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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2000
-----------------------
Commission File Number 0-16379
CLEAN HARBORS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2997780
(State of Incorporation) (IRS Employer Identification No.)
1501 Washington Street, Braintree, MA 02184-7535
(Address of Principal Executive Offices) (Zip Code)
(781) 849-1800 ext. 4454
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 11,216,107
- ---------------------------- ---------------------------------
(Class) (Outstanding at November 9, 2000)
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CLEAN HARBORS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS PAGES
-----
Consolidated Statements of Operations 1
Consolidated Balance Sheets 2-3
Consolidated Statements of Cash Flows 4-5
Consolidated Statement of Stockholders' Equity 6
Notes to Consolidated Financial Statements 7-12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 13-24
PART II: OTHER INFORMATION
Items No. 1 through 6 25
Signatures 26
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands except for earnings per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ----------------------------
2000 1999 2000 1999
------- ------- -------- ---------
Revenues $60,290 $54,602 $175,269 $ 150,368
Cost of revenues 42,385 39,903 124,289 111,152
Selling, general and administrative
expenses 10,803 9,656 31,667 27,062
Depreciation and amortization 2,736 2,408 7,915 7,047
------- ------- -------- ---------
Income from operations 4,366 2,635 11,398 5,107
Interest expense, net 2,395 2,306 6,998 6,735
------- ------- -------- ---------
Income (loss) before provision for
income taxes 1,971 329 4,400 (1,628)
Provision for income taxes 64 12 294 192
------- ------- -------- ---------
Net income (loss) $ 1,907 $ 317 $ 4,106 $ (1,820)
======= ======= ======== =========
Basic income (loss) per share $ 0.16 $ 0.02 $ 0.34 $ (0.20)
======= ======= ======== =========
Diluted income (loss) per share $ 0.15 $ 0.02 $ 0.33 $ (0.20)
======= ======= ======== =========
Weighted average common
shares outstanding 11,139 10,689 11,041 10,685
======= ======= ======== =========
Weighted average common
shares plus potentially
dilutive common shares 11,764 10,695 11,266 10,685
======= ======= ======== =========
The accompanying notes are an integral part of these
consolidated financial statements.
1
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
SEPTEMBER 30, DECEMBER 31,
2000 1999
(Unaudited)
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,118 $ 2,783
Restricted investments 504 1,116
Accounts receivable, net of allowance for doubtful
accounts of $1,368 and $1,157, respectively 50,463 43,780
Prepaid expenses 1,773 1,094
Supplies inventories 2,860 2,808
Income tax receivable 203 122
-------- --------
Total current assets 56,921 51,703
-------- --------
Property, plant and equipment:
Land 8,478 8,478
Buildings and improvements 41,733 40,612
Vehicles and equipment 89,307 84,528
Furniture and fixtures 2,225 2,219
Construction in progress 1,500 1,224
-------- --------
143,243 137,061
Less - Accumulated depreciation
and amortization 87,121 80,849
-------- --------
Net property, plant and equipment 56,122 56,212
-------- --------
Other assets:
Goodwill, net 19,991 20,566
Permits, net 11,839 12,633
Other 4,292 4,133
-------- --------
Total other assets 36,122 37,332
-------- --------
Total assets $149,165 $145,247
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
2
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except share amounts)
SEPTEMBER 30, DECEMBER 31,
2000 1999
(Unaudited)
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations $ 52,300 $ 1,300
Accounts payable 17,692 17,830
Accrued disposal costs 8,858 6,591
Other accrued expenses 13,251 11,360
Income taxes payable 355 57
-------- --------
Total current liabilities 92,456 37,138
-------- --------
Long-term obligations, less current maturities 16,808 72,683
Other 1,330 1,255
-------- --------
Total other liabilities 18,138 73,938
-------- --------
Stockholders' equity:
Preferred Stock, $.01 par value:
Series A Convertible;
Authorized-2,000,000 shares; Issued and
outstanding - none -- --
Series B Convertible;
Authorized-156,416 shares; Issued and
outstanding 112,000 (liquidation
preference of $5.6 million) 1 1
Common Stock, $.01 par value
Authorized-20,000,000 shares;
Issued and outstanding-11,146,328 and
10,798,007 shares, respectively 111 108
Additional paid-in capital 61,836 61,245
Accumulated other comprehensive loss -- (36)
Accumulated deficit (23,377) (27,147)
-------- --------
Total stockholders' equity 38,571 34,171
-------- --------
Total liabilities and stockholders' equity $149,165 $145,247
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
3
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,106 $(1,820)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 7,915 7,047
Allowance for doubtful accounts 513 512
Amortization of deferred financing costs 259 259
Gain on sale of fixed assets (20) --
Changes in assets and liabilities:
Accounts receivable (7,196) (5,395)
Refundable income taxes (81) (79)
Prepaid expenses (679) (740)
Supplies inventories (52) 19
Other assets (160) 496
Accounts payable (560) (176)
Accrued disposal costs 2,267 231
Other accrued expenses 1,891 2,382
Income tax payable 298 (18)
Other liabilities 75 (135)
------- -------
Net cash provided by operating activities 8,576 2,583
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,114) (4,398)
Acquisition -- (1,900)
Proceeds from sale and maturities of
restricted investments 1,152 1,255
Cost of restricted investments acquired (504) --
Proceeds from the sale of fixed assets 101 --
------- -------
Net cash used in investing activities $(5,365) $(5,043)
------- -------
The accompanying notes are an integral part of these
consolidated financial statements.
4
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
UNAUDITED
(in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings under term notes $ 3,000 $ 4,139
Net borrowings (repayments) under long-term
revolver (6,717) 296
Payments on long-term obligations (1,417) (1,750)
Proceeds from exercise of stock options 156 --
Proceeds from employee stock purchase plan 102 99
------- -------
Net cash (used in) provided by financing
activities (4,876) 2,784
------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,665) 324
Cash and cash equivalents, beginning of year 2,783 1,895
------- -------
Cash and cash equivalents, end of period $ 1,118 $ 2,219
======= =======
Supplemental Information:
Non cash investing and financing activities:
Stock dividend on preferred stock $ 336 $ 336
The accompanying notes are an integral part of these
consolidated financial statements.
5
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
(in thousands)
Series B
Preferred Stock Common Stock
---------------------- ----------------------
Number of $0.01 Par Number of $0.01 Par
Shares Value Shares Value
--------- --------- --------- ---------
Balance at December 31, 1999 112 $ 1 10,798 $108
Net income --- --- --- ---
Other comprehensive income, net of tax:
Unrealized holding losses arising during
the peroid --- --- --- ---
Reclassification adjustment for losses
included in net income
Other comprehensive income --- --- --- ---
Comprehensive income --- --- --- ---
Preferred stock dividends:
Series B --- --- 187 1
Proceeds from exercise of stock options --- --- 75 1
Employee stock purchase plan --- --- 86 1
--- --- ------ ----
Balance at September 30, 2000 112 $ 1 11,146 $111
=== === ====== ====
WIDE TABLE CONTINUED
Accumulated
Other
Additional Comprehensive Comprehensive Total
Paid-in Income Income Accumulated Stockholders'
Capital (Loss) (Loss) Deficit Equity
------- ------------- ------------- ----------- -------------
Balance at December 31, 1999 $61,245 --- $(36) $(27,147) $34,171
Net income --- $4,106 --- 4,106 4,106
Other comprehensive income, net of tax:
Unrealized holding losses arising during
the peroid --- --- --- --- ---
Reclassification adjustment for losses
included in net income 36
------
Other comprehensive income --- 36 36 --- 36
------
Comprehensive income --- $4,142 --- --- ---
Preferred stock dividends: ======
Series B 335 --- --- (336) ---
Proceeds from exercise of stock options 101 --- --- --- 102
Employee stock purchase plan 155 --- --- --- 156
------- ---- -------- -------
Balance at September 30, 2000 $61,836 --- $--- $(23,377) $38,571
======= ====== ==== ======== =======
The accompanying notes are an integral part of these
consolidated financial statements.
6
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The consolidated interim financial statements included herein have
been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission, and include, in the opinion of management,
all adjustments of a normal recurring nature necessary for the fair statement of
results of interim periods. The operating results for the three and nine months
ended September 30, 2000 are not necessarily indicative of those to be expected
for the full fiscal year. Reference is made to the audited consolidated
financial statements and notes thereto included in the Company's Report on Form
10-K for the year ended December 31, 1999 as filed with the Securities and
Exchange Commission.
NOTE 2 RECLASSIFICATIONS
Certain reclassifications have been made in the prior period's
consolidated financial statements to conform to the 2000 presentation.
NOTE 3 ACQUISITION
On May 25, 1999, the Company acquired the assets of the Texas
Transportation and Brokerage Divisions of American Ecology Environmental
Services Corporation for a cash price of $1,900,000. The divisions operate out
of locations in Dallas and Houston, Texas. The divisions provide waste
management services primarily to small quantity generators throughout Texas and
transportation services for both solid and liquid wastes. This acquisition has
been accounted for under the purchase method of accounting. The purchase price
has been allocated based on estimated fair values of assets acquired at the date
of acquisition. The acquisition resulted in $272,000 of acquired goodwill, which
is being amortized on the straight-line basis over 20 years. The results of the
acquired businesses have been included in the consolidated financial statements
since the acquisition date. The acquisition did not materially effect revenues
or results from operations for the three and nine months ended September 30,
2000 or 1999.
Assuming this acquisition had occurred January 1, 1999, consolidated,
pro forma revenues, net income (loss) and earnings (loss) per share would not
have been materially different than the amounts reported for the three and nine
months ended September 30, 1999. Such unaudited pro forma amounts are not
indicative of what the actual consolidated results of operation might have been
if the acquisition had been effective at the beginning of 1999.
7
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 FINANCING ARRANGEMENTS
As described in the Form 10-K for the year ended December 31, 1999,
the Company had a $30,500,000 Loan Agreement with a financial institution. The
Loan Agreement provided for a $24,500,000 revolving credit portion (the
"Revolver") and a $6,000,000 term promissory note (the "Term Note"). The
Revolver allowed the Company to borrow up to $30,500,000 in cash and letters of
credit, based on a formula of eligible accounts receivable. At September 30,
2000, the Revolver balance was $2,880,000, letters of credit outstanding were
$9,775,000 and funds available to borrow were approximately $11,845,000.
In the first quarter of 2000, the Loan Agreement was amended and an
additional term promissory note (the "2000 Term Note") was entered into with the
financial institution. The original principal amount of the 2000 Term Note is
$3,000,000, it bears interest at the "prime" rate plus 1.5% or the Eurodollar
rate plus 3.0%, and it is payable in 36 monthly installments commencing on May
1, 2000. The funds have been used primarily to purchase vehicles and rolling
stock that the Company previously leased under operating leases. At September
30, 2000, the balance of the Term Note and the 2000 Term Note were $4,400,000
and $2,583,000, respectively.
In the first quarter of 2000, the due date of the Revolver was extended
from May 8, 2001 to May 8, 2003. The Company has $50,000,000 of 12 1/2% Senior
Notes due May 15, 2001 (the "Senior Notes"). In May 2000, the Senior Notes were
reclassified from a long-term liability to a current liability, since they are
now payable within one year. The Loan Agreement, as amended, redefines the
working capital covenant to specifically exclude the Senior Notes as a component
of working capital and requires that the Company maintain $6,000,000 of working
capital, excluding the Senior Notes. The net worth covenant was changed to
require $30,000,000 of adjusted net worth. At September 30, 2000 the Company had
working capital (excluding the Senior Notes) and adjusted net worth of
$14,465,000 and $38,571,000, respectively. The Company must also maintain
borrowing availability of not less than $4,500,000 for sixty consecutive days
prior to paying principal and interest on its other indebtedness and dividends
in cash on its preferred stock. In the first quarter of 2000, the Company
violated this covenant, which violation was waived by the financial
institution through May 15, 2000. Since May 15, 2000, the Company has been
in compliance with this covenant.
Effective June 1, 2000, the Bond Documents under which the Company has
outstanding $9,800,000 of industrial revenue bonds (the "Bonds") were amended in
order to modify the limitation on additional debt covenant and certain related
debt service reserve fund requirements. Under the amended Bond Documents, the
Company may now issue Bank Debt up to $35,000,000 provided that after the
issuance, the ratio of the Company's total debt to total capital (debt plus
stockholders' equity) does not exceed 72% (which ratio will be reduced to 70% on
January 1, 2006 and 65% on January 1, 2011). As of September 30, 2000, Bank Debt
totaled $9,863,000 and the debt to total capital ratio was 64.4%. Although the
debt to total capital
8
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 FINANCING ARRANGEMENTS (CONTINUED)
ratio was less than 72% and thus within covenant, the amended Bond Documents
require that the Company make six equal monthly payments of $125,000 each for
a total of $750,000 into a debt service reserve fund held by the Trustee, if
either of the following occurs: (i) the Company's ratio of earnings before
interest, taxes, depreciation and amortization ("EBITDA") to total interest
(the "EBITDA coverage ratio") for the most recently completed fiscal year is
less than 1.5 to 1.0, or (ii) the Company's ratio of debt to total capital at
the end of such fiscal year is greater than 65%. Because the Company did not
satisfy both of these ratios as of December 31, 1999, the amended Bond
Documents require that the Company make six monthly payments of $125,000 each
into the debt service reserve fund commencing on June 1, 2000, for total of
$750,000. In addition to the $750,000 required to be deposited into the debt
service reserve fund based upon the level of the Company's additional debt,
the Company could be required to make additional payments to bring the total
of the debt service reserve fund to a maximum of approximately $1,200,000
(including the $750,000 described above) if the EBITDA coverage ratio for any
fiscal year is less than 1.25 to 1.0. The EBITDA coverage ratio for the year
ended December 31, 1999 was 1.39, and the Company has therefore not been
required to make any such additional payments into the debt service reserve
fund based upon the Company's EBITDA coverage ratio. The maximum amount of
the debt service reserve fund of approximately $1,200,000 is the same as
under the Bond Documents prior to the amendment, but the amendment modified
the terms under which the Company may be required to make payments into the
fund described above. To the extent that the Company is required to make
payments into the debt service reserve fund and the Company thereafter
satisfies certain requirements based upon the additional debt and EBITDA
coverage ratios described above, the balance then in the debt service reserve
fund will be released for the Company's general use.
NOTE 5 INCOME TAXES
SFAS 109, "Accounting for Income Taxes," requires that a valuation
allowance be established when, based on an evaluation of objective verifiable
evidence, there is a likelihood that some portion or all of the deferred tax
assets will not be realized. The Company continually reviews the adequacy of the
valuation allowance for deferred tax assets, and, in 1998, based upon this
review, the valuation allowance was increased to cover the value of all net
deferred tax assets. Accordingly, no tax benefit was recorded relating to the
net loss for the nine months ended September 30, 1999. For the three months
ended September 30, 1999 and the three and nine months ended September 30, 2000,
the Company incurred no regular income tax expense due to the existence of net
operating loss carryforwards. Income tax expense for the three and nine months
ended September 30, 1999 consists of tangible property and net worth taxes that
are levied as a component of state income taxes which is partially offset by a
$78,000 income tax refund that was filed for in the third quarter of 1999 .
Income tax expense for the three and nine months ended September 30, 2000
consists of tangible property and net worth taxes that are levied as a component
of state income taxes, and federal alternative minimum taxes. These taxes are
partially offset by a $81,000 income tax refund that was filed for in the third
quarter of 2000.
9
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 INCOME TAXES (CONTINUED)
The actual realization of the net operating loss carryforwards and
other tax assets depend on having future taxable income of the appropriate
character prior to their expiration. If the Company reports earnings from
operations in the future, and depending on the level of these earnings, some
portion or all of the valuation allowance would be reversed, which would
increase net income reported in future periods.
During the ordinary course of its business, the Company is audited by
federal and state tax authorities which may result in proposed assessments. In
1996, the Company received a notice of intent to assess state income taxes from
one of the states in which it operates. The case is currently undergoing
administrative appeal. If the Company loses the administrative appeal, the
Company may be required to make a payment of approximately $3,000,000 to the
state. The Company cannot currently predict when the decision for the
administrative appeal will be made. The Company believes that it has properly
reported its state income and intends to contest the assessment vigorously.
While the Company believes that the final outcome of the dispute will not have a
material adverse effect on the Company's financial condition or results of
operations, no assurance can be given as to the final outcome of the dispute,
the amount of any final adjustments or the potential impact of such adjustments
on the Company's financial condition or results of operations.
NOTE 6 EARNINGS (LOSS) PER SHARE
The following is a reconciliation of basic and diluted income (loss)
per share computations (in thousands except for per share amounts):
Three Months Ended September 30, 2000
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Income
----------- ------------- ---------
Net income $1,907
Less preferred dividends 112
------ ------ ------
Basic EPS
(income available to shareholders) 1,795 11,139 0.16
Effect of dilutive securities --- 625 (0.01)
------ ------ ------
Diluted EPS
Income available to common share-
holders plus assumed conversions $1,795 11,764 $ 0.15
====== ====== ======
10
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 EARNINGS (LOSS) PER SHARE (CONTINUED)
Three Months Ended September 30, 1999
---------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Income
----------- ------------- ---------
Net income $317
Less preferred dividends 112
---- ------ -----
Basic EPS
(income available to shareholders) 205 10,689 0.02
Effect of dilutive securities --- 6 ---
---- ------ -----
Diluted EPS
Income available to common
shareholders plus assumed
conversions $205 10,695 $0.02
==== ====== =====
WIDE TABLE CONTINUED
Three Months Ended September 30, 1999
---------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Income
----------- ------------- ---------
Net income $4,106
Less preferred dividends 336
------ ------ -----
Basic EPS
(income available to shareholders) 3,770 11,041 0.34
Effect of dilutive securities --- 225 (0.01)
------ ------ -----
Diluted EPS
Income available to common share-
holders plus assumed conversions $3,770 11,266 $0.33
====== ====== =====
11
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 EARNINGS (LOSS) PER SHARE (CONTINUED)
Nine Months Ended September 30, 1999
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Loss
----------- ------------- ---------
Net loss $(1,820)
Less preferred dividends 336
------- ------ ------
Basic and diluted EPS
(loss available to stockholders) $(2,156) 10,685 $(0.20)
======= ====== ======
The Company has issued options, warrants and convertible preferred
stock which are potentially dilutive to earnings. For the three and nine months
ended September 30, 2000 and the three months ended September 30, 1999, some of
the options outstanding but none of the warrants or convertible preferred stock
are dilutive. Only those options where the options' exercise price was less than
the average market price of the common shares for the period are included in the
above calculations. For the nine months ended September 30, 1999, the options,
warrants and convertible stock outstanding have not been included in the above
calculation, since their inclusion would have been antidilutive for the period.
12
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENT
In addition to historical information, this Quarterly Report contains
forward-looking statements, which are generally identifiable by use of the words
"believes," "expects," "intends," "anticipates," "plans to," "estimates,"
"projects," or similar expressions. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors That May Affect Future
Results." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's opinions only as of the
date hereof. The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
operating data associated with the Company's results of operations.
Percentage of Total Revenues
------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ----------------
2000 1999 2000 1999
----- ----- ----- -----
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues:
Disposal costs paid to third parties 9.9 12.4 11.2 12.9
Other costs 60.4 60.7 59.7 61.0
----- ----- ----- -----
Total cost of revenues 70.3 73.1 70.9 73.9
Selling, general and administrative
expenses 17.9 17.7 18.1 18.0
Depreciation and amortization
of intangible assets 4.5 4.4 4.5 4.7
----- ----- ----- -----
Income from operations 7.3% 4.8% 6.5% 3.4%
===== ===== ===== =====
13
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
------- ------ ------- -------
Other Data:
- ----------
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) (in thousands) $7,102 $5,043 $19,313 $12,154
REVENUES
Revenues for the third quarter of 2000 were $60,290,000, up $5,688,000
or 10.4% compared to revenues of $54,602,000 for the third quarter of the prior
year. Of the total revenue increase for the quarter, approximately 60.0% came
from site services, which includes higher margin emergency response events, and
40.0% from transportation and disposal services. The volume of waste processed
through the Company's facilities increased 9.4%. This increase was partially
offset by a 2.4% price decrease. The Company believes that the price decrease
was primarily due to the mix of waste processed rather than due to declines in
selling prices.
Revenues for the first nine months of 2000 were $175,269,000, up
$24,901,000 or 16.6% compared to revenues of $150,368,000 for the nine months of
the prior year. Of the total first nine months revenue increase, approximately
53.0% came from site services, which includes higher margin emergency response
events, and 47.0% from transportation and disposal services. The volume of waste
processed through the Company's facilities increased 18.3%. The pricing of waste
processed was flat.
In June 2000, a major competitor of the Company, Safety-Kleen Corp.,
announced that it had filed for Chapter 11 bankruptcy protection. The Company
does not believe that revenues for the three and nine month periods ending
September 30, 2000 were significantly impacted by Safety-Kleen's announcement.
There are many factors which have impacted, and continue to impact, the
Company's revenues. These factors include: competitive industry pricing;
continued efforts by generators of hazardous waste to reduce the amount of
hazardous waste they produce; significant consolidation among treatment and
disposal companies; industry-wide over capacity; and direct shipment by
generators of waste to the ultimate treatment or disposal location.
14
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COST OF REVENUES
Cost of revenues were $42,385,000 for the quarter ended September
30, 2000 compared to $39,903,000 for the quarter ended September 30, 1999, an
increase of $2,482,000. As a percentage of revenues, cost of revenues
decreased from 73.1% for the quarter ended September 30, 1999 to 70.3% for
the quarter ended September 30, 2000. One of the largest components of cost
of revenues is the cost of sending waste to other companies for disposal.
Disposal costs paid to third parties as a percentage of revenue declined from
12.4% for the quarter ended September 30, 1999 to 9.9% for the quarter ended
September 30, 2000. This decrease was due to disposal revenues decreasing as
a percentage of total revenues due to the revenue mix, and to continuing
efforts to internalize the disposal of waste, to develop alternative lower
cost disposal technologies and to identify lower cost suppliers. Other costs
of revenues as a percentage of revenues declined from 60.7% for the quarter
ended September 30, 1999 to 60.4% for the quarter ended September 30, 2000.
This decrease was primarily due to increased margins on site service work
performed due to the mix of jobs performed and due to increased margins on
waste processed through the Company's facilities due to the increase in the
volume of waste processed and the fixed cost nature of the facilities.
Cost of revenues were $124,289,000 for the first nine months of 2000
compared to $111,152,000 for the first nine months of 1999, an increase of
$13,137,000. As a percentage of revenues, cost of revenues decreased from
73.9% for the nine months ended September 30, 1999 to 70.9% for the nine
months ended September 30, 2000. One of the largest components of cost of
revenues is the cost of sending waste to other companies for disposal.
Disposal costs paid to third parties as a percentage of revenue declined from
12.9% for the first nine months of 1999 to 11.2% for the first nine months of
2000. This decrease was due to disposal revenues decreasing as a percentage
of total revenues due to the revenue mix, and to continuing efforts to
internalize the disposal of waste, to develop alternative lower cost disposal
technologies and to identify lower cost suppliers. Other costs of revenues as
a percentage of revenues declined from 60.0% for the first nine months of
1999 to 59.7% for the first nine months of 2000. This decrease was primarily
due to increased margins on site service work performed due to the mix of
jobs performed and due to increased margins on waste processed through the
Company's facilities due to the increase in the volume of waste processed and
the fixed cost nature of the facilities.
15
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COST OF REVENUES (CONTINUED)
The Company believes that its ability to manage operating costs is an
important factor in its ability to remain price competitive. The Company
continues to upgrade the quality and efficiency of its waste treatment services
through the development of new technology and continued modifications and
upgrades at its facilities. In addition during the first quarter 1999, the
Company commenced a strategic sourcing initiative in order to reduce operating
costs by identifying suppliers that are able to supply goods and services at
lower costs, by obtaining volume discounts where the Company is currently
purchasing goods and services from various suppliers and consolidating these
purchases with a small number of suppliers, and by reducing the internal costs
of purchasing goods and services by reducing the number of suppliers that the
Company uses through reducing the number of purchase orders that must be
prepared and invoices that must be processed. No assurance can be given that the
Company's efforts to manage future operating expenses will be successful.
Efforts to reduce costs are ongoing.
SELLING, GENERAL AND ADMISISTRATIVE EXPENSES
Selling, general and administrative expenses increased to
$10,803,000 for the quarter ended September 30, 2000 from $9,656,000 for the
quarter ended September 30, 1999, an increase of $1,147,000 or 11.9%. The
largest components of the increase resulted from increases in headcount due
to higher levels of revenues, increases in headcount in sales and marketing
due to strategic business initiatives, and increases in compensation to
remain competitive in the employment markets in which the Company operates.
The Company has in place management incentive and commission plans. The
increase in amounts earned under these plans due to the improved results of
operations and increased sales accounted for the next largest portion of the
increase in selling, general and administrative expenses. Strategic
initiatives related to e-commerce and Harbor Industrial Services also
resulted in increases in selling, general and administrative expenses.
Partially offsetting these increases were decreases achieved across a number
of expense categories through cost reductions.
Selling, general and administrative expenses increased to
$31,667,000 for the first nine months of 2000 from $27,062,000 for the first
nine months of 1999, an increase of $4,605,000 or 17.0%. The largest
components of the increase resulted from increases in headcount due to higher
levels of revenues, increases in headcount in sales and marketing due to
strategic business initiatives, and increases in compensation to remain
competitive in the employment markets in which the Company operates. The
increase in amounts earned under management incentive and commission plans
due to the improved results of operations and increased sales accounted for
the next largest portion of the increase in selling, general and
administrative expenses. Professional fees increased due to the cost of
ongoing legal matters. In addition, the prior year included a $320,000
reduction due to a favorable legal settlement. Strategic initiatives related
to e-commerce and Harbors Industrial Services also resulted in increases in
selling, general and administrative expenses. Partially offsetting these
increases were decreases achieved across a number of expense categories
through cost reductions.
16
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INTEREST EXPENSE, NET
Interest expense net of interest income was $2,395,000 for the third
quarter of 2000 as compared to $2,306,000 for the third quarter of 1999. The
increase in interest expense is primarily due to higher variable interest rates
on the revolving credit facility and term notes.
Interest expense net of interest income was $6,998,000 for the first
nine months of 2000 as compared to $6,735,000 for the first nine months of 1999.
The increase in interest expense is primarily due to higher variable interest
rates on the revolving credit facility and term notes, and higher average
balances of debt outstanding.
INCOME TAXES
For the quarter ended September 30, 2000, income tax expense of
$64,000 was recorded on a pre-tax income of $1,971,000 for an effective tax rate
of 3.2%, as compared to tax expense of $12,000 that was recorded on a pre-tax
income of $329,000 for the same quarter of the previous year for an effective
tax rate of 3.6%. For the nine months ended September 30, 2000, income tax
expense of $294,000 was recorded on a pre-tax income of $4,400,000 for an
effective tax rate of 6.7%, as compared to tax expense of $192,000 that was
recorded on a pre-tax loss of $(1,628,000) for the same period of the previous
year for an effective tax rate of (11.8)%. SFAS 109, "Accounting for Income
Taxes," requires that a valuation allowance be established when, based on an
evaluation of objective verifiable evidence, there is a likelihood that some
portion or all of the deferred tax assets will not be realized. The Company
continually reviews the adequacy of the valuation allowance for deferred tax
assets, and, in 1998, based upon this review, the valuation allowance was
increased to cover the value of all net deferred tax assets. Accordingly, no tax
benefit was recorded relating to the net loss for the nine months ended
September 30, 1999. For the three months ended September 30, 1999 and the three
and nine months ended September 30, 2000, the Company incurred no regular income
tax expense due to the existence of net operating loss carryforwards. Income tax
expense for the three and nine months ended September 30, 1999 consists of
tangible property and net worth taxes that are levied as a component of state
income taxes which is partially offset by a $78,000 income tax refund that was
filed for in the third quarter of 1999. Income tax expense for the three and
nine months ended September 30, 2000 consists of tangible property and net worth
taxes that are levied as a component of state income taxes and federal
alternative minimum taxes. These taxes are partially offset by a $81,000 income
tax refund that was filed for in the third quarter of 2000.
The actual realization of the net operating loss carryforwards and
other tax assets depend on having future taxable income of the appropriate
character prior to their expiration. If the Company reports earnings from
operations in the future, and depending on the level of these earnings, some
portion or all of the valuation allowance would be reversed, which would
increase net income reported in future periods.
17
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES (CONTINUED)
During the ordinary course of its business, the Company is audited by
federal and state tax authorities which may result in proposed assessments. In
1996, the Company received a notice of intent to assess state income taxes from
one of the states in which it operates. The case is currently undergoing
administrative appeal. If the Company loses the administrative appeal, the
Company may be required to make a payment of approximately $3,000,000 to the
state. The Company cannot currently predict when the decision for the
administrative appeal will be made. The Company believes that it has properly
reported its state income and intends to contest the assessment vigorously.
While the Company believes that the final outcome of the dispute will not have a
material adverse effect on the Company's financial condition or results of
operations, no assurance can be given as to the final outcome of the dispute,
the amount of any final adjustments or the potential impact of such adjustments
on the Company's financial condition or results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results may be affected by a number of
factors, including the Company's ability to: utilize its facilities and
workforce profitably in the face of intense price competition; maintain or
increase market share in an industry which appears to be downsizing and
consolidating; realize benefits from cost reduction programs; generate
incremental volumes of waste to be handled through its facilities from existing
sales offices and service centers; obtain sufficient volumes of waste at prices
which produce revenue sufficient to offset the operating costs of the
facilities; minimize downtime and disruptions of operations; and develop the
industrial services business.
The future operating results of the Company's incinerator may be
affected by factors such as its ability to: obtain sufficient volumes of waste
at prices which produce revenue sufficient to offset the operating costs of the
facility; minimize downtime and disruptions of operations; and compete
successfully against other incinerators which have an established share of the
incineration market.
18
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FACTORS THAT MAY AFFECT FUTURE RESULTS (CONTINUED)
The Company's operations may be affected by the commencement and
completion of major site remediation projects; cleanup of major spills or other
events; seasonal fluctuations due to weather and budgetary cycles influencing
the timing of customers' spending for remedial activities; the timing of
regulatory decisions relating to hazardous waste management projects; changes in
regulations governing the management of hazardous waste; secular changes in the
waste processing industry towards waste minimization and the propensity for
delays in the remedial market; suspension of governmental permits; and fines and
penalties for noncompliance with the myriad of regulations governing the
Company's diverse operations. As a result of these factors, the Company's
revenue and income could vary significantly from quarter to quarter, and past
financial performance should not be considered a reliable indicator of future
performance.
Typically during the first quarter of each calendar year there is less
demand for environmental remediation due to the cold weather, particularly in
the Northeast and Midwest regions, and increased possibility of unplanned
weather related plant shutdowns.
FINANCIAL CONDITION AND LIQUIDITY
For the nine months ended September 30, 2000, the Company generated
$8,576,000 of cash from operations. Sources of operating cash totaled
$17,324,000 and consisted primarily of $4,106,000 of net income for the
period, non-cash expenses of $7,915,000 for depreciation and amortization,
$513,000 for the allowance for doubtful accounts and $259,000 for the
amortization of deferred financing costs. Additional sources of cash included
increases in accrued disposal costs of $2,267,000 and other accrued expenses
of $1,891,000. These increases in liabilities were due primarily to the
greater amount of business performed in the third quarter of 2000 as compared
to the fourth quarter of 1999 and timing of interest payments on debt.
Partially offsetting these sources of cash were uses of cash of $8,748,000
which were primarily due to higher levels of accounts receivable at September
30, 2000 as compared to December 31, 1999 which was in turn due to the higher
levels of business in the third quarter of 2000 as compared to the fourth
quarter of 1999.
In addition, the Company obtained cash from financing activities and
investing activities which consisted of additional borrowings under the term
note of $3,000,000, proceeds from the sale and maturities of restricted
investments of $1,152,000, proceeds from the sale of fixed assets of $101,000,
proceeds from the exercise of stock options of $156,000 and proceeds from
issuances of stock under the employee stock purchase plan of $102,000.
19
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
The $8,576,000 of cash generated from operations plus sources of
cash from investing and financing activities which total $4,511,000 and the
$1,665,000 reduction of cash on hand were used to reduce debt by $8,134,000,
purchase property plant and equipment of $6,114,000 and to purchase
restricted investments of $504,000. Restricted investments purchased was due
to a requirement to fund a debt service fund, which is discussed later in
Management's Discussion and Analysis.
For the nine months ended September 30, 1999, the Company generated
$2,583,000 of cash from operations even though the net loss was $(1,820,000)
for the period. This result was due to sources and uses of cash that vary
from when the related revenues and expenses were recorded. The primary
sources of cash from operations were non-cash expenses that totaled
$7,818,000 and consisted of depreciation and amortization of $7,047,000,
additions to the allowance for doubtful accounts of $512,000 and amortization
of deferred financing costs of $259,000. In addition, the increase in other
accrued expenses and accrued disposal costs totaled $2,613,000 which was due
to increased levels of activities and timing of interest payments on debt.
These sources of cash were primarily offset by uses of cash of $5,395,000 due
to increased levels of accounts receivable resulting from higher levels of
activities the quarter ended September 1999 as compared to the quarter ended
December 1998, the net loss for the period of $1,820,000, and an increase in
prepaid expenses of $740,000.
For the nine months ended September 30, 1999, the Company obtained
$2,784,000 from financing activities. Sources of cash from financing activities
were $4,139,000 due to additional borrowings under of the term promissory note,
$296,000 due to additional net borrowings under the revolving credit agreement
and $99,000 due to the issuance of additional stock under the employee stock
purchase plan. Partially offsetting these sources of cash was $1,750,000 in
payments on long-term obligations.
The Company generated $2,583,000 of cash from operations, obtained
$2,784,000 from financing activities and $1,255,000 from the sale and maturities
of restricted investments, which was almost completely due to the release of
restricted funds that were held in a debt service reserve fund at December 31,
1998. These funds totaling $6,622,000 were used to acquire property, plant and
equipment of $4,398,000, to acquire two divisions of American Ecology
Environmental Services Corporation for $1,900,000 and to increase the amount of
cash and cash equivalents by $324,000.
20
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
As described in the Form 10-K for the year ended December 31, 1999, the
Company had a $30,500,000 Loan Agreement with a financial institution. The Loan
Agreement provided for a $24,500,000 revolving credit portion (the "Revolver")
and a $6,000,000 term promissory note (the "Term Note"). The Revolver allowed
the Company to borrow up to $30,500,000 in cash and letters of credit, based on
a formula of eligible accounts receivable. At September 30, 2000, the Revolver
balance was $2,880,000, letters of credit outstanding were $9,775,000 and funds
available to borrow were approximately $11,845,000.
In the first quarter of 2000, the Loan Agreement was amended and an
additional term promissory note (the "2000 Term Note") was entered into with the
financial institution. The original principal amount of the 2000 Term Note is
$3,000,000, it bears interest at the "prime" rate plus 1.5% or the Eurodollar
rate plus 3.0%, and it is payable in 36 monthly installments commencing on May
1, 2000. The funds have been used primarily to purchase vehicles and rolling
stock that the Company previously leased under operating leases. The purchase of
the vehicles will result in lower lease expense in cost of revenues and higher
levels of expense for depreciation and interest. At September 30, 2000, the
balance of the Term Note and the 2000 Term Note were $4,400,000 and $2,583,000,
respectively.
In the first quarter of 2000, the due date of the Revolver was
extended from May 8, 2001 to May 8, 2003. The Company has $50,000,000 of 12
1/2% Senior Notes due May 15, 2001 (the "Senior Notes"). In May 2000, the
Senior Notes were reclassified from a long-term liability to a current
liability, since they are now payable within one year. The Loan Agreement, as
amended, redefines the working capital covenant to specifically exclude the
Senior Notes as a component of working capital and requires that the Company
maintain $6,000,000 of working capital, excluding the Senior Notes. The net
worth covenant was changed to require $30,000,000 of adjusted net worth. At
September 30, 2000 the Company had working capital of $14,465,000 (excluding
the Senior Notes) and adjusted net worth of $38,571,000. The Company must
also maintain borrowing availability of not less than $4,500,000 for sixty
consecutive days prior to paying principal and interest on its other
indebtedness and dividends in cash on its preferred stock. In the first
quarter of 2000, the Company violated this covenant, which violation was
waived by the financial institution through May 15, 2000. The Company has
been in compliance with this covenant since May 15, 2000, and the Company
believes that it will meet this covenant for the foreseeable future.
21
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
Effective June 1, 2000, the Bond Documents under which the Company
has outstanding $9,800,000 of industrial revenue bonds (the "Bonds") were
amended in order to modify the limitation on additional debt covenant and
certain related debt service reserve fund requirements. Under the amended
Bond Documents the Company may now issue Bank Debt up to $35,000,000 provided
that after the issuance, the ratio of the Company's total debt to total
capital (debt plus stockholders' equity) does not exceed 72% (which ratio
will be reduced to 70% on January 1, 2006 and 65% on January 1, 2011). As of
September 30, 2000, Bank Debt totaled $9,863,000 and the debt to total
capital ratio was 64.4%. Although the debt to total capital ratio was less
than 72% and thus within covenant, the amended Bond Documents require that
the Company make six equal monthly payments of $125,000 each for a total of
$750,000 into a debt service reserve fund held by the Trustee, if either of
the following occurs: (i) the Company's ratio of earnings before interest,
taxes, depreciation and amortization ("EBITDA") to total interest (the
"EBITDA coverage ratio") for the most recently completed fiscal year is less
than 1.5 to 1.0, or (ii) the Company's ratio of debt to total capital at the
end of such fiscal year is greater than 65%. Because the Company did not
satisfy both of these ratios as of December 31, 1999, the amended Bond
Documents require that the Company make six monthly payments of $125,000 each
into the debt service reserve fund commencing on June 1, 2000. In addition to
the maximum of $750,000 required to be deposited into the debt service
reserve fund based upon the level of the Company's additional debt, the
Company could be required to make additional payments to bring the total of
the debt service reserve fund to a maximum of approximately $1,200,000
(including the $750,000 described above) if the EBITDA coverage ratio for any
fiscal year is less than 1.25 to 1.0. The EBITDA coverage ratio for the year
ended December 31, 1999 was 1.39, and the Company has therefore not been
required to make any such additional payments into the debt service reserve
fund based upon the Company's EBITDA coverage ratio. The maximum amount of
the debt service reserve fund of approximately $1,200,000 is the same as
under the Bond Documents prior to the amendment, but the amendment modified
the terms under which the Company may be required to make payments into the
fund described above. To the extent that the Company is required to make
payments into the debt service reserve fund and the Company thereafter
satisfies certain requirements based upon the additional debt and EBITDA
coverage ratios described above, the balance then in the debt service reserve
fund will be released for the Company's general use. The Company believes
that it will be able to maintain for the foreseeable future an EBITDA
coverage ratio of at least 1.5 to 1.0 and debt to total capital ratio of less
than 72%, and that the Company's sole obligation under the amended loan
documents will therefore be to maintain $750,000 in the reserve fund until
the ratio of the Company's total debt to total capital does not exceed 65% as
of the end a future fiscal year.
22
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
Management believes that sufficient resources will be available to meet
the Company's cash requirements through at least May 2001. In May 2001 the
$50,000,000 of Senior Notes mature. Some portion or all of the borrowings under
the Senior Notes will need to be refinanced by the maturity date, with any
portion not refinanced to be repaid from other sources such as cash from
operations or net proceeds from the sale of assets or additional equity. The
Company believes that results from operations have improved to the point where
the Senior Notes can be refinanced at terms satisfactory to the Company.
However, no assurance can be given that the Company will be successful in
refinancing the Senior Notes on satisfactory terms. Failure to obtain
refinancing would have a materially adverse effect on the Company.
Operators of hazardous waste handling facilities are required by
federal and state regulations to provide financial assurance for closure and
post-closure care of those facilities, should the facilities cease operation.
Closure would include the cost of removing the waste stored at a facility
which ceased operating and sending the material to another company for
disposal. The Company had purchased closure insurance from Frontier Insurance
Company, as had a number of other companies that operate hazardous waste
facilities. In June 2000 due to deteriorating financial condition, Frontier
Insurance Company was dropped from the listing of approved sureties. This
required any company that had obtained financial assurance through Frontier
Insurance Company to obtain financial assurance through some other source. In
July 2000, the Company replaced the required closure insurance through
another qualified insurance company. Obtaining this replacement insurance
required the Company to place $4,000,000 of additional collateral through
through September 30, 2000 in the form of letters of credit. An additional
$1,000,000 of collateral in the form of letters of credit must be placed in
January 2001. These increases in letters of credit will be partially offset
by the release of other collateral currently in place, which will reduce the
amount available to borrow by $2,835,000 under the revolving line of credit
from what otherwise would have been available.
23
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
The Company expects 2000 capital additions, excluding the $2,500,000
purchase of vehicles and rolling stock discussed previously, to be approximately
$5,100,000. The Company believes that it has all of the facilities required by
the business for the foreseeable future. Thus, the Company anticipates that
capital expenditures in 2000 will be limited to maintaining existing capital
assets, replacing site services equipment, and upgrading information technology
hardware and software.
Dividends on the Company's Series B Convertible Preferred Stock are
payable on the 15th day of January, April, July and October, at the rate of
$1.00 per share, per quarter; 112,000 shares are outstanding. Under the terms of
the preferred stock, the Company can elect to pay dividends in cash or in common
stock with a market value equal to the amount of the dividend payable. The
Company elected to pay the January, April and July 2000 dividends in common
stock. Accordingly, the Company issued 55,308 and 187,326 shares of common stock
to the holders of the preferred stock in the quarter and nine months ended
September 30, 2000, respectively. The Company anticipates being able to resume
cash payment of preferred stock dividends starting with the January 15, 2001
dividend.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation (an interpretation of ABP Opinion No. 25)" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and, among other issues,
clarifies the following: the definition of an employee for purposes of applying
APB Opinion No. 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000 but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's results of operations or its financial position.
24
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No legal proceedings of a material nature have arisen in the first nine
months of 2000, and there have been no material changes during the first nine
months of 2000 in the pending legal proceedings disclosed in the Form 10-K for
the year ended December 31, 1999.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- --------------------------- --------
27 Financial Data Schedule Filed
herewith
Reports on Form 8-K None
25
CLEAN HARBORS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Clean Harbors, Inc.
-------------------------
Registrant
Dated: November 10, 2000 By: /s/ Alan S. McKim
--------------------------------------
Alan S. McKim
Chairman of the Board and
Chief Executive Officer
Dated: November 10, 2000 By: /s/ Roger A. Koenecke
-------------------------------------
Roger A. Koenecke
Senior Vice President and
Chief Financial Officer
26