SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
JANUARY 15, 1999
(Date of earliest event reported)
U S LIQUIDS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-13259 76-0519797
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
411 NORTH SAM HOUSTON PARKWAY EAST, SUITE 400, HOUSTON, TEXAS 77060
(Address of principal executive offices) (Zip Code)
(281) 272-4500
Registrant's telephone number, including area code
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) (b) THIS FORM 8-K/A IS BEING FILED TO INCLUDE THE FINANCIAL STATEMENTS
AND PRO FORMA FINANCIAL INFORMATION OMITTED FROM THE CURRENT REPORT ON FORM 8-K
FILED ON JANUARY 29, 1999.
THE REQUIRED FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL
INFORMATION ARE INCLUDED AS EXHIBITS TO THIS FORM 8-K/A AND ARE
INCORPORATED HEREIN BY REFERENCE.
(c) Exhibits.
PAGE
U S LIQUIDS INC. PRO FORMA
Introduction to Unaudited Pro Forma Financial Statements...... F-2
Pro Forma Balance Sheet (Unaudited).......................... F-3
Notes to Pro Forma Balance Sheet (Unaudited)................. F-4
Pro Forma Statements of Operations (Unaudited)............... F-5
Notes to Pro Forma Statements of Operations (Unaudited)...... F-8
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
Report of Independent Public Accountants..................... F-9
Combined Balance Sheets....................................... F-10
Combined Statements of Income................................. F-11
Combined Statements of Stockholders' Equity....................F-12
Combined Statements of Cash Flows..............................F-13
Notes to Combined Financial Statements........................ F-14
23.1 Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
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 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 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.
F-2
<PAGE>
U S LIQUIDS INC.
PRO FORMA BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------------------------------
HISTORICAL ACQUIRED PRO FORMA
CONSOLIDATED COMPANIES ADJUSTMENTS(A) PRO FORMA
------------ --------- --------------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 4,827 $ 768 $ $ 5,595
Accounts receivable, net of
allowance....................... 28,502 7,616 36,118
Inventories........................ 1,190 550 (49) 1,691
Prepaid expenses and other current
assets.......................... 4,276 1,932 (375) 5,833
------------ --------- --------------- ---------
Total current assets....... 38,795 10,866 (424) 49,237
PROPERTY, PLANT AND EQUIPMENT, net... 78,275 17,968 (1,077) 95,166
INTANGIBLE ASSETS, net............... 102,256 -- 47,443 149,699
OTHER ASSETS, net.................... 1,991 1,236 3,227
------------ --------- --------------- ---------
Total assets............... $221,317 $30,070 $ 45,942 $ 297,329
============ ========= =============== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations..................... $ 4,564 $ 2,515 $ (1,185) $ 5,894
Accounts payable................... 11,079 2,959 14,038
Accrued liabilities................ 15,399 2,709 18 18,126
Current portion of contract reserve
and deferred revenue............ 5,298 -- 5,298
------------ --------- --------------- ---------
Total current
liabilities................ 36,340 8,183 (1,167) 43,356
LONG-TERM OBLIGATIONS, net of current
maturities......................... 43,910 3,782 43,976 91,668
CELL PROCESSING RESERVE.............. 5,765 -- 5,765
CLOSURE AND REMEDIATION RESERVES..... 6,494 3,887 10,381
CONTRACT RESERVE..................... 8,248 -- 5,155 13,403
DEFERRED INCOME TAXES................ 1,695 -- 500 2,195
------------ --------- --------------- ---------
Total liabilities.......... 102,452 15,852 48,464 166,768
------------ --------- --------------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock....................... 123 21 (16) 128
Additional paid-in capital......... 108,043 -- 11,691 119,734
Retained earnings.................. 10,699 11,090 (11,090) 10,699
Other owners' equity............... -- 3,107 (3,107) --
------------ --------- --------------- ---------
Total stockholders'
equity..................... 118,865 14,218 (2,522) 130,561
------------ --------- --------------- ---------
Total liabilities and
stockholders' equity.... $221,317 $30,070 $ 45,942 $ 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.
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
CONSOLIDATED COMPANIES ADJUSTMENTS PRO FORMA
------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
REVENUES............................. $38,159 $ 191,559 $ $229,718
OPERATING EXPENSES................... 21,353 132,941 (1,521)(a) 152,773
DEPRECIATION AND
AMORTIZATION....................... 2,990 9,108 2,213 (b) 14,311
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,350 32,458 (356)(a) 37,452
POOLING COSTS........................ 400 -- 400
------------- ----------- ------------ ----------
INCOME FROM OPERATIONS............... 8,066 17,052 (336) 24,782
INTEREST (INCOME) EXPENSE,
net................................ 1,734 1,863 2,881(c) 6,478
OTHER (INCOME) EXPENSE, net.......... 41 (427) (386)
------------- ----------- ------------ ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. 6,291 15,616 (3,217) 18,690
PROVISION FOR INCOME
TAXES.............................. 2,416 161 5,086(d) 7,663
------------- ----------- ------------ ----------
NET INCOME........................... $ 3,875 $ 15,455 $ (8,303) $ 11,027
============= =========== ============ ==========
BASIC EARNINGS PER COMMON SHARE...... $ 0.86
==========
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.78
==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 12,765 (e)
==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 14,086 (e)(f)
==========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-5
<PAGE>
U S LIQUIDS INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------
HISTORICAL ACQUIRED PRO FORMA
CONSOLIDATED COMPANIES ADJUSTMENTS PRO FORMA
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
REVENUES................................ $ 27,313 $ 142,581 $ $ 169,894
OPERATING EXPENSES...................... 15,404 99,187 (1,097)(a) 113,494
DEPRECIATION AND
AMORTIZATION.......................... 2,007 6,352 1,731 (b) 10,090
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 3,454 23,357 (267)(a) 26,544
POOLING COSTS........................... 400 -- 400
------------ ----------- ------------ ---------
INCOME FROM OPERATIONS.. 6,048 13,685 (367) 19,366
INTEREST (INCOME) EXPENSE,
net................................... 1,367 1,502 1,950(c) 4,819
OTHER (INCOME) EXPENSE,
net................................... 130 (302) (172)
------------ ----------- ------------ ---------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................. 4,551 12,485 (2,317) 14,719
PROVISION FOR INCOME TAXES.............. 1,746 78 4,210(d) 6,034
------------ ----------- ------------ ---------
NET INCOME.............................. $ 2,805 $ 12,407 $ (6,527) $ 8,685
============ =========== ============ =========
BASIC EARNINGS PER COMMON SHARE......... $ 0.68
=========
DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE...................... $ 0.62
=========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................... 12,763 (e)
=========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING......... 14,089 (e)(f)
=========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-6
<PAGE>
U S LIQUIDS INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------------------
HISTORICAL ACQUIRED PRO FORMA
CONSOLIDATED COMPANIES ADJUSTMENTS PRO FORMA
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
REVENUES............................. $ 77,860 $93,108 $ $ 170,968
OPERATING EXPENSES................... 49,228 60,888 (856)(a) 109,260
DEPRECIATION AND
AMORTIZATION....................... 5,698 4,726 723(b) 11,147
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 8,968 17,335 (174)(a) 26,129
------------ ----------- ------------ ---------
INCOME FROM OPERATIONS............... 13,966 10,159 307 24,432
INTEREST (INCOME) EXPENSE, net....... 2,310 1,326 973(c) 4,609
OTHER (INCOME) EXPENSE, net.......... (235) (387) (622)
------------ ----------- ------------ ---------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. 11,891 9,220 (666) 20,445
PROVISION FOR INCOME TAXES........... 4,835 771 2,777(d) 8,383
------------ ----------- ------------ ---------
NET INCOME........................... $ 7,056 $ 8,449 $ (3,443) $ 12,062
============ =========== ============ =========
BASIC EARNINGS PER COMMON SHARE...... $ 0.94
=========
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.85
=========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 12,832 (e)
=========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 14,205 (e)(f)
=========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-7
<PAGE>
U S LIQUIDS INC.
NOTES TO PRO FORMA STATEMENTS OF 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 adjustments.
(e) 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, and (2)
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.
(f) 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>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Romic Environmental Technologies Corp.:
We have audited the accompanying combined balance sheet of Romic
Environmental Technologies Corp. (a California S Corporation) and affiliate as
of June 30, 1998, and the related combined statements of income, stockholders'
equity and cash flows for the year then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Romic
Environmental Technologies Corp. and affiliate as of June 30, 1998, and the
combined results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 8, 1998
F-9
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
COMBINED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1998
--------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 207 $ 3
Accounts receivable, less
allowance of $175 and $216
(unaudited).................... 6,737 6,059
Inventories..................... 544 542
Note receivable from
stockholder.................... 515 608
Prepaid expenses and other
current assets................. 1,023 1,226
--------- --------------
Total current assets....... 9,026 8,438
PROPERTY, PLANT AND EQUIPMENT, net... 14,748 13,654
OTHER ASSETS, net.................... 1,158 1,236
--------- --------------
Total assets............... $ 24,932 $ 23,328
========= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................... $ 2,904 $ 1,925
Advances from stockholder....... 505 505
Accounts payable................ 3,527 2,905
Processing reserve.............. 1,093 1,033
Accrued liabilities............. 1,250 1,034
--------- --------------
Total current
liabilities.................. 9,279 7,402
LONG-TERM OBLIGATIONS, net of current
maturities.......................... 3,962 3,782
CLOSURE AND REMEDIATION RESERVES..... 4,068 3,887
--------- --------------
Total liabilities.......... 17,309 15,071
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock.................... 19 19
Retained earnings............... 7,604 8,238
--------- --------------
Total stockholders'
equity.................... 7,623 8,257
--------- --------------
Total liabilities and
stockholders' equity...... $ 24,932 $ 23,328
========= ==============
The accompanying notes are an integral part of these combined financial
statements.
F-10
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES................................ $ 48,684 $ 24,545 $ 22,364
OPERATING EXPENSES (EXCLUSIVE OF $1,511,
$786, AND $768, RESPECTIVELY, OF
DEPRECIATION AND AMORTIZATION)........ 30,853 15,563 13,216
DEPRECIATION AND AMORTIZATION........... 2,521 1,266 1,297
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (EXCLUSIVE OF $1,010, $480,
AND $529, RESPECTIVELY, OF
DEPRECIATION AND AMORTIZATION)........ 13,180 6,723 6,451
---------- ------------ ------------
INCOME FROM OPERATIONS.................. 2,130 993 1,400
INTEREST EXPENSE, net................... 451 220 236
OTHER (INCOME) EXPENSE, net............. 28 (21) (9)
---------- ------------ ------------
NET INCOME.............................. $ 1,651 $ 794 $ 1,173
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-11
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- ------ --------- -------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1997............... 22,064 $ 19 $ 7,778 $ 7,797
Net income...................... -- -- 1,651 1,651
Distributions to stockholders... -- -- (1,825) (1,825)
--------- ------ --------- -------------
BALANCE, June 30, 1998............... 22,064 19 7,604 7,623
Net income (unaudited).......... -- -- 1,173 1,173
Distributions to stockholders
(unaudited)................... -- -- (539) (539)
--------- ------ --------- -------------
BALANCE, December 31, 1998
(unaudited)........................ 22,064 $ 19 $ 8,238 $ 8,257
========= ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-12
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $1,651 $ 794 $1,173
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and
amortization............... 2,521 1,266 1,297
Changes in operating assets
and liabilities --
Accounts receivable,
net................... (634) (379) 678
Inventories.............. 46 50 2
Prepaid expenses and
other current
assets................ (174) (26) (203)
Other assets, net........ (333) (144) (78)
Accounts payable and
accrued liabilities... (386) (478) (838)
Processing reserve....... 108 54 (60)
Closure and remediation
reserves.............. (259) (130) (181)
---------- ------------ ------------
Net cash provided
by operating
activities....... 2,540 1,007 1,790
---------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment........................ (2,666) (690) (104)
---------- ------------ ------------
Net cash used in
investing
activities....... (2,666) (690) (104)
---------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders...... (1,825) (562) (539)
Principal payments on long-term
obligations...................... (2,153) (1,743) (1,258)
Proceeds from the issuance of
long-term obligations............ 3,703 1,500 --
Proceeds from (payments to) related
party............................ -- -- (93)
---------- ------------ ------------
Net cash used in
financing
activities....... (275) (805) (1,890)
---------- ------------ ------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................... (401) (488) (204)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 608 608 207
---------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 207 $ 120 $ 3
========== ============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............. $ 482 $ 221 $ 252
Assets acquired under capital
leases........................... 660 319 99
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-13
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Romic Environmental Technologies Corp. (Romic) and its affiliate,
Automotive Environmental Services, Inc. (AES) (collectively, the Company), are
primarily engaged in the collection, recovery, processing and disposal of
hazardous and nonhazardous liquid wastes, including liquid waste processing and
solvent and chemical recovery. The Company's waste processing operations are
located in California and Arizona and its collection and transfer facilities are
in California, Oregon and Washington.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The individual companies that comprise the Company have been presented on a
combined basis due to their related operations, common ownership by the
stockholders and common management control. All significant intercompany
balances and transactions among the aforementioned entities have been eliminated
in combination.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements for the six months ended December
31, 1997 and 1998, are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the combined financial position, results of
operations and cash flows with respect to the interim combined financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less are classified as cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Accounts receivable potentially subject the Company to concentrations of
credit risk. At June 30, 1998, 17 percent and 11 percent of total accounts
receivable were associated with two unrelated customers. In addition, sales to
two customers represented 14 percent and 10 percent, respectively, of total
revenues for the year ended June 30, 1998. One of these customers, representing
approximately 14 percent of total revenues for the year ended June 30, 1998, did
not renew its sales contracts for the following year.
INVENTORIES
Inventories are stated at the lower of cost or market and, at June 30,
1998, consisted primarily of raw materials and equipment purchased for resale
and reclaimed by-products of $341,000 and $203,000, respectively. Cost, which
includes purchased materials, labor and overhead, is determined using the
first-in, first-out (FIFO) method.
F-14
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS --(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Improvements or
betterments which significantly extend the life of an asset are capitalized.
Expenditures for maintenance and repair costs are charged to operations as
incurred. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal. Gains and losses resulting from property disposals are included in
other income or expense. Depreciation is computed using the straight-line or
double declining-balance methods.
OTHER ASSETS
Other assets consist primarily of deposits and permits. Management
continually evaluates whether events or circumstances have occurred that
indicate the remaining estimated useful life of property, plant and equipment
and other long-lived assets may warrant revision or that remaining balances may
not be recoverable.
INCOME TAXES
For income tax purposes, Romic and AES have elected S Corporation status
under the U.S. Internal Revenue Code. In accordance with the provisions of
elections to be treated as an S Corporation, the Company's income and losses are
passed through to its stockholders; accordingly, no provision for federal or
state income taxes has been recorded in the combined statements of income.
REVENUE RECOGNITION AND PROCESSING RESERVE
The Company recognizes revenue from processing services and records a
reserve for the estimated cost of treatment when material is unloaded at the
Company's facilities. The related treatment costs are charged against the
reserve as such costs are incurred. By-product sales revenue is recognized when
the by-product or reclaimed product is shipped to the buyer.
The Company's revenues consist of approximately the following (in
thousands):
Processing revenues.................. $ 37,174
Chemical and by-product sales........ 6,935
Collection revenues.................. 4,298
Other revenues....................... 277
---------
Total...................... $ 48,684
=========
CLOSURE AND REMEDIATION RESERVES
As of June 30, 1998, closure reserves totalling $217,000 represent accruals
for the total estimated costs associated with the ultimate closure of the
Company's facilities, including costs of decommissioning, statutory monitoring
costs and incremental direct administrative costs required during the closure
and subsequent postclosure periods. Management periodically reviews the level of
these reserves and will adjust such reserves if estimated costs are expected to
change.
As required under state and federal regulations, the Company has
established closure trust funds covering all costs associated with the ultimate
future closure of the Company's California and Arizona sites. To cover such
costs, the Company purchased stand-by letters of credit from a bank totaling
$610,000, maturing on May 31, 1999, and June 1, 1999. Upon an unplanned closure
of Company sites, the proceeds of the letters of credit would be transferred
into the trust fund to pay closing costs as incurred.
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study. Such
F-15
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS --(CONTINUED)
accruals are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation obligations are
discounted to their present value. Recoveries of environmental remediation costs
from other parties are recorded as assets when their receipt is deemed probable.
See further discussion of the Company's environmental remediation obligations in
Footnote 10.
INSURANCE
The Company maintains various types of insurance coverage for its business,
including, without limitation, commercial general liability and commercial auto
liability, workers' compensation and employer liability, and a general umbrella
policy. The Company has not incurred significant claims or losses in excess of
its insurance limits during the period presented in the accompanying combined
financial statements.
3. COMMON STOCK
At June 30, 1998 the Company's common stock consisted of the following:
AUTHORIZED ISSUED AND
(NO PAR) OUTSTANDING
----------- ------------
Romic voting......................... 1,200 1,175
Romic non-voting..................... 10,800 10,579
AES.................................. 1,000,000 10,310
4. NOTE RECEIVABLE FROM STOCKHOLDER AND ADVANCES FROM STOCKHOLDER:
Note receivable from stockholder consists of a note receivable in the
amount of $515,000, payable on demand. The receivable is unsecured and bears
interest at an average imputed interest rate of 5.54 percent. Advances from
stockholder consist of $505,000, bearing interest at 6.5 percent, payable
monthly, and maturing January 1999.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets at June 30, 1998, consist of the
following (in thousands):
Prepaid insurance.................... $ 647
Other................................ 376
---------
Total........................... $ 1,023
=========
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at June 30, 1998, consist of the following
(in thousands):
DEPRECIABLE LIFE
(YEARS)
----------------
Land................................. -- $ 3,655
Buildings and improvements........... 20-31 7,536
Machinery and equipment.............. 5-7 10,783
Furniture and fixtures............... 5-7 4,242
Vehicles............................. 5 8,127
Construction in progress............. 1,066
---------
Total........................... 35,409
Less -- Accumulated depreciation..... 20,661
---------
Net property, plant and
equipment....................... $ 14,748
=========
F-16
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS --(CONTINUED)
Equipment under capital leases totaling $3,574,000 was included in
property, plant and equipment at June 30, 1998.
7. ACCRUED LIABILITIES:
Accrued liabilities at June 30, 1998, consist of the following (in
thousands):
Accrued salaries and benefits........ $ 855
Other................................ 395
---------
Total........................... $ 1,250
=========
8. LONG-TERM OBLIGATIONS:
The Company's long-term obligations at June 30, 1998, consist of the
following (in thousands):
Revolving credit facility, interest at
prime (8.5% at June 30, 1998) plus
0.25%................................. $ 800
Notes payable to banks, interest payable
monthly ranging from 8.75% to prime
plus 0.625%, maturing June 1999 to
June 2003, secured by certain assets
and personally guaranteed by the
majority stockholder.................. 3,266
Note payable to an individual, interest
payable monthly at 8.5%, maturing
January 2008, secured by certain land
and buildings......................... 1,100
Notes payable to an insurance financial
institution, interest payable monthly
ranging from 5.9% to 8.55%, maturing
October 1998 to May 2001, unsecured... 817
Obligations under capital leases,
monthly payments ranging from $541 to
$2,196, interest ranging from 4.9% to
11.3%, expiring within the next three
years, secured by equipment........... 883
---------
6,866
Less -- Current maturities of long-term
obligations........................... (2,904)
---------
$ 3,962
=========
The revolving credit facility with a domestic bank provides for a maximum
borrowing of $2,500,000 and is personally guaranteed by the majority
stockholder. The credit agreement requires the Company to comply with certain
financial covenants, such as meeting current ratio requirements, which affect
its borrowing availability. In addition, borrowing availability is limited by
outstanding letters of credit. At June 30, 1998, the Company had $1,090,000
available under this facility.
At June 30, 1998 the Company was in technical default of certain financial
covenants of its long term obligations. The Company has applied for and obtained
a waiver of compliance with these financial covenants. The related borrowings
were subsequently repaid in connection with the Company's acquisition by U S
Liquids. See further discussion in Footnote 11.
Management estimates that the fair value of its debt obligations
approximates the historical value at June 30, 1998.
F-17
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS --(CONTINUED)
Principal payments of long-term debt obligations in excess of one year as
of June 30, 1998, are as follows (in thousands):
LONG-TERM CAPITAL
DEBT LEASES
--------- -------
Year ending June 30 --
1999............................... $ 2,522 $ 439
2000............................... 891 255
2001............................... 857 215
2002............................... 352 120
2003............................... 312 --
Thereafter......................... 1,049 --
--------- -------
5,983 1,029
Less -- Amount representing
interest......................... -- (146)
--------- -------
Total......................... $ 5,983 $ 883
========= =======
9. EMPLOYEE BENEFITS:
The Company maintains a profit-sharing plan covering substantially all
employees. The Company's contribution to the plan, as determined by the board of
directors, is discretionary, but will in no event exceed 15% of the annual
aggregate salaries of those employees eligible for participation in the plan.
The contribution for the year ended June 30, 1998, was $83,757, representing a
1% contribution.
The Company sponsors a 401(k) savings plan under which eligible employees
may choose to save a portion of their salary on a pretax basis, subject to
certain IRS limits. The Company matches 25% of employee contributions, up to a
maximum employee contribution of $6,000. The Company recognized $98,000 in
compensation expense related to this plan for the year ended June 30, 1998. On
July 1, 1998 the Company increased its employer match percentage to 50% of
employee contributions, up to a maximum employee contribution of $6,000.
10. COMMITMENTS AND CONTINGENCIES:
NONCANCELLABLE OPERATING LEASES
The Company leases certain equipment, property and office facilities under
noncancelable operating leases for a remaining period in excess of one year.
Rent expense was approximately $609,000 for the year ended June 30, 1998. The
following table presents future minimum rental payments under the noncancelable
operating leases (in thousands):
Year ending June 30 --
1999............................ $ 327
2000............................ 300
2001............................ 233
2002............................ 142
2003............................ 132
Thereafter...................... 1,161
---------
Total...................... $ 2,295
=========
F-18
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS --(CONTINUED)
LEGAL PROCEEDINGS
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's combined financial position
or results of operations.
ENVIRONMENTAL MATTERS
The Company 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. 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 reserved approximately
$2,341,000 at June 30, 1998 to cover its estimated cleanup costs at this
facility and expects this amount to be disbursed over the next 30 years. The
undiscounted amount of remediation costs of $3,370,000 has been discounted for
present value considerations at a risk-free rate of return of 5.6% in
recognizing the Company's remediation costs. However, due to the complex,
ongoing and evolving process of investigating and remediating the facility,
Romic's actual cleanup costs may exceed the amount reserved.
The Company had also 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
(PRPs) have entered into administrative consent orders and agreements allocating
each party's respective share of the cost of remediating the sites. Based upon
the results of the studies and remedial actions completed, Romic has reserved
approximately $844,000 at June 30, 1998 to cover its estimated costs to be
disbursed over the next ten years. The undiscounted amount of remediation costs
of approximately $900,000 has been discounted for present value considerations
at a risk-free rate of return of 5.6% in recognizing the Company's share of
remediation costs. However, due to the complex, ongoing and evolving process of
investigating and remediating these sites, Romic's actual costs under these
three administrative consent orders may exceed the amount reserved.
With regard to the Casmalia Resources site, if adequate funding has not
been obtained by the EPA from certain outside sources to fund Phases III and IV,
for which Romic and other PRPs have not been released from liability, the
Company could incur additional obligations of approximately $400,000 to be
disbursed over 30 years. No financial statement reserve has been recognized at
June 30, 1998 for this loss contingency. It is reasonably possible that the
Company's recorded estimate of its obligation, which only assumes loss exposure
under Phase I, may change in the future.
Romic also owns a tract of land in Newark, California that had been
contaminated prior to its purchase by Romic. In 1990, Romic entered into an
agreement with the California Regional Water Quality Control Board to remediate
soil and groundwater contamination at this site. Surface soil removal and
treatment was completed in 1993 and Romic has been treating groundwater since
1990. As of June 30, 1998, Romic had reserved approximately $666,000 for future
remediation costs that will be disbursed over the next 30 years. The
undiscounted amount of remediation costs of $903,000 has been discounted for
present value considerations at a risk-free rate of return of 5.6% in
recognizing the Company's share of remediation costs. However, due to the
complex, ongoing and evolving process of investigating and remediating the
facility, Romic's actual clean up costs may exceed the amount reserved.
F-19
<PAGE>
ROMIC ENVIRONMENTAL TECHNOLOGIES CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS --(CONTINUED)
11. SUBSEQUENT EVENTS:
On January 15, 1999 US Liquids Inc. acquired the Company for cash, assumed
debt and stock. The transaction was accounted for under the purchase method of
accounting. In conjunction with the acquisition, the majority selling
stockholder of the Company authorized that a bonus of $1,500,000 be paid to
certain of the Company's employees using proceeds from the purchase.
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
U S LIQUIDS INC.
Date: February 15, 1999 By: /s/ MICHAEL P. LAWLOR
Michael P. Lawlor, Chief Executive Officer
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report, included in this Form 8-K/A, into the U S Liquids
Inc. previously filed Form S-8 Registration Statement File No. 333-34689.
ARTHUR ANDERSEN LLP
Houston, Texas
February 16, 1999
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,827
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<RECEIVABLES> 30,185
<ALLOWANCES> (1,683)
<INVENTORY> 1,190
<CURRENT-ASSETS> 38,795
<PP&E> 86,902
<DEPRECIATION> 8,626
<TOTAL-ASSETS> 221,317
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0
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<COMMON> 123
<OTHER-SE> 118,742
<TOTAL-LIABILITY-AND-EQUITY> 221,317
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<TOTAL-REVENUES> 77,860
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<TOTAL-COSTS> 63,894
<OTHER-EXPENSES> (235)
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<INCOME-TAX> 4,835
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