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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
March 31, 1998
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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.)
1501 Washington Street, Braintree, MA 02185-0327
(Address of Principal Executive Offices) (Zip Code)
(781) 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 10,277,354
- --------------------------- -----------------------------
(Class) (Outstanding at May 11, 1998)
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CLEAN HARBORS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS Pages
Consolidated Statements of Operations 1
Consolidated Statements of Comprehensive Loss 2
Consolidated Balance Sheets 3-4
Consolidated Statements of Cash Flows 5-6
Consolidated Statement of Stockholders' Equity 7
Notes to Consolidated Financial Statements 8-10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-16
PART II: OTHER INFORMATION
Items No. 1 through 6 17
Signatures 18
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands except for earnings per share amounts)
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
-------- --------
Revenues $ 40,376 $ 40,374
Cost of revenues 31,344 31,488
Selling, general and administrative expenses 7,897 8,199
Depreciation and amortization 2,284 2,363
-------- --------
Loss from operations (1,149) (1,676)
Other income, net -- 800
Interest expense, net 2,340 2,259
-------- --------
Loss before provision for income taxes (3,489) (3,135)
Provision for (benefit from) income taxes 90 (1,152)
-------- --------
Net loss $ (3,579) $ (1,983)
======== ========
Basic and fully diluted loss per share $ (.36) $ (.21)
======== ========
Weighted average common
shares outstanding 10,184 9,817
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
(1)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Unaudited
(in thousands)
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------- -------
Net loss $(3,579) $(1,983)
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period 21 (20)
Reclassification adjustment
for gains (losses) included in net loss (19) 2
------- -------
Comprehensive loss $(3,577) $(2,0O1)
======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
(2)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1998 1997
(Unaudited)
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 4,047 $ 3,935
Restricted investments 1,253 1,088
Accounts receivable, net of
allowance for doubtful accounts 38,747 37,836
Prepaid expenses 2,046 1,518
Supplies inventories 2,785 2,811
Income tax receivable 1,236 1,669
Deferred tax asset 1,581 1,581
-------- --------
Total current assets 51,695 50,438
-------- --------
Property, plant and equipment:
Land 8,182 8,182
Buildings and improvements 37,892 37,890
Vehicles and equipment 77,533 77,281
Furniture and fixtures 2,190 2,190
Construction in progress 3,256 2,756
-------- --------
129,053 128,299
Less - Accumulated depreciation
and amortization 68,268 66,392
-------- --------
Net property, plant and equipment 60,785 61,907
-------- --------
Other assets:
Goodwill, net 20,574 20,755
Permits, net 11,468 11,695
Deferred taxes non-current 5,627 5,627
Other 4,507 4,523
-------- --------
Total other assets 42,176 42,600
-------- --------
Total assets $154,656 $154,945
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
(3)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1998 1997
(Unaudited)
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations $ 4,034 $ 4,037
Accounts payable 14,209 13,760
Accrued disposal costs 8,799 7,100
Other accrued expenses 14,435 13,548
Income tax payable 48 10
Deferred tax liability 224 224
--------- ---------
Total current liabilities 41,749 38,679
--------- ---------
Long-term obligations, less current maturities 68,445 68,020
Deferred taxes, long-term 6,871 6,871
Other 1,113 1,351
--------- ---------
Total other liabilities 76,429 76,242
--------- ---------
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 (liquidation
preference of $5.6 million) 1 1
Common Stock, $.01 par value
Authorized - 20,000,000 shares;
Issued and outstanding - 10,195,016 and
10,101,490 shares, respectively 102 101
Additional paid-in capital 60,229 60,087
Accumulated other comprehensive loss (10) (12)
Accumulated deficit (23,844) (20,153)
--------- ---------
Total stockholders' equity 36,478 40,024
--------- ---------
Total liabilities and stockholders' equity $ 154,656 $ 154,945
========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
(4)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in thousands)
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,579) $(1,983)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,284 2,363
Deferred income taxes -- (1,142)
Allowance for doubtful accounts 176 165
Amortization of deferred financing costs 196 178
Gain on sale of fixed assets -- (82)
Changes in assets and liabilities:
Accounts receivable (1,087) 4,365
Refundable income taxes 433 (29)
Prepaid expenses (528) (78)
Supplies inventories 26 15
Deferred tax asset -- (10)
Other assets 14 17
Accounts payable 449 (3,397)
Accrued disposal costs 1,699 (99)
Other accrued expenses 887 (395)
Taxes payable 38 (162)
Other liabilities (238) --
------- -------
Net cash provided by (used) in operating
activities 770 (274)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (754) (649)
Proceeds from sale and maturities of
restricted investments 18 6,280
Cost of restricted investments acquired (179) --
Proceeds from sale of fixed assets -- 241
------- -------
Net cash provided by (used) in investing
activities $ (915) $ 5,872
------- -------
The accompanying notes are an integral part
of these consolidated financial statements.
(5)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Unaudited
(in thousands)
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under long-term
revolver $ 979 $ 927
Payments on long-term obligations (753) (898)
Additions to deferred financing costs -- (7)
Proceeds from employee stock purchase plan 31 44
------- -------
Net cash provided by financing activities 257 66
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 112 5,664
Cash and cash equivalents, beginning of year 3,935 1,366
------- -------
Cash and cash equivalents, end of period $ 4,047 $ 7,030
======= =======
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.
(6)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Unaudited
(in thousands)
Series B
Preferred Stock Common Stock
--------- --------- --------- --------- Additional Comprehensive
Number of $0.01 Par Number of $0.01 Par Paid-in Income
Shares Value Shares Value Capital (Loss)
------ ----- ------ ----- ------- ------
Balance at December 3l, 1997 112 $1 10,101 $101 $60,087 --
Comprehensive loss
Net loss -- -- -- -- -- $(3,579)
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment (see disclosure) -- -- -- -- -- 2
-------
Comprehensive income -- -- -- -- -- $(3,577)
=======
Preferred stock dividends:
Series B -- -- 70 1 111 --
Employee stock purchase plan -- -- 24 -- 31 --
--- -- ------ ---- -------
Balance at March 31, 1998 112 $1 10,195 $102 $60,229 --
=== == ====== ==== =======
Discosure of reclassification amount:
Unrealized holding gains arising in the period $21
Reclassification adjustment for losses
included in net loss (19)
---
Net unrealized gains on securities $2
===
Accumulated
Other
Comprehensive Total
Income Accumulated Stockholders'
(Loss) Deficit Equity
------ ------- ------
Balance at December 3l, 1997 $(12) $(20,153) $40,024
Comprehensive loss
Net loss -- (3,579) (3,579)
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment (see disclosure) 2 -- 2
Comprehensive income -- -- --
Preferred stock dividends:
Series B -- (112) --
Employee stock purchase plan -- -- 31
---- -------- -------
Balance at March 31, 1998 $(l0) $(23,844) $36,478
==== ======== =======
Discosure of reclassification amount:
Unrealized holding gains arising in the period
Reclassification adjustment for losses
included in net loss
Net unrealized gains on securities
The accompanying notes are an integral part
of these consolidated financial statements.
(7)
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, 1998 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, 1997 as filed with the Securities and
Exchange Commission.
NOTE 2 Significant Accounting Policies
Net Loss Per Common Share
In 1997 the Company implemented Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128, basic EPS
is calculated by dividing income available to common shareholders by the
weighted-average number of common shares outstanding during the period. Diluted
EPS gives effect to all potential dilutive common shares that were outstanding
during the period. The earnings per share for the Company under SFAS 128 were
the same as under the prior accounting standard for the periods presented in the
financial statements.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal periods beginning
after December 15, 1997, and the Company adopted its provisions for the quarter
ended March 31, 1998. Reclassification of earlier periods is required for
comparative purposes. Management determined that the statement had no material
impact on its financial position or results of operations.
NOTE 3 Financing Arrangements
As amended, the Company has a $35,000,000 Loan Agreement with a financial
institution. The Loan Agreement provided for a $24,500,00 revolving credit
portion (the "Revolver") and a $10,500,000 term promissory note. The Revolver
allows the Company to borrow up to $35,000,000 in cash and letters of credit,
based on a formula of eligible accounts receivable. At March 31, 1998, the
Revolver balance was $6,538,000, letters of credit outstanding were $6,309,000
and funds available to borrow were approximately $9,000,000.
(8)
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 Income Taxes
SFAS 109, "Accounting for Income Taxes," requires that a valuation
allowance be established when, based on an evaluation of objective verifiable
evidence, there is a likelihood that some portion or all of the deferred tax
assets will not be realized. The Company continually reviews the adequacy of the
valuation allowance for deferred tax assets, and, in 1997, based upon this
review, the valuation allowance was increased to reduce the carrying value of
deferred tax assets to the amount that is likely to be realized. Accordingly, no
tax benefit has been recorded in the quarter ended March 31, 1998, while a tax
benefit for the loss for the quarter ended March 31, 1997 was recorded. The
actual realization of the net operating loss carryforwards and other tax assets
depend on having future taxable income of the appropriate character prior to
their expiration.
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 case is currently undergoing administrative
appeal. If the Company loses the administrative appeal, the Company may be
required to make a payment of approximately $3,000,000 to the state. The Company
believes that it has properly reported its state income and intends to contest
the assessment vigorously. While the Company believes that the final outcome of
the dispute will not have a material adverse effect on the Company's financial
condition or results of operations, no assurance can be given as to the final
outcome of the dispute, the amount of any final adjustments or the potential
impact of such adjustments on the Company's financial condition or results of
operations.
NOTE 5 Loss Per Share
The following is a reconciliation of basic and diluted loss per share
computations (in thousands except for per share amounts):
Quarter Ended March 31, 1998
----------------------------
Income Shares Per-Share
(Numerator) (Denominator) Loss
----------- ------------- ----
Net loss $(3,579)
Less preferred dividends 112
------- ------ -----
Basic and diluted EPS
(loss available to shareholders) $(3,691) 10,184 $(.36)
======= ====== =====
(9)
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 Loss Per Share (continued)
Quarter Ended March 31, 1997
----------------------------
Income Shares Per-Share
(Numerator) (Denominator) Loss
----------- ------------- ----
Net loss $ (1,983)
Less preferred dividends 112
-------- ------ -----
Basic and diluted EPS
(loss available to shareholders) $ (2,095) 9,817 $(.21)
======== ====== =====
The company has issued options, warrants and convertible preferred stock
which are potentially dilutive to earnings. These have not been included in the
above calculations, since their inclusion would have been antidilutive for the
periods ended.
NOTE 6 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 statement of income. The $950,000 was received April, 1997.
(10)
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
March 31,
---------
1998 1997
------ ------
Revenues 100.0% 100.0%
Cost of revenues:
Disposal costs paid to third parties 12.8 12.7
Other costs 64.8 65.3
------ ------
Total cost of revenues 77.6 78.0
Selling, general and administrative
expenses 19.5 20.3
Depreciation and amortization
of intangible assets 5.7 5.8
------ ------
Loss from operations (2.8) (4.1)
====== ======
Other Data:
- -------
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) (in thousands) $1,135 $1,487
REVENUES
Revenues for the first quarter of 1998 were $40,376,000, flat compared to
revenues of $40,374,000 for the first quarter of the prior year. Revenues
increased by 7.7% due to higher volumes of waste processed in the quarter ended
March 31, 1998 as compared to the same quarter of the prior year. This increase
in revenues due to volume was offset by a 7.8% decrease in revenues due to
pricing.
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.
(11)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COST OF REVENUES
Cost of revenues were $31,344,000 for the quarter ended March 31, 1998
compared to $31,488,000 for the quarter ended March 31, 1997, a decrease of
$144,000. One of the largest components of cost of revenues is the cost of
sending waste to other companies for disposal. Outside disposal costs increased
by 1.0% for the quarter ended March 31, 1998, when compared to the same quarter
of the prior year; however, the volume of waste processed increased 26.0%. Thus,
the increase in outside disposal costs was significantly less than the increase
in the volume of waste processed due to various cost reduction efforts and
internalization of waste disposal. As a percentage of revenues, disposal costs
paid to third parties increased slightly from 12.8% for the quarter ended March
31, 1997 to 12.9% for the quarter ended March 31, 1998. This slight increase in
outside disposal costs as a precentage of revenues was caused by pricing
declines to customers being greater than cost reductions realized.
Other costs decreased to 64.8% of revenue for the quarter ended March 31,
1998, as compared to 65.3% for the same period of the prior year, even while
volumes increased, due to continued cost reductions.
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 1998, 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 $7,897,000 for
the three months ended March 31, 1998 from $8,199,000 for the three months ended
March 31, 1997, a decrease of $302,000 or 3.7%. The decrease was due primarily
to reductions in expenses other than compensation of $600,000, offset by
expenses associated with closing leased facilities and an increase in marketing
expenses. Compensation expense was flat compared to the same quarter of the
prior year. Savings realized from reductions in administrative staff were offset
by increased headcount in the sales staff and merit increases. The Company does
not anticipate any significant increases in selling, general and administrative
expenses for the remaining quarters of 1998 as compared to the first quarter of
1998.
Interest expense was $2,340,000 for the first quarter of 1998 as compared
to $2,259,000 for the first quarter of 1997. The increase in interest expense is
primarily due to a decrease in interest income associated with a reduction in
the average balance of restricted cash.
(12)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INCOME TAXES
For the three months ended March 31, 1998, income tax expense of $90,000
was recorded on a pre-tax loss of $3,489,000 for an effective tax rate of
(2.6%), as compared to a tax benefit of $1,152,000 that was recorded on a
pre-tax loss of $3,135,000 for an effective tax rate of 36.7%. SFAS 109,
"Accounting for Income Taxes," requires that a valuation allowance be
established when, based on an evaluation of objective verifiable evidence, there
is a likelihood that some portion or all of the deferred tax assets will not be
realized. The Company continually reviews the adequacy of its valuation
allowance for deferred tax assets, and, in 1997, based on this review, the
valuation allowance was increased to cover almost all of the net deferred tax
assets. Accordingly, the Company recorded no benefit on its books for the future
potential value of net operating loss carryforwards for the quarter ended March
31, 1998, while these tax benefits were recorded for the same quarter of the
prior year.
The actual realization of the net operating loss carryforwards and other
tax assets depend on having future taxable income of the appropriate character
prior to their expiration under the tax laws. If the Company reports earnings
from operations in the future, and depending on the level of these earnings,
some portion or all of the valuation allowance would be reversed, which would
increase net income reported in future periods.
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 case is currently undergoing administrative
appeal. If the Company loses the administrative appeal, the Company may be
required to make a payment of approximately $3,000,000 to the state. The Company
believes that it has properly reported its state income and intends to contest
the assessment vigorously. While the Company believes that the final outcome of
the dispute will not have a material adverse effect on the Company's financial
condition or results of operations, no assurance can be given as to the final
outcome of the dispute, the amount of any final adjustments or the potential
impact of such adjustments on the Company's financial condition or 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.
(13)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS (continued)
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; maintain or increase market
share in an industry which appears to be downsizing and consolidating; realize
benefits from cost reduction programs; generate incremental volumes of waste to
be handled through its facilities from existing sales offices and service
centers; obtain sufficient volumes of waste at prices which produce revenue
sufficient to offset the operating costs of the facilities; minimize downtime
and disruptions of operations; and compete successfully against other
incinerators which have an established share of the incineration market.
The Company's operations may be affected by the commencement and
completion of major site remediation projects; cleanup of major spills or other
events; 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
regulations governing the management of hazardous waste; secular changes in the
waste processing 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 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.
Typically during the first quarter of each calendar year there is less
demand for environmental remediation due to the cold weather, particularly in
the Northeast and Midwest regions, and increased possibility of unplanned
weather related plant shutdowns.
FINANCIAL CONDITION AND LIQUIDITY
For the quarter ended March 31, 1998, the company generated $770,000 from
operations and the company obtained $257,000 from financing activities, which
consisted primarily of additional net borrowings. The Company used these funds
primarily to purchase property, plant and equipment of $754,000 and to make
payments into a debt service reserve fund of $179,000.
Federal and state regulations require liability insurance coverage for all
facilities that treat, store, or dispose of hazardous waste, and financial
assurance that funds will be available for closure of these facilities, should a
facility cease operation, and post closure coverage where required by law. In
1989, the Company established a wholly-owned captive insurance company pursuant
to the Federal Risk Retention Act of 1986. This company qualifies as a licensed
insurance company and is
(14)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (continued)
authorized to write closure, professional liability, and pollution liability
insurance for the Company and its operating subsidiaries. Investments are held
by the captive insurance company as assets against its insured liabilities and
restricted for future payment of insurance claims. In the first quarter of 1997,
the Company replaced a portion of the closure insurance issued by its captive
insurance company with bonds issued by a bonding company. This allowed the
captive insurance company to remit funds previously classified as restricted
cash to the Company. In addition, at December 31, 1996, the Company had on
deposit collateral of $5,650,000 with a commercial insurance company to provide
for closure and post-closure of its incinerator and landfill. During 1996, the
Company renegotiated its agreement with the insurance company to replace
collateral with a letter of credit. The cash from this transaction was released
to the Company in 1997. As a result of these two transactions, the Company
obtained $6,280,000 in the first quarter of 1997. The Company used these funds,
as well as $927,000 of additional borrowings under its revolving line of credit,
to purchase equipment and improve properties in the amount of $649,000, to pay
maturities on long-term debt of $898,000 and to increase cash by $5,664,000.
The Company expects 1998 capital additions to be in the range of
$3,000,000. The Company believes that it has all of the plants and facilities
required by the business for the foreseeable future. Thus, the Company
anticipates that capital expenditures in 1998 will be limited to maintaining
existing capital assets.
The Company's $35,000,000 Loan Agreement with a financial institution
provides for certain covenants the most restrictive of which require the
maintenance of a minimum level of working capital of $6,000,000 and adjusted net
worth of not less than $33,000,000. At March 31, 1998, working capital was
$9,946,000 and adjusted net worth was $38,478,000. In addition, the Indenture
under which the Company has outstanding $10,000,000 of industrial revenue bonds
the ("Bonds") contain certain covenants the most restrictive of which require
that the Company maintain a rolling four quarter ratio of earnings before
interest, income taxes, depreciation and amortization (EBITDA) to total debt
service of 1.25 to 1. At December 31, 1997 the Company was in violation of this
covenant, and at March 31, 1998, the debt service coverage ratio was .99 to 1.
Under the terms of the Indenture, the deficiency in the debt coverage ratio will
not result in a default, but the Company is required to pay in six equal monthly
installments into a debt service reserve fund held by the Trustee for the Bonds
a total amount equal to one year's interest on the Bonds. Through March 31,
1998, the Company had paid $179,000 into this fund, as required.
At March 31, 1998, funds available to borrow under the Revolver were
$9,000,000. Management believes that sufficient resources will be available to
meet the Company's cash requirements through at least December 31, 1998. The
Company has $50,000,000 of Senior Notes which mature in 2001. Some portion or
all of the borrowings under the Senior Notes will need to be refinanced by the
maturity date. The ability of the Company to refinance the Senior Notes at
reasonable interest rates is dependent upon improving results from operations
and is contingent on a favorable interest rate environment when the Company
attempts to refinance the borrowings.
(15)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (continued)
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 January 15, 1998 dividend in common stock.
Accordingly, the Company issued 70,002 shares of common stock to the holders of
the preferred stock in the period ended March 31, 1998. The Company anticipates
that the preferred stock dividends payable through 1998 will be paid in common
stock.
The Company is in the process of reviewing computer systems and hardware
control devices for compliance with the year 2000. The work required to make the
systems and control devices year 2000 compliant is ongoing. The Company is using
its best efforts to make all systems and control devices year 2000 compliant
prior to the end of 1998; however, no assurance can be given that this effort
will be successful. The Company does not believe that the costs to be incurred
to make the systems and control devices year 2000 compliant will be material, to
results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Internal Use Software," which provides
guidance on the accounting for the costs of software developed or obtained for
internal use. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. Management does not expect the statement to have a material impact on
its financial position or results of operations.
(16)
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In March, the Company was notified by the Massachusetts Department of
Environmental Protection that its Braintree subsidiary has been identified as a
potentially responsible party at two sites in Massachusetts. Since the disposal
activity is alleged to have occurred in 1979, before its acquisition of the
Braintree subsidiary, the Company has notified Chemical Waste Management and has
requested indemnification for all costs at these sites. The Company believes its
ultimate exposure at these sites will not have a material impact on its
financial position or results of operations.
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 27 - Financial Data Schedule.
B) Reports on Form 8-K - None
(17)
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 14, 1998 By: /s/ Alan S. McKim
---------------------------------
Alan S. McKim
President and
Chief Executive Officer
Dated: May 14, 1998 By: /s/ Roger A. Koenecke
---------------------------------
Roger A. Koenecke
Senior Vice President and
Chief Financial Officer
(18)
5
1,000
3-MOS
DEC-31-1997
MAR-31-1998
4,047
1,253
39,678
(931)
2,785
51,695
129,053
62,268
154,656
41,749
68,445
0
1
102
36,375
154,656
40,376
40,376
31,344
31,344
0
0
2,340
(3,489)
90
(3,579)
0
0
0
(3,579)
(.36)
(.36)
