<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) August 20, 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 Number)
Organization)
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 August 20, 1998, Eastern Environmental Services, Inc. (the "Registrant")
consummated 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 (collectively as the "Agreements"), both
dated May 18, 1998 by and among the shareholders of Regional (collectively, the
"Shareholders" or "Sellers") and the Registrant. The description of the
acquisition transaction set forth herein is qualified in its entirety by the
Agreement and Plans of Reorganization and related amendment which are
incorporated as Exhibits 10.1, 10.2 and 10.3.
Pursuant to the Agreements and Plans of Reorganization and related
amendment, the Registrant acquired substantially all of the assets and the stock
of the Regional Companies in exchange for the Shareholders receiving
approximately 390,000 unregistered shares of the Registrant's common stock, $.01
par value. The shares of the Registrant's common stock were valued at $31.50 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 $13.4 million of outstanding indebtedness of the Company.
The transaction includes substantially 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) COMBINED FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Independent Auditors' Report
Combined Balance Sheets as of June 30, 1998 and 1997
Combined Statements of Operations for the Twelve Months Ended
June 30, 1998 and 1997
Combined Statements of Owners' Equity (deficiency) for the Twelve Months
Ended June 30, 1998 and 1997
Combined Statements of Cash Flows for the Twelve Months Ended June 30,
1998 and 1997
Notes to Combined Financial Statements
(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)
(c) EXHIBITS
*10.1 Agreement and Plan of Reorganization dated May 18, 1998, by and between
Eastern Environmental Services, Inc. and the shareholders of Allegro
Enterprises, Inc., Regional Recycling, Corp., Lee Bin Containers, Inc.,
Madison Enterprises, Inc., and Joseph and Frank Savino Partnership.
*10.2 Agreement and Plan of Reorganization dated May 18, 1998, by and between
Eastern Environmental Services, Inc. and the shareholders of Allegro
Enterprises, Inc., Allegro Transportation and Recycling, Inc., Allegro
Carting and Recycling, Inc., Joseph Savino and Sons, Inc., Lee Bin
Containers, Inc., and Joseph and Frank Savino Partnership.
*10.3 Amendment dated August 20, 1998 to the Agreements and Plans of
Reorganization dated May 18, 1998.
23.1 Consent of MARDEN, HARRISON & KRUETER, Certified Public Accountants, P.C.
- --------------------------------------------------------------------------------
* 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>
REGIONAL RECYCLING CORP. AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED
JUNE 30, 1998 AND 1997
<PAGE>
REGIONAL RECYCLING CORP. AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
_______________________________________________
CONTENTS
___________
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent auditors' report 1
Financial statements:
Combined balance sheets 2-3
Combined statements of operations 4
Combined statements of owners' equity (deficiency) 5
Combined statements of cash flows 6
Notes to combined financial statements 7-15
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To The Board of Directors and Stockholders
Regional Recycling Corp. and affiliates
1024 Jefferson Street
Hoboken, New Jersey 07030
We have audited the accompanying combined balance sheets of Regional Recycling
Corp. and affiliates as of June 30, 1998 and 1997, and the related combined
statements of operations, owners' equity (deficiency) and cash flows for the
twelve month periods 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principals used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Regional Recycling
Corp. and affiliates as of June 30, 1998 and 1997, and the results of its
operations and cash flows for the twelve months then ended, in conformity with
generally accepted accounting principals.
/s/ MARDEN, HARRISON & KREUTER
Certified Public Accountants, P.C.
Port Chester, New York
October 5, 1998
<PAGE>
-2-
REGIONAL RECYCLING CORP. AND AFFILIATES
COMBINED BALANCE SHEETS
JUNE 30, 1998 AND 1997
______________________
<TABLE>
<CAPTION>
A S S E T S 1998 1997
- ---------------------------------------------------------- ----------- -----------
<S> <C> <C>
Current assets:
Cash $ 279,412 $ 4,447
Accounts receivable, net of allowance for
doubtful accounts of 1998: $968,000 and 1997: $957,000 3,695,918 3,714,479
Prepaid expenses and other receivables 10,578 63,284
Refundable income taxes 274,935 -
----------- -----------
Total current assets 4,260,843 3,782,210
----------- -----------
Property, plant and equipment:
Land 1,194,668 1,629,750
Buildings and improvements 3,182,023 3,290,734
Vehicles 5,972,309 6,104,833
Equipment 5,687,430 5,483,858
Furniture and fixtures 198,625 199,229
----------- -----------
16,235,055 16,708,404
Less accumulated depreciation 10,211,841 9,118,877
----------- -----------
Net property, plant and equipment 6,023,214 7,589,527
----------- -----------
Other assets:
Goodwill, net 573,536 609,810
Other intangible assets, net 574,289 535,858
Due from related parties 82,177 438,896
----------- -----------
Total other assets 1,230,002 1,584,564
----------- -----------
Total assets $11,514,059 $12,956,301
=========== ===========
</TABLE>
See notes to combined financial statements.
<PAGE>
-3-
<TABLE>
<CAPTION>
LIABILITIES AND OWNERS' EQUITY (DEFICIENCY) 1998 1997
- ---------------------------------------------- ----------- -----------
<S> <C> <C>
Current liabilities:
Notes payable $ 2,425,000 $ 175,000
Current portion of long-term debt 1,025,037 1,049,760
Accounts payable 3,031,392 2,177,000
Accrued expenses and other liabilities 3,881,751 2,157,922
Deferred revenue 771,743 791,429
Income taxes payable 504,920 578,992
Deferred income taxes - 419,899
----------- -----------
Total current liabilities 11,639,843 7,350,002
Long-term debt, net of current portion 1,690,722 2,671,995
----------- -----------
Total liabilities 13,330,565 10,021,997
----------- -----------
Contingencies
Owners' equity (deficiency) (1,816,506) 2,934,304
---------- ---------
Total liabilities and
owners' equity (deficiency) $11,514,059 $12,956,301
=========== ===========
</TABLE>
See notes to combined financial statements.
<PAGE>
-4-
REGIONAL RECYCLING CORP. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues $22,497,457 $23,313,382
Cost of revenues 17,456,581 16,341,307
----------- -----------
Gross profit 5,040,876 6,972,075
Selling, general and administrative expenses 6,822,293 4,967,547
Depreciation and amortization 1,240,244 1,202,793
Merger costs 187,980 -
----------- -----------
(Loss) income from operations (3,209,641) 801,735
----------- -----------
Other income (expense):
Fines (1,795,000) -
Interest expense (557,765) (621,132)
Management fee income 9,854 57,327
Gain (loss) on disposal of fixed assets 327,132 (80,858)
----------- -----------
(2,015,779) (644,663)
----------- -----------
(Loss) income before income taxes (benefit) (5,225,420) 157,072
----------- -----------
Income taxes (benefit):
Current (251,494) 515,839
Deferred (419,899) (550,769)
----------- -----------
(671,393) (34,930)
----------- -----------
Net (loss) income $(4,554,027) $ 192,002
=========== ===========
</TABLE>
See notes to combined financial statements.
<PAGE>
-5-
REGIONAL RECYCLING CORP. AND AFFILIATES
COMBINED STATEMENTS OF OWNERS' EQUITY (DEFICIENCY)
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Common stock $ 301,316 $ 301,316
----------- -----------
Additional paid-in capital 97,315 97,315
----------- -----------
Retained earnings:
Retained earnings, beginning of period 3,763,848 3,721,150
Net (loss) income for corporate entities (4,551,740) 42,698
----------- -----------
Retained earnings (deficit), end of period (787,892) 3,763,848
----------- -----------
Partners' deficiency:
Partners' deficiency, beginning of period (1,228,175) (1,344,206)
Net (loss) income for partnership (2,287) 149,304
Distributions (196,783) (33,273)
----------- -----------
Partners' deficiency, end of period (1,427,245) (1,228,175)
----------- -----------
Total owners' equity (deficiency), end of period $(1,816,506) $ 2,934,304
=========== ===========
</TABLE>
See notes to combined financial statements.
<PAGE>
-6-
REGIONAL RECYCLING CORP. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Reconciliation of net (loss) income to net cash
(used in) provided by operating activities:
Net (loss) income $(4,554,027) $ 192,002
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,240,244 1,202,793
(Gain) loss on disposal of fixed assets (327,132) 80,858
Provision for losses on accounts receivable 10,419 -
Changes in assets (increase) decrease:
Accounts receivable 8,142 171,120
Prepaid expenses and other receivables 52,706 189,355
Refundable income taxes (274,935) -
Changes in liabilities increase (decrease):
Accounts payable 854,392 87,407
Accrued expenses and other liabilities 1,723,829 485,383
Deferred revenue (19,686) 59,909
Income taxes payable (74,072) 294,569
Deferred income taxes (419,899) (550,769)
----------- -----------
Net cash (used in) provided by
operating activities (1,780,019) 2,212,627
----------- -----------
Investing activities:
Capital expenditures (227,937) (1,485,838)
Proceeds from disposal of fixed assets 997,772 103,059
----------- -----------
Net cash provided by (used in) investing activities 769,835 (1,382,779)
----------- -----------
Financing activities:
Proceeds from notes payable 2,250,000 35,000
Proceeds from issuance of long-term debt 233,981 3,911,821
Principal payments on long-term debt (1,358,768) (4,318,451)
Net proceeds from (payments to) related parties 356,719 (495,678)
Distributions (196,783) (33,273)
----------- -----------
Net cash provided by (used in) financing activities 1,285,149 (900,581)
----------- -----------
Net increase (decrease) in cash 274,965 (70,733)
Cash, beginning of period 4,447 75,180
----------- -----------
Cash, end of period $ 279,412 $ 4,447
=========== ===========
</TABLE>
See notes to combined financial statements.
<PAGE>
-7-
REGIONAL RECYCLING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
(1) PRINCIPALS OF COMBINATION AND NATURE OF OPERATIONS:
The combined financial statements include the accounts of the following
entities (collectively the "Company") whose common stock or assets were
purchased by Eastern Environmental Services, Inc. ("Eastern") (see Note
15):
Regional Recycling Corp.
Allegro Transport & Recycling, Inc.
Joseph Savino & Sons, Inc.
Allegro Carting and Recycling, Inc.
Allegro Enterprises, Inc.
Madison Enterprises, Inc.
Lee Bin Containers, Inc.
Frank and Joseph Savino Partnership
The above entities are affiliated by common ownership. All significant
intercompany accounts and transactions have been eliminated in combination.
The Company's principal business activity is solid waste management
services and recycling. The Company's customers include municipal,
commercial, industrial and residential customers located in New York and
New Jersey.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) REVENUE RECOGNITION:
The Company recognizes revenue using the accrual method upon collection
of waste materials. The Company defers all revenue on billings for
services not yet rendered. These advance billings are included as a
liability in the balance sheets under the caption "Deferred Revenue."
(B) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is
computed over the estimated useful lives of the assets using the
straight-line method. Leasehold improvements are amortized over the
lesser of the term of the related lease or the estimated useful life of
the asset. Expenditures for repairs and maintenance are charged to
operations in the period incurred. The estimated useful lives are 15
to 31 years for buildings and improvements, and principally 7 years for
vehicles, equipment, furniture and fixtures. Depreciation expense was
$1,123,610 and $1,042,753 for the twelve months ended June 30, 1998 and
June 30, 1997, respectively.
(C) GOODWILL AND OTHER INTANGIBLE ASSETS:
Intangible assets consist principally of goodwill, (the excess of cost
over the fair value of net assets acquired in business combinations
accounted for as purchases), customer lists and covenants not to
compete. These assets are being amortized on a straight-line basis
over periods of 12 to 40 years.
<PAGE>
-8-
REGIONAL RECYCLING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D:
(D) Income taxes:
Deferred taxes are recognized for temporary differences between the
bases of assets and liabilities for financial statement and income tax
purposes. The temporary differences relate primarily to the
application of the change in accounting method as further described in
Note 8 and allowance for doubtful accounts. The deferred taxes
represent the future tax return consequences of those differences which
will either be taxable or deductible when the assets and liabilities
are recovered or settled.
(E) Use of estimates:
The preparation of combined financial statements in conformity with
generally accepted accounting principals 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 combined financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(3) INTANGIBLE ASSETS:
Intangible assets consisting primarily of amounts allocated upon the purchase
of assets of existing operations are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Goodwill 40 years $1,254,898 $1,254,898
Less accumulated amortization 681,362 645,088
---------- ----------
$ 573,536 $ 609,810
========== ==========
Merchant, distributor and customer lists 12 years $ 643,725 $ 524,934
Covenants not to compete 12 years 357,500 357,500
---------- ----------
1,001,225 882,434
Less accumulated amortization 426,936 346,576
---------- ----------
$ 574,289 $ 535,858
========== ==========
</TABLE>
Amortization expense for the twelve months ended June 30, 1998 and 1997 was
$116,634 and $160,040, respectively.
(4) NOTES PAYABLE:
The Company has a revolving line of credit providing for borrowings up to
$175,000, with interest at 10% per annum. At both June 30, 1998 and 1997,
the Company had outstanding borrowings of $175,000 against the line of
credit, which is collateralized by real property. The line of credit expired
on August 1, 1998. The Company has defaulted on this note as the borrowings
were not repaid when due. However, in connection with the purchase of the
Company by Eastern, this note was paid September 30, 1998.
<PAGE>
-9-
REGIONAL RECYCLING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
(4) NOTES PAYABLE-CONT'D:
At June 30, 1998 the Company had a note payable, to a bank, in the amount
of $250,000, collateralized by real property. Interest is payable monthly at
10.5%. The principal balance was due August 1, 1998. The Company has
defaulted on this note as the balance was not repaid when due. However, in
connection with the purchase of the Company by Eastern, this note was paid
September 30, 1998.
In conjunction with the sale of the Company to Eastern (see Note 15), the
Company has a note payable to Eastern for $2,000,000, with interest at 10%
per annum. The principal and accrued interest are due December 31, 1998.
The loan is collateralized by the assets of the Company (excluding the
medical waste assets).
The weighted average interest rate at June 30, 1998 and 1997 was 10.21% and
10%, respectively.
(5) ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
June 30,
---------------------------
1998 1997
--------------- ----------
<S> <C> <C>
Accrued compensation $ 338,381 $ 159,669
Accrued vacation 385,694 295,233
Sales tax payable 300,874 375,770
Route purchase liabilities 773,027 773,027
Fines payable 1,645,000 -
Other 438,775 554,223
---------- ----------
$3,881,751 $2,157,922
========== ==========
(6) LONG-TERM DEBT:
1998 1997
---------- ----------
Notes payable, to a bank, due in monthly installments
of $5,953 at June 30 1998 and $12,453 at June 30, 1997,
including interest at 10.5%, through October 1999,
collateralized by real property $ 86,334 $ 317,539
Notes payable, to finance companies, due in aggregate
monthly installments of $61,017, including interest
ranging from 2.9% to 13.6%, through March 2002,
collateralized by vehicles and equipment 2,189,233 2,659,735
</TABLE>
<PAGE>
-10-
REGIONAL RECYCLING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
<TABLE>
<CAPTION>
(6) LONG-TERM DEBT CONT'D:
<S> <C> <C>
Notes payable, to individuals, due in aggregate
monthly installments of $22,654 at June 30, 1998
and $30,761 at June 30, 1997, including interest
ranging from 6% to 8%, through February 2000,
collateralized by certain accounts receivable and
guaranteed by the Company's stockholders. 440,192 461,149
Mortgage payable to an individual, due
in monthly installments of $5,556 plus interest
at 8%, through September 2001, collateralized
by real property. The principal balance was
repaid in March 1998. - 283,332
---------- ----------
2,715,759 3,721,755
Less current portion 1,025,037 1,049,760
---------- ----------
$1,690,722 $2,671,995
========== ==========
The aggregate maturities of long-term debt at June 30, 1998 are as follows:
TWELVE MONTHS ENDING
JUNE 30, AMOUNT
--------------------- ----------
1999 $1,025,037
2000 677,178
2001 556,827
2002 456,717
----------
$2,715,759
==========
</TABLE>
(7) RELATED PARTY TRANSACTIONS:
(A) DUE FROM RELATED PARTIES:
At June 30, 1998 and 1997, due from related parties includes advances
due from officers of $49,956 and $411,781, respectively, and amounts
advanced to uncombined affiliates under common management control of
$32,221 and $27,115, respectively. All of the above amounts are
noninterest bearing and have no specific repayment terms.
(B) RENTALS:
The Company rents property to a related party on a month-to-month
basis. Total rental payments of approximately $24,000 were received
from the related party for each of the twelve month periods ended June
30, 1998 and 1997. No formal lease agreement exists.
<PAGE>
-11-
REGIONAL RECYCLING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
(8) INCOME TAXES:
Regional Recycling Corp. and two of its affiliates have requested permission
from the Internal Revenue Service to change their method of reporting
earnings for income tax purposes from a hybrid method to the accrual method.
The effect of this change is to recognize taxable income of $8,039,922, which
was previously deferred, over a 6 year period in equal installments of
$1,339,987. Deferred taxes have been provided for this temporary difference.
The Company's total deferred tax liabilities, deferred tax assets and
deferred tax asset valuation allowance at June 30, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 387,103 $ 382,936
Net operating loss carryforwards 1,157,241 -
---------- ---------
Total deferred tax assets 1,544,344 382,936
Less valuation allowance 1,544,344 382,936
---------- ---------
- -
Deferred tax liabilities:
Change in accounting method - (419,899)
---------- ---------
Net deferred tax liability $ - $(419,899)
========== =========
</TABLE>
The Company has loss carryforwards of approximately $2,890,000 for Federal
income tax purposes, that may be offset against future taxable income.
Substantially all of the carryforwards expire in the year 2013. However, due
to a change in control, the Company's ability to use such net operating loss
carryforwards may be limited.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current:
Federal $(251,494) $ 382,556
State - 133,283
--------- ---------
(251,494) 515,839
--------- ---------
Deferred:
Federal (343,494) (481,574)
State (76,405) (69,195)
--------- ---------
(419,899) (550,769)
--------- ---------
Provision for income taxes $(671,393) $ (34,930)
========= =========
</TABLE>
<PAGE>
-12-
REGIONAL RECYCLING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
(8) Income taxes cont'd:
The reconciliation of income tax computed at the U.S. Federal statutory tax
rates to the provision for income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- ---------
<S> <C> <C>
Tax (benefit) at U.S. Federal statutory rates $(1,776,643) $ 53,404
State income taxes net of Federal tax benefit (313,525) 9,424
Nondeductible costs 218,000 -
Valuation allowance for deferred tax assets 1,161,408 (29,998)
Partnership income - (59,722)
Other 39,367 (8,038)
----------- --------
Provision for income taxes $ (671,393) $(34,930)
=========== ========
</TABLE>
(9) COMMON STOCK:
The combined financial statements reflect the following common stock at June
30, 1998 and 1997:
<TABLE>
<CAPTION>
Regional Recycling Corp. 1998 1997
- ------------------------ ----------- --------
<S> <C> <C>
Common stock, no par value; 2,500 shares
authorized; 1,000 shares issued and outstanding $ 202,816 $202,816
Allegro Transport & Recycling, Inc.
- -----------------------------------
Common stock, no par value; 200 shares
authorized, issued and outstanding 2,000 2,000
JOSEPH SAVINO & SONS, INC.
- --------------------------
Common stock, no par value; 100 shares
authorized, issued and outstanding 2,000 2,000
ALLEGRO CARTING AND RECYCLING, INC.
- -----------------------------------
Common stock, no par value; 2,500 shares
authorized; 100 shares issued and outstanding 85,000 85,000
Allegro Enterprises, Inc.
- -------------------------
Common stock, no par value; 1,000 shares
authorized; 100 shares issued and outstanding 2,500 2,500
</TABLE>
<PAGE>
-13-
REGIONAL RECYCLING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
(9) COMMON STOCK CONT'D:
1998 1997
-------- --------
Madison Enterprises, Inc.
- ----------------------------
Common stock, no par value; 100 shares
authorized; 80 shares issued and outstanding 5,000 5,000
LEE BIN CONTAINERS, INC.
- ---------------------------
Common stock, no par value; 2,500 shares
authorized; 200 shares issued and outstanding 2,000 2,000
-------- --------
Total combined common stock $301,316 $301,316
======== ========
</TABLE>
(10) Statement of cash flows
Non-cash investing and financing activities of the Company excluded from the
statement of cash flows include route purchase (customer lists) additions
financed by debt of $118,791 and $457,509 for the twelve months ended June
30, 1998 and 1997, respectively.
For the twelve months ended June 30, 1998 and 1997, the Company paid $557,765
and $621,132, respectively, for interest.
For the twelve months ended June 30, 1998 and 1997, the Company paid $69,259
and $221,270, respectively, for income taxes.
(11) MULTI-EMPLOYER PENSION PLANS
The Company made contributions to multi-employer pension plans that cover its
various union employees. These plans provide benefits based on union
members' earnings and periods of coverage under the respective plans. It is
not cost-effective to accumulate information regarding the pension expenses
under these plans. In the event of plan terminations or company withdrawal
from the plans, the Company may be liable for a portion of the plans'
unfunded vested benefits, the amounts of which, if any, have not been
determined.
(12) CONCENTRATION RISKS:
(A) Credit risk:
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of cash and trade
accounts receivable.
The Company maintains its cash in accounts which may at times exceed
Federally insured limits. The Company limits its credit risk by
selecting financial institutions considered to be highly creditworthy.
Trade accounts receivable are due from customers located primarily in
New Jersey and the New York metropolitan area. The Company performs
ongoing credit evaluations of its customers and generally does not
require collateral. The Company maintains an allowance for doubtful
accounts at a level that management believes is sufficient to cover
potential credit losses.
<PAGE>
-14-
REGIONAL RECYCLING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
(12) CONCENTRATION RISKS - CONT'D:
(B) DIRECT LABOR:
The Company's direct labor is supplied primarily by two
unions which have collective bargaining agreements expiring in April
1999. Although the Company's experience has been favorable with
respect to resolving conflicting demands with these unions, it is
always possible that a protracted conflict may occur which could impact
the renewal of the collective bargaining agreements.
(13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount approximates fair value of cash, accounts receivable
and accounts payable. The fair values of the notes payable and long-term
debt are estimated based on current rates at which the Company could borrow
funds with similar remaining maturities. At June 30, 1998 and 1997, the
estimated fair values of the Company's notes payable and long-term debt
approximated the carrying amounts.
(14) CONTINGENCIES:
(A) INVESTIGATIONS:
The Company was investigated by the New York City Trade Waste
Commission (TWC) and the New York County District Attorney's Office
(DA). This has resulted in the Company having been charged fines by the
TWC of $45,000, fines charged by the DA of $500,000 and the placing of
$1,250,000 in a customer restitution fund for the Company's customers
by the TWC. The amounts of these fines and restitution have been
recorded in the accompanying combined financial statements. As of June
30, 1998, $150,000 had been paid.
(B) Litigation:
Prior to the purchase of the Company by Eastern, the Company
was negotiating a contract to sell its assets to IESI. The contract
did not close, and IESI has sued the Company for breach of contract.
The Company has submitted a counterclaim for breach of contract and
damages. The outcome of this lawsuit cannot be reasonably estimated at
this time.
The Company is involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material effect
on the Company's combined financial position, results of operations, or
liquidity.
(C) Sales tax:
The Company has received notices from the New York State Department
of Taxation and Finance regarding New York State Sales Tax audits
covering the period September 1, 1992 through May 31, 1998. The audits
have not commenced as of June 30, 1998 and a determination regarding
the outcome of these audits and their effect on the combined financial
statements cannot be made at this time.
<PAGE>
-15-
REGIONAL RECYCLING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONCLUDED)
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
________________________________________________
(15) SUBSEQUENT EVENTS:
On July 15, 1998, Regional Recycling Corp. and Allegro Carting and
Recycling, Inc. sold the medical waste customer lists and related receivables
to Stericycle, Inc for common stock which was included in the subsequent sale
to Eastern. Sales to these customers amounted to approximately $1,200,000
and $1,500,000 for the twelve months ended June 30, 1998 and 1997,
respectively. As a condition of the sale, the sellers and selling
stockholders entered into a five year "not-to-compete" agreement.
On August 20, 1998, the assets of the following entities were sold to
Eastern in exchange for shares of common stock of Eastern:
Allegro Carting and Recycling, Inc.
Lee Bin Containers, Inc.
Joseph Savino & Sons, Inc.
Allegro Transport & Recycling, Inc.
Allegro Enterprises, Inc.
The liabilities of these entities are being satisfied out of the proceeds of
the sale.
Simultaneously, Eastern purchased the common stock of Regional Recycling
Corp. and the interest in certain real and personal property held by Madison
Enterprises, Inc. and Frank & Joseph Savino Partnership in exchange for
shares of common stock of Eastern. As a condition of sale, the sellers and
selling owners entered into a "not-to-compete" agreement.
<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 and (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.
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 Regional
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
Adjustments Consolidated
------------ ------------
Revenues.................. $ -- $233,176,096
Cost of revenues.......... 411 (1) 172,814,763
Selling, general and
administrative expenses. (86,918)(2) 35,248,422
Depreciation and
amortization............ 745,434 (1) 15,490,857
(1,256,280)(4)
(2,307,885)(5)
(437,159)(7)
Merger costs.............. -- 3,336,792
------------ ------------
Operating income
(loss).................. 3,342,397 6,285,262
Interest (expense)
income, net............. 9,750 (3) (14,876,622)
(1,976,000)(6)
(2,610,000)(8)
Other income (loss), net.. -- 1,788,774
------------ ------------
Income (loss) before
income taxes............. (1,233,853) (6,802,586)
Income tax (expense)
benefit.................. (61,000)(9) 3,108,275
------------ ------------
Net income (loss)......... (1,294,853) ($3,694,311)
============ ============
Basic earnings (loss) per
share.................... ($.19)
============
Weighted average number
of shares outstanding.... 18,946,457 (10)
============
Diluted earnings (loss) per
share.................... ($.19)
============
Weighted average number
of shares outstanding.... 18,946,457 (10)
============
</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 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, 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) 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.
(10) 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> Pro
Pappy, Pine Pro Forma Forma
EESI Inc. Grove Atlantic Regional Adjustments Consolidated
------------- -------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $119,525,736 $197,131 $6,265,436 $12,610,000 $11,334,476 $ -- $149,932,779
Cost of revenues............ 80,786,714 92,161 3,424,611 8,461,000 9,525,480 -- 102,289,966
Selling, general and........
administrative expenses..... 17,824,725 86,012 386,816 1,126,000 4,035,685 (10,775) (2) 23,448,463
Depreciation and
amortization............... 7,522,896 11,300 2,172,102 1,458,000 656,236 140,158 (1) 10,617,300
(957,713) (4)
(385,679) (6)
2,725,000 -- -- -- -- -- 2,725,000
------------ -------- ---------- ----------- ----------- ---------- ------------
Operating income............ 10,666,401 7,658 281,907 1,565,000 (2,882,925) 1,214,009 10,852,050
Interest (expense) income,
net........................ (2,112,799) 1,109 (109,907) (2,812,000) (222,085) 1,197 (3) (6,383,245)
(640,760) (5)
(488,000) (7)
Other income (expense), net. 305,825 600 3,421 143,000 (1,573,817) -- (1,120,971)
------------ -------- ---------- ----------- ----------- ---------- ------------
Income (loss) before
income taxes............... 8,859,427 9,367 175,421 (1,104,000) (4,678,827) 86,446 3,347,834
Income tax (expense)
benefit.................... (3,540,571) -- (143,105) 401,000 601,228 (36,000) (8) (2,717,448)
------------ -------- ---------- ----------- ----------- ---------- ------------
Net income.................. $ 5,318,856 $ 9,367 $ 32,316 $ (703,000) $(4,077,599) $ 50,446 $ 630,386
============ ======== ========== =========== =========== ========== ============
Basic earnings per share.... $.02
============
Weighted average number of
shares outstanding.......... 25,928,027 (9)
============
Diluted earnings per share.. $.02
============
Weighted average number of
shares outstanding.......... 27,474,964 (9)
============
</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-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) 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) 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.
(9) 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 Atlantic Regional Pro Forma Pro
Environmental Adjustments Forma
Services, Inc. Consolidated
---------------- ----------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues $132,753,198 $14,753,000 $11,162,981 $ -- $158,669,179
Cost of revenues 81,958,945 9,311,000 7,931,101 -- 99,201,046
Selling, general and
administrative expenses 16,841,343 1,015,000 2,786,608 -- 20,642,951
Depreciation and amortization 10,017,363 2,066,000 584,008 (534,000) (1) 12,133,371
Merger costs 3,816,000 -- 187,980 -- 4,003,980
---------------- ----------- ----------- ---------- ---------------
Operating income (loss) 20,119,547 2,361,000 (326,716) 534,000 22,687,831
Interest (expense) income, net (1,932,546) (2,836,000) (335,680) (225,000) (2) (5,329,226)
Other (expense) income, net 472,271 -- 115,803 -- 588,074
---------------- ----------- ----------- ---------- ---------------
Income (loss) before income
taxes 18,659,272 (475,000) (546,593) 309,000 17,946,679
Income tax (expense)
benefit (9,909,172) 90,000 70,165 (131,000) (3) (9,880,007)
---------------- ----------- ----------- ---------- ---------------
Net income (loss) $ 8,750,100 $ (385,000) $ (476,428) $ 178,000 $ 8,066,672
================ =========== =========== ========== ===============
Basic earnings per share $.28
===============
Weighted average number
of shares outstanding 29,210,261 (4)
===============
Diluted earnings per share $.26
===============
Weighted average number
of shares outstanding 30,723,763 (4)
===============
</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) 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.
(4) 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) the
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.
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.
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 and Atlantic New York transactions are
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 Regional appearing elsewhere in
this filing.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Eastern
Environmental Pro Forma Pro Forma
Services, Inc. Atlantic Regional Adjustments As Adjusted
--------------- ------------- ------------ ------------- -------------
ASSETS
Current assets
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $141,777,741 $ 0 $ 279,412 $(90,627,000) (1) $ 51,430,153
Accounts receivable, net of
allowance............................ 37,396,549 3,986,000 3,695,918 (488,633) (1) 44,589,834
Tax refund receivable................. 4,598,409 -- 274,935 -- 4,873,344
Deferred income taxes................. 4,726,398 -- -- -- 4,726,398
Prepaid expenses and other current
assets............................... 9,055,825 353,000 10,578 (35,763) (1) 9,383,640
-------------- ------------- ------------ ------------ ------------
Total current assets................. 197,554,922 4,339,000 4,260,843 (91,151,396) 115,003,369
Net property, plant & equipment........ 194,378,419 35,461,000 6,023,214 51,651,897 (1) 287,514,530
Excess cost over fair market value of
net assets acquired................... 96,442,890 -- 573,536 3,868,162 (1) 100,884,588
Intangible assets, net................. 18,685,447 24,222,000 574,289 (24,222,000) (1) 19,259,736
Notes receivable from stockholders /
officers.............................. 442,402 -- 82,177 -- 524,579
Deferred income taxes.................. -- 9,571,000 -- (9,571,000) (1) --
Other assets........................... 10,909,023 318,000 -- 24,713 (1) 11,251,736
-------------- ------------- ------------ ------------ ------------
Total assets......................... $518,413,103 $ 73,911,000 $11,514,059 $(69,399,624) $534,438,538
============== ============= ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities on long-term
debt................................. $ 5,776,506 $ 0 $ 3,450,037 $ -- $ 9,226,543
Current maturities of obligations
under capital leases................. 971,697 -- -- -- 971,697
Due to affiliated company.............. -- 61,560,000 -- (61,560,000) (1) --
Accounts payable....................... 21,869,812 1,168,000 3,031,392 957,717 (1) 27,026,921
Accrued expenses and other current
liabilities........................... 20,131,752 3,083,000 3,881,751 (1,822,200) (1) 25,274,303
Notes payable to shareholders.......... 706,474 -- -- -- 706,474
Deferred revenue....................... 4,756,087 -- 771,743 -- 5,527,830
Income taxes payable................... 4,574,028 -- 504,920 -- 5,078,948
Current portion of accrued landfill
closure and other environmental
costs................................. 2,381,369 -- -- 750,000 (1) 3,131,369
-------------- ------------- ------------ ------------ ------------
Total current liabilities............ 61,167,725 65,811,000 11,639,843 (61,674,483) 76,944,085
-------------- ------------- ------------ ------------ ------------
Deferred income taxes.................. 8,256,883 -- -- -- 8,256,883
Long-term debt......................... 47,936,382 -- 1,690,722 -- 49,627,104
Capital lease obligations--
long-term............................. 836,080 -- -- -- 836,080
Accrued landfill closure and other
environmental costs................... 17,770,846 1,065,000 -- (723,261) (1) 18,112,585
Other long-term liabilities............ 16,963,542 35,000 -- (1,880) (1) 16,996,662
Stockholders' equity
Common stock.......................... 361,353 -- 301,316 (297,416) (1) 365,253
Additional paid-in capital............ 350,139,867 22,086,000 97,315 (21,788,584) (1) 350,534,598
Retained earnings (deficit)........... 15,056,684 (15,086,000) (2,215,137) 15,086,000 (1) 12,841,547
Less treasury stock at cost--
39,100 common shares................. (76,259) -- -- -- (76,259)
-------------- ------------- ------------ ------------ ------------
Total stockholders' equity........... 365,481,645 7,000,000 (1,816,506) (7,000,000) 363,665,139
-------------- ------------- ------------ ------------ ------------
Total liabilities and stockholders'
equity.............................. $518,413,103 $ 73,911,000 $11,514,059 $(69,399,624) $534,438,538
============== ============= ============ ============ ============
</TABLE>
<PAGE>
NOTES TO 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:
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
=============
<PAGE>
EXHIBIT INDEX
EXHIBIT
No. DESCRIPTION
- --- -----------
23.1 Consent of MARDEN, HARRISON & KRUETER, Certified Public Accountants, P.C.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We hereby 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),
(iii) 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 October 5, 1998, with respect to the combined financial
statements of Regional Recycling, Corp. and affiliates included in Eastern
Environmental Services, Inc.'s Current Report on Form 8-K/A dated August 20,
1998 filed with the Securities and Exchange Commission.
/s/ Marden, Harrison & Kreuter, Certified Public Accountants, P.C.
Port Chester, New York
October 19, 1998
