10-Q 1 d10q.txt FORM 10-Q 03/31/2001 ================================================================================ 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 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) ================================================================================ 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