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
APRIL 21, 1998
(Date of earliest event reported)
U S LIQUIDS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-13259 76-0519797
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
411 NORTH SAM HOUSTON PARKWAY EAST, SUITE 400, HOUSTON, TEXAS 77060
(Address of principal executive offices) (Zip Code)
(281) 272-4500
Registrant's telephone number, including area code
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) (b) THIS FORM 8-K/A IS BEING FILED TO INCLUDE THE FINANCIAL STATEMENTS
AND PRO FORMA FINANCIAL INFORMATION OMITTED FROM THE CURRENT REPORT ON FORM 8-K
FILED ON MAY 6, 1998. THIS FORM 8-K/A ALSO INCLUDES THE FINANCIAL STATEMENTS AND
PRO FORMA FINANCIAL INFORMATION OMITTED FROM THE CURRENT REPORT ON FORM 8-K
FILED ON MAY 22, 1998.
THE REQUIRED FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION ARE
INCLUDED AS EXHIBITS TO THIS FORM 8-K/A AND ARE INCORPORATED HEREIN BY
REFERENCE.
(c) EXHIBITS.
PAGE
U S LIQUIDS INC. PRO FORMA
Introduction to Unaudited Pro Forma Financial Statements..... F-2
Pro Forma Balance Sheet (Unaudited).......................... F-3
Notes to Pro Forma Balance Sheet (Unaudited)................. F-4
Pro Forma Statements of Income (Unaudited)................... F-5
Notes to Pro Forma Statements of Income (Unaudited).......... F-8
CITY ENVIRONMENTAL, INC.
Report of Independent Public Accountants..................... F-9
Balance Sheets............................................... F-10
Statements of Income......................................... F-11
Notes to Financial Statements................................ F-12
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
Report of Independent Public Accountants..................... F-18
Combined Balance Sheets...................................... F-19
Combined Statements of Income................................ F-20
Combined Statements of Stockholders' Equity.................. F-21
Combined Statements of Cash Flows............................ F-22
Notes to Combined Financial Statements....................... F-23
PARALLEL PRODUCTS
Report of Independent Public Accountants..................... F-28
Balance Sheets............................................... F-29
Statements of Income......................................... F-30
Statements of Partners' Capital.............................. F-31
Statements of Cash Flows..................................... F-32
Notes to Financial Statements................................ F-33
23.1 Consent of Independent Accountants.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
U S LIQUIDS INC.
Date: June 1, 1998 By: /s/ MICHAEL P. LAWLOR
Michael P. Lawlor, Chief Executive Officer
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
U S LIQUIDS INC. PRO FORMA
Introduction to Unaudited Pro Forma Financial Statements..... F-2
Pro Forma Balance Sheet (Unaudited).......................... F-3
Notes to Pro Forma Balance Sheet (Unaudited)................. F-4
Pro Forma Statements of Income (Unaudited)................... F-5
Notes to Pro Forma Statements of Income (Unaudited).......... F-8
CITY ENVIRONMENTAL, INC.
Report of Independent Public Accountants..................... F-9
Balance Sheets............................................... F-10
Statements of Income......................................... F-11
Notes to Financial Statements................................ F-12
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
Report of Independent Public Accountants..................... F-18
Combined Balance Sheets...................................... F-19
Combined Statements of Income................................ F-20
Combined Statements of Stockholders' Equity.................. F-21
Combined Statements of Cash Flows............................ F-22
Notes to Combined Financial Statements....................... F-23
PARALLEL PRODUCTS
Report of Independent Public Accountants..................... F-28
Balance Sheets............................................... F-29
Statements of Income......................................... F-30
Statements of Partners' Capital.............................. F-31
Statements of Cash Flows..................................... F-32
Notes to Financial Statements................................ F-33
F-1
<PAGE>
U S LIQUIDS INC.
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements present the balance
sheet and income statement data from the consolidated financial statements of U
S Liquids Inc. (U S Liquids or the Company) combined with the historical
financial data of acquisitions by the Company since its initial public offering
(the Acquisitions) as follows: (i) the unaudited pro forma balance sheet
includes the historical consolidated balance sheet data of U S Liquids at March
31, 1998 combined with the Acquisitions consummated or to be consummated after
March 31, 1998 as if each had occurred on March 31, 1998 and (ii) the unaudited
pro forma income statements for the year ended December 31, 1997 and for the
three months ended March 31, 1997 and 1998 include the historical consolidated
income statements of U S Liquids for the respective periods combined with all
Acquisitions consummated or to be consummated since the Company's initial public
offering as if each had occurred January 1, 1997. Additionally, the effect of
the Company's initial public offering is included in the unaudited pro forma
financial statements as if it had occurred on January 1, 1997. The income
statement data present depreciation and amortization expenses separately from
operating expenses and selling, general and administrative expenses.
Depreciation and amortization expenses are included in the operating and the
selling, general and administrative expense captions set forth in the audited
financial statements.
The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain operational and general and administrative
functions. The Company cannot quantify these savings due to the short period of
time since the closing of the majority of the Acquisitions. It is anticipated
that these savings will be partially offset by the incremental increase in costs
related to the Company's corporate management. However, these costs, like the
savings that they offset, cannot be quantified accurately. Neither the
anticipated savings nor the anticipated costs have been included in the pro
forma financial statements.
The pro forma financial statements include certain adjustments to the
historical financial statements of the Acquisitions, including the adjustment of
depreciation and amortization expenses to reflect purchase price allocations,
recording of interest expense to reflect debt issued in connection with the
Acquisitions, and certain reductions of salaries and benefits payable to the
previous owners of the businesses acquired which were agreed to in connection
with the Acquisitions and the related income tax effects of these adjustments.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The pro forma financial statements do not purport to
represent what the Company's financial position or results of operations would
actually have been if such transactions in fact had occurred on those dates or
project the Company's financial position or results of operations for any future
period. Since the Company and the Acquisitions were not under common control or
management for all periods, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma financial
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this filing, as well as information included
in the Company's Form 10-K.
F-2
<PAGE>
<TABLE>
<CAPTION>
U S LIQUIDS INC.
PRO FORMA BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
MARCH 31, 1998
----------------------------------------------------------
HISTORICAL ACQUISITION
CONSOLIDATED ACQUISITIONS ADJUSTMENTS(A) PRO FORMA
------------ ------------- --------------- ---------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......... $ 5,733 $ 2,013 $ (270) $ 7,476
Accounts receivable, net of
allowance....................... 7,155 13,872 (5,382) 15,645
Inventories........................ 447 655 1,102
Prepaid expenses and other current
assets.......................... 955 2,446 (46) 3,355
------------ ------------- --------------- ---------
Total current assets....... 14,290 18,986 (5,698) 27,578
PROPERTY, PLANT AND EQUIPMENT, net... 40,501 36,089 146 76,736
INTANGIBLE ASSETS, net............... 14,402 18,208 43,156 75,766
OTHER ASSETS, net.................... 1,047 249 (35) 1,261
------------ ------------- --------------- ---------
Total assets............... $ 70,240 $73,532 $ 37,569 $ 181,341
============ ============= =============== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations..................... $ 1,258 $ 5,671 $ (5,671) $ 1,258
Accounts payable................... 3,081 5,641 (685) 8,037
Accrued liabilities................ 4,473 2,764 3,355 10,592
------------ ------------- --------------- ---------
Total current
liabilities................ 8,812 14,076 (3,001) 19,887
LONG-TERM OBLIGATIONS, net of current
maturities......................... 25,346 5,838 59,632 90,816
CELL PROCESSING RESERVE.............. 7,129 -- 7,129
CLOSURE AND REMEDIATION RESERVES..... 3,221 1,325 250 4,796
OTHER RESERVES....................... -- -- 11,703 11,703
DEFERRED INCOME TAXES................ 308 -- 437 745
------------ ------------- --------------- ---------
Total liabilities.......... 44,816 21,239 69,021 135,076
------------ ------------- --------------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock....................... 75 33 (23) 85
Additional paid-in capital......... 20,171 8,525 12,306 41,002
Retained earnings.................. 5,178 8,259 (8,259) 5,178
Other owners' equity............... -- 35,476 (35,476) --
------------ ------------- --------------- ---------
Total stockholders'
equity..................... 25,424 52,293 (31,452) 46,265
------------ ------------- --------------- ---------
Total liabilities and
stockholders' equity.... $ 70,240 $73,532 $ 37,569 $ 181,341
============ ============= =============== =========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-3
<PAGE>
U S LIQUIDS INC.
NOTES TO PRO FORMA BALANCE SHEET (UNAUDITED)
(a) These adjustments reflect the purchase of the Acquisitions that were
consummated or will be consummated subsequent to March 31, 1998, including
approximately $61,363,000 of long-term obligations issued for the cash
portion of the purchase price and for certain debt obligations paid upon
acquisition and approximately 1,017,000 shares issued. These adjustments
also reflect purchase price allocations on the Acquisitions, including
allocating the deferred income tax liability attributable to the temporary
differences between the financial reporting and income tax bases on assets
and liabilities previously held as S Corporations, the repayment of working
capital for certain Acquisitions pursuant to their respective acquisition
agreements through the collection and subsequent repayment of approximately
$6,500,000 in accounts receivable and establishing a $14,629,000 deferred
cost reserve in connection with a landfill disposal agreement entered into
with USA Waste.
F-4
<PAGE>
U S LIQUIDS INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------
HISTORICAL ACQUISITION
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------- ------------- ------------ ----------
<S> <C> <C> <C>
REVENUES............................. $38,159 $ 111,824 $ $149,983
OPERATING EXPENSES................... 21,353 79,621 894(a) 101,868
DEPRECIATION AND
AMORTIZATION....................... 2,990 4,611 1,691(b) 9,292
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,750 14,048 (1,612)(a) 18,186
------------- ------------- ------------ ----------
INCOME FROM OPERATIONS............... 8,066 13,544 (973) 20,637
INTEREST EXPENSE, net................ 1,734 1,873 3,542(c) 7,149
OTHER (INCOME) EXPENSE, net.......... 41 113 154
------------- ------------- ------------ ----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES....................... 6,291 11,558 (4,515) 13,334
PROVISION FOR INCOME TAXES........... 2,416 161 2,890(d) 5,467
------------- ------------- ------------ ----------
NET INCOME (LOSS).................... $ 3,875 $ 11,397 $ (7,405) $ 7,867
============= ============= ============ ==========
BASIC EARNINGS PER COMMON SHARE...... $ 0.93
==========
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.82
==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 8,453(e)
==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 9,645(f)
==========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-5
<PAGE>
U S LIQUIDS INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------
HISTORICAL ACQUISITION
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------ ------------- ------------ ---------
<S> <C> <C> <C>
REVENUES............................. $7,862 $26,637 $ $34,499
OPERATING EXPENSES................... 4,675 19,611 138(a) 24,424
DEPRECIATION AND AMORTIZATION........ 633 923 388(b) 1,944
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 690 3,087 (290)(a) 3,487
------------ ------------- ------------ ---------
INCOME FROM OPERATIONS............... 1,864 3,016 (236) 4,644
INTEREST EXPENSE, net................ 509 525 819(c) 1,853
OTHER (INCOME) EXPENSE, net.......... (28) 119 91
------------ ------------- ------------ ---------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES....................... 1,383 2,372 (1,055) 2,700
PROVISION FOR INCOME TAXES........... 504 1 602(d) 1,107
------------ ------------- ------------ ---------
NET INCOME (LOSS).................... $ 879 $ 2,371 $ (1,657) $ 1,593
============ ============= ============ =========
BASIC EARNINGS PER COMMON SHARE...... $ 0.19
=========
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.17
=========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 8,450(e)
=========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 9,483(f)
=========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-6
<PAGE>
U S LIQUIDS INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------
HISTORICAL ACQUISITION
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------ ------------- ------------ ---------
<S> <C> <C> <C>
REVENUES............................. $ 12,343 $29,335 $ $ 41,678
OPERATING EXPENSES................... 7,011 20,852 (127)(a) 27,736
DEPRECIATION AND
AMORTIZATION....................... 987 1,339 305(b) 2,631
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,467 3,177 4,644
------------ ------------- ------------ ---------
INCOME FROM OPERATIONS............... 2,878 3,967 (178) 6,667
INTEREST EXPENSE, net................ 346 570 764(c) 1,680
OTHER (INCOME) EXPENSE, net.......... (5) 105 100
------------ ------------- ------------ ---------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES....................... 2,537 3,292 (942) 4,887
PROVISION FOR INCOME TAXES........... 1,002 771 231(d) 2,004
------------ ------------- ------------ ---------
NET INCOME (LOSS).................... $ 1,535 $ 2,521 $ (1,173) $ 2,883
============ ============= ============ =========
BASIC EARNINGS PER COMMON SHARE...... $ 0.34
=========
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.29
=========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 8,512(e)
=========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 9,811(f)
=========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-7
<PAGE>
U S LIQUIDS INC.
NOTES TO PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
(a) Adjusts compensation expense to the level the previous owners of the
Acquisitions have agreed to receive as employees of the Company subsequent
to their respective acquisitions. In addition, for certain of the
Acquisitions, salaries and related expenses previously recorded as
selling, general and administrative expenses have been reclassified as
operating expenses consistent with the Company's accounting policy.
(b) Adjusts depreciation and amortization expenses to reflect purchase price
allocations on the Acquisitions.
(c) Records interest expense on the debt incurred to effect the purchase of
the Acquisitions, net of a reduction in interest expense on debt repaid in
connection with the Acquisitions.
(d) Reflects the incremental provision for providing federal income taxes on
the Acquisitions previously taxed as S corporations or limited liability
companies as well as federal and state income taxes relating to the pro
forma income statement adjustments.
(e) Includes (i) 5,937,435 shares, 5,238,875 shares and 7,438,910 shares
outstanding for the year ended December 31, 1997, and for the three months
ended March 31, 1997 and 1998, respectively, and (ii) 2,515,124 shares,
3,211,085 shares and 1,073,578 shares for the year ended December 31,
1997, and for the three months ended March 31, 1997 and 1998,
respectively, issued in connection with the Acquisitions and the Company's
initial public offering as if each had occurred on January 1, 1997.
(f) Includes the weighted average common shares outstanding and 1,192,531
shares, 1,032,585 shares and 1,298,072 shares for the year ended December
31, 1997, and for the three months ended March 31, 1997 and 1998,
respectively, representing the effect of outstanding warrants and options
to purchase Common Stock, using the treasury stock method. Excludes
281,250 shares issuable pursuant to options, the vesting of which is
contingent upon the successful completion or certain corporate development
activities.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To City Environmental, Inc.:
We have audited the accompanying balance sheets of City Environmental, Inc.
(CEI or the Company), which represent certain assets acquired and liabilities
assumed by U S Liquids Inc. from USA Waste Services, Inc., as of June 30, 1996
and 1997, and the related statements of income for each of the three years in
the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1, the accompanying financial statements have been
prepared pursuant to the purchase agreement between USA Waste Services, Inc.,
and U S Liquids Inc. and were prepared for the purpose of complying with Rule
3-05 of Regulation S-X of the Securities and Exchange Commission and are not
intended to be a complete presentation of City Environmental, Inc.'s assets,
liabilities, operating results or cash flows on a stand-alone basis.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of City Environmental, Inc., as
of June 30, 1996 and 1997, and the results of its operations for each of the
three years in the period ended June 30, 1997, pursuant to the purchase
agreement referred to in Note 1 and in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 24, 1998
F-9
<PAGE>
CITY ENVIRONMENTAL, INC.
BALANCE SHEETS
(IN THOUSANDS)
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 4 $ 4 $ 4
Accounts receivable, less
allowance of $53, $93 and $652
(unaudited)................... 2,803 4,258 3,103
Prepaid expenses and other
current assets................ 123 97 90
--------- --------- -----------
Total current
assets............. 2,930 4,359 3,197
PROPERTY, PLANT AND EQUIPMENT, net... 7,195 13,512 16,346
OTHER ASSETS......................... 249 318 5,971
--------- --------- -----------
Total assets.......... $ 10,374 $ 18,189 $25,514
========= ========= ===========
LIABILITIES AND NET INTERCOMPANY
BALANCE
CURRENT LIABILITIES:
Current maturities of long-term
debt.......................... $ 41 $ 57 $ 68
Accounts payable................ 412 480 791
Accrued liabilities............. 348 509 1,203
--------- --------- -----------
Total current
liabilities........ 801 1,046 2,062
LONG-TERM DEBT, net of current
maturities......................... 778 644 528
CLOSURE AND REMEDIATION RESERVES..... 1,373 1,516 1,289
--------- --------- -----------
Total liabilities..... 2,952 3,206 3,879
NET INTERCOMPANY BALANCE............. 7,422 14,983 21,635
--------- --------- -----------
Total liabilities and
net intercompany
balance............ $ 10,374 $ 18,189 $25,514
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
CITY ENVIRONMENTAL, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE SIX THREE
MONTHS MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED ENDED
------------------------------- MARCH 31, DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1997 1998
--------- --------- --------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 15,284 $ 14,461 $ 20,806 $14,643 $ 12,171 $ 5,211
COST OF OPERATIONS................... 8,854 7,451 9,969 7,290 6,303 2,376
--------- --------- --------- ----------- ------------ -----------
Gross profit.................... 6,430 7,010 10,837 7,353 5,868 2,835
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,262 2,662 3,533 2,431 2,685 1,022
--------- --------- --------- ----------- ------------ -----------
Income from operations.......... 4,168 4,348 7,304 4,922 3,183 1,813
INTEREST EXPENSE, net................ 313 201 104 39 102 15
OTHER INCOME, net.................... (804) (1,158) (1,386) (1,065) 123 41
--------- --------- --------- ----------- ------------ -----------
Income before taxes............. 3,051 2,989 5,814 3,818 3,204 1,839
PROVISION FOR INCOME TAXES........... 102 128 90 85 17 754
--------- --------- --------- ----------- ------------ -----------
NET INCOME........................... $ 2,949 $ 2,861 $ 5,724 $ 3,733 $ 3,187 $ 1,085
========= ========= ========= =========== ============ ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-11
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
City Environmental, Inc. (CEI or the Company), is a division of City
Management Corporation (CMC), which in turn is a subsidiary of USA Waste
Services, Inc. (USA Waste). For periods up to and including December 31, 1997,
CMC was owned and operated as an independent private company. During January
1998, CMC was acquired by USA Waste. During March 1998, USA Waste entered into
negotiations with U S Liquids Inc. (USL) whereby USL would purchase certain
assets and assume certain liabilities of CEI through a transaction to be
accounted for as an asset purchase.
The Company treats and disposes hazardous and nonhazardous wastes generated
by commercial, industrial, residential and governmental generators. The Company
operates treatment facilities in Detroit, Michigan, which are accessible by
truck and rail. The Company also operates a truck/tanker fleet to transport
waste materials from customers to its treatment facilities and to deliver
treated waste to landfill sites.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
These financial statements have been prepared to present the financial
position and the results of operations of CEI related to the assets acquired and
liabilities assumed by USL in conformity with generally accepted accounting
principles. The unaudited balance sheet as of March 31, 1998, and the related
statement of income for the three months ended March 31, 1998, reflect purchase
price allocations associated with USA Waste's acquisition of CMC, effective as
of January 1, 1998.
CEI is a division of CMC and, as such, the balance sheets and statements of
income may not necessarily be indicative of the financial position or results of
operations that would have been realized had CEI been operated as a stand-alone
entity. The statements of income include amounts allocated by CMC to CEI for
corporate management fees, including insurance risk management, legal department
services, cash management, information systems support and executive management
salaries. Management believes the allocation is reasonable.
As a division of CMC, CEI maintains an interest-bearing intercompany
account with CMC for recording intercompany charges for costs and expenses,
intercompany transfers of equipment and intercompany transfers of cash, among
other transactions. CMC charges CEI interest expense at the rate of 9 percent
per annum of the average of the two prior months' intercompany balances when the
average exceeds $6,060,000 and credits interest income to CEI at a rate of 6
percent per annum when the average is less than $6,060,000. (The $6,060,000 was
established in prior years when CEI transferred the value of its common stock
and additional paid-in capital to the intercompany account with CMC as a result
of CMC becoming an S Corporation.) This method is not indicative of, nor is it
feasible to ascertain, the amount of related net interest expense that would
have been recorded in the accompanying statements of income had CEI operated as
a stand-alone entity. CMC does not maintain debt balances specifically related
to the operations of CEI. The net interest expense reflected in the accompanying
statements of income represents intercompany interest charges from CMC and
external interest expenses on long-term notes payable.
Due to the manner in which CMC intercompany transactions were recorded, it
is not feasible to present a detailed analysis of transactions reflected in the
intercompany balance with CMC. The change in the intercompany balance with CMC
was $991,000 and $7,561,000 for the years ended June 30, 1996 and 1997,
respectively. For the six months ended December 31, 1997, and for the three
months ended March 31, 1998, the change in intercompany balance with CMC was
$8,346,000 and $(1,715,000), respectively.
F-12
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
It is also not feasible to present complete statements of cash flows due to
the nature and manner of recording of intercompany transactions; however, the
following information presents certain cash flow data related to the operations
of CEI:
CASH FLOW INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE SIX THREE
MONTHS MONTHS MONTHS
YEAR ENDED JUNE 30 ENDED ENDED ENDED
------------------------------- MARCH 31, DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1997 1998
--------- --------- --------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities --
Net income...................... $ 2,949 $ 2,861 $ 5,724 $ 3,733 $3,187 $ 1,085
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............ 1,050 845 849 637 650 242
Loss on disposal of
assets.................. 1,187 243 346 332 117 8
Changes in operating assets and
liabilities --
Accounts receivable........ (148) (305) (1,455) (660) 432 744
Prepaid expenses and other
current assets.......... (67) 27 26 (15) (17) 24
Other assets............... (75) (89) (201) (201) (160) (422)
Accounts payable and
accrued liabilities..... 102 90 229 159 107 898
Closure and remediation.... 280 80 143 22 (290) 63
--------- --------- --------- ----------- ------------ -----------
Net cash provided by
operating activities.... $ 5,278 $ 3,752 $ 5,661 $ 4,007 $4,026 $ 2,642
========= ========= ========= =========== ============ ===========
</TABLE>
INTERIM FINANCIAL INFORMATION
The interim financial statements for the nine months ended March 31, 1997,
the six months ended December 31, 1997, and the three months ended March 31,
1998, are unaudited, and certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations with respect to the interim financial
statements have been included. The results of operations for the interim period
are not necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets acquired
and liabilities assumed, the disclosure of contingent assets acquired and
liabilities assumed at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from the estimates.
F-13
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH
Cash represents an imprest account maintained by CEI. At month-end, all
excess cash balances, other than the balance in the imprest account, are
credited to CMC.
CONCENTRATIONS OF CREDIT RISK
Accounts receivable potentially subject the Company to concentrations of
credit risk. At June 30, 1996 and 1997, one customer accounted for 15 percent
and 12 percent, respectively, of the total accounts receivable balance. For the
year ended June 30, 1995, three customers accounted for 20 percent of total
revenues. For the years ended June 30, 1997 and 1996, four customers accounted
for 22 percent and 21 percent of total revenues, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Improvements or
betterments which significantly extend the life of an asset are capitalized.
Expenditures for maintenance and repair costs are charged to operations as
incurred. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal. Gains and losses resulting from property disposals are included in
other income or expense. Depreciation is computed using the straight-line
method.
LONG-LIVED ASSETS
Long-lived assets consist primarily of disposal sites, equipment and
permits. Management continually evaluates whether events or circumstances have
occurred that indicate the remaining estimated useful lives of intangible assets
and other long-lived assets may warrant revision or that remaining balances may
not be recoverable.
INSURANCE
The Company maintains various types of insurance coverage for its business
through CMC, including, without limitation, commercial general liability and
commercial auto liability, workers' compensation and employer liability,
pollution legal liability and a general umbrella policy. Premiums paid to CMC
may not have been indicative of market rates to obtain such coverage had the
Company operated on a stand-alone basis. The Company has not incurred
significant claims or losses in excess of its insurance limits during the
periods presented in the accompanying financial statements.
CLOSURE AND REMEDIATION RESERVES
The closure and remediation reserves represent accruals for the estimated
future costs associated with the ultimate closure of the Company's treatment and
disposal facilities, including costs of decommissioning, statutory monitoring
costs and incremental direct administrative costs required during the closure
and subsequent postclosure periods. The Company accrues for the estimated future
costs over the estimated useful life of the treatment facilities. Management
periodically reviews the estimated future costs and adjusts reserves over the
remaining useful life of the treatment facilities.
REVENUE RECOGNITION
CEI recognizes treatment and disposal revenue when waste material is
accepted and treated at the treatment and disposal site, and transportation
revenue at the point of collection, if the Company collects waste from the
customer's location.
INCOME TAXES
The operations of CEI are included in the consolidated U.S. federal and
state income tax returns of CMC. The stockholder of CMC elected to be taxed
individually on the Company's taxable income, pursuant
F-14
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to S Corporation rules of the Internal Revenue Code for federal taxes. A
provision for state income taxes is reflected in the historical financial
statements as if CEI were a stand-alone entity.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets at June 30, 1996 and 1997,
consist of the following:
1996 1997
----- ----
(IN THOUSANDS)
Prepaid expenses..................... $ 80 $59
Prepaid licenses and permits......... 27 22
Inventory............................ 7 7
Other................................ 9 9
----- ----
Total........................... $ 123 $97
===== ====
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at June 30, 1996 and 1997, consist of the
following:
JUNE 30
DEPRECIABLE --------------------
LIFE 1996 1997
----------- --------- ---------
(YEARS) (IN THOUSANDS)
Land............................ -- $ 630 $ 686
Buildings and improvements...... 15-39 4,477 4,686
Machinery and equipment......... 5-7 5,637 11,608
Vehicles........................ 5-7 171 190
Furniture and fixtures.......... 5 550 835
--------- ---------
Total...................... 11,465 18,005
Less -- Accumulated
depreciation.................. (4,270) (4,493)
--------- ---------
Total...................... $ 7,195 $ 13,512
========= =========
5. OTHER ASSETS:
Other assets at June 30, 1996 and 1997, consist of the following:
1996 1997
----- -----
(IN THOUSANDS)
Permits.............................. $ 148 $ 215
Deposits............................. 1 3
Assets held for resale............... 100 100
----- -----
Total........................... $ 249 $ 318
===== =====
F-15
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED LIABILITIES:
Accrued liabilities at June 30, 1996 and 1997, consist of the following:
1996 1997
--------- ---------
(IN THOUSANDS)
Accrued salaries and benefits........ $ 118 $ 134
Accrued interest..................... 20 18
Accrued insurance.................... 5 64
Accrued state taxes.................. 141 127
Other................................ 64 166
--------- ---------
Total........................... $ 348 $ 509
========= =========
7. LONG-TERM DEBT:
The Company's long-term debt at June 30, 1996 and 1997, consisted of the
following:
1996 1997
--------- ---------
(IN THOUSANDS)
Note payable to an individual,
imputed interest at 10%, due in
quarterly installments of $18,750,
maturing April 2004, secured by
assets of the Company.............. $ 528 $ 431
Note payable to a government
institution, imputed interest at
10%, due in quarterly installments
of $12,500, maturing July 2005,
secured by assets of the Company... 291 270
--------- ---------
Total................................ 819 701
Less: Current maturities of long term
obligations........................ (41) (57)
--------- ---------
$ 778 $ 644
========= =========
Principal payments of long-term debt as of June 30, 1997, are as follows:
(IN THOUSANDS)
--------------
Year ending June 30 --
1998............................ $ 57
1999............................ 70
2000............................ 77
2001............................ 85
2002............................ 94
Thereafter...................... 318
--------------
Total...................... $ 701
==============
8. COMMITMENTS AND CONTINGENCIES:
LEACHATE AND LANDFILL DISPOSAL AGREEMENT
In July 1995, CEI entered into an agreement with Carleton Farms, Inc., and
City Sand and Landfill (subsidiaries of CMC), whereby CEI agreed to transport
and treat leachate from these landfills and Carleton Farms, Inc., agreed to
accept CEI's treated waste. The pricing arrangements were not necessarily
indicative of market rates had this agreement been entered into between
unrelated parties. Revenues of $686,765 and $919,946 and cost of operations of
$1,324,612 and $1,600,476 are reflected in the accompanying statements of income
related to this agreement for the years ended June 30, 1996 and 1997,
respectively.
F-16
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
The Company leases certain sales office facilities and certain equipment
under one-year cancelable operating leases. Rent expense was $7,000, $20,000 and
$23,000 for the years ended June 30, 1995, 1996 and 1997, respectively.
LEGAL
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
9. SUBSEQUENT EVENTS (UNAUDITED):
Effective January 1, 1998, USA Waste Services, Inc., acquired the
outstanding stock of CMC, including the operations of CEI, through a transaction
accounted for as a purchase.
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
On May 11, 1998 U S Liquids Inc. acquired certain assets and assumed
certain liabilities of CEI for cash. The transaction was accounted for under the
purchase method of accounting. The acquisition agreement provides for additional
payments of $14,629,000 and other contingent payments pursuant to a revised
leachate and landfill disposal agreement with USA Waste.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Waste Stream Environmental Inc.:
We have audited the accompanying combined balance sheet of Waste Stream
Environmental Inc. (a New York corporation) and affiliate as of December 31,
1997, and the related combined statements of income, stockholders' equity and
cash flows for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Waste
Stream Environmental Inc. and Affiliate as of December 31, 1997, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas,
April 24, 1998
F-18
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 71 $ 619
Accounts receivable, less
allowance of $20 and $20
(unaudited).................... 2,996 2,711
Inventories..................... 92 120
Prepaid expenses and other
current assets................. 383 449
Due from related party.......... -- 222
------------ ------------
Total current assets....... 3,542 4,121
PROPERTY, PLANT AND EQUIPMENT, net... 5,823 5,992
OTHER ASSETS, net.................... 112 99
------------ ------------
Total assets............... $9,477 $ 10,212
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................... $3,164 $ 2,301
Accounts payable................ 1,788 1,969
Accrued liabilities............. 250 151
------------ ------------
Total current
liabilities............. 5,202 4,421
LONG-TERM OBLIGATIONS, net of current
maturities......................... 1,251 2,968
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value, 200
shares authorized, 100 shares
issued and outstanding......... 7 7
Additional paid-in capital...... 368 368
Retained earnings............... 2,652 2,451
Less -- 50 shares of common,
held in treasury, at cost...... (3) (3)
------------ ------------
Total stockholders'
equity.................. 3,024 2,823
------------ ------------
Total liabilities and
stockholders' equity.... $9,477 $ 10,212
============ ============
The accompanying notes are an integral part of these combined financial
statements.
F-19
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
THREE MONTHS
YEAR ENDED ENDED MARCH 31
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
REVENUES............................. $ 18,602 $ 3,899 $ 5,010
COST OF OPERATIONS................... 15,924 3,367 4,307
------------ --------- ---------
Gross profit.................... 2,678 532 703
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,669 331 536
------------ --------- ---------
Income from operations.......... 1,009 201 167
INTEREST EXPENSE, net................ 370 87 123
OTHER INCOME, net.................... (309) (15) (1)
------------ --------- ---------
Income before provision
(benefit) for income taxes.... 948 129 45
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 21 (2) 6
------------ --------- ---------
NET INCOME........................... $ 927 $ 131 $ 39
============ ========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-20
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- ------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996........... 100 $ 7 $ 368 $ 1,969 $ (3) $ 2,341
Net income...................... -- -- -- 927 -- 927
Distributions to stockholders... -- -- -- (244) -- (244)
------- ------- ----------- --------- --- -------------
BALANCE, December 31, 1997........... 100 7 368 2,652 (3) 3,024
Net income (unaudited).......... -- -- -- 39 -- 39
Distributions to stockholders
(unaudited)................... -- -- -- (240) -- (240)
------- ------- ----------- --------- --- -------------
BALANCE, March 31, 1998
(unaudited)........................ 100 $ 7 $ 368 $ 2,451 $ (3) $ 2,823
======= ======= =========== ========= === =============
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
F-21
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS
YEAR ENDED ENDED MARCH 31
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 927 $ 131 $ 39
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and
amortization............... 1,104 245 286
(Gain) loss from sale of
assets..................... (14) -- 4
Change in operating assets and
liabilities --
Accounts receivable, net...... (1,275) (162) 285
Inventories................... (8) 7 (28)
Prepaid expenses and other
current assets............. 89 21 (66)
Due from related party........ -- -- (222)
Accounts payable.............. 543 341 181
Accrued liabilities........... 80 (15) (99)
------------ --------- ---------
Net cash provided by operating
activities................. 1,446 568 380
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment....................... (1,060) (240) (461)
Proceeds from sale of property and
equipment....................... 21 9 15
------------ --------- ---------
Net cash used in investing
activities................. (1,039) (231) (446)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term
debt............................ (1,188) (306) (1,815)
Proceeds from borrowings of
long-term debt.................. 819 231 2,402
Proceeds from line of credit,
net............................. 527 77 360
Payments of capital lease
obligations..................... (311) (58) (93)
Distributions to stockholders...... (244) (100) (240)
------------ --------- ---------
Net cash provided by (used in)
financing activities....... (397) (156) 614
------------ --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ 10 181 548
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR.................. 61 61 71
------------ --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
YEAR............................... $ 71 $ 242 $ 619
============ ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............. $ 408 $ 57 $ 126
Cash paid for income taxes......... $ 5 $ -- $ --
Assets acquired under capital
leases.......................... $ 905 $ 479 $ --
The accompanying notes are an integral part of these combined financial
statements.
F-22
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Waste Stream Environmental Inc. and its affiliate, Earth Blends, Inc.
(collectively, the Company), are primarily engaged in removing, transporting and
disposing of waste sludge and other waste related products. The Company's
customers, principally commercial industries and governmental units, are mainly
located in New York, Connecticut, New Jersey and Massachusetts. The Company
sells waste treatment plant supplies and provides processing services to its
customers.
The Company, through Earth Blends, Inc., also transports, markets and sells
N-VIRO soil.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The individual companies that comprise the Company have been presented on a
combined basis due to their related operations, common ownership by three
individual stockholders and common management control. All significant
intercompany balances and transactions among the aforementioned entities have
been eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim financial statements for the three months ended March 31, 1997
and 1998, are unaudited, and certain information and footnote disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations and cash flows with respect to the
combined interim financial statements have been included. The results of
operations for the interim periods ended March 31, 1997 and 1998, are not
necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less are classified as cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Accounts receivable potentially subject the Company to concentrations of
credit risk. At December 31, 1997, 11 percent and 10 percent of total accounts
receivable were associated with two customers. In addition, sales to two
customers represented 21 percent and 8 percent, respectively, of total revenues
for the year ended December 31, 1997.
INVENTORIES
Inventories are stated at the lower of cost or market and, at December 31,
1997, consisted of raw materials. Cost is determined using the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Improvements or
betterments which significantly extend the life of an asset are capitalized.
Expenditures for maintenance and repair costs are charged to operations as
incurred. The cost of assets retired or otherwise disposed of and the related
accumulated
F-23
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation are eliminated from the accounts in the year of disposal. Gains and
losses resulting from property disposals are included in other income or
expense. Depreciation is computed using the straight-line method.
INCOME TAXES
For income tax purposes, the Company has elected S Corporation status under
the U.S. Internal Revenue Code. In accordance with the provisions of elections
to be treated as an S Corporation, the Company's income and losses are passed
through to its stockholders; accordingly, no provision for federal income taxes
has been recorded in the combined statement of income.
The Company, however, provides for state income taxes payable in accordance
with the tax laws of New York, New Jersey, Connecticut, Massachusetts and Rhode
Island as applicable to S Corporations.
REVENUE RECOGNITION
The Company recognizes revenue from processing services when material is
unloaded at the Company's facilities, if delivered by the customer, or at the
time the service is performed, if the Company collects the materials from the
customer's location. Sales revenue is recognized when the by-product is shipped
to the customer.
The Company's revenues consist of approximately the following (in
thousands):
Processing revenues.................. $ 3,832
Trucking and disposal revenues....... 13,050
Chemical and by-product sales........ 1,162
Other revenues....................... 558
---------
Total...................... $ 18,602
=========
INSURANCE
The Company maintains various types of insurance coverage for its business,
including, without limitation, commercial general liability and commercial auto
liability, workers' compensation and employer liability, and a general umbrella
policy. The Company has not incurred significant claims or losses in excess of
its insurance limits during the period presented in the accompanying combined
financial statements.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets at December 31, 1997, consist of
the following (in thousands):
Prepaid insurance.................... $ 128
Prepaid performance bonds............ 168
Advances to stockholder.............. 26
Other................................ 61
---------
Total...................... $ 383
=========
F-24
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31, 1997, consist of the
following (in thousands):
DEPRECIABLE
LIFE
-----------
(YEARS)
Land................................. -- $ 26
Buildings and improvements........... 5-40 2,433
Machinery and equipment.............. 5-10 3,771
Vehicles............................. 5 2,552
Other................................ 5 31
---------
Total........................... 8,813
Less -- Accumulated depreciation..... (2,990)
---------
Net property, plant and
equipment..................... $ 5,823
=========
5. ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1997, consist of the following (in
thousands):
Accrued salaries..................... $ 137
Income and other taxes payable....... 11
Accrued professional fees............ 24
Other................................ 78
---------
Total........................... $ 250
=========
6. LONG-TERM OBLIGATIONS:
The Company's long-term obligations at December 31, 1997, consist of the
following:
(IN THOUSANDS)
--------------
Notes payable to Fleet Bank, monthly
payments ranging from $2,396 to
$23,256, interest ranging from
8.69% to 10.00%, maturing October
1997 to May 2002, secured by
business assets, including
machinery and equipment............ $1,697
Line of credit with Fleet Bank,
interest rate of 9.50%............. 940
Note payable to A.I. Credit Corp.,
monthly payments of $6,628,
interest of 6.81%, maturing
September 1998, unsecured.......... 57
Notes payable to two corporations,
monthly payments ranging from $419
to $719, interest ranging from
9.25% to 11.25%, maturing January
1999 to September 2002, secured by
vehicles........................... 86
Capital lease obligations, monthly
payments ranging from $1,570 to
$1,900, interest ranging from 9.22%
to 10.25%, expiring within the next
five years, secured by equipment... 1,635
Less -- Current maturities of
long-term obligations.............. (3,164)
--------------
$1,251
==============
The line of credit with Fleet Bank provides for a maximum borrowing amount
of $1,500,000 and is personally guaranteed by the Company's officers and
directors. The credit agreements with Fleet Bank require the Company to comply
with certain financial covenants, such as meeting minimum current ratio
requirements. At December 31, 1997, the Company was not in compliance with the
minimum current ratio financial covenant. Accordingly, all amounts due to Fleet
Bank have been included in current maturities of
F-25
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
long-term obligations at December 31, 1997. During January 1998, the Company
retired its debt obligations to Fleet Bank.
Principal payments of long-term debt obligations in excess of one year as
of December 31, 1997, are as follows (in thousands):
CAPITAL
LEASES
--------
Year ending December 31 --
1998............................ $ 534
1999............................ 534
2000............................ 485
2001............................ 332
2002............................ 113
--------
Total...................... 1,998
Less -- Amount representing
executory costs and interest
expense........................ (363)
--------
Present value of minimum lease
payments....................... $ 1,635
========
Management estimates that the fair value of its debt obligations
approximates the historical value at December 31, 1997.
7. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain equipment under noncancelable operating leases
expiring within the next two years. Rent expense was approximately $367,000 for
the year ended December 31, 1997. Future commitments under noncancelable leases
as of December 31, 1997, are as follows (in thousands):
1998................................. $ 70
1999................................. 46
---------
Total........................... $ 116
=========
LEGAL PROCEEDINGS
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's combined financial position
or results of operations.
ROYALTIES
In February 1990, the Company entered into a 15-year patent license
agreement allowing it to utilize a sludge pasteurization process. The Company
makes royalty payments of $8.20 per dry ton of sludge processed. The contract
requires the Company to make minimum annual payments based on the Company's
level of production. Total royalty expense for the year ended December 31, 1997,
was approximately $203,000.
8. RELATED-PARTY TRANSACTIONS:
The Company occupies its primary operational facilities and office space
under a month-to-month lease agreement with its stockholders. Rent expense was
approximately $70,000 for the year ended December 31, 1997.
F-26
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company purchases supplies from a company owned by a stockholder. Total
purchases for the year ended December 31, 1997, totaled approximately $67,000.
9. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) plan that covers substantially all of the
Company's full-time employees age 21 and over who elect to participate. The plan
provides for an elective employer's contribution based upon the employee's
contribution. Employer contributions were $13,436 for the year ended December
31, 1997.
10. SUBSEQUENT EVENTS:
INVESTMENT IN JOINT VENTURE
In March 1998, the Company signed a letter of intent to become a 50 percent
equity investor in a corporation. The Company has committed to obtain financing
to provide this corporation with $2.7 million for the construction of a waste
processing facility. As part of this agreement, the Company will operate this
facility.
DEBT REFINANCING
In January 1998, the Company entered into a revolving credit facility, a
project credit facility and two equipment loans with a domestic bank.
The purpose of the revolving credit facility is to provide working capital
to the Company. The borrowings are limited to the lesser of $2 million or 80
percent of eligible receivables, as defined. The facility is subject to
customary loan covenants and drawing conditions. Interest is set at the floating
LIBOR rate plus 2.25 percent.
The project credit facility is for a maximum of $1.25 million for the
development of a waste processing facility. Interest will be set at the
borrower's option.
The equipment loans require monthly payments of $29,664 plus interest at
7.73 percent per annum through January 2002. These obligations are secured by
substantially all of the Company's assets and the personal guarantees of the
Company's officers and stockholders.
DUE FROM RELATED PARTY
During March 1998, the Company repaid certain debt obligations of a related
party and recorded a corresponding receivable. This receivable was repaid by the
related party in April 1998.
U S LIQUIDS ACQUISITION
On April 21, 1998, U S Liquids Inc. acquired the Company for cash, assumed
debt and stock. The transaction was accounted for under the purchase method of
accounting.
The acquisition agreement provides for contingent payments up to $3.25
million, if certain financial and operational goals are met.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Parallel Products:
We have audited the accompanying balance sheet of Parallel Products (a
California limited partnership) as of December 31, 1997, and the related
statements of income, partners' capital and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 Parallel Products as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 24, 1998
F-28
<PAGE>
PARALLEL PRODUCTS
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 220 $ 6
Restricted marketable
securities..................... 691 697
Accounts receivable, less
allowances of $17 and $20
(unaudited).................... 2,247 1,414
Inventories..................... 285 201
Prepaid expenses and other
current assets................. 29 56
------------ ------------
Total current
assets............ 3,472 2,374
PROPERTY, PLANT AND EQUIPMENT, net... 5,981 5,948
RELATED-PARTY NOTES RECEIVABLE....... 37 35
------------ ------------
Total assets.......... $9,490 $8,357
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Lines of credit................. $1,262 $1,403
Current maturities of long-term
obligations.................... 1,236 1,236
Related-party notes payable,
current portion................ 310 310
Accounts payable................ 2,392 876
Accrued liabilities............. 498 460
------------ ------------
Total current
liabilities....... 5,698 4,285
LONG-TERM OBLIGATIONS, net of current
maturities......................... 1,215 1,116
RELATED-PARTY NOTES PAYABLE.......... 100 100
------------ ------------
Total liabilities..... 7,013 5,501
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL.................... 2,477 2,856
------------ ------------
Total liabilities and
partners'
capital........... $9,490 $8,357
============ ============
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
PARALLEL PRODUCTS
STATEMENTS OF INCOME
(IN THOUSANDS)
THREE MONTHS
YEAR ENDED ENDED MARCH 31
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
SALES................................ $ 30,761 $ 9,289 $ 7,283
COST OF GOODS SOLD................... 27,556 8,344 6,453
------------ --------- ---------
Gross profit.................... 3,205 945 830
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,495 387 365
------------ --------- ---------
INCOME FROM OPERATIONS............... 1,710 558 465
INTEREST EXPENSE, net................ 531 157 102
OTHER INCOME, net.................... (126) (55) (16)
------------ --------- ---------
NET INCOME........................... $ 1,305 $ 456 $ 379
============ ========= =========
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
PARALLEL PRODUCTS
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
BALANCE, December 31, 1996........... $ 1,175
Net income...................... 1,305
Distributions to partners....... (3)
---------
BALANCE, December 31, 1997........... 2,477
Net income (unaudited).......... 379
---------
BALANCE, March 31, 1998
(unaudited)........................ $ 2,856
=========
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
PARALLEL PRODUCTS
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS
YEAR ENDED ENDED MARCH 31
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $1,305 $ 456 $ 379
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities --
Depreciation............... 504 126 148
Noncash interest income
received from marketable
securities.............. (26) (5) (6)
Net gain on sale of
property, plant and
equipment............... (83) (38) --
Changes in operating assets and
liabilities --
Accounts receivable, net... (85) 198 833
Inventories................ 64 25 84
Prepaid expenses and other
current assets.......... (9) (24) (25)
Other assets............... 40 40 --
Accounts payable and
accrued liabilities..... (767) (443) (1,554)
------------ --------- ---------
Net cash provided by
(used in) operating
activities............ 943 335 (141)
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment..................... (418) (93) (115)
Proceeds from sale of property,
plant and equipment........... 359 40 --
------------ --------- ---------
Net cash used in
investing
activities............ (59) (53) (115)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners....... (3) -- --
Principal payments on long-term
obligations................... (947) (322) (99)
Net borrowings on revolving
credit agreements............. 285 52 141
------------ --------- ---------
Net cash provided by
(used in) financing
activities............ (665) (270) 42
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 219 12 (214)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 1 1 220
------------ --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 220 $ 13 $ 6
============ ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.......... $ 560 $ 161 $ 138
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Parallel Products (the Company) is a California limited partnership
organized in 1991. The Company recovers purified by-products, such as ethanol,
through the processing of its waste streams, acts as a broker and commodity
dealer in various nonpotable liquids and is a provider of services for the
processing, disposal and recovery of liquid waste. The Company's waste
processing operations are located in Rancho Cucamonga, California, and
Louisville, Kentucky. Brokerage operations are not concentrated in one specific
location of the country.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accounting records of the Company are maintained on the accrual basis
of accounting.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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.
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1998, and for the three
months ended March 31, 1997 and 1998, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less are classified as cash equivalents.
RESTRICTED MARKETABLE SECURITIES
Restricted marketable securities consist of treasury bills and a treasury
note. The Company's investments are classified as held-to-maturity and are
scheduled to mature within 12 months. Held-to-maturity securities represent
those securities that the Company has both the positive intent and ability to
hold to maturity and are carried at amortized cost. Realized gains and losses
and declines in value of securities judged to be other than temporary are
included in interest income. Cost of held-to-maturity securities is determined
by specific identification in computing realized gains and losses.
At December 31, 1997, certain of the Company's restricted marketable
securities are being held for the benefit of the Company by Wells Fargo Bank
(the Bank), in order to provide additional collateral for the Company's debt
obligations to the Bank. A premature withdrawal of these funds could trigger an
event of default on the outstanding obligations of the Bank. At December 31,
1997, treasury bills in the amount of $492,000 and a treasury note in the amount
of $199,000 are held by the Bank as collateral for the outstanding debt.
CONCENTRATIONS OF CREDIT RISK
Accounts receivable potentially subject the Company to concentrations of
credit risk. At December 31, 1997, 21 percent and 13 percent of total accounts
receivable were associated with two customers. In
F-33
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
addition, sales to three customers represented 13 percent, 11 percent and 10
percent of total revenues for the year ended December 31, 1997.
The Company's customers are concentrated in the beverage industry.
Management performs ongoing credit analyses of the accounts of its customers and
provides allowances as deemed necessary.
MAJOR SUPPLIERS
During 1997, two suppliers accounted for 31 percent and 13 percent of total
purchases. Management believes that alternate sources of supply are available on
comparable terms.
INVENTORIES
Inventories are stated at the lower of cost or market and, at December 31,
1997, consisted primarily of finished products such as brokered and manufactured
alcohol. Cost is determined using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Improvements or
betterments which significantly extend the life of an asset are capitalized.
Expenditures for maintenance and repair costs are charged to operations as
incurred. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal. Gains and losses resulting from property disposals are included in
other income or expense. Depreciation is computed using the straight-line
method.
INCOME TAXES
The accompanying financial statements do not include provisions for income
taxes that may be due on the reported net income of the Company, since any
related income taxes are obligations of the partners of the Company.
REVENUE RECOGNITION
Revenues are recognized when recycled products are shipped. Revenue from
brokered alcohol is recognized when shipped from the Company's locations or when
delivered if product is shipped from a location other than the Company's two
refineries.
The Company's revenues consisted of the following for the year ended
December 31, 1997 (in thousands):
By-product sales..................... $ 27,180
Processing revenues.................. 2,854
Other................................ 727
---------
Total...................... $ 30,761
=========
3. RELATED-PARTY NOTES RECEIVABLE:
At December 31, 1997, there was a note receivable from a limited partner of
the Company in the amount of $46,000. The borrowing bears interest at 8 percent
with scheduled payments of $750 per month to commence in 1998. The current
portion of the note receivable has been included in prepaid expenses and other
current assets at December 31, 1997.
F-34
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31, 1997, consist of the
following (in thousands):
DEPRECIABLE LIFE
(YEARS)
-----------------
Land................................. -- $ 1,122
Machinery and equipment.............. 5-12 6,042
Buildings and leasehold
improvements....................... 5-20 1,443
Furniture and fixtures............... 3-15 144
Vehicles............................. 3-5 39
Construction in progress............. -- 90
---------
8,800
Less -- Accumulated depreciation..... (2,899)
---------
Net property, plant and
equipment............... $ 5,981
=========
5. ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1997, consist of the following (in
thousands):
Accrued salaries..................... $ 187
Accrued insurance premiums........... 98
Accrued interest, including interest
payable to related party of $24.... 73
Other................................ 140
---------
Accrued liabilities........ $ 498
=========
6. LONG-TERM OBLIGATIONS:
The Company's long-term obligations at December 31, 1997, consist of the
following:
1997
--------------
(IN THOUSANDS)
Revolving credit facility............ $ 1,262
Note payable to the Bank, interest at
prime plus 3.0%, payable in monthly
principal installments of $11,675,
maturing June 1, 2000.............. 1,004
Term commitment, payable to the Bank,
interest-only installments at prime
plus 3.0%, through April 30, 1998,
at which time the remaining balance
is due and payable................. 600
Note payable to the Bank, interest at
prime plus 3.0%, payable in monthly
principal installments of $13,332,
maturing May 1, 2000............... 387
Note payable to the Bank,
interest-only installments at prime
plus 3.0%, through April 30, 2002,
at which time the remaining balance
is due and payable................. 239
Note payable to the Bank, interest at
prime plus 3.0%, payable in monthly
principal installments of $5,357,
maturing January 1, 2000........... 155
Note payable to the Bank, payable in
monthly principal installments of
$1,491 plus accrued interest at
prime plus 3.0%, maturing June 1,
2000............................... 45
Other................................ 21
Less -- Current maturities of
long-term obligations.............. (2,498)
--------------
$ 1,215
==============
Unless otherwise stated above, all notes payable are collateralized by
accounts receivable, inventory, equipment, treasury bills, a treasury note and a
first priority lien on real property at the Kentucky facility
F-35
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and the Rancho Cucamonga, California, facility, under the terms of the Company's
credit agreement with the Bank, amended on March 11, 1998.
On October 11, 1996, the Company entered into a revolving credit facility,
extended on March 11, 1998, with the Bank in the amount of $2,000,000 in two
lines of credit and $600,000 in a term commitment note. The Company also has
existing loans with the Bank which were used to purchase equipment and real
estate. The facility is secured by substantially all of the assets of the
Company. The borrowings under the credit facility, which are used to fund
working capital, are limited to a maximum of 90 percent of the market value of
the treasury notes plus 80 percent of eligible accounts receivable. The Company
is required to maintain a noninterest-bearing deposit account (restricted
marketable securities, see Note 2) over which the Company has no control and
from which deposits will be used as a principal reduction on the credit
facility. The credit agreement requires the Company to comply with certain
financial covenants, such as meeting minimum requirements for earnings before
interest, taxes, depreciation and amortization (EBITDA) coverage ratio, and
prohibits the Company from merging into or consolidating with any other entity.
The credit agreement allows distributions to partners to cover its partners'
federal income tax liability, and any other distributions are prohibited.
Interest on the outstanding balance is due monthly, and the facility matures on
April 30, 1998. Advances bear interest at prime plus 3 percent and prime plus 5
percent for each line of credit, respectively, and prime plus 3 percent for the
term note. Subsequent to year-end, interest rates were reduced to prime plus 2
percent for the entire facility. As of December 31, 1997, availability under the
credit facility was $738,000.
All of the indebtedness of the Company to the Bank, pursuant to the
parties' loan agreement as amended, stipulates that all bank debt with the Bank
shall be guaranteed by the general partner and two limited partners up to a
principal amount of $4,400,000 each. The Bank's prime rate of interest at
December 31, 1997, was 8.5 percent. Management estimates that the fair value of
its debt obligations approximates the historical value at December 31, 1997.
Principal payments of long-term debt obligations, including related-party
notes payable, in excess of one year as of December 31, 1997, are as follows (in
thousands):
Year ending December 31 --
1998............................ $ 2,808
1999............................ 394
2000............................ 821
2001............................ 100
2002............................ --
Thereafter...................... --
---------
$ 4,123
=========
7. RELATED-PARTY NOTES PAYABLE:
The Company has notes payable to David W. Allen, president of the Company,
in the amounts of $100,000 and $310,000, bearing interest at 8.0 percent and
5.31 percent, respectively, per annum. Annual installments, related to the
$100,000 note, of interest only are due beginning December 1, 1995, and continue
until January 1, 2000, at which time all remaining unpaid principal and interest
shall be due and payable. These notes are subordinated to the payment of all
obligations of the Company to the Bank, pursuant to the terms of a subordination
agreement amended on March 11, 1998.
8. EMPLOYEE BENEFITS:
The Company has a 401(k) defined contribution plan available to all
employees who have been with the Company for more than one year. Employees may
contribute up to 15 percent of their salary each year, and the Company may elect
to make a discretionary contribution to this plan once a year. All plan
F-36
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
participants who are employed at the end of the plan year and have completed
1,000 hours of service in that plan year are eligible to receive a share of the
employer contribution. Participants' rights to the employer contribution vest 20
percent after the second covered year of service and 20 percent for each
additional covered year of service. No contribution was made by the employer to
the defined contribution plan for the year ended December 31, 1997.
9. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office facilities and certain equipment under
noncancelable operating leases for periods ranging from one to eight years. Rent
expense was approximately $236,000 for the year ended December 31, 1997. The
following table presents future minimum rental payments under noncancelable
operating leases (in thousands):
Year ending December 31 --
1998............................ $ 189
1999............................ 138
2000............................ 63
2001............................ 46
2002............................ 36
Thereafter...................... 104
---------
Total...................... $ 576
=========
SALES COMMITMENTS
Periodically, the Company enters into ethanol sales contracts with several
of its customers. These contracts are generally short-term in nature and are
used by the customer to ensure an adequate supply of ethanol for the
state-mandated oxygenated fuels requirements. Additionally, the Company enters
into short-term contracts for the purchase of ethanol to ensure an adequate
supply for the formal sales contracts. These purchase commitments did not result
in losses. The Company did not have any formal purchase or sales commitments
outstanding for the year ended December 31, 1997.
LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise in the
ordinary course of business. Management believes that the ultimate liability
with respect to these claims and legal actions, if any, will not have a material
effect on the financial position of the Company.
The Company has been informed of possible violations of federal
environmental criminal laws resulting from possible improper handling of
asbestos-containing materials from a site now owned by the Company. The Company
does not expect that the ultimate disposition of these proceedings will have a
material adverse effect on the Company's financial condition or its results of
operations.
10. SUBSEQUENT EVENTS:
On April 21, 1998, U S Liquids Inc. acquired the Company for cash, assumed
debt and stock. The transaction was accounted for under the purchase method of
accounting. The acquisition agreement provides for contingent payments up to
$4.2 million, if certain financial and operational goals are met.
F-37
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our reports, included in this Form 8-K, into the U S Liquids
Inc. previously filed Form S-8 Registration Statement File No. 333-34689.
ARTHUR ANDERSEN LLP
Houston, Texas
June 1, 1998
