company is a combination of numerous smaller companies which have been purchased since June 1992. Principles of Consolidation The consolidated financial statements include the financial statements of Eagle Recycling, Inc. and its 75%-owned operating subsidiary, Horvath Sanitation, Inc. Significant intercompany balances and transactions have been eliminated in consolidation. The 25% interest in Horvath Sanitation, Inc. has been reported as a minority interest in the Company's consolidated balance sheet, and the related earnings have been reported as minority interest in earnings of subsidiary on the consolidated statement of income and retained earnings. Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation expense is computed using the straight-line method over estimated useful lives between 3 and 7 years, except for building, which is depreciated over 15 years. Salvage value is excluded when calculating depreciation on certain trucks and containers. Additions, improvements, and expenditures for maintenance that significantly extend the useful lives of equipment are capitalized. Other expenditures for maintenance and repairs are expensed. When property or equipment is sold or retired, the original cost is removed from the asset account together with the related accumulated depreciation. Gains or losses resulting from these transactions are included in income or expense. Goodwill and Noncompete Agreements Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 10 to 15 years. Noncompete agreements entered into in connection with acquired companies are amortized on a straight-line basis over the noncompete period, generally 5 to 15 years. The Company reviews its intangibles and other long-lived assets for impairment when events and circumstances indicate that the carrying amount of those assets may not be recoverable. The primary indicators of recoverability are the associated current and forecasted undiscounted operating cash flows. If the review indicates that impairment has occurred, the asset will be reduced to its estimated recoverable value. (Continued) 6 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (1) Continued Advertising Advertising is expensed as incurred. Revenue Hauling revenue is recognized during the time period service takes place. Recycling revenue is recognized when the recyclables are delivered or packaged for delivery to the recycling vendor. Deferred revenue on the consolidated balance sheet represents amounts billed prior to the service period. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (Continued) 7 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidate Financial Statements - -------------------------------------------------------------------------------- (2) Notes Payable The Company's long-term debt consists of the following: Balance as of Balance as of December 31, December 31, 1997 1996 - ------------------------------------------------------------------------------------------------------------- $765,000 original bank term note payable, proceeds used for business acquisitions, payable in monthly installments of $15,418 interest and principal, secured by all Company assets and requiring certain current and income ratios for which the Company is in compliance or has received waivers as of December 31, 1997. Variable interest rate (prime rate plus 1.75%) at December 31, 1997 and 1996 was 10.25% and 10%. $442,383 575,046 $200,000 original bank term note payable, proceeds used for a business acquisition, payable in monthly installments of $3,251 interest and principal, secured by all Company assets. Variable interest rate (prime rate plus 1.0%) at December 31, 1997 and 1996 was 9.5% and 9.25%. 172,598 194,255 $260,000 original bank term note payable, proceeds used for a business acquisition, payable in monthly installments of $5,414 interest and principal, secured by all Company assets. Variable interest rate (prime rate plus 1.0%) at December 31, 1997 and 1996 was 9.5% and 9.25%. 212,110 170,316 $69,000 original bank term note payable, proceeds used for a truck purchase, payable in monthly installments of $1,465 interest and principal, secured by the truck purchased. Variable interest rate (prime rate plus 1.0%) at December 31, 1997 and 1996 was 9.5% and 9.25%. 50,170 62,330 Seller financed note payable used to purchase a garage in 1996 payable in monthly installments of $350 interest and principal, secured by garage purchased. Interest rate fixed at 5.8%. 10,205 13,703 Seller financed note payable, used for a business acquisition. - 150,000 Seller financed note payable, used for equipment acquisition. Secured by equipment purchased. Expected to be paid during 1998. 7,400 - $152,800 original bank term note payable, proceeds used for a business acquisition, payable in monthly installments of $3,204 interest and principal, secured by all Company assets. Variable interest rate (prime rate plus 1.0%) at December 31, 1997 was 9.5%. 134,193 - $320,000 original bank term note payable, proceeds used for a business acquisition, payable in monthly installments of $6,800 interest and principal, secured by all Company assets. Variable interest rate (prime rate plus 1.0%) at December 31, 1997 was 9.5%. 282,277 - (Continued) 8 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (2) Continued Balance as of Balance as of December 31, December 31, 1997 1996 - ------------------------------------------------------------------------------------------------------------- $1,750,000 original bank term note payable, proceeds used for a business acquisition, payable in monthly installments of $28,726 interest and principal, secured by all Company assets. Additionally, a security was pledged as specific collateral by a stockholder. Variable interest rate (prime rate plus 1.0%) at December 31, 1997 was 9.5%. The stockholder providing the additional collateral is paid $3,646 a month for his pledge for as long as the pledge exists. $1,680,098 - $135,000 unsecured minority interest stockholder notes payable, proceeds used to start Company and acquire another business, $110,000 has no set repayment terms with remaining $25,000 payable in monthly installments of $406 interest and principal. Interest fixed at 12%. This debt is subordinated to bank debt, and bank approval is needed to amend these notes payable arrangements. 122,257 121,367 $350,000 unsecured stockholder note payable, proceeds used for a business acquisition, payable in monthly installments of $5,688 interest and principal. Interest fixed at 12%. 264,936 299,141 $391,000 unsecured stockholder notes payable, proceeds used to start Company and acquire another business, $366,000 has no set repayment terms with remaining $25,000 payable in monthly installments of $906 interest and principal. Interest fixed at 12%. This debt is subordinated to bank debt, and bank approval is needed to amend these notes payable arrangements. 364,924 397,367 - ------------------------------------------------------------------------------------------------------------- Total notes payable $ 3,743,551 $1,983,525 - -------------------------------------------------------------------------------------------------------------
The following is a summary of principal maturities of long-term debt during the next five years: 1998 $562,896 1999 612,897 2000 628,895 2001 526,084 2002 414,534 ------------------------------------------------------- All bank debt is with one local bank lender. (Continued) 9 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (3) Line of Credit The Company has a line of credit agreement with a local bank. The amount available under the agreement was $31,000 at December 31, 1997. Interest is due at prime plus 1.5% (10% at December 31, 1997). The total amount of the line of credit was available at December 31, 1997 and 1996. (4) Description of Leasing Arrangements The Company leases its office and garage facilities under month to month leases. The Company has a $40,000 deposit with a related company through common ownership with the minority interest stockholder and pays $3,000 a month for real estate rental. Additionally, the Company has guaranteed a term note payable amounting to $158,161 at December 31, 1997 related to this property. The payments are $1,891 per month, principal and interest, and are current at December 31, 1997. The Company leases five other properties with oral or written month to month leases and one property with an annual lease with an option to renew annually. Future minimum lease payments under the noncancelable operating leases with initial or remaining terms of one year or more are as follows: 1998 $32,230 1999 and thereafter - ------------------------------------------ (5) Other Assets Goodwill and noncompete agreements relate to numerous trash hauling businesses that have been acquired since the Company started in 1992. While these assets are amortized over estimated useful lives, management believes that no material impairment of the carrying value of these assets exists at December 31, 1997. As of As of December 31, 1997 December 31, 1996 ---------------------- ------------------- Noncompete Noncompete Goodwill agreements Goodwill agreements ----------------------------------------------------------------------- Cost $1,683,477 1,667,217 653,476 774,093 Less accumulated amortization 143,960 372,746 68,490 211,319 ----------------------------------------------------------------------- Net $1,539,517 1,294,471 584,986 562,774 ----------------------------------------------------------------------- (6) Statement of Cash Flows The Company paid $277,524 and $241,816 for interest and $17,964 and $21,855 for income taxes (net of refunds) in 1997 and 1996, respectively. (Continued) 10 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (7) Income Taxes The provision for income taxes consisted of the following: 1997 1996 ----------------------------------------------------------------------- Current: Federal $9,977 9,257 State 6,917 8,058 ----------------------------------------------------------------------- 16,894 17,315 ----------------------------------------------------------------------- Deferred: Federal 46,405 15,484 State 12,590 4,260 ----------------------------------------------------------------------- 58,995 19,744 ----------------------------------------------------------------------- $75,889 37,059 ----------------------------------------------------------------------- The Companies file separate federal and state income tax returns. The Company's effective income tax rate varies from the federal income tax computed at the statutory rate of 35% for 1997 and 1996 as a result of the following items: 1997 1996 ----------------------------------------------------------------------- Federal tax at statutory rate $58,275 29,110 State income tax, net of federal benefit 12,875 8,130 Expiration of state net operating loss carryforwards 28,898 - Change in valuation allowance (18,705) (2,780) Nondeductible costs 1,051 246 Benefit of graduated tax rates (11,064) (4,201) Other 4,559 6,554 ----------------------------------------------------------------------- $75,889 37,059 ----------------------------------------------------------------------- The significant components of deferred income tax expense attributable to income from continuing operations for the years ended December 31, 1997 and 1996 are as follows: 1997 1996 ----------------------------------------------------------------------- Deferred tax expense (exclusive of the effects of other components below) $77,700 22,524 Decrease in beginning-of-the-year balance of the valuation allowance for deferred tax assets (18,705) (2,780) ----------------------------------------------------------------------- $58,995 19,744 ----------------------------------------------------------------------- (Continued) 11 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (7) Continued The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are presented below: 1997 1996 ----------------------------------------------------------------------- Deferred tax assets Bad debts $40,300 24,180 Federal net operating loss carryforwards 18,616 10,738 State net operating loss carryforwards 2,315 28,898 Other - 8,708 ----------------------------------------------------------------------- Total gross deferred tax assets 61,231 72,524 Less valuation allowance (20,931) (39,636) ----------------------------------------------------------------------- Total net deferred tax assets 40,300 32,888 ----------------------------------------------------------------------- Deferred tax liabilities: Depreciation and amortization 188,250 127,162 Other 5,319 - ------------------------------------------------------------------------ Total gross deferred tax liabilities 193,569 127,162 ------------------------------------------------------------------------ Net deferred tax liability $(153,269) (94,274) ------------------------------------------------------------------------ The net deferred tax liability is included on the consolidated balance sheet as follows: 1997 1996 ------------------------------------------------------------------------ Current deferred income tax asset - net $40,300 24,180 Noncurrent deferred income tax liability - net (193,569) (118,454) ------------------------------------------------------------------------ $(153,269) (94,274) ------------------------------------------------------------------------ The valuation allowance for deferred tax assets as of January 1, 1997 and 1996 was $39,636 and $42,416, respectively. The net change in the total valuation allowance for the years ended December 31, 1997 and 1996 were decreases of $18,705 and $2,780, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, Eagle Recycling, Inc. will need to generate future federal taxable income of approximately $55,000 prior to the expiration of the federal net operating loss carryforwards which expire in 2006 through 2012. Eagle Recycling, Inc. will need to generate future state taxable income of approximately $23,000 prior to the expiration of the state net operating loss (Continued) 12 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (7) Continued carryforwards in 2000. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 1997. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. (8) Stockholder Agreements An agreement was reached by the Company to pay one of the stockholders $50,000 for consulting services performed during 1997, which is reported as a related party payable at December 31, 1997 on the consolidated balance sheet. A five-year employment agreement exists with an officer/stockholder beginning September 15, 1997 with provisions for compensation, termination, and a non-competition arrangement. Additionally, a stockholders' agreement exists allowing each stockholder right of first refusal on any stock transfer, permitting stock transfers and providing procedures for the corporation to sell its entire business. (9) Acquisitions The Company has entered into six asset purchase agreements since January 1, 1998 with various trash haulers in south central Pennsylvania. The aggregate purchase price of these asset purchase agreements was approximately $5,577,000 and were accounted for under purchase accounting. The assets acquired consisted of vehicles and equipment, and covenants not to compete. The excess of the purchase price over the fair value of the acquired assets has been recorded as goodwill. The following pro forma, condensed, combined balance sheet assumes that the 1998 acquisitions occurred at December 31, 1997 and the pro forma, condensed, combined statement of operations assumes that the 1998 acquisitions occurred at the beginning of 1997. In addition, the pro forma, condensed, combined statement of operations also includes the effect of acquisitions during 1997 as if they had occurred at the beginning of 1997. This financial information does not purport to be indicative of what would have occurred had the acquisitions been made at the beginning of 1997, or of the results which may occur in the future. (Continued) 13 EAGLE RECYCLING, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (9) Continued Pro forma Condensed Combined Balance Sheet (Unaudited) December 31, 1997 ------------------------------------------------------------------------- Eagle Recycling Acquisitions Pro forma ------------------------------------------------------------------------- Assets Current assets: $648,924 - 648,924 Property, plant, and equipment, net 1,233,095 1,614,351 2,847,446 Intangible assets 2,835,153 3,963,000 6,798,153 ------------------------------------------------------------------------- Total assets $4,717,172 5,577,351 10,294,523 ------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities $964,781 1,478,851 2,443,632 Long-term debt 3,180,655 4,098,500 7,279,155 Other noncurrent 321,547 - 321,547 Stockholders' equity 250,189 - 250,189 ------------------------------------------------------------------------- Total liabilities and stockholders' equity $4,717,172 5,577,351 10,294,523 ------------------------------------------------------------------------- Pro forma Condensed Combined Statement of Operations (Unaudited) Year ended December 31, 1997 ------------------------------------------------------------------------- Eagle Recycling Acquisitions Pro forma ------------------------------------------------------------------------- Revenues $4,331,740 4,474,204 8,805,944 Operating costs and expenses 3,515,115 3,173,911 6,689,026 Depreciation and amortization 455,165 899,336 1,354,501 Interest expense 299,295 807,666 1,106,961 Net income 62,165 (406,709) (344,544) ------------------------------------------------------------------------- The pro forma results include amortization of intangibles presented above and interest expense on debt assumed issued to finance the purchases. (10) Change in Company Ownership The stockholders of Eagle Recycling, Inc. and Horvath Sanitation, Inc. sold their stock to WSI Pennsylvania Holdings, Inc. on May 22, 1998. - -------------------------------------------------------------------------------- Item 7.(B) Financial Statements and Pro Forma Financial Information and Exhibits. Pro Forma Combined Condensed Financial Statements as of March 31, 1998 and December 31, 1997 (Unaudited). The following unaudited Pro Forma Combined Condensed Financial Statements are based on historical Consolidated Financial Statements of Waste Systems International, Inc., ("WSI') and the Eagle Companies adjusted to give effect to the acquisition of the Eagle Companies for consideration of $20,700,000. The March 31, 1998 Proforma Combined Condensed Balance Sheet assumes that the acquisition occurred at March 31, 1998 and the Pro Forma Combined Condensed Statement of Operations assumes that the acqusition occurred at the beginning of 1998. The December 31, 1997 Pro Forma Combined Condensed Balance Sheet assumes that the acquisition occurred at December 31, 1997 and the Pro Forma Combined Condensed Statement of Operations assumes that the acqusition occurred at the beginning of 1997. The Pro Forma Financial Data may not be indicative of what the financial condition of WSI would have been, had the transaction to which such data gives effect been completed on the date assumed, nor are such data necessarily indicative of the financial condition of WSI that may exist in the future. The following unaudited Pro Forma information should be read in conjunction with the notes thereto, and the consolidated financial statements and notes of WSI for the three months ended March 31, 1998 included in the Company's March 31, 1998 Form 10Q filing and the year ended December 31, 1997 included in the Company's December 31, 1997 Form 10K filing, as amended, and the historical financial statements of the Eagle Companies appearing elsewhere in this filing. The Eagle Companies Condensed Consolidated Balance Sheet includes the Pro Forma effects of various transactions. See Note 2 to the Eagle Companies March 31, 1998 Consolidated Financial Statements and Note 9 to the December 31,1997 Consolidated Financial Statements elsewhere in this filing. Item 7. (B) (1) Waste Systems International, Inc. Pro Forma Combined Condensed Balance Sheet March 31, 1998 (Unaudited) Waste Systems Eagle Pro forma International, Companies Adjustments Total Inc. --------------------------------------------------------------- Assets: Cash and equivalents $894,000 $221,000 $- $1,115,000 Accounts and notes receivable 1,066,000 511,000 1,577,000 Other current assets 1,536,000 58,000 (40,000)(2) 1,554,000 Property and equipment 14,339,000 2,786,000 17,125,000 Advances and deposits 2,302,000 - (2,200,000)(4) 102,000 Other noncurrent assets 3,741,000 6,673,000 13,065,000(1)(3)(4)23,479,000 --------------------------------------------------------------- Total Assets $23,878,000 $10,249,000 $10,825,000 $44,952,000 =============================================================== Liabilities and stockholders' equity: Current portion of debt $7,905,000 $563,000 (563,000)(3) $7,905,000 Accounts payable 1,005,000 244,000 1,249,000 Accrued expenses and other current liabilities 1,507,000 101,000 1,608,000 Long term debt 6,970,000 8,763,000 20,700,000 (1) 27,670,000 (8,763,000)(3) Other noncurrent liabilities 1,691,000 322,000 (194,000)(2) 1,720,000 (99,000)(2) Stockholders' equity 4,800,000 256,000 247,000 (2) 4,800,000 (503,000)(1) ---------------------------------------------------------------- Total liabilities and stockholders equity $23,878,000 $10,249,000 $10,825,000 $44,952,000 ================================================================
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet The Eagle Companies Condensed Consolidated Balance Sheet includes the Pro Forma effects of various transactions. See Note 2 to the Eagle Companies March 31, 1998 Consolidated Financial Statements elsewhere in this filing. (1) Reflects the acquisition of the Eagle Companies accounted for using the purchase method for total consideration of $20,700,000. The allocation of purchase price was based on preliminary estimated values and will be subject to final adjustment. The purchase price was allocated as follows: Life ---------- Property and equipment $2,800,000 3-10 Years Covenants not to compete 750,000 3-10 Years Customer lists 2,200,000 10 Years Workplace in force 420,000 2 Years Goodwill 14,530,000 25 Years ----------- $20,700,000 =========== The entire purchase price of $20,700,000 was assumed to be paid out of long term borrowing. (2) Reflects the elimination of deferred tax assets and liabilities and minority interest of the Eagle Companies as a result of the acquisition by Waste Systems International, Inc. and its net operating loss carryforward position. (3) Reflects the payoff of Eagle Companies outstanding debt. (4) Reflects a $2.2 million deposit on the acquisition of the Eagle Companies by WSI. Item 7. (B)(1) - Continued Waste Systems International, Inc. Pro Forma Combined Condensed Statement of Operations Three Months Ended March 31, 1998 (Unaudited) Waste Systems Eagle Pro forma International, Companies Combined Adjustments Total Inc. ----------------------------------------------------------------------------------- Sales $1,528,000 $2,100,000 $3,628,000 $3,628,000 Costs and expenses 2,070,000 1,531,000 3,601,000 3,601,000 Depreciation and amortization 374,000 692,000 1,066,000 322,000 (1) 1,388,000 Interest expense, net 434,000 315,000 749,000 47,000 (2) 796,000 ---------------------------------------------------------------------------------- Net income $(1,350,000) $(438,000) $(1,788,000) $369,000 $(2,157,000) ==================================================================================
Notes to Unaudited Pro Forma Combined Condensed Statement of Operations for the three months ended March 31, 1998 The Eagle Companies Condensed Statement of Operations include the pro forma effects of various acquisitions. See Note 2 to the March 31, 1998 Eagle Companies Consolidated Financial Statements elsewhere in this filing. (1) To reflect the adjustment to depreciation and amortization based on the valuation of the assets acquired. (2) To reflect interest expense on the debt used to purchase the Eagle Companies, net of a reduction in the Eagle Companies' interest expense on debt used to finance various acquisitions using WSI's borrowing rate of 7%. Item 7 (B)(2) Waste Systems International, Inc. Pro Forma Combined Condensed Balance Sheet December 31, 1997 (Unaudited) Waste Systems Eagle Pro forma International, Companies Adjustments Total Inc. --------------------------------------------------------------- Assets: Cash and equivalents $2,964,000 $185,000 $- $3,149,000 Accounts and notes receivable 945,000 358,000 1,303,000 Other current assets 1,366,000 106,000 1,472,000 Property and equipment 12,487,000 2,847,000 15,334,000 Other noncurrent assets 798,000 6,798,000 10,876,000(1)(3) 18,432,000 (40,000)(2) --------------------------------------------------------------- Total Assets $18,560,000 $10,294,000 $10,836,000 $39,690,000 =============================================================== Liabilities and stockholders' equity: Current portion of debt $844,000 $2,042,000 (2,042,000)(3) $844,000 Accounts payable 354,000 277,000 631,000 Accrued expenses and other current liabilities 2,545,000 124,000 2,669,000 Long term debt 7,201,000 7,279,000 20,700,000(1) 27,901,000 Other noncurrent liabilities 1,644,000 322,000 (194,000)(2) 1,673,000 (99,000)(2) Stockholders' equity 5,972,000 250,000 253,000 (2) 5,972,000 (503,000)(1) ---------------------------------------------------------------- Total liabilities and stockholders equity $18,560,000 $10,294,000 $10,836,000 $39,690,000 ================================================================
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet The Eagle Companies Condensed Consolidated Balance Sheet includes the Pro Forma effects of various transactions. See Note 9 to the Eagle Companies December 31, 1997 Consolidated Financial Statements elsewhere in this filing. (1) Reflects the acquisition of the Eagle Companies accounted for using the purchase method for total consideration of $20,700,000. (2) Reflects the elimination of deferred tax assets and liabilities and minority interest of the Eagle Companies as a result of the acquisition by Waste Systems International, Inc. and its net operating loss carryforward position. (3) Reflects the payoff of Eagle Companies outstanding debt. Waste Systems International, Inc. Pro Forma Combined Condensed Statement of Operations Year Ended December 31, 1997 Unaudited Waste Systems Eagle Pro forma International, Companies Combined Adjustments Total Inc. ----------------------------------------------------------------------------------- Sales $3,458,000 $8,806,000 $12,264,000 $12,264,000 Costs and expenses 7,000,000 6,689,000 13,689,000 (28,000)(1) 13,661,000 Depreciation and amortization 692,000 1,355,000 2,047,000 739,000 (2) 2,786,000 Interest expense, net 1,355,000 1,107,000 2,462,000 346,000 (3) 2,808,000 ---------------------------------------------------------------------------------- Net income $(5,589,000) $(345,000) $(5,934,000) $1,057,000 $(6,991,000) ==================================================================================
Notes to Unaudited Pro Forma Combined Condensed Statement of Operations for the Year Ended December 31, 1997 The Eagle Companies operations includes the pro forma effects of various acquisitions. See note 9 to the Eagle Companies Consolidated Financial Statements elsewhere in this filing. (1) To reflect the elimination of the minority interest at Eagle Recycling as a result of WSI acquiring 100% of the Eagle Companies. (2) To reflect the adjustment to depreciation and amortization based on the valuation of the assets acquired. (3) To reflect interest expense on the debt used to purchase the Eagle Companies, net of a reduction in the Eagle Companies' interest expense on debt used to finance various acquisitions using WSI's borrowing rate of 7%. -----END PRIVACY-ENHANCED MESSAGE-----