UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

~~September 7, 2019~~March 21, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________to _________________

Commission File Number001-33987

HERITAGE-CRYSTAL CLEAN, INC.

(Exact name of registrant as specified in its charter)



Delaware						26-0351454
State or other jurisdiction of						(I.R.S. Employer
Incorporation						Identification No.)

2175 Point Boulevard

Suite 375

Elgin, IL 60123

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (847) 836-5670

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading Symbol

Name of Exchange on which registered

Common Stock, par value $0.01 per share

HCCI

NASDAQ

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 o

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company o

☐

Emerging growth company o

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o☐ No x

On ~~October 14, 2019,~~April 28, 2020, there were outstanding ~~23,186,061 shares~~23,257,943 shares of Common Stock, $0.01 par value, of Heritage-Crystal Clean, Inc.

Table of Contents


PART I

~~PART I~~

ITEM 1. FINANCIAL STATEMENTS	4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		3026
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		3733
ITEM 4. CONTROLS AND PROCEDURES		3733

PART II

ITEM 1. LEGAL PROCEEDINGS		3834
ITEM 1A. RISK FACTORS		34

ITEM 6. EXHIBITS		3935

SIGNATURES		4036

PART I

ITEM 1. FINANCIAL STATEMENTS

Heritage-Crystal Clean, Inc.

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Par Value Amounts)


	September 7, 2019		December 29, 2018			March 21, 2020		December 28, 2019
	(unaudited)					(unaudited)
ASSETS					ASSETS
Current assets:					Current assets:
Cash and cash equivalents	$	58,951	$	43,579	Cash and cash equivalents	$	56,938	$	60,694
Accounts receivable - net	55,653		51,744		Accounts receivable - net	55,122		55,586
Inventory - net	28,259		33,059		Inventory - net	29,112		29,373
Other current assets	7,186		6,835		Other current assets	6,062		7,104
Total current assets	150,049		135,217		Total current assets	147,234		152,757
Property, plant and equipment - net	145,954		139,987		Property, plant and equipment - net	157,931		154,911
Right of use assets	79,498		—		Right of use assets	88,006		89,525
Equipment at customers - net	24,159		23,814		Equipment at customers - net	24,374		24,232
Software and intangible assets - net	16,149		14,681		Software and intangible assets - net	16,123		16,892
Goodwill	32,744		34,123		Goodwill	32,990		32,997
Total assets	$	448,553	$	347,822	Total assets	$	466,658	$	471,314

LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:					Current liabilities:
Accounts payable	$	35,089	$	32,630	Accounts payable	$	30,607	$	38,058
Current portion of lease liabilities	20,257		—		Current portion of lease liabilities	22,087		20,407
Contract liabilities - net	2,332		166		Contract liabilities - net	2,428		2,252
Accrued salaries, wages, and benefits	6,051		6,024		Accrued salaries, wages, and benefits	5,110		6,771
Taxes payable	7,112		6,120		Taxes payable	7,048		6,538
Other current liabilities	4,989		5,089		Other current liabilities	16,121		16,418
Total current liabilities	75,830		50,029		Total current liabilities	83,401		90,444
Lease liabilities, net of current portion	59,291		—		Lease liabilities, net of current portion	67,212		68,734
Long-term debt	29,255		29,046
Long-term debt, less current maturities					Long-term debt, less current maturities	29,418		29,348
Deferred income taxes	17,870		14,516		Deferred income taxes	18,617		17,157
Total liabilities	$	182,246	$	93,591	Total liabilities	$	198,648	$	205,683

STOCKHOLDERS' EQUITY:					STOCKHOLDERS' EQUITY:
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,185,567 shares and 23,058,584 shares issued and outstanding at September 7, 2019 and December 29, 2018, respectively	$	232	$	231
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,247,912 and 23,191,498 shares issued and outstanding at March 21, 2020 and December 28, 2019, respectively					Common stock - 26,000,000 shares authorized at $0.01 par value, 23,247,912 and 23,191,498 shares issued and outstanding at March 21, 2020 and December 28, 2019, respectively	$	232	$	232
Additional paid-in capital	199,216		197,533		Additional paid-in capital	198,305		200,583
Retained earnings	66,333		55,819		Retained earnings	69,473		64,182
Total Heritage-Crystal Clean, Inc. stockholders' equity	265,781		253,583		Total Heritage-Crystal Clean, Inc. stockholders' equity	268,010		264,997
Noncontrolling interest	526		648		Noncontrolling interest	—		634
Total equity	266,307		254,231		Total equity	268,010		265,631
Total liabilities and stockholders' equity	$	448,553	$	347,822	Total liabilities and stockholders' equity	$	466,658	$	471,314

See accompanying notes to financial statements.

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statements of ~~Income~~Income/(Loss)

(In Thousands, Except per Share Amounts)

(Unaudited)


		First Quarter Ended,
		March 21, 2020				March 23, 2019

Revenues
	Service revenues	$	63,757			$	56,366
	Product revenues	37,722				35,858
	Rental income	5,785				3,548
Total revenues				$	107,264			$	95,772

Operating expenses
	Operating costs	$	83,250			$	82,483
	Selling, general, and administrative expenses	11,522				12,396
	Depreciation and amortization	5,268				4,136
	Other expense (income) - net	272				(58)
Operating income (loss)				6,952				(3,185)
Interest expense – net				214				230
Income (loss) before income taxes				6,738				(3,415)
Provision for (benefit from) income taxes				1,447				(986)
Net income (loss)				5,291				(2,429)
Income attributable to noncontrolling interest				—				83
Net income (loss) attributable to Heritage-Crystal Clean, Inc. common stockholders				$	5,291			$	(2,512)

Net income (loss) per share: basic				$	0.23			$	(0.11)
Net income (loss) per share: diluted				$	0.23			$	(0.11)

Number of weighted average shares outstanding: basic				23,239				23,117
Number of weighted average shares outstanding: diluted				23,422				23,117

Third Quarter Ended, First Three Quarters Ended,
September 7,
2019 September 8,
2018 September 7,
2019 September 8,
2018

Revenues
Service revenues $ 57,208
$ 58,054
$ 171,522
$ 172,205
Product revenues 41,964
41,620
119,124
110,918
Rental income 5,668
—
14,967
—
Total revenues $ 104,840
$ 99,674
$ 305,613
$ 283,123

Operating expenses
Operating costs $ 80,116
$ 76,045
$ 241,449
$ 220,702
Selling, general, and administrative expenses 11,241
10,641
34,679
33,185
Depreciation and amortization 3,980
3,776
12,176
11,078
Other expense - net 1,020
253
2,477
983
Operating income 8,483
8,959
14,832
17,175
Interest expense – net 181
256
629
742
Income before income taxes 8,302
8,703
14,203
16,433
Provision for income taxes 2,246
2,284
3,411
3,996
Net income 6,056
6,419
10,792
12,437
Income attributable to noncontrolling interest 86
74
278
213
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders $ 5,970
$ 6,345
$ 10,514
$ 12,224

Net income per share: basic $ 0.26
$ 0.28
$ 0.45
$ 0.53
Net income per share: diluted $ 0.25
$ 0.27
$ 0.45
$ 0.52

Number of weighted average shares outstanding: basic 23,185
23,048
23,146
23,013
Number of weighted average shares outstanding: diluted 23,421
23,404
23,384
23,299

See accompanying notes to financial statements.

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(In Thousands, Except Share Amounts)

For the ~~Third~~First Quarter Ended ~~September 7,~~March 21, 2020 and March 23, 2019 ~~and September 8, 2018~~

(Unaudited)

Third Quarter Ended,
September 7, 2019
Shares
Par
Value
Common

Additional Paid–in
Capital
Retained Earnings Total Heritage-Crystal Clean, Inc. Stockholders' Equity Non-controlling Interest Total Equity

Balance at June 15, 2019 23,180,320
$ 232
$ 198,074
$ 60,363
$ 258,669
$ 440
$ 259,109
   Net income —
—
—
5,970
5,970
86
6,056
     Issuance of common stock – ESPP 4,789
—
120
—
120
—
120
     Share-based compensation 458
—
1,022
—
1,022
—
1,022
Balance at September 7, 2019 23,185,567
$ 232
$ 199,216
$ 66,333
$ 265,781
$ 526
$ 266,307

Third Quarter Ended,
September 8, 2018
Shares
Par
Value
Common

Additional Paid–in
Capital
Retained Earnings Total Heritage-Crystal Clean, Inc. Stockholders' Equity Non-controlling Interest Total Equity
Balance at June 16, 2018 23,042,972
$ 230
$ 194,774
$ 46,970
$ 241,974
$ 476
$ 242,450
   Net income —
—
—
6,345
6,345
74
6,419
     Issuance of common stock – ESPP 5,529
1
106
—
107
—
107
     Exercise of stock options 1,608
—
12
—
12
—
12
     Share-based compensation —
—
1,190
—
1,190
—
1,190
Balance at September 8, 2018 23,050,109
$ 231
$ 196,082
$ 53,315
$ 249,628
$ 550
$ 250,178


First Quarter Ended,
March 21, 2020
	Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Total Heritage-Crystal Clean, Inc. Stockholders' Equity		Non-controlling Interest		Total Equity

Balance at December 28, 2019	23,191,498	$	232	$	200,583	$	64,182	$	264,997	$	634	$	265,631
Net income	—	—		—		5,291		5,291		—		5,291
Non-controlling interest acquisition	—	—		(2,678)		—		(2,678)		—		(2,678)
Distribution	—	—		—		—		—		(634)		(634)
Issuance of common stock – ESPP	4,102	—		122		—		122		—		122
Share-based compensation	52,312	—		1,069		—		1,069		—		1,069
Share repurchases to satisfy tax withholding obligations	—	—		(791)		—		(791)		—		(791)
Balance at March 21, 2020	23,247,912	$	232	$	198,305	$	69,473	$	268,010	$	—	$	268,010



First Quarter Ended,
March 23, 2019
	Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Total Heritage-Crystal Clean, Inc. Stockholders' Equity		Non-controlling Interest		Total Equity
Balance at December 29, 2018	23,058,584	$	231	$	197,533	$	55,819	$	253,583	$	648	$	254,231

Net (loss) income	—	—		—		(2,512)		(2,512)		83		(2,429)

Issuance of common stock – ESPP	4,975	—		111		—		111		—		111
Exercise of stock options	2,760	—		20		—		20		—		20
Share-based compensation	54,679	—		889		—		889		—		889
Share repurchases to satisfy tax withholding obligations	—	—		(644)		—		(644)		—		(644)
Balance at March 23, 2019	23,120,998	$	231	$	197,909	$	53,307	$	251,447	$	731	$	252,178

~~Condensed Consolidated Statement of Stockholders’ Equity~~

~~(In Thousands, Except Share Amounts)~~

~~For the First Three Quarters Ended September 7, 2019 and September 8, 2018~~

~~(Unaudited)~~

First Three Quarters Ended,
September 7, 2019
Shares
Par
Value
Common

Additional Paid–in
Capital
Retained Earnings Total Heritage-Crystal Clean, Inc. Stockholders' Equity Non-controlling Interest Total Equity

Balance at December 29, 2018 23,058,584
$ 231
$ 197,533
$ 55,819
$ 253,583
$ 648
$ 254,231
   Net income —
—
—
10,514
10,514
278
10,792
     Distributions —
—
—
—
—
(400 ) (400 )
     Issuance of common stock – ESPP 14,240
—
348
—
348
—
348
      Exercise of stock options 2,760
—
20
—
20
—
20
     Share-based compensation 109,983
1
2,742
—
2,743
—
2,743
Share repurchases to satisfy tax withholding obligations —
—
(1,427 ) —
(1,427 ) —
(1,427 )
Balance at September 7, 2019 23,185,567
$ 232
$ 199,216
$ 66,333
$ 265,781
$ 526
$ 266,307

First Three Quarters Ended,
September 8, 2018
Shares
Par
Value
Common

Additional Paid–in
Capital
Retained Earnings Total Heritage-Crystal Clean, Inc. Stockholders' Equity Non-controlling Interest Total Equity
Balance at December 30, 2017 22,891,674
$ 229
$ 193,640
$ 41,359
$ 235,228
$ 698
$ 235,926
   Adjustment from adopting ASC 606 —
—
—
(268 ) (268 ) —
(268 )
   Net income —
—
—
12,224
12,224
213
12,437
   Distribution —
—
—
—
—
(361 ) (361 )
     Issuance of common stock – ESPP 15,170
—
311
—
311
—
311
     Exercise of stock options 14,048
—
103
—
103
—
103
     Share-based compensation 129,217
2
3,058
—
3,060
—
3,060
Share repurchases to satisfy tax withholding obligations —
—
(1,030 ) —
(1,030 ) —
(1,030 )
Balance at September 8, 2018 23,050,109
$ 231
$ 196,082
$ 53,315
$ 249,628
$ 550
$ 250,178

~~See accompanying notes to financial statements.~~

~~Heritage-Crystal~~.Heritage-Crystal Clean, Inc.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	First Three Quarters Ended,							For the First Quarter Ended,
	September 7, 2019			September 8, 2018				March 21, 2020		March 23, 2019
Cash flows from Operating Activities:							Cash flows from Operating Activities:
Net income	$	10,792		$	12,437
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net income (loss)							Net income (loss)	$	5,291	$	(2,429)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:							Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	12,176			11,078			Depreciation and amortization	5,268		4,136
Bad debt provision	829			177			Bad debt provision	189		249
Share-based compensation	2,743			3,060			Share-based compensation	1,069		889
Deferred taxes	3,354			3,998			Deferred taxes	1,459		(972)
Other, net	594			215			Other, net	(424)		(171)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Increase in accounts receivable	(4,344		)	(4,780		)
Decrease (increase) in inventory	5,136			(7,845		)
Increase in other current assets	(351		)	(851		)
Increase in accounts payable	2,005			5,670
Increase (decrease) in accrued liabilities	3,391			(157		)
Decrease (increase) in accounts receivable							Decrease (increase) in accounts receivable	275		(1,473)
Decrease in inventory							Decrease in inventory	262		3,716
Decrease in other current assets							Decrease in other current assets	1,040		1,921
(Decrease) increase in accounts payable							(Decrease) increase in accounts payable	(5,273)		1,531

Increase in accrued liabilities							Increase in accrued liabilities	1,110		1,781
Cash provided by operating activities	$	36,325		$	23,002		Cash provided by operating activities	$	10,266	$	9,178

Cash flows from Investing Activities:							Cash flows from Investing Activities:
Capital expenditures	$	(16,921	)	$	(12,874	)	Capital expenditures	$	(9,842)	$	(7,579)

Business acquisitions, net of cash acquired	(2,573		)	(4,805		)	Business acquisitions, net of cash acquired	—		(1,973)
Proceeds from the disposal of assets	—			80

Cash used in investing activities	$	(19,494	)	$	(17,599	)	Cash used in investing activities	$	(9,842)	$	(9,552)

Cash flows from Financing Activities:							Cash flows from Financing Activities:
Proceeds from the exercise of stock options	$	20		$	103		Proceeds from the exercise of stock options	$	—	$	20
Share repurchases to satisfy tax withholding obligations	(1,427		)	(1,030		)	Share repurchases to satisfy tax withholding obligations	(791)		(644)
Proceeds from the issuance of common stock	348			311			Proceeds from the issuance of common stock	122		111
Payments of deferred and contingent consideration							Payments of deferred and contingent consideration	(199)		—
Distributions to noncontrolling interest	(400		)	(361		)	Distributions to noncontrolling interest	(3,312)		—
Cash used in financing activities	$	(1,459	)	$	(977	)	Cash used in financing activities	$	(4,180)	$	(513)
Net increase in cash and cash equivalents	15,372			4,426
Net decrease in cash and cash equivalents							Net decrease in cash and cash equivalents	(3,756)		(887)
Cash and cash equivalents, beginning of period	43,579			41,889			Cash and cash equivalents, beginning of period	60,694		43,579
Cash and cash equivalents, end of period	$	58,951		$	46,315		Cash and cash equivalents, end of period	$	56,938	$	42,692

Supplemental disclosure of cash flow information:							Supplemental disclosure of cash flow information:
Income taxes paid	$	1,205		$	371		Income taxes paid	$	31	$	—
Cash paid for interest	971			846			Cash paid for interest	92		334
Supplemental disclosure of non-cash information:							Supplemental disclosure of non-cash information:
Payables for construction in progress	$	904		$	526		Payables for construction in progress	465		1,933

See accompanying notes to financial statements.

HERITAGE-CRYSTAL CLEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~September 7, 2019~~March 21, 2020

(1) ORGANIZATION AND NATURE OF OPERATIONS

Heritage-Crystal Clean, Inc., a Delaware corporation and its subsidiaries (collectively the “Company”), provide parts cleaning, hazardous and non-hazardous containerized waste, used oil collection, vacuum, antifreeze recycling and field services primarily to small and mid-sized industrial and vehicle maintenance customers. The Company owns and operates a used oil re-refinery where it re-refines used oils and sells high quality base oil for lubricants as well as other re-refinery products. The Company also has multiple locations where it dehydrates used oil. The oil processed at these locations is sold as recycled fuel oil. The Company also operates multiple wastewater treatment plants and antifreeze recycling facilities at which it produces virgin-quality antifreeze. The Company's locations are in the United States and Ontario, Canada. The Company conducts its primary business operations through Heritage-Crystal Clean, LLC, its wholly owned subsidiary, and all intercompany balances have been eliminated in consolidation.

The Company has ~~two~~2 reportable segments: "Environmental Services" and "Oil Business." The Environmental Services segment consists of the Company's parts cleaning, containerized waste management, vacuum truck services, antifreeze recycling activities, and field services. The Oil Business segment consists of the Company's used oil collection, recycled fuel oil sales, used oil re-refining activities, and used oil filter removal and disposal services. No customer represented greater than 10% of consolidated revenues for any of the periods presented. There were no intersegment revenues. Both segments operate in the United States and, to an immaterial degree, in Ontario, Canada. As such, the Company is not disclosing operating results by geographic segment.

The Company’s fiscal year ends on the Saturday closest to December 31. The most recent fiscal year ended on December ~~29, 2018.~~28, 2019. Each of the Company's first three fiscal quarters consists of twelve weeks while the last fiscal quarter consists of sixteen or seventeen weeks.

In the Company's Environmental Services segment, product revenues include sales of solvent, machines, absorbent, accessories, and antifreeze; service revenues include servicing of parts cleaning machines, drum waste removal services, vacuum truck services, field services, and other services; rental income includes embedded lease income from certain of our parts cleaning contracts. In the Company's Oil Business segment, product revenues primarily consist of sales of re-refined base oil, re-refinery co-products and recycled fuel oil; service revenues include revenues from used oil collection activities, collecting and disposing of waste water and removal and disposal of used oil filters. Due to the Company's integrated business model, it is impracticable to separately present costs of tangible products and costs of services.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company's significant accounting policies are described in Note 2, "Summary of Significant Accounting Policies," in the Company's Annual Report on Form 10-K for the fiscal year ended December ~~29, 2018.~~28, 2019. There have been no material changes in these policies or their application during the first ~~three quarters~~quarter of fiscal ~~2019 with the exception of our accounting for leases. See footnote 12~~ — ~~Commitments and Contingencies for more information.~~

2020.

Recently Issued Accounting ~~Pronouncements~~Standards Adopted

Standard

Issuance Date

Description

~~Our~~ Effective Date

Effect on the Financial Statements

ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”

June 2016

This update modifies the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to utilize a new forward-looking “expected loss” methodology that generally will result in the earlier recognition of allowance for losses.

December 29, 2019

The Company ~~is evaluating~~adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) on December 29, 2019 and determined there was no material impact on the ~~impact this new standard would have on our consolidated~~ financial ~~statements.~~

statements with no adjustment to retained earnings.

~~Recently Issued Accounting Standards Adopted~~

~~Standard~~

~~Issuance Date~~

~~Description~~

~~Effective Date~~

~~Effect on the Financial Statements~~

~~ASU 2016-02~~
~~Leases~~
~~(Topic 842), and subsequent updates~~

~~February 2016~~

This update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Early application of the amendments in this update is permitted for all entities.

~~December 30, 2018~~

~~The Company adopted the new leasing standard ASC 842 "Leases" on December 30, 2018. ASU 2016-02 provides for a modified retrospective transition~~

approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption. The Company elected to apply ASU 2016-02 as of the beginning of the period of adoption (December 30, 2018) and will not restate comparative periods. The adoption resulted in the recognition of $63.3 million of right of use assets and $63.3 million of lease liabilities. The Company recognized approximately $2.2 million of deferred rental income from certain embedded leases during the first quarter of 2019.

~~Effective December 30, 2018, the Company adopted the requirements of Topic 842. The cumulative effects of the changes made to our Statement of Income and Balance Sheet are as follows:~~

For the Third Quarter Ended, September 7, 2019 For the First Three Quarters Ended, September 7, 2019

As Reported Balances Without Adoption of Topic 842 Effect of Change As Reported Balances Without Adoption of Topic 842 Effect of Change
(thousands, except per share amounts) Higher/(Lower) Higher/(Lower)
Statement of Income

Service revenues $ 57,208
$ 62,843
$ (5,635 ) $ 171,522
$ 188,614
$ (17,092 )
Rental income 5,668
—
5,668
14,967
—
14,967
Total revenues 104,840
104,807
33
305,613
307,738
(2,125 )
Operating income 8,483
8,450
33
14,832
16,957
(2,125 )
Income before income taxes 8,302
8,269
33
14,203
16,328
(2,125 )
Provision for income taxes 2,246
2,237
9
3,411
3,921
(510 )
Net income 6,056
6,032
24
10,792
12,407
(1,615 )
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders $ 5,970
$ 5,946
$ 24
$ 10,514
$ 12,129
$ (1,615 )

Net income per share: basic $ 0.26
$ 0.26
$ —
$ 0.45
$ 0.52
$ (0.07 )
Net income per share: diluted $ 0.25
$ 0.25
$ —
$ 0.45
$ 0.52
$ (0.07 )

September 7, 2019
As Reported Balances Without Adoption of Topic 842 Effect of Change
(thousands) Higher/(Lower)
Balance Sheet

Right of use assets $ 79,498
$ —
$ 79,498
Total assets 448,553
369,055
79,498
Current portion of lease liabilities 20,257
—
20,257
Contract liabilities - net 2,332
207
2,125
Other current liabilities 4,989
5,039
(50 )
Total current liabilities 75,830
53,498
22,332
Lease liabilities, net of current portion 59,291
—
59,291
Deferred income taxes 17,870
18,380
(510 )
Total liabilities 182,246
101,133
81,113
Retained earnings 66,333
67,948
(1,615 )
Heritage-Crystal Clean, Inc. stockholders' equity 265,781
267,396
(1,615 )
Total equity 266,307
267,922
(1,615 )
Total liabilities and stockholders' equity $ 448,553
$ 369,055
$ 79,498

(3) BUSINESS COMBINATIONS

On January 28, 2020, the Company acquired the remaining ownership interest in one of our subsidiaries in the amount of $2.7 million.

On October 8, 2019, Heritage-Crystal Clean completed the acquisition of certain assets of California Environmental & Litho, Inc., which provide transportation, manifesting, labeling and profiling services to printing, photographic, automotive and body shop industries in the Bay Area, Central Valley & Northern California. The acquisition represents an expansion of HCC’s Environmental Services business in this geographic area while potentially providing new services and products for this market. No facilities were acquired in the transaction and all service employees and activity will be consolidated in existing branch territories. Total consideration for the acquisition was approximately $0.5 million. Factors leading to goodwill being recognized are the Company's expectations of synergies from combining operations of California Environmental & Litho, Inc. and the Company as well as the value of intangible assets that are not separately recognized, such as an assembled workforce.

On March 25, 2019, the Company completed the acquisition of certain assets of All Valley Disposal, Inc., an environmental services provider based in Fresno, California. Consideration for the acquisition paid at closing was $0.6 million. Contingent upon the achievement of certain business performance metrics, total consideration for the acquisition could reach a maximum of approximately $1.3 million. WeFactors leading to goodwill being recognized are ~~still in~~ the ~~process~~Company's expectations of ~~completing our valuation,~~synergies from combining operations of All Valley Disposal, Inc., and ~~accordingly our estimates and assumptions are subject to change within~~ the ~~measurement period. The~~ Company ~~is continuing to examine facts and circumstances that existed at~~as well as the ~~acquisition date and how those affect the estimated fair~~ value of ~~working capital, and the allocation of the estimated purchase price to other tangible and~~ intangible ~~assets.~~assets that are not separately recognized, such as an assembled workforce. The results of All Valley Disposal are consolidated into the Company’s Environmental Services segment.

On February 1, 2019, the Company purchased the assets of W.S. Supplies, Inc. ("WSS") pursuant to an Asset Purchase Agreement. The Company purchased the assets of WSS to expand the Company’s Environmental Services segment in the mid-west. The purchase price was set at $0.5 million subject to certain adjustments, including a contingent consideration provision, and is ~~preliminarily~~ allocated based on our estimates and assumptions of the approximate fair values of assets acquired on the acquisition date. We are still in the process of completing our valuation, and accordingly our estimates and assumptions are subject to change within the measurement period. The Company is continuing to examine facts and circumstances that existed at the acquisition date and how those affect the estimated fair value of working capital, and the allocation of the estimated purchase price to other tangible and intangible assets. The results of WSS are consolidated into the Company’s Environmental Services segment.

On January 11, 2019, the Company purchased the assets of the consumer division of GlyEco, Inc. ("GlyEco") pursuant to an Asset Purchase Agreement. The Company purchased the assets of GlyEco's consumer division to expand the Company’s antifreeze line of business while expanding geographically. The purchase price was set at $1.6 million subject to certain adjustments, including working capital adjustments, and is ~~preliminarily~~ allocated based on our estimates and assumptions of the approximate fair values of assets acquired on the acquisition date. We are still in the process of completing our valuation, and accordingly our estimates and assumptions are subject to change within the measurement period. The Company is continuing to examine facts and circumstances that existed at the acquisition date and how those affect the estimated fair value of working capital, and the allocation of the estimated purchase price to other tangible and intangible assets. The results of GlyEco are consolidated into the Company’s Environmental Services segment.

On May 3, 2018, the Company purchased the assets of Products Plus, Inc. and AO Holding Company-Kansas City, LLC (collectively "PPI") pursuant to an Asset Purchase Agreement. The Company purchased the assets of PPI to expand the Company’s market share in the collection, recycling, and sales of a full line of antifreeze products. The purchase price was set at $5.9 million subject to certain adjustments, including a working capital adjustment and a contingent consideration provision. During the measurement period, the Company finalized the purchase price allocation of the PPI business combination. Compared to the provisional values reported as of December 29, 2018, the fair values presented in the table below reflect increases to property, plant, & equipment of $0.2 million and other intangible assets of $1.5 million. Compared to the provisional values reported as of December 29, 2018, the finalized fair values presented in the table below reflect decreases to contingent consideration of $0.1 million and goodwill of $1.8 million. Contingent consideration to be paid subsequent to September 7, 2019 is contingent upon several business performance metrics over the three-year period starting with the acquisition date and ending May 3, 2021. The range of the potential contingent consideration, which is to be paid out subsequent to September 7, 2019, is between zero and $1.5 million. Goodwill recognized from the acquisition of PPI represents the excess of the estimated purchase consideration transferred over the estimated fair value of the assets acquired. Factors leading to goodwill being recognized are the Company's expectations of synergies from combining operations of ~~PPI~~GlyEco and the Company as well as the value of intangible assets that are not separately recognized, such as an assembled workforce. The results of ~~PPI~~GlyEco are consolidated into the Company’s Environmental Services segment.

On June 11, 2018, the Company purchased the assets of Kurt Lanse d/b/a Hot Tank Supply Company ("HTSC") pursuant to an Asset Purchase Agreement. The Company purchased the assets of HTSC to expand the Company’s market share in California. The purchase price was set at $0.7 million subject to certain adjustments, including a working capital adjustment and a deferred and contingent consideration provision, and is allocated based on our estimates and assumptions of the approximate fair values of assets acquired on the acquisition date. The Company estimates that contingent consideration to be paid subsequent to September 7, 2019 will be approximately $0.1 million. Goodwill recognized from the acquisition of HTSC represents the excess of the estimated purchase consideration transferred over the estimated fair value of the assets acquired. Factors leading to goodwill being recognized are the Company's expectations of synergies from combining operations of HTSC and the Company as well as the value of intangible assets that are not separately recognized, such as assembled workforce. The results of HTSC are consolidated into the Company’s Environmental Services segment.

The following table summarizes the estimated fair values of the assets acquired, ~~some~~net of ~~which are preliminary,~~cash acquired, related to each acquisition:


	As of March 21, 2020
_(thousands)	California Environmental & Litho		All Valley Disposal		GlyEco		WSS

Accounts receivable	$	67	$	36	$	107	$	—
Inventory	3		18		291		28


Property, plant, & equipment	15		252		746		154
Equipment at customers	—		—		—		24
Intangible assets	445		310		251		298
Goodwill	3		384		251		—






Total purchase price, net of cash acquired	$	533	$	1,000	$	1,646	$	504
Less: working capital adjustment	—		—		23		—

Less: contingent consideration	120		250		—		—
Less: to be placed in escrow	—		100		—		—
Net cash paid	$	413	$	650	$	1,623	$	504

As of September 7, 2019
_(thousands)
All Valley Disposal GlyEco WSS PPI HTSC

Accounts receivable $ 36
$ 359
$ —
$ 909
$ 40
Inventory 18
290
28
259
3
Property, plant, & equipment 252
746
154
2,154
47
Equipment at customers —
—
24
—
104
Intangible assets 310
251
298
2,001
100
Goodwill 384
—
—
406
377
Total purchase price, net of cash acquired $ 1,000
$ 1,646
$ 504
$ 5,729
$ 671
Less: working capital adjustment —
23
14
(62 ) (9 )
Less: deferred consideration —
—
—
—
225
Less: contingent consideration 300
—
90
1,341
100
Less: to be placed in escrow 100
—
50
—
—
Net cash paid $ 600
$ 1,623
$ 350
$ 4,450
$ 355
(4) REVENUE

~~Unaudited Pro-forma Financial Information~~

~~Pro forma financial information was not presented as results were immaterial to the Company's consolidated results for the first three quarters ended September 7, 2019.~~

~~(4)~~ ~~REVENUE~~

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when our performance obligations under the terms of a contract with our customers are satisfied. Recognition occurs when the Company transfers control by completing the specified services at the point in time the customer benefits from the services performed or once our products are delivered. The Company measures progress toward complete satisfaction of a performance obligation satisfied over time using a cost-based input method. This method of measuring progress provides a faithful depiction of the transfer of goods or services because the costs incurred are expected to be substantially proportionate to the Company’s satisfaction of the performance obligation. Revenue is measured as the amount of consideration we expect to receive in exchange for completing our performance obligations. Sales tax and other taxes we collect with revenue-producing activities are excluded from revenue. In the case of contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative stand-alone selling prices of the various goods and/or services encompassed by the contract. We do not have any material significant payment terms as payment is generally due within 30 days after the performance obligation has been satisfactorily completed. The Company has elected the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less. In applying the guidance in Topic 606, there were no judgments or estimates made that the Company deems significant.

Accounts Receivable — Net, includes amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on analysis of customer credit worthiness and historical losses. Accounts receivable are written off once the Company determines the account to be uncollectible. The Company does not have any off-balance-sheet credit exposure related to its customers.

Contract Balances — Contract assets primarily relate to the Company’s rights to consideration for work completed in relation to its services performed but not billed at the reporting date. Contract liabilities primarily consist of advance payments of performance obligations yet to be fully satisfied in the period reported. Our contract liabilities and contract assets are reported in a net position at the end of each reporting period.

We disaggregate our revenue from contracts with customers by major lines of business for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

The following table disaggregates our revenue by major lines:


	For the First Quarter Ended,
	March 21, 2020										March 23, 2019
Total Net Sales by Major Lines of Business (thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total
Parts cleaning, containerized waste, & related products/services	$	40,290	$	—	$	40,290	$	38,134	$	—	$	38,134
Vacuum Services & Wastewater Treatment	14,618		—		14,618		13,976		—		13,976
Field Services	9,623		—		9,623		3,841		—		3,841
Antifreeze Business	6,677		—		6,677		6,658		—		6,658
Environmental Services - Other	480		—		480		403		—		403
Re-refinery Product Sales	—		25,436		25,436		—		24,035		24,035
Oil Collection Services & RFO	—		3,289		3,289		—		3,962		3,962
Oil Filter Business	—		1,066		1,066		—		1,215		1,215
Revenues from Contracts with Customers	71,688		29,791		101,479		63,012		29,212		92,224
Rental income	5,765		20		5,785		3,484		64		3,548
Total Revenues	$	77,453	$	29,811	$	107,264	$	66,496	$	29,276	$	95,772

For the Third Quarter Ended, First Three Quarters Ended,
September 7, 2019 September 7, 2019
Total Net Sales by Major Lines of Business (thousands)
Environmental Services Oil Business Total Environmental Services Oil Business Total
Parts cleaning, containerized waste, & related products/services $ 38,458
$ —
$ 38,458
$ 116,023
$ —
$ 116,023
Vacuum Services & Wastewater Treatment 14,507
—
14,507
43,105
—
43,105
Antifreeze Business 5,654
—
5,654
18,451
—
18,451
Field Services 4,284
—
4,284
12,086
—
12,086
Environmental Services - Other 468
—
468
1,228
—
1,228
Re-refinery Product Sales —
29,059
29,059
—
80,385
80,385
Oil Collection Services & RFO —
5,772
5,772
—
16,076
16,076
Oil Filter Business —
970
970
—
3,292
3,292
Revenues from Contracts with Customers 63,371
35,801
99,172
190,893
99,753
290,646
Other Revenue 5,620
48
5,668
14,791
176
14,967
Total Revenues $ 68,991
$ 35,849
$ 104,840
$ 205,684
$ 99,929
$ 305,613

The following table provides information about contract assets and contract liabilities from contracts with customers:


(thousands)	March 21, 2020		December 28, 2019
Contract assets	$	68	$	64
Contract liabilities	2,496		2,316
Contract liabilities - net	$	2,428	$	2,252

(thousands) September 7, 2019 December 29, 2018
Contract assets $ 108
$ 100
Contract liabilities 2,440
266
Contract liabilities - net $ 2,332
$ 166

During the fiscal quarter ended ~~September 7, 2019,~~March 21, 2020, the Company recognized ~~no revenue that was included in the contract liabilities balance as of December 29, 2018. During the first three quarters ended September 7, 2019, the Company recognized $0.3~~$2.3 million of revenue that was included in the contract liabilities balance as of December ~~29, 2018. As a result of having adopted ASC 842 on December 30, 2018, the Company recognized within Contract liabilities - net approximately $2.2 million of deferred rental income.~~28, 2019. The Company has no assets recognized from costs to obtain or fulfill a contract with a customer. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

(5) ACCOUNTS RECEIVABLE

Accounts Receivable — Net, includes amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. The allowance for doubtful accounts is our best estimate of the amount of probable lifetime-expected credit losses in existing accounts receivable and is determined based on our historical collections experience, age of the receivable, knowledge of the customer and the condition of the general economy and industry as a whole. The Company does not have any off-balance-sheet credit exposure related to its customers.

Accounts receivable for the ~~third~~first quarter ended ~~September 7, 2019,~~March 21, 2020, and the fiscal year ended December ~~29, 2018~~28, 2019 consisted of the following:


(thousands)	March 21, 2020		December 28, 2019
Trade	$	53,901	$	54,420
Less: allowance for doubtful accounts	1,644		2,221
Trade - net	52,257		52,199
Related parties	2,309		1,560
Other	556		1,827
Total accounts receivable - net	$	55,122	$	55,586

(thousands) September 7,
2019 December 29,
2018
Trade $ 53,992
$ 51,118
Less: allowance for doubtful accounts 1,875
1,816
Trade - net 52,117
49,302
Related parties 1,805
1,595
Other 1,731
847
Total accounts receivable - net $ 55,653
$ 51,744

The following table provides the changes in the Company’s allowance for doubtful accounts for the ~~three quarters~~first quarter ended ~~September 7, 2019,~~March 21, 2020, and the fiscal year ended December ~~29, 2018:~~28, 2019:



(thousands)	March 21, 2020		December 28, 2019
Balance at beginning of period	$	2,221	$	1,816
Provision for bad debts	189		1,486
Accounts written off, net of recoveries	(766)		(1,081)
Balance at end of period	$	1,644	$	2,221

(thousands) September 7,
2019 December 29,
2018
Balance at beginning of period $ 1,816
$ 1,881
Provision for bad debts 829
628
Accounts written off, net of recoveries (770 ) (693 )
Balance at end of period $ 1,875
$ 1,816

(6) INVENTORY

The carrying value of inventory consisted of the following:


(thousands)	September 7, 2019		December 29, 2018		(thousands)	March 21, 2020		December 28, 2019
Used oil and processed oil					Used oil and processed oil	$	9,797	$	8,349
Solvents and solutions	$	8,340	$	8,216	Solvents and solutions	8,443		8,694
Used oil and processed oil	7,782		12,124
Machines	5,517		5,334		Machines	4,619		5,440
Drums and supplies	4,512		5,231		Drums and supplies	4,238		4,697
Other	2,510		2,378		Other	2,441		2,632
Total inventory	28,661		33,283		Total inventory	29,538		29,812
Less: machine refurbishing reserve	402		224		Less: machine refurbishing reserve	426		439
Total inventory - net	$	28,259	$	33,059	Total inventory - net	$	29,112	$	29,373

Inventory consists primarily of used oil, processed oil, solvents and solutions, new and refurbished parts cleaning machines, drums and supplies, and other items. Inventories are valued at the lower of first-in, first-out (FIFO) cost or net realizable value, net of any reserves for excess, obsolete, or unsalable inventory. The Company routinely monitors its inventory levels at each of its locations and evaluates inventories for excess or slow-moving items. If circumstances indicate the cost of inventories exceed their recoverable value, inventories are reduced to net realizable value. The Company had no0 inventory write downs during the first ~~three quarters~~quarter of fiscal ~~2019~~2020 or fiscal ~~2018.~~2019.

(7) PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following:


(thousands)	March 21, 2020		December 28, 2019
Machinery, vehicles, and equipment	$	127,502	$	127,242
Buildings and storage tanks	71,607		71,616
Land	9,647		9,664
Leasehold improvements	6,523		6,523
Construction in progress	13,275		7,958
Assets held for sale	—		4
Total property, plant and equipment	228,554		223,007
Less: accumulated depreciation	70,623		68,096
Property, plant and equipment - net	$	157,931	$	154,911

(thousands)	March 21, 2020		December 28, 2019
Equipment at customers	$	79,201	$	77,914
Less: accumulated depreciation	54,827		53,682
Equipment at customers - net	$	24,374	$	24,232

(thousands) September 7,
2019 December 29,
2018
Machinery, vehicles, and equipment $ 105,575
$ 98,708
Buildings and storage tanks 69,876
69,791
Land 9,663
9,546
Leasehold improvements 5,838
5,701
Construction in progress 19,851
15,405
Assets held for sale 4
4
Total property, plant and equipment 210,807
199,155
Less: accumulated depreciation 64,853
59,168
Property, plant and equipment - net $ 145,954
$ 139,987

(thousands) September 7,
2019 December 29,
2018
Equipment at customers $ 76,469
$ 73,075
Less: accumulated depreciation 52,310
49,261
Equipment at customers - net $ 24,159
$ 23,814

Depreciation expense for the ~~third quarters~~first quarter ended ~~September 7,~~March 21, 2020 and March 23, 2019 ~~and September 8, 2018~~ was ~~$3.3~~$4.4 million and $3.1 million, respectively. ~~Depreciation expense for the first three quarters ended September 7, 2019 and September 8, 2018 was $9.7 million and $8.9 million, respectively.~~

(8) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is measured as a residual amount as of the acquisition date, which in most cases results in measuring goodwill as an excess of the purchase consideration transferred plus the fair value of any noncontrolling interest in the acquiree over the fair value of the net assets acquired, including any contingent consideration. The Company tests goodwill for impairment annually in the fourth quarter and in interim periods if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company's determination of fair value requires certain assumptions and estimates, such as margin expectations, market conditions, growth expectations, expected changes in working capital, etc., regarding expected future profitability and expected future cash flows. The Company tests goodwill for impairment at each of its ~~two~~2 reporting units, Environmental Services and Oil Business.

The following table shows changes to our goodwill balances by segment from December ~~29, 2018~~28, 2019 to ~~September 7, 2019:~~March 21, 2020:


_(thousands)	Oil Business		Environmental Services		Total






Goodwill at December 28, 2019
Gross carrying amount	$	3,952	$	32,997	$	36,949
Accumulated impairment loss	(3,952)		—		(3,952)
Net book value at December 28, 2019	$	—	$	32,997	$	32,997

Measurement period and other adjustments	—		(7)		(7)
Goodwill at March 21, 2020
Gross carrying amount	3,952		32,990		36,942
Accumulated impairment loss	(3,952)		—		(3,952)
Net book value at March 21, 2020	$	—	$	32,990	$	32,990

_(thousands)
Oil Business Environmental Services Total

Goodwill at December 29, 2018
     Gross carrying amount $ 3,952
$ 34,123
$ 38,075
     Accumulated impairment loss (3,952 ) —
(3,952 )
Net book value at December 29, 2018 $ —
$ 34,123
$ 34,123
Acquisitions —
384
—
Measurement period adjustments —
(1,763 ) —
Goodwill at September 7, 2019
     Gross carrying amount 3,952
32,744
36,696
     Accumulated impairment loss (3,952 ) —
(3,952 )
Net book value at September 7, 2019 $ —
$ 32,744
$ 32,744

The following is a summary of software and other intangible assets:


	March 21, 2020										December 28, 2019
_(thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer & supplier relationships	$	25,531	$	14,545	$	10,986	$	25,551	$	13,886	$	11,665
Software	8,229		5,033		3,196		8,093		4,887		3,206
Non-compete agreements	3,590		3,087		503		3,603		3,068		535
Patents, formulae, and licenses	1,769		791		978		1,769		774		995
Other	1,701		1,241		460		1,702		1,211		491
Total software and intangible assets - net	$	40,820	$	24,697	$	16,123	$	40,718	$	23,826	$	16,892

September 7, 2019 December 29, 2018
_(thousands)
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Customer & supplier relationships $ 25,285
$ 13,108
$ 12,177
$ 23,686
$ 11,445
$ 12,241
Software 6,641
4,605
2,036
5,040
4,094
946
Non-compete agreements 3,422
3,032
390
2,937
2,904
33
Patents, formulae, and licenses 1,769
753
1,016
1,769
708
1,061
Other 1,701
1,171
530
1,442
1,042
400
Total software and intangible assets - net $ 38,818
$ 22,669
$ 16,149
$ 34,874
$ 20,193
$ 14,681

Amortization expense was ~~$0.7 million~~ ~~for both third quarters ended September 7, 2019, and September 8, 2018. Amortization expense was $2.5~~$0.9 million for the first ~~three quarters~~quarter ended ~~September 7, 2019,~~March 21, 2020, and ~~$2.2~~$1.0 million for the first ~~three quarters~~quarter ended ~~September 8, 2018.~~March 23, 2019.

The weighted average useful lives of software and other intangibles are as follows:


		Weighted Average Useful Life (years)
	~~Weighted average useful life (years)~~
Patents, formulae, & licenses	15
Customer and supplier relationships		11
Software		109
Non-compete agreements		5
Other intangibles		7

The estimated amortization expense for the remainder of fiscal ~~2019~~2020 and each of the five succeeding fiscal years is as follows:


_(millions)
Fiscal Year						Amortization Expense
2020						$2.6
2021						3.2
2022						3.0
2023						2.4
2024						0.9
2025						0.7

_(millions)

Fiscal Year Amortization Expense
2019 $1.0
2020 3.1
2021 2.9
2022 2.7
2023 2.1
2024 0.6

The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, the finalization of the fair value of intangible assets that have been acquired from business combinations, disposal of intangible assets, accelerated amortization of intangible assets, and other events.

(9) ACCOUNTS PAYABLE

Accounts payable consisted of the following:


_(thousands)	March 21, 2020		December 28, 2019
Accounts payable	$	30,196	$	37,690
Accounts payable - related parties	411		368
Total accounts payable	$	30,607	$	38,058

_(thousands)
September 7,
2019 December 29,
2018
Accounts payable $ 34,663
$ 32,471
Accounts payable - related parties 426
159
Total accounts payable $ 35,089
$ 32,630

(10) DEBT AND FINANCING ARRANGEMENTS

Bank Credit Facility

The Company's Credit Agreement ~~as amended~~ ("Credit Agreement"), dated February 21, 2017, provides for borrowings of up to $95.0 million, subject to the satisfaction of certain terms and conditions, comprised of a term loan of $30.0 million and up to $65.0 million of borrowings under ~~the~~a revolving ~~loan portion.~~loan. The actual amount of borrowings available under the revolving loan portion of the Credit Agreement is limited by the Company's total leverage ratio. The amount available to draw at any point in time would be further reduced by any standby letters of credit issued.

Loans made under the Credit Agreement may be Base Rate Loans or LIBOR Rate Loans, at the election of the Company subject to certain exceptions. Base Rate Loans have an interest rate equal to (i) the higher of (a) the federal funds rate plus 0.5%, (b) the London Interbank Offering Rate (“LIBOR”) plus 1%, or (c) Bank of America's prime rate, plus (ii) a variable margin of between 0.75% and 1.75% depending on the Company's total leverage ratio, calculated on a consolidated basis. LIBOR rate loans have an interest rate equal to (i) the LIBOR rate plus (ii) a variable margin of between 1.75% and 2.75% depending on the Company's total leverage ratio. Amounts borrowed under the Credit Agreement are secured by a security interest in substantially all of the Company's tangible and intangible assets.

On July 27, 2017, the Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out the London Interbank Offered Rate by the end of 2021. We expect that widespread use of LIBOR will transition to alternative interest rates in the near future. Since loans made under our Credit Agreement may be based on LIBOR based loans, the phasing out of LIBOR may adversely affect interest rates that could result in higher borrowing costs and higher interest expense. The Company is currently evaluating its options under our Credit Agreement, but at this time we cannot reasonably estimate the impact to our financial statements.

The Credit Agreement contains customary terms and provisions (including representations, covenants, and conditions) for transactions of this type. Certain covenants, among other things, restrict the Company's and its subsidiaries' ability to incur indebtedness, grant liens, make investments and sell assets. The Credit Agreement also contains customary events of default, covenants and representations and warranties. Financial covenants include:

•An interest coverage ratio (based on interest expense and EBITDA) of at least 3.5 to 1.0;

•A total leverage ratio no greater than 3.00 to 1.00, provided that in the event of a permitted acquisition having an aggregate consideration equal to $10.0 million or more, at the Borrower’s election, the total leverage ratio shall be deemed to be 3.25 to 1.00 for the fiscal quarter in which such permitted acquisition occurs and the three immediately following fiscal quarters and thereafter will revert to 3.00 to 1.00; and

•A capital expenditures covenant limiting capital expenditures to $100.0 million plus, if the capital expenditures permitted have been fully utilized, an additional amount for the remaining term of the Credit Agreement equal to 35% of EBITDA for the thirteen “four-week” periods most recently ended immediately prior to the full utilization of such $100.0 million basket.

The Credit Agreement places certain limitations on acquisitions and the payment of dividends.

Debt at ~~September 7, 2019~~March 21, 2020 and December ~~29, 2018~~28, 2019 consisted of the following:


(thousands)	March 21, 2020		December 28, 2019
Principal amount	$	30,000	$	30,000
Less: unamortized debt issuance costs	582		652
Long-term debt, less current maturities	$	29,418	$	29,348

(thousands) September 7, 2019 December 29, 2018
Principal amount $ 30,000
$ 30,000
Less: unamortized debt issuance costs 745
954
Debt less unamortized debt issuance costs $ 29,255
$ 29,046

For the ~~third quarter~~first fiscal quarters ended ~~September 7,~~March 21, 2020, and March 23, 2019, the Company recorded interest expense of $0.4 million, of which $0.3 million is with respect to our term loan, and $0.1 million ~~relates~~related to amortization of debt issuance costs. The Company recorded interest expense of $0.4 million for the third quarter ended September 8, 2018 which related primarily to our term loan. During the first three quarters of fiscal 2019, the Company recorded interest expense of $1.2 million which related primarily to our term loan. In the first three quarters of fiscal 2018 the Company recorded interest expense of $1.0 million.

The Company's weighted average interest rate for all debt as of ~~September 7,~~March 21, 2020, and March 23, 2019 was 3.7% and ~~September 8, 2018 was 4.3% and 3.8%~~4.5%, respectively.

As of ~~September 7, 2019~~March 21, 2020 and December ~~29, 2018,~~28, 2019, the Company was in compliance with all covenants under its Credit Agreement. As of ~~September 7, 2019~~March 21, 2020 and December ~~29, 2018,~~28, 2019, the Company had ~~$1.1~~$1.7 million and ~~$1.3~~$1.1 million of standby letters of credit issued, respectively, and ~~$62.5~~$63.3 million and ~~$63.7~~$63.9 million was available for borrowing under the bank credit facility, respectively. We believe that the carrying value of our debt balance at ~~September 7, 2019~~March 21, 2020 approximates fair value.

~~Scheduled Maturities of Debt~~

_(thousands)

Fiscal Year: Term Loan

2019 $ —
2020 —
2021 —
2022 30,000
2023 —
Aggregate Maturities $ 30,000

(11) SEGMENT INFORMATION

The Company has ~~two~~2 reportable segments: "Environmental Services" and "Oil Business." The Environmental Services segment consists primarily of the Company's parts cleaning, containerized waste management, vacuum truck service, antifreeze recycling activities, and field services. The Oil Business segment consists primarily of the Company's used oil collection, used oil re-refining activities, and the dehydration of used oil to be sold as recycled fuel oil.

No single customer in either segment accounted for more than 10.0% of consolidated revenues in any of the periods presented. There were no intersegment revenues. Both the Environmental Services and Oil Business ~~segment~~segments operate in the United States and, to an immaterial degree, in Ontario, Canada. As such, the Company is not disclosing operating results by geographic segment.

~~Segment results for the third quarters ended September 7, 2019, and September 8, 2018 were as follows:~~

Third Quarter Ended,
September 7, 2019
(thousands)

Environmental
Services
Oil Business Corporate and
Eliminations Consolidated

Revenues
Service revenues $ 54,066
$ 3,142
$ —
$ 57,208
Product revenues 9,305
32,659
—
41,964
Rental income 5,620
48
—
5,668
Total revenues
$ 68,991
$ 35,849
$ —
$ 104,840
Operating expenses

Operating costs
49,486
30,630
—
80,116
Operating depreciation and amortization
1,743
1,441
—
3,184
Profit before corporate selling, general, and administrative expenses
$ 17,762
$ 3,778
$ —
$ 21,540
Selling, general, and administrative expenses
11,241
11,241
Depreciation and amortization from SG&A
796
796
Total selling, general, and administrative expenses
$ 12,037
$ 12,037
Other expense - net
1,020
1,020
Operating income
8,483
Interest expense – net
181
181
Income before income taxes
$ 8,302

Third Quarter Ended,
September 8, 2018
(thousands)

Environmental
Services
Oil Business Corporate and
Eliminations Consolidated

Revenues
Service revenues $ 55,473
$ 2,581
$ —
$ 58,054
Product revenues 7,834
33,786
—
41,620
Total revenues $ 63,307
$ 36,367
$ —
$ 99,674
Operating expenses
Operating costs 45,460
30,585
—
76,045
Operating depreciation and amortization 1,599
1,410
—
3,009
Profit before corporate selling, general, and administrative expenses $ 16,248
$ 4,372
$ —
$ 20,620
Selling, general, and administrative expenses 10,641
10,641
Depreciation and amortization from SG&A 767
767
Total selling, general, and administrative expenses $ 11,408
$ 11,408
Other expense - net 253
253
Operating income 8,959
Interest expense – net 256
256
Income before income taxes $ 8,703

Segment results for the first ~~three~~ quarters ended ~~September 7,~~March 21, 2020, and March 23, 2019 ~~and September 8, 2018~~ were as follows:


First Quarter Ended,
March 21, 2020
	(thousands)	Environmental Services				Oil Business				Corporate and Eliminations				Consolidated

Revenues
	Service revenues	$	60,960			$	2,797			$	—			$	63,757
	Product revenues	10,728				26,994				—				37,722
	Rental income	5,765				20				—				5,785
Total revenues				$	77,453			$	29,811			$	—			$	107,264
Operating expenses
	Operating costs	56,404				26,846				—				83,250
	Operating depreciation and amortization	2,271				2,055				—				4,326
Profit before corporate selling, general, and administrative expenses				$	18,778			$	910			$	—			$	19,688
Selling, general, and administrative expenses												11,522				11,522
Depreciation and amortization from SG&A												942				942
Total selling, general, and administrative expenses												$	12,464			$	12,464
Other expense - net												272				272
Operating income																6,952
Interest expense – net												214				214
Income before income taxes																$	6,738


First Three Quarters Ended,
September 7, 2019
First Quarter Ended,										First Quarter Ended,
March 23, 2019										March 23, 2019
	(thousands)	Environmental Services		Oil Business		Corporate and Eliminations		Consolidated			(thousands)	Environmental Services				Oil Business				Corporate and Eliminations				Consolidated

Revenues	Revenues									Revenues
	Service revenues	$	161,273	$	10,249	$	—	$	171,522		Service revenues	$	52,875			$	3,491			$	—			$	56,366
	Product revenues	29,620		89,504		—		119,124			Product revenues	10,137				25,721				—				35,858
	Rental income	14,791		176		—		14,967			Rental income	3,484				64				—				3,548
Total revenues	Total revenues	$	205,684	$	99,929	$	—	$	305,613	Total revenues				$	66,496			$	29,276			$	—			$	95,772
Operating expenses	Operating expenses									Operating expenses
	Operating costs	149,024		92,425		—		241,449			Operating costs	50,163				32,320				—				82,483
	Operating depreciation and amortization	5,252		4,308		—		9,560			Operating depreciation and amortization	1,636				1,434				—				3,070
Profit before corporate selling, general, and administrative expenses		$	51,408	$	3,196	$	—	$	54,604
Profit (loss) before corporate selling, general, and administrative expenses										Profit (loss) before corporate selling, general, and administrative expenses				$	14,697			$	(4,478)			$	—			$	10,219
Selling, general, and administrative expenses	Selling, general, and administrative expenses					34,679		34,679		Selling, general, and administrative expenses												12,396				12,396
Depreciation and amortization from SG&A	Depreciation and amortization from SG&A					2,616		2,616		Depreciation and amortization from SG&A												1,066				1,066
Total selling, general, and administrative expenses	Total selling, general, and administrative expenses					$	37,295	$	37,295	Total selling, general, and administrative expenses												$	13,462			$	13,462
Other expense - net						2,477		2,477
Operating income								14,832
Other income - net										Other income - net												(58)				(58)
Operating loss										Operating loss																(3,185)
Interest expense – net	Interest expense – net					629		629		Interest expense – net												230				230
Income before income taxes								$	14,203
Loss before income taxes										Loss before income taxes																$	(3,415)

First Three Quarters Ended,
September 8, 2018
(thousands)

Environmental
Services
Oil Business Corporate and
Eliminations Consolidated

Revenues
Service revenues $ 163,428
$ 8,777
$ —
$ 172,205
Product revenues 21,798
89,120
—
110,918
Total revenues $ 185,226
$ 97,897
$ —
$ 283,123
Operating expenses
Operating costs 134,640
86,062
—
220,702
Operating depreciation and amortization 4,590
4,188
—
8,778
Profit before corporate selling, general, and administrative expenses $ 45,996
$ 7,647
$ —
$ 53,643
Selling, general, and administrative expenses 33,185
33,185
Depreciation and amortization from SG&A 2,300 2,300
Total selling, general, and administrative expenses $ 35,485
$ 35,485
Other expense - net 983
983
Operating income 17,175
Interest expense – net 742
742
Income before income taxes $ 16,433

Total assets by segment as of ~~September 7, 2019,~~March 21, 2020, and December ~~29, 2018~~28, 2019 were as follows:


(thousands)				March 21, 2020			December 28, 2019
Total Assets:
	Environmental Services	$	225,308		$	224,657
	Oil Business	170,688			171,104
	Unallocated Corporate Assets	70,662			75,553
	Total	$	466,658		$	471,314

(thousands) September 7, 2019 December 29, 2018
Total Assets:
Environmental Services $ 214,147
$ 148,192
Oil Business 159,552
142,691
Unallocated Corporate Assets 74,854
56,939
Total $ 448,553
$ 347,822

Segment assets for the Environmental Services and Oil Business segments consist of property, plant, and equipment, right-of-use assets, intangible assets, accounts receivable, goodwill, and inventories. Assets for the corporate unallocated amounts consist of property, plant, and equipment used at the corporate headquarters as well as cash and net deferred tax assets.

(12) COMMITMENTS AND CONTINGENCIES

LEASES

Lessee

The Company leases buildings and property, railcars, machinery and equipment, trailers and various types of vehicles for use in our operations. Each arrangement is evaluated individually to determine if the arrangement is or contains a lease at inception. The Company has lease agreements with lease and non-lease components and we have elected to not separate lease and non-lease components for all classes of underlying assets. In addition, our lease agreements do not contain any material residual guarantees or restrictive covenants.

Leases may include variable lease payments for common area maintenance, real estate taxes, and truck lease mileage. No leases are tied to a market index rate or CPI. Variable lease payments are not included in the initial measurement of the right-of-use assets or lease liabilities, and are recorded as lease expense in the period incurred. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that we will exercise that option. We have elected not to record leases with an initial term of 12 months or less on the balance sheet and instead recognize those lease payments on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as either operating or financing leases in our Consolidated Balance Sheet.

Right-of-use assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Our ~~lease~~leased right-of-use assets are measured at the initial measurement of the lease liability, adjusted for any lease payments made prior to the lease commencement date, less any lease incentives received and other initial direct costs incurred. Our lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments.

Our leases have remaining terms ranging from less than one month to 11 years and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. Our finance leases include a fleet of mobile equipment.

The components of lease expense were as follows:


	For the First Quarter Ended
(thousands)	March 21, 2020			March 23, 2019
Finance lease cost:
Amortization of right-of-use assets	$	322		$	—
Interest on lease liabilities	74			—
Total finance lease cost	$	396		$	—

Operating lease cost	$	6,051		$	6,031
Short-term lease cost	1,360			1,404
Variable lease cost	1,033			1,093
Total lease cost	$	8,444		$	8,528

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from financing leases	$	66		$	—
Operating cash flows from operating leases	$	6,523		$	6,341
Financing cash flows from financing leases	$	210		$	—
Right-of-use assets obtained in exchange for new finance lease liabilities	$	3,264		$	—
Right-of-use assets obtained in exchange for new operating lease liabilities	$	588		$	67,593

Weighted-average remaining lease term (years)
Finance leases	6.6			—
Operating leases	4.9			4.9

Weighted-average discount rate
Finance leases	3.4		%	—		%
Operating leases	5.8		%	5.5		%

(thousands) For the Third Quarter Ended, September 7, 2019 First Three Quarters Ended, September 7, 2019
Finance lease cost:
    Amortization of right-of-use Assets $ 25
$ 25
    Interest on lease liabilities 6
6
Total finance lease cost $ 31
$ 31

Operating lease cost $ 5,914
$ 18,366
Short-term lease cost 1,579
3,650
Variable lease cost 827
2,794
Total lease cost $ 8,320
$ 24,810

Cash paid for amounts included in the measurement of lease liabilities:
    Operating cash flows from financing leases $ 4
$ 4
    Operating cash flows from operating leases $ 6,554
$ 19,805
    Financing cash flows from financing leases $ 13
$ 13
Right-of-use assets obtained in exchange for new finance lease liabilities $ 1,487
$ 1,487
Right-of-use assets obtained in exchange for new operating lease liabilities $ 12,099
$ 92,226

Weighted-average remaining lease term (years)

    Finance leases 6.90
    Operating leases 4.80

Weighted-average discount rate

    Finance leases 3.4 %
    Operating leases 5.7 %

Future annual minimum lease payment commitments as of ~~September 7, 2019~~March 21, 2020 were as follows:


(thousands)
Year 1	$	26,299
Year 2	21,007
Year 3	17,204
Year 4	13,125
Year 5	9,398
thereafter	15,778
Total minimum lease payments	$	102,811
Less: imputed interest	13,512
Lease liability	$	89,299

(thousands)
2019 $ 7,770
2020 22,835
2021 18,681
2022 14,685
2023 10,840
2024 and thereafter 16,440
Total minimum lease payments $ 91,251
Less: imputed interest 11,703
Lease liability $ 79,548

As disclosed in our 2018 Annual Report on Form 10-K, and under the previous lease accounting standard 840, future minimum lease payments due under noncancelable operating lease agreements as of December 29, 2018 were as follows:

(thousands)
2019 $ 22,226
2020 16,095
2021 12,458
2022 9,247
2023 6,020
2024 and thereafter 5,786
Total minimum lease payments $ 71,832

Lessor

The Company is a lessor of portions of a building and property, railcars, and equipment such as embedded leases of parts cleaning machines. Each of the Company’s leases is classified as an operating lease, and the vast majority are short-term leases. Variable lease payments include real and personal property taxes, which are based on the lessee’s pro rata portion of such amounts, and excess mileage charges which are computed as the actual miles traveled in a calendar year minus the maximum average mileage allowance as specified per the contract. Options to extend the lease beyond the original terms range from day-to-day renewals to increments of ~~five-year~~five-year extensions. Options to terminate the lease range from immediate termination upon return of the asset to various written notification periods following a minimum lease term. Options for a lessee to purchase the underlying asset are not contractually specified but may be negotiated on a case-by-case basis. Significant judgments made in determining whether a contract contains a lease include assessments as to whether or not the contract conveys the right to direct the use of an identified asset. Significant judgments made in allocating consideration between lease and non-lease components include techniques applied in estimating the relative stand-alone selling prices of the lease and non-lease components of the contract in cases where a stand-alone selling price is not directly observable. As of ~~September 7, 2019,~~March 21, 2020, the Company is party to a contract under which it leases railcars to the related party Calumet Specialty Products Partners, L.P. No leased assets are covered by residual value guarantees. The Company manages the risk associated with the residual value of leased assets through such means as performing periodic maintenance and upkeep activities and the inclusion of contractual terms that hold the lessee responsible for damage incurred to leased assets. Contained in Note 7, “Property, plant, and equipment,” are disclosures concerning the Company’s underlying assets under operating leases. The Company has made an accounting policy election to exclude from the consideration in the contract, and from variable payments not included in the consideration in the contract, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific lease revenue-producing transaction and collected by the lessor from a lessee.

The Company recognizes rental income on a straight-line basis for that portion of the consideration allocated to the embedded lease component of certain of our parts cleaning contracts. We also recognize rental income on certain subleases of railcars and portions of a building and property.

Rental income ~~for the third quarter and first three quarters ended September 7, 2019~~ was as follows:


	For the First Quarter Ended
	March 21, 2020										March 23, 2019
(thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total
Parts Cleaning	$	5,765	$	—	$	5,765	$	3,484	$	—	$	3,484
Railcars	—		16		16		—		57		57
Property	—		4		4		—		7		7
Total rental income	$	5,765	$	20	$	5,785	$	3,484	$	64	$	3,548

Third Quarter Ended, First Three Quarters Ended,
September 7, 2019 September 7, 2019
(thousands) Environmental Services Oil Business Total Environmental Services Oil Business Total
Parts Cleaning $ 5,620
$ —
$ 5,620
$ 14,791
$ —
$ 14,791
Railcars —
35
35
—
147
147
Property —
13
13
—
29
29
Total rental income $ 5,620
$ 48
$ 5,668
$ 14,791
$ 176
$ 14,967

Purchase Obligations

The Company may enter into purchase obligations with certain vendors. They represent expected payments to third party service providers and other commitments entered into during the normal course of our business. These purchase obligations are generally cancelable with or without notice, without penalty, although certain vendor agreements provide for cancellation fees or penalties depending on the terms of the contract.

The Company has purchase obligations in the form of open purchase orders of ~~$28.0~~$25.8 million as of ~~September 7, 2019,~~March 21, 2020, and ~~$18.6~~$28.3 million as of December ~~29, 2018,~~28, 2019, primarily for used oil, solvent, machine purchases, disposal and transportation expenses, and capital expenditures.

The Company may be subject to investigations, claims or lawsuits as a result of operating its business, including matters governed by environmental laws and regulations. The Company may also be subject to tax audits in a variety of jurisdictions. When claims are asserted, the Company evaluates the likelihood that a loss will occur and records a liability for those instances when the likelihood is deemed probable and the exposure is reasonably estimable. The Company carries insurance at levels it believes are adequate to cover loss contingencies based on historical claims activity. When the potential loss exposure is limited to the insurance deductible and the likelihood of loss is determined to be probable, the Company accrues for the amount of the required deductible, unless a lower amount of exposure is estimated. As of ~~September 7, 2019~~March 21, 2020 and December ~~29, 2018,~~28, 2019, the Company had accrued ~~$4.4~~$3.9 million and ~~$4.2~~$4.0 million related to loss contingencies and other contingent liabilities, respectively.

(13) INCOME TAXES

The Company deducted for federal income tax purposes accelerated "bonus" depreciation on the majority of its capital expenditures for assets placed in service in fiscal 2011 through the ~~third~~first quarter of ~~2019.~~2020. Therefore, the Company recorded a noncurrent deferred tax liability as to the difference between the book basis and the tax basis of those assets. As of the ~~third~~first quarter of fiscal ~~2019,~~2020, the Company's remaining Federal Net Operating Loss ("NOL") was ~~$14.6~~$19.4 million, which will begin to expire in 2031. The unexpired balance on the federal NOL generated in 2011 is ~~$0.5~~$0.4 million as of ~~September 7, 2019.~~March 21, 2020. The Company's remaining balance of Federal NOLs recorded during 2012 - ~~2015~~2019 was ~~$14.1~~$19.1 million as of ~~September 7, 2019.~~March 21, 2020. There are also state NOLs of varying amounts, dependent on each state’s conformity with bonus depreciation. The remaining deferred tax asset related to the Company's state and federal NOL was a tax effected balance of ~~$3.4~~$4.7 million.

The Company's effective tax rate for the ~~third~~first quarter of fiscal ~~2019~~2020 was ~~27.1%~~21.5% compared to ~~26.2%~~28.9% in the ~~third~~first quarter of fiscal ~~2018.~~2019. The ~~Company’s effective~~ rate ~~for~~decrease is principally attributable to the ~~first three quarters of fiscal 2019 was 24.0%~~opposing effect on the tax rate from equity compensation in an income quarter as compared to ~~24.3% in the first three quarters of fiscal 2018.~~a loss quarter.

The Company establishes reserves when it is more likely than not that the Company will not realize the full tax benefit of a position. The Company had a reserve of ~~$2.5~~$2.7 million for uncertain tax positions as of ~~September 7, 2019.~~March 21, 2020. The gross unrecognized tax benefits would, if recognized, decrease the Company's effective tax rate.

(14) SHARE-BASED COMPENSATION

On February 20, 2019, the Compensation Committee and the Board of Directors of the Company adopted the 2019 Incentive Award Plan (the “2019 Plan”), to replace the Company’s 2008 Omnibus Incentive Plan (“2008 Plan”), which expired in March 2018. The 2019 Plan was approved during the second quarter of 2019 and authorizes 1,500,000 shares to be available for award grants.

Restricted Stock Compensation/Awards

Annually, the Company grants restricted shares to its Board of Directors. The shares become fully vested one year from their grant date. The fair value of each restricted stock grant is based on the closing price of the Company's common stock on the date of grant. The Company amortizes the expense over the service period, which is the fiscal year in which the award is granted. In addition, the Company may grant restricted shares to certain members of management based on their services and contingent upon continued service with the Company. The restricted shares vest over a period of approximately three years from the grant date. The fair value of each restricted stock grant is based on the closing price of the Company's common stock on the date of grant.

The following table shows a summary of restricted share grants and expense resulting from the awards:


				Compensation Expense											Compensation Expense
(thousands, except share amounts)	(thousands, except share amounts)			First Three Quarters Ended,				Unrecognized Expense as of,				(thousands, except share amounts)							First Quarters Ended,				Unrecognized Expense as of,
Recipient of Grant		Grant Date	Restricted Shares	September 7, 2019		September 8, 2018		September 7, 2019		December 29, 2018		Recipient of Grant	Grant Date	Restricted Shares	March 21, 2020		March 23, 2019		March 21, 2020		March 23, 2019
Members of Management		February, 2017	146,564	$	249	$	318	$	118	$	385	Members of Management	February, 2017	146,564	$	—	$	89	$	—	$	296
Chief Executive Officer		February, 2017	500,000	569		921		661		1,230		Chief Executive Officer	February, 2017	500,000	106		205		400		1,025
Members of Management		February, 2018	116,958	373		374		804		1,176		Members of Management	February, 2018	116,958	142		136		472		1,040
Special Incentive Grant		April, 2018	350,000	661		817		3,887		6,633		Special Incentive Grant	April, 2018	350,000	344		163		3,084		5,192
Board of Directors		May, 2018	13,800	—		197		—		—		Board of Directors	May, 2019	10,590	—		66		—		219
Board of Directors		May, 2019	10,590	197		—		88		—
Members of Management		May, 2019	23,560	136		—		500		—		Members of Management	May, 2019	23,560	50		—		408		—
Members of Management												Members of Management	February, 2020	41,138	165		—		705		—

In February 2017, as part of Mr. Recatto's employment agreement, the Company granted a restricted stock award of 500,000 shares of common stock, which vests through January 2021 in an amount based on the vesting table below, with the common stock price increase to be determined based on the increase in the price of the Company’s common stock (if any) from the closing price of the common stock as reported by Nasdaq on the employment commencement date ($15.00) and the common stock price on the potential vesting date (determined by using the weighted average closing price of a share of the Company's common stock for the 90-day period ending on the vesting date). If the stock price does not increase by $5.00, then no0 shares shall vest. During the first ~~three quarters~~quarter of fiscal ~~2019,~~2020, the Company recorded approximately ~~$0.6~~$0.1 million of compensation expense related to this award. In the future, the Company expects to recognize compensation expense of approximately ~~$0.7~~$0.4 million over the remaining requisite service period, which ends January 31, 2021. The fair value of this restricted stock award as of the grant date was estimated using a Monte Carlo simulation model. Key assumptions used in the Monte Carlo simulation to estimate the grant date fair value of this award are a risk-free rate of 1.70%, expected dividend yield of ~~zero,~~0, and an expected volatility assumption of 41.73%.

Vesting Table

Increase in Stock Price From the Employment Commencement Date to the Vesting Date

Total Percentage of Restricted Stock

Shares to Be Vested

Less than $5 per share increase

—%

$5 per share increase

25%

$10 per share increase

50%

$15 per share increase

75%

$20 or more per share increase

100%

Provision for possible accelerated vesting of award

If the average closing price of the Company's common stock increases by the marginal levels set forth in the above vesting table for any consecutive 180 day period between the award date and final vesting date, Mr. Recatto shall become vested in 50% of the corresponding total percentage of restricted shares earned on the last day of the 180 day period.

~~Vestings~~Accelerated vestings achieved to date include the following:

On June 10, 2019, the average closing price of the Company's common stock met the 50% marginal level and Mr. Recatto became fully vested in half of the 125,000 vested shares. On March 14, 2018, the average closing price of the Company's common stock met the 25% marginal level and Mr. Recatto became fully vested in half of the 125,000 vested shares.


Vesting Date	Marginal Level Target	Shares Fully Vested
March 14, 2018	25%	62,500
June 10, 2019	50%	62,500

The following table summarizes the restricted stock activity for the first ~~three quarters~~quarter ended ~~September 7, 2019:~~March 21, 2020:


Restricted Stock (Nonvested Shares)	Number of Shares	Weighted Average Grant-Date Fair Value Per Share
Nonvested shares outstanding at December 28, 2019	784,579	$	18.39
Granted	41,138	28.16
Vested	(64,408)	19.15
Forfeited	(8,088)	15.42
Nonvested shares outstanding at March 21, 2020	753,221	$	17.34

Restricted Stock (Nonvested Shares) Number of Shares Weighted Average Grant-Date Fair Value Per Share
Nonvested shares outstanding at December 29, 2018 1,013,863
$ 18.20
Granted 34,150
26.54
Vested (158,372 ) 16.52
Forfeited (105,062 ) 22.01
Nonvested shares outstanding at September 7, 2019 784,579
$ 18.39

Employee Stock Purchase Plan

As of ~~September 7, 2019,~~March 21, 2020, the Company had reserved ~~115,022~~105,483 shares of common stock available for purchase under the Employee Stock Purchase Plan. In the first ~~three quarters~~quarter of fiscal ~~2019,~~2020, employees purchased ~~14,240~~4,102 shares of the Company’s common stock with a weighted average fair market value of ~~$25.72~~$31.21 per share.

(15) EARNINGS PER SHARE

The following table reconciles the number of shares outstanding for the ~~third quarters and~~ first ~~three~~ quarters of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively, to the number of weighted average basic shares outstanding and the number of weighted average diluted shares outstanding for the purposes of calculating basic and diluted earnings per share:


	First Quarter Ended,
(thousands, except per share amounts)	March 21, 2020		March 23, 2019
Net income (loss)	$	5,291	$	(2,429)
Less: income attributable to noncontrolling interest	—		83
Net income (loss) attributable to Heritage-Crystal Clean, Inc. available to common stockholders	$	5,291	$	(2,512)

Weighted average basic shares outstanding	23,239		23,117
Dilutive shares for share–based compensation plans	183		—
Weighted average diluted shares outstanding	23,422		23,117

Number of anti–dilutive potentially issuable shares excluded from diluted shares outstanding	—		248



Net income (loss) per share: basic	$	0.23	$	(0.11)
Net income (loss) per share: diluted	$	0.23	$	(0.11)

Third Quarter Ended, First Three Quarters Ended,
(thousands, except per share amounts) September 7, 2019 September 8, 2018 September 7, 2019 September 8, 2018
Net income $ 6,056
$ 6,419
$ 10,792
$ 12,437
Less: income attributable to noncontrolling interest 86
74
278
213
Net income attributable to Heritage-Crystal Clean, Inc. available to common stockholders $ 5,970
$ 6,345
$ 10,514
$ 12,224

Weighted average basic shares outstanding 23,185
23,048
23,146
23,013
Dilutive shares for share–based compensation plans 236
356
238
286
Weighted average diluted shares outstanding 23,421
23,404
23,384
23,299

Net income per share: basic $ 0.26
$ 0.28
$ 0.45
$ 0.53
Net income per share: diluted $ 0.25
$ 0.27
$ 0.45
$ 0.52

(16) OTHER EXPENSE (INCOME) - NET

Other expense (income) - net was ~~$2.5~~$0.3 million of expense for the first ~~three quarters~~quarter of fiscal ~~2019 primarily relating~~2020, compared to ~~$1.5~~a net $0.1 million of ~~site closure costs for a facility~~other income in ~~Wilmington, DE. Other expense of $1.0 million for~~ the first ~~three quarters~~quarter of ~~fiscal 2018 primarily consists of $0.7 million of site closure costs.~~2019.

(17) SUBSEQUENT EVENTS

On ~~October 8, 2019,~~March 31, 2020, Heritage-Crystal Clean completed the acquisition of certain assets of ~~California Environmental & Litho, Inc.~~Gro America (“Gro”), which ~~provided transportation~~has expanded our network of wastewater processing facilities and ~~disposal~~augmented our field services ~~for hazardous~~capabilities to better serve our customers throughout the Midwestern United States. This acquisition provides the Company with a first-class centralized wastewater treatment operation in Wyoming, Michigan just outside of Grand Rapids, and ~~non-hazardous waste~~adds a robust field services business with expanded service capabilities which will allow us to ~~printing, photographic, automotive and body shop businesses~~reduce the use of subcontractors required to complete field services projects in the Bay Area, Central Valley & Northern California. The acquisition represents an expansion of HCC’s Environmental Services business in this geographic area while potentially providing new services and products for this market. No facilities were acquired in the transaction and all service employees and activity will be consolidated in existing branch territories.certain geographies. Total consideration for the acquisition was approximately ~~$0.6~~$10.0 million.

COVID-19 Pandemic

We are closely monitoring the spread and impact of the COVID-19 pandemic and are continually assessing its potential effects on our business and our financial performance as well as the businesses of our customers and vendors. The Company cannot predict the duration or severity of the COVID-19 pandemic, and we cannot reasonably estimate the financial impact the COVID-19 outbreak will have on our results and significant estimates going forward.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Disclosure Regarding Forward-Looking Statements

You should read the following discussion in conjunction with our consolidated financial statements and related notes in our Annual Report on Form 10-K filed with the SEC on March ~~6, 2019.~~3, 2020. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "aim," "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "will be," "will continue," "will likely result," "would" and other words and terms of similar meaning in conjunction with a discussion of future or estimated operating or financial performance. You should read statements that contain these words carefully, because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other “forward-looking” information. Forward-looking statements speak only as of the date of this quarterly report. Factors that could cause such differences include those described in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for fiscal ~~2018~~2019 filed with the SEC on March ~~6, 2019.~~3, 2020. Except as required under federal securities laws and the rules and regulations of the SEC, we do not have any intention, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this quarterly report, whether as a result of new information, future events or otherwise. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements included in this quarterly report or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. Certain tabular information may not foot due to rounding. Our fiscal year ends on the Saturday closest to December 31. Interim results are presented for the twelve weeks ("~~third~~first quarter" or "quarter") ended March 21, 2020 and ~~thirty-six weeks (first three quarters) ended September 7,~~March 23, 2019, ~~and September 8, 2018,~~ respectively. "Fiscal ~~2018"~~2019" represents the 52-week period ended December ~~29, 2018~~28, 2019 and "Fiscal ~~2019"~~2020" represents the ~~52-week~~ period beginning December 29, 2019, and ending on December ~~28, 2019.~~31, 2020.

Overview

We provide parts cleaning, containerized waste management, used oil collection, vacuum truck services, antifreeze recycling, and field services primarily to small and medium sized industrial customers as well as vehicle maintenance customers. We own and operate a used oil re-refinery, several wastewater treatment plants and multiple antifreeze recycling facilities. We believe we are the second largest provider of industrial and hazardous waste services to small and mid-sized customers in both the vehicle maintenance and industrial services sector in North America, and we have the second largest used oil re-refining capacity in North America. Our services help our customers manage their used chemicals and liquid and solid wastes while also helping to minimize their regulatory burdens. We operate from a network of 91 89 branch facilities providing services to customers in 45 states and parts of Canada. We conduct business through two segments: Environmental Services and Oil Business.

Our Environmental Services segment revenues are generated primarily from providing parts cleaning services, containerized waste management, vacuum truck services, antifreeze recycling, and field services. Revenues from this segment accounted for approximately ~~67%~~72% of our total Company revenues for the first ~~three quarters~~quarter of fiscal ~~2019.~~2020. In the Environmental

Services segment, we define and measure same-branch revenues for a given period as the subset of all our branches that have been open and operating throughout and between the periods being compared, and we refer to these as established branches. We calculate average revenues per working day by dividing our revenues by the number of non-holiday weekdays in the applicable fiscal year or fiscal quarter.

Our Oil Business segment consists primarily of our used oil collection, used oil re-refining activities, and recycled fuel oil ("RFO") sales which together accounted for approximately ~~33%~~28% of our total Company revenues in the first ~~three quarters~~quarter of fiscal ~~2019.~~2020.

Our operating costs include the costs of the materials we use in our products and services, such as used oil collected from customers or purchased from third party collectors, solvent, and other chemicals. The used solvent that we retrieve from customers in our product reuse program is accounted for as a reduction in our net cost of solvent under operating costs, whether placed in inventory or sold to a purchaser for reuse. Changes in the price of crude oil can impact operating costs indirectly as it may impact the price we pay for solvent or used oil, although we attempt to offset volatility in the oil markets by managing the spread between the costs we pay for our materials and the prices we charge for our products and services. Operating costs also include transportation of solvents and waste, payments to third parties to recycle or dispose of the waste materials that we collect, and the costs of operating our re-refinery, recycling centers, waste water treatment facilities, hubs, and branch system including personnel costs (including commissions), facility rent, truck leases, fuel, and maintenance. Our operating costs as a percentage of sales generally increase in relation to the number of new branch openings. As new branches achieve route density and scale efficiencies, our operating costs as a percentage of sales generally decrease.

We use profit before corporate selling, general, and administrative expenses ("SG&A") as a key measure of segment profitability. We define profit before corporate SG&A expense as revenue less operating costs and depreciation and amortization from operations.

Our corporate selling, general, and administrative expenses include the costs of performing centralized business functions, including sales management at or above the regional level, business management and marketing, billing, receivables management, accounting and finance, procurement, real estate management, information technology, environmental health and safety, human resources and legal.

We operate a used oil re-refinery located in Indianapolis, Indiana, through which we recycle used oil into high quality lubricant base oil and other products. We supply the base oil to firms that produce and market finished lubricants. Our re-refinery has an annual nameplate capacity of approximately 75 million gallons of used oil feedstock, allowing it to produce approximately 4749 million gallons of lubricating base oil per year when operating at full capacity.

Critical Accounting Policies

Critical accounting policies are those that are both important to the accurate portrayal of a company’s financial condition and results and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

In order to prepare financial statements that conform to accounting principles generally accepted in the United States, commonly referred to as GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.

There were no material changes during the first ~~three quarters~~quarter of fiscal ~~2019~~2020 to the information provided under the heading "Critical Accounting Policies" included in our Annual Report on Form 10-K for the fiscal year ended December ~~29, 2018 with the exception~~28, 2019.

Impact of the ~~adoption~~COVID-19 Pandemic on Our Business

The COVID-19 pandemic has caused significant disruption and volatility on a global scale resulting in,

among other things, an economic slowdown. In response to the COVID-19 outbreak, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. As our operations have been deemed essential, we have taken several measures to combat the COVID-19 downturn which have resulted in attenuating activity and, in some cases, required temporary closures of certain of our facilities, among other impacts. The duration of these measures is unknown and may be extended, and additional measures may be necessary. Our fiscal first quarter financial results

do not fully reflect the adverse impact that the COVID-19 pandemic has had on our business as our business first experienced the impact of the COVID-19 economic slowdown at the end of our first fiscal quarter.

As a result of the impact of the COVID-19 outbreak, some of our customers have temporarily closed their businesses, limited our access to their businesses or have a decreased demand for our products and services due to a slowdown in the demand for their own products and or services. We believe that we will experience a material decrease in activity in both our Environmental Services and our Oil Business segments during the second quarter of fiscal 2020, but cannot determine the full extent to which the COVID-19 pandemic will impact our business and operating results at this time. The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is highly uncertain and cannot be accurately predicted and is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, and any new ~~lease standard, ASC 842. See footnote 12~~ — ~~Commitments~~information that may emerge concerning the COVID-19 outbreak and ~~Contingencies~~the actions to contain it or treat its impact. The continued impact on our business as a result of COVID-19 pandemic could result in a material adverse effect on our business, results of operations, financial condition, prospects and the trading prices of our securities in the near-term and beyond 2020.

During the second quarter we have taken several actions to combat the COVID-19 outbreak induced downturn in our business including, but not limited to, the following:

•Implementation of the Company's pandemic response plan;

•Implementation of salary reductions for ~~more information.~~all levels of management;

•Planned implementation of furlough and workshare programs;

•Suspension of all material, non-essential capital expenditures;

•Suspension of mergers & acquisitions (after the acquisition we closed on March 31, 2020);

•Implementation of a hiring freeze;

•Launched a COVID-19 cleaning service; and

•Moved into a material charge position for our used oil collection service.

In addition to the above actions, we have taken steps to minimize the negative impact of the COVID-19 pandemic on our business and to protect the safety of our employees and customers. Entering this economic downturn, we had a strong balance sheet and were in a net-cash position which we expect will position us to take advantage of some of the opportunities that we believe will be in front of us once we emerge from this challenging time.

RESULTS OF OPERATIONS

General

The following table sets forth certain operating data as a percentage of revenues for the periods indicated:


	For the First Quarter Ended,
(thousands)	March 21, 2020									March 23, 2019

Revenues
Service revenues	$	63,757	59.4		%			$	56,366	58.9		%
Product revenues	37,722		35.2		%			35,858		37.4		%
Rental income	5,785		5.4		%			3,548		3.7		%
Total revenues	$	107,264	100.0		%			$	95,772	100.0		%
Operating expenses
Operating costs	$	83,250	77.6		%			$	82,483	86.1		%
Selling, general, and administrative expenses	11,522		10.7		%			12,396		12.9		%
Depreciation and amortization	5,268		4.9		%			4,136		4.3		%
Other expense (income) - net	272		0.3		%			(58)		(0.1)		%
Operating income (loss)			6,952			6.5	%			(3,185)			(3.3)	%
Interest expense – net			214			0.2	%			230			0.2	%
Income (loss) before income taxes			6,738			6.3	%			(3,415)			(3.6)	%
Provision for (benefit from) income taxes			1,447			1.3	%			(986)			(1.0)	%
Net income (loss)			5,291			4.9	%			(2,429)			(2.5)	%
Income attributable to noncontrolling interest			—			—	%			83			0.1	%
Net income (loss) attributable to Heritage-Crystal Clean, Inc. common stockholders			$	5,291		4.9	%			$	(2,512)		(2.6)	%

For the Third Quarter Ended, First Three Quarters Ended,
(thousands) September 7,
2019 September 8,
2018 September 7,
2019 September 8,
2018

Revenues
Service revenues $ 57,208
54.6 % $ 58,054
58.2 % $ 171,522
56.1 % $ 172,205
60.8 %
Product revenues 41,964
40.0 % 41,620
41.8 % 119,124
39.0 % 110,918
39.2 %
Rental income 5,668
5.4 % —
— % 14,967
4.9 % —
— %
Total revenues $ 104,840
100.0 % $ 99,674
100.0 % $ 305,613
100.0 % $ 283,123
100.0 %
Operating expenses
Operating costs $ 80,116
76.4 % $ 76,045
76.3 % $ 241,449
79.0 % $ 220,702
78.0 %
Selling, general, and administrative expenses 11,241
10.7 % 10,641
10.7 % 34,679
11.3 % 33,185
11.7 %
Depreciation and amortization 3,980
3.8 % 3,776
3.8 % 12,176
4.0 % 11,078
3.9 %
Other expense - net 1,020
1.0 % 253
0.3 % 2,477
0.8 % 983
0.3 %
Operating income 8,483
8.1 % 8,959
9.0 % 14,832
4.9 % 17,175
6.1 %
Interest expense – net 181
0.2 % 256
0.3 % 629
0.2 % 742
0.3 %
Income before income taxes 8,302
7.9 % 8,703
8.7 % 14,203
4.6 % 16,433
5.8 %
Provision for income taxes 2,246
2.1 % 2,284
2.3 % 3,411
1.1 % 3,996
1.4 %
Net income 6,056
5.8 % 6,419
6.4 % 10,792
3.5 % 12,437
4.4 %
Income attributable to noncontrolling interest 86
0.1 % 74
0.1 % 278
0.1 % 213
0.1 %
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders $ 5,970
5.7 % $ 6,345
6.4 % $ 10,514
3.4 % $ 12,224
4.3 %

Revenues

Revenue for the ~~third~~first quarter of ~~2019~~2020 was ~~$104.8~~$107.3 million compared to ~~$99.7~~$95.8 million for the same quarter of ~~2018,~~2019, an increase of ~~$5.2~~$11.5 million, or ~~5.2%~~12.0%. The ~~$5.2~~$11.5 million increase in revenue was driven by ~~9.0%~~16.5% revenue growth in the Environmental Services segment, ~~partially offset by~~along with a ~~1.4% decline~~1.8% increase in revenue from our Oil Business segment. For the first three quarters of fiscal 2019, revenues increased $22.5 million, or 7.9%, from $283.1 million in the first three quarters of fiscal 2018 to $305.6 million in the first three quarters of 2019. The increase in revenue was driven mainly by growth in most of our Environmental Services segment product and service lines.

Operating costs

Operating costs increased ~~$4.1~~$0.8 million, or ~~5.4%~~0.9%, during the ~~third~~first quarter of ~~2019~~2020 compared to the ~~third~~first quarter of fiscal ~~2018.~~2019. The increase was mainly due to higher ~~labor~~disposal cost from increased volume and ~~employee benefit cost~~fleet repairs, partially offset by lower maintenance and health care costs compared to the year-ago quarter. Operating costs increased $20.8 million, or 9.4%, in the first three quarters of fiscal 2019 compared to the first three quarters of fiscal 2018. The increase in operation costs was mainly driven by lower spreads in our Oil Business segment, along with higher labor cost and employee benefit cost in our Environmental Services segment.

We expect that in the future our operating costs in both the Environmental Services ~~business will continue to increase as our~~service volume increases; however, a decrease in crude oil prices could partially offset this cost increase because a decrease in price could cause a decline in the price we pay for parts cleaning solvent and ~~diesel fuel. Likewise, an increase in crude oil prices could cause an increase in the price we pay for parts cleaning solvent and diesel fuel. In the~~ Oil Business ~~segment, our operating costs could~~segments may increase or decrease ~~in the future~~ depending on our product and service volumes, changes in ~~the price for crude oil which could indirectly impact our used oil collection costs and processing costs at our re-refinery.~~commodity pricing, along with other factors.

Selling, general, and administrative expenses

Selling, general, and administrative expenses ~~increased $0.6~~decreased $0.9 million, or ~~5.6%~~7.1%, from the ~~third quarter of fiscal 2018 to the third~~first quarter of fiscal 2019 to the first quarter of fiscal 2020 mainly driven by ~~higher bad debt expense, salaries,~~lower severance, professional services, and ~~employee benefits,~~legal fees, partially offset by ~~lower legal fees. Selling, general,~~higher non-management salaries and administrative expenses increased $1.5 million, or 4.5%, from the first three quarters of fiscal 2018 to the first three quarters of fiscal 2019. The increase in expense was mainly driven by higher bad debt expense and incentive compensation, partially offset by lower legal fees year-over-year.share-based compensation.

Other expense (income) - net

Other expense (income) - net was ~~$1.0 million of expense for the third quarter of fiscal 2019 primarily relating to asset write-offs and other site closure costs associated with a facility in Wilmington, DE. Other expense was~~ $0.3 ~~million for the third quarter of 2018. Other expense - net was $2.5~~ million of expense for the first ~~three quarters~~quarter of fiscal ~~2019 primarily relating~~2020, compared to ~~site closure costs and asset write-offs associated with~~ a ~~facility~~net $0.1 million of other income in ~~Wilmington, DE. Other expense of $1.0 million for~~ the first ~~three quarters~~quarter of ~~fiscal 2018 primarily consists of $0.7 million of site closure costs.~~2019.

Interest expense - net

Interest expense - net for the ~~third quarter~~first quarters of fiscal ~~2019~~2020 and fiscal ~~2018~~2019 was $0.2 ~~million, and $0.3 million, respectively. For the first three quarters of 2019 and 2018, interest expense was $0.6 million and $0.7 million, respectively.~~million.

Provision for income taxes

Segment Information

The following table presents revenues by reportable segment:


			For the First Quarter Ended,												Change
(thousands)							March 21, 2020				March 23, 2019				$				%
Revenues:
	Environmental Services				$	77,453			$	66,496			$	10,957			16.5	%
	Oil Business				29,811				29,276				535				1.8	%
		Total	$	107,264			$	95,772			$	11,492			12.0	%

For the Third Quarter Ended, Change
(thousands) September 7, 2019 September 8, 2018 $ %
Revenues:
Environmental Services $ 68,991
$ 63,307
$ 5,684
9.0 %
Oil Business 35,849
36,367
(518 ) (1.4 )%
Total $ 104,840
$ 99,674
$ 5,166
5.2 %

First Three Quarters Ended, Change

September 7, 2019 September 8, 2018 $ %
Revenues:
Environmental Services $ 205,684
$ 185,226
$ 20,458
11.0 %
Oil Business 99,929
97,897
2,032
2.1 %
Total $ 305,613
$ 283,123
$ 22,490
7.9 %

In the ~~third~~first quarter of fiscal ~~2019,~~2020, Environmental Services revenue increased by ~~$5.7~~$11.0 million, or ~~9.0%~~16.5%, from ~~$63.3~~$66.5 million in the ~~third~~first quarter of fiscal ~~2018~~2019 to ~~$69.0~~$77.5 million in the ~~third~~first quarter of fiscal 2020. The 16.5% increase in revenue was driven primarily by growth in our field services, parts cleaning, and containerized waste businesses. Our field services business accounted for 8.7 percentage points of the revenue growth for the quarter mainly due a large project that continued from the fourth quarter of 2019. Excluding the field services project, our first quarter revenue growth in the segment was 7.8%.

During the first quarter of fiscal 2020, Oil Business revenues were up $0.5 million, or 1.8%, to $29.8 million compared to $29.3 million in the first quarter of fiscal 2019. The ~~9.0%~~ increase in revenue was driven by growth in most of our product and service lines with the antifreeze, vacuum, and containerized waste businesses being the primary contributors to the growth. Excluding the impact of a large field services project from our third quarter 2018 results, our organic revenue growth in the segment during the third quarter 2019 was 10.5%. Environmental Services revenue increased

~~$20.5 million, or 11.0%, compared to the first three quarters of 2018 to $205.7 million during the first three quarters of 2019 driven by growth in most of our product and services lines of business.~~

~~During the third quarter of fiscal 2019, Oil Business revenues were down $0.5 million, or 1.4%, to $35.8 million compared to $36.4 million in the third quarter of fiscal 2018. The decline~~ in revenue was mainly due to ~~a decrease~~an increase in our selling price of base oil, partially offset by ~~an increase~~a decrease in the volume of base oil gallons sold. During the ~~third~~first quarter of fiscal ~~2019,~~2020, we produced ~~11.7~~10.8 million gallons of base oil at a ~~108.3%~~95.2% rate of nameplate capacity, compared to ~~11.2~~9.4 million gallons at a ~~103.6%~~86.9% rate of nameplate capacity during the ~~third~~first quarter of fiscal of ~~2018. On a year-over-year basis, Oil Business revenue increased $2.0 million, or 2.1%, due to higher base oil volume sold, partially offset by lower selling prices.~~2019.

Segment Profit (Loss) Before Corporate Selling, General and Administrative Expenses ("SG&A")

The following table presents profit (loss) by reportable segment before corporate SG&A expense:


		For the First Quarter Ended,									Change

(thousands)					March 21, 2020			March 23, 2019			$		%
Profit (loss) before corporate SG&A*
	Environmental Services		$	18,778		$	14,697		$	4,081		27.8%
	Oil Business		910			(4,478)			5,388			(120.3)%
	Total		$	19,688		$	10,219		$	9,469		92.7%

For the Third Quarter Ended, Change

(thousands) September 7, 2019 September 8, 2018 $ %
Profit before corporate SG&A*
Environmental Services $ 17,762
$ 16,248
$ 1,514
9.3%
Oil Business 3,778
4,372
(594 ) (13.6)%
Total $ 21,540
$ 20,620
$ 920
4.5%

First Three Quarters Ended, Change
(thousands)
September 7, 2019 September 8, 2018 $ %

Profit before corporate SG&A*
Environmental Services $ 51,408
$ 45,996
$ 5,412
11.8%
Oil Business 3,196
7,647
(4,451 ) (58.2)%
Total $ 54,604
$ 53,643
$ 961
1.8%

*Includes depreciation and amortization related to operating activity but not depreciation and amortization related to corporate

selling, general, and administrative activity. For further discussion see Note 11 in our consolidated financial statements included elsewhere in this document.

Environmental Services profit before corporate SG&A expense increased ~~$1.5~~$4.1 million, or ~~9.3%~~27.8%, in the ~~third~~first quarter of fiscal 2020 compared to the first quarter of fiscal 2019 ~~compared to the third quarter of fiscal 2018~~ driven mainly by higher ~~revenues. Environmental Services~~revenues and lower healthcare expenses, partially offset by higher disposal, fleet repair, and depreciation expense.

Oil Business profit before corporate SG&A expense increased $5.4 million ~~or 11.8%,~~ in the first ~~three quarters~~quarter of fiscal ~~2019~~2020 compared to the first ~~three quarters~~quarter of fiscal ~~2018.~~2019. The ~~higher operating margin compared to fiscal 2018 was mainly due to higher revenues, partially offset by higher labor and higher employee benefit costs.~~

~~Oil Business~~increase in profit before corporate SG&A expense decreased $0.6 million in the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018. Oil Business profit before corporate SG&A expense decreased $4.5 million in the first three quarters of fiscal 2019, compared to the first three quarters of fiscal 2018. The lower operating margins compared to fiscal 2018 werewas mainly due to ~~a decrease in~~better operating efficiency during the ~~spread between our selling price for base oil and our feedstock costs.~~first quarter of 2020, while we experienced unscheduled downtime during the first quarter of 2019 which hampered production.

FINANCIAL CONDITION

Liquidity and Capital Resources

Cash and Cash Equivalents

As of ~~September 7, 2019~~March 21, 2020 and December ~~29, 2018,~~28, 2019, cash and cash equivalents were ~~$59.0~~$56.9 million and ~~$43.6~~$60.7 million, respectively. Our primary sources of liquidity are cash flows from operations and funds available to borrow under our term loan and revolving bank credit facility.

Debt and Financing Arrangements

The Company's Credit Agreement as amended ("Credit Agreement") provides for borrowings of up to $95.0 million, subject to the satisfaction of certain terms and conditions, comprised of a term loan of $30.0 million and up to $65.0 million of borrowings under the revolving loan portion. The actual amount available under the revolving loan portion of the Credit Agreement is limited by the Company's total leverage ratio. The amount available to draw at any point in time would be further reduced by any standby letters of credit issued.

The Credit Agreement contains customary terms and provisions (including representations, covenants, and conditions) for transactions of this type. Certain covenants, among other things, restrict the Company's and its subsidiaries' ability to incur indebtedness, grant liens, make investments and sell assets. The Credit Agreement contains customary events of default, covenants and representations and warranties. Financial covenants include:

•An interest coverage ratio (based on interest expense and EBITDA) of at least 3.5 to 1.0;

•A capital expenditures covenant limiting capital expenditures to $100.0 million plus, if the capital expenditures permitted have been fully utilized, an additional amount for the remaining term of the Agreement equal to 35% of EBITDA for the thirteen “four-week” periods most recently ended immediately prior to the full utilization of such $100.0 million basket.

As of ~~September 7, 2019~~March 21, 2020 and December ~~29, 2018,~~28, 2019, the Company was in compliance with all covenants under ~~the~~its Credit Agreement. As of ~~September 7, 2019~~March 21, 2020 and December ~~29, 2018,~~28, 2019, the Company had ~~$1.1~~$1.7 million and ~~$1.3~~$1.1 million of standby letters of credit issued, respectively, and ~~$62.5~~$63.3 million and ~~$63.7~~$63.9 million was available for borrowing under the bank credit facility, respectively. ~~The actual amount available under~~We believe that the ~~revolving loan portion~~carrying value of ~~the Credit Agreement is limited by the Company's total leverage ratio.~~our debt balance at March 21, 2020 approximates fair value.

The Company's weighted average interest rate for all debt as of ~~September 7,~~March 21, 2020, and March 23, 2019 was 3.7% and ~~September 8, 2018 was 4.3% and 3.8%~~4.5%, respectively. ~~As of September 7, 2019, the Company had $30.0 million outstanding under the term loan, and no amount outstanding under the revolving credit facility.~~

We believe that our existing cash, cash equivalents, available borrowings, and other sources of financings will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. We cannot assure you that this will be the case or that our assumptions regarding revenues and expenses underlying this belief will be accurate. If, in the future, we require more liquidity than is available to us under our credit facility, we may need to raise additional funds through debt or equity offerings. Adequate funds may not be available when needed or may not be available on terms favorable to us. If additional funds are raised by issuing equity securities, dilution to existing stockholders may result. If

we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

Summary of Cash Flow Activity


	For the First Quarter Ended,
(thousands)	March 21, 2020		March 23, 2019
Net cash provided by (used in):
Operating activities	$	10,266	$	9,178
Investing activities	(9,842)		(9,552)
Financing activities	(4,180)		(513)
Net decrease in cash and cash equivalents	$	(3,756)	$	(887)

First Three Quarters Ended,
(thousands) September 7,
2019 September 8,
2018
Net cash provided by (used in):
Operating activities $ 36,325
$ 23,002
Investing activities (19,494 ) (17,599 )
Financing activities (1,459 ) (977 )
Net increase in cash and cash equivalents $ 15,372
$ 4,426

The most significant items affecting the comparison of our operating activities for the first ~~three quarters~~quarter of fiscal 2020 and the first quarter of fiscal 2019 ~~and the first three quarters of fiscal 2018~~ are summarized below:

Net Cash Provided by Operating Activities —

•Earnings — Our ~~decrease~~increase in net income during the first ~~three quarters~~quarter of ~~2019 negatively~~2020 favorably impacted our net cash provided by operating activities by ~~$1.6~~$7.8 million compared to the first ~~three quarters~~quarter of ~~2018.~~

2019.

~~Inventory~~•Accounts Payable — ~~In the first three quarters of fiscal 2019, the~~ The decrease in ~~inventory favorably affected cash flows from operating activities by $13.0 million compared to the first three quarters fiscal 2018 driven mainly by lower carrying value of inventory.~~

~~Accounts Receivable~~ ~~— The increase in~~ accounts ~~receivable, driven mainly by higher revenue,~~payable, had an unfavorable impact on cash provided by operating activities of ~~$4.3~~$6.6 million in the first ~~three quarters~~quarter of fiscal ~~2019 compared to a $4.8 million unfavorable impact the first three quarters of fiscal 2018.~~

2020.

Net Cash Used in Investing Activities —

•Capital expenditures — We ~~used $16.9 million and $12.9 million for~~made capital expenditures ~~during~~as follows:


	For the Fiscal Years Ended,
(thousands)	March 21, 2020		March 23, 2019
Re-refinery capital improvements	$	3.1	$	0.9
Parts cleaning machines	1.4		1.0
Trucks and trailers	0.2		2.4
IT projects	0.1		0.4
Various other projects	5.1		2.9
Total	$	9.9	$	7.6

• Net Cash Used in Financing Activities — The Company dispersed $2.8 million to acquire the ~~first three quarters~~remaining ownership interest in one of ~~fiscal 2019 and fiscal 2018, respectively. During the first three quarters of 2019, we purchased $5.8 million worth of vehicles, and spent $1.6 million on IT related projects in~~ our Environmental Services segment, compared to $2.0 million spent on IT related projects during the first three quarters of fiscal 2018. Additionally, we spent approximately $3.4 million for purchases of parts cleaning machines compared to $3.5 million in the first three quarters of fiscal 2018. In our Oil Business segment, during the first three quarters of fiscal 2019, we spent $3.7 million for capital improvements to the re-refinery, compared to $4.9 million on the re-refinery during the first three quarters of 2018. The remaining $2.4 million of capital expenditures in the first three quarters of fiscal 2019 was for various projects, compared to $2.5 million spent on other various projects in the first three quarters of fiscal 2018.subsidiaries.

~~Business acquisitions, net of cash acquired —~~ We used $2.6 million of cash outflows for acquisitions during the first three quarters of fiscal 2019. During the first three quarters of 2018, we used $4.8 million of cash outflows for the acquisitions. See footnote 3 — ~~Business Combinations for more information.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risks primarily through borrowings under our bank Credit Facility. Interest on this facility is based upon variable interest rates. Our weighted average borrowings under our Credit Facility during the first ~~three quarters~~quarter of fiscal ~~2019~~2020 was $30.0 million, and the annual effective interest rate for the Credit Facility for the ~~third~~first quarter of fiscal ~~2019~~2020 was ~~4.3%~~3.7%. WeWe currently do not hedge against interest rate risk. Based on the foregoing, a hypothetical 1% increase or decrease in interest rates would have resulted in a change of $0.3 million to our interest expense in the first ~~three quarters~~quarter of fiscal ~~2019.~~2020.

ITEM 4. CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that the Company's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial

Officer, as appropriate, to allow timely decisions regarding financial disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the ~~third~~first quarter ended ~~September 7, 2019~~March 21, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

No change since the filing of our ~~10-Q~~10-K on ~~July 25th, 2019.~~March 3, 2020.

ITEM 1A. RISK FACTORS

There have been no changes in the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, with the exception of the risk factor mentioned below.

Pandemics, epidemics or other disease outbreaks may negatively impact our business operations, financial condition, liquidity, and consolidated results of operations.

A widespread outbreak of disease, can adversely affect the operation of our customers' businesses which could lead to a significant decline in demand for our products and services and our customers' ability to pay us for the products and services we have provided to them. A pandemic could also have significant negative impact on the operation of our vendors' and suppliers' businesses and effect their ability to provide us the products and services we rely on to conduct our business and provide products and services to our customers. A widespread outbreak could potentially result in the infection of the company's employees and diminish our ability to operate our business, service our customers or produce and sell our products. These potential negative impacts to our business could negatively impact our financial results and thereby reduce our borrowing capacity which could limit our ability to operate our business. These situations can also lead to a general downturn in the equity markets which could negatively impact the value of the company's shares as well as increase the cost to the company to raise equity capital. Any and all of the above situations could have a material adverse impact on our business, financial results of operations, and cash flows.

ITEM 6. EXHIBITS



31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*			XBRL Instance Document
101.SCH*			XBRL Taxonomy Extension Schema Document
101.CAL*			XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*			XBRL Taxonomy Extension Label Linkbase Document
101.PRE*			XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*			XBRL Taxonomy Extension Definition Linkbase Document

*In accordance with Regulation S-T, the XBRL-related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall be deemed to be "furnished" and not "filed."

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.

HERITAGE-CRYSTAL CLEAN, INC.


Date:	April 29, 2020	By:	/s/ Mark DeVita

~~Date:~~	~~October 17, 2019~~	~~By:~~	~~/s/~~ Mark DeVita

	~~Mark DeVita~~
	Chief Financial Officer



		Third Quarter Ended,				First Three Quarters Ended,
		September 7, 2019		September 8, 2018		September 7, 2019		September 8, 2018

Revenues
	Service revenues	$	57,208	$	58,054	$	171,522	$	172,205
	Product revenues	41,964		41,620		119,124		110,918
	Rental income	5,668		—		14,967		—
Total revenues		$	104,840	$	99,674	$	305,613	$	283,123

Operating expenses
	Operating costs	$	80,116	$	76,045	$	241,449	$	220,702
	Selling, general, and administrative expenses	11,241		10,641		34,679		33,185
	Depreciation and amortization	3,980		3,776		12,176		11,078
	Other expense - net	1,020		253		2,477		983
Operating income		8,483		8,959		14,832		17,175
Interest expense – net		181		256		629		742
Income before income taxes		8,302		8,703		14,203		16,433
Provision for income taxes		2,246		2,284		3,411		3,996
Net income		6,056		6,419		10,792		12,437
Income attributable to noncontrolling interest		86		74		278		213
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders		$	5,970	$	6,345	$	10,514	$	12,224

Net income per share: basic		$	0.26	$	0.28	$	0.45	$	0.53
Net income per share: diluted		$	0.25	$	0.27	$	0.45	$	0.52

Number of weighted average shares outstanding: basic		23,185		23,048		23,146		23,013
Number of weighted average shares outstanding: diluted		23,421		23,404		23,384		23,299



	For the Third Quarter Ended, September 7, 2019							For the First Three Quarters Ended, September 7, 2019
	For the Third Quarter Ended, September 7, 2019							For the First Three Quarters Ended, September 7, 2019
	As Reported		Balances Without Adoption of Topic 842		Effect of Change			As Reported		Balances Without Adoption of Topic 842		Effect of Change
(thousands, except per share amounts)	As Reported		Balances Without Adoption of Topic 842		Higher/(Lower)			As Reported		Balances Without Adoption of Topic 842		Higher/(Lower)
Statement of Income

Service revenues	$	57,208	$	62,843	$	(5,635	)	$	171,522	$	188,614	$	(17,092	)
Rental income	5,668		—		5,668			14,967		—		14,967
Total revenues	104,840		104,807		33			305,613		307,738		(2,125		)
Operating income	8,483		8,450		33			14,832		16,957		(2,125		)
Income before income taxes	8,302		8,269		33			14,203		16,328		(2,125		)
Provision for income taxes	2,246		2,237		9			3,411		3,921		(510		)
Net income	6,056		6,032		24			10,792		12,407		(1,615		)
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders	$	5,970	$	5,946	$	24		$	10,514	$	12,129	$	(1,615	)

Net income per share: basic	$	0.26	$	0.26	$	—		$	0.45	$	0.52	$	(0.07	)
Net income per share: diluted	$	0.25	$	0.25	$	—		$	0.45	$	0.52	$	(0.07	)



	As of September 7, 2019
_(thousands)	All Valley Disposal		GlyEco		WSS		PPI			HTSC

Accounts receivable	$	36	$	359	$	—	$	909		$	40
Inventory	18		290		28		259			3
Property, plant, & equipment	252		746		154		2,154			47
Equipment at customers	—		—		24		—			104
Intangible assets	310		251		298		2,001			100
Goodwill	384		—		—		406			377
Total purchase price, net of cash acquired	$	1,000	$	1,646	$	504	$	5,729		$	671
Less: working capital adjustment	—		23		14		(62		)	(9		)
Less: deferred consideration	—		—		—		—			225
Less: contingent consideration	300		—		90		1,341			100
Less: to be placed in escrow	100		—		50		—			—
Net cash paid	$	600	$	1,623	$	350	$	4,450		$	355



	For the Third Quarter Ended,						First Three Quarters Ended,
	September 7, 2019						September 7, 2019
Total Net Sales by Major Lines of Business (thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total
Parts cleaning, containerized waste, & related products/services	$	38,458	$	—	$	38,458	$	116,023	$	—	$	116,023
Vacuum Services & Wastewater Treatment	14,507		—		14,507		43,105		—		43,105
Antifreeze Business	5,654		—		5,654		18,451		—		18,451
Field Services	4,284		—		4,284		12,086		—		12,086
Environmental Services - Other	468		—		468		1,228		—		1,228
Re-refinery Product Sales	—		29,059		29,059		—		80,385		80,385
Oil Collection Services & RFO	—		5,772		5,772		—		16,076		16,076
Oil Filter Business	—		970		970		—		3,292		3,292
Revenues from Contracts with Customers	63,371		35,801		99,172		190,893		99,753		290,646
Other Revenue	5,620		48		5,668		14,791		176		14,967
Total Revenues	$	68,991	$	35,849	$	104,840	$	205,684	$	99,929	$	305,613



_(thousands)
Fiscal Year:	Term Loan

2019	$	—
2020	—
2021	—
2022	30,000
2023	—
Aggregate Maturities	$	30,000



(thousands)	For the Third Quarter Ended, September 7, 2019		First Three Quarters Ended, September 7, 2019
Finance lease cost:
Amortization of right-of-use Assets	$	25	$	25
Interest on lease liabilities	6		6
Total finance lease cost	$	31	$	31

Operating lease cost	$	5,914	$	18,366
Short-term lease cost	1,579		3,650
Variable lease cost	827		2,794
Total lease cost	$	8,320	$	24,810

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from financing leases	$	4	$	4
Operating cash flows from operating leases	$	6,554	$	19,805
Financing cash flows from financing leases	$	13	$	13
Right-of-use assets obtained in exchange for new finance lease liabilities	$	1,487	$	1,487
Right-of-use assets obtained in exchange for new operating lease liabilities	$	12,099	$	92,226

Weighted-average remaining lease term (years)
Finance leases			6.90
Operating leases			4.80

Weighted-average discount rate
Finance leases			3.4		%
Operating leases			5.7		%



(thousands)
2019	$	7,770
2020	22,835
2021	18,681
2022	14,685
2023	10,840
2024 and thereafter	16,440
Total minimum lease payments	$	91,251
Less: imputed interest	11,703
Lease liability	$	79,548



(thousands)
2019	$	22,226
2020	16,095
2021	12,458
2022	9,247
2023	6,020
2024 and thereafter	5,786
Total minimum lease payments	$	71,832