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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
June 30, 1995
-----------------------
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.)
325 Wood Road, Braintree, MA 02184
(Address of Principal Executive Offices) (Zip Code)
(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 9,436,838
---------------------------- -------------------------------
(Class) (Outstanding at August 8, 1995)
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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 7-8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-15
PART II: OTHER INFORMATION
Items No. 1 through 6 16
Signatures 17
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,
------------------ -----------------
1995 1994 1995 1994
------------------ -----------------
Revenues $54,899 $49,683 $102,049 $100,968
Cost of revenues 39,367 33,392 74,219 69,306
Selling, general and
administrative expenses 10,471 9,645 19,481 19,528
Depreciation and amortization 2,512 2,563 4,985 5,126
------- ------- -------- --------
Income from operations 2,549 4,083 3,364 7,008
Interest expense, net 2,162 1,767 4,134 3,586
------- ------- -------- --------
Income (loss) before provision
for income taxes 387 2,316 (770) 3,422
Provision (benefit) for income taxes 184 1,065 (383) 1,574
------- ------- -------- --------
Net income (loss) $203 $1,251 $(387) $1,848
======= ======= ======== ========
Net income (loss) per common and
common equivalent share $.01 $.12 $(.06) $.17
======= ======= ======== ========
Weighted average common and
common equivalent shares
outstanding 9,448 9,654 9,447 9,680
======= ======= ======== ========
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,
1995 1994
(Unaudited)
----------- ------------
ASSETS
Current Assets:
Cash $ 365 $ 1,000
Restricted investments 2,306 1,542
Accounts receivable, net of
allowance for doubtful accounts 47,222 44,834
Prepaid expenses 2,643 1,894
Supplies inventories 2,924 2,670
Income tax receivable 1,211 178
-------- --------
Total current assets 56,671 52,118
Property, plant and equipment:
Land 8,285 8,209
Buildings and improvements 37,172 31,535
Vehicles and equipment 76,740 72,494
Furniture and fixtures 2,155 2,129
Construction in progress 3,015 3,118
-------- --------
127,367 117,485
Less - Accumulated depreciation
and amortization 51,768 47,713
-------- --------
Net property, plant and equipment 75,599 69,772
-------- --------
Other Assets:
Restricted investments 5,027 ---
Goodwill, net 22,564 22,926
Permits, net 13,834 14,244
Other 2,552 815
-------- --------
Total Other Assets 43,977 37,985
-------- --------
Total Assets $176,247 $159,875
======== ========
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,
1995 1994
(Unaudited)
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 3,594 $ 1,715
Accounts payable 11,986 10,686
Accrued disposal costs 7,805 6,179
Other accrued expenses 16,776 12,724
-------- --------
Total current liabilities 40,161 31,304
-------- --------
Long-term obligations, less current maturities 68,248 60,465
Deferred income taxes 1,042 780
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,
1995 (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, 1995 and 9,431,282 shares
at December 31, 1994 95 95
Additional paid-in capital 58,590 58,590
Unrealized loss on restricted investments,
net of tax (33) (113)
Retained earnings 8,143 8,753
-------- --------
Total stockholders' equity 66,796 67,326
-------- --------
Total liabilities and stockholders' equity $176,247 $159,875
======== ========
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,
-------------------
1995 1994
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (387) $ 1,848
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,985 5,126
Deferred taxes payable 209 6
Allowance for doubtful accounts 118 344
Amortization of deferred financing costs 205 210
Gain on sale of fixed assets (6) (92)
Changes in assets and liabilities:
Accounts receivable (2,507) 3,629
Refundable income taxes (1,033) 566
Prepaid expenses (749) 381
Supplies inventories (254) (118)
Accounts payable 1,300 (1,928)
Accrued disposal costs 1,626 (1,792)
Other accrued expenses 2,253 1,248
Taxes payable --- 102
-------- -------
Net cash provided by operating activities 5,760 9,530
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (8,208) (1,636)
Additions to permits (38) ---
Proceeds from sale and maturities of restricted
investments 22 159
Cost of restricted investments acquired (5,656) ---
Increase in other assets (1,764) (66)
Proceeds from sale of fixed assets 15 104
-------- -------
Net cash used in investing activities (15,629) (1,439)
-------- -------
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,
-------------------
1995 1994
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend distribution (223) (205)
Issuance of long-term debt 10,000 ---
Net borrowings under long-term revolver 789 858
Payments on long-term obligations (562) (8,215)
Proceeds from exercise of stock options --- 28
Additions to deferred financing costs (770) (198)
-------- -------
Net cash (used in) financing activities 9,234 (7,732)
-------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (635) 359
Cash and equivalents, beginning of year 1,000 816
-------- -------
Cash and equivalents, end of period $365 $1,175
======== =======
Supplemental Information:
There were $1,799,000 of accrued liabilities assumed as a result of the
acquisition of the incinerator in Kimball, Nebraska on May 12, 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
(5)
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unaudited
(in thousands)
Series B
Preferred Stock Common Stock
--------------- --------------
Number $0.01 Number $0.01 Additional Unrealized Loss Total
of Par of Par Paid-In on Restricted Retained Stockholders'
Shares Value Shares Value Capital Investments Earnings Equity
------ ----- ------ ----- ---------- --------------- -------- -------------
Balance at December 31, 1994 112 $ 1 9,431 $95 $58,590 $(113) $8,753 $67,326
Preferred stock dividends:
Series B --- --- --- -- --- --- (223) (223)
Change in unrealized loss on
restricted investments --- --- --- -- --- 80 --- 80
Net loss --- --- --- -- --- --- (387) (387)
--- --- ----- --- ------- ----- ------ -------
Balance at June 30, 1995 112 $ 1 9,431 $95 $58,590 $(33) $8,143 $66,796
=== === ===== === ======= ===== ====== =======
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, 1995
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, 1994 as filed with the Securities
and Exchange Commission.
NOTE 2 Significant Accounting Policies
(A) 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.
(B) Reclassifications
Certain reclassifications have been reflected in the prior year
financial statements to conform the presentation to that as of June
30, 1995.
NOTE 3 Acquisition of Incinerator
On May 12, 1995, the Company acquired a newly constructed
hazardous waste incinerator in Kimball, Nebraska from Ecova
Corporation, a wholly-owned affiliate of Amoco Oil Company. The
incinerator is subject to the final permit requirements under the
federal Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), and has a RCRA "Part B" license issued by the Nebraska
Department of Environmental Quality ("NDEQ"). The Company acquired the
incinerator for $5,549,000.
Under RCRA, an owner or operator of a "Part B" licensed
incinerator must establish financial assurance for closure of the
incinerator. An owner or operator may satisfy the requirements for
financial assurance by using one of several mechanisms allowed under
RCRA: a trust fund, surety bond, letter of credit, insurance,
financial test, or corporate guarantee. The mechanism chosen by the
Company is insurance, which has been approved by NDEQ. The insurance
policy has a 30 year term. Policy premiums through the year 2025 have
been paid by the Company, as required by NDEQ, to eliminate the risk
that the policy might be canceled for failure to pay premiums some time
in the future. The Company has also deposited funds into an escrow
account as collateral for the insurance policy, which is restricted for
future payment of insurance claims. Funds in the escrow account remain
the property of the Company and are invested in long-term, fixed-rate
interest bearing securities held as restricted investments.
(7)
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The Company paid $6,805,000 for the insurance coverage. The
Company also delivered to the insurance company a letter of credit in
the amount of $500,000, which will increase by $250,000 each quarter
until the balance of the letter of credit is $3,000,000, to provide
additional collateral security under the insurance policy. The
incinerator is located on a 600 acre site, which includes a landfill
for disposal of the ash from the incinerator. The landfill is
constructed, and ready for use upon completion of certain requirements.
The NDEQ requires the Company to establish financial assurance for
closure of the landfill before it may be used. The Company expects to
spend approximately $1,725,000 during the second half of 1995 to obtain
insurance coverage for the landfill.
NOTE 4 New Financing Arrangements
At December 31, 1994, the Company had a $35,000,000 revolving
credit facility with three banks. In connection with the acquisition
of the Kimball incinerator, the Company on May 8, 1995 entered into a
new $45,000,000 revolving credit and term loan agreement (the "Loan
Agreement") with another financial institution, which replaced the bank
credit facility. The Company also decided to finance part of the cost
of the incinerator insurance coverage using a $4,000,000 financing
arrangement, payable over two years at an interest rate of 9.38%.
The Loan Agreement provides for a $35,000,000 revolving credit
portion (the "Revolver") and a $10,000,000 term promissory note (the
"Term Note"). The Term Note is payable in 60 monthly installments,
commencing June 1, 1995. Monthly principal payments are $166,667. The
Revolver allows the Company to borrow $35,000,000 in cash, and allows
the Company to have up to $20,000,000 in letters of credit outstanding.
The combination of cash and letters of credit may not exceed
$35,000,000 at any one time. The Revolver requires the Company to pay
a line fee of one half of one percent on the unused portion of the
line. The Revolver has a three-year term with an option to renew
annually.
The Loan Agreement allows for up to 80% of the outstanding balance
of the combined Revolver and Term Note to bear interest at the
Eurodollar rate plus three percent; the remaining balance bears
interest at a rate equal to the "prime" rate plus one and one-half
percent. The Loan Agreement provides for certain covenants including,
among others, limitations on working capital and adjusted net worth.
The Company must also meet certain tests in order to make dividend
payments and incur additional debt. The Loan Agreement is
collateralized by substantially all of the Company's assets. The fees
for letters of credit and the interest rates under the Loan Agreement
are one-half of 1% higher than the terms under the former bank credit
facility.
NOTE 5 Employee Stock Purchase Plan
During the second quarter the stockholders of the Company approved
the Clean Harbors Employee Stock Purchase Plan (the "Plan") through
which employees of the Company will be given the opportunity to
purchase shares of common stock. According to the Plan, a total of one
million shares of common stock has been reserved for offering to
employees over a period of five years, in quarterly offerings of 50,000
shares each plus any shares not issued in any previous quarter,
commencing on July 1, 1995 and on the first day of each quarter
thereafter through April 1, 2000. Employees who elect to participate
in an offering may utilize up to 10% of their payroll for the purchase
of common stock at 85% of the closing price of the stock on the first
day of such quarterly offering or, if lower, 85% of the closing price
on the last day of the offering.
(8)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVENUES
Revenues for the second quarter of 1995 set a new Company
record of $54,899,000, up 10.5% as compared to revenues of
$49,683,000 for the second quarter of the prior year. Revenues
for the first half of 1995 also set a new Company record of
$102,049,000, as compared to revenues of $100,968,000 for the
first half of the prior year. During the first quarter of 1994,
the Company received approximately $7,000,000 of revenue from its
leading role in the cleanup of a large oil spill from a barge off
the coast of Puerto Rico. Excluding the revenue from that event
last year, the Company's base business grew approximately 9% from
1994 to 1995.
The principal services provided by the Company fit within
three categories: treatment and disposal of industrial wastes;
field services provided at customer sites; and specialized
repackaging, treatment and disposal services for laboratory
chemicals and household hazardous wastes ("CleanPacks," formerly
referred to as LabPacks). The approximately $7,000,000 of revenue
from the Puerto Rico oil spill in the first quarter of 1994 is
classified as field service revenue.
Revenues By Product Line
(in thousands; unaudited)
Six Months Ended June 30,
--------------------------------------
Type of Service 1994 1995
-------------------- ---------------- ----------------
Treatment and Disposal $ 39,194 39% $ 45,489 45%
Field Services 47,226 47 41,260 40
CleanPacks 14,548 14 15,300 15
-------- --- -------- ---
$100,968 100% $102,049 100%
Treatment and disposal services revenue in the first half of
the year increased 16% from 1994 to 1995, reversing a two year
period of declining revenue in this product line. The decline was
due to a variety of secular trends impacting both price and volume:
competitive industry pricing; continuing efforts by generators of
hazardous waste to reduce the amount of hazardous waste they
produce; and shipment by generators of waste direct to the ultimate
treatment or disposal location.
(9)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company has responded to these industry trends in several
ways, primarily by modernizing the Company's facilities to offer
more technologically advanced waste treatment alternatives, such as
the Clean Extraction System in Baltimore and by acquiring treatment
and disposal facilities that expand the Company's product lines.
For example, during the first quarter of 1995, the Company
completed the installation of an automated fuels blending operation
at its Cincinnati waste treatment plant, which establishes the
Company in the fuels blending business for the first time.
During the second quarter of 1995, the Company completed the
acquisition of the newly constructed hazardous waste incinerator in
Kimball, Nebraska. The incinerator is subject to the final permit
requirements under the federal Resource Conservation and Recovery
Act of 1976, as amended ("RCRA"), and has a RCRA "Part B" license
issued by the Nebraska Department of Environmental Quality
("NDEQ"). Kimball is the only commercial incinerator in the United
States to produce "delisted" ash, meaning the ash will not be
regulated as a hazardous waste under federal and state laws. The
acquisition of this facility responds to a developing trend within
the hazardous waste management industry: generators of industrial
waste prefer to treat hazardous waste, rather than bury it, because
of concerns about the long-term liability associated with landfill
disposal of the residue which results from incineration of the
generator's hazardous waste. Conventional incinerators produce a
"slag" which is regulated as a hazardous waste. The residue from
the Kimball treatment facility, in contrast, is ash rather than
slag. The ash meets the standards set by NDEQ for "delisting" and
is therefore deemed to be non-hazardous.
Since the incinerator is a new facility, many of the
Company's customers will visit the facility for a comprehensive
audit of its operations before they will approve the site for
disposal of their hazardous waste. As a result, considerable time
is needed to complete the audit and approval process before the
Company can begin shipping waste to the facility, and since the
acquisition was completed on May 12, 1995, the incinerator made a
minimal incremental contribution to the Company's revenues during
the first half of 1995.
Another recent major accomplishment during the second quarter
was the receipt of a modified RCRA "Part B" license for the
Company's expanded Chicago waste treatment facility, which brings
together the people, technology, and capacity to satisfy customers'
recycling, waste treatment, and field service needs in one
integrated complex. The Company expects to commence waste
treatment operations at the expanded facility during the third
quarter of 1995.
Field services revenue in the first half of the year
increased 2.6% from 1994 to 1995, excluding the Puerto Rico oil
spill revenue. The Company continued to dominate this segment of
the environmental business in the Northeast, gained market share in
the Central and Midwest regions, and developed new relationships
with customers in the southern and western regions of the United
States.
(10)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CleanPack revenue in the first half of the year increased
5.2% from 1994 to 1995, as a result of increased market share in
existing regions and established new business relationships in the
new regions. In addition, the Kimball incinerator has enabled this
product line to be more competitive in the area of agricultural
pesticide collections and household waste collections where a
majority of the collected waste needs to be incinerated.
At June 30, 1995, the Company had service centers and sales
offices located in 24 states and Puerto Rico, and operated 12 waste
management facilities, as compared to June 30, 1994, when the
Company operated 10 waste management facilities and had service
centers and sales offices located in 22 states and Puerto Rico.
Service Center Revenues By Region
For The Six Quarters Ended June 30, 1995
(in thousands; unaudited)
3/31/94 6/30/94 9/30/94 12/31/94 3/31/95 6/30/95
------- ------- ------- -------- ------- -------
Northeast $17,216 $20,703 $23,012 $21,460 $19,693 $21,449
Mid-Atlantic 21,382* 16,602 15,689 17,188 15,367 16,817
Central 6,413 6,678 8,084 8,672 7,138 9,450
Midwest 6,274 5,700 6,473 5,527 4,952 7,183
------- ------- ------- -------- ------- -------
Total $51,285 $49,683 $53,258 $52,847 $47,150 $54,899
-----------------
* The Mid-Atlantic region includes the Company's service center in
Puerto Rico, and the approximately $7,000,000 of revenue from the
1994 oil spill cleanup.
The Company expects to expand its service capabilities in
Georgia, Kentucky, and Texas during 1995, by adding staff and
equipment to support the increasing level of business in the Gulf
Coast and South. The Company expects to introduce new waste
management capabilities in the Midwest region with the significant
expansion of its Chicago facility, which is expected to be placed
in service during the third quarter. The Company also expects its
revenues in all four regions and all three product lines to benefit
from the acquisition of the Kimball incinerator.
(11)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 Six months ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues:
Disposal costs paid to third parties 15.4 13.0 15.9 12.0
Other costs 56.3 54.2 56.8 56.6
----- ----- ----- -----
Total cost of revenues 71.7 67.2 72.7 68.6
Selling, general and administrative
expenses 19.1 19.4 19.1 19.3
Depreciation and amortization
of intangible assets 4.6 5.2 4.9 5.1
Income from operations 4.6 8.2 3.3 6.9
Other Data:
----------
Earnings Before Interest, Taxes,
Depreciation and Amortization
(in thousands) $5,061 $6,646 $8,349 $12,134
COST OF REVENUES
One of the largest components of cost of revenues is the cost
of sending waste to other companies for disposal. The Company's
outside disposal costs increased to 15.9% of revenue in the first
half of 1995 from 12.0% of revenue in the first half of 1994
(calculated excluding revenue from the Puerto Rico oil spill,
which had no outside disposal costs). The Company believes that
price increases by disposal vendors, primarily incinerators and
cement kilns, indicate that the pricing environment may be
changing as a result of recent consolidation among incineration
companies and decisions by a few cement kilns to stop burning
hazardous waste. This was a factor which supports the Company's
decision to acquire the Kimball incinerator, in order to reduce
the Company's reliance on third-party disposal outlets, and
capture the gross margin being paid to vendors.
(12)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Since the Kimball incinerator is a new facility, and a recent
entrant to the incineration marketplace, volumes are growing
slowly due to the time required for customers to audit and approve
the facility and begin shipping waste to it. As a result, the
incinerator experienced a $573,000 loss from operations during the
second quarter of 1995. The Company expects the volumes of waste
processed to increase during the remainder of 1995 as more customers
approve the incinerator.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During the first half of 1995, the Company established a
sales presence in Alabama, California, Colorado, and Florida.
During the second quarter of 1995, the Company completed the
acquisition of the Kimball hazardous waste incinerator, and spent
considerable sums of money on building a marketing campaign and
traveling with customers who have audited and approved this
state-of-the-art operation. In addition, the Company also
incurred costs in relocating experienced employees to its new
locations.
The Company is also in the process of developing a marketing
campaign for the expanded Chicago waste treatment facility. As a
result of the Company's strategy to expand geographically, by
adding sales offices and service centers in the southern and
western parts of the United States, and to add product lines, such
as the Kimball incinerator, its selling, general and
administrative costs during the remainder of 1995 are expected to
increase from the second quarter level.
INTEREST EXPENSE
Interest expense increased during the second quarter of 1995
as a result of an increase in the Company's average cost of
capital, due to its decision last year to reduce its reliance on
floating rate bank debt through the issuance of $50,000,000 of
12.50% Senior Notes in August of 1994, and an increase in total
long-term debt, due to the costs of the acquisition of the Kimball
incinerator. There was no interest capitalized during the first half of
1995 or 1994.
INCOME TAXES
The effective income tax rate for the three and six months
ended June 30, 1995 was 48% and 50% respectively, as compared to
46% for the comparable periods of 1994. The Company expects its
effective income tax rate for the year 1995 to be approximately
49%. The rate fluctuates depending on the amount of income before
taxes, as compared to the fixed amount of goodwill and other
non-deductible items.
(13)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results may be affected by a
number of factors, including the Company's ability to: implement
the treatment and disposal reengineering program during 1995;
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; integrate additional hazardous waste
management facilities, such as the Kimball incinerator and the
expanded Chicago facility; 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.
As a result of the Company's acquisition of the Kimball
incinerator, its future operating results 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.
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.
(14)
CLEAN HARBORS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 $5,124,000 for the six
months ended June 30, 1995, as compared to $7,442,000 for the six
months ended June 30, 1994.
During the six months ended June 30, 1995, the Company spent
$4,458,000 on additions to plant and equipment and construction in
progress, and $5,549,000 on the acquisition of the Kimball incinerator,
as compared to the same period of the prior year when its capital
expenditures were $1,636,000. In addition, the Company spent $6,805,000
for financial assurance associated with this acquisition. See Note 3 to
the Consolidated Financial Statements in this report for a description of
the costs of the incinerator acquisition.
During the six months ended June 30, 1995, net additions to long-
term debt were $9,622,000, as compared to the same period of the prior
year when net reductions in long-term debt were $7,345,000. The Company
expects to spend approximately $1,725,000 during the second half of 1995
to obtain insurance coverage for closure of the Kimball landfill, and
anticipates that its capital expenditures for the remainder of 1995 will
be approximately $3,000,000, including improvements expected to be made
at the Kimball facility. The Company expects to finance these
requirements through cash flow from operations and funds drawn under its
$45,000,000 revolving credit and term loan agreement (the "Loan
Agreement") described in Note 4 to the Consolidated Financial Statements.
The Loan Agreement terms include a borrowing limit, which
fluctuates depending on the level of accounts receivable which
secure the Loan Agreement. The borrowing availability each month
will depend on the level of business activity and the resulting
amount of accounts receivable, and the usage of letters of credit. At
August 11, 1995, the indebtedness outstanding under the Loan Agreement
was $19,619,665, letters of credit outstanding were $7,594,732, and the
Company had borrowing availability of $8,364,835.
The Company is taking steps to obtain tax-exempt revenue bond
financing through the State of Nebraska to pay for a portion of the costs
of the Kimball incinerator and landfill, including the prepaid closure
insurance premiums, as well as the costs of improvements to the facility.
The Company anticipates that approximately $8,000,000 of the proceeds of
the planned tax-exempt bond issue will be used to reimburse the Company
for costs of the Kimball facility, and applied to repay or refund
existing indebtedness.
The Company continues to investigate the possibility of acquiring
additional hazardous waste treatment, storage and disposal facilities,
which would be financed by a variety of sources. The Company believes it
has adequate resources available to fund its future operations and
anticipated capital expenditures.
(15)
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
--------------------------
No reportable events have occurred which would require
modification of the discussion under Item 3 - Legal Proceedings
contained in the Company's Report on Form 10-K for the Year Ended
December 31, 1994.
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
-----------------------------------------
A) Exhibit 4.2 - Loan and Security Agreement dated May 8, 1995
by and between Congress Financial Corporation (New England) and
the Company's Subsidiaries as Borrowers.
Exhibit 4.3 - Term Promissory Note dated May 8, 1995 from the
Company's Subsidiaries as Debtors to Congress Financial
Corporation (New England) in the amount of $10,000,000.
Exhibit 4.4 - Guarantee dated May 8, 1995 by Clean Harbors,
Inc. to Congress Financial Corporation (New England) of the
obligations of the Company's Subsidiaries under the Financing
Agreements.
Exhibit 4.5 - General Security Agreement dated May 8, 1995 by
Clean Harbors, Inc. in favor of Congress Financial Corporation
(New England).
Exhibit 10.40 - Asset Purchase Agreement among Clean Harbors
Technology Corporation, Clean Harbors Inc. and Ecova Corporation
dated as of March 31, 1995.
Exhibit 11 - Computation of Net Income per Share.
Exhibit 27 - Financial Data Schedule
B) Reports on Form 8-K - None
(16)
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 11, 1995 By: /s/ ALAN S. MCKIM
---------------------------------
Alan S. McKim
President and
Chief Executive Officer
Dated: August 11, 1995 By: /s/ JAMES A. PITTS
-------------------------------
James A. Pitts
Executive Vice President and
Chief Financial Officer
(17)