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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2001
-----------------------
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 11,399,608
- ---------------------------- --------------------
(Class) (Outstanding at May 7, 2001)
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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 13-23
PART II: OTHER INFORMATION
Items No. 1 through 6 24
Signatures 25
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands except for earnings per share amounts)
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
------- -------
Revenues $51,818 $52,737
Cost of revenues 38,451 39,109
Selling, general and administrative expenses 9,780 10,185
Depreciation and amortization 2,789 2,505
------- -------
Income from operations 798 938
Interest expense, net 2,128 2,288
------- -------
Loss before provision for (benefit from) income taxes (1,330) (1,350)
Provision for (benefit from) income taxes (298) 90
------- -------
Net loss $(1,032) $(1,440)
======= =======
Basic and fully diluted loss per share $ (0.10) $ (0.14)
======= =======
Weighted average common
shares outstanding 11,301 10,935
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
1
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
MARCH 31,
2001 DECEMBER 31,
(Unaudited) 2000
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 728 $ 2,629
Restricted investments 774 768
Accounts receivable, net of allowance for doubtful
accounts of $1,517 and $1,549, respectively 44,723 47,201
Prepaid expenses 2,286 1,563
Supplies inventories 3,772 3,379
Income tax receivable 203 203
Deferred tax assets 2,788 2,400
-------- --------
Total current assets 55,274 58,143
-------- --------
Property, plant and equipment:
Land 8,478 8,478
Buildings and improvements 42,875 42,700
Vehicles and equipment 91,447 90,794
Furniture and fixtures 2,226 2,225
Construction in progress 1,581 794
-------- --------
146,607 144,991
Less - Accumulated depreciation
and amortization 91,718 89,389
-------- --------
Net property, plant and equipment 54,889 55,602
-------- --------
Other assets:
Goodwill, net 19,608 19,799
Permits, net 11,400 11,667
Other 4,360 4,357
-------- --------
Total other assets 35,368 35,823
-------- --------
Total assets $145,531 $149,568
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
2
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
March 31,
2001 December 31,
(Unaudited) 2000
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term obligations $ 3,688 $ 2,405
Accounts payable 16,078 19,100
Accrued disposal costs 6,759 7,479
Other accrued expenses 12,410 12,601
Income taxes payable 181 137
-------- --------
Total current liabilities 39,116 41,722
-------- --------
Other liabilities:
Long-term obligations, less current maturities 64,359 64,853
Other 1,384 1,358
-------- --------
Total other liabilities 65,743 66,211
-------- --------
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-11,317,155 and
11,216,107 shares, respectively 113 112
Additional paid-in capital 62,179 61,999
Accumulated deficit (21,621) (20,477)
-------- --------
Total stockholders' equity 40,672 41,635
-------- --------
Total liabilities and stockholders' equity $145,531 $149,568
======== ========
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)
THREE MONTHS ENDED
THREE MONTHS ENDED
MARCH 31,
-----------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(1,032) $ (1,440)
Adjustments to reconcile net
loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization 2,789 2,505
Allowance for doubtful
accounts 171 171
Amortization of deferred
financing costs 86 86
Deferred income taxes (388) --
Loss on sale of fixed assets -- 8
Changes in assets and
liabilities:
Accounts receivable 2,307 (3,002)
Prepaid expenses (141) (212)
Supplies inventories (393) (53)
Other assets (3) (4)
Accounts payable (3,825) 2,351
Accrued disposal costs (720) 1,118
Other accrued expenses (191) 870
Income taxes payable 44 34
Other liabilities 26 24
------- --------
Net cash provided by (used in)
operating activities (1,270) 2,456
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant
and equipment (815) (2,190)
Proceeds from the sale of
fixed assets -- 33
Cost of restricted investments
acquired (6) (241)
------- --------
Net cash used in investing
activities $ (821) $ (2,398)
------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
4
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
THREE MONTHS ENDED
MARCH 31,
-----------------
2001 2000
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under Revolving
line of credit $ 1,253 $(1,106)
Additional borrowings under term note -- 3,000
Payments on long-term obligations (550) (300)
Refinancing costs (582) --
Proceeds from exercise of stock options 20 120
Proceeds from employee stock purchase plan 49 34
------- -------
Net cash provided by financing activities 190 1,748
------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,901) 1,806
Cash and cash equivalents, beginning of year 2,629 2,783
------- -------
Cash and cash equivalents, end of period $ 728 $ 4,589
======= =======
Supplemental Information:
Non cash investing and financing activities:
Stock dividend on preferred stock $ 112 $ 112
The accompanying notes are an integral part of these consolidated financial
statements.
5
CLEAN HARORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
(in thousands)
Series B
Preferred Stock Common Stock
---------------------- ----------------------- Additional Total
Number of $0.01 Par Number of $0.01 Par Paid-in (Accumulated Stockholders'
Shares Value Shares Value Capital Deficit) Equity
--------- --------- --------- --------- --------- ---------- ----------
Balance at December 31, 2000 112 $1 11,216 $112 $61,999 $(20,477) $41,635
Net loss -- -- -- -- -- (1,032) (1,032)
Preferred stock dividends:
Series B -- -- 59 1 111 (112) --
Proceeds from exercise of stock options -- -- 9 -- 20 -- 20
Employee stock purchase plan -- -- 33 -- 49 -- 49
------ ------ ------ ------ ------- -------- -------
Balance at March 31, 2001 112 $1 11,317 $113 $62,179 $(21,621) $40,672
====== ====== ====== ====== ======= ======== =======
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 months ended
March 31, 2001 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, 2000 as filed with the Securities and Exchange
Commission.
NOTE 2 RECLASSIFICATIONS
As disclosed in Note 6, the Company had outstanding $50,000,000 of 12.50%
Senior Notes due May 15, 2001 (the "Senior Notes") that were redeemed on April
30, 2001. Reclassifications were made between current maturities of long-term
obligations and long-term obligations, less current maturities to reflect the
post-balance-sheet-date issuance of the long-term obligations issued to
refinance the Senior Notes.
NOTE 3 FINANCING ARRANGEMENTS
As described in the Form 10-K for the year ended December 31, 2000, the
Company had a $33,500,000 Loan Agreement with a financial institution. The Loan
Agreement provided for a $24,500,000 revolving credit portion (the "Revolver") a
$6,000,000 term promissory note (the "Term Note") and a $3,000,000 term
promissory note (the "2000 Term Note").
The Revolver allowed the Company to borrow up to $24,500,000 in cash and
letters of credit, based on a formula of eligible accounts receivable. At March
31, 2001, the Revolver balance was $2,646,000, letters of credit outstanding
were $11,640,000 and funds available to borrow were approximately $10,214,000.
The balance of the Term Note was $3,900,000, and the balance on the 2000 Term
Note was $2,083,000.
The Loan Agreement, as amended, contained loan covenants the most
restrictive of which required the Company to maintain $6,000,000 of working
capital and $30,000,000 of adjusted net worth. At March 31, 2001 the Company had
working capital and adjusted net worth of $16,158,000 and $40,672,000,
respectively. The Company was required to 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 was
waived by the financial institution through May 15, 2000. Since May 15, 2000 the
Company has been in compliance with this covenant.
7
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 FINANCING ARRANGEMENTS (CONTINUED)
Subsequent to the quarter ended March 31, 2001 and as further disclosed in
Note 6, the Company closed on a $51,000,000 Amended and Restated Loan Agreement
with the same financial institution.
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). 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
required 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.
As of March 31, 2001, Bank Debt totaled $8,629,000 which was less than the
$35,000,000 allowed; the Company's total debt to total capital ratio was 62.7%
which is less than the 72.0% allowed; and the EBITDA coverage ratio was 2.23 to
1.0 which is greater than the 1.50 to 1.0 required. Under the Bond covenants,
if the Company attains an EBITDA coverage ratio of greater than 1.5 to 1.0 as of
any fiscal yearend beginning with December 31, 2001, the balance on deposit in
the debt service reserve fund in excess of $750,000 will be released for the
Company's general use. The Bond Documents require that a minimum balance of
$750,000 be maintained in the debt service reserve fund until the Bonds mature.
8
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 INCOME TAXES
SFAS 109, "Accounting for Income Taxes," requires that a valuation
allowance be established when, based on an evaluation of objective verifiable
evidence, there is a likelihood that some portion or all of the deferred tax
assets will not be realized. The Company continually reviews the adequacy of
the valuation allowance for deferred tax assets, and, in 1998, based upon this
review, the valuation allowance was increased to cover the value of all net
deferred tax assets. In the fourth quarter of 2000, the Company once again
reviewed the valuation allowance for deferred tax assets. Based on the level of
earnings for 2000 and management's projections for profits in future years, it
was determined that it was more likely than not that $2,400,000 of the net
deferred tax assets would be utilized. Accordingly, the fourth quarter 2000
provision for income taxes included a $2,400,000 benefit relating to adjusting
the valuation reserve. In the first quarter of 2001, the Company recorded a
$388,000 tax benefit relating to the pre-tax loss which was partially offset by
$90,000 of tangible property and net worth taxes that are levied as a component
of state income taxes. The $90,000 provision for income taxes for the quarter
ended March 31, 2000 was also due to property and net worth taxes that are
levied as a component of state income taxes. The actual realization of the net
operating loss carryforwards and other tax assets depend on having future
taxable income of the appropriate character prior to their expiration.
During the ordinary course of its business, the Company is audited by
federal and state tax authorities which may result in proposed assessments. 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.
9
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 LOSS PER SHARE
The following is a reconciliation of basic and diluted loss per share
computations (in thousands except for per share amounts):
Quarter Ended March 31, 2001
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Loss
----------- ------------- ---------
Net loss $(1,032)
Less preferred dividends 112
------- ------ -------
Basic and diluted EPS
(loss available to shareholders) $(1,144) 11,301 $ (0.10)
======= ====== =======
Quarter Ended March 31, 2000
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Loss
----------- ------------- ---------
Net loss $(1,440)
Less preferred dividends 112
------- ------ -------
Basic and diluted EPS
(loss available to shareholders) $(1,552) 10,935 $ (0.14)
======= ====== =======
The Company has issued options, warrants and convertible preferred stock
which are potentially dilutive to earnings. These have not been included in the
calculations, since their inclusion would have been antidilutive for the above
periods.
10
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 SUBSEQUENT EVENT
The Company had outstanding $50,000,000 of 12.50% Senior Notes due May 15,
2001 (the "Senior Notes") that were redeemed on April 30, 2001. As described in
the Form 10-K for the year ended December 31, 2000, the Company had at December
31, 2000 a $33,500,000 Loan Agreement (the "Loan Agreement") with a financial
institution (the "Lender"). The Loan Agreement provided for a $24,500,000
revolving credit facility (the "Revolver"), a $6,000,000 term promissory note
(the "Term Note"), and a $3,000,000 term promissory note (the "2000 Term Note").
On April 12, 2001, the Company signed and closed a $51,000,000 Amended and
Restated Loan Agreement (the "Amended Loan Agreement") with the Lender. The
Amended Loan Agreement increased the amount available to borrow under the
Revolver to $30,000,000 and extended the term of the Revolver to April 12, 2004.
The Revolver allows the Company to borrow up to $30,000,000 in cash and letters
of credit, based on a formula of eligible accounts receivable. Letters of credit
may not exceed $20,000,000 at any one time. The Revolver requires the Company to
pay an unused line fee of one-half of one percent on the unused portion of the
line. The Amended Loan Agreement required the payment on April 12 of the then
$3,800,000 outstanding balance on the Term Note and provided for the issuance of
a new $19,000,000 term promissory note (the "Term Note B"). On April 12, 2001,
$4,000,000 was advanced under Term Note B to pay the Term Note and other amounts
then borrowed by the Company, and the $15,000,000 balance of Term Note B was
advanced on April 30 towards the redemption of the Senior Notes. The interest
rate for Term Note B is the greater of the prime rate plus 3.50% or 12.00%, and
it is payable in 84 monthly installments commencing May 1, 2001. The terms of
the 2000 Term Note remain unchanged.
The Amended Loan Agreement allows for up to 80% of the outstanding balance
of the Revolver and 100% of the balance of the 2000 Term Note to bear interest
at the Eurodollar rate plus three percent; the remaining balance bears interest
at the "prime" rate plus one and one-half percent. The Amended Loan Agreement is
collateralized by substantially all of the Company's assets, and the Amended
Loan Agreement provides for certain covenants including, among others,
maintenance of a minimum level of working capital, adjusted net worth and
earnings before interest, income taxes, depreciation and amortization
("EBITDA"). The Amended Loan Agreement requires that the Company maintain
$10,000,000 of working capital excluding the current portion of liabilities
under the Amended Loan Agreement and the Subordinated Note Agreement. The
Company had $19,746,000 of working capital calculated on a pro forma basis as if
the redemption had taken place on March 31, 2001. The net worth covenant
requires that the Company maintain $35,000,000 of adjusted net worth until the
Subordinated Notes described below are funded, and once Notes are funded, the
net worth covenant requires adjusted net worth, defined as net worth plus the
balance owed on the subordinated notes, to be greater than $60,000,000. At March
31, 2001, the pro forma adjusted net worth calculated as if the redemption had
taken place on March 31, 2001 was $75,672,000. The Amended Loan
11
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 SUBSEQUENT EVENT (CONTINUED)
Agreement requires that the Company maintain on a rolling four quarter basis a
minimum EBITDA of $20,000,000. For the four quarter period ended March 31, 2001
the Company reported EBITDA of $25,069,000. The Amended Loan Agreement also
requires that the Company maintain a Senior Debt to EBITDA ratio of not more
than 2.25 to 1.0. At March 31, 2001 the pro forma ratio calculated as if the
redemption had taken place on March 31, 2000 was 1.41 to 1.0.
On April 30, 2001, the Company issued $35,000,000 of 16% Senior
Subordinated Notes (the "Subordinated Notes") under a Securities Purchase
Agreement (the "Subordinated Note Agreement"). Until October 30, 2006, the
Company, at its option, may pay the interest at the 16% rate or may pay interest
at 14% and defer payment of the remaining 2% in the form of like notes until the
Subordinated Notes are due. Interest payable in cash on the Subordinated Notes
is due in semi-annual payments on April 30 and October 30. In conjunction with
the Subordinated Notes, the Company issued detachable warrants for 1,519,020
shares of common stock that are exercisable at $0.01 per share and expire on
April 30, 2008. One-half of the Subordinated Notes are due on April 30, 2007
with the balance due on April 30, 2008. The Subordinated Note Agreement
provides that the holders of the Subordinated Notes will be able to call the
Notes in the event of a change in control of the Company.
The Subordinated Note Agreement contains covenants the most restrictive of
which require that the Company maintain a rolling four quarter fixed charge
coverage ratio of not less than 1.10 to 1.0. For the four quarters ended March
31, 2001, the fixed charge coverage ratio was 1.86 to 1.0. The Subordinated
Notes require that the Company maintain a tangible capital base of not less than
$27,000,000 for the quarters ending March 31 and June 30, 2001, not less than
$30,500,000 for the quarter ending September 30, 2001, not less than $33,000,000
for the quarter ending December 31, 2001 and not less than $35,500,000 for
quarters ending thereafter. At March 31, 2001, the tangible capital base was
$44,664,000. The Company is required to maintain rolling four quarter earnings
before interest, income taxes, depreciation and amortization (EBITDA) of not
less than $18,000,000. For the four quarter period ended March, 2001, EBITDA was
$25,069,000. The Company shall maintain a priority debt to EBITDA ratio
calculated as of the last day of each fiscal quarter of not more than 2.25 to
1.0. Priority debt at March 31, 2001 consisted of debt issued under the Loan
Agreement. The pro forma priority debt to EBITDA ratio calculated as if the
redemption had taken place on March 31, 2001 was 0.94 to 1.0. The Company is
required to maintain a ratio of total liabilities to tangible capital base of
not more than 3.00 to 1.0 for the fiscal quarters ending June 30, September 30
and December 31, 2001 and for the quarters ending March 31, 2002 and thereafter
a ratio of not more than 2.75 to 1.0. At March 31, 2001 the total liabilities to
tangible capital base ratio was 1.57 to 1.0.
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
March 31,
----------------------------
2001 2000
---- ----
Revenues 100.0% 100.0%
Cost of revenues:
Disposal costs paid to third parties 8.1 12.4
Other costs 66.1 61.8
---- ----
Total cost of revenues 74.2 74.2
Selling, general and administrative
expenses 18.9 19.3
Depreciation and amortization
of intangible assets 5.4 4.7
---- ----
Income from operations 1.5% 1.8%
==== ====
13
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended
March 31,
-----------------------------------
2001 2000
-------- -------
Other Data:
- ----------
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) (in thousands) $3,587 $3,443
REVENUES
Revenues for the first quarter of 2001 were $51,818,000, down $919,000 or
1.7% compared to revenues of $52,737,000 for the first quarter of the prior
year. Site services revenues decreased by $2,864,000 due to a greater amount of
higher margin emergency response events in 2000 as compared to 2001 and due to a
more severe winter in the Northeast and Midwest regions in the first quarter of
2001 as compared to the first quarter of 2000. Transportation and disposal
revenue increased $1,945,000.
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 first quarter revenues were materially 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
COST OF REVENUES
Cost of revenues were $38,451,000 for the quarter ended March 31, 2001
compared to $39,109,000 for the quarter ended March 31, 2000, a decrease of
$658,000. As a percentage of revenues, cost of revenues was 74.2% for the
quarters ended March 31, 2000 and 2001. 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 decreased from
12.4% for the quarter ended March 31, 2000 to 8.1% for the quarter ended March
31, 2001. This decrease was due to the mix of waste handled which allowed a
greater proportion of the waste to be processed internally rather than sent to
an outside disposal facility, 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 increased from 61.8% for the quarter ended March 31, 2000 to 66.1% for
the quarter ended March 31, 2001. This increase was primarily due to the mix of
site services work performed. Site service revenue in the first quarter of 2000
included more higher margin emergency response revenue. In addition, the more
severe winter in the Northeast and Midwest in the first quarter of 2001 as
compared to the first quarter of 2000 resulted in a lower amount of site service
work performed which decreased overall margins, and therefore, increased other
cost of revenues as a percentage of revenues.
The Company believes that its ability to manage operating costs is an
important factor in its ability to remain price competitive. The Company
continues to upgrade the quality and efficiency of its waste treatment services
through the development of new technology and continued modifications and
upgrades at its facilities. In addition during the first quarter 1999, the
Company commenced a strategic sourcing initiative in order to reduce operating
costs by identifying suppliers that are able to supply goods and services at
lower costs, by obtaining volume discounts where the Company is currently
purchasing goods and services from various suppliers and consolidating these
purchases with a small number of suppliers, and by reducing the internal costs
of purchasing goods and services by reducing the number of suppliers that the
Company uses through reducing the number of purchase orders that must be
prepared and invoices that must be processed. No assurance can be given that
the Company's efforts to manage future operating expenses will be successful.
Efforts to reduce costs are ongoing.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased from $10,185,000 for
the quarter ended March 31, 2000 to $9,780,000 for the quarter ended March 31,
2001, a decrease of $405,000 or 4.0%. The largest decrease in selling, general
and administrative expenses was due to a decrease in expense for commissions and
the management incentive program due to the Company not meeting its sales and
profitability goals for the first quarter of 2001 while these
15
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (CONTINUED)
goals were reached in the first quarter of 2000. Legal expenses decreased due to
a reduction in the caseload. In addition, cost reductions were achieved across
a number of expense categories. Partially offsetting these decreases in expenses
was a $100,000 charge taken to write down the carrying value of the Natick plant
to its net realizable value. Expense for payroll benefits increased due to the
401(K) match which was implemented in order to improve recruitment and retention
of employees, and expense for payroll benefits increased due to an increase in
health insurance expense due to increased cost.
INTEREST EXPENSE, NET
Interest expense net of interest income was $2,128,000 for the first
quarter of 2001 as compared to $2,288,000 for the first quarter of 2000. The
decrease in interest expense is primarily due to lower average balances of debt
outstanding.
INCOME TAXES
For the three months ended March 31, 2001, an income tax benefit of
$298,000 was recorded on a pre-tax loss of $(1,330,000) for an effective tax
rate of 22.4%, as compared to tax expense of $90,000 that was recorded on a pre-
tax loss of $(1,350,000) for the same quarter of the previous year for an
effective tax rate of (6.7)%. SFAS 109, "Accounting for Income Taxes," requires
that a valuation allowance be established when, based on an evaluation of
objective verifiable evidence, there is a likelihood that some portion or all of
the deferred tax assets will not be realized. The Company continually reviews
the adequacy of its valuation allowance for deferred tax assets, and, in 1998,
based on this review, the valuation allowance was increased to cover the value
of all net deferred tax assets. In the fourth quarter of 2000, the Company once
again reviewed the valuation allowance for deferred tax assets. Based on the
level of earnings for 2000 and management's projections for profits in future
years, it was determined that it was more likely than not that $2,400,000 of the
net deferred tax assets would be utilized. Accordingly, the fourth quarter 2000
provision for income taxes included a $2,400,000 benefit related to adjusting
the valuation allowance. In the first quarter of 2001, the Company recorded a
$388,000 tax benefit relating to the pre-tax loss which was partially offset by
$90,000 of tangible property and net worth taxes that are levied as a component
of state income taxes. The $90,000 provision for income taxes for the quarter
ended March 31, 2000 was also due to property and net worth taxes that are
levied as a component of state income taxes. The actual realization of the net
operating loss carryforwards and other tax assets depend on having future
taxable income of the appropriate character prior to their expiration under the
tax laws. If the Company reports earnings from operations in the future, and
depending on the level of these earnings, some portion or all of the valuation
allowance would be reversed, which would increase net income reported in future
periods.
16
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INCOME TAXES (CONTINUED)
During the ordinary course of its business, the Company is audited by
federal and state tax authorities which may result in proposed assessments. In
1996, the Company received a notice of intent to assess state income taxes from
one of the states in which it operates. The case is currently undergoing
administrative appeal. If the Company loses the administrative appeal, the
Company may be required to make a payment of approximately $3,000,000 to the
state. The Company cannot currently predict when the decision for the
administrative appeal will be made. The Company believes that it has properly
reported its state income and intends to contest the assessment vigorously.
While the Company believes that the final outcome of the dispute will not have a
material adverse effect on the Company's financial condition or results of
operations, no assurance can be given as to the final outcome of the dispute,
the amount of any final adjustments or the potential impact of such adjustments
on the Company's financial condition or results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, the Company and employees acting on behalf of the
Company make forward-looking statements concerning the expected revenues,
results of operations, capital expenditures, capital structure, plans and
objectives of management for future operations, and future economic performance.
This report contains forward-looking statements. There are many factors which
could cause actual results to differ materially from those projected in a
forward-looking statement, and there can be no assurance that such expectations
will be realized.
The Company's future operating results may be affected by a number of
factors, including the Company's ability to: utilize its facilities and
workforce profitably in the face of intense price competition; maintain or
increase market share in an industry which appears to be downsizing and
consolidating; realize benefits from cost reduction programs; generate
incremental volumes of waste to be handled through its facilities from existing
sales offices and service centers; obtain sufficient volumes of waste at prices
which produce revenue sufficient to offset the operating costs of the
facilities; minimize downtime and disruptions of operations; and develop the
industrial services 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.
17
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS (CONTINUED)
The Company's operations may be affected by the commencement and completion
of major site remediation projects; cleanup of major spills or other events;
seasonal fluctuations due to weather and budgetary cycles influencing the timing
of customers' spending for remedial activities; the timing of regulatory
decisions relating to hazardous waste management projects; changes in
regulations governing the management of hazardous waste; secular changes in the
waste processing industry towards waste minimization and the propensity for
delays in the remedial market; suspension of governmental permits; and fines and
penalties for noncompliance with the myriad of regulations governing the
Company's diverse operations. As a result of these factors, the Company's
revenue and income could vary significantly from quarter to quarter, and past
financial performance should not be considered a reliable indicator of future
performance.
Typically during the first quarter of each calendar year there is less
demand for environmental remediation due to the cold weather, particularly in
the Northeast and Midwest regions, and increased possibility of unplanned
weather related plant shutdowns.
FINANCIAL CONDITION AND LIQUIDITY
For the quarter ended March 31, 2001, net cash used by operations was
$1,270,000. Cash used in operating activities totaled $6,693,000 and consists
primarily of a $3,825,000 reduction in accounts payable, the loss for the
quarter of $1,032,000 and a decease in accrued disposal costs of $720,000. The
reduction in accounts payable was primarily due to a the reduced levels of
business activity in the first quarter of 2001 as compared to the fourth quarter
of 2000, and the decrease in accrued disposal costs was due the reduction in the
volume of waste to be disposed of that had accumulated at December 31, 2000 due
to inclement weather which delayed the Company's ability to ship the waste to
the ultimate disposal facility. Partially offsetting the cash used in operations
was cash generated from operations of $5,423,000 which consisted primarily of
non-cash expenses for depreciation and amortization of $2,789,000 and a
reduction in accounts receivables of $2,307,000 which was due to the reduced
levels of business activity in the first quarter of 2001 as compared to the
fourth quarter of 2000.
In addition, the Company used $821,000 of cash in investing activities
which consisted primarily of $815,000 used to purchase property, plant and
equipment. The Company used $550,000 to make payments under the term notes and
paid $582,000 in refinancing costs through March 31, 2001. The primary sources
of funds for the cash requirements previously discussed were borrowings of
$1,253,000 under the revolving credit facility and reducing cash on hand by
$1,901,000.
18
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
For the quarter ended March 31, 2000, the Company generated $2,456,000 of
cash from operations. Cash from operations reflected increases in accounts
payable of $2,351,000, accrued disposal costs of $1,118,000 and other accrued
expenses of $870,000. These increases in accounts payable and accrued expenses
were due largely to the greater amount of business performed in March 2000 as
compared to December of 1999. In addition, there was a greater amount of
accrued interest at March 31, 2000 as compared to December 31, 1999 due to the
timing of the payment of interest payments. Additional sources of cash were
non-cash expenses of $2,505,000 for depreciation and amortization, $171,000 for
the allowance for doubtful accounts and $86,000 for the amortization of deferred
financing costs. Partially offsetting these sources of cash was a use of cash
of $3,002,000 due to higher levels of accounts receivable at March 31, 2000 as
compared to December 31, 1999 which was in turn due to the higher levels of
business in March 2000 as compared to December 1999.
In addition, the Company obtained $1,748,000 of cash from financing
activities which consisted of additional borrowings under the term note of
$3,000,000 and which was partially offset by repayments under the revolving line
of credit of $1,106,000 and repayments under the term note of $300,000.
Additional sources of cash from financing activities consisted of proceeds from
the exercise of stock options of $120,000 and proceeds from issuances of stock
under the employee stock purchase plan of $34,000.
The $2,456,000 of cash generated from operations plus the $1,748,000
provided by financing activities together with $33,000 in proceeds from the sale
of fixed assets was used to purchase property, plant and equipment of
$2,190,000, to purchase $241,000 of restricted investments relating to the
Company's captive insurance company and to increase the amount of cash on hand
by $1,806,000.
As described in the Form 10-K for the year ended December 31, 2000, the
Company had a $33,500,000 Loan Agreement with a financial institution. The Loan
Agreement provided for a $24,500,000 revolving credit portion (the "Revolver"),
a $6,000,000 term promissory note (the "Term Note") and a $3,000,000 term
promissory note (the "2000 Term Note").
The Revolver allowed the Company to borrow up to $24,500,000 in cash and
letters of credit, based on a formula of eligible accounts receivable. At March
31, 2001, the Revolver balance was $2,646,000, letters of credit outstanding
were $11,640,000 and funds available to borrow were approximately $10,214,000.
The balance of the Term Note was $3,900,000, and the balance on the 2000 Term
Note was $2,083,000.
19
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
The Loan Agreement, as amended, contained loan covenants the most
restrictive of which required the Company to maintain $6,000,000 of working
capital and $30,000,000 of adjusted net worth. At March 31, 2001, the Company
had working capital and adjusted net worth of $16,158,000 and $40,672,000,
respectively. The Company was required to 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 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). 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
required 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.
20
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
As of March 31, 2001, Bank Debt totaled $8,629,000 which was less than the
$35,000,000 allowed; the Company's total debt to total capital ratio was 62.7%
which is less than the 72.0% allowed; and the EBITDA coverage ratio was 2.23 to
1.0 which is greater than the 1.50 to 1.0 required. Under the Bond covenants,
if the Company attains an EBITDA coverage ratio of greater than 1.5 to 1.0 as of
any fiscal yearend beginning with December 31, 2001, the balance on deposit in
the debt service reserve fund in excess of $750,000 will be released for the
Company's general use. The Bond Documents require that a minimum balance of
$750,000 be maintained in the debt service reserve fund until the Bonds mature.
The Company had outstanding $50,000,000 of 12.50% Senior Notes due May 15,
2001 (the "Senior Notes") that were redeemed on April 30, 2001. As described in
the Form 10-K for the year ended December 31, 2000, the Company had at December
31, 2000 a $33,500,000 Loan Agreement (the "Loan Agreement") with a financial
institution (the "Lender"). The Loan Agreement provided for a $24,500,000
revolving credit facility (the "Revolver"), a $6,000,000 term promissory note
(the "Term Note"), and a $3,000,000 term promissory note (the "2000 Term Note").
On April 12, 2001, the Company signed and closed a $51,000,000 Amended and
Restated Loan Agreement (the "Amended Loan Agreement") with the Lender. The
Amended Loan Agreement increased the amount available to borrow under the
Revolver to $30,000,000 and extended the term of the Revolver to April 12, 2004.
The Revolver allows the Company to borrow up to $30,000,000 in cash and letters
of credit, based on a formula of eligible accounts receivable. Letters of credit
may not exceed $20,000,000 at any one time. The Revolver requires the Company to
pay an unused line fee of one-half of one percent on the unused portion of the
line. The Amended Loan Agreement required the payment on April 12 of the then
$3,800,000 outstanding balance on the Term Note and provided for the issuance of
a new $19,000,000 term promissory note (the "Term Note B"). On April 12, 2001,
$4,000,000 was advanced under Term Note B to pay the Term Note and other amounts
then borrowed by the Company, and the $15,000,000 balance of Term Note B was
advanced on April 30 towards the redemption of the Senior Notes. The interest
rate for Term Note B is the greater of the prime rate plus 3.50% or 12.00%, and
it is payable in 84 monthly installments commencing May 1, 2001. The terms of
the 2000 Term Note remain unchanged.
The Amended Loan Agreement allows for up to 80% of the outstanding balance
of the Revolver and 100% of the balance of the 2000 Term Note to bear interest
at the Eurodollar rate plus three percent; the remaining balance bears interest
at the "prime" rate plus one and one-half percent. The Amended Loan Agreement is
collateralized by substantially all of the Company's assets, and the Amended
Loan Agreement provides for certain covenants including, among others,
maintenance of a minimum level of working capital, adjusted net worth and
earnings before interest, income taxes, depreciation and amortization
("EBITDA"). The Amended Loan
21
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
Agreement requires that the Company maintain $10,000,000 of working capital
excluding the current portion of liabilities under the Amended Loan Agreement
and the Subordinated Note Agreement. The Company had $19,746,000 of working
capital calculated on a pro forma basis as if the redemption had taken place on
March 31, 2001. The net worth covenant requires that the Company maintain
$35,000,000 of adjusted net worth until the Subordinated Notes described below
are funded, and once Notes are funded, the net worth covenant requires adjusted
net worth, defined as net worth plus the balance owed on the subordinated notes,
to be greater than $60,000,000. At March 31, 2001, the pro forma adjusted net
worth calculated as if the redemption had taken place on March 31, 2001 was
$75,672,000. The Amended Loan Agreement requires that the Company maintain on a
rolling four quarter basis a minimum EBITDA of $20,000,000. For the four quarter
period ended March 31, 2001 the Company reported EBITDA of $25,069,000. The
Amended Loan Agreement also requires that the Company maintain a Senior Debt to
EBITDA ratio of not more than 2.25 to 1.0. At March 31, 2001 the pro forma ratio
calculated as if the redemption had taken place on March 31, 2001 was 1.41 to
1.0.
On April 30, 2001, the Company issued $35,000,000 of 16% Senior
Subordinated Notes (the "Subordinated Notes") under a Securities Purchase
Agreement (the "Subordinated Note Agreement"). Until October 30, 2006, the
Company, at its option, may pay the interest at the 16% rate or may pay interest
at 14% and defer payment of the remaining 2% in the form of like notes until the
Subordinated Notes are due. Interest payable in cash on the Subordinated Notes
is due in semi-annual payments on April 30 and October 30. In conjunction with
the Subordinated Notes, the Company issued detachable warrants for 1,519,020
shares of common stock that are exercisable at $0.01 per share and expire on
April 30, 2008. One-half of the Subordinated Notes are due on April 30, 2007
with the balance due on April 30, 2008. The Subordinated Note Agreement
provides that the holders of the Subordinated Notes will be able to call the
Notes in the event of a change in control of the Company.
The Subordinated Note Agreement contains covenants the most restrictive of
which require that the Company maintain a rolling four quarter fixed charge
coverage ratio of not less than 1.10 to 1.0. For the four quarters ended March
31, 2001, the fixed charge coverage ratio was 1.86 to 1.0. The Subordinated
Notes require that the Company maintain a tangible capital base of not less than
$27,000,000 for the quarters ending March 31 and June 30, 2001, not less than
$30,500,000 for the quarter ending September 30, 2001, not less than $33,000,000
for the quarter ending December 31, 2001 and not less than $35,500,000 for
quarters ending thereafter. At March 31, 2001, the tangible capital base was
$44,664,000. The Company is required to
22
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
maintain rolling four quarter earnings before interest, income taxes,
depreciation and amortization (EBITDA) of not less than $18,000,000. For the
four quarter period ended March, 2001, EBITDA was $25,069,000. The Company shall
maintain a priority debt to EBITDA ratio calculated as of the last day of each
fiscal quarter of not more than 2.25 to 1.0. Priority debt at March 31, 2001
consisted of debt issued under the Loan Agreement. The pro forma priority debt
to EBITDA ratio calculated as if the redemption had taken place on March 31,
2001 was 0.94 to 1.0. The Company is required to maintain a ratio of total
liabilities to tangible capital base of not more than 3.00 to 1.0 for the fiscal
quarters ending June 30, September 30 and December 31, 2001 and for the quarters
ending March 31, 2002 and thereafter a ratio of not more than 2.75 to 1.0. At
March 31, 2001 the total liabilities to tangible capital base ratio was 1.57 to
1.0.
The Company expects 2001 capital expenditures to be approximately
$7,500,000. This consists of $5,000,000 that is required to maintain existing
property, plant and equipment and $2,500,000 of strategic initiatives to expand
the Company's capabilities. The Company believes that it has all of the
facilities required for the foreseeable future. Thus, capital expenditures are
expected to be limited to maintaining existing capital assets, replacing site
services equipment, upgrading information technology hardware and software, and
specific strategic initiatives. The Company continues to evaluate potential
acquisitions and opening additional site services offices within and next to the
Company's service areas. Thus, it is possible that capital additions could
exceed the $7,500,000 currently planned.
The Company believes that cash generated from operations in the future
together with availability under its Revolver will be sufficient to operate the
business and fund capital expenditures. In addition, the Company believes that
interest expense in 2001 will be somewhat higher than in 2000 with an increase
in interest expense due to higher average interest rates being partially offset
by lower average debt outstanding.
Dividends on the Company's Series B Convertible Preferred Stock are payable
on the 15th day of January, April, July and October, at the rate of $1.00 per
share, per quarter; 112,000 shares are outstanding. Under the terms of the
preferred stock, the Company can elect to pay dividends in cash or in common
stock with a market value equal to the amount of the dividend payable. The
Company elected to pay the January 15, 2001 dividend in common stock.
Accordingly, the Company issued 59,438 shares of common stock to the holders of
the preferred stock in the period ended March 31, 2000. The Company anticipates
that commencing in the third quarter of 2001 the preferred stock dividends will
be paid in cash.
23
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
No legal proceedings of a material nature have arisen in the first quarter of
2001, and there have been no material changes during the first quarter of 2001
in the pending legal proceedings disclosed in the Form 10-K for the year ended
December 31, 2000.
ITEM 2 - CHANGES IN SECURITIES
- ------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR DEBT
- ----------------------------------
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None
ITEM 5 - OTHER INFORMATION
- --------------------------
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
Exhibit No. Description Location
- ----------- ----------- --------
4.21 Senior Subordinated Notes dated April 30, 2001
by and between Clean Harbors, Inc. and
institutional investors........................... Filed herewith
4.22 Warrant Agreement dated April 30, 2001 by and
between Clean Harbors, Inc. and institutional
investors......................................... Filed herewith
4.23 Registration Rights Agreement dated
April 30, 2001 by and between Clean Harbors,
Inc. and institutional investors.................. Filed herewith
4.24 Subsidiary Guaranty dated April 30, 2001 by
and between the Company's subsidiaries and
institutional investors........................... Filed herewith
Reports on Form-8-K None
24
CLEAN HARBORS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Clean Harbors, Inc.
-------------------
Registrant
Dated: May 11, 2001 By: /s/ Alan S. McKim
---------------------
Alan S. McKim
President and
Chief Executive Officer
Dated: May 11, 2001 By: /s/ Roger A. Koenecke
-------------------------
Roger A. Koenecke
Senior Vice President and
Chief Financial Officer
25