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 ~~June 19,~~September 11, 2021
			OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from _________________to _________________

Commission File Number 001-33987

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 ☐
		Emerging growth company ☐
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 ☐ No x

On ~~July 27,~~October 19, 2021, there were outstanding ~~24,212,983~~24,188,476 shares of Common Stock, $0.01 par value, of Heritage-Crystal Clean, Inc.

Table of Contents


PART I

ITEM 1. FINANCIAL STATEMENTS			4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			2728
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			3435
ITEM 4. CONTROLS AND PROCEDURES			3435

PART II




ITEM 5. EXHIBITS			3536

SIGNATURES			3637

PART I

ITEM 1. FINANCIAL STATEMENTS

Heritage-Crystal Clean, Inc.

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Par Value Amounts)
June 19,
2021 January 2,
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 67,272 $ 67,575
Accounts receivable - net 59,393 48,479
Inventory - net 25,956 24,978
Assets held for sale 1,125 2,446
Other current assets 5,053 8,005
Total current assets 158,799 151,483
Property, plant and equipment - net 156,039 153,016
Right of use assets 76,908 78,942
Equipment at customers - net 23,950 23,111
Software and intangible assets - net 17,824 19,576
Goodwill 35,541 35,541
Other assets 780 0
Total assets $ 469,841 $ 461,669
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,186 $ 29,663
Current portion of lease liabilities 20,770 19,198
Contract liabilities - net 2,314 1,983
Accrued salaries, wages, and benefits 6,154 6,647
Taxes payable 10,120 10,592
Other current liabilities 6,341 4,918
Total current liabilities 77,885 73,001
Lease liabilities, net of current portion 57,904 60,294
Long-term debt, less current maturities 0 29,656
Other long term liabilities 196 0
Deferred income taxes 29,830 21,218
Total liabilities $ 165,815 $ 184,169
STOCKHOLDERS' EQUITY:
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,410,606 and 23,340,700 shares issued and outstanding at June 19, 2021 and January 2, 2021, respectively $ 234 $ 233
Additional paid-in capital 203,356 201,148
Retained earnings 100,436 76,119
Total stockholders' equity $ 304,026 $ 277,500
Total liabilities and stockholders' equity $ 469,841 $ 461,669


	September 11, 2021		January 2, 2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	75,273	$	67,575
Accounts receivable - net	60,293		48,479
Inventory - net	27,854		24,978
Assets held for sale	1,125		2,446
Other current assets	9,032		8,005
Total current assets	173,577		151,483
Property, plant and equipment - net	157,972		153,016
Right of use assets	79,855		78,942
Equipment at customers - net	24,012		23,111
Software and intangible assets - net	20,491		19,576
Goodwill	48,185		35,541
Other assets	742		—
Total assets	$	504,834	$	461,669

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	32,253	$	29,663
Current portion of lease liabilities	21,849		19,198
Contract liabilities - net	2,267		1,983
Accrued salaries, wages, and benefits	7,636		6,647
Taxes payable	17,173		10,592
Other current liabilities	9,027		4,918
Total current liabilities	90,205		73,001
Lease liabilities, net of current portion	59,874		60,294
Long-term debt, less current maturities	—		29,656
Other long term liabilities	2,085		—
Contingent consideration	2,819		—
Deferred income taxes	27,287		21,218
Total liabilities	$	182,270	$	184,169

STOCKHOLDERS' EQUITY:
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,450,869 and 23,340,700 shares issued and outstanding at September 11, 2021 and January 2, 2021, respectively	$	234	$	233
Additional paid-in capital	203,529		201,148
Retained earnings	118,944		76,119
Accumulated other comprehensive loss	(143)		—
Total stockholders' equity	322,564		277,500

Total liabilities and stockholders' equity	$	504,834	$	461,669

See accompanying notes to financial statements.

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statements of Income

(In Thousands, Except per Share Amounts)

(Unaudited)


			Second Quarter Ended,				First Half Ended,						Third Quarter Ended,				First Three Quarters Ended,
			June 19, 2021		June 13, 2020		June 19, 2021		June 13, 2020				September 11, 2021		September 5, 2020		September 11, 2021		September 5, 2020

Revenues	Revenues										Revenues
		Service revenues	$	60,033	$	52,247	$	117,732	$	116,004		Service revenues	$	59,737	$	53,257	$	177,469	$	169,262
		Product revenues	51,551		21,863		93,817		59,584			Product revenues	57,713		28,522		151,529		88,106
		Rental income	5,695		5,408		11,111		11,194			Rental income	5,725		5,355		16,836		16,548
Total revenues	Total revenues		$	117,279	$	79,518	$	222,660	$	186,782	Total revenues		$	123,175	$	87,134	$	345,834	$	273,916

Operating expenses	Operating expenses										Operating expenses
		Operating costs	$	78,329	$	72,293	$	155,099	$	155,543		Operating costs	$	79,486	$	67,125	$	234,584	$	222,669
		Selling, general, and administrative expenses	13,039		11,134		25,228		22,656			Selling, general, and administrative expenses	13,294		9,410		38,522		32,066
		Depreciation and amortization	5,619		5,455		9,401		10,723			Depreciation and amortization	5,767		5,635		15,168		16,358
		Other (income) - net	(330)		(6,796)		(439)		(6,525)			Other (income) - net	(230)		(441)		(669)		(6,967)
Operating income (loss)			20,622		(2,568)		33,371		4,385
Operating income											Operating income		24,858		5,405		58,229		9,790
Interest expense – net	Interest expense – net		177		344		501		558		Interest expense – net		206		284		707		842
Income (loss) before income taxes			20,445		(2,912)		32,870		3,827
Provision for (benefit from) income taxes			5,334		(254)		8,553		1,194
Income before income taxes											Income before income taxes		24,652		5,121		57,522		8,948
Provision for income taxes											Provision for income taxes		6,144		1,163		14,697		2,357

Net income (loss)			$	15,111	$	(2,658)	$	24,317	$	2,633
Net income											Net income		$	18,508	$	3,958	$	42,825	$	6,591

Net income (loss) per share: basic			$	0.65	$	(0.11)	$	1.04	$	0.11
Net income (loss) per share: diluted			$	0.64	$	(0.11)	$	1.03	$	0.11
Net income per share: basic											Net income per share: basic		$	0.79	$	0.17	$	1.83	$	0.28
Net income per share: diluted											Net income per share: diluted		$	0.79	$	0.17	$	1.82	$	0.28

Number of weighted average shares outstanding: basic	Number of weighted average shares outstanding: basic		23,404		23,260		23,389		23,249		Number of weighted average shares outstanding: basic		23,431		23,294		23,403		23,277
Number of weighted average shares outstanding: diluted	Number of weighted average shares outstanding: diluted		23,565		23,260		23,537		23,434		Number of weighted average shares outstanding: diluted		23,570		23,479		23,548		23,456

See accompanying notes to financial statements.

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In Thousands)

(Unaudited)


		Third Quarter Ended,				First Three Quarters Ended,
		September 11, 2021		September 5, 2020		September 11, 2021		September 5, 2020

Net income		$	18,508	$	3,958	$	42,825	$	6,591
	Other comprehensive loss:
	Currency translation adjustments	(143)		—		(143)		—
	Total other comprehensive loss:	$	(143)	$	—	$	(143)	$	—

See accompanying notes to financial statements.

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(In Thousands, Except Share Amounts)

For the ~~Second~~Third Quarter Ended ~~June 19,~~September 11, 2021 and ~~June 13,~~September 5, 2020

(Unaudited)

Second Quarter Ended,
June 19, 2021
Shares Par
Value
Common
Additional Paid–in
Capital
Retained Earnings Total Equity
Balance at March 27, 2021 23,390,434 $ 234 $ 201,758 $ 85,325 $ 287,317
Net income — — — 15,111 15,111
Issuance of common stock – ESPP 4,750 — 126 — 126
Share-based compensation 15,422 — 1,472 — 1,472
Balance at June 19, 2021 23,410,606 $ 234 $ 203,356 $ 100,436 $ 304,026
Second Quarter Ended,
June 13, 2020
Shares Par
Value
Common
Additional Paid–in
Capital
Retained Earnings Total Equity
Balance at March 21, 2020 23,247,912 $ 232 $ 198,305 $ 69,473 $ 268,010
Net loss — — — (2,658) (2,658)
Issuance of common stock – ESPP 9,159 — 135 — 135
Share-based compensation 12,391 1 552 — 553
Balance at June 13, 2020 23,269,462 $ 233 $ 198,992 $ 66,815 $ 266,040


Third Quarter Ended,
September 11, 2021
	Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity

Balance, June 19, 2021	23,410,606	$	234	$	203,356	$	100,436	$	—	$	304,026
Net income	—	—		—		18,508		—		18,508
Currency translation adjustment	—	—		—		—		(143)		(143)

Issuance of common stock – ESPP	4,324	—		124		—		—		124
Share-based compensation	35,939	—		916		—		—		916
Share repurchases to satisfy tax withholding obligations	—	—		(867)		—		—		(867)
Balance at September 11, 2021	23,450,869	$	234	$	203,529	$	118,944	$	(143)	$	322,564



Third Quarter Ended,
September 5, 2020
	Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Equity

Balance at June 13, 2020	23,269,462	$	233	$	198,992	$	66,815	$	—	$	266,040
Net income	—	—		—		3,958		—		3,958



Issuance of common stock – ESPP	7,299	—		117		—		—		117
Share-based compensation	18,839	—		726		—		—		726

Balance at September 5, 2020	23,295,600	$	233	$	199,835	$	70,773	$	—	$	270,841

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(In Thousands, Except Share Amounts)

For the First ~~Half~~Three Quarters Ended ~~June 19,~~September 11, 2021 and ~~June 13,~~September 5, 2020

(Unaudited)

First Half Ended,
June 19, 2021
Shares Par Value Common Additional Paid–in Capital Retained Earnings Total Heritage-Crystal Clean, Inc. Stockholders' Equity Non-controlling Interest Total Equity
Balance, January 2, 2021 23,340,700 $ 233 $ 201,148 $ 76,119 $ 277,500 $ 0 $ 277,500
Net income — — — 24,317 24,317 — 24,317
Issuance of common stock – ESPP 10,822 — 247 — 247 — 247
Share-based compensation 59,084 1 2,690 — 2,691 — 2,691
Share repurchases to satisfy tax withholding obligations — — (729) — (729) — (729)
Balance at June 19, 2021 23,410,606 $ 234 $ 203,356 $ 100,436 304,026 $ 0 304,026
First Half Ended,
June 13, 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 — — — 2,633 2,633 — 2,633
Non-controlling interest acquisition — — (2,678) — (2,678) — (2,678)
Distribution — — — — — (634) (634)
Issuance of common stock – ESPP 13,261 — 257 — 257 — 257
Share-based compensation 64,703 1 1,621 — 1,622 — 1,622
Share repurchases to satisfy tax withholding obligations — — (791) — (791) — (791)
Balance at June 13, 2020 23,269,462 $ 233 $ 198,992 $ 66,815 $ 266,040 $ 0 $ 266,040


First Three Quarters Ended,
September 11, 2021
	Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Heritage-Crystal Clean, Inc. Stockholders' Equity		Non-controlling Interest		Total Equity

Balance, January 2, 2021	23,340,700	$	233	$	201,148	$	76,119	$	—	$	277,500	$	—	$	277,500
Net income	—	—		—		42,825		—		42,825		—		42,825
Non-controlling interest acquisition	—	—		—		—		—		—		—		—

Currency translation adjustment	—	—		—		—		(143)		(143)		—		(143)
Issuance of common stock – ESPP	15,146	—		371		—		—		371		—		371
Share-based compensation	95,023	1		3,606		—		—		3,607		—		3,607
Share repurchases to satisfy tax withholding obligations	—	—		(1,596)		—		—		(1,596)		—		(1,596)
Balance at September 11, 2021	23,450,869	$	234	$	203,529	$	118,944	$	(143)	$	322,564	$	—	$	322,564



First Three Quarters Ended,
September 5, 2020
	Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Accumulated Other Comprehensive Income		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	—	—		—		6,591		—		6,591		—		6,591
Currency Translation Adjustment	—	—		—		—		—		—		—		—
Non-controlling interest acquisition	—	—		(2,678)		—		—		(2,678)		—		(2,678)
Distribution	—	—		—		—		—		—		(634)		(634)
Issuance of common stock – ESPP	20,560	—		374		—		—		374		—		374
Share-based compensation	83,542	1		2,347		—		—		2,348		—		2,348
Share repurchases to satisfy tax withholding obligations	—	—		(791)		—		—		(791)		—		(791)
Balance at June 13, 2020	23,295,600	$	233	$	199,835	$	70,773	$	—	$	270,841	$	—	$	270,841

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


		First Half Ended,					First Three Quarters Ended,
		June 19, 2021		June 13, 2020			September 11, 2021		September 5, 2020
Cash flows from Operating Activities:	Cash flows from Operating Activities:					Cash flows from Operating Activities:
Net income	Net income	$	24,317	$	2,633	Net income	$	42,825	$	6,591
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	9,401		10,723		Depreciation and amortization	15,168		16,358
Reversal of provision for class action settlement in excess of payout	Reversal of provision for class action settlement in excess of payout	0		(6,502)		Reversal of provision for class action settlement in excess of payout	—		(6,502)
Uncollectible provision	Uncollectible provision	567		1,110		Uncollectible provision	1,069		1,210
Share-based compensation	Share-based compensation	2,886		1,622		Share-based compensation	3,922		2,348
Deferred taxes	Deferred taxes	8,612		1,361		Deferred taxes	6,068		2,487
Other, net	Other, net	(30)		(126)		Other, net	(165)		(766)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(Increase) decrease in accounts receivable	(11,481)		8,128		(Increase) decrease in accounts receivable	(12,883)		6,252
(Increase) decrease in inventory	(Increase) decrease in inventory	(978)		3,751		(Increase) decrease in inventory	(2,803)		4,538
Decrease in other current assets		2,948		747
(Increase) in other current assets						(Increase) in other current assets	(1,032)		(1,373)
Increase (decrease) in accounts payable	Increase (decrease) in accounts payable	2,149		(4,823)		Increase (decrease) in accounts payable	2,254		(9,012)
Increase (decrease) in accrued liabilities		2,952		(886)
Increase in accrued liabilities						Increase in accrued liabilities	8,704		686

Cash provided by operating activities	Cash provided by operating activities	$	41,343	$	17,738	Cash provided by operating activities	$	63,127	$	22,817

Cash flows from Investing Activities:	Cash flows from Investing Activities:					Cash flows from Investing Activities:
Capital expenditures	Capital expenditures	$	(10,926)	$	(13,137)	Capital expenditures	$	(12,039)	$	(16,465)
Proceeds from sale of assets	Proceeds from sale of assets	1,533		0		Proceeds from sale of assets	1,612		422
Business acquisitions, net of cash acquired	Business acquisitions, net of cash acquired	0		(10,007)		Business acquisitions, net of cash acquired	(11,373)		(10,129)

Cash used in investing activities	Cash used in investing activities	$	(9,393)	$	(23,144)	Cash used in investing activities	$	(21,800)	$	(26,172)

Cash flows from Financing Activities:	Cash flows from Financing Activities:					Cash flows from Financing Activities:
Payment of Term Loan	Payment of Term Loan	(30,000)		0		Payment of Term Loan	(30,000)		—
Debt Issuance Costs	Debt Issuance Costs	(822)		0		Debt Issuance Costs	(822)		—
Repayment of principal on finance leases	Repayment of principal on finance leases	(949)		(462)		Repayment of principal on finance leases	(1,582)		(762)
Share repurchases to satisfy tax withholding obligations	Share repurchases to satisfy tax withholding obligations	(729)		(791)		Share repurchases to satisfy tax withholding obligations	(1,596)		(791)
Proceeds from the issuance of common stock	Proceeds from the issuance of common stock	247		257		Proceeds from the issuance of common stock	371		374
Payments of deferred and contingent consideration	Payments of deferred and contingent consideration	0		(198)		Payments of deferred and contingent consideration	—		(198)
Distributions to noncontrolling interest	Distributions to noncontrolling interest	0		(3,312)		Distributions to noncontrolling interest	—		(3,312)
Cash used in financing activities	Cash used in financing activities	$	(32,253)	$	(4,506)	Cash used in financing activities	$	(33,629)	$	(4,689)
Net decrease in cash and cash equivalents		(303)		(9,912)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	7,698		(8,044)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	67,575		60,694		Cash and cash equivalents, beginning of period	67,575		60,694
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	67,272	$	50,782	Cash and cash equivalents, end of period	$	75,273	$	52,650

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Income taxes paid	Income taxes paid	$	637	$	61	Income taxes paid	$	637	$	286
Cash paid for interest	Cash paid for interest	108		370		Cash paid for interest	125		743
Supplemental disclosure of non-cash information:	Supplemental disclosure of non-cash information:					Supplemental disclosure of non-cash information:
Payables for construction in progress	Payables for construction in progress	375		937		Payables for construction in progress	719		447

See accompanying notes to financial statements.

HERITAGE-CRYSTAL CLEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~June 19,~~September 11, 2021

(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, wastewater 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 use in the manufacture of finished 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 primarily 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 2 reportable segments: "Environmental Services" and "Oil Business." The Environmental Services segment consists of the Company's parts cleaning, containerized waste management, wastewater vacuum, ~~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 January 2, 2021. 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, containerized waste removal services, wastewater vacuum 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 wastewater 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.

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.

910

(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 January 2, 2021. There have been no material changes in these policies or their application during the ~~second~~third quarter of fiscal 2021.

Recently Issued Accounting Standards Adopted

Standard

Issuance Date

Description

Effective Date

Effect on the Financial Statements

ASU 2020-04: Reference Rate Reform (Topic 848)

March 12, 2020

In March 2020, the FASB issued ASU 2020-04: Reference Rate Reform which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuance of LIBOR or another referenced rate. The guidance may be applied to any applicable contract entered into before December 31, 2022.

The Company plans on applying the accounting standard to contracts, hedging relationships, and other transactions affected by the discontinuance of LIBOR on a prospective basis.

As the Company ~~currently~~ does not have any outstanding borrowings under the financial instruments impacted by LIBOR, the effect on the financial statements is not material.

1011

(3) BUSINESS COMBINATIONS

On August 24, 2021, Heritage-Crystal Clean completed the acquisition of certain assets of Bakersfield Transfer, Inc., and Cole’s Services, Inc., together known as ("Cole's Environmental"), which processed, stored, and disposed of hazardous waste within the state of California. The purchase price was $17.3 million subject to certain adjustments, including a contingent consideration provision. Goodwill recognized from the acquisition of Cole's Environmental, represents the excess of the estimated purchase consideration transferred over the estimated fair value of the assets acquired and liabilities assumed. Factors leading to goodwill being recognized are the Company’s expectation of synergies from combining operations of Cole's Environmental, and the Company as well as the value of intangible assets that are not separately recognized, such as the assembled workforce. The results of Cole's Environmental are consolidated primarily into the Company’s Environmental Services segment and an immaterial amount in the Oil Business segment from the date of acquisition.

On March 31, 2020, the Company completed the acquisition of certain assets of Gro America (“Gro”), which has expanded our network of wastewater processing facilities and augmented our field services capabilities to better serve our customers throughout the Midwestern United States. The purchase price was $10.0 million subject to certain adjustments, including a working capital adjustment, and was allocated based on ~~our~~the Company's estimates and assumptions of the approximate fair values of assets acquired and liabilities assumed on the acquisition date. To date, there have been no adjustments to the purchase price. Goodwill recognized from the acquisition of Gro America represents the excess of the estimated purchase consideration transferred over the estimated fair value of the assets acquired and liabilities assumed. Factors leading to goodwill being recognized consist of the Company's expectations of synergies from combining operations of Gro America and the Company as well as the value of intangible assets that are not separately recognized, such as assembled workforce. Transaction costs incurred in conjunction with the acquisition of Gro America were immaterial. The results of Gro America are consolidated into the Company’s Environmental Services ~~segment.~~segment from the date of acquisition.

The following table summarizes the ~~estimated~~preliminary fair values for Cole's Environmental and finalized fair values for Gro America of the assets acquired and liabilities assumed, net of cash acquired, related to ~~the Gro America~~each acquisition:

~~(thousands)~~

~~As of June 19, 2021~~

~~Accounts receivable~~

~~752~~

~~Property, plant, & equipment~~

~~1,490~~

~~Intangible assets~~

~~5,300~~

~~Goodwill~~

~~2,541~~

~~Accounts payable~~

~~(76)~~

~~Total purchase price, net of cash acquired~~

~~10,007~~


	As of September 11, 2021
(thousands)	Cole's Environmental		Gro America

Accounts receivable	$	—	$	752
Inventory	73		—


Property, plant, & equipment	2,455		1,490

Intangible assets	2,120		5,300
Goodwill	12,644		2,541
Accounts payable	—		(76)





Total purchase price, net of cash acquired	$	17,292	$	10,007


Less: contingent consideration	5,819		—
Less: to be placed in escrow	100		—
Net cash paid	$	11,373	$	10,007

(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.

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:


		Second Quarter Ended,													Third Quarter Ended,
		June 19, 2021						June 13, 2020							September 11, 2021						September 5, 2020
Total Net Sales by Major Lines of Business (thousands)	Total Net Sales by Major Lines of Business (thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total		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	Parts cleaning, containerized waste, & related products/services	$	40,741	$	0	$	40,741	$	33,283	$	0	$	33,283	Parts cleaning, containerized waste, & related products/services	$	40,232	$	—	$	40,232	$	35,480	$	—	$	35,480
Wastewater Vacuum Services	Wastewater Vacuum Services	14,848		0		14,848		11,558		0		11,558		Wastewater Vacuum Services	15,131		—		15,131		12,529		—		12,529
Field Services	Field Services	4,749		0		4,749		4,562		0		4,562		Field Services	5,063		—		5,063		3,100		—		3,100
Antifreeze Business	Antifreeze Business	6,285		0		6,285		4,562		0		4,562		Antifreeze Business	5,730		—		5,730		5,649		—		5,649
Environmental Services - Other	Environmental Services - Other	407		0		407		427		0		427		Environmental Services - Other	458		—		458		371		—		371
Re-refinery Product Sales	Re-refinery Product Sales	0		38,830		38,830		0		12,051		12,051		Re-refinery Product Sales	—		45,275		45,275		—		17,409		17,409
Oil Collection Services & RFO	Oil Collection Services & RFO	0		4,552		4,552		0		6,658		6,658		Oil Collection Services & RFO	—		4,425		4,425		—		6,161		6,161
Oil Filter Business	Oil Filter Business	0		1,172		1,172		0		1,009		1,009		Oil Filter Business	—		1,136		1,136		—		1,080		1,080
Revenues from Contracts with Customers	Revenues from Contracts with Customers	67,030		44,554		111,584		54,392		19,718		74,110		Revenues from Contracts with Customers	66,614		50,836		117,450		57,129		24,650		81,779
Rental income	Rental income	5,686		9		5,695		5,408		0		5,408		Rental income	5,725		—		5,725		5,310		45		5,355
Total Revenues	Total Revenues	$	72,716	$	44,563	$	117,279	$	59,800	$	19,718	$	79,518	Total Revenues	$	72,339	$	50,836	$	123,175	$	62,439	$	24,695	$	87,134


		First Half Ended,													First Three Quarters Ended,
		June 19, 2021						June 13, 2020							September 11, 2021						September 5, 2020
Total Net Sales by Major Lines of Business (thousands)	Total Net Sales by Major Lines of Business (thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total		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	Parts cleaning, containerized waste, & related products/services	$	79,574	$	0	$	79,574	$	73,573	$	0	$	73,573	Parts cleaning, containerized waste, & related products/services	$	119,805	$	—	$	119,805	$	109,053	$	—	$	109,053
Wastewater Vacuum Services	Wastewater Vacuum Services	28,541		0		28,541		26,176		0		26,176		Wastewater Vacuum Services	43,671		—		43,671		38,705		—		38,705
Field Services	Field Services	8,845		0		8,845		14,185		0		14,185		Field Services	13,908		—		13,908		17,285		—		17,285
Antifreeze Business	Antifreeze Business	13,273		0		13,273		11,238		0		11,238		Antifreeze Business	19,003		—		19,003		16,887		—		16,887
Environmental Services - Other	Environmental Services - Other	847		0		847		907		0		907		Environmental Services - Other	1,306		—		1,306		1,278		0		1,278
Re-refinery Product Sales	Re-refinery Product Sales	0		68,883		68,883		0		37,488		37,488		Re-refinery Product Sales	—		114,158		114,158		—		54,896		54,896
Oil Collection Services & RFO	Oil Collection Services & RFO	0		9,169		9,169		0		9,947		9,947		Oil Collection Services & RFO	—		13,594		13,594		—		16,109		16,109
Oil Filter Business	Oil Filter Business	0		2,417		2,417		0		2,074		2,074		Oil Filter Business	—		3,553		3,553		—		3,155		3,155
Revenues from Contracts with Customers	Revenues from Contracts with Customers	131,080		80,469		211,549		126,079		49,509		175,588		Revenues from Contracts with Customers	197,693		131,305		328,998		183,208		74,160		257,368
Rental income	Rental income	11,093		18		11,111		11,173		21		11,194		Rental income	16,818		18		16,836		16,483		65		16,548
Total Revenues	Total Revenues	$	142,173	$	80,487	$	222,660	$	137,252	$	49,530	$	186,782	Total Revenues	$	214,511	$	131,323	$	345,834	$	199,691	$	74,225	$	273,916

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


(thousands)	(thousands)	June 19, 2021		January 2, 2021		(thousands)	September 11, 2021		January 2, 2021
Contract assets	Contract assets	$	90	$	71	Contract assets	$	116	$	71
Contract liabilities	Contract liabilities	2,404		2,054		Contract liabilities	2,383		2,054
Contract liabilities - net	Contract liabilities - net	$	2,314	$	1,983	Contract liabilities - net	$	2,267	$	1,983

During the fiscal quarter ended ~~June 19,~~September 11, 2021, the Company recognized 0zero revenue that was included in the contract liabilities balance as of January 2, 2021. During the first ~~half~~three quarters ended ~~June 19,~~September 11, 2021, the Company recognized $2.1 million of revenue that was included in the contract liabilities balance as of January 2, 2021. 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 to and currently due from customers. The amounts due are stated at their net estimated realizable value. The allowance for uncollectible 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 ~~second~~third quarter ended ~~June 19,~~September 11, 2021, and the fiscal year ended January 2, 2021 consisted of the following:


(thousands)	(thousands)	June 19, 2021		January 2, 2021		(thousands)	September 11, 2021		January 2, 2021
Trade	Trade	$	55,470	$	47,191	Trade	$	54,875	$	47,191
Less: allowance for uncollectible accounts	Less: allowance for uncollectible accounts	2,457		2,502		Less: allowance for uncollectible accounts	2,730		2,502
Trade - net	Trade - net	53,013		44,689		Trade - net	52,145		44,689
Related parties	Related parties	5,939		3,276		Related parties	7,421		3,276
Other	Other	441		514		Other	727		514
Total accounts receivable - net	Total accounts receivable - net	$	59,393	$	48,479	Total accounts receivable - net	$	60,293	$	48,479

The following table provides the changes in the Company’s allowance for uncollectible accounts for the ~~second quarter~~first three quarters ended ~~June 19,~~September 11, 2021, and the fiscal year ended January 2, 2021:


(thousands)	(thousands)	June 19, 2021		January 2, 2021		(thousands)	September 11, 2021		January 2, 2021
Balance at beginning of period	Balance at beginning of period	$	2,502	$	2,221	Balance at beginning of period	$	2,502	$	2,221
Provision for uncollectible accounts	Provision for uncollectible accounts	567		1,919		Provision for uncollectible accounts	1,069		1,919
Accounts written off, net of recoveries	Accounts written off, net of recoveries	(612)		(1,638)		Accounts written off, net of recoveries	(841)		(1,638)
Balance at end of period	Balance at end of period	$	2,457	$	2,502	Balance at end of period	$	2,730	$	2,502

(6) INVENTORY

The carrying value of inventory consisted of the following:


(thousands)	(thousands)	June 19, 2021		January 2, 2021		(thousands)	September 11, 2021		January 2, 2021
Solvents and solutions	Solvents and solutions	$	7,200	$	6,672	Solvents and solutions	$	7,445	$	6,672
Used oil and processed oil	Used oil and processed oil	7,495		6,345		Used oil and processed oil	8,764		6,345
Machines	Machines	4,959		5,704		Machines	5,127		5,704
Drums and supplies	Drums and supplies	4,595		4,423		Drums and supplies	4,771		4,423
Other	Other	2,137		2,221		Other	2,201		2,221
Total inventory	Total inventory	26,386		25,365		Total inventory	28,308		25,365
Less: machine refurbishing reserve	Less: machine refurbishing reserve	430		387		Less: machine refurbishing reserve	454		387
Total inventory - net	Total inventory - net	$	25,956	$	24,978	Total inventory - net	$	27,854	$	24,978

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 ~~continually~~ 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 ~~$0.2 million of~~no inventory write downs during the ~~second~~third quarter of fiscal 2021 ~~and NaN during the second quarter of fiscal~~or 2020.

~~(7)~~ ~~PROPERTY, PLANT, AND EQUIPMENT~~

~~Property, plant, and equipment consisted of the following:~~

(thousands) June 19,
2021 January 2,
2021
Machinery, vehicles, and equipment $ 141,696 $ 138,496
Buildings and storage tanks 73,858 72,938
Land 5,913 5,909
Leasehold improvements 7,001 6,929
Construction in progress 8,671 8,023
Total property, plant and equipment 237,139 232,295
Less: accumulated depreciation 81,100 79,279
Property, plant and equipment - net $ 156,039 $ 153,016
(thousands) June 19,
2021 January 2,
2021
Equipment at customers $ 84,101 $ 81,881
Less: accumulated depreciation 60,151 58,770
Equipment at customers - net $ 23,950 $ 23,111

Depreciation expense for the second quarters ended June 19, 2021 and June 13, 2020 was $4.6 million and $4.5 million, respectively, and depreciation expense for the first half ended June 19, 2021 and June 13, 2020 was $7.1 million and $8.8 million, respectively.

~~(8)~~

(7) 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 2 reporting units, Environmental Services and Oil Business.

The following table shows changes to our goodwill balances by segment from January 2, 2021 to ~~June 19,~~September 11, 2021:
(thousands) Environmental Services Total
Goodwill at January 2, 2021
    Gross carrying amount $ 35,541 $ 35,541
    Accumulated impairment loss 0 0
Net book value at January 2, 2021 $ 35,541 $ 35,541
Goodwill at June 19, 2021
     Gross carrying amount 35,541 $ 35,541
     Accumulated impairment loss 0 0
Net book value at June 19, 2021 $ 35,541 $ 35,541


(thousands)	Environmental Services		Total






Goodwill at January 2, 2021
Gross carrying amount	$	35,541	$	35,541
Accumulated impairment loss	—		—
Net book value at January 2, 2021	$	35,541	$	35,541

Acquisitions	12,644		12,644
Goodwill at September 11, 2021
Gross carrying amount	48,185		$	48,185
Accumulated impairment loss	—		—
Net book value at September 11, 2021	$	48,185	$	48,185

1415

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


		June 19, 2021						January 2, 2021							September 11, 2021						January 2, 2021
(thousands)	(thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		(thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer & supplier relationships	Customer & supplier relationships	$	30,862	$	18,863	$	11,999	$	30,857	$	16,934	$	13,923	Customer & supplier relationships	$	32,858	$	19,655	$	13,203	$	30,857	$	16,934	$	13,923
Software	Software	9,925		5,887		4,038		9,592		5,645		3,947		Software	11,528		6,105		5,423		9,592		5,645		3,947
Non-compete agreements	Non-compete agreements	3,610		3,272		338		3,607		3,212		395		Non-compete agreements	3,647		3,299		348		3,607		3,212		395
Patents, formulae, and licenses	Patents, formulae, and licenses	1,769		871		898		1,769		850		919		Patents, formulae, and licenses	1,769		886		883		1,769		850		919
Other	Other	1,934		1,383		551		1,738		1,346		392		Other	2,047		1,413		634		1,738		1,346		392
Total software and intangible assets	Total software and intangible assets	$	48,100	$	30,276	$	17,824	$	47,563	$	27,987	$	19,576	Total software and intangible assets	$	51,849	$	31,358	$	20,491	$	47,563	$	27,987	$	19,576

Amortization expense was ~~$1.0~~$1.1 million for the ~~second~~third quarter ended ~~June 19,~~September 11, 2021, and ~~$1.0~~$1.1 million for the ~~second~~third quarter ended ~~June 13,~~September 5, 2020. Amortization expense was ~~$2.3~~$3.4 million for the first ~~half~~three quarters ended ~~June 19,~~September 11, 2021, and ~~$1.9~~$2.9 million for the first ~~half~~three quarters ended ~~June 13,~~September 5, 2020.

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


						Weighted Average Useful Life (years)
Patents, formulae, & licenses						15
Customer and supplier relationships						10
Software						9
Non-compete agreements						5
Other intangibles						7

The estimated amortization expense for the remainder of fiscal 2021 and each of the five succeeding fiscal years is as follows:


(millions)	(millions)		(millions)
Fiscal Year	Fiscal Year	Amortization Expense	Fiscal Year	Amortization Expense
2021	2021	$2.4	2021	$1.5
2022	2022	4.3	2022	4.6
2023	2023	3.7	2023	4.0
2024	2024	2.1	2024	2.4
2025	2025	1.1	2025	1.4
2026	2026	0.5	2026	0.8

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)~~(8) ACCOUNTS PAYABLE

Accounts payable consisted of the following:

(thousands) June 19,
2021 January 2,
2021
Accounts payable $ 31,623 $ 29,263
Accounts payable - related parties 563 400
Total accounts payable $ 32,186 $ 29,663


(thousands)	September 11, 2021		January 2, 2021
Accounts payable	$	31,544	$	29,263
Accounts payable - related parties	709		400
Total accounts payable	$	32,253	$	29,663

1516

~~(10)~~(9) DEBT AND FINANCING ARRANGEMENTS

Bank Credit Facility

On March 18, 2021, Heritage-Crystal Clean, LLC, (the “Company”), entered into an Amended and Restated Credit Agreement (the "Agreement"), by and among the Company, its parent, Heritage-Crystal Clean, Inc., and the Company’s subsidiaries identified therein and Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., and Wells Fargo Bank, National Association. The Agreement replaces the Company's previous Credit Agreement dated as of February 21, 2017. During the first quarter the Company paid down its previous term loan, in full, of $30.0 million. The new Agreement provides for borrowings of up to $100.0 million, in the form of a revolving facility, of which $15 million can be used in the form of a Swing Line loan.

Loans made under the Agreement, as amended, may be Base Rate Loans or LIBOR Rate Loans, at the election of the Borrower 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 0.50% and 1.25% 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 1.50% and 2.25% depending on the Company's total leverage ratio. Amounts borrowed under the Agreement are secured by a security interest in substantially all of the Company's tangible and intangible assets. The Company incurred $0.8 million of debt issuance costs related to the amended credit agreement.

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 3.0 to 1.0, 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 foregoing 3.00 to 1.00 shall be deemed to be 3.50 to 1.00 for the fiscal quarter in which such permitted acquisition occurs and the three immediately following fiscal quarters and will thereafter revert to 3.00 to 1.00.

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

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 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.

Debt at ~~June 19,~~September 11, 2021 and January 2, 2021 consisted of the following:
(thousands) June 19, 2021 January 2, 2021
Principal amount $ 0 $ 30,000
Less: unamortized debt issuance costs 0 344
Long-term debt, less current maturities $ 0 $ 29,656


(thousands)	September 11, 2021		January 2, 2021
Principal amount	$	—	$	30,000
Less: unamortized debt issuance costs	—		344
Long-term debt, less current maturities	$	—	$	29,656

For the ~~second~~third quarter ended ~~June 19,~~September 11, 2021, the Company recorded interest expense of ~~$0.3~~$0.2 million with respect to our credit line and related amortization of debt issuance costs. For the ~~second~~third quarter ended ~~June 13,~~September 5, 2020, the Company recorded interest expense of ~~$0.4~~$0.3 million of which ~~$0.3~~$0.2 million was with respect to our term loan, and $0.1 million related to amortization of debt issuance costs. For the first ~~half~~three quarters ended ~~June 19,~~September 11, 2021, the Company recorded interest expense of ~~$0.3~~$0.7 million with respect to our term loan and credit line, and related amortization of debt issuance costs. For the first ~~half~~three quarters ended ~~June 13,~~September 5, 2020, the Company recorded interest expense of ~~$0.9~~$1.2 million, of which ~~$0.8~~$1.0 million was with respect to our term loan, and ~~$0.1~~$0.2 million related to amortization of debt issuance costs.

1617

The Company's weighted average interest rate for all debt through the ~~second~~third fiscal quarters of 2021, and 2020, was 2.04% and ~~3.7%~~3.2%, respectively.

As of ~~June 19,~~September 11, 2021 and January 2, 2021, the Company was in compliance with all covenants under its Credit Agreement. As of ~~June 19,~~September 11, 2021 and January 2, 2021, the Company, had $5.6 million and $3.9 million, of standby letters of credit issued, respectively, and $94.4 million and $61.0 million was available for borrowing under the bank credit facility, respectively.

1718

~~(11)~~(10) SEGMENT INFORMATION

The Company has 2 reportable segments: "Environmental Services" and "Oil Business." The Environmental Services segment consists primarily of the Company's parts cleaning, containerized waste management, wastewater vacuum 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 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 ~~second~~third quarters ended ~~June 19,~~September 11, 2021 and ~~June 13,~~September 5, 2020 were as follows:


Second Quarter Ended,
June 19, 2021
Third Quarter Ended,											Third Quarter Ended,
September 11, 2021											September 11, 2021
(thousands)	(thousands)		Environmental Services		Oil Business		Corporate and Eliminations		Consolidated		(thousands)		Environmental Services		Oil Business		Corporate and Eliminations		Consolidated

Revenues	Revenues										Revenues
		Service revenues	$	56,403	$	3,630	$	0	$	60,033		Service revenues	$	56,887	$	2,850	$	—	$	59,737
		Product revenues	10,627		40,924		0		51,551			Product revenues	9,727		47,986		—		57,713
		Rental income	5,686		9		0		5,695			Rental income	5,725		—		—		5,725
Total revenues	Total revenues		$	72,716	$	44,563	$	0	$	117,279	Total revenues		$	72,339	$	50,836	$	—	$	123,175
Operating expenses	Operating expenses										Operating expenses
		Operating costs	51,119		27,210		0		78,329			Operating costs	52,598		26,888		—		79,486
		Operating depreciation and amortization	2,430		2,109		0		4,539			Operating depreciation and amortization	2,482		2,175		—		4,657
Profit before corporate selling, general, and administrative expenses	Profit before corporate selling, general, and administrative expenses		$	19,167	$	15,244	$	0	$	34,411	Profit before corporate selling, general, and administrative expenses		$	17,259	$	21,773	$	—	$	39,032
Selling, general, and administrative expenses	Selling, general, and administrative expenses						13,039		13,039		Selling, general, and administrative expenses						13,294		13,294
Depreciation and amortization from SG&A	Depreciation and amortization from SG&A						1,080		1,080		Depreciation and amortization from SG&A						1,110		1,110
Total selling, general, and administrative expenses	Total selling, general, and administrative expenses						$	14,119	$	14,119	Total selling, general, and administrative expenses						$	14,404	$	14,404
Other (income) - net	Other (income) - net						(330)		(330)		Other (income) - net						(230)		(230)
Operating income	Operating income								20,622		Operating income								24,858
Interest expense – net	Interest expense – net						177		177		Interest expense – net						206		206
Income before income taxes	Income before income taxes								$	20,445	Income before income taxes								$	24,652

1819


Second Quarter Ended,
June 13, 2020
Third Quarter Ended,											Third Quarter Ended,
September 5, 2020											September 5, 2020
(thousands)	(thousands)		Environmental Services		Oil Business		Corporate and Eliminations		Consolidated		(thousands)		Environmental Services		Oil Business		Corporate and Eliminations		Consolidated

Revenues	Revenues										Revenues
		Service revenues	$	46,097	$	6,150	$	0	$	52,247		Service revenues	$	47,532	$	5,725	$	—	$	53,257
		Product revenues	8,295		13,568		0		21,863			Product revenues	9,597		18,925		—		28,522
		Rental income	5,408		0		0		5,408			Rental income	5,310		45		—		5,355
Total revenues	Total revenues		$	59,800	$	19,718	$	0	$	79,518	Total revenues		$	62,439	$	24,695	$	—	$	87,134
Operating expenses	Operating expenses										Operating expenses
		Operating costs	49,104		23,189		0		72,293			Operating costs	45,383		21,742		—		67,125
		Operating depreciation and amortization	2,348		2,082		0		4,430			Operating depreciation and amortization	2,431		2,102		—		4,533
Profit (loss) before corporate selling, general, and administrative expenses			$	8,348	$	(5,553)	$	0	$	2,795
Profit before corporate selling, general, and administrative expenses											Profit before corporate selling, general, and administrative expenses		$	14,625	$	851	$	—	$	15,476
Selling, general, and administrative expenses	Selling, general, and administrative expenses						11,134		11,134		Selling, general, and administrative expenses						9,410		9,410
Depreciation and amortization from SG&A	Depreciation and amortization from SG&A						1,025		1,025		Depreciation and amortization from SG&A						1,102		1,102
Total selling, general, and administrative expenses	Total selling, general, and administrative expenses						$	12,159	$	12,159	Total selling, general, and administrative expenses						$	10,512	$	10,512
Other income - net							(6,796)		(6,796)
Operating loss									(2,568)
Other (income) - net											Other (income) - net						(441)		(441)
Operating income											Operating income								5,405
Interest expense – net	Interest expense – net						344		344		Interest expense – net						284		284
Loss before income taxes									$	(2,912)
Income before income taxes											Income before income taxes								$	5,121

Segment results for the first ~~half~~three quarters ended ~~June 19,~~September 11, 2021, and ~~June 13,~~September 5, 2020 were as follows:


First Half Ended,
June 19, 2021
First Three Quarters Ended,											First Three Quarters Ended,
September 11, 2021											September 11, 2021
(thousands)	(thousands)		Environmental Services		Oil Business		Corporate and Eliminations		Consolidated		(thousands)		Environmental Services		Oil Business		Corporate and Eliminations		Consolidated

Revenues	Revenues										Revenues
		Service revenues	$	109,706	$	8,026	0		$	117,732		Service revenues	$	166,593	$	10,876	0		$	177,469
		Product revenues	21,374		72,443		0		93,817			Product revenues	31,100		120,429		—		151,529
		Rental income	11,093		18		0		11,111			Rental income	16,818		18		0		16,836
Total revenues	Total revenues		$	142,173	$	80,487	$	0	$	222,660	Total revenues		$	214,511	$	131,323	$	—	$	345,834
Operating expenses	Operating expenses										Operating expenses
		Operating costs	102,999		52,100		0		155,099			Operating costs	155,596		78,988		—		234,584
		Operating depreciation and amortization	4,008		3,058		0		7,066			Operating depreciation and amortization	6,490		5,233		0		11,723
Profit before corporate selling, general, and administrative expenses	Profit before corporate selling, general, and administrative expenses		$	35,166	$	25,329	$	0	$	60,495	Profit before corporate selling, general, and administrative expenses		$	52,425	$	47,102	$	—	$	99,527
Selling, general, and administrative expenses	Selling, general, and administrative expenses						25,228		25,228		Selling, general, and administrative expenses						38,522		38,522
Depreciation and amortization from SG&A	Depreciation and amortization from SG&A						2,335		2,335		Depreciation and amortization from SG&A						3,445		3,445
Total selling, general, and administrative expenses	Total selling, general, and administrative expenses						$	27,563	$	27,563	Total selling, general, and administrative expenses						$	41,967	$	41,967
Other (income) - net	Other (income) - net						(439)		(439)		Other (income) - net						(669)		(669)
Operating income	Operating income								33,371		Operating income								58,229
Interest expense – net	Interest expense – net						501		501		Interest expense – net						707		707
Income before income taxes	Income before income taxes								$	32,870	Income before income taxes								$	57,522

1920


First Half Ended,
June 13, 2020
First Three Quarters Ended,										First Three Quarters Ended,
September 5, 2020										September 5, 2020
(thousands)	(thousands)	Environmental Services		Oil Business		Corporate and Eliminations		Consolidated		(thousands)	Environmental Services		Oil Business		Corporate and Eliminations		Consolidated

Revenues	Revenues									Revenues
Service revenues	Service revenues	$	107,056	$	8,948	$	0	$	116,004	Service revenues	$	154,589	$	14,673	$	—	$	169,262
Product revenues	Product revenues	19,023		40,561		0		59,584		Product revenues	28,619		59,487		—		88,106
Rental income	Rental income	11,173		21		0		11,194		Rental income	16,483		65		—		16,548
Total revenues	Total revenues	$	137,252	$	49,530	$	0	$	186,782	Total revenues	$	199,691	$	74,225	$	—	$	273,916
Operating expenses	Operating expenses									Operating expenses
Operating costs	Operating costs	105,508		50,035		0		155,543		Operating costs	150,891		71,778		—		222,669
Operating depreciation and amortization	Operating depreciation and amortization	4,618		4,136		0		8,754		Operating depreciation and amortization	7,049		6,238		—		13,287
Profit (loss) before corporate selling, general, and administrative expenses	Profit (loss) before corporate selling, general, and administrative expenses	$	27,126	$	(4,641)	$	0	$	22,485	Profit (loss) before corporate selling, general, and administrative expenses	$	41,751	$	(3,791)	$	—	$	37,960
Selling, general, and administrative expenses	Selling, general, and administrative expenses					22,656		22,656		Selling, general, and administrative expenses					32,066		32,066
Depreciation and amortization from SG&A	Depreciation and amortization from SG&A					1,969		1,969		Depreciation and amortization from SG&A					3,071		3,071
Total selling, general, and administrative expenses	Total selling, general, and administrative expenses					$	24,625	$	24,625	Total selling, general, and administrative expenses					$	35,137	$	35,137
Other income - net						(6,525)		(6,525)
Other (income) - net										Other (income) - net					(6,967)		(6,967)
Operating income	Operating income							4,385		Operating income							9,790
Interest expense – net	Interest expense – net					558		558		Interest expense – net					842		842
Income before income taxes	Income before income taxes							$	3,827	Income before income taxes							$	8,948

Total assets by segment as of ~~June 19,~~September 11, 2021 and January 2, 2021 were as follows:


(thousands)	(thousands)		June 19, 2021		January 2, 2021		(thousands)		September 11, 2021		January 2, 2021
Total Assets:	Total Assets:						Total Assets:
		Environmental Services	$	215,196	$	217,297		Environmental Services	$	237,841	$	217,297
		Oil Business	174,467		160,165			Oil Business	176,094		160,165
		Unallocated Corporate Assets	80,178		84,207			Unallocated Corporate Assets	90,899		84,207
		Total	$	469,841	$	461,669		Total	$	504,834	$	461,669

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.

2021

~~(12)~~(11) COMMITMENTS AND CONTINGENCIES

LEASES

Lessee

The Company leases buildings and property, railcars, machinery and equipment, and various types of vehicles and trailers 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 approximately 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.

Lessor

The Company is a lessor of portions of buildings 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 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. 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 buildings and property.

Rental income was as follows:


		Second Quarter Ended,													Third Quarter Ended,
		June 19, 2021						June 13, 2020							September 11, 2021						September 5, 2020
(thousands)	(thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total		(thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total
Parts Cleaning	Parts Cleaning	$	5,636	$	0	$	5,636	$	5,408	$	0	$	5,408	Parts Cleaning	$	5,701	$	—	$	5,701	$	5,310	$	—	$	5,310
Railcars	Railcars	0		0		0		0		0		0		Railcars	—		—		—		—		—		—
Property	Property	50		9		59		0		0		0		Property	24		—		24		—		45		45
Total rental income	Total rental income	$	5,686	$	9	$	5,695	$	5,408	$	0	$	5,408	Total rental income	$	5,725	$	—	$	5,725	$	5,310	$	45	$	5,355


		First Half Ended,													First Three Quarters Ended,
		June 19, 2021						June 13, 2020							September 11, 2021						September 5, 2020
(thousands)	(thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total		(thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total
Parts Cleaning	Parts Cleaning	$	11,043	$	0	$	11,043	$	11,173	$	0	$	11,173	Parts Cleaning	$	16,744	$	—	$	16,744	$	16,483	$	—	$	16,483
Railcars	Railcars	0		0		0		0		16		16		Railcars	—		—		—		—		16		16
Property	Property	50		18		68		0		5		5		Property	74		18		92		—		49		49
Total rental income	Total rental income	$	11,093	$	18	$	11,111	$	11,173	$	21	$	11,194	Total rental income	$	16,818	$	18	$	16,836	$	16,483	$	65	$	16,548

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 cancellable 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 ~~$22.4~~$27.8 million as of ~~June 19,~~September 11, 2021, and $20.0 million as of January 2, 2021, 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 ~~June 19,~~September 11, 2021 and January 2, 2021, the Company had accrued $3.2 million and $3.9 million related to loss contingencies and other contingent liabilities, respectively.

~~(13)~~(12) 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 ~~second~~third quarter of 2021. Therefore, the Company recorded a noncurrent deferred tax liability as to the difference between the book basis and the tax basis of those assets. The accelerated tax depreciation generated tax losses in most years from fiscal 2011 through fiscal 2019 which resulted in Net Operating Loss (“NOL”) carryovers that would begin to expire in 2031. We expect to fully utilize substantially all of the NOLs during 2021.

In December 2019, the FASB issued ASU 2019-12, (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 intends to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein. The adoption of ASU 2019-12 does not have a material effect on the Company’s financial statements.

The Company's effective tax rate for the ~~second~~third quarter of fiscal 2021 was ~~26.1%~~25.1% compared to ~~8.7%~~22.7% in the ~~second~~third quarter of fiscal 2020. The rate increase is principally attributable to ~~the opposing effect on the tax rate from changes in year-to-date earnings in an income quarter~~consistent levels of profitability as compared to ~~a loss quarter.~~the same quarter in the previous year.

The Company’s effective rate for the first ~~half~~three quarters of fiscal 2021 was ~~26.0%~~25.6% compared to ~~31.2%~~26.3% in the first ~~half~~three quarters of fiscal 2020. The rate decrease is principally attributable to income taxes which are computed on a tax base that reflects substantial modifications to federal taxable income, and that has created comparatively lower anticipated tax expense due to higher pre-tax income for fiscal 2021.

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 $2.8 million for uncertain tax positions as of ~~June 19,~~September 11, 2021. The gross unrecognized tax benefits would, if recognized, decrease the Company's effective tax rate.

~~(14)~~(13) SHARE-BASED COMPENSATION

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 Half Ended,				Unrecognized Expense as of,				(thousands, except share amounts)			First Three Quarters Ended,				Unrecognized Expense as of,
Recipient of Grant	Recipient of Grant	Grant Date	Restricted Shares	June 19, 2021		June 13, 2020		June 19, 2021		June 13, 2020		Recipient of Grant	Grant Date	Restricted Shares	September 11, 2021		September 5, 2020		September 11, 2021		September 5, 2020
Chief Executive Officer	Chief Executive Officer	February, 2017	500,000	$	0	$	213	$	0	$	294	Chief Executive Officer	February, 2017	500,000	$	—	$	319	$	—	$	187
Members of Management	Members of Management	February, 2018	116,958	0		248		0		367		Members of Management	February, 2018	116,958	—		373		—		193
Special Incentive Grant	Special Incentive Grant	April, 2018	350,000	810		251		1,111		2,371		Special Incentive Grant	April, 2018	350,000	1,123		548		798		2,073
Members of Management	Members of Management	May, 2019	23,560	110		84		145		374		Members of Management	May, 2019	23,560	36		132		—		326
Members of Management	Members of Management	February, 2020	41,138	66		302		280		568		Members of Management	February, 2020	41,138	75		165		114		453
Board of Directors	Board of Directors	April, 2020	14,988	0		132		0		153		Board of Directors	April, 2020	14,988	—		197		—		88
Chief Executive Officer	Chief Executive Officer	February, 2021	500,000	912		0		5,310		0		Chief Executive Officer	February, 2021	500,000	1,619		—		4,698		—
Members of Management	Members of Management	February, 2021	35,898	71		0		586		0		Members of Management	February, 2021	35,898	114		—		517		—
Board of Directors	Board of Directors	April, 2021	11,487	150		0		182		0		Board of Directors	April, 2021	11,487	227		—		105		—

On January 8, 2021, the Company and Mr. Brian Recatto entered into an amended Executive Employment Agreement (the “Amended Agreement”) which was effective on February 1, 2021. Pursuant to the Amended Agreement, wethe Company replaced in its entirety section 4.3 of the First Amendment to the Executive Employment Agreement relating to equity compensation that was effective February 1, 2017. As of February 1, 2021, Mr. Recatto received a one-time award of 500,000 shares of restricted stock, subject to the achievement of performance criteria established by the Compensation Committee of the Board of Directors pursuant to the Company's 2019 Incentive Plan.

The award date for such Performance-Based Restricted Stock was on February 1, 2021. Such award was granted pursuant to and governed by the terms of the 2019 Incentive Plan and an award agreement in a form provided by the Company. The Performance-Based Restricted Stock one-time award of 500,000 shares received on February 1, 2021, shall vest on January 31, 2025 if Mr. Recatto is employed by the Company on that date, in an amount determined by applying the applicable percentages from the chart below, with the common stock price increases 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 amended agreement commencement date ($21.77) 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 0no shares shall vest.

During the ~~second~~third quarter of fiscal 2021, the Company recorded approximately ~~$0.4~~$0.6 million of compensation expense related to this award. In the future, the Company expects to recognize compensation expense of approximately ~~$5.9~~$4.7 million over the remaining requisite service period, which ends January 31, 2025. 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 0.29%, expected dividend yield of 0,zero, and an expected volatility assumption of 53.07%.

2425


Vesting Table
Increase in Stock Price From the Amended Agreement Commencement Date to the Vesting Date						Total Percentage of Restricted Stock Shares to Be Vested
Less than $5 per share increase						0%—%
$5 per share increase						25% (vest in 125,000 shares)
$10 per share increase						50% (vest in ~~125,000~~250,000 shares)
$15 per share increase						75% (vest in ~~125,000~~375,000 shares)
$20 or more per share increase						100% (vest in ~~125,000~~500,000 shares)

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~~February 1, 2021 and ~~final vesting date,~~January 31, 2025, 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.

In addition, on each of December 31, 2021, December 31, 2022, and December 31, 2023, to the extent Mr. Recatto remains employed by the Company under the Amended Agreement on such date, Mr. Recatto shall receive a grant of restricted stock as of such date valued at Five Hundred Thousand Dollars ($500,000), with the number of shares of restricted stock constituting such grant determined by applying the average closing price for a share of the Company’s common stock for the 90-day period ending on such date. Such awards of Time-Based Restricted Stock shall be granted pursuant to and governed by the terms of the 2019 Incentive Plan and an award agreement in a form provided by the Company. The Time-Based Restricted Stock shall vest only if Mr. Recatto remains employed by the Company under the Amended Agreement through December 31, 2023; provided, that, upon a Change of Control of the Company (as such term is defined in the Amended Agreement), all shares of the Time-Based Restricted Stock awarded up through the date of closing of the Change in Control shall become vested, and no further award of Time-Based Restricted Stock shall be awarded. During the ~~second~~third quarter of fiscal 2021, the Company recorded approximately $0.1 million of compensation expense related to this award. During the first ~~half~~three quarters of fiscal 2021, the Company recorded approximately ~~$0.2~~$0.3 million of compensation expense related to this award.

The following table summarizes the restricted stock activity for the ~~second~~third quarter ended ~~June 19,~~September 11, 2021:


Restricted Stock (Nonvested Shares)	Restricted Stock (Nonvested Shares)	Number of Shares	Weighted Average Grant-Date Fair Value Per Share		Restricted Stock (Nonvested Shares)	Number of Shares	Weighted Average Grant-Date Fair Value Per Share
Nonvested shares outstanding at January 2, 2021	Nonvested shares outstanding at January 2, 2021	646,634	$	18.28	Nonvested shares outstanding at January 2, 2021	646,634	$	18.28
Granted	Granted	547,385	22.17		Granted	547,385	22.17
Vested	Vested	(50,485)	16.19		Vested	(86,007)	18.49
Forfeited	Forfeited	(341,574)	15.04		Forfeited	(370,405)	15.52
Nonvested shares outstanding at June 19, 2021		801,960	$	22.43
Nonvested shares outstanding at September 11, 2021					Nonvested shares outstanding at September 11, 2021	737,607	$	22.48

Employee Stock Purchase Plan

As of ~~June 19,~~September 11, 2021, the Company had reserved ~~68,812~~64,488 shares of common stock available for purchase under the Employee Stock Purchase Plan. In the ~~second~~third quarter of fiscal 2021, employees purchased ~~4,750~~4,324 shares of the Company’s common stock with a weighted average fair market value of ~~$24.05~~$25.78 per share.

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~~(15)~~(14) EARNINGS PER SHARE

The following table reconciles the number of shares outstanding for the ~~second~~third quarters and first ~~half~~three quarters of fiscal 2021 and 2020, 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:


		Second Quarter Ended,				First Half Ended,					Third Quarter Ended,				First Three Quarters Ended,
(thousands, except per share amounts)	(thousands, except per share amounts)	June 19, 2021		June 13, 2020		June 19, 2021		June 13, 2020		(thousands, except per share amounts)	September 11, 2021		September 5, 2020		September 11, 2021		September 5, 2020
Net income (loss)		$	15,111	$	(2,658)	$	24,317	$	2,633
Net income										Net income	$	18,508	$	3,958	$	42,825	$	6,591

Weighted average basic shares outstanding	Weighted average basic shares outstanding	23,404		23,260		23,389		23,249		Weighted average basic shares outstanding	23,431		23,294		23,403		23,277
Dilutive shares for share–based compensation plans	Dilutive shares for share–based compensation plans	161		0		148		185		Dilutive shares for share–based compensation plans	139		185		145		179
Weighted average diluted shares outstanding	Weighted average diluted shares outstanding	23,565		23,260		23,537		23,434		Weighted average diluted shares outstanding	23,570		23,479		23,548		23,456

Net income per share: basic	Net income per share: basic	$	0.65	$	(0.11)	$	1.04	$	0.11	Net income per share: basic	$	0.79	$	0.17	$	1.83	$	0.28
Net income per share: diluted	Net income per share: diluted	$	0.64	$	(0.11)	$	1.03	$	0.11	Net income per share: diluted	$	0.79	$	0.17	$	1.82	$	0.28

~~(16)~~(15) OTHER (INCOME) EXPENSE - NET

Other (income) expense - net was ~~$0.3~~$0.2 million of income for the ~~second~~third quarter of fiscal 2021, compared to a net ~~$6.8~~$0.4 million of income in the ~~second~~third quarter of 2020. Other (income) expense - net was ~~$0.4~~$0.7 million of income for the first ~~half~~three quarters of fiscal 2021, compared to a net ~~$6.5~~$7.0 million of income in the first ~~half~~three quarters of fiscal 2020. The 2020 other income included approximately $6.5 million of income from the reversal of a portion of the expense accrual for a class action lawsuit settlement.

(16) SUBSEQUENT EVENTS

On September 13, 2021, the Company completed the acquisition of Raider Environmental Services of Florida, Inc., which has expanded our network of wastewater processing, oil collection and non-hazardous waste solidification to better serve our customers in Florida and throughout the Southern United States. Total consideration for the acquisition was approximately $13.5 million. This acquisition provides the Company with another wastewater treatment facility as well as assets to help further our initiative to increase our non-hazardous containerized waste processing capabilities. This also provides us exposure to industry verticals in which we didn't previously participate. The valuation is currently being performed and is expected to be completed before year-end.

On September 27, 2021, the Company completed the acquisition of Source Environmental, Inc., which increases the Company's penetration in the hazardous and non-hazardous waste business in several markets in the western U.S.. This transaction also provides us the opportunity to internalize the performance of certain field service activities in the western U.S. Total consideration for the acquisition was approximately $20.5 million. The valuation is currently being performed and is expected to be completed before year-end.

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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 2, 2021. 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 2020 filed with the SEC on March 2, 2021. 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 ("~~second~~third quarter" or "quarter") ended ~~June 19,~~September 11, 2021 and ~~June 13,~~September 5, 2020, respectively. "Fiscal 2020" represents the 53-week period ended January 2, 2021 and "Fiscal 2021" represents the 52-week period beginning January 3, 2021, and ending on January 1, 2022.

Overview

We provide parts cleaning, containerized waste management, used oil collection, wastewater vacuum, 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 industrial services and vehicle maintenance ~~and industrial services sector~~sectors 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 8990 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, containerized waste management, wastewater vacuum, antifreeze recycling, and field services. Revenues from this segment accounted for approximately ~~62.0%~~58.7% of our total Company revenues for the ~~second~~third quarter of fiscal 2021. 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 and used oil re-refining activities, ~~and~~along with our recycled fuel oil ("RFO") sales which together accounted for approximately ~~38.0%~~41.3% of our total Company revenues in the ~~second~~third quarter of fiscal 2021.

Our operating costs include the costs of obtaining 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 incur to obtain 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, wastewater treatment facilities, hubs, and

2728

branch system including personnel costs (including commissions), facility rent, truck leases, fuel, and maintenance. Our operating costs as a percentage of revenues 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 revenues 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 49 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 ~~second~~third quarter of fiscal 2021 to the information provided under the heading "Critical Accounting Policies" included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

Impact of the 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. In addition, we have taken steps to minimize the negative impact of the COVID-19 pandemic ~~through-out~~throughout our business and to protect the safety of our employees and customers. The duration of these measures is unknown and may be extended, and additional measures may be necessary.

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 information that may emerge concerning the COVID-19 outbreak and the actions to contain it or treat its impact. The continued impact on our business as a result of the 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 throughout 2021.

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RESULTS OF OPERATIONS

General

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


		Second Quarter Ended,								First Half Ended,									Third Quarter Ended,								First Three Quarters Ended,
(thousands)	(thousands)	June 19, 2021				June 13, 2020				June 19, 2021				June 13, 2020				(thousands)	September 11, 2021				September 5, 2020				September 11, 2021				September 5, 2020

Revenues	Revenues																	Revenues
Service revenues	Service revenues	$	60,033	51.2	%	$	52,247	65.7	%	$	117,732	52.9	%	$	116,004	62.1	%	Service revenues	$	59,737	48.5	%	$	53,257	61.1	%	$	177,469	51.3	%	$	169,262	61.8	%
Product revenues	Product revenues	51,551		44.0	%	21,863		27.5	%	93,817		42.1	%	59,584		31.9	%	Product revenues	57,713		46.9	%	28,522		32.7	%	151,529		43.8	%	88,106		32.2	%
Rental income	Rental income	5,695		4.9	%	5,408		6.8	%	11,111		5.0	%	11,194		6.0	%	Rental income	5,725		4.6	%	5,355		6.1	%	16,836		4.9	%	16,548		6.0	%
Total revenues	Total revenues	$	117,279	100.0	%	$	79,518	100.0	%	$	222,660	100.0	%	$	186,782	100.0	%	Total revenues	$	123,175	100.0	%	$	87,134	100.0	%	$	345,834	100.0	%	$	273,916	100.0	%
Operating expenses	Operating expenses																	Operating expenses
Operating costs	Operating costs	$	78,329	66.8	%	$	72,293	90.9	%	$	155,099	69.7	%	$	155,543	83.3	%	Operating costs	$	79,486	64.5	%	$	67,125	77.0	%	$	234,584	67.8	%	$	222,669	81.3	%
Selling, general, and administrative expenses	Selling, general, and administrative expenses	13,039		11.1	%	11,134		14.0	%	25,228		11.3	%	22,656		12.1	%	Selling, general, and administrative expenses	13,294		10.8	%	9,410		10.8	%	38,522		11.1	%	32,066		11.7	%
Depreciation and amortization	Depreciation and amortization	5,619		4.8	%	5,455		6.9	%	9,401		4.2	%	10,723		5.7	%	Depreciation and amortization	5,767		4.7	%	5,635		6.5	%	15,168		4.4	%	16,358		6.0	%
Other (income) expense - net		(330)		(0.3)	%	(6,796)		(8.5)	%	(439)		(0.2)	%	(6,525)		(3.5)	%
Operating income (loss)		20,622		17.6	%	(2,568)		(3.2)	%	33,371		15.0	%	4,385		2.3	%
Other (income) - net																		Other (income) - net	(230)		(0.2)	%	(441)		(0.5)	%	(669)		(0.2)	%	(6,967)		(2.5)	%
Operating income																		Operating income	24,858		20.2	%	5,405		6.2	%	58,229		16.8	%	9,790		3.6	%
Interest expense – net	Interest expense – net	177		0.2	%	344		0.4	%	501		0.2	%	558		0.3	%	Interest expense – net	206		0.2	%	284		0.3	%	707		0.2	%	842		0.3	%
Income (loss) before income taxes		20,445		17.4	%	(2,912)		(3.7)	%	32,870		14.8	%	3,827		2.0	%
Provision for (benefit from) income taxes		5,334		4.5	%	(254)		(0.3)	%	8,553		3.8	%	1,194		0.6	%
Income before income taxes																		Income before income taxes	24,652		20.0	%	5,121		5.9	%	57,522		16.6	%	8,948		3.3	%
Provision for income taxes																		Provision for income taxes	6,144		5.0	%	1,163		1.3	%	14,697		4.2	%	2,357		0.9	%
Net income	Net income	$	15,111	12.9	%	$	(2,658)	(3.3)	%	$	24,317	10.9	%	$	2,633	1.4	%	Net income	$	18,508	15.0	%	$	3,958	4.5	%	$	42,825	12.4	%	$	6,591	2.4	%

Revenues

Revenue for the ~~second~~third quarter of 2021 was ~~$117.3~~$123.2 million compared to ~~$79.5~~$87.1 million for the same quarter of 2020, an increase of ~~$37.8~~$36.0 million, or ~~47.5.%~~41.3%. The ~~$37.8~~$36.0 million increase in revenue was mainly driven by higher base oil selling prices and higher base oil sales volume during the third quarter. In addition, we experienced a continued growth and recovery as a result of the COVID-19 pandemic which negatively impacted 2020 revenues. ~~In addition, base oil selling prices continued to increase during the second quarter which resulted in an increase in revenue along with a higher volume of base oil sold.~~ For the first ~~half~~three quarters of fiscal 2021, revenues increased ~~$35.9~~$71.9 million, or ~~19.2%~~26.2%, from ~~$186.8~~$273.9 million in the first ~~half~~three quarters of fiscal 2020 to ~~$222.7~~$345.8 million in the first ~~half~~three quarters of 2021 mainly driven ~~mainly~~ by ~~COVID-19 related volume increases during~~ the ~~second quarter and an increase in base oil selling prices and base oil volume sold during the first half of fiscal 2021.~~factors mentioned above.

Operating costs

Operating costs increased $12.4~~$6.0~~ million, or 8.18.5%3%, during the ~~second~~third quarter of 2021 compared to the ~~second~~third quarter of fiscal 2020 mainly due to higher labor costs, health and welfare costs, transportation related expenses and higher used oil feedstock volume as a result of more business activity due to the lessening impacts of the COVID-19 pandemic. Operating costs ~~decreased $0.4~~increased $11.9 million, or ~~(0.3)%~~5.3%, in the first ~~half~~three quarters of fiscal 2021 compared to the first ~~half~~three quarters of fiscal 2020.

We expect that in the future our operating costs in both the Environmental Services and Oil Business segments may increase or decrease depending on our product and service volumes and changes in commodity pricing, along with other factors.

Selling, general, and administrative expenses

Selling, general, and administrative expenses increased ~~$1.9~~ $3.9 million, or ~~17.1%~~41.4%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021 mainly driven by the increase in bonus reserve. Selling, general, and administrative expenses increased ~~$2.6~~$6.5 million, or ~~11.4%~~20.3%, from the first ~~half~~three quarters of fiscal 2020 to the first ~~half~~three quarters of fiscal ~~2021.~~

2021 mainly driven by the factors mentioned above.

2930

Other (income) expense - net

Other (income) expense - net was ~~$0.3~~$0.2 of income for the ~~second~~third quarter of fiscal 2021, compared to a net ~~$6.8~~$0.4 million of income in the ~~second~~third quarter of 2020 mainly ~~driven by a $6.5 million reversal~~due to the gain on sale of ~~settlement claims in the second quarter of 2020.~~assets. Other (income) expense - net was ~~$0.4~~$0.7 million of income for the first ~~half~~three quarters of fiscal 2021, compared to a net ~~$6.5~~$7.0 million of income in the first ~~half~~three quarters of ~~2020.~~2020 driven mainly by a $6.5 million reversal of a portion of the expense accrual for a class action lawsuit settlement.

Interest expense - net

Interest expense - net for the ~~second~~third quarter of fiscal 2021 and fiscal 2020 was $0.2 million and ~~$0.3~~$0.3 million, respectively. Interest expense - net for the first ~~half~~three quarters of fiscal 2021 and 2020 was ~~$0.5~~$0.7 million and ~~$0.6~~$0.8 million respectively.

Provision for income taxes

The Company's effective income tax rate for the ~~second~~third quarter of fiscal 2021 was ~~26.1%~~25.1% compared to ~~8.7%~~22.7% in the ~~second~~third quarter of fiscal 2020. The rate increase is principally attributable to the opposing effect of non-deductible expenses in a projected loss year as compared to a projected income year.

Segment Information

The following table presents revenues by reportable segment:


			Second Quarter Ended,				Change						Third Quarter Ended,				Change
(thousands)	(thousands)		June 19, 2021		June 13, 2020		$		%		(thousands)		September 11, 2021		September 5, 2020		$		%
Revenues:	Revenues:										Revenues:
		Environmental Services	$	72,716	$	59,800	$	12,916	21.6	%		Environmental Services	$	72,339	$	62,439	$	9,900	15.9	%
		Oil Business	44,563		19,718		24,845		126.0	%		Oil Business	50,836		24,695		26,141		105.9	%
		Total	$	117,279	$	79,518	$	37,761	47.5	%		Total	$	123,175	$	87,134	$	36,041	41.4	%


		First Half Ended,				Change					First Three Quarters Ended,				Change
(thousands)	(thousands)	June 19, 2021		June 13, 2020		$		%		(thousands)	September 11, 2021		September 5, 2020		$		%
Revenues:	Revenues:									Revenues:
Environmental Services	Environmental Services	$	142,173	$	137,252	$	4,921	3.6	%	Environmental Services	$	214,511	$	199,691	$	14,820	7.4	%
Oil Business	Oil Business	80,487		49,530		30,957		62.5	%	Oil Business	131,323		74,225		57,098		76.9	%
Total	Total	$	222,660	$	186,782	$	35,878	19.2	%	Total	$	345,834	$	273,916	$	71,918	26.3	%

In the ~~second~~third quarter of fiscal 2021, Environmental Services revenue was ~~$72.7~~$72.3 million compared to ~~$59.8~~$62.4 million during the ~~second~~third quarter of fiscal 2020. The ~~21.6%~~15.9% increase in revenue was mainly due to ~~continuing recovery from~~the lessening impacts of the COVID-19 pandemic ~~when~~on our business during the third quarter of 2021 compared to the ~~second~~third quarter of 2020. We saw volume increases in all of our lines of business compared to the ~~second~~third quarter of 2020. For the first ~~half~~three quarters of fiscal 2021, Environmental Services revenue was ~~$142.2~~$214.5 million, compared to ~~$137.3~~$199.7 million during the first ~~half~~three quarters of fiscal 2020.

During the ~~second~~third quarter of fiscal 2021, Oil Business revenues were a ~~12-week quarter~~ record of ~~$44.6~~$50.8 million, an increase of ~~$24.8~~$26.1 million, or ~~126.0%~~105.9%, compared to ~~$19.7~~$24.7 million in the ~~second~~third quarter of fiscal 2020. ~~The~~ An increase in base oil prices was the main driver of the increase in revenue ~~was mainly due to~~along with an increase in ~~our selling price for~~ base oil ~~and an increase in~~sales volume compared to the ~~volume of base oil sold.~~prior year quarter. For the first ~~half~~three quarters of fiscal 2021, Oil Business revenues were ~~$80.5~~$131.3 million, compared to ~~$49.5~~$74.2 million during the first ~~half~~three quarters of fiscal 2020. The increase in revenue was driven primarily by the higher base oil sales price and an increase in the volume of base oil sold during the first ~~half~~three quarters of fiscal ~~2021.~~

2021 compared to the first three quarters of fiscal 2020.

3031

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

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


			Second Quarter Ended,				Change
												Third Quarter Ended,				Change
(thousands)	(thousands)		June 19, 2021		June 13, 2020		$		%	(thousands)		September 11, 2021		September 5, 2020		$		%
Profit before corporate SG&A*	Profit before corporate SG&A*									Profit before corporate SG&A*
		Environmental Services	$	19,167	$	8,348	$	10,819	129.6%		Environmental Services	$	17,259	$	14,625	$	2,634	18.0%
		Oil Business	15,244		(5,553)		20,797		N/M		Oil Business	21,773		851		20,922		N/M
		Total	$	34,411	$	2,795	$	31,616	1,131.2%		Total	$	39,032	$	15,476	$	23,556	152.2%


			First Half Ended,				Change
												First Three Quarters Ended,				Change
(thousands)	(thousands)		June 19, 2021		June 13, 2020		$		%	(thousands)		September 11, 2021		September 5, 2020		$		%
Profit (loss) before corporate SG&A*	Profit (loss) before corporate SG&A*									Profit (loss) before corporate SG&A*
		Environmental Services	$	35,166	$	27,126	$	8,040	29.6%		Environmental Services	$	52,425	$	41,751	$	10,674	25.6%
		Oil Business	25,329		(4,641)		29,970		N/M		Oil Business	47,102		(3,791)		50,893		N/M
		Total	$	60,495	$	22,485	$	38,010	169.0%		Total	$	99,527	$	37,960	$	61,567	162.2%

*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 ~~$10.8~~$2.6 million, or ~~129.6%~~18.0%, in the ~~second~~third quarter of fiscal 2021 compared to the ~~second~~third quarter of fiscal 2020. The increase was mainly driven by higher revenues due to the waning ~~of the~~ negative impacts of the COVID-19 pandemic which produced improved leveraging of fixed ~~costs.~~costs during the third quarter of fiscal 2021 partially offset by inflationary cost pressures for disposal and containers. Operating margin for ~~second~~third quarter of 2021 was ~~26.4%~~23.9% compared to ~~14.0%~~23.4% in the ~~second~~third quarter of 2020.

Environmental Services profit before corporate SG&A expense increased ~~$8.0~~$10.7 million, or ~~29.6%~~25.6%, in the first ~~half~~three quarters of fiscal 2021 compared to the first ~~half~~three quarters of fiscal 2020. The improvement in profitability during the first ~~half~~three quarters of fiscal 2021 compared to fiscal 2020 was due to the factors mentioned above which occurred during the ~~second~~third quarter of fiscal 2021. Operating margin for first ~~half~~three quarters of 2021 wawas 24.4% c~~s 24.7% com~~ompared to ~~19.8%~~20.9% in the first ~~half~~three quarters of 2020.

Oil Business profit before corporate SG&A expense increased ~~$20.8~~$20.9 million in the ~~second~~third quarter of fiscal 2021 compared to the ~~second~~third quarter of fiscal 2020. The higher operating margin compared to the ~~second~~third quarter of 2020 was mainly due to the improvement between the cost of our used oil feedstock and the selling price of our base oil along with the lack of an extended voluntary shutdown of our re-refinery which occurred during the second quarter of fiscal 2020. This allowed us to significantly increase the throughput at the re-refinery during the second quarter of fiscal 2021 compared to the year earlier quarter.oil. Oil Business segment operating margin sharply increased to a record ~~31.5%~~42.8% in the ~~second~~third quarter of 2021 compared to ~~(9.4%)~~3.4% in the ~~seco~~third nd quarter of fiscal 2020.

Oil Business profit before corporate SG&A expense increased ~~30.0~~$50.9 million in the first ~~half~~three quarters of fiscal 2021 compared to the first ~~half~~ three quarters of fiscal 2020. The factors which drove the improvement during the ~~second~~third quarter were primarily responsible for the improvement in profitability during the first ~~half~~three quarters of fiscal ~~20221~~2021 compared to the first ~~half~~three quarters of fiscal 2020.

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FINANCIAL CONDITION

Liquidity and Capital Resources

Cash and Cash Equivalents

As of ~~June 19,~~September 11, 2021 and January 2, 2021, cash and cash equivalents were ~~$67.3~~$75.3 million and $67.6 million, respectively. Our primary sources of liquidity are cash flows from operations and funds available to borrow under our revolving bank credit facility.

Debt and Financing Arrangements

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

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

The Company's weighted average interest rate for all debt through the ~~second~~third fiscal quarters of 2021, and 2020, was 2.04% and ~~3.7%~~3.2%, respectively.

As of ~~June 19,~~September 11, 2021 and January 2, 2021, the Company was in compliance with all covenants under its Credit Agreement. As of ~~June 19,~~September 11, 2021 and January 2, 2021, the Company, ~~had~~had $5.6 million and $3.9 million, of standby letters of credit issued, respectively, and $94.4 million and $61.0 million was available for borrowing under the bank credit facility, respectively.

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

First Half Ended,
(thousands) June 19,
2021 June 13,
2020
Net cash provided by (used in):
Operating activities $ 41,343 $ 17,738
Investing activities (9,393) (23,144)
Financing activities (32,253) (4,506)
Net decrease in cash and cash equivalents $ (303) $ (9,912)


	First Three Quarters Ended,
(thousands)	September 11, 2021		September 5, 2020
Net cash provided by (used in):
Operating activities	$	63,127	$	22,817
Investing activities	(21,800)		(26,172)
Financing activities	(33,629)		(4,689)
Net increase (decrease) in cash and cash equivalents	$	7,698	$	(8,044)

The most significant items affecting the comparison of our operating activities for the first ~~half~~three quarters of fiscal 2021 and the first ~~half~~three quarters of fiscal 2020 are summarized below:

Net Cash Provided by Operating Activities —

•Earnings — Our increase in net income during the first ~~half~~three quarters of 2021 favorably impacted our net cash provided by operating activities by ~~$21.7 mil~~$36.2 million~~lion~~ compared to the first ~~half~~three quarters of 2020.

•Accounts Receivable — The increase in accounts receivable had an unfavorable impact on cash provided by operating activities of ~~$19.6~~$19.1 million compared to the decrease in accounts receivable during in the first ~~half~~three quarters of fiscal 2020.

•Accounts Payable — The increase in accounts payable had a favorable impact on cash provided by operating activities of ~~$7.0~~$11.3 million in the first ~~half~~three quarters of fiscal 2021.

Net Cash Used in Investing Activities —

•Capital expenditures — We made capital expenditures as follows:


		First Half Ended,					First Three Quarters Ended,
(thousands)	(thousands)	June 19, 2021		June 13, 2020		(thousands)	September 11, 2021		September 5, 2020
Re-refinery capital improvements	Re-refinery capital improvements	$	2.2	$	5.1	Re-refinery capital improvements	$	2.4	$	6.5
Trucks and trailers	Trucks and trailers	3.7		3.0		Trucks and trailers	5.9		3.1
Parts cleaning machines	Parts cleaning machines	2.2		2.3		Parts cleaning machines	3.1		2.9
IT projects	IT projects	0.1		1.2		IT projects	0.3		1.9
Various other projects	Various other projects	2.7		1.5		Various other projects	0.3		2.1
Total	Total	$	10.9	$	13.1	Total	$	12.0	$	16.5

•Net Cash Used in Investing Activities — During the first ~~half~~three quarters of ~~2020,~~2021, the Company used ~~$10.0~~$11.4 million of cash outflows for an acquisition.

•Net Cash Used in Financing Activities — During the first ~~half~~three quarters of fiscal 2021 the Company paid down its previous term loan, in full, of $30.0 million.

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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. We had no borrowings under our Credit Facility during the ~~second~~third quarter of fiscal 2021. We 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 no change to our interest expense in the ~~second~~third quarter of fiscal 2021.

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 controls over financial reporting during the ~~second~~third quarter ended ~~June 19,~~September 11, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

ITEM 5. 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."

3536

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:	~~July 28,~~October 20, 2021	By:	/s/ Mark DeVita

			Mark DeVita
			Chief Financial Officer

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