SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.
Commission File Number: 001-13259
U S LIQUIDS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0519797
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
411 N. SAM HOUSTON PARKWAY EAST, SUITE 400
HOUSTON, TX 77060-3545
281-272-4500
(Address and telephone number of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, $.01 par value
16,090,850 shares as of August 9, 1999
<PAGE>
U S LIQUIDS INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1- Financial Statements:
- Condensed Consolidated Balance Sheets
as of December 31, 1998 and June 30, 1999 (unaudited) ........ 3
- Condensed Consolidated Statements of Income for the
three and six month periods ended June 30, 1998 and
1999 (unaudited) ............................................. 4
- Condensed Consolidated Statements of Cash Flows for
the six month periods ended June 30, 1998
and 1999 (unaudited).......................................... 5
- Notes to Condensed Consolidated Financial Statements ......... 6
Item 2- Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 10
Item 3- Quantitative and Qualitative Disclosures About Market Risk ..... 17
PART II - OTHER INFORMATION
Item 1- Legal Proceedings .............................................. 17
Item 2- Changes in Securities and Use of Proceeds ...................... 18
Item 3- Defaults Upon Senior Securities ................................ 18
Item 4- Submission of Matters to a Vote of Security Holders ............ 18
Item 5- Other Information .............................................. 18
Item 6- Exhibits and Reports on Form 8-K ............................... 18
Signatures ............................................................... 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
U S LIQUIDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 3,285 $ 1,097
Accounts receivable, less allowances of $1,677 and
$1,786 (unaudited), respectively .......................... 29,123 42,691
Inventories ................................................. 672 1,883
Prepaid expenses and other current assets ................... 5,416 4,517
------------ ------------
Total current assets ................................... 38,496 50,188
PROPERTY, PLANT AND EQUIPMENT, net ................................ 85,958 110,347
INTANGIBLE ASSETS, net ............................................ 125,871 181,070
OTHER ASSETS, net ................................................. 1,840 3,637
------------ ------------
Total assets ........................................... $ 252,165 $ 345,242
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations ................. $ 4,004 $ 1,731
Accounts payable ............................................ 11,611 15,002
Accrued liabilities ......................................... 15,445 13,128
Current portion of contract reserve ......................... 4,500 4,500
------------ ------------
Total current liabilities .............................. $ 35,560 $ 34,361
LONG-TERM OBLIGATIONS, net of current maturities .................. 64,390 78,453
PROCESSING RESERVE ................................................ 5,747 4,841
CLOSURE AND REMEDIATION RESERVES .................................. 4,952 7,938
CONTRACT RESERVE .................................................. 14,421 12,669
DEFERRED INCOME TAXES ............................................. 2,151 3,778
------------ ------------
Total liabilities ...................................... $ 127,221 $ 142,040
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued ............................................... $ -- $ --
Common stock, $.01 par value, 30,000,000 shares authorized,
12,497,946 and 16,060,136 (unaudited) shares
issued and outstanding, respectively ...................... 125 161
Additional paid-in capital .................................. 110,404 179,524
Retained earnings ........................................... 14,415 23,517
------------ ------------
Total stockholders' equity ............................. $ 124,944 $ 203,202
------------ ------------
Total liabilities and stockholders' equity .......... $ 252,165 $ 345,242
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
U S LIQUIDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
1998 1999 1998 1999
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES .................................................................. $ 27,973 $ 58,695 $ 40,316 $ 113,997
OPERATING EXPENSES ........................................................ 17,919 39,226 24,930 76,831
DEPRECIATION AND AMORTIZATION ............................................. 2,038 3,992 3,026 7,552
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ............................................................... 3,405 5,733 4,872 11,208
-------- -------- -------- ---------
INCOME FROM OPERATIONS .................................................... $ 4,611 $ 9,744 $ 7,488 $ 18,406
INTEREST EXPENSE, net ..................................................... 1,244 1,443 1,590 3,056
OTHER INCOME, net ......................................................... (163) (115) (168) (211)
-------- -------- -------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES .................................. $ 3,530 $ 8,416 $ 6,066 $ 15,561
PROVISION FOR INCOME TAXES ................................................ 1,447 3,494 2,449 6,459
-------- -------- -------- ---------
NET INCOME ................................................................ $ 2,083 $ 4,922 $ 3,617 $ 9,102
======== ======== ======== =========
BASIC EARNINGS PER COMMON SHARE ........................................... $ 0.23 $ 0.31 $ 0.43 $ 0.62
======== ======== ======== =========
DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE ....................................................... $ 0.20 $ 0.29 $ 0.37 $ 0.57
======== ======== ======== =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ................................ 9,228 15,927 8,338 14,747
======== ======== ======== =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .......................................... 10,610 17,242 9,675 16,091
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
U S LIQUIDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 3,617 $ 9,102
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ...................................... 3,026 7,552
Net gain on sale of property, plant, and equipment ................. (60) (82)
Deferred income tax provision ...................................... 419 1,579
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net ........................................... (5,210) (7,324)
Inventories ........................................................ 618 (506)
Prepaid expenses and other current assets .......................... (1,312) 1,828
Intangible assets, net ............................................. (497) (488)
Other assets ....................................................... (253) (1,395)
Accounts payable and accrued liabilities ........................... 1,165 (8,272)
Closure, remediation and processing reserves ....................... (503) (2,188)
-------- --------
Net cash provided by (used in) operating activities ............ $1,010 $ (194)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment .......................... $ (4,267) $ (7,937)
Proceeds from sale of property, plant and equipment ................. 109 670
Net cash paid for acquisitions ...................................... (68,760) (60,015)
-------- --------
Net cash used in investing activities .......................... $(72,918) $(67,282)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations ..................... 76,160 72,147
Principal payments on long-term obligations ......................... (58,191) (63,586)
Proceeds from additional public offering of common stock, net of
offering costs ..................................................... 60,916 56,659
Proceeds from exercise of stock options ............................. 17 68
-------- --------
Net cash provided by financing activities ...................... $ 78,902 $ 65,288
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................... $ 6,994 $ (2,188)
--------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 2,203 3,285
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $ 9,197 $ 1,097
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............................................... $ 1,593 $ 3,062
Cash paid for income taxes........................................... 2,724 4,340
Assets acquired under capital leases................................. - 1,187
Common stock, warrants and options issued for acquisitions........... 2,983 12,428
Liabilities assumed related to acquisitions.......................... 1,226 3,229
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
U S LIQUIDS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures, normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to those rules and
regulations; although we believe that the disclosures made are adequate to make
the information presented not misleading. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows with
respect to the interim consolidated financial statements, have been included.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire year.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the audited consolidated financial statements and notes
thereto included in our Annual Report on Form 10-K for the year ended December
31, 1998, as filed with the SEC.
2. INVENTORIES
Inventories are stated at the lower of cost or market and, at December 31, 1998
and June 30, 1999, consisted of processed by-products of $378,000 and
$1,485,000, respectively, and unprocessed by-products of $294,000 and $398,000,
respectively. Cost is determined using the first-in, first-out (FIFO) method.
3. DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses excluded from operating expenses and
selling, general and administrative expenses in the condensed consolidated
statements of income are presented as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
------- ------- ------ ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating expenses ........................................ $1,869 $3,779 $2,793 $7,133
Selling, general and administrative expenses .............. 169 213 233 419
------- ------- ------ ------
Total depreciation and amortization expenses ....... $2,038 $3,992 $3,026 $7,552
======= ======= ====== ======
</TABLE>
6
<PAGE>
4. EARNINGS PER SHARE
The weighted average number of shares used to compute basic and diluted earnings
per share for the three and six month periods ended June 30, 1998 and 1999,
respectively, is illustrated below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
For basic and diluted earnings per share --
Income available to common stockholders ... $ 2,083 $ 4,922 $ 3,617 $ 9,102
=========== =========== ========== ===========
Denominator:
For basic earnings per share --
Weighted-average shares ................... 9,227,864 15,926,915 8,338,329 14,746,541
----------- ----------- ---------- -----------
Effect of dilutive securities:
Stock options and warrants ................ 1,381,940 1,315,413 1,336,844 1,344,256
----------- ----------- ---------- -----------
Denominator:
For diluted earnings per share --
Weighted-average shares and
assumed conversions ....................... 10,609,804 17,242,328 9,675,173 16,090,797
=========== =========== ========== ===========
</TABLE>
5. NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and requires companies to recognize all derivative
instruments as assets or liabilities in the balance sheet and to measure those
instruments at fair value. SFAS No. 133 must be adopted by the Company no later
than January 1, 2001, although earlier application is permitted. We are
currently evaluating the potential impact of implementing SFAS No. 133.
6. ACQUISITIONS
1999 ACQUISITIONS
During the six months ended June 30, 1999, we acquired fifteen businesses
engaged in the collection, processing and disposal of liquid wastes for
approximately $58.7 million in cash and assumed debt, 623,825 shares of our
common stock and $290,000 of seller financing. In addition, we agreed in
connection with certain transactions to make additional payments of cash to the
sellers upon the achievement by the acquired businesses of certain negotiated
goals, such as targeted earnings levels. Each of these acquisitions was
accounted for under the purchase method of accounting. The excess of the
aggregate purchase price over the fair value of the net assets acquired was
approximately $57.1 million.
The unaudited pro forma information set forth below presents our revenues, net
income and earnings per share plus the 1998 and 1999 acquisitions, and the
public offerings of our common stock in June 1998 and March 1999, as if these
transactions were each effective on
7
<PAGE>
January 1, 1998 and includes certain pro forma adjustments, including the
adjustment of amortization expenses to reflect purchase price allocations,
recording of interest expense to reflect debt issued in connection with the
acquisitions, net of a reduction in interest expense on debt repaid in
connection with the Company's public offerings of common stock, and certain
reductions of salaries and benefits payable to the previous owners of the
businesses acquired which were agreed to in connection with the acquisitions,
and the related income tax effects of these adjustments.
SIX MONTHS ENDED JUNE 30,
--------------------------------------
1998 1999
----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
Revenues ............................ $ 127,881 $ 122,161
Net income .......................... 6,805 10,201
Basic earnings per common share ..... 0.43 0.64
Diluted earnings per common share ... 0.39 0.59
The unaudited pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisitions and offerings been consummated at
the beginning of the periods presented.
7. LEGAL PROCEEDINGS
Prior to its acquisition by the Company in May 1998, Waste Stream Environmental,
Inc. had signed a document which purported to be a letter of intent with Pocono
Grow Fertilizer Corporation relating to the development of a waste treatment and
recycling facility in eastern Pennsylvania. After the Waste Stream acquisition
was completed, we notified Pocono Grow that Waste Stream did not intend to
pursue the project. Pocono Grow asserted that the document was a binding
agreement and that Waste Stream was in breach of the agreement. On July 14,
1998, Waste Stream filed a suit for declaratory judgment in the United States
District Court for the Western District of New York asking the court to
determine whether the document was binding or non-binding. On August 14, 1998,
Pocono Grow filed a counterclaim against Waste Stream and a third party
complaint against the Company alleging breach of contract and claiming damages
in excess of $10.0 million. Waste Stream and the Company intend to vigorously
defend the counterclaim and third party complaint and pursue the declaratory
judgment action. We do not believe that this action will have a material adverse
effect on our business, results of operations or financial condition.
In June 1999, we were notified that the Louisiana Department of Environmental
Quality (the "LDEQ") has proposed to terminate the discharge permit held by
Re-Claim Environmental Louisiana, LLC, a wholly-owned subsidiary of the Company.
A termination of this permit would require Re-Claim to cease its current
practice of discharging wastewater and other materials into waters of the State
of Louisiana. In its notice, the LDEQ alleged that the proposed termination was
justified based upon, among other things, Re-Claim's failure to comply with the
terms of its permit, two releases (spills) that occurred at the Re-Claim
facility and Re-Claim's acceptance and processing of hazardous materials not
covered by the terms of its permit. We are attempting to negotiate a resolution
with the LDEQ which may include a fine, modifications to our waste screening and
waste processing procedures and/or additional capital expenditures at the
Re-Claim facility. We believe that the ultimate outcome of this matter will not
have a material adverse effect on our business, results of operations or
financial condition.
Our business is subject to numerous federal, state and local laws, regulations
and policies that govern environmental protection, zoning and other matters.
During the ordinary course of our business, we become involved in a variety of
legal and administrative proceedings
8
<PAGE>
relating to land use and environmental laws and regulations, including actions
or proceedings brought by governmental agencies, adjacent landowners, or
citizens groups. In the majority of the situations where proceedings are
commenced by governmental agencies, the matters involved relate to alleged
technical violations of licenses or permits pursuant to which we operate or are
seeking to operate or laws or regulations to which our operations are subject or
are the result of different interpretations of applicable requirements. From
time to time, we pay fines or penalties in governmental proceedings relating to
our operations. We believe that these matters will not have a material adverse
effect on our business, results of operations or financial condition. However,
the outcome of any particular proceeding cannot be predicted with certainty, and
the possibility remains that technological, regulatory or enforcement
developments, results of environmental studies or other factors could materially
alter this expectation at any time.
The Company and certain of its subsidiaries are also currently involved in other
civil litigation and governmental proceedings relating to the conduct of their
businesses, some of which are addressed in our Annual Report on Form 10-K for
the year ended December 31, 1998, as filed with the SEC. While the outcome of
any particular lawsuit or governmental investigation cannot be predicted with
certainty, we believe that these matters will not have a material adverse effect
on our business, results of operations or financial condition.
8. SEGMENT INFORMATION
We operate with two business segments -- Oilfield Waste and Wastewater.
The Oilfield Waste segment processes and disposes of waste that is generated in
the exploration for and production of oil and natural gas. In addition, the
Oilfield Waste segment cleans tanks, barges and other vessels used in the
storage and transportation of oilfield waste.
The Wastewater segment receives fees to collect, process and dispose of liquid
waste such as industrial wastewater, grease and grit trap waste, bulk liquids
and dated beverages, and certain hazardous wastes. In addition, the Wastewater
segment generates revenues from the sale of by-products recovered from certain
waste streams (including fats, oils, feed proteins, industrial and fuel grade
ethanol, solvents, aluminum, glass, plastic and cardboard).
The accounting policies of the segments are the same as those for the Company
described in the summary of significant accounting policies set forth in our
Annual Report on Form 10-K for the year ended December 31, 1998, as filed with
the SEC. For purposes of this presentation, general corporate expenses have been
allocated between operating segments on a pro rata basis based on income from
operations before such expenses.
The following is a summary of key business segment information:
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30,
------------------- --------------------
1998 1999 1998 1999
------- ------- ------- --------
(IN THOUSANDS)
(UNAUDITED)
Revenue --
Oilfield Waste ............. $ 3,372 $ 5,157 $ 8,387 $ 9,982
Wastewater ................. 24,601 53,538 31,929 104,015
------- ------- ------- --------
Total ................... $27,973 $58,695 $40,316 $113,997
======= ======= ======= ========
Income from operations --
Oilfield Waste ............. $ 1,198 $ 2,563 $ 3,249 $ 4,727
Wastewater ................. 3,413 7,181 4,239 13,679
------- ------- ------- --------
Total .................. $ 4,611 $ 9,744 $ 7,488 $ 18,406
======= ======= ======= ========
9
<PAGE>
DECEMBER 31, JUNE 30,
1998 1999
------------ --------
(IN THOUSANDS)
Identifiable assets -- (UNAUDITED)
Oilfield Waste ............................... $ 33,513 $ 36,296
Wastewater ................................... 211,702 303,903
Corporate .................................... 6,950 5,043
------------ --------
Total ..................................... $252,165 $345,242
============ ========
9. CREDIT FACILITIES
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 at the option of
the lenders in the event that, 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 sixty
days by an individual reasonably satisfactory to the lenders. At June 30, 1999,
we had borrowed approximately $75.0 million under the credit facility.
We also have a $10.0 million credit facility with BankBoston, N.A. under which
we may borrow to purchase equipment. As of June 30, 1999, $1.2 million was
outstanding under this equipment credit facility.
10. SUBSEQUENT EVENTS
From July 1, 1999 through August 9, 1999, we acquired three additional
businesses, which had 1998 revenues of approximately $7.1 million, for
approximately $4.9 million in cash and assumed debt, 20,833 shares of our common
stock and $3.0 million of seller financing. Each of these acquisitions was
accounted for under the purchase method of accounting.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO
INCLUDED ELSEWHERE IN THIS REPORT.
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
10
<PAGE>
production. It was formed in December 1996 when we purchased five of our
Louisiana and Texas landfarms from certain subsidiaries of Waste Management,
Inc.
The Wastewater Division generated $53.5 million, or 91.2%, of our revenues for
the quarter ended June 30, 1999. 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, 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. 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.
On December 31, 1998, we sold to a company owned by Thomas B. Blanton, a
director of the Company at the time of the sale, substantially all of the assets
used in the distribution of various grades of fats, oils and feed proteins.
These by-products had previously been sold by the Company 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
was paid 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, on which we recognized a small gain for income
tax purposes, were as favorable to us as could have been negotiated with an
unaffiliated party.
The Oilfield Waste Division generated $5.2 million, or 8.8%, of our revenues for
the quarter ended June 30, 1999. This Division derives revenues from fees
charged to customers for (i) processing and disposing of oil and gas exploration
and production waste, and (ii) cleaning tanks, barges and other vessels and
containers used in the storage and transportation of oilfield waste. 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 previously disclosed, 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 $6.0 million in 1998, $3.0 million during the
first quarter of 1999, and an additional $3.0 million during the second quarter
of 1999. The remaining amounts are required to be paid to us in monthly
installments continuing through June 2001. These monthly payments permit Newpark
to deliver to us at no additional cost specified amounts of oilfield waste for
processing and disposal. With our consent, Newpark may deliver additional
amounts of oilfield waste to us for processing and disposal at a specified price
per barrel.
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
12.3% of our net property, plant and equipment, are amortized over 25 years.
Other depreciable or amortizable assets are expensed 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.
11
<PAGE>
In connection with potential acquisitions, we incur and capitalize certain
transaction costs which include stock registration, legal, accounting,
consulting, engineering and other direct costs to complete the acquisitions.
Additionally, we incur charges for integration costs which include uncollectible
accounts receivable write-offs, employee termination, severance and relocation,
lease termination and other one-time charges related to the acquisitions. When
an acquisition is completed and is accounted for using the pooling-of-interests
method for business combinations, these costs are charged to the statement of
operations as acquisition related and non-recurring costs. When a completed
acquisition is accounted for using the purchase method for business
combinations, these costs are capitalized. We routinely evaluate capitalized
transaction and integration costs and expense those costs related to
acquisitions not likely to occur. Indirect acquisition costs, such as executive
salaries, general corporate overhead and other corporate services, are expensed
as incurred.
The timing and magnitude of acquisitions, assimilation costs and the seasonal
nature of certain of our operations may materially affect operating results.
Accordingly, the operating results for any period are not necessarily indicative
of the results that may be achieved for any subsequent period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUES. Revenues for the quarter ended June 30, 1999 increased $30.7 million,
or 109.8%, from $28.0 million for the quarter ended June 30, 1998 to $58.7
million for the quarter ended June 30, 1999. The Wastewater Division contributed
$24.6 million, or 87.9%, of second quarter 1998 revenues and $53.5 million, or
91.2%, of second quarter 1999 revenues. Collection and processing fees generated
$18.2 million, or 74.0%, and $45.5 million, or 85.1%, of the Wastewater
Division's revenues for the second quarters of 1998 and 1999, respectively. This
increase was due primarily to acquisitions completed during 1998 and the first
six months of 1999. The "same store" revenues for collection and processing of
waste increased due to increased pricing and increased volumes. By-product sales
generated the remaining $6.4 million, or 26.0%, and $8.0 million, or 14.9%, of
the Wastewater Division's revenues for the second quarters of 1998 and 1999,
respectively. Revenues from the sale of by-products increased $1.7 million, or
27.9%, as a result of acquisitions completed during the second half of 1998 and
during the first six months of 1999; however, revenues from the sale of fats and
oils decreased approximately $2.3 million due to a reduction in commodities
prices and the sale of the fats and oils distribution business.
The Oilfield Waste Division contributed $3.4 million, or 12.1%, of second
quarter 1998 revenues and $5.2 million, or 8.8%, of second quarter 1999
revenues. The Oilfield Waste Division's revenues increased $1.8 million, or
52.9%, due primarily to the restructuring of our agreement with Newpark, as well
as Newpark's delivery to us during the initial twelve months of our agreement of
amounts of oilfield waste in excess of the annual amount specified in our
agreement. The excess amounts were delivered to us during second quarter 1999
and, thus, the fees charged for processing and disposing of the excess amounts
were included in second quarter 1999 revenues.
OPERATING EXPENSES. Operating expenses increased $21.3 million, or 118.9%, from
$17.9 million for the quarter ended June 30, 1998 to $39.2 million for the
quarter ended June 30, 1999. As a percentage of revenues, operating expenses
increased from 64.1% in the second quarter of 1998 to 66.8% in the second
quarter of 1999. This increase was due primarily to the continued growth of the
Wastewater Division, which has higher operating expenses than the Oilfield Waste
Division.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
$2.0 million, or 95.9%, from $2.0 million for the quarter ended June 30, 1998 to
$4.0 million for the quarter ended June 30, 1999. As a percentage of revenues,
depreciation and amortization expenses decreased from 7.3% in the second quarter
of 1998 to 6.8% in the second quarter of 1999. This decrease was also
attributable to the continued growth of the Wastewater Division, whose
operations are less capital-intensive than the Oilfield Waste Division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.3 million, or 68.4%, from $3.4 million for
the quarter ended June 30, 1998 to $5.7 million for the quarter ended June 30,
1999. As a percentage of revenues, selling, general and administrative expenses
were 12.2% for the second quarter of 1998 and 9.8% for the second quarter of
1999.
12
<PAGE>
This improvement was attributable to our ability to integrate business
acquisitions without a proportionate increase in general and administrative
expenses.
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased $247,000,
or 22.8%, from $1.1 million for the quarter ended June 30, 1998 to $1.3 million
for the quarter ended June 30, 1999. This increase resulted from interest
expense incurred on borrowings used to fund the purchase price for acquisitions
completed in the second half of 1998 and the first six months of 1999, as well
as higher interest rates.
INCOME TAXES. The provision for income taxes increased $2.1 million, or 141.5%,
from $1.4 million for the quarter ended June 30, 1998 to $3.5 million for the
quarter ended June 30, 1999 as a result of increased taxable income. The
effective tax rate for the period ended June 30, 1998 was 41.0% compared to a
41.5% rate for the period ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUES. Revenues for the six month period ended June 30, 1999 increased $73.7
million, or 182.8%, from $40.3 million for the six months ended June 30, 1998 to
$114.0 million for the six months ended June 30, 1999. The Wastewater Division
contributed $31.9 million, or 79.2%, of revenues for the six months ended June
30, 1998 and $104.0 million, or 91.2%, of revenues for the six months ended June
30, 1999. Collection and processing fees generated $22.4 million, or 70.3%, and
$86.5 million, or 83.2%, of the Wastewater Division's revenues for the six month
periods ended June 30, 1998 and 1999, respectively. By-product sales generated
the remaining $9.5 million, or 29.7%, and $17.5 million, or 16.8%, of the
Wastewater Division's revenues for the 1998 and 1999 periods, respectively. The
Oilfield Waste Division contributed $8.4 million, or 20.8%, of revenues for the
six month period ended June 30, 1998 and $10.0 million, or 8.8%, of revenues for
the six month period ended June 30, 1999.
The revenues of the Wastewater Division increased $72.1 million, or 225.8%, from
$31.9 million for the six months ended June 30, 1998 to $104.0 million for the
six months ended June 30, 1999. This increase was due primarily to acquisitions
completed during the second half of 1998 and the first six months of 1999. The
Oilfield Waste Division's revenues increased $1.6 million, or 19.0%, from $8.4
million for the six months ended June 30, 1998 to $10.0 million for the six
months ended June 30, 1999. This increase resulted primarily from the
restructuring of our agreement with Newpark, as well as Newpark's delivery to us
during the initial twelve months of our agreement of amounts of oilfield waste
in excess of the annual amount specified in our agreement. The excess amounts
were delivered to us during second quarter 1999 and, thus, the fees charged for
processing and disposing of the excess amounts were included in second quarter
1999 revenues.
OPERATING EXPENSES. Operating expenses increased $51.9 million, or 208.2%, from
$24.9 million for the six months ended June 30, 1998 to $76.8 million for the
six months ended June 30, 1999. As a percentage of revenues, operating expenses
increased from 61.8% for the six month period ended June 30, 1998 to 67.4% for
the six month period ended June 30, 1999. This increase was due primarily to the
continued growth of the Wastewater Division, which has higher operating expenses
than the Oilfield Waste Division.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
$4.6 million, or 149.6%, from $3.0 million for the six months ended June 30,
1998 to $7.6 million for the six months ended June 30, 1999. As a percentage of
revenues, depreciation and amortization expenses decreased from 7.5% for the six
month period ended June 30, 1998 to 6.6% for the six month period ended June 30,
1999. This decrease was also attributable to the continued growth of the
Wastewater Division, whose operations are less capital-intensive than the
Oilfield Waste Division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $6.3 million, or 130.0%, from $4.9 million for
the six months ended June 30, 1998 to $11.2 million for the six months ended
June 30, 1999. As a percentage of revenues, selling, general and administrative
expenses decreased from 12.1% for the six month period ended June 30, 1998 to
9.8% for the six month period ended June 30, 1999. This improvement was
attributable to our ability to integrate business acquisitions without a
proportionate increase in general and administrative expenses.
13
<PAGE>
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased $1.4
million, or 100.1%, from $1.4 million for the six months ended June 30, 1998 to
$2.8 million for the six months ended June 30, 1999. This increase resulted
primarily from interest expense incurred on borrowings used to fund the purchase
price for acquisitions completed in the second half of 1998 and the first six
months of 1999, as well as higher interest rates.
INCOME TAXES. The provision for income taxes increased $4.1 million, or 163.7%,
from $2.4 million for the six months ended June 30, 1998 to $6.5 million for the
six months ended June 30, 1999 as a result of increased taxable income. The
effective tax rate for the six months ended June 30, 1998 was 40.4%, compared to
a 41.5% rate for the six months ended June 30, 1999. This increase was due
primarily to state income taxes associated with acquisitions completed during
1998 and the first six months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
In March 1999, we completed a public offering of 3,000,000 shares of our common
stock, which offering included 125,000 shares offered by an existing
stockholder. The $56.7 million of net proceeds that we received from the
2,875,000 shares that we sold in this offering were applied 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.
We had net working capital of $15.8 million at June 30, 1999, compared to net
working capital of $2.9 million at December 31, 1998. Improvement in the working
capital position was attributable primarily to an increase in accounts
receivable resulting in part from 1999 acquisitions and to a decrease in current
maturities of long-term obligations and accrued acquisition costs.
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 June 30, 1999,
approximately $1.7 million of principal payments on debt obligations were
payable during the next twelve months. Capital expenditures for our continuing
operations during the three months and the six months ended June 30, 1999 were
$3.8 million and $7.9 million, respectively. The majority of the capital
expenditures were for plant expansions, equipment and vehicle upgrades. Capital
expenditures for our continuing operations for the last two quarters of 1999 are
budgeted at approximately $6.7 million. Approximately $6.4 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 June 30, 1999, we had established a $4.9 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 $5.7 million of
financial assurance in the form of letters of credit and bonds to provide for
the cost of future closures of facilities. In addition, at June 30, 1999, we had
also established a $3.0 million reserve to provide for (i) the cost to remediate
soil and groundwater contamination at our facility in East Palo Alto,
California, and (ii) our share of the costs to remediate drum reconditioning or
disposal sites previously used by our subsidiaries.
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 at the option of
the lenders in the event that, 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 sixty
days by an individual reasonably satisfactory to the lenders. At June 30, 1999,
we had borrowed approximately $75.0 million under the
14
<PAGE>
credit facility. Between July 1, 1999 and August 9, 1999, we had net borrowing
activity of $1.5 million under the credit facility, the vast majority of which
was used to fund the cash purchase price of acquisitions.
We also have a $10.0 million credit facility with BankBoston, N.A. under which
we may borrow to purchase equipment. As of June 30, 1999 and as of the date of
this report, $1.2 million was 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 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 cash component of the contingent
consideration.
ACQUISITIONS
During the three months ended June 30, 1999, we acquired eight businesses, which
collectively had 1998 revenues of approximately $26.8 million. Each of these
acquisitions has been accounted for under the purchase method of accounting. The
total consideration for these eight acquisitions involved approximately $22.7
million in cash and assumed debt and 192,237 shares of our common stock. In
addition, we agreed in connection with certain transactions to make additional
payments of cash to the sellers upon the achievement by the acquired businesses
of certain negotiated goals, such as targeted earnings levels. The excess of the
aggregate purchase price over the fair market value of the net assets acquired
was approximately $24.8 million. Six of the acquisitions were "tuck-ins" in our
existing markets. The seventh acquisition, Royal Recycling, included a liquid
waste processing facility and marked our first acquisition in Canada. The
remaining acquisition, A&A Environmental, also included a liquid waste
processing facility and provided us entry into the Maryland market.
From July 1, 1999 through August 9, 1999, we acquired three additional
businesses, which had 1998 revenues of approximately $7.1 million, for
approximately $1.5 million in cash and assumed debt, 20,833 shares of our common
stock and $3.0 million of seller financing. Each of these acquisitions was
accounted for under the purchase method of accounting.
YEAR 2000
GENERAL. The Year 2000 issue exists because many computer programs use only
two digits to identify a year in the date field rather than four digits. Because
of this, computer equipment and software (sometimes referred to as "information
technology" or "IT") and devices with embedded technology (sometimes referred to
as "non-information technology" or "non-IT") that are time sensitive may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations including, among other things, production delays or breakdowns, or a
temporary inability to process transactions, send invoices or engage in other
normal business activities.
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
15
<PAGE>
program may occur simultaneously as they relate to different systems. Each phase
may have a varying timetable to completion, depending on the system and the date
when a particular business was acquired by us.
STATE OF READINESS. As of the date of this report, we have completed the
identification and assessment of all of our information technology systems
(excepting those of recently acquired businesses), and those systems address or
have been modified to address Year 2000 issues. We are in the identification and
assessment phase with respect to non-information technology systems of
currently-owned businesses. We believe there is a minimal amount of dependence
by our critical operations on non-information technology systems. However, since
we have not completed our identification and assessment of the non-information
technology systems of our currently-owned businesses, there can be no assurance
that Year 2000 problems do not exist with respect to such systems. We expect to
complete all phases of our Year 2000 compliance program for our non-information
technology systems (excepting those of recently acquired businesses) by the end
of the third quarter of 1999.
With respect to third party activities, we have made inquiries of our
significant customers, suppliers and service providers and, at the present time,
are not aware of any problems that will materially impact our operations.
However, we have no means of insuring that these customers, suppliers and
service providers (and in turn their customers, suppliers and service providers)
will be Year 2000 compliant in a timely manner. The inability of these parties
to successfully resolve their Year 2000 issues could have a material adverse
effect on our operations.
As we acquire additional businesses, we attempt to assess Year 2000 issues
relating to their information technology and non-information technology systems.
Since our acquisition program is ongoing, our assessment of potential Year 2000
problems is not complete and, likely, will not be complete prior to the end of
the year. As such, there can be no assurance that the systems of newly acquired
businesses will be made Year 2000 compliant in a timely manner or that any such
failure to be Year 2000 compliant will not have a material adverse effect on our
business or results of operations.
COSTS TO ADDRESS YEAR 2000 ISSUES. Our costs to date for our Year 2000
compliance program have not been material. Although we have not completed our
assessment of our non-information technology systems, we do not currently
believe that the future costs associated with our Year 2000 compliance program
will be material.
RISKS OF THE COMPANY'S YEAR 2000 ISSUE. Our worst case scenarios
resulting from the Year 2000 issue include:
o Interruptions in our customers' operations which could prevent them
from using our services or paying for services rendered.
o Disruptions to our utilities and other service providers (including,
without limitation, rail service to and from certain of our
facilities) which could prevent our waste processing facilities from
operating in the normal course of business.
o Failure to convert all of the information technology systems of the
businesses we acquire during 1999 to our system prior to the Year 2000
which could prevent these locations from being integrated into the
rest of our operations.
CONTINGENCY PLANS. Our Year 2000 efforts are ongoing and our overall plan,
as well as the consideration of contingency plans, will continue to evolve as
new information becomes available. We do not anticipate that the Year 2000 will
have a significant impact on our operations; however, contingency plans for Year
2000 related interruptions are being developed and will include emergency backup
and recovery procedures for lost data, manual invoicing, billing and collection
procedures and identification of alternate transportation providers. All plans
are expected to be completed by the end of the third quarter of 1999. These
activities are intended to provide a means of managing risks, but cannot
eliminate the potential for disruption due to third-party failure.
16
<PAGE>
FORWARD LOOKING STATEMENTS
Statements of our intentions, beliefs, anticipations, expectations or similar
statements concerning future events contained in this report constitute "forward
looking statements" as defined in the Private Securities Litigation Reform Act
of 1995. As with any future event, there can be no assurance that the events
described in forward looking statements made in this report will occur or that
the results of future events will not vary materially from those described
herein. Certain of these factors are discussed under "Factors Influencing Future
Results and Accuracy of Forward-Looking Statements" included in Part I, Item 1
of our Annual Report on Form 10-K for the year ended December 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not utilize financial instruments for trading purposes and we do not hold
any derivative financial instruments that could expose us to significant market
risks. Our exposure to market risk for changes in interest rates relates
primarily to our obligations under our $225.0 million credit facility and our
$10.0 million equipment credit facility. As of June 30, 1999, $75.0 million and
$1.2 million had been borrowed under the $225.0 million credit facility and the
equipment credit facility, respectively. As of June 30, 1999, amounts
outstanding under the $225.0 million credit facility were accruing interest at
approximately 7.8% per year and amounts outstanding under the equipment credit
facility were accruing interest at approximately 7.7% per year.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Prior to its acquisition by the Company in May 1998, Waste Stream Environmental,
Inc. had signed a document which purported to be a letter of intent with Pocono
Grow Fertilizer Corporation relating to the development of a waste treatment and
recycling facility in Eastern Pennsylvania. After the Waste Stream acquisition
was completed, we notified Pocono Grow that Waste Stream did not intend to
pursue the project. Pocono Grow asserted that the document was a binding
agreement and that Waste Stream was in breach of the agreement. On July 14,
1998, Waste Stream filed a suit for declaratory judgment in the United States
District Court for the Western District of New York asking the court to
determine whether the document was binding or non-binding. On August 14, 1998,
Pocono Grow filed a counterclaim against Waste Stream and a third party
complaint against the Company alleging breach of contract and claiming damages
in excess of $10.0 million. Waste Stream and the Company intend to vigorously
defend the counterclaim and third party complaint and pursue the declaratory
judgment action. We do not believe that this action will have a material adverse
effect on our business, results of operations or financial condition.
In June 1999, we were notified that the Louisiana Department of Environmental
Quality (the "LDEQ") has proposed to terminate the discharge permit held by
Re-Claim Environmental Louisiana, LLC, a wholly-owned subsidiary of the Company.
A termination of this permit would require Re-Claim to cease its current
practice of discharging wastewater and other materials into waters of the State
of Louisiana. In its notice, the LDEQ alleged that the proposed termination was
justified based upon, among other things, Re-Claim's failure to comply with the
terms of its permit, two releases (spills) that occurred at the Re-Claim
facility and Re-Claim's acceptance and processing of hazardous materials not
covered by the terms of its permit. We are attempting to negotiate a resolution
with the LDEQ which may include a fine, modifications to our waste screening and
waste processing procedures and/or additional capital expenditures at the
Re-Claim facility. We believe that the ultimate outcome of this matter will not
have a material adverse effect on our business, results of operations or
financial condition.
Our business is subject to numerous federal, state and local laws, regulations
and policies that govern environmental protection, zoning and other matters.
During the ordinary course of our business, we become involved in a variety of
legal and administrative proceedings relating to land use and environmental laws
and regulations, including actions or proceedings brought by governmental
agencies, adjacent landowners, or citizens groups. In the majority of the
situations where proceedings are commenced by governmental agencies, the matters
involved relate to alleged technical violations of licenses or permits pursuant
to which we operate or are seeking to operate or laws or regulations to which
our operations are subject or are the result of different interpretations of
applicable requirements. From time to time,
17
<PAGE>
we pay fines or penalties in governmental proceedings relating to our
operations. We believe that these matters will not have a material adverse
effect on our business, results of operations or financial condition. However,
the outcome of any particular proceeding cannot be predicted with certainty, and
the possibility remains that technological, regulatory or enforcement
developments, results of environmental studies or other factors could materially
alter this expectation at any time.
The Company and certain of its subsidiaries are also currently involved in other
civil litigation and governmental proceedings relating to the conduct of their
businesses, some of which are addressed in our Annual Report on Form 10-K for
the year ended December 31, 1998, as filed with the SEC. While the outcome of
any particular lawsuit or governmental investigation cannot be predicted with
certainty, we believe that these matters will not have a material adverse effect
on our business, results of operations or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 11, 1999, the annual meeting of stockholders of the Company was held in
Houston, Texas. The items of business considered at the annual meeting were as
follows:
(1) the election of John N. Hatsopoulos and William A. Rothrock IV to serve
as directors of the Company for a term of three years; and
(2) the ratification of the selection of Arthur Andersen LLP as the
Company's independent accountants for 1999.
At the annual meeting, 12,776,618 shares were voted FOR the election of
John N. Hatsopoulos and 202,304 shares were voted AGAINST; 12,777,353 shares
were voted FOR the election of William A. Rothrock IV and 201,569 shares were
voted AGAINST; 13,118,756 shares were voted FOR the ratification of the
selection of Arthur Andersen LLP as the Company's independent accountants for
1999; 73,786 shares were voted AGAINST; and 17,442 shares ABSTAINED.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
NO. DESCRIPTION
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U S LIQUIDS INC.
Date: August 9, 1999 /S/ MICHAEL P. LAWLOR
--------------------------------------
Michael P. Lawlor, Chairman and CEO
Date: August 9, 1999 /S/ EARL J. BLACKWELL
--------------------------------------
Earl J. Blackwell, Senior Vice President
and Chief Financial Officer
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM U S LIQUIDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,097
<SECURITIES> 0
<RECEIVABLES> 44,477
<ALLOWANCES> 1,786
<INVENTORY> 1,883
<CURRENT-ASSETS> 50,188
<PP&E> 110,347
<DEPRECIATION> 0
<TOTAL-ASSETS> 345,242
<CURRENT-LIABILITIES> 34,361
<BONDS> 0
0
0
<COMMON> 161
<OTHER-SE> 203,041
<TOTAL-LIABILITY-AND-EQUITY> 345,242
<SALES> 0
<TOTAL-REVENUES> 113,997
<CGS> 76,831
<TOTAL-COSTS> 95,591
<OTHER-EXPENSES> (211)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,056
<INCOME-PRETAX> 15,561
<INCOME-TAX> 6,459
<INCOME-CONTINUING> 9,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,102
<EPS-BASIC> .62
<EPS-DILUTED> .57
</TABLE>
