<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) September 4, 1998
EASTERN ENVIRONMENTAL SERVICES, INC.
------------------------------------
(Exact name of issuer as specified in charter)
<TABLE>
<S> <C> <C>
Delaware 0-16102 59-2840783
(State or Other Jurisdiction Commission (I.R.S. Employer
Or Incorporation or Organization) File Number Identification Number)
</TABLE>
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.
-------------------------------------
On September 4, 1998, Eastern Environmental Services, Inc. (the
"Registrant") consummated the acquisition of Kimmins Recycling, Corp.
("Kimmins") pursuant to the terms of a Stock Purchase Agreement (the
"Agreement") dated July 17, 1998, as amended August 31, 1998. The Agreement
between the Registrant and Transcor Waste Services, Inc. ("Transcor" or
"Seller") provided for the acquisition of all of the outstanding shares of stock
of Kimmins, a wholly owned subsidiary of Transcor. The Seller is not affiliated
with the Registrant nor with any of the Registrant's subsidiaries. The
description of the acquisition transaction set forth herein is qualified in its
entirety by reference to the Agreement and the supplemental agreement, which are
filed herewith as Exhibits 10.1 and 10.2, respectively.
At closing under the Stock Purchase Agreement, Registrant purchased all of
the outstanding stock of Kimmins for total consideration of approximately $51.2
million funded from working capital, borrowings under the Registrant's revolving
credit facility and the issuance of 555,329 unregistered shares of the
Registrant's common stock, $.01 par value. The shares of the Registrant's
common stock were valued at $30.62 per share. The acquisition is accounted for
using the "purchase" method of accounting.
Kimmins is an integrated waste collection company servicing residential and
commercial customers. The acquired assets include collection vehicles,
containers, permits and real estate used in the operation of the hauling
operations. The Registrant intends to continue to operate the business owned by
Kimmins. Substantially, all liabilities were assumed by the Registrant.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
Financial Information and Exhibits.
-----------------------------------
(a) COMBINED FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Report of Independent Certified Public Accountants
Balance Sheets as of December 31, 1995, 1996, and 1997
Statements of Operations and Changes in Divisional Equity for the Three
Years Ended December 31, 1997
Statements of Cash Flows for the Three Years Ended December 31, 1997
Notes to Financial Statements
Balance Sheet as of June 30, 1998 (Unaudited)
Statement of Operations and Changes in Divisional Equity for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)
Statement of Cash Flows for the Six Months Ended June 30, 1998 and 1997
(Unaudited)
Selected Notes to Financial Statements (Unaudited)
(b) PRO FORMA FINANCIAL INFORMATION.
Pro Forma Consolidated Statement of Operations for the Year Ended
June 30, 1997 (Unaudited)
Pro Forma Consolidated Statement of Operations for the Six Months Ended
December 31, 1997 (Unaudited)
Pro Forma Consolidated Statement of Operations for the Six Months Ended
June 30, 1998 (Unaudited)
Pro Forma Consolidated Balance Sheet as of June 30, 1998 (Unaudited)
(a) EXHIBITS
*10.1 Stock Purchase Agreement made as of July 17, 1998, by and between
Transcor Waste Services, Inc. and Eastern Environmental Services, Inc.
*10.2 Amendment dated August 31, 1998 to Stock Purchase Agreement dated July
17, 1998, by and between Transcor Waste Services, Inc. and Eastern
Environmental Services, Inc.
23.1 Consent of Ernst & Young LLP
- --------------------------------------------------------------------------------
* Incorporated by reference.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities and 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: October 19, 1998 By: /s/ Gregory M. Krzemien
-----------------------
Gregory M. Krzemien, Chief Financial Officer
<PAGE>
Waste Management Division of Kimmins Recycling Corp.
(a wholly-owned subsidiary of TransCor Waste Services, Inc.)
Audited Financial Statements
Years ended December 31, 1995, 1996 and 1997
CONTENTS
Report of Independent Certified Public Accountants......... F1
Audited Financial Statements
Balance Sheets............................................. F2
Statements of Operations and Changes in Divisional Equity.. F4
Statements of Cash Flows................................... F5
Notes to Financial Statements.............................. F7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
TransCor Waste Services, Inc.
We have audited the accompanying balance sheets of the Waste Management Division
of Kimmins Recycling Corp. (a wholly-owned subsidiary of TransCor Waste
Services, Inc.) as of December 31, 1995, 1996 and 1997, and the related
statements of operations and changes in divisional equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Waste Management Division
of Kimmins Recycling Corp. (a wholly-owned subsidiary of TransCor Waste
Services, Inc.) at December 31, 1995, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Tampa, Florida
April 18, 1998,
except for Note 13, as to which the date is
July 17, 1998
F1
<PAGE>
Waste Management Division of Kimmins Recycling Corp.
(a wholly-owned subsidiary of TransCor Waste Services, Inc.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996 1997
------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 1,403,886 $ 601,798 $ --
Accounts receivable--trade, less allowance
for doubtful accounts of $607,330, $543,770,
and $891,300 at December 31, 1995, 1996,
and 1997, respectively 4,705,168 4,485,757 3,970,887
Due from affiliates 3,518,446 3,649,932 --
Property held for sale -- -- 733,659
Deferred income taxes 306,672 619,196 740,380
Other current assets 255,514 255,552 186,017
------------------------------------------------
Total current assets 10,189,686 9,612,235 5,630,943
Property and equipment, net 26,898,119 26,115,277 24,748,670
Property held for sale -- -- 1,510,723
Intangible assets, net 785,175 898,853 606,975
Other assets 1,053,953 1,075,950 1,232,547
------------------------------------------------
Total assets $38,926,933 $37,702,315 $33,729,858
================================================
</TABLE>
F2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996 1997
------------------------------------------------
<S> <C> <C> <C>
Liabilities and divisional equity
Current liabilities:
Accounts payable--trade $ 3,091,652 $ 3,831,867 $ 3,754,188
Accrued expenses 3,981,880 4,500,933 3,135,436
Due to affiliates -- -- 704,700
Current portion of long-term debt 3,770,219 3,453,168 4,662,310
------------------------------------------------
Total current liabilities 10,843,751 11,785,968 12,256,634
Long-term debt (including debt owed to Kimmins
of $2,003,258 at December 31, 1995, 1996
and 1997) 17,972,049 16,807,059 16,395,341
Deferred income taxes 2,862,718 3,363,750 2,212,865
Divisional equity 7,248,415 5,745,538 2,865,018
------------------------------------------------
Total liabilities and divisional equity $38,926,933 $37,702,315 $33,729,858
================================================
</TABLE>
See accompanying notes.
F3
<PAGE>
Waste Management Division of Kimmins Recycling Corp.
(a wholly-owned subsidiary of TransCor Waste Services, Inc.)
Statements of Operations and Changes in Divisional Equity
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
----------------------------------------------------
<S> <C> <C> <C>
Revenue $32,367,679 $34,648,031 $32,593,948
Expenses:
Operating expenses 23,420,359 25,820,275 23,611,721
Depreciation and amortization 2,417,828 3,611,483 3,924,913
Selling, general and administrative
expenses 4,648,944 5,583,739 7,348,461
Management fee to affiliate 485,515 519,720 977,818
----------------------------------------------------
Operating income (loss) 1,395,033 (887,186) (3,268,965)
Interest expense, net of interest income from
affiliate of $415,000, $445,000, and $292,000 for
the years ended December 31, 1995, 1996, and
1997, respectively 624,361 1,504,135 1,408,763
----------------------------------------------------
Income (loss) before provision for
income taxes (benefit) 770,672 (2,391,321) (4,677,728)
Provision for income taxes (benefit) 264,551 (888,444) (1,797,208)
----------------------------------------------------
Net income (loss) 506,121 (1,502,877) (2,880,520)
Divisional equity, beginning of year 6,742,294 7,248,415 5,745,538
----------------------------------------------------
Divisional equity, end of year $ 7,248,415 $ 5,745,538 $ 2,865,018
====================================================
</TABLE>
See accompanying notes.
F4
<PAGE>
Waste Management Division of Kimmins Recycling Corp.
(a wholly-owned subsidiary of TransCor Waste Services, Inc.)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 506,121 $(1,502,877) $(2,880,520)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 2,417,828 3,611,483 3,924,913
Deferred income taxes 708,707 188,509 (1,272,070)
Charge for impairment of long-lived assets -- -- 590,000
Provision (credit) for uncollectible accounts receivable (250,786) 236,961 347,333
Loss (gain) on disposal of equipment 237,546 (64,192) (444,488)
Changes in operating assets and liabilities:
Accounts receivable--trade 260,861 (17,550) 167,537
Other assets (1,580,876) (437,713) (140,184)
Accounts payable--trade 279,339 740,215 (77,679)
Accrued expenses 3,784,509 519,052 (1,365,496)
------------------------------------------------------------
Total adjustments 5,857,128 4,776,765 1,729,866
------------------------------------------------------------
Net cash provided by (used in) operating activities 6,363,249 3,273,888 (1,150,654)
Cash flows from investing activities:
Capital expenditures including $500,000 of
business acquisitions during 1996 (13,095,988) (2,816,047) (6,716,785)
Proceeds from sales of property and equipment 402,538 353,598 2,113,585
------------------------------------------------------------
Net cash used in investing activities (12,693,450) (2,462,449) (4,603,200)
Cash flows from financing activities:
Repayment of long-term debt (2,742,364) (3,569,970) (4,727,620)
Proceeds from long-term debt 14,471,763 2,339,467 5,522,064
Net advances from (payments to) affiliates (4,767,305) (383,024) 4,357,612
------------------------------------------------------------
Net cash provided by (used in) financing activities 6,962,094 (1,613,527) 5,152,056
------------------------------------------------------------
Net increase (decrease) in cash 631,893 (802,088) (601,798)
Cash, beginning of year 771,993 1,403,886 601,798
------------------------------------------------------------
Cash, end of year $ 1,403,886 $ 601,798 $ --
============================================================
Cash paid for interest $ 1,040,000 $ 1,950,000 $ 1,640,000
============================================================
</TABLE>
See accompanying notes.
F5
<PAGE>
WASTE MANAGEMENT DIVISION OF KIMMINS RECYCLING CORP.
(A WHOLLY-OWNED SUBSIDIARY OF TRANSCOR WASTE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Waste Management Division (the Division) of Kimmins Recycling Corp., (the
Company) a wholly-owned subsidiary of TransCor Waste Services, Inc. (TransCor or
Parent), was formed on November 21, 1989. The Division provides solid waste
management services to commercial, industrial, residential, and municipal
customers in the State of Florida.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Division to concentrations of credit
risk consist primarily of trade receivables. Trade receivables are comprised
primarily of amounts due from solid waste management customers in the State of
Florida. Credit is extended based on an evaluation of the customer's financial
condition, and, generally, collateral is not required.
A significant portion of the Division's solid waste management business is
conducted under contracts with municipal customers in Florida. These contracts
have varying terms and are typically subject to renegotiation or reproposal by
the respective municipalities. Revenue from these contracts amount to 19
percent, 31 percent, and 28 percent of total revenue during 1995, 1996 and 1997,
respectively. One individual municipal contract contributed revenue greater than
10 percent of total net revenue in both 1995 and 1996.
Accounts Receivable--Trade, includes $1,381,000 ($1,263,000 net of allowance for
doubtful accounts) and $724,000 ($213,000 net of allowance for doubtful
accounts) as of December 31, 1996 and 1997, respectively, related to a municipal
solid waste management contract with St. Lucie County. Unlike other municipal
solid waste management contracts, St. Lucie County
F6
<PAGE>
1. Organization and Summary of Significant Accounting Policies (continued)
requires the Division to bill and collect directly from individual property
owners. Pursuant to St. Lucie County ordinances, property owners that are
delinquent in payment are subject to lien rules. The Company has placed liens on
approximately 2,250 and 2,120 individual properties representing approximately
$511,000 and $474,000 of the balance as of December 31, 1996 and 1997,
respectively. Management intends to file additional liens when considered
appropriate, and all such liens will be maintained in accordance with applicable
laws until the outstanding balances are recovered by payment, judgment,
foreclosure, or in other action.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which is being amortized on a
straight-line basis over twenty years, and customer contracts, which are being
amortized on a straight-line basis over five years. Amortization expense was
$67,000, $124,000, and $109,000 for the years ended December 31, 1995, 1996 and
1997, respectively. Accumulated amortization was approximately $67,000, $191,000
and $245,000 at December 31, 1995, 1996 and 1997, respectively.
OTHER ASSETS
Other assets consist primarily of precontract costs associated with residential
solid waste management contracts obtained during 1996 and 1997, which are being
amortized on a straight-line basis over five years, the term of the contracts,
and loan costs, which are amortized over the term of the loans. Amortization
expense was $91,000, $178,000, and $236,000 for the years ended December 31,
1995, 1996 and 1997, respectively. Accumulated amortization was $296,000 and
$533,000 at December 31, 1996 and 1997, respectively.
The American Institute of Certified Public Accountants issued SOP 98-5,
Reporting on the Costs of Start-up Activities, which requires start-up costs to
be expensed as incurred. Start-up costs are defined broadly in the SOP 98-5 as
those one-time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory, conducting business
with a new class of customer or beneficiary, initiating a new process in an
existing facility, or commencing some new operation, and includes the start-up
costs that the Division has historically deferred in connection with its
municipal waste management contracts. The SOP is effective for fiscal years
beginning after December 15, 1998. The SOP will require the Company, upon
adoption, to write off the previously
F7
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
capitalized contract start-up costs. Therefore, in the first quarter of 1999,
the Division will write off all remaining unamortized contract start-up costs,
which amounts to $875,000 at December 31, 1997.
REVENUE RECOGNITION
The Company recognizes revenue from solid waste management and recycling
operations when the services are performed. Billings prior to the rendering of
services are classified as deferred revenue.
ADVERTISING COSTS
Advertising costs are expensed as incurred. For the years ended December 31,
1995, 1996 and 1997, the Company expensed approximately $88,000, $114,000, and
$536,000, respectively, in advertising costs.
INCOME TAXES
As a wholly-owned subsidiary, Kimmins Recycling Corp. is included in the
consolidated federal income tax return of the Parent. Pursuant to tax sharing
agreement between the Division and its Parent, the Division accounts for and
discloses income taxes as if they were a combined separate federal taxable
entity. Under this agreement, all amounts associated with federal income taxes
are due to or from the Parent. The Division owed TransCor approximately
$3,270,000 and $3,662,000 for income taxes for the periods ended December 31,
1997 and 1996, respectively. For purposes of its separate company income tax
accounting, the Company applies the provisions of Statement of Financial
Accounting Standard No. 109, Accounting for Income Taxes. Under this standard,
deferred taxes are provided for all differences between the financial statements
and tax bases of assets and liabilities.
2. BUSINESS ACQUISITIONS/DISPOSITIONS
On February 21, 1996, the Company acquired certain assets from Automated
Resource Recovery, Inc., for $300,000 relating to its solid waste management
operations. This acquisition has been accounted
F8
<PAGE>
2. BUSINESS ACQUISITIONS/DISPOSITIONS (CONTINUED)
for under the purchase method of accounting and, accordingly, the purchase price
has been allocated to the assets acquired (approximately $150,000) based on the
estimated fair values at the date of acquisition. The purchase price associated
with the acquisition exceeded the net assets acquired by approximately $150,000,
which was assigned to intangible assets, including customer lists. The operating
results associated with this business acquisition are included in the Company's
results of operations since March 1, 1996.
On May 31, 1996, the Company acquired certain assets from Paper Stock Dealers,
Inc., for $200,000 relating to its solid waste management operations. This
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets acquired
(approximately $112,000) based on the estimated fair values at the date of
acquisition. The purchase price associated with the acquisition exceeded the net
assets acquired by approximately $88,000, which was assigned to intangible
assets, including customer lists. The operating results associated with this
business acquisition are included in the Company's results of operations since
June 1, 1996.
During 1996, the Company sold a number of contracts in the Pinellas area. As
part of a de-emphasis of paper wholesaling in Pinellas, the Company wrote off
the net intangible assets of $70,000 associated with the 1996 acquisition of
assets from Paper Stock Dealers, Inc.
On March 31, 1995, the Company acquired certain assets from County Sanitation,
Inc., for $2,267,000 relating to its solid waste management operations. This
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets acquired
(approximately $1,415,000) based on the estimated fair values at the date of
acquisition. The purchase price associated with the acquisition exceeded the net
assets acquired by approximately $852,000, which was assigned to intangible
assets, including goodwill. The operating results associated with this business
acquisition are included in the Company's results of operations since April 1,
1995.
As a result of management's review of the Company's various regional solid waste
operating facilities, a decision was made to dispose of less profitable
operating assets. The Company sold its residential solid waste services contract
with St. Lucie County to a competitor and ceased operations at its Lantana,
F9
<PAGE>
2. BUSINESS ACQUISITIONS/DISPOSITIONS (CONTINUED)
Florida, facility. The Lantana and St. Lucie facilities contributed losses of
approximately $1,111,000 and $476,000, respectively, of the $2,184,000 operating
loss of the Company for the year ended December 31, 1997. The Company wrote off
intangible assets of $183,000 associated with these operations.
Also, in accordance with SFAS No. 121, Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, the Company wrote down certain land and
buildings that management believed had carrying amounts higher than their fair
market value. The impairment loss of $590,000 was determined by comparing the
carrying amount of impaired assets of approximately $2,834,000 with recent
offers on the properties held for sale and is included in selling, general and
administrative expenses on the statements of operations for the year ended
December 31, 1997. Certain of the impaired land and buildings had executed
contracts for sale as of the date of these financial statements and are expected
to be sold during 1998. Accordingly, the carrying value of these assets of
approximately $734,000, net of the impairment loss of $90,000, is classified as
a current asset under the caption Property Held for Sale in this balance sheet.
3. RELATED-PARTY TRANSACTIONS
During the years ended December 31, 1995, 1996, and 1997, the Company entered
into transactions with Kimmins Corp., (a company that owns approximately 74% of
TransCor) and companies affiliated with Kimmins. Kimmins provides the Company
accounting, data processing, financial, tax and other administrative services
for a fee based on gross revenue. In 1997, to reflect the increased level of
services received from Kimmins, the fee was increased from 1.5 percent of
revenue to 3.0 percent of revenue. The amounts charged were approximately
$486,000, $520,000, and $978,000, for the years ended December 31, 1995, 1996,
and 1997, respectively.
The Company is insured or coinsured with Kimmins on various insurance policies
of the Company or Kimmins. The Company pays its allocable share of the cost of
such policies based on specifically identified costs or on a combination of its
revenues, payroll, assets, and incurred losses as a percentage of the combined
total of such items of all insured parties, as appropriate for each particular
insurance policy or coverage. For the years ended December 31, 1995, 1996, and
1997, the Company paid Kimmins approximately $811,000, $849,000 and $1,205,000,
respectively. The Company pays directly for any coverage for which it is the
only insured.
F10
<PAGE>
3. RELATED-PARTY TRANSACTIONS (CONTINUED)
At December 31, 1995, the Company had $500,000 of mortgage notes payable to
affiliated parties: $400,000 to the president of Kimmins, his wife, and his son
and $100,000 to a director of Kimmins. These notes were refinanced during 1996
with an unaffiliated lender.
The Company has amounts due from affiliates of $3,649,932 on December 31, 1996
and due to affiliates of $704,700 on December 31, 1997. These advances are
unsecured and bear interest at 10 percent. In addition, as of December 31, 1997,
the Division and Company, were economically dependent upon affiliates to fund
operations and other requirements, which condition became alleviated from the
availability of cash proceeds from the sales discussed in Note 13.
In addition, the Company has a convertible subordinated note payable to Kimmins
in the amount of $2,003,258. See Note 7 and Item 10 for additional information.
4. ACCOUNTS RECEIVABLE--TRADE
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996 1997
--------------------------------------------------
<S> <C> <C> <C>
Contract and trade:
Unbilled receivables $ 422,231 $ 353,708 $ 776,764
Trade receivables 4,890,267 4,675,819 4,085,423
--------------------------------------------------
5,312,498 5,029,527 4,862,187
--------------------------------------------------
Allowance for doubtful accounts (607,330) (543,770) (891,300)
--------------------------------------------------
$4,705,168 $4,485,757 $3,970,887
==================================================
</TABLE>
F11
<PAGE>
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996 1997
----------------------------------------------------
<S> <C> <C> <C>
Land $ 4,596,623 $ 4,610,323 $ 3,019,969
Building and improvements 5,092,686 5,621,962 4,068,476
Vehicles 12,939,016 13,459,891 16,936,386
Waste containers and equipment 10,756,953 12,508,751 12,575,498
Furniture and fixtures 482,091 547,739 700,711
Construction in progress 615,846 33,462 48,419
----------------------------------------------------
34,483,215 36,782,128 37,349,459
Less accumulated depreciation (7,585,096) (10,666,851) (12,600,789)
----------------------------------------------------
$26,898,119 $ 26,115,277 $ 24,748,670
====================================================
</TABLE>
Property and equipment is recorded at cost. Depreciation is provided using the
straight-line method over estimated useful lives, which range from 3 to 30
years. Depreciation expense was $2,260,000, $3,309,000, and $3,580,000 for the
years ended December 31, 1995, 1996 and 1997, respectively. Construction in
progress is depreciated over the estimated useful lives when placed into
service.
6. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996 1997
------------------------------------------------
<S> <C> <C> <C>
Deferred revenue $1,858,148 $1,641,857 $ 919,631
Accrued insurance 705,132 1,171,965 926,049
Accrued waste disposal costs 846,606 744,229 407,229
Accrued real estate and property taxes 210,060 291,080 349,682
Other 361,934 651,802 532,845
------------------------------------------------
$3,981,880 $4,500,933 $3,135,436
================================================
</TABLE>
F12
<PAGE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996 1997
--------------------------------------------------
<S> <C> <C> <C>
Notes payable, due through March 1, 2001, payable
in monthly installments with interest at varying
rates up to 13%, collateralized by equipment. $14,927,277 $13,055,213 $14,191,400
Convertible subordinated term note to Kimmins,
interest payable in monthly installments,
principal due December 1, 2003, interest at
bank's base rate (8.5%) plus 1%. 2,003,258 2,003,258 2,003,258
Mortgage notes, principal and interest payable in
monthly installments through August 1, 2010,
interest at varying rates up to prime plus 1.5%,
collateralized by land and buildings. 3,411,733 5,201,756 4,862,993
Mortgage notes--$500,000 with related parties
(Note 3), interest payable in quarterly
installments at 10%, plus a performance based
return not to exceed 6% ($25,030 in 1995),
principal due on January 9, 1997, principal and
interest guaranteed by KVN, collateralized by
land and buildings 1,400,000 -- --
--------------------------------------------------
21,742,268 20,260,227 21,057,651
Less current portion (3,770,219) (3,453,168) (4,662,310)
--------------------------------------------------
$17,972,049 $16,807,059 $16,395,341
==================================================
</TABLE>
F13
<PAGE>
7. LONG-TERM DEBT (CONTINUED)
Annual principal maturities for years subsequent to December 31, 1997, are as
follows:
<TABLE>
<S> <C>
1998 $ 4,662,310
1999 4,962,703
2000 4,220,631
2001 2,512,241
2002 975,505
Thereafter 3,724,261
----------------
$21,057,651
================
</TABLE>
As of December 31, 1997, the Company is a coborrower and has guaranteed a loan
agreement on behalf of Kimmins and other subsidiaries of Kimmins in connection
with the Kimmins Employee Stock Ownership Plan, which had an outstanding balance
of $1,440,000 that is recorded in the financial statements of Kimmins.
The Company is a coborrower with joint and several liability on approximately
$5,910,000 of financial institution debt of Kimmins. The debt agreements contain
certain covenants, the most restrictive of which require, for Kimmins for 1997,
maintenance of a consolidated tangible net worth, as defined, of not less than
$6,500,000 and net income not less than $1,500,000. In addition, the covenants
prohibit the payment of dividends by the Company without lender approval. For
all periods presented, the Company believes that Kimmins had complied with or
obtained waivers for all loan covenants.
Francis M. Williams has guaranteed approximately $10,455,000 of the total notes
payable of $14,191,000. The Company is also a coborrower on approximately
$2,645,000 of Kimmins notes payable.
The lender's prime rate under the Company's notes was 8.5 percent at December
31, 1997.
Included in the notes payable of approximately $14,191,000 are equipment notes
of the Company for $5,700,000 that are due in July 1998. The Company has
executed a commitment agreement that refinances the $5,700,000 until January 1,
2000 and, accordingly, has classified the debt pursuant to the expected maturity
schedule.
F14
<PAGE>
8. LEASING ARRANGEMENTS
The Company rents equipment and machinery as well as office space, under
noncancelable operating leases for varying periods. Rental expense for the years
ended December 31, 1995, 1996, and 1997 was approximately $223,000, $120,000 and
$356,000, respectively.
9. Commitments and Contingencies
The Company has no current material commitments for capital expenditures
relating to any other new facilities, other than to acquire vehicles and
equipment for the City of Cape Coral contract, which the Company estimates to be
approximately $3,500,000.
The Company is involved in various legal actions and claims arising in the
ordinary course of its business. After taking into consideration legal counsel's
evaluation of such actions and claims, management is of the opinion that their
outcome will not have a material adverse effect on the financial position of the
Company.
10. PENSION AND OTHER BENEFIT PLANS
On January 1, 1989, Kimmins formed the Kimmins Corp. Employee Stock Ownership
Plan Trust (the ESOP) for the benefit of employees of Kimmins and its
subsidiaries, including those of the Company, to purchase shares of Kimmins'
common stock from time to time on the open market or in negotiated transactions
at prices deemed to be attractive. Contributions to the ESOP, which have not
been material, are made at the discretion of the Board of Directors of Kimmins.
F15
<PAGE>
11. INCOME TAXES
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:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996 1997
------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $2,592,759 $3,258,332 $3,348,080
Costs deferred for books expensed for tax
297,039 327,986 415,824
Total deferred tax liabilities 2,889,798 3,586,318 3,763,904
Deferred tax assets:
Allowance for doubtful accounts 118,322 209,552 343,352
Accrued workers' compensation 188,350 409,644 356,529
Asset writedowns -- -- --
Federal and state NOL carryforwards -- 195,488 1,551,039
Costs deferred for tax expensed for books
27,080 27,080 40,499
------------------------------------------------
Total deferred tax assets 333,752 841,764 2,291,419
------------------------------------------------
Net deferred tax liabilities $2,556,046 $2,744,554 $1,472,485
================================================
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997
--------------------------------------------------
<S> <C> <C> <C>
Current $(444,156) $(1,076,953) $ (525,138)
Deferred 708,707 188,509 (1,272,070)
--------------------------------------------------
$ 264,551 $ (888,444) $(1,797,208)
==================================================
</TABLE>
F16
<PAGE>
11. INCOME TAXES (CONTINUED)
Factors causing the effective tax rate to differ from the statutory rate are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997
--------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% (34.0)% (34.0)%
State income taxes 0.3% (3.2)% (4.4)%
--------------------------------------------------
Effective tax rate 34.3% (37.2)% (38.4)%
==================================================
</TABLE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
CASH, ACCOUNTS RECEIVABLE, AND ACCOUNTS PAYABLE
The carrying amount reported in the balance sheet for cash, accounts receivable,
and accounts payable approximates their fair value.
F17
<PAGE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM DEBT
The fair values of the Company's long-term debt are estimated using discounted
cash flow analyses, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------------------------------------------------
Liabilities:
Notes payable $20,260,227 $20,076,000 $21,055,000 $20,874,000
</TABLE>
13. SUBSEQUENT EVENT
On May 31, 1998, the Company sold its Jacksonville area waste collection and
recycling operations assets and certain assets of the Miami front-end load and
rear-load commercial waste and recycling business to Eastern Environmental
Services of Florida, Inc., for $11,600,000 in cash, which exceeded the carrying
value of the underlying assets.
On July 17, 1998, the management of the Company entered into a Stock Purchase
Agreement with Eastern Environmental Services, Inc. (the Buyer) to sell all of
the outstanding stock of Kimmins Recycling Corp. The common stock of Kimmins
Recycling Corp. will be transferred to the Buyer for $17 million of the Buyer's
common stock and approximately $34.2 million in cash, subject to a working
capital adjustment.
F18
<PAGE>
14. IMPACT OF YEAR 2000 (UNAUDITED)
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total Year 2000
project is estimated to be immaterial to the financial statements. To date, the
Company's incremental costs for assessment of the Year 2000 issue, the
development of a modification plan, and the purchase of new software have been
insignificant.
The project is estimated to be completed no later than December 31, 1998, which
is prior to any anticipated impact on its operating system. The Company
believes, with modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company.
F19
<PAGE>
WASTE MANAGEMENT DIVISION OF KIMMINS RECYCLING CORP.
(A WHOLLY-OWNED SUBSIDIARY OF TRANSCOR WASTE SEVICES, INC.)
BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 251,677
Accounts receivable--trade, less allowance for doubtful
accounts of $750,600 at June 30, 1998 2,506,482
Due from affiliates 4,792,841
Property held for sale 733,659
Deferred income taxes 740,380
Other current assets 107,895
-----------
Total current assets 9,132,934
Property and equipment, net 17,862,300
Property held for sale 1,510,723
Intangible assets, net 81,333
Other assets 985,851
-----------
Total assets $29,573,141
===========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable--trade $ 2,892,564
Accrued expenses 1,542,681
Due to affiliates 411,993
Current portion of long-term debt 5,220,956
-----------
Total current liabilities 10,068,194
Long-term debt (including debt owed to Kimmins of $2,003,258
at June 30, 1998) 11,348,345
Deferred income taxes 2,212,865
Divisional equity 5,943,737
-----------
Total liabilities and divisional equity $29,573,141
===========
</TABLE>
See accompanying selected notes to financial statements.
1
<PAGE>
WASTE MANAGEMENT DIVISION OF KIMMINS RECYCLING CORP.
(A WHOLLY-OWNED SUBSIDIARY OF TRANSCOR WASTE SEVICES, INC.)
STATEMENTS OF OPERATIONS AND CHANGES IN DIVISIONAL EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1997 1998
-------------- -------------
<S> <C> <C>
Revenue $16,778,550 $16,693,471
Expenses:
Operating expenses 11,874,120 11,851,802
Depreciation and amortization 2,114,766 1,979,498
Selling, general and administrative expenses 3,461,063 1,851,792
Management fee to affiliate 503,357 500,804
----------- -----------
Operating (loss) income (1,174,756) 509,575
Non-operating gain on sale of assets 354,739 5,263,256
Interest expense net of interest income from
affiliate of $132,462
and $79,491 for the six months ended June 30, 642,569 692,233
1997, and ----------- -----------
June 30, 1998, respectively
(Loss) income before provision for income taxes (1,462,586) 5,080,598
(benefit)
Provision for income taxes (benefit) (570,409) 2,001,878
----------- -----------
Net (loss) income $ (892,177) $ 3,078,720
=========== ===========
</TABLE>
See accompanying selected notes to financial statements.
2
<PAGE>
WASTE MANAGEMENT DIVISION OF KIMMINS RECYCLING CORP.
(A WHOLLY-OWNED SUBSIDIARY OF TRANSCOR WASTE SEVICES, INC.)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended June 30, Ended June 30,
1997 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (892,177) $ 3,078,720
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 2,114,766 1,979,498
Provision for uncollectible accounts receivable - 68,682
(Gain) loss on disposal of fixed assets (354,739) (5,263,256)
Changes in operating assets and liabilities:
Accounts receivable--trade (105,840) 1,395,723
Other assets (467,667) 850,460
Due to affiliates 1,491,186
Accounts payable--trade (688,854) (861,624)
Accrued expenses (59,275) (1,592,755)
----------- -----------
Total adjustments: 1,929,577 (3,423,272)
----------- -----------
Net cash provided by (used in) operating activities 1,037,400 (344,552)
Cash flows from investing activities:
Capital expenditures (2,398,444) (975,842)
Intercompany transfers 352,342 -
Proceeds from sales of fixed assets 1,012,984 11,145,969
----------- -----------
Net cash used in investing activities (1,033,118) 10,170,127
Cash flows from financing activities:
Repayment of long-term debt (2,385,806) (5,431,175)
Proceeds from long-term debt 2,088,212 942,825
Net advances to affiliates - (5,085,548)
----------- -----------
Net cash provided by financing activities (297,594) 9,573,898
----------- -----------
Net increase (decrease) in cash (293,312) 251,677
Cash, beginning of period 601,798 -
----------- -----------
Cash, end of period $ 308,486 $ 251,677
=========== ===========
Cash paid for interest $ 778,538 $ 771,724
=========== ===========
</TABLE>
See accompanying selected notes to financial statements.
3
<PAGE>
WASTE MANAGEMENT DIVISION OF KIMMINS RECYCLING CORP.
(A WHOLLY-OWNED SUBSIDIARY OF TRANSCOR WASTE SEVICES, INC.)
SELECTED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Waste Management Division (the "Division") of Kimmins Recycling Corp. (the
"Company"), a wholly-owned subsidiary of TransCor Waste Services, Inc.
("TransCor or the "Parent"), was formed on November 21, 1989. The Division
provides solid waste management services to commercial, industrial, residential,
and municipal customers in the state of Florida.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Division to concentrations of credit
risk consist primarily of trade receivables. Trade receivables are comprised
primarily of amounts due from solid waste management customers in the state of
Florida. Credit is extended based on an evaluation of the customer's financial
condition and, generally, collateral is not required.
A significant portion of the Division's solid waste management business is
conducted under contracts and municipal customers in the state of Florida. These
contracts have varying terms and are typically subject to renegotiation or
reproposal by the respective municipalities. Revenue from these contracts amount
to 30 percent of total revenue during the six months ended June 30, 1998,
respectively. One individual municipal contract contributed revenue greater than
10 percent of total net revenue in both 1995 and 1996.
Accounts receivable -- trade includes $690,000 (none net of allowance for
doubtful accounts) as of June 30, 1998, respectively, related to a municipal
solid waste management contract with St. Lucie County. Unlike other municipal
solid waste management contracts, St. Lucie County requires the Division to
bill and collect directly from individual property owners. Pursuant to St.
Lucie County ordinances, property owners that are delinquent in payment are
subject to lien rules. The Company has placed liens on individual properties
representing approximately $449,000 of the balance as of June 30, 1998.
Management intends to file additional liens when considered appropriate, and
all such liens will be maintained in accordance with applicable laws until the
outstanding balances are recovered by payment, judgment, foreclosure, or in
other action.
4
<PAGE>
WASTE MANAGEMENT DIVISION OF KIMMINS RECYCLING CORP.
(A WHOLLY-OWNED SUBSIDIARY OF TRANSCOR WASTE SEVICES, INC.)
SELECTED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which is being amortized on a
straight-line basis over twenty years, and customer contracts, which are being
amortized on a straight-line basis over five years. Amortization expense was
$247,000 and $131,000 for the six months ended June 30, 1997, and the six months
ended June 30, 1998, respectively. Accumulated amortization was approximately
$438,000 and $0 at June 30, 1997, and June 30, 1998, respectively.
OTHER ASSETS
Other assets consist primarily of pre-contract costs associated with
residential solid waste management contracts obtained during 1996 and 1997,
which are being amortized on a straight-line basis over five years, the term of
the contracts, and loan costs, which are amortized over the term of the loans.
Amortization expense was $42,000 and $37,000 for the six months ended June 30,
1997, and the six months ended June 30, 1998, respectively. Accumulated
amortization was $379,000 and $570,000 at June 30, 1997, and June 30, 1998,
respectively.
The American Institute of Certified Public Accountants issued SOP 98-5,
Reporting on the Costs of Start-up Activities, which requires start-up costs to
be expensed as incurred. Start-up costs are defined broadly in the SOP 98-5 as
those one-time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory, conducting business
with a new class of customer or beneficiary, initiating a new process in an
existing facility, or commencing some new operation, and includes the start-up
costs that the Division has historically deferred in connection with its
municipal waste management contracts. The SOP is effective for fiscal years
beginning after December 15, 1998. The SOP will require the Company, upon
adoption, to write off the previously capitalized contract start-up costs.
Therefore, in the first quarter of 1999, the Division will write off all
remaining unamortized contract start-up costs, which amounts to $770,000 at June
30, 1998, respectively.
REVENUE RECOGNITION
The Company recognizes revenue from solid waste management and recycling
operations when the services are performed. Billings prior to the rendering of
services are classified as deferred revenue.
ADVERTISING COSTS
Advertising costs are expensed as incurred. For the year ended June 30, 1997,
and the six months ended June 30, 1998, the Company expensed approximately
$359,000 and $26,000, respectively in advertising costs.
5
<PAGE>
WASTE MANAGEMENT DIVISION OF KIMMINS RECYCLING CORP.
(A WHOLLY-OWNED SUBSIDIARY OF TRANSCOR WASTE SEVICES, INC.)
SELECTED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
As a wholly-owned subsidiary, Kimmins Recycling Corp. is included in the
consolidated federal income tax return of the Parent. Pursuant to a tax sharing
agreement between the Division and its Parent, the Division accounts for and
discloses income taxes as if they were a combined separate federal taxable
entity. Under this agreement, all amounts associated with federal income taxes
are due to or from the Parent. The Division owed TransCor approximately
$3,270,000 and $5,270,000 for income taxes for the periods ended December 31,
1997, and June 30, 1998, respectively. For purposes of its separate company
income tax accounting, the Company applies the provisions of Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes. Under this
standard, deferred taxes are provided for all differences between the financial
statements and tax bases of assets and liabilities.
2. SUBSEQUENT EVENTS
On September 4, 1998, the Waste Management Division of Kimmins Recycling Corp
(the "Company") was acquired by Eastern Environmental Services, Inc. ("Eastern")
for total consideration of approximately $51,200,000 consisting of $34,200,000
in cash and approximately 555,000 shares of common stock of Eastern.
6
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997, THE SIX MONTHS ENDED DECEMBER 31, 1997
AND THE SIX MONTHS ENDED JUNE 30, 1998
The following unaudited pro forma consolidated statements of operations for
the year ended June 30, 1997, the six months ended December 31, 1997 and the six
months ended June 30, 1998 give effect to (i) the acquisition on August 15, 1997
of all the outstanding stock of Harford Disposal, Inc. ("Harford") by Eastern
Environmental Services, Inc. (the "Registrant") with immediately thereafter, all
of the outstanding stock of Pappy, Inc. being purchased by Harford for total
consideration paid by Eastern Environmental Services, Inc. of approximately $12
million. Harford's only activity was the acquisition of Pappy, Inc. and
therefore Pappy, as the predecessor company, constitutes the business acquired
by the Registrant; (ii) the acquisition on August 20, 1997 of all the
outstanding stock of Soil Remediation of Philadelphia, Inc. ("SRP") by the
Registrant for consideration consisting of 270,000 unregistered shares of the
Registrant's common stock valued at $15.625 per share. Simultaneously, with the
closing of the SRP transaction, the Registrant and its wholly owned subsidiary,
Eastern Environmental Services, Inc. of Fairless Hill, Inc. ("EESI of
Fairless"), entered into an Agreement (the "Fairless Hills Agreement") dated
August 20, 1997 with USA Waste Services, Inc. ("USA Waste"), USA Waste of
Fairless Hills, Inc. ("USA Fairless"), Clean Soils of Fairless Hills, Inc.
("Clean Soils Fairless") to evidence a transaction under which EESI of Fairless
will acquire all stock of Clean Soils Fairless and USA Fairless, two companies
under common ownership with SRP by USA Waste. The closing of the acquisition of
the stock of Clean Soils Fairless and USA Fairless are pending upon satisfaction
of certain normal conditions which the Registrant believes will be resolved;
(iii) the acquisition of Pine Grove, Inc. ("Pine Grove") pursuant to the terms
of a Stock Purchase Agreement for consideration of $46 million including the
assumption of approximately $12 million of debt; (iv) the acquisition of
Atlantic Waste Disposal, Inc. ("Atlantic Disposal") and Atlantic Waste of New
York, Inc. ("Atlantic New York") pursuant to the terms of Agreements for the
Sale and Purchase of Stock (the "Stock Purchase Agreements") dated March 25,
1998 for total consideration of approximately $91 million; (v) the acquisition
of Allegro Enterprises, Inc., Regional Recycling, Corp., Lee Bin Containers,
Inc., Madison Enterprises, Inc., Frank and Joe Savino Partnership, Allegro
Transportation and Recycling, Inc., Allegro Carting and Recycling, Inc. and
Joseph Savino and Sons, Inc. (collectively, "Regional Recycling, Corp. and
Affiliates" or "Regional") pursuant to the terms of two Agreements and Plans of
Reorganization, both dated May 18, 1998, and (vi) the acquisition of Kimmins
Recycling Corp. ("Kimmins") pursuant to the terms of a Stock Purchase Agreement
dated July 17, 1998 as amended August 31, 1998.
The following unaudited pro forma consolidated statements of operations for
the year ended June 30, 1997, the six months ended December 31, 1997 and the six
months ended June 30, 1998 give effect to the aforementioned transactions as if
the transactions had occurred on July 1, 1996. The following unaudited pro
forma financial data may not be indicative of what the results of operations or
financial position 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
or financial position of Eastern Environmental Services, Inc. that may exist in
the future. The unaudited pro forma financial data and related pro forma
adjustments have been prepared by the Registrant's management based in part on
historical financial information provided by the management of completed
acquisitions. 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. as of December 31, 1997 and June
30, 1997 and 1996 and for the six months ended December 31, 1997 and each of the
three years in the period ended June 30, 1997 as filed in the Company's report
on Form 8-K (filed September 22, 1998), the quarterly report on Form 10-Q for
the quarter ended June 30, 1998 and the historical financial statements of
Kimmins appearing elsewhere in this filing.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Pappy, Clean Pine
EESI Inc. SRP Soils Grove Atlantic Regional
------------- ---------- ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $170,148,035 $2,803,860 $ 3,649,026 $ 1,513,224 $14,559,569 $ 17,189,000 $23,313,382
Cost of revenues......... 122,701,508 910,970 6,944,870 1,755,047 9,804,650 14,356,000 16,341,307
Selling, general and
administrative expenses. 25,257,710 430,787 704,137 165,768 1,274,391 2,535,000 4,967,547
Depreciation and
amortization............ 9,454,911 107,914 975,224 299,068 4,727,837 1,979,000 1,202,793
Merger costs............. 3,336,792 -- -- -- -- -- --
------------ ---------- ------------ ----------- ----------- ------------ -----------
Operating income
(loss).................. 9,397,114 1,354,189 (4,975,205) (706,659) (1,247,309) (1,681,000) 801,735
Interest (expense)
income, net............. (4,427,503) 13,717 -- -- (151,454) (5,114,000) (621,132)
Other income (loss),
net..................... 1,044,381 552 -- -- 58,372 709,000 (23,531)
------------ ---------- ------------ ----------- ----------- ------------ -----------
Income (loss) before
income taxes............ 6,013,992 1,368,458 (4,975,205) (706,659) (1,340,391) (6,086,000) 157,072
Income tax (expense)
benefit................. (1,874,933) -- 1,990,082 282,664 507,532 2,229,000 34,930
------------ ---------- ------------ ----------- ----------- ------------ -----------
Net income (loss)........ $ 4,139,059 $1,368,458 ($2,985,123) ($ 423,995) ($ 832,859) ($3,857,000) $ 192,002
============ ========== ============ =========== =========== ============ ===========
Pro Forma Pro Forma
Kimmins Ajustments Consolidated
------------- ---------- ------------
Revenues................. 34,355,899 $ -- $267,531,995
Cost of revenues......... 24,524,203 411 (1) 197,338,966
Selling, general and
administrative expenses. 7,244,120 (86,918) (2) 41,461,865
(1,030,677) (9)
Depreciation and
amortization............ 4,029,238 745,434 (1) 18,101,095
(1,256,280) (4)
(2,307,885) (5)
(437,159) (7)
(1,419,000) (11)
Merger costs............. -- -- 3,336,792
------------- ---------- ------------
Operating income
(loss).................. (1,441,662) 5,792,074 7,293,277
Interest (expense)
income, net............. (1,444,849) 9,750 (3) (17,783,471)
(1,976,000) (6)
(2,610,000) (8)
(1,462,000) (10)
Other income (loss),
net..................... -- -- 1,788,774
------------- ---------- ------------
Income (loss) before
income taxes............ (2,886,511) (246,176) (8,701,420)
Income tax (expense)
benefit................. 1,125,742 (456,000) (12) 3,839,017
------------- ---------- ------------
Net income (loss)........ ($1,760,769) ($702,176) ($4,862,403)
============= ========== ============
Basic earnings (loss)
per share.............. ($.25)
============
Weighted average number
of shares outstanding... 19,501,786 (13)
============
Diluted earnings (loss)
per share.............. ($.25)
============
Weighted average number
of shares outstanding... 19,501,786 (13)
============
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JUNE 30,1997
(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 Pappy had been completed on July 1, 1996 net of historical
depreciation adn amortization expense of Pappy 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 eliminate intercompany administrative charges related directly to cost
sharing arrangements provided by Pappy's prior parent, which were
terminated as a result of the purchase transaction.
(3) To eliminate interest expense of $9,750 related to debt of Pappy, Inc. not
acquired by the Registrant.
(4) To adjust depreciation and amortization expense for the change in the basis
of property, equipment and intangible assets as if the purchase of SRP and
Clean Soils had been completed on July 1, 1996 net of historical
depreciation and amortization expense of SRP and Clean Soils.
(5) 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 Pine Grove had been completed on July 1, 1996 net of historical
depreciation and amortization expense of Pine Grove 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.
(6) To record additional interest expense of $1,976,000 from borrowings (at the
Company's average borrowing rate of 8.5% under the Company's revolving
credit facility) of approximately $27 million incurred to consummate the
acquisition of Pine Grove, Inc., net of historical interest expense of
$318,000, excluding interest on debt assumed.
(7) 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 Atlantic Waste Disposal, Inc. had been completed on July 1,
1996 net of historical depreciation and amortization expense of Atlantic
Waste Disposal, Inc. 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.
(8) To record additional interest expense of $2,610,000 from borrowings (at the
Company's average borrowing rate of 8.5% under the Company's revolving
credit facility) of $90.7 million incurred to consummate the acquisition of
Atlantic Waste Disposal, Inc., net of historical interest expense of $5.1
million.
(9) To eliminate intercompany administrative charges of $1,030,677 related
directly to cost sharing arrangements provided by Kimmins prior parent,
which were terminated as a result of the purchase transaction.
(10) To record additional interest expense of $1,462,000 from borrowings (at the
Company's average borrowing rate of 8.5% under the Company's revolving
credit facility) of approximately $34.2 million incurred to consummate the
acquisition of Kimmins, net of historical interest expense of $1,444,849.
(11) To adjust depreciation and amortization expense for the change in the basis
of property, equipment and intangible assets as if the purchase of Kimmins
had been completed on July 1, 1996 net of historical depreciation and
amortization expense of Kimmins.
<PAGE>
(12) The Company's pro forma effective tax provision is primarily related to the
recording of federal and state tax liabilities of statutory rates adjusted
for certain items such as the termination of Sub "S" status for certain
companies acquired in transactions accounted for as pooling of interests.
(13) For the purposes of determining pro forma earnings per share, the issuance
of shares of Common Stock as consideration for the purchase of assets and
to reflect the shares issued relating to the merger, respectively, were
considered to have been outstanding from July 1, 1996.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pappy, Pine Pro Forma
EESI Inc. Grove Atlantic Regional Kimmins Adjustments
------------- -------- ----------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $119,525,736 $197,131 $6,265,436 $12,610,000 $ 11,334,476 $ 15,815,398 $ --
Cost of revenues........... 80,786,714 92,161 3,424,611 8,461,000 9,525,480 11,509,274 --
Selling, general and
administrative expenses... 17,824,725 86,012 386,816 1,126,000 4,035,685 4,716,598 (10,775) (2)
(474,462) (8)
Depreciation and
amortization.............. 7,522,896 11,300 2,172,102 1,458,000 656,236 2,038,474 140,158 (1)
(957,713) (4)
(385,679) (6)
(733,000) (10)
Merger costs............... 2,725,000 -- -- -- -- -- --
------------ -------- ---------- ----------- ------------- -------------- ------------
Operating income........... 10,666,401 7,658 281,907 1,565,000 (2,882,925) (2,448,948) 2,421,471
Interest (expense) income,
net....................... (2,112,799) 1,109 (109,907) (2,812,000) (222,085) (766,194) 1,197 (3)
(640,760) (5)
(488,000) (7)
(474,000) (9)
Other income (expense), net 305,825 600 3,421 143,000 (1,573,817) -- --
------------ -------- ---------- ----------- ------------- ------------- -----------
Income (loss) before income
taxes..................... 8,859,427 9,367 175,421 (1,104,000) (4,678,827) (3,215,142) 819,908
Income tax (expense)
benefit................... (3,540,571) -- (143,105) 401,000 601,228 1,226,799 (329,000) (11)
------------ -------- ---------- ----------- ------------- ------------- -----------
Net income................. $ 5,318,856 $ 9,367 $ 32,316 ($ 703,000) ($ 4,077,599) ($ 1,988,343) $490,908
============ ======== ========== =========== ============= ============= ===========
Pro
Forma
Consolidated
-------------
<S> <C>
Revenues................... $165,748,177
Cost of revenues........... 113,799,240
Selling, general and
administrative expenses... 27,690,599
Depreciation and
amortization.............. 11,922,774
Merger costs............... 2,725,000
------------
Operating income........... 9,610,564
Interest (expense) income,
net....................... (7,623,439)
Other income (expense), net (1,120,971)
------------
Income (loss) before income
taxes.................... 866,154
Income tax (expense)
benefit................... (1,783,649)
------------
Net income................. ($ 917,495)
============
Basic earnings (loss) per
share..................... ($.03)
============
Weighted average number of
shares outstanding........ 26,483,356 (12)
============
Diluted earnings (loss)
per share................. ($.03)
============
Weighted average number of
shares outstanding........ 26,483,356 (12)
============ ===
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 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 Pappy had been completed on July 1, 1996 net of historical
depreciation and amortization expense of Pappy 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 eliminate intercompany administrative charges related directly to cost
sharing arrangements provided by Pappy's prior parent, which were
terminated as a result of the purchase transaction.
(3) To eliminate interest expense of $1,197 related to debt of Pappy, Inc. not
acquired by the Registrant.
(4) 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 Pine Grove had been completed on July 1, 1996 net of historical
depreciation and amortization expense of Pine Grove and to reflect the
Company's methodology of amortizing landfill site costs and closure and
post-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.
(5) To record additional interest expense of $640,760 from borrowings (at the
Company's average borrowing rate of 7.25% under the Company's revolving
credit facility) of approximately $27 million incurred to consummate the
acquisition of Pine Grove, net of historical interest expense of $174,865,
excluding interest expense on debt assumed.
(6) 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 Atlantic Waste Disposal, Inc. had been completed on July 1,
1996 net of historical depreciation and amortization expense of Atlantic
Waste Disposal, Inc. 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.
(7) To record additional interest expense of $488,000 from borrowings (at the
Company's average borrowing rate of approximately 7.25% under the Company's
revolving credit facility) of approximately $90.7 million incurred to
consummate the acquisition of Atlantic Waste Disposal, Inc., net of
historical interest expense of $2.8 million.
(8) To eliminate intercompany administrative charges of $474,462 related
directly to cost sharing arrangements provided by Kimmins prior parent,
which were terminated as a result of the purchase transaction.
(9) To record additional interest expense of $474,000 from borrowings (at the
Company's average borrowing rate of 7.25% under the Company's revolving
credit facility) of approximately $34.2 million incurred to consummate the
acquisition of Kimmins, net of historical interest expense of $766,194.
(10) To adjust depreciation and amortization expense for the change in the basis
of property, equipment and intangible assets as if the purchase of Kimmins
had been completed on July 1, 1996 net of historical depreciation and
amortization expense of Kimmins.
(11) The Company's pro forma effective tax provision is primarily related to the
recording of federal and state tax liabilities of statutory rates adjusted
for certain items such as the termination of Sub "S" status for certain
companies acquired in transactions accounted for as pooling of interests.
(12) For the purposes of determining pro forma earnings per share, the issuance
of shares of Common Stock as consideration for the purchase of assets and
to reflect the shares issued relating to the merger, respectively, were
considered to have been outstanding from July 1, 1997.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Eastern Pro
Environmental Pro Forma Forma
Services, Inc. Atlantic Regional Kimmins Adjustment Consolidated
-------------- ----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $132,753,198 $14,753,000 $11,162,981 $16,693,471 $ -- $175,362,650
Cost of revenues........... 81,958,945 9,311,000 7,931,101 11,851,802 -- 111,052,848
Selling, general and
administrative expenses... 16,841,343 1,015,000 2,786,608 2,352,596 (500,804) (3) 22,494,743
Depreciation and amortization 10,017,363 2,066,000 584,008 1,979,498 (534,000) (1) 13,438,869
(674,000) (5)
Merger costs............... 3,816,000 -- 187,980 -- -- 4,003,980
-------------- ----------- ----------- ----------- -------------- --------------
Operating income........... 20,119,547 2,361,000 (326,716) 509,575 1,708,804 24,372,210
Interest expense, net...... (1,932,546) (2,836,000) (335,680) (692,233) (225,000) (2) (6,483,459)
(462,000) (4)
Other (expense) income, net 472,271 -- 115,803 5,263,256 (5,263,256) (6) 588,074
-------------- ----------- ----------- ----------- -------------- --------------
Income (loss) before income
taxes..................... 18,659,272 (475,000) (546,593) 5,080,598 (4,241,452) 18,476,825
Income tax (expense)
benefit................... (9,909,172) 90,000 70,165 (2,001,878) 1,696,000 (7) (10,054,885)
-------------- ----------- ----------- ----------- -------------- --------------
Net income................. $ 8,750,100 ($385,000) ($476,428) $ 3,078,720 ($2,545,452) $ 8,421,940
============== =========== =========== =========== ============== ==============
Basic earnings per share... $.28
==============
Weighted average number
of shares outstanding.... 29,765,590 (8)
==============
Diluted earnings per share. $.27
==============
Weighted average number
of shares outstanding..... 31,279,092 (8)
==============
</TABLE>
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1998
(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 Atlantic had been completed on July 1, 1996 net of historical
depreciation and amortization expense of Atlantic 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 record additional interest expense of $225,000 from borrowings (at the
Company's average borrowing rate of approximately 6.75% under the Company's
revolving credit facility) of $90.7 million incurred to consummate the
acquisition of Atlantic, net of historical interest expense of $2.8
million.
(3) To eliminate intercompany administrative charges of $500,804 related
directly to cost sharing arrangements provided by Kimmins prior parent,
which were terminated as a result of the purchase transaction.
(4) To record additional interest expense of $462,000 from borrowings (at the
Company's average borrowing rate of 6.75% under the Company's revolving
credit facility) of approximately $34.2 million incurred to consummate the
acquisition of Kimmins, net of historical interest expense of $692,233.
(5) To adjust depreciation and amortization expense for the change in the basis
of property, equipment and intangible assets as if the purchase of Kimmins
had been completed on July 1, 1996 net of historical depreciation and
amortization expense of Kimmins.
(6) To eliminate the gain on the sale of certain assets and operations of
Kimmins previously acquired by the Registrant.
(7) The Company's pro forma effective tax provision is primarily related to the
recording of federal and state tax liabilities of statutory rates adjusted
for certain items such as the termination of Sub "S" status for certain
companies acquired in transactions accounted for as pooling of interests.
(8) For the purposes of determining pro forma earnings per share, the issuance
of shares of Common Stock as consideration for the purchase of assets and
to reflect the shares issued relating to the merger, respectively, were
considered to have been outstanding from January 1, 1998.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
The following unaudited pro forma consolidated balance sheet at June 30, 1998
gives effect to the (1) acquisition of Allegro Enterprises, Inc., Regional
Recycling, Corp., Lee Bin Containers, Inc., Madison Enterprises, Inc., Frank and
Joe Savino Partnership, Allegro Transportation and Recycling, Inc., Allegro
Carting and Recycling, Inc. and Joseph Savino and Sons, Inc. (collectively,
"Regional Recycling, Corp. and Affiliates" or "Regional") pursuant to the terms
of two Agreements and Plans of Reorganization, both dated May 18, 1998; (2)
acquisition of Kimmins Recycling Corp. ("Kimmins") pursuant to the terms of a
Stock Purchase Agreement dated July 17, 1998, as amended August 31, 1998; (3)
acquisition of Atlantic Disposal and Atlantic New York pursuant to the terms of
Agreements for the Sale and Purchase of Stock, both dated March 25, 1998. The
total consideration for the acquisition of Savino consisted of approximately
390,000 unregistered shares of the Registrant's common stock valued at $31.50
per share. Consideration for the acquisition of Kimmins was approximately $51.2
million consisting of 555,329 unregistered shares of the Registrant's common
stock valued at $30.62 per share and $34.2 million of cash. The Registrant
purchased all of the outstanding stock of Atlantic Disposal and Atlantic New
York for total consideration of approximately $91 million. The Savino
transaction has been accounted for using the "pooling of interests" method. The
Atlantic Disposal, Atlantic New York, and Kimmins transactions are anticipated
to be accounted for using the "purchase" method.
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 unaudited pro forma financial data and related pro forma adjustments
have been prepared by the Registrant's management based in part on historical
financial information provided by the management of completed acquisitions. 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 historical financial statements and notes of Eastern Environmental Services,
Inc. as of December 31, 1997 and June 30, 1997 and 1996 and for the six months
ended December 31, 1997 and each of the three years in the period ended
June 30, 1997 as filed in the Company's report filed on Form 8-K (filed
September 22, 1998), the quarterly report on Form 10-Q for the quarter ended
June 30, 1998 and the historical financial statements of Kimmins appearing
elsewhere in this filing.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Eastern
Environmental Pro Forma
Services, Inc. Atlantic Regional Kimmins Adjustments
--------------- ------------- ------------ ----------- --------------
ASSETS
Current assets
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........... $141,777,741 $ 0 $ 279,412 $ 251,677 ($125,003,857) (1)(2)
Accounts receivable, net of
allowance.......................... 37,396,549 3,986,000 3,695,918 2,506,482 (617,364) (1)(2)
Tax refund receivable............... 4,598,409 -- 274,935 -- --
Deferred income taxes............... 4,726,398 -- -- 740,380 (740,380) (2)
Due from affiliates................. -- -- -- 4,792,841 (4,792,841) (2)
Prepaid expenses and other current
assets............................ 9,055,825 353,000 10,578 841,554 (785,217) (1)(2)
--------------- ------------- ------------ ----------- --------------
Total current assets.............. 197,554,922 4,339,000 4,260,843 9,132,934 (131,939,659)
Net property, plant & equipment........ 194,378,419 35,461,000 6,023,214 17,862,300 55,039,597 (1)(2)
Excess cost over fair market value of
net assets acquired................... 96,442,890 -- 573,536 -- 39,789,691 (1)(2)
Intangible assets, net................. 18,685,447 24,222,000 574,289 81,333 (23,553,333) (1)(2)
Notes receivable from stockholders /
officers.............................. 442,402 -- 82,177 -- --
Deferred income taxes.................. -- 9,571,000 -- -- (9,571,000) (1)
Other assets........................... 10,909,023 318,000 -- 2,496,574 (2,471,861) (1)(2)
--------------- ------------- ------------ ----------- --------------
Total assets...................... $518,413,103 $ 73,911,000 $11,514,059 $29,573,141 ($72,706,565)
=============== ============= ============ =========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities on long-term
debt............................... $ 5,776,506 $ 0 $ 3,450,037 $ 5,220,956 ($5,220,956) (2)
Current maturities of obligations
under capital leases............... 971,697 -- -- -- --
Due to affiliated company.............. -- 61,560,000 -- 411,993 (61,971,993) (1)(2)
Accounts payable....................... 21,869,812 1,168,000 3,031,392 2,892,564 5,942,153 (1)(2)
Accrued expenses and other current
liabilities........................... 20,131,752 3,083,000 3,881,751 1,542,681 (2,395,681) (1)(2)
Notes payable to shareholders.......... 706,474 -- -- -- --
Deferred revenue....................... 4,756,087 -- 771,743 -- 420,000 (2)
Income taxes payable................... 4,574,028 -- 504,920 -- --
Current portion of accrued landfill
closure and other environmental
costs................................ 2,381,369 -- -- -- 750,000 (1)
--------------- ------------- ------------ ----------- --------------
Total current liabilities.......... 61,167,725 65,811,000 11,639,843 10,068,194 (62,476,477)
--------------- ------------- ------------ ----------- --------------
Deferred income taxes.................. 8,256,883 -- -- 2,212,865 (2,212,865) (2)
Long-term debt......................... 47,936,382 -- 1,690,722 11,348,345 (11,348,345) (2)
Capital lease obligations--
long-term............................. 836,080 -- -- -- --
Accrued landfill closure and other
environmental costs................... 17,770,846 1,065,000 -- -- (723,261) (1)
Other long-term liabilities............ 16,963,542 35,000 -- -- (1,880) (1)
Stockholders' equity
Common stock......................... 361,353 -- 301,316 -- (291,863) (1)(2)
Additional paid-in capital........... 350,139,867 22,086,000 97,315 -- (4,794,137) (1)(2)
Retained earnings (deficit).......... 15,056,684 (15,086,000) (2,215,137) 5,943,737 9,142,263 (1)(2)
Less treasury stock at cost--
39,100 common shares............... (76,259) -- -- -- --
--------------- ------------- ------------ ----------- --------------
Total stockholders' equity......... 365,481,645 7,000,000 (1,816,506) 5,943,737 4,056,263
--------------- ------------- ------------ ----------- --------------
Total liabilities and stockholders'
equity........................... $518,413,103 $ 73,911,000 $11,514,059 $29,573,141 ($72,706,565)
=============== ============= ============ =========== ==============
Pro Forma
As Adjusted
-------------
ASSETS
Current assets
<S> <C>
Cash and cash equivalents........... $ 17,304,973
Accounts receivable, net of
allowance.......................... 46,967,585
Tax refund receivable............... 4,873,344
Deferred income taxes............... 4,726,398
Due from affiliates................. --
Prepaid expenses and other current
assets............................ 9,475,740
------------
Total current assets.............. 83,348,040
Net property, plant & equipment........ 308,764,530
Excess cost over fair market value of
net assets acquired................... 136,806,117
Intangible assets, net................. 20,009,736
Notes receivable from stockholders /
officers.............................. 524,579
Deferred income taxes.................. --
Other assets........................... 11,251,736
------------
Total assets...................... $560,704,738
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities on long-term
debt............................... $ 9,226,543
Current maturities of obligations
under capital leases............... 971,697
Due to affiliated company.............. --
Accounts payable....................... 34,903,921
Accrued expenses and other current
liabilities........................... 26,243,503
Notes payable to shareholders.......... 706,474
Deferred revenue....................... 5,947,830
Income taxes payable................... 5,078,948
Current portion of accrued landfill
closure and other environmental
costs................................ 3,131,369
------------
Total current liabilities.......... 86,210,285
------------
Deferred income taxes.................. 8,256,883
Long-term debt......................... 49,627,104
Capital lease obligations--
long-term............................. 836,080
Accrued landfill closure and other
environmental costs................... 18,112,585
Other long-term liabilities............ 16,996,662
Stockholders' equity
Common stock......................... 370,806
Additional paid-in capital........... 367,529,045
Retained earnings (deficit).......... 12,841,547
Less treasury stock at cost--
39,100 common shares............... (76,259)
------------
Total stockholders' equity......... 380,665,139
------------
Total liabilities and stockholders'
equity........................... $560,704,738
============
</TABLE>
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(1) On March 25, 1998, the Company entered into stock purchase agreements,
amended June 29, 1998, for the acquisitions of all the outstanding stock of
Atlantic Waste Disposal, Inc. and Atlantic of New York, Inc. (collectively,
"Atlantic"). Consideration paid by Eastern Environmental Services, Inc.
consisted of approximately $91 million cash funded from borrowings under the
Registrant's Revolving Credit Facility and available working capital. The
acquisition was accounted for under the purchase method. Pursuant to the
terms of the stock purchase agreements, certain property, equipment,
intangible assets, other assets and working capital were acquired and
certain liabilities were assumed. With respect to the closure and post-
closure liabilities, the Company recorded an estimate of closure and post-
closure liability for the entire site utilizing engineering studies and
state requirements as compared to the percentage of airspace utilized at the
date of the acquisition. The allocation of the purchase price is preliminary
and is based on management's current estimate of fair value of assets and
liabilities. The excess of the purchase price over the assigned fair value
of net assets was allocated to the value of the landfill site; however, this
excess may ultimately be allocated to other specific tangible and intangible
assets. The final allocation of the purchase price and the resulting effect
on operations may differ from the pro forma amounts included herein. The
preliminary allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Property, equipment and landfill site....... $87,112,897
Current assets acquired..................... 3,889,604
Intangibles and other assets acquired....... 4,210,875
Other liabilities........................... (3,419,637)
Landfill closure, post-closure, and other
environmental costs........................ (1,091,739)
-----------
Cash utilized to affect the acquisition of
Atlantic................................... $90,702,000
===========
</TABLE>
(2) On September 4, 1998, all of the outstanding stock of Kimmins Recycling,
Corp. ("Kimmins") was acquired by Eastern Environmental Services, Inc. for
total consideration paid by Eastern Environmental Services, Inc. of
approximately $51.2 million consisting of 555,329 unregistered shares of
common stock of the Registrant and $34.2 million of cash. The acquisition
has been accounted for under the purchase method. Pursuant to the terms of
the Stock Purchase Agreement, certain property, equipment, intangible
assets, other assets and working capital were acquired. The preliminary
allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Property, equipment......................... $21,250,000
Current assets acquired..................... 2,514,851
Intangible assets acquired.................. 36,671,529
Current liabilities......................... (9,266,200)
------------
Common stock and cash utilized to affect the
acquisition of Kimmins..................... $51,170,180
===========
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
No. DESCRIPTION
- --- -----------
23.1 Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Eastern Environmental Services, Inc.:
(i) on Form S-8 (Registration Statement No. 33-25155),
(ii) on Form S-8 (Registration Statement No. 33-21251),
(ii) on Form S-8 (Registration Statement No. 33-37374),
(iv) on Form S-8 (Registration Statement No. 33-45250),
(v) on Form S-3 (Registration Statement No. 333-00283),
(vi) on Form S-8 (Registration Statement No. 333-28627),
(vii) on Form S-3 (Registration Statement No. 333-32361),
(viii) on Form S-3 (Registration Statement No. 333-47089),
(ix) on Form S-4 (Registration Statement No. 333-37845),
(x) on Form S-8 (Registration Statement No. 333-48265),
(xi) on Form S-3 (Registration Statement No. 333-49613), and
(xii) on Form S-3 (Registration Statement No. 333-56247),
of our report dated April 18, 1998, except for Note 13, as to which the date is
July 17, 1998 with respect to the financial statements of the Waste Management
Division of Kimmins Recycling Corp. (a wholly-owned subsidiary of TransCor Waste
Services, Inc.) included in Eastern Environmental Services, inc.'s Current
Report on Form 8-K/A dated September 4, 1998 filed with the Securities and
Exchange Commission.
Tampa, Florida
October 16, 1998
