1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1997
-----------------------
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.)
1501 Washington Street, Braintree, MA 02185-0327
(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 9,920,459
---------------------------- ----------------------------
(Class) (Outstanding at May 6, 1997)
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2
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
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-11
PART II: OTHER INFORMATION
Items No. 1 through 6 12
Signatures 13
3
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(in thousands except for earnings per share amounts)
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
-------- --------
Revenues $ 40,374 $ 45,736
Cost of revenues 31,488 34,882
Selling, general and administrative expenses 8,199 9,174
Depreciation and amortization 2,363 2,527
-------- --------
Loss from operations (1,676) (847)
Other income (net) 800 --
Interest expense (net) 2,259 2,139
-------- --------
Loss before provision for income taxes (3,135) (2,986)
Benefit from income taxes (1,152) (1,344)
-------- --------
Net loss $ (1,983) $ (1,642)
======== ========
Net loss per common share $ (.21) $ (.18)
======== ========
Weighted average common
shares outstanding (000's) 9,817 9,560
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
(1)
4
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
MARCH 31, DECEMBER 31,
1997 1996
(Unaudited)
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,030 $ 1,366
Restricted investments 1,882 8,190
Accounts receivable, net of
allowance for doubtful accounts 38,216 42,746
Prepaid expenses 1,681 1,603
Supplies inventories 2,851 2,866
Income tax receivable 1,697 1,668
Deferred tax asset 3,162 3,152
-------- --------
Total current assets 56,519 61,591
Property, plant and equipment:
Land 8,479 8,423
Buildings and improvements 39,076 39,585
Vehicles and equipment 78,194 78,050
Furniture and fixtures 2,218 2,191
Construction in progress 2,056 1,819
-------- --------
130,023 130,068
Less - Accumulated depreciation
and amortization 62,894 61,282
-------- --------
Net property, plant and equipment 67,129 68,786
-------- --------
Other assets:
Goodwill, net 21,298 21,479
Permits, net 12,378 12,605
Deferred taxes non-current 10,287 9,208
Other 4,307 4,328
-------- --------
Total other assets 48,270 47,620
-------- --------
Total assets $171,918 $177,997
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
(2)
5
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
MARCH 31, DECEMBER 31,
1997 1996
(Unaudited)
--------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations $ 4,247 $ 4,370
Accounts payable 16,672 20,069
Accrued disposal costs 7,813 7,912
Other accrued expenses 14,016 14,609
Income tax payable -- 162
Deferred tax liability 224 224
--------- ---------
Total current liabilities 42,972 47,346
--------- ---------
Long-term obligations, less current maturities 68,993 68,668
Deferred taxes, long-term 7,380 7,453
Other 946 946
--------- ---------
Total other liabilities 77,319 77,067
--------- ---------
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 March 31,
1997 and December 31, 1996 (liquidation
preference of $5.6 million) 1 1
Common Stock, $.01 par value
Authorized - 20,000,000 shares;
Issued and outstanding - 9,820,865 shares
at March 31, 1997 and 9,743,153 shares
at December 31, 1996 99 98
Additional paid-in capital 59,632 59,477
Unrealized loss on restricted investments,
net of tax (33) (15)
Accumulated deficit (8,072) (5,977)
--------- ---------
Total stockholders' equity 51,627 53,584
--------- ---------
Total liabilities and stockholders' equity $ 171,918 $ 177,997
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
(3)
6
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in thousands)
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,983) $(1,642)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,363 2,527
Deferred income taxes (1,142) (1,344)
Allowance for doubtful accounts 165 133
Amortization of deferred financing costs 178 154
Gain on sale of fixed assets (82) (2)
Changes in assets and liabilities:
Accounts receivable 4,365 3,701
Refundable income taxes (29) (78)
Prepaid expenses (78) (135)
Supplies inventories 15 (79)
Deferred tax asset (10) --
Accounts payable (3,397) (1,158)
Accrued disposal costs (99) (430)
Other accrued expenses (395) (987)
Taxes payable (162) --
------- -------
Net cash (used) provided by operating activities (291) 660
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (649) (756)
Proceeds from sale and maturities of
restricted investments 6,280 689
Cost of restricted investments acquired -- (743)
Decrease (increase) in other assets 17 (35)
Proceeds from sale of fixed assets 241 2
------- -------
Net cash provided (used) by investing activities 5,889 (843)
------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
(4)
7
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
UNAUDITED
(in thousands)
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt -- 6,667
Net borrowings (payments) under long-term
revolver 927 (5,758)
Payments on long-term obligations (898) (652)
Additions to deferred financing costs (7) (47)
Proceeds from employee stock purchase plan 44 --
------- -------
Net cash provided by financing activities 66 210
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 5,664 27
Cash and cash equivalents, beginning of year 1,366 225
------- -------
Cash and cash equivalents, end of period 7,030 $ 252
======= =======
Supplemental Information:
Non cash investing and financing activities:
Stock dividend on preferred stock $ 112 $ 112
The accompanying notes are an integral part of these consolidated financial
statements.
(5)
8
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
(in thousands)
Series B
Preferred Stock Common Stock
--------------- -------------- Unrealized
Number $.01 Number $.01 Additional Loss on Total
of Par of Par Paid-In Restricted Accumulated Stockholders'
Shares Value Shares Value Capital Investments Deficit Equity
------ ----- ------ ----- ---------- ----------- ----------- -------------
Balance at
December 31, 1996 112 $ 1 9,743 $98 $59,477 $(15) $(5,977) $53,584
Preferred stock dividends:
Series B -- -- 55 1 111 -- (112) --
Employee stock purchase
plan -- -- 23 -- 44 -- -- 44
Change in unrealized loss on
restricted investments,
net of tax -- -- -- -- -- (18) -- (18)
Net Loss -- -- -- -- -- -- (1,983) (1,983)
--- --- ----- --- ------- ---- ------- -------
Balance at
March 31, 1997 112 $ 1 9,821 $99 $59,632 $(33) $(8,072) $51,627
=== === ===== === ======= ==== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
(6)
9
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 three months ended March 31, 1997 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 the Company's Report on Form 10-K for the year ended December
31, 1996 as filed with the Securities and Exchange Commission. The year end
condensed balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted
accounting principles.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
NET LOSS PER COMMON SHARE
Net loss per common share is based on net loss less preferred stock
dividend requirements divided by the weighted average number of common
shares outstanding during each of the respective periods. Fully diluted net
loss per common share has not been presented as the amount would not differ
significantly from that presented.
The Financial Accounting Standards Board issued Statement No. 128
("SFAS 128"), "Earnings per Share", which requires the presentation of
basic and diluted earning per share ("EPS"). Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS is computed similarly to fully diluted EPS under the existing
rules. The Company will adopt SFAS 128 as of December 31, 1997 and upon
adoption, will restate all prior period EPS data presented. The Company has
not yet determined the impact of adopting SFAS 128.
NOTE 3 OTHER INCOME
During the first quarter of 1997, the Company recorded a $950,000
receivable in connection with the settlement of a lawsuit and incurred
approximately $150,000 in costs related to the litigation during the first
quarter. The Company recognized a pre-tax gain, net of related legal fees,
of $800,000 resulting from the settlement, which is included in other
income, (net), in the consolidated statements of income. The $950,000 was
received in April, 1997.
(7)
10
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVENUES
Revenues for the first quarter of 1997 were $40,374,000, down 12%
as compared to revenues of $45,736,000 for the first quarter of the prior
year. The revenue decline was primarily the result of an absence of event
revenue from the field service business, and continued industry-wide
pricing pressures.
There are many factors which have impacted, and continue to impact,
the Company's revenues. These factors include: competitive industry
pricing; continued efforts by generators of hazardous waste to reduce the
amount of hazardous waste they produce; significant consolidation among
treatment and disposal companies; industry-wide over capacity; and direct
shipment by generators of waste to the ultimate treatment or disposal
location.
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
March 31,
----------------------------
1997 1996
------ ------
Revenues 100.0% 100.0%
Cost of revenues:
Disposal costs paid to third parties 12.7 13.2
Other costs 65.3 63.1
------ ------
Total cost of revenues 78.0 76.3
Selling, general and administrative
expenses 20.3 20.1
Depreciation and amortization
of intangible assets 5.8 5.5
Loss from operations (4.1) (1.9)
OTHER DATA:
Earnings Before Interest, Taxes,
Depreciation and Amortization
(EBITDA) (in thousands) $1,487 $1,680
(8)
11
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COST OF REVENUES
Cost of revenues decreased $3,394,000 from the quarter ended March
31, 1996 to the quarter ended March 31, 1997, although as a percent of
revenue, costs increased to 78.0% as compared to 76.3% for the three months
ended March 31, 1996. 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 decreased to 12.7% of revenue in the first three
months of 1997 as compared to 13.2% of revenue in the first three months of
1996. The Company has been able to upgrade the quality and efficiency of its
waste treatment services through upgrades at its facilities. As a result of
these efforts, the Company has been able to increase the amount of waste
processed internally and reduce its dependency on outside disposal vendors.
Other costs increased to 65.3% of revenue for the three months ended
March 31, 1997, as compared to 63.1% for the same period of the prior year.
Although the Company continues to reduce its dependency on outside disposal
vendors to which the Company sends waste for ultimate disposal, the
increasingly competitive nature of pricing in the hazardous waste industry
and the industry-wide reduction in the volume of waste materials continue to
reduce the margins on waste materials handled at the Company's facilities.
The Company is continuing to implement cost savings plans to reduce
operating costs. In 1996, the Company implemented its CleanEXPRESS(TM)
system which the Company anticipates will result in increased efficiencies
relative to the transfer of waste materials through the Company's network of
waste management facilities to its expanded and upgraded Chicago facility.
The Company anticipates this will lower the costs associated with the
collection network of the transportation, treatment and disposal of
routinely created hazardous waste.
The Company believes that its ability to manage operating costs is an
important factor in its ability to remain price competitive. During the
first quarter of 1997, the Company continued its process of consolidating
common functions to reduce redundant costs and improve the Company's ability
to deliver its services. No assurance can be given that the Company's
efforts to manage future operating expenses will be successful.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses declined to $8,199,000
during the three months ended March 31, 1997 from $9,174,000 for the three
months ended March 31, 1996. The 11% decrease from 1996 to 1997 is the
result of continued cost cutting measures by the Company.
INTEREST EXPENSE (NET)
Interest expense increased to $2,259,000 during the first quarter of
1997 as compared to $2,139,000 for the three months ended March 31, 1996.
The increase in interest expense is due to a decrease of interest income
associated with a reduction in the average balance of restricted cash. In
addition, there was an increase in deferred financing costs in connection
with the placement of the economic development bond in September, 1996
which resulted in additional amortization of deferred financing fees.
(9)
12
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BENEFIT FROM INCOME TAXES
The effective income tax rate for the three months ended March 31,
1997 was 36.7% as compared to 45.0% for the comparable period of 1996. The
rate can fluctuate significantly depending on the amount of income before
taxes, as compared to the fixed amount of goodwill amortization and other
non-deductible items. Realization of the deferred tax assets, which
primarily includes approximately $6 million of Net Operating Losses Carry
Forwards, is dependent on generating sufficient taxable income to offset
the assets in the foreseeable future. Although realization is not assured,
management believes it is more likely than not that a majority of the
deferred tax assets will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
During the ordinary course of its business, the Company is audited by
federal and state tax authorities which may result in proposed assessments.
The Company has received a Notice of Intent to assess state income taxes
from one of the states in which it operates. The Company believes that it
has properly reported its state income and intends to contest the assessment
vigorously. The Company believes that no current audits or assessments will
result in charges which would be material to the results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, the Company and employees acting on behalf of the
Company make forward-looking statements concerning the expected revenues,
results of operations, capital expenditures, capital structure, plans and
objectives of management for future operations, and future economic
performance. This report contains forward-looking statements. There are many
factors which could cause actual results to differ materially from those
projected in a forward-looking statement, and there can be no assurance that
such expectations will be realized.
The Company's future operating results may be affected by a number of
factors, including the Company's ability to: integrate successfully the
CleanEXPRESS(TM) program; 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 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; changes in the manufacturing sector
towards waste minimization and delays in the remedial market; suspension of
governmental permits; and fines and penalties for noncompliance with the
myriad of 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.
(10)
13
'
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
During the three months ended March 31, 1997, the Company spent
$649,000 on additions to plant and equipment and construction in progress,
as compared to its capital expenditures of $756,000 during the same period
of the prior year. During the three months ended March 31, 1997, net
additions to long-term debt were $29,000, as compared to net additions to
long-term debt of $257,000 during the same period of the previous year.
During the first quarter of 1997, the Company recorded a $950,000 receivable
in connection with the settlement of a lawsuit and incurred approximately
$150,000 in costs related to the litigation. The $950,000 was received in
April, 1997
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 April 15, 1997 dividend in common
stock. Accordingly, the Company issued 70,888 shares of common stock to the
holders of the preferred stock for the period ended March 31, 1997. The
Company anticipates that the preferred stock dividends payable through 1997
will be paid in common stock.
The Company believes it has adequate liquidity for its ongoing
operations and planned capital needs. It is expected that capital
expenditures in 1997 will be approximately $3,000,000.
OTHER
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings per Share",
which will require the disclosure of Basic Earnings per Common Share and
Diluted Basic Earnings per Common Share for all periods presented. Early
application of SFAS 128 is not allowed. The Company has not yet determined
the impact of adopting SFAS 128.
(11)
14
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
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, 1996.
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
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
(12)
15
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: May 12, 1997 By: /s/ Alan S. McKim
---------------------------------
Alan S. McKim
President and
Chief Executive Officer
Dated: May 12, 1997 By: /s/ Alan S. McKim
---------------------------------
Donald N. Leef
Vice President, Treasurer and
Chief Financial Officer
(13)
1
Exhibit 11
CLEAN HARBORS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
FOR THE THIRD QUARTER ENDED MARCH 31, 1997 & MARCH 31, 1996
(in thousands)
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
------- -------
Net loss $(1,983) $(1,642)
Less preferred dividends accrued 112 112
------- -------
Adjusted net loss (2,095) (1,754)
======= =======
Loss per common and common equivalent share:
Weighted average number of
shares outstanding 9,817 9,560
Incremental shares for stock options
under treasury stock method -- --
------- -------
Weighted average number of common and
common equivalent shares outstanding 9,817 9,560
======= =======
Net loss per common and common equivalent share $ (.21) $ (.18)
======= =======
Loss per common and common equivalent
share - assuming full dilution:
Weighted average number of
shares outstanding 9,817 9,560
Incremental shares for stock options
under treasury stock method -- --
------- -------
Weighted average number of common
and common equivalent shares
outstanding - assuming full dilution 9,817 9,560
======= =======
Net loss per common and common equivalent
share - assuming full dilution $ (.21) $ (.18)
======= =======
5
1,000
3-MOS
DEC-31-1996
JAN-01-1997
MAR-31-1997
7,030
1,882
39,325
(1,109)
2,851
56,519
130,023
62,894
171,918
42,972
68,993
0
1
99
51,527
171,918
40,374
40,374
31,488
31,488
(800)
0
(2,259)
(3,135)
(1,152)
(1,983)
0
0
0
(1,983)
(.21)
0
