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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
for the Quarterly Period Ended
September 30, 1995
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Commission File Number 0-16379
Clean Harbors, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2997780
(State of Incorporation) (IRS Employer Identification No.)
325 Wood Road, Braintree, MA 02184
(Address of Principal Executive Offices) (Zip Code)
(617) 849-1800 ext. 4454
(Registrant's Telephone Number, Including Area Code)
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 for 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. Yes X 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 9,490,171
- ---------------------------- ---------------------------------
(Class) (Outstanding at November 8, 1995)
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CLEAN HARBORS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS Pages
-----
Consolidated Statements of Income 1
Consolidated Balance Sheets 2-3
Consolidated Statements of Cash Flows 4-5
Consolidated Statement of Stockholders' Equity 6
Notes to Consolidated Financial Statements 7-8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-16
PART II: OTHER INFORMATION
Items No. 1 through 6 17-18
Signatures 19
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(in thousands; except for earnings per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
Revenues $ 54,398 $ 53,258 $156,447 $154,226
Cost of revenues 41,253 37,459 115,472 106,764
Selling, general and
administrative expenses 10,267 9,374 29,748 28,902
Depreciation and amortization 2,567 2,570 7,552 7,697
-------- -------- -------- --------
Income from operations 311 3,855 3,675 10,863
Interest expense, net 2,328 1,942 6,462 5,528
-------- -------- -------- --------
Income (loss) before provision for income
taxes and extraordinary item (2,017) 1,913 (2,787) 5,335
Provision for (benefit from) income taxes (817) 831 (1,200) 2,405
-------- -------- -------- --------
Income (loss) before extraordinary
item (1,200) 1,082 (1,587) 2,930
Extraordinary loss related to
early retirement of debt, net of
income tax benefit of $823,000 --- 1,220 --- 1,220
-------- -------- -------- --------
Net income (loss) $ (1,200) $ (138) $ (1,587) $ 1,710
======== ======== ======== ========
Net income (loss) per common and
common equivalent share before
extraordinary item $(.14) $ .10 $(.20) $ .27
Extraordinary item --- $(.13) --- $(.13)
-------- -------- -------- --------
Net income (loss) per common and
common equivalent share $(.14) $(.03) $(.20) $ .14
======== ======== ======== ========
Weighted average common and
common equivalent shares
outstanding 9,435 9,431 9,433 9,649
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
(1)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1995 1994
(Unaudited)
ASSETS ------------- ------------
Current assets:
Cash $ 105 $ 1,000
Restricted investments 2,563 1,542
Accounts receivable, net of
allowance for doubtful accounts 49,653 44,834
Prepaid expenses 2,534 1,894
Supplies inventories 3,014 2,670
Income tax receivable 1,538 178
------- -------
Total current assets 59,407 52,118
Property, plant and equipment:
Land 8,285 8,209
Buildings and improvements 37,678 31,535
Vehicles and equipment 77,430 72,494
Furniture and fixtures 2,155 2,129
Construction in progress 5,133 3,118
------- -------
130,681 117,485
Less - Accumulated depreciation
and amortization 53,874 47,713
------- -------
Net property, plant and equipment 76,807 69,772
------- -------
Other assets:
Restricted investments 5,081 ---
Goodwill, net 22,383 22,926
Permits, net 13,646 14,244
Other 2,518 815
------- -------
Total other assets 43,628 37,985
------- -------
Total assets $179,842 $159,875
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
(2)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1995 1994
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY ------------- ------------
Current liabilities:
Current maturities of long-term obligations $ 3,669 $ 1,715
Accounts payable 12,184 10,686
Accrued disposal costs 7,315 6,179
Other accrued expenses 17,510 12,724
------ ------
Total current liabilities 40,678 31,304
------ ------
Long-term obligations, less current maturities 73,453 60,465
Deferred income taxes 216 780
Stockholders' equity:
Preferred Stock, $.01 par value:
Series A Convertible;
Authorized-2,000,000 shares; Issued and
outstanding - none --- ---
Series B Convertible;
Authorized-156,416 shares; Issued and
outstanding 112,000 shares at September 30,
1995 and December 31, 1994 (liquidation
preference of $5.6 million) 1 1
Common Stock, $.01 par value
Authorized - 20,000,000 shares;
Issued and outstanding - 9,436,838 shares
at September 30, 1995 and 9,431,282 shares
at December 31, 1994 95 95
Additional paid-in capital 58,607 58,590
Unrealized loss on restricted investments,
net of tax (39) (113)
Retained earnings 6,831 8,753
------ ------
Total stockholders' equity 65,495 67,326
------ ------
Total liabilities and stockholders' equity $179,842 $159,875
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
(3)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in thousands)
NINE MONTHS ENDING
SEPTEMBER 30,
------------------------
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,587) $1,710
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 7,552 7,697
Deferred taxes payable (633) (332)
Allowance for doubtful accounts 215 590
Write-off of deferred financing fees --- 963
Amortization of deferred financing costs 365 274
Gain on sale of fixed assets (17) (93)
Changes in assets and liabilities:
Accounts receivable (5,034) (246)
Refundable income taxes (1,360) 566
Prepaid expenses (640) 343
Supplies inventories (344) (174)
Accounts payable 1,498 475
Accrued disposal costs 1,136 (407)
Other accrued expenses 2,987 1,686
------ ------
Net cash provided by operating activities 4,138 13,052
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (11,352) (2,994)
Additions to permits (75) ---
Proceeds from sale and maturities of restricted
investments 42 159
Cost of restricted investments acquired (5,998) ---
Increase in other assets (1,737) (73)
Proceeds from sale of fixed assets 26 104
Payment for business net of cash acquired --- (200)
------ ------
Net cash used in investing activities (19,094) (3,004)
------ ------
The accompanying notes are an integral part of these consolidated
financial statements.
(4)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Unaudited
(in thousands)
NINE MONTHS ENDING
SEPTEMBER 30,
----------------------
1995 1994
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend distribution (335) (317)
Issuance of long-term debt 10,000 50,000
Net borrowings (payments) under
long-term revolver 6,341 (24,069)
Payments on long-term obligations (1,158) (33,246)
Proceeds from exercise of stock options 15 28
Additions to deferred financing costs (802) (2,331)
------ ------
Net cash provided by (used in) financing
activities 14,061 (9,935)
------ ------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (895) 113
Cash and equivalents, beginning of year 1,000 816
------ ------
Cash and equivalents, end of period $ 105 $ 929
====== ======
Supplemental Information:
Capital lease obligations incurred $ 196 $ 240
There were $1,799,000 of accrued liabilities assumed as a result of the
acquisition of the incinerator in Kimball, Nebraska on May 12, 1995.
On September 30, 1994 the Company acquired all the assets of a
hazardous and nonhazardous oil reclamation facility for $200,000 in cash and
$200,000 in credits for future services.
The accompanying notes are an integral part of these consolidated
financial statements.
(5)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unaudited
(in thousands)
Series B
Preferred Stock Common Stock
--------------- --------------
Number $0.01 Number $0.01 Additional Unrealized Loss Total
of Par of Par Paid-In on Restricted Retained Stockholders'
Shares Value Shares Value Capital Investments Earnings Equity
------ ----- ------ ----- ---------- --------------- -------- -------------
Balance at
December 31, 1994 112 $ 1 9,431 $95 $58,590 $(113) $8,753 $67,326
Preferred stock dividends:
Series B --- --- --- -- -- --- (335) (335)
Proceeds from exercise
of stock options --- --- 6 -- 15 --- --- 15
Tax benefit exercise
of stock options --- --- --- -- 2 --- --- 2
Change in unrealized loss on
restricted investments --- --- --- -- --- 74 --- 74
Net Loss --- --- --- -- --- --- (1,587) (1,587)
------ ----- ------ ----- ---------- --------------- -------- -------------
Balance at
September 30, 1995 112 $ 1 9,437 $95 $58,607 ($39) $6,831 $65,495
====== ===== ====== ===== ========== =============== ======== =============
The accompanying notes are an integral part of these consolidated
financial statements.
(6)
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 Basis of Presentation
The consolidated interim financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission, and include, in the opinion of management, all
adjustments (consisting of only normal recurring accruals) necessary for the
fair presentation of interim period results. The operating results for the nine
months ended September 30, 1995 are not necessarily indicative of those to be
expected for the full fiscal year. Reference is made to the audited consolidated
financial statements and notes thereto included in Clean Harbors' Report on Form
10-K for the year ended December 31, 1994 as filed with the Securities and
Exchange Commission.
NOTE 2 Significant Accounting Policies
(A) Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is based on net income
less preferred stock dividend requirements divided by the weighted average
number of common and common equivalent shares outstanding during each of the
respective periods. Net loss per common share does not consider common stock
equivalents in the weighted shares. Fully diluted net income per common share
has not been presented as the amount would not differ significantly from that
presented.
(B) Reclassifications
Certain reclassifications have been reflected in the prior year financial
statements to conform the presentation to that as of September 30, 1995.
NOTE 3 Acquisition of Incinerator
On May 12, 1995, the Company acquired a newly constructed hazardous waste
incinerator in Kimball, Nebraska from Ecova Corporation, a wholly-owned
affiliate of Amoco Oil Company. The incinerator is subject to the final permit
requirements under the federal Resource Conservation and Recovery Act of 1976,
as amended ("RCRA"), and has a RCRA "Part B" license issued by the Nebraska
Department of Environmental Quality ("NDEQ"). The incinerator is located on a
600 acre site, which includes a landfill for disposal of the ash from the
incinerator. The Company acquired the Kimball facility for $5,550,000.
Under RCRA, an owner or operator of a "Part B" licensed facility must
provide financial assurance that funds will be available for closure of the
facility, should the facility cease operation. An owner or operator may satisfy
the requirements for financial assurance by using one of several mechanisms
allowed under RCRA: a trust fund, surety bond, letter of credit, insurance,
financial test, or corporate guarantee. The mechanism chosen by the Company is
insurance which has been approved by NDEQ. The Company has obtained two
insurance policies: one covers closure of the incinerator, and the other covers
closure of the landfill and the post-closure costs of caring for the site after
the landfill is closed. Each insurance policy has a 30 year term. Policy
premiums through the year 2025 have been prepaid by the Company, as required by
NDEQ, to eliminate the risk that the policy might be canceled for failure to pay
premiums some time in the future. The Company has also deposited funds into an
escrow account as collateral for the insurance policies, which is restricted for
future payment of insurance claims. Funds in the escrow account remain the
property of the Company and are invested in long-term, fixed-rate interest
bearing securities held as restricted investments.
(7)
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
As of September 30, 1995, the Company had paid $1,805,000 for the premium
on the insurance policy for the incinerator, and had deposited $5,000,000 into
the escrow account. The premium on the insurance policy for the landfill is
$2,000,000, payable in two installments of $1,000,000 each, and the Company is
obligated to deposit $650,000 into the escrow account. During the fourth quarter
of 1995, the Company expects to make the deposit into the escrow account, and
pay the first $1,000,000 premium installment; the second installment is payable
in September 1996. The Company is also obligated to deliver to the insurance
company a letter of credit in the amount of $750,000, which will increase by
$250,000 each quarter until the balance of the letter of credit is $3,006,000,
to provide additional collateral security under the two insurance policies.
NOTE 4 Financing Arrangements
At December 31, 1994, the Company had a $35,000,000 revolving credit
facility with three banks. In connection with the acquisition of the Kimball
facility, the Company on May 8, 1995 entered into a new $45,000,000 revolving
credit and term loan agreement (the "Loan Agreement") with another financial
institution, which replaced the bank credit facility. The Loan Agreement
provides for a $35,000,000 revolving credit portion (the "Revolver") and a
$10,000,000 term promissory note (the "Term Note"). The Term Note is payable in
60 monthly installments, commencing June 1, 1995. Monthly principal payments are
$166,667. The Revolver allows the Company to borrow $35,000,000 in cash, and
allows the Company to have up to $20,000,000 in letters of credit outstanding.
The combination of cash and letters of credit may not exceed $35,000,000 at any
one time. The Revolver requires the Company to pay a line fee of one half of one
percent on the unused portion of the line. The Revolver has a three-year term
with an option to renew annually.
At September 30, 1995, the balance of the Term Note was $9,333,000, the
Revolver balance was $14,046,000, and the letters of credit outstanding were
$7,595,000.
The Loan Agreement allows for up to 80% of the outstanding balance of the
combined Revolver and Term Note to bear interest at the Eurodollar rate plus
three percent; the remaining balance bears interest at a rate equal to the
"prime" rate plus one and one-half percent. The Loan Agreement is collateralized
by substantially all of the Company's assets. The Loan Agreement provides for
certain covenants including, among others, limitations on working capital and
adjusted net worth. The Company must also maintain borrowing availability of not
less than $4,500,000 for sixty consecutive days prior to paying principal and
interest on its other indebtedness and dividends in cash on its preferred stock.
At September 30, 1995, the Company did not have the level of borrowing
availability required in order to make principal and interest payments due
within sixty days thereof, and it has obtained a waiver needed in order to make
such payments.
(8)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVENUES
Revenues for the third quarter of 1995 were $54,398,000, up 2% as
compared to revenues of $53,258,000 for the third quarter of the prior year.
Revenues for the nine months of 1995 set a new Company record of $156,447,000,
up 1% as compared to revenues of $154,226,000 for the first nine months of the
prior year. During the first quarter of 1994, the Company received approximately
$7,000,000 of revenue from its leading role in the cleanup of a large oil spill
from a barge off the coast of Puerto Rico. Excluding the revenue from that event
last year, the Company's base business grew approximately 6% from 1994 to 1995.
The principal services provided by the Company fit within three
categories: treatment and disposal of industrial wastes; field services provided
at customer sites; and specialized repackaging, treatment and disposal services
for laboratory chemicals and household hazardous wastes ("CleanPacks," formerly
referred to as LabPacks). The approximately $7,000,000 of revenue from the
Puerto Rico oil spill in the first quarter of 1994 is classified as field
service revenue.
Revenues By Product Line
(in thousands; unaudited)
Nine Months Ended September 30,
------------------------------------------
Type of Service 1994 1995
--------------- ----------------- -----------------
Treatment and Disposal $ 60,827 39% $ 69,021 44%
Field Services 71,859 47 65,171 42
CleanPacks 21,540 14 22,255 14
------- --- ------- ---
$ 154,226 100% $ 156,447 100%
Treatment and disposal services revenue in the first nine months of the
year increased 13% from 1994 to 1995, reversing a two year period of declining
revenue in this product line. The decline was due to a variety of secular trends
impacting both price and volume: competitive industry pricing; continuing
efforts by generators of hazardous waste to reduce the amount of hazardous waste
they produce; and shipment by generators of waste direct to the ultimate
treatment or disposal location. The Company has responded to these industry
trends in several ways, primarily by modernizing the Company's facilities to
offer more technologically advanced waste treatment alternatives, such as the
Clean Extraction System in Baltimore and by acquiring treatment and disposal
facilities that expand the Company's product lines. For example, during the
first quarter of 1995, the Company completed the installation of an automated
fuels blending operation at its Cincinnati waste treatment plant, which
establishes the Company in the fuels blending business for the first time.
(9)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
During the second quarter of 1995, the Company completed the acquisition
of the newly constructed hazardous waste incinerator in Kimball, Nebraska. The
incinerator is subject to the final permit requirements under the federal
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), and has a
RCRA "Part B" license issued by the Nebraska Department of Environmental Quality
("NDEQ"). Kimball is the only commercial incinerator in the United States to
produce "delisted" ash, meaning the ash will not be regulated as a hazardous
waste under federal and state laws. The acquisition of this facility responds to
a developing trend within the hazardous waste management industry: generators of
industrial waste prefer to treat hazardous waste, rather than bury it, because
of concerns about the long-term liability associated with landfill disposal of
the residue which results from incineration of the generator's hazardous waste.
Conventional incinerators produce a "slag" which is regulated as a hazardous
waste. The residue from the Kimball treatment facility, in contrast, is ash
rather than slag. The ash meets the standards set by NDEQ for "delisting" and is
therefore deemed to be non-hazardous.
During the third quarter of 1995, the Kimball treatment facility entered a
new, expanded phase of operations as a result of two recent actions by Federal
and State regulators. The United States Environmental Protection Agency ("EPA")
authorized the facility to begin accepting wastes regulated by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA," also
known as the Superfund Act). The EPA authorization to begin accepting wastes
regulated by CERCLA allows the Company to be directly involved in the safe
treatment and disposal of wastes from Federal cleanup efforts including
Superfund sites, a large portion of the incineration marketplace. Prior to
obtaining CERCLA approval, the Kimball facility was limited to accepting
hazardous wastes regulated by RCRA. RCRA waste materials are made up of the same
constituents as CERCLA wastes, but are generated from various ongoing industrial
operations rather than Federal cleanup activities at specific locations or
Federal Superfund sites. In a separate action, the NDEQ approved the use of the
facility's on-site landfill for disposal of ash residue as well as residues from
the facility's air pollution control system. The facility now has all approvals
necessary to fully use its waste disposal capacity.
Since the incinerator is a new facility, many of the Company's customers
will visit the facility for a comprehensive audit of its operations before they
will approve the site for disposal of their hazardous waste. As a result,
considerable time is needed to complete the audit and approval process before
the Company can begin shipping waste to the facility. As of September 1995, over
fifty large customers had audited and approved the facility, and approvals from
another dozen customers were pending.
Another major accomplishment was the receipt of a modified RCRA "Part B"
license for the Company's expanded Chicago waste treatment facility, which
brings together the people, technology, and capacity to satisfy customers'
recycling, waste treatment, and field service needs in one integrated complex.
However, the opening scheduled for the third quarter of 1995 was delayed while
regulatory issues left-over from its previous ownership and use were resolved.
On November 3, 1995 the Company was notified that all regulatory issues have
been resolved. The Company began operations at the expanded facility on November
7, 1995.
(10)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Field services revenue in the first nine months of the year increased
only slightly from 1994 to 1995, excluding the Puerto Rico oil spill revenue.
CleanPack revenue in the first nine months of the year increased 3% from 1994 to
1995. While the Company has protected its market share in existing regions and
established new business relationships in the newer regions, significant price
competition has impacted revenue growth.
At September 30, 1995, the Company had service centers and sales offices
located in 24 states and Puerto Rico, and operated 12 waste management
facilities, as compared to September 30, 1994, when the Company operated 10
waste management facilities and had service centers and sales offices located in
22 states and Puerto Rico. The following table sets forth, for the periods
indicated, the Company's revenues by region, based upon the locations of its 26
service centers as of September 30, 1995.
Service Center Revenues By Region
For The Quarter and Nine Months Ended
September 30, 1995 and 1994
(in thousands; unaudited)
Quarter Ended Nine Months
------------------ ------------------
9/30/94 9/30/95 1994 1995
------- ------- ------- -------
Northeast $23,012 $20,275 $60,931 $61,417
Mid-Atlantic 15,689 17,317 53,673* 49,501
Central 8,084 9,388 21,175 25,976
Midwest 6,473 7,418 18,447 19,553
------- ------- ------- -------
Total $53,258 $54,398 $154,226 $156,447
-----------------
* The Mid-Atlantic region includes the Company's service center in Puerto
Rico, and the approximately $7,000,000 of revenue from the 1994 oil spill
cleanup.
The Company is expanding its service capabilities in the Gulf Coast and
Southern regions of the United States. During 1995, the Company opened service
centers in Georgia and Kentucky, and recently expanded its service centers in
Colorado and Texas, by adding staff and equipment to support the increasing
level of business in the newer regions. The Company expects to introduce new
waste management capabilities in the Midwest region with the significant
expansion of its Chicago facility. The Company also expects its revenues in all
four regions and all three product lines to benefit from the acquisition of the
Kimball incinerator.
(11)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
operating data associated with the Company's results of operations.
Percentage Of Total Revenues
----------------------------
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues:
Disposal costs paid to third parties 13.7 13.6 15.1 12.5
Other costs 62.1 56.7 58.7 56.7
---- ---- ---- ----
Total cost of revenues 75.8 70.3 73.8 69.2
Selling, general and administrative
expenses 18.9 17.6 19.0 18.7
Depreciation and amortization
of intangible assets 4.7 4.8 4.8 5.0
Income from operations 0.6 7.2 2.3 7.0
Other Data:
- ----------
Earnings Before Interest, Taxes,
Depreciation and Amortization
(EBITDA) (in thousands) $2,878 $6,425 $11,227 $18,560
COST OF REVENUES
One of the largest components of cost of revenues is the cost of sending
waste to other companies for disposal. The Company's outside disposal costs
increased to 15.1% of revenue in the first nine months of 1995 from 13.1% of
revenue in the first nine months of 1994 (calculated excluding revenue from the
Puerto Rico oil spill, which had no outside disposal costs). This was a factor
which supports the Company's decision to acquire the Kimball incinerator, in
order to reduce the Company's reliance on third-party disposal outlets, and
capture the gross margin being paid to vendors. The Company has begun cost
savings plans to reduce operating costs as a percentage of revenue during 1996.
(12)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Since the Kimball incinerator is a new facility, and a recent entrant to
the incineration marketplace, volumes are growing slowly due to the time
required for customers to audit and approve the facility and begin shipping
waste to it. As a result, the incinerator experienced a loss from operations of
approximately $2,100,000 during the second and third quarters of 1995. The
Company expects the volumes of waste processed to increase during the remainder
of 1995 and into 1996, now that CERCLA approval has been obtained and the
on-site landfill is in operation. In addition, the delay in opening the expanded
Chicago waste treatment facility resulted in an approximately $300,000 negative
impact on operating results during the third quarter of 1995 as a result of
promotional advertising and hiring new employees.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During the first nine months of 1995, the Company established a sales
presence in Alabama, California, Colorado, and Florida and spent considerable
sums of money on building marketing campaigns for the Kimball incinerator and
the expanded Chicago waste treatment facility. As a result of the Company's
strategy to expand geographically, by adding sales offices and service centers
in the southern and western parts of the United States, and to add product
lines, such as the Kimball incinerator, its sales expenses have increased.
Although there continues to be increased costs associated with the expansion
efforts, the Company has implemented cost savings programs which have to some
extent offset these growth related expenditures. The Company anticipates 1996
selling, general and administrative expenses to remain flat with the 1995 level.
INTEREST EXPENSE
Interest expense increased during the first nine months of 1995 as
a result of an increase in the Company's average cost of capital, due to its
decision last year to reduce its reliance on floating rate bank debt through the
issuance of $50,000,000 of 12.50% Senior Notes in August of 1994, and an
increase in total long-term debt, due to the costs of the acquisition of the
Kimball incinerator and the expansion of the Chicago facility. No interest was
capitalized during the first nine months of 1995 or 1994.
INCOME TAXES
The effective income tax rate for the three and nine months ended
September 30, 1995 was 41% and 43% respectively, as compared to 43% and 45% for
the comparable periods of 1994. The Company expects its effective income tax
rate for the year 1995 to be approximately 39%. The rate fluctuates depending on
the amount of income before taxes, as compared to the fixed amount of goodwill
and other non-deductible items.
(13)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results may be affected by a number of
factors, including the Company's ability to: continue to implement the treatment
and disposal reengineering program; utilize its facilities and workforce
profitably, in the face of intense price competition; successfully increase
market share in its existing service territory while expanding its product
offerings into other markets; integrate additional hazardous waste management
facilities, such as the Kimball incinerator and the expanded Chicago facility;
realize benefits from cost reduction programs; and generate incremental volumes
of waste to be handled through such facilities from existing sales offices and
service centers and others which may be opened in the future.
The future operating results of the Kimball incinerator may be affected by
factors such as its ability to: obtain sufficient volumes of waste at prices
which produce revenue sufficient to offset the operating costs of the facility;
minimize downtime and disruptions of operations; and compete successfully
against other incinerators which have an established share of the incineration
market. The Company expects to return to profitability during 1996, when various
cost control and profit improvement actions take hold, the Kimball incinerator
improves profitability, and its expanded Chicago facility starts receiving waste
from customers.
The Company's operations may be affected by the commencement and
completion of major site remediation projects; seasonal fluctuations due to
weather and budgetary cycles influencing the timing of customers' spending for
remedial activities; the timing of regulatory decisions relating to hazardous
waste management projects; secular changes in the process waste industry towards
waste minimization and the propensity for delays in the remedial market;
suspension of governmental permits; and fines and penalties for noncompliance
with the myriad regulations governing the Company's diverse operations. As a
result of these factors, the Company's revenue and income could vary
significantly from quarter to quarter, and past financial performance should not
be considered a reliable indicator of future performance.
FINANCIAL CONDITION AND LIQUIDITY
The Company has financed its operations and capital expenditures primarily
by cash flow from operations and additions to long-term debt. Cash provided by
operations, before changes in current assets and current liabilities, was
$5,894,000 for the nine months ended September 30, 1995, as compared to
$10,809,000 for the nine months ended September 30, 1994.
During the nine months ended September 30, 1995, the Company spent
$5,998,000 on additions to plant and equipment and construction in progress, and
$5,550,000 on the acquisition of the Kimball incinerator, as compared to the
same period of the prior year when its capital expenditures were $3,234,000. In
addition, the Company spent $6,805,000 for the financial assurance policies
associated with the acquisition. See Note 3 to the Consolidated Financial
Statements in this report for a description of the costs of the incinerator
acquisition.
(14)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
During the nine months ended September 30, 1995, net additions to
long-term debt were $14,942,000, as compared to the same period of the prior
year when net reductions in long-term debt were $9,132,000. The Company
anticipates that its capital expenditures for the remainder of 1995 will be
approximately $1,000,000 to $1,500,000, including improvements expected to be
made at the Kimball facility. The Company expects to finance these requirements
through cash flow from operations and funds drawn under its $45,000,000
revolving credit and term loan agreement (the "Loan Agreement") described in
Note 4 to the Consolidated Financial Statements in this report.
The Loan Agreement terms include a borrowing limit, which fluctuates
depending on the level of accounts receivable which secure the Loan Agreement.
The borrowing availability within each month will fluctuate significantly
depending on the level of business activity, when during the month the bills are
sent, the resulting amount of accounts receivable, and the usage of letters of
credit. The Loan Agreement terms allow the Company to make regularly scheduled
payments of principal and interest on its other indebtedness for borrowed money
(including leases), to pay dividends in cash on its preferred stock, to prepay
such debt or redeem such preferred stock, and to make acquisitions of other
companies, provided that on each of the sixty consecutive days prior thereto,
and after giving effect thereto, the Company shall maintain borrowing
availability in excess of $4,500,000.
The Company has been taking steps to obtain $10,000,000 of tax-exempt
revenue bond financing through the State of Nebraska to pay for a portion of the
costs of the Kimball facility, including the premiums on the financial assurance
policies, as well as the costs of improvements to the facility. On August 25,
1995 the proposed bond issuer, the Nebraska Investment Finance Authority
("NIFA"), granted final approval to the issuance of the bonds. However, the
financing has been delayed while the Company, NIFA, and the placement agent for
the bonds negotiate certain language included in the offering documents at the
request of NIFA, which is currently involved in litigation relating to a default
on bonds NIFA issued in 1986, which is unrelated to the Company.
The placement agent has advised the Company that the bond issue cannot
proceed unless the language requested by NIFA is modified to meet the demands of
the marketplace for tax-exempt financing. Approximately $9,300,000 of the bond
proceeds were expected to be used to reimburse the Company for a portion of the
costs of the Kimball facility. The Company planned to use the $9,300,000 to
reduce the indebtedness outstanding under the Loan Agreement. As a result of the
delay in receiving the proceeds of the tax-exempt bond issue, and the Company's
significant capital expenditures during the first nine months of 1995, its
liquidity has been reduced below the $4,500,000 level expected to be maintained
under the provisions of the Loan Agreement described above.
(15)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On October 31, 1995, the Company paid the first of five equal annual
principal installments of $1,000,000 due on its 10% Senior Convertible Notes.
The Company expects to pay on November 15, 1995 the semi-annual interest due on
its $50,000,000 12.50% Senior Notes. In anticipation of making those payments,
the Company requested that its lender waive compliance with the Loan Agreement
covenant requiring $4,500,000 of excess availability, which was granted on
October 27, 1995. The Company believes that sufficient funding will be available
under the Loan Agreement to allow time for the tax-exempt bond issue to be
completed or alternative plans to be made. Although the Company's liquidity will
be constrained after making those payments, the Company believes it has adequate
liquidity, since its operations are expected to produce cash flow in excess of
the amounts required to finance its operations and its capital expenditures for
the remainder of 1995. It is expected that capital expenditures in 1996 will be
substantially lower than those incurred in 1995.
Dividends on the Company's Series B Convertible Preferred Stock are
payable on the 15th day of January, April, July and October, at the rate of
$1.00 per share, per quarter; 112,000 shares are outstanding. Under the terms of
the preferred stock, the Company can elect to pay dividends in cash or in common
stock with a market value equal to the amount of the dividend payable. The
Company elected to pay the October 15, 1995 dividend in common stock. The market
value of the common stock as of the October 1, 1995 record date of such dividend
was $3.8375. Accordingly, on October 12, 1995 the Company issued 29,187 shares
of common stock to the holders of the preferred stock. The Company anticipates
that the preferred stock dividends payable through 1996 will be paid in common
stock.
(16)
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
Except as provided below, no reportable events have occurred which would
require modification of the discussion under Item 3 - Legal Proceedings
contained in the Company's Report on Form 10-K for the Year Ended December 31,
1994.
As reported in the Form 10-K, an action was filed during August 1990 in
the New York Supreme Court, Albany County, in connection with the accidental
death of a Company employee who was working on the Hudson River in September
1989 while responding to an oil spill. The complaint sought $10,000,000 under
the federal Longshoremen's and Harborworker's Compensation Act (the "Jones
Act"). The Company sought to dismiss the Jones Act claims on the grounds that
the employee was not a "seaman" within the meaning of the Jones Act and that the
case was governed by the New York workers' compensation statute. In March 1994,
the trial court judge granted the Company's motion for a summary judgment that
the Jones Act does not apply. The decision was appealed to the Supreme Court
Appellate Division, which on August 31, 1995 upheld the trial court decision.
The time period for filing an appeal to the Court of Appeals has expired. The
effect of the decision is that any recovery will be limited by workers'
compensation, for which the Company has adequate insurance coverage.
As reported in the Form 10-K, the Company has been named as a potentially
responsible party ("PRP") in a number of lawsuits arising from the disposal of
wastes at 19 state and federal Superfund sites. One of the sites discussed in
the Form 10-K is the Strasburg Landfill site in Pennsylvania. In July 1995 the
PRP group received a reply from the EPA, which declined to accept the good faith
offer submitted by the nine PRPs in January 1993. The EPA advised the PRP group
that it planned to utilize Superfund monies to design and implement the remedy
specified in the Record of Decision for the site, and initiate a cost recovery
action for its past costs in the amount of approximately $5,800,000. In their
October 1995 response to the EPA, the PRPs have indicated their willingness to
accept the EPA's offer to engage in alternative dispute resolution to settle the
claim for past costs.
Item 2 - Changes in Securities
- ------------------------------
None
Item 3 - Defaults Upon Senior Debt
- ----------------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 5 - Other Information
- --------------------------
None
(17)
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
A) Exhibit 11 - Computation of Net Income per Share.
Exhibit 27 - Financial Data Schedule.
B) Reports on Form 8-K - None
(18)
CLEAN HARBORS, INC. AND SUBSIDIARIES
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.
Clean Harbors, Inc.
-------------------------
Registrant
Dated: November 14, 1995 By: /s/ Alan S. McKim
---------------------------------
Alan S. McKim
President and
Chief Executive Officer
Dated: November 14, 1995 By: /s/ Stephen H. Moynihan
-------------------------------
Stephen H. Moynihan
Chief Accounting Officer
(19)
Exhibit 11
CLEAN HARBORS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 1995
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
------------------ -----------------
Net income (loss) $(1,200) $ (138) $(1,587) $1,710
Less preferred dividends accrued 112 117 335 329
------- ------ ------ ------
Adjusted net income (loss) $(1,312) $ (255) $(1,922) $1,381
======= ====== ====== ======
Earnings per common and common
equivalent share:
Weighted average number of
shares outstanding 9,435 9,431 9,433 9,429
Incremental shares for stock options
under treasury stock method -- -- -- 220
------- ------ ------ ------
Weighted average number of
common and common equivalent
shares outstanding 9,435 9,431 9,433 9,649
------- ------ ------ ------
Net earnings (loss) per common and common
equivalent share $(.14) $(.03) $(.20) $ .14
======= ====== ====== ======
Earnings per common and common
equivalent share - assuming full
dilution:
Weighted average number of
shares outstanding 9,435 9,431 9,433 9,429
Incremental shares for stock options
under treasury stock method -- -- -- 220
------- ------ ------ ------
Weighted average number of common
and common equivalent shares outstanding -
assuming full dilution 9,435 9,431 9,433 9,649
======= ====== ====== ======
Net earnings (loss) per common and common
equivalent share - assuming full
dilution $(.14) $(.03) $(.20) $ .14
======= ====== ====== ======
5
1,000
9-MOS
DEC-31-1995
SEP-30-1995
105
2,563
50,733
(1,080)
3,014
59,407
130,681
53,874
179,842
40,678
73,453
95
0
1
65,399
179,842
156,447
156,447
115,472
115,472
0
0
6,462
(2,787)
(1,200)
(1,587)
0
0
0
(1,587)
(.20)
0
