<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) March 31, 1998
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.
-------------------------------------
On March 31, 1998, Eastern Environmental Services, Inc. (the "Registrant")
consummated the acquisition of Hudson Jersey Sanitation Co. ("Hudson Jersey");
West Milford Haulage, Inc. ("West Milford"); Frank Stamato & Company; and
Specialized Recycling Technologies, Inc. (collectively, the "Stamato Companies")
pursuant to the terms of a Stock Purchase Agreement dated February 5, 1998 by
and among Ron Stamato and Patrick G. Stamato (collectively, the "Shareholders"
or "Sellers") and the Registrant. The description of the acquisition transaction
set forth herein is qualified in its entirety by the Stock Purchase Agreement
which is incorporated as Exhibit 10.1.
Pursuant to the Stock Purchase Agreement, the Registrant purchased all of
the outstanding common stock of the Stamato companies resulting in the
Shareholders receiving 1,386,344 registered shares of the Registrant's common
stock, $.01 par value. The shares of the Registrant's common stock were valued
at $24.125 per share. No cash was paid to the Shareholders for the acquisition
of the shares of the Company. The acquisition is to be accounted for using the
"pooling of interests" method.
At the date of closing the Stock Purchase Agreement, the Registrant assumed
approximately $5,686,000 of outstanding indebtedness of the Company.
The transaction includes all of the assets and liabilities relating to the
operation of the Companies. The acquired assets were used by the Shareholders
in the solid waste collection, transfer, recycling and disposal business. The
Registrant intends to continue to use the acquired assets for these purposes.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS.
-----------------------------------
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Report of Independent Certified Public Accountants
Combined Balance Sheets at December 31, 1997 and 1996
Combined Statements of Income and Retained Earnings/(Accumulated Deficit)
for the Two Years Ended December 31, 1997
Combined Statements of Cash Flows for the Two Years Ended December
31, 1997
Notes to the Combined Financial Statements
(B) PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Statement of Income for the Year Ended June 30,
1997 (Unaudited)
Pro Forma Consolidated Statement of Income for the Six Months Ended
December 31, 1997 (Unaudited)
Pro Forma Consolidated Balance Sheet as of December 31, 1997 (Unaudited)
(C) EXHIBITS
10.1* Stock Purchase Agreement dated February 5, 1998, by and between Eastern
Environmental Services, Inc., Ron Stamato and Patrick G. Stamato.
23.1 Consent of Mills and DeFilippis LLP
- --------------------------------------------------------------------------------
* Incorporated by reference
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: April 24, 1998 By: /s/ Gregory M. Krzemien
-------------------------------------
Gregory M. Krzemien, Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ---- -----------
23.1 Consent of Mills and DeFilippis LLP
<PAGE>
HUDSON JERSEY SANITATION CO.
AND AFFILIATED COMPANIES
------------------------
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
--------------------------
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
INDEX TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
--------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants 2
Combined Balance Sheets 3-6
Combined Statements of Income and Retained Earnings/
(Accumulated Deficit) 7&8
Combined Statements of Cash Flows 9-12
Notes to the Combined Financial Statements 13-27
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders of Hudson Jersey
Sanitation Co. and Affiliated Companies
Little Falls, New Jersey
We have audited the accompanying combined balance sheets of Hudson Jersey
Sanitation Co. and affiliated companies as at December 31, 1997 and 1996, and
the related combined statements of income and retained earnings/(accumulated
deficit), and cash flows for the years then ended. These combined financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Hudson
Jersey Sanitation Co. and affiliated companies at December 31, 1997 and 1996,
and the results of its combined operations and cash flows for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
/s/ Mills and DeFilippis
Certified Public Accountants
Mountain Lakes, New Jersey
March 28, 1998
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED BALANCE SHEETS (CONT.)
AT DECEMBER 31, 1997
--------------------
<TABLE>
<CAPTION>
ASSETS
------
Specialized
Hudson West Frank Recycling
Jersey Milford Stamato Technologies, Combined
Sanitation Co. Haulage, Inc. & Co. Inc. Eliminations Totals
-------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash (Note 1) $ 724,324. $ 213,620. $ 4,134. $ 1. $ - $ 942,079.
Accounts Receivable (Note 2) 1,547,016. 789,475. - - - 2,336,491.
Miscellaneous Receivable 500. 3,000. - - - 3,500.
Employee Loan Receivable - - 10,000. - - 10,000.
Loans Receivable (Note 4) 7,303. 18,022. 39,577. - - 64,902.
Loans Receivable - Related
Companies - 18,001. 295,158. - (313,159.) -
Note Receivable - - 9,500. - - 9,500.
Investments (Note 2) - 86,039. - - - 86,039.
Prepaid Landfill Fees 63,417. 93,577. - - - 156,994.
Prepaid Insurance and Bond 157,598. 23,296. - - - 180,894.
Prepaid Taxes and License Plates 53,452. - - - - 53,452.
-------------- ----------- ------------ --------- ---------- ------------
Total Current Assets 2,553,610. 1,245,030. 358,369. 1. (313,159.) 3,843,851.
------------- ----------- ------------ --------- ---------- ------------
Fixed Assets (Note 2):
Land - - 51,558. - - 51,558.
Building and Improvements - - 234,134. - - 234,134.
Trucks and Bodies 10,904,320. 2,741,216. - - - 13,645,536.
Containers 559,689. - - - - 559,689.
Radio Equipment 178,157. - - - - 178,157.
Office Equipment 147,884. - 66,419. - - 214,303.
Leasehold Improvements 7,095. - 2,564. - - 9,659.
Machinery and Equipment 260,250. 1,046,227. 1,455,838. - - 2,762,315.
------------- ----------- ------------ --------- ---------- ------------
12,057,395. 3,787,443. 1,810,513. - - 17,655,351.
Less: Accumulated Depreciation 5,380,647. 1,782,748. 1,555,907. - - 8,719,302.
------------- ----------- ------------ --------- ---------- ------------
Net Fixed Assets 6,676,748. 2,004,695. 254,606. - - 8,936,049.
------------- ----------- ------------ --------- ---------- ------------
Other Assets:
Security Deposits 3,479. 150. 3,350. - - 6,979.
Deposit on Potential Acquisition
(Note 9) - 25,000. - - - 25,000.
Stockholder Loan Receivable - - - 1,000. - 1,000.
Project Development Costs - - - 308,809. - 308,809.
Customer Accounts Purchased (Note 6) - 133,605. - - - 133,605.
Cash Surrender Value of Officer's
Life Insurance (Note 8) - 49,273. - - - 49,273.
------------- ---------- ------------ --------- ----------- ------------
Total Other Assets 3,479. 208,028. 3,350. 309,809. - 524,666.
------------- ----------- ------------ --------- ----------- ------------
TOTAL ASSETS $9,233,837. $3,457,753. $ 616,325. $309,810. $ (313,159.) $13,304,566.
============= =========== ============ ========= =========== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
Subject to the comments in the "Report of Independent Certified Public
Accountants".
-3-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED BALANCE SHEETS (CONT.)
AT DECEMBER 31, 1997
--------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Specialized
Hudson West Frank Recycling
Jersey Milford Stamato Technologies, Combined
Sanitation Co. Haulage, Inc. & Co. Inc. Eliminations Totals
------------- ------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Accounts Payable $ 313,724. $ 197,790. $ 5,000. $ - $ - $ 516,514.
Accrued Wages Payable 50,753. 24,111. - - - 74,864.
Accrued Expenses Payable 21,684. 15,000. - - - 36,684.
Payroll Taxes Payable 1,273. 26,803. - - - 28,076.
NJ Corporation Tax Payable (Note 2) 35,030. 200. - - - 35,230.
Loans Payable - Related Companies - 3,200. - - (3,200.) -
Notes Payable (Note 3) 1,368,201. 404,877. - - - 1,773,078.
------------ ------------ ----------- ---------- ----------- ------------
Total Current Liabilities 1,790,665. 671,981. 5,000. - (3,200.) 2,464,446.
------------ ------------ ----------- ---------- ----------- ------------
Long Term Liabilities:
Loan Payable - Related Companies - - - 309,959. (309,959.) -
Notes Payable (Note 3) 3,193,621. 1,058,772. - - - 4,252,393.
Deferred Taxes 89,050. 24,555. 74,040. - - 187,645.
------------ ------------ ----------- ---------- ----------- ------------
Total Long Term Liabilities 3,282,671. 1,083,327. 74,040. 309,959. (309,959.) 4,440,038.
------------ ------------ ----------- ---------- ----------- ------------
Unearned Income 208,808. - - - - 208,808.
------------ ------------ ----------- ---------- ----------- ------------
Stockholders' Equity:
Common Stock (Note 11) 200,000. 10,000. 338,600. 1,000. - 549,600.
Retained Earnings/(Accumulated
Deficit (Page 7) 3,751,693. 1,692,445. 253,961. (1,149.) - 5,696,950.
Less: Treasury Stock (Note 11) - - (55,276.) - - (55,276.)
------------ ------------ ----------- ---------- ----------- ------------
Total Stockholders' Equity 3,951,693. 1,702,445. 537,285. (149.) - 6,191,274.
------------ ------------ ----------- ---------- ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 9,233,837. $ 3,457,753. $ 616,325. $ 309,810. $ (313,159.) $13,304,566.
============ ============ =========== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
Subject to the comments in the "Report of Independent Certified Public
Accountants".
-4-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED BALANCE SHEETS
AT DECEMBER 31, 1996
--------------------
ASSETS
------
<TABLE>
<CAPTION>
Specialized
Hudson West Frank Recycling
Jersey Milford Stamato Technologies, Combined
Sanitation Co. Haulage, Inc. & Co. Inc. Eliminations Totals
-------------- ------------- -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash (Note 1) $ 258,434. $ 2,673. $ 9,583. $ 201. $ - $ 270,891.
Accounts Receivable (Note 2) 1,293,649. 942,618. - - - 2,236,267.
Miscellaneous Receivable - 3,000. - - - 3,000.
Note Receivable - - 9,500. - - 9,500.
Loans Receivable (Note 4) 6,490. 25,573. 377,810. - (360,918.) 48,955.
Prepaid NJ Corporation Tax 31,254. 17,850. 200. - - 49,304.
Employee Loan Receivable 625. - 10,000. - - 10,625.
Investments (Note 2) - 85,583. - - - 85,583.
Deposits on Equipment 2,000. - - - - 2,000.
Prepaid Landfill Fees 15,948. 82,067. - - - 98,015.
Prepaid Legal Fees 75,000. - - - - 75,000.
Prepaid Insurance and Bond 163,719. 38,254. - - - 201,973.
Prepaid Taxes and License Plates 69,532. - - - - 69,532.
------------ ----------- -------------- ------------- ------------ -------------
Total Current Assets 1,916,651. 1,197,618. 407,093. 201. (360,918.) 3,160,645.
------------ ----------- -------------- ------------- ------------ -------------
Fixed Assets (Note 2):
Land - - 51,558. - - 51,558.
Building and Improvements - - 234,134. - - 234,134.
Trucks and Bodies 11,412,532. 2,741,216. - - - 14,153,748.
Containers 522,313. - - - - 522,313.
Radio Equipment 178,157. - - - - 178,157.
Office Equipment 125,742. - 66,419. - - 192,161.
Leasehold Improvements 7,095. - 2,564. - - 9,659.
Machinery and Equipment 260,250. 918,281. 1,455,838. 2,634,369.
------------ ----------- -------------- ------------- ------------ -------------
12,506,089. 3,659,497. 1,810,513. - - 17,976,099.
Less: Accumulated Depreciation 4,896,292. 1,416,165. 1,516,640. - - 7,829,097.
------------ ----------- -------------- ------------- ------------ -------------
Net Fixed Assets 7,609,797. 2,243,332. 293,873. - - 10,147,002.
------------ ----------- -------------- ------------- ------------ -------------
Other Assets:
Security Deposits 4,129. 1,550. 3,350. - - 9,029.
Deposit on Potential Acquisition
(Note 9) - 25,000. - - - 25,000.
Stockholder Loan Receivable - - - 1,000. - 1,000.
Project Development Costs - - - 308,743. - 308,743.
Customer Accounts Purchased (Note 6) - 171,778. - - - 171,778.
Cash Surrender Value of Officer's Life
Insurance (Note 8) - 38,888. - - - 38,888.
------------ ----------- -------------- --------- ----------- -------------
Total Other Assets 4,129. 237,216. 3,350. 309,743. - 554,438.
============ =========== -------------- --------- ----------- -------------
TOTAL ASSETS $ 9,530,577. $3,678,166. $ 704,316. $ 309,944. $(360,918.) $ 13,862,085
============ =========== ============== ========= =========== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
Subject to the comments in the "Report of Independent Certified Public
Accountants".
-5-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED BALANCE SHEETS (CONT.)
AT DECEMBER 31, 1996
--------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Specialized
Hudson West Frank Recycling
Jersey Milford Stamato Technologies, Combined
Sanitation Co. Haulage, Inc. & Co. Inc. Eliminations Totals
-------------- ------------- ---------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Accounts Payable $ 302,793. $ 320,343. $ 5,000. $ - $ - $ 628,136.
Accrued Wages Payable 28,423. 14,760. - - - 43,183.
Accrued Expenses Payable 29,846. 16,576. - - - 46,422.
Payroll Taxes Payable 41,426. 23,909. - - - 65,335.
Union Benefits Payable - 22,074. - - - 22,074.
Loans Payable - Related Companies - 51,400. - - (51,400.) -
Notes Payable (Note 3) 1,263,673. 378,540. - - - 1,642,213.
-------------- ------------- --------------- ------------- ------------ -----------
Total Current Liabilities 1,666,161. 827,602. 5,000. - (51,400.) 2,447,363.
-------------- ------------- --------------- ------------- ------------- -----------
Long Term Liabilities:
Loan Payable - Related Companies - - - 309,518. (309,518.) -
Notes Payable (Note 3) 4,444,972. 1,463,648. - - - 5,908,620.
Deferred Taxes 68,365. 16,375. 81,080. - - 165,820.
-------------- ------------- --------------- ------------- ------------ -----------
4,513,337. 1,480,023. 81,080. 309,518. (309,518.) 6,074,440.
Total Long Term Liabilities -------------- ------------- --------------- ------------- ------------ -----------
233,296. - - - - 233,296.
Unearned Income -------------- ------------- --------------- ------------- ------------ -----------
Stockholders' Equity:
Common Stock (Note 11) 200,000. 10,000. 338,600. 1,000. - 549,600.
Retained Earnings/(Accumulated
Deficit) (Page 8) 2,917,783. 1,360,541. 334,912. (574.) - 4,612,662.
Less: Treasury Stock (Note 11) - - (55,276.) - - (55,276.)
-------------- ------------- --------------- ------------- ------------ -----------
Total Stockholders' Equity 3,117,783. 1,370,541. 618,236. 426. - 5,106,986.
-------------- ------------- --------------- ------------- ------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 9,530,577. $3,678,166. $ 704,316. $ 309,944. $(360,918.) $13,862,085.
EQUITY ============== ============= =============== ============= ============ ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
Subject to the comments in the "Report of Independent Certified Public
Accountants".
-6-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED STATEMENTS OF INCOME
AND RETAINED EARNINGS/(ACCUMULATED DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
<TABLE>
<CAPTION>
Specialized
Hudson West Frank Recycling
Jersey Milford Stamato Technologies, Combined
Sanitation Co. Haulage, Inc. & Co. Inc. Eliminations Totals
--------------- ------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $15,246,384. $ 9,259,856. $ 1,800. $ - $ - $24,508,040
Cost of Revenues 8,937,032. 8,062,835. 32,689. - - 17,032,556
Selling, General and Administrative
Expenses 2,450,271. 253,345. 47,635. 375. - 2,751,626
Depreciation and Amortization Expense 1,365,438. 404,756. 39,267. - - 1,809,461
------------- ------------- -------------- ------------- ------------ ------------
Operating Income 2,493,643. 538,920. (117,791.) (375.) - 2,914,397
Other Income 286,700. (24,625.) 30,000. - - 292,075
Interest Expense, Net (393,744.) (133,359.) - - - (527,103)
Income Tax (Expense) Benefit (65,918.) (9,488.) 6,840. (200.) - (68,766.)
------------- ------------- -------------- ------------- ------------ ------------
Net Income (Loss) 2,320,681. 371,448. (80,951.) (575.) - 2,610,603.
Retained Earnings/(Accumulated Deficit)-
January 1, 1997 2,917,783. 1,360,541. 334,912. (574.) - 4,612,662.
Unrealized Gain on Investments (Note 2) - 456. - - - 456.
------------- ------------- -------------- ------------- ------------ ------------
Retained Earnings Available for Dividends 5,238,464. 1,732,445. 253,961. (1,149.) - 7,223,721.
Less: Dividends 1,486,771. 40,000. - - - 1,526,771.
------------- ------------- -------------- ------------- ------------ ------------
RETAINED EARNINGS/(ACCUMULATED DEFICIT) -
DECEMBER 31, 1997 $ 3,751,693. $ 1,692,445. $ 253,961. $ (1,149.) $ - $ 5,696,950.
============= ============= ============== ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Subject to the comments in the "Report of Independent Certified Public
Accountants".
-7-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED STATEMENTS OF INCOME
AND RETAINED EARNINGS/(ACCUMULATED DEFICIT)(CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
<TABLE>
<CAPTION>
Hudson West
Jersey Milford
Sanitation Co. Haulage, Inc.
-------------- -------------
<S> <C> <C>
Revenues $12,178,081. $ 9,427,618.
Cost of Revenues 7,897,108. 8,128,304.
Selling, General and Administrative
Expenses 2,013,129. 900,072.
Depreciation and Amortization Expense 1,085,076. 340,445.
------------ ------------
Operating Income 1,182,768. 58,797.
Other Income 211,666. (24,121.)
Interest Expense, Net (229,848.) (78,238.)
Income Tax (Expense) Benefit (34,285.) (6,760.)
------------ ------------
Net Income (Loss) 1,130,301. (50,322.)
Retained Earnings/(Accumulated Deficit)-
January 1, 1996 1,987,482. 1,410,898.
Unrealized (Loss)on Investments (Note 2) - (35.)
------------ ------------
Retained Earnings Available for Dividends 3,117,783. 1,360,541.
Less: Dividends 200,000. -
------------ ------------
RETAINED EARNINGS/(ACCUMULATED DEFICIT) -
DECEMBER 31, 1996 $ 2,917,783. $ 1,360,541.
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
<TABLE>
<CAPTION>
Specialized
Frank Recycling
Stamato Technologies, Combined
& Co. Inc. Eliminations Totals
------------ ------------- ------------ -------------
<S> <C> <C> <C>
$ 19,500. $ 176. $(130,000) $21,495,375.
45,290. 40. (130,000) 15,940,742.
104,966. 375. - 3,018,542.
35,844. - - 1,461,365.
----------- ------------- ------------ -------------
(166,600.) (239.) - 1,074,726.
- - - 187,545.
- - - (308,086.)
20,784. (150.) - (20,411.)
----------- ------------- ------------ -------------
(145,816.) (389.) - 933,774.
480,728. (185.) - 3,878,923.
- - - (35.)
----------- ------------- ------------ -------------
334,912. (574.) - 4,812,662.
- - - 200,000.
----------- ------------- ------------ -------------
$334,912. $(574.) $ - $ 4,612,662.
=========== ============= ============ ==============
</TABLE>
-8-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
<TABLE>
<CAPTION>
Specialized
Hudson West Frank Recycling
Jersey Milford Stamato Technologies, Combined
Sanitation Co. Haulage, Inc. & Co. Inc. Eliminations Totals
-------------- ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net Income (Loss) $ 2,320,681. $ 371,448. $ (80,951.) $ (575.) $ - $ 2,610,603.
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used)
by Operating Activities:
Depreciation and Amortization 1,365,438. 404,756. 39,267. - - 1,809,461.
(Gain) on Sale of Fixed Assets (344,200.) (43,470.) (30,000.) - - (417,670.)
Unearned Income (24,488.) - - - - (24,488.)
Covenant Not to Compete - 20,000. - - - 20,000.
Changes in Operating Assets and
Liabilities:
Accounts Receivable (253,867.) 153,143. - - - (100,724.)
Prepaid Landfill Fees (47,469.) (11,510.) - - - (58,979.)
Prepaid Legal Fees 75,000. - - - - 75,000.
Prepaid Insurance and Bonds 6,121. 14,958. - - - 21,079.
Prepaid Taxes and License Plates 16,080. - - - - 16,080.
Prepaid NJ Corporation Tax 31,254. 17,850. 200. - - 49,304.
Accounts Payable 10,931. (122,553.) - - - (111,622.)
Accrued Wages Payable 22,330. 9,351. - - - 31,681.
Accrued Expenses (8,162.) (1,576.) - - - (9,738.)
Payroll Taxes Payable (40,153.) 2,894. - - - (37,259.)
Union Benefits Payable - (22,074.) - - - (22,074.)
NJ Corporation Tax Payable 35,030. 200. - - - 35,230.
Deferred Taxes 20,685. 8,180. (7,040.) - - 21,825.
----------- ---------- ------------ ------------- ------------ ------------
Net Cash Provided (Used) by $3,185,211. $ 801,597. $ (78,524.) $ (575.) $ - $ 3,907,709.
Operating Activities =========== ========== ============ ============= ============ ============
</TABLE> \
(Carried Forward to Page 10)
The accompanying notes are an integral part of these combined financial
statements.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-9-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
<TABLE>
<CAPTION>
Specialized
Hudson West Frank Recycling
Jersey Milford Stamato Technologies, Combined
Sanitation Co. Haulage, Inc & Co. Inc. Eliminations Totals
------------- ------------ ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Cash Provided (Used) by $ 3,185,211. $ 801,597. $ (78,524.) $ (575.) $ - $3,907,709.
Operating Activities ------------ ---------- ----------- --------- ----------- -----------
(Carried Forward from Page 9)
Investing Activities:
Acquisitions of Fixed Assets (430,389.) (127,946.) - - - (558,335.)
Collections of Loans Receivable - - 48,200. - - 48,200.
Issuances of Loan Receivable (813.) (10,450.) (8,525.) - - (19,788.)
Issuances of Project Development
Costs - - - (66.) - (66.)
Payments of Covenant Not to Compete - (20,000.) - - - (20,000.)
Collections of Employee Loans
Receivable 625. - 3,400. - - 4,025.
Investments in Cash Surrender Value
of Officers' Life Insurance - (10,385.) - - - (10,385.)
Proceeds from Sale of Fixed Assets 344,200. 43,470. 30,000. - - 417,670.
Refunds of Security Deposits 650. 1,400. - - - 2,050.
------------ ---------- ------------ --------- ---------- ------------
Net Cash (Used) Provided by
Investing Activities (85,727.) (123,911.) 73,075. (66.) - (136,629.)
------------ ---------- ------------ --------- ---------- ------------
Financing Activities:
Principal Repayment on Loan - (48,200.) - - - (48,200.)
Proceeds from Notes Payable 133,358. - - - - 133,358.
Principal Repayments of Notes Payable (1,280,181.) (378,539.) - - - (1,658,720.)
Proceeds from Loans Payable - - - 441. - 441.
Payments of Dividends (1,486,771.) (40,000.) - - - (1,526,771.)
------------ ---------- ----------- -------- ---------- ------------
Net Cash (Used) Provided by
Financing Activities (2,633,594.) (466,739.) - 441. - (3,099,892.)
------------ ---------- ----------- -------- ---------- ------------
NET INCREASE (DECREASE) IN CASH FOR THE
YEAR 465,890. 210,947. (5,449.) (200.) - 671,188.
Cash - January 1, 1997 258,434. 2,673. 9,583. 201. - 270,891.
------------ ---------- ----------- --------- ---------- ------------
CASH - DECEMBER 31, 1997 $ 724,324. $ 213,620. $ 4,134. $ 1. $ - $ 942,079.
============ ========== =========== ========= ========== ============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-10-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
<TABLE>
<CAPTION>
Specialized
Hudson West Frank Recycling
Jersey Milford Stamato Technologies, Combined
Sanitation Co. Haulage, Inc. & Co. Inc. Eliminations Totals
-------------- ------------- ----------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net Income (Loss) $1,130,301. $ (50,322.) $(145,816.) $ (389.) $ - $933,774.
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used)
by Operating Activities:
Depreciation and Amortization 1,085,076. 340,445. 35,844. - - 1,461,365.
(Gain) on Sale of Fixed Assets (211,666.) - - - - (211,666.)
Unearned Income 233,296. - - - - 233,296.
Covenant Not to Compete - 20,000. - - - 20,000.
Changes in Operating Assets and
Liabilities:
Accounts Receivable (573,653.) (394,707.) 110,166. - - (858,194.)
Prepaid Landfill Fees (6,694.) 19,705. - - - 13,011.
Prepaid Insurance and Bonds (84,759.) 8,878. - - - (75,881.)
Prepaid Taxes and License Plates (26,035.) - - - - (26,035.)
Federal Income Tax Refund Receivable - - 39,341. - - 39,341.
Prepaid Federal Income Tax - - 22,000. - - 22,000.
Prepaid NJ Corporation Tax 10,046. (17,850.) 9,500. - - 1,696.
Accounts Payable 166,671. 155,377. (1,000.) - - 321,048.
Accrued Wages Payable (41,511.) (18,445.) - - - (59,956.)
Accrued Expenses (97,596.) (22,450.) - - - (120,046.)
Payroll Taxes Payable 21,430. 16,956. (1,355.) - - 37,031.
Union Benefits Payable - 21,924. - - - 21,924.
NJ Corporation Tax Payable - (2,113.) - - - (2,113.)
Deferred Federal Income Tax 23,935. 6,610. (20,934.) - - 9,611.
----------- ---------- ---------- -------- --------- -----------
Net Cash Provided (Used) by
Operating Activities $1,628,841. $ 84,008. $ 47,746. $ (389.) $ - $1,760,206.
=========== ========== ========== ======== ========= ===========
(Carried Forward to Page 12)
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-11-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
<TABLE>
<CAPTION>
Specialized
Hudson West Frank Recycling
Jersey Milford Stamato Technologies, Combined
Sanitation Co. Haulage, Inc. & Co. Inc. Eliminations Totals
-------------- ------------- --------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Cash Provided (Used) by
Operating Activities $ 1,628,841. $ 84,008. $ 47,746. $ (389.) $ - $ 1,760,206.
------------- ------------ ---------- -------- --------- -----------
(Carried Forward from Page 11)
Investing Activities:
Acquisitions of Fixed Assets (5,102,892.) (1,783,243.) - - - (6,886,135.)
Collections of Loans Receivable - 17,905. - (16,456.) - 1,449.
Issuances of Loans Receivable (6,490.) - (42,008.) 17,006. - (31,492.)
Payments of Covenant Not to Compete - (20,000.) - - - (20,000.)
Issuances of Employee Loans
Receivable (25.) - - - - (25.)
Collections of Employee Loans
Receivable - - 300. - - 300.
Payment on Deposit on Potential
Acquisition - 75,000. - - - 75,000
Collections of Miscellaneous
Receivable - (3,000.) - - - (3,000.)
Collections of Security Deposits - 816. - - - 816.
Investments in Cash Surrender Value
of Officers' Life Insurance - (7,879.) (7,879.)
Proceeds from Sale of Fixed Assets 267,500. - - - - 267,500.
------------- ------------ ----------- --------- ----------- -----------
Net Cash (Used) Provided by
Investing Activities (4,841,907.) (1,720,401.) (41,708.) 550. - (6,603,466.)
------------- ------------ ----------- --------- ----------- -----------
Financing Activities:
Proceeds from Notes Payable 4,593,054. 1,622,905. - - - 6,215,959.
Principal Repayments of Notes Payable (926,974.) (245,760.) - - - (1,172,734.)
Proceeds from Loans Payable - 51,400. - - - 51,400.
Principal Repayment of Obligation
Under Capitalized Lease - (4,591.) - - - (4,591.)
Payments of Dividends (200,000.) - - - - (200,000.)
------------- ------------ ----------- --------- ----------- -----------
Net Cash Provided by Financing
Activities 3,466,080. 1,423,954. - - - 4,890,034.
------------- ----------- ----------- --------- ----------- -----------
NET INCREASE (DECREASE) IN CASH FOR THE
YEAR 253,014. (212,439.) 6,038. 161. - 46,774.
Cash - January 1, 1996 5,420. 215,112. 3,545. 40. - 224,117.
------------- ----------- ----------- --------- ----------- -----------
CASH - DECEMBER 31, 1996 $ 258,434. $ 2,673. $ 9,583. $ 201. - $ 270,891.
============= ============ =========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-12-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND CONCENTRATIONS OF CREDIT RISK
Hudson Jersey Sanitation Co. and West Milford Haulage, Inc., companies are solid
waste contractors with various municipal contracts in northern New Jersey.
These contracts expire at different intervals and may or may not be renewed.
Frank Stamato & Co. maintains a solid waste license. During 1996, the company
stopped bidding on municipal contracts and is currently inactive.
Specialized Recycling Technologies, Inc., is a corporation established to pursue
a license to construct a recycling facility on land owned by Frank Stamato &
Co. Though initially rejected by the local planning Board, they were
successful in overturning the decision in Superior Court.
The company maintains cash balances in excess of $100,000 at a commercial bank.
The accounts at the bank are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL
STATEMENTS:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ for those estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
HUDSON JERSEY SANITATION CO.
The company has established an allowance of $50,000 as of December 31, 1997,
resulting in a bad debts expense of $50,000 for the year ended December 31,
1997.
At December 31, 1996, an allowance for doubtful accounts has not been
established since all accounts receivable are deemed to be collectible.
Subject to the comments in the "Report of Independent Certified Public
Accountants".
-13-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
WEST MILFORD HAULAGE, INC.
The company has established an allowance of $80,000 as of December 31, 1997,
resulting in a bad debts expense of $80,000 for the year ended December 31,
1997.
At December 31, 1996, an allowance for doubtful accounts has not been
established since all accounts receivable are deemed to be collectible.
INVESTMENTS:
WEST MILFORD HAULAGE, INC.
The company's investments in marketable equity securities are held for an
indefinite period and thus are classified as available for sale. Unrealized
holding (loss)/gain on such securities, which were (subtracted)/added from
stockholders' equity during 1997 and 1996 was $456 and $(35), respectively.
The company's securities investments that are bought and held principally
for the purpose of selling them in the near term are classified as trading
securities. Trading securities are recorded at fair value on the balance
sheet in current assets, with the change in fair value during the period
included in earnings.
Securities investments that the company has the positive intent and ability
to hold to maturity are classified as held-to-maturity securities and
recorded at amortized cost in investment and other assets. Securities
investments not classified as either held-to-maturity or trading securities
are classified as available-for-sale securities. Available-for-sale
securities are recorded at fair value as investment on the balance sheet,
with the change in fair value during the period excluded from earnings and
recorded as a separate component of equity.
FIXED ASSETS:
Fixed Assets are stated on the basis of cost. The companies provide
depreciation over the estimated useful lives of assets using straight line
method for property and equipment and the straight-line method for
buildings and improvements. The estimated useful lives are five to 39 years
for buildings and improvements, three to ten years for vehicles, machinery
and equipment, twelve years for containers and three to five years for
furniture and fixtures.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-14-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
When assets are retired or otherwise disposed of in the normal course of
business, the assets and related accumulated depreciation are removed from
the accounts and the net amount, less proceeds from disposal, is charged to
expense or credited to income.
INCOME TAXES:
Federal and state income taxes are computed each year in accord-
ance with applicable tax laws.
Federal Income Tax - In January of 1966, the stockholders of Hudson Jersey
Sanitation Co. elected to be taxed as a subchapter "S" corporation. Under
this election, the corporation merely acts as a conduit and all income and
related credits flow through the corporation and are taxed directly to the
stockholders based on their ownership of the corporate stock.
State Income Tax - On April 7, 1994, the stockholders of Hudson Jersey
Sanitation Co. elected to have the corporation taxed as a subchapter "S"
corporation. Under this election, as with the federal election, all income
and expenses are taxed to the stockholders based on their ownership of the
corporate stock. In addition, the state applies a fixed tax rate based on
the taxable income or a minimum tax for taxable losses.
At December 31, 1995, Frank Stamato & Co. incurred a taxable loss of $196,612
which was carried back to apply for refunds from taxes paid in 1992, 1993
and 1994. The refund shown on these financial statements was collected
during 1996. At December 31,1997, the company has unused net operating
losses carryforward as follows:
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-15-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
<TABLE>
<CAPTION>
FEDERAL STATE
------------------- -------------------
Year End NOL Expires NOL Expires
- -------- --- ------- --- -------
<S> <C> <C> <C> <C>
12-31-95 $ 4,486. 12-31-15 $186,257. 12-31-02
12-31-96 53,824. 12-31-16 53,674. 12-31-03
12-31-97 70,396. 12-31-17 70,196. 12-31-04
-------- --------
$128,706. $310,127.
======== ========
</TABLE>
SPECIALIZED RECYCLING TECHNOLOGIES, INC.
At December 31, 1997, Specialized Recycling Technologies, Inc., had unused net
operating losses carryforward as follows:
<TABLE>
<CAPTION>
FEDERAL STATE
--------------- ----------------
Year End NOL Expires NOL Expires
- -------- --- ------- --- -------
<S> <C> <C> <C> <C>
12-31-94 $ 45. 12-31-14 $ 20. 12-31-01
12-31-95 140. 12-31-10 40. 12-31-02
12-31-96 389. 12-31-11 239. 12-31-03
----- ------
$574. $ 299.
===== ======
</TABLE>
ADVERTISING AND PROMOTION COSTS:
Advertising and Promotion Costs are charged to operations
when incurred. For the years ended December 31, 1997 and 1996, Hudson
Jersey Sanitation Co. had $308,341 and $267,160, respectively, and West
Milford Haulage, inc., had $12,552 and $37,091, respectively, of
advertising charged to operations.
NOTE 3 - NOTES PAYABLE AND INTEREST EXPENSE
HUDSON JERSEY SANITATION CO.
At December 31, 1997, the company had an outstanding note payable to Valley
National Bank in the amount of $392,500. Of this amount, $190,000 was
considered current and $202,500 was considered long term. This note was
originally drawn on December 8, 1994, in the amount of $320,750 with
additional amounts drawn in December, 1994, of $242,648 and in 1995 of
$386,602. The total amount drawn on this note was $950,000. The note
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-16-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 3 - NOTES PAYABLE AND INTEREST EXPENSE (CONT.)
bears an interest rate of prime and is due on March 8, 2000. During the
year, interest of $42,294 was expensed. This note is secured by equipment.
At December 31, 1996, the company had an outstanding note payable to
Valley National Bank in the amount of $582,500. Of this amount, $190,000
was considered current and $392,500 was considered long term. During the
year, interest of $60,222 was expensed.
At December 31, 1997, the company had an outstanding note payable to Caterpillar
Financial Services Corporation in the amount of $68,727. The entire amount
is considered current. The note was originally drawn in December of 1994 in
the amount of $242,322 for 48 months with an interest rate of $8.75% and a
monthly payment of $6,003. During the year, interest of $9,048 was
expensed. The note is secured by equipment.
At December 31, 1996, the company had an outstanding note payable to
Caterpillar Financial Service Corporation in the amount of $131,709. Of
this amount, $62,982 was considered current and $68,727 was considered long
term. During the year, interest of $14,312 was expensed.
At December 31, 1997, the company had an available line of credit
of $200,000 with Valley National Bank. Of this amount, $106,000 of the line
had been borrowed and was considered current. The line of credit bears an
interest rate at prime. During the year, interest of $1,370 was expensed.
This note is secured by the personal guarantees of the officers and
stockholders.
At December 31, 1996, the company had an available line of credit of
$200,000 with Valley National Bank. Of this amount, $40,000 of the line had
been borrowed and was considered current. The line bears an interest rate
at prime. During the year, interest of $4,924 was expensed.
At December 31, 1997, the company had an outstanding note payable to Valley
National Bank in the amount of $72,333. Of this amount, $28,000 was
considered current and $44,333 was considered long term. The note was
originally drawn on July 28, 1995, in the amount of $140,000 for 60 months
with an interest rate of prime and a monthly principal payment of $2,333.
During the year interest of $7,481 was expensed. The note is secured by a
1995 White truck.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-17-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 3 - NOTES PAYABLE AND INTEREST EXPENSE (CONT.)
At December 31, 1996, the company had an outstanding note payable to Valley
National Bank in the amount of $100,333. Of this amount, $28,000 was
considered current and $72,333 was considered long term. During the year,
interest of $9,716 was expensed.
At December 31, 1997, the company had an outstanding note payable to The CIT
Group in the amount of $99,821. Of this amount, $47,805 was considered
current and $52,016 was considered long term. The note was originally
drawn on December 26, 1994, in the amount of $221,250 for 60 months with an
interest rate of 8.47% and a monthly payment of $4,536. During the year,
interest of $10,496 was expensed. The note is secured by machinery and
equipment.
At December 31, 1996, the company had an outstanding note payable to The
CIT Group in the amount of $143,757. Of this amount, $43,937 was considered
current and $99,820 was considered long term. During the year, interest of
$14,051 was expensed.
At December 31, 1997, the company had an outstanding note payable
to Valley National Bank in the amount of $215,333. Of this amount, $76,000
was considered current and $139,333 was considered long term. The note was
originally drawn on October 25, 1995, in the amount of $380,000 for 60
months with an interest rate of prime and a monthly principal payment of
$6,333. During the year, interest of $21,932 was expensed.
At December 31, 1996, the company had an outstanding note payable to Valley
National Bank in the amount of $291,333. Of this amount, $76,000 was
considered current and $215,333 was considered long term. During the year,
interest of $27,978 was expensed.
At December 31, 1997, the company had an outstanding note payable to The CIT
Group in the amount of $79,490. Of this amount, $36,775 was considered
current and $42,715 was considered long term. The note was originally drawn
on December 26, 1996, in the amount of $120,200 for 36 months with an
interest rate of 6.56% and monthly payments of $3,687. During the year,
interest of $7,226 expensed. The note is secured by equipment.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-18-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 3 - NOTES PAYABLE AND INTEREST EXPENSE (CONT.)
At December 31, 1996, the company had an outstanding note payable to The
CIT Group in the amount of $120,200. Of this amount, $37,475 was considered
current and $82,725 was considered long term. During the year, there was
no interest expensed.
At December 31, 1997, the company had an outstanding note payable to Valley
National Bank in the amount of $937,758. Of this amount, $207,753 was
considered current and $730,005 was considered long term. The note was
originally drawn on November 27, 1996, in the amount of $1,128,900 for 60
months with an interest rate of 7.75% and monthly payments of $22,755.
During the year, interest of $81,920 was expensed. The note is secured by
ten Mack trucks.
At December 31, 1996, the company had an outstanding note payable to Valley
National Bank in the amount of $1,128,900. Of this amount, $192,308 was
considered current and $936,592 was considered long term. During the year,
there was no interest expensed.
At December 31, 1997, the company had an outstanding note payable to Valley
National Bank in the amount of $114,385. Of this amount, $25,341 was
considered current and $89,044 was considered long term. The note was
originally drawn on December 19, 1996, in the amount of $137,700 for 60
months with an interest rate of 7.75 and monthly payments of $2,776. During
the year, interest of $9,992 was expensed. The note is secured by
equipment.
At December 31, 1996, the company had an outstanding note payable to
Valley National Bank in the amount of $137,700. Of this amount, $23,457 was
considered current and $114,243 was considered long term. During the year,
there was no interest expensed.
At December 31, 1997, the company had an outstanding note payable to The CIT
Group in the amount of $26,041. Of this amount, $12,495 was considered
current and $13,546 was considered long term. The note was originally drawn
on January 24, 1996, in the amount of $48,200 for 48 months with an
interest rate of 8.10% and monthly payments of $1,179. During the year,
interest of $2,621 was expensed. The note is secured by equipment.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-19-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 3 - NOTES PAYABLE AND INTEREST EXPENSE (CONT.)
At December 31, 1996, the company had an outstanding note payable to The
CIT Group in the amount of $37,568. Of this amount, $11,526 was considered
current and $26,042 was considered long term. During the year, interest of
$3,515 was expensed.
At December 31, 1997, the company had an outstanding note payable to The CIT
Group in the amount of $59,487. Of this amount, $28,543 was considered
current and $30,944 was considered long term. The note was originally drawn
on January 17, 1996, in the amount of $110,100 for 48 months with an
interest rate of 8.10% and monthly payments of $2,693. During the year,
interest of $5,991 was expensed. The note is secured by equipment.
At December 31, 1996, the company had an outstanding note payable to The
CIT Group in the amount of $85,815. Of this amount, $26,328 was considered
current and $59,487 was considered long term. During the year, interest
of $8,034 was expensed.
At December 31, 1997, the company had an outstanding note payable to Associates
Commercial, in the amount of $382,426. Of this amount, $81,300 was
considered current and $301,126 was considered long term. The note was
originally drawn on October 1, 1996, in the amount of $474,708 for 60
months with an interest rate of 7.85% and monthly payments of $9,654.
During the year, interest of $36,644 was expensed. The note is secured by
Mack trucks.
At December 31, 1996, the company had an outstanding note payable to
Associates Commercial, in the amount of $471,284. Of this amount, $81,753
was considered current and $389,531 was considered long term. During the
year, interest of $6,231 was expensed.
At December 31, 1997, the company had an outstanding note payable to Associates
Commercial, in the amount of $1,252,460. Of this amount, $295,632 was
considered current and $956,828 was considered long term. The note was
originally issued July 1, 1996, in the amount of $1,692,738 for 60 months
with an interest rate of 7.85% and monthly payments of $34,201. During the
year, interest of $121,500 was expensed. The note is secured by Mack
trucks.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-20-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
------------------------------------------------
NOTE 3 - NOTES PAYABLE AND INTEREST EXPENSE (CONT.)
At December 31, 1996, the company had an outstanding note payable to
Associates Commercial, in the amount of $1,575,576. Of this amount,
$297,277 was considered current and $1,278,299 was considered long term.
During the year, interest of $53,844 was expensed.
At December 31, 1997, the company had an outstanding note payable to Associates
Commercial in the amount of $696,073. Of this amount, $151,786 was
considered current and $544,287 was considered long term. The note was
originally issued on September 4, 1996, in the amount of $880,508 for 60
months with an interest rate of 7.85% and monthly payments of $17,907.
During the year, interest of $66,891 was expensed. The note is secured by
Leach Bodies.
At December 31, 1996, the company had an outstanding note payable to
Associates Commercial in the amount of $861,970. Of this amount, $152,630
was considered current and $709,340 was considered long term. During the
year, interest of $17,276 was expensed.
At December 31, 1997, the company had an outstanding note payable to Valley
National Bank in the amount of $58,988. Of this amount, $12,044 was
considered current and $46,944 was considered long term. The note was
originally drawn on March 12, 1997, in the amount of $67,358 for 60 months
with an interest rate of 7.75%. During the year, interest of $3,772 was
expensed.
During 1996, interest of $10,513 was expensed on a note with Valley National
Bank, which was repaid during the year.
The future minimum note payments are as follows:
1998 $ 1,368,201.
1999 1,319,768.
2000 1,050,583.
2001 818,578.
2002 4,692.
-------------
$ 4,561,822.
=============
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-21-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 3 - NOTES PAYABLE AND INTEREST EXPENSE (CONT.)
WEST MILFORD HAULAGE, INC.
At December 31, 1997, the company had an outstanding note payable to Frank
Fenimore, Inc., in the amount of $122,130. Of this amount, $30,235 is
considered current and $91,895 is considered long term. The note was
originally drawn on July 16, 1991, in the amount of $263,139 for 120 months
with monthly payments of $3,333 including interest at 9%. During the year,
interest of $12,358 was expensed. This note is secured personally by the
stockholders of the company.
At December 31, 1996, the company had an outstanding note payable to Frank
Fenimore, Inc., in the amount of $149,772. Of this amount, $27,642 was
considered current and $122,130 was considered long term. During the year,
interest of $14,728 was expensed.
At December 31, 1997, the company had an outstanding note payable to Valley
National Bank in the amount of $95,000. Of this amount, $60,000 is
considered current and $35,000 is considered long term. This note was
originally drawn on July 20, 1994, in the amount of $300,000, payable in 60
monthly principal payments of $5,000 plus interest. The interest rate is
based on Valley National Bank's prime rate. During the year, interest of
$10,892 was expensed. This note is secured by equipment.
At December 31, 1996, the company had an outstanding note payable to Valley
National Bank in the amount of $155,000. Of this amount, $60,000 was
considered current and $95,000 was considered long term. During the year,
interest of $15,800 was expensed.
At December 31, 1997 and 1996, the company had an available line of credit of
$100,000 with Valley National Bank which was unused. The line of credit
bears an interest rate of prime. During 1996, interest of $2,019 was
expensed. The line is secured by the stockholders of the company.
At December 31, 1997, the company had an outstanding note payable to The CIT
Group in the amount of $61,200. Of this amount $28,093 was considered
current and $33,107 was considered long term. The note was originally drawn
in January 1996, in the amount of $109,100 for 48 months with an interest
rate of 8%. During the year, interest of $6,108 was expensed. The note is
secured by machinery.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-22-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 3 - NOTES PAYABLE AND INTEREST EXPENSE (CONT.)
At December 31, 1996, the company had an outstanding note payable to The
CIT Group in the amount of $87,114. Of this amount $25,915 was considered
current and $61,199 was considered long term. During the year, interest of
$7,369 was expensed.
At December 31, 1997, the company had an outstanding note payable
to Associates Commercial Corp., in the amount of $582,675. Of this amount,
$142,715 was considered current and $439,960 was considered long term. The
note was originally drawn in July 1996, in the amount of $751,480 for 60
months with an interest rate of 7.85%. During the year, interest of $51,419
was expensed. The note is secured by equipment.
At December 31, 1996, the company had an outstanding note payable to
Associates Commercial Corp., in the amount of $714,649. Of this amount,
$131,974 was considered current and $582,675 was considered long term.
During the year, interest of $24,301 was expensed.
At December 31, 1997, the company had an outstanding note payable to Associates
Commercial Corp., in the amount of $602,644. Of this amount, $143,834 was
considered current and $458,810 was considered long term. The note was
originally drawn in September 1996, in the amount of $762,325 for 60 months
with an interest rate of 7.85%. During the year interest of $53,031 was
expensed. The note is secured by equipment.
At December 31, 1996, the company had an outstanding note payable to
Associates Commercial Corp., in the amount of $735,653. Of this amount,
$133,009 was considered current and $602,644 was considered long term.
During the year interest of $19,839 was expensed.
The future maturities for the next four years are as follows:
1998 $ 404,877.
1999 408,396.
2000 373,914.
2001 276,462.
------------
$ 1,463,649.
============
Miscellaneous interest of $3,590 and $61 was expensed during 1997 and 1996,
respectively.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-23-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 4 - LOANS RECEIVABLE
At December 31, 1997, Hudson Jersey Sanitation Co. had loans receivable from its
sister companies, Hampton Roads Environmental Group, Inc., and Progressive
Waste and Recycling Technologies, Inc., in the amount of $1,115 and $6,188,
respectively. No loan repayment schedule or interest rate has been
established. The loans will be repaid was cash flow allows.
At December 31, 1996, Hudson Jersey Sanitation Co. had loans receivable
from its sister companies, Hampton Roads Environmental Group, Inc., and
Progressive Waste and Recycling Technologies, Inc., in the amount of $755
and $5,735, respectively. No loan repayment schedule or interest rate has
been established. The loans will be repaid as cash flow allows.
At December 31, 1997, West Milford Haulage, Inc., had loans receivable from its
sister companies, Patience, Inc.; S&H Trucking, Inc., and 164 Grand St. in
the amounts of $14,022, $2,500 and $1,500, respectively. No loan repayment
schedules or interest rates have been established. The loans will be repaid
as cash flow allows.
At December 31, 1996, West Milford Haulage, Inc., had loans receivable from
its sister companies, Patience, Inc., and S&H Trucking, Inc., in the
amounts of $6,638 and $1,000, respectively. No loan repayment schedules or
interest rates have been established. The loans will be repaid as cash flow
allows.
At December 31, 1997 and 1996, Frank Stamato & Co. had outstanding loans
receivable due from the following related companies:
1997 1996
---- ----
Patience, Inc. $ 24,552. $ 24,552.
S & H Trucking Corp. 11,675. 7,425.
S & H Leasing, Inc. 3,350. 2,850.
-------- --------
$ 39,577. $ 34,827.
======== ========
All amounts are considered current. No loan repayment schedules or interest
rates have been established.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-24-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 5 - RENT EXPENSE
Hudson Jersey Sanitation Co. leases three locations for their
operations. The locations, term of leases and annual lease payments are as
follows:
Annual
Location Terms Lease Payments
-------- ----- --------------
Little Falls, NJ
Office Rent Monthly $ 18,511.
Jersey City, NJ
Yard Rent 11/1/95 - 10/31/00 90,000.
Paterson, NJ
Yard Rent Monthly 47,520.
----------
$ 156,031.
==========
The future minimum lease payments are as follows:
1998 $ 90,000.
1999 90,000.
2000 75,000.
----------
$ 255,000.
==========
West Milford Haulage, Inc., maintains a lease on a month-to-month basis in the
amount of $1,507 per month. Rent of $18,088 and $16,738 was expensed during
1997 and 1996, respectively.
NOTE 6 - CUSTOMER ACCOUNTS PURCHASED AND COVENANT NOT TO COMPETE
On July 16, 1991, the State of New Jersey Board of Public Utilities approved the
sale of the assets of Frank Fenimore, Inc., to West Milford Haulage, Inc.
The Asset Purchase Agreement consisted of the company's customer accounts,
assignment of municipal contracts, and equipment. Customer Accounts
Purchased in the amount of $381,729 is being amortized using the straight-
line method over 120 months. The amount of amortization for 1997 and 1996
was $38,173. At December 31, 1997 and 1996, Customer Accounts Purchased had
a remaining book value of $133,605 and $171,778, respectively.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-25-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 6 - CUSTOMER ACCOUNTS PURCHASED AND COVENANT NOT TO COMPETE (CONT.)
Also included in the agreement is a Covenant Not to Compete for $200,000
payable over 120 months with monthly payments of $1,667. During 1997 and
1996, $20,000 was expensed in each year leaving an unpaid balance of
$71,667 and $91,667, respectively.
The future payments for the next five years for the Covenant Not to Compete are
as follows:
1998 $ 20,000.
1999 20,000.
2000 20,000.
2001 11,667.
---------
$ 71,667.
=========
NOTE 7 - OBLIGATION UNDER CAPITALIZED LEASE
West Milford Haualge, Inc., has a capitalized lease with Jack Trebour Leasing
for a 1992 Ford truck. The lease period is for 48 months ending in August
of 1996. Interest expense on this lease has been capitalized and is
amortized over the life of the lease. The lease is secured by the 1992 Ford
truck acquired through the lease. During 1996, interest of $1,145 was
expensed.
NOTE 8 - CASH SURRENDER VALUE LIFE INSURANCE
West Milford Haulage, Inc., has two (2) life insurance policies outstanding in
which management is insured. The face value of these policies is
$2,000,000. The cash surrender value of these policies at December 31,
1997, is $49,273. The cash surrender value increased $10,385 from December
31, 1996. In addition, the cash surrender value increase of $10,385 was
netted against the premiums of $12,000 resulting in an expense of $1,615.
The cash surrender value of these policies at December 31, 1996, was
$38,888. The cash surrender value increased $7,879 from December 31, 1995.
In addition, the cash surrender value increase of $7,879 was netted against
the premiums of $12,000 resulting in an expense of $4,121.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-26-
<PAGE>
HUDSON JERSEY SANITATION CO. AND AFFILIATED COMPANIES
-----------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
NOTE 9 - DEPOSIT ON POTENTIAL ACQUISITION
At December 31, 1995, West Milford Haulage, Inc., made a deposit of $100,000 in
connection with the potential acquisition of a sanitation company located
in Northern New Jersey. During 1996, the negotiations terminated and
$75,000 was refunded. As of December 31, 1997 and 1996, $25,000 remained
due, respectively.
NOTE 10 - RECLASSIFICATION
Certain 1996 expenses have been reclassified to conform with 1997 presentation.
NOTE 11 - COMMON STOCK
At December 31, 1997 and 1996, Hudson Jersey Sanitation Co. had no par value
common stock, with 500 shares authorized, issued and outstanding.
At December 31, 1997 and 1996, West Milford Haulage, Inc., had no par value
common stock, with 100 shares authorized, issued and outstanding.
At December 31, 1997 and 1996, Frank Stamato & Co. had no par value common
stock, with 300 shares authorized, 260 shares issued and outstanding, and
40 shares held in Treasury.
At December 31, 1997 and 1996, Specialized Recycling Technologies, Inc., has no
par value common stock, with 1,000 shares authorized and 100 shares issued
and outstanding.
Subject to the comments in the "Report of Independent
Certified Public Accountants".
-27-
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
AND THE SIX MONTHS ENDED DECEMBER 31, 1997
The following unaudited pro forma consolidated statements of income for the
year ended June 30, 1997 and the six months ended December 31, 1997 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 Bluegrass
Containment, Inc. ("Bluegrass") pursuant to the terms of a Stock Purchase
Agreement dated March 2, 1998, as amended March 9, 1998; and (v) the acquisition
of Hudson Jersey Sanitation Co., West Milford Haulage, Inc., Frank Stamato &
Company, and Specialized Recycling Technologies, Inc. (collectively, "Stamato
Companies" or "Stamato") pursuant to the terms of a Stock Purchase Agreement
dated February 5, 1998.
The following unaudited pro forma consolidated statements of income for the
year ended June 30, 1997 and the six months ended December 31, 1997 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 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 June 30, 1997 and for each of the three years in the period then
ended as filed in the Company's report on Form 8-K (filed February 27, 1998)
and the historical financial statements of the Stamato Companies appearing
elsewhere in this filing.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR
THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Eastern
Environmental
Services, Inc. Pappy, Inc. SRP Clean Soils Pine Grove Bluegrass Stamato
-------------- ----------- --- ----------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $96,056,945 $2,803,860 $ 3,649,026 $1,513,224 $14,559,569 $1,469,588 $23,104,053
Cost of revenues 65,496,657 910,970 6,944,870 1,755,047 9,804,650 917,128 16,438,668
Selling, general and
administrative expenses 15,579,744 430,787 704,137 165,768 1,274,391 93,830 3,310,633
Depreciation and amortization 5,161,549 107,914 975,224 299,068 4,727,837 54,750 1,812,890
Merger Costs 3,336,792 -- -- -- -- -- --
------------- ---------- ----------- ---------- ----------- ---------- ----------
Operating income (loss) 6,482,203 1,354,189 (4,975,205) (706,659) (1,247,309) 403,880 1,541,862
Interest (expense) income, net (2,539,931) 13,717 -- -- (151,454) -- (500,454)
Other income, net 131,819 552 -- -- 58,372 22,705 456,265
------------- ---------- ----------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 4,074,091 1,368,458 (4,975,205) (706,659) (1,340,391) 426,585 1,497,673
Income tax (expense) benefit (1,606,205) -- 1,990,082 282,664 507,532 -- (49,491)
------------- ---------- ----------- ---------- ----------- ---------- ----------
Net income (loss) $ 2,467,886 $1,368,458 $(2,985,123) $ (423,995) $ (832,859) $ 426,585 $ 1,448,182
============= ========== =========== ========== =========== ========== ==========
Net income per share
Weighted average number
of shares outstanding
<CAPTION>
Pro
Pro Forma Forma
Adjustments Consolidated
----------- -------------
<S> <C> <C>
Revenues $ -- $ 143,156,265
Cost of revenues 411 (1) 102,268,401
Selling, general and 21,472,372
administrative expenses (86,918) (2)
Depreciation and amortization 745,434 (1) 10,320,501
(1,256,280) (4)
(2,307,885) (5)
Merger costs -- 3,336,792
----------- ------------
Operating income (loss) 2,905,238 5,758,199
Interest (expense) income, net 9,750 (3) (5,144,372)
(1,976,000) (6)
Other income, net -- 669,713
----------- ------------
Income (loss) before income taxes 938,988 1,283,540
Income tax (expense) benefit (2,124,328) (7) (999,746)
----------- ------------
Net income (loss) $(1,185,340) $ 283,794
=========== ============
Net income per share $ .02
=====
Weighted average number
of shares outstanding 17,298,287 (8)
============
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
INCOME 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 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 $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, net of historical interest expense of $318,000,
excluding interest on debt assumed.
(7) The Company's pro forma effective tax provision is after consideration of
state income taxes and federal and state income taxes related to the
termination of Sub "S" status of certain companies acquired 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 mergers, respectively, were
considered to have been outstanding from July 1, 1996.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR
THE SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Eastern Pro
Environmental Pine Pro Forma Forma
Services, Inc. Pappy, Inc. Grove Bluegrass Stamato Adjustments Consolidated
--------------- ----------- ----- --------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $77,959,150 $197,131 $6,265,436 $1,028,514 $12,609,654 $ -- $98,059,885
Cost of revenues 49,437,429 92,161 3,424,611 474,353 8,495,737 -- 61,924,291
Selling, general and 11,455,113 86,012 386,816 94,899 1,492,529 (10,775) (2) 13,504,594
administrative expenses
Depreciation and amortization 5,424,432 11,300 2,172,102 24,693 881,223 140,158 (1) 7,696,195
(957,713) (4)
Merger costs 2,725,000 -- -- -- -- -- 2,725,000
----------- -------- ---------- ---------- ---------- --------- -----------
Operating income 8,917,176 7,658 281,907 434,569 1,740,165 828,330 12,209,805
Interest (expense) income, net (977,794) 1,109 (109,907) __ (273,993) 1,197 (3) (2,000,148)
(640,760) (5)
Other income (expense), net 273,564 600 3,421 29,769 (39,750) -- 267,604
----------- -------- ---------- ---------- ---------- --------- -----------
Income before income taxes 8,212,946 9,367 175,421 464,338 1,426,422 188,767 10,477,261
Income tax (expense) (3,556,000) -- (143,105) -- (8,751) (68,895) (6) (3,776,751)
----------- -------- ---------- ---------- ---------- --------- -----------
Net income $ 4,656,946 $ 9,367 $ 32,316 $ 464,338 $1,417,671 $ 119,872 $ 6,700,510
=========== ======== ========== ========== ========== ========= ===========
Net income per share $.27
===========
Weighted average number of 24,880,876 (7)
===========
shares outstanding
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
INCOME 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-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.
(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) The Company's pro forma tax provision reflects an effective rate of 44%
considering federal and state income taxes and the effect of certain non-
deductible costs principally relating to acquisitions consummated.
(7) 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 mergers, respectively, were
considered to have been outstanding from July 1, 1997.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
The following unaudited pro forma consolidated balance sheet at December 31,
1997 gives effect to the (1) acquisition of Bluegrass Containment, Inc.
("Bluegrass") pursuant to the terms of a Stock Purchase Agreement dated March 2,
1998 as amended on March 9, 1998, and (2) the acquisition of Hudson Jersey
Sanitation Co., West Milford Haulage, Inc., Frank Stamato & Company, and
Specialized Recycling Technologies, Inc. (collectively, "Stamato Companies" or
"Stamato") pursuant to the terms of a Stock Purchase Agreement dated February 5,
1998. The total consideration for the acquisition of Bluegrass consisted of
unregistered shares of the Registrant's common stock valued at $24.25 per share
and included a base purchase price of $4,100,000 increased for the amount by
which the accounts receivable of Bluegrass exceeds accounts payable, closure and
post-closure collateral investments and operating cash in excess of $100,000
consideration for the acquisition of the Stamato Companies consisted of
1,386,344 registered shares of the Registrant's common stock valued at $24.125
per share. The above transactions are to be accounted for using the "pooling of
interests" 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 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 filed in the Company's report on Form 8-K
(filed February 27, 1998) and the historical financial statements of the Stamato
Companies appearing elsewhere in this filing.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Eastern
Environmental Pro Forma Pro Forma
Services, Inc. Bluegrass Stamato Adjustments As Adjusted
--------------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............. $ 5,231,625 $1,092,195 $ 942,079 $ -- $ 7,265,899
Accounts receivable, net of
allowance............................ 21,689,297 335,306 2,336,491 24,361,094
Deferred income taxes................. 1,410,000 -- -- 1,410,000
Prepaid expenses and other current
assets............................... 3,660,110 5,386 565,281 4,230,777
----------- --------- ----------- ------------ ------------
Total current assets................. 31,991,032 1,432,887 3,843,851 37,267,770
Net property, plant & equipment........ 134,995,731 231,427 8,936,049 144,163,207
Excess cost over fair market value of
net assets acquired................... 71,285,712 -- -- 71,285,712
Intangible assets, net................. 14,412,328 -- 133,605 14,545,933
Notes receivable from stockholders /
officers.............................. 432,902 -- -- 432,902
Other assets........................... 3,052,190 -- 391,061 3,443,251
------------ ---------- ----------- ------------ ------------
Total assets......................... $256,169,895 $1,664,314 13,304,566 $ -- $271,138,775
============ ========== =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities on long-term
debt................................. $ 1,235,245 $-- $1,773,078 $ -- $ 3,008,323
Current maturities of obligations
under capital leases................. 1,238,789 -- -- 1,238,789
Accounts payable....................... 7,439,366 125,036 516,514 8,080,916
Accrued expenses and other current
liabilities........................... 12,990,512 327,000 139,624 13,457,136
Deferred revenue....................... 3,452,693 -- 208,808 3,661,501
Income taxes payable................... 63,446 -- 35,230 98,676
Current portion of accrued landfill
closure and other environmental
costs................................. 2,078,000 200,000 -- 2,278,000
------------ ---------- ----------- ------------ ------------
Total current liabilities............ 28,498,051 652,036 2,673,254 31,823,341
------------ ---------- ----------- ------------ ------------
Deferred income taxes.................. 2,880,576 -- 187,645 3,068,221
Long-term debt......................... 51,197,650 -- 4,252,393 55,450,043
Capital lease obligations--
long-term............................. 1,258,993 -- -- 1,258,993
Accrued landfill closure and other
environmental costs................... 11,318,127 454,517 -- 11,772,644
Other long-term liabilities............ 13,221,023 -- -- 13,221,023
Stockholders' equity
Common stock.......................... 229,915 141,000 549,600 (674,755) (1) 245,760
Additional paid-in capital............ 140,994,498 -- -- 619,479 (1) 141,613,977
Retained earnings (deficit)........... 6,647,321 416,761 5,696,950 12,761,032
Less treasury stock at cost--
39,100 common shares................. (76,259) -- (55,276) 55,276 (1) (76,259)
------------ ---------- ----------- ------------ ------------
Total stockholders' equity........... 147,795,475 557,761 6,191,274 -- 154,544,510
------------ ---------- ----------- ------------ ------------
Total liabilities and stockholders'
equity.............................. $256,169,895 $1,664,314 $13,304,566 $-- $271,138,775
============ ========== =========== ============ ============
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
1) To record the exchange of Bluegrass Containment, Inc. stock and the stock of
the Stamato Companies for Eastern Environmental Services, Inc. common stock.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements of
Eastern Environmental Services, Inc.:
(i) on Form S-8 (Registration No. 33-25155, filed on October 24, 1988),
(ii) on Form S-8 (Registration No. 33-21251 as amended, filed on
May 4, 1990),
(iii) on Form S-8 (Registration No. 33-37374, filed on October 18, 1990),
(iv) on Form S-8 (Registration No. 33-45250, filed on January 27, 1992),
(v) on Form S-3 (Registration No. 333-00283, filed on February 14, 1996),
(vi) on Form S-8 (Registration Statement No. 333-28627 as amended, filed
on June 20, 1997),
(vii) on Form S-3 (Registration Statement
No. 333-32361 as amended, filed on October 10, 1997),
(viii) on Form S-3 (Registration No. 333-47089, filed February 27, 1998),
(ix) on Form S-4 (Registration No. 333-37845, filed February 27, 1998), and
(x) on Form S-8 (Registration No. 333-48265, filed March 19, 1998)
of our report dated March 28, 1998, with respect to the combined financial
statements of Hudson Jersey Sanitation Co., West Milford Haulage, Inc., Frank
Stamato & Co., and Specialized Recycling Technologies, Inc. included in Eastern
Environmental Services, Inc.'s Current Report on Form 8-K dated March 31, 1998
(as amended April 24, 1998 on Form 8-K/A), filed with the Securities and
Exchange Commission.
Mountain Lakes, New Jersey
April 20, 1998