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FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-72403
PROSPECTUS
MARCH 12, 1999
U S LIQUIDS INC.
[LOGO]
3,000,000 SHARES OF COMMON STOCK
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THE COMPANY:
o We are a rapidly growing provider of liquid waste management services,
including collection, processing, recovery and disposal services.
o U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, Texas 77060-3545
(281) 272-4500
o AMEX SYMBOL: USL
THE OFFERING:
o The Company is offering 2,875,000 of the shares and an existing stockholder
is offering 125,000 of the shares.
o The underwriters have an option to purchase an additional 450,000 shares
from certain selling stockholders to cover over-allotments.
o There is an existing trading market for these shares. The reported last
sales price on March 11, 1999 was $21 per share.
o We plan to use the proceeds from this offering to repay outstanding
indebtedness, the vast majority of which was incurred in connection with
our acquisition of various businesses during 1998 and 1999. We will not
receive any proceeds from the shares sold by the selling stockholders.
o Closing: March 17, 1999.
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Per Share Total
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Public offering price: $21.00 $63,000,000
Underwriting fees: $ 1.05 $ 3,150,000
Proceeds to Company: $19.95 $57,356,250
Proceeds to selling stockholder: $19.95 $ 2,493,750
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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Neither the Securities and Exchange Commission nor any state securities
commission has determined whether this prospectus is truthful or complete. Nor
have they made, nor will they make, any determination as to whether anyone
should buy these securities. Any representation to the contrary is a criminal
offense.
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DONALDSON, LUFKIN & JENRETTE
DEUTSCHE BANK SECURITIES
FIRST SECURITY VAN KASPER
SANDERS MORRIS MUNDY
THE UNDERSIGNED IS FACILITATING INTERNET DISTRIBUTION.
DLJDIRECT INC.
<PAGE>
[Map Indicating Location of Facilities]
LIQUID WASTE TREATMENT PROCESS
------------ US Liquids -----------
| | ----- ------------ |Byproduct|
| | | C | | RECOVERY |---------->| Sales |
| | | O | ------------ -----------
| Liquid | | L | /\
| | | L | ------------ -----------
| Waste |-->| E |-->|PROCESSING| ---->| POTW |
| | | C | ------------ | -----------
|Generators| | T | \/ | -----------
| | | I | ------------ | | Landfill|
| | | O | | DISPOSAL |---------->| Disposal|
| | | N | ------------ -----------
------------ -----
TABLE OF CONTENTS
Page
Prospectus Summary................... 3
Risk Factors......................... 8
Use of Proceeds...................... 14
Price Range of Common Stock and
Dividend Policy.................... 14
Capitalization....................... 15
Selected Financial Data.............. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
Business............................. 27
Management........................... 40
Certain Transactions................. 42
Principal and Selling Stockholders... 43
Underwriting......................... 44
Incorporation of Certain Documents by
Reference.......................... 46
Available Information................ 46
Legal Matters........................ 47
Experts.............................. 47
Index to Financial Statements........ F-1
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED BY MORE DETAILED INFORMATION APPEARING IN OTHER
SECTIONS OF THIS PROSPECTUS. THE OTHER INFORMATION IS IMPORTANT, SO PLEASE READ
THIS PROSPECTUS CAREFULLY. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS
PROSPECTUS ASSUMES THE OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
We are a rapidly growing provider of liquid waste management services,
including collection, processing, recovery and disposal services. Our primary
focus of operations is industrial and commercial wastewater treatment, although
we also collect, process and dispose of oilfield waste. We operate 37 processing
facilities located in eleven states and serve over 40,000 customers. The
services that we provide to any particular customer vary depending on the type
of liquid waste generated, local regulations and the treatment capabilities of
local publicly-operated treatment works.
We provide liquid waste management services through a number of
subsidiaries that are organized into two divisions. The Wastewater Division
collects, processes and disposes of liquid waste (such as industrial wastewater,
grease and grit trap waste, bulk liquids and dated beverages, and certain
hazardous wastes) and recovers saleable by-products (such as fats, oils, feed
proteins, ethanol and solvents) from certain of the waste streams. Typically, we
process the liquid waste using a variety of physical, chemical, thermal and
biological techniques. Saleable by-products are recovered and sold, and any
remaining materials are sent to independent disposal sites. The Oilfield Waste
Division collects, processes and disposes of waste generated in oil and gas
exploration and production. The Wastewater Division generated $158.2 million, or
92.5%, of our pro forma revenues for the nine months ended September 30, 1998
and the Oilfield Waste Division generated the remaining $12.8 million, or 7.5%,
of such pro forma revenues.
According to The McIlvaine Company, the industrial and commercial
wastewater treatment market is highly fragmented with thousands of businesses
generating an estimated $25 billion in worldwide revenues in 1995. We believe
that the growth in demand for wastewater treatment services in the United States
is driven by the following trends:
o Municipalities refusing to accept certain industrial wastewaters
due to limited treatment capabilities and a lack of resources
needed to expand or modernize their treatment works;
o Industrial and commercial businesses avoiding the surcharges of
publicly-operated treatment works by using others to process and
dispose of their wastewater;
o Industrial and commercial businesses outsourcing their wastewater
treatment needs;
o Continued industrial and commercial expansion; and
o Increasingly strict regulations governing the disposal of
industrial wastewater and other liquid wastes, as well as more
stringent enforcement of these regulations.
STRATEGY
Our objective is to be the largest and most profitable liquid waste
management company in each of the markets in which we operate. Our management
team, which has significant operating and consolidation experience in the waste
management industry, intends to continue pursuing a focused growth strategy
based on the following key elements:
o ACQUISITIONS. We pursue acquisitions of liquid waste management
businesses in existing and new geographic markets. We also make
smaller "tuck-in" acquisitions in our existing markets in order to
increase our facility and equipment utilization and expand our market
penetration and range of services. We believe that the liquid waste
management industry is highly
3
<PAGE>
fragmented and that substantial acquisition opportunities exist
throughout North America. From our inception in November 1996 through
February 12, 1999, we have acquired 41 businesses.
o INTERNAL GROWTH. In order to further expand our customer base, we
have positioned ourselves as a multi-city, single source provider of
liquid waste management services for national and regional generators
of liquid waste. We also intend to expand the capacity and processing
capabilities of our existing liquid waste facilities, and to amend our
permits for certain facilities in order to receive additional liquid
waste streams.
o OPERATIONAL ENHANCEMENTS. We intend to continue to improve our
operations through collection route densification and consolidation
and increased facility and equipment utilization. We also expect to
realize economies of scale and cost savings by consolidating certain
administrative functions at our corporate offices.
o DECENTRALIZED MANAGEMENT. We manage our various businesses on a
decentralized basis, with local management maintaining responsibility
for the day-to-day operations, profitability and growth of the
business. We believe that this structure allows us to capitalize on
the considerable local and regional market knowledge and customer
relationships possessed by local management.
RECENT DEVELOPMENTS
Since our June 1998 public offering through February 12, 1999, we have
strengthened the Company in several ways, including the following:
o We have acquired 17 additional businesses engaged in the collection,
processing, recovery and disposal of liquid waste, including Romic
Environmental Technologies Corporation. Romic was acquired in January
1999 and had approximately $35.9 million of revenues during the nine
months ended September 30, 1998. Romic operates liquid waste
processing, and chemical and solvent recovery facilities in California
and Arizona. It also operates collection and transfer facilities in
California, Oregon and Washington. The 16 other businesses we acquired
had approximately $27.5 million of revenues during the nine months
ended September 30, 1998.
o In August 1998, we settled substantially all of the claims asserted
against us in four lawsuits relating to our Bourg, Louisiana landfarm.
Under the terms of the settlement, we agreed to expand the buffer zone
and build a berm along the western boundary of our landfarm. The cost
of these actions will not be material to our operating results.
o In September 1998, we entered into a new agreement with Newpark
Resources, Inc. Under the terms of the new agreement, Newpark agreed
to pay us at least $30.0 million. These payments are required to be
made in monthly installments and will permit Newpark to deliver to us
specified amounts of oilfield waste for processing and disposal.
o We increased the depth of our Board of Directors by adding two new
directors, each of whom has substantial experience with growth
companies. John N. Hatsopoulos became a director in December 1998. Mr.
Hatsopoulos is the retired President of Thermo Electron Corporation.
Roger A. Ramsey became a director in January 1999. Mr. Ramsey is the
retired Chairman and Chief Executive Officer of Allied Waste
Industries, Inc.
o To accommodate the growth in our business, we increased the size of
our credit facility in February 1999 from $100.0 million to $225.0
million.
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<PAGE>
On February 22, 1999, we announced our financial results for the quarter
and year ending December 31, 1998. The complete financial statements for these
periods are not currently available. The following table presents certain
unaudited consolidated financial data for the quarter and year ending December
31, 1998. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements included or incorporated by reference in this
prospectus.
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1998
------------- ------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues......................... $43,600 $121,460
Operating expenses............... 29,799 79,027
Depreciation and amortization.... 2,448 8,146
Selling, general and
administrative expenses.......... 3,959 12,927
Pooling costs.................... -- --
------------- ------------
Income from operations........... 7,394 21,360
Net interest and other expense... 1,480 3,555
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Income before provision for
income taxes..................... 5,914 17,805
Provision for income taxes....... 2,198 7,033
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Net income....................... $ 3,716 $ 10,772
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Diluted earnings per share....... $ 0.27 $ 0.93
============= ============
Diluted weighted average shares
outstanding...................... 13,653 11,636
EBITDA(a)........................ $ 9,842 $ 29,506
THE OFFERING
<TABLE>
<S> <C>
Common stock offered:
By the Company.................. 2,875,000 shares
By the selling stockholder...... 125,000 shares
Total...................... 3,000,000 shares
Common stock to be outstanding after
this offering...................... 15,817,868 shares(b)
Use of proceeds...................... We intend to use the estimated net proceeds of $56.8
million that we will receive from this offering to repay
outstanding indebtedness. We will not receive any
proceeds from the shares sold by the selling
stockholder.
</TABLE>
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(a) See footnote (d) on page 7 for a discussion of the definition and the
limitations on the use of EBITDA.
(b) Excludes 2,711,458 shares of common stock subject to outstanding options and
warrants that have a weighted average exercise price of $9.54 per share,
which options and warrants consist of: (1) 1,000,000 shares issuable
pursuant to a warrant issued to Sanifill, Inc., a wholly-owned subsidiary of
Waste Management, Inc., the resale of which shares is subject to certain
contractual restrictions extending through 2006, (2) 1,476,458 shares
issuable pursuant to outstanding director and employee stock options, (3)
112,500 shares issuable pursuant to warrants granted to certain underwriters
in connection with our initial public offering, and (4) 122,500 shares
issuable pursuant to other outstanding warrants and options. Also excludes
125,000 shares issuable pursuant to options, the vesting of which are
contingent upon the successful completion of certain corporate development
business activities.
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<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
HISTORICAL(A) PRO FORMA AS ADJUSTED(A)(B)
----------------------------------- -----------------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
DECEMBER 31, -------------------- DECEMBER 31, --------------------
1997 1997 1998 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 38,159 $ 27,313 $ 77,860 $229,718 $ 169,894 $ 170,968
Operating expenses............... 21,353 15,404 49,228 152,773 113,494 109,260
Depreciation and amortization.... 2,990 2,007 5,698 14,311 10,090 11,147
Selling, general and administrative
expenses....................... 5,350 3,454 8,968 37,452 26,544 26,129
Pooling costs.................... 400 400 -- 400 400 --
------------ --------- --------- ------------ --------- ---------
Income from operations........... 8,066 6,048 13,966 24,782 19,366 24,432
Interest expense, net............ 1,734 1,367 2,310 2,221 1,626 1,629
Other (income) expense, net...... 41 130 (235) (386) (172) (622)
------------ --------- --------- ------------ --------- ---------
Income before provision for
income taxes................... 6,291 4,551 11,891 22,947 17,912 23,425
Provision for income taxes....... 2,416 1,746 4,835 9,408 7,343 9,605
------------ --------- --------- ------------ --------- ---------
Net income....................... $ 3,875 $ 2,805 $ 7,056 $ 13,539 $ 10,569 $ 13,820
============ ========= ========= ============ ========= =========
Diluted earnings per share....... $ 0.55 $ 0.42 $ 0.64 $ 0.80 $ 0.62 $ 0.81
============ ========= ========= ============ ========= =========
Diluted weighted average shares
outstanding(c)................. 7,078 6,726 10,956 16,961 16,964 17,080
EBITDA(d)........................ $ 11,056 $ 8,055 $ 19,664 $ 39,093 $ 29,456 $ 35,579
<CAPTION>
AS OF SEPTEMBER 30, 1998(A)
--------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(E) AS ADJUSTED(F)
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........ $ 4,827 $ 5,595 $ 5,595
Working capital.................. 2,455 5,881 5,881
Property, plant and equipment,
net.............................. 78,275 95,166 95,166
Total assets..................... 221,317 297,329 297,329
Long-term obligations, net of
current maturities............... 43,910 91,668 34,912
Stockholders' equity............. 118,865 130,561 187,317
</TABLE>
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(a) See introduction to "Selected Financial Data" for a discussion of the
entities and periods covered by the historical and pro forma data set forth
herein.
(b) Pro forma for the effect of all of the acquisitions we have made through
February 12, 1999, and as adjusted to reflect our sale of 1,725,000 shares
in our initial public offering, 3,450,000 shares in our June 1998 offering
and 2,875,000 shares in this offering, and the application of the net
proceeds from each offering, as if each of the acquisitions and offerings
had occurred on January 1, 1997.
(c) The pro forma as adjusted diluted weighted average shares outstanding
includes: (1) 5,937,435 shares, 5,496,736 shares and 9,622,553 shares
outstanding for the year ended December 31, 1997 and for the nine months
ended September 30, 1997 and 1998, respectively, (2) 2,875,000 shares to be
issued in connection with this offering as if it occurred on January 1,
1997, (3) 6,827,864 shares, 7,265,964 shares and 3,209,872 shares for the
year ended December 31, 1997 and for the nine months ended September 30,
1997 and 1998, respectively, to reflect the effect of shares issued in
connection with all of our acquisitions through February 12, 1999 and our
initial public offering and our June 1998 offering, as if each had occurred
on January 1, 1997 and (4) 1,321,010 shares, 1,325,827 shares and 1,372,185
shares for the year ended December 31, 1997 and for the nine months ended
September 30, 1997 and 1998, respectively, representing the effect of
outstanding warrants and options to purchase common stock, using the
treasury stock method. Excludes 125,000 shares issuable pursuant to options,
the vesting of which are contingent upon the successful completion of
certain corporate development activities.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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<PAGE>
(d) EBITDA represents earnings presented above before interest, other (income)
expense, income taxes, depreciation and amortization expense. EBITDA is not
a measure of cash flow, operating results or liquidity, as determined in
accordance with generally accepted accounting principles, and differs from
net cash provided by operating activities as determined under generally
accepted accounting principles in that EBITDA excludes interest expense and
does not reflect the effects of changes in working capital or deferred
income tax items. EBITDA should not be considered in isolation or as an
alternative to, or more meaningful than, net income or cash flows provided
by operations, as determined in accordance with generally accepted
accounting principles. Our EBITDA amounts may not be comparable to EBITDA as
reported by or for other companies because we may not calculate EBITDA on
the same basis as other companies.
(e) Pro forma for the effect of our acquisitions consummated subsequent to
September 30, 1998 through February 12, 1999 as if each had occurred on
September 30, 1998.
(f) Pro forma for the effect of our acquisitions consummated subsequent to
September 30, 1998 through February 12, 1999 as if each had occurred on
September 30, 1998 and as adjusted to reflect our sale of 2,875,000 shares
of common stock in this offering and the application of the net proceeds.
See "Use of Proceeds" and "Capitalization."
7
<PAGE>
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all the other information included or
incorporated by reference in this prospectus, before you decide whether to
purchase shares of our common stock.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words.
You should read statements that contain these words carefully because they (1)
discuss our future expectations; (2) contain projections of our future results
of operations or of our financial condition; or (3) state other
"forward-looking" information. We believe it is important to communicate our
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or over which we have no control. The risk
factors listed in this section, as well as any cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, results of operations and financial condition.
RISKS RELATED TO OPERATING AND INTERNAL GROWTH STRATEGY
Key elements of our strategy are to improve the profitability and increase
the revenues of our existing operations and any subsequently acquired
businesses. We intend to improve the profitability of our existing operations
and any subsequently acquired businesses by various means, including achieving
operating efficiencies and economies of scale. Our ability to increase the
revenues of our existing operations and any subsequently acquired businesses
will be affected by various factors, including:
o The demand for liquid waste collection, processing and disposal
services;
o Our ability to expand the range of services offered to customers;
o Our ability to develop national and regional accounts for our
liquid waste management services and other marketing programs;
and
o The demand for by-products we recover from certain liquid waste
streams.
Many of these factors are beyond our control, and there can be no assurance
that our operating and internal growth strategies will be successful or that we
will be able to generate cash flow adequate for our operations and to support
internal growth.
MANAGEMENT OF GROWTH
To manage our growth effectively, we must implement and improve our
operational, financial and management information systems and controls, and
train, motivate and manage our employees. We periodically review and upgrade our
management information systems, as well as hire additional management and other
personnel in order to maintain the adequacy of our operational, financial and
management controls. If we fail to manage our growth effectively, our business,
results of operations and financial condition could be materially and adversely
affected.
RISKS RELATED TO OUR ACQUISITION STRATEGY AND ACQUISITION FINANCING
The Company was organized in November 1996. Since that time, we have
experienced rapid growth, primarily through acquisitions, and we intend to
acquire additional liquid waste management businesses. We expect to face
competition for acquisition candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition prices. We may not
be able to identify, acquire or manage additional businesses profitably or to
integrate successfully any acquired businesses
8
<PAGE>
without material costs, delays or other operational or financial problems.
Businesses that we acquire may have liabilities that we underestimate or do not
discover during our pre-acquisition investigations. These liabilities may
include those arising from environmental contamination or non-compliance by
prior owners with environmental laws or regulatory requirements, and for which
we, as a successor owner or operator, may be responsible. Certain environmental
liabilities, even if not expressly assumed by us, may be imposed on us under
certain legal principles of successor liability, including those under the
Comprehensive Environmental Response Compensation and Liability Act, as amended.
Further, each acquisition involves a number of other special risks that could
cause the acquired business to fail to meet our expectations. For example:
o The acquired business may not achieve expected results.
o We may not be able to retain key personnel of the acquired business.
o We may not be able to successfully integrate the acquired business in
a timely manner or we may incur substantial costs, delays or other
operational or financial problems during the integration process.
o It may be difficult to integrate a business with personnel who have
different business backgrounds and corporate cultures than ours.
o Our management group may not be able to effectively manage the
combined entity or to effectively implement our acquisition program
and internal growth strategy simultaneously.
We cannot readily predict the timing, size or success of our future
acquisitions or the associated capital requirements. We currently intend to
finance future acquisitions by using a combination of common stock and cash. If
shares of common stock are issued in connection with future acquisitions or
earn-out provisions of completed acquisitions, you may experience dilution in
the net tangible book value of your stock. If the common stock does not maintain
a sufficient market value, or potential acquisition candidates are not willing
to accept common stock as part of the consideration for the sale of their
businesses, we may be required to use more of our cash resources, if available,
or incur indebtedness in order to continue our acquisition program. We have a
$225.0 million credit facility with a group of banks under which we may borrow
to fund acquisitions and working capital requirements; however, under the credit
facility, the banks' consent is required for us to make certain acquisitions or
incur significant indebtedness (including, without limitation, debt assumed in
connection with acquisitions). As of February 12, 1999, the outstanding
principal balance of the credit facility was approximately $98.0 million. After
the consummation of this offering and the application of the net proceeds, we
anticipate that the outstanding principal balance of the credit facility will be
approximately $41.2 million. If we do not have sufficient cash resources to fund
our acquisition plans, our growth could be limited unless we are able to obtain
additional capital through debt or equity financings. We may not be able to
obtain such financing when required or such financing may only be available on
terms and conditions that are unacceptable to us.
COMPETITION
The liquid waste management industry is highly fragmented and very
competitive. We compete with other liquid waste processing facilities and
alternative methods of disposal of certain waste streams provided by area
landfills and injection wells, as well as the alternative of illegal disposal.
In addition, competitive products and services have been and are likely to
continue to be developed and marketed by others. Furthermore, future
technological change and innovation may result in a reduction in the amount of
liquid waste being generated or alternative methods of processing and disposal
being developed. The market for the various by-products that we sell is also
very competitive and is served by several large companies and a number of
smaller, privately-owned companies. With respect to our oilfield waste
operations, we must compete with alternative methods of off-site disposal of
oilfield waste. We also face competition from customers who develop or enhance
their own methods of disposal instead of using the services of liquid waste
management companies. Future technological
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<PAGE>
change and innovation may increase the amount of internal oilfield waste
processing and disposal as well as the number of competitors in this market.
Increased use of internal processing and disposal methods and other competitive
factors could have a material adverse effect on our business, results of
operations and financial condition.
Our competitors may be better capitalized, have greater name recognition or
be able to provide services or products at a lower cost. In addition, as the
liquid waste market matures, competition can be expected to increase. As a
result of these and other competitive factors, our strategy may not be
successful and we may not be able to generate adequate cash flow to fund our
operations.
FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS
Our business is subject to numerous federal, state and local laws,
regulations and policies that govern environmental protection, zoning and other
matters. These laws and regulations have changed frequently in the past and it
is reasonable to expect additional changes in the future. If existing regulatory
requirements change, we may be required to make significant capital and
operating expenditures. Although we believe that we are presently in material
compliance with applicable laws and regulations, our operations may not continue
to comply with future laws and regulations. Governmental authorities may seek to
impose fines and penalties on us or seek to revoke or deny the issuance or
renewal of operating permits for failure to comply with applicable laws and
regulations. Under these circumstances, we might be required to curtail or cease
operations or conduct site remediation until a particular problem is remedied,
which could have a material adverse effect on our business, results of
operations and financial condition.
IMPACT OF FAILURE TO OBTAIN OR MAINTAIN NECESSARY GOVERNMENTAL APPROVALS
We operate in a highly regulated environment and are required to have
permits and approvals from federal, state and local governments. Any of these
permits or approvals or applications could be denied, revoked or modified under
various circumstances. In addition, if new environmental legislation or
regulations are enacted or existing legislation or regulations are amended or
are enforced differently, we might be required to obtain additional operating
permits or approvals. The process of obtaining or renewing a required permit or
approval can be lengthy and expensive and our efforts to obtain permits,
renewals or approvals may be opposed by citizens groups, adjacent landowners or
others. Our City Environmental facility in Detroit, Michigan has never been
granted a permit under the Resource Conservation and Recovery Act of 1976
("RCRA") and is continuing to operate under interim status, as allowed by
RCRA. In addition, our Romic facility in East Palo Alto, California is operating
under a RCRA permit that expired in 1991, but that allows for ongoing
operations. With respect to both facilities, all necessary applications, renewal
applications and other documentation were timely filed and applicable
regulations allow the facilities to continue to operate. However, we may not be
successful in obtaining or maintaining these and other required permits and
approvals and that failure could have a material adverse effect on our business,
results of operations and financial condition.
POTENTIAL ENVIRONMENTAL LIABILITY
We may be subject to liability for environmental damage that our processing
facilities and collection operations may have caused or may cause nearby
landowners, particularly as a result of the contamination of drinking water
sources or soil, including damage resulting from conditions existing prior to
our acquisition of the facilities or operations. Liability may also arise from
any off-site environmental contamination caused by hazardous substances, the
transportation, treatment or disposal of which we arranged or which was arranged
by the owners of businesses that we have acquired. Any substantial liabilities
for environmental damage could have a material adverse effect on our business,
results of operations and financial condition.
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During the ordinary course of our business, we may become involved in a
variety of legal and administrative proceedings relating to land use and
environmental laws and regulations, including actions or proceedings:
o By governmental agencies seeking to impose civil or criminal penalties
on us;
o By governmental agencies seeking to revoke or deny renewal of one or
more of our permits;
o By citizens groups, adjacent landowners or governmental agencies
opposing the issuance of a permit or approval to us or alleging
violations of the permits under which we operate; or
o By citizens groups and adjacent landowners seeking to impose liability
on us for environmental damage at any of our facilities (or facilities
formerly owned by us or any acquired business) or damage that those
facilities or other properties may have caused.
The adverse outcome of one or more of these proceedings could have a material
adverse effect on our business, results of operations and financial condition.
During the ordinary course of our operations, we have from time to time
received, and expect that we may in the future receive, citations or notices
from governmental authorities that our operations are not in compliance with our
permits or certain applicable environmental or land use laws and regulations. We
generally seek to work with the authorities to resolve the issues raised by
these citations or notices. However, we may not always be successful in this
regard and future citations or notices could have a material adverse effect on
our business, results of operations and financial condition.
Our subsidiary, Romic Environmental Technologies Corporation, has entered
into an administrative consent order with the United States Environmental
Protection Agency ("EPA") relating to the cleanup of soil and groundwater
contamination at its facility in East Palo Alto, California. A study to
determine the nature of the contamination has been completed and a corrective
measures study is nearing completion. Based upon the information gathered from
these studies, as of December 31, 1998, Romic had reserved approximately $2.2
million to cover its estimated costs at this facility. However, the ultimate
cost may exceed this reserve. Romic has also entered into administrative consent
orders and agreements with the EPA and the California Department of Toxic
Substances Control relating to three drum reconditioning or disposal sites to
which it delivered waste. Based upon the studies and remedial actions completed,
as of December 31, 1998, Romic had reserved approximately $775,000 to cover its
share of the estimated costs for these sites. However, the ultimate cost may
exceed this reserve. See "Business -- Legal Proceedings."
INSUFFICIENCY OF INSURANCE
While we maintain liability insurance, it is subject to coverage limits and
certain policies exclude coverage for damages resulting from environmental
contamination. Although there are currently numerous sources from which such
coverage may be obtained, it may not continue to be available to us on
commercially reasonable terms or the possible types of liabilities that may be
incurred by us may not be covered by our insurance. In addition, our insurance
carriers may not be able to meet their obligations under the policies or the
dollar amount of the liabilities may exceed our policy limits. Even a partially
uninsured claim, if successful and of significant magnitude, could have a
material adverse effect on our business, results of operations and financial
condition.
DEPENDENCE UPON OILFIELD WASTE EXEMPTION UNDER RCRA AND OTHER ENVIRONMENTAL
REGULATIONS
Oilfield waste is currently exempt from the requirements of RCRA, which is
the principal federal statute governing the handling and disposal of waste. In
recent years, proposals have been made to rescind or modify this exemption. The
repeal or modification of the exemption covering oilfield waste or modification
of applicable regulations or interpretations regarding the processing and
disposal of oilfield waste would require us to alter our method of processing
and disposing of oilfield waste. This could have a material adverse effect on
our business, results of operations and financial condition.
11
<PAGE>
Each of our operations is also dependent to varying degrees on the existence and
enforcement of local, state and federal environmental regulations. Any repeal or
relaxation of those regulations, or a failure of governmental authorities to
enforce the regulations, could result in decreased demand for our services and,
therefore, could have a material adverse effect on our business, results of
operations and financial condition. Our operations may also be adversely
affected by new regulations or changes in other applicable regulations.
DEPENDENCE ON OIL AND GAS INDUSTRY
Demand for our oilfield waste processing and disposal services depends in
large part upon the level of exploration for and production of oil and gas,
particularly in the Gulf Coast region. This demand, in turn, depends on, among
other things, oil and gas prices, expectations about future prices, the cost of
exploring for, producing and delivering oil and gas, the discovery rate of new
oil and gas reserves and the ability of oil and gas companies to raise capital.
Historically, prices for oil and gas have been extremely volatile and have
reacted to changes in the supply of and demand for oil and natural gas, domestic
and worldwide economic conditions and political instability in oil-producing
countries. Current levels of oil and gas exploration and production activities
may not be maintained. Prices for oil and natural gas are expected to continue
to be volatile and affect demand for our oilfield waste services. A material
decline in oil or natural gas prices or exploration activities could materially
affect the demand for our oilfield waste services and, therefore, our business,
results of operations and financial condition.
RELIANCE ON KEY PERSONNEL
We are highly dependent on our executive officers and senior management,
and we likely will depend on the senior management of any significant business
we acquire in the future. The loss of the services of any of our current
executive officers or key employees or any member of senior management of any
acquired business could have a material adverse effect on our business, results
of operations and financial condition. In addition, debt outstanding under our
credit facility may be accelerated by the lenders if, among other things,
Michael P. Lawlor, W. Gregory Orr or Earl J. Blackwell ceases to serve as an
executive officer of the Company and is not replaced within 60 days by an
individual reasonably satisfactory to the lenders. We have tried to reduce some
of this risk by maintaining key man life insurance in the amount of $5.0 million
on each of Messrs. Lawlor, Orr and Blackwell.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in our revenues and operating results can occur from quarter to
quarter as a result of a number of factors, including:
o The consummation of acquisitions;
o The demand for our services by our customers;
o Weather conditions;
o The level of oil and gas exploration and production activity in the
Gulf Coast;
o The number of business days in a quarter; and
o General economic conditions.
Because a significant portion of our expenses are relatively fixed, a
variation in revenues could cause a significant variation in our quarterly
operating results and could result in losses.
VOLATILITY OF OUR STOCK PRICE
Our common stock was first publicly traded on August 20, 1997 and has
traded from a low of $12 5/8 per share to a high of $26 3/8 per share. The
market price of our common stock could continue to fluctuate substantially due
to a variety of factors, including:
12
<PAGE>
o Quarterly fluctuations in results of operations;
o Changes in the regulatory environment or market conditions affecting
the liquid waste management industry;
o Announcement and market acceptance of acquisitions;
o Changes in earnings estimates by analysts;
o Loss of key personnel;
o Changes in accounting principles or policies;
o Sales of common stock by existing stockholders;
o Announcements of key developments by competitors; and
o Economic and political conditions.
The market price for our common stock may also be affected by our ability
to meet analysts' expectations. Any failure to meet such expectations, even
slightly, could have an adverse effect on the market price of our common stock.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against the company. If similar litigation were
instituted against us, it could result in substantial costs and a diversion of
our management's attention and resources, which could have an adverse effect on
our business, results of operations and financial condition. See "Price Range
of Common Stock and Dividend Policy."
LACK OF DIVIDENDS
We have not paid dividends on our common stock and we do not anticipate
paying dividends in the foreseeable future. We intend to retain future earnings,
if any, to finance the expansion of our operations and for general corporate
purposes, including future acquisitions. In addition, our credit facility
prohibits us from paying dividends on our capital stock.
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Our Board of Directors is divided into three classes, with each class
serving a staggered three-year term. This classification system makes it more
difficult for stockholders to replace directors and may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of the Company. In addition, our Board of Directors is authorized to issue,
without further stockholder action, up to 5,000,000 shares of Preferred Stock
with rights that could adversely affect the rights of holders of common stock.
No shares of Preferred Stock are presently outstanding, and we have no present
plans to issue any such shares. The issuance of shares of Preferred Stock under
certain circumstances could have the effect of delaying, deterring or preventing
a change in control of the Company or other corporate action and of discouraging
bids for the common stock.
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,875,000 shares of common stock
offered by us are estimated to be approximately $56.8 million after deducting
the underwriting discounts and commissions and estimated offering expenses. We
will not receive any proceeds from the sale of shares of common stock by the
selling stockholder.
We intend to apply the net proceeds from this offering against the
outstanding balance of our credit facility, the vast majority of which
indebtedness was incurred in connection with acquisitions completed in 1998 and
1999. See "Business -- Acquisition Program." As of February 12, 1999, the
outstanding principal balance of our credit facility was approximately $98.0
million. After this offering and the application of the net proceeds, we
anticipate that the outstanding principal balance of our credit facility will be
approximately $41.2 million. The credit facility expires on February 1, 2002 and
amounts currently outstanding under it bear interest at approximately 7.3% per
year.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been listed on the American Stock Exchange since
August 20, 1997. The trading symbol for our common stock is "USL." The
following table sets forth, for the periods indicated, the high and low sales
prices for the common stock as reported on the American Stock Exchange.
PRICE RANGE OF
COMMON STOCK
--------------
HIGH LOW
Year Ended December 31, 1997:
Third Quarter (beginning August
20)............................. $18 3/16 $13 1/8
Fourth Quarter.................. 19 3/8 12 5/8
Year Ended December 31, 1998:
First Quarter................... $20 3/4 $14 1/4
Second Quarter.................. 25 1/4 19
Third Quarter................... 23 1/8 14 5/8
Fourth Quarter.................. 23 14
Year Ended December 31, 1999:
First Quarter (through March 11,
1999)........................... $26 3/8 $ 19 1/2
On March 11, 1999, the reported last sale price of the common stock was $21
per share.
We have not paid dividends on our common stock and we do not anticipate
paying dividends in the foreseeable future. We intend to retain future earnings,
if any, to finance the expansion of our operations and for general corporate
purposes, including future acquisitions. We are also prohibited from declaring
or paying cash dividends on our capital stock under the terms of our credit
facility.
14
<PAGE>
CAPITALIZATION
The following table sets forth our short-term debt and total capitalization
(1) as of September 30, 1998, (2) pro forma to reflect the effect of our
acquisitions that were consummated subsequent to September 30, 1998 through
February 12, 1999 as if each had occurred on September 30, 1998, and (3) pro
forma as adjusted to reflect our sale of 2,875,000 shares of common stock in
this offering and the application of the net proceeds. This table should be read
in conjunction with "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
included or incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
---------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
<S> <C> <C> <C>
(IN THOUSANDS)
Current maturities of long-term
obligations........................ $ 4,564 $ 5,894 $ 5,894
========== ========== ===========
Long-term obligations, net of current
maturities......................... $ 43,910 $ 91,668 $ 34,912
Stockholders' equity:
Common stock....................... 123 128 157
Additional paid-in capital......... 108,043 119,734 176,461
Retained earnings.................. 10,699 10,699 10,699
---------- ---------- -----------
Total stockholders' equity...... 118,865 130,561 187,317
---------- ---------- -----------
Total capitalization.......... $ 162,775 $222,229 $ 222,229
========== ========== ===========
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
The historical statement of operations data for the years ended December
31, 1995, 1996 and 1997 and the balance sheet data as of December 31, 1996 and
1997 have been derived from the consolidated financial statements audited by
Arthur Andersen LLP, which are filed separately and incorporated by reference in
this prospectus. The historical statement of operations data for the year ended
December 31, 1994 and the balance sheet data as of December 31, 1995 have been
derived from the consolidated financial statements audited by Arthur Andersen
LLP, which do not appear and are not incorporated by reference in this
prospectus. The historical statement of operations data for the year ended
December 31, 1993, and for the nine month periods ended September 30, 1997 and
1998 and the balance sheet data as of December 31, 1993 and 1994 and September
30, 1998 have been derived from our unaudited consolidated financial statements.
The unaudited consolidated financial statements for all periods have been
prepared on the same basis as the audited consolidated financial statements and
in our opinion reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such data. The statement of
operations data below present depreciation and amortization expenses separately
from operating expenses and selling, general and administrative expenses.
Depreciation and amortization expenses are included in the operating expense and
selling, general and administrative expense captions set forth in the audited
financial statements.
The unaudited pro forma as adjusted statement of operations data set forth
below present certain financial information which gives effect to the following
events as if they each occurred on January 1, 1997: (1) all of our acquisitions
through February 12, 1999 and certain pro forma adjustments to the historical
financial statements of the businesses acquired, including adjustments to
depreciation and amortization expenses to reflect purchase price allocations,
adjustments to interest expense to reflect debt issued in connection with the
acquisitions, certain reductions in salaries and benefits payable to the owners
of the businesses acquired which were agreed to in connection with the
acquisitions and the related income tax effects of these adjustments, and (2)
our sale of 1,725,000 shares in our initial public offering, 3,450,000 shares in
the June 1998 offering, and 2,875,000 shares in this offering and the
application of the net proceeds from these offerings. The pro forma financial
information does not necessarily indicate the results we would have obtained if
these events had occurred on January 1, 1997 or our future results. The
unaudited pro forma balance sheet data as of September 30, 1998 gives effect to
all of our acquisitions consummated subsequent to September 30, 1998 through
February 12, 1999 as if each had occurred on September 30, 1998. The unaudited
pro forma as adjusted balance sheet data as of September 30, 1998 gives effect
to all of our acquisitions consummated subsequent to September 30, 1998 through
February 12, 1999 as if each had occurred on September 30, 1998 and has been
adjusted to reflect our sale of 2,875,000 shares of common stock in this
offering and the application of the net proceeds. This information should be
read in conjunction with the other financial statements and notes included or
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA -- HISTORICAL:
Revenues......................... $ 3,799 $ 8,039 $ 11,127 $ 14,285 $ 38,159 $ 27,313 $ 77,860
Operating expenses............... 1,822 7,422 9,776 11,369 21,353 15,404 49,228
Depreciation and amortization.... 104 136 159 424 2,990 2,007 5,698
Selling, general and
administrative expenses........ 1,813 643 863 1,437 5,350 3,454 8,968
Pooling costs.................... -- -- -- -- 400 400 --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations.... 60 (162) 329 1,055 8,066 6,048 13,966
Interest expense, net............ 112 110 159 397 1,734 1,367 2,310
Other (income) expense, net...... 13 (1) 18 (88) 41 130 (235)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision
for income taxes............... (65) (271) 152 746 6,291 4,551 11,891
Provision for income taxes....... -- (89) 49 255 2,416 1,746 4,835
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................ $ (65) $ (182) $ 103 $ 491 $ 3,875 $ 2,805 $ 7,056
========= ========= ========= ========= ========= ========= =========
Basic earnings (loss) per common
share.......................... $ (0.04) $ (0.11) $ 0.06 $ 0.23 $ 0.65 $ 0.51 $ 0.73
========= ========= ========= ========= ========= ========= =========
Diluted earnings (loss) per
share.......................... $ (0.04) $ (0.11) $ 0.06 $ 0.23 $ 0.55 $ 0.42 $ 0.64
========= ========= ========= ========= ========= ========= =========
Weighted average shares
outstanding.................... 1,700 1,700 1,700 2,117 5,937 5,497 9,623
Diluted weighted average shares
outstanding.................... 1,700 1,700 1,700 2,139 7,078 6,726 10,956
EBITDA(a)........................ $ 164 $ (26) $ 488 $ 1,479 $ 11,056 $ 8,055 $ 19,664
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------
1997 1997 1998
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA -- PRO
FORMA AS ADJUSTED(B):
Revenues......................... $ 229,718 $ 169,894 $ 170,968
Operating expenses............... 152,773 113,494 109,260
Depreciation and amortization.... 14,311 10,090 11,147
Selling, general and
administrative expenses........ 37,452 26,544 26,129
Pooling costs.................... 400 400 --
------------ ---------- ----------
Income from operations........... 24,782 19,366 24,432
Interest expense, net............ 2,221 1,626 1,629
Other (income) expense, net...... (386) (172) (622)
------------ ---------- ----------
Income before provision for
income taxes................... 22,947 17,912 23,425
Provision for income taxes....... 9,408 7,343 9,605
------------ ---------- ----------
Net income....................... $ 13,539 $ 10,569 $ 13,820
============ ========== ==========
Basic earnings per common
share.......................... $ 0.87 $ 0.68 $ 0.88
============ ========== ==========
Diluted earnings per share....... $ 0.80 $ 0.62 $ 0.81
============ ========== ==========
Weighted average shares
outstanding(c)................. 15,640 15,638 15,707
Diluted weighted average shares
outstanding(c)(d).............. 16,961 16,964 17,080
EBITDA(a)........................ $ 39,093 $ 29,456 $ 35,579
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
HISTORICAL AS OF DECEMBER 31, ------------------------------------
----------------------------------------------------- PRO PRO FORMA
1993 1994 1995 1996 1997 HISTORICAL FORMA(E) AS ADJUSTED(F)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 51 $ 25 $ 39 $ 5,604 $ 2,203 $ 4,827 $ 5,595 $ 5,595
Working capital (deficit)......... (108) (301) (576) 223 2,122 2,455 5,881 5,881
Property, plant and equipment,
net............................. 867 911 1,680 34,582 39,110 78,275 95,166 95,166
Total assets...................... 1,277 1,410 3,007 46,851 55,016 221,317 297,329 297,329
Long-term obligations, net of
current maturities.............. 1,077 1,191 1,596 23,668 16,644 43,910 91,668 34,912
Stockholders' equity.............. (266) (455) (358) 1,538 20,906 118,865 130,561 187,317
</TABLE>
- -----------------------------
(a) EBITDA represents earnings presented above before interest, other (income)
expense, income taxes, depreciation and amortization expense. EBITDA is not
a measure of cash flow, operating results or liquidity, as determined in
accordance with generally accepted accounting principles, and differs from
net cash provided by operating activities as determined under generally
accepted accounting principles in that EBITDA excludes interest expense and
does not reflect the effects of changes in working capital or deferred tax
items. EBITDA should not be considered in isolation or as an alternative
to, or more meaningful than, net income or cash flows provided by
operations, as determined in accordance with generally accepted accounting
principles. Our EBITDA amounts may not be comparable to EBITDA as reported
by or for other companies because we may not calculate EBITDA on the same
basis as other companies.
(b) Pro forma for the effect of all of the acquisitions we have made through
February 12, 1999, and as adjusted to reflect our sale of 1,725,000 shares
in our initial public offering, 3,450,000 shares in our June 1998 offering
and 2,875,000 shares in this offering and the application of the net
proceeds from each offering, as if each of the acquisitions and offerings
had occurred on January 1, 1997.
(c) The pro forma as adjusted weighted average shares outstanding includes: (1)
5,937,435 shares, 5,496,736 shares and 9,622,553 shares outstanding for the
year ended December 31, 1997 and for the nine months ended September 30,
1997 and 1998, respectively, (2) 2,875,000 shares to be issued in
connection with this offering, and (3) 6,827,864 shares, 7,265,964 shares
and 3,209,872 shares for the year ended December 31, 1997 and for the nine
months ended September 30, 1997 and 1998, respectively, to reflect the
effect of shares issued in connection with all of our acquisitions through
February 12, 1999 and our initial public offering and our June 1998
offering, as if each had occurred on January 1, 1997.
(d) The pro forma as adjusted diluted weighted average shares outstanding
includes 1,321,010 shares, 1,325,827 shares and 1,372,185 shares for the
year ended December 31, 1997 and for the nine months ended September 30,
1997 and 1998, respectively, representing the effect of outstanding
warrants and options to purchase common stock, using the treasury stock
method. Excludes 125,000 shares issuable pursuant to options, the vesting
of which are contingent upon the successful completion of certain corporate
development activities.
(e) Pro forma for the effect of our acquisitions consummated subsequent to
September 30, 1998 through February 12, 1999 as if each had occurred on
September 30, 1998.
(f) Pro forma for the effect of our acquisitions consummated subsequent to
September 30, 1998 through February 12, 1999 as if each had occurred on
September 30, 1998 and as adjusted to reflect our sale of 2,875,000 shares
of common stock in this offering and the application of the net proceeds.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING SECTION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS. SOME OF THE INFORMATION IN THIS "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. YOU
CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY,"
"WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE," AND
"CONTINUE" OR SIMILAR WORDS. OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS
COULD DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK
FACTORS."
OVERVIEW
We collect, process, recover and dispose of liquid waste through a number
of subsidiaries that are organized into two divisions. The Wastewater Division
collects, processes and disposes of liquid waste and recovers saleable
by-products from certain waste streams. We formed our Wastewater Division when
we acquired two companies in June 1997 in transactions that were accounted for
under the pooling-of-interests method of accounting. The Oilfield Waste Division
processes and disposes of waste generated in oil and gas exploration and
production. It was formed in December 1996 when we purchased our Louisiana and
Texas landfarms from Sanifill, Inc., a wholly-owned subsidiary of Waste
Management, Inc. Since our initial public offering in August 1997 through
February 12, 1999, the Wastewater Division has acquired 37 businesses and the
Oilfield Waste Division has acquired one business.
Due to the number of acquisitions we have completed since December 31,
1997, this section addresses both historical and pro forma results of operations
and financial condition. The pro forma discussion addresses our results of
operations for the nine months ended September 30, 1997 and 1998 and the year
ended December 31, 1997, with certain pro forma adjustments as described in the
notes to the Pro Forma Financial Statements. The Pro Forma Financial Statements
(1) assume that all of our acquisitions made through February 12, 1999 were
completed on January 1, 1997, (2) include certain adjustments to the historical
financial statements of the businesses acquired, including adjustments to
depreciation and amortization expenses to reflect purchase price allocations,
adjustments to interest expense to reflect debt issued in connection with the
acquisitions, certain reductions in salaries and benefits payable to the owners
of the businesses acquired which were agreed to in connection with the
acquisitions and the related income tax effects of these adjustments, and (3)
are adjusted to reflect our sale of 1,725,000 shares in our initial public
offering, 3,450,000 shares in the June 1998 offering and 2,875,000 shares in
this offering, and the application of the net proceeds from these offerings, as
if each of these events had occurred on January 1, 1997. The pro forma results
of operations are not necessarily indicative of the results we would have
obtained had the acquired businesses been acquired or the offerings consummated
on January 1, 1997 or of our future results.
The historical discussion addresses our actual results of operations and
financial condition as shown in the Consolidated Financial Statements for the
nine months ended September 30, 1997 and 1998 and the years ended December 31,
1995, 1996 and 1997, which statements are filed separately and incorporated by
reference in this prospectus. These statements reflect, for all periods
presented, the historical results of operations of businesses that we acquired
and transactions that were accounted for under the pooling-of-interests method
of accounting and the results of operations of other acquired businesses from
their dates of acquisition.
The Wastewater Division generated $158.2 million, or 92.5%, of our pro
forma revenues for the nine months ended September 30, 1998. This Division
derives revenues from two principal sources: fees received for collecting and
processing liquid waste (such as industrial wastewater, grease and grit trap
waste, bulk liquids and dated beverages, and certain hazardous wastes) and
revenue obtained from the sale of by-products, including fats, oils, feed
proteins, industrial and fuel grade ethanol, solvents,
18
<PAGE>
aluminum, glass, plastic and cardboard, recovered from waste streams. Some of
our by-product sales involve the brokering of industrial and fuel grade ethanol
produced by third parties. During 1998, we curtailed these brokerage activities
except where necessary to meet our customers' volume and quality requirements.
Collection and processing fees charged to customers vary per gallon by waste
stream according to the constituents of the waste, expenses associated with
processing the waste and competitive factors. By-products are commodities and
their prices fluctuate based on market conditions. We anticipate that revenues
from collection and processing fees, which have higher margins than by-product
sales, will increase at a faster rate than revenues from sales of by-products.
We anticipate that the Wastewater Division will represent a growing share of our
business because of its projected internal growth and future acquisitions.
The Oilfield Waste Division generated $12.8 million, or 7.5%, of our pro
forma revenues for the nine months ended September 30, 1998. This Division
derives revenues from fees charged to customers for (1) processing and disposing
of oil and gas exploration and production waste, and (2) cleaning tanks, barges
and other vessels and containers used in the storage and transportation of
oilfield waste. The fees charged for processing and disposing of oilfield waste
are based on the composition of the waste and vary significantly. Accordingly,
we believe that total revenues are a better indicator of performance than is the
average fee charged. In order to match revenues with their related costs, when
waste is unloaded at one of our sites, we recognize the related revenue and
record a reserve for the estimated amount of expenses to be incurred to process
and dispose of the waste. As processing occurs, generally over nine to twelve
months, the reserve is depleted as expenses are incurred. Our operating margins
in the Oilfield Waste Division are typically higher than in the Wastewater
Division.
Newpark Resources, Inc. is the largest customer of the Oilfield Waste
Division. As described in "Certain Transactions," in September 1998, we
entered into a new 33-month agreement with Newpark. In this agreement, Newpark
agreed to pay us at least $30.0 million. Newpark paid us $3.0 million in
September 1998 and an additional $5.0 million between October 1, 1998 and
February 12, 1999. The remaining amounts are required to be paid to us in
monthly installments continuing through June 2001. These payments will permit
Newpark to deliver to us at no additional cost specified amounts of oilfield
waste for processing and disposal.
Operating expenses include compensation and overhead related to operations
workers, supplies and other raw materials, transportation charges, disposal fees
paid to third parties, real estate lease payments and energy and insurance costs
applicable to waste processing and disposal operations.
Selling, general and administrative expenses include management, clerical
and administrative compensation and overhead relating to our corporate offices
and each of our operating sites, as well as professional services and costs.
Depreciation and amortization expenses relate to our landfarms and other
depreciable or amortizable assets. Landfarms, which constitute approximately
14.8% of our pro forma net property, plant and equipment, are amortized over 25
years. Other depreciable or amortizable assets are amortized over periods
ranging from three to 40 years. Amortization expenses relating to acquisitions
have increased over time as a result of amortization of goodwill recorded in
connection with our acquisitions.
19
<PAGE>
PRO FORMA AS ADJUSTED RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected pro
forma as adjusted statement of operations data as a percentage of pro forma
revenues:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
------------------------
1997 1998
<S> <C> <C>
Revenues............................. 100.0% 100.0%
Operating expenses................... 66.8 63.9
Depreciation and amortization........ 5.9 6.5
Selling, general and administrative
expenses........................... 15.6 15.3
Pooling costs........................ 0.2 --
--------- ------------
Income from operations............... 11.5 14.3
Interest expense, net................ 1.0 1.0
Other (income) expense, net.......... (0.1) (0.4)
--------- ------------
Income before provision for income
taxes.............................. 10.6 13.7
Provision for income taxes........... 4.3 5.6
--------- ------------
Net income........................... 6.3% 8.1%
========= ============
</TABLE>
PRO FORMA AS ADJUSTED RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997
REVENUES. Pro forma revenues for the nine months ended September 30, 1998
increased $1.1 million, or 0.6%, from $169.9 million for the nine months ended
September 30, 1997 to $171.0 million for the nine months ended September 30,
1998. The Wastewater Division contributed $154.8 million, or 91.1%, of the pro
forma revenues for the nine months ended September 30, 1997 and $158.2 million,
or 92.5%, of the pro forma revenues for the nine months ended September 30,
1998. Wastewater Division revenues can be further broken down into two
categories: (1) collection and processing fees, and (2) by-product sales.
Collection and processing fees generated $119.3 million, or 77.1%, and $128.7
million, or 81.4%, of the Wastewater Division's pro forma revenues for the nine
months ended September 30, 1997 and 1998, respectively. Revenues from collection
and processing of waste increased $9.4 million, or 7.9%, due to increased
volumes and increased pricing. By-product sales generated the remaining $35.5
million, or 22.9%, and $29.5 million, or 18.6%, of the Wastewater Division's pro
forma revenues for the nine months ended September 30, 1997 and 1998,
respectively. Revenues from the sale of by-products decreased $6.0 million, or
16.9%, due to a reduction in commodities prices and because we elected, during
1998, to reduce our ethanol brokering activities except where necessary to meet
our customers' volume and quality requirements. Brokered sales of ethanol
included in by-product sales were $13.6 million and $8.1 million for the nine
months ended September 30, 1997 and 1998, respectively.
The Oilfield Waste Division contributed $15.1 million, or 8.9%, of the pro
forma revenues for the nine months ended September 30, 1997 and $12.8 million,
or 7.5%, of the pro forma revenues for the nine months ended September 30, 1998.
The Oilfield Waste Division's pro forma revenues decreased $2.3 million, or
15.2%, due to a decline in drilling activity in the Gulf Coast region.
OPERATING EXPENSES. Pro forma operating expenses decreased $4.2 million,
or 3.7%, from $113.5 million for the nine months ended September 30, 1997 to
$109.3 million for the nine months ended September 30, 1998. As a percentage of
pro forma revenues, pro forma operating expenses decreased from 66.8% for the
1997 period to 63.9% for the 1998 period. This improvement was due primarily to
an increase in collection and processing revenues, which have higher margins
than by-product sales, in the 1998 period, as well as increased efficiencies
resulting from higher volumes and operational enhancements.
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DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization
expenses increased $1.1 million, or 10.5%, from $10.1 million for the nine
months ended September 30, 1997 to $11.1 million for the nine months ended
September 30, 1998, primarily as a result of an increase in capital
expenditures. As a percentage of pro forma revenues, pro forma depreciation and
amortization expenses increased from 5.9% for the nine months ended September
30, 1997 to 6.5% for the nine months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Pro forma selling, general
and administrative expenses decreased $415,000 or 1.6%, from $26.5 million for
the nine months ended September 30, 1997 to $26.1 million for the nine months
ended September 30, 1998. As a percentage of pro forma revenues, pro forma
selling, general and administrative expenses decreased from 15.6% for the nine
months ended September 30, 1997 to 15.3% for the nine months ended September 30,
1998.
INCOME TAXES. The pro forma provision for income taxes increased by $2.3
million, or 30.8%, from $7.3 million for the nine months ended September 30,
1997 to $9.6 million for the nine months ended September 30, 1998 as a result of
increased taxable income. The assumed effective tax rate for both periods was
41.0%.
PRO FORMA AS ADJUSTED RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997
REVENUES. Pro forma revenues for 1997 were $229.7 million. The Wastewater
Division generated $210.0 million, or 91.4%, of such pro forma revenues.
Collection and processing fees contributed $162.3 million, or 77.3%, of the
Wastewater Division's 1997 pro forma revenues and by-product sales contributed
the remaining $47.7 million, or 22.7%, of the Wastewater Division's 1997 pro
forma revenues. Brokered sales of ethanol constituted $18.5 million of the
by-product sales of the Wastewater Division. The Oilfield Waste Division
generated $19.7 million, or 8.6%, of 1997 pro forma revenues.
OPERATING EXPENSES. Pro forma operating expenses for 1997 were $152.8
million, or 66.5% of pro forma revenues.
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization
expenses for 1997 were $14.3 million, which represented 6.2% of pro forma
revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Pro forma selling, general
and administrative expenses for 1997 were $37.5 million. As a percentage of pro
forma revenues, pro forma selling, general and administrative expenses were
16.3%.
INCOME TAXES. The pro forma provision for income taxes for 1997 was $9.4
million. The assumed effective tax rate for the period was 41.0%.
HISTORICAL RESULTS OF OPERATIONS
HISTORICAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
REVENUES. Revenues for the nine months ended September 30, 1998 increased
$50.6 million, or 185.1%, from $27.3 million for the nine months ended September
30, 1997 to $77.9 million for the nine months ended September 30, 1998. The
Wastewater Division contributed $12.2 million, or 44.7%, of revenues for the
nine months ended September 30, 1997 and $65.1 million, or 83.6%, of revenues
for the nine months ended September 30, 1998. Collection and processing fees
generated $3.2 million, or 26.0%, and $48.0 million, or 73.7%, of the Wastewater
Division's revenues for the nine months ended September 30, 1997 and 1998,
respectively. By-product sales generated the remaining $9.1 million, or 74.0%,
and $17.1 million, or 26.3%, of the Wastewater Division's revenues for the 1997
and 1998 periods, respectively. The Oilfield Waste Division contributed $15.1
million, or 55.3%, of revenues for the nine months ended September 30, 1997 and
$12.8 million, or 16.4%, of revenues for the nine months ended September 30,
1998.
The revenues of the Wastewater Division increased $52.9 million, or 433.6%,
from $12.2 million for the nine months ended September 30, 1997 to $65.1 million
for the nine months ended
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September 30, 1998. This increase was due primarily to acquisitions completed
during the fourth quarter of 1997 and the first nine months of 1998. The "same
store" revenues for collection and processing of waste increased due to
increased pricing, while revenues from the sale of fats and oils decreased due
to a reduction in commodities prices. The Oilfield Waste Division's revenues
decreased $2.3 million, or 15.4%, from $15.1 million for the nine months ended
September 30, 1997 to $12.8 million for the nine months ended September 30,
1998. This decrease resulted primarily from lower receipts of oilfield waste
from customers caused by a decline in drilling activity in the Gulf Coast
region.
OPERATING EXPENSES. Operating expenses increased $33.8 million, or 219.6%,
from $15.4 million for the nine months ended September 30, 1997 to $49.2 million
for the nine months ended September 30, 1998. As a percentage of revenues,
operating expenses increased from 56.4% for the nine months ended September 30,
1997 to 63.2% for the nine months ended September 30, 1998. This increase was
due principally to our transition from operating primarily as an oilfield waste
disposal company into an integrated liquid waste management company providing
collection, processing, recovery and disposal services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $3.7 million, or 183.9%, from $2.0 million for the nine months ended
September 30, 1997 to $5.7 million for the nine months ended September 30, 1998.
As a percentage of revenues, depreciation and amortization expenses remained
constant at approximately 7.3%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $5.5 million, or 159.6%, from $3.5 million for
the nine months ended September 30, 1997 to $9.0 million for the nine months
ended September 30, 1998. As a percentage of revenues, selling, general and
administrative expenses decreased from 12.6% for the nine months ended September
30, 1997 to 11.5% for the nine months ended September 30, 1998. This improvement
resulted primarily from our ability to integrate new business acquisitions
without a proportionate increase in general and administrative expenses.
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased
$578,000, or 38.6%, from $1.5 million for the nine months ended September 30,
1997 to $2.1 million for the nine months ended September 30, 1998. This increase
resulted primarily from interest expense incurred on borrowings used to fund the
purchase price for acquisitions completed in 1998.
INCOME TAXES. The provision for income taxes increased $3.1 million, or
176.9%, from $1.7 million for the nine months ended September 30, 1997 to $4.8
million for the nine months ended September 30, 1998 as a result of increased
taxable income. The effective tax rate for the nine months ended September 30,
1997 was 38.4%, compared to a 40.7% rate for the nine months ended September 30,
1998.
HISTORICAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. Revenues increased $23.9 million, or 167.1%, from $14.3 million
in 1996 to $38.2 million in 1997. The Wastewater Division contributed $13.5
million, or 94.4%, of 1996 revenues and $18.2 million, or 47.6%, of 1997
revenues. By-product sales generated $11.4 million, or 84.4%, of the Wastewater
Division's revenues in 1996 and $12.4 million, or 68.1%, in 1997. Collection and
processing fees generated $2.1 million, or 15.6%, of the Wastewater Division's
revenues in 1996 and $5.8 million, or 31.9%, in 1997. The Oilfield Waste
Division contributed $826,000, or 5.6%, of revenues in 1996 and $20.0 million,
or 52.4%, of revenues in 1997. We purchased the Oilfield Waste Division under
the purchase method of accounting in December 1996.
Revenues of the Wastewater Division increased $4.7 million, or 34.8%, from
$13.5 million in 1996 to $18.2 million in 1997. This increase was attributable
to an 180.1% increase in volume of waste processed and an 8.8% increase in
by-product sales. The Oilfield Waste Division's revenues increased $19.2 million
from $826,000 in 1996 to $20.0 million in 1997 as a result of the inclusion of
the Oilfield Waste Division for all of 1997 as compared to less than one month
in 1996.
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OPERATING EXPENSES. Operating expenses increased $10.0 million, or 87.8%,
from $11.4 million in 1996 to $21.4 million in 1997, primarily due to the
inclusion of the Oilfield Waste Division for all of 1997 as compared to less
than one month in 1996. As a percentage of revenues, operating expenses
decreased from 79.6% for 1996 to 56.0% for 1997. This improvement reflects
higher operating margins derived by the Oilfield Waste Division as opposed to
the Wastewater Division.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $2.6 million, or 605.2%, from $424,000 in 1996 to $3.0 million in
1997. As a percentage of revenues, depreciation and amortization expenses
increased from 3.0% in 1996 to 7.8% in 1997. The increase in depreciation and
amortization expenses resulted primarily from the acquisition of the Oilfield
Waste Division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.4 million, or 300.1%, from $1.4 million in
1996 to $5.8 million in 1997. The majority of this increase related to the
inclusion of the Oilfield Waste Division for all of 1997 as compared to less
than one month in 1996. Selling, general and administrative expenses increased
from 10.1% of 1996 revenues to 15.1% of 1997 revenues, primarily due to higher
personnel costs and professional fees associated with being a public company and
establishing our corporate offices in Houston in May 1997.
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased
$1.5 million, or 474.4%, from $309,000 in 1996 to $1.8 million in 1997. Net
interest and other expenses increased primarily as a result of interest expense
related to debt incurred in acquiring the Oilfield Waste Division in 1996 and
other businesses in 1997.
INCOME TAXES. The provision for income taxes increased $2.2 million, or
847.5%, from $255,000 in 1996 to $2.4 million in 1997. This increase resulted
primarily from additional taxable income. The effective tax rate for 1996 was
34.2% of income and the effective tax rate for 1997 was 38.4% of income.
HISTORICAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. All revenues in 1995 and 94.4% of revenues in 1996 were
generated by the Wastewater Division. Revenues increased $3.2 million, or 28.4%,
from $11.1 million in 1995 to $14.3 million in 1996. By-product sales
contributed $9.8 million, or 88.3%, of our revenues in 1995 and $11.4 million,
or 79.7%, of our revenues in 1996. Collection and processing fees received by
the Wastewater Division contributed $1.3 million, or 11.7%, of our revenues in
1995 and $2.1 million, or 14.7%, of our revenues in 1996. The Oilfield Waste
Division contributed $826,000, or 5.6%, of our revenues in 1996.
By-product sales increased by $1.6 million, or 16.3%, from $9.8 million in
1995 to $11.4 million in 1996. Collection and processing fees increased by
$750,000, or 56.3%, from $1.3 million in 1995 to $2.1 million in 1996. The
increase in revenues from the sale of by-products was due to an increase in
volumes and an increase in the average price per pound. The increase in the
volume of collection and processing fees resulted primarily from growth of the
Houston market. The increase in the average price per pound was primarily
attributable to revenues obtained in our acquisition of a collection business in
March 1996.
OPERATING EXPENSES. Operating expenses increased $1.6 million, or 16.3%,
from $9.8 million in 1995 to $11.4 million in 1996. As a percentage of revenues,
operating expenses decreased from 87.9% in 1995 to 79.6% in 1996. This
improvement was attributable to increased sales of by-products, lower per unit
processing costs, lower per unit costs of raw materials and increased revenues
from processing operations, offset in part by increased personnel expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $265,000, or 166.7%, from $159,000 in 1995 to $424,000 in 1996. As a
percentage of revenues, depreciation and amortization expenses increased from
1.4% in 1995 to 3.0% in 1996. This increase was attributable to acquisitions of
additional depreciable assets during 1996.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $574,000, or 66.5%, from $863,000 in 1995 to
$1.4 million in 1996. As a percentage of revenues, selling, general and
administrative expenses increased from 7.8% in 1995 to 10.1% in
1996. The majority of the increase relates to the addition of the Oilfield Waste
Division at the end
of 1996.
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased
$132,000, or 74.6%, from $177,000 in 1995 to $309,000 in 1996. Net interest and
other expenses increased primarily as a result of interest expense related to
the acquisition of the Oilfield Waste Division.
INCOME TAXES. The provision for income taxes increased by $206,000, or
420.4%, from $49,000 in 1995 to $255,000 in 1996. The effective tax rate for
1995 was 32.2% and the effective tax rate
for 1996 was 34.2%.
LIQUIDITY AND CAPITAL RESOURCES
We had net working capital of $2.5 million at September 30, 1998, compared
to net working capital of $2.1 million at December 31, 1997.
Our capital requirements for our continuing operations consist of our
general working capital needs, scheduled principal payments on our debt
obligations and capital leases, and planned capital expenditures. At September
30, 1998, approximately $4.6 million of principal payments on debt obligations
were payable during the next twelve months. Capital expenditures for our
continuing operations during 1998 were $11.4 million. The majority of the
capital expenditures were for plant expansions, equipment and vehicle upgrades.
Capital expenditures for our continuing operations for 1999 are budgeted at
$10.8 million. Approximately $9.9 million of this amount is budgeted to be
invested in the Wastewater Division for plant expansions, equipment and vehicle
upgrades. The remaining amounts are budgeted to be invested in the Oilfield
Waste Division for equipment.
At September 30, 1998, we had established a $6.5 million reserve to provide
for the cost of future closures of facilities. The amount of this unfunded
reserve is based on our estimated total cost to close the facilities as
calculated in accordance with the applicable regulations. Regulatory agencies
require us to post financial assurance to assure that all waste will be treated
and the facilities closed appropriately. We have in place a total of $14.3
million of financial assurance in the form of letters of credit and bonds.
We have a $225.0 million credit facility with a group of banks under which
we may borrow to fund working capital requirements and acquisitions. The amount
of this credit facility was increased in February 1999 from $100.0 million to
$225.0 million. Amounts outstanding under the credit facility are secured by a
lien on all or substantially all of our assets. The credit facility prohibits
the payment of dividends and requires us to comply with certain financial
covenants. The credit facility also places certain restrictions on, among other
things, acquisitions and other business combination transactions which we may
consummate. We do not believe that these restrictions will have a material
adverse effect on our ability to fulfill our current acquisition program. The
debt outstanding under the credit facility may be accelerated by the lenders if,
among other things, a change in control of the Company occurs or Michael P.
Lawlor, W. Gregory Orr or Earl J. Blackwell ceases to serve as an executive
officer of the Company and is not replaced within 60 days by an individual
reasonably satisfactory to the lenders. After this offering and the application
of the net proceeds, we anticipate that the outstanding principal balance of the
credit facility will be approximately $41.2 million. Amounts currently
outstanding under the credit facility bear interest at approximately 7.3% per
year. See "Use of Proceeds." We also have a $10.0 million credit facility with
BankBoston, N.A. under which we may borrow to purchase equipment. As of the date
of this prospectus, no amounts are outstanding under this equipment credit
facility.
Our capital resources consist of cash reserves, cash generated from
operations and funds available under our $225.0 million credit facility and the
equipment credit facility. We expect that these resources will be sufficient to
fund continuing operations for at least the next twelve months. In
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addition to capital required for our ongoing operations, we will require
additional capital to pursue our long-term acquisition program. We anticipate
that future acquisitions will be made using a combination of common stock and
cash, much of which is expected to be derived from borrowings under the $225.0
million credit facility. In addition, we may seek to raise additional equity
capital for all or a substantial part of the consideration to be paid for future
acquisitions or to reduce our debt.
In certain of our acquisitions, we agreed to pay additional consideration
to the owners of the acquired business if the future pre-tax earnings of the
acquired business exceed certain negotiated levels or other specified events
occur. To the extent that any contingent consideration is required to be paid in
connection with an acquisition, we anticipate that the cash flows of the
acquired business will be sufficient to pay the contingent consideration.
SEASONALITY
We expect that the operations of the Oilfield Waste Division will
experience certain seasonal patterns consistent with the oil and gas exploration
and production activity in the Gulf Coast. Generally, the volume of oilfield
waste delivered to the Oilfield Waste Division has been lowest in
the first quarter of each calendar year. Prices for oil and natural gas are
expected to continue to be volatile and affect demand for our oilfield waste
services. Certain of the Wastewater Division's processing facilities in the
Northeast and Midwest may be affected by adverse weather conditions.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, such
computer applications could fail or create erroneous results by or at
the Year 2000. We are currently identifying which of our information technology
and non-information technology systems will be affected by Year 2000 issues.
Our Year 2000 compliance program consists of three phases: identification
and assessment; remediation; and testing. For any given system, the phases occur
in sequential order, from identification and assessment of Year 2000 problems,
to remediation and, finally, to testing our solutions. However, as we acquire
additional businesses, each information technology and non-information
technology system of the acquired business must be independently identified and
assessed. As a result, all three phases of our Year 2000 compliance program may
occur simultaneously as they relate to different systems. Each phase may have a
varying timetable to completion, depending upon the system and the date when a
particular business was acquired by us.
We have completed the identification and assessment of most of our
information technology systems, and those systems address or have been modified
to address Year 2000 problems. We will continue to assess the information
technology systems of businesses that we have recently acquired and that we may
acquire in the future. We are in the identification and assessment phase with
respect to non-information technology systems of currently-owned businesses. We
anticipate completing all phases of our Year 2000 compliance program by June 30,
1999, with the possible exception of the remediation and testing phases for
certain of our non-information technology systems. We cannot assure you,
however, that recently acquired businesses will be Year 2000 compliant. However,
to the extent feasible, we review the Year 2000 status of acquisition candidates
before we complete an acquisition.
Our costs to date for our Year 2000 compliance program have not been
material. Although we have not completed our assessment of non-information
technology systems, we do not currently believe that the future costs associated
with our Year 2000 compliance program will be material.
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We are currently unable to determine our most reasonably likely worst case
Year 2000 scenario, because we have not identified and assessed all of our
non-information technology systems. Because most of our information technology
systems address or have been modified to address Year 2000 problems and because
most of our businesses do not employ a high degree of process or plant
automation, we do not anticipate that the Year 2000 will have a significant
impact on our operations. However, a failure to address all of our Year 2000
issues successfully could have a material adverse effect on our business,
results of operations and financial condition.
This is a Year 2000 readiness disclosure statement within the meaning of
the Year 2000 Information and Readiness Disclosure Act (P.L. 105-271).
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BUSINESS
GENERAL
We are a rapidly growing provider of liquid waste management services,
including collection, processing, recovery and disposal services. Our primary
focus of operations is industrial and commercial wastewater treatment, although
we also collect, process and dispose of oilfield waste. We operate 37 processing
facilities located in eleven states and serve over 40,000 customers. The
services that we provide to any particular customer vary depending on the type
of liquid waste generated, local regulations and the treatment capabilities of
local publicly-operated treatment works ("POTWs").
We provide liquid waste management services through a number of
subsidiaries that are organized into two divisions. The Wastewater Division
collects, processes and disposes of liquid waste (such as industrial wastewater,
grease and grit trap waste, bulk liquids and dated beverages, and certain
hazardous wastes) and recovers saleable by-products (such as fats, oils, feed
proteins, ethanol and solvents) from certain of the waste streams. Typically, we
process the liquid waste using a variety of physical, chemical, thermal and
biological techniques. Saleable by-products are recovered and sold, and any
remaining materials are sent to independent disposal sites. The Oilfield Waste
Division collects, processes and disposes of waste generated in oil and gas
exploration and production. The Wastewater Division generated $158.2 million, or
92.5%, of our pro forma revenues for the nine months ended September 30, 1998
and the Oilfield Waste Division generated the remaining $12.8 million, or 7.5%,
of such pro forma revenues.
INDUSTRY BACKGROUND
The wastewater treatment market is generally divided into two segments:
industrial and commercial wastewater treatment, which may include the treatment
of some hazardous wastes, and municipal wastewater treatment. Industrial and
commercial companies produce various types of wastewater (including hydrocarbon
contaminated water, landfill leachate, dated beverages and grease and grit trap
waste) that must be treated prior to disposal in POTWs or for which
municipalities charge higher rates. Similarly, oil and gas exploration and
production companies produce liquid waste that must be disposed of in accordance
with federal and state regulations. Municipalities utilize or contract with
third parties for the utilization of water treatment technology to treat
municipal wastewater.
According to The McIlvaine Company, the global water and wastewater
treatment market was approximately $335 billion in 1995. The McIlvaine Company
further estimated that, in 1995, the worldwide costs of treating municipal
wastewater were $90 billion and the worldwide costs of treating industrial
wastewater were $25 billion. We believe that the liquid waste management
industry is comprised of thousands of relatively small owner-operated
businesses, presenting significant opportunities for consolidation.
In the United States, the growth in demand for wastewater treatment
services has been driven by many factors, including:
o Municipalities refusing to accept certain industrial wastewaters
due to limited treatment capabilities and a lack of the resources
needed to expand or modernize their POTWs;
o Industrial and commercial businesses avoiding POTW surcharges by
using others to process and dispose of their wastewater;
o Industrial and commercial businesses outsourcing their wastewater
treatment needs;
o Continued industrial and commercial expansion; and
o Increasingly strict regulations governing the disposal of
wastewater, as well as more stringent enforcement of these
regulations.
REJECTION OF CERTAIN WASTEWATERS BY POTWS. In North America, governmental
regulation and enforcement have established strict standards for potable water
and the discharge of pollutants in wastewater. Municipalities have spent
billions of dollars building water purification and wastewater
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treatment facilities. However, many of these municipalities are facing
increasing budgetary constraints and damage to their wastewater treatment
facilities caused by grease and other liquid wastes and have begun refusing to
accept certain liquid waste streams, thereby increasing the demand for
wastewater treatment services provided by the private sector. For example, the
Dallas, Houston and San Antonio POTWs do not accept grease or grit trap waste.
In addition, in late 1997, the Houston POTWs ceased accepting septage generated
outside the Houston city limits.
ECONOMIC BENEFIT OF PRETREATING CERTAIN WASTEWATERS. For years, generators
of industrial wastewater and other liquid waste have discharged the waste
directly into POTWs. However, the difficulties encountered by POTWs in
collecting and treating certain wastewaters have caused many municipalities to
increase the rates charged for accepting these wastewaters. With respect to
certain wastewaters, it is more economical for the generator to deliver the
waste to liquid waste management service providers such as the Company than to
discharge the waste directly into the POTW. For example, it is currently more
economical for many soft drink manufacturers to deliver their dated beverages to
us for processing and disposal than to discharge the beverages directly into the
POTW.
OUTSOURCING BY INDUSTRIAL AND COMMERCIAL BUSINESSES. Industrial and
commercial businesses prefer to focus on their primary business activities and
to downsize and outsource secondary business activities in which they may not
have much expertise. By outsourcing their wastewater treatment needs, they can
free-up capital for investment in their primary products and business
activities, eliminate a significant portion of their overhead and transfer risk
to experts in the field.
ECONOMIC EXPANSION. Many industrial companies have significantly expanded
their manufacturing and processing facilities. This industrial expansion has
increased the amount of wastewater generated. In addition, continued commercial
expansion throughout North America has generated additional grease and grit trap
waste and other liquid waste that must be processed by the waste generators,
POTWs or liquid waste management service providers such as the Company.
INCREASINGLY STRICT REGULATIONS. Heightened public concern about water
quality has caused federal, state and local governments to adopt increasingly
strict regulations governing the processing and disposal of industrial
wastewater and other liquid wastes. For example, effective as of October 1993,
Subtitle D of RCRA banned the disposal of untreated bulk liquid waste in
landfills. In addition, effective in March 1997, the Texas Natural Resource
Conservation Commission implemented state-wide "full pump" regulations
requiring 100% evacuation of all grease and grit traps and proper disposal of
the full volume of each trap. Furthermore, in January 1999, the EPA proposed new
regulations which would establish further restrictions on the discharge of
pollutants into U.S. waters and into POTWs by existing and new facilities that
treat or recover any hazardous or nonhazardous industrial waste, wastewater or
used material from off-site. Louisiana, Texas and certain other oil and gas
producing states have enacted comprehensive laws and regulations governing the
proper management of oilfield waste. Under Louisiana and Texas regulations, if
oilfield waste cannot be processed for discharge or disposed of at the well
where it is generated, it must be transported to a licensed oilfield waste
processing or disposal facility. In addition, federal regulations also restrict,
and in some cases prohibit entirely, the discharge of oilfield waste into U.S.
waters.
STRATEGY
Our objective is to be the largest and most profitable liquid waste
management company in each of the markets in which we operate. We believe that
as we expand we are likely to benefit from numerous competitive advantages
relative to smaller operators, including servicing multiple customer locations,
treating a wide variety of liquid waste streams, achieving operating
efficiencies and increased economies of scale and adapting to changing
regulations. Our strategy for achieving this objective is to (1) expand through
acquisitions; (2) generate internal growth; (3) enhance existing and acquired
operations; and (4) operate our businesses on a decentralized basis. We intend
to implement this strategy as follows:
o ACQUISITIONS. We pursue acquisitions of liquid waste management
businesses in existing and new geographic markets. We also make
smaller "tuck-in" acquisitions in our existing markets
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in order to increase our facility and equipment utilization and expand
our market penetration and range of services. In considering new
markets, we generally seek to acquire a liquid waste processing
facility that has the customer base, technical skills and
infrastructure necessary to be a core business into which other liquid
waste operations can be consolidated. After we have acquired a
processing facility, we typically seek to increase the utilization of
the facility by securing captive waste streams, which includes
acquiring collection companies and entering into contracts to collect
or accept all of the various types of liquid waste generated by
customers. We also seek to acquire other liquid waste management
businesses that can be integrated into our existing operations or
utilized to provide additional liquid waste management services to the
same customer base.
o INTERNAL GROWTH. To generate internal growth, we have focused on
increasing sales penetration in our current and adjacent markets,
soliciting new commercial and industrial customers, expanding our
collection infrastructure, marketing upgraded services to existing
customers and, where appropriate, raising prices. We believe there are
a number of liquid waste generators that would prefer to have a single
source provider for the collection, processing and disposal of all of
their liquid waste streams, but are unable to do so because the liquid
waste management industry is highly fragmented. Accordingly, we have
positioned ourselves as a multi-city, single source provider of liquid
waste management services for national and regional generators of
liquid waste. In addition, we intend to expand the capacity and
processing capabilities of our existing liquid waste management
facilities, and to amend our permits for certain facilities in order
to receive additional liquid waste streams.
o OPERATIONAL ENHANCEMENTS. We intend to continue to improve our
operations through collection route densification and consolidation
and increased facility and equipment utilization. We also expect to
realize cost savings by consolidating certain administrative functions
at our corporate offices, such as cash management, human resources,
finance and insurance.
o DECENTRALIZED MANAGEMENT. We manage our various businesses on a
decentralized basis, with local management maintaining responsibility
for the day-to-day operations, profitability and growth of the
business, while our executive officers exercise strong strategic and
financial oversight. We believe that this structure will retain the
entrepreneurial spirit present in each of the acquired businesses and
allow us to capitalize on the considerable local and regional market
knowledge and customer relationships possessed by local management.
OPERATIONS AND SERVICES PROVIDED
Industrial and commercial businesses produce various types of wastewater
(including hydrocarbon contaminated water, landfill leachate, dated beverages,
grease and grit trap wastes and certain hazardous wastes) that must be disposed
of in accordance with federal, state and local regulations. Similarly, oil and
gas exploration and production companies produce liquid waste that must be
disposed of in accordance with federal and state regulations. We accept liquid
waste from generators and independent collection companies, process the liquid
waste to remove contaminants and then dispose of the liquid waste in accordance
with applicable regulations. In addition, in certain instances, our processing
operations generate saleable by-products. Our services permit generators of
liquid waste to focus on their primary business activities, while we perform the
secondary operations of processing and disposing of their waste.
WASTEWATER DIVISION
Our Wastewater Division contributed approximately 92.5% of our pro forma
revenues for the nine months ended September 30, 1998. This Division receives
fees to collect, process and dispose of liquid waste such as industrial
wastewater, grease trap and grit trap waste, bulk liquids and dated beverages,
and certain hazardous wastes. In addition, the Wastewater Division generates
revenues from the sale of by-products, including fats, oils, feed proteins,
industrial and fuel grade ethanol, solvents, aluminum, glass, plastic and
cardboard, recovered from waste streams. It operates a fleet of
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approximately 540 vehicles to collect waste directly from customers, receives
waste from independent transporters servicing thousands of additional generators
and also receives waste shipped directly by the generators via rail and truck.
Brief descriptions of the types of liquid waste most commonly managed by the
Wastewater Division are set forth below:
INDUSTRIAL WASTEWATERS. Industrial wastewaters such as hydrocarbon
contaminated water, landfill leachate and printing solvents are transported to
our facilities in vacuum trucks, trailers and other transportable containers.
Using a variety of physical, chemical, thermal and biological techniques, the
liquid waste is broken down into constituent components. Water extracted from
the liquid waste is pretreated and then discharged into the POTW and solid
materials are dried and disposed of in an independent solid waste landfill. In
some instances, such as printing solvents, the contaminated materials are
processed and returned to the generator for reuse.
GREASE AND GRIT TRAP WASTE. Grease trap waste from restaurants and other
food manufacturing and preparation facilities and grit trap waste from car
washes is collected by our vehicles or independent parties and transported to
our facilities. Grease and grit trap waste is processed using a variety of
physical, chemical, thermal and biological techniques. Water extracted from the
liquid waste is pretreated and then discharged into the POTW and solid materials
are dried and disposed of in an independent solid waste landfill. By-products
recovered from grease trap waste are sold for use in producing various grades of
fats, oils and feed proteins.
BULK LIQUIDS AND DATED BEVERAGES. We accept both liquid residuals and
dated packaged beverages from breweries, soft drink manufacturers and food
processors. Water extracted from the liquid waste is pretreated and then
discharged into the POTW. The remaining liquid waste is fermented and distilled
into both industrial and fuel grade ethanol, which is sold primarily to major
oil and chemical companies. Packaging of the dated beverages, whether aluminum,
glass, plastic or cardboard, is removed, separated and sold to recycling firms.
HAZARDOUS WASTES. Hazardous wastes such as household hazardous wastes,
plating solutions, acids, and flammable and reactive wastes are transported to
certain of our facilities in trucks and other transportable containers and by
rail. Wastewaters suitable for treatment under the Clean Water Act are directed
into an appropriate process such as chemical precipitation or filtration. Sludge
and solid hazardous wastes are directed to our chemical fixation facility to be
pre-treated using chemical oxidation or reduction followed by fixation. After
testing, solid and semi-solid residues are shipped to an independent Subtitle D
landfill and treated listed waste residues are sent to an audited and approved
independent Subtitle C landfill. Organic wastes that have recoverable heat or
solvent values are recycled using distillation techniques. Solvents are sold
back to the paint industry as thinners. Other organic wastes are blended into
fuels sold primarily to operators of cement or lime kiln facilities.
BIOSOLIDS. We accept and process liquid and dry cake biosolids, or sludge,
from municipal wastewater treatment facilities and private businesses and
process these biosolids into a product that is sold for use as a fertilizer and
landfill cover.
SEPTAGE. Septage is pumped from septic tanks by our vehicles or
independent parties and transported to our facilities. The septage is then
processed using a variety of physical, chemical, thermal and biological
techniques. Water extracted from the liquid waste is pretreated and then
discharged into the POTW and solid materials are dried and disposed of in an
independent solid waste landfill.
PETROLEUM FUELS. Contaminated and off-specification petroleum fuels and
used oil are transported to our facilities in vacuum trucks, trailers and other
transportable oil containers. Using mechanical and gravity separation
techniques, these materials are processed to produce a fuel sold primarily to
operators of industrial furnaces. Resulting wastewater is transported to another
of our facilities for processing and disposal. Solid materials and sludges are
sent to one of our oilfield waste processing facilities.
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<PAGE>
The Wastewater Division operates 25 liquid waste processing facilities. We
believe that the specialized equipment, licenses and permits necessary to
operate these liquid waste processing facilities create a significant barrier to
entry into this industry. The following table sets forth certain information
relating to each such facility, including the type of liquid wastes most
commonly managed:
<TABLE>
<CAPTION>
FACILITY LOCATION LIQUID WASTES MANAGED
<S> <C> <C>
Parallel CA. ........................ Rancho Cucamonga, California Bulk Liquids and Dated Beverages
Universal Waste...................... Tampa, Florida Household Hazardous Wastes
National Solvent..................... Atlanta, Georgia Industrial Wastewaters
Parallel KY. ........................ Louisville, Kentucky Bulk Liquids and Dated Beverages
Re-Claim LA. ........................ Shreveport, Louisiana Industrial Wastewaters
City Environmental................... Detroit, Michigan Hazardous Wastes; Industrial
Wastewaters
Northern A-1......................... Kalkaska, Michigan Industrial Wastewaters
Waste Stream......................... Weedsport, New York Biosolids
Environment Management............... Austin, Texas Grease and Grit Trap Waste
Mesa................................. Dallas, Texas Grease and Grit Trap Waste
Amigo North.......................... Giddings, Texas Petroleum Fuels
Reclamation Technology............... Haltom City, Texas Industrial Wastewaters; Grease and
Grit Trap Waste
American WasteWater.................. Houston, Texas Industrial Wastewaters; Grease and
Grit Trap Waste; Septage
E. Allison........................... Houston, Texas Grease and Grit Trap Waste
Re-Claim TX. ........................ Houston, Texas Industrial Wastewaters
South Texas (Mesa)................... Los Fresnos, Texas Grease and Grit Trap Waste
Waste Technologies................... San Antonio, Texas Grease and Grit Trap Waste
Imperial (Mesa)...................... San Antonio, Texas Grease and Grit Trap Waste
Amigo South.......................... San Antonio, Texas Petroleum Fuels
D&H Holding.......................... Hammond, Indiana Industrial Wastewaters; Grease and
Grit Trap Waste; Septage
Parallel FL. ........................ Bartow, Florida Bulk Liquids and Dated Beverages
Romic CA. ........................... East Palo Alto, California Hazardous Wastes; Industrial
Wastewaters
Romic AZ. ........................... Chandler, Arizona Hazardous Wastes; Industrial
Wastewaters
Gateway Terminal..................... Carteret, New Jersey Industrial Wastewaters
Bio-Vac.............................. Shreveport, Louisiana Grease and Grit Trap Waste
</TABLE>
OILFIELD WASTE DIVISION
The Oilfield Waste Division contributed approximately 7.5% of our pro forma
revenues for the nine months ended September 30, 1998. At our five oilfield
waste facilities located in Louisiana and Texas, the Oilfield Waste Division
treats and disposes of waste that is generated in the exploration for and
production of oil and natural gas. Oilfield waste consists primarily of
oil-based and water-based drilling fluids (which contain oil, grease, chlorides
and heavy metals), as well as cuttings, saltwater, workover and completion
fluids, production pit sludges and soil containing these materials. In addition,
at two Louisiana locations, the Oilfield Waste Division cleans tanks, barges and
other vessels used in the storage and transportation of oilfield waste.
Landfarming, the treatment process utilized at our four Louisiana oilfield
waste facilities, involves several distinct stages. Oilfield waste is brought to
our facilities in trucks and on barges and the delivered waste materials are
then tested. Materials which do not qualify as permitted oilfield waste under
applicable regulations are rejected. Accepted waste is then loaded into
treatment cells, which are flooded with fresh water and mixed to dissolve salts
and soluble materials. Saltwater is then pumped out through a collection system
and typically disposed of at a saltwater injection well on-site. This flooding
process is typically repeated several times. The remaining waste is then
processed to remove organic contamination through biological degradation. Total
treatment of a cell takes approximately nine to twelve months. In the final
stage, the remaining material is tested to ensure compliance with regulatory
requirements. Thereafter, the material is transported to on-site stockpile
areas.
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<PAGE>
Under the terms of our new agreement with Newpark Resources, Inc., they are
entitled to deliver specified volumes of waste to certain of our Louisiana
landfarms until June 30, 2001. In return, Newpark has agreed to pay us at least
$30.0 million. Subject to certain conditions, Newpark may extend the term of the
new agreement for two additional one-year periods at an additional cost of
approximately $8.0 million per year. As long as Newpark complies with the
agreement, we are prohibited until June 30, 2001 from accepting from any
customer other than Newpark any oilfield waste generated in a marine environment
or transported in a marine vessel within the states of Louisiana, Texas,
Mississippi and Alabama and the Gulf of Mexico. If the term of the new agreement
is extended by Newpark, the term of the prohibition on our accepting this type
of waste from other customers will also be extended for a corresponding period
of time. See "Certain Transactions."
Because of our contractual arrangements with Newpark, we are focusing our
marketing efforts toward inland waste generators. We believe that by doing so we
will be able to increase the total amount of oilfield waste that is delivered to
the Oilfield Waste Division for processing and disposal.
The Oilfield Waste Division operates five oilfield waste processing
facilities and seven commercial saltwater injection wells. The following table
sets forth certain information relating to each processing facility.
<TABLE>
<CAPTION>
AREA PERMITTED
FOR OILFIELD APPROXIMATE
WASTE SQUARE FOOTAGE
PROCESSING OF OFFICE
LOCATION AND DISPOSAL FACILITIES
<S> <C> <C>
Bateman Island, Louisiana............ 115 acres 5,000
Bourg, Louisiana..................... 140 acres 5,000
Elm Grove, Louisiana................. 152 acres 500
Mermentau, Louisiana................. 277 acres 10,000
Bustamonte, Texas.................... 120 acres 1,000
</TABLE>
ACQUISITION PROGRAM
We have pursued an aggressive acquisition program, acquiring 41 liquid
waste management businesses from our inception in November 1996 through February
12, 1999. We believe that numerous additional acquisition candidates meeting our
acquisition criteria, including "tuck-in" opportunities, exist within our
existing markets and in new geographic markets.
We have disciplined pre-acquisition review procedures for acquisition
candidates, including legal, financial, engineering, operational and
environmental reviews. The environmental reviews include, where appropriate,
investigation of geologic, hydrogeologic and other site conditions, past and
current operations (including types of waste processed and disposed of), design
and construction records, permits, regulatory compliance history, regulatory
agency records and available soil sampling, groundwater and air monitoring
results. Our senior management is actively involved in identifying and
evaluating acquisition candidates.
In considering whether to proceed with an acquisition, we evaluate a number
of factors, including:
o The acquisition candidate's historical and projected financial
results;
o Any expected synergies with one or more of our existing operations;
o The proposed purchase price and the expected impact on our results of
operations and our earnings per share;
o Whether the candidate will enhance our ability to effect other
acquisitions in the vicinity;
o The capabilities and experience of senior management of the candidate;
o The candidate's customer service reputation and relationships with the
local communities;
o The composition and size of the candidate's customer base;
o The types of services provided by the candidate; and
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<PAGE>
o Whether the candidate has definable and controllable liabilities,
including potential environmental liabilities.
We also have a detailed process for integrating newly acquired businesses.
This process is designed to achieve operating compatibility with maximum speed
and efficiency, and with minimum disruption of ongoing business. Once a liquid
waste management business is acquired, we implement programs and policies
designed to reduce costs and improve operating efficiencies and overall
profitability. For example, we replace the acquired business' computer systems
with our own management reporting and control system. We typically seek to
retain the acquired business' qualified managers and key employees, while
consolidating certain overhead functions such as cash management, human
resources, finance and insurance through our corporate offices.
As consideration for future acquisitions, we intend to continue to use
various combinations of our common stock and cash. The consideration for each
future acquisition will vary on a case-by-case basis depending on our financial
interests, the financial interests of the owners of the business to be acquired,
and the historic operating results and future prospects of the business. After
this offering and the application of the proceeds, we anticipate having
approximately $183.8 million available under our credit facility. We also have
820,161 shares of common stock available for issuance under our acquisition
shelf registration statement. In addition, we intend to register an additional
4,200,000 shares of common stock under the Securities Act of 1933 for use in
connection with future acquisitions.
The consideration for the businesses we have acquired since our inception
consisted of cash, notes and shares of common stock. In addition, in some
transactions, we agreed to pay additional consideration to the owners of the
acquired business if the future pre-tax earnings of the acquired business exceed
certain negotiated levels or other specified events occur.
The following table provides a summary description of acquisitions that we
completed through February 12, 1999.
ACQUISITIONS BY WASTEWATER DIVISION:
<TABLE>
<CAPTION>
DATE
SELLER TYPE OF BUSINESS PRINCIPAL LOCATION ACQUIRED
<S> <C> <C> <C>
The Mesa Companies................... Collection, Processing and Recovery Dallas, Texas 06/97
American WasteWater Inc.............. Collection, Processing and Recovery Houston, Texas 06/97
A&B Enterprises, Inc................. Collection Dallas, Texas 10/97
Re-Claim Environmental, Inc.......... Collection, Processing and Recovery Houston, Texas 10/97
Re-Claim Environmental Louisiana
LLC................................ Collection, Processing and Recovery Shreveport, Louisiana 10/97
E. Allison Enterprise, Inc........... Processing Houston, Texas 10/97
Waste Technologies, Inc.............. Collection, Processing and Recovery San Antonio, Texas 12/97
Environment Management, Inc. (EMI)... Collection, Processing and Recovery Austin, Texas 01/98
Suburban Wastewater Services, Inc.... Collection Braintree, Massachusetts 01/98
Trapmaster, Inc...................... Collection San Antonio, Texas 03/98
Bug Master Exterminating Service,
Inc................................ Collection Austin, Texas 03/98
Betts Pump Service, Inc.............. Collection Kemp, Texas 04/98
Lindenborn Vacuum Services, Inc...... Collection McAllen, Texas 04/98
Parallel Products.................... Collection, Processing and Recovery Rancho Cucamonga, California 04/98
South Shore Pumping Corp............. Collection Plymouth, Massachusetts 04/98
Reclamation Technology Management,
Inc................................ Collection and Processing Haltom City, Texas 04/98
Amigo Diversified Services, Inc...... Collection, Processing and Recovery San Antonio, Texas 04/98
Waste Stream Environmental, Inc...... Collection, Processing and Recovery Weedsport, New York 04/98
The National Solvent Exchange
Corp............................... Processing and Recovery Atlanta, Georgia 04/98
Universal Waste and Transit.......... Collection and Processing Tampa, Florida 05/98
City Environmental, Inc.............. Collection and Processing Detroit, Michigan 05/98
Northern A-1 Sanitation Services,
Inc. ................................ Collection, Processing and Recovery Kalkaska, Michigan 05/98
Advanced Management Systems, Inc..... Collection and Processing San Leon, Texas 06/98
T&L Plumbing, Inc.................... Other Dallas, Texas 07/98
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DATE
SELLER TYPE OF BUSINESS PRINCIPAL LOCATION ACQUIRED
<S> <C> <C> <C>
Bio-Vac, Inc......................... Collection and Processing Shreveport, Louisiana 07/98
Enterprise Mobile Waste Recovery,
Inc................................ Collection and Processing St. Louis, Missouri 07/98
Clean "B".......................... Collection Donna, Texas 08/98
Mr. Cesspool......................... Collection East Greenwich, Rhode Island 08/98
Blow Bros............................ Collection Old Orchard Beach, Maine 09/98
Allied Septic Corp., Inc............. Collection Jim Thorpe, Pennsylvania 09/98
First Source, Inc.................... Collection and Processing Denville, New Jersey 09/98
D&H Holding Co., Inc................. Collection and Processing Hammond, Indiana 10/98
Cactus Vacuum Truck Service, Inc..... Collection Grand Prairie, Texas 11/98
Houston Tank Cleaning Service,
Inc................................ Other Houston, Texas 12/98
Caldwell Environmental Unified
Services........................... Collection Acton, Massachusetts 12/98
A. Horman Sanitation................. Collection N. Attleboro, Massachusetts 01/99
Gateway Terminal Service
Corporation........................ Processing Carteret, New Jersey 01/99
Romic Environmental
Technologies Corporation........... Collection, Processing and Recovery East Palo Alto, California 01/99
All-Around Vacuum Service............ Collection Houston, Texas 01/99
</TABLE>
ACQUISITIONS BY OILFIELD WASTE DIVISION:
<TABLE>
<CAPTION>
DATE
SELLER TYPE OF BUSINESS PRINCIPAL LOCATION ACQUIRED
<S> <C> <C> <C>
Campbell Wells....................... Processing and Disposal Lafayette, Louisiana 12/96
Newpark Environmental Services,
Inc................................ Other Morgan City, Louisiana 08/98
</TABLE>
COMPETITION
The liquid waste management industry is highly fragmented and very
competitive. Competition is primarily on the basis of proximity to collection
operations, collection and processing fees charged and quality of service. With
respect to certain waste streams (such as oilfield waste, bulk liquids and dated
beverages) we must compete with the generators of these waste streams, who
continually evaluate the decision whether to use internal disposal methods or
utilize a liquid waste management company such as us. We must also compete with
area landfills for certain waste streams. We compete with Newpark Resources,
Inc. and a number of smaller companies for oilfield waste produced on land in
the Gulf Coast region.
We believe that there are certain barriers to entry in the liquid waste
industry. These barriers include the need for specially equipped facilities;
licenses, permits and trained personnel necessary to operate these facilities;
and formalized procedures for customer acceptance.
REGULATORY BACKGROUND
Our business operations are affected both directly and indirectly by
governmental regulations, including various federal, state and local pollution
control and health and safety programs that are administered and enforced by
regulatory agencies. These programs are applicable or potentially applicable to
one or more of our existing operations. Although we intend to make capital
expenditures to expand our liquid waste processing capabilities, we believe that
we are not presently required to make material capital expenditures to remain in
compliance with federal, state and local laws and regulations relating to the
protection of the environment. See "Risk Factors -- Dependence Upon Oilfield
Waste Exemption Under RCRA and Other Environmental Regulations" and
"-- Failure To Comply with Governmental Regulations."
FEDERAL REGULATION
The primary U.S. federal statutes affecting our business are summarized
below:
THE CLEAN WATER ACT. We treat and discharge wastewaters at our liquid
waste facilities and at our oilfield waste landfarms. These activities are
subject to the requirements of the Clean Water Act and comparable state statutes
and federal and state enforcement of these regulations. The Clean Water Act
regulates the discharge of pollutants into waters of the United States. The
Clean Water Act
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<PAGE>
establishes a system of standards, permits and enforcement procedures for the
discharge of pollutants from industrial and municipal wastewater sources. The
law sets treatment standards for industries and wastewater treatment plants and
provides federal grants to assist municipalities in complying with the new
standards. In addition to requiring permits for industrial and municipal
discharges directly into the waters of the United States, the Clean Water Act
also requires pretreatment of industrial wastewater before discharge into
municipal systems. The Clean Water Act gives the EPA the authority to set
pretreatment limits for direct and indirect industrial discharges. In addition,
the Clean Water Act prohibits certain discharges of oil or hazardous substances
and authorizes the federal government to remove or arrange for removal of such
oil or hazardous substances. The Clean Water Act also requires the adoption of
the National Contingency Plan to cover removal of such materials. Under the
Clean Water Act, the owner or operator of a vessel or facility may be liable for
penalties and costs incurred by the federal government in responding to a
discharge of oil or hazardous substances.
The Clean Water Act also has a significant impact on the operations of the
Oilfield Waste Division's customers. EPA Region 6, which includes the Oilfield
Waste Division's current market, continues to issue new and amended National
Pollution Discharge Elimination System general permits further limiting or
restricting substantially all discharges of produced water from the Oil and Gas
Extraction Point Source Category into waters of the United States. The combined
effect of all of these permits closely approaches a "zero discharge" standard
affecting all waters except those of the Outer Continental Shelf. We and many
industry participants believe that these permits and the requirements of the
Clean Water Act may ultimately lead to a total prohibition of overboard
discharge in the Gulf of Mexico.
RCRA. RCRA is the principal federal statute governing hazardous and solid
waste generation, treatment, storage and disposal. RCRA and state hazardous
waste management programs govern the handling and disposal of "hazardous
waste." The EPA has issued regulations pursuant to RCRA, and states have
promulgated regulations under comparable state statutes, that govern hazardous
waste generators, transporters and owners and operators of hazardous waste
treatment, storage or disposal facilities. These regulations impose detailed
operating, inspection, training and emergency preparedness and response
standards and requirements for closure, financial responsibility, manifesting of
wastes, record-keeping and reporting, as well as treatment standards for any
hazardous wastes intended for land disposal. We do not accept RCRA-regulated
hazardous waste at any of our liquid waste processing facilities other than the
Detroit, Michigan, Tampa, Florida, East Palo Alto, California and Chandler,
Arizona facilities. Consequently, the majority of our activities are not subject
to the requirements adopted under Subtitle C of RCRA. Our facility in Detroit,
Michigan has never been granted a permit under RCRA and is continuing to operate
under interim status, as allowed by RCRA. In addition, our facility in East Palo
Alto, California facility is operating under a RCRA permit that expired in 1991,
but that allows for ongoing operations. With respect to both facilities, all
necessary applications, renewal applications and other documentation were timely
filed and applicable regulations allow the facilities to continue to operate.
Furthermore, our subsidiary, Romic Environmental Technologies Corporation, has
entered into an administrative consent order with the EPA relating to the
cleanup of soil and groundwater contamination at its facility in East Palo Alto,
California. See "-- Legal Proceedings."
The Oilfield Waste Division's facilities treat and dispose of oilfield
waste, which is exempt from classification as a RCRA-regulated waste. At various
times in the past, proposals have been made to rescind the exemption that
excludes oilfield waste from regulation under RCRA. The repeal or modification
of this exemption by administrative, legislative or judicial process would
require us to change our method of doing business and could have a material
adverse effect on our business, results of operations and financial condition.
There is no assurance that we would have the capital resources available to do
so, or that we would be able to adapt our operations.
RCRA also indirectly affects our operations by prohibiting the disposal of
certain liquid wastes in landfills. This prohibition increases demand for the
services provided by the Wastewater Division.
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<PAGE>
CERCLA. The Comprehensive Environmental Response, Compensation and
Liability Act, as amended in 1986 ("CERCLA"), provides for immediate response
and removal actions coordinated by the EPA for releases of hazardous substances
into the environment and authorizes the government, or private parties, to
respond to the release or threatened release of hazardous substances. The
government may also order persons responsible for the release to perform any
necessary cleanup. Liability extends to the present owners and operators of
waste disposal facilities from which a release occurs, persons who owned or
operated such facilities at the time the hazardous substances were released,
persons who arranged for disposal or treatment of hazardous substances and waste
transporters who selected such facilities for treatment or disposal of hazardous
substances. CERCLA has been interpreted to create strict, joint and several
liability for the cost of removal and remediation, other necessary response
costs and damages for injury to natural resources.
If our operations or facilities are responsible for the release of or
improper disposal of hazardous substances, we could incur CERCLA liability. We
may also incur CERCLA liability as a result of environmental contamination
caused by hazardous substances, the transportation, treatment or disposal of
which we arranged or which was arranged by the owners of a business that we have
acquired.
Other than the administrative consent orders and agreements entered into by
our Romic subsidiary with respect to three drum reconditioning or disposal sites
to which it delivered waste, we are not aware of any claims against us or any of
our subsidiaries that are based on CERCLA. See "--Legal Proceedings."
Nonetheless, the identification of any additional sites at which cleanup action
is required could subject us to liabilities which could have a material adverse
effect on our business, results of operations and financial condition.
THE CLEAN AIR ACT. The Clean Air Act provides for federal, state and local
regulation of emissions of air pollutants into the atmosphere. Any modification
or construction of a facility with regulated air emissions must be a permitted
or authorized activity. The Clean Air Act provides for administrative and
judicial enforcement against owners and operators of regulated facilities,
including substantial penalties. In 1990, the Clean Air Act was reauthorized and
amended, substantially increasing the scope and stringency of the Clean Air
Act's regulations. Compliance with the Clean Air Act is not expected to have a
material adverse effect on our business, results of operations or financial
condition.
STATE AND LOCAL REGULATIONS
Our liquid waste processing facilities are subject to direct regulation by
a variety of state and local authorities. Typically, we are required to obtain
processing, wastewater discharge and air quality permits from state and local
authorities to operate these facilities and to comply with applicable
regulations concerning, among other things, the generation and discharge of
odors and wastewater.
Order 29-B of the Louisiana Department of Natural Resources contains
extensive rules regarding the generation, processing, storage, transportation
and disposal of oilfield waste. Under Order 29-B, on-site disposal of oilfield
waste is limited and subject to stringent guidelines. If these guidelines cannot
be met, oilfield waste must be transported and disposed of off-site in
accordance with the provisions of Order 29-B. Moreover, under Order 29-B, most,
if not all, active waste pits (a typical on-site disposal method used by inland
generators of oilfield waste) must be closed or modified to meet regulatory
standards; however, full enforcement of this portion of Order 29-B has been
deferred. The Texas Railroad Commission has also adopted detailed requirements
for the management and disposal of oilfield waste. Permits issued by state
regulatory agencies are required for each oilfield waste treatment facility
operating within Louisiana and Texas. We must perform tests before acceptance of
any oilfield waste, as well as during and after treatment to ensure compliance
with all regulatory requirements. Short-term emergency rules recently adopted by
the Louisiana Department of Natural Resources have increased the pre-treatment
testing to be conducted on oilfield waste delivered to our Louisiana landfarms.
The closure of all of our landfarms is also regulated by state authorities.
In general, closure of a landfarm involves a multi-phase process whereby all
injection wells at the landfarm are plugged and
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<PAGE>
abandoned, all surface equipment is removed from the site, the treatment cells
and perimeter containment levees are removed and the surface of the site is
contoured and vegetated. Additional regulatory requirements include monitoring
the surface runoff water, the soil pore water and the groundwater for a period
of five years. If, after five years, the water quality meets the requirements
specified in the state regulations, the site is certified as closed.
The states in which we operate have their own laws and regulations that may
be more strict than comparable federal laws and regulations governing hazardous
and nonhazardous waste disposal, water and air pollution, releases and cleanup
of hazardous substances and liabilities for such matters. Our facilities and
operations are likely to be subject to many, if not all, of these laws and
regulations. In addition, states and localities into which we may expand, by
acquisition or otherwise, may now or in the future have regulations with
positive or negative effects on us. It is possible that state or local
regulations could adversely affect our execution of our acquisition strategy.
RISK MANAGEMENT
Our business exposes us to substantial risks. For example, our services
routinely involve the handling, storage and disposal of nonhazardous regulated
materials and wastes and, in some cases, the handling of hazardous materials and
wastes for our customers who are the generators of the wastes. We could be held
liable for improper cleanup and disposal, which liability could be based upon
statute, negligence, strict liability, contract or otherwise. In addition, we
often are required to indemnify our customers or other third parties against
certain risks related to the services performed by us, including damages
resulting from environmental contamination.
We have implemented various procedures designed to ensure compliance with
applicable regulations and reduce the risk of damage or loss. These include
specified handling procedures and guidelines for regulated wastes, ongoing
training and monitoring of employees and maintenance of insurance coverage. We
carry a broad range of insurance coverage that we consider adequate for the
protection of our assets and operations. This coverage includes general
liability, comprehensive property damage, workers' compensation and other
coverage customary in our industry; however, this insurance is subject to
coverage limits and certain policies exclude coverage for damages resulting from
environmental contamination. Although there are currently numerous sources from
which liability insurance may be obtained, it may not continue to be available
to us on commercially reasonable terms or the possible types of liabilities that
may be incurred by us may not be covered by our insurance. In addition, our
insurance carriers may not meet their obligations under the policies or the
dollar amount of the liabilities may exceed our policy limits. A claim that is
not covered or only partially covered by insurance could have a material adverse
effect on our business, results of operations and financial condition.
PROPERTIES
Our corporate offices are located in Houston, Texas. The corporate offices
consist of approximately 12,115 square feet of office space occupied under a
lease which expires on June 1, 2002.
In addition to the facilities described above in " -- Operations and
Services Provided," we also own a facility in Lacassine, Louisiana consisting
of approximately 8,000 square feet of office and equipment storage space and
approximately 130 acres of undeveloped land that was previously used for
landfarming of oilfield waste and naturally occurring radioactive material
("NORM"). In January 1997, we ceased accepting NORM at the Lacassine facility
and began taking the steps necessary to close this facility in accordance with
Louisiana law. We also own a facility in Kansas City, Missouri that was
previously used for storage and bulking of various hazardous wastes and a
facility in Roseville, Michigan that was previously used for fuel blending and
solvent recycling. The Kansas City and Roseville facilities have not been
operational since 1992 and we have no plans to resume operations at either of
these facilities.
37
<PAGE>
The Wastewater Division owns other real estate, buildings and physical
properties that it uses in its liquid waste collection operations. The
Wastewater Division also leases certain of its collection and transportation
facilities and administrative offices.
All of our facilities satisfy our present needs; however, as part of our
internal growth strategy, we intend to expand the capacity and processing
capabilities of certain of our liquid waste processing facilities and increase
the number and types of permitted waste streams of such facilities. We believe
that the remaining capacity of each of the landfarms that we lease is sufficient
for at least 25 years; which, in each case, exceeds the remaining term
(including options) of the lease agreement for such facility. We also believe
that the remaining capacity at each of the landfarms that we own is sufficient
for at least 25 years.
LEGAL PROCEEDINGS
On August 7, 1998, we settled substantially all of the claims asserted
against us in the four lawsuits relating to our Bourg, Louisiana landfarm. Under
the terms of the settlement, we agreed to expand the buffer zone and build a
berm along the western boundary of our landfarm. The cost of these actions will
not be material to our operating results.
This settlement does not resolve certain claims asserted against us by
Acadian Shipyard, Inc., a local barge company, in the FRILOUX ET AL. V. CAMPBELL
WELLS CORPORATION case pending in the 17th Judicial District Court for the
Parish of Lafourche, Louisiana. In the FRILOUX case, we asserted various claims
for indemnity and/or contribution against Acadian. Thereafter, in July 1998,
Acadian filed various counterclaims against us including, without limitation,
claims for defamation of business reputation and conspiracy to damage Acadian's
business reputation. In addition, Acadian requested unspecified monetary damages
allegedly suffered as a result of alleged environmental contamination in
connection with the ongoing operations at the Bourg, Louisiana landfarm. We deny
that we have any liability to Acadian and intend to vigorously defend against
these claims. We do not believe that this action will have a material adverse
effect on our business, results of operations or financial condition.
Prior to its acquisition by the Company, Romic Environmental Technologies
Corporation had entered into an administrative consent order with the EPA
relating to the cleanup of soil and groundwater contamination at its facility in
East Palo Alto, California. A remedial investigation of the facility has been
completed by Romic and forwarded to the EPA. Romic is in the process of
preparing a corrective measures study for the facility and anticipates that this
study will be submitted to the EPA in March 1999. The EPA will then review the
corrective measures study and select a plan for final site remediation. Based
upon the information gathered from these studies, Romic's estimated costs for
this site are expected to be $3.3 million, paid over the next 30 years. These
estimated costs have been discounted for present value considerations at a rate
of 5.6% to establish a reserve of $2.2 million. However, due to the complex,
ongoing and evolving process of investigating and remediating the facility,
Romic's actual costs may exceed the amount reserved.
Prior to its acquisition by the Company, Romic had been notified by the EPA
and the California Department of Toxic Substances Control that it was a
potentially responsible party under applicable environmental legislation with
respect to the Bay Area Drum Superfund Site in San Francisco, California, the
Lorentz Barrel and Drum Superfund Site in San Jose, California and the Casmalia
Resources Hazardous Waste Management Facility located near Santa Barbara,
California, each of which was a drum reconditioning or disposal site previously
used by Romic. With respect to each of these sites, Romic and a number of other
potentially responsible parties have entered into administrative consent orders
and agreements allocating each party's respective share of the cost of
remediating the sites. Romic's share under these consent orders and agreements
is as follows: Bay Area -- 6.872%; Lorentz -- 5.62% and Casmalia
Resources -- 0.29%. Based upon the studies and remedial actions completed,
Romic's share of the estimated costs for these sites is expected to be $821,000,
paid over the next ten years. These estimated costs have been discounted for
present value considerations at a rate of 5.6% to establish a reserve of
$775,000. However, due to the complex, ongoing and evolving process of
investigating and remediating these sites, Romic's actual costs may exceed the
amount reserved.
38
<PAGE>
With regard to the Casmalia Resources site, if adequate funding is not
obtained by the EPA from certain sources to fund additional remedial phases for
which Romic and other potentially responsible parties have not been released
from liability, Romic could incur additional costs of up to $400,000 which would
likely be disbursed over 30 years. No reserve has been established by Romic for
this loss contingency.
We are, from time to time, a party to litigation arising in the normal
course of our business, most of which involves claims for personal injury or
property damage incurred in connection with our operations. We are not currently
involved in any litigation that we believe will have a material adverse effect
on our business, results of operations or financial condition.
EMPLOYEES
At February 1, 1999, we employed approximately 1,200 persons full-time. We
are a party to only one collective bargaining agreement covering approximately
45 of our employees. We believe that our relationships with our employees are
satisfactory.
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning our directors
and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Michael P. Lawlor(a).......... 59 Chairman of the Board and Chief
Executive Officer
W. Gregory Orr(a)............. 43 Director, President and Chief Operating
Officer
Earl J. Blackwell............. 56 Chief Financial Officer, Senior Vice
President -- Finance and Secretary
Gary J. Van Rooyan............ 53 Vice President and General Counsel
Thomas B. Blanton(b).......... 52 Director
James F. McEneaney, 60 Director
Jr.(c)(d)(e)................
William A. Rothrock 46 Director
IV(b)(d)(e).................
Alfred Tyler 2nd(c)(d)(e)..... 56 Director
John N. Hatsopoulos(b)........ 64 Director
Roger A. Ramsey(a)............ 60 Director
</TABLE>
- -----------------------------
(a) Term on Board expires in 2000.
(b) Term on Board expires in 1999.
(c) Term on Board expires in 2001.
(d) Member of Audit Committee.
(e) Member of Compensation Committee.
MICHAEL P. LAWLOR has served as a director of the Company since June 1997.
On August 25, 1997, Mr. Lawlor assumed the positions of Chairman of the Board
and Chief Executive Officer of the Company. From March 1996 to August 1997, Mr.
Lawlor was a private investor. Mr. Lawlor has over 25 years of experience in the
environmental services industry. From December 1992 to March 1996, Mr. Lawlor
was Chief Executive Officer and a director of ITEQ, Inc. f/k/a Air-Cure
Technologies, Inc., a manufacturer of air treatment and air moving and process
systems, equipment and components. From 1970 to 1992, Mr. Lawlor held various
positions with Browning-Ferris Industries, Inc., a national waste services
company. Mr. Lawlor started with Browning-Ferris in 1970, became a corporate
officer in 1978, and from 1970 to 1988 was responsible for all of
Browning-Ferris' landfill operations, during which time total landfill revenues
grew from $1 million to $500 million annually. Mr. Lawlor was the Chairman of
the Wildlife Habitat Enhancement Council, a nonprofit conservation organization,
from 1992 to 1996.
W. GREGORY ORR is a co-founder of the Company and served as Chairman of the
Board, Chief Executive Officer and President of the Company from November 1996
to August 1997. Mr. Orr currently serves as a director and the Chief Operating
Officer and President of the Company. From 1995 until December 1996, Mr. Orr was
the President and Chief Operating Officer of Campbell Wells L.P. and Campbell
Wells NORM, L.P., wholly-owned subsidiaries of Sanifill, Inc. From 1990 to 1991,
Mr. Orr was Regional Vice President of Sanifill's Atlantic Region, and from 1991
to 1995, Mr. Orr was a Vice President of Operations of Sanifill. From 1981 to
1989, Mr. Orr served in various capacities with Browning-Ferris, including
Divisional Vice President.
EARL J. BLACKWELL is a co-founder of the Company and has served as Chief
Financial Officer, Senior Vice President -- Finance and Secretary of the Company
from November 1996 to the present. From 1991 to December 1996, Mr. Blackwell was
a Divisional Chief Financial Officer for Sanifill and controller for Campbell
Wells, L.P. and Campbell Wells NORM, L.P. During this time, Mr. Blackwell was
responsible for organizing and managing the financial and administrative
functions of this division including the design, installation and management of
a financial reporting and management system interfacing with Sanifill's general
accounting system.
40
<PAGE>
GARY J. VAN ROOYAN became Vice President and General Counsel of the Company
in September 1998. Mr. Van Rooyan has been engaged in the practice of law for
over 23 years, nearly 13 of which have been in the waste industry. From August
1996 until September 1998, Mr. Van Rooyan was Senior Corporate Counsel for
Browning-Ferris. From 1986 until August 1996, Mr. Van Rooyan held positions as
Regional General Counsel for various regions of Browning-Ferris. From 1981
through 1985, Mr. Van Rooyan served as Senior Counsel for the Dresser Atlas
Oilfield Services Group of Dresser Industries. From 1975 until 1981, Mr. Van
Rooyan was engaged in the private practice of law.
THOMAS B. BLANTON has been a director of the Company since June 1997. From
June 1997 to January 1999, Mr. Blanton also served as a Divisional Vice
President of the Company. From 1991 to June 1997, Mr. Blanton served as the sole
director and President of each of the Mesa Companies, three businesses acquired
by the Company in June 1997. Mr. Blanton has owned and operated fats and oils
businesses for over 30 years. Mr. Blanton's term on the Board of Directors
expires in 1999 and Mr. Blanton has advised us that he does not intend to accept
a nomination for another term on the Board.
JAMES F. MCENEANEY, JR. became a director of the Company in October 1997.
He is the retired President and Chief Operating Officer of Ryland Homes,
positions he held from 1980 to 1992. Mr. McEneaney also served as Executive Vice
President and a director of The Ryland Group, Inc. from 1981 to 1993. Mr.
McEneaney also was a founder of The Fortress Group, Inc., which was organized to
consolidate home builders in North America. He served as the company's Chief
Executive Officer from July 1995 through December 1995, and as a member of its
Board of Directors from 1995 until May 1997. Since August 1993, Mr. McEneaney
has served as the President of MacCan Associates, Inc., a management consulting
firm. Currently, Mr. McEneaney serves as Vice Chairman of the Board of Anne
Arundel Health Systems, Inc.
WILLIAM A. ROTHROCK IV became a director of the Company in June 1997. Since
1990, he has been Vice President -- Business Development for Sanifill and,
subsequently, Waste Management, Inc. From 1984 to 1990, Mr. Rothrock was
Divisional Vice President -- Landfill Marketing for Browning-Ferris.
ALFRED TYLER 2ND became a director of the Company in June 1997. Mr. Tyler
has over 20 years experience in the environmental services industry, most
recently as the President and Chief Executive Officer of Enviro-Gro
Technologies, a provider of sludge management services. In late 1992, Enviro-Gro
was sold to Wheelabrator Technologies and Mr. Tyler resigned his positions to
manage his other investments. From 1989 to the present, Mr. Tyler has been the
President and the sole stockholder of Weston Investments, Inc., a private
investment company. Mr. Tyler is also the President of Days Cove Reclamation
Company, a landfill operation and construction company, and a partner and
managing director of Bedford Capital Corporation, a New York consulting firm.
JOHN N. HATSOPOULOS became a director of the Company in December 1998. Mr.
Hatsopoulos is the Vice Chairman of the Board of Directors of Thermo Electron
Corporation. Mr. Hatsopoulos served as Thermo Electron's President from 1997
until 1999, and as its Chief Financial Officer and Executive Vice President from
1988 until 1997. Currently, Mr. Hatsopoulos is a member of the Board of
Directors of Thermedics Inc., Thermo Fibertek Inc., Thermo Instrument Systems
Inc., Thermo Power Corp., ThermoTrex Corp., Thermo Terratech Inc., Thermo Ecotek
Corp., Thermedics Detection and Metrika Systems Corp. In addition, he is a
member of the Board of Directors of the NASDAQ/AMEX Stock Exchange, Lois/USA
Inc. and Premier, Inc., a privately held organization of hospitals and health
systems.
ROGER A. RAMSEY became a director of the Company in January 1999. Mr.
Ramsey is the retired Chairman and Chief Executive Officer of Allied Waste
Industries, Inc., positions he held from 1990 through 1998. Mr. Ramsey is a
member of the Board of Directors of Allied Waste. In addition, Mr. Ramsey is a
member of the Texas Christian University Board of Trustees and a director of
several private corporations.
41
<PAGE>
CERTAIN TRANSACTIONS
In December 1996, we acquired five oilfield waste landfarms and landfills
from Campbell Wells, L.P., Campbell Wells NORM, L.P. and Sanifill, Inc., each of
which is now a wholly-owned subsidiary of Waste Management, Inc. In
consideration for these assets, we issued to Sanifill a $27.8 million promissory
note and a transferable 10-year warrant for the purchase of one million shares
of common stock at an exercise price of $2.00 per share. In December 1997, we
paid the Sanifill promissory note in full.
The Sanifill warrant grants its holder "piggyback" registration rights to
include shares of common stock purchased upon exercise of the Sanifill warrant
in any registration statement that we file under the Securities Act of 1933 with
respect to an offering of common stock for our own account or for the account of
any of our securities holders. Other than as described in "Principal and
Selling Stockholders," Sanifill has waived its right to have any shares
registered in connection with this offering.
In connection with the Campbell Wells acquisition described above, we also
acquired a long-term disposal agreement and certain related agreements with
Newpark Resources, Inc. During 1998, a dispute arose between the Company and
Newpark concerning Newpark's obligations under the disposal agreement. In
September 1998, we terminated the long-term disposal agreement and entered into
a new 33-month agreement. In the new agreement, Newpark agreed to pay us at
least $30.0 million. Newpark paid us $3.0 million in September 1998 and an
additional $5.0 million between October 1, 1998 and February 12, 1999. The
remaining amounts are required to be paid to us in monthly installments
continuing through June 2001. Under the terms of the new agreement, Newpark has
the right, but not the obligation, to deliver specified volumes of waste to
certain of our Louisiana landfarms for a period of three years without
additional cost. Subject to certain conditions, Newpark may extend the term of
the new agreement for two additional one-year terms at an additional cost of
approximately $8.0 million per year.
In addition, we also agreed that, until June 30, 2001, we would not (1)
accept from any customer other than Newpark any oilfield waste generated in a
marine environment or transported in a marine vessel, or (2) engage in the site
remediation and closure business, in each case within the states of Louisiana,
Texas, Mississippi and Alabama and the Gulf of Mexico. If the term of the new
agreement is extended by Newpark, the term of the prohibition on our accepting
this type of waste from other customers will also be extended for a
corresponding period of time.
As part of our agreement with Newpark, we also secured the right to
immediately enter into the business of cleaning tanks, barges and other vessels
and containers used in the storage and transportation of oilfield waste and
acquired certain assets used in this business in exchange for a total price of
$2.2 million. We are currently operating this business at two locations in
Louisiana. Prior to the settlement, we were contractually prohibited from
engaging in this cleaning business within the states of Louisiana, Texas,
Mississippi and Alabama and the Gulf of Mexico.
On December 31, 1998, we sold to a company owned by Thomas B. Blanton, a
director of the Company, substantially all of the assets used in the
distribution of various grades of fats, oils and feed proteins. These
by-products have been sold by the Company primarily to producers of livestock
feed and various chemicals located in Mexico. The purchase price for these
assets was approximately $1.7 million, of which approximately $1.1 million is
payable in March 1999. The remainder of the purchase price is payable in monthly
installments continuing through February 1, 2004. In connection with this sale,
we also agreed, for a period of one year, to sell to Mr. Blanton's company all
fats, oils and feed proteins that we recover from certain waste streams and that
conform to certain specifications. Mr. Blanton's company may extend this supply
agreement for four additional one-year terms. We believe that the terms of this
transaction are as favorable to us as could have been negotiated with an
unaffiliated party.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 12, 1999, as adjusted to reflect
the sale of the shares offered hereby, by (1) each of our directors, (2) each of
our executive officers, (3) all directors and executive officers as a group, and
(4) each selling stockholder. Unless otherwise indicated, all persons listed
have an address c/o our principal executive offices and have sole voting and
investment power with respect to their shares of common stock, except to the
extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
PRIOR TO THIS AFTER THIS
OFFERING OFFERING(A)
--------------------- SHARES ---------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Michael P. Lawlor(b)................. 250,100 1.9% -- 250,100 1.6%
W. Gregory Orr(c)(d)................. 621,000 4.8 -- 621,000 3.9
Earl J. Blackwell(d)(e).............. 355,000 2.7 -- 355,000 2.2
Gary J. Van Rooyan................... 10 * -- 10 *
Thomas B. Blanton.................... 675,260 5.2 125,000 550,260 3.5
William A. Rothrock IV(f)............ 113,750 * -- 113,750 *
Alfred Tyler 2nd(g).................. 20,000 * -- 20,000 *
James F. McEneaney, Jr.(h)........... 20,000 * -- 20,000 *
John N. Hatsopoulos(i)............... 15,000 * -- 15,000 *
Roger A. Ramsey(j)................... 10,400 * -- 10,400 *
Sanifill, Inc.(k)(d)................. 1,000,000 7.2 -- 1,000,000 5.9
All executive officers and directors
as a group (10 persons)(l)......... 2,080,520 15.8 125,000 1,955,520 12.2
</TABLE>
- -----------------------------
* Less than one percent.
(a) Adjusted to reflect the sale of shares of common stock offered hereby,
assuming the underwriters' over-allotment option is not exercised.
(b) Includes 100,000 shares which Mr. Lawlor has the right to acquire pursuant
to the terms of a stock option granted by the Company to him.
(c) Includes 250,000 shares held by The Wiley Gregory & Genene M. Orr Family
LLC, a limited liability company, over which Mr. Orr, as the manager, has
sole voting and investment power, 15,000 shares held by Mr. Orr's wife,
Genene Orr, 15,000 shares held by Mr. Orr's wife as custodian for two of Mr.
Orr's children, and 7,500 shares held individually by one of Mr. Orr's
children. Mr. Orr disclaims beneficial ownership of all shares held
individually by his children.
(d) The underwriters have an option to purchase 125,000 shares from Mr. Orr,
50,000 shares from Mr. Blackwell and 275,000 shares from Sanifill, Inc. to
cover over-allotments, if any.
(e) Includes 180,000 shares held by The Earl J. and Christine J. Blackwell
Family LLC, a limited liability company, over which Mr. Blackwell, as the
manager, has sole voting and investment power and 100,000 shares held in an
individual retirement account for the benefit of Mr. Blackwell.
(f) Includes 41,250 shares which Mr. Rothrock has the right to acquire pursuant
to the terms of certain stock options granted by the Company to him.
Excludes 62,500 shares issuable pursuant to a stock option granted to Mr.
Rothrock, which vests upon the successful completion of certain corporate
development business activities.
(g) Includes 20,000 shares which Mr. Tyler has the right to acquire pursuant to
the terms of certain stock options granted by the Company to him.
(h) Includes 19,000 shares which Mr. McEneaney has the right to acquire pursuant
to the terms of certain stock options granted by the Company to him.
(i) Includes 15,000 shares which Mr. Hatsopoulos has the right to acquire
pursuant to the terms of certain stock options granted by the Company to
him.
(j) Includes 10,000 shares which Mr. Ramsey has the right to acquire pursuant to
the terms of a stock option granted by the Company to him.
(k) Represents shares which Sanifill has the right to acquire pursuant to the
terms of a warrant granted by the Company to Sanifill. Sanifill's address is
1001 Fannin Street, Suite 4000, Houston, Texas 77002.
(l) Excludes 62,500 shares subject to the corporate development option granted
to Mr. Rothrock.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated March 11, 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Deutsche Bank Securities
Inc., First Security Van Kasper and Sanders Morris Mundy Inc., have severally
agreed to purchase from us and the selling stockholder the number of shares set
forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation.......... 1,950,000
Deutsche Bank Securities Inc. ..... 750,000
First Security Van Kasper.......... 150,000
Sanders Morris Mundy Inc........... 150,000
----------
Total........................... 3,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters by their counsel and
to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all of the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.
The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $0.60 per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $0.10 per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the representatives may change the public offering price
and such concessions.
The following table shows the underwriting fees to be paid to the
underwriters by the Company and the selling stockholders in connection with this
offering. The fees to be paid by the selling stockholders are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY SELLING
STOCKHOLDERS
----------------------------
PAID BY COMPANY NO EXERCISE FULL
<S> <C> <C> <C>
Per share............................ $ 1.05 $ 1.05 $ 1.05
Total................................ $ 3,018,750 $ 131,250 $ 603,750
</TABLE>
We will pay the offering expenses, estimated to be $600,000.
Certain selling stockholders have granted to the underwriters an option,
exercisable for 30 days from the date of the underwriting agreement, to purchase
up to 450,000 additional shares at the public offering price less the
underwriting fees. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise this option, each underwriter will become
obligated, subject to certain conditions, to purchase a number of additional
shares approximately proportionate to such underwriters' initial purchase
commitment.
The Company and the selling stockholders have agreed to indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make in respect of any of those liabilities.
DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in this offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJDIRECT Inc. for sale to
brokerage account holders.
44
<PAGE>
The Company, each of the selling stockholders and the executive officers
and directors of the Company, and certain stockholders of the Company have
agreed, subject to certain exceptions, not to (1) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock,
or (2) enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common stock
(regardless of whether any of the transactions described in clause (1) or (2) is
to be settled by the delivery of common stock, or such other securities, in cash
or otherwise) for a period of 90 days after the date of this prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, during this period, we have also agreed not to file
any registration statement with respect to, and each of our executive officers,
directors and certain stockholders has agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. The agreements described in the preceding sentence do
not apply, however, with respect to the shares covered by the shelf registration
statement that we filed in September 1997. In addition, we are permitted and
intend to register an additional 4,200,000 shares of our common stock under the
Securities Act of 1933 for use in connection with future acquisitions.
Donaldson Lufkin & Jenrette Securities Corporation served as lead manager
and Deutsche Bank Securities Inc., First Security Van Kasper and Sanders Morris
Mundy Inc. served as co-managers of our June 1998 public offering for which they
received customary fees and expenses. First Security Van Kasper and Sanders
Morris Mundy Inc. served as co-managers of our initial public offering for which
they received customary fees and expenses and were each granted a warrant to
purchase 56,250 shares of our common stock at $11.40 per share. In May 1997, we
engaged Sanders Morris Mundy Inc. to assist us in, among other things,
developing and implementing our acquisition program. For their services, we
issued to Sanders Morris Mundy Inc. a warrant to purchase 37,500 shares of our
common stock at $9.50 per share. The representatives may, from time to time,
engage in transactions with and perform services for us in the ordinary course
of their business.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any such shares be
distributed or published in any jurisdiction except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to the offering of the
common stock and the distribution of this prospectus. This prospectus is not an
offer to sell or a solicitation of an offer to buy any shares of common stock
included in this offering in any jurisdiction where that would not be permitted
or legal.
In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock on the open market to cover syndicate short
positions or stabilize the price of the common stock. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in any of these
activities and may end any of these activities at any time.
45
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission ("SEC") allows us to "incorporate
by reference" the information we file with them, which means that we can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings we will make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until we sell
all of the common stock included in this offering.
o Annual Report on Form 10-K for the year ended December 31, 1997;
o Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
o Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, as
amended on August 28, 1998;
o Quarterly Report on Form 10-Q for the quarter ended September 30,
1998;
o The description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on August 11, 1997 pursuant
to Section 12 of the Securities Exchange Act of 1934;
o Current Report on Form 8-K filed with the SEC on April 30, 1998;
o Current Report on Form 8-K filed with the SEC on May 6, 1998, as
amended on June 2, 1998;
o Current Report on Form 8-K filed with the SEC on May 22, 1998, as
amended on June 2, 1998;
o Current Report on Form 8-K filed with the SEC on September 25, 1998;
and
o Current Report on Form 8-K filed with the SEC on January 29, 1999, as
amended on February 16, 1999.
You may request a copy of any of these filings, at no cost, by writing or
telephoning us at the following address:
Mr. Gary J. Van Rooyan
Vice President and General Counsel
U S Liquids Inc.
411 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060
Tel: (281) 272-4500
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You may obtain information on the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. Our SEC filings are also available on the
SEC's web site at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933 with respect to the shares of common stock offered
hereby. As permitted by the SEC, this prospectus, which constitutes a part of
the registration statement, does not contain all the information included in the
registration statement. Such additional information may be obtained from the
locations described above. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete. You
should refer to the contract or other document for all the details.
46
<PAGE>
LEGAL MATTERS
Our counsel, Hartzog Conger & Cason, Oklahoma City, Oklahoma, will give an
opinion that the shares of common stock covered by this prospectus are valid. In
connection with the offering, McDermott, Will & Emery, Chicago, Illinois, will
pass upon certain legal matters for the underwriters.
EXPERTS
The audited financial statements included elsewhere or incorporated by
reference in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and have been included or incorporated by reference herein in reliance
upon the authority of said firm as experts in giving these reports.
47
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 Operations
(unaudited)....................... F-5
Notes to Pro Forma Statements of
Operations (unaudited)............ F-8
</TABLE>
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 statement of operations data from the consolidated financial
statements of U S Liquids Inc. (U S Liquids or the Company) combined with the
historical financial data of companies acquired by the Company from its initial
public offering through February 12, 1999 (the "Acquired Companies") as
follows: (i) the unaudited pro forma balance sheet includes the historical
consolidated balance sheet data of U S Liquids at September 30, 1998 combined
with those of the Acquired Companies acquired after September 30, 1998 as if
each had been acquired on September 30, 1998 and (ii) the unaudited pro forma
statements of operations for the year ended December 31, 1997 and for the nine
months ended September 30, 1997 and 1998 include the historical consolidated
statements of operations of U S Liquids for the respective periods combined with
those of all Acquired Companies, as if each had been acquired on January 1,
1997. Additionally, the effects of the Company's initial public offering of
1,725,000 shares, its public offering of 3,450,000 shares in June 1998 and its
current public offering of 2,875,000 shares (the "Offering") and the
application of the net proceeds from these offerings are included in the
unaudited pro forma financial statements as if they had each occurred on January
1, 1997. The statement of operations 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 expense and selling, general and administrative expense captions
set forth in the audited financial statements that are filed separately and
incorporated by reference in this prospectus.
The pro forma financial statements include certain adjustments to the
historical financial statements of the Acquired Companies, including adjustments
to depreciation and amortization expenses to reflect purchase price allocations,
adjustments to 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 Acquired Companies. With respect to these reductions in
salaries and benefits payable to previous owners, the Company has preliminarily
analyzed the savings that it expects to be realized. To the extent the former
owners of the Acquired Companies have agreed prospectively to reductions in
salary, bonuses and benefits, these reductions have been reflected in the pro
forma statements of operations. With respect to other expected potential cost
savings, U S Liquids has not and cannot quantify these savings and, accordingly,
they have not been included in the pro forma financial information of the
Company.
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 Acquired Companies were not under common
control or management for all periods, the pro forma financial 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 incorporated by reference in this prospectus, as
well as information included under the headings "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Risk Factors" included elsewhere herein.
F-2
<PAGE>
U S LIQUIDS INC.
PRO FORMA BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------
HISTORICAL ACQUIRED PRO FORMA OFFERING PRO FORMA
CONSOLIDATED COMPANIES ADJUSTMENTS(A) PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ --------- --------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 4,827 $ 768 $ $ 5,595 $ 56,756(b) $ 5,595
(56,756)(c)
Accounts receivable, net of
allowance....................... 28,502 7,616 36,118 36,118
Inventories........................ 1,190 550 (49) 1,691 1,691
Prepaid expenses and other current
assets.......................... 4,276 1,932 (375) 5,833 5,833
------------ --------- --------------- --------- ------------ ------------
Total current assets....... 38,795 10,866 (424) 49,237 -- 49,237
PROPERTY, PLANT AND EQUIPMENT, net... 78,275 17,968 (1,077) 95,166 95,166
INTANGIBLE ASSETS, net............... 102,256 -- 47,443 149,699 149,699
OTHER ASSETS, net.................... 1,991 1,236 3,227 3,227
------------ --------- --------------- --------- ------------ ------------
Total assets............... $221,317 $30,070 $ 45,942 $ 297,329 $ -- $297,329
============ ========= =============== ========= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations..................... $ 4,564 $ 2,515 $ (1,185) $ 5,894 $ $ 5,894
Accounts payable................... 11,079 2,959 14,038 14,038
Accrued liabilities................ 15,399 2,709 18 18,126 18,126
Current portion of contract reserve
and deferred revenue............ 5,298 -- 5,298 5,298
------------ --------- --------------- --------- ------------ ------------
Total current
liabilities................ 36,340 8,183 (1,167) 43,356 -- 43,356
LONG-TERM OBLIGATIONS, net of current
maturities......................... 43,910 3,782 43,976 91,668 (56,756)(c) 34,912
CELL PROCESSING RESERVE.............. 5,765 -- 5,765 5,765
CLOSURE AND REMEDIATION RESERVES..... 6,494 3,887 10,381 10,381
CONTRACT RESERVE..................... 8,248 -- 5,155 13,403 13,403
DEFERRED INCOME TAXES................ 1,695 -- 500 2,195 2,195
------------ --------- --------------- --------- ------------ ------------
Total liabilities.......... 102,452 15,852 48,464 166,768 (56,756) 110,012
------------ --------- --------------- --------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock....................... 123 21 (16) 128 29(b) 157
Additional paid-in capital......... 108,043 -- 11,691 119,734 56,727(b) 176,461
Retained earnings.................. 10,699 11,090 (11,090) 10,699 10,699
Other owners' equity............... -- 3,107 (3,107) -- --
------------ --------- --------------- --------- ------------ ------------
Total stockholders'
equity..................... 118,865 14,218 (2,522) 130,561 56,756 187,317
------------ --------- --------------- --------- ------------ ------------
Total liabilities and
stockholders' equity.... $221,317 $30,070 $ 45,942 $ 297,329 $ -- $297,329
============ ========= =============== ========= ============ ============
</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 acquisition of those Acquired Companies
that were acquired subsequent to September 30, 1998 through February
12, 1999, including approximately 526,579 shares issued. These
adjustments also reflect preliminary purchase price allocations with
respect to these Acquired Companies, 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.
(b) Reflects the proceeds from the issuance of 2,875,000 shares of common
stock, net of estimated offering costs. Offering costs primarily
consist of underwriting discounts and commissions, accounting fees,
legal fees and printing expenses.
(c) Reflects the repayment of certain debt obligations with proceeds from
this offering.
F-4
<PAGE>
U S LIQUIDS INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------------------
HISTORICAL ACQUIRED PRO FORMA OFFERING PRO FORMA
CONSOLIDATED COMPANIES ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $38,159 $ 191,559 $ $229,718 $ $229,718
OPERATING EXPENSES................... 21,353 132,941 (1,521)(a) 152,773 152,773
DEPRECIATION AND
AMORTIZATION....................... 2,990 9,108 2,213(b) 14,311 14,311
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,350 32,458 (356)(a) 37,452 37,452
POOLING COSTS........................ 400 -- 400 400
------------- ----------- ------------ ---------- ------------ ------------
INCOME FROM OPERATIONS............... 8,066 17,052 (336) 24,782 -- 24,782
INTEREST (INCOME) EXPENSE,
net................................ 1,734 1,863 2,881(c) 6,478 (4,257)(e) 2,221
OTHER (INCOME) EXPENSE, net.......... 41 (427) (386) (386)
------------- ----------- ------------ ---------- ------------ ------------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. 6,291 15,616 (3,217) 18,690 4,257 22,947
PROVISION FOR INCOME
TAXES.............................. 2,416 161 5,086(d) 7,663 1,745(d) 9,408
------------- ----------- ------------ ---------- ------------ ------------
NET INCOME........................... $ 3,875 $ 15,455 $ (8,303) $ 11,027 $ 2,512 $ 13,539
============= =========== ============ ========== ============ ============
BASIC EARNINGS PER COMMON SHARE...... $ 0.87
============
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.80
============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 15,640(f)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 16,961(f)(g)
============
</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 OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------
HISTORICAL ACQUIRED PRO FORMA OFFERING PRO FORMA
CONSOLIDATED COMPANIES ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ----------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................................ $ 27,313 $ 142,581 $ $ 169,894 $ $169,894
OPERATING EXPENSES...................... 15,404 99,187 (1,097)(a) 113,494 113,494
DEPRECIATION AND
AMORTIZATION.......................... 2,007 6,352 1,731(b) 10,090 10,090
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 3,454 23,357 (267) (a) 26,544 26,544
POOLING COSTS........................... 400 -- 400 400
------------ ----------- ------------ --------- ------------ ------------
INCOME FROM OPERATIONS.. 6,048 13,685 (367) 19,366 -- 19,366
INTEREST (INCOME) EXPENSE,
net................................... 1,367 1,502 1,950(c) 4,819 (3,193) (e) 1,626
OTHER (INCOME) EXPENSE,
net................................... 130 (302) (172) (172)
------------ ----------- ------------ --------- ------------ ------------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................. 4,551 12,485 (2,317) 14,719 3,193 17,912
PROVISION FOR INCOME TAXES.............. 1,746 78 4,210(d) 6,034 1,309(d) 7,343
------------ ----------- ------------ --------- ------------ ------------
NET INCOME.............................. $ 2,805 $ 12,407 $ (6,527) $ 8,685 $ 1,884 $ 10,569
============ =========== ============ ========= ============ ============
BASIC EARNINGS PER COMMON SHARE......... $ 0.68
============
DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE...................... $ 0.62
============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................... 15,638(f)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING......... 16,964(f)(g)
============
</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 OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------------------------------------------------
HISTORICAL ACQUIRED PRO FORMA OFFERING PRO FORMA
CONSOLIDATED COMPANIES ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 77,860 $93,108 $ $ 170,968 $ $170,968
OPERATING EXPENSES................... 49,228 60,888 (856)(a) 109,260 109,260
DEPRECIATION AND
AMORTIZATION....................... 5,698 4,726 723(b) 11,147 11,147
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 8,968 17,335 (174)(a) 26,129 26,129
------------ ----------- ------------ --------- ----------- ------------
INCOME FROM OPERATIONS............... 13,966 10,159 307 24,432 -- 24,432
INTEREST (INCOME) EXPENSE, net....... 2,310 1,326 973(c) 4,609 (2,980)(e) 1,629
OTHER (INCOME) EXPENSE, net.......... (235) (387) (622) (622)
------------ ----------- ------------ --------- ----------- ------------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. 11,891 9,220 (666) 20,445 2,980 23,425
PROVISION FOR INCOME TAXES........... 4,835 771 2,777(d) 8,383 1,222(d) 9,605
------------ ----------- ------------ --------- ----------- ------------
NET INCOME........................... $ 7,056 $ 8,449 $ (3,443) $ 12,062 $ 1,758 $ 13,820
============ =========== ============ ========= =========== ============
BASIC EARNINGS PER COMMON SHARE...... $ 0.88
============
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.81
============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 15,707(f)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 17,080(f)(g)
============
</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 OPERATIONS (UNAUDITED)
(a) Adjusts compensation expense to the level the previous owners of the
Acquired Companies have agreed to receive as employees of the Company
subsequent to their respective acquisitions. In addition, for certain
of the Acquired Companies, salaries and related expenses previously
recorded as selling, general and administrative expenses have been
reclassified as operating expenses consistent with the Company's
accounting policies.
(b) Adjusts depreciation and amortization expenses to reflect purchase
price allocations with respect to the Acquired Companies.
(c) Records interest expense on the debt incurred to effect the
acquisition of the Acquired Companies, net of a reduction in interest
expense on debt repaid in connection with the acquisitions, our
initial public offering and our public offering in June 1998.
(d) Reflects the incremental provision for federal income taxes on the
Acquired Companies previously taxed as S corporations or limited
liability companies as well as federal and state income taxes
relating to the pro forma statement of operations and offering
adjustments.
(e) Reflects the reduction in interest expense attributed to obligations
retired with proceeds from the Offering.
(f) Includes (1) 5,937,435 shares, 5,496,736 shares and 9,622,553 shares
outstanding for the year ended December 31, 1997, and for the nine
months ended September 30, 1997 and 1998, respectively, (2) 2,875,000
shares to be issued in connection with the Offering and (3) 6,827,864
shares, 7,265,964 shares and 3,209,872 shares for the year ended
December 31, 1997, and for the nine months ended September 30, 1997
and 1998, respectively, issued in connection with the acquisition of
the Acquired Companies, our initial public offering and our June 1998
public offering, as if each had occurred on January 1, 1997.
(g) Includes 1,321,010 shares, 1,325,827 shares and 1,372,185 shares for
the year ended December 31, 1997, and for the nine months ended
September 30, 1997 and 1998, respectively, representing the effect of
outstanding warrants and options to purchase common stock, using the
treasury stock method. Excludes 125,000 shares issuable pursuant to
options, the vesting of which is contingent upon the successful
completion of certain corporate development activities.
F-8
<PAGE>
[Inside Back Cover]
[PHOTO OF DISTILLATION COLUMNS AT
ROMIC ENVIRONMENTAL FACILITY]
The Company's liquid waste management facility located in East Palo Alto, CA.
[PHOTO OF PARALLEL, CALIFORNIA FACILITY]
The Company's dated beverage processing
facility located in Rancho Cucamonga, CA.
[PHOTO OF GREASE TRAP PUMPER TRUCK IN OPERATION]
The Company's collection fleet has grown to 540 vehicles.
These vehicles collect waste from more than 30,000 liquid waste generators.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARCH 12, 1999
U S LIQUIDS
LOGO
3,000,000 SHARES OF COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
DEUTSCHE BANK SECURITIES
FIRST SECURITY VAN KASPER
SANDERS MORRIS MUNDY
-------------------------
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the Company
have not changed since the date hereof.
- --------------------------------------------------------------------------------
