Exhibit 99.3
Unaudited pro forma condensed consolidated financial information of the Company.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
The following unaudited pro forma condensed statements of consolidated
operations for the quarter ended March 31, 2004 and the fiscal year ended
December 31, 2003 are based on historical financial statements of Danielson
Holding Corporation ("Danielson") and Covanta Energy Corporation ("Covanta") and
give effect to the acquisition of Covanta as if it were consummated on the same
terms at the beginning of each period. The historical financial statements have
been adjusted for pro forma events that are (1) directly attributable to the
transaction, (2) expected to have continuing impact and (3) factually
supportable.
This unaudited pro forma condensed consolidated financial information
should be read in conjunction with:
o accompanying notes to the unaudited pro forma condensed
statements of consolidated operations
o Covanta's separate historical unaudited financial statements
as of and for the three months ended March 31, 2004 included
in Covanta's Quarterly Report on Form 10-Q
o Covanta's separate historical financial statements as of and
for the year ended December 31, 2003 included in Covanta's
Annual Report on Form 10-K
o Danielson's historical unaudited financial statements as of
and for the three months ended March 31, 2004 included in
Danielson's Quarterly Report on Form 10-Q
o Danielson's separate historical financial statements as of
and for the year ended December 31, 2003 included in
Danielson's Annual Report on Form 10-K
The unaudited pro forma condensed financial information is provided for
informational purposes only and is not necessarily indicative of the results of
operations or financial position of the combined companies that would have
occurred had the transactions been consummated at the beginning of the periods
presented, nor is it indicative of future operating results or financial
position. The unaudited pro forma condensed statements of consolidated
operations do not give consideration to expense savings or asset dispositions.
The unaudited pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are reasonable
under the circumstances. These adjustments were based upon the preliminary work
of Covanta and financial consultants, as well as other valuation estimates to
determine the relative fair values of Covanta's assets and liabilities.
Accordingly, the allocation of purchase price is subject to refinement.
PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2004
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
Covanta
January 1 through Covanta Pro Forma
March 10, 2004 Deconsolidation Historical Danielson Pro Forma Condensed
As Reported of Entities As Adjusted As Reported Adjustments Consolidated
----------------- --------------- ----------- ----------- ----------- ------------
REVENUES:
ENERGY AND WATER:
Services $ 89,858 $ (5,282) $ 84,576 $ 25,453 $ $ 110,029
Electricity and steam sales 53,307 (535) 52,772 13,521 66,293
Construction revenues 58 58 0 58
Other revenue-net 9 9 2 11
------------- ----------- ----------- ------------ ----------- -----------
143,232 (5,817) 137,415 38,976 0 176,391
------------- ----------- ----------- ------------ ----------- -----------
INSURANCE AND OTHER:
Net earned premiums 5,988 5,988
Net investment income 808 808
Net realized investment gains 171 171
Other 18 18
------------- ----------- ----------- ------------ ----------- -----------
0 0 0 6,985 0 6,985
------------- ----------- ----------- ------------ ----------- -----------
TOTAL REVENUES 143,232 (5,817) 137,415 45,961 0 183,376
------------- ----------- ----------- ------------ ----------- -----------
COSTS AND EXPENSES:
ENERGY AND WATER:
Plant operating 100,775 (3,632) 97,143 27,322 124,465
Construction costs 73 (59) 14 0 14
Depreciation and amortization 13,426 (786) 12,640 3,495 (16,135)a 16,004
8,779 b
7,225 c
Debt service charges, net 13,241 (1,045) 12,196 2,237 (796)d 11,014
(2,623)e
Other operating costs and expenses (209) (209) 12 (197)
Net loss (gain) on disposition of
businesses (175) 175 0 0 0
Selling, general and administrative
expenses 7,596 (322) 7,274 1,596 8,870
Other expenses, net (1,924) (1,924) (198) (2,122)
Write-down of net assets held for use
------------- ----------- ----------- ------------ ----------- -----------
132,803 (5,669) 127,134 34,464 (3,550) 158,048
------------- ----------- ----------- ------------ ----------- -----------
INSURANCE AND OTHER:
Net losses and loss adjustment 4,283 4,283
Other 3,291 3,291
------------- ----------- ----------- ------------ ----------- -----------
0 0 0 7,574 0 7,574
------------- ----------- ----------- ------------ ----------- -----------
TOTAL COSTS AND EXPENSES 132,803 (5,669) 127,134 42,038 (3,550) 165,622
------------- ----------- ----------- ------------ ----------- -----------
Operating income (loss) 10,429 (148) 10,281 3,923 3,550 17,754
------------- ----------- ----------- ------------ ----------- -----------
Equity in income (loss) of
unconsolidated subsidiaries 4,817 142 4,959 1,015 5,974
Interest expense 5,374 (6) 5,368 6,922 (4,952)h 15,878
8,540 i
Reorganization items 58,282 58,282 (58,282)k 0
Gain on fresh start adjustments 214,927 214,927 (214,927)k 0
Gain on extinguishment of debt (510,680) ( 510,680) 510,680 k 0
Income (loss) from continuing operations ------------- ----------- ----------- ------------ ----------- -----------
before income taxes and minority
interests 247,343 0 247,343 (1,984) (237,509) 7,850
Income tax benefit (expense) (215,269) ( 215,269) 368 215,269 k (1,555)
(1,923)l
Minority interests (2,511) (2,511) (557) (3,068)
------------- ----------- ----------- ------------ ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS $ 29,563 $ 0 $ 29,563 $ (2,173) $ (24,163) $ 3,227
============= ============ =========== ============ =========== ===========
PER COMMON SHARE INFORMATION
Earnings (loss) per common share -
continuing operations
Basic ($0.08) $0.09
Diluted ($0.08) $0.06
Weighted average common shares
outstanding and common stock equivalents
Basic 31,954 35,837
Diluted 31,954 65,637
</Table>
FOR THE YEAR ENDED DECEMBER 31, 2003
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
Pro Forma
Covanta Deconsolidation Covanta Danielson Pro Forma Condensed
As Reported of Entities As Adjusted As Reported Adjustments Consolidated
----------------- --------------- ----------- ----------- ----------- ------------
REVENUES:
ENERGY AND WATER:
Services $ 499,245 $ (28,379) $ 470,866 $ $ $ 470,866
Electricity and steam sales 277,766 (2,103) 275,663 275,663
Construction revenues 13,448 (10,881) 2,567 2,567
Other revenue-net 9 9 9
------------ ----------- ---------- -------- -------- ---------
790,468 (41,363) 749,105 0 0 749,105
------------ ----------- ---------- -------- -------- ---------
INSURANCE AND OTHER:
Net earned premiums 35,851 35,851
Net investment income 4,343 4,343
Net realized investment gains 2,080 2,080
Other 283 283
------------ ----------- ---------- -------- -------- ---------
0 0 0 42,557 0 42,557
------------ ----------- ---------- -------- -------- ---------
TOTAL REVENUES 790,468 (41,363) 749,105 42,557 0 791,662
------------ ----------- ---------- -------- -------- ---------
COSTS AND EXPENSES:
ENERGY AND WATER:
Plant operating 500,627 (22,786) 477,841 477,841
Construction costs 20,479 (20,381) 98 98
Depreciation and amortization 71,932 (4,121) 67,811 (67,811)a 64,014
35,114 b
28,900 c
Debt service charges, net 76,770 (5,954) 70,816 (5,053)d 55,272
(10,491)e
Other operating costs and expenses 2,209 2,209 2,209
Net loss (gain) on disposition of
businesses 7,246 7,246 (7,246)f 0
Selling, general and administrative
expenses 35,639 (1,735) 33,904 33,904
Other expenses, net (1,119) (15) (1,134) (1,134)
Write-down of net assets held for use 16,704 16,704 (16,704)g 0
------------ ----------- ---------- -------- -------- ---------
730,487 (54,992) 675,495 0 (43,291) 632,204
------------ ----------- ---------- -------- -------- ---------
INSURANCE AND OTHER:
Net losses and loss adjustment 36,684 36,684
Other 18,779 18,779
------------ ----------- ---------- -------- -------- ---------
0 0 0 55,463 0 55,463
------------ ----------- ---------- -------- -------- ---------
TOTAL COSTS AND EXPENSES 730,487 (54,992) 675,495 55,463 (43,291) 687,667
------------ ----------- ---------- -------- -------- ---------
Operating income (loss) 59,981 13,629 73,610 (12,906) 43,291 103,995
------------ ----------- ---------- -------- -------- ---------
Equity in income (loss) of
unconsolidated subsidiaries 29,941 (13,588) 16,353 (54,877) (38,524)
Interest expense 36,990 (27) 36,963 1,424 (36,963)h 59,121
44,754 i
11,278 j
Reorganization items 83,346 (440) 82,906 (82,906)k 0
------------ ----------- ---------- -------- -------- ---------
Income (loss) from continuing operations
before income taxes and
minority interests (30,414) 508 (29,906) (69,207) 105,463 6,350
Income tax benefit (expense) 12,555 (508) 12,047 (18) (39,162)l (2,911)
24,222 m
Minority interests (8,905) (8,905) (8,905)
------------ ----------- ---------- -------- -------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (26,764) $ 0 $ (26,764) $ (69,225) $ 90,523 $ (5,466)
============ =========== ========== ========= ========= =========
PER COMMON SHARE INFORMATION
Earnings (Loss) per common share -
continuing operations
Basic ($2.25) ($0.15)
Diluted ($2.25) ($0.15)
Weighted average common shares
outstanding and common stock equivalents
Basic 30,783 35,904
Diluted 30,783 35,904
</Table>
NOTE 1 - BASIS OF PRESENTATION
As required by the investment and purchase agreement, Covanta filed a proposed
plan of reorganization, proposed plan of liquidation for specified non-core
businesses, and the related draft disclosure statement, each reflecting the
transactions contemplated under the investment and purchase agreement, with the
Bankruptcy Court. On March 5, 2004, the Bankruptcy Court confirmed the proposed
plans (the "Reorganization Plan"). Under the terms of the investment and
purchase agreement, on March 10, 2004, Danielson acquired 100% of Covanta's
equity in consideration for approximately $30 million in cash.
With the purchase of Covanta, Danielson acquired a leading provider of
waste to energy services, independent power production and water and wastewater
treatment services in the United States and abroad. Danielson's equity
investment and ownership provided Covanta's businesses with improved liquidity
and capital resources to finance their business activities and emerge from
bankruptcy. Management believes that these factors will enable Danielson to earn
an attractive return on its investment.
The aggregate purchase price was $47.5 million which includes the cash
purchase price of $29.8 million, approximately $6.4 million for professional
fees and other estimated costs incurred in connection with the acquisition, and
an estimated fair value $11.3 million for Danielson's commitment to sell up to 3
million shares of its Common Stock at $1.53 per share to certain creditors of
Covanta.
The following table summarizes the preliminary allocation of values to
the assets acquired and liabilities assumed at the date of acquisition in
conformity with Statement of Financial Accounting Standards (SFAS) No. 141
"Business Combinations" and SFAS No. 109 "Accounting for Income Taxes". In
addition to purchase price allocation adjustments, Covanta's emergence from
Chapter 11 proceedings on March 10, 2004 resulted in a new reporting entity and
adoption of fresh start accounting as of that date, in accordance with AICPA
Statement of Position (SOP) 90-7, "Financial Reporting by Entities in
Reorganization Under Bankruptcy Code". These preliminary fair value
determinations of the tangible and intangible assets are based on discounted
cash flows using currently available information. The excess of the
reorganization value over tangible assets and identifiable intangible assets has
been reflected as Goodwill. Management's estimate of the fair value of long term
debt was based on the new principal amounts of recourse debt that was part of
the reorganized capital structure of Covanta upon emergence from bankruptcy. The
Company has engaged valuation consultants to review its valuation methodology
and their work is ongoing. Changes in the fair values of these assets from the
current estimated values as well as changes in other assumptions could
significantly impact the reported value of Goodwill.
The summary balance sheet information that follows reflects:
(i) reduction of Covanta's property, plant and equipment carrying
values;
(ii) increase in the carrying value of Covanta's various operation and
maintenance agreements and power purchase agreements;
(iii) forgiveness of Covanta's pre-petition debt;
(iv) issuance of new common stock to Danielson and other items in
equity and notes pursuant to the Reorganization Plan;
(v) payment of various administrative and other claims associated with
Covanta's emergence from Chapter 11;
(vi) distribution of cash of $235.5 million to Covanta's pre-petition
secured lenders and for the payment of exit costs and funding of
reserves;
(vii) deferred tax assets principally related to net operating loss
carryforwards ("NOLs") from the inclusion of Covanta in Danielson's
consolidated federal income tax group;
(viii) additional costs and expenses related to Danielson's acquisition
of Covanta.
These adjustments were based upon the preliminary work of Covanta and
financial consultants, as well as other valuation estimates, to determine the
relative fair values of Covanta's assets and liabilities. Accordingly, the
allocation of purchase price is subject to refinement. Any increase or decrease
in the fair value of Covanta's assets, liabilities, commitments, contracts and
other items as compared to the information shown herein will change the purchase
price allocable to Goodwill and may impact results of consolidated operations
due to adjustments in depreciation and amortization or accretion related to the
adjusted assets or liabilities.
MARCH 10, 2004
($000s)
--------------
Current Assets $ 529,923
Property, Plant and Equipment 1,034,779
Intangible Assets 318,114
Goodwill 24,470
Other Assets 329,743
------------
Total Assets Acquired 2,237,029
------------
Current Liabilities 371,618
Long-term Debt 337,761
Project Debt 847,651
Deferred Income Taxes 305,784
Other Liabilities 326,690
------------
Total Liabilities Assumed 2,189,504
------------
Net Assets Acquired $ 47,525
============
Acquired intangible assets of $318.1 million primarily relate to
service agreements on publicly owned waste to energy projects with an
approximate sixteen year weighted average useful life.
The $24.5 million of goodwill is not expected to be deductible for
income tax purposes. Approximately $20.3 million of goodwill has been assigned
to Covanta's domestic energy and water operations and $4.2 million to Covanta's
international energy operations.
The results of operations from Covanta are included in Danielson's
consolidated results of operations from March 10, 2004. The attached unaudited
pro forma condensed statements of consolidated operations for the quarter ended
March 31, 2004 and the fiscal year ended December 31, 2003 have been prepared as
if the acquisition of Covanta were consummated on the same terms at the
beginning of each of the periods presented.
NOTE 2 - PRO FORMA ADJUSTMENTS
- --------------------------------------------------------------------------------
(a) Adjustment to reverse Covanta's historical depreciation and
amortization.
- --------------------------------------------------------------------------------
(b) Adjustment to include new depreciation based on fair values assigned to
Covanta's property, plant and equipment as of March 10, 2004.
- --------------------------------------------------------------------------------
(c) Adjustment to include new amortization based on fair values assigned to
Covanta's acquired intangible assets as of March 10, 2004, primarily
service agreements on publicly owned waste to energy projects.
- --------------------------------------------------------------------------------
(d) Adjustment to reverse Covanta's historical amortization of bond
issuance costs on outstanding debt.
- --------------------------------------------------------------------------------
(e) Adjustment to include amortization of the premium on debt based on fair
values assigned to Covanta's debt as of March 10, 2004.
- --------------------------------------------------------------------------------
(f) Adjustment to reverse gain (loss) on sale of businesses that were sold
as part of the Heber plan and other liquidators not part of Covanta
business acquired.
- --------------------------------------------------------------------------------
(g) Adjustment to reverse historical write-down of net assets held for use
related to liquidators not part of Covanta business acquired.
- --------------------------------------------------------------------------------
(h) Adjustment to reverse historical interest expense associated with
pre-emergence financing of Covanta.
- --------------------------------------------------------------------------------
(i) Adjustment to include interest expense based on post-emergence
financing of Covanta.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(j) Adjustment to record additional interest expense on convertible notes
issued by Danielson to finance the purchase of Covanta. The pro forma
adjustment assumes the convertible notes were outstanding for all of
2003 at an interest rate of 12% per annum from January 1, 2003 to July
15, 2003 and 16% per annum for the remainder of 2003. However,
Danielson intends to refinance the convertible notes from the proceeds
of a rights offering in 2004. Assuming this refinancing occurs on June
30, 2004, approximately $3.2 million of interest expense would be
avoided for the second half of 2004.
- --------------------------------------------------------------------------------
(k) Adjustment to remove historical reorganization items related to costs
resulting from Covanta's bankruptcy proceedings.
- --------------------------------------------------------------------------------
(l) Adjustment to record the estimated tax effects associated with the pro
forma adjustments to pre-tax income.
- --------------------------------------------------------------------------------
(m) Adjustment to record income tax benefits with respect to Danielson's
2003 pre-tax losses from continuing operations to give effect to
acquisition of Covanta as if it occurred on January 1, 2003.
NOTE 3 - INCOME (LOSS) PER SHARE
The pro forma basic income (loss) per common share data have been computed using
average number of number of shares of common stock of Danielson, par value $0.10
per share ("Common Stock"), outstanding during the relevant period, adjusted on
a pro forma basis for the issuance at the beginning of each period of an
aggregate of 5,120,853 shares of common stock to the Bridge Lenders in
connection with the $40 million of bridge financing provided for the Covanta
acquisition. The pro forma effects associated with the $40 million convertible
notes issued for the bridge financing and Danielson's commitment to sell up to 3
million shares of its Common Stock at $1.53 per share to certain creditors of
Covanta have been included in the pro forma diluted income (loss) per share to
the extent dilutive.
NOTE 4 - PENSION COST
The fair value adjustments for Covanta's pension and post-retirement benefit
plans treats the previously unrecognized prior service cost and net actuarial
loss as though they were recognized. No separate adjustment has been made in the
unaudited condensed statements of consolidated operations to adjust net periodic
pension and post-retirement benefit costs.