<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K/A
Current Report
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 12, 1997
EASTERN ENVIRONMENTAL SERVICES, INC.
------------------------------------
(Exact name of issuer as specified in charter)
Delaware 0-16102 59-2840783
(State or Other Jurisdiction Commission (I.R.S. Employer
or Incorporation or file number Identification
Organization) Number)
1000 Crawford Place, Mt. Laurel, New Jersey 08054
(Address of principal executive offices)
(609) 235-6009
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
-------------------------------------
Eastern Waste of New York, Inc., Eastern Waste of Long Island, Inc. and
Eastern Container Corporation (collectively referred to as "Eastern") are
wholly-owned subsidiaries of Eastern Environmental Services, Inc. (The
"Registrant"). On May 12, 1997, Eastern acquired (the "Acquisition")
substantially all of the assets related to the operations of KC Waste Services,
Inc., Curbside Leasing, Inc. Waste Services, Inc., New York Waste Services, Inc.
and Long Island Waste Services, Inc. (collectively referred to as the "Waste
Services, Inc. and affiliates," or "WSI"). The acquisition of WSI was made
pursuant to the terms of an Agreement and Plan of Reorganization (the
"Agreement") dated October 23, 1996, as amended on April 14, 1997 and
May 12, 1997, by Eastern and WSI. The Agreement and Amendments are incorporated
as Exhibit 10.1. The description of the acquired assets and the Acquisition
transaction set forth herein is qualified in its entirety by reference to the
Agreement and related Amendments. WSI and the Individuals are collectively
referred to as the "Sellers." The Sellers are not affiliated with the Registrant
nor with any of the Registrant's subsidiaries.
Additionally, Eastern closed into Escrow on May 12, 1997 the acquisition
of Golden Gate Carting Co., Inc. ("Golden Gate") and Coney Island Rubbish
Removal, Inc. ("Coney Island") (collectively referred to as "the Companies"),
two companies under common management control with WSI. The closings, which are
pending upon satisfaction of certain normal conditions which the Registrant
believes will be resolved, were made pursuant to two separate Agreements and
Plans of Reorganization incorporated respectively as Exhibits 10.2 ("Golden
Gate"), and 10.3 ("Coney Island") as both were amended on May 12, 1997.
Simultaneous with the escrow closing of Golden Gate and Coney Island, Eastern
entered into Management Agreements (enclosed as Exhibits 10.4 and 10.5) with
both companies until final closing of the acquisition. The Management Agreements
provide that Eastern will manage the businesses of Golden Gate and Coney
Island, retain the revenue of the businesses and pay all associated expenses.
The description of the management agreements are qualified in their entirety by
incorporating as Exhibits 10.4 and 10.5.
Pursuant to the WSI Agreement and Plan of Reorganization, property and
equipment and intangible assets were acquired for consideration consisting of
1,159,982 unregistered shares of the Registrant's common stock (valued at $11.70
per share) and the assumption of approximately $6.2 million of debt. Eastern has
also accrued an obligation of $6.2 million as additional purchase price which
will be paid upon the resolution of certain events and is payable in either cash
or a future maximum issuance of 221,170 shares of the Registrant's common stock.
As part of this contingency, the Registrant also posted a Letter of Credit in
the amount of approximately $2.6 million and agreed to pay up to $630,000
relating to a debt WSI owed to one of its creditors. Such future payment is
contingent upon authorization from the New York City Trade Waste Commission or a
court having jurisdiction. Estimated consideration for the pending acquisitions
of Golden Gate and Coney Island consists of 288,859 unregistered shares of the
Registrant's stock (valued at $11.70 per share) and the assumption of
approximately $3.0 million of debt.
The acquired assets include vehicles, containers, recycling equipment,
office furniture, equipment and supplies used in the operations of the
Companies; customer contract rights, all rights, title and interest of the
Companies in leases for real property, trade secrets, property rights, symbols,
trademarks, trade names, logos, telephone directory listings used by the
Companies; all permits, licenses, franchises, consents and other approvals for
governmental agreements used in the operations of the business; and all goodwill
of the business conducted by the Companies. The acquired assets were used by the
Sellers in the solid waste collection business. Eastern intends to continue to
use the acquired assets for this purpose.
<PAGE>
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits
----------------------------------
- --------------------------------------------------------------------------------
(a) Combined financial statements of business acquired
Independent Auditor's Report
Combined Balance Sheet as of December 31, 1996
Combined Statement of Operations and Accumalated Deficit for the Year
Ended December 31, 1996
Combined Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Combined Financial Statements
Combined Balance Sheet as of March 31, 1997 (Unaudited)
Combined Statement Operations for the Nine Months Ended March 31, 1997
(Unaudited)
Combined Statement of Cash Flows for the Nine Months Ended March 31,
1997 (Unaudited)
Selected Notes to Combined Financial Statements
(b) Pro forma financial information
Pro forma Consolidated Statement of Operations for the Year Ended
June 30, 1996 (Unaudited)
Pro forma Consolidated Statement of Operations for the Nine Months Ended
March 31, 1997 (Unaudited)
Pro forma Consolidated Balance Sheet as of March 31, 1997 (Unaudited)
(c) Exhibits
*10.1 Agreement and Plan of Reorganization made on October 23, 1996 by and
among "Shareholders" ("Shareholder"), Waste Services, Inc. ("Waste"), New
York Waste, Inc. ("NY Waste"), Long Island Waste Services, Inc. ("L.I.
Waste"), KC Waste Services, Inc. ("KC Waste") and Curbside Leasing, Inc.
("Curbside"), Eastern Environmental Services, Inc. ("EESI"), Eastern
Waste of New York, Inc. ("EESI New York"), Eastern Waste of Long Island,
Inc. ("EESI L.I.") and Eastern Container Corporation ("EESI Container").
For the purposes of this Agreement, EESI, EESI New York, EESI L.I. and
EESI Container are collectively referred to as "Purchasers," Waste, NY
Waste, L.I. Waste, KC Waste and Curbside are collectively referred to as
the "Companies" and individually known as a "Company" and the Companies
and the Shareholders are collectively referred to as the "Sellers."
Amendment No. 1, dated April 14, 1997 to the Agreement and Plan of
Reorganization made on October 23, 1996. Amendment No. 2 dated
May 12, 1997, to the Agreement and Plan of Reorganization made on
October 23, 1996.
*10.2 The Agreement and Plan of Reorganization ("Agreement") is made on
April 7, 1997 by and among Christopher Pittas, Nicholas Pittas, Jr.
("Shareholders"), Golden Gate Carting Co., Inc. ("Golden Gate"), Eastern
Environmental Services, Inc. ("EESI"), and Eastern Waste of New York,
Inc. ("EESI NY".) For purposes of this Agreement, EESI and EESI NY are
collectively referred to as "Purchasers," Golden Gate may also be
referred to as "Company," and the Company and the Shareholders are
collectively referred to as "Sellers." Amendment No. 1 dated May 12, 1997
to Agreement and Plan of Reorganization made on April 7, 1997.
<PAGE>
*10.3 The Agreement and Plan of Reorganization (the "Agreement") is made as of
April 7, 1997, by and among Vincent Morea ("Shareholder"), Coney Island
Rubbish Removal, Inc. ("Coney Island"), Eastern Environmental Services,
Inc. ("EESI"), and Eastern Waste of New York, Inc. ("EESI NY"). For
purposes of this Agreement, EESI and EESI NY are collectively referred to
as "Purchasers", Coney Island may also be referred to as "Company" and
the Company and the Shareholder are collectively referred to as the
"Sellers". Amendment No. 1 dated as of May 12, 1997 to Agreement and Plan
of Reorganization made as of April 7, 1997.
*10.4 The Agreement "Management Agreement" is made on May 12, 1997, by and
between Golden Gate Carting Co., Inc. and New York Corporation (the
"Company") and Eastern Waste of New York, Inc., a Delaware corporation
(the "Manager")
*10.5 The Agreement ("Management Agreement") is made as of May 12, 1997, by and
between Coney Island Rubbish Removal, Inc., a New York corporation (the
"Company") and Eastern Waste of New York, Inc., a New York corporation
(the "Manager".)
23.1 Consent of Ernst & Young, LLP
- --------------------------------------------------------------------------------
*Incorporated by reference.
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
EASTERN ENVIRONMENTAL SERVICES, INC.
Date: July 11, 1997 By: /s/ Louis D. Paolino, Jr.
--------------------------------
Louis D. Paolino, Jr.
President
<PAGE>
Report of Independent Auditors
Stockholders
Waste Services, Inc. and Affiliates
We have audited the accompanying combined balance sheet of Waste Services, Inc.
and Affiliates as of December 31, 1996 and the related combined statements of
operations and accumulated deficit, and cash flows for the year then ended.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Waste Services, Inc.
and Affiliates at December 31, 1996, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
June 19, 1997
<PAGE>
Waste Services, Inc. and Affiliates
Combined Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash $ 17,484
Accounts receivable, less allowance
for doubtful accounts of $150,500 2,093,277
Prepaid expenses and other current
assets 122,445
--------------
Total current assets 2,233,206
Property and equipment:
Vehicles 3,470,880
Containers 1,516,111
Leasehold improvements 58,798
Machinery and equipment 363,623
Furniture and fixtures 121,201
--------------
Total property and equipment 5,530,613
Accumulated depreciation and
amortization (4,389,565)
--------------
1,141,048
Advances to stockholders/officers 799,173
Receivables from affiliated companies 634,776
Deferred income taxes 1,668,000
Excess cost over fair market value of
net assets acquired, net of
$3,293,368 accumulated amortization 5,082,148
Customer lists, net of $8,388,837
accumulated amortization 4,692,983
Covenants not to compete, net of
$4,934,361 accumulated amortization 3,282,497
Other assets 85,269
--------------
Total assets $19,619,100
==============
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
<S> <C>
Accounts payable $ 3,345,656
Accrued expenses and other current
liabilities 265,054
Income taxes payable 1,220,454
Notes payable to stockholders/officers 760,553
Current portion of long-term debt 7,177,650
--------------
Total current liabilities 12,769,367
Due to affiliated companies 162,431
Long-term debt, net of current portion 10,425,489
Commitments and contingencies
Stockholders' deficit:
Common stock, at stated value 65,620
Accumulated deficit (3,274,870)
--------------
(3,209,250)
Less advances to parent (528,937)
--------------
Total stockholders' deficit (3,738,187)
--------------
Total liabilities and stockholders'
deficit $19,619,100
==============
</TABLE>
See accompanying notes.
3
<PAGE>
Waste Services, Inc. and Affiliates
Combined Statement of Operations and
Accumulated Deficit
Year ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 22,811,062
Cost of revenues (14,317,961)
Selling, general and administrative
expenses (7,474,091)
--------------
Operating income 1,019,010
Interest expense (1,895,599)
Other income 249,233
--------------
Loss before income taxes (627,356)
Income tax benefit 94,000
--------------
Net loss (533,356)
Accumulated deficit, beginning of year (2,629,514)
Dividends paid from S corporations (112,000)
--------------
Accumulated deficit, end of year $ (3,274,870)
==============
</TABLE>
See accompanying notes.
4
<PAGE>
Waste Services, Inc. and Affiliates
Combined Statement of Cash Flows
December 31, 1996
<TABLE>
<CAPTION>
OPERATING ACTIVITIES
<S> <C>
Net loss $ (533,356)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Provision for doubtful accounts 373,472
Depreciation and amortization 3,921,875
Deferred income taxes (725,000)
Changes in operating assets and
liabilities
Accounts receivable (868,829)
Income taxes payable 583,655
Other assets, net 243,135
Accounts payable and accrued
expenses 464,942
-------------
Net cash provided by operating
activities 3,459,894
INVESTING ACTIVITIES
Purchase of property and equipment (249,721)
Net advances to stockholders/officers (110,176)
-------------
Net cash used in investing activities (359,897)
FINANCING ACTIVITIES
Proceeds from borrowings on long-term
debt 125,000
Net payments to affiliated companies (338,298)
Payments on long-term debt (3,207,927)
Net borrowings on notes payable to
stockholders/officers 96,945
Dividends paid from S corporations (112,000)
-------------
Net cash used in financing activities (3,436,280)
-------------
Net decrease in cash (336,283)
Cash at beginning of year 353,767
-------------
Cash at end of year $ 17,484
=============
</TABLE>
See accompanying notes.
5
<PAGE>
Waste Services, Inc. and Affiliates
Notes to Combined Financial Statements
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of Waste
Services, Inc. and its affiliates, KC Waste Services, Inc., Curbside Leasing,
Inc., New York Waste Services, Inc., Long Island Waste Services, Inc., Golden
Gate Carting Co., Inc. (New York), and Coney Island Rubbish Removal, Inc. The
financial statements have been combined as the companies are under common
ownership or managerial control. Other entities under common ownership or
managerial control have been excluded from the combined financial statements
because they are not part of the group of companies purchased by Eastern
Environmental Services, Inc. ("EESI") (see Note 9). All significant intercompany
accounts and transactions have been eliminated in combination.
DESCRIPTION OF BUSINESS
Waste Services, Inc. and affiliates are engaged in the business of providing
integrated solid waste management services, consisting of collection,
transportation, and disposal services through waste hauling operations. The
Companies' customers include municipal, commercial, industrial and residential
customers principally in the New York metropolitan area (see Note 6).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
regarding the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
The Companies perform ongoing credit evaluations of their customers and
generally do not require collateral. The Companies maintain an allowance for
doubtful accounts at a level that management believes is sufficient to cover
potential credit losses.
6
<PAGE>
Waste Services, Inc. and Affiliates
Notes to Combined Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. The Companies provide
depreciation over the estimated useful lives of assets using the straight-line
method ranging from three to ten years.
Depreciation expense was $379,493 for the year ended December 31, 1996.
INTANGIBLE ASSETS
Intangible assets consist principally of excess cost over fair value of net
assets acquired, customer lists, and covenants not to compete acquired in the
acquisition of waste collection operations, which are currently being amortized
over a period of 39 to 156 months. Amortization of intangible assets was
$3,542,382, for the year ended December 31, 1996 and is included in selling,
general, and administrative expenses.
REVENUE RECOGNITION
The Companies recognize revenue upon collection of waste material at the waste
collection and hauling operations. Container rental revenue is recognized over
the service period.
LONG-LIVED ASSETS
Long-lived assets consist primarily of property and equipment, excess cost over
fair value of net assets acquired, and other intangible assets. The carrying
amounts of the long-lived assets are reviewed if facts and circumstances suggest
that they may be impaired. If this review indicates that book value of assets to
be held exceeds the undiscounted future cash flows, an impairment loss would be
recognized for the excess of book over fair values.
7
<PAGE>
Waste Services, Inc. and Affiliates
Notes to Combined Financial Statements (continued)
2. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Acquisition notes payable, with
various maturities payable
through April 2007, guaranteed by
certain of the Companies'
stockholders, with interest rates
ranging from 3.51% to 14.93% $14,199,868
Machinery and equipment notes
payable, secured by equipment,
with various maturities payable
through October 1999, with
interest rates ranging from prime
plus 9.75% to 13.50% 1,112,857
Other notes payable, with various
maturities payable through August
2005 with interest rates ranging
from 7.23% to 14% 2,290,414
--------------
17,603,139
Less current portion 7,177,650
--------------
$10,425,489
==============
Maturities of long-term debt are as
follows:
1997 $ 7,177,650
1998 2,440,073
1999 2,061,693
2000 1,615,474
2001 1,749,798
Thereafter 2,558,451
--------------
Total $17,603,139
==============
</TABLE>
Certain of these maturities are accelerated upon the sale of the Companies'
assets. Such amounts have not been reclassified to current. Certain
acquisition notes payable have been classified as current as they are the
subject of litigation which is discussed further in Note 6.
Interest paid in 1996 was $1,895,599.
8
<PAGE>
Waste Services, Inc. and Affiliates
Notes to Combined Financial Statements (continued)
3. ADVANCES TO AND NOTES PAYABLE TO OFFICERS/STOCKHOLDERS
At December 31, 1996, advances to officers/stockholders of $799,173 are non-
interest bearing and have no specified repayment terms.
At December 31, 1996, notes payable to officers/stockholders of $760,553 are
non-interest bearing and have no specified repayment date. These notes were
retired in connection with the acquisition of the Companies in May 1997 (See
Note 9).
4. COMMON STOCK
The common stock component of stockholders' deficit consists of the following:
<TABLE>
<CAPTION>
SHARES
SHARES ISSUED AND
AUTHORIZED OUTSTANDING AMOUNT
----------------------------------------------
<S> <C> <C> <C>
Waste Services, Inc. 200 4 $15,879
K.C. Waste Services, Inc. 400 200 -
Curbside Leasing, Inc. 1,000 1,000 298
New York Waste Services, Inc. 200 10 -
Long Island Waste Services, Inc. 200 2 -
Golden Gate Carting Co., Inc. 100 2 47,443
Coney Island Rubbish Removal, Inc. 100 100 2,000
----------
$65,620
==========
</TABLE>
5. INCOME TAXES
Each of the combining entities, with the exception of Curbside Leasing, Inc.,
Golden Gate Carting Co., Inc., and Coney Island Rubbish Removal, Inc., are "C"
Corporations for federal and state income tax purposes. New York Waste Services,
Inc., Waste Services, Inc., and Long Island Waste Services, Inc. file as part of
a consolidated group of "C" Corporations, with WSI Holding Corp., their parent
company. The stockholders of Curbside Leasing, Inc., Golden Gate Carting Co.,
Inc., and Coney Island Rubbish Removal, Inc. elected to be taxed as "S"
corporations for federal and state income tax reporting purposes. Accordingly,
the stockholders of these corporations have assumed the obligations and benefits
relative to the income taxes attributable to those operations. The
9
<PAGE>
Waste Services, Inc. and Affiliates
Notes to Combined Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
accompanying financial statements and following disclosures include only the
income tax accounts of those combining companies that are "C" Corporations. The
reported amount of income tax benefits differs from the amount that would result
from applying the domestic federal statutory rate to the loss before income
taxes primarily because no income taxes are included for those companies that
file as "S" Corporations.
At December 31, 1996, the Companies have net operating loss carryforwards for
federal and state income tax purposes of $785,000 and $772,000, respectively.
The operating loss carryforwards expire in various years through 2012. For
financial reporting purposes, a valuation allowance has been recognized to
reduce the deferred tax assets to the amount expected to be realized, as
realization is not fully assured.
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 Companies' deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Book over tax depreciation and
amortization $1,588,000
Allowance for doubtful accounts 60,000
Net operating loss carryforwards 310,000
Valuation allowance for deferred
tax assets (290,000)
-------------
Net deferred tax assets $1,668,000
=============
Significant components of the income
tax (expense) benefit are as follows:
Current:
Federal $ (488,000)
State (143,000)
-------------
(631,000)
Deferred:
Federal 562,000
State 163,000
-------------
725,000
-------------
Income tax benefit $ 94,000
=============
</TABLE>
10
<PAGE>
Waste Services, Inc. and Affiliates
Notes to Combined Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES
In 1996, the Companies and certain of the principals and stockholders were
required to submit Applications for License as a Trade Waste Business and
Disclosure Forms for Principal of a Trade Waste Business to the New York City
Trade Waste Commission (the "TWC"). The effect of these applications is to
protect existing contractual service arrangements with customers. These
applications were denied and the effect is that the Companies' customers had the
right to cancel their existing contracts on thirty days' notice. Management
believes the sale of the Companies to EESI (see Note 9) has eliminated this
concern because effective May 12, 1997, EESI has been issued a license by the
TWC.
In May 1997, K.C. Waste Services, Inc., Curbside Leasing, Inc., other affiliated
companies not included in the accompanying financial statements, and certain of
the stockholders of the Companies (the "Defendants") were notified of a lawsuit
alleging breach of contract with respect to amounts owed by the Defendants in
conjunction with the original acquisition by the Defendants of the businesses
owned by the plaintiffs. The complaint seeks approximately $1.9 million from
K.C. Waste Services, Inc. and Curbside Leasing, Inc., as well as $3.6 million
from the other affiliated companies not included in the accompanying financial
statements. The Companies have included approximately $1.4 million in the
current portion of long-term debt at December 31, 1996, resulting from the
original acquisition agreements between the Defendants and the plaintiffs. The
outcome of this matter cannot presently be determined.
In March 1997, Golden Gate Carting Co., Inc. ("Golden Gate") and certain of its
stockholders were notified of a lawsuit that Golden Gate had defaulted in the
payment of certain promissory notes issued to the plaintiffs in connection with
the purchase by Golden Gate of the business owned by the plaintiffs. The
complaint seeks $3.5 million plus interest, costs, and attorneys fees. Golden
Gate has filed an answer denying the allegations, raising certain defenses, and
making counterclaims in the amount of $2.2 million. The Companies have included
approximately $3.1 million in the current portion of long-term debt at December
31, 1996, resulting from the original acquisition agreements between Golden Gate
and the plaintiffs. The outcome of this matter cannot presently be determined.
11
<PAGE>
Waste Services, Inc. and Affiliates
Notes to Combined Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Companies are defendants in various lawsuits seeking substantial damages
relating to various matters including property damages, personal injury and
death. These actions have been referred to the Companies' insurance carrier.
The Companies have not accrued a liability for these contingencies at
December 31, 1996, as management believes the ultimate liabilities, if any, are
within the Companies' insurance coverage, and are considered to be immaterial to
the Companies' financial position. The outcome of these matters cannot presently
be determined.
7. PENSION PLAN
In connection with its collective bargaining agreement with the Private
Sanitation Union, the Companies participate in a multi-employer defined benefit
pension plan. The plan covers all of the Companies' employees subject to the
collective bargaining agreement. At December 31, 1996, approximately 80% of the
Companies' employees were subject to the collective bargaining agreement.
Contributions to the multi-employer pension plan were $452,000 for the year
ended December 31, 1996.
8. RELATED PARTY TRANSACTIONS
The Companies lease administrative offices, storage, and maintenance facilities
from a related entity (which is not part of the combination) on a month-to-month
basis. Rent expense for the use of these facilities was $956,000 for the year
ended December 31, 1996.
The Companies were charged by a related entity (which is not part of the
combination) an administrative fee of $242,000 for the year ended December 31,
1996.
At December 31, 1996, the Companies have advances to/from the following related
entities (which are not part of the combination). These advances are non-
interest bearing and have no specified repayment dates.
<TABLE>
<CAPTION>
RECEIVABLES FROM AFFILIATED COMPANIES
----------------------------------------
<S> <C>
Golden Gate Carting of New Jersey,
Inc. $468,908
Other 165,868
-----------
$634,776
===========
</TABLE>
12
<PAGE>
Waste Services, Inc. and Affiliates
Notes to Combined Financial Statements (continued)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
DUE TO AFFILIATED COMPANIES
-----------------------------
<S> <C>
Waste Transit, Inc. $ 47,431
WSI Realty, Inc. 85,000
Other 30,000
-----------
$162,431
===========
</TABLE>
At December 31, 1996, certain of the Companies have advanced $528,937 to WSI
Holding Corp., their parent. Such amount has been reflected as a reduction of
stockholders' deficit in the accompanying combined balance sheet.
9. SUBSEQUENT EVENT
On May 12, 1997, affiliates of Eastern Environmental Services, Inc., acquired
substantially all of the Companies' property and equipment, and intangible
assets in consideration for 1,448,841 unregistered shares of EESI common stock
and the assumption of approximately $9.2 million of the Companies' debt. An
additional obligation of approximately $6.2 million will be paid to certain
creditors of the Companies to settle remaining debt obligations upon the
resolution of certain events (primarily approval of payments by the New York
City Trade Waste Commission) or to the stockholders of the Companies. Such
amount is payable either in cash or additional shares of EESI common stock (see
Note 2).
13
<PAGE>
WASTE SERVICES, INC. AND AFFILIATES
COMBINED BALANCE SHEET
MARCH 31, 1997
(Unaudited)
================================================================================
ASSETS
------
CURRENT ASSETS:
Cash $ 26,650
Accounts receivable, net of allowance for
doubtful accounts 2,210,957
Prepaid expenses and other current assets 305,278
-----------
TOTAL CURRENT ASSETS 2,542,885
Advances to stockholders/officers 799,173
Receivables from affiliated companies 736,238
Deferred income taxes 1,668,000
Property and equipment, less accumulated depreciation
and amortization 943,756
Intangible assets, less accumulated amortization 12,172,033
Other assets 243,735
-----------
TOTAL ASSETS $19,105,820
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 6,981,978
Accounts payable and accrued expenses 3,586,644
Income taxes payable 1,220,454
Loans payable to officers 760,553
-----------
TOTAL CURRENT LIABILITIES 12,549,629
LONG-TERM DEBT, less current portion 9,980,348
-----------
TOTAL LIABILITIES 22,529,977
-----------
STOCKHOLDERS' (DEFICIENCY):
Common stock 65,620
Deficit (3,489,777)
-----------
TOTAL STOCKHOLDERS' (DEFICIENCY) (3,424,157)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) $19,105,820
===========
See Notes to Combined Financial Statements
<PAGE>
WASTE SERVICES, INC. AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(Unaudited)
================================================================================
Revenues $16,596,545
Cost of revenues 10,318,674
Selling, general and administrative expenses 6,378,446
-----------
Operating loss (100,575)
Interest Expense (1,267,642)
Other Income 83,997
-----------
Loss before income taxes (1,284,220)
Income tax benefit (200,000)
Net loss $(1,084,220)
===========
See Notes to Combined Financial Statements
<PAGE>
Waste Services, Inc. and Affiliates
COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(Unaudited)
================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,084,220)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,921,523
Changes in operating assets and liabilities:
Accounts receivable 325,508
Affiliated companies (64,293)
Income taxes (222,450)
Other assets, net (341,708)
Accounts payable 614,992
----------
Net cash provided by operating activities 2,149,352
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (148,439)
----------
Net cash used in investing activities (148,439)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (60,000)
Proceeds from borrowings on long-term debt 300,000
Payments on long-term debt (2,374,959)
Net (payments) borrowings on notes payable to
stockholders/officers (11,350)
----------
Net cash used in financing activities (2,146,309)
----------
NET DECREASE IN CASH (145,396)
CASH, beginning of period 172,046
----------
CASH, end of period $ 26,650
==========
See Notes to Combined Financial Statements
<PAGE>
Waste Services, Inc. and Affiliates
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------------
Description of Business and Basis of Presentation
-------------------------------------------------
The accompanying combined financial statements include the accounts of the
following companies, all of which are under common ownership or managerial
control. These companies are hereinafter referred to as the "Company":
Waste Services, Inc.
New York Waste Services, Inc.
Long Island Waste Services, Inc.
K.C. Waste Services, Inc.
Curbside Leasing, Inc.
Golden Gate Carting Co., Inc. (New York)
Coney Island Rubbish Removal Inc.
All significant intercompany transactions and balances have been
eliminated in combination.
The Company is engaged in the business of providing integrated solid waste
management services, consisting of collection, transportation, and disposal
services of non-hazardous waste principally in and around the City of New
York. The Company's customers include: municipal, commercial, industrial,
and residential customers.
Interim Financial Statements
----------------------------
The condensed interim financial statements reflect all adjustments (which
include only normal recurring adjustments), which in the opinion of
management, are necessary to present fairly the financial position at March
31, 1997, and results of operations for the nine months then ended.
The results of operations for the period ended March 31, 1997
are not necessarily indicative of the operating results for a full year.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions regarding the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - SUBSEQUENT EVENT
- -------------------------
On May 12, 1997, affiliates of Eastern Environmental Services, Inc.
("Eastern"), a publicly owned Company, acquired substantially all of the
Company's operating assets and assumed approximately $9.2 million of the
Company's debt in consideration for 1,448,841 unregistered shares of
Eastern common stock. Additional consideration of approximately $6,200,000
will be paid to the Company upon the resolution of certain events and
is payable either in cash or additional shares of Eastern common stock.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED SUMMARY OF OPERATIONS FOR THE
YEAR ENDED JUNE 30, 1996 AND NINE MONTHS ENDED MARCH 31, 1997
The following unaudited pro forma consolidated Statements of Operations
for the year ended June 30, 1996 and the nine months ended March 31, 1997 give
effect to (i) the acquisition of Allied Environmental Services, Inc. and
Affiliates ("Allied") for consideration of $700,000 in Eastern Environmental
Services, Inc. ("the Company") common stock at an assumed fair market value of
$6.00 per share, (ii) the acquisition of Super Kwik, Inc. ("Super Kwik") and
Waste Maintenance Services, Inc. ("Maintenance") pursuant to the terms of an
Agreement of Merger, (iii) the acquisition of R & A Bender, Inc. and certain
real estate owned by R & A Bender Property, Ltd ("Bender") for consideration of
$16,483,510 in cash and $1,000,000 in Eastern Environmental Services, Inc.
common stock at a fair market value of $9.375 per share, (iv) the acquisition of
Donno Company, Inc., Suffolk Waste Systems, Inc., and Residential Services and
N.R.T. Realty Corp. (Collectively referred to as "Donno Companies") pursuant to
the terms of a Reorganization Plan and Agreement dated December 31, 1996,
(v) the acquisition of Apex Waste Services, Inc. pursuant to the terms of a
Reorganization Plan and Agreement dated March 31, 1997 and (vi) the acquisition
of Waste Services, Inc.and affiliates ("WSI") pursuant to the terms of an
Agreement and Plan of Reorganization dated October 23, 1996 as amended on
April 14, 1997 and May 12, 1997 and the closure into escrow of two companies
under common management control with Waste Services, Inc., Golden Gate Carting
Co. ("Golden Gate"), Inc. and Coney Island Rubbish Removal, Inc. ("Coney
Island") pursuant to two separate Agreements and Plans of Reorganization both
amended on May 12, 1997. The total consideration for the acquisition of WSI,
Golden Gate, and Coney Island included $16,951,416 in the Company's common stock
at an average fair market value of $11.70 per share, the assumption of debt of
$9,226,963, and the assumption of an approximate $6.2 million liability which
will be paid upon the resolution of certain events. The Shareholders of Super
Kwik and Maintenance received 2,308,176 shares of the Registrant's common stock
in exchange for all issued and outstanding shares of Super Kwik and Maintenance.
The Shareholders of the Donno Companies received 1,137,951 shares of the
Registrant's common stock in exchange for all issued and outstanding shares of
the Donno Companies. The Shareholders of Apex Waste Services, Inc. received
796,927 shares of the Registrant's common stock in exchange for all issued and
outstanding shares of Apex Waste Services, Inc. The above transactions are
presented as if they had occurred on July 1, 1995. The Super Kwik and
Maintenance, the Donno Companies and the Apex Waste Services, Inc. business
combinations were accounted for using the pooling of interests method, and as a
result, no material pro forma adjustments were deemed necessary to reflect the
results of operations on a consolidated basis for these business combinations.
The following unaudited pro forma financial data may not be indicative of
what the results of operations of Eastern Environmental Services, Inc. would
have been, had the transactions to which such data gives effect had been
completed on the date assumed, nor are such data necessarily indicative of the
results of operations of Eastern Environmental Services, Inc. that may exist in
the future. The following unaudited pro forma information should be read in
conjunction with the notes thereto, the consolidated financial statements and
notes thereto, and the consolidated financial statements and notes of Eastern
Environmental Services, Inc. for the nine months ended March 31, 1997 and each
of the three years in the period ended June 30, 1996 included in the Company's
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-27245 filed June
27, 1997) and the historical combined financial statements of Waste Services,
Inc. and Affiliates appearing elsewhere in this filing.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Eastern Allied
Environmental Environmental R&A Bender
Services, Inc. Services, Inc. Bender, Inc. Property, Ltd.
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues $39,519,173 $10,549,739 $8,454,211 $490,270
Cost of revenues 33,417,442 8,211,825 5,812,906 --
------------ ----------- ---------- ---------
Gross profit 6,101,731 2,337,914 2,641,305 490,270
Selling, general and
administrative expenses 9,774,422 3,231,358 2,703,425 41,954
------------ ----------- ---------- ---------
Operating (loss) income (3,672,691) (893,444) (62,120) 448,316
Interest expense (629,009) (108,881) (113,115)
Other (expense) income (130,640) (1,817,733) 277,518 3,032
------------ ----------- ---------- ---------
(Loss) income before
income taxes (benefit) (4,432,340) (2,820,058) 102,283 451,348
Income taxes (benefit) (9,687) -- -- --
------------ ----------- ---------- ---------
Net (loss) income $ (4,422,653) $(2,820,058) $102,283 $ 451,348
============ =========== ========== =========
Weighted average number
of shares outstanding
Earnings per share
<CAPTION>
Pro Forma
Consolidated
Before Predecessor Apex
Pro Forma Predecessor Company Pro Forma Pro Forma
WSI Adjustments Company to Apex Adjustments Consolidation
--- ----------- ------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $22,802,271 $(183,919) (7) $81,148,375 $19,042,380 -- $100,190,755
(483,370) (8)
---------
(667,289)
(734,001) (2)
(390,709) (7)
----------
Cost of revenues 13,053,202 (1,124,710) 59,370,665 16,115,293 (770,634) (12) 74,715,324
---------- ---------- ---------- ---------- -------- ----------
Gross profit 9,749,069 457,421 21,777,710 2,927,087 770,634 25,475,431
(137,032) (1)
172,515 (2)
(885,723) (3)
(797,459) (6)
(483,370) (8)
(626,962) (9)
(2,787,983) (10)
Selling, general and (9,807) (7)
----------
administrative expense 8,463,449 (5,555,821) 18,658,787 2,221,336 (312,322) (12) 20,567,801
--------- ---------- ---------- --------- --------- ----------
Operating (loss) income 1,285,620 6,013,242 3,118,923 705,751 1,082,956 4,907,630
(1,168,191) (5)
1,311,073 (11)
Interest expense (2,049,230) 142,882 (2,757,353) (746,152) (650,775) (13) (4,154,280)
Other (expense) income 86,024 1,817,733 (4) 235,934 31,365 -- 267,299
---------- ---------- ---------- --------- --------- ----------
(Loss) income before
income taxes (benefit) (677,586) 7,973,857 597,504 (9,036) 432,181 1,020,649
Income taxes (benefit) (100,000) 100,000 (15) (9,687) -- -- (9,687)
---------- ---------- ---------- --------- --------- ----------
Net (loss) income $(577,586) $7,873,857 $607,191 $( 9,036) $432,181 $1,030,336
========== ========== ========== ========= ========= ==========
Weighted average number
of shares outstanding 11,869,909 (14)
==========
Earnings per share $.09
====
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996
(1) To adjust depreciation and amortization expense for the change in the
basis of property and equipment, net of historical depreciation and
amortization of Allied Environmental Services, Inc. and affiliates had
the purchase of the assets of Allied been completed on July 1, 1995.
(2) To adjust depreciation and amortization expense for the change in the
basis of property, equipment, landfill site costs and intangible assets
as if the purchase of Bender had been completed on July 1, 1995 net of
historical depreciation and amortization expense of R&A Bender, Inc. and
R&A Bender Property, Ltd. and to reflect the Company's methodology of
amortizing landfill site costs and closure and post-closure costs.
Landfill site costs and closure and post-closure costs are amortized
based upon consumed airspace using the unit-of-production method of
airspace filled during the period in relation to estimates of total
available airspace.
(3) To eliminate intercompany administrative charges related directly to cost
sharing arrangements provided by Allied's prior parent, which were
terminated as a result of the purchase transaction. Such administrative
services were absorbed by excess capacity of the Company and the Company
has not hired additional employees to perform these administrative
services.
(4) To adjust for the write-off of certain intangible assets of Allied, to
reflect the recording of purchase accounting as if the acquisition was
consummated at the beginning of the year, whereby the Company would have
assigned a value of zero to this intangible asset.
(5) To record additional interest expense of $1,168,191 from borrowings (at
the Company's average borrowing rate of 8%) under the Company's Revolving
Credit Facility of $15.8 million incurred to consummate the acquisition
of Bender, net of historical interest expense of $113,115.
(6) To reflect the decrease in Bender's selling, general and administrative
expenses consisting of contractual reductions to former owners' salaries
of $606,815, and for the termination of R&A Bender's Profit Sharing Plan
of $190,644. The contractual reduction in owner salaries and the
terminating of R&A Bender's profit sharing plan were directly
attributable to the acquisition transaction.
(7) To reflect the elimination of revenues and operating expenses relating to
certain operations of Bender not acquired by EESI.
(8) To reflect the elimination of intercompany rental revenues and expenses
between R&A Bender, Inc. and R&A Bender Property, Ltd.
(9) To reflect a reduction in WSI's selling, general, and administrative
salaries of employees terminated at the time of acquisition pursuant to
restrictive covenants mandated by the New York City Trade Waste
Commission as conditional approval for the Company to consummate the WSI
acquisition. The reduction is net of the estimated cost of replacement
employees under employment contracts.
(10) To adjust depreciation and amortization expense for the change in the
basis of equipment and intangible assets, and the change in the useful
lives and amortization period to conform to Company policies, net of
historical depreciation and amortization which would have occurred had
the acquisition of WSI been completed at the beginning of the period.
(11) To reflect a reduction in interest expense of $1,311,073 resulting from
debt not acquired net of EESI interest of $738,157 on borrowings at the
Company's average borrowing rate of 8.0% to finance the WSI acquisition.
(12) To adjust depreciation and amortization expense for the change in the
basis of property, equipment and intangible assets, net of historical
depreciation and amortization expense of Waste Management, Inc. of
Northeast Pennsylvania (Predecessor Company to Apex) had the purchase of
Waste Management, Inc. of Northeast Pennsylvania been completed on
July 1, 1995.
(13) To record additional interest expense of $650,775 from borrowings of
approximately $16.4 million (at an interest rate of 8.5%) to consummate
the acquisition of Waste Management of Northeast Pennsylvania, net of
historical interest expense of $746,152.
<PAGE>
(14) For the purposes of determining pro forma earnings per share, the
issuance of 116,667, 1,448,841, 106,667, and 796,927 shares of common
stock as consideration for the purchase of assets of Allied and WSI, the
stock of R&A Bender, Inc., and to reflect the shares issued relating to
the Apex merger, respectively, were considered to have been outstanding
from July 1, 1995.
(15) The Company's pro forma effective tax provision is due to the realization
of federal net operating loss carryforwards and the reversal of the
related valuation allowance previously recorded. Excluding the effect of
the valuation allowance, pro forma income taxes would be approximately
$429,000, or $.04 per share at effective rate of 42%.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
R & A
Bender
Eastern Property,
Environmental R & A --------- Pro Forma
Services, Inc. Bender, Inc. Ltd. WSI Adjustments
------------- ------------ ---- --- -----------
<S> <C> <C> <C> <C> <C>
Revenues $52,409,183 $4,294,638 $214,324 $16,596,545 $(41,019) (4)
(210,682) (5)
---------
(251,701)
(196,402) (1)
(206,352) (4)
---------
Cost of revenues 38,026,625 2,692,988 1,602 10,318,674 (402,754)
76,769 (1)
(963,807) (2)
(610,088) (6)
(1,583,152) (7)
(210,682) (5)
Selling, general and (6,085) (4)
----------
administrative expenses 9,245,947 1,949,947 17,382 6,378,446 (3,297,045)
Merger costs 3,336,792 -- -- -- --
--------- --------- -------- --------- -----------
Operating income (loss) 1,799,819 (348,297) 195,340 (100,575) 3,448,098
714,024 (8)
Interest expense (1,525,509) (7,243) (1,267,642) (529,754) (3)
Other income (expense) 461,089 245,746 -- 83,997 --
------- ------- -------- ---------- ----------
Income (loss) before
income taxes 735,399 (109,794) 195,340 (1,284,220) 3,632,368
Income tax expense (benefit) 940,405 -- -- (200,000) 200,000 (11)
------- -------- -------- ---------- ----------
Net (loss) income $(205,006) $(109,794) $195,340 $(1,084,220) $3,432,368
========== ========== ======== ========== ==========
Earnings per share
Weighted avg number of
shares outstanding
<CAPTION>
Pro Forma
Consolidated
Before Predecessor Apex Pro
Predecessor Company Pro Forma Forma
Company to Apex Adjustments Consolidated
------- ------- ----------- ------------
Revenues $73,262,989 $4,675,156 $ -- $ 77,938,145
Cost of revenues 50,637,135 3,901,842 (192,658) (9) 54,346,319
Selling, general and
administrative expenses 14,294,677 563,087 (78,081) (9) 14,779,683
Merger costs 3,336,792 -- -- 3,336,792
------------ --------- --------- -----------
Operating income (loss) 4,994,385 210,227 270,739 5,475,351
Interest expense (2,616,124) (172,534) (176,698) (10) (2,965,356)
Other income (expense) 790,832 3,596 -- 794,428
------------ ---------- --------- -----------
Income (loss) before
income taxes 3,169,093 41,289 94,041 3,304,423
Income tax expense 940,405 -- -- 940,405 (11)
----------- ---------- -------- -----------
Net (loss) income $2,228,688 $41,289 $94,041 $2,364,018
========== ======= ======= ==========
Earnings per shares $0.15
=====
Weighted avg number of
shares outstanding 15,904,446 (12)
==========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1997
(1) To adjust depreciation and amortization expense for the change in the
basis of property, equipment, landfill site costs and intangible assets
as if the purchase of Bender had been completed on July 1, 1996 net of
historical depreciation and amortization expense of R&A Bender, Inc. and
R&A Bender Property, Ltd. and to reflect the Company's methodology of
amortizing landfill site costs and closure and post-closure costs.
Landfill site costs and closure and post-closure costs are amortized
based upon consumed airspace using the unit-of-production method of
airspace filled during the period in relation to estimates of total
available airspace.
(2) To reflect the decrease in Bender's selling, general and administrative
expenses consisting of a contractual reduction made to the former owners'
salaries of $706,807 and for the termination of R&A Bender's Profit
Sharing Plan of $257,000. The contracted reduction in owner salaries and
the termination of R&A Bender's profit sharing plan were directly
attributable to the acquisition transaction.
(3) To record additional interest expense of $529,754 resulting from
borrowings under the Company's Revolving Credit Facility of $15.8 million
incurred to consummate the acquisition of R&A Bender, net of historical
interest expense of $38,291.
(4) To reflect the elimination of revenues and operating expenses relating to
certain operations of Bender not acquired by EESI.
(5) To reflect the elimination of intercompany rental revenues and expenses
between R&A Bender, Inc. and R&A Bender Property, Ltd.
(6) To reflect a reduction in WSI's selling, general, and administrative
salaries of employees terminated at the time of acquisition pursuant to
restrictive covenants mandated by the New York City Trade Waste
Commission as conditional approval for the Company to consummate the WSI
acquisition. The reduction is net of the estimated cost of replacement
employees.
(7) To adjust depreciation and amortization expense for the change in the
basis of equipment and intangible assets, net of historical depreciation
and amortization which would have occurred had the purchase of WSI been
completed on July 1, 1996.
(8) To reflect a reduction in interest expense of $714,024 resulting from
debt not acquired net of EESI interest of $553,618 on borrowings at the
Company's average borrowing rate of 8.0% to finance the acquisition.
(9) To adjust depreciation and amortization expense for the change in the
basis of property, equipment and intangible assets, net of historical
depreciation and amortization expense of Waste Management, Inc. of
Northeast Pennsylvania (Predecessor company to Apex) had the purchase of
Waste Management Inc. of Northeast Pennsylvania been completed on
July 1, 1996.
(10) To record additional interest expense of $176,698 from borrowings of Apex
of $16.4 million (at an interest rate of 8.5%) to consummate the
acquisition of Waste Management of Northeast Pennsylvania, net of
historical interest expense of $172,534.
(11) The Company's pro forma effective tax provision is after consideration of
the realization of federal net operating loss carryforwards and the
reversal of the related valuation allowance previously recorded.
Excluding the effect of the valuation allowance, pro forma taxes at an
effective rate of 42% would be approximately $1.35 million greater, or
$.08 per share. Additionally, the consolidated tax provision includes
$904,000 reflecting the recording of a deferred tax provision as of the
date of the Super Kwik, Donno and Apex mergers, at which time the
entities'S Corporation elections were terminated.
(12) For the purposes of determining pro forma earnings per share, the
issuance of 63,066 shares of common stock as partial consideration for
the purchase of the stock of R&A Bender, Inc., and 1,448,000 shares
related to the acquisition of WSI were considered to have been
outstanding from July 1, 1996.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
The following unaudited pro forma consolidated balance sheet at
March 31, 1997 gives effect to the acquisition of Waste Services, Inc. and
affiliates ("WSI") pursuant to the terms of an Agreement and Plan of
Reorganization dated October 23, 1996 as amended on April 14, 1997 and
May 12, 1997 and the closure into escrow of two companies under common
management control with Waste Services, Inc., Golden Gate Carting Co., Inc.
("Golden Gate") and Coney Island Rubbish Removal, Inc. ("Coney Island") pursuant
to two separate Agreements and Plans of Reorganization both amended on
May 12, 1997. The total consideration for the acquisition of WSI, Golden Gate,
and Coney Island included $16,951,416 in the Company's common stock at an
average fair market value of $11.70 per share, the assumption of debt of
$9,226,963, and the assumption of a $6,200,000 liability will be paid
upon the resolution of certain events. The above transactions are presented as
if they had occurred on June 30, 1996.
The following unaudited pro forma financial data may not be indicative of
what the financial condition of EESI would have been, had the transactions to
which such data gives effect been completed on the date assumed, nor are such
data necessarily indicative of the financial condition of EESI that may exist in
the future. The following unaudited pro forma information should be read in
conjunction with the notes thereto, the other pro forma financial statements and
notes thereto, and the consolidated financial statements and notes of Eastern
Environmental Services, Inc. for the nine months ended March 31, 1997 and each
of the three years in the period ended June 30, 1996, included in the Company's
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-27245), filed
June 27, 1997 and the historical combined financial statements of Waste
Services, Inc. and affiliates appearing elsewhere in this filing.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
Eastern Waste
Environmental Services, Inc., Pro Forma Pro Forma
Services, Inc. and Affiliates Adjustments Consolidated
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 3,906,902 $ 26,650 $ (26,650)(1) $ 3,906,902
Accounts receivable, net of allowance 7,694,765 2,210,957 (2,210,957)(1) 7,694,765
Deferred income taxes 1,568,000 -- -- 1,568,000
Prepaid expenses and other current assets 2,173,656 305,278 (305,278)(1) 2,173,656
------------- ------------- ------------ ------------
Total current assets 15,343,323 2,542,885 (2,542,885) 15,343,323
Net property, plant & equipment 54,171,729 943,756 992,244 (1) 56,107,729
Assets held for resale -- 395,059
Receivables from affliated companies -- 736,238 (736,238)(1) --
Deferred income taxes -- 1,668,000 (1,668,000)(1) --
Excess cost over fair market value
of net assets acquired 15,764,939 4,879,344 24,986,035 (1) 45,630,318
Intangible assets, net 1,720,740 7,292,689 (6,492,689)(1) 2,520,740
Notes receivable from shareholders / officers 463,902 799,173 (799,173)(1) 463,902
Other assets 1,493,005 243,735 (243,735)(1) 1,493,005
------------- ------------- ------------ ------------
Total assets $89,352,697 $19,105,820 $13,495,559 $121,954,076
============= ============= ============ ============
Liabilities and stockholders' equity
Current liabilities
Current maturities on long-term debt $ 1,285,312 $ 6,981,978 $(6,981,978)(1) $ 1,285,312
Current maturities of obligations
under capital leases 1,445,100 -- -- 1,445,100
Accounts payable 3,835,667 3,586,644 (3,586,644)(1) 3,835,667
Accrued expenses and other current liabilities 8,361,616 -- 223,000 (1) 8,584,616
Income taxes payable 45,880 1,220,454 (1,220,454)(1) 45,880
Due to officers -- 760,553 (760,553)(1) --
Current portion of accrued environmental costs 1,070,000 -- -- 1,070,000
------------- ------------- ------------ ------------
Total current liabilities 16,043,575 12,549,629 (12,326,629) 16,266,575
Deferred income taxes 3,832,203 -- -- 3,832,203
Long-term debt 31,736,086 9,980,348 (753,385)(1) 40,963,049
Capital lease obligations - long-term 2,244,432 -- -- 2,244,432
Accrued landfill closure and other
environmental costs 8,172,364 -- -- 8,172,364
Other long-term liabilities -- -- 6,200,000 (1) 6,200,000
Stockholders' equity
Common stock 140,958 65,620 (51,132)(1) 155,446
Additional paid-in capital 27,927,552 16,936,928 (1) 44,864,480
Retained earnings (deficit) (668,214) (3,489,777) 3,489,777 (1) (668,214)
Less treasury stock at cost - 39,100 common shares (76,259) -- -- (76,259)
------------- ------------- ------------ ------------
Total stockholders' equity 27,324,037 (3,424,157) 20,375,573 44,275,453
------------- ------------- ------------ ------------
Total liability and stockholders' equity $89,352,697 $19,105,820 $13,495,559 $121,954,076
============= ============= ============ ============
</TABLE>
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(1) Reflects the acquisition of Waste Services, Inc. and affiliates and the
pending acquisitions of Golden Gate Carting Co., Inc. and Coney Island
Rubbish Removal, Inc. accounted for using the purchase method. Pursuant
to the Purchase Agreements, only property and equipment and intangible
assets were acquired for consideration of $16,951,416 in the Company's
stock at an average fair market value of $11.70 per share, the assumption
of debt of $9,226,963, the assumption of a $6.2 million liability which
will be paid upon the resolution of certain events (payable in either
cash or a future maximum issuance of 357,849 shares of the Company's
stock) and the recording of a purchase accounting reserve of $223,000 for
terminated transitional employee salaries. The excess purchase price over
the estimated fair value of the net assets acquired is being amortized on
a straight-line basis for forty (40) years from the date of acquisition.
The preliminary allocation of the purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment..................................... $ 1,936,000
Cost over fair value of net assets acquired................ 29,865,379
Identifiable intangible assets............................. 800,000
-----------
$32,601,379
===========
</TABLE>
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Registration No. 33-25155, filed on October 24, 1988), the
Registration Statement on Form S-8 (Post-Effective Amendment No. 2 to
Registration No. 33-21251, filed on May 4, 1990), the Registration Statement on
Form S-8 (Registration No. 33-37374, filed on October 18, 1990), the
Registration Statement on Form S-8 (Registration No. 33-45250, filed on January
27, 1992), the Registration Statement on Form S-3 (Registration No. 333-00283,
filed on February 14, 1996), and Amendment No. 1 to the Registration Statement
(Form S-3 No. 333-27245) and related Prospectus of Eastern Environmental
Services, Inc., of our report dated June 19, 1997, with respect to the combined
financial statements of Waste Services, Inc. and Affiliates, included in Eastern
Environmental Services, Inc.'s Current Report on Form 8-K dated May 12, 1997 (as
amended July 11, 1997 on Form 8-K/A), filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
July 11, 1997
