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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
for the Quarterly Period Ended
June 30, 1994
-----------------------
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.)
1200 Crown Colony Drive, Quincy, MA 02269-9137
(Address of Principal Executive Offices) (Zip Code)
(continued on next page)
(617) 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 9,431,282
---------------------------- -------------------------------
(Class) (Outstanding at August 9, 1994)
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(Continued from previous page)
Additional Registrants
Commission File Number for all Additional
Registrants: 33-54191
Clean Harbors Environmental Services, Inc.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
04-2698999
(I.R.S. employer
identification number)
Clean Harbors of Braintree, Inc.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
04-2507498
(I.R.S. employer
identification number)
Clean Harbors of Natick, Inc.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
04-2481234
(I.R.S. employer
identification number)
Clean Harbors of Baltimore, Inc.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
(State or other jurisdiction of
incorporation or organization)
23-2091580
(I.R.S. employer
identification number)
Clean Harbors of Chicago, Inc.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
06-1287127
(I.R.S. employer
identification number)
Clean Harbors of Cleveland, Inc.
(Exact name of registrant as specified in its charter)
ILLINOIS
(State or other jurisdiction of
incorporation or organization)
06-1335175
(I.R.S. employer
identification number)
Murphy's Waste Oil Service, Inc.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
04-2490849
(I.R.S. employer
identification number)
Clean Harbors Kingston Facility Corporation
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
04-3074299
(I.R.S. employer
identification number)
Clean Harbors of Connecticut, Inc.
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of
incorporation or organization)
06-1025746
(I.R.S. employer
identification number)
Mr. Frank, Inc.
(Exact name of registrant as specified in its charter)
ILLINOIS
(State or other jurisdiction of
incorporation or organization)
36-2542803
(I.R.S. employer
identification number)
Clean Harbors Technology Corporation
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
04-3172766
(I.R.S. employer
identification number)
Spring Grove Resource Recovery, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
76-0313183
(I.R.S. employer
identification number)
CLEAN HARBORS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS Pages
-------
Consolidated Statements of Income 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
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-13
PART II: OTHER INFORMATION
Items No. 1 through 6 14
Signatures 15
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(in thousands except for earnings per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------
1994 1993 1994 1993
-------- -------- -------- --------
Revenues $ 49,683 $ 51,847 $100,968 $ 95,299
Cost of revenues 33,392 33,638 69,306 62,027
Selling, general and
administrative expenses 9,645 11,215 19,528 20,591
Depreciation and amortization 2,563 2,625 5,126 5,088
------ ------- ------- -------
Income from operations 4,083 4,369 7,008 7,593
Interest expense, net 1,767 1,798 3,586 3,535
------ ------- ------- -------
Income before provision
for income taxes 2,316 2,571 3,422 4,058
Provision for income taxes 1,065 1,131 1,574 1,783
------ ------- ------- -------
Net income $ 1,251 $ 1,440 $ 1,848 $ 2,275
======= ======= ======= =======
Net income per common and
common equivalent share $ .12 $ .13 $ .17 $ .21
====== ======= ======= =======
Weighted average common and
common equivalent shares
outstanding 9,654 10,209 9,680 10,190
====== ======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
(1)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1994 1993
(Unaudited)
-------------- ----------------
ASSETS
Current Assets:
Cash $ 1,175 $ 816
Restricted cash 878 1,037
Accounts receivable, net of
allowance for doubtful accounts 42,763 46,736
Prepaid expenses 1,972 2,353
Supplies inventories 2,546 2,428
Income tax receivable 41 607
------- -------
Total current assets 49,375 53,977
Property, plant and equipment:
Land 8,209 8,209
Buildings and improvements 31,837 31,737
Vehicles and equipment 71,077 70,946
Furniture and fixtures 2,203 2,201
Construction in progress 2,801 1,903
------- -------
116,127 114,996
Less - Accumulated depreciation
and amortization 44,745 40,925
------- -------
Net fixed assets 71,382 74,071
------- -------
Other Assets:
Goodwill, net 23,288 23,650
Permits, net 14,459 14,906
Other 810 754
------- -------
38,557 39,310
------- -------
$159,314 $167,358
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
(2)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1994 1993
(Unaudited)
--------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations $ 8,891 $ 8,917
Accounts payable 7,636 9,564
Accrued disposal costs 4,932 6,724
Other accrued expenses 11,712 10,452
Income tax payable 96 ---
------ ------
Total current liabilities 33,267 35,657
------ ------
Long-term obligations, less
current maturities 55,188 62,507
Deferred income taxes 1,823 1,823
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 shares at
June 30, 1994 (liquidation
preference of $5.6 million) 1 1
Common Stock, $.01 par value
Authorized - 20,000,000 shares;
Issued and outstanding -
9,431,282 shares at
June 30, 1994 and
9,425,829 shares at
December 31, 1993 95 95
Additional paid-in capital 58,590 58,556
Retained earnings 10,350 8,719
------ ------
Total stockholders' equity 69,036 67,371
------ ------
$159,314 $167,358
======= =======
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)
SIX MONTHS ENDING
JUNE 30,
-------------------------
1994 1993
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,848 $2,275
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,126 5,088
Deferred taxes payable 6 (87)
(Gain) Loss on sale of fixed assets (92) 4
Changes in assets and liabilities, net of businesses acquired:
Accounts receivable 3,973 (4,354)
Refundable income taxes 566 365
Prepaid expenses 381 (241)
Supplies inventories (118) (281)
Accounts payable (1,928) (3,451)
Accrued disposal costs (1,792) 1,302
Other accrued expenses 1,248 (1,334)
Taxes payable 102 364
------ ------
Net cash provided by operating activities 9,320 (350)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,636) (4,429)
Decrease (increase) in restricted cash 159 (15)
Increase in permits --- (63)
Increase in goodwill --- ---
Decrease (increase) in other assets (66) (69)
Proceeds from sale of fixed assets 104 ---
Payment for business acquired,
net of cash acquired --- (1,394)
------ ------
Net cash used in investing activities (1,439) (5,970)
------ ------
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)
SIX MONTHS ENDING
JUNE 30,
-------------------------
1994 1993
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend distribution (205) (64)
Net (payments) borrowings on long-term debt (7,345) 5,555
Proceeds from exercise of stock options 28 642
------ ------
Net cash (used in) provided by
financing activities (7,522) 6,133
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 359 (187)
Cash and equivalents, beginning of year 816 625
------ ------
Cash and equivalents, end of period $1,175 $ 438
====== ======
Supplemental Information:
Supplemental schedule of noncash investing and financing activities:
On February 16, 1993, the Company acquired all the outstanding capital
stock of Spring Grove Resource Recovery, Inc., in exchange for cash and 112,000
shares of Series B Convertible Preferred Stock of Clean Harbors, Inc., with a
liquidation value of $5,600,000.
(5)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Unaudited
(in thousands)
Series B
Preferred Stock Common Stock
--------------- ------------
Number $0.01 Number $0.01 Additional Total
of Par of Par Paid-In Retained Stockholders'
Shares Value Shares Value Capital Earnings Equity
------ ----- ------ ----- ------- -------- -------------
Balance at
December 31, 1993 112 $ 1 9,425 $95 $58,556 $8,719 $67,371
Preferred stock dividends:
Series B --- --- --- -- --- (217) (217)
Proceeds from exercise
of stock options --- --- 6 -- 28 --- 28
Tax benefit from exercise
of stock options --- --- --- -- 6 --- 6
Net Income --- --- --- -- --- 1,848 1,848
------ ---- ----- ---- ------- ------- -------
Balance at
June 30, 1994 112 $ 1 9,431 $95 $58,590 $10,350 $69,036
====== ==== ===== ==== ======= ======= =======
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 (consisting of only normal recurring accruals) necessary for the
fair presentation of interim period results. The operating results for the six
months ended June 30, 1994 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 Clean Harbors' Report on Form
10-K for the year ended December 31, 1993 as filed with the Securities and
Exchange Commission.
NOTE 2 Significant Accounting Policies
Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is based on net income
less preferred stock dividend requirements divided by the weighted average
number of common and common equivalent shares outstanding during each of the
respective periods. Fully diluted net income per common share has not been
presented as the amount would not differ significantly from that presented.
NOTE 3 Subsequent Events
At June 30, 1994, the Company had a $55,000,000 Revolving Credit Agreement
with three banks (the "Revolver"). The loans outstanding under the Revolver were
$33,564,000. The entire balance of the Revolver was due at maturity on July 1,
1996. The $22,500,000 of 13.25% senior subordinated notes (the "13.25% Notes")
were scheduled to be prepaid in three annual installments of $7,500,000 on May
15th of each year, from 1995 to 1997.
On August 4, 1994, the Company issued $50,000,000 of 12.50% Senior Notes
due May 15, 2001 (the "Senior Notes"). The Company intends to use the net
proceeds to prepay in full the remaining $22,500,000 principal balance of the
13.25% Notes, at par plus a prepayment premium of 4.417%; to prepay in full
approximately $2,500,000 of other indebtedness; and to reduce the outstanding
balance under the Revolver by approximately $21,800,000.
The Company also amended the terms of the Revolver, to reduce the size to
$35,000,000, extend the maturity to August 1, 1997, reduce the Eurodollar
borrowing rate, reduce the fees for letters of credit, and increase the limit on
capital expenditures in any fiscal year from $12,000,000 to two times
depreciation expense.
In connection with the sale of the Senior Notes, the Company also amended
the terms of two subordinated convertible notes, in the amount of $3,500,000 and
$1,500,000, respectively, which were secured by liens on certain Company assets.
The holder of these two notes agreed that such notes will rank pari passu with
the Senior Notes, all security interests securing the notes will be released,
the interest rate on the notes will be increased from 8% to 10%, and the
financial covenants in the notes will be identical to the covenants securing the
Senior Notes.
(7)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
For the first time in the Company's history, revenues in the first half of
the year exceeded $100 million. However, revenues for the second quarter of 1994
decreased 4% to $49,683,000, from revenues of $51,847,000 in the second quarter
of the prior year. The second quarter results reflect the Company's focus on
profitable work and consolidating its gains in market share. The Company is
willing to decline jobs with less than acceptable margins.
The Company is also continuing to take steps to expand its network of sales
offices and service centers. During the second quarter of 1994, the Company
opened a new service center in Lake Charles, Louisiana, as part of its strategy
to expand its service areas with low risk capital investment and to increase
utilization of the Company's ten waste management facilities with minimal
incremental cost. At June 30, 1994, the Company had 22 service centers and eight
sales offices. As its sales territories evolve, the Company will relocate sales
personnel from one area to another.
The following table sets forth the Company's service center revenues by
region, based upon the locations of its 22 service centers as of June 30, 1994.
Service Center Revenues By Region
For The Six Quarters Ended June 30, 1994
(in thousands; unaudited)
-------------------------1993------------------------- ----------1994----------
03/31/93 06/30/93 09/30/93 12/31/93 03/31/94 06/30/94
------- ------- ------- ------- ------- -------
Northeast $18,506 $21,907 $21,628 $22,865 $17,216 $20,703
Mid-Atlantic 14,047 16,228 17,113 16,506 21,382 16,602
Central 5,583 7,409 6,888 6,164 6,413 6,678
Midwest 5,316 6,303 6,409 7,242 6,274 5,700
------- ------- ------- ------- ------- -------
Total $43,452 $51,847 $52,038 $52,777 $51,285 $49,683
In 1993, the Company also began to analyze its revenues on a product line
basis based upon the type of principal services provided. The principal
services provided by the Company fit within three categories: treatment and
disposal of industrial wastes ("Treatment and Disposal"); field services
provided at customer sites ("Field Services"); and specialized repackaging,
treatment and disposal services for laboratory chemicals and household
hazardous wastes ("LabPacks").
(8)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth such product line data for the periods
indicated.
Three Months Ended June 30,
-------------------------------
Type of Service 1994 1993
------------------- -------- --------
Treatment and Disposal $ 20,220 $ 23,483
Field Services 21,635 21,676
LabPacks 7,828 6,688
-------- --------
$ 49,683 $ 51,847
Treatment and disposal services revenue in the second quarter fell 14%
from 1993 to 1994, reflecting industry trends toward minimization of hazardous
waste generation. As a percentage of revenue, it declined to 41% of revenue for
the second quarter of 1994, from 45% of revenue in the prior year.
Field services revenue in the second quarter of 1994 was approximately the
same as it was in the prior year. As a percentage of revenue, it increased to
44% of revenue for the second quarter of 1994, from 42% of revenue in the prior
year.
The LabPack product line grew 17% from the second quarter of 1993 to the
second quarter of 1994. As a percentage of revenue, it increased to 15% of
revenue for the second quarter of 1994, from 13% of revenue in the prior year.
COST OF REVENUES
For the three months ended June 30, 1994, the cost of revenues as a
percentage of revenue increased to 67.2%, as compared to 64.9% for the same
period of the prior year, reflecting the competitive pricing trends in the
hazardous waste industry. For the six months ended June 30, 1994, the cost of
revenues as a percentage of revenues increased to 68.6% of revenues as compared
to 65.1% for the same period of the prior year. However, the second quarter's
cost of revenues as a percentage of revenue was lower than in any of the
preceding three quarters, primarily as a result of the Company's reengineering
efforts, which began in the third quarter of 1993.
Since the fall of 1993, the Company has increased the ratio of billable to
nonbillable personnel, improved the bidding and execution of jobs, improved the
pricing of remediation work, and declined jobs with less than acceptable
margins. At June 30, 1994, the total workforce was 1,419 people, as compared to
1,491 people at June 30, 1993. The Company has accomplished its goal of
realigning its workforce, by adding billable workers and limiting nonbillable
staff to 600 people.
(9)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
One of the largest components of cost of revenues is the cost of sending
waste to other companies for disposal. The Company has been able to improve the
profitability of its treatment and disposal business, by expanding its internal
waste disposal capabilities and reducing the amount of waste it sends to other
companies for disposal. The Company continues to benefit from a competitive
pricing environment among disposal vendors, such as landfills and incinerators,
to whom the Company sends waste for ultimate disposal. As a result, the
Company's outside disposal costs fell 18% from 1993 to 1994, to 13.0% of revenue
in the second quarter of 1994, from 15.2% of revenue in the second quarter of
1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
June 30, 1994 decreased to 19.4% of revenue as compared to 21.6% for the three
months ended June 30, 1993. Selling, general and administrative expenses for the
six months ended June 30, 1994 decreased to 19.3% of revenue as compared to
21.6% for the six months ended June 30, 1993. This decrease is primarily due to
the cost control efforts begun in the summer of 1993, and the Company's focus on
improving productivity and its ratio of billable to nonbillable staff.
Management of the Company has accomplished the goal it set in the summer of 1993
of driving general and administrative costs to below 20% of revenue.
INTEREST EXPENSE
Interest expense for the three and six month periods ended June 30, 1994
was approximately the same as during the comparable periods of 1993, in the
range of $1,750,000 per quarter. During those periods, approximately half of the
Company's debt accrued interest at floating rates, based either on the "prime"
rate or "Eurodollar Rate," which have trended upward. However, the Company has
used funds generated from operations to pay down its floating rate debt,
principally amounts drawn under its revolving credit agreement with three banks,
which has mitigated somewhat the impact of increasing interest rates. In
addition, on May 15, 1994, the Company made a scheduled $7,500,000 prepayment at
par on its $30,000,000 senior subordinated notes, which accrued interest at
13.25% (the "13.25% Notes").
The Company decided during the second quarter of 1994 to reduce its
reliance on floating rate debt and refinance the remaining $22,500,000
outstanding principal amount of the 13.25% Notes, in order to extend the average
life of its long-term debt and obtain longer-term capital at an attractive fixed
interest rate. On August 4, 1994, the Company issued $50,000,000 of long-term,
fixed rate debt, to reduce its floating rate bank debt and refinance the 13.25%
Notes. See Financial Condition and Liquidity below. The Company expects its
interest expense in the second half of 1994 to be in the range of $2,000,000 per
quarter.
(10)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INCOME TAXES
The effective income tax rate for the three and six months ended June 30,
1994 was 46%, as compared to 44% for the comparable periods of 1993. The
effective rates are higher than the combined state and federal statutory rates
due in part to the amortization of goodwill for accounting purposes, which is
nondeductible for income tax reporting purposes. The effective rate fluctuates
depending on the amount of goodwill amortization and other nondeductible amounts
as compared to income before taxes. The Company expects its effective income tax
rate for 1994 to be approximately 46%.
RECENT DEVELOPMENTS
The Company's Chicago facility received a federal Part B license in
November 1993, which allows significant expansion of its waste handling and
storage capacity. The new license increased drum storage capacity from 1,240
drums to 1,875 drums and allows handling of material destined for blending of
waste used as a supplemental fuel by industrial furnaces, pretreatment of waste
to stabilize it before it is sent to landfills, and rail shipment of hazardous
and nonhazardous waste. The Company plans to make substantial expenditures to
implement this increased permitted capacity.
As a possible alternative to making the needed improvements to its own
site, the Company has entered into a letter of intent with Chemical Waste
Management, Inc. ("ChemWaste") which would allow the Company to lease an
adjoining site now leased by ChemWaste and acquire their existing improvements
in exchange for sharing the costs of dismantling an existing hazardous waste
incinerator and cleaning up the adjoining site. The improvements on the
ChemWaste site would allow the Company to develop new product lines not
currently handled at the Company's existing Chicago facility.
Under the proposed sharing arrangement with ChemWaste, the Company could
over a period of 15 years be required to contribute up to a maximum of
$2,000,000 for dismantling and decontaminating the incinerator and other
equipment and up to a maximum of $7,000,000 for studies and cleanup of the site.
Any additional costs beyond those contemplated by the sharing arrangement during
this time period would be borne by ChemWaste. This alternative is under
continuing investigation, is subject to the negotiation of definitive
agreements, and would require a rezoning of the property and numerous regulatory
approvals which may not be possible to obtain.
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: realize and make permanent the
anticipated cost reduction benefits associated with its reengineering program
initiated in the summer of 1993; utilize its facilities and workforce
profitably, in the face of intense price competition; successfully increase
market share in its existing service territory while expanding its product
offerings into other markets; and integrate additional hazardous waste
management facilities and generate incremental volumes of waste to be handled
through such facilities from existing sales offices and service centers and
others which may be opened in the future.
(11)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's operations may be affected by the commencement and completion
of major site remediation projects; 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; secular changes in the process waste 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
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.
The Company participates in a highly volatile industry, with multiple
competitors, many of which have recently taken large write-offs and asset write-
downs and undergone major restructurings, while others have announced they will
undergo such restructurings and incur special charges in the near future. The
Company's participation in a highly dynamic industry often results in
significant volatility of the Company's common stock price, as well as that of
its competitors.
FINANCIAL CONDITION AND LIQUIDITY
The Company has financed its operations and capital expenditures primarily
by cash flow from operations and additions to long-term debt. Cash provided by
operations, before changes in current assets and current liabilities, was
$6,888,000 for the six months ended June 30, 1994, as compared to $7,280,000 for
the six months ended June 30, 1993.
During the six months ended June 30, 1994, net reductions in long-term debt
were $7,345,000, and the Company spent $1,636,000 on additions to plant and
equipment and construction in progress, as compared to the same period of the
prior year when its capital expenditures were $4,429,000 (excluding the cost to
acquire Spring Grove Resource Recovery, Inc., a hazardous waste treatment,
storage and disposal facility acquired by the Company in February 1993) and its
net additions to long-term debt were $5,555,000. The Company anticipates that
its capital expenditures for the remainder of 1994 will be approximately
$5,000,000. The Company expects to finance these requirements through cash flow
from operations. The Company also continues to investigate the possibility of
acquiring additional hazardous waste treatment, storage and disposal facilities,
which would be financed by a variety of sources.
At June 30, 1994, the Company had a $55,000,000 Revolving Credit Agreement
with three banks (the "Revolver"). The loans outstanding under the Revolver were
$33,564,000. The entire balance of the Revolver was due at maturity on July 1,
1996. The $22,500,000 of 13.25% Notes were scheduled to be prepaid in three
annual installments of $7,500,000 on May 15th of each year, from 1995 to 1997.
(12)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (continued)
On August 4, 1994, the Company issued $50,000,000 of 12.50% Senior Notes
due May 15, 2001 (the "Senior Notes"). The Company intends to use the net
proceeds to prepay in full the remaining $22,500,000 principal balance of the
13.25% Notes, at par plus a prepayment premium of 4.417%; to prepay in full
approximately $2,500,000 of other indebtedness; and to reduce the outstanding
balance under the Revolver by approximately $21,800,000.
The Company also amended the terms of the Revolver, to reduce the size to
$35,000,000, extend the maturity to August 1, 1997, reduce the Eurodollar
borrowing rate, reduce the fees for letters of credit, and increase the limit on
capital expenditures in any fiscal year from $12,000,000 to two times
depreciation expense.
In connection with the sale of the Senior Notes, the Company also amended
the terms of two subordinated convertible notes, in the amount of $3,500,000 and
$1,500,000, respectively, which were secured by liens on certain Company assets.
The holder of these two notes agreed that such notes will rank pari passu with
the Senior Notes, all security interests securing the notes will be released,
the interest rate on the notes will be increased from 8% to 10%, and the
financial covenants in the notes will be identical to the covenants securing the
Senior Notes.
The issue of the Senior Notes, and the refinancing of substantially all of
the Company's indebtedness, will increase the Company's ability to utilize its
future cash flows from operations and borrowings under its Revolver for
operations, continued expansion of its product lines, and potential
acquisitions.
(13)
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The information required by this item is incorporated by reference to the
"Business--Legal Proceedings" section in the Prospectus dated July 29, 1994
included in Amendment No. 3 to the Company's Registration Statement on Form S-2
(File No. 33-54191), a copy of which section is attached to this report as
Exhibit 99.1.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Debt
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's 1994 Annual Meeting of Stockholders was held on May 19, 1994.
Stockholders owning 8,003,564 shares, or 84% of the eligible shares, were
represented in person or by proxy. 7,990,421 shares voted for the election of
John O. Peterson, with 15,643 shares withheld, and 7,990,856 shares voted for
the election of Lorne R. Waxlax, with 15,208 shares withheld, as directors to
serve until the 1997 Annual Meeting of Stockholders. Other directors whose term
of office as a director continued after the meeting were Alan S. McKim, Daniel
J. McCarthy, John F. Kaslow, and Christy W. Bell. 7,848,368 shares voted for the
proposal to increase the number of shares authorized for issuance under the
Equity Incentive Plan from 450,000 shares to 800,000 shares, with 133,933 shares
voted against the proposal, and 23,763 shares abstaining.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
A) Exhibit 4.1 - Amended and Restated Revolving Credit Agreement dated as of
August 1, 1994 by and among Clean Harbors, Inc., the Subsidiaries listed on
Schedule 1 thereto, Clean Harbors of Baltimore, Inc., as Guarantor, and The
First National Bank of Boston, Shawmut Bank, N.A., and USTrust, and The First
National Bank of Boston, as Agent for the Banks.
Exhibit 11.1 - Computation of Net Income per Share.
Exhibit 99.1 - Legal Proceedings
B) Reports on Form 8-K - None
(14)
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: August 12, 1994 By:
---------------------------------
Alan S. McKim
President and
Chief Executive Officer
Dated: August 12, 1994 By:
-------------------------------
James A. Pitts
Executive Vice President and
Chief Financial Officer
Dated: August 12, 1994 By:
---------------------------------
Mary-Ellen Drinkwater
Vice President and Controller
(15)
ADDITIONAL REGISTRANT SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, each of the Additional Registrants has duly caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Clean Harbors Environmental Services, Inc.
Clean Harbors of Braintree, Inc.
Clean Harbors of Natick, Inc.
Clean Harbors of Baltimore, Inc.
Clean Harbors of Chicago, Inc.
Clean Harbors of Cleveland, Inc.
Murphy's Waste Oil Service, Inc.
Clean Harbors Kingston Facility Corporation
Clean Harbors of Connecticut, Inc.
Mr. Frank, Inc.
Clean Harbors Technology Corporation
Spring Grove Resource Recovery, Inc.
Dated: August 12, 1994 By:
-------------------------------
James A. Pitts
Vice President, Treasurer and
Chief Financial Officer
(16)