SECURITIES AND EXCHANGE COMMISSION

                     Washington, D.C. 20549

                             FORM 10-K

(Mark One)

[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

          For the fiscal year ended December 31, 1998

                               OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934


                  Commission file number 1-1363


                        ENVIROSOURCE, INC.
     (Exact name of Registrant as specified in its charter)


          Delaware                          34-0617390
  (State or other jurisdiction of        (I.R.S. Employer
  incorporation or organization)        Identification No.)


1155 Business Center Drive, Horsham, PA          19044-3454
(Address of principal executive offices)         (Zip Code)


Registrant's telephone number, including area code:
(215) 956-5500

Securities registered pursuant to Section 12(b) of the Act:

                                     Name of each exchange on
     Title of each class                which registered

  Common Stock, par value $.05         Pacific Exchange, Inc.
        per share

<PAGE>


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 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 the 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. [x]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was $4,021,646 as of March 1, 1999.

The number of shares  outstanding  of the  Registrant's  Common  Stock as of the
close of business on March 1, 1999 was 5,813,394.


<PAGE>


                                     PART I

ITEM 1.  Business.

THE COMPANY

         Envirosource,  Inc. (the "Company") supplies industrial  customers with
specialized  services,  primarily  the  recycling,  handling,  stabilization  or
landfilling of environmentally  sensitive wastes or by-products.  These services
are generally provided pursuant to long-term  contracts which enable the Company
to integrate its processes with those of its customers.  The Company's principal
business segments are (a) the IMS segment, which provides slag processing, metal
recovery,  materials  handling,  scrap  management and a wide range of specialty
services, such as scarfing and high speed flame cutting, for the steel industry;
and (b) the  Technologies  segment,  which provides  hazardous waste  treatment,
stabilization  and  disposal  services,  regulatory  assistance  and  laboratory
services for the steel industry and other industrial and governmental customers.

     The Company conducts its operations  exclusively  through its subsidiaries.
International Mill Service, Inc. and its subsidiaries ("IMS") constitute the IMS
segment,  and  Envirosource  Technologies,  Inc.  ("Technologies"),  through its
Envirosafe and Conversion  Systems  subsidiaries,  constitutes the  Technologies
segment.

         References  herein to the Company  include its  subsidiaries as well as
its Ohio predecessor,  NEOAX, Inc., except where the context requires otherwise.
"Note"  references  herein  are to Notes to  Consolidated  Financial  Statements
appearing elsewhere in this Report.

DEVELOPMENT OF THE COMPANY

     The Company's  predecessor  was originally  incorporated in Ohio in 1915 as
White Motor Corporation.  Its name was changed to Northeast Ohio Axle, Inc. when
it emerged from reorganization proceedings in 1983 and was changed again in 1986
to NEOAX, Inc. ("NEOAX").  In 1987, NEOAX  reincorporated in Delaware.  In 1989,
the Company  changed its name to  EnviroSource,  Inc., and on June 22, 1998, the
Company changed its name slightly to Envirosource, Inc.

         Envirosource's  present business units originally represented a portion
of the operations of IU International Corporation ("IU International"). Early in
1988,  the Company  acquired IU  International  with the goal of  establishing a
substantial  operating  company  centered  primarily on the Company's stable and
growing steel industry  business  relationships  and prospects.  Since 1988, the
Company  has  disposed  of all  the  businesses  it had  owned  prior  to the IU
International acquisition and virtually all of IU International's operations and
assets other than the present IMS and Technologies segments.

         During 1993,  the Company  completed a  comprehensive  recapitalization
that  resulted in an affiliate  of Freeman  Spogli & Co.  ("FS&Co)  purchasing a
significant amount of the Company's equity securities.  As of December 31, 1998,
FS&Co held  approximately  47% of the outstanding  shares of Common Stock of the
Company.  Also during 1993,  the Company sold $220 million  principal  amount of
9-3/4% Senior Notes Due 2003 (the "1993  Notes").  A significant  portion of the
proceeds  from the sale of the  1993  Notes  was  used to  retire  $150  million
principal amount of the Company's 14% Extendible Reset Senior Subordinated Notes
Due 1998.

         In 1996, the Company moved its headquarters from Stamford, Connecticut,
consolidating  the  activities  of its  corporate  headquarters,  as well as the
headquarters for its IMS and Technologies segments, in Horsham, Pennsylvania.

         In 1997,  the  Company  issued $50 million of 9-3/4%  Senior  Notes Due
2003,  Series B, (the "1997 Notes") having  substantially  the same terms as the
Company's 1993 Notes. The Company used  substantially all of the net proceeds to
repay borrowings under the Company's bank credit facility that had been incurred
to finance capital expenditures.

         In the  first  quarter  of  1998,  the  Company  embarked  on a  profit
improvement  process  entitled  "ENSO  2000" that is intended to lower costs and
increase revenues  significantly.  Management believes that most of the benefits
from this process will be seen in the years after 1998.


<PAGE>


BUSINESS SEGMENTS

         IMS

         The  Company  has  served  the steel  industry  for over 60 years.  The
Company   believes  it  increases  its  customers'   productivity  by  providing
cost-effective and reliable on-site  reclamation of steel and iron and a variety
of other specialized services that are essential to the efficient functioning of
steel mills.

         North   America's   steel  mills   operate  in  a  highly   competitive
environment.  Services  that  help to  reduce  their  total  process  costs  are
therefore of  significant  value.  IMS  generally  provides  recycling and metal
recovery operations under long-term  contracts with a diversified  customer base
of over 55 steel  mill  sites  in North  America,  including  integrated  mills,
mini-mills and specialty mills. Using specially designed equipment, IMS provides
a  total   recycling   solution  by  processing  slag  (a  by-product  of  steel
production),  recovering  valuable  metallics and selling the residual aggregate
for  road  base  and  other  uses.   These   services   are   economically   and
environmentally  attractive.  Moreover,  the  effective  removal  of  slag  on a
continuous basis is critical to a steel mill's ability to remain in operation.

         The  Company  has  successfully  pursued a strategy  of building on its
leadership  position by offering an expanded range of services that enhance mill
productivity and provide IMS with growth  opportunities.  These services include
processing  blast  furnace iron scrap  through an  IMS-developed  iron  crushing
process, as well as specialized  materials  handling.  IMS has used rubber-tired
carriers at four integrated steel mills to move steel slabs throughout the mill,
which is  significantly  more  cost-effective  than  traditional  rail and crane
systems.  IMS's  services  also  include a  proprietary  specialized  steel slab
surface conditioning process (called scarfing) that helps its customers increase
product  yields and improve  product  quality,  while  gaining  measurable  cost
savings. This service is currently provided at seven steel mills.

         Substantially  all of IMS's  services  are  provided  on-site  at steel
mills, by IMS employees using IMS-owned equipment. IMS's services are integrated
with the operations of its customers, providing for strong working partnerships.
If  necessary,  most  equipment  can be  relocated,  but this has not often been
required as  contracts  are  generally  long-term  and IMS has a history of high
renewal rates.

         IMS's  largest  site  is at USX  Corporation's  Gary  Works,  in  Gary,
Indiana,  the  largest  steel  mill in the U.S.  During  the three  years  ended
December 31, 1998,  18 to 20 percent of the Company's  consolidated  revenues of
continuing  operations (including revenues attributable to services performed by
the Technologies segment) were from USX.

         Competition. Competition in IMS's markets is based primarily on quality
         -----------
of service,  reliability,  technology and price.  In its core steel  reclamation
business,  the Company  believes that IMS services  customers  which account for
approximately  30% of  total  domestic  steel  production.  IMS  has  one  large
competitor  and  a  number  of  smaller  competitors,  including  several  newer
entrants.  The Company believes that IMS's solid market position is based on its
reliability,  responsiveness  to  customer  needs,  reputation  and  breadth  of
expertise.


<PAGE>


         TECHNOLOGIES

         Technologies,  through its Envirosafe and Conversion  Systems  business
units,  has been  dedicated to the safe,  economical  treatment  and disposal of
industrial and hazardous wastes since 1976. Through its Envirosafe subsidiaries,
Envirosafe  Services  of Ohio,  Inc.  and  Envirosafe  Services  of Idaho,  Inc.
(collectively, "Envirosafe"), Technologies owns major commercial hazardous waste
treatment and disposal facilities in Ohio and Idaho. Envirosafe services some of
the country's largest steel companies,  as well as companies in other industries
and  government  agencies.  However,  Envirosafe  has reoriented its business to
focus primarily on its steel mini-mill  customers and less on the volatile waste
remediation business.

         In 1992,  Envirosafe  Services of Ohio, Inc. received final approval to
expand its Ohio  facility and has  subsequently  completed  construction  of the
first  three  phases  of a 2.6  million  cubic  yard  disposal  cell.  In  1993,
Envirosafe  Services of Idaho,  Inc. received final approval to expand an active
disposal cell at its Idaho facility and has completed construction of the second
phase of such cell.  Envirosafe  currently has  approximately  2.4 million cubic
yards of permitted, unused disposal capacity.

         During the last few years,  the  Company  completed a number of capital
projects  in order to  maintain  and enhance  its  competitive  position.  These
projects  included a new  state-of-the-art  stabilization  and  debris  handling
facility in Ohio and a new debris handling  facility and expanded  stabilization
capacity in Idaho. Enhanced stabilization  capability has allowed the Company to
utilize its  proprietary  Super  Detox(R)  technology for the  stabilization  of
electric  arc furnace  ("EAF") dust at both its Ohio and Idaho  facilities.  See
below for a discussion of Super Detox(R). In addition, the Envirosafe facilities
were  upgraded  by adding  the  ability to receive  material  by rail,  the Ohio
facility directly and the Idaho facility through its rail transfer facility.

         The Ohio and Idaho facilities hold operating  permits,  issued by state
and federal environmental  agencies under the Resource Conservation and Recovery
Act, as amended  ("RCRA"),  that require renewal and  modification  from time to
time. The Company expects that it will obtain the renewals and  modifications to
its permits that it requires to continue to provide landfill  capacity well into
the next decade.  Historically,  the  Company's  hazardous  waste  treatment and
disposal  services  business  has  been  somewhat  seasonal,  with  fewer  waste
remediation  projects in the winter.  However,  the  Company  believes  that the
increased volume of EAF dust stabilized at its facilities has made this business
less seasonal.

         Envirosafe and its  competitors and customers are subject to a complex,
evolving array of federal,  state and local  environmental laws and regulations.
Such requirements not only can affect the demand for Envirosafe's  services, but
could also  require the Company to incur  significant  costs for such matters as
facility upgrading, remediation or other corrective action, facility closure and
post-closure  maintenance and monitoring.  It is possible that future changes in
environmental   compliance   requirements   could  have  a  material  effect  on
Technologies'  future  results of  operations  or financial  condition,  but the
Company is unable to predict any such future requirements.  The Company believes
that the Consolidated  Financial Statements  appropriately reflect all presently
known  compliance  costs  in  accordance  with  generally  accepted   accounting
principles.  Stringent  interpretation  of  environmental  laws and  regulations
governing hazardous waste treatment and disposal facilities by state and federal
regulators  also subjects  Envirosafe to violations and fines from time to time,
none of which has been material to the Company.  In fact,  the Company  believes
that it has an excellent environmental compliance record.

         A  Technologies  unit is the sole licensee of a proprietary  technology
(Super  Detox(R)) for  stabilizing  EAF dust - a listed  hazardous  waste (KO61)
under RCRA that is generated by steel mills - that renders the EAF dust suitable
for disposal in non-hazardous waste landfills.  Technologies  currently operates
an EAF  dust  stabilization  facility  on-site  at one  of the  larger  domestic
mini-mills,  and provides Super Detox(R)  stabilization  for EAF dust at both of
its regional Envirosafe facilities. In recent years, Technologies entered into a
number of new  contracts  to  receive,  process  and  dispose of EAF dust at its
Envirosafe facilities.  Technologies actively continues to market this treatment
and disposal service to other U.S. mini-mills.

         In 1995,  Technologies received from the U.S. Environmental  Protection
Agency  ("USEPA") a generic  delisting for Super  Detox(R)  stabilized EAF dust.
This delisting designates EAF dust treated utilizing this proprietary process as
a non-hazardous waste suitable for landfilling in non-hazardous waste landfills.
The  generic  delisting  status for the process  can save  Technologies  and its
customers   the  time  and   expense   involved  in   petitioning   USEPA  on  a
facility-by-facility  basis for  delisting  status.  The Illinois  Environmental
Protection  Agency  subsequently  granted  a site  specific  delisting  for this
process. In addition, in 1995 Technologies received from the Idaho Department of
Health and  Welfare a generic  delisting  for EAF dust  stabilized  at its Idaho
regional facility utilizing the Super Detox(R) process;  this ruling essentially
has the same effect as the USEPA delisting.

         The Company  believes that the Super  Detox(R)  technology  provides an
environmentally safer and more cost-effective solution than competitive off-site
thermal processes.

         Conversion  Systems  has  provided  electric  utilities  with  turn-key
systems using its  Poz-O-Tec(R)  process for the  stabilization  of wet scrubber
effluent and boiler ash residues produced at coal-fired power plants. Conversion
Systems  substantially  completed  its last major  project of this type in 1995.
However,  Conversion Systems has licensed the Poz-O-Tec(R) technology for use in
specific international markets.

         Competition.  The  Company's  hazardous  waste  treatment  and disposal
         -----------
business is  characterized  by intense  competition.  The Company  believes that
Technologies  treats and disposes of approximately 30% of the total domestic EAF
dust  production.  Technologies  has two  primary  competitors  in this  market:
Horsehead Resource Development Company, Inc., a thermal metal recovery processor
that has a larger market share, and another thermal recovery  processor that has
a smaller market share. In addition, there are a number of smaller competitors.

         There are a limited  number of  competitors  in the off-site  hazardous
waste landfill  business (there are 19 active,  permitted  commercial  hazardous
waste landfills in the U.S.), only two of which operate more than two landfills,
and several  competitors  engaged in the treatment or stabilization of hazardous
waste.  Competition  in this  industry  is based on  service,  site and  process
integrity  and  the  all-in  cost  of  disposal,   which   includes   treatment,
transportation  costs and taxes.  Expanded use of rail services and additions to
stabilization  services will further improve Envirosafe's  competitive position.
The market for hazardous waste services  generally is geographically  broad, but
is  narrowed  depending  on  factors  such as the types of waste a  facility  is
permitted to accept,  the types of services  offered by a facility,  the cost of
operation of a facility and the proximity of the facility to the customer.


<PAGE>


SEGMENT DATA

         See Note J for information  concerning revenues and operating income by
segment for the years ended December 31, 1998,  1997 and 1996 and the percentage
of  total  revenues  contributed  by each  class  of  service  of the  Company's
continuing operations for each such year.

EMPLOYEES

         At March 1, 1999, the Company employed  approximately  1,600 persons. A
majority  of the hourly  employees  in both  business  segments  are  covered by
site-specific  collective bargaining  agreements with various unions,  including
the International Union of Operating Engineers,  the United Steelworkers and the
International  Brotherhood  of  Teamsters.  Several of these  contracts  will be
renegotiated  in 1999.  All  other  contracts  will be  renegotiated  in 2000 or
thereafter.

ITEM 2.  Properties.

HEADQUARTERS

         The Company,  IMS and  Technologies  maintain their  headquarters  at a
single location in Horsham, Pennsylvania in leased premises.

IMS

         IMS has operations providing metal recovery and other services at steel
mills throughout the continental United States and in Canada.  Equipment located
at the  sites  operated  by IMS  and  its  subsidiaries  includes  prefabricated
storage,  shop and office  structures,  pot  carriers,  slab  haulers,  loaders,
railcars,   cranes,  trucks,  metal  recovery  plants  and  crushers  and  other
specialized  mobile and stationary  equipment used in metal-recovery  operations
and industrial  service work,  most of which is owned.  In addition,  IMS leases
office space near Pittsburgh, Pennsylvania.

          Management believes that the physical facilities for the Company's IMS
segment are adequate for its operations and provide sufficient  capacity to meet
its   anticipated   requirements.   The  metal  recovery  and  slag   processing
installations  are generally  located at specific  customer  facilities  and are
adequate to handle current levels of customer  operations and anticipated future
needs for current customers.

TECHNOLOGIES

         Envirosafe owns substantially all of the land,  buildings and equipment
used in its  treatment and disposal  operations  in Oregon,  Ohio and near Grand
View,  Idaho.  Conversion  Systems  owns  the  building  and  equipment  at  one
stabilization  facility in Illinois and one in Pennsylvania  and leases land for
both facilities.

         Assuming the timely  completion  of  subsequent  phases under  existing
permit authority,  Envirosafe expects to maintain ample hazardous waste disposal
capacity  well  into the next  decade.  Management  believes  that the  physical
facilities  for  Technologies  are  adequate  for  its  operations  and  provide
sufficient capacity to meet its anticipated requirements.

ITEM 3.  Legal Proceedings.

         The Company is a party to  litigation  and  proceedings  arising in the
normal course of its present or former businesses. In the opinion of management,
the outcome of such litigation and proceedings  will not have a material adverse
effect on the Company's financial condition or results of operations.


ITEM 4.  Submission of Matters to a Vote of Security Holders.

         Not applicable.


<PAGE>


                                      * * *


EXECUTIVE OFFICERS OF THE COMPANY

         The Company's executive officers are as follows:

Name                                Age          Position

Robert N. Gurnitz                    60          Chairman of the Board; Director

John T. DiLacqua                     46          President and Chief Executive
                                                 Officer; Director

John C. Heenan                       48          Senior Vice President, Finance,
                                                 Administration and Planning

Aarne Anderson                       58          Vice President, Taxes

William B. Davis                     48          Vice President and Treasurer

Bradley W. Harris                    39          Controller

Leon Z. Heller                       49          Vice President, General Counsel
                                                 and Secretary

James C. Hull                        61          Vice President and Chief
                                                 Financial Officer

          The  specified age of each  Executive  Officer of the Company is as of
March 31, 1999.

          Officers are elected  annually and hold office until their  successors
are elected and qualified.

         Robert N. Gurnitz became a director of the Company in November 1997 and
Chairman of the Board of the Company in December  1998.  Mr.  Gurnitz  served as
President and Chief Executive  Officer of  Northwestern  Steel and Wire Co. from
1991 to 1993 and as its Chairman and Chief Executive  Officer from 1993 to 1997.
Prior to that he served in various senior  management  capacities  with Rockwell
International   Corporation,    Bethlehem   Steel   Corporation   and   Webcraft
Technologies.

         John T.  DiLacqua  became  President,  Chief  Executive  Officer  and a
director of the Company in January 1999. From October 1997 to December 1998, Mr.
DiLacqua served as President of the U.S.  Ferrous  Operations of Philip Services
Corporation, which included, among others, the former Luria Brothers Division of
Connell  Limited  Partnership.  Prior to that, he served as the President of the
Luria Brothers Division of Connell Limited  Partnership from May 1994 to October
1997,  and, from  December 1990 to May 1994, he served as its Vice  President of
Finance and Administration.

         John C. Heenan became Senior Vice  President,  Finance,  Administration
and Planning in February  1999.  From October 1997 to December  1998, Mr. Heenan
served as Chief  Financial  Officer  of the U.S.  Ferrous  Operations  of Philip
Services  Corporation,  which included,  among others, the former Luria Brothers
Division of Connell  Limited  Partnership.  Prior to that, he served as the Vice
President  -  Controller  of the Luria  Brothers  Division  of  Connell  Limited
Partnership  from April 1997 to October 1997.  Prior to that, he served as Chief
Financial Officer of Standard Chlorine Chemical Company from 1993 to 1997.

         Aarne Anderson has been employed by the Company since May 1980,  except
for the period from August 1983  through  April 1984 during which he served as a
consultant to the  Disposition  Assets Trustee in the Company's  reorganization.
Mr. Anderson was elected Vice President, Taxes in August 1985.

          William B. Davis was elected Vice President of the Company in February
1995 and has been  Treasurer  of the Company  since  September  1991.  Mr. Davis
joined the Company in July 1987 as Assistant Treasurer.

         Bradley W. Harris has been the  Company's  Controller  since  September
1996, when he joined the Company. From August 1981 to September 1996, Mr. Harris
was employed by Ernst & Young LLP, most recently as a Senior Manager.


<PAGE>


         Leon Z. Heller was elected  Vice  President  of the Company in February
1998 and has  served  as the  Company's  General  Counsel  and  Secretary  since
September  1996. Mr. Heller also has been the Vice President and General Counsel
of International Mill Service, Inc., a subsidiary of the Company, since February
1991.

         James C. Hull has been the Company's Vice President and Chief Financial
Officer since May 1989, when he joined the Company.


<PAGE>


                                     PART II


ITEM 5.  Market for the Registrant's Common Equity and Related
                Stockholder Matters.

         The Company's  Common Stock trades on The Nasdaq Stock Market under the
symbol "ENSO" and on The Pacific  Exchange  under the symbol "ES". The following
table sets forth the high and low sales  prices for the Common Stock for each of
the calendar quarters of 1998 and 1997, based upon prices supplied by The Nasdaq
Stock Market.  On June 22, 1998,  the Company  effected a 1-for-7  reverse stock
split.  Prices  per  share  have  been  restated  accordingly  for  all  periods
presented.

                                 1998                             1997
                         High             Low             High             Low
                         ----             ---             ----             ---
First Quarter           $21.44           $13.34          $18.81           $12.25
Second Quarter           17.63            12.25           14.88             8.31
Third Quarter            17.25             8.13           19.25            13.56
Fourth Quarter            8.13             4.00           21.44            14.88

         The Company has been notified by The Nasdaq Stock Market that it is not
currently in compliance with the Nasdaq National Market  maintenance  standards.
However, The Nasdaq Stock Market has a procedure for seeking exemptions from its
requirements, which the Company may seek to utilize. The Company is currently in
compliance with The Pacific Exchange maintenance requirements.

         The Company has not paid a cash  dividend on its Common Stock since the
confirmation of its plan of  reorganization  in November 1983 and has no present
plan to pay cash dividends. The Company is currently prohibited from paying cash
dividends on its Common Stock by its bank credit agreement and by the indentures
under which the 1993 Notes and the 1997 Notes were issued.

         On March 1, 1999 the Company had approximately  3,080 holders of record
of its Common Stock.


<PAGE>


ITEM 6.  Selected Financial Data.

The  information  presented  below  should  be  read  in  conjunction  with  the
Consolidated Financial Statements and Notes thereto.

<TABLE>
<CAPTION>
                                               1998              1997              1996              1995              1994
                                            -----------       -----------       -----------       -----------       -----------
                                                                (In thousands, except for per share amounts)
<S>                                         <C>               <C>               <C>               <C>               <C>

Revenues                                    $  232,376        $  227,678        $  212,789        $  223,722        $  230,434
Costs and expenses                             209,449           205,387           188,443           189,233           193,914
Unusual items, net (See Note B)                  7,934             1,300             5,471            (2,624)
                                            -----------       -----------       -----------       -----------       -----------
Operating income                                14,993            20,991            18,875            37,113            36,520
Interest income                                  1,262             1,223             1,356             1,133               983
Interest expense                               (30,510)          (29,308)          (28,187)          (23,483)          (21,974)
                                            -----------       -----------       -----------       -----------       -----------
Income (loss) from continuing 
  operations before income taxes               (14,255)           (7,094)           (7,956)           14,763            15,529
Income tax (expense) benefit                   (16,384)           (1,368)            3,266            (5,208)           (4,280)
                                            -----------       -----------       -----------       -----------       -----------
Income (loss) from continuing operations       (30,639)           (8,462)           (4,690)            9,555            11,249
Income (loss) from discontinued IMSAMET
  operations, after taxes (See Note D)                             9,600               399               949              (190)
                                            -----------       -----------       -----------       -----------       -----------
Income (loss) before extraordinary loss
  and cumulative effect of accounting
  change                                       (30,639)            1,138            (4,291)           10,504            11,059
Extraordinary debt extinguishment loss                                                                  (806)
Cumulative effect of accounting change                              (639)
                                            -----------       -----------       -----------       -----------       -----------
Net income (loss)                           $  (30,639)       $      499        $   (4,291)       $    9,698        $   11,059
                                            ===========       ===========       ===========       ===========       ===========
Income (loss) applicable to common shares   $  (30,639)       $      499        $   (4,442)       $    7,959        $   10,457
                                            ===========       ===========       ===========       ===========       ===========
Income (loss) per common share:
  Continuing operations                     $    (5.27)       $    (1.46)       $     (.84)       $     1.35           $  1.85
  Discontinued operations                                           1.66               .07               .16              (.03)
  Extraordinary loss                                                                                    (.13)
  Cumulative effect of accounting
    change                                                          (.11)
                                            -----------       -----------       -----------       -----------       -----------
  Net income (loss)                         $    (5.27)       $      .09         $    (.77)        $    1.38           $  1.82
                                            ===========       ===========       ===========       ===========       ===========

Average common shares                            5,813             5,787             5,775             5,787             5,753

Total assets                                $  387,456        $  413,302        $  459,909        $  444,436        $  442,872
Working capital deficiency                        (444)             (779)           (8,762)          (34,099)           (8,275)
Debt (non-current)                             298,023           281,614           268,424           275,158           259,263
Redeemable preferred stock (non-current)             -                 -                 -                 -            31,396
Stockholders' equity                             9,843            40,211            39,057            32,604            24,521


</TABLE>


<PAGE>


ITEM 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

RESULTS OF OPERATIONS

1998 VERSUS 1997

                                                                 1998
                                  Year Ended                 better (worse)
                                 December 31,                  than 1997
                           -------------------------   -------------------------
                              1998          1997         Amount          %
                           -----------   -----------   -----------   -----------
                                           (Dollars in thousands)
REVENUES
  IMS                      $  191,438    $  185,587    $    5,851        3%
  Technologies                 40,938        42,091        (1,153)      (3%)
                           -----------   -----------   -----------
                           $  232,376    $  227,678    $    4,698        2%
                           ===========   ===========   ===========

GROSS PROFIT
  IMS                      $   42,190    $   42,320    $     (130)       -
  Technologies                  3,766         5,235        (1,469)     (28%)
                           -----------   -----------   -----------
                           $   45,956    $   47,555    $   (1,599)      (3%)
                           ===========   ===========   ===========

OPERATING INCOME (LOSS)
  IMS                      $   26,465    $   26,494    $      (29)       -
  Technologies                   (796)         (173)         (623)    (360%)
  Corporate headquarters       (2,742)       (4,030)        1,288       32%
  Unusual items, net           (7,934)       (1,300)       (6,634)    (510%)
                           -----------   -----------   -----------
                           $   14,993    $   20,991    $   (5,998)     (29%)
                           ===========   ===========   ===========


IMS 1998 revenues  increased $5.9 million or 3% over 1997 primarily because 1997
revenues were reduced by the effects of a strike (settled in mid-August 1997) by
employees of a major steel industry customer. The revenue increase was partially
offset by a revenue decrease attributable to an overall steel industry slowdown.
Technologies revenues decreased in 1998 as compared to 1997. While the volume of
waste processed increased over the prior year, average prices were lower in 1998
because much of the volume increase was  lower-priced  cleanup project  business
and because the market is very competitive.

The gross profit  contribution  associated with IMS's increased  revenue in 1998
was entirely  offset by the  negative  effects of blast  furnace  outages at the
segment's  largest  customer,  changes  in  manufacturing  practices  at several
important customers and the overall steel industry slowdown, which significantly
reduced steel  production in the fourth  quarter.  IMS results depend to a great
extent on the  production  volumes  of its steel mill  customers.  Technologies'
gross profit decreased due to processing  lower-priced  cleanup project business
and market conditions noted above.


<PAGE>



Selling,  general  and  administrative  expenses  decreased  as compared to 1997
primarily due to cost reductions resulting from the Company's profit improvement
program and a reduction in legal fees and expenses  attributable  to  litigation
between the Company and its largest  competitor in the electric arc furnace dust
processing market (concluded in the 1998 first quarter).

Unusual items, net. In 1998 unusual charges totaled $7.9 million,  consisting of
------------------
$7.3  million  of costs  related to the  Company's  profit  improvement  program
(including  $3 million  to write down  excess  equipment  to its net  realizable
value,  $2.2 million of program  consulting  costs and $2.1 million of severance
costs) and $.6 million for other costs. The 1997 unusual charges of $1.3 million
were recorded for costs to satisfy  regulatory  requirements  at waste  disposal
sites that have been inactive since before the Company's 1988  acquisition of IU
International  Corporation ("IU  International") and to vacate an office as part
of the Company's consolidation of operations.

Interest expense  increased $1.2 million as the overall debt level was higher in
1998.

Current income tax expense includes state and Canadian income taxes. In 1998 the
Company  wrote off its  deferred  tax assets of $15.3  million  (see  discussion
below).

In 1997 the Company sold its IMSAMET  subsidiary  realizing an after-tax gain of
$9.6 million.  Also in 1997, the Company recognized a $.6 million charge for the
cumulative effect of a mandatory accounting change.

Due to the  factors  described  above,  the 1998 net loss was $30.6  million  as
compared with net income of $.5 million in 1997.

DEFERRED INCOME TAXES

In 1996 the Company  recognized  $26 million of net  deferred  tax assets in its
balance  sheet.  Of this  amount,  $12  million  was  realized  when the Company
utilized  income  tax loss  carryforwards  and  other  deferred  tax  assets  to
eliminate  income tax  payments  on the gain from the  January  1997 sale of its
IMSAMET  subsidiary.  An additional  $1.3 million of net deferred tax assets was
recognized  in 1997.  In the fourth  quarter of 1998,  all of the  Company's net
deferred tax assets were charged  against  operations when the production of the
Company's steel industry  customers  declined  sharply and the Company  reported
negative quarterly  operating income, thus preventing a determination that is it
more likely than not that the Company will earn sufficient taxable income during
the next several years to realize its net deferred tax assets.  (See Note C.)


<PAGE>


1997 VERSUS 1996

                                                                 1997
                                  Year Ended                 better (worse)
                                 December 31,                  than 1996
                           -------------------------   -------------------------
                              1997          1996         Amount          %
                           -----------   -----------   -----------   -----------
                                           (Dollars in thousands)
REVENUES
  IMS                      $  185,587    $  180,002    $    5,585        3%
  Technologies                 42,091        32,787         9,304       28%
                           -----------   -----------   -----------
                           $  227,678    $  212,789    $   14,889        7%
                           ===========   ===========   ===========

GROSS PROFIT
  IMS                      $   42,320    $   46,690    $   (4,370)      (9%)
  Technologies                  5,235           821         4,414      538%
                           -----------   -----------   -----------
                           $   47,555    $   47,511    $       44        -
                           ===========   ===========   ===========

OPERATING INCOME (LOSS)
  IMS                      $   26,494    $   31,476    $   (4,982)     (16%)
  Technologies                   (173)       (4,534)        4,361       96%
  Corporate headquarters       (4,030)       (2,596)       (1,434)     (55%)
  Unusual items, net           (1,300)       (5,471)        4,171       76%
                           -----------   -----------   -----------
                           $   20,991    $   18,875    $    2,116       11%
                           ===========   ===========   ===========


IMS 1997 revenues  increased  $5.6 million or 3% over 1996.  Most steel industry
customer  sites reported  strong  production.  Alexander  Mill  Services,  Inc.,
acquired in May 1996,  contributed $10.1 million to revenues in 1997 as compared
with $6.6 million in the prior year.  However,  revenue  increases  were largely
offset by a revenue  reduction  resulting  from a strike  (settled in mid-August
1997) by employees of a major steel industry customer and the mid-1996 loss of a
steel  industry  customer  that  accounted for $4.6 million of revenues in 1996.
Technologies revenues increased significantly in 1997 as compared to 1996 due to
a sharp increase in the volume of EAF dust (a hazardous  waste produced by steel
mini-mills) processed at the Company's Ohio and Idaho treatment facilities.

IMS gross  profit  decreased  due to the effects of the strike and the loss of a
significant  customer as  outlined  above and  because a 1996  ownership  change
disrupted   production  at  another   customer's  steel  mill  throughout  1997.
Technologies  gross profit  increased  due to the increase in EAF dust  disposal
volume.

Selling,  general and administrative expenses increased $2.1 million as compared
to 1996. Cost savings realized as a result of the 1996  reorganization were more
than offset by an increase in legal fees and expenses attributable to litigation
between  the  Company  and its  largest  competitor  in the EAF dust  processing
market, severance and other costs.

Unusual items,  net. The 1997 unusual  charges of $1.3 million were recorded for
-------------------
costs to  satisfy  regulatory  requirements  at  disposal  sites  that have been
inactive  since  before  the  Company's  1988  acquisition  of IU  International
Corporation  and to vacate an office as part of the Company's  consolidation  of
operations.

In 1996 unusual items  included  $4.4 million of charges for the Company's  1996
reorganization,  $1.2  million  to  settle  the last  disputed  matter  from the
Company's  1993  restructuring  and $.8  million of closure  costs for  inactive
disposal sites. Partially offsetting these charges was a $.9 million credit from
reducing estimated  liabilities remaining from the Company's 1988 acquisition of
IU International.

Even though debt levels were lower in 1997 (the Company paid down $56 million of
debt  in  the  first  quarter  with  proceeds  from  the  sale  of  its  IMSAMET
subsidiary),  interest expense of continuing  operations  increased $1.1 million
primarily because $3.3 million of consolidated interest expense was allocated to
discontinued operations in the prior year and also because the Company's average
effective interest rate was slightly higher in 1997.

In 1996 the Company  recorded a $4.4 million deferred tax credit (see discussion
above),  without which the 1996 loss from continuing  operations would have been
more than $9 million as compared with the 1997 loss from  continuing  operations
of $8.5 million (after a negligible deferred tax credit). In 1997 a $9.6 million
gain from selling IMSAMET and a $.6 million charge for the cumulative  effect of
a mandatory accounting change together with the loss from continuing  operations
resulted in net income of $.5 million.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity requirements arise primarily from the funding of capital
expenditures, working capital needs and debt service obligations.  Historically,
the Company has met such  requirements  with cash flows  generated by operations
and with additional debt financing.

The Company  expects  1999  capital  expenditures  of up to $20 or $25  million,
primarily for equipment replacements and new services. Scheduled debt repayments
amount to $2.5  million  in 1999  (excluding  $3  million  of  revolving  credit
borrowings repaid in January 1999).

Technologies  landfill  permits  require  it to fund  closure  and  post-closure
monitoring  and  maintenance  obligations by making  essentially  non-refundable
trust fund  payments.  These  payments  totaled $1.1  million in 1998.  Based on
current  regulations,  planned  improvements to waste  treatment  facilities and
permitted capacity, such trust funds are adequately funded and currently require
only the  reinvestment of Idaho trust fund earnings,  which the Company includes
in interest income.

The consolidated  balance sheet reflects negative working capital of $.4 million
at December 31, 1998,  due to  including  in current  liabilities  $3 million of
revolving credit borrowings because they were repaid in January 1999.

The Company has a $43.8  million  bank credit  facility  that  declines to $38.3
million in January  2000,  $20 million in March 2000 and  terminates  in January
2001.  As of December  31,  1998,  $22 million of  revolving  credit  borrowings
(including  $3  million  repaid in  January  1999) and $5.7  million  of standby
letters of credit were  outstanding.  The  agreement  contains  convenants  that
require the Company to meet certain financial ratios and tests. These convenants
were amended as of December 31, 1998 and the Company expects to be in compliance
throughout 1999.

Cash on hand, funds from operations and borrowing capacity under the bank credit
facility are expected to satisfy the Company's normal operating and debt service
requirements through the term of the credit facility.

Because  its  businesses  are  environmentally-oriented,  and  therefore  highly
regulated,  the  Company  is  subject to  violations  alleged  by  environmental
regulators and, occasionally, fines. Such violations and fines have not had, and
are not expected to have, a material  impact on the  Company's  business.  It is
possible  that the future  imposition  of  additional  environmental  compliance
requirements could have a material effect on the Company's results of operations
or  financial  condition,  but the  Company is unable to predict any such future
requirements. See Note O, in which environmental compliance is discussed.


<PAGE>


YEAR 2000 READINESS DISCLOSURE

The Year 2000 issue is the result of computer  programs  being written using two
digits rather than four to define applicable years.  Computer programs that have
date-sensitive  software may recognize a date coded "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations that
could cause disruptions of operations,  including temporary inability to process
transactions.

The Company has completed an assessment of its computer  information systems. In
the normal course of business,  the Company has purchased new software  packages
for most of its computer  systems and is currently  purchasing and  implementing
new software for the rest. By mid-1999,  all of the  Company's  software will be
upgraded, through routine software releases from reliable software suppliers, to
accommodate the Year 2000 transition.  The Company has not incurred and does not
anticipate incurring material incremental costs for Year 2000 issues relating to
its  computer  information  systems  since all updates or  replacements  of such
systems shall have  occurred in the ordinary  course of business and the Company
expects to be in compliance throughout 1999.

The Company is  currently  assessing  its  non-information  technology  systems,
including telecommunications and embedded systems. Many of these systems will be
upgraded in the  ordinary  course of business,  prior to December 31, 1999,  and
such  upgrades  are  expected  to  accommodate  the  Year  2000.  The  remaining
non-information  technology systems will be upgraded or replaced as necessary to
be Year 2000  compliant  by  December  31,  1999.  The costs of  compliance  for
non-information  technology  systems  that would not  otherwise  be  replaced or
upgraded in the ordinary course of business are not expected to be material.

The Company is also  addressing  the Year 2000  activities  of its suppliers and
customers. The Company intends to contact significant suppliers and customers to
determine if they are Year 2000 compliant, and if they are not, to ask when they
will be  compliant.  This  information  will be used to  assess  the  extent  of
interruption  that could  occur in the  Company's  operations  if a supplier  or
customer were  non-compliant.  There can be no guarantee that failure to address
Year 2000 issues by a third party  would not have a material  adverse  effect on
the Company.  However,  the Company  believes that its  communications  with its
suppliers and customers will minimize these risks.

The Company's Year 2000 program is based on  management's  best estimates of the
Company's requirements. However, there can be no guarantee of the success of the
Company's Year 2000 program and actual results could differ  materially from the
Company's  plans.  Factors  that could  impact  implementation  of this  program
include,  but are not limited to, the  availability  of trained  personnel,  the
ability to identify  and correct all affected  applications,  and the failure of
third parties on which the Company relies to resolve their Year 2000 issues.

To date,  the Company has not made any  contingency  plans to address  Year 2000
risks. Contingency plans will be developed if it appears that the Company or its
significant  suppliers or  customers  will not be Year 2000  compliant  and such
noncompliance can be expected to have a material adverse impact on the Company's
operations.

SAFE HARBOR STATEMENT

Some of the  statements  in  Management's  Discussion  and Analysis of Financial
Condition  and  Results of  Operations  are  forward-looking  statements.  These
statements are based on current  expectations that involve a number of risks and
uncertainties  which could cause actual results to differ  materially from those
projected.  These forward-looking  statements should be read in conjunction with
the financial statements  contained herein which include information  describing
factors  that  could  cause  actual  results  to differ  materially  from  those
projected in such forward-looking statements.


<PAGE>


ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.

Since the Company is a service company doing business  principally on a contract
basis and almost entirely  within the United States,  its primary market risk is
exposure to interest rate fluctuations on its debt  instruments.  Except for the
bank revolving  credit  facility,  which bears interest at variable  rates,  the
Company's  debt bears  interest at fixed rates.  The table below  presents  debt
principal  payments (in thousands) and the related  average  interest rates that
will be in effect during each year, and should be read in conjunction  with Note
F. The fixed rates are the actual rates that will be in effect during each year.
The variable interest rate is the average rate in effect at the end of 1998, and
it fluctuates with a bank's prime rate or Eurodollar rates.


<TABLE>
<CAPTION>
                            1999              2000              2001           2002              2003
                         -----------       -----------       -----------    -----------       -----------
<S>                      <C>               <C>               <C>            <C>               <C> 
Fixed rate debt          $    2,549        $      359        $       34     $    8,587        $  270,043

Average interest rate        10.37%            10.38%            10.38%         10.38%            10.45%

Variable rate debt       $    3,000        $   19,000

Average interest rate         8.30%             8.30%


</TABLE>


<PAGE>


ITEM 8.  Financial Statements and Supplementary Data.

         See the financial  statements and schedules  attached hereto and listed
in Item 14(a)(1) and (a)(2) hereof.



ITEM 9.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure.

         Not applicable.

                                    PART III


ITEM 10.  Directors and Executive Officers of the Company.

         Reference is made to the  information  set forth under the headings (i)
"Election  of  Class  A  Directors"  and  "Section  16(a)  Beneficial  Ownership
Reporting  Compliance" in the Company's  Proxy Statement to be filed pursuant to
Regulation  14A under the  Securities Act of 1934 within 120 days after December
31, 1998 and (ii)  "Executive  Officers of the Company" in Part I of this Annual
Report on Form 10-K, which information is incorporated herein by reference.


ITEM 11.  Executive Compensation.

         Reference  is made to the  information  set  forth  under  the  heading
"Executive  Compensation"  in the Company's Proxy Statement to be filed pursuant
to  Regulation  14A under  the  Securities  Act of 1934  within  120 days  after
December 31, 1998, which information is incorporated herein by reference.


ITEM 12.  Security Ownership of Certain Beneficial Owners and
          Management.

         Reference  is made to the  information  set  forth  under  the  heading
"Security  Ownership  of  Certain  Beneficial  Owners  and  Management"  in  the
Company's  Proxy  Statement  to be filed  pursuant to  Regulation  14A under the
Securities  Act  of  1934  within  120  days  after  December  31,  1998,  which
information is incorporated herein by reference.


ITEM 13.  Certain Relationships and Related Transactions.

         Reference  is made to the  information  set  forth  under  the  heading
"Certain  Transactions" in the Company's Proxy Statement to be filed pursuant to
Regulation  14A under the  Securities Act of 1934 within 120 days after December
31, 1998, which information is incorporated herein by reference.



<PAGE>


                                     PART IV

ITEM 14.  Exhibits, Financial Statement Schedules, and Reports
          on Form 8-K.

         (a)  Documents Filed as Part of this Report.
              --------------------------------------

         (1)  Financial Statements.
              --------------------

         The following  Consolidated Financial Statements of the Company and its
subsidiaries are included in this Report:

         Report of Independent Auditors

         Consolidated Balance Sheets at December 31, 1998 and 1997

         Consolidated Statements of Operations for the Years Ended
         December 31, 1998, 1997 and 1996

         Consolidated  Statements  of Stockholders'  Equity for the  Years Ended
         December 31, 1998, 1997 and 1996

         Consolidated Statements  of Cash Flows for the Years Ended December 31,
         1998, 1997 and 1996

         Notes to Consolidated Financial Statements

         (2)  Financial Statement Schedules.
              -----------------------------

         The following schedules to the Consolidated Financial Statements of the
Company and its subsidiaries are included in this Report:

         Schedules
         ---------

         II -  Valuation and Qualifying Accounts

         All other  schedules  for  which  provision  is made in the  applicable
accounting regulation of the Securities and Exchange Commission are not required
or are inapplicable, and therefore have been omitted.


<PAGE>


         (3)               Exhibits.
                           --------

3.1       Amended  and  Restated  Certificate  of  Incorporation  of the Company
          (incorporated  herein by reference to Appendix A (pages A-1 to A-3) to
          the Company's  Proxy Statement filed April 29, 1996, in respect of its
          1996 Annual Meeting of Stockholders (File No. 1-1363)).

3.2       Amendment  of  Amended  and  Restated   Certificate  of  Incorporation
          (incorporated  herein by  reference to Page 2 to the  Company's  Proxy
          Statement  filed April 30, 1997, in respect of its 1997 Annual Meeting
          of Stockholders (File No. 1-1363)).

3.3       Amendment  of  Amended  and  Restated   Certificate  of  Incorporation
          (incorporated  herein by reference to Pages 13 and 14 of the Company's
          Proxy  Statement  filed April 30, 1998,  in respect of its 1998 Annual
          Meeting of Stockholders (File No. 1-1363)).

3.4       By-Laws of the Company  (incorporated herein by reference to Exhibit C
          (pages C-1 to C-9) to the Company's  Proxy  Statement  filed April 24,
          1987, in respect of its 1987 Annual Meeting of Stockholders  (File No.
          1-1363)).

3.5       Amendment  to the  By-Laws  of the  Company  (incorporated  herein  by
          reference to Exhibit 3.4 to the  Company's  Annual Report on Form 10-K
          for the fiscal year ended December 31, 1987 (File No. 1-1363)).

3.6       By-Laws  Amendment Adopted March 26, 1997 By Unanimous Written Consent
          of the Board of Directors,  Effective June 19, 1997  (incorporated  by
          reference  to Exhibit 3.5 to the  Company's  Quarterly  Report on Form
          10-Q for the fiscal quarter ended June 30, 1997 (File No. 1- 1363)).

4.1       Indenture,  dated as of July 1, 1993,  between  the Company and United
          States  Trust  Company  of  New  York,  as  Trustee,  relating  to the
          Company's  9-3/4%  Senior Notes due 2003,  including  the form of such
          Notes attached as Exhibit A thereto  (incorporated herein by reference
          to Exhibit 4.10 to the Company's Quarterly Report on Form 10-Q for the
          fiscal quarter ended June 30, 1993 (File No. 1-1363)).

4.2       First  Supplemental  Indenture,  dated as of November 2, 1995, between
          the Company and United  States Trust  Company of New York, as Trustee,
          relating to the Company's  9-3/4% Senior Notes due 2003  (incorporated
          herein by reference to Exhibit 4.15 to the Company's  Quarterly Report
          on Form 10-Q for the fiscal quarter ended September 30, 1995 (File No.
          1-1363)).

4.3       Second Supplemental Indenture, dated as of September 24, 1997, between
          the Company and United  States Trust  Company of New York, as Trustee,
          relating to the company's  9-3/4% Senior Notes due 2003  (incorporated
          herein by reference to Exhibit 4.5 to the Company's  Quarterly  Report
          on Form 10-Q for the fiscal quarter ended September 30, 1997 (File No.
          1-1363).

4.4       Indenture,  dated as of September  30,  1997,  between the Company and
          United States Trust  Company of New York, as Trustee,  relating to the
          Company's  9-3/4% Senior Notes due 2003,  Series B, including the form
          of such Notes  attached as Exhibit A thereto  (incorporated  herein by
          reference  to Exhibit 4.6 to the  Company's  Quarterly  Report on Form
          10-Q for the  fiscal  quarter  ended  September  30,  1997  (File  No.
          1-1363).

4.5       Registration  Rights Agreement,  dated as of September 30, 1997, among
          the Company and Morgan Stanley Dean Witter,  Jeffries & Company,  Inc.
          and  NationsBanc  Capital  Markets,   Inc.   (incorporated  herein  by
          reference  to Exhibit 4.7 to the  Company's  Quarterly  Report on Form
          10-Q for the fiscal quarter ended September 30, 1997 (File No. 1-1363)

4.6       Registration  Rights  Agreement,  dated as of May 13, 1993,  among the
          Company,  FS Equity  Partners II, L.P., The IBM Retirement  Plan Trust
          Fund and Enso  Partners,  L.P.  (incorporated  herein by  reference to
          Exhibit  4.29  to  Amendment  No.  1  to  the  Company's  Registration
          Statement on Form S-1, filed June 14, 1993 (File No. 33-62050)).

4.7       Loan  Agreement,  dated as of June 1,  1994,  between  the  Industrial
          Development   Corporation  of  Owyhee  County,  Idaho  and  Envirosafe
          Services of Idaho,  Inc.  relating to  $8,500,000  Industrial  Revenue
          Bonds,  Series  1994.  (The  Company  agrees to furnish a copy of such
          agreement to the Commission upon request).

4.8       Credit  Agreement,  dated as of December 19, 1995,  among the Company,
          International  Mill  Service,   Inc.,  the  lenders  parties  thereto,
          NationsBank,  N.A., as  Administrative  Agent,  and Credit Lyonnais as
          Syndication Agent (incorporated herein by reference to Exhibit 4.14 to
          the  Company's  Annual  Report on Form 10-K for the fiscal  year ended
          December 31, 1995 (File No. 1-1363)).

4.9       First  Amendment,  dated as of May 15, 1996, to the Credit  Agreement,
          dated as of December 19, 1995, among the Company,  International  Mill
          Service,  Inc., the lenders  parties  thereto,  NationsBank,  N.A., as
          Administrative   Agent,  and  Credit  Lyonnais  as  Syndication  Agent
          (incorporated  herein by reference  to Exhibit  4.15 to the  Company's
          Quarterly  Report on Form 10-Q for the fiscal  quarter  ended June 30,
          1996 (File No. 1-1363)).

4.10      Second  Amendment,  dated  as of  December  23,  1996,  to the  Credit
          Agreement,   dated  as  of  December  19,  1995,  among  the  Company,
          International  Mill  Service,   Inc.,  the  lenders  parties  thereto,
          NationsBank,  N.A., as  Administrative  Agent,  and Credit Lyonnais as
          Syndication Agent (incorporated herein by reference to Exhibit 4.13 to
          the  Company's  Annual  Report on Form 10-K for the fiscal  year ended
          December 31, 1996 (File No. 1-1363)).

4.11      Third  Amendment,  dated  effective as of June 30, 1997, to the Credit
          Agreement,   dated  as  of  December  19,  1995,  among  the  Company,
          International   Mill  Service,   Inc.,  the  lenders  parties  hereto,
          NationsBank,  N.A., as  Administrative  Agent,  and Credit Lyonnais as
          Syndication Agent (incorporated herein by reference to Exhibit 4.14 to
          the  Company's  Quarterly  Report on Form 10-Q for the fiscal  quarter
          ended June 30, 1997 (File No. 1-1363)).

4.12      Fourth  Amendment,  dated as of  September  23,  1997,  to the  Credit
          Agreement,   dated  as  of  December  19,  1995,  among  the  Company,
          International  Mill  Service,   Inc.,  the  lenders  parties  thereto,
          NationsBank,  N.A., as  Administrative  Agent,  and Credit Lyonnais as
          Syndication Agent (incorporated herein by reference to Exhibit 4.18 to
          the  Company's  Quarterly  Report on Form 10-Q for the fiscal  quarter
          ended September 30, 1997 (File No. 1-1363)).

4.13      Fifth Amendment,  dated as of March 5, 1998, to the Credit  Agreement,
          dated as of December 19, 1995, among the Company,  International  Mill
          Service,  Inc., the lenders  parties  thereto,  NationsBank,  N.A., as
          Administrative   Agent,  and  Credit  Lyonnais  as  Syndication  Agent
          (incorporated  herein by reference  to Exhibit  4.15 to the  Company's
          Annual Report on Form 10-K for the fiscal year ended December  31,1997
          (File No. 1-1363)).

4.14*     Sixth   Amendment,  dated  as  of  March  26,   1999,  to  the  Credit
          Agreement,   dated  as  of  December  19,  1995,  among  the  Company,
          International  Mill  Service,   Inc.,  the  lenders  parties  thereto,
          NationsBank,  N.A., as  Administrative  Agent,  and Credit Lyonnais as
          Syndication Agent.

10.1      Restated  Incentive  Stock  Option  Plan of the  Company,  as  amended
          (incorporated  herein  by  reference  to  Exhibit  A to the  Company's
          Registration  Statement on Form S-8,  filed January 17, 1989 (File No.
          33-26633)).



<PAGE>


10.2      Promissory  Note of Louis A.  Guzzetti,  Jr.,  dated  March 31,  1998,
          payable to the Company,  amending and  replacing the  Promissory  Note
          dated March 31, 1993 (incorporated herein by reference to Exhibit 10.2
          to the Company's  Quarterly Report on Form 10-Q for the fiscal quarter
          ended March 31, 1998 (File No. 1-1363)).

10.3      Promissory  Notes  of  Aarne  Anderson,  George  E.  Fuehrer  and  Mr.
          Guzzetti, dated as of March 31, 1998, payable to the Company, amending
          and replacing the  Promissory  Notes dated April 1,  1993(incorporated
          herein by reference to Exhibit 10.3 to the Company's  Quarterly Report
          on Form 10-Q for the fiscal  quarter  ended  March 31,  1998 (File No.
          1-1363)).

10.4      Stock Option Agreement,  dated March 18, 1992, between the Company and
          Raymond P. Caldiero (incorporated herein by reference to Exhibit 10.20
          to the Company's  Annual Report on Form 10-K for the fiscal year ended
          December 31, 1992 (File No. 1-1363)).

10.5      Stock Option Agreement,  dated March 18, 1992, between the Company and
          Jeffrey G. Miller  (incorporated  herein by reference to Exhibit 10.21
          to the Company's  Annual Report on Form 10-K for the fiscal year ended
          December 31, 1992 (File No. 1-1363)).

10.6      Amendment,  dated August 5, 1993, to the Stock Option Agreement, dated
          March  18,   1992,   between   the   Company  and  Jeffrey  G.  Miller
          (incorporated  herein by reference to Exhibit 10.22 to  Post-Effective
          Amendment No. 1 to the Company's  Registration  Statement on Form S-1,
          filed September 16, 1993(File No. 33-46930)).

10.7      Stock Option Agreement,  dated August 5, 1993, between the Company and
          Wallace B. Askins  (incorporated  herein by reference to Exhibit 10.23
          to  Post-Effective  Amendment  No.  1 to  the  Company's  Registration
          Statement on Form S-1, filed September 16, 1993 (File No. 33-46930)).

10.8      Envirosource,  Inc.  1993 Stock  Option Plan  (incorporated  herein by
          reference  to  Exhibit  10.21  to  Amendment  No.  1 to the  Company's
          Registration  Statement  on Form S-1,  filed  June 14,  1993 (File No.
          33-62050)).

10.9      Envirosource,  Inc.  Stock Option Plan for  Non-Affiliated  Directors,
          dated as of  January  1, 1995  (incorporated  herein by  reference  to
          Exhibit  10.14 to the  Company's  Annual  Report  on Form 10-K for the
          fiscal year ended December 31, 1994 (File No. 1-1363)).

10.10     Supplemental  Executive  Retirement  Plan  of the  Company,  effective
          January 1,  1995(incorporated  herein by reference to Exhibit 10.19 to
          the  Company's  Annual  Report on Form 10-K for the fiscal  year ended
          December 31, 1994 (File No. 1-1363)).

10.11     Employment Agreement,  dated November 5, 1996, between the Company and
          Aarne Anderson  (incorporated  herein by reference to Exhibit 10.12 to
          the  Company's  Quarterly  Report  on Form 10-Q for the  period  ended
          September 30, 1996 (File No. 1-1363)).

10.12     Employment Agreement,  dated November 5, 1996, between the Company and
          William B. Davis (incorporated herein by reference to Exhibit 10.13 to
          the  Company's  Quarterly  Report  on Form 10-Q for the  period  ended
          September 30, 1996 (File No. 1-1363)).

10.13     Employment Agreement,  dated November 5, 1996, between the Company and
          James C. Hull  (incorporated  herein by reference to Exhibit  10.14 to
          the  Company's  Quarterly  Report  on Form 10-Q for the  period  ended
          September 30, 1996 (File No. 1-1363))

21.1*     Subsidiaries of the Company

23.1*     Consent of Ernst & Young LLP


         (b) Reports on Form 8-K.

         During the last quarter of the fiscal year ended December 31, 1998, the
Company filed no Current Reports on Form 8-K.


* Filed herewith.


<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated:  March 31, 1999
                                                    ENVIROSOURCE, INC.



                                                     By: /s/ JOHN T. DILACQUA
                                                         -----------------------
                                                         John T. DiLacqua
                                                         President 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
Company and in the capacities indicated on March 31, 1999.

Signature                                   Title


/s/ JOHN T. DILACQUA                        President, Chief Executive
--------------------
John T. DiLacqua                            Officer (Principal Executive
                                            Officer) and Director


/s/ JAMES C. HULL                           Vice President and Chief
-----------------
James C. Hull                               Financial Officer (Principal
                                            Financial and Accounting
                                            Officer)


/s/ ROBERT N. GURNITZ                       Chairman of the Board of
---------------------
Robert N. Gurnitz                           Directors




<PAGE>


/s/ WALLACE B. ASKINS                       Director
---------------------
Wallace B. Askins


/s/ RAYMOND P. CALDIERO                     Director
-----------------------
Raymond P. Caldiero


/s/ JEFFREY G. MILLER                       Director
---------------------
Jeffrey G. Miller


/s/ JON D. RALPH                            Director
----------------
Jon D. Ralph


/s/ JOHN M. ROTH                            Director
----------------
John M. Roth


/s/ J. FREDERICK SIMMONS                    Director
------------------------
J. Frederick Simmons


/s/ RONALD P. SPOGLI                        Director
--------------------
Ronald P. Spogli


<PAGE>


REPORT OF INDEPENDENT AUDITORS


Stockholders and Board of Directors
Envirosource, Inc.



We have audited the  accompanying  consolidated  balance sheets of Envirosource,
Inc. as of December 31, 1998 and 1997, and the related  consolidated  statements
of operations,  stockholders' equity, and cash flows for each of the three years
in the period ended  December 31, 1998.  Our audits also  included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule 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  consolidated  financial  position  of
Envirosource,  Inc. at December 31, 1998 and 1997, and the consolidated  results
of its  operations  and its cash flows for each of the three years in the period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Note A to the financial statements,  in 1997 the Company changed
its method of accounting for systems development costs.


                                                       /s/ Ernst & Young LLP



Philadelphia, Pennsylvania
March 19, 1999


<PAGE>

                                                                  
<TABLE>
<CAPTION>
                               Envirosource, Inc.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)


                                                          December 31,
                                                  -----------------------------
                                                     1998              1997
                                                  -----------       -----------
<S>                                               <C>               <C>    
ASSETS
Current assets:
  Cash and cash equivalents                       $    5,134        $    9,942
  Accounts receivable, less allowance for
    doubtful accounts of $1,045 in 1998               32,305            33,260
    and $701 in 1997
  Net deferred income taxes                                -             2,755
  Other current assets                                 3,520             3,966
                                                  -----------       -----------
      Total current assets                            40,959            49,923

Property, plant and equipment:
  Land and improvements                                1,184             1,184
  Landfill development                                34,729            31,800
  Buildings and improvements                          35,024            29,922
  Machinery and equipment                            233,387           225,454
                                                  -----------       -----------
                                                     304,324           288,360
  Less allowance for depreciation                   (157,387)         (144,978)
                                                  -----------       -----------
                                                     146,937           143,382

Goodwill, less amortization                          127,931           132,766
Closure trust funds and deferred charges,
  less amortization                                   33,205            33,810
Landfill permits, less amortization                   22,974            23,849
Net deferred income taxes                                  -            12,582
Other assets                                          15,450            16,990
                                                  -----------       -----------
                                                  $  387,456        $  413,302
                                                  ===========       ===========
</TABLE>


See notes to consolidated financial statements.


<PAGE>


<TABLE>
<CAPTION>
                                Envirosource Inc.
                    CONSOLIDATED BALANCE SHEETS - (continued)
                             (Dollars in thousands)


                                                          December 31,
                                                  -----------------------------
                                                     1998              1997
                                                  -----------       -----------
<S>                                               <C>               <C>    
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
  Accounts payable                                $   10,949        $   12,194
  Salaries, wages and related benefits                 7,370             7,173
  Insurance obligations                                4,588             5,789
  Other current liabilities                           12,947            11,760
  Current portion of debt                              5,549            13,786
                                                  -----------       -----------
      Total current liabilities                       41,403            50,702


Long term debt:
  9 3/4% Senior Notes due 2003                       270,000           270,000
  Other long-term debt                                28,023            11,614

Other liabilities                                     38,187            40,775

Stockholders' equity:
  Common stock, par value $.05 per share,
    shares authorized - 20,000,000, shares
    issued and outstanding - 5,813,394
    in 1998 and 1997                                     291               291
  Capital in excess of par value                     175,969           175,939
  Accumulated deficit                               (164,771)         (134,132)
  Accumulated other comprehensive income              (1,556)           (1,224)
  Stock purchase loans receivable from
    officers                                             (90)             (663)
                                                  -----------       -----------
      Total stockholders' equity                       9,843            40,211
                                                  -----------       -----------
                                                  $  387,456        $  413,302
                                                  ===========       ===========

</TABLE>


See notes to consolidated financial statements.

<PAGE>


<TABLE>
<CAPTION>
                               Envirosource, Inc.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (Dollars in thousands, except for per share amounts)

                                                              Years Ended December 31,
                                                   -----------------------------------------------
                                                      1998              1997              1996
                                                   -----------       -----------       -----------
<S>                                                <C>               <C>               <C>
Revenues                                           $  232,376        $  227,678        $  212,789

Cost of revenues                                      186,420           180,123           165,278
Selling, general and
  administrative expenses                              23,029            25,264            23,165
Unusual charges                                         7,934             1,300             5,471
                                                   -----------       -----------       -----------
Operating income                                       14,993            20,991            18,875

Interest income                                         1,262             1,223             1,356
Interest expense                                      (30,510)          (29,308)          (28,187)
                                                   -----------       -----------       -----------
Loss from continuing
  operations before income taxes                      (14,255)           (7,094)           (7,956)

Income tax (expense) benefit:
  Current                                              (1,047)           (1,399)           (1,134)
  Deferred                                            (15,337)               31             4,400
                                                   -----------       -----------       -----------
                                                      (16,384)           (1,368)            3,266
                                                   -----------       -----------       -----------
Loss from continuing operations                       (30,639)           (8,462)           (4,690)

Income from discontinued
  IMSAMET operations, after taxes                                         9,600               399
                                                   -----------       -----------       -----------

Income (loss) before cumulative
  effect of accounting change                         (30,639)            1,138            (4,291)
Cumulative effect of accounting
     change                                                                (639)
                                                   -----------       -----------       -----------
Net income (loss)                                     (30,639)              499            (4,291)

Preferred stock dividend
  requirement, reduced by
  retirement gain of $250                                                                    (151)
                                                   -----------       -----------       -----------
Income (loss) applicable to
  common shares                                    $  (30,639)       $      499       $    (4,442)
                                                   ===========       ===========       ===========

Income (loss) per share:
  Continuing operations                            $    (5.27)       $    (1.46)     $       (.84)
  Discontinued operations                                                  1.66               .07
  Cumulative effect of
    accounting change                                                      (.11)
                                                   -----------       -----------       -----------
  Net income (loss)                                $    (5.27)      $       .09          $   (.77)
                                                   ===========       ===========       ===========

Weighted average common shares                          5,813             5,787              5,775
</TABLE>


See notes to consolidated financial statements.


<PAGE>


<TABLE>
<CAPTION>
                                                Envirosource, Inc.
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                              (Dollars in thousands)

                                                                                     Accumulated
                                                     Capital in                         Other             Stock
                                     Common          Excess of        Accumulated    Comprehensive      Purchase         
                                     Stock           Par Value          Deficit      Income (Loss)        Loans              Total
                                  -----------       -----------       -----------    -----------       -----------       -----------
<S>                               <C>               <C>               <C>            <C>               <C>               <C>
Balance January 1, 1996           $      287        $  164,303        $ (130,189)    $     (957)       $     (840)       $   32,604

  Comprehensive income:
    Net loss                                                              (4,291)                                            (4,291)
    Translation adjustment                                                                  (35)                                (35)
                                                                                                                         -----------
  Total comprehensive 
    income (loss)                                                                                                            (4,326)
  Common stock issued
    (22,457 shares)                        1               199                                                                  200
  Deferred income tax benefit                           10,700                                                               10,700
  Preferred stock dividends
    and accretion, reduced by
    retirement gain of $250                                                 (151)                                              (151)
  Loan repayment                                                                                               30                30
                                  -----------       -----------       -----------    -----------       -----------       -----------
BALANCE DECEMBER 31, 1996                288           175,202          (134,631)          (992)             (810)           39,057

  Comprehensive income:
    Net income                                                               499                                                499
    Translation adjustment                                                                 (232)                               (232)
                                                                                                                         -----------
  Total comprehensive income                                                                                                    267
  Common stock issued
    (51,760 shares)                        3               737                                                                  740
  Loan repayment                                                                                              147               147
                                  -----------       -----------       -----------    -----------       -----------       -----------
BALANCE DECEMBER 31, 1997                291           175,939          (134,132)        (1,224)             (663)           40,211
  Comprehensive income:
    Net loss                                                             (30,639)                                           (30,639)
    Translation adjustment                                                                 (332)                               (332)
                                                                                                                         -----------
  Total comprehensive 
    income (loss)                                                                                                           (30,971)
  Loan repayment                                                                                              573               573
  Other                                                     30                                                                   30
                                  -----------       -----------       -----------    -----------       -----------       -----------
BALANCE DECEMBER 31, 1998         $      291        $  175,969        $ (164,771)    $   (1,556)       $      (90)       $    9,843
                                  ===========       ===========       ===========    ===========       ===========       ===========
</TABLE>


       See notes to consolidated financial statements.


<PAGE>


<TABLE>
<CAPTION>
                               Envirosource, Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

                                                              Years Ended December 31,
                                                   -----------------------------------------------
                                                      1998              1997              1996
                                                   -----------       -----------       -----------
<S>                                                <C>               <C>               <C>
OPERATING ACTIVITIES
Income (loss) before cumulative effect
  of accounting change                             $  (30,639)       $    1,138        $   (4,291)
Adjustments to reconcile income (loss)
  to cash provided by operating activities:
    Deferred income taxes                              15,337            11,969            (4,400)
    Gain from sale of IMSAMET                                           (21,600)
    Depreciation                                       27,330            26,492            26,261
    Amortization                                       12,075            11,029             9,715
    Unusual items, net of payments                      4,896              (628)            1,766
    Changes in working capital                         (2,031)             (271)           (2,562)
    Other, net                                            915             2,394             1,674
                                                   -----------       -----------       -----------
Cash provided by operating activities                  27,883            30,523            28,163


INVESTING ACTIVITIES
Property, plant and equipment:
  Additions                                           (35,588)          (29,354)          (21,883)
  Proceeds from dispositions                            1,475               883             2,930
Net proceeds from sale of IMSAMET                                        56,464
Purchase of Alexander Mill Services, Inc.
  (net of cash acquired)                                                                   (5,953)
Landfill permit additions and closure
  expenditures                                         (2,751)           (4,044)           (3,186)
Closure trust fund payments                            (1,072)           (1,515)           (1,530)
Ongoing cash flows related to
  IU International acquisition                         (2,400)          (10,808)           (1,901)
Other                                                    (527)           (1,117)             (798)
                                                   -----------       -----------       -----------
Cash provided (used) by investing
  activities                                          (40,863)           10,509           (32,321)


FINANCING ACTIVITIES
Debt issuance                                          68,000            82,000            60,000
Debt repayment                                        (59,828)         (119,528)          (21,372)
Debt issuance costs                                                      (3,240)             (102)
Retirement of preferred stock                                                             (33,242)
Sale of common stock                                                                          185
                                                   -----------       -----------       -----------
Cash provided (used) by financing
  activities                                            8,172           (40,768)            5,469
                                                   -----------       -----------       -----------

CASH AND CASH EQUIVALENTS
  Increase (decrease) during year                      (4,808)              264             1,311
  Beginning of year                                     9,942             9,678             8,367
                                                   -----------       -----------       -----------
  End of year                                      $    5,134        $    9,942        $    9,678
                                                   ===========       ===========       ===========
</TABLE>


See notes to consolidated financial statements.


<PAGE>
                               Envirosource, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A -- ACCOUNTING POLICIES

Principles of consolidation:  The consolidated  financial statements include the
---------------------------
accounts  of  the  Company  and  its  subsidiaries.  Intercompany  accounts  and
transactions have been eliminated.  Certain amounts reported in prior years have
been reclassified for comparative purposes.

Use of estimates:  Preparing  financial  statements in accordance with generally
-----------------
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Cash equivalents: Cash equivalents are highly liquid investments with maturities
-----------------
of three months or less when acquired.

Property, plant and equipment:  Property, plant and equipment is stated at cost.
-----------------------------
Depreciation  is computed by the  straight-line  method  based on the  following
lives:  buildings and improvements -- 10 to 30 years and machinery and equipment
-- 3 to 25 years.  Landfill development costs are depreciated based on the ratio
of cubic  yards of disposal  capacity  utilized to total cubic yards of disposal
capacity.

Landfill  permits:  Costs to acquire and maintain  landfill permits are deferred
-----------------
and amortized based on the ratio of cubic yards of disposal capacity utilized to
total cubic  yards of  disposal  capacity.  Accumulated  amortization  was $19.5
million and $16.7 million at December 31, 1998 and 1997.

Closure  trust funds and deferred  charges:  Idaho  landfill  closure  costs and
------------------------------------------
post-closure  obligations  (accrued as  liabilities  in the  balance  sheet) are
secured  by a trust fund  invested  in U.S.  government  and  government  agency
securities.  These  investments,  totaling  $15.3  million and $14.3  million at
December  31,  1998 and  1997,  are  classified  as  "available-for-sale,"  have
maturities  of one month to ten years and are  carried at  amortized  cost which
approximates  market value.  Interest  income and realized  gains and losses are
recognized in earnings. Excess funds, if any, will revert to the Company.

Ohio landfill trust fund balances  represent deferred charges that are amortized
as part of closure  costs.  These trusts (also  invested in U.S.  government and
government  agency  securities)  will fund the latter stages of closure activity
and all post-closure activity in perpetuity. Excess funds, if any, revert to the
State of Ohio;  accordingly,  no  interest  income  is  recognized.  Accumulated
amortization was $15.7 million and $14 million at December 31, 1998 and 1997.

Closure costs: The estimated costs of future closure and post-closure monitoring
-------------
and  maintenance  of landfills  are  amortized or accrued  based on the ratio of
cubic  yards of  disposal  capacity  utilized  to total  cubic yards of disposal
capacity.  Closure  costs are similar to  landfill  development  costs,  but are
generally  incurred  for  aboveground  construction.  Closure  cost  accruals of
$ 9.1  million  and $10.1  million  are  included in other long-term liabilities
at December 31, 1998 and 1997.


<PAGE>


NOTE A -- ACCOUNTING POLICIES - continued

Goodwill: The excess of purchase price over fair value of net assets of acquired
--------
businesses is recorded as an asset and amortized using the straight-line  method
over periods of 15 to 40 years.  Accumulated  amortization was $53.6 million and
$48.8 million at December 31, 1998 and 1997. The carrying value of goodwill will
be reviewed if facts and circumstances  suggest that it may be impaired. If this
review indicates that the goodwill will not be recoverable,  as determined based
on anticipated cash flows over the remaining  amortization  period, the carrying
value of the goodwill will be reduced based on the  discounted  present value of
the anticipated cash flows.

Revenues:  The Company's revenues are recognized as services are provided.
--------

Accounting  Change:  Pursuant to Emerging  Issues  Task Force  (EITF)  Issue No.
------------------
97-13, the Company changed its accounting policy for systems  development costs.
Previously,  substantially all direct costs relating to systems development were
capitalized,  including certain consulting costs to select software.  Under EITF
Issue No. 97-13,  software selection costs must be expensed as incurred,  so the
unamortized  balance of these costs  totaling  $639,000 as of September 30, 1997
was written off as a cumulative accounting change in the 1997 fourth quarter.

Earnings per share:  Basic  earnings per share is calculated by dividing  income
------------------
(loss)  applicable  to common  shares by the weighted  average  number of shares
outstanding  during the period,  excluding  any dilutive  effects of options and
warrants.  Diluted  earnings  per share  includes  the  effects of common  stock
equivalents  outstanding during the period. Basic and diluted earnings per share
amounts are the same in each year because  there is no dilution  when there is a
loss from continuing operations.

In June 1998 the company  completed a 1-for-7  reverse  stock split.  Numbers of
shares and per share amounts have been restated for all periods presented.

Stock-based  compensation plans: The Company follows Accounting Principles Board
-------------------------------
Opinion No. 25,  Accounting  for Stock Issued to Employees,  in  accounting  for
stock-based  compensation  plans and discloses the fair value of options granted
and pro forma  earnings  as  permitted  by  Statement  of  Financial  Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.

Comprehensive  Income:  As of January 1, 1998, the Company adopted SFAS No. 130,
---------------------
Reporting Comprehensive Income. SFAS 130 establishes new rules for the reporting
and display of  comprehensive  income and its  components.  The adoption of this
Statement had no impact on the Company's net income or stockholders' equity.


<PAGE>


NOTE B -- UNUSUAL ITEMS, NET

1996 - Net unusual  charges of $5.5  million  consisted  of $4.4 million for the
----
1996 reorganization  (including $2 million for severance costs, $1.3 million for
costs to vacate  offices and abandon  assets and $1.1 million for other  costs),
$1.2  million to settle the last  disputed  matter  from the 1993  restructuring
(related to a terminated  recycling unit), and $.8 million of additional closure
costs  for  waste  disposal  sites  that have been  inactive  since  before  the
Company's 1988 acquisition of IU International,  less a $.9 million reduction of
other estimated  liabilities  remaining from the IU  International  acquisition.
During  1996,  $5.1  million of costs were  charged  against  the  unusual  item
liabilities  ($2.2  million  of  severance,  $1.3  million  for  the  terminated
recycling  unit,  $1 million for vacated  offices and  abandoned  assets and $.6
million for other costs), leaving a balance of $4.2 million for remaining costs,
as compared with $2.9 million at the beginning of 1996.

1997 - Unusual  charges  of $1.3  million  were  recorded  for costs to  satisfy
----
regulatory  requirements  at the  inactive  waste  disposal  sites and to vacate
another  office.  During 1997,  costs totaling $2.5 million were charged against
these and other unusual item liabilities ($.7 million of severance,  $.5 million
for vacated offices,  $.5 million for inactive waste disposal sites, $.4 million
for the terminated  recycling  unit and $.4 million for other costs),  leaving a
balance of $3 million at December 31, 1997.

1998 -  Unusual  charges  of $7.9  million  consisted  of $7.3  million  for the
----
Company's profit improvement  program (including $3 million to write down excess
equipment to its net realizable value, $2.2 million of program  consulting costs
and $2.1  million of  severance  costs) and $.6 million of other  costs.  During
1998,  costs  totaling $8 million were charged  against  these and other unusual
item  liabilities  ($3 million for excess  equipment,  $2 million of  consulting
costs, $1.3 million of severance,  $.6 million for vacated offices,  $.6 million
for inactive waste disposal sites, $.4 million for the terminated recycling unit
and $.1 million for other costs),  leaving a balance of $2.9 million at December
31, 1998.

NOTE C -- INCOME TAXES

The  components  of income tax  (expense)  benefit  attributable  to  continuing
operations are as follows (in thousands):

                                    1998              1997              1996
                                 -----------       -----------       -----------
Current:
  State                          $     (897)       $   (1,170)       $     (916)
  Canadian                             (150)             (229)             (218)
                                 -----------       -----------       -----------
                                     (1,047)           (1,399)           (1,134)

Deferred:
  Federal                           (15,337)               31             4,400
                                 -----------       -----------       -----------
                                 $  (16,384)       $   (1,368)       $    3,266
                                 ===========       ===========       ===========


<PAGE>


NOTE C -- INCOME TAXES - continued

Canadian income before income taxes amounted to $.5 million in 1998, $.7 million
in 1997 and $.6 million in 1996.

Income tax (expense)  benefit  varies from amounts  computed by applying the 35%
federal statutory rate for the following reasons (in thousands):


                                    1998              1997              1996
                                 -----------       -----------       -----------

Benefit of pre-tax loss from
  continuing operations at
  statutory rate                 $    4,989        $    2,483          $  2,785
Goodwill amortization                (1,692)           (1,692)           (1,718)
Effect of (increasing) 
  reducing deferred tax 
  valuation allowance               (19,098)           (1,454)             3,100
Effect of state and Canadian
  income taxes                         (583)             (761)             (595)
Other                                     -                56              (306)
                                 -----------       -----------       -----------
                                 $  (16,384)       $   (1,368)       $    3,266
                                 ===========       ===========       ===========

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):

                                                      1998              1997
                                                   -----------       -----------
Deferred tax assets:
  Net operating loss carryforwards                 $   35,652        $   85,643
  Capital loss carryforwards                                -               248
  Insurance accruals                                    2,232             2,937
  Reorganization and restructuring accrual                543               655
  Pension and other postretirement 
    benefits accruals                                   4,040             4,331
  Closure cost accruals                                 4,216             3,655
  Other accruals                                        5,525             6,842
                                                   -----------       -----------
    Total deferred tax assets                          52,208           104,311
  Valuation allowance                                 (36,811)          (70,554)
                                                   -----------       -----------
    Net deferred tax assets                            15,397            33,757

Deferred tax liabilities:
  Tax over book depreciation plus IU 
    International acquisition purchase price 
    allocation to property, plant, and equipment       (6,365)           (8,817)
  Tax over book post-closure deductions                (5,417)           (5,710)
  Tax over book landfill permit amortization           (3,615)           (3,893)
                                                   -----------       -----------
    Total deferred tax liabilities                    (15,397)          (18,420)
                                                   -----------       -----------
    Net deferred taxes                             $        -        $    15,337
                                                   ===========       ===========


<PAGE>


NOTE C -- INCOME TAXES - continued

The Company  recognized  $26 million of net  deferred  tax assets in the balance
sheet in 1996;  the  corresponding  $26 million of tax  benefit was  credited as
follows:  $4.4 million reduced the 1996 loss from continuing  operations;  $10.9
million was credited to goodwill and $10.7 million  increased  capital in excess
of par value.  Of the $26  million,  $12 million was  realized  when the Company
utilized  income  tax loss  carryforwards  and  other  deferred  tax  assets  to
eliminate  income tax  payments  on the gain from the  January  1997 sale of its
IMSAMET  subsidiary  (Note D). An  additional  $1.3  million of net deferred tax
assets was recognized in 1997,  virtually all of which was credited to goodwill.
In the fourth quarter of 1998, all of the Company's net deferred tax assets were
written-off  with a  charge  against  operations,  when  the  production  of the
Company's steel industry  customers  declined  sharply and the Company  reported
negative quarterly  operating income, thus preventing a determination that is it
more likely than not that the Company will earn sufficient taxable income during
the next several years to realize its net deferred tax assets.

In 1996 the  valuation  allowance  was reduced by both the $26 million above and
$29.3  million that was primarily  due to the  expiration of net operating  loss
carryforwards  that originated  prior to the Company's 1983  reorganization.  In
1997 the  valuation  allowance  increased  by a net  $1.5  million  because  the
deferred tax benefit  applicable to continuing  operations for the year was more
than offset by the  reversal of a portion of the  valuation  allowance  that was
credited  to  capital  in  excess of par  value in 1996.  In 1998 the  valuation
allowance was reduced by a net $33.7 million primarily because the $15.3 million
increase  resulting from the  corresponding  charge against  operations was more
than offset by a $49 million reduction due to writing off the deferred tax asset
representing an expired net operating loss carryforward and other changes.

The $35.7  million  deferred  tax asset  above  represents  net  operating  loss
carryforwards  totaling $101.9 million that expire at various dates from 2001 to
2018.  Subject to the Company's  ability to generate  sufficient  future taxable
income,  upon  recognition  of  additional  net deferred  tax assets,  the $36.8
million valuation  allowance would be credited as follows: $2 million to capital
in excess of par value,  $8.8  million  to  goodwill  and $26  million to reduce
income tax expense.

NOTE D -- SALE OF IMSAMET

In January  1997,  the  Company  sold the  capital  stock of  IMSAMET,  Inc.,  a
wholly-owned  subsidiary that performed  recycling and waste management services
for the aluminum  industry.  After  deferred  income tax charges,  the 1997 gain
amounted to $9.6 million or $1.66 per share.


<PAGE>


NOTE D -- SALE OF IMSAMET - continued

Summarized results of discontinued operations are as follows (in thousands):

                                                      1997              1996
                                                   -----------       -----------
Gain from sale                                     $   21,600        $        -
Revenues                                                    -            37,399
                                                   -----------       -----------
                                                   $   21,600        $   37,399
                                                   ===========       ===========

Income before income taxes                         $   21,600        $      399
Deferred income tax expense                           (12,000)                -
                                                   -----------       -----------
Income from discontinued operations                $    9,600        $      399
                                                   ===========       ===========

In  1996  interest  expense  of  $3.3  million  was  allocated  to  discontinued
operations  based on the ratio of the net assets of IMSAMET to consolidated  net
assets (equal to  stockholders'  equity plus debt not directly  attributable  to
specific operations).

NOTE E -- ALEXANDER MILL SERVICES ACQUISITION

The Company purchased Alexander Mill Services, Inc. ("AMS"), a metal reclamation
company  serving the mini-mill  sector of the steel  industry,  in May 1996. The
cost of the  acquisition  was $9 million plus the  assumption of $7.2 million of
debt. In allocating the purchase  price,  $10.7 million was charged to goodwill.
The results of AMS'  operations are included in the  consolidated  statements of
operations  from the  acquisition  date. Pro forma results of operations,  as if
this  transaction  occurred  at  the  beginning  of  1996,  are as  follows  (in
thousands, except per share amounts):

                                                      1996           
                                                   -----------
                                                   (Unaudited)
Pro forma revenues                                 $  217,205
Pro forma net loss                                     (3,640)
Pro forma net loss per share                       $     (.63)

The pro forma  information  is not  necessarily  indicative  of the results that
would have occurred had the transaction taken place at the beginning of 1996.


<PAGE>


NOTE F -- DEBT

Debt is summarized as follows (in thousands):

                                                      1998              1997
                                                   -----------       -----------
9 3/4% Senior Notes due 2003                       $  270,000        $  270,000
Bank credit facility                                   22,000             8,000
Industrial revenue bond financings,
  equipment loans and other                            11,572            17,400
                                                   -----------       -----------
                                                      303,572           295,400
Less current maturities                                (5,549)          (13,786)
                                                   -----------       -----------
Long-term debt                                     $  298,023        $  281,614
                                                   ===========       ===========

At December 31, 1998,  required principal payments by year are as follows:  $5.5
million in 1999 (including $3 million of revolving credit  borrowings  repaid in
January), $19.4 million in 2000, $8.7 million in 2002, and $270 million in 2003.

In  September  1997,  the Company  issued $50 million of 9 3/4% Senior Notes due
2003,  Series B, having  substantially  the same terms and maturity  date as the
Company's  existing $220 million of Senior Notes. All of the Senior Notes (10.4%
effective rate including  amortization  of issuance  costs) are  redeemable,  in
whole or in part,  at the  Company's  option  at  104.9%  of  principal  amount,
declining to 100% by June 15, 2001.  Upon a change in control,  the Company must
offer to purchase the Senior Notes at 101% of principal amount. The Senior Notes
indenture contains  restrictions  customarily found in such agreements,  such as
limits on indebtedness and payments with respect to capital stock.

The Company's bank credit  facility  provides $43.8 million of revolving  credit
borrowing  and letter of credit  capacity,  which  declines to $38.3  million in
January 2000, $20 million in March 2000 and terminates in January 2001. Interest
on  borrowings  is at the bank's  prime rate plus 1.25% (prime rate was 8.25% at
December  31,  1998) or at  Eurodollar  rates  plus  2.5%  (Eurodollar  rate was
approximately  5.45% at December 31, 1998).  The commitment fee is currently .5%
per annum on the  unutilized  portion  of the  facility.  Outstanding  letter of
credit  fees are  currently  2.75% per  annum.  The  facility  (1) is secured by
accounts receivable,  the Company's  investments in stock and intercompany notes
of its subsidiaries, and a portion of the Company's equipment, (2) prohibits the
payment of cash dividends,  and (3) contains  covenants that require the Company
to meet certain  financial  ratios and tests. At December 31, 1998, $5.7 million
of standby letters of credit were outstanding under the facility  (approximately
$3.7 million of which secure  liabilities  already reflected in the consolidated
balance sheet).

An $8.5 million  industrial revenue bond financing carries an effective interest
rate of 9.3%.  Equipment loans and other debt carry a weighted average effective
interest rate of 8.8%.


<PAGE>


NOTE G -- IU INTERNATIONAL ACQUISITION OBLIGATIONS

The Company has certain ongoing obligations  resulting from the 1988 acquisition
of  IU  International  that  are  unrelated  to  current   operations.   Current
liabilities  include IU acquisition  obligations of $2.7 million at December 31,
1998 and $3 million at  December  31,  1997.  These  amounts  represent  ongoing
obligations  for insurance,  employee  benefits and other  matters.  In 1997 the
Company paid $6.9 million and issued 51,760 shares of common stock valued at $.7
million to resolve an employee  benefit dispute related to the IU  International
acquisition  for the amount  previously  recorded in the  financial  statements.
Non-current other liabilities include IU International  acquisition  obligations
of $19  million at December  31,  1998 and $21 million at December  31, 1997 for
insurance, employee benefits and income tax matters.

NOTE H -- STOCKHOLDERS' EQUITY

A total of 426,799  shares of the Company's  common stock have been reserved for
stock options  (Note I). Under the terms of the Senior Notes  indenture and bank
credit  facility,  the  Company may not  declare or pay  dividends  or make cash
distributions to the common stockholders.

In 1996  warrants to purchase  14,572  shares of the  Company's  common stock at
forty-nine  cents per share were exercised using the cashless  exercise  feature
(by surrender of shares of common stock subject to the warrants).

An  affiliate of  Freeman Spogli & Co. owns  approximately 47% of  the Company's
common stock.

The Company is authorized to issue 5.6 million  shares of preferred  stock,  par
value $.25 per share,  with such terms and  conditions  as shall be specified by
the Company's Board of Directors.

NOTE I -- STOCK OPTIONS

The  Company   maintains   plans  that  provide   incentive  stock  options  and
non-qualified stock options to key employees to purchase shares of the Company's
common stock. The terms,  conditions and numbers of shares are determined by the
Compensation  and Stock Option  Committee of the Board of  Directors.  Incentive
stock  options may not be granted at  exercise  prices less than the fair market
value of the stock at the time of grant.  Non-qualified stock options may not be
granted at exercise prices less than 50% of the fair market value at the time of
grant.  Options generally vest over three or five year periods.

The Company also  maintains a stock option plan for outside  directors  that are
not  affiliated  with Freeman  Spogli & Co. Under the plan, on January 1 of each
year each  outside  director is granted  options to  purchase  714 shares of the
Company's  common stock at the prior year-end market price. The plan also allows
these directors to elect to receive below-market options in lieu of their annual
directors' fees. In 1998 two directors and in 1997 and 1996 one director elected
to receive such options in  lieu of their $15,000  annual  directors'  fees. All
options granted under the plan become exercisable on the following January 1.



<PAGE>


NOTE I -- STOCK OPTIONS - continued

In addition,  three outside  directors  hold options,  granted prior to 1995, to
purchase 8,571 shares of the Company's  common stock at exercise prices equal to
the fair market value at the time of grant.

Option activity is summarized below:

<TABLE>
<CAPTION>
                                                                       Weighted
                                       Number of Shares                -Average
                                  -----------------------------
                                                       Under           Exercise                  Range
                                                                                     -----------------------------
                                   Available          Option             Price          From               To
                                  -----------       -----------       -----------    -----------       ----------- 
<S>                               <C>               <C>               <C>            <C>               <C>
Balance at January 1, 1996           207,309           227,376        $     29.89    $     17.50       $     58.63

  Granted                            (42,646)           42,646              25.32          18.38             27.56
  Exercised                                             (7,886)             19.60          17.50             25.38
  Canceled                            24,454           (24,454)             32.74          17.50             58.63
                                  -----------       -----------
BALANCE AT DECEMBER 31, 1996         189,117           237,682              29.13          17.50             58.63

  Granted                            (15,140)           15,140              13.51          10.06             20.13
  Canceled                            24,701           (24,701)             27.49          17.50             57.75
                                  -----------       -----------
BALANCE AT DECEMBER 31, 1997         198,678           228,121              28.27          10.63             57.75

  Granted                            (82,747)           82,747              14.34          13.60             21.00
  Canceled                            45,229           (45,229)             31.27          10.06             57.75
                                  -----------       -----------
BALANCE AT DECEMBER 31, 1998         161,160           265,639              23.42          10.06             49.00
                                  ===========       ===========
</TABLE>

Using the  Black-Scholes  option pricing model, the estimated per share weighted
average fair values of stock  options  granted were $9.95 in 1998,  $8.19 during
1997 and $15.12 during 1996.  Assumptions  made in determining  the estimates of
fair value include:  risk-free  interest rates of 4.7% in 1998, 5.5% in 1997 and
5.6% in 1996;  a  volatility factor of .58 in 1998, .48 in 1997 and .46 in 1996;
and a weighted-average expected life of 8 years for all three years.

Summarized  information about stock options  outstanding at December 31, 1998 is
as follows:

<TABLE>
<CAPTION>
                                      Weighted-
                                       Average        Weighted-                      Weighted-
    Range of          Number of       Remaining        Average        Number of       Average
    Exercise           Options       Contractual      Exercise         Options        Exercise
     Prices          Outstanding        Life           Price         Exercisable       Price
----------------     -----------     -----------     -----------     -----------     -----------     
<S>                  <C>             <C>             <C>             <C>             <C>
$10.06 to $21.00        119,161       7.8 years      $   15.20           37,298      $    17.07
$21.01 to $31.50        127,979       5.6                27.50          117,240           27.59
$31.51 to $49.00         18,499       0.5                48.16           18,499           48.16
                     -----------                                     -----------
$10.06 to $49.00        265,639       6.2                23.42          173,037           27.52
                     ===========                                     ===========
</TABLE>


<PAGE>


NOTE I -- STOCK OPTIONS - continued

The following table summarizes the pro forma effects assuming  compensation cost
for such  awards  had  been  recorded  based  upon  estimated  fair  values  (in
thousands, except for per share amounts):


                                    1998              1997              1996
                                 -----------       -----------       -----------

Pro forma net (loss) income      $  (30,913)       $      213        $   (4,591)

Pro forma net (loss) income 
  per share                      $    (5.32)       $      .04        $     (.82)

Because  the  Company's  options  vest over three or five year  periods and only
options granted after December 31, 1994 are reflected in the  calculations,  the
pro forma  disclosures are not likely to be  representative  of future pro forma
amounts.

NOTE J -- BUSINESS SEGMENTS

The Company's  business segments,  which are organized by type of service,  are:
IMS,  which  provides  recycling  and other  specialized  services for the steel
industry,  and Technologies,  which operates  hazardous waste disposal landfills
and provides waste management and stabilization services for the steel industry,
as well as companies in other industries and governmental agencies.


Information  by business  segment for the three years ended December 31, 1998 is
as follows (in thousands):


                                    1998              1997              1996
                                 -----------       -----------       -----------
REVENUES
  IMS                            $  191,438        $  185,587        $  180,002
  Technologies                       40,938            42,091            32,787
                                 -----------       -----------       -----------
                                 $  232,376        $  227,678        $  212,789
                                 ===========       ===========       ===========

UNUSUAL ITEM (CHARGES) 
    CREDITS, NET
  IMS                            $   (2,851)      $        69        $   (1,697)
  Technologies                         (790)           (1,491)           (3,252)
  Corporate headquarters             (4,293)              122              (522)
                                 -----------       -----------       -----------
                                 $   (7,934)      $    (1,300)       $   (5,471)
                                 ===========       ===========       ===========

TOTAL OPERATING INCOME (LOSS)
  IMS                            $   23,614            26,563        $   31,971
  Technologies                       (1,586)           (1,664)           (8,012)
  Corporate headquarters             (7,035)           (3,908)           (5,084)
                                 -----------       -----------       -----------
                                 $   14,993        $   20,991        $   18,875
                                 ===========       ===========       ===========


<PAGE>


NOTE J -- BUSINESS SEGMENTS - continued

                                    1998              1997              1996
                                 -----------       -----------       -----------
INDENTIFIABLE ASSETS
  IMS                            $  246,768        $  252,584        $  252,958
  Technologies                      131,440           131,231           130,683
  Corporate headquarters              9,248            29,487            41,404
                                 -----------       -----------       -----------
                                    387,456           413,302           425,045
  Discontinued operations                 -                 -            34,864
                                 -----------       -----------       -----------
                                 $  387,456        $  413,302        $  459,909
                                 ===========       ===========       ===========

DEPRECIATION AND AMORTIZATION
  IMS                            $   27,105        $   25,925        $   24,045
  Technologies                       11,275            10,807             7,569
  Corporate headquarters              1,051               789             1,398
                                 -----------       -----------       -----------
                                     39,431            37,521            33,012
  Discontinued operations                 -                 -             2,964
                                 -----------       -----------       -----------
                                 $   39,431         $  37,521        $   35,976
                                 ===========       ===========       ===========

CAPITAL EXPENDITURES
  IMS                            $   27,874         $  21,002        $   16,227
  Technologies                        7,714             8,342             4,761
  Corporate headquarters                  -                10                 5
                                 -----------       -----------       -----------
                                     35,588            29,354            20,993
  Discontinued operations                 -                 -               890
                                 -----------       -----------       -----------
                                 $   35,588         $  29,354        $   21,883
                                 ===========       ===========       ===========

Corporate  headquarters  expenses and assets  support both  segments but are not
directly  associated with either.  Corporate assets consist  principally of cash
and cash equivalents, net deferred tax assets (in 1997 and 1996) and unamortized
debt issuance costs.

Revenues from USX Corporation,  the Company's  largest steel industry  customer,
ranged from $41 to $46 million  annually  during the three years ended  December
31, 1998.  Accounts  receivable due from USX Corporation totaled $3.6 million at
December 31, 1998. At December 31, 1998,  $26 million of  consolidated  accounts
receivable result from services performed for domestic steel industry customers.
IMS  customers  and  operations  are located  throughout  the United  States and
Canada. Technologies landfills are in Idaho and Ohio. Foreign operations are not
significant.

The following  table sets forth the  percentage of total revenue  contributed by
each class of services during the three years ended December 31, 1997:

                                    1998              1997              1996
                                 -----------       -----------       -----------
Industrial recycling                69.6%             67.8%             70.5%

Specialized services                12.8%             13.7%             14.1%

Waste stabilization and disposal    17.6%             18.5%             15.4%
                                 -----------       -----------       -----------
                                   100.0%            100.0%            100.0%
                                 ===========       ===========       ===========


<PAGE>


NOTE K -- RETIREMENT PLANS

The Company has several  non-contributory defined benefit pension plans covering
certain salaried and hourly  employees.  The plans provide pension benefits that
are based on varying levels of service and compensation. Assets of the plans are
principally  common stocks,  fixed income securities and cash  equivalents.  The
Company's  contributions  are  based on  funding  standards  established  by the
Employee Retirement Income Security Act of 1974.


                                                      1998              1997
                                                   -----------       -----------
Change in benefit obligations
  Benefit obligations at beginning of year         $   21,585        $   19,205
  Service cost                                            564               700
  Interest cost                                         1,550             1,533
  Net actuarial losses                                    553             1,912
  Benefits paid                                        (2,886)           (1,811)
  Other                                                    77                46
                                                   -----------       -----------
  Benefit obligations at end of year               $   21,443        $   21,585
                                                   ===========       ===========

Change in plan assets:
  Fair value of plan assets at beginning of year   $   21,766        $   19,183
  Actual return on assets                               1,533             4,248
  Employer contributions                                  226               521
  Benefits paid                                        (2,886)           (1,811)
  Plan expenses                                          (312)             (347)
  Other                                                   (33)              (28)
                                                   -----------       -----------
                                                   $   20,294        $   21,766
                                                   ===========       ===========

Funded status                                      $   (1,149)       $      180
Unrecognized net actuarial losses (gains)                 393              (263)
Unamortized prior service cost decrease                (3,120)           (3,477)
Other                                                      (9)             (354)
                                                   -----------       -----------
Accrued pension cost                               $   (3,885)       $   (3,914)
                                                   ===========       ===========

Net periodic  pension cost for defined  benefit plans includes the following (in
thousands):

                                    1998              1997              1996
                                 -----------       -----------       -----------
Service cost                     $      564        $      700        $      763
Interest cost                         1,550             1,533             1,386
Expected return on plan assets       (1,463)           (1,423)           (1,300)
Net amortization and deferral          (195)             (267)             (210)
                                 -----------       -----------       -----------
Net periodic pension costs       $      456        $      543        $      639
                                 ===========       ===========       ===========

The actuarial  present value of projected  benefit  obligations  was  determined
using discount rates of 7.25% in 1998 and 1997.  The expected  annual  long-term
rate of return on plan assets used in determining net periodic  pension cost was
8.5% in both years.


<PAGE>


NOTE K -- RETIREMENT PLANS - continued

The Company also sponsors  several  defined  contribution  retirement  plans for
which  contributions  and costs are based on percentages of defined  earnings of
participating employees. Costs for these plans amounted to $1.2 million in 1998,
$1.4 million in 1997 and $1.8 million in 1996.

In  addition,  for the  benefit  of certain  unionized  employees,  the  Company
participates in defined benefit  multiemployer pension plans, for which reliable
information  concerning the Company's  share of related  estimated plan benefits
and assets is not  available,  and defined  contribution  multiemployer  pension
plans.  Costs for multiemployer  pension plans amounted to $2.2 million in 1998,
$1.8 million in 1997 and $1.6 million in 1996.

The Company also  participates  in several  defined  contribution  multiemployer
plans that provide health care and other welfare  benefits to certain  unionized
employees during their working lives and after retirement. Costs for these plans
amounted to $2.1 million in 1998, $2 million in 1997 and $1.6 million in 1996.

The Company also has several defined benefit  postretirement  plans that provide
varying amounts of medical and death benefits,  primarily to retired  employees.
The  actuarially  computed  cost for these  plans was $.3  million in 1998,  $.4
million  in 1997 and $.5  million  in 1996.  The  Company  funds  postretirement
benefits on a "pay-as-you-go" basis.

The Company incurred  postretirement  benefit obligations in connection with the
IU International  acquisition (Note G). Other long-term liabilities include $4.4
million of such  obligations  at December  31, 1998 and $4.6 million at December
31, 1997 based on a discount rate of 7.25%.

Future  cost  increases  in health care  benefits  are assumed to be 8% in 1999,
decreasing  1% per year to 5% to 2002 and  remaining  at that level  thereafter.
Increasing   these  rates  by  1%  each  year  would  increase  the  accumulated
postretirement  benefit  obligation  as of December  31, 1998 by $.2 million and
would not have had a material impact on the cost for 1998.

NOTE L -- SUPPLEMENTAL CASH FLOW INFORMATION

Amortization in the consolidated  statement of cash flows includes  amortization
of goodwill,  landfill  permits and deferred charges related to landfill closure
together with non-cash  interest  costs.  Changes in working capital include the
following (in thousands):

                                    1998              1997              1996
                                 -----------       -----------       -----------
Accounts receivable              $      664        $   (2,000)       $    4,971
Other current assets                    446               425             1,611
Accounts payable and other
  current liabilities                (3,141)            1,304            (9,144)
                                 -----------       -----------       -----------
Cash used                        $   (2,031)       $     (271)       $   (2,562)
                                 ===========       ===========       ===========



<PAGE>


NOTE L -- SUPPLEMENTAL CASH FLOW INFORMATION - continued

Closure trust fund payments include the following activity (in thousands):

                                    1998              1997              1996
                                 -----------       -----------       -----------
Purchases of investments         $   (1,243)       $   (1,654)       $   (8,105)
Sales of investments                    171               139             6,575
                                 -----------       -----------       -----------
Cash used                        $   (1,072)       $   (1,515)       $   (1,530)
                                 ===========       ===========       ===========

Ongoing  net  cash  flows  related  to  the  IU  International  acquisition  are
principally payments of non-recurring pre-acquisition obligations.

The Company paid interest of $28.8 million in 1998 and 1997 and $28.9 million in
1996.

The Company paid income  taxes,  net of refunds,  of $1.4 million in 1998,  $1.1
million in 1997 and $.8 million in 1996.

NOTE M -- FINANCIAL INSTRUMENTS

The  estimated  fair values of financial  instruments  carried in the  Company's
consolidated balance sheet are as follows (in thousands):

                                     1998                         1997
                           -------------------------   -------------------------
                            Carrying        Fair        Carrying         Fair
                             Amounts       Values        Amounts        Values
                           -----------   -----------   -----------   -----------

Long-term debt             $  298,023    $  276,423    $  281,614    $  286,339
Other non-current assets
  and stock purchase loans      1,375         1,375         1,441         1,326

The fair  values  of  financial  instruments  included  in  current  assets  and
liabilities  approximate  their carrying  amounts.  The fair value of fixed-rate
long-term debt, which is thinly traded,  is based on management's best knowledge
of recent trading prices.  The fair values of other non-current assets and stock
purchase loans are estimated  using  discounted cash flow analysis and borrowing
rates in the Company's bank credit facility.

NOTE N -- RELATED PARTY TRANSACTION

One loan to an executive  officer which  originated to purchase  common stock of
the Company in January 1989 remains  outstanding.  The loan,  as amended,  bears
interest at 6% and is due in April 1999.  Each year half of the annual  interest
is payable in cash and half is added to the outstanding  principal balance.  The
loan  requires  payment in full within 30 days of  termination  and provides for
forgiveness in the event of the employee's  death.  As of December 31, 1998, the
loan balance was $90,000 and accrued interest receivable totaled $47,345.


<PAGE>


NOTE O -- COMMITMENTS AND CONTINGENCIES

Future minimum lease payments for non-cancelable operating leases as of December
31, 1998 amount to $9.1  million in 1999,  $7 million in 2000,  $5.4  million in
2001,  $3.9 million in 2002,  $1.4 million in 2003 and $1.3 million  thereafter.
Operating  leases are primarily for  machinery and  equipment.  Rent expense was
$11.6 million in 1998, $10.2 million in 1997 and $10.1 million in 1996.

At December 31, 1998, the Company had made commitments to spend $7.2 million for
equipment additions.

The Company is required to  maintain  trust funds to secure its  obligations  to
close  its  landfills  and  perform  post-closure   monitoring  and  maintenance
procedures.  Based  on  current  regulations,   planned  improvements  to  waste
treatment  facilities  and permitted  capacity,  such trust funds are adequately
funded and currently  require only the reinvestment of Idaho trust fund earnings
that the Company includes in interest income.

The Company's Ohio and Idaho  facilities hold operating  permits issued by state
and federal environmental  agencies under the Resource Conservation and Recovery
Act, as amended,  that require renewal and  modification  from time to time. The
Company  expects  that it will  obtain the  renewals  and  modifications  to its
permits  that it  requires  to  continue  to provide  landfill  capacity  in its
approved disposal cells well into the next decade.

The Company and its competitors and customers are subject to a complex, evolving
array of  federal,  state  and  local  environmental  laws and  regulations.  In
particular,  such  requirements not only can affect the demand for treatment and
disposal services, but could also require the Company to incur significant costs
for such matters as facility upgrading,  remediation or other corrective action,
facility  closure and  post-closure  maintenance and monitoring.  It is possible
that the future imposition of additional  environmental  compliance requirements
could have a material effect on the Company's results of operations or financial
condition,  but the Company is unable to predict  any such future  requirements.
The Company believes that the consolidated  financial  statements  appropriately
reflect all  presently  known  compliance  costs in  accordance  with  generally
accepted accounting principles.

The  Company  is a party to  litigation  and  proceedings  arising in the normal
course of its present or former  businesses.  In the opinion of management,  the
outcome of such matters will not have a material adverse effect on the Company's
financial condition or results of operations.


<PAGE>


NOTE P -- SELECTED  QUARTERLY  FINANCIAL DATA (UNAUDITED) (In thousands,  except
per share amounts)

                             Fourth         Third        Second         First
                             Quarter       Quarter       Quarter       Quarter
                           -----------   -----------   -----------   -----------
1998
Revenues                   $   52,124    $   57,710    $   62,963    $   59,579
Gross profit                    8,220        11,944        14,431        11,361
Unusual charges                (3,508)         (526)       (3,489)         (411)
Operating income (loss)        (1,065)        6,294         5,075         4,689
Net loss                      (23,921)*      (4,259)         (887)       (1,572)

Net loss per share         $    (4.12)   $     (.73)   $     (.15)   $     (.27)
                           ===========   ===========   ===========   ===========

*In the fourth  quarter of 1998,  the Company  wrote off its deferred tax assets
 totaling $15.3 million.


                             Fourth         Third        Second         First
                             Quarter       Quarter       Quarter       Quarter
                           -----------   -----------   -----------   -----------
1997
Revenues                   $   58,701    $   57,149    $   57,231    $   54,597
Gross profit                   11,976        11,538        13,222        10,819
Unusual charges                 (800)          (500)            -             -
Operating income                4,473         5,613         6,837         4,068
Income (loss):
  Continuing operations        (3,274)       (3,857)            7        (1,338)
  Discontinued operations           -         1,300             -         8,300
  Cumulative effect of
    change in accounting         (639)            -             -             -
  Net income (loss)            (3,913)       (2,557)            7         6,962

Income (loss) per share:
  Continuing operations    $     (.56)   $     (.66)   $        -    $     (.23)
  Discontinued operations                       .22                        1.44
  Cumulative effect of
    change in accounting         (.11)
                           -----------   -----------   -----------   -----------
    Net income (loss)      $     (.67)   $     (.44)   $        -    $     1.21
                           ===========   ===========   ===========   ===========

Due to rounding,  quarterly per share amounts do not necessarily add to the full
year amounts.

<PAGE>


<TABLE>
<CAPTION>
                          ENVIROSOURCE, INC.                         SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                  Years ended December 31, 1998, 1997, and 1996
                             (Dollars in thousands)

                                                                   Additions
                                                        -----------------------------
                                      Balance at         Charged to       Charged to                        Balance at
                                      Beginning          costs and          other        Deductions           end of
Description                           of period          expenses          accounts          (A)              period
-----------                           -----------       -----------       -----------    -----------       ----------- 
  <S>                                 <C>               <C>                              <C>               <C> 
  1998
  ----
  Allowance for doubtful accounts     $      701        $      728                       $      384        $    1,045
                                      ===========       ===========                      ===========       =========== 

  1997
  ----
  Allowance for doubtful accounts     $    1,220        $      158                       $      677        $      701
                                      ===========       ===========                      ===========       =========== 


  1996
  ----
  Allowance for doubtful accounts     $      729        $      728                       $      237        $    1,220
                                      ===========       ===========                      ===========       =========== 


</TABLE>


(A) Amounts written off.


<PAGE>



                                  EXHIBIT INDEX

Number                Description                          Page

4.14        Sixth Amendment to the Credit Agreement      EXHIBIT 1

21.1        Subsidiaries of the Company                  EXHIBIT 2

23.1        Consent of Ernst & Young LLP                 EXHIBIT 3