<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 9, 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 9, 1998, Eastern Environmental Services, Inc. (the "Registrant")
consummated 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 by and among Thomas Smith, Jr. and Mark Rust
(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 and its subsequent amendment. The Stock
Purchase Agreement and its subsequent amendment are incorporated as Exhibit 10.1
and Exhibit 10.2, respectively.
Pursuant to the Stock Purchase Agreement, as amended, the Registrant
purchased all of the outstanding common stock of Bluegrass resulting in the
Shareholders receiving unregistered shares of the Registrant's common stock,
$.01 par value valued at $24.25. Total stock consideration paid 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; all amounts
measured as of the closing date. 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.
The merger includes all of the assets and liabilities relating to the
operation of the Company. The acquired assets were used by the Shareholders in
the operation of a construction and demolition debris disposal facility. The
Registrant intends to continue to use the acquired assets for this purpose.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS.
----------------------------------
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Independent Auditors' Report
Balance Sheet as of December 31, 1997
Statement of Income and Retained Earnings for the Year Ended
December 31, 1997
Statement of Cash Flows for the Year Ended December 31, 1997
Notes to 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 March 2, 1998, between Eastern
Environmental Services, Inc., Thomas Smith, Jr. and Mark Rust.
10.2* Amendment No.1 dated March 9, 1998 to the Stock Purchase Agreement
dated March 2, 1998 by and between the Registrant and the Shareholders
of Bluegrass Containment, Inc.
23.1 Consent of Strothman & Company PSC
- -----------
* 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: April 8, 1998 By: /s/ Gregory M. Krzemien
--------------------------------------------
Gregory M. Krzemien, Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- -- -----------
23.1 Consent of Strothman & Company PSC
<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; and (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.
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 and the historical financial statements of Bluegrass Containment, Inc.
appearing elsewhere in this filing.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR
THE YEAR ENDED JUNE 30,1997
<TABLE>
<CAPTION>
Eastern
Environmental Pro Forma
Services, Inc. Pappy, Inc. SRP Clean Soils Pine Grove Bluegrass Adjustments
-------------- ----------- --- ----------- ---------- --------- -----------
<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 $ -
Cost of revenues 65,496,657 910,970 6,944,870 1,755,047 9,804,650 917,128 411 (1)
Selling, general and
administrative expenses 15,579,744 430,787 704,137 165,768 1,274,391 93,830 (86,918) (2)
Depreciation and
amortization 5,161,549 107,914 975,224 299,068 4,727,837 54,750 745,434 (1)
(1,256,280) (4)
(2,307,885) (5)
Merger costs 3,336,792 - - - - - -
----------- ---------- ---------- ---------- ----------- ---------- ----------
Operating income (loss) 6,482,203 1,354,189 (4,975,205) (706,659) (1,247,309) 403,880 2,905,238
Interest (expense) income
net (2,539,931) 13,717 - - (151,454) - 9,750 (3)
(1,976,000) (6)
Other income (expense),
net 131,819 552 - - 58,372 22,705 -
----------- ---------- ---------- ---------- ----------- ---------- ----------
Income (loss) before
income taxes 4,074,091 1,368,458 (4,975,205) (706,659) (1,340,391) 426,585 938,988
Income tax (expense)
benefit (1,606,205) - 1,990,082 282,664 507,532 - (2,124,328) (7)
----------- ---------- ---------- ---------- ----------- ---------- ----------
Net income (loss) $ 2,467,886 $1,368,458 $(2,985,123) $ (423,995) $ (832,859) $ 426,585 $(1,185,340)
----------- ---------- ---------- ---------- ----------- ---------- ----------
</TABLE>
Net income (loss) per
share
Weighted average number
of shares outstanding
Pro
Forma
Consolidated
------------
Revenues $120,052,212
Cost of revenues 85,829,733
Selling, general and
administrative expenses 18,161,739
Depreciation and
amortization 8,516,611
Merger costs 3,336,792
-----------
Operating income (loss) 4,216,337
Interest (expense) income
net (4,643,918)
Other income (expense),
net 213,448
-----------
Income (loss) before
income taxes (214,133)
Income tax (expense)
benefit (950,255)
-----------
Net income (loss) $(1,164,388)
-----------
Net income (loss) per
share $(.08)
-----------
Weighted average number
of shares outstanding $14,948,250 (8)
-----------
<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 merger, 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 Adjustments Consolidated
-------------- ---------- ----- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $77,959,150 $197,131 $6,265,436 $1,028,514 $ - $85,450,231
Cost of revenues 49,437,429 92,161 3,424,611 474,353 53,428,554
Selling, general and administrative expenses 11,455,113 86,012 386,816 94,899 (10,775)(2) 12,012,065
Depreciation and amortization 5,424,432 11,300 2,172,102 24,693 140,158 (1) 6,814,972
(957,713)(4)
Merger costs 2,725,000 - - - - 2,725,000
---------- ------ --------- --------- -------- ----------
Operating income 8,917,176 7,658 281,907 434,569 828,330 10,469,640
Interest (expense) income, net (977,794) 1,109 (109,907) - 1,197 (3)
(640,760)(5) (1,726,155)
Other income, net 273,564 600 3,421 29,769 - 307,354
---------- ------ --------- --------- -------- ----------
Income before income 8,212,946 9,367 175,421 464,338 188,767 9,050,839
taxes
Income tax (expense) benefit (3,556,000) - (143,105) - (68,895)(6) (3,768,000)
---------- ------ --------- --------- -------- ----------
Net income $4,656,946 $9,367 $32,316 $464,338 $119,872 $5,282,839
========== ====== ========= ========= ======== ==========
Net income per share $.22
===
Weighted average number of shares
outstanding 23,494,532(7)
==========
</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 merger, 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 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. 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. The above transaction is 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 Bluegrass
appearing elsewhere in this filing.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
Eastern
Environmental Pro Forma Pro Forma
Services, Inc. Bluegrass Adjustments As Adjusted
-------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $5,231,625 $1,092,195 $-- $6,323,820
Accounts receivable, net of
allowance 21,689,297 335,306 22,024,603
Deferred income taxes 1,410,000 -- 1,410,000
Prepaid expenses and other current
assets 3,660,110 5,386 3,665,496
------------- ------------ ----------- ------------
Total current assets 31,991,032 1,432,887 33,423,919
Net property, plant & equipment 134,995,731 231,427 135,227,158
Excess cost over fair market value of
net assets acquired 71,285,712 -- 71,285,712
Intangible assets, net 14,412,328 -- 14,412,328
Notes receivable from stockholders/
officers 432,902 -- 432,902
Other assets 3,052,190 -- 3,052,190
------------- ------------ ----------- ------------
Total assets $256,169,895 $1,664,314 $-- $257,834,209
============= ============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities on long-term
debt $1,235,245 $-- $-- $1,235,245
Current maturities of obligations
under capital leases 1,238,789 -- 1,238,789
Accounts payable 7,439,366 125,036 7,564,402
Accrued expenses and other current
liabilities 12,990,512 327,000 13,317,512
Deferred revenue 3,452,693 -- 3,452,693
Income taxes payable 63,446 -- 63,446
Current portion of accrued landfil
closure and other environmental
costs 2,078,000 200,000 2,278,000
------------- ------------ ----------- ------------
Total current liabilities 28,498,051 652,036 29,150,087
------------- ------------ ----------- ------------
Deferred income taxes 2,880,576 -- 2,880,576
Long-term debt 51,197,650 -- 51,197,650
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 (139,018) (1) 231,897
Additional paid-in capital 140,994,498 -- 139,018 (1) 141,133,516
Retained earnings (deficit) 6,647,321 416,761 7,064,082
Less treasury stock at cost--
39,100 common shares (76,259) -- (76,259)
------------- ------------ ----------- ------------
Total stockholders' equity 147,795,475 557,761 -- 148,353,236
------------- ------------ ----------- ------------
Total liabilities and stockholders'
equity $256,169,895 $1,664,314 $-- $257,834,209
============= ============ =========== ============
</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 for Eastern
Environmental Services, Inc. common stock.
<PAGE>
Audited Financial Statements
BLUEGRASS CONTAINMENT, INC.
December 31, 1997
Independent Auditors' Report ................................. 1
Financial Statements
Balance Sheet ........................................... 2
Statement of Income and Retained Earnings ............... 3
Statement of Cash Flows ................................. 4
Notes to Financial Statements ........................... 5
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Bluegrass Containment, Inc.
Hartford, Kentucky
We have audited the balance sheet of Bluegrass Containment, Inc. (an S
Corporation) as of December 31, 1997 and the related statements of income and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bluegrass Containment, Inc. as
of December 31, 1997, and the results of its operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Strothman & Company PSC
Louisville, Kentucky
March 18, 1998
<PAGE>
Balance Sheet
BLUEGRASS CONTAINMENT, INC.
December 31, 1997
Assets
Current Assets
Cash $ 496,440
Accounts receivable 335,306
Unexpired insurance and bonds 5,386
Securities available for sale 595,755
------------------
Total Current Assets 1,432,887
Land, Property and Equipment
Land 125,436
Landfill development costs 205,775
Buildings and improvements 15,000
Equipment 54,790
---------------
401,001
Less accumulated depreciation and amortization 169,574
---------------
Net Land, Property and Equipment 231,427
---------------
$ 1,664,314
===============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 87,475
Accounts payable - related party 37,561
Closure reserves 200,000
Dividends payable 327,000
--------------
Total Current Liabilities 652,036
Noncurrent Liabilities
Closure reserves 454,517
Stockholders' Equity
Common Stock, no par value, authorized 2,000 shares,
issued and outstanding 1,000 shares 141,000
Retained earnings 419,512
Net unrealized loss on securities available for sale (2,751)
--------------
Total Stockholders' Equity 557,761
--------------
$ 1,664,314
==============
See Notes to Financial Statements
-2-
<PAGE>
Statement of Income and Retained Earnings
BLUEGRASS CONTAINMENT, INC.
Year Ended December 31, 1997
Income
Disposal revenues $ 2,044,787
Miscellaneous revenue 10,000
Dividends 18,943
Interest 17,557
-----------------
Total Income 2,091,287
Costs and Expenses
Trucking costs 561,897
Depletion of landfill development costs 41,161
Closure reserves 186,514
Labor-related party 151,830
Equipment rentals 49,697
Equipment rentals, related party 41,985
Engineering and site maintenance costs 29,327
Fuel 12,805
Road maintenance 14,166
Professional fees 13,337
Travel 4,171
Insurance and bonding expense 11,752
Utilities and telephone 6,931
Miscellaneous 4,562
Parts and repairs 26,298
Office expense 4,323
Depreciation 7,432
Taxes and licenses 86,909
Permits 381
Commissions 5,320
Management fee 13,000
Bad debt expense 1,099
Advertising 585
------------
Total Costs and Expenses 1,275,482
------------
Net Income 815,805
Retained Earnings Beginning of Year 30,707
Stockholder dividends (427,000)
------------
Retained Earnings End of Year $ 419,512
============
See Notes to Financial Statements
-3-
<PAGE>
Statement of Cash Flows
BLUEGRASS CONTAINMENT, INC.
Year Ended December 31, 1997
Operating Activities
Net income $ 815,805
Adjustments
Depreciation 7,432
Depletion of landfill development costs 41,161
Closure reserves 186,514
Changes in certain current assets and liabilities
Accounts receivable (274,468)
Unexpired insurance and bonds 1,022
Accounts payable 62,936
Customer deposits (10,000)
-----------------
Net Cash Provided By Operating Activities 830,402
Investing Activities
Purchases of equipment (5,700)
Purchases of securities available for sale (598,506)
-----------------
Net Cash Used In Investing Activities (604,206)
Financing Activities
Dividends to stockholders (100,000)
---------------
Net Cash Used In Financing Activities (100,000)
---------------
Net Increase in Cash 126,196
Cash Beginning of Year 370,244
--------------
Cash End of Year $ 496,440
==============
Non-Cash Financing Activity
Dividends payable $ 327,000
===============
See Notes to Financial Statements
-4-
<PAGE>
Notes to Financial Statements
BLUEGRASS CONTAINMENT, INC.
December 31, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business--The Company operates a landfill in Ohio County, Kentucky.
- ------------------
The landfill is currently permitted to accept inert materials. The landfill
permit was renewed during 1994 for a ten year term.
Revenue Recognition--Disposal revenue is recorded at the date of actual
- -------------------
disposal. Other revenues are recognized when services are performed.
Landfill Development Costs--Landfill development costs are capitalized and
- --------------------------
depleted using the unit-of-production method over the estimated related airspace
capacity or useful life of the disposal permit, whichever is shorter. Costs are
excluded from depletion until the disposal permit is obtained and operations
have commenced. Landfill development costs are reviewed periodically to
determine whether the costs are realizable.
Property and Equipment--Depreciation is provided using accelerated and straight-
- ----------------------
line methods over the following estimated useful lives:
Building and improvements 31.5 years
Equipment 5 to 7 years
Closure Reserves--Disposal facility closure and post-closure monitoring costs
- ----------------
are accrued over the estimated useful lives of such facilities. These costs are
based on engineering estimates. Expenditures expected to be made during the next
year are classified as current liabilities and expenditures expected to be made
after one year are classified as noncurrent liabilities in the accompanying
financial statements.
Estimates--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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes--The Company and its stockholders elected to be taxed as an S
- ------------
Corporation as defined in the Internal Revenue Code. Accordingly, the income or
loss of the Company is reported by the stockholders on their individual income
tax returns.
NOTE B--CONCENTRATION OF CREDIT RISK
Cash of the Company is insured by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000. Bank balances at December 31, 1997 exceed the FDIC
insured amount by $396,500.
-5-
<PAGE>
Notes to Financial Statements--Continued
BLUEGRASS CONTAINMENT, INC.
December 31, 1997
NOTE C--SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of the following:
December 31, 1997
---------------------------------------
Cost Market
--------------- ---------------
MARKETABLE EQUITY SECURITIES $ 598,506 $ 595,755
=============== ===============
Gross unrealized losses pertaining to the marketable equity securities as of
December 31, 1997 is as follows:
MARKETABLE EQUITY SECURITIES
Current losses $ (2,751)
---------------
NET UNREALIZED LOSS $ (2,751)
===============
Securities available for sale are pledged as collateral on a letter of credit.
The letter of credit is used for bonding purposes.
NOTE D--RELATED PARTY TRANSACTIONS
Mark A. Rust owns 49% of Bluegrass Containment, Inc. He also owns Rust of
Kentucky, Inc.
The Company had the following amounts due to and transactions with Rust of
Kentucky, Inc. during 1997.
Accounts payable at December 31, 1997 $ 24,561
===============
Equipment rentals and operating expenses $ 180,358
===============
The Company owes its stockholders $13,000 at December 31, 1997 for management
services provided during 1997.
NOTE E--CONTRACTS AND ECONOMIC DEPENDENCY
The Company has a ten year term contract with Owensboro Municipal Utilities
(OMU) to landfill a monthly minimum of twenty-seven hundred tons of sludge.
Landfill revenues attributed to the OMU contract were $1,194,031 for 1997. At
December 31, 1997, the Company had $181,282 in accounts receivable from OMU.
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<PAGE>
Notes to Financial Statements--Continued
BLUEGRASS CONTAINMENT, INC.
December 31, 1997
NOTE F--CONTINGENCIES
Insurance Coverage
- ------------------
Insurance coverage for accidental Environmental Impairment Liability ("EIL")
risk continues to be unavailable at a cost which management believes is
reasonable. The coverage terms and cost of the limited EIL insurance which is
available to the Company are such that insurance has not been purchased. In the
event the Company continues to not purchase risk-transfer EIL insurance
coverage, the Company's net income could be adversely affected in the future if
uninsured losses were to be incurred.
Gain Contingency
- ----------------
The company has filed suit against Big Rivers Electric Corporation for breach of
contract. Based upon the opinion of the company's counsel, the suit could
result in a settlement or award by the court in the favor of the company. At
this time, however, no estimate can be made as to the time or the amount, if
any, of ultimate recovery.
NOTE G--BUSINESS COMBINATION SUBSEQUENT EVENT
The stockholders of Bluegrass Containment, Inc. (BCI) agreed to merge BCI with
Eastern Environmental Services, Inc. in a tax free exchange of stock accounted
for as a pooling of interest effective March 7, 1998.
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<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 (Post-Effective Amendment No. 2 to Registration No.
33-21251, 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 (Post-Effective Amendment No. 1 to Registration
Statement No. 333-28627, filed on June 20, 1997),
(vii) on Form S-3 (Post-Effective Amendment No. 2 to Registration
Statement No. 333-32361, 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 18, 1998, with respect to the financial statements of
Bluegrass Containment, Inc. included in Eastern Environmental Services, Inc.'s
Current Report on Form 8-K dated March 9, 1998 (as amended April 8, 1998 on Form
8-K/A), filed with the Securities and Exchange Commission.
Louisville, Kentucky
April 7, 1998
