-----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, MA+JHIXT4VVEW8jnG7MTwGkURkn9bs7hWEB43KT59/Yt9VNrfjssYoYITJ1iPLRK mh/BhQ0baf/kuYMZJag6qA== 0001020488-00-000070.txt : 20000426 0001020488-00-000070.hdr.sgml : 20000426 ACCESSION NUMBER: 0001020488-00-000070 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ISG RESOURCES INC CENTRAL INDEX KEY: 0001063018 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 742164490 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 333-56217 FILM NUMBER: 608379 BUSINESS ADDRESS: STREET 1: 136 EAST SOUTH TEMPLE STREET 2: SUITE 1300 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 BUSINESS PHONE: 8012369700 MAIL ADDRESS: STREET 1: 136 EAST SOUTH TEMPLE STREET 2: SUITE 1300 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 FORMER COMPANY: FORMER CONFORMED NAME: JTM INDUSTRIES INC DATE OF NAME CHANGE: 19980604 10-K/A 1 ANNUAL REPORT - AMENDMENT 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee required] For the Fiscal Year Ended December 31, 1999 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No fee required] For the transition period from N/A to N/A ------ ----- Commission File Number 333-56217 ISG RESOURCES, INC. ------------------------------------- (Exact name of Registrant as specified in its charter) Utah 87-0327982 -------------- ------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 136 East South Temple, Suite 1300, Salt Lake City, Utah 84111 -------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 236-9700 ----------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: 10% Senior Subordinated Notes Due 2008 --------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ _ _ ] The aggregate market value of the voting stock held by non-affiliates of the registrant on March 29, 2000 was approximately $0. The number of shares of Common Stock outstanding on March 29, 2000 was 100 shares. Documents Incorporated by Reference: See Item 14(a) List of Exhibits PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements See Index to Financial Statements on page F-1. 2. Financial Statement Schedules All financial statement schedules have been omitted because either they are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto. 3. Exhibits Exhibits *2.1 Plan of Merger for January 1, 1999 Merger. *2.2 Plan of Merger for July 31, 1999 Merger. *3.1 Articles of Incorporation of JTM Industries, Inc. *3.1a Articles of Amendment of Articles of Incorporation of JTM Industries, Inc. *3.2 By Laws of JTM Industries, Inc. *3.3 Articles of Incorporation of KBK Enterprises, Inc. *3.4 By Laws of KBK Enterprises, Inc. *3.5 Articles of Incorporation of Pozzolanic Resources, Inc. *3.6 By Laws of Pozzolanic Resources, Inc. *3.7 Articles of Incorporation of Power Plant Aggregates of Iowa, Inc. *3.8 By Laws of Power Plant Aggregates of Iowa, Inc. *3.9 Articles of Incorporation of Michigan Ash Sales Company, d.b.a. U.S. Ash Company. *3.10 By Laws of Michigan Ash Sales Company, d.b.a. U.S. Ash Company. *3.11 Articles of Incorporation of Flo Fil Co., Inc. *3.12 By Laws of Flo Fil Co., Inc. *3.13 Articles of Incorporation of U.S. Stabilization, Inc. *3.14 By Laws of U.S. Stabilization, Inc. *3.15 Articles of Incorporation of Fly Ash Products, Inc. *3.16 By Laws of Fly Ash Products, Inc. *3.17 Articles of Incorporation of ISG Resources, Inc. *3.18 Bylaws of ISG Resources, Inc. *3.19 Articles of Merger for ISG Resources, Inc. (1/1/99 Merger) *3.20 Articles of Merger filed in Texas. (1/1/99 Merger) *3.21 Articles of Merger filed in Pennsylvania. (1/1/99 Merger) *3.22 Articles of Merger for Pozzolanic Resources, Inc. (1/1/99 Merger) *3.23 Articles of Merger for St. Helens Investments, Inc. (1/1/99 Merger) *3.24 Articles of Merger for Pozzolanic Northwest, Inc. (1/1/99 Merger) *3.25 Articles of Merger for Pozzolanic Northwest Bulk Carriers, Inc. (1/1/99 Merger) *3.26 Articles of Merger filed in Iowa. (1/1/99 Merger) *3.27 Articles of Merger filed in Michigan. (1/1/99 Merger) *3.28 Articles of Merger filed in Arkansas. (1/1/99 Merger) *3.29 Articles of Merger for ISG Resources, Inc. (1/1/99 Merger) *3.30 Articles of Merger filed in Montana. (7/1/99 Merger) *3.31 Articles of Merger filed in Ohio. (7/1/99 Merger) *4.1 Indenture, dated as of April 22, 1998, by and among JTM Industries, Inc., the Subsidiary Guarantors and U.S. Bank National Association, as Trustee. *5.1 Opinion and consent of Morgan, Lewis & Bockius LLP as to the legality of the securities being registered. *10.1 Purchase Agreement dated as of April 17, 1998 by and among JTM Industries, Inc., the Subsidiary Guarantors and NationsBanc Montgomery Securities LLC and CIBC Oppenheimer Corp. *10.2 Registration Rights Agreement dated as of April 22, 1998, by and among JTM Industries, Inc., the Subsidiary Guarantors and NationsBanc Montgomery Securities LLC and CIBC Oppenheimer Corp. *10.3 Purchase Agreement dated as of February 27, 1998 by and among JTM Industries, Inc., Pozzolanic Resources, Inc. and Gerald Peabody, Penelope Peabody and Kokan Company Limited. *10.4 Stock Purchase Agreement from Power Plant Aggregates of Iowa, Inc. *10.5 Purchase Agreement dated as of March 1998 between JTM Industries, Inc. and Jack Wirt. *10.6 Purchase Agreement dated as of March 27, 1998, between JTM Industries, Inc., Donald A. Thomas, Phyllis S. Thomas and Donald W. Birge. *10.7 Secured Credit Facility dated March 4, 1998 among JTM Industries, Inc. and a syndicate of banks with NationsBank, N.A., as administrative agent, and Canadian Imperial Bank of Commerce, as documentation agent. *10.8 First Amendment dated as of May 29, 1998 to the Credit Agreement dated March 4, 1998 among JTM Industries, Inc. and a syndicate of banks with NationsBank, N.A. as administrative agent, and Canadian Imperial Bank of Commerce, as documentation agent. *10.9 Stock Purchase Agreement dated January 1999, among ISG Resources, Inc., James M. Isaac and Tommy C. Isaac. *10.10 Purchase Agreement dated October 26, 1999, between ISG Resources, Inc. and Mary Ellen Dentis, Trustee. *10.11 Purchase Agreement dated November 1999, among ISG Resources, Inc. and Bill E. Nichols, John W. Nichols and Debbie Dickie *10.12 Stock Purchase Agreement between William Leslie & ISG Resources, Inc. *10.13 Partnership Regulations for Don's Building Supply, LLP. *10.14 Employment Agreement between JTM Industries, Inc. (predecessor to ISG Resources, Inc.) and Clinton W. Pike, Sr. *10.14(a) Amendment to Mr. Pike's Employment Agreement. *10.14(b) Second Amendment to Mr. Pike's Employment Agreement. *10.15 Employment Agreement between ISG Resources, Inc. and R Steve Creamer. *10.16 Employment Agreement between ISG Resources, Inc. and Raul A. Deju. *10.17 Employment Agreement between ISG Resources, Inc. and Jean I. Everest, II. *10.18 Employment Agreement between ISG Resources, Inc. and Brett A. Hickman. *10.19 Stock Purchase Agreement dated October 1999 between ISG Resources, Inc. and WEBE Enterprises, Ltd. *10.20 Stock Purchase Agreement dated June 2, 1999 between Koch Carbon, Inc. and ISG Resources, Inc. *12.1 Statement re Computation of Ratio of Earnings to Fixed Charges. *21.1 Subsidiaries of ISG Resources, Inc. *21.2 Subsidiaries of the Registrant (As of March 30, 2000) *24 Powers of Attorney. *25.1 Statement of Eligibility of U.S. Bank National Association, as Trustee, on Form T-1. **27.1 Financial Data Schedule. *99.1 Form of Letter of Transmittal respecting the exchange of the 10% Senior Subordinated Notes due 2008 which have been registered under the United States Securities Act of 1933 for 10% Senior Subordinated Notes due 2008. *99.2 Form of Notice of Guaranteed Delivery. ----------- * Previously Filed. ** Filed herewith. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. ISG Resources, Inc. (Registrant) Date: April 25, 2000 By: /s/ R Steve Creamer -------------- --------------------------------------------- R Steve Creamer, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ R Steve Creamer Chairman and Chief Executive Officer April 25, 2000 - ----------------------- R Steve Creamer /s/ Raul A Deju President and Chief Operating Officer April 25, 2000 - ----------------------- Raul A. Deju /s/ J.I. Everest, II Chief Financial Officer, Treasurer and April 25, 2000 - ----------------------- Assistant Secretary J.I. Everest, II /s/ Joseph M. Silvestri Director April 25, 2000 - ----------------------- Joseph M. Silvestri F-1 INDEX TO FINANCIAL STATEMENTS ISG Resources, Inc. and Subsidiaries Audited Consolidated Financial Statements as of December 31, 1999 and 1998 and for the Years Ended December 31, 1999 and 1998 and the Period From October 14, 1997 to December 31, 1997: Report of Independent Auditors............................. F-2 Consolidated Balance Sheets................................ F-3 Consolidated Statements of Operations...................... F-5 Consolidated Statements of Shareholder's Equity............ F-6 Consolidated Statements of Cash Flows...................... F-7 Notes to Consolidated Financial Statements................. F-8 JTM Industries, Inc. and Subsidiary (Predecessor to ISG Resources, Inc.) Audited Consolidated Financial Statements for the Period From January 1, 1997 to October 13, 1997: Report of Independent Accountants.......................... F-22 Consolidated Statement of Loss and Accumulated Deficit..... F-23 Consolidated Statement of Cash Flows....................... F-24 Notes to Consolidated Financial Statements................. F-25 F-2 Report of Independent Auditors The Board of Directors ISG Resources, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of ISG Resources, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of operations, shareholder's equity and cash flows for the years ended December 31, 1999 and 1998 and the period from October 14, 1997 to December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ISG Resources, Inc. and Subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for the years ended December 31, 1999 and 1998 and the period from October 14, 1997 to December 31, 1997 in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Salt Lake City, Utah March 3, 2000 F-3 ISG Resources, Inc. and Subsidiaries Consolidated Balance Sheets December 31 1999 1998 Assets Current assets: Accounts receivable: Trade, net of allowance for doubtful accounts of $329,000 in 1999 and $170,000 in 1998 $ 21,167,616 $ 14,975,729 Retainage receivable 176,000 660,609 Other 502,058 296,966 Deferred tax asset 316,161 251,355 Inventories 4,055,425 387,258 Other current assets 829,661 645,969 Total current assets 27,046,921 17,217,886 Property, plant and equipment: Land and improvements 4,371,197 1,736,384 Buildings and improvements 6,839,777 3,610,621 Vehicles and other operating equipment 27,189,160 20,090,872 Furniture, fixtures and office equipment 1,161,456 494,753 39,561,590 25,932,630 Accumulated depreciation (7,893,374) (3,562,086) 31,668,216 22,370,544 Construction in progress 1,915,972 5,768,564 33,584,188 28,139,108 Other assets: Intangible assets, net 153,952,547 140,835,640 Debt issuance costs, net 4,826,010 5,192,893 Other assets 1,052,845 346,209 Total assets $ 220,462,511 $191,731,736 ----------------------------------------------================================ F-4 December 31 1999 1998 ------------------------------------- Liabilities and shareholder's equity Current liabilities: Accounts payable $ 10,409,583 $ 4,066,487 Accrued expenses: Payroll 1,288,732 1,801,657 Interest 2,190,471 2,106,054 Other 1,828,537 1,534,971 Income taxes payable 1,705,678 422,963 Other current liabilities 652,119 500,000 ----------------- ------------- Total current liabilities 18,075,120 10,432,132 Long-term debt 133,500,000 110,000,000 Deferred tax liabilities 39,158,249 41,286,434 Payable to Industrial Services Group 643,983 - Other liabilities 1,923,355 2,488,954 Commitments and contingencies Shareholder's equity: Common stock, no par in 1999 and par value of $1 per share in 1998; 100 shares authorized, issued and outstanding 25,000,050 100 Additional paid-in capital - 24,999,950 Retained earnings 2,161,754 2,524,166 ------------------------------------- Total shareholder's equity 27,161,804 27,524,216 ------------------------------------- Total liabilities and shareholder's equity $ 220,462,511 $191,731,736 ===================================== See accompanying notes. F-5 ISG Resources, Inc. and Subsidiaries Consolidated Statements of Operations Period from October 14 to Year ended December 31 December 31 1999 1998 1997 --------------------------------------------- Revenues: Product revenues $120,319,575 $ 83,048,721 $ 7,059,063 Service revenues 35,885,697 34,243,854 5,583,981 --------------------------------------------- 156,205,272 117,292,575 12,643,044 Costs and expenses: Cost of products sold, excluding depreciation 83,442,725 51,878,447 4,864,226 Cost of services sold, excluding depreciation 25,221,695 28,237,385 4,500,892 Depreciation and amortization 13,091,131 9,140,938 908,619 Selling, general and administrative expenses 18,962,157 14,144,765 1,255,680 New product development 2,166,218 - - --------------------------------------------- 142,883,926 103,401,535 11,529,417 --------------------------------------------- 13,321,346 13,891,040 1,113,627 Interest income 44,100 183,113 31,286 Interest expense (13,391,944) (9,338,059) (627,704) Miscellaneous income, net 311,675 72,386 - --------------------------------------------- Income before income tax expense 285,177 4,808,480 517,209 Income tax expense 647,589 2,549,026 252,497 --------------------------------------------- Net income (loss) $ (362,412) $ 2,259,454 $ 264,712 ============================================= See accompanying notes. F-6 ISG Resources, Inc. and Subsidiaries Consolidated Statements of Shareholder's Equity Additional Total Common Paid-In Retained Shareholder's Stock Capital Earnings Equity -------------------------------------------------- Balance at October 14, 1997 $100 $23,811,429 $ - 23,811,529 Cash contribution - 1,188,521 - 1,188,521 Net income - - 264,712 264,712 -------------------------------------------------- Balance at December 31, 1997 100 24,999,950 264,712 25,264,762 Net income - - 2,259,454 2,259,454 -------------------------------------------------- Balance at December 31, 1998 100 24,999,950 2,524,166 27,524,216 Change to no par value 24,999,950 (24,999,950) - - Net loss - - (362,412) (362,412) -------------------------------------------------- Balance at December 31, 1999 $25,000,050 $ - $2,161,754 $27,161,804 ================================================== See accompanying notes.
F-7 ISG Resources, Inc. and Subsidiaries Consolidated Statements of Cash Flows Period from October 14 to Year ended December 31 December 31 1999 1998 1997 ---------------------------------- Operating activities Net income (loss) $ (362,412) $ 2,259,454 $264,712 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 13,091,131 9,140,938 908,619 Amortization of debt issuance costs 702,032 463,585 - Deferred income taxes (2,229,539) (1,697,407) (276,245) Loss on sale of assets 24,168 46,513 - Gain on sale of subsidiary (333,749) - - Changes in operating assets and liabilities: Receivables (2,755,382) (1,479,648) 691,534 Inventories (1,733,832) 231,658 - Other current and non-current assets (879,189) (91,603) (22,569) Accounts payable 4,485,877 (606,834) (1,035,993) Income taxes payable 1,257,583 (245,447) 528,742 Accrued expenses (929,504) 759,326 755,913 Other current and non-current liabilities (132,821) (570,491) 28,387 --------------------------------------- Net cash provided by operating activities 10,204,363 8,210,044 1,843,100 Investing activities Purchase of businesses, net of cash acquired (24,866,989) (77,753,012) - Proceeds from sale of subsidiary 750,000 - - Additions to intangible assets (877,349) (691,847) - Purchases of property, plant and equipment (8,790,870) (8,574,086) (19,491) Proceeds from sales of property, plant and equipment 415,994 396,399 - --------------------------------------- Net cash used in investing activities (33,369,214) (86,622,546) (19,491) Financing activities Proceeds from long-term debt 127,000,000 154,000,000 - Payments on long-term debt (103,500,000) (73,000,000) - Debt issuance costs (335,149) (5,656,478) - Cash contributions - - 1,188,521 -------------------------------------- Net cash provided by financing activities 23,164,851 75,343,522 1,188,521 -------------------------------------- Net (decrease) increase in cash and cash equivalents - (3,068,980) 3,012,130 Cash and cash equivalents at beginning of period - 3,068,980 56,850 --------------------------------------- Cash and cash equivalents at end of period $ - $ - $3,068,980 ======================================= Cash paid for interest $ 12,605,495 $ 7,396,124 $ - ======================================= Cash paid for income taxes $ 902,123 $ 3,989,414 $ - ======================================= See accompanying notes.
F-8 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 1999 1. Basis of Presentation ISG Resources, Inc., a Utah corporation (the "Company"), is a wholly owned subsidiary of Industrial Services Group, Inc. ("ISG"). ISG was formed in September 1997 and acquired the stock of JTM Industries, Inc. ("JTM") on October 14, 1997. In 1998, JTM acquired the stock of Pozzolanic Resources, Inc. ("Pozzolanic"), Power Plant Aggregates of Iowa, Inc. ("PPA"), Michigan Ash Sales Company, d.b.a. U. S. Ash Company, together with two affiliated companies, U.S. Stabilization, Inc. and Flo Fil Company, Inc., (collectively, "U.S. Ash"), and Fly Ash Products, Inc. ("Fly Ash Products") (collectively, the "1998 Acquisitions"). Effective January 1, 1999, JTM, Pozzolanic, PPA, U.S. Ash, Fly Ash Products and their wholly owned subsidiaries merged with and into the Company (the "Merger"). Pneumatic Trucking, Inc., a wholly owned subsidiary of Michigan Ash Sales Company, was not merged into the Company. Consequently, Pneumatic became a wholly owned subsidiary of the Company. On January 7, 1999, the Company acquired all of the outstanding stock of Best Masonry and Tool Supply ("Best") for approximately $13,300,000 in cash and paid off outstanding debt of Best totaling approximately $2,400,000. On May 27, 1999, the Company acquired all of the outstanding stock of Mineral Specialties, Inc. ("Specialties") for approximately $1,314,000 in cash. On June 2, 1999, the Company acquired all of the outstanding stock of Irvine Fly Ash, Inc. ("Irvine") for approximately $6,321,000 in cash. On October 26, 1999, the Company acquired all of the outstanding stock of Lewis W. Osborne, Inc. ("Osborne") and United Terrazzo Supply Co., Inc. ("Terrazzo") for approximately $1,219,000 in cash. On December 1, 1999, the Company acquired all of the outstanding stock of Magna Wall, Inc. ("Magna Wall") for approximately $1,542,000 in cash. Each of the above acquisitions was accounted for under the purchase method of accounting and, accordingly the results of operations of each acquisition have been included in the consolidated financial statements since the respective date of acquisition. The purchase prices of the above acquisitions were allocated based on estimated fair values of assets and liabilities at the respective dates of acquisition. Goodwill resulting from the difference between the purchase prices plus acquisition costs and the net assets of the companies acquired in 1999 totaled approximately $20,073,000. All recorded goodwill is being amortized on a straight-line basis over 20 to 25 years. F-9 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. Basis of Presentation (continued) The following pro forma combined financial information reflects operations as if all of the above acquisitions and the related financing transactions had occurred as of January 1, 1998. The pro forma combined financial information is presented for illustrative purposes only, does not purport to be indicative of the Company's results of operations as of the date hereof and is not necessarily indicative of what the Company's actual results of operations would have been had the acquisitions and the financing transactions been consummated on such date. Year Ended December 31 1999 1998 ------------------- ------------------- Revenues $ 164,840,000 $ 155,313,000 Net loss $ (409,878) $ (1,652,000) On November 29, 1999, the Company sold all of the outstanding stock of Pneumatic Trucking, Inc., a wholly owned subsidiary of the Company, for approximately $750,000 in cash. The Company recognized a gain of approximately $334,000 on this sale which is included in miscellaneous income in the consolidated statement of operations. 2. Description of Business and Summary of Significant Accounting Policies Description of Business The Company operates two principal lines of business: coal combustion product (CCP) management and building materials manufacturing and distribution. The CCP division purchases, removes and sells fly ash and other by-products of coal combustion to producers and consumers of building materials and construction related products throughout the United States. The building materials division manufactures and distributes masonry construction materials to residential and commercial contractors in Texas, California, Georgia and Florida. Principles of Consolidation These financial statements reflect the consolidated financial position and results of operations of ISG Resources, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior years' amounts to conform to the current year presentation. Revenue Recognition Revenue from the sale of products is recognized primarily upon passage of title to the customer, which generally coincides with physical delivery and acceptance. CCP product revenues generally include transportation charges associated with delivering the material. F-10 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. Description of Business and Summary of Significant Accounting Policies (continued) Revenue Recognition (continued) Service revenues include revenues earned under long-term contracts to dispose of residual materials created by coal-fired power generation and revenues earned in conjunction with certain construction-related projects, which are incidental to the primary business. Typical long-term disposal contracts are from five to fifteen years. Service revenues under the long-term contracts are recognized concurrent with the removal of the material and are typically based on the number of tons of material removed at an established price per ton. The construction-related projects are generally billed on a time and materials basis; therefore, the revenues and costs are recognized when the time is incurred and the materials are used. Cost of CCP products sold are primarily amounts paid to the utility companies to purchase product and transportation costs of delivering the product to the customer. Cost of services sold includes landfill fees and transportation charges to deliver the product to the landfill. Overhead charges incurred by a facility which generates both product and service revenues are allocated to cost of products sold and cost of services sold based on the percentage of revenue. Concentrations of Credit Risk Concentrations of credit risk in accounts receivable are limited due to the large number of customers comprising the Company's customer base throughout the United States. No single customer provides 10 percent or more of the Company's revenue. The Company performs ongoing credit evaluations of its customers, but does not require collateral to support customer accounts receivable. Historically, the Company has not had significant uncollectible accounts. New Product Development New product development costs consist of scientific research and development and market development expenditures. Expenditures of $1,796,032 for the year ended December 31, 1999 were made for research and development activities covering basic scientific research and application of scientific advances to the development of new and improved products and processes. Expenditures of $370,186 for the year ended December 31, 1999 were made for market development activities related to promising new and improved products and processes identified during research and development activities. The Company expenses all new product development costs when they are incurred. The Company incurred no new product development costs in the year ended December 31, 1998 or the period from October 14, 1997 to December 31, 1997. F-11 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. Description of Business and Summary of Significant Accounting Policies (continued) Inventories The Company accounts for inventory balances using the lower of cost or market method on a first-in, first-out basis. Inventories consist of the following at December 31: 1999 1998 --------------------- --------------------- Raw materials $ 234,073 $ - Finished goods 3,821,352 387,258 --------------------- --------------------- $ 4,055,425 $ 387,258 ===================== ===================== Property, Plant and Equipment Property, plant and equipment acquired in the acquisitions described above were recorded at estimated fair value at the dates of the respective acquisitions. Property, plant and equipment acquired subsequent thereto, renewals and betterments are recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation is provided over the estimated useful lives or lease terms, if less, using the straight-line method as follows: Land improvements 1 to 20 years Buildings and improvements 3 to 40 years Vehicles and other operating equipment 2 to 12 years Furniture, fixtures and office equipment 1 to 7 years Depreciation expense was approximately $4,996,000, $3,281,000 and $454,000 for the years ended December 31, 1999 and 1998 and the period from October 14, 1997 to December 31, 1997, respectively. Intangible Assets Intangible assets consist of goodwill, contracts, patents and licenses, and assembled workforce. Amortization expense was approximately $8,095,000, $5,860,000 and $455,000 for the years ended December 31, 1999 and 1998 and the period from October 14, 1997 to December 31, 1997, respectively. Amortization is provided over the estimated period of benefit, using the straight-line method as follows: Goodwill 20 to 25 years Contracts 10 to 20 years Patents and licenses 13 to 19 years Assembled workforce 8 years F-12 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. Description of Business and Summary of Significant Accounting Policies (continued) Debt Issuance Costs Debt issuance costs relate to costs incurred with the issuance of the Senior Subordinated Notes and the Secured Credit Facility. These costs are being amortized to interest expense over the respective lives of the debt issues on a straight-line basis. Amortization expense was approximately $702,000, $464,000 and $0 for the years ended December 31, 1999 and 1998 and the period from October 14, 1997 to December 31, 1997, respectively. Income Taxes Deferred tax assets and liabilities are provided for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement and income tax purposes. Fair Value of Financial Instruments Financial instruments included in various categories within the accompanying balance sheet consist of the following at December 31: 1999 1998 ---------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value ---------------------------------------------------- Short-term assets $ 21,845,674 $ 21,845,674 $ 15,933,304 $ 15,933,304 Short-term liabilities 16,369,442 16,369,442 10,009,169 10,009,169 Long-term debt: Senior subordinated notes 100,000,000 85,000,000 100,000,000 99,000,000 Secured credit facility 33,500,000 33,500,000 10,000,000 10,000,000 Other liabilities 1,613,393 1,255,000 2,103,856 1,531,000 The carrying value of short-term assets and liabilities approximate fair value due to the short-term nature of the instruments. The carrying value of the secured credit facility approximates the fair value due to the variable interest rate features of the instrument. The fair value of the senior subordinated notes is based on quoted market prices. The fair value of other liabilities is based on the present value of future cash flows discounted at the Company's incremental borrowing rate. F-13 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. Description of Business and Summary of Significant Accounting Policies (continued) Long-lived Assets Management evaluates the carrying value of all long-lived assets to determine recoverability when indicators of impairment are present based generally on an analysis of undiscounted cash flows compared to net book value. The Company also evaluates amortization periods of assets, including goodwill and other intangible assets, to determine if events or circumstances warrant revised estimates of useful lives. Management believes no material impairment in the value of long-lived assets exists at December 31, 1999. 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. 3. Intangible Assets Intangible assets consist of the following at December 31: 1999 1998 ------------------ ----------------- Goodwill $ 64,313,512 $ 44,018,454 Contracts 98,522,146 97,960,644 Patents and licenses 2,787,431 2,471,584 Assembled work force 2,700,233 2,700,233 ------------------ ----------------- 168,323,322 147,150,915 Less accumulated amortization (14,370,775) (6,315,275) ------------------ ----------------- $ 153,952,547 $ 140,835,640 ================== ================= 4. Long-term Debt Secured Credit Facility On March 4, 1998, the Company obtained a Secured Credit Facility provided by a syndicate of banks. The Secured Credit Facility enables the Company to obtain revolving secured loans from time to time to finance certain permitted acquisitions, to pay fees and expenses incurred in connection with certain acquisitions, to repay existing indebtedness, and for working capital and general corporate purposes. F-14 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. Long-term Debt (continued) Secured Credit Facility (continued) At the Company's option, the revolving secured loans may be maintained as (a) Eurodollar Loans (as defined) which will bear interest at a rate equal to the quotient obtained by dividing LIBOR (as defined) by one minus the reserve requirement for such Eurodollar Loan, plus a margin of 250 basis points or (b) Base Rate Loans (as defined) which will have an interest rate equal to the higher of (i) the Bank of America prime rate and (ii) the federal funds rate plus 0.5%, plus a margin of 125 basis points. The Company will also pay certain fees with respect to any unused portion of the Secured Credit Facility. The Secured Credit Facility has a term of five and one-half years from the date of initial funding, is guaranteed by ISG and existing and future subsidiaries of the Company (the "Guarantors"), and is secured by a first priority perfected security interest in all of the capital stock of the Company and all of the capital stock of each of the Guarantors, as well as certain present and future assets and properties of the Company and any domestic subsidiaries. The Secured Credit Facility requires the Company to maintain a maximum leverage ratio, a minimum interest coverage ratio and minimum consolidated net worth and certain other financial and nonfinancial covenants, all as defined within the agreement. The Company was in compliance with all such covenants at December 31, 1999. On April 30, 1999, the Secured Credit Facility was increased to $50,000,000 from $35,000,000. At December 31, 1999, $33,500,000 was outstanding, with $16,500,000 unused and available, under the Secured Credit Facility. Senior Subordinated Notes On April 22, 1998, the Company completed a private placement of $100,000,000 aggregate principal amount of 10% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes") to finance the 1998 Acquisitions. Interest on the Senior Subordinated Notes is payable semi-annually on April 15 and October 15 of each year. The Senior Subordinated Notes will mature on April 15, 2008 and are guaranteed fully and unconditionally and on a joint and several basis by all of the Company's existing and future restricted subsidiaries, as defined in the indenture. The Senior Subordinated Notes are redeemable at the option of the Company at various times throughout the term of the Senior Subordinated Notes at redemption prices specified in the indenture. F-15 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. Long-term Debt (continued) Senior Subordinated Notes (continued) Upon the occurrence of a change of control or an asset sale as defined in the indenture, the Company is required to make an offer to repurchase all or part of the Senior Subordinated Notes at prices specified in the indenture. The payment of principal, interest, and liquidated damages as defined in the indenture, if any, on the Senior Subordinated Notes is subordinated in right of payment to the prior payment of all senior indebtedness as defined in the indenture, whether outstanding on the date of the indenture or thereafter incurred. The indenture for the Company's Senior Subordinated Notes contains various limitations on the incurrence of additional indebtedness, the issuance of preferred stock, consolidations or mergers, sales of assets, and restricted payments, including dividends, for the Company and restricted subsidiaries as defined in the indenture. In connection with the private placement of the Senior Subordinated Notes, the Company entered into the Registration Rights Agreement pursuant to which the Company was required to file an exchange offer registration statement with the Securities and Exchange Commission which was declared effective by the Securities and Exchange Commission on September 4, 1998. The aggregate maturities of all long-term debt for the five years subsequent to December 31, 1999 are as follows: $0 in 2000-2002, $33,500,000 in 2003, $0 in 2004 and $100,000,000 thereafter. 5. Employee Benefit Plan Prior to April 1, 1998, eligible employees of the Company were able to participate in a 401(k) savings plan (the "JTM Plan") sponsored by an affiliate of the former owner of JTM. Under the terms of the JTM plan, the Company was required to match employee contributions, as defined, up to 3% of the employees' compensation. Expenses related to the JTM plan were approximately $59,000 for the period from January 1, 1998 to March 31, 1998 and $44,000 for the period from October 14, 1997 to December 31, 1997. Subsequent to April 1, 1998, eligible employees of the Company may participate in a 401(k) savings plan (the "ISG Plan") sponsored by ISG. The ISG Plan requires the Company to match employee contributions, as defined, up to 6% of the employees' compensation. Expenses related to the ISG Plan were approximately $458,000 and $265,000 for the year ended December 31, 1999 and the period from April 1, 1998 to December 31, 1998, respectively. F-16 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. Income Taxes Income tax expense (benefit) consists of the following: Period from October 14 to Year ended December 31 December 31 1999 1998 1997 ---------------------------------------------------------- Current: U.S. Federal $ 2,150,860 $ 3,542,755 $ 459,626 State 726,268 703,678 69,116 ---------------------------------------------------------- 2,877,128 4,246,433 528,742 Deferred: U.S. Federal (1,847,270) (1,416,129) (240,135) State (382,269) (281,278) (36,110) ---------------------------------------------------------- (2,229,539) (1,697,407) (276,245) Total: U.S. Federal 303,590 2,126,626 219,491 State 343,999 422,400 33,006 ---------------------------------------------------------- $ 647,589 $ 2,549,026 $ 252,497 ========================================================== Reconciliation of income tax expense at the U.S. statutory rate to the Company's tax expense is as follows: Period from October 14 to Year ended December 31 December 31 1999 1998 1997 ------------------------------------------ 35% of income before income tax $ 99,812 $ 1,682,968 $ 181,023 Add: Non-deductible goodwill 901,551 527,208 42,702 Other, net (353,774) 338,850 28,772 ------------------------------------------ $ 647,589 $ 2,549,026 $ 252,497 ========================================== F-17 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. Income Taxes (continued) The major components of the deferred tax assets and liabilities as of December 31 are as follows: 1999 1998 ------------------------------------ Deferred Tax Assets: Bad debt reserves $ 128,602 $ 66,572 Accruals not currently deductible for tax purposes 362,217 307,883 ------------------------------------ Total gross deferred tax assets 490,819 374,455 Deferred Tax Liabilities: Fixed asset basis differences 2,980,762 3,040,703 Intangible asset basis differences 36,274,790 38,363,602 Other 77,355 5,229 ------------------------------------ Total gross deferred tax liabilities 39,332,907 41,409,534 ------------------------------------ Net deferred tax liabilities $ (38,842,088) $ (41,035,079) ==================================== 7. Commitments and Contingencies Lease Obligations Certain facilities and equipment are leased under non-cancelable operating leases, which generally have renewal terms, expiring in various years through 2006. Future minimum payments under leases with initial terms of one year or more consisted of the following at December 31, 1999: 2000 $ 5,006,179 2001 4,446,385 2002 3,418,469 2003 2,413,442 2004 1,203,922 Thereafter 595,361 ------------------- Total minimum lease payments $ 17,083,758 =================== Total rental expense was approximately $7,595,000 for the year ended December 31, 1999, $6,113,000 for the year ended December 31, 1998 and $1,259,000 for the period from October 14, 1997 to December 31, 1997. F-18 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. Commitments and Contingencies (continued) Sale and Purchase Commitments The Company's contracts with its customers and suppliers require the Company to make minimum sales and purchases over ensuing years, approximated as follows: Minimum Minimum Sales Purchases ------------------------------------ 2000 $ 363,000 $ 6,387,000 2001 371,000 6,911,000 2002 120,000 7,173,000 2003 120,000 3,042,000 2004 120,000 1,842,000 Thereafter - 10,174,000 ------------------------------------ $ 1,094,000 $ 35,529,000 ==================================== Minimum sales and purchases under contracts with minimum requirements approximated $806,000 and $5,930,000, respectively, for the year ended December 31, 1999 and $800,000 and $4,523,000, respectively, for the year ended December 31, 1998 and $249,000 and $318,000, respectively, for the period from October 14, 1997 to December 31, 1997. Royalty Commitments In connection with a 1998 acquisition, the Company agreed to pay a minimum of $500,000 per year commencing in 1999 and continuing through 2003 for royalties related to the sale of certain Class C fly ash. The current portion of this liability is recorded in other current liabilities and the long-term portion is recorded in other long-term liabilities in the accompanying balance sheets. In 1999, the Company entered into a license agreement for certain technology for which the Company agreed to pay a minimum of $200,000 in 2001, $300,000 in 2002, $400,000 in 2003 and $500,000 per year thereafter for as long as the license agreement is effective. The payments are for future royalties on net sales and sub-license or royalty revenue received related to this license and will be expensed in the period the related revenue is recognized. F-19 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. Commitments and Contingencies (continued) Legal Proceedings There are various legal proceedings against the Company arising in the normal course of business. While it is not currently possible to predict or determine the outcome of these proceedings, it is the opinion of management that the outcome will not have a material adverse effect on the Company's results of operations, financial position or liquidity. Employment Agreements The Company has employment agreements with certain of its employees. The terms of these agreements begin to expire in 2000 with annual extensions to be exercised by mutual consent of both parties. Without considering these extensions, these employment agreements provide for total annual base compensation of approximately $2,256,000 in 2000, $1,301,000 in 2001, $771,000 in 2002 and $134,000 in 2003. Medical Insurance Effective April 1, 1998, the Company established a self-funded medical insurance plan for its employees with stop-loss coverage for amounts in excess of $40,000 per individual and approximately $1,530,000 in the aggregate for the current plan period ended December 31, 1999. The Company has contracted with a third-party administrator to assist in the payment and administration of claims. Insurance claims are recognized as expenses when incurred, including an estimate of costs incurred but not reported at the balance sheet dates. In the accompanying balance sheets, $112,000 and $324,000 has been accrued as of December 31, 1999 and 1998, respectively, related to this liability. 8. Reportable Segments As discussed in note 2, the Company operates in two reportable segments: the CCP division and the building materials division. The CCP division consists primarily of three operating units that manage and market CCPs in North America. The building materials division consists of four legal entities, Best, Osborne, Terrazzo and Magna Wall. The Company's two reportable segments are managed separately based on fundamental differences in their operations. The Company evaluates performance based on profit or loss from operations before depreciation, amortization, income taxes and interest expense (EBITDA). The Company derives a majority of its revenues from CCP sales and the chief operating decision makers rely on EBITDA to assess the performance of the segments and make decisions about resources to be allocated to the segments. Accordingly, EBITDA is included in the information reported below. Certain expenses are maintained at the Company's corporate F-20 ISG Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. Reportable Segments (continued) headquarters and are not allocated to the segments. Such expenses primarily include interest expense, corporate overhead costs, certain non-recurring gains and losses and intangible asset amortization. Inter-segment sales are generally accounted for at cost and are eliminated in consolidation. The building materials division includes financial data for Best from January 1 through December 31, 1999, Osborne and Terrazzo for the period from October 26 to December 31, 1999 and Magna Wall for the month of December 1999. Amounts included in the "Other" column include financial information for the Company's corporate, R&D and other administrative business units. The Company did not report segment information prior to the year ended December 31, 1999, as it operated in only one significant business segment prior to 1999. Information about reportable segments, and reconciliation of such information to the consolidated totals as of and for the year ended December 31, 1999, is as follows: Building Consolidated CCP Materials Other Total ------------ -------------- ------------- --------------- Revenue $134,631,711 $20,821,159 $ 752,402 $156,205,272 EBITDA 32,096,154 2,811,482 (8,139,384) 26,768,252 Total Assets 49,929,505 6,683,098 163,849,908 220,462,511 Expenditures for PP&E 7,520,689 350,610 919,571 8,790,870 The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Segment assets reflect those specifically attributable to the individual segments and include accounts receivable, inventory and property, plant and equipment. All other assets are included in the "Other" column. 9. Related Party Transactions The Company's parent, ISG, files a consolidated income tax return including the Company and all of its subsidiaries. As the Company records all tax payments and receipts, a payable to ISG for $643,983 has been recorded to reflect amounts owed to ISG relating to ISG's interest deductions included in the 1998 consolidated tax return filed in 1999. F-21 10. Subsequent Event On March 2, 2000, the Company acquired directly and indirectly through ISG Manufactured Products, Inc., a newly formed wholly owned subsidiary of the Company, 100% of the partnership interests in Don's Building Supply L.L.P. ("Don's") for a purchase price of $6,000,000 in cash. The Company expects the purchase price to increase or decrease within sixty days of the closing date based on 1999 EBITDA, as defined, and working capital as of February 29, 2000. Don's is engaged in the retail and wholesale distribution of construction materials to residential and commercial contractors. F-22 Report of Independent Accountants --------------------------------- To the Board of Directors and Shareholders of JTM Industries, Inc: In our opinion, the consolidated statements of loss and accumulated deficit and cash flows for the period from January 1, 1997 to October 13, 1997 (appearing on pages F-23 through F-31 in this Form 10-K) present fairly, in all material respects, the results of operations and cash flows of JTM Industries, Inc. and its subsidiary for the period from January 1, 1997 to October 13, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of JTM Industries, Inc. for any period subsequent to October 13, 1997. PRICEWATERHOUSECOOPERS LLP February 16, 1998 Charlotte, North Carolina F-23 JTM INDUSTRIES, INC. CONSOLIDATED STATEMENT OF LOSS AND ACCUMULATED DEFICIT ($000's omitted) Period from January 1 to October 13, 1997 ------------------- Revenues: Product revenues........................................... $ 25,613 Service revenues........................................... 25,682 ------------------- 51,295 Cost of product revenues, excluding depreciation........... 20,702 Cost of service revenues, excluding depreciation........... 19,999 Depreciation and amortization.............................. 5,279 Selling, general and administrative expenses................ 3,633 ------------------- Income from operations..................................... 1,682 Intercompany interest expense.............................. 4,160 Interest expense............................................ - ------------------- (2,478) Income tax expense......................................... (612) ------------------- Net loss................................................... (3,090) Accumulated deficit - beginning of period.................. (3,966) ------------------- Accumulated deficit - end of period....................... $ (7,056) =================== The accompanying notes are an integral part of these financial statements. F-24 JTM INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS ($000's omitted) Period from January 1 to October 13, 1997 ------------------ Net Cash Provided By (Used In): Operating activities......................................... $ 521 Investing activities......................................... (681) ------------------ Net cash used by operating and investing activities.......... (160) Non-cash activities.......................................... (797) ------------------ (957) Intercompany notes payable - beginning of period............. (48,450) ------------------ Intercompany notes payable - end of period................... $ (49,407) ================== Operating activities: Net loss..................................................... $ (3,090) Items not affecting cash: Loss on disposal of fixed assets........................... 305 Depreciation and amortization.............................. 5,279 Deferred income taxes...................................... 150 Cash provided by (used in) financing working capital: Trade and other accounts receivable........................ (1,898) Other current assets....................................... 87 Accounts payable and accrued liabilities................... (312) ------------------ Net cash provided by operating activities.................... $ 521 ================== Investing activities: Purchase of fixed assets..................................... $ (681) Proceeds from sale of fixed and other assets................. - ------------------ Net cash used in investing activities........................ $ (681) ================== Supplemental cash flow information: Noncash transaction: Transfers of fixed assets from parent................... $ 107 Accounts payable related to fixed assets................ - Cash paid (received) for: Interest................................................ $ 4,160 Income taxes to (from) parent........................... $ 462 The accompanying notes are an integral part of these financial statements. F-25 JTM INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000's Omitted) 1. Basis of Presentation of Financial Statements These financial statements reflect the consolidated financial position and results of operations of JTM Industries, Inc. and its subsidiary, KBK Enterprises, Inc. ("the Company") which until October 13, 1997 was an indirect wholly owned subsidiary of Laidlaw Inc. The Company is involved in materials management services to coal combustion by-products (CCPs) producing utilities and marketing products derived from CCPs, principally in the United States. Interest expense associated with intercompany financing by the Company's former parent, Laidlaw, Inc. ("Laidlaw"), has been charged to the Company based on prime rate plus 2% on the average outstanding balance. The Company is included in the consolidated tax return of Laidlaw. Income taxes have been calculated using applicable income tax rates on a separate return basis. 2. Summary of Significant Accounting Policies a) Basis of Presentation The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States and all figures are represented in U.S. dollars, as the Company's operating assets are located in the United States. The preparation of financial statements in accordance with generally accepted accounting principles requires the Company to make estimates and assumptions that affect reported amounts of income and expenses and disclosure of contingencies. Future events could alter such estimates in the near term. b) Consolidation The consolidated financial statements include the accounts of JTM Industries, Inc. and KBK Enterprises, Inc., its subsidiary company. All significant intercompany transactions are eliminated. F-26 JTM INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ($000's Omitted) 2. Summary of Significant Accounting Policies (Continued) c) Fixed assets Fixed assets are recorded at cost. Depreciation and amortization of other property and equipment is provided substantially on a straight-line basis over their estimated useful lives which are as follows: Buildings....................... 20 to 40 years Vehicles and other.............. 3 to 15 years The company periodically reviews the carrying values of its fixed assets to determine whether such values are recoverable. Any resulting write-downs are charged against income. Depreciation expense amounts to $1,191 for the period from January 1, 1997 to October 13, 1997. d) Other assets Goodwill is amortized on a straight-line basis over forty years. The amount of any impairment is charged against income. During the period from January 1, 1997 to October 13, 1997, in connection with the planned sale of the Company, Laidlaw wrote down the assets of the Company to fair value which resulted in a charge against goodwill of $3,300. e) Income taxes Deferred income taxes are provided for all significant temporary differences arising from recognizing certain expenses and certain closure accruals in different periods for income tax and financial reporting purposes. f) Revenue Material revenues are earned by marketing products created by coal-fired power generation and related industrial materials to consumers of building materials and construction related products. Generally, material is obtained from coal-fired electric utilities and is immediately delivered to the customer, eliminating the need to inventory products. Therefore, no inventory exists at October 13, 1997. Material revenues are recognized when the material is delivered to the customer. F-27 JTM INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ($000's Omitted) 2. Summary of Significant Accounting Policies (Continued) f) Revenue (continued) Service revenues are earned under long-term contracts to dispose of residual materials created by coal-fired power generation. Typical contract terms are from five to fifteen years. Service revenues are recognized concurrent with the removal of the material and are typically based on the number of tons of material removed at an established price per ton. Costs of product revenues primarily include amounts paid to the utilities to purchase the product and transportation charges related to delivering the product to the customer. Cost of service revenues primarily include landfill fees and transportation charges related to delivering the product to the landfill. Overhead charges incurred by a facility which generates both product and service revenues are allocated to cost of product revenues and cost of service revenues based on the percentage of each type of revenue to total revenues. Cost of product revenues and cost of service revenues are recognized concurrent with the recognition of the related revenue. g) Concentration of Credit Risk Concentrations of credit risk in accounts receivable are limited, due to the large number of customers comprising the Company's customer base throughout the United Sates. The Company performs ongoing credit evaluations of its customers, but does not require collateral to support customer accounts receivable. The Company establishes an allowance for doubtful accounts based on the credit risk applicable to particular customers, historical trends, and other relevant information. 3. Benefit Plans Eligible employees of the Company may participate in a 401(k) savings plan sponsored by Laidlaw. The 401(k) plan requires the Company to match employee contributions as defined, up to 3% of the employees' compensation. Expenses related to the 401(k) plan were approximately $294 for the period from January 1, 1997 to October 13, 1997. F-28 JTM INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ($000's Omitted) 4. Lease Commitments Rental expense incurred under operating leases amounted to $4,334 for the period from January 1, 1997 to October 13, 1997. Rentals payable under operating leases for premises and equipment as of October 13, 1997 are as follows: 1998........................................................... $ 4,518 1999........................................................... 3,264 2000........................................................... 1,553 2001........................................................... 1,440 2002........................................................... 753 Thereafter..................................................... 1,600 --------------- $ 13,128 =============== 5. Legal proceedings The Company has various outstanding legal matters arising from the normal course of business. Although the final outcome cannot be predicted with certainty, the Company believes the ultimate disposition of the matters will not have a material impact on the Company's financial position. 6. Related party transactions Included in the financial statements are related party transactions between the Company and Laidlaw. These related party transactions are as follows: Period from January 1 to October 13, 1997 ---------------------- Management fees................... $ 491 Administrative fees............... $ 249 Intercompany sales................ $ 2,814 Allocated insurance expense....... $ 515 Interest expense.................. $ 4,160 F-29 JTM INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ($000's Omitted) 6. Related party transactions (Continued) Management and administrative fees have been allocated to the Company based upon the Company's share of Laidlaw's consolidated revenue. Management and administrative fees are charged by Laidlaw to each of its operating groups in order to recover its general and administrative costs. The services provided by Laidlaw include treasury, taxation and insurance. The allocated charges may not be indicative of the expenses the Company would have incurred if Laidlaw had not provided the services. On May 9, 1997, all of the outstanding shares of the Company were transferred from LESI to Laidlaw Transportation, Inc., a direct, wholly owned subsidiary of Laidlaw. In preparation for the disposal of the Company, certain closure liabilities amounting to $1,650 were transferred to Laidlaw, net of the related deferred tax asset of $578. Additionally, a long-term receivable in the amount of $1,008, net of an allowance of $963, was transferred to Laidlaw. A deferred tax asset of $337 related to the allowance was also transferred to Laidlaw. 7. Income taxes The components of income tax expense for the period from January 1, 1997 to October 13, 1997 are as follows: Current federal provision (benefit).............. $ 421 Current state provision.......................... 41 Deferred federal provision....................... 150 --------------- Total income tax provision (benefit)............. $ 612 =============== F-30 JTM INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ($000's Omitted) 7. Income taxes (continued) Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Components of deferred tax liabilities and assets at October 13, 1997 are as follows: Deferred tax assets: Allowance for bad debts.......................... $ 142 Closure reserve.................................. 97 Other accrued liabilities........................ 91 Deferred tax liabilities: Fixed assets..................................... (1) --------------- Net deferred tax assets............................ $ 329 =============== The difference between the federal statutory tax rate and the effective tax rate on continuing operations for the period from January 1, 1997 to October 13, 1997 are as follows: Federal statutory tax rate.............................. 35.0% Goodwill amortization not deductible for tax purposes... (57.7%) State income taxes...................................... (1.1%) Other items - net....................................... (0.9%) ---------------- Effective tax rate...................................... (24.7%) ================ 8. Accrued closure costs The Company, in the normal course of its business, expends funds for remediation of certain property. The Company does not expect these expenditures to have a materially adverse effect on its financial condition or results of operations, since its business is based upon compliance with environmental laws and regulations and its services are priced accordingly. The method by which these costs are accrued involves estimating the total site restoration costs, determining the total volume of materials the site will hold, and accruing the site restoration costs concurrently with the filling of the site. The total anticipated site restoration costs are approximately $1,900. 9. Subsequent Event On October 14, 1997, Laidlaw, Inc. sold all of the outstanding shares of the Company for $5,817,000 in cash, a $29,000,000 senior bridge note and a $17,500,000 9% Junior Subordinated Promissory Note due 2005. EX-27 2 FDS --
5 0001063018 ISG Resources, Inc. 1 U.S. Dollars YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1.000 0 0 21,496,616 329,000 4,055,425 27,046,921 41,477,562 7,893,374 220,462,511 18,075,120 133,500,000 0 0 0 27,161,804 220,462,511 120,319,575 156,205,272 83,442,725 142,883,926 0 0 13,391,944 285,177 647,589 (362,412) 0 0 0 (362,412) 0 0
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