<PAGE>
===============================================================================
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, 2000
-----------------------
Commission File Number 0-16379
CLEAN HARBORS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Massachusetts 04-2997780
(State of Incorporation) (IRS Employer Identification No.)
1501 Washington Street, Braintree, MA 02184-7535
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(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.
<TABLE>
<S> <C>
Common Stock, $.01 par value 11,055,054
- --------------------------- ----------------------------
(Class) (Outstanding at May 1, 2000)
===============================================================================
</TABLE>
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1: FINANCIAL STATEMENTS PAGES
-------
<S> <C>
Consolidated Statements of Operations ..................................... 1
Consolidated Balance Sheets ............................................... 2-3
Consolidated Statements of Cash Flows ..................................... 4-5
Consolidated Statement of Stockholders' Equity ............................ 6
Notes to Consolidated Financial Statements ................................ 7-10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ......................................... 11-20
PART II: OTHER INFORMATION
Items No. 1 through 6 ..................................................... 21
Signatures ................................................................ 22
</TABLE>
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands except for earnings per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Revenues ......................................... $ 52,737 $ 44,648
Cost of revenues ................................. 39,109 33,869
Selling, general and administrative expenses ..... 10,185 8,936
Depreciation and amortization .................... 2,505 2,366
-------- --------
Income (loss) from operations .................... 938 (523)
Interest expense, net ............................ 2,288 2,229
-------- --------
Loss before provision for income taxes ........... (1,350) (2,752)
Provision for income taxes ....................... 90 90
-------- --------
Net loss ................................. $ (1,440) $ (2,842)
======== ========
Basic and fully diluted loss per share ........... $ (0.14) $ (0.28)
======== ========
Weighted average common shares outstanding ....... 10,935 10,514
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
(1)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(Unaudited)
---------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 4,589 $ 2,783
Restricted investments .................................... 1,346 1,116
Accounts receivable, net of allowance for doubtful
accounts of $1,182 and $1,157, respectively ............. 46,611 43,780
Prepaid expenses .......................................... 1,306 1,094
Supplies inventories ...................................... 2,861 2,808
Income tax receivable ..................................... 122 122
-------- --------
Total current assets ............................. 56,835 51,703
-------- --------
Property, plant and equipment:
Land ...................................................... 8,478 8,478
Buildings and improvements ................................ 41,491 40,612
Vehicles and equipment .................................... 86,362 84,528
Furniture and fixtures .................................... 2,221 2,219
Construction in progress .................................. 867 1,224
-------- --------
139,419 137,061
Less - Accumulated depreciation
and amortization .......................................... 82,869 80,849
-------- --------
Net property, plant and equipment ......................... 56,550 56,212
-------- --------
Other assets:
Goodwill, net ............................................. 20,374 20,566
Permits, net .............................................. 12,369 12,633
Other ..................................................... 4,137 4,133
-------- --------
Total other assets ............................... 36,880 37,332
-------- --------
Total assets ..................................................... $150,265 $145,247
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
(2)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(Unaudited)
---------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations .................................. $ 2,217 $ 1,300
Accounts payable .................................. 20,419 17,830
Accrued disposal costs ............................ 7,709 6,591
Other accrued expenses ............................ 12,230 11,360
Income tax payable ................................ 91 57
--------- ---------
Total current liabilities ............. 42,666 37,138
--------- ---------
Long-term obligations, less current maturities ....... 73,446 72,683
Other ................................................ 1,279 1,255
--------- ---------
Total other liabilities ............... 74,725 73,938
--------- ---------
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-10,982,444 and
10,798,007 shares, respectively .......... 110 108
Additional paid-in capital ........................ 61,509 61,245
Accumulated other comprehensive loss .............. (47) (36)
Accumulated deficit ............................... (28,699) (27,147)
--------- ---------
Total stockholders' equity ............ 32,874 34,171
--------- ---------
Total liabilities and stockholders' equity ........... $ 150,265 $ 145,247
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
(3)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... $(1,440) $(2,842)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 2,505 2,366
Allowance for doubtful accounts ................... 171 171
Amortization of deferred financing costs .......... 86 85
Loss on sale of fixed assets ...................... 8 --
Changes in assets and liabilities:
Accounts receivable ............................... (3,002) 4,196
Prepaid expenses .................................. (212) (497)
Supplies inventories .............................. (53) 68
Other assets ...................................... (4) 359
Accounts payable .................................. 2,351 (2,497)
Accrued disposal costs ............................ 1,118 (704)
Other accrued expenses ............................ 870 2,094
Income tax payable ................................ 34 (40)
Other liabilities ................................. 24 36
------- -------
Net cash provided by operating activities ................. 2,456 2,795
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ................ (2,190) (960)
Proceeds from sale and maturities of
restricted investments ............................ -- 1,177
Proceeds from the sale of fixed assets .................... 33 --
Cost of restricted investments acquired ................... (241) (12)
Additions to permits ...................................... -- (17)
------- -------
Net cash provided by (used in) investing activities ....... $(2,398) $ 188
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
(4)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings under term note ................. $ 3,000 $ --
Net repayments under long-term revolver ............... (1,106) (1,614)
Payments on long-term obligations ..................... (300) (750)
Proceeds from exercise of stock options ............... 120 --
Proceeds from employee stock purchase plan ............ 34 38
------- -------
Net cash provided by (used in) financing activities ... 1,748 (2,326)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS ...................... 1,806 657
Cash and cash equivalents, beginning of year .......... 2,783 1,895
------- -------
Cash and cash equivalents, end of period .............. $ 4,589 $ 2,552
======= =======
Supplemental Information:
Non cash investing and financing activities:
Stock dividend on preferred stock ............ $ 112 $ 112
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
(5)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
Series B
Preferred Stock Common Stock
---------------------- --------------------- Additional
Number of $0.01 Par Number of $0.01 Par Paid-in
Shares Value Shares Value Capital
----------------------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ................ 112 $1 10,798 $108 $ 61,245
Net loss ................................. -- -- -- -- --
Other comprehensive income, net of tax:
Unrealized holding losses arising during
the peroid ........................ -- -- -- -- --
Other comprehensive income .................. -- -- -- -- --
Comprehensive loss .......................... -- -- -- -- --
Preferred stock dividends:
Series B ................................... -- -- 93 1 111
Proceeds from exercise of stock options ..... -- -- 59 1 119
Employee stock purchase plan ................ -- -- 32 -- 34
---- ---- ------ ----- -------
Balance at March 31, 2000 ................... 112 $1 10,982 $110 $61,509
==== ==== ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Comprehensive Total
Income Income Accumulated Stockholders'
(Loss) (Loss) Deficit Equity
------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 ................ -- $(36) $(27,147) $34,171
Net loss ................................. $(1,440) -- (1,440) (1,440)
Other comprehensive income, net of tax:
Unrealized holding losses arising during
the peroid ........................ (11) -- -- --
-------
Other comprehensive income .................. (11) (11) -- (11)
-------
Comprehensive loss .......................... $(1,451) -- -- --
Preferred stock dividends: =======
Series B ................................... -- -- (112) --
Proceeds from exercise of stock options ..... -- -- -- 120
Employee stock purchase plan ................ -- -- -- 34
------- ----- -------- -------
Balance at March 31, 2000 ................... -- $(47) $(28,699) $32,874
======= ===== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(6)
<PAGE>
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 of a normal recurring nature necessary for the fair statement of
results of interim periods. The operating results for the three months ended
March 31, 2000 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, 1999 as filed with the Securities and Exchange
Commission.
NOTE 2 RECLASSIFICATIONS
Certain reclassifications have been made in the prior period's
consolidated financial statements to conform to the 2000 presentation.
NOTE 3 ACQUISITION
On May 25, 1999, the Company acquired the assets of the Texas
Transportation and Brokerage Divisions of American Ecology Environmental
Services Corporation for a cash price of $1,900,000. The divisions operate out
of locations in Dallas, Houston and Corpus Christi, Texas. The divisions provide
waste management services primarily to small quantity generators throughout
Texas and transportation services for both solid and liquid wastes. This
acquisition has been accounted for under the purchase method of accounting. The
purchase price has been allocated based on estimated fair values of assets
acquired at the date of acquisition. The acquisition resulted in $272,000 of
acquired goodwill, which is being amortized on the straight-line basis over 20
years. The results of the acquired businesses have been included in the
consolidated financial statements since the acquisition date. The acquisition
did not materially effect revenues or results from operations for the three
months ended March 31, 2000.
Assuming this acquisition had occurred January 1, 1999, consolidated,
pro forma revenues, net income (loss) and earnings (loss) per share would not
have been materially different than the amounts reported for the three months
ended March 31, 1999. Such unaudited pro forma amounts are not indicative of
what the actual consolidated results of operation might have been if the
acquisition had been effective at the beginning of 1999.
NOTE 4 FINANCING ARRANGEMENTS
As described in the Form 10-K for the year ended December 31, 1999,
the Company had a $30,500,000 Loan Agreement with a financial institution. The
Loan Agreement provided for a $24,500,000 revolving credit portion (the
"Revolver") and a $6,000,000 term promissory note (the "Term Note").
(7)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 FINANCING ARRANGEMENTS (CONTINUED)
The Revolver allowed the Company to borrow up to $30,500,000 in cash and letters
of credit, based on a formula of eligible accounts receivable. At March 31,
2000, the Revolver balance was $8,491,000, letters of credit outstanding were
$6,525,000 and funds available to borrow were approximately $9,484,000, and the
balance of the Term Note was $5,000,000.
In the first quarter of 2000, the Loan Agreement was amended and an
additional term promissory note (the "2000 Term Note") was entered into with the
financial institution. The original principal amount of 2000 Term Note is
$3,000,000, it bears interest at the "prime" rate plus 1.5% or the Eurodollar
rate plus 3.0%, and it is payable in 36 monthly installments commencing on May
1, 2000. The funds have been used to purchase vehicles and rolling stock that
the Company previously leased under operating leases.
In the first quarter of 2000, the due date of the Revolver was extended
from May 8, 2001 to May 8, 2003. The Company has $50,000,000 of 12 1/2% Senior
Notes due May 15, 2001 (the "Senior Notes"). In May 2000, the Senior Notes will
be reclassified from a long-term liability to a current liability, since they
will then be payable within one year. The Loan Agreement, as amended, redefines
the working capital covenant to specifically exclude the Senior Notes as a
component of working capital and requires that the Company maintain $6,000,000
of working capital, excluding the Senior Notes. The net worth covenant was
changed to require $30,000,000 of adjusted net worth. At March 31, 2000 the
Company had working capital and adjusted net worth of $14,169,000 and
$32,874,000, respectively. 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. In the first quarter of 2000, the Company violated this covenant, which
has been waived by the financial institution through May 15, 2000.
In addition, the Indenture under which the Company has outstanding
$9,900,000 of industrial revenue bonds (the "Bonds") contains certain
covenants the most restrictive of which requires 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 debt service coverage ratio was 1.04 to 1. Under the
terms of the Bonds, the deficiency in the debt coverage ratio did not and
will not result in a default, but the Company was required to pay into a debt
service reserve fund held by the Trustee for the Bonds a total amount equal
to the annual debt service for one year on the Bonds. Through March 31, 1999,
the Company had paid $1,075,000 into this fund, as required. Under the terms
of the Bonds, the Company can request that the balance of the debt service
reserve fund be returned to the Company if the debt service coverage ratio of
1.50 to 1 is met for two consecutive quarters. For the quarters ended March
31, 1999 and December, 31, 1998, the debt service coverage ratios were 1.68
and 1.58, respectively. In May 1999, the Trustee for the Bonds returned the
balance of the debt service reserve fund to the Company. At March 31, 2000
the debt service coverage ratio was 1.84.
(8)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 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 1998, based upon this
review, the valuation allowance was increased to cover the value of all net
deferred tax assets. Accordingly, no tax benefit has been recorded relating to
the net losses for the quarters ended March 31, 2000 and 1999. 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. 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. In
1996, the Company 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 cannot currently predict when the decision for the
administrative appeal will be made. 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 6 LOSS PER SHARE
The following is a reconciliation of basic and diluted loss per share
computations (in thousands except for per share amounts):
<TABLE>
<CAPTION>
Quarter Ended March 31, 2000
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Loss
--------------- ------------- ----------
<S> <C>
Net loss .......................... $ (1,440)
Less preferred dividends .......... 112
-------------- ------ -------
Basic and diluted EPS
(loss available to shareholders)... $ (1,552) 10,935 $(0.14)
============== ====== =======
</TABLE>
(9)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 LOSS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Quarter Ended March 31, 1999
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Loss
--------------- ----------------- -----------
<S> <C>
Net loss ..................................... $(2,842)
Less preferred dividends ..................... 112
------- ------- ------
Basic and diluted EPS
(loss available to shareholders) ............. $(2,954) 10,514 $(0.28)
======= ======= ======
</TABLE>
The Company has issued options, warrants and convertible preferred
stock which are potentially dilutive to earnings. These have not been included
in the calculations, since their inclusion would have been antidilutive for the
above periods.
(10)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENT
In addition to historical information, this Quarterly Report contains
forward-looking statements, which are generally identifiable by use of the words
"believes," "expects," "intends," "anticipates," "plans to," "estimates,"
"projects," or similar expressions. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Factors That May Affect Future
Results." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's opinions only as of the
date hereof. The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
operating data associated with the Company's results of operations.
<TABLE>
<CAPTION>
Percentage of Total Revenues
----------------------------------
Three Months Ended
March 31,
----------------------------------
2000 1999
-------- -------
<S> <C> <C>
Revenues .............................................. 100.0% 100.0%
Cost of revenues:
Disposal costs paid to third parties ......... 12.4 12.7
Other costs .................................. 61.8 63.2
----- -----
Total cost of revenues ....................... 74.2 75.9
Selling, general and administrative
expenses ..................................... 19.3 20.0
Depreciation and amortization
of intangible assets ......................... 4.7 5.3
----- -----
Income (loss) from operations ......................... 1.8 (1.2)%
===== =====
</TABLE>
(11)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
-------- -------
<S> <C> <C>
Other Data:
- ----------
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) (in thousands) ........... $3,443 $1,843
</TABLE>
REVENUES
Revenues for the first quarter of 2000 were $52,737,000, up
$8,089,000 or 18.1% compared to revenues of $44,648,000 for the first quarter
of the prior year. The Company responds to accidental releases of hazardous
material through its emergency response services. In the first quarter of
2000, the Company recorded revenue of approximately $1,200,000 relating to
services performed in cleaning up an accidental release of oil from a
pipeline. There were no major events in the same quarter of 1999. The largest
increase in base business was the volume of waste processed through the
Company's facilities which increased 16.1%. This increase was partially
offset by a 3.1% decrease due to pricing. Revenue from site services,
excluding the emergency response event, increased by approximately $1,600,000
or 10.0%. There were increases in revenues from other services including
CleanPack -Registered Trademark-, Harbor Industrial Services, waste oil
services and Harbor Management Consultants. The combined revenue increases
for these services totaled approximately $1,600,000.
On March 6, 2000 a major competitor of the Company, Safety-Kleen Corp.,
announced that it had initiated an internal investigation of its prior reported
financial results and certain of its accounting policies and practices, and it
stated that it had placed three executives on administrative leave. The Company
does not believe that first quarter revenues were materially impacted by
Safety-Kleen's March 6, 2000 announcement.
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.
(12)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COST OF REVENUES
Cost of revenues were $39,109,000 for the quarter ended March 31, 2000
compared to $33,869,000 for the quarter ended March 31, 1999, an increase of
$5,240,000. As a percentage of revenues, cost of revenues decreased from 75.9%
for the quarter ended March 31, 1999 to 74.2% for the quarter ended March 31,
2000. One of the largest components of cost of revenues is the cost of sending
waste to other companies for disposal. Disposal costs paid to third parties as a
percentage of revenue declined slightly from 12.7% for the quarter ended March
31, 1999 to 12.4% for the quarter ended March 31, 2000. This decrease was due to
continuing efforts to internalize the disposal of waste, to develop alternative
lower cost disposal technologies and to identify lower cost suppliers. Other
costs of revenues as a percentage of revenues declined from 63.2% for the
quarter ended March 31, 1999 to 61.8% for the quarter ended March 31, 2000. This
decrease was primarily due to increased margins on waste processed through the
Company's facilities due to the increase in the volume of waste processed and
the fixed cost nature of the facilities.
The Company believes that its ability to manage operating costs is an
important factor in its ability to remain price competitive. The Company
continues to upgrade the quality and efficiency of its waste treatment services
through the development of new technology and continued modifications and
upgrades at its facilities. In addition, during the first quarter 1999, the
Company commenced a strategic sourcing initiative in order to reduce operating
costs by identifying suppliers that are able to supply goods and services at
lower costs, by obtaining volume discounts where the Company is currently
purchasing goods and services from various suppliers and consolidating these
purchases with a small number of suppliers, and by reducing the internal costs
of purchasing goods and services by reducing the number of suppliers that the
Company uses through reducing the number of purchase orders that must be
prepared and invoices that must be processed. No assurance can be given that the
Company's efforts to manage future operating expenses will be successful.
Efforts to reduce costs are ongoing.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to
$10,185,000 for the three months ended March 31, 2000 from $8,936,000 for the
three months ended March 31, 1999, an increase of $1,249,000 or 14.0%. In the
third quarter of 1998 the Company formed Harbor Management Consultants; in
the second quarter of 1999 the Company launched Harbor Industrial Services;
and in the fourth quarter of 1999 the Company announced its E-Commerce
initiative. These three recent initiatives caused the largest portion of the
increase in selling, general and administrative expenses. Salaries and
benefits increased due to increases in headcount due to higher revenues,
increases in headcount in sales and marketing due to strategic business
initiatives and increases in compensation to remain competitive in the
employment markets in which the Company operates. Professional fees increased
due to the cost of ongoing legal matters. Expenses relating to information
technologies increased due to initiatives to improve the quality of
management information.
(13)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (CONTINUED)
Although selling, general and administrative expenses increased in
absolute dollars for the quarter ended March 31, 2000 as compared to the same
quarter of the prior year, they declined as a percentage of revenues from 20.0%
to 19.3% due to revenues increasing by a larger percentage amount than selling,
general and administrative expenses.
INTEREST EXPENSE, NET
Interest expense net of interest income was $2,288,000 for the first
quarter of 2000 as compared to $2,229,000 for the first quarter of 1999. The
increase in interest expense is primarily due to higher variable interest rates
on the revolving credit facility and term note, and higher average balances of
debt outstanding.
INCOME TAXES
For the three months ended March 31, 2000, income tax expense of
$90,000 was recorded on a pre-tax loss of $(1,350,000) for an effective tax rate
of (6.7)%, as compared to tax expense of $90,000 that was recorded on a pre-tax
loss of $(2,752,000) for the same quarter of the previous year for an effective
tax rate of (3.3)%. 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 1998, based
on this review, the valuation allowance was increased to cover the value of all
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
quarters ended March 31, 1999 and 2000.
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.
The $90,000 in income tax expense recorded for the each of the quarters
ended March 31, 1999 and 2000 is due to the tangible property taxes and net
worth taxes that are levied as a component of state income taxes.
(14)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INCOME TAXES (CONTINUED)
During the ordinary course of its business, the Company is audited by
federal and state tax authorities which may result in proposed assessments. In
1996, the Company 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 cannot currently predict when the decision for the
administrative appeal will be made. 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.
The Company's future operating results may be affected by a number of
factors, including the Company's ability to: 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 develop the
industrial services, and consulting and information services businesses.
The future operating results of the Company's 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.
(15)
<PAGE>
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 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, 2000, the Company generated $2,456,000
of cash from operations. Cash from operations reflected increases in accounts
payable of $2,351,000, accrued disposal costs of $1,118,000 and other accrued
expenses of $870,000. These increases in accounts payable and accrued expenses
were due largely to the greater amount of business performed in March 2000 as
compared to December of 1999. In addition, there was a greater amount of accrued
interest at March 31, 2000 as compared to December 31, 1999 due to the timing of
the payment of interest payments. Additional sources of cash were non-cash
expenses of $2,505,000 for depreciation and amortization, $171,000 for the
allowance for doubtful accounts and $86,000 for the amortization of deferred
financing costs. Partially offsetting these sources of cash was a use of cash of
$3,002,000 due to higher levels of accounts receivable at March 31, 2000 as
compared to December 31, 1999 which was in turn due to the higher levels of
business in March 2000 as compared to December 1999.
In addition, the Company obtained $1,748,000 of cash from financing
activities which consisted of additional borrowings under the term note of
$3,000,000 and which was partially offset by repayments under the revolving line
of credit of $1,106,000 and repayments under the term note of $300,000.
Additional sources of cash from financing activities consisted of proceeds from
the exercise of stock options of $120,000 and proceeds from issuances of stock
under the employee stock purchase plan of $34,000.
(16)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
The $2,456,000 of cash generated from operations plus the $1,748,000
provided by financing activities together with $33,000 in proceeds from the sale
of fixed assets was used to purchase property, plant and equipment of
$2,190,000, to purchase $241,000 of restricted investments relating to the
Company's captive insurance company and to increase the amount of cash on hand
by $1,806,000.
For the quarter ended March 31, 1999, the Company generated $2,795,000
of cash from operations. The primary sources of cash from operations were a
$4,196,000 reduction of the accounts receivable balance at March 31, 1999 as
compared to the balance at December 31, 1998 due to lower levels of sales in the
first quarter of 1999 as compared to the fourth quarter of 1998, and non-cash
expenses of $2,366,000 for depreciation and amortization, $171,000 for the
allowance for doubtful accounts and $85,000 for the amortization of deferred
financing costs. Partially offsetting these sources of cash was a net use of
cash of $1,107,000 due to a net reduction in the combined balances of accounts
payable, accrued disposal costs and other accrued expenses, at March 31, 1999
compared to those of December 31, 1998, which was in turn due to lower levels of
activities and timing of periodic interest payments on long-term debt
obligations in the first quarter of 1999 as compared to the fourth quarter of
1998.
In addition, the Company obtained $188,000 from investing activities.
The source of cash from investing activities was $1,177,000 which was almost
completely due to release of restricted funds that were held in a debt service
reserve fund at December 31, 1998. The debt service reserve fund is discussed
later in Management's Discussion and Analysis of Financial Condition and
Liquidity. Primarily offsetting the source of cash from investing activities was
a use of cash of $960,000 to purchase property, plant and equipment.
The Company used the $2,795,000 generated from operations and the
$188,000 generated from investing activities primarily to reduce borrowings
under the revolving line of credit of $1,614,000, to reduce the outstanding
balance on the term loan by $750,000 and to increase the amount of cash on hand
by $657,000.
(17)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
As described in the Form 10-K for the year ended December 31, 1999,
the Company had a $30,500,000 Loan Agreement with a financial institution. The
Loan Agreement provided for a $24,500,00 revolving credit portion (the
"Revolver") and a $6,000,000 term promissory note (the "Term Note"). The
Revolver allowed the Company to borrow up to $30,500,000 in cash and letters of
credit, based on a formula of eligible accounts receivable. At March 31, 2000,
the Revolver balance was $8,491,000, letters of credit outstanding were
$6,525,000 and funds available to borrow were approximately $9,484,000, and the
balance of the Term Note was $5,000,000.
In the first quarter of 2000, the Loan Agreement was amended and an
additional term promissory note (the "2000 Term Note") was entered into with the
financial institution. The original principal amount of the 2000 Term Note is
$3,000,000, it bears interest at the "prime" rate plus 1.5% or the Eurodollar
rate plus 3.0%, and it is payable in 36 monthly installments commencing on May
1, 2000. The funds have been used to purchase vehicles and rolling stock that
the Company previously leased under operating leases. The purchase of the
vehicles will result in lower lease expense in cost of revenues and higher
levels of expense for depreciation and interest.
In the first quarter of 2000, the due date of the Revolver was extended
from May 8, 2001 to May 8, 2003. The Company has $50,000,000 of 12 1/2% Senior
Notes due May 15, 2001 (the "Senior Notes"). In May 2000, the Senior Notes will
be reclassified from a long-term liability to a current liability, since they
will then be payable within one year. The Loan Agreement, as amended, redefines
the working capital covenant to specifically exclude the Senior Notes as a
component of working capital and requires that the Company maintain $6,000,000
of working capital, excluding the Senior Notes. The net worth covenant was
changed to require $30,000,000 of adjusted net worth. At March 31, 2000 the
Company had working capital and adjusted net worth of $14,169,000 and
$32,874,000 respectively. 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. In the first quarter of 2000, the Company violated this covenant, which
has been waived by the financial institution through May 15, 2000. The financial
institution has stated that it will continue to waive this covenant, if
violated; however, no assurance can be given that this covenant will be waived,
if violated, in the future by the financial institution. The Company believes
that it will meet this covenant for the foreseeable future.
(18)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
Management believes that sufficient resources will be available to
meet the Company's cash requirements through at least May 2001. In May 2001
the $50,000,000 of Senior Notes mature. Some portion or all of the borrowings
under the Senior Notes will need to be refinanced by the maturity date, with
any portion not refinanced to be repaid from other sources such as cash from
operations or net proceeds from the sale of assets or additional equity. 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 debt. Failure to obtain refinancing could materially adversely
affect the Company.
In addition, the Indenture under which the Company has outstanding
$9,900,000 of industrial revenue bonds (the "Bonds") contains certain
covenants the most restrictive of which requires 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 debt service coverage ratio was 1.04 to 1. Under the
terms of the Bonds, the deficiency in the debt coverage ratio did not and
will not result in a default, but the Company was required to pay into a debt
service reserve fund held by the Trustee for the Bonds a total amount equal
to the annual debt service for one year on the Bonds. Through March 31, 1999,
the Company paid $1,075,000 into this fund, as required. Under the terms of
the Bonds, the Company can request that the balance of the debt service
reserve fund be returned to the Company if the debt service coverage ratio of
1.50 to 1 is met for two consecutive quarters. For the quarters ended March
31, 1999 and December 31, 1998, the debt service coverage ratios were 1.68
and 1.58 respectively. In May 1999, the Trustee for the Bonds returned the
balance of the debt service reserve fund to the Company. At March 31, 2000
the debt service coverage ratio was 1.84.
The Company expects 2000 capital additions, excluding the $3,000,000
purchase of vehicles and rolling stock discussed previously, to be approximately
$4,000,000. The Company believes that it has all of the facilities required by
the business for the foreseeable future. Thus, the Company anticipates that
capital expenditures in 2000 will be limited to maintaining existing capital
assets, replacing site services equipment, and upgrading information technology
hardware and software. However, the Company continues to evaluate potential
acquisitions and opening additional site services offices within and next to the
Company's service areas. Thus, it is possible that capital additions could
exceed the $7,000,000 currently planned.
(19)
<PAGE>
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, 2000 dividend in common stock.
Accordingly, the Company issued 92,849 shares of common stock to the holders of
the preferred stock in the period ended March 31, 2000. The Company anticipates
that the preferred stock dividends payable through 2000 will be paid in common
stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 44, "Accounting for Certain Transactions
involving Stock Compensation (an interpretation of ABP Opinion No. 25)" ("FIN
44"). FIN 44 clarifies the application of APB Opinion No. 25 and, among other
issues, clarifies the following: the definition of an employee for purposes
of applying APB Opinion No. 25; the criteria for determining whether a plan
qualifies as a non-compensatory plan; the accounting consequences of various
modifications to the terms of previously fixed stock options or awards; and
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000 but certain conclusions in FIN
44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. The Company does not expect the application of FIN 44 to
have a material impact on the Company's results of operations or its
financial position.
(20)
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No legal proceedings of a material nature have arisen in the first
quarter of 2000, and there have been no material changes during the first
quarter of 2000 in the pending legal proceedings disclosed in the Form 10-K for
the year ended December 31, 1999.
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
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
<S> <C> <C>
27 Financial Data Schedule Filed herewith
Reports on Form 8-K None
</TABLE>
(21)
<PAGE>
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 11, 2000 By: /s/ Alan S. McKim
---------------------------
Alan S. McKim
President and
Chief Executive Officer
Dated: May 11, 2000 By: /s/ Roger A. Koenecke
----------------------------
Roger A. Koenecke
Senior Vice President and
Chief Financial Officer
(22)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CLEAN HARBORS, INC. AND SUBSIDIARIES FOR
THE QUARTER ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000822818
<NAME> CLEAN HARBORS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,589
<SECURITIES> 1,346
<RECEIVABLES> 47,793
<ALLOWANCES> 1,182
<INVENTORY> 2,861
<CURRENT-ASSETS> 56,835
<PP&E> 139,419
<DEPRECIATION> 82,869
<TOTAL-ASSETS> 150,265
<CURRENT-LIABILITIES> 42,666
<BONDS> 73,446
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<COMMON> 110
<OTHER-SE> 32,763
<TOTAL-LIABILITY-AND-EQUITY> 150,265
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<TOTAL-REVENUES> 52,737
<CGS> 0
<TOTAL-COSTS> 39,109
<OTHER-EXPENSES> 12,519
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