<PAGE>
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, 2000
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
15,796,911 shares as of August 10, 2000
<PAGE>
U S LIQUIDS INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I - FINANCIAL INFORMATION............................................................................. 1
ITEM 1. Financial Statements..................................................................... 1
- Condensed Consolidated Balance Sheets as of
December 31, 1999 and June 30, 2000 (unaudited)................................................. 1
- Condensed Consolidated Statements of Income for the
three and six month periods ended June 30, 1999 and 2000 (unaudited)............................ 2
- Condensed Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1999 and 2000 (unaudited)...................................... 3
- Notes to Condensed Consolidated Financial Statements............................................ 4
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk............................... 16
PART II-OTHER INFORMATION.................................................................................. 16
ITEM 1. Legal Proceedings........................................................................ 16
ITEM 2. Changes in Securities and Use of Proceeds................................................ 19
ITEM 3. Defaults upon Senior Securities.......................................................... 20
ITEM 4. Submission of Matters to a Vote of Security Holders...................................... 20
ITEM 5. Other Information........................................................................ 20
ITEM 6. Exhibits and Reports on Form 8-K......................................................... 20
Signatures................................................................................................. 21
</TABLE>
i
<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>
ASSETS DECEMBER 31, JUNE 30,
1999 2000
----------- ----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 3,398 $ 1,990
Accounts receivable, less allowances of $3,063 and
$1,343 (unaudited), respectively............................... 40,098 39,898
Inventories..................................................... 2,029 2,421
Prepaid expenses and other current assets....................... 12,653 7,766
-------- --------
Total current assets........................................ $ 58,178 $ 52,075
PROPERTY, PLANT AND EQUIPMENT, net................................. 115,625 119,159
INTANGIBLE ASSETS, net............................................. 193,033 196,306
OTHER ASSETS, net.................................................. 2,247 1,818
-------- --------
Total assets................................................ $369,083 $369,358
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations..................... $ 5,327 $ 2,621
Accounts payable................................................ 15,239 20,134
Accrued liabilities............................................. 22,923 19,166
Current portion of contract reserve............................. 4,500 4,500
-------- --------
Total current liabilities................................... $ 47,989 $ 46,421
LONG-TERM OBLIGATIONS, net of current maturities................... 99,499 98,866
CELL PROCESSING RESERVE............................................ 4,630 4,703
CLOSURE AND REMEDIATION RESERVES................................... 8,878 8,649
CONTRACT RESERVE, net of current portion........................... 11,566 12,357
DEFERRED INCOME TAXES.............................................. 6,373 7,173
-------- --------
Total liabilities........................................... $178,935 $178,169
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none outstanding............................................. $ - $ -
Common stock, $.01 par value, 30,000,000 shares authorized,
15,780,868 and 15,785,868 (unaudited) shares
issued and outstanding, respectively......................... 158 158
Additional paid-in capital...................................... 176,859 176,859
Retained earnings............................................... 13,173 14,182
Accumulated other comprehensive loss
Foreign currency translation adjustment...................... (42) (10)
-------- --------
Total stockholders' equity................................... $190,148 $191,189
-------- --------
Total liabilities and stockholders' equity.................. $369,083 $369,358
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<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,
------------------- -----------------------
1999 2000 1999 2000
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES.......................... $58,695 $64,473 $113,997 $122,651
OPERATING EXPENSES................ 39,226 48,827 76,831 92,494
DEPRECIATION AND AMORTIZATION..... 3,992 4,741 7,552 9,411
SELLING, GENERAL AND 5,733 6,526 11,208 13,724
ADMINISTRATIVE EXPENSES........... ------- ------- -------- --------
INCOME FROM OPERATIONS............ $ 9,744 $ 4,379 $ 18,406 $ 7,022
INTEREST EXPENSE, net............. 1,443 2,950 3,056 5,288
OTHER (INCOME) EXPENSE, net....... (115) (385) (211) (264)
------- ------- -------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES...................... $ 8,416 $ 1,814 $ 15,561 $ 1,998
PROVISION FOR INCOME TAXES........ 3,494 910 6,459 989
------- ------- -------- --------
NET INCOME........................ $ 4,922 $ 904 $ 9,102 $ 1,009
======= ======= ======== ========
BASIC EARNINGS PER COMMON SHARE... $ 0.31 $ 0.06 $ 0.62 $ 0.06
======= ======= ======== ========
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE........... $ 0.29 $ 0.06 $ 0.57 $ 0.06
======= ======= ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING................ 15,927 15,786 14,747 15,786
======= ======= ======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING...................... 17,242 16,313 16,091 16,447
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
U S LIQUIDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------------------------------------
1999 2000
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 9,102 $ 1,009
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization........................................... 7,552 9,411
Net loss (gain) on sale of property, plant, and equipment............... (82) 79
Deferred income tax provision........................................... 1,579 1,394
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net........................................... (7,324) (983)
Inventories........................................................ (506) (392)
Prepaid expenses and other current assets.......................... 1,828 3,915
Intangible assets, net............................................. (488) (184)
Other assets....................................................... (1,395) 430
Accounts payable and accrued liabilities........................... (8,272) 1,718
Closure, remediation and processing reserves....................... (2,188) (3,790)
-------- --------
Net cash provided by (used in) operating activities........... $ (194) $ 12,607
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.............................. $ (7,937) $ (9,118)
Proceeds from sale of property, plant and equipment..................... 670 128
Net cash paid for acquisitions.......................................... (60,015) (1,717)
-------- --------
Net cash used in investing activities......................... $(67,282) $(10,707)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations......................... $ 72,147 $ 16,000
Principal payments on long-term obligations............................. (63,586) (19,340)
Proceeds from additional public offering of common stock,
net of offering costs.............................................. 56,659 --
Proceeds from exercise of stock options................................. 68 --
-------- --------
Net cash provided by (used in) financing activities............ $ 65,288 $ (3,340)
-------- --------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH
AND CASH EQUIVALENTS......................................................... $ -- $ 32
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... $ (2,188) $ (1,408)
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 3,285 3,398
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................... $ 1,097 $ 1,990
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.................................................. $ 3,062 $ 5,064
Cash paid (received) for income taxes................................... 4,340 (3,284)
Liabilities issued and assumed related to acquisitions.................. 3,229 --
Common stock, warrants and options issued for acquisitions.............. 12,428 --
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<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, 1999, as filed with the SEC.
2. INVENTORIES
Inventories are stated at the lower of cost or market and, at December 31, 1999
and June 30, 2000, consisted of processed by-products of $ 1,490,000 and
$1,368,000, respectively, and unprocessed by-products of $539,000 and
$1,053,000, 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,
------------------------------ --------------------------
1999 2000 1999 2000
------ ------ ---- ----
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating expenses................................... $3,779 $4,466 $7,133 $8,871
Selling, general and administrative expenses......... 213 275 419 540
------ ------ ------ ------
Total depreciation and amortization expense... $3,992 $4,741 $7,552 $9,411
====== ====== ====== ======
</TABLE>
4
<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, 1999 and 2000,
respectively, is illustrated below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ---------------------------
1999 2000 1999 2000
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
For basic and diluted earnings per share -
Income available to common stockholders...... $ 4,922 $ 904 $ 9,102 $ 1,009
=========== =========== =========== ===========
Denominator:
For basic earnings per share -
Weighted-average shares...................... 15,926,915 15,785,870 14,746,541 15,785,622
----------- ----------- ----------- -----------
Effect of dilutive securities:
Stock options and warrants................... 1,315,413 527,211 1,344,256 661,603
----------- ----------- ----------- -----------
Denominator:
For diluted earnings per share -
Weighted-average shares and 17,242,328 16,313,081 16,090,797 16,447,225
assumed conversions.......................... =========== =========== =========== ===========
</TABLE>
For the quarters ended June 30, 1999 and 2000, we had 627,500 and 1,332,334
employee stock options, respectively, which were not included in the computation
of diluted earnings per share because to do so would have been antidilutive for
the periods presented.
5. COMPREHENSIVE INCOME
The Company's comprehensive income, which encompasses net income and currency
translation adjustments, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------------
1999 2000 1999 2000
--------- -------- -------- ----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income......................... $4,922 $904 $9,102 $ 1,009
Currency translation adjustments... -- 20 -- 32
------ ---- ------ ----------
Comprehensive income............... $4,922 $924 $9,102 $ 1,041
====== ==== ====== ==========
</TABLE>
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 - "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No.
137, which amended the effective adoption date of SFAS No. 133. This statement
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. The statement, as amended and
5
<PAGE>
which is to be applied prospectively, is effective for the Company's quarter
ending March 31, 2001. We are currently evaluating the impact of SFAS No. 133 on
our future results of operations and financial position.
On December 3, 1999, the SEC released Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition, to provide guidance on the recognition, presentation and
disclosure of revenue in financial statements. We have reviewed our revenue
recognition procedures for each of our business segments and we are satisfied
that we are in Compliance with the requirements of SAB No. 101.
7. ACQUISITIONS
The unaudited pro forma information set forth below presents our revenues, net
income and earnings per share plus the 1999 acquisitions, and the public
offering of our common stock in March 1999, as if these transactions were each
effective on January 1, 1999 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 offering 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, 1999
--------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
Revenues.................................. $128,604
Net income................................ 9,132
Basic earnings per common share........... 0.57
Diluted earnings per common share......... 0.53
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 offering been consummated
effective as of January 1, 1999. No pro forma information is presented for 2000
as no acquisitions were completed during the first six months of 2000.
8. COMMITMENTS AND CONTINGENCIES
Regulatory Proceedings
In May 1998, we acquired from Waste Management, Inc. substantially all of the
assets of City Environmental, Inc. including, without limitation, a hazardous
and nonhazardous waste treatment facility located in Detroit, Michigan. This
facility has never been granted a final Part B permit under the Resource
Conservation and Recovery Act of 1976 ("RCRA"), but has operated under interim
status, as allowed by RCRA. On August 25, 1999, the U.S. Environmental
Protection Agency (the "EPA") and the Federal Bureau of Investigation ("FBI")
executed a search warrant at this facility seeking electronic data, files and
other documentation relating to the facility's receipt, processing and disposal
of hazardous waste. As a result of the execution of the search warrant, the
facility temporarily ceased operations. According to the affidavit attached to
the search warrant, after receiving a phone call from an employee at the
facility in May 1999, the EPA and the FBI began a joint investigation of the
facility. The investigation centers around allegations that (i) the facility
knowingly discharged into the Detroit sewer system untreated hazardous liquid
waste in violation of city ordinances, the facility's permit and the Clean Water
Act, and (ii) without proper manifesting, the facility knowingly transported and
disposed of hazardous waste at an unpermitted treatment facility in violation of
RCRA. According to the affidavit, the facility has been knowingly violating the
Clean Water Act and RCRA since 1997, which was before we acquired the facility.
The on-site investigation of our facility by the EPA and the FBI was completed
in August 1999. It is our understanding that the investigation is continuing,
but as of the date of this report no announcement regarding the investigation
has been made by the EPA or the FBI. All costs, except potential fines or
penalties, incurred or expected to be incurred in connection with the
investigation of our Detroit facility have been reflected in our consolidated
financial statements at June 30, 2000. However, due to the current status of the
investigation, we are unable at this time to project a reasonable estimate of
potential fines or penalties (or range of potential fines or penalties) that
could be assessed against the facility. Accordingly, we cannot project the
ultimate outcome of the
6
<PAGE>
investigation or its potential impact on us. The imposition of a substantial
fine or penalty against the facility could have a material adverse effect on our
business, results of operations, financial condition and liquidity.
After the completion of the on-site investigation of our Detroit facility, we
began conducting routine tests of materials in waste solidification vaults in
preparation for the reopening of the facility. During these tests, we discovered
that certain waste which had been received by the facility prior to its August
25, 1999 closing was contaminated with PCBs and that this waste had contaminated
other waste in several of the waste solidification vaults and a liquid feed
tank. We immediately made all notifications required by law including
notifications to the Michigan Department of Environmental Quality (the "MDEQ")
and the EPA. We also notified Waste Management, Inc. that some of the PCB
contaminated wastes may have been inadvertently delivered to a Waste Management
landfill for disposal. We subsequently submitted to the EPA a workplan for
disposal of the PCB contaminated materials and decontamination of the affected
equipment. We later entered into a consent order with the EPA that approved this
workplan and established enhanced procedures for screening of materials
delivered to the facility to detect PCB contamination. Under the terms of the
consent order, we paid $123,888 to the EPA in full settlement of the EPA's
claims for certain civil fines. Our contractors completed the clean-up and
decontamination of the facility in accordance with the workplan and the facility
was reopened for business on February 1, 2000. All of the requirements of the
consent order have been met and on July 7, 2000, the MDEQ delivered to us a
Notice of Termination of Consent Order. We have determined that a subsidiary of
National Steel Corporation generated the PCB contaminated materials and that
these materials were not properly identified as required by law when delivered
to our Detroit facility. We have filed suit against National Steel seeking to
recover the costs incurred and losses suffered by our facility as a result of
its subsidiary's failure to disclose that its waste was contaminated with PCBs.
We have also submitted claims under our pollution liability and business
interruption insurance policies for losses incurred as a result of the temporary
closing of the facility. We have recorded all of the liabilities incurred or
expected to be incurred in connection with the cleanup of the PCB contamination,
without offset for any anticipated recovery from National Steel or our insurers.
As of June 30, 2000, the original $4.2 million reserve had been depleted.
Waste Management has asserted a claim against us for damages relating to our
Detroit facility's alleged disposal of PCB contaminated waste at one of its
landfills. Waste Management has submitted to the MDEQ and the EPA a workplan for
the disposal of any such improperly delivered PCB contaminated waste, and Waste
Management and the Company are currently awaiting a response from the MDEQ and
the EPA. As previously mentioned, we have filed suit against National Steel
seeking indemnification against any amounts ultimately determined to be owing by
us to Waste Management as a result of our Detroit facility's delivery of PCB
contaminated waste to Waste Management's landfill. We have also submitted a
claim under our pollution liability insurance for losses incurred as a result of
any such delivery. We established a $1.3 million reserve during 1999, which
still is recorded as an accrued liability at June 30, 2000, for costs to be
incurred in the event that it is ultimately determined that we are responsible
for disposing of any improperly delivered PCB contaminated waste, without offset
for any anticipated recovery from National Steel or our insurers.
During the fourth quarter of 1999, the EPA notified us that, as a result of the
allegations giving rise to the investigation of our Detroit facility, it had
determined that the facility was no longer eligible to receive waste generated
as a result of removal or remedial activities under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended ("CERCLA").
This notification further advised that, in order for the facility to regain its
eligibility to receive such CERCLA waste, the facility must demonstrate that it
can again safely handle such waste. In accordance with the terms of the notice,
we have asked the EPA to reconsider its determination and we are currently
awaiting a response to this request. Although we believe that the EPA will
ultimately determine that the facility, as re-opened, can safely handle CERCLA
waste, there can be no assurances thereof. The facility's failure to regain its
eligibility to receive CERCLA waste would have an adverse impact upon the
operations of the facility.
In June 1999, we were notified that the Louisiana Department of Environmental
Quality (the "LDEQ") was seeking to terminate the discharge permit held by our
Re-Claim facility in Shreveport, Louisiana, which permit allows the facility to
discharge processed wastewater into the waters of the State of Louisiana. In its
notice, the LDEQ alleged that the proposed termination was justified based upon,
among other things, the facility's failure to comply with the terms of its
permit, two releases (spills) that occurred at the facility and the facility's
acceptance and processing of hazardous materials not covered by the terms of its
permit. In January 2000, we entered into a tentative settlement agreement with
the LDEQ resolving the LDEQ's allegations. A settlement agreement was prepared
by the parties and signed by the Company, and the terms of the settlement
agreement have been published in accordance with Louisiana law. However, this
settlement agreement will not become final until approved by the Louisiana
Attorney General. This approval has been delayed pending the enactment of
legislation clarifying the LDEQ's authority to use Supplemental Environmental
Projects ("SEPs") as part of its enforcement proceedings. We anticipate that the
settlement agreement will become final during the third quarter of 2000. Under
the terms of the settlement agreement, we agreed to pay a civil assessment of
$525,000 to the LDEQ. In addition, we agreed to contribute $675,000
7
<PAGE>
to certain SEPs approved by the LDEQ to benefit the environment. In return, the
LDEQ agreed to take no further action on its notice of intent to terminate the
permit held by our facility. These charges, which total $1.2 million, remain
accrued as of June 30, 2000.
In the fourth quarter of 1999, the EPA notified us of certain alleged violations
of RCRA by our Re-Claim facility in Shreveport, Louisiana. Among other things,
the EPA alleged that the facility accepted waste from CERCLA sites that it was
not permitted to accept and improperly disposed of such waste. Although we
dispute the EPA's allegations, we are attempting to negotiate a resolution with
the EPA which may include a civil assessment, modifications to our waste
screening and waste processing procedures and/or additional capital expenditures
at the facility. We believe that the ultimate outcome of this proceeding will
not have a material adverse effect on our business, results of operations or
financial condition.
The EPA has also notified us that it believes that approximately 3.0 million
gallons of liquid waste received by our Re-Claim facility in Shreveport,
Louisiana and stored off-site may contain hazardous constituents and, therefore,
the waste cannot be processed by our facility. We believe that the waste may be
handled as nonhazardous waste in accordance with the terms of the facility's
permit. We are in the process of preparing for the removal and disposal of this
waste. We have established a $2.5 million reserve, recorded as an accrued
liability, for costs to be incurred in the event that it is ultimately
determined that this waste must be delivered to a third party for processing and
disposal. As of June 30, 2000, $1.1 million of this reserve remains accrued.
Management believes that this reserve is sufficient to cover all costs
associated with a third party's disposal of the waste, if necessary.
During October and November of 1999, the California Department of Toxic
Substances Control ("DTSC") inspected our processing facility in East Palo Alto,
California, and our transfer facility in Redwood City, California. On November
29, 1999, the DTSC issued a summary of violations identifying various alleged
violations of California hazardous waste management laws and regulations by the
facilities. The DTSC has not initiated a formal enforcement action seeking
penalties against either facility. There can be no assurance, however, that a
formal enforcement action will not subsequently be brought against one or both
facilities. Although we dispute the alleged violations, we are attempting to
negotiate a resolution with the DTSC. We believe that the ultimate resolution of
these matters will not have a material adverse effect on our business, results
of operations, or financial condition.
Prior to its acquisition by the Company in January 1999, Romic Environmental
Technologies Corporation had entered into an administrative consent order with
the EPA relating to the cleanup of soil and groundwater contamination at its
facility in East Palo Alto, California. A remedial investigation of the facility
has been completed by Romic and forwarded to the EPA. Romic is nearing
completion of a corrective measures study for submission to the EPA. The EPA
will review this study and approve a plan for final site remediation. Prior to
its acquisition by the Company, Romic had also been notified by the EPA and the
DTSC 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 drum reconditioning
or disposal sites, Romic and a number of other potentially responsible parties
have entered into administrative consent orders and/or agreements allocating
each party's respective share of the cost of remediating the sites. Romic's
share under these consent orders and/or agreements is as follows: Bay Area --
6.872%; Lorentz -- 5.62% and Casmalia Resources -- 0.29%. Based upon the
information currently available, we have maintained a reserve, recorded as an
accrued liability as of June 30, 2000, of $4.3 million to cover Romic's
estimated costs to remediate the East Palo Alto facility and the three drum
reconditioning or disposal sites. Management believes that this reserve is
sufficient to satisfy Romic's obligations under the consent orders and
agreements, however, due to the complex, ongoing and evolving process of
investigating and remediating these sites, Romic's actual costs may exceed the
amount reserved.
In December 1999, we were notified by the EPA that D&H Holding Co., Inc., a
company that we acquired in the fourth quarter of 1998, is a potentially
responsible party under CERCLA with respect to the Lenz Oil Services Superfund
Site in DuPage County, Illinois. Based upon the information available to us at
this time, we do not believe that the ultimate outcome of this matter will have
a material adverse effect on our business, results of operations or financial
condition. We have made demand upon the former stockholders of D&H Holding for
indemnification against any costs that we may incur in connection with the
remediation of this site. We have established a $125,000 reserve, recorded as an
accrued liability at June 30, 2000, to cover any such costs, without offset for
any anticipated recovery from the former stockholders of D&H Holding.
The Company's non-saleable beverage operations, which operate under the Parallel
Products name, are subject to regulation by the U. S. Bureau of Alcohol, Tobacco
and Firearms ("ATF"). In addition to regulating the production, distribution and
sale of alcohol and alcohol containing products, the ATF is also responsible for
collecting the federal excise taxes ("FET") that must be paid on distilled
spirits, wine and beer. If alcoholic beverages on which the FET have been paid
are returned to bond at our Parallel Products' premises for destruction,
8
<PAGE>
the party who has paid the FET on the destroyed product is entitled to a refund.
When our customers return distilled spirits, wine or beer from commerce to one
of our facilities for destruction, we generally file a claim with the ATF on
behalf of that customer for refund of the FET paid on that product. The ATF
periodically inspects the Parallel Products facilities both to insure compliance
with its regulations and to substantiate claims for FET refunds. During the
second quarter of 2000, the ATF conducted an inspection at our Louisville,
Kentucky facility. During the week of July 31, 2000, the ATF began an inspection
at our Rancho Cucamonga, California facility. At the conclusion of the
inspection of our Louisville, Kentucky facility, the ATF preliminarily notified
us that it intends to deny certain refund claims totaling approximately $1.2
million due to what the ATF alleges was inadequate, incomplete or
unsubstantiated supporting documentation. In addition, the ATF has proposed a
civil penalty of $30,000 based on the alleged defects in our documentation. We
have worked closely with the ATF throughout this inspection process and have
implemented revised or upgraded procedures at the facilities to assure that
documentation for future refund claims is in full compliance with the applicable
requirements. We are also engaging in discussions with the ATF concerning the
potential denied claims and believe that a satisfactory resolution can be
reached. We have established a reserve in the amount of $530,000, recorded as an
accrued liability at June 30, 2000, for any amounts we would be required to pay
to our customers in the event any of their refund claims are ultimately denied
by the ATF and to cover the proposed civil penalty.
Litigation
During the third quarter of 1999, six purported securities class action lawsuits
were filed against the Company and certain of its officers and directors in the
United States District Court for the Southern District of Texas, Houston
Division. These lawsuits have been consolidated into a single action styled IN
RE: U S LIQUIDS SECURITIES LITIGATION, Case No. H-99-2785, and the plaintiffs
have filed a consolidated complaint. The consolidated complaint alleges
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder on behalf of purchasers of the Company's common stock
during the period beginning on May 12, 1998 and ending on August 25, 1999,
including purchasers of common stock in the Company's March 1999 offering. The
plaintiffs generally allege that the defendants made false and misleading
statements and failed to disclose allegedly material information regarding the
operations of the Company's Detroit facility and the Company's financial
condition in the prospectus relating to the Company's March 1999 stock offering
and in certain other public filings and announcements made by the Company. The
remedies sought by the plaintiffs include designation of the action as a class
action, unspecified damages, attorneys' and experts' fees and costs, rescission
to the extent any members of the class still hold common stock, and such other
relief as the court deems proper.
In addition, one stockholder of the Company has filed a lawsuit against certain
of the officers and directors of the Company in connection with the operation of
the Company's Detroit facility and the securities class action described above.
BENN CARMICIA V. U S LIQUIDS INC., ET AL., was filed in the United States
District Court for the Southern District of Texas, Houston Division, on
September 15, 1999 and was subsequently consolidated with the claims asserted in
the securities class action described above. The plaintiff purports to allege
derivative claims on behalf of the Company against the officers and directors
for alleged breaches of fiduciary duty resulting from their oversight of the
Company's affairs. The lawsuit names the Company as a nominal defendant and
seeks compensatory and punitive damages on behalf of the Company, interest,
equitable and/or injunctive relief, costs and such other relief as the court
deems proper.
The outcome of these consolidated actions and the costs of defending them cannot
be predicted with certainty at this time. However, we believe that the claims
asserted in the purported securities class action are without merit and we have
filed a motion to dismiss the consolidated complaint filed by the plaintiffs.
Moreover, we believe that the stockholder derivative action was not properly
brought and we have filed a motion to dismiss this action in order to allow the
Board of Directors to consider whether such litigation is in the best interest
of the Company and our stockholders.
We are involved in various other 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 consolidated financial
position or results of operations.
9. CREDIT FACILITIES
We have a revolving credit facility with a group of banks under which we may
borrow to fund working capital requirements and acquisitions. 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. On August
11, 2000, the terms of the revolving credit facility were amended to, among
other things, reduce the amount of the credit facility from $225
9
<PAGE>
million to $150 million, limit the total amount of debt outstanding under the
credit facility, increase certain interest rates payable under the credit
facility and modify certain of our financial covenants. As a result of the
reduction in the amount of the credit facility, we expensed approximately
$428,000 of capitalized financing costs. Currently, the aggregate principal
amount of all debt outstanding under the credit facility may not exceed $125
million. This cap will increase to $135 million if (i) we are in compliance with
all financial covenants as of September 30, 2000, and (ii) our consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA") for
the third quarter of 2000 (excluding any portion thereof attributable to
acquisitions completed after December 31, 1999) equals or exceeds the projected
EBITDA set forth in the Company's revised budget. The amount of the credit
facility will be increased to $150 million if (x) either (a) all of the
conditions set forth in clauses (i) and (ii) above have been satisfied or (b)
our consolidated EBITDA for the third and the fourth quarters of 2000 (excluding
any portion thereof attributable to acquisitions completed after December 31,
1999) equals or exceeds the projected EBITDA set forth in the Company's revised
budget, (y) we are in compliance with all financial covenants as of December 31,
2000, and (z) our consolidated EBITDA for the fourth quarter of 2000 (excluding
any portion thereof attributable to acquisitions completed after December 31,
1999) equals or exceeds the projected EBITDA set forth in the Company's revised
budget. Under the terms of the amended credit facility, the banks' consent is
required to consummate any future acquisition if the aggregate cash
consideration to be paid by the Company (including any debt assumed or issued)
in connection with the acquisition is greater than $1.0 million.
The debt outstanding under the revolving credit facility may be accelerated at
the option of the lenders if, among other things, a change in control of the
Company occurs or Michael P. Lawlor, W. Gregory Orr or Earl J. Blackwell ceases
to serve as an executive officer of the Company and is not replaced within sixty
days by an individual reasonably satisfactory to the lenders. At June 30, 2000,
we had borrowed approximately $93.0 million under the credit facility. Advances
under the credit facility bear interest, at our option, at the prime rate or
London Interbank Offered Rate, in each case plus a margin which is calculated
quarterly based upon our ratio of indebtedness to cash flow. As of June 30,
2000, amounts outstanding under the credit facility were accruing interest at
approximately 10.6% per year.
During 1999, we had a $10.0 million credit facility with BankBoston, N.A. under
which we were able to borrow funds to purchase equipment. The commitment for
this facility expired on December 31, 1999, at which time we had borrowed
approximately $2.5 million. This amount is to be repaid in 60 monthly
installments of principal and interest.
10. SEGMENT INFORMATION
Prior to June 30, 1999, our subsidiaries were organized into two divisions - the
Wastewater Division and the Oilfield Waste Division. However, as the result of
our acquisition of Romic Environmental Technologies Corporation in January 1999
and in accordance with Statement of Financial Accounting Standards No. 131,
effective as of July 1, 1999, we created a third division known as the
Industrial Wastewater Division, and changed the name of the Wastewater Division
to the Commercial Wastewater Division. The Industrial Wastewater Division
includes the operations of Romic Environmental Technologies Corporation and
three other subsidiaries (USL City Environmental, Inc., USL City Environmental
Services of Florida, Inc., and Waste Research and Recovery, Inc.) that were
acquired during 1998 and 1999 and were previously included as part of the
Wastewater Division.
The Commercial Wastewater Division collects, processes and disposes of
nonhazardous liquid waste and recovers saleable by-products from certain waste
streams. The Industrial Wastewater Division collects, processes and disposes of
hazardous and nonhazardous waste and recovers saleable by-products from certain
waste streams. The Oilfield Waste Division processes and disposes of waste
generated in oil and gas exploration and production.
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, 1999, 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 revenues.
10
<PAGE>
The following is a summary of key business segment information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------------
1999 2000 1999 2000
------------ ----------- ----------- --------------
(IN THOUSANDS)
(UNAUDITED)
Revenue --
<S> <C> <C> <C> <C>
Commercial Wastewater.................. $36,975 $44,773 $ 69,734 $ 85,148
Industrial Wastewater.................. 16,563 13,873 34,281 26,357
Oilfield Waste......................... 5,157 5,827 9,982 11,146
------- ------- -------- --------
Total............................... $58,695 $64,473 $113,997 $122,651
======= ======= ======== ========
Income from operations --
Commercial Wastewater.................. $ 2,977 $ 696 $ 4,804 $ 1,016
Industrial Wastewater.................. 3,850 708 8,214 279
Oilfield Waste......................... 2,917 2,975 5,388 5,727
------- ------- -------- --------
Total.............................. $ 9,744 $ 4,379 $ 18,406 $ 7,022
======= ======= ======== ========
Depreciation and amortization expense --
Commercial Wastewater.................. $ 2,230 $ 2,812 $ 4,076 $ 5,581
Industrial Wastewater.................. 971 1,146 1,924 2,265
Oilfield Waste......................... 672 583 1,321 1,180
Corporate.............................. 119 200 231 385
------- ------- -------- --------
Total.............................. $ 3,992 $ 4,741 $ 7,552 $ 9,411
======= ======= ======== ========
Capital expenditures --
Commercial Wastewater.................. $ 2,543 $ 3,589 $ 5,859 $ 6,001
Industrial Wastewater.................. 751 698 1,473 1,730
Oilfield Waste......................... 86 672 159 695
Corporate.............................. 397 358 446 692
------- ------- -------- --------
Total.............................. $ 3,777 $ 5,317 $ 7,937 $ 9,118
======= ======= ======== ========
DECEMBER 31, JUNE 30,
1999 2000
------------ -------
(IN THOUSANDS)
(UNAUDITED)
Identifiable assets --
Commercial Wastewater.................. $ 217,021 $ 217,756
Industrial Wastewater.................. 105,846 112,104
Oilfield Waste......................... 36,163 36,241
Corporate.............................. 10,053 3,257
--------- ---------
Total............................... $ 369,083 $ 369,358
========= =========
</TABLE>
11
<PAGE>
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
Prior to June 30, 1999, our subsidiaries were organized into two divisions --
the Wastewater Division and the Oilfield Waste Division. However, as the result
of our acquisition of Romic Environmental Technologies Corporation in January
1999 and in accordance with Statement of Financial Accounting Standards No. 131,
effective as of July 1, 1999, we created a third division known as the
Industrial Wastewater Division and changed the name of the Wastewater Division
to the Commercial Wastewater Division. The Industrial Wastewater Division
includes the operations of Romic Environmental Technologies Corporation and
three other subsidiaries (USL City Environmental, Inc., USL City Environmental
Services of Florida, Inc., and Waste Research and Recovery, Inc.) that were
acquired during 1998 and 1999 and were previously included as part of the
Wastewater Division.
The Commercial Wastewater Division collects, processes and disposes of
nonhazardous liquid waste and recovers saleable by-products from certain waste
streams. The Industrial Wastewater Division collects, processes and disposes of
hazardous and nonhazardous waste and recovers saleable by-products from certain
waste streams. The Oilfield Waste Division processes and disposes of waste
generated in oil and gas exploration and production.
The Commercial Wastewater Division generated $44.8 million, or 69.5%, of our
revenues for the quarter ended June 30, 2000. This Division derives revenues
from two principal sources: fees received for collecting, processing and
disposing of nonhazardous liquid waste (such as industrial wastewater, grease
and grit trap waste, bulk liquids and dated beverages) 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 certain 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.
The Industrial Wastewater Division generated $13.9 million, or 21.5%, of our
revenues for the quarter ended June 30, 2000. This Division derives revenues
from fees charged to customers for collecting, processing and disposing of
hazardous and nonhazardous liquid waste such as household hazardous wastes,
plating solutions, acids, flammable and reactive wastes, and industrial
wastewater. Certain sludges and solid hazardous wastes are also processed. The
Industrial Wastewater Division also generates revenues from the sale of by-
products recovered from certain waste streams, including industrial chemicals
and recycled antifreeze products. The fees charged for processing and disposing
of hazardous waste vary significantly depending upon the constituents of the
waste. Collection and processing fees charged with respect to nonhazardous
liquid waste vary per gallon by waste stream according to the constituents of
the waste, expenses associated with processing the waste and competitive
factors.
The Oilfield Waste Division generated $5.8 million, or 9.0%, of our revenues for
the quarter ended June 30, 2000. This Division derives revenues from fees
charged to customers for processing and disposing of oil and gas exploration and
production waste, and 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 Commercial Wastewater Division and in the
Industrial Wastewater Division.
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.
12
<PAGE>
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
10.9% 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.
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, and
these charges are capitalized using the purchase method for business
combinations when appropriate. 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, 1999 AND 2000
REVENUES. Revenues for the quarter ended June 30, 2000 increased $5.8 million,
or 9.8%, from $58.7 million for the quarter ended June 30, 1999 to $64.5 million
for the quarter ended June 30, 2000. The Commercial Wastewater Division
contributed $37.0 million, or 63.0%, of second quarter 1999 revenues and $44.8
million, or 69.4%, of second quarter 2000 revenues. Collection and processing
fees generated $30.3 million, or 82.0%, and $35.1 million, or 78.4%, of the
Commercial Wastewater Division's revenues for the second quarters of 1999 and
2000, respectively. This increase was due primarily to increased remediation
work. By-product sales generated the remaining $6.6 million, or 18.0%, and $9.7
million, or 21.6%, of the Commercial Wastewater Division's revenues for the
second quarters of 1999 and 2000, respectively. By-product sales increased due
to acquisitions completed during the second quarter of 1999 and increased
volumes of waste streams from which saleable by-products could be recovered.
The Industrial Wastewater Division contributed $16.6 million, or 28.2%, of
second quarter 1999 revenues and $13.9 million, or 21.5%, of second quarter
2000 revenues. The Industrial Wastewater Division's revenues decreased $2.7
million, or 16.2%, due primarily to the slower than expected ramp-up of our
Detroit facility. Collection and processing fees generated $15.3 million, or
91.9%, and $12.6 million, or 90.8%, of the Industrial Wastewater Division's
revenues for the second quarters of 1999 and 2000, respectively. By-product
sales generated the remaining $1.3 million, or 8.1%, and $1.3 million, or 9.2%,
of the Industrial Wastewater Division's revenues for the second quarters of 1999
and 2000, respectively.
The Oilfield Waste Division contributed $5.2 million, or 8.8%, of second quarter
1999 revenues and $5.8 million, or 9.0%, of second quarter 2000 revenues. The
Oilfield Waste Division's revenues increased approximately $670,000, or 13.0%,
due primarily to increased on-shore drilling activity and increased volumes from
one of our customers.
OPERATING EXPENSES. Operating expenses increased $9.6 million, or 24.5%, from
$39.2 million for the quarter ended June 30, 1999 to $48.8 million for the
quarter ended June 30, 2000. As a percentage of revenues, operating expenses
increased from 66.8% in the second quarter of 1999 to 75.7% in the second
quarter of 2000. This increase was due primarily to changes in job costing
estimates at our San Antonio, Texas facility and accruals relating to the ATF
audit of our Louisville, Kentucky facility , as well as a decrease in revenues
without a proportionate decrease in operating expenses at our Detroit and Re-
Claim facilities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
approximately $749,000, or 18.8%, from $4.0 million for the quarter ended June
30, 1999 to $4.7 million for the quarter ended June 30, 2000. As a percentage
of revenues, depreciation and amortization expenses increased from 6.8% in the
second quarter of 1999 to 7.4% in the second quarter of 2000. This
13
<PAGE>
increase was attributable primarily to the decrease in revenues from our Detroit
facility with no corresponding decrease in depreciation and amortization
expenses, and an increase in amortization of goodwill for acquisitions completed
during 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $793,000, or 13.8%, from $5.7
million for the quarter ended June 30, 1999 to $6.5 million for the quarter
ended June 30, 2000. As a percentage of revenues, selling, general and
administrative expenses were 9.8% for the second quarter of 1999 and 10.1% for
the second quarter of 2000. This increase resulted primarily from increased
costs in the Company's environmental compliance department, and expensing rather
than capitalizing business development costs because no acquisitions were
completed during the second quarter of 2000.
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased
approximately $1.2 million, or 93.1%, from $1.3 million for the quarter ended
June 30, 1999 to $2.6 million for the quarter ended June 30, 2000. This increase
resulted from interest expense incurred on borrowings used to fund the purchase
price for acquisitions completed in 1999, higher interest rates, and the
expensing of approximately $428,000 of capitalized financing costs due to the
reduction of the amount that we can borrow under our revolving credit facility.
INCOME TAXES. The provision for income taxes decreased $2.6 million, or 74.0%,
from $3.5 million for the quarter ended June 30, 1999 to approximately $910,000
for the quarter ended June 30, 2000 as a result of decreased taxable income. The
effective tax rate for the period ended June 30, 1999 was 41.5% compared to
50.2% for the period ended June 30, 2000. The tax rate increase was due to the
increased proportion of nondeductible expenses relative to pretax book income.
Our effective tax rates are estimates of our expected annual effective federal
and state income tax rates.
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
REVENUES. Revenues for the six month period ended June 30, 2000 increased $8.7
million, or 7.6%, from $114.0 million for the six month period ended June 30,
1999 to $122.7 million for the six month period ended June 30, 2000. The
Commercial Wastewater Division contributed $69.7 million, or 61.2%, of revenues
for the six months ended June 30, 1999 and $85.1 million, or 69.4%, of revenues
for the six months ended June 30, 2000. Collection and processing fees generated
$54.9 million, or 78.8%, and $66.9 million, or 78.6%, of the Commercial
Wastewater Division's revenues for the six month periods ended June 30, 1999 and
2000, respectively. This increase was due primarily to the acquisition of
additional commercial waste businesses in the intervening quarters and increased
remediation work in the second quarter of 2000. By-product sales generated the
remaining $14.8 million, or 21.2%, and $18.2 million, or 21.4%, of the
Commercial Wastewater Division's revenues for the 1999 and 2000 periods,
respectively.
The Industrial Wastewater Division contributed $34.2 million, or 30.1%, of
revenues for the six months ended June 30, 1999 and $26.4 million, or 21.5%, of
revenues for the six months ended June 30, 2000. The Industrial Wastewater
Division's revenues decreased $7.9 million, or 23.1%, due primarily to the
temporary closing and slower than expected ramp-up of our Detroit facility.
Collection and processing fees generated $31.5 million, or 92.1%, and $23.9
million, or 90.4%, of the Industrial Wastewater Division's revenues for the six
month periods ended June 30, 1999 and 2000, respectively. By-product sales
generated the remaining $2.7 million, or 7.9%, and $2.5 million, or 9.6%, of the
Industrial Wastewater Division's revenues for the six month periods ended June
30, 1999 and 2000, respectively.
The Oilfield Waste Division contributed $10.0 million, or 8.8%, of revenues for
the six months ended June 30, 1999 and $11.1 million, or 9.1%, of revenues for
the six months ended June 30, 2000. The Oilfield Waste Division's revenues
increased approximately $1.2 million, or 11.7%, due primarily to increased on-
shore drilling activity and increased volumes from one of our customers.
OPERATING EXPENSES. Operating expenses increased $15.7 million, or 20.4%, from
$76.8 million for the six months ended June 30, 1999 to $92.5 million for the
six months ended June 30, 2000. As a percentage of revenues, operating expenses
increased from 67.4% for the six month period ended June 30, 1999 to 75.4% for
the six month period ended June 30, 2000. This increase was due primarily to
growth in the Commercial Wastewater Division, changes in job costing estimates
at our San Antonio, Texas facility, accruals relating to the ATF audit of our
Louisville, Kentucky facility, and a decrease in revenues without a
proportionate decrease in operating expenses at our Detroit and Re-Claim
facilities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
$1.9 million, or 24.6%, from $7.6 million for the six months ended June 30, 1999
to $9.4 million for the six months ended June 30, 2000. As a percentage of
revenues, depreciation and amortization expenses increased from 6.6% for the six
month period ended June 30, 1999 to 7.7% for the six month period ended June 30,
2000. This increase was attributable primarily to the decrease in revenues
without a proportionate decrease in depreciation and amortization expenses for
the Detroit and Re-Claim facilities and the amortization of goodwill for
acquisitions completed during 1999.
14
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.5 million, or 22.4%, from $11.2 million for
the six months ended June 30, 1999 to $13.7 million for the six months ended
June 30, 2000. As a percentage of revenues, selling, general and administrative
expenses were 9.8% for the six month period ended June 30, 1999 and 11.2% for
the six month period ended June 30, 2000. This increase resulted primarily from
increased costs in the Company's environmental compliance department, and
expensing rather than capitalizing business development costs because no
acquisitions have been completed during 2000.
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased
approximately $2.2 million, or 77.6%, from $2.8 million for the six month period
ended June 30, 1999 to $5.0 million for the six month period ended June 30,
2000. This increase resulted from interest expense incurred on borrowings used
to fund the purchase price of acquisitions completed in 1999, higher interest
rates, and the expensing of approximately $428,000 of capitalized financing
costs due to the reduction of the amount that we can borrow under our revolving
credit facility.
INCOME TAXES. The provision for income taxes decreased $5.5 million, or 84.7%,
from $6.5 million for the six month period ended June 30, 1999 to approximately
$989,000 for the six month period ended June 30, 2000 as a result of decreased
taxable income. The effective tax rate for the six months ended June 30, 1999
was 41.5% compared to 49.5% for the six months ended June 30, 2000. The tax rate
increase was due to the increased proportion of nondeductible expenses relative
to pretax book income. Our effective tax rates are estimates of our expected
annual effective federal and state income tax rates.
LIQUIDITY AND CAPITAL RESOURCES
We had net working capital of $5.7 million at June 30, 2000, compared to net
working capital of $10.2 million at December 31, 1999.
Our capital requirements for 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, 2000,
approximately $2.6 million of principal payments on debt obligations were
payable during the next twelve months. Capital expenditures for our continuing
operations during the three months ended June 30, 2000 were $5.3 million. The
majority of the capital expenditures were for plant expansions and equipment and
vehicle upgrades. Capital expenditures for our continuing operations for the
last two quarters of 2000 are estimated at approximately $9.5 million.
Approximately $4.9 million of this amount is scheduled to be invested in the
Commercial Wastewater Division for vehicles and plant expansions. Approximately
$3.1 million is scheduled to be invested in the Industrial Wastewater Division
for plant improvements and expansion and equipment. Approximately $1.1 million
is budgeted for equipment and injection wells for the Oilfield Waste Division.
The remaining $405,000 is to be used for software and computer upgrades at our
corporate headquarters.
We have a revolving credit facility with a group of banks under which we may
borrow to fund working capital requirements and acquisitions. 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. On August
11, 2000, the terms of the revolving credit facility were amended to, among
other things, reduce the amount of the credit facility from $225 million to $150
million, limit the total amount of debt outstanding under the credit facility,
increase certain interest rates payable under the credit facility and modify
certain of our financial covenants. As a result of the reduction in the amount
of the credit facility, we expensed approximately $428,000 of capitalized
financing costs. Currently, the aggregate principal amount of all debt
outstanding under the credit facility may not exceed $125 million. This cap will
increase to $135 million if (i) we are in compliance with all financial
covenants as of September 30, 2000, and (ii) our consolidated earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the third quarter
of 2000 (excluding any portion thereof attributable to acquisitions completed
after December 31, 1999) equals or exceeds the projected EBITDA set forth in the
Company's revised budget. The amount of the credit facility will be increased to
$150 million if (x) either (a) all of the conditions set forth in clauses (i)
and (ii) above have been satisfied or (b) our consolidated EBITDA for the third
and the fourth quarters of 2000 (excluding any portion thereof attributable to
acquisitions completed after December 31, 1999) equals or exceeds the projected
EBITDA set forth in the Company's revised budget, (y) we are in compliance with
all financial covenants as of December 31, 2000, and (z) our consolidated EBITDA
for the fourth quarter of 2000 (excluding any portion thereof attributable to
acquisitions completed after December 31, 1999) equals or exceeds the projected
EBITDA set forth in the Company's revised budget. Under the terms of the amended
credit facility, the banks' consent is required to consummate any future
acquisition if the aggregate cash consideration to be paid by the Company
(including any debt assumed or issued) in connection with the acquisition is
greater than $1.0 million.
The debt outstanding under the revolving credit facility may be accelerated at
the option of the lenders if, among other things, a change in control of the
Company occurs or Michael P. Lawlor, W. Gregory Orr or Earl J. Blackwell ceases
to serve as an executive officer of
15
<PAGE>
the Company and is not replaced within sixty days by an individual reasonably
satisfactory to the lenders. At June 30, 2000, we had borrowed approximately
$93.0 million under the credit facility. As of the date of this report, we had
borrowed approximately $96.0 million under the credit facility.
Our capital resources consist of cash reserves, cash generated from operations
and funds available under our revolving 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. As
described above, the terms of our revolving credit facility currently impose
significant limitations on our ability to use borrowed funds to pay for
acquisitions. In addition, the current price level of our common stock makes
raising additional equity capital for acquisitions or debt repayment
unattractive. Consequently, we anticipate consummating very few, if any,
acquisitions during the remainder of 2000.
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.
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, 1999.
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 revolving credit facility. As of June 30,
2000, $93.0 million and $2.3 million had been borrowed under the revolving
credit facility and the equipment credit facility, respectively. As of June 30,
2000, amounts outstanding under the revolving credit facility were accruing
interest at approximately 10.6% per year and amounts outstanding under the
equipment credit facility were accruing interest at approximately 8.2% per year.
A ten percent increase in short-term interest rates on the variable rate debts
outstanding at the end of the first quarter would approximate 67 basis points.
Such an increase in interest rates would increase our quarterly interest expense
by approximately $158,000 assuming the amount of debt outstanding remains
constant.
The above sensitivity analysis for interest rate risk excludes accounts
receivable, accounts payable and accrued liabilities because of the short-term
maturity of such instruments. The analysis does not consider the effect this
movement may have on other variables including changes in revenue volumes that
could be indirectly attributed to changes in interest rates. The actions that
management would take in response to such a change are also not considered. If
it were possible to quantify this impact, the results could well be different
than the sensitivity effects shown above.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1999, we were notified that the LDEQ was seeking to terminate the
discharge permit held by our Re-Claim facility in Shreveport, Louisiana, which
permit allows the facility to discharge processed wastewater into the waters of
the State of Louisiana. In its notice, the LDEQ alleged that the proposed
termination was justified based upon, among other things, the facility's failure
to comply with the terms of its permit, two releases (spills) that occurred at
the facility and the facility's acceptance and processing of hazardous materials
not covered by the terms of its permit. In January 2000, we entered into a
tentative settlement agreement with the LDEQ resolving the LDEQ's allegations. A
settlement agreement was prepared by the parties and signed by the Company, and
the terms of the settlement agreement have been published in accordance with
Louisiana law. However, this settlement agreement will not become final until
16
<PAGE>
approved by the Louisiana Attorney General. This approval has been delayed
pending the enactment of legislation clarifying the LDEQ's authority to use
Supplemental Environmental Projects ("SEPs") as part of its enforcement
proceedings. We anticipate that the settlement agreement will become final
during the third quarter of 2000. Under the terms of the settlement agreement,
we agreed to pay a civil assessment of $525,000 to the LDEQ. In addition, we
agreed to contribute $675,000 to certain SEPs approved by the LDEQ to benefit
the environment. In return, the LDEQ agreed to take no further action on its
notice of intent to terminate the permit held by our facility.
In the fourth quarter of 1999, the EPA notified us of certain alleged violations
of RCRA by our Re-Claim facility in Shreveport, Louisiana. Among other things,
the EPA alleged that the facility accepted waste from CERCLA sites that it was
not permitted to accept and improperly disposed of such waste. Although we
dispute the EPA's allegations, we are attempting to negotiate a resolution with
the EPA which may include a civil assessment, modifications to our waste
screening and waste processing procedures and/or additional capital expenditures
at the facility. We believe that the ultimate outcome of this proceeding will
not have a material adverse effect on our business, results of operations or
financial condition.
The EPA has also notified us that it believes that approximately 3.0 million
gallons of liquid waste received by our Re-Claim facility in Shreveport,
Louisiana and stored off-site may contain hazardous constituents and, therefore,
the waste cannot be processed by our facility. We believe that the waste may be
handled as nonhazardous waste in accordance with the terms of the facility's
permit. We are in the process of preparing for the removal and disposal of this
waste. We have established a $2.5 million reserve, recorded as an accrued
liability, for costs to be incurred in the event that it is ultimately
determined that this waste must be delivered to a third party for processing and
disposal. As of June 30, 2000, $1.1 million of this reserve remains accrued.
Management believes that this reserve is sufficient to cover all costs
associated with a third party's disposal of the waste, if necessary.
In May 1998, we acquired from Waste Management, Inc. substantially all of the
assets of City Environmental, Inc. including, without limitation, a hazardous
and nonhazardous waste treatment facility located in Detroit, Michigan. This
facility has never been granted a final Part B permit under RCRA, but has
operated under interim status, as allowed by RCRA. On August 25, 1999, the EPA
and the FBI executed a search warrant at this facility seeking electronic data,
files and other documentation relating to the facility's receipt, processing and
disposal of hazardous waste. As a result of the execution of the search warrant,
the facility temporarily ceased operations. According to the affidavit attached
to the search warrant, after receiving a phone call from an employee at the
facility in May 1999, the EPA and the FBI began a joint investigation of the
facility. The investigation centers around allegations that (i) the facility
knowingly discharged into the Detroit sewer system untreated hazardous liquid
waste in violation of city ordinances, the facility's permit and the Clean Water
Act, and (ii) without proper manifesting, the facility knowingly transported and
disposed of hazardous waste at an unpermitted treatment facility in violation of
RCRA. According to the affidavit, the facility has been knowingly violating the
Clean Water Act and RCRA since before we acquired the facility. The on-site
investigation of our facility by the EPA and the FBI was completed in August
1999. It is our understanding that the investigation is continuing, but as of
the date of this report no announcement regarding the investigation has been
made by the EPA or the FBI.
All costs, except potential fines or penalties, incurred or expected to be
incurred in connection with the investigation of our Detroit facility have been
reflected in our consolidated financial statements at June 30, 2000. However,
due to the current status of the investigation, we are unable at this time to
project a reasonable estimate of potential fines or penalties (or range of
potential fines or penalties) that could be assessed against the facility.
Accordingly, we cannot project the ultimate outcome of the investigation or its
potential impact on us. The imposition of a substantial fine or penalty against
the facility could have a material adverse effect on our business, results of
operations, financial condition and liquidity.
After the completion of the on-site investigation of our Detroit facility, we
began conducting routine tests of materials in waste solidification vaults in
preparation for the reopening of the facility. During these tests, we
discovered that certain waste which had been received by the facility prior to
its August 25, 1999 closing was contaminated with PCBs and that this waste had
contaminated other waste in several of the waste solidification vaults and a
liquid feed tank. We immediately made all notifications required by law
including notifications to the MDEQ and the EPA. We also notified Waste
Management, Inc. that some of the PCB contaminated wastes may have been
inadvertently delivered to a Waste Management landfill for disposal. We
subsequently submitted to the EPA a workplan for disposal of the PCB
contaminated materials and decontamination of the affected equipment. We later
entered into a consent order with the EPA that approved this workplan and
established enhanced procedures for screening of materials delivered to the
facility to detect PCB contamination. Under the terms of the consent order, we
paid $123,888 to the EPA in full settlement of the EPA's claims for certain
civil fines. Our contractors completed the clean-up and decontamination of the
facility in accordance with the workplan and the facility was reopened for
business on February 1, 2000. All of the requirements of the consent order
have been met and on July 7, 2000, the MDEQ delivered to us a Notice of
Termination of Consent Order. We have determined that a subsidiary of National
Steel Corporation generated
17
<PAGE>
the PCB contaminated materials and that these materials were not properly
identified as required by law when delivered to our Detroit facility. We have
filed suit against National Steel seeking to recover the costs incurred and
losses suffered by our facility as a result of its subsidiary's failure to
disclose that its waste was contaminated with PCBs. We have also submitted
claims under our pollution liability and business interruption insurance
policies for losses incurred as a result of the temporary closing of the
facility. We have recorded all of the liabilities incurred or expected to be
incurred in connection with the cleanup of the PCB contamination, without offset
for any anticipated recovery from National Steel or our insurers.
Waste Management has asserted a claim against us for damages relating to our
Detroit facility's alleged disposal of PCB contaminated waste at one of its
landfills. Waste Management has submitted to the MDEQ and the EPA a workplan for
the disposal of any such improperly delivered PCB contaminated waste, and Waste
Management and the Company are currently awaiting a response from the MDEQ and
the EPA. As previously mentioned, we have filed suit against National Steel
seeking indemnification against any amounts ultimately determined to be owing by
us to Waste Management as a result of our Detroit facility's delivery of PCB
contaminated waste to Waste Management's landfill. We have also submitted a
claim under our pollution liability insurance for losses incurred as a result of
any such delivery. We established a $1.3 million reserve during 1999, which
still is recorded as an accrued liability at June 30, 2000, for costs to be
incurred in the event that it is ultimately determined that we are responsible
for disposing of any improperly delivered PCB contaminated waste, without offset
for any anticipated recovery from National Steel or our insurers.
During the fourth quarter of 1999, the EPA notified us that, as a result of the
allegations giving rise to the investigation of our Detroit facility, it had
determined that the facility was no longer eligible to receive waste generated
as a result of removal or remedial activities under CERCLA. This notification
further advised that, in order for the facility to regain its eligibility to
receive such CERCLA waste, the facility must demonstrate that it can again
safely handle such waste. In accordance with the terms of the notice, we have
asked the EPA to reconsider its determination and we are currently awaiting a
response to this request. Although we believe that the EPA will ultimately
determine that the facility, as re-opened, can safely handle CERCLA waste, there
can be no assurances thereof. The facility's failure to regain its eligibility
to receive CERCLA waste would have an adverse impact upon the operations of the
facility.
In December 1999, we were notified by the EPA that D&H Holding Co., Inc., a
company that we acquired in the fourth quarter of 1998, is a potentially
responsible party under CERCLA with respect to the Lenz Oil Services Superfund
Site in DuPage County, Illinois. Based upon the information available to us at
this time, we do not believe that the ultimate outcome of this matter will have
a material adverse effect on our business, results of operations or financial
condition. We have made demand upon the former stockholders of D&H Holding for
indemnification against any costs that we may incur in connection with the
remediation of this site. We have established a $125,000 reserve, recorded as an
accrued liability, to cover any such costs, without offset for any anticipated
recovery from the former stockholders of D&H Holding.
During the third quarter of 1999, six purported securities class action lawsuits
were filed against the Company and certain of its officers and directors in the
United States District Court for the Southern District of Texas, Houston
Division. These lawsuits have been consolidated into a single action styled IN
RE: U S LIQUIDS SECURITIES LITIGATION, Case No. H-99-2785, and the plaintiffs
have filed a consolidated complaint. The consolidated complaint alleges
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder on behalf of purchasers of the Company's common stock
during the period beginning on May 12, 1998 and ending on August 25, 1999,
including purchasers of common stock in the Company's March 1999 offering. The
plaintiffs generally allege that the defendants made false and misleading
statements and failed to disclose allegedly material information regarding the
operations of the Company's Detroit facility and the Company's financial
condition in the prospectus relating to the Company's March 1999 stock offering
and in certain other public filings and announcements made by the Company. The
remedies sought by the plaintiffs include designation of the action as a class
action, unspecified damages, attorneys' and experts' fees and costs, rescission
to the extent any members of the class still hold common stock, and such other
relief as the court deems proper.
In addition, one stockholder of the Company has filed a lawsuit against certain
of the officers and directors of the Company in connection with the operation of
the Company's Detroit facility and the securities class action described above.
BENN CARMICIA V. U S LIQUIDS INC., ET AL., was filed in the United States
District Court for the Southern District of Texas, Houston Division, on
September 15, 1999 and was subsequently consolidated with the claims asserted in
the securities class action described above. The plaintiff purports to allege
derivative claims on behalf of the Company against the officers and directors
for alleged breaches of fiduciary duty resulting from their oversight of the
Company's affairs. The lawsuit names the Company as a nominal defendant and
seeks compensatory and punitive damages on behalf of the Company, interest,
equitable and/or injunctive relief, costs and such other relief as the court
deems proper.
18
<PAGE>
The outcome of these consolidated actions and the costs of defending them cannot
be predicted with certainty at this time. However, we believe that the claims
asserted in the purported securities class action are without merit and we have
filed a motion to dismiss the consolidated complaint filed by the plaintiffs.
Moreover, we believe that the stockholder derivative action was not properly
brought and we have filed a motion to dismiss this action in order to allow the
Board of Directors to consider whether such litigation is in the best interest
of the Company and our stockholders.
During October and November of 1999, the DTSC inspected our processing facility
in East Palo Alto, California, and our transfer facility in Redwood City,
California. On November 29, 1999, the DTSC issued a summary of violations
identifying various alleged violations of California hazardous waste management
laws and regulations by the facilities. The DTSC has not initiated a formal
enforcement action seeking penalties against either facility. There can be no
assurance, however, that a formal enforcement action will not subsequently be
brought against one or both facilities. Although we dispute the alleged
violations, we are attempting to negotiate a resolution with the DTSC. We
believe that the ultimate resolution of these matters will not have a material
adverse effect on our business, results of operations, or financial condition.
The Company's non-saleable beverage operations, which operate under the Parallel
Products name, are subject to regulation by the ATF. In addition to regulating
the production, distribution and sale of alcohol and alcohol containing
products, the ATF is also responsible for collecting the FET that must be paid
on distilled spirits, wine and beer. If alcoholic beverages on which the FET
have been paid are returned to bond at our Parallel Products' premises for
destruction, the party who has paid the FET on the destroyed product is entitled
to a refund. When our customers return distilled spirits, wine or beer from
commerce to one of our facilities for destruction, we generally file a claim
with the ATF on behalf of that customer for refund of the FET paid on that
product. The ATF periodically inspects the Parallel Products facilities both to
insure compliance with its regulations and to substantiate claims for FET
refunds. During the second quarter of 2000, the ATF conducted an inspection at
our Louisville, Kentucky facility. During the week of July 31, 2000, the ATF
began an inspection at our Rancho Cucamonga, California facility. At the
conclusion of the inspection of our Louisville, Kentucky facility, the ATF
preliminarily notified us that it intends to deny certain refund claims totaling
approximately $1.2 million due to what the ATF alleges was inadequate,
incomplete or unsubstantiated supporting documentation. In addition, the ATF has
proposed a civil penalty of $30,000 based on the alleged defects in our
documentation. We have worked closely with the ATF throughout this inspection
process and have implemented revised or upgraded procedures at the facilities to
assure that documentation for future refund claims is in full compliance with
the applicable requirements. We are also engaging in discussions with the ATF
concerning the potential denied claims and believe that a satisfactory
resolution can be reached. We have established a reserve in the amount of
$530,000, recorded as an accrued liability at June 30, 2000, for any amounts we
would be required to pay to our customers in the event any of their refund
claims are ultimately denied by the ATF and to cover the proposed civil penalty.
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, 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 our 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, 1999, 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.
19
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 2000, 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 Michael P. Lawlor, W. Gregory Orr and Roger A. Ramsey
to serve as directors of the Company for a term of three years;
(2) the approval of the U S Liquids Inc. Employee Stock Purchase Plan; and
(3) the ratification of Arthur Andersen LLP as the Company's independent
accountants for 2000.
At the annual meeting, 12,057,526 votes were voted FOR the election of Michael
P. Lawlor and 211,395 shares were WITHHELD; 12,056,386 shares were voted FOR the
election of W. Gregory Orr and 212,535 shares were WITHHELD; and 12,107,306
shares were voted FOR the election of Roger A. Ramsey and 161,615 shares were
WITHHELD. 12,382,327 shares were voted FOR the approval of the U S Liquids Inc.
Employee Stock Purchase Plan, 449,787 shares were voted AGAINST, and 42,807
shares ABSTAINED. 12,736,284 shares were voted FOR the ratification of the
selection of Arthur Andersen LLP as the Company's independent accountants for
2000, 80,313 shares were voted AGAINST, and 58,324 shares ABSTAINED.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
--- -----------
4.7 Third Amendment to Second Amended and Restated Credit Agreement, dated
August 11, 2000, among U S Liquids, Inc., various financial institutions
and Bank of America, N.A., as Agent.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
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 thereunto duly authorized.
U S LIQUIDS INC.
Date: August 11, 2000 /s/ MICHAEL P. LAWLOR
-----------------------------------------
Michael P. Lawlor, Chairman and CEO
Date: August 11, 2000 /s/ EARL J. BLACKWELL
-----------------------------------------
Earl J. Blackwell, Senior Vice President
and Chief Financial Officer
21
