Washington, D.C. 20549
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
The accompanying notes are an integral part of these unaudited consolidated financial statements.
CLEAN HARBORS, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these unaudited consolidated financial statements.
CLEAN HARBORS, INC. AND SUBSIDIARIES
The accompanying consolidated interim financial statements are unaudited and include the accounts of Clean Harbors, Inc. and its subsidiaries (collectively, “Clean Harbors,” the “Company” or "we") and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in the opinion of management, include all adjustments which are of a normal recurring nature and are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Management has made estimates and assumptions affecting the amounts reported in the Company's consolidated interim financial statements and accompanying footnotes; actual results could differ from those estimates and judgments. The results for interim periods are not necessarily indicative of results for the entire year or any other interim periods. The financial statements presented herein should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.
The Company's significant accounting policies are described in Note 2, "Significant Accounting Policies," and Note 3, "Revenues," in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2019. There have been no material changes in these policies or their application except for the changes described below.
and disposal of waste. Revenue is primarily generated by short-term projects, most of which are governed by master service agreements that are long-term in nature. These master service agreements are typically entered into with the Company's larger customers and outline the pricing and legal frameworks for such arrangements. Services are provided based on purchase orders or agreements with the customer and include prices based upon units of volume of waste and transportation and other fees. Collection and transportation revenues are recognized over time, as the customer receives and consumes the benefits of the services as they are being performed and the Company has a right to payment for performance completed to date. The Company uses the input method to recognize revenue over time, based on time and materials incurred. Revenues for treatment and disposal of waste are recognized upon completion of treatment, final disposition in a landfill or incineration, or when the waste is shipped to a third party for processing and disposal. The Company periodically enters into bundled arrangements for the collection and transportation and disposal of waste. For such arrangements, transportation and disposal are considered distinct performance obligations and the Company allocates revenue to each based on theirthe relative standalone selling price (i.e., the estimated price that a customer would pay for the services on a standalone basis). Revenues from waste that is not yet completely processed and disposed and the related costs are deferred. The revenue is recognizeddeferred revenues and the deferred costs are expensedrecognized when the related services are completed. The period between collection and transportation and the final processing and disposal ranges depending on the location of the customer, but generally is measured in days.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and customer advances and deposits or deferred revenue (contract liabilities) on the consolidated balance sheets.sheet. Generally, billing occurs subsequent to revenue recognition, as a right to payment is not just subject to passage of time, resulting in contract assets. Contract assets are generally classified as current. The Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheetssheet on a contract-by-contract basis at the end of each reporting period. The contract liability balances at the beginning of each period presented were generally fully recognized in the subsequent three-month period.
On March 1, 2019, the Company acquired certain assets of a privately-owned business for $10.4 million.million cash consideration. The acquired business complements the Safety-Kleen segment's core service offerings, such as used motor oil collection, parts washers, oil filter recycling and vacuum services. In connection with this acquisition, a preliminary goodwill amount of $5.2 million was recognized.
________________
(1) September 30, 2019 balanceBalances inclusive of gross right-of-use ("ROU") assets classified as finance leases of $8.0 million and $31.0 million, respectively.
(2) Balances inclusive of gross ROU assets classified as finance leases.
Interest in the amount leases of $0.1$43.8 million and $0.3$2.4 million, respectively.
(3) September 30, 2020 balance inclusive of gross ROU assets classified as finance leases of $9.1 million.
Depreciation expense, inclusive of landfill and finance lease amortization, was capitalized to property, plant$64.9 million and equipment during$193.9 million for the three and nine months ended September 30, 2019, respectively. Interest in the amount of $0.1 million and $0.5 million was capitalized to property, plant and equipment during the three and nine months ended September 30, 2018,2020, respectively. Depreciation expense, inclusive of landfill and finance lease amortization, was $65.3 million and $196.7 million for the three and nine months ended September 30, 2019, respectively. Depreciation expense, inclusive
(7) GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in goodwill by segment for the nine months ended September 30, 20192020 were as follows (in thousands):
|
| | | | | | | | | | | |
| | Environmental Services | | Safety-Kleen | | Totals |
| Balance at January 1, 2019 | $ | 207,019 |
| | $ | 307,170 |
| | $ | 514,189 |
|
| Increase from current period acquisitions | 7,514 |
| | 5,225 |
| | 12,739 |
|
| Measurement period adjustments from prior period acquisitions | (2,675 | ) | | (1,355 | ) | | (4,030 | ) |
| Foreign currency translation | 780 |
| | 903 |
| | 1,683 |
|
| Balance at September 30, 2019 | $ | 212,638 |
| | $ | 311,943 |
| | $ | 524,581 |
|
| | | | | | | | | | | | | | | | | |
| Environmental Services | | Safety-Kleen | | Totals |
| Balance at January 1, 2020 | $ | 212,531 | | | $ | 312,482 | | | $ | 525,013 | |
| Increase from current period acquisition | 0 | | | 1,440 | | | 1,440 | |
| Measurement period adjustments from prior period acquisitions | 23 | | | 0 | | | 23 | |
| Decrease from disposition of businesses | (674) | | | 0 | | | (674) | |
| | | | | |
| Foreign currency translation | (741) | | | (800) | | | (1,541) | |
| Balance at September 30, 2020 | $ | 211,139 | | | $ | 313,122 | | | $ | 524,261 | |
The Company assesses goodwill for impairment on an annual basis as of December 31 or at an interim date when events or changes in the business environment ("triggering events") would more likely than not reduce the fair value of a reporting unit below its carrying value. During the period ended September 30, 2020, the Company considered the effects of COVID-19 and evolving changes in demand and pricing for oil, but concluded that there were no triggering events requiring an impairment assessment. This conclusion was based on a qualitative analysis incorporating (i) the significant excess fair value that previously existed in each reporting unit and (ii) assessing the current and long-term performance of the Company given the expectation that these negative effects on the operations and cash flows of each reporting unit arising from COVID-19 related disruptions will be short-lived.
The Company continues to evaluate the impact of macroeconomic conditions including, but not limited to, the impact of the COVID-19 pandemic on the Company, customers and the greater economy as well as the impact on trends of oil demand. If these macroeconomic conditions are protracted or result in significant changes in demand for our products and services, a goodwill impairment might be identified and the amount might be material.
As of September 30,
20192020 and December 31,
2018,2019, the Company's
total intangible assets consisted of the following (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | Cost | | Accumulated
Amortization | | Net | | Cost | | Accumulated
Amortization | | Net |
| Permits | $ | 182,667 |
| | $ | 84,899 |
| | $ | 97,768 |
| | $ | 177,583 |
| | $ | 79,358 |
| | $ | 98,225 |
|
| Customer and supplier relationships | 400,498 |
| | 200,766 |
| | 199,732 |
| | 393,487 |
| | 179,824 |
| | 213,663 |
|
| Other intangible assets | 37,932 |
| | 32,329 |
| | 5,603 |
| | 37,262 |
| | 29,743 |
| | 7,519 |
|
| Total amortizable permits and other intangible assets | 621,097 |
| | 317,994 |
| | 303,103 |
| | 608,332 |
| | 288,925 |
| | 319,407 |
|
| Trademarks and trade names | 122,760 |
| | — |
| | 122,760 |
| | 122,468 |
| | — |
| | 122,468 |
|
| Total permits and other intangible assets | $ | 743,857 |
| | $ | 317,994 |
| | $ | 425,863 |
| | $ | 730,800 |
| | $ | 288,925 |
| | $ | 441,875 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | | | December 31, 2019 |
| Cost | | Accumulated
Amortization | | Net | | | | Cost | | Accumulated
Amortization | | Net | | |
| Permits | $ | 182,478 | | | $ | 92,725 | | | $ | 89,753 | | | | | $ | 184,235 | | | $ | 87,228 | | | $ | 97,007 | | | |
| Customer and supplier relationships | 388,862 | | | 213,700 | | | 175,162 | | | | | 401,696 | | | 207,884 | | | 193,812 | | | |
| Other intangible assets | 38,153 | | | 33,334 | | | 4,819 | | | | | 38,331 | | | 33,018 | | | 5,313 | | | |
| Total amortizable permits and other intangible assets | 609,493 | | | 339,759 | | | 269,734 | | | | | 624,262 | | | 328,130 | | | 296,132 | | | |
| Trademarks and trade names | 122,667 | | | — | | | 122,667 | | | | | 122,934 | | | — | | | 122,934 | | | |
| Total permits and other intangible assets | $ | 732,160 | | | $ | 339,759 | | | $ | 392,401 | | | | | $ | 747,196 | | | $ | 328,130 | | | $ | 419,066 | | | |
Amortization expense of permits and other intangible assets was $9.6 million and $27.6 million in the three and nine months ended September 30, 2020, respectively. Amortization expense of permits and other intangible assets was $8.4 million and $26.6 million in the three and nine months ended September 30, 2019, respectively. Amortization expense of permits and other intangible assets was $8.1 million and $26.0 million in the three and nine months ended September 30, 2018, respectively.
The expected amortization of the net carrying amount of finite-lived intangible assets at September 30, 20192020 was as follows (in thousands):
| | | Years Ending December 31, | Expected Amortization | Years Ending December 31, | Expected Amortization |
| 2019 (three months) | $ | 8,305 |
| |
| 2020 | 31,942 |
| |
| 2020 (three months) | | 2020 (three months) | $ | 7,841 | |
| 2021 | 28,667 |
| 2021 | 29,997 | |
| 2022 | 28,406 |
| 2022 | 29,742 | |
| 2023 | 24,193 |
| 2023 | 25,482 | |
| 2024 | | 2024 | 23,997 | |
| Thereafter | 181,590 |
| Thereafter | 152,675 | |
| | $ | 303,103 |
| | $ | 269,734 | |
(8) ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
|
| | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| Insurance | $ | 69,641 |
| | $ | 70,217 |
|
| Interest | 10,605 |
| | 3,930 |
|
| Compensation and benefits | 69,369 |
| | 77,881 |
|
| Income, real estate, sales and other taxes | 40,306 |
| | 25,670 |
|
| Other | 63,534 |
| | 55,707 |
|
| | $ | 253,455 |
| | $ | 233,405 |
|
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Accrued insurance | $ | 77,985 | | | $ | 74,376 | |
| Accrued interest | 9,179 | | | 21,222 | |
| Accrued compensation and benefits | 60,784 | | | 72,473 | |
| Accrued income, real estate, sales and other taxes | 54,677 | | | 35,749 | |
| Interest rate swap liability | 36,649 | | | 20,840 | |
| Accrued other | 53,926 | | | 51,880 | |
| $ | 293,200 | | | $ | 276,540 | |
(9) CLOSURE AND POST-CLOSURE LIABILITIES
The changes to closure and post-closure liabilities (also referred to as “asset retirement obligations”) from January 1, 20192020 through September 30, 20192020 were as follows (in thousands): |
| | | | | | | | | | | |
| | Landfill
Retirement
Liability | | Non-Landfill
Retirement
Liability | | Total |
| Balance at January 1, 2019 | $ | 37,809 |
| | $ | 32,122 |
| | $ | 69,931 |
|
| Liabilities assumed in acquisitions | — |
| | 220 |
| | 220 |
|
| New asset retirement obligations | 1,644 |
| | — |
| | 1,644 |
|
| Accretion | 2,113 |
| | 2,100 |
| | 4,213 |
|
| Changes in estimates recorded to statement of operations | — |
| | 142 |
| | 142 |
|
| Changes in estimates recorded to balance sheet | 3,803 |
| | — |
| | 3,803 |
|
| Expenditures | (4,310 | ) | | (1,795 | ) | | (6,105 | ) |
| Currency translation and other | 142 |
| | 169 |
| | 311 |
|
| Balance at September 30, 2019 | $ | 41,201 |
| | $ | 32,958 |
| | $ | 74,159 |
|
All | | | | | | | | | | | | | | | | | |
| Landfill
Retirement
Liability | | Non-Landfill
Retirement
Liability | | Total |
| Balance at January 1, 2020 | $ | 39,401 | | | $ | 36,250 | | | $ | 75,651 | |
| Liabilities assumed in acquisitions | 0 | | | 265 | | | 265 | |
| | | | | |
| New asset retirement obligations | 1,643 | | | 0 | | | 1,643 | |
| | | | | |
| Accretion | 2,373 | | | 2,516 | | | 4,889 | |
| Changes in estimates recorded to statement of operations | 4,503 | | | (14) | | | 4,489 | |
| Changes in estimates recorded to balance sheet | 179 | | | 15 | | | 194 | |
| Expenditures | (2,116) | | | (622) | | | (2,738) | |
| Currency translation and other | (133) | | | (44) | | | (177) | |
| Balance at September 30, 2020 | $ | 45,850 | | | $ | 38,366 | | | $ | 84,216 | |
During the first nine months of 2020, the Company has taken actions to begin the closure of one of its commercial landfill sites resulting in a $4.5 million increase to the related closure and post-closure liability. The remaining 10 landfill facilities included in the above wereremain active as of September 30, 2019.2020. In the nine months ended September 30, 2019,2020, other than this charge, there were no significant charges (benefits) resulting from changes in estimates for closure and post-closure liabilities.
New asset retirement obligations incurred during the first nine months of 20192020 were discounted at the credit-adjusted risk-free rate of 6.02%5.60%.
(10) REMEDIAL LIABILITIES
The changes to remedial liabilities from January 1, 20192020 through September 30, 20192020 were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Remedial Liabilities for Landfill Sites | | Remedial Liabilities for Inactive Sites | | Remedial Liabilities (Including Superfund) for Non-Landfill Operations | | Total |
| Balance at January 1, 2019 | $ | 1,838 |
| | $ | 65,315 |
| | $ | 53,864 |
| | $ | 121,017 |
|
| Accretion | 66 |
| | 2,002 |
| | 1,343 |
| | 3,411 |
|
| Changes in estimates recorded to statement of operations | 23 |
| | (100 | ) | | (650 | ) | | (727 | ) |
| Expenditures | (44 | ) | | (3,658 | ) | | (2,997 | ) | | (6,699 | ) |
| Currency translation and other | — |
| | 18 |
| | 249 |
| | 267 |
|
| Balance at September 30, 2019 | $ | 1,883 |
| | $ | 63,577 |
| | $ | 51,809 |
| | $ | 117,269 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Remedial
Liabilities for
Landfill Sites | | Remedial
Liabilities for
Inactive Sites | | Remedial
Liabilities
(Including
Superfund) for
Non-Landfill
Operations | | Total |
| Balance at January 1, 2020 | $ | 1,851 | | | $ | 61,991 | | | $ | 50,331 | | | $ | 114,173 | |
| | | | | | | |
| | | | | | | |
| Accretion | 67 | | | 1,914 | | | 1,279 | | | 3,260 | |
| Changes in estimates recorded to statement of operations | (14) | | | 3,023 | | | 1,552 | | | 4,561 | |
| Expenditures | (46) | | | (3,278) | | | (2,754) | | | (6,078) | |
| Currency translation and other | 0 | | | (912) | | | 563 | | | (349) | |
| Balance at September 30, 2020 | $ | 1,858 | | | $ | 62,738 | | | $ | 50,971 | | | $ | 115,567 | |
In the nine months ended September 30, 2019,2020, the Company increased its remedial liabilities for an inactive site by $3.3 million and increased its remedial liabilities for a Superfund site by $1.8 million due to changes in the estimates of the related liabilities. These changes in estimates were triggered by the receipts of updated regulatory approval requirements for remediation. Other than these charges, there were no significant charges (benefits) resulting from changes in estimates for remedial liabilities.
(11) FINANCING ARRANGEMENTS
The following table is a summary of the Company’s financing arrangements (in thousands):
|
| | | | | | | |
| Current Obligations: | September 30, 2019 | | December 31, 2018 |
| Secured senior term loans ("Term Loans") | $ | 7,535 |
| | $ | 7,535 |
|
| | | | |
| Long-Term Obligations: | | | |
| Secured senior Term Loans due June 30, 2024 | $ | 729,045 |
| | $ | 734,697 |
|
| Unsecured senior notes, at 4.875%, due July 15, 2027 ("2027 Notes") | 545,000 |
| | — |
|
| Unsecured senior notes, at 5.125%, due July 15, 2029 ("2029 Notes") | 300,000 |
| | — |
|
| Unsecured senior notes, at 5.125%, due June 1, 2021 ("2021 Notes") | — |
| | 845,000 |
|
| Long-term obligations, at par | $ | 1,574,045 |
| | $ | 1,579,697 |
|
| Unamortized debt issuance costs and premium, net | (18,788 | ) | | (14,676 | ) |
| Long-term obligations, at carrying value | $ | 1,555,257 |
| | $ | 1,565,021 |
|
| | | | | | | | | | | |
| Current Obligations: | September 30, 2020 | | December 31, 2019 |
| Secured senior term loans ("Term Loans") | $ | 7,535 | | | $ | 7,535 | |
| | | |
| Long-Term Obligations: | | | |
| Secured senior Term Loans due June 30, 2024 | $ | 721,510 | | | $ | 727,162 | |
| Unsecured senior notes, at 4.875%, due July 15, 2027 ("2027 Notes") | 545,000 | | | 545,000 | |
| Unsecured senior notes, at 5.125%, due July 15, 2029 ("2029 Notes") | 300,000 | | | 300,000 | |
| Long-term obligations, at par | $ | 1,566,510 | | | $ | 1,572,162 | |
| Unamortized debt issuance costs and premium, net | (15,754) | | | (18,046) | |
| Long-term obligations, at carrying value | $ | 1,550,756 | | | $ | 1,554,116 | |
Financing Activities
On July 2, 2019, the Company completed a private placement of $545.0 million aggregate principal amount of 2027 Notes and $300.0 million aggregate principal amount of 2029 Notes (collectively, the "New Notes").
The 2027 Notes will mature on July 15, 2027, and the 2029 Notes will mature on July 15, 2029. Interest payments on each series of the New Notes will be paid semiannually on January 15 and July 15, commencing on January 15, 2020.
The Company also maintains a $400.0 million revolving credit facility under which the Company had 0 outstanding loan balance as of September 30, 2019 and December 31, 2018. At September 30, 2019, approximately $231.1 million was available to borrow and outstanding letters of credit were $147.2 million. At December 31, 2018, $235.4 million was available to borrow and outstanding letters of credit were $130.1 million.
The Company may redeem all or any portion of the 2027 Notes prior to July 15, 2022 or the 2029 Notes prior to July 15, 2024 at a redemption price equal to 100% of the principal amount redeemed plus a make whole premium as of the date of redemption including accrued and unpaid interest, if any, up to the date of redemption. Additionally, prior to July 15, 2022 for the 2027 Notes and July 15, 2024 for the 2029 Notes, the Company may use cash proceeds of one or more equity offerings to redeem up to 35% in aggregate principal of the 2027 Notes or the 2029 Notes at a redemption price equal to 104.875% or 105.125%, respectively, plus accrued and unpaid interest thereon, if any, up to the date of redemption.
After the dates in the preceding paragraph, the Company may redeem all or any portion of the New Notes which remain outstanding at any time upon proper notice at the following redemption prices if redeemed during the twelve-month period commencing on July 15 of the years set forth below plus accrued and unpaid interest, if any, up to the date of redemption:
|
| | | |
| Year | | Percentage |
| 2022 | | 102.438 | % |
| 2023 | | 101.219 | % |
| 2024 and thereafter | | 100.000 | % |
2029 Notes |
| | | |
| Year | | Percentage |
| 2024 | | 102.563 | % |
| 2025 | | 101.281 | % |
| 2026 and thereafter | | 100.000 | % |
The New Notes and the related indenture contain various customary non-financial covenants and are guaranteed by substantially all of the Company’s current and future domestic subsidiaries.
Concurrently with the closing of the New Notes on July 2, 2019, the Company purchased, using a portion of the net proceeds from the sale of the New Notes, an aggregate principal amount of $701.0 million of the 2021 Notes. The total amount paid in purchasing the 2021 Notes was $706.2 million including $3.1 million of accrued interest. On July 17, 2019, the Company redeemed the remaining $144.0 million outstanding 2021 Notes, including $0.9 million of accrued interest, using the remaining net proceeds from the sale of the New Notes and available cash. In connection with this early repurchase and redemption of the 2021 Notes, the Company recorded a loss on early extinguishment of debt of $6.1 million during the three months ended September 30, 2019. With the repurchase and redemption of the 2021 Notes, none of the Company’s outstanding debt is registered under the Securities Act of 1933, as amended.
As of September 30, 20192020 and December 31, 2018,2019, the estimated fair value of the Company’s outstanding long-term obligations, including the current portion, was $1.6 billion. The Company’s estimates of fair value of its long-term obligations, including the current portion, are based on quoted market prices or other available market data which are considered Level 2 measures according to the fair value hierarchy. Level 2 utilizes quoted market prices in markets that are not active, broker or dealer quotation,quotations or alternative pricing sources with reasonable levels of price transparency for similar assets and liabilities.
The Company maintains a $400.0 million revolving credit facility. On March 31, 2020, the Company drew down $150.0 million on the revolving credit facility in response to the uncertainty surrounding the COVID-19 global pandemic. The Company repaid $75.0 million of that borrowing on June 29, 2020, and the remaining $75.0 million on July 28, 2020. As of September 30, 2020, the Company had $249.1 million available to borrow under the revolving credit facility and outstanding letters of credit were $123.5 million. At December 31, 2019, $229.2 million was available to borrow and outstanding letters of credit were $146.9 million.
On October 28, 2020, the Company entered into an amended and restated credit agreement for its revolving credit facility. Under the amended and restated agreement, the terms are substantially the same as under the prior agreement, but the facility termination date has been extended to October 28, 2025, subject to certain conditions.
Cash Flow Hedges
The Company’s strategy to hedge against fluctuations in variable interest rates involves entering into interest rate derivative agreements. Although the interest rate on all $736.6 million aggregate principal amount ofthe Term Loans which were outstanding on September 30, 2019 is variable, under the related Term Loan Agreement, the Company has effectively fixed the interest rate on $350.0 million aggregate principal amount of the Term Loans outstanding by entering into interest rate swap agreements in 2018 with a notional amount of $350.0 million. Under the terms of the interest rate swap agreements, the Company receives interest based on the one-month LIBOR index and pays interest at a weighted average annual interest rate of approximately 2.92%. When combined with the 1.75% interest rate margin for Eurocurrency borrowings, the, resulting in an effective annual interest rate on such $350.0 million aggregate principal amount of Term Loans is therefore approximately 4.67%.
The Company recognizes derivative instruments as either assets or liabilities on the balance sheet at fair value. No ineffectiveness has been identified on these swaps and, therefore, all unrealized changes in fair value are recorded in accumulated other comprehensive loss. Amounts are reclassified from accumulated other comprehensive loss into interest expense on the statement of operations in the same period or periods during which the hedged transaction affects earnings.
As of September 30, 20192020 and December 31, 2018,2019, the Company has recorded a derivativean interest rate swap liability with a fair value of $25.3$36.6 million and $8.8$20.8 million, respectively, within accrued expenses in connection with these cash flow hedges.
The fair value of the interest rate swaps is calculated using discounted cash flow valuation methodologies based upon the one-month LIBOR yield curves that are observable at commonly quoted intervals for the full term of the interest rate swaps and as such is considered a Level 2 measure according to the fair value hierarchyhierarchy.
(12) INCOME TAXES
The Company records a tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. Losses from jurisdictions for which no benefit can be recognized and the income tax effects of unusual or infrequent items are
are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period. The estimated annual effective tax rate may be significantly impacted by projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.
The Company’s effective tax rate for the three and nine months ended September 30, 20192020 was 20.0% and 27.0%, compared to 32.8% and 35.1%, respectively, compared to 26.6% and 36.3% for the comparable periods in 2018.2019.
As of September 30, 20192020 and December 31, 2018,2019, the Company had recorded $4.6$5.2 million and $3.2$6.4 million, respectively, of liabilities for unrecognized tax benefits and $1.2$1.9 million and $0.8$1.7 million, respectively, of interest. The Company released $1.1 million of interest, respectively.uncertain tax positions in the three months ended September 30, 2020.
The Company'sInternal Revenue Service ("IRS") completed its examination of the Company’s tax years 2014-2016 are currently under audit byand the Internal Revenue Service (“IRS”). WhileJoint Committee on Taxation completed its review and took no exception. No material adjustments were made to the examination has recently commenced and ultimate outcomes are unknown,previously filed returns as a result of this process. In the third quarter of 2020, the Company believesreceived a refund of $7.7 million associated with the examination will not result in material adjustments to previously filed returns.
Due to expiring statute of limitation periods, the Company believes that total unrecognizedamended returns for these tax benefits will decrease byyears.
$1.0 million within the next 12 months.
(13) EARNINGS PER SHARE
The following are computations of basic and diluted earnings per share (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Numerator for basic and diluted earnings per share: | | | | | | | |
| Net income | $ | 36,369 |
| | $ | 31,089 |
| | $ | 73,589 |
| | $ | 49,205 |
|
| | | | | | | | |
| Denominator: | | | | | | | |
| Basic shares outstanding | 55,850 |
| | 56,059 |
| | 55,858 |
| | 56,222 |
|
| Dilutive effect of outstanding stock awards | 315 |
| | 232 |
| | 251 |
| | 138 |
|
| Dilutive shares outstanding | 56,165 |
|
| 56,291 |
|
| 56,109 |
| | 56,360 |
|
| | | | | | | | |
| Basic income per share: | $ | 0.65 |
| | $ | 0.55 |
| | $ | 1.32 |
| | $ | 0.88 |
|
| | |
| | |
| | |
| | |
|
| Diluted income per share: | $ | 0.65 |
| | $ | 0.55 |
| | $ | 1.31 |
| | $ | 0.87 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Numerator for basic and diluted earnings per share: | | | | | | | |
| Net income | $ | 54,910 | | | $ | 36,369 | | | $ | 95,505 | | | $ | 73,589 | |
| | | | | | | |
| Denominator: | | | | | | | |
| Basic shares outstanding | 55,592 | | | 55,850 | | | 55,646 | | | 55,858 | |
| Dilutive effect of outstanding stock awards | 146 | | | 315 | | | 186 | | | 251 | |
| Dilutive shares outstanding | 55,738 | | | 56,165 | | | 55,832 | | | 56,109 | |
| | | | | | | |
| Basic earnings per share: | $ | 0.99 | | | $ | 0.65 | | | $ | 1.72 | | | $ | 1.32 | |
| | | | | | | |
| Diluted earnings per share: | $ | 0.99 | | | $ | 0.65 | | | $ | 1.71 | | | $ | 1.31 | |
For the three months ended September 30, 20192020 and September 30, 2018, the dilutive effect of2019, all then outstanding performance awards and restricted stock awards excludeswere included in the calculation of diluted earnings per share except for 235,806 and 147,075, and 304,644, respectively, of performance stock awards for which the performance criteria were not achievedattained at the time and 3,56716,183 and 6,565,3,567, respectively, of restricted stock awards which were antidilutive.excluded as their inclusion would have an antidilutive effect.
For the nine months ended September 30, 20192020 and September 30, 2018, the dilutive effect of2019, all then outstanding performance awards and restricted stock awards excludeswere included in the calculation of diluted earnings per share except for 235,806 and 147,075, and 304,644, respectively, of performance stock awards for which the performance criteria were not achievedattained at the time and 14,22314,516 and 91,743,14,223, respectively, of restricted stock awards which were antidilutive.excluded as their inclusion would have an antidilutive effect.
(14) ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in accumulated other comprehensive loss by component and related tax effectsimpacts for the nine months ended September 30, 20192020 were as follows (in thousands): |
| | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation | | Unrealized (Losses) Gains on Available-For-Sale Securities | | Unrealized Losses on Interest Rate Hedge | | Unfunded Pension Liability | | Total |
| Balance at January 1, 2019 | $ | (212,925 | ) | | $ | (69 | ) | | $ | (8,773 | ) | | $ | (1,604 | ) | | $ | (223,371 | ) |
| Other comprehensive income (loss) before tax effects | 15,960 |
| | (24 | ) | | (17,896 | ) | | — |
| | (1,960 | ) |
| Tax impact related to items in other comprehensive income (loss) | — |
| | (60 | ) | | — |
| | — |
| | (60 | ) |
| Amounts reclassified out of accumulated other comprehensive loss | — |
| | 332 |
| | 1,369 |
| | — |
| | 1,701 |
|
| Other comprehensive income (loss) | 15,960 |
| | 248 |
| | (16,527 | ) | | — |
| | (319 | ) |
| Balance at September 30, 2019 | $ | (196,965 | ) | | $ | 179 |
| | $ | (25,300 | ) | | $ | (1,604 | ) | | $ | (223,690 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | | Unrealized Gains (Losses) on Available-For-Sale Securities | | Unrealized Loss on Interest Rate Hedge | | Unfunded Pension Liability | | Total |
| Balance at January 1, 2020 | $ | (187,795) | | | $ | 143 | | | $ | (20,839) | | | $ | (1,560) | | | $ | (210,051) | |
| Other comprehensive (loss) income before reclassifications and tax impacts | (15,044) | | | 141 | | | (21,505) | | | 0 | | | (36,408) | |
| Amounts reclassified out of accumulated other comprehensive loss | 0 | | | 0 | | | 5,696 | | | 0 | | | 5,696 | |
| Tax gain (loss) | 1,349 | | | (30) | | | 0 | | | 0 | | | 1,319 | |
| Other comprehensive (loss) income, net of tax | (13,695) | | | 111 | | | (15,809) | | | 0 | | | (29,393) | |
| Balance at September 30, 2020 | $ | (201,490) | | | $ | 254 | | | $ | (36,648) | | | $ | (1,560) | | | $ | (239,444) | |
The amountsamount reclassified out of accumulated other comprehensive loss into the consolidated statement of operations, with presentation location, during the three and nine months ended September 30, 2019 were2020 was as follows (in thousands):
|
| | | | | | | | | | | |
| | Other Comprehensive Income (Loss) Components | | For the Three Months Ended September 30, 2019 | | For the Nine Months Ended September 30, 2019 | | Location |
| |
| | Unrealized loss on interest rate hedge | | $ | (614 | ) | | $ | (1,369 | ) | | Interest expense, net of interest income |
| | Unrealized loss on available-for-sale securities | | — |
| | (332 | ) | | Other (expense) income, net |
| | | | | | | | | | | | | | | | | | | | |
| Other Comprehensive Income (Loss) Components | | For the Three Months Ended September 30, 2020 | | For the Nine Months Ended September 30, 2020 | | Location |
|
| Unrealized loss on interest rate hedge | | $ | (2,468) | | | $ | (5,696) | | | Interest expense, net of interest income |
| | | | | | |
There were 0 reclassifications out
(15) STOCK-BASED COMPENSATION
On June 3, 2020, our shareholders approved the Clean Harbor's Inc. 2020 Stock Incentive Plan (the "2020 Plan"), which became effective on that date. The 2020 Plan provides for future awards of accumulatedup to 2.5 million shares of the Company’s common stock (subject to certain anti-dilution adjustments) in the form of stock options, stock appreciation rights, restricted stock, restricted stock units and other comprehensive loss duringstock-based awards. The 2020 Plan is administered by the Compensation Committee of the Company’s Board of Directors. The Company's previous stock incentive plan (the "2010 Plan") expired on May 10, 2020. In connection with the adoption of the 2020 Plan, no further awards will be made under the 2010 Plan.
Total stock-based compensation cost charged to selling, general and administrative expenses for the three and nine months ended September 30, 2018.
(15) STOCK-BASED COMPENSATION
2020was $6.7 million and $12.7 million, respectively. Total stock-based compensation cost charged to selling, general and administrative expenses for the three and nine months ended September 30, 2019 was $5.0 million and $14.7 million, respectively. TotalThe total income tax benefit recognized in the consolidated statements of operations from stock-based compensation cost charged to selling, general and administrative expensesexpense for the three and nine months ended September 30, 20182020 was $4.1$1.7 million and $10.7$2.9 million, respectively. The total income tax benefit recognized in the consolidated statements of operations from stock-based compensation expense was $1.0 million and $2.8 million for the three and nine months ended September 30, 2019 respectively. The total income tax benefit recognized in the consolidated statements of operations from stock-based compensation was $0.8$1.0 million and $2.0$2.8 million, for the three and nine months ended September 30, 2018, respectively.
Restricted Stock Awards
The following information relates to restricted stock awards that have been granted to employees and directors under the Company's equity incentive plan adopted in 2010 (the "2010 Plan"). The restricted stock awards are not transferable until vested and the restrictions generally lapse upon the achievement of continued employment over a three-to-five-year period or service as a director until the following annual meeting of shareholders. The fair value of each restricted stock grant is based on the closing price of the Company's common stock on the date of grant and is amortized to expense over its vesting period.
The following table summarizes information about restricted stock awards for the nine months ended September 30, 2019: |
| | | | | | |
| Restricted Stock | Number of Shares | | Weighted Average Grant-Date Fair Value |
| Balance at January 1, 2019 | 657,240 |
| | $ | 54.65 |
|
| Granted | 168,261 |
| | 68.39 |
|
| Vested | (230,214 | ) | | 53.97 |
|
| Forfeited | (53,458 | ) | | 55.27 |
|
| Balance at September 30, 2019 | 541,829 |
| | 59.14 |
|
| | | | | | | | | | | |
| Restricted Stock | Number of Shares | | Weighted Average
Grant-Date
Fair Value |
| Balance at January 1, 2020 | 522,597 | | | $ | 59.57 | |
| Granted | 205,548 | | | 58.54 | |
| Vested | (199,476) | | | 57.59 | |
| Forfeited | (38,515) | | | 58.81 | |
| Balance at September 30, 2020 | 490,154 | | | 60.01 | |
As of September 30, 2019,2020, there was $24.0$22.0 million of total unrecognized compensation cost arising from restricted stock awards under the Company's 2010 Plan.awards. This cost is expected to be recognized over a weighted average period of 2.75 years.2.8 years. The total fair value of restricted stock vested during the three and nine months ended September 30, 2020 was $3.1 million and $12.8 million, respectively. The total fair
value of restricted stock vested during the three and nine months ended September 30, 2019 was $4.2 million and $15.3 million, respectively. The total fair value of restricted stock vested during the three and nine months ended September 30, 2018 was $1.1 million and $9.4 million, respectively.
Performance Stock Awards
The following information relates to performance stock awards that have been granted to employees under the Company's 2010 Plan. Performance stock awards are subject to performance criteria established by the compensation committeeCompensation Committee of the Company's boardBoard of directorsDirectors prior to or at the date of grant. The vesting of the performance stock awards is based on achieving such targets typically based on revenue, Adjusted EBITDA margin, Adjusted Free Cash Flow and Total Recordable Incident Rate. In addition, performance stock awards include continued service conditions. The fair value of each performance stock award is based on the closing price of the Company's common stock on the date of grant and is amortized to expense over the service period if achievement of performance measures is considered probable.
The following table summarizes information about performance stock awards for the nine months ended September 30, 2019:2020:
| | | | | | | | | | | |
| Performance Stock | Number of Shares | | Weighted Average
Grant-Date
Fair Value |
| Balance at January 1, 2020 | 204,553 | | | $ | 64.78 | |
| Granted | 161,610 | | | 58.30 | |
| Vested | (23,222) | | | 55.75 | |
| Forfeited | (16,330) | | | 64.59 | |
| Balance at September 30, 2020 | 326,611 | | | 62.22 | |
|
| | | | | | |
| Performance Stock | Number of Shares | | Weighted Average Grant-Date Fair Value |
| Balance at January 1, 2019 | 213,490 |
| | $ | 55.71 |
|
| Granted | 121,075 |
| | 70.53 |
|
| Vested | (51,996 | ) | | 55.77 |
|
| Forfeited | (27,308 | ) | | 56.53 |
|
| Balance at September 30, 2019 | 255,261 |
| | 62.64 |
|
As of September 30, 2019,2020, there was $4.5$5.7 million of total unrecognized compensation cost arising from unvested performance stock awards deemed probable of vesting under the Company's 2010 Plan.vesting. NaN performance awards vested during the three months ended September 30, 20192020 and September 30, 2018.2019. The total fair value of performance awards vested during the nine months ended September 30, 20192020 and September 30, 20182019 was $1.3 million and $2.9 million, and $0.5 million, respectively.
Common Stock Repurchases
The Company's board of directors has authorized the repurchase of up to $600.0 million of the Company's common stock. During the three and nine months ended September 30, 2019, the Company repurchased and retired a total of approximately 0.1 million and 0.2 million shares, respectively, of the Company's common stock for total costs of approximately $5.1 million and $16.4 million, respectively. During the three and nine months ended September 30, 2018, the Company repurchased and retired a total of approximately 0.1 million and 0.6 million shares, respectively, of the Company's common stock for total costs of approximately $7.1 million and $33.6 million, respectively. Through September 30, 2019, the Company has repurchased and retired a total of approximately 5.8 million shares of its common stock for approximately $310.3 million under this program. As of September 30, 2019, an additional $289.7 million remained available for repurchase of shares under this program.
(16) COMMITMENTS AND CONTINGENCIES
Legal and Administrative Proceedings
The Company and its subsidiaries are subject to legal proceedings and claims arising in the ordinary course of business. Actions filed against the Company arise from commercial and employment-related claims including alleged class actions related to sales practices and wage and hour claims. The plaintiffs in these actions may be seeking damages or injunctive relief or both. These actions are in various jurisdictions and stages of proceedings, and some are covered in part by insurance. In addition, the Company’s waste management services operations are regulated by federal, state, provincial and local laws enacted to regulate discharge of materials into the environment, remediation of contaminated soil and groundwater or otherwise protect the environment. This ongoing regulation results in the Company frequently becoming a party to legal or administrative proceedings involving all levels of governmental authorities and other interested parties. The issues involved in such proceedings generally relate to alleged violations of existing permits and licenses or alleged responsibility under federal or state Superfund laws to remediate contamination at properties owned either by the Company or by other parties (“third-party sites”) to which either the Company or the prior owners of certain of the Company’s facilities shipped wastes.
waste.
At September 30, 20192020 and December 31, 2018,2019, the Company had recorded reserves of $24.0$29.9 million and $25.4$26.0 million, respectively, in the Company's financial statements for actual or probable liabilities related to the legal and administrative proceedings in which the Company was then involved, the principal of which are described below. At September 30, 2019 and December 31, 2018, the Company also believed thatIn management's opinion, it wasis not reasonably possible that the amountpotential liability beyond what has been recorded, if any, that may result from these actions, either individually or collectively, will have a material effect on our financial position, results of these potential liabilities could be as much as $1.8 million more.operations or cash flows. The Company periodically adjusts the aggregate amount of these reserves when actual or probable liabilities are paid or otherwise discharged, new claims arise or additional relevant information about existing or probable claims becomes available. As of September 30, 20192020 and December 31, 2018,2019, the $24.0$29.9 million and $25.4$26.0 million, respectively, of reserves consisted of (i) $18.1$24.1 million and $17.9$18.4 million, respectively, related to pending legal or administrative proceedings, including Superfund liabilities, which were included in remedial liabilities on the consolidated balance sheets, and (ii) $5.9$5.8 million and $7.5$7.6 million, respectively, primarily related to federal, state and provincial enforcement actions, which were included in accrued expenses on the consolidated balance sheets.
Legal and Administrative Proceedings
As of September 30, 2019,2020, the principal legal and administrative proceedings in which the Company was involved, or which had been terminated during 2019,2020, were as follows:
Ville Mercier. In September 2002, the Company acquired the stock of a subsidiary (the "Mercier Subsidiary") which owns a hazardous waste incinerator in Ville Mercier, Quebec (the "Mercier Facility"). The property adjacent to the Mercier Facility, which is also owned by the Mercier Subsidiary, is now contaminated as a result of actions dating back to 1968, when the Government of Quebec issued 2 permits to dump organic liquids into lagoons on the property to a company unrelated to the Mercier Subsidiary. In 1999, Ville Mercier and 3 neighboring municipalities filed separate legal proceedings against the Mercier Subsidiary and the Government of Quebec. In 2012, the municipalities amended their existing statement of claim to seek $2.9 million (CAD) in general damages and $10.0 million (CAD) in punitive damages, plus interest and costs, as well as injunctive relief. Both the Government of Quebec and the Company have filed summary judgment motions against the municipalities. The parties are attempting to negotiate a resolution and hearings on the motions have been delayed. In September 2007, the Quebec Minister of Sustainable Development, Environment and Parks issued a notice pursuant to Section 115.1 of the Environment Quality Act, superseding notices issued in 1992, which are the subject of the pending litigation. The more recent notice notifies the Mercier Subsidiary that, if the Mercier Subsidiary does not take certain remedial measures at the site, the Minister intends to undertake those measures at the site and claim direct and indirect costs related to such measures. The Company has accrued for costs expected to be incurred relative to the resolution of this matter and believes this matter will not have future material effect on its financial position, results of operations or cash flows.
Safety-Kleen Legal Proceedings. On December 28, 2012, the Company acquired Safety-Kleen, Inc. ("Safety-Kleen") and thereby became subject to the legal proceedings in which Safety-Kleen was a party on that date. In addition to certain Superfund proceedings in which Safety-Kleen has been named as a potentially responsible party as described below under “Superfund Proceedings,” the principal such legal proceedings involving Safety-Kleen which were outstanding as of September 30, 20192020 were as follows:
Product Liability Cases. Safety-Kleen has been named as a defendant in various lawsuits that are currently pending in various courts and jurisdictions throughout the United States, including approximately 5969 proceedings (excluding cases which have been settled but not formally dismissed) as of September 30, 2019,2020, wherein persons claim personal injury resulting from the use of Safety-Kleen's parts cleaningwasher equipment or cleaning products. These proceedings typically involve allegations that the solvent used in Safety-Kleen's parts cleaningwasher equipment contains contaminants and/or that Safety-Kleen's recycling process does not effectively remove the contaminants that become entrained in the solvent during their use. In addition, certain claimants assert that Safety-Kleen failed to adequately warn the product user of potential risks, including a historic failure to warn that solvent contains trace amounts of toxic or hazardous substances such as benzene.
Safety-KleenThe Company maintains insurance that it believes will provide coverage for these product liability claims (over amounts accrued for self-insured retentions and deductibles in certain limited cases), except for punitive damages to the extent not insurable under state law or excluded from insurance coverage. Safety-KleenThe Company also believes that these claims lack merit and has historically vigorously defended, and intends to continue to vigorously defend, itself and the safety of its products against all these claims. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Consequently, Safety-Kleenthe Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of September 30, 2019.2020. From January 1, 20192020 to September 30, 2019, 212020, 10 product liability claims were settled or dismissed. Due to the nature of these claims and the related insurance, the Company did not incur any expense as Safety-Kleen's insurance provided coverage in full for all such claims. Safety-Kleen may be named in similar, additional lawsuits in the future, including claims for which insurance coverage may not be available.
Superfund Proceedings
The Company has been notified that either the Company (which, since December 28, 2012, includes Safety-Kleen) or the prior owners of certain of the Company's facilities for which the Company may have certain indemnification obligations have been identified as potentially responsible parties ("PRPs") or potential PRPs in connection with 129130 sites which are subject to or are proposed to become subject to proceedings under federal or state Superfund laws. Of the 129130 sites, 5 (including the BR Facility described below) involve facilities that are now owned or leased by the Company and 124125 involve third-party sites to which either the Company or the prior owners of certain of the Company’s facilities shipped wastes. Of the 124125 third-party sites, 31 are now settled, 1615 are currently requiring expenditures on remediation and 7779 are not currently requiring expenditures on remediation.
In connection with each site, the Company has estimated the extent, if any, to which it may be subject, either directly or as a result of any indemnification obligations, for cleanup and remediation costs, related legal and consulting costs associated with PRP
investigations, settlements and related legal and administrative proceedings. The amount of such actual and potential liability is inherently difficult to estimate because of, among other relevant factors, uncertainties as to the legal liability, if any, of the Company or the prior owners of certain of the Company's facilities to contribute a portion of the cleanup costs, the assumptions that must be made in calculating the estimated cost and timing of remediation, the identification of other PRPs and their respective capability and obligation to contribute to remediation efforts and the existence and legal standing of indemnification agreements, if any, with prior owners, which may either benefit the Company or subject the Company to potential indemnification obligations. The Company believes its potential liability could exceed $100,000 at 109 of the 124125 third-party sites.
BR Facility. The Company acquired in 2002 a former hazardous waste incinerator and landfill in Baton Rouge (the "BR Facility"), for which operations had been previously discontinued by the prior owner. In September 2007, the U.S. Environmental Protection Agency ("EPA")" issued a special notice letter to the Company related to the Devil's Swamp Lake Site ("Devil's Swamp") in East Baton Rouge Parish, Louisiana. Devil's Swamp includes a lake located downstream of an outfall ditch where wastewater and storm water have been discharged, and Devil's Swamp is proposed to be included on the National Priorities List due to the presence of Contaminants of Concern ("COC") cited by the EPA. These COCs include substances of the kind found in wastewater and storm water discharged from the BR Facility in past operations. The EPA originally requested COC generators to submit a good faith offer to conduct a remedial investigation feasibility study directed towards the eventual remediation of the site. In 2018, the Company completed performing corrective actions at the BR Facility under an order issued by the Louisiana Department of Environmental Quality and has also completed conducting the remedial investigation and feasibility study for Devil's Swamp under anthe order issued by the EPA. The Company cannot presently estimateEPA at which point the potential additional liability for the Devil's Swamp cleanup until a final remedy is selected byfeasibility study, with several remedial alternatives, was submitted to the EPA with issuance offor review. During the quarter ended September 30, 2020, the EPA signed a Record of Decision.Decision which defines the remediation alternative selected and approved by the EPA. Based upon this Record of Decision, the Company increased the estimated remedial liability for this inactive site by $3.3 million. As of September 30, 2020, the Company has recorded the best estimate of the costs to execute upon this remediation alternative. Changes in the natural landscape and/or new information identified during the remediation could impact this estimate, however are not expected to have a future material effect on the Company's financial position, liquidity or results of operation.
Third-Party Sites. Of the 124125 third-party sites at which the Company has been notified it is a PRP or potential PRP or may have indemnification obligations, Clean Harbors has an indemnification agreement at 11 of these sites with ChemWaste, a former subsidiary of Waste Management, Inc., and at 6 additional of these third-party sites, Safety-Kleen has a similar indemnification agreement with McKesson Corporation. These agreements indemnify the Company (which now includes Safety-Kleen) with respect to any liability at the 17 sites for waste disposed prior to the Company's (or Safety-Kleen's) acquisition of the former subsidiaries of Waste Management and McKesson which had shipped wastes to those sites. Accordingly, Waste Management or McKesson are paying all costs of defending those subsidiaries in those 17 cases, including legal fees and settlement costs. However, there can be no guarantee that the Company's ultimate liabilities for those sites will not exceed the amount recorded or that indemnities applicable to any of these sites will be available to pay all or a portion of related costs. Except for the indemnification agreements which the Company holds from ChemWaste, McKesson and two other entities, the Company does not have an indemnity agreement with respect to any of the 124125 third-party sites discussed above.
Federal, State and Provincial Enforcement Actions
From time to time, the Company pays fines or penalties in regulatory proceedings relating primarily to waste treatment, storage or disposal facilities. As of September 30, 20192020 and December 31, 2018,2019, there were 1011 and 12 proceedings, respectively, for which the Company reasonably believes that the sanctions could equal or exceed $100,000. The Company believes that the fines or other penalties in these or any of the other regulatory proceedings will, individually or in the aggregate, not have a material effect on its financial condition, results of operations or cash flows.
Self-Insurance Liabilities (17) LEASES
AsUnder the Company's insurance programs, coverage is obtained for catastrophic exposures, as well as those risks required to be insured by law or contract. The Company's policy is to retain a significant portion of September 30, 2019,certain expected losses related to employee medical, workers' compensation, comprehensive general liability and vehicle liability. A portion of these self-insured liabilities are managed through its wholly-owned captive insurance subsidiary. Provisions for losses expected under these programs are recorded based upon the Company’s leases were all operating leases exceptCompany's estimates of the aggregate liability for 2 leases associated withclaims. We maintain umbrella insurance to limit our exposure to certain catastrophic claim costs, including general liability and vehicle claim costs. For the Company’s corporate headquarters, which were amended during 2019, resultingpolicy year starting in the classification as finance leases.fourth quarter of 2020, the Company changed the umbrella policy terms to include a $5.0 million annual aggregate self-insured corridor retention.
The Company’s lease expense was as follows (in thousands):
|
| | | | | | | |
| | For the Three Months Ended September 30, 2019 | | For the Nine Months Ended September 30, 2019 |
| Operating lease cost | $ | 14,056 |
| | $ | 41,406 |
|
| Finance lease cost: | | | |
| Amortization of ROU asset | 245 |
| | 735 |
|
| Interest on lease liability | 367 |
| | 979 |
|
| Total finance lease cost | 612 |
|
| 1,714 |
|
| Short-term lease cost | 22,258 |
| | 60,295 |
|
| Variable lease cost | 2,139 |
| | 6,372 |
|
| Total lease cost | $ | 39,065 |
|
| $ | 109,787 |
|
Other information related to leases was as follows (in thousands, except lease term and discount rate):
|
| | | |
| Supplemental Lease Balance Sheet Information: | September 30, 2019 |
| ROU assets: | |
| Operating leases | $ | 164,302 |
|
| Finance leases (included in property, plant and equipment, net) | 30,276 |
|
| Current portion of lease liabilities: | |
| Operating leases | 41,364 |
|
| Finance leases (included in accrued expenses) | 440 |
|
| Long-term portion of lease liabilities: | |
| Operating leases | 122,668 |
|
| Finance leases (included in deferred taxes, unrecognized tax benefits and other long-term liabilities) | 32,228 |
|
|
| | |
Weighted Average Remaining Lease Term (years) | September 30, 2019 |
Operating leases | 5.1 |
|
Finance leases | 22.8 |
|
Weighted Average Discount Rate | |
Operating leases | 5.33 | % |
Finance leases | 4.99 | % |
19
At September 30, 2019, the Company's future lease payments under non-cancelable leases that have lease terms in excess of one year were as follows (in thousands):
|
| | | | | | | |
| Years Ending December 31, | Operating Leases | | Finance Leases |
| 2019 (three months) | $ | 13,856 |
| | $ | 535 |
|
| 2020 | 48,577 |
| | 2,194 |
|
| 2021 | 36,506 |
| | 2,244 |
|
| 2022 | 28,814 |
| | 2,297 |
|
| 2023 | 20,793 |
| | 2,356 |
|
| 2024 | 13,930 |
| | 2,411 |
|
| Thereafter | 27,697 |
| | 51,151 |
|
| Total future lease payments | 190,173 |
|
| 63,188 |
|
| Amount representing interest | (26,141 | ) | | (30,520 | ) |
| Total lease liabilities | $ | 164,032 |
|
| $ | 32,668 |
|
At September 30, 2019, none of the Company's executed leases that had not yet commenced will create significant rights or obligations in the future and its sublease transactions are not material. Additionally, the Company does not have any related party leases and there were no restrictions or covenants imposed by its leases.
Disclosures related to periods prior to adoption of Topic 842
The following is a summary of future minimum payments under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2018 (in thousands):
|
| | | |
| Year | Total Operating Leases |
| 2019 | $ | 56,480 |
|
| 2020 | 45,467 |
|
| 2021 | 33,564 |
|
| 2022 | 24,509 |
|
| 2023 | 15,253 |
|
| Thereafter | 35,778 |
|
| Total minimum lease payments | $ | 211,051 |
|
During the years ended December 31, 2018, 2017 and 2016, rent expense including short-term rentals was approximately $141.1 million, $125.4 million and $121.9 million, respectively.
(18)(17) SEGMENT REPORTING
Segment reporting is prepared on the same basis that the Company's chief executive officer, who is the Company's chief operating decision maker, manages the business, makes operating decisions and assesses performance. The Company's operations areCompany is managed inand reports as 2 operating segments:segments; (i) the Environmental Services segment and Safety-Kleen.(ii) the Safety-Kleen segment.
Third-party revenue is revenue billed to outside customers by a particular segment. Direct revenuerevenues is revenue allocated to the segment providing the product or service. Intersegment revenues represent the sharing of third-party revenues among the segments based on products and services provided by each segment as if the products and services were sold directly to the third-party. The intersegment revenues are shown net. The operations not managed through the Company’s operating segments described above are recorded as “Corporate Items.”
The following table reconciles third-party revenues to direct revenues for the three and nine months ended September 30, 20192020 and September 30, 20182019 (in thousands): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, 2019 | | For the Three Months Ended September 30, 2018 |
| | Third-party revenues | | Intersegment revenues, net | | Corporate Items, net | | Direct revenues | | Third-party revenues | | Intersegment revenues, net | | Corporate Items, net | | Direct revenues |
| Environmental Services | $ | 550,122 |
| | $ | 35,274 |
| | $ | 1,476 |
| | $ | 586,872 |
| | $ | 508,813 |
| | $ | 33,022 |
| | $ | 1,145 |
| | $ | 542,980 |
|
| Safety-Kleen | 341,417 |
| | (35,274 | ) | | 2 |
| | 306,145 |
| | 333,901 |
| | (33,022 | ) | | 6 |
| | 300,885 |
|
| Corporate Items | 129 |
| | — |
| | (1,478 | ) | | (1,349 | ) | | 467 |
| | — |
| | (1,151 | ) | | (684 | ) |
| Total | $ | 891,668 |
| | $ | — |
| | $ | — |
| | $ | 891,668 |
| | $ | 843,181 |
| | $ | — |
| | $ | — |
| | $ | 843,181 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2020 | | For the Three Months Ended September 30, 2019 |
| Third-party revenues | | Intersegment revenues, net | | Corporate Items, net | | Direct revenues | | Third-party revenues | | Intersegment revenues, net | | Corporate Items, net | | Direct revenues |
| Environmental Services | $ | 498,183 | | | $ | 29,448 | | | $ | 339 | | | $ | 527,970 | | | $ | 550,122 | | | $ | 35,274 | | | $ | 1,476 | | | $ | 586,872 | |
| Safety-Kleen | 281,089 | | | (29,448) | | | (1) | | | 251,640 | | | 341,417 | | | (35,274) | | | 2 | | | 306,145 | |
| Corporate Items | 72 | | | — | | | (338) | | | (266) | | | 129 | | | — | | | (1,478) | | | (1,349) | |
| Total | $ | 779,344 | | | $ | — | | | $ | — | | | $ | 779,344 | | | $ | 891,668 | | | $ | — | | | $ | — | | | $ | 891,668 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2019 | | For the Nine Months Ended September 30, 2018 |
| | Third-party revenues | | Intersegment revenues, net | | Corporate Items, net | | Direct revenues | | Third-party revenues | | Intersegment revenues, net | | Corporate Items, net | | Direct revenues |
| Environmental Services | $ | 1,550,114 |
| | $ | 105,555 |
| | $ | 3,301 |
| | $ | 1,658,970 |
| | $ | 1,468,417 |
| | $ | 99,278 |
| | $ | 2,546 |
| | $ | 1,570,241 |
|
| Safety-Kleen | 990,146 |
| | (105,555 | ) | | 15 |
| | 884,606 |
| | 972,534 |
| | (99,278 | ) | | 28 |
| | 873,284 |
|
| Corporate Items | 925 |
| | — |
| | (3,316 | ) | | (2,391 | ) | | 1,148 |
| | — |
| | (2,574 | ) | | (1,426 | ) |
| Total | $ | 2,541,185 |
| | $ | — |
| | $ | — |
| | $ | 2,541,185 |
| | $ | 2,442,099 |
| | $ | — |
| | $ | — |
| | $ | 2,442,099 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, 2020 | | For the Nine Months Ended September 30, 2019 |
| Third-party revenues | | Intersegment revenues, net | | Corporate Items, net | | Direct revenues | | Third-party revenues | | Intersegment revenues, net | | Corporate Items, net | | Direct revenues |
| Environmental Services | $ | 1,490,641 | | | $ | 97,782 | | | $ | 2,823 | | | $ | 1,591,246 | | | $ | 1,550,114 | | | $ | 105,555 | | | $ | 3,301 | | | $ | 1,658,970 | |
| Safety-Kleen | 857,048 | | | (97,782) | | | 142 | | | 759,408 | | | 990,146 | | | (105,555) | | | 15 | | | 884,606 | |
| Corporate Items | 218 | | | — | | | (2,965) | | | (2,747) | | | 925 | | | — | | | (3,316) | | | (2,391) | |
| Total | $ | 2,347,907 | | | $ | — | | | $ | — | | | $ | 2,347,907 | | | $ | 2,541,185 | | | $ | — | | | $ | — | | | $ | 2,541,185 | |
The primary financial measure by which the Company evaluates the performance of its segments is "Adjusted EBITDA," which consists of net income plus accretion of environmental liabilities, depreciation and amortization, net interest expense, netloss on early extinguishment of interest income,debt, provision for income taxes and other gains, losses or non-cash charges not deemed representative of fundamental segment results and excludes other expense (income), net. Transactions between the segments are accounted for at the Company’s best estimate based on similar transactions with outside customers.
The following table presents Adjusted EBITDA information used by management by reported segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| September 30, | | September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Adjusted EBITDA: | | | | | | | |
| Environmental Services | $ | 140,854 | | | $ | 121,658 | | | $ | 387,851 | | | $ | 329,036 | |
| Safety-Kleen | 68,761 | | | 81,326 | | | 176,498 | | | 215,578 | |
| Corporate Items | (48,444) | | | (46,371) | | | (145,108) | | | (136,513) | |
| Total | 161,171 | | | 156,613 | | | 419,241 | | | 408,101 | |
| Reconciliation to Consolidated Statements of Operations: | | | | | | | |
| Accretion of environmental liabilities | 2,822 | | | 2,490 | | | 8,149 | | | 7,624 | |
| Depreciation and amortization | 74,470 | | | 73,756 | | | 221,497 | | | 223,328 | |
| | | | | | | |
| Income from operations | 83,879 | | | 80,367 | | | 189,595 | | | 177,149 | |
| Other (income) expense, net | (2,268) | | | 427 | | | 597 | | | (1,992) | |
| Loss on early extinguishment of debt | 0 | | | 6,119 | | | 0 | | | 6,119 | |
| Loss on sale of businesses | 118 | | | 0 | | | 3,376 | | | 0 | |
| Interest expense, net of interest income | 17,407 | | | 19,702 | | | 54,848 | | | 59,681 | |
| Income before provision for income taxes | $ | 68,622 | | | $ | 54,119 | | | $ | 130,774 | | | $ | 113,341 | |
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Adjusted EBITDA: | |
| | |
| | | | |
| Environmental Services | $ | 121,658 |
| | $ | 102,419 |
| | $ | 329,036 |
| | $ | 273,035 |
|
| Safety-Kleen | 81,326 |
| | 79,502 |
| | 215,578 |
| | 214,455 |
|
| Corporate Items | (46,371 | ) | | (40,644 | ) | | (136,513 | ) | | (118,387 | ) |
| Total | 156,613 |
| | 141,277 |
| | 408,101 |
|
| 369,103 |
|
| Reconciliation to Consolidated Statements of Operations: | |
| | |
| | | | |
| Accretion of environmental liabilities | 2,490 |
| | 2,450 |
| | 7,624 |
| | 7,328 |
|
| Depreciation and amortization | 73,756 |
| | 73,082 |
| | 223,328 |
| | 220,686 |
|
| Income from operations | 80,367 |
| | 65,745 |
| | 177,149 |
|
| 141,089 |
|
| Other expense (income), net | 427 |
| | 996 |
| | (1,992 | ) | | 449 |
|
| Loss on early extinguishment of debt | 6,119 |
| | 2,469 |
| | 6,119 |
| | 2,469 |
|
| Interest expense, net of interest income | 19,702 |
| | 19,916 |
| | 59,681 |
| | 60,955 |
|
| Income before provision for income taxes | $ | 54,119 |
| | $ | 42,364 |
| | $ | 113,341 |
|
| $ | 77,216 |
|
The following table presents certain assets by reportable segment and in the aggregate (in thousands):
|
| | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| Property, plant and equipment, net: | | | |
| Environmental Services | $ | 946,367 |
| | $ | 951,867 |
|
| Safety-Kleen | 556,247 |
| | 553,220 |
|
| Corporate Items | 91,379 |
| | 56,891 |
|
| Total property, plant and equipment, net | $ | 1,593,993 |
| | $ | 1,561,978 |
|
| | | | |
| Goodwill and Permits and other intangibles, net: | | | |
| Environmental Services | | | |
| Goodwill | $ | 212,638 |
| | $ | 207,019 |
|
| Permits and other intangibles, net | 91,292 |
| | 93,313 |
|
| Total Environmental Services | 303,930 |
| | 300,332 |
|
| | | | |
| Safety-Kleen | | | |
| Goodwill | $ | 311,943 |
| | $ | 307,170 |
|
| Permits and other intangibles, net | 334,571 |
| | 348,562 |
|
| Total Safety-Kleen | 646,514 |
|
| 655,732 |
|
| | | | |
| Total | $ | 950,444 |
| | $ | 956,064 |
|
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Property, plant and equipment, net: | | | |
| Environmental Services | $ | 890,262 | | | $ | 939,352 | |
| Safety-Kleen | 559,178 | | | 555,310 | |
| Corporate Items | 89,893 | | | 93,489 | |
| Total property, plant and equipment, net | $ | 1,539,333 | | | $ | 1,588,151 | |
| | | |
| Goodwill and Permits and other intangibles, net: | | | |
| Environmental Services | | | |
| Goodwill | $ | 211,139 | | | $ | 212,531 | |
| Permits and other intangibles, net | 80,535 | | | 89,722 | |
| Total Environmental Services | 291,674 | | | 302,253 | |
| | | |
| Safety-Kleen | | | |
| Goodwill | $ | 313,122 | | | $ | 312,482 | |
| Permits and other intangibles, net | 311,866 | | | 329,344 | |
| Total Safety-Kleen | 624,988 | | | 641,826 | |
| | | |
| Total | $ | 916,662 | | | $ | 944,079 | |
The following table presents the total assets by reportable segment (in thousands): |
| | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| Environmental Services | $ | 1,750,343 |
| | $ | 1,640,706 |
|
| Safety-Kleen | 1,501,838 |
| | 1,431,381 |
|
| Corporate Items | 769,681 |
| | 666,234 |
|
| Total | $ | 4,021,862 |
| | $ | 3,738,321 |
|
The following table presents the total assets by geographical area (in thousands):
| | | | September 30, 2019 | | December 31, 2018 | | September 30, 2020 | | December 31, 2019 |
| United States | $ | 3,339,899 |
| | $ | 3,090,311 |
| United States | $ | 3,452,839 | | | $ | 3,413,254 | |
| Canada | 681,963 |
| | 648,010 |
| |
| Canada and other foreign | | Canada and other foreign | 653,348 | | | 695,650 | |
| Total | $ | 4,021,862 |
| | $ | 3,738,321 |
| Total | $ | 4,106,187 | | | $ | 4,108,904 | |
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans"believes," "expects," "intends," "anticipates," "plans to,” “estimates,” “projects,” “may,” “likely”" "seeks," "should," "estimates," "projects," "may," "likely" or similar expressions. These forward-lookingSuch statements may include, but are not limited to, statements about future financial and operating results, the Company's plans, objectives, expectations and intentions and other statements that are not historical facts. Forward-looking statements are neither historical facts nor assurances of future performance. Such statements are based upon the beliefs and expectations of Clean Harbors' management as of this date only and are subject to certain risks and uncertainties that could cause actual results to differ materially, fromincluding, without limitation, the risks and uncertainties surrounding Coronavirus ("COVID-19") and the related impact on our business, and those reflecteditems identified as "Risk Factors,” in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussedthis report under Item 1A “Risk Factors,”and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2019, under Item 1A, “Risk Factors,” included in Part II—Other Information in this report,26, 2020, and in other documents we file from time to time with the SEC. ReadersTherefore, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertakeOur actual results and financial condition may differ materially from those indicated in the forward-looking statements. Clean Harbors undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.statements other than through its filings with the SEC, which may be viewed in the "Investors" section of the Clean Harbors website.
Overview
We are North America’s leading provider of environmental energy and industrial services.services supporting our customers in finding environmentally responsible solutions to further their sustainability goals in today's world. We believe we operate, in the aggregate, the largest number of hazardous waste incinerators, landfills and treatment, storage and disposal facilities ("TSDFs") in North America. We serve a diverse customer base, including Fortune 500 companies, across the chemical, energy, manufacturing and additional markets, as well as numerous government agencies. These customers rely on us to deliver a broad range of services
including but not limited to end-to-end hazardous waste management, emergency response, industrial cleaning and maintenance and recycling services. We are also the largest re-refiner and recycler of used oil in the worldNorth America and the largest provider of parts cleaningwasher and related environmental services to commercial, industrial and automotive customers in North America.
Performance of our segments is evaluated on several factors of which the primary financial measure is Adjusted EBITDA as described more fully below. The following is a discussion of how management evaluates its segments in regards to other factors including key performance indicators that management uses to assess the segments’ results, as well as certain macroeconomic trends and influences that impact each reportable segment:
| |
• | Environmental Services - Environmental Services segment results are predicated upon the demand by our customers for waste services directly attributable to volume and nature of waste streams generated by them and project work for which waste handling and/or disposal is required. In managing the business and evaluating performance, management tracks the volumes and average price of waste handled and disposed of through our owned incinerators and landfills, as well as utilization of such incinerators, labor and billable hours and equipment among other key metrics. Levels of activity and ultimate performance associated with this segment can be impacted by several factors including overall U.S. GDP and U.S. industrial production, weather conditions, efficiency of our operations, competition and market pricing of our services and the management of our related operating costs. Environmental Services results are also impacted by the demand for planned and unplanned industrial related cleaning and maintenance services at customer sites and for environmental cleanup services on a scheduled or emergency basis, including response to national events such as major oil spills, natural disasters or other events where immediate and specialized services are required.
|
| |
• | Safety-Kleen - Safety-Kleen segment results are impacted by an array of core service offerings that serve to attract small quantity waste producers as customers and integrate them into the Clean Harbors waste network. Core service offerings include parts washer services, containerized waste services, vacuum services, used motor oil collection and sale of base and blended oil products as well as complementary products including automotive related fluids and shop supplies. Key performance indicators tracked by management relative to these services include the number of parts washer services performed and used motor oil and waste volumes collected. Results from these services are primarily driven by the overall number of parts washers placed at customer sites and volumes of waste collected. These factors can be impacted by overall economic conditions in the marketplace, especially in the automotive related area. Safety-Kleen offers high quality base and blended oil products to end users including fleet customers, distributors and manufacturers of oil products. Relative to these oil related products, management tracks the Company's volumes and relative percentages of base and blended oil sales along with various pricing metrics associated with the commodity driven marketplace. The segment's results are significantly impacted by the overall market pricing and product mix associated with base and blended oil products and, more specifically, the market prices of Group II base oils, which historically have correlated with overall crude oil prices. Costs incurred in connection with the collection of used oils and other raw materials associated with the segment’s oil related products can also be volatile. The implementation of our OilPlus® closed loop initiative resulting in the sale of our renewable oil products directly to our end customers will also impact future operating results.
|
•Environmental Services - Environmental Services segment results are predicated upon the demand by our customers for waste services directly attributable to waste volumes generated by them and project work for which waste handling and/or disposal is required. In managing the business and evaluating performance, management tracks the volumes and mix of waste handled and disposed of through our owned incinerators and landfills, as well as utilization of such incinerators, labor and billable hours and equipment among other key metrics. Levels of activity and ultimate performance associated with this segment can be impacted by several factors including overall U.S. GDP and U.S. industrial production, weather conditions, efficiency of our operations, technology, changing regulations, competition, market pricing of our services and the management of our related operating costs. Environmental Services results are also impacted by the demand for planned and unplanned industrial related cleaning and maintenance services at customer sites, environmental cleanup services on a scheduled or emergency basis, including response to national events such as major chemical spills, natural disasters, or other events where immediate and specialized services are required. As a result of the recent COVID-19 pandemic, the business has also seen increased demand for response services relative to contagion disinfection, decontamination and disposal.
•Safety-Kleen - Safety-Kleen segment results are impacted by an array of core service and product offerings that serve to attract small quantity waste producers as customers and integrate them into the Clean Harbors waste network. Core service offerings include parts washer services, containerized waste services, vacuum services, used motor oil collection and contract blending and packaging services. Key performance indicators tracked by the Company relative to these services include the number of parts washer services performed and pricing and volume of used motor oil and waste collected. Results from these services are primarily driven by the overall number of parts washers placed at customer sites and volumes of waste and used motor oil collected, as well as the demand for and frequency of other offered services. These factors can be impacted by overall economic conditions in the marketplace, especially in the automotive and manufacturing related areas. The overall market price of oil and regulations that change the possible usage of used motor oil, including the International Maritime Organization's 2020 regulation, both impact the premium the segment can charge for used motor oil collections. In addition to its core service offerings, Safety-Kleen offers high quality recycled base and blended oil products to end users including fleet customers, distributors and manufacturers of oil products. Other product offerings include automotive related fluids and shop supplies. Relative to its oil related products, management tracks the Company's volumes and relative percentages of base and blended oil sales along with various pricing metrics associated with the commodity driven marketplace. The segment’s results are significantly impacted by overall market pricing and product mix associated with base and blended oil products and, more specifically, the market prices of Group II base oils. Costs incurred in connection with the collection of used oil and other raw materials associated with the segment’s oil related products can also be volatile. Our OilPlus® closed loop initiative, which results in the sale of our renewable oil products directly to our end customers, may also be impacted by changes in customer demand for high-quality, environmentally responsible recycled oil.
Impact of COVID-19
Corporate Response
In response to the COVID-19 pandemic, the Company has created a dedicated crisis response team to proactively monitor and respond to Company and customer operations, implement plans to execute on opportunities of COVID-19 related decontamination services and enhance health and safety measures for all our employees as well as customers to which we have provided these services.
Health and safety is our #1 priority. Our commitment to ensuring the health and safety of our employees, particularly those performing COVID-19 decontamination services for our customers is a pillar of our overall corporate culture. During the pandemic, we have been able to successfully supply our employees with appropriate personal protective equipment ("PPE") for use in servicing our customers in the field and working at our operational and administrative facilities. To support the safety of all of our employees and operations, early precautionary measures were implemented including actively monitoring and reporting employee illness, acquiring and maintaining adequate levels of PPE inventory, suspending non-essential travel, limiting the number of employees
attending meetings and reducing the number of people at our locations at any one time. In an effort to contain COVID-19, governments have enacted various measures, including orders to close non-essential businesses and personal and commercial travel restrictions. Operations at our facilities complied with government ordered shutdowns and reopening plans. The COVID-19 pandemic continues to be an evolving situation. We continue to monitor changes in the various locations in which we operate and adapting our protocols accordingly as well as on a proactive basis wherever possible.
Impact on Our Financial Statements and Business Operations
The COVID-19 pandemic has resulted in, and is likely to continue to result in economic disruption. The Company's financial results for the three and nine months ended September 30, 2020 were significantly impacted by the COVID-19 pandemic. In the latter half of March 2020 and throughout the second and third quarters, we were measurably impacted by an overall slowdown in economic activity which included closures at some of our customer sites and rising general uncertainty about future economic activity. In the third quarter, financial results, including direct revenues and EBITDA, improved for both segments when compared to the second quarter of 2020 as we began to see the increased return to operations at our customers.
In our Environmental Services segment, continued lower activity levels and shutdowns of customers' operations decrease the level of our services that are required and the quantities of commercial and industrial waste disposed of throughout our network of facilities. Lower demand for oil and overall price declines in the global oil market, resulting from COVID-19 impacts, impacts the level of environmental services we provide to our customers in that market.
We continue to see demand for disinfecting, decontamination and disposal related emergency response services specifically in response to COVID-19. The Company completed more than 9,000 projects responding specifically to the risk of COVID-19, amounting to nearly $90 million of direct revenues during the nine months ended September 30, 2020. Although uncertain as to the prevalence of such services for the remainder of the year, we do expect demand for these COVID-19 response services to continue. The increased level of emergency response work, however, did not overcome the overall levels of service work lost due to the impacts of the COVID-19 pandemic.
We expect that the services provided by our Safety-Kleen segment will continue to be impacted by less automotive related travel and any ongoing customer shutdowns reducing demand for Safety-Kleen core services and products. We have observed declining demand in the primary sectors impacting this business including the overall automotive sector, as consumer activity lags historical levels across the United States and Canada. Lower oil related demand and price declines in the global oil market, exacerbated by COVID-19 impacts, are also expected to reduce revenues generated by the business in 2020. In order to respond to the impact on the Safety-Kleen business and in particular the reduced availability of used motor oils which are utilized as feedstock in our re-refining processes and reduced demand for base and blended oil products, in April 2020, we temporarily shuttered nearly half of the total production capacity of our oil re-refineries. In response to more positive trends in oil demand, certain facilities were brought back online, increasing available production to approximately 90% of the total production capacity by the end of the third quarter of 2020.
The Company considered the impact of COVID-19 on the assumptions and estimates used in the preparation of the financial statements and did not identify any significant changes in estimates. Specifically, management concluded that there had not been any triggering events requiring further assessment of asset impairments. Management also assessed the extent to which the current macroeconomic events brought about by COVID-19 and significant declines in oil demand may have impacted the valuation of expected credit losses on accounts receivable and certain inventory items or resulted in modifications to any significant contracts. Ultimately the results of these assessments did not have a material impact on the Company's results as of September 30, 2020.
In regards to liquidity and capital resources, as of September 30, 2020, the Company had $532.3 million in cash and marketable securities and $249.1 million of borrowing availability under the revolving credit facility. Other than $7.5 million of annual payments on the Company's secured senior term loans, there are no debt maturities until June 2024, when those term loans are due. To maintain a strong liquidity position through 2020 and beyond, the Company remains active in executing cost reduction initiatives, significantly reduced 2020 capital expenditures from originally forecasted amounts and continues to consider all aspects of eligible government programs.
Impact of Government Programs
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law in response to the widespread economic impact of the COVID-19 pandemic. On April 11, 2020, the Canadian federal government enacted the COVID-19 Emergency Response Act, No.2, which implemented the Canada Emergency Wage Subsidy ("CEWS"). Since the establishment of these programs, management has considered and analyzed the Company's eligibility under such government programs. Most significantly, the Company applied for certain employee retention credits under the CARES Act and the wage subsidy under the CEWS. Although the Company did implement certain cost reduction plans associated with labor in the second
quarter, these government programs have allowed our workforce to remain stable during the temporary slowdown in activity. The table below summarizes the benefit of these government programs recorded in the statement of operations for the periods ended September 30, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2020 | | September 30, 2020 |
| Environmental Services | | Safety-Kleen | | Corporate Items | | Total | | Environmental Services | | Safety-Kleen | | Corporate Items | | Total |
| Cost of revenues | $ | 8,481 | | | $ | 1,802 | | | $ | 145 | | | $ | 10,428 | | | $ | 17,478 | | | $ | 6,666 | | | $ | 560 | | | $ | 24,704 | |
| Selling, general and administrative expenses | 1,488 | | | 685 | | | 668 | | | 2,841 | | | 5,755 | | | 4,092 | | | 2,117 | | | 11,964 | |
| Total | $ | 9,969 | | | $ | 2,487 | | | $ | 813 | | | $ | 13,269 | | | $ | 23,233 | | | $ | 10,758 | | | $ | 2,677 | | | $ | 36,668 | |
In addition to the credits and subsidies outlined above, which do not require any repayment to be made by the Company, the CARES Act also allows for the deferral of payment related to certain payroll taxes. In total, we deferred payroll tax payments of $23.2 million during the nine months ended September 30, 2020 which are required to be paid in equal installments, in the fourth quarters of 2021 and 2022.
Highlights
Total revenues for the three and nine months ended September 30, 20192020 were $779.3 million and $2,347.9 million, compared with $891.7 million and $2,541.2 million compared with $843.2 million and $2,442.1 million for the three and nine months ended September 30, 2018.2019. In the three and nine months ended September 30, 2019,2020, our Environmental Services segment increased direct revenues 8.1%decreased 10.0% and 5.7%4.1% from the comparable periods in 20182019, primarily due to continued improvementslower demand for our industrial and technical related services. Lower overall economic activity due to the COVID-19 pandemic has most notably reduced the demand for industrial turnaround, environmental remediation and waste disposal projects. This decrease was partially offset by increased emergency response decontamination services in average pricing driven by a more profitable mixthe wake of waste streams primarily from chemical and manufacturing customers.the COVID-19 pandemic. In the three and nine months ended September 30, 2019,2020, our Safety-Kleen segment increased direct revenues 1.7%decreased 17.8% and 1.3%14.2% from the comparable periods in 20182019, predominantly due to lower demand across the Safety-Kleen portfolio of products and core services also resulting from overall lower economic activity, customer shutdowns as a result of continued growth across Safety-Kleen's core service offeringswell as lower oil demand and our blendedpricing driven by the COVID-19 pandemic. Increased revenues from used motor oil sales.collections partially offset these decreases in the Safety-Kleen segment. The fluctuation of the Canadian dollar negatively impacted our consolidated revenues by $1.5$1.0 million and $13.1$5.2 million in the three and nine months ended September 30, 2019.2020.
We reported income from operations for the three and nine months ended September 30, 20192020 of $83.9 million and $189.6 million compared with $80.4 million and $177.1 million compared with $65.7 million and $141.1 million in the three and nine months ended September 30, 2018.2019. We reported net income for the three and nine months ended September 30, 20192020 of $36.4$54.9 million and $73.6$95.5 million compared with net income of $31.1$36.4 million and $49.2$73.6 million in the three and nine months ended September 30, 2018.2019.
Adjusted EBITDA, which is the primary financial measure by which our segments are evaluated, increased 10.9%2.9% to $161.2 million in the three months ended September 30, 2020 from $156.6 million in the three months ended September 30, 2019 from $141.3and increased 2.7% to $419.2 million in the threenine months ended September 30, 2018 and increased 10.6% to2020 from $408.1 million in the nine months ended September 30, 20192019. Our relatively consistent levels of EBITDA in these periods, despite the notable decline in revenues can be attributed to incremental cost controls put in place by the Company, the improved mix of revenue generating services as well as benefits received from $369.1 million in the nine months ended September 30, 2018.government programs discussed above. Additional information, including a reconciliation of Adjusted EBITDA to net income, appears below under the heading "Adjusted EBITDA."
Net cash from operating activities for the nine months ended September 30, 20192020 was $284.7$317.4 million, an increase of $37.5$32.8 million from the comparable period in 2018.2019. Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was $119.1an inflow of $195.5 million in the nine months ended September 30, 2019,2020, compared to $102.6an inflow of $119.1 million in the comparable period of 2018. The increase in adjusted free cash flow in the first nine months of 2019 as compared to the first nine months of 2018 was most directly attributable to greater2019. These increased levels of operating income and improvements in workingadjusted cash flows are the result of lower capital offset by increased capital spending. Duringexpenditures, as well as the most recent three-month period ended September 30, 2019 adjusted free cash flow was $91.6 million as compared to $64.4 million inbenefits received from the same period of 2018.government programs discussed above. Additional information, including a reconciliation of adjusted free cash flow to net cash from operating activities, appears below under the heading "Adjusted Free Cash Flow."
Segment Performance
The primary financial measure by which we evaluate the performance of our segments is Adjusted EBITDA. The following table sets forth certain financial information associated with our results of operations for the three and nine months ended September 30, 20192020 and September 30, 20182019 (in thousands, except percentages).:
| | | | | Summary of Operations |
| | | | For the Three Months Ended | | For the Nine Months Ended |
| | | | September 30, 2020 | | September 30, 2019 | | $
Change | | %
Change | | September 30, 2020 | | September 30, 2019 | | $
Change | | % Change |
| | | | Summary of Operations | |
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2019 | | September 30, 2018 | | $ Change | | % Change | | September 30, 2019 | | September 30, 2018 | | $
Change | | %
Change | |
Direct Revenues(1): | |
| | |
| | |
| | | | | | | | | | Direct Revenues(1): | | | | | | | | | | | | | | | |
| Environmental Services | $ | 586,872 |
| | $ | 542,980 |
| | $ | 43,892 |
| | 8.1% | | $ | 1,658,970 |
| | $ | 1,570,241 |
| | $ | 88,729 |
| | 5.7% | Environmental Services | $ | 527,970 | | | $ | 586,872 | | | $ | (58,902) | | | (10.0)% | | $ | 1,591,246 | | | $ | 1,658,970 | | | $ | (67,724) | | | (4.1)% |
| Safety-Kleen | 306,145 |
| | 300,885 |
| | 5,260 |
| | 1.7 | | 884,606 |
| | 873,284 |
| | 11,322 |
| | 1.3 | Safety-Kleen | 251,640 | | | 306,145 | | | (54,505) | | | (17.8) | | 759,408 | | | 884,606 | | | (125,198) | | | (14.2) |
| Corporate Items | (1,349 | ) | | (684 | ) | | (665 | ) | | N/M | | (2,391 | ) | | (1,426 | ) | | (965 | ) | | N/M | Corporate Items | (266) | | | (1,349) | | | 1,083 | | | N/M | | (2,747) | | | (2,391) | | | (356) | | | N/M |
| Total | 891,668 |
| | 843,181 |
| | 48,487 |
| | 5.8 | | 2,541,185 |
| | 2,442,099 |
| | 99,086 |
| | 4.1 | Total | 779,344 | | | 891,668 | | | (112,324) | | | (12.6) | | 2,347,907 | | | 2,541,185 | | | (193,278) | | | (7.6) |
Cost of Revenues(2): | |
| | |
| | |
| | | | | | | | |
| | | Cost of Revenues(2): | | | | | | | | | | | |
| Environmental Services | 417,954 |
| | 395,949 |
| | 22,005 |
| | 5.6 | | 1,203,367 |
| | 1,168,349 |
| | 35,018 |
| | 3.0 | Environmental Services | 350,072 | | | 417,954 | | | (67,882) | | | (16.2) | | 1,084,450 | | | 1,203,367 | | | (118,917) | | | (9.9) |
| Safety-Kleen | 189,190 |
| | 183,112 |
| | 6,078 |
| | 3.3 | | 558,609 |
| | 542,343 |
| | 16,266 |
| | 3.0 | Safety-Kleen | 154,729 | | | 189,190 | | | (34,461) | | | (18.2) | | 489,358 | | | 558,609 | | | (69,251) | | | (12.4) |
| Corporate Items | 5,610 |
| | 1,624 |
| | 3,986 |
| | N/M | | 10,075 |
| | 2 |
| | 10,073 |
| | N/M | Corporate Items | 6,828 | | | 5,610 | | | 1,218 | | | N/M | | 15,168 | | | 10,075 | | | 5,093 | | | N/M |
| Total | 612,754 |
| | 580,685 |
| | 32,069 |
| | 5.5 | | 1,772,051 |
| | 1,710,694 |
| | 61,357 |
| | 3.6 | Total | 511,629 | | | 612,754 | | | (101,125) | | | (16.5) | | 1,588,976 | | | 1,772,051 | | | (183,075) | | | (10.3) |
| Selling, General & Administrative Expenses: | Selling, General & Administrative Expenses: | | |
| | |
| | | | | | | | |
| | | Selling, General & Administrative Expenses: | | | | | | | | | | |
| Environmental Services | 47,260 |
| | 44,612 |
| | 2,648 |
| | 5.9 | | 126,567 |
| | 128,857 |
| | (2,290 | ) | | (1.8) | Environmental Services | 37,044 | | | 47,260 | | | (10,216) | | | (21.6) | | 118,945 | | | 126,567 | | | (7,622) | | | (6.0) |
| Safety-Kleen | 35,629 |
| | 38,271 |
| | (2,642 | ) | | (6.9) | | 110,419 |
| | 116,486 |
| | (6,067 | ) | | (5.2) | Safety-Kleen | 28,150 | | | 35,629 | | | (7,479) | | | (21.0) | | 93,552 | | | 110,419 | | | (16,867) | | | (15.3) |
| Corporate Items | 39,412 |
| | 38,336 |
| | 1,076 |
| | 2.8 | | 124,047 |
| | 116,959 |
| | 7,088 |
| | 6.1 | Corporate Items | 41,350 | | | 39,412 | | | 1,938 | | | 4.9 | | 127,193 | | | 124,047 | | | 3,146 | | | 2.5 |
| Total | 122,301 |
| | 121,219 |
| | 1,082 |
| | 0.9 | | 361,033 |
| | 362,302 |
| | (1,269 | ) | | (0.4) | Total | 106,544 | | | 122,301 | | | (15,757) | | | (12.9) | | 339,690 | | | 361,033 | | | (21,343) | | | (5.9) |
| Adjusted EBITDA: | |
| | |
| | |
| | | | | | | | |
| | | Adjusted EBITDA: | | | | | | | | | | | |
| Environmental Services | 121,658 |
| | 102,419 |
| | 19,239 |
| | 18.8 | | 329,036 |
| | 273,035 |
| | 56,001 |
| | 20.5 | Environmental Services | 140,854 | | | 121,658 | | | 19,196 | | | 15.8 | | 387,851 | | | 329,036 | | | 58,815 | | | 17.9 |
| Safety-Kleen | 81,326 |
| | 79,502 |
| | 1,824 |
| | 2.3 | | 215,578 |
| | 214,455 |
| | 1,123 |
| | 0.5 | Safety-Kleen | 68,761 | | | 81,326 | | | (12,565) | | | (15.5) | | 176,498 | | | 215,578 | | | (39,080) | | | (18.1) |
| Corporate Items | (46,371 | ) | | (40,644 | ) | | (5,727 | ) | | (14.1) | | (136,513 | ) | | (118,387 | ) | | (18,126 | ) | | 15.3 | Corporate Items | (48,444) | | | (46,371) | | | (2,073) | | | (4.5) | | (145,108) | | | (136,513) | | | (8,595) | | | (6.3) |
| Total | $ | 156,613 |
| | $ | 141,277 |
| | $ | 15,336 |
| | 10.9% | | $ | 408,101 |
| | $ | 369,103 |
| | $ | 38,998 |
| | 10.6% | Total | $ | 161,171 | | | $ | 156,613 | | | $ | 4,558 | | | 2.9% | | $ | 419,241 | | | $ | 408,101 | | | $ | 11,140 | | | 2.7% |
_____________________
N/M = not meaningful
| |
(1) | Direct revenue is revenue allocated to the segment performing the provided service. |
| |
(2) | Cost of revenue is shown exclusive of items presented separately on the statements of operations which consist of (i) accretion of environmental liabilities and (ii) depreciation and amortization. |
(1)Direct revenue is revenue allocated to the segment performing the provided service.
(2)Cost of revenue is shown exclusive of items presented separately on the statements of operations which consist of (i) accretion of environmental liabilities and (ii) depreciation and amortization.
Direct Revenues
There are many factors which have impacted and continue to impact our revenues. Theserevenues, including a significant impact to our revenue resulting from COVID-19 as discussed in Impact of COVID-19 above. Other factors impacting our revenues include, but are not limited to: overall levels of industrial activity and growth in North America, existence or non-existence of large scale environmental waste and remediation projects, competitive industry pricing, miles driven and related lubricant demand, impacts of acquisitions and divestitures, the level of emergency response projects, general conditions of the energyservices, weather related industries,events, base and blended oil pricing, market changes relative to the collection of used oil, the number of parts washers placed at customer sites and foreign currency translation. In addition, customer efforts to minimalizeminimize hazardous waste and changes in regulation can also impact our revenues.
| | | | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 | | September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
| (in thousands, except percentages) | 2019 | | 2018 | | $
Change | | %
Change | | 2019 | | 2018 | | $ Change | | % Change | (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | | Change | | % Change |
| | Direct revenues | $ | 586,872 |
| | $ | 542,980 |
| | $ | 43,892 |
| | 8.1 | % | | $ | 1,658,970 |
| | $ | 1,570,241 |
| | $ | 88,729 |
| | 5.7 | % | Direct revenues | $ | 527,970 | | | $ | 586,872 | | | $ | (58,902) | | | (10.0) | % | | $ | 1,591,246 | | | $ | 1,658,970 | | | $ | (67,724) | | | (4.1) | % |
Environmental Services direct revenues for the three months ended September 30, 2019 increased $43.92020 decreased $58.9 million from the comparable period in 20182019, driven primarily by significantly lower demand for our industrial and technical related services, partially offset by direct revenues earned in connection with COVID-19 emergency response decontamination services. Lower economic activity throughout the COVID-19 pandemic reduced the demand for industrial and technical related services as customers postponed and/or reduced the levels of industrial turnarounds, environmental remediation projects and other waste disposal services. Direct revenues associated with disposal services at our incinerator and landfill facilities decreased $9.9 million and $1.7 million, respectively, when compared with the same quarter in the prior year, due to higher service related revenues and increasedlower volumes of higher priced waste streams disposed of in our network of facilities. HigherIncinerator utilization was 80%. A maintenance related turnaround at a key incinerator facility was pulled forward into the third quarter of 2020 increasing the number of down days and contributing to a 12% decrease in incinerator utilization when compared to the same period in the prior year. Decreased direct revenues from these lower volumes were partially offset by the processing of higher value waste streams atthrough our incineratornetwork of facilities drove an average price per ton increaseduring the period. Direct revenues of approximately 12%.$28.9 million from COVID-19 related emergency response decontamination services in the third quarter of 2020 partially offset these overall decreases in direct revenues. The utilization rate atimpact of foreign currency translation on our incinerators on an annual practical capacity of 561,721 tonsEnvironmental Services Canadian operations was 91.5%minimal.
Environmental Services direct revenues for the threenine months ended September 30, 2019, compared with 83.5% in the comparable period of 2018. The increase in utilization rate in the three months ended September 30, 20192020 decreased $67.7 million from the comparable period in 2018 was2019 driven primarily by significantly lower demand for our industrial and technical related services, partially offset by COVID-19 emergency response decontamination services. Lower economic activity throughout the COVID-19 pandemic reduced the demand for industrial and technical related services as customers postponed and/or reduced the levels of industrial turnarounds, environmental remediation projects and other waste disposal services. Direct revenues at our landfill facilities decreased $2.0 million when compared with the same period in the prior year due to fewer down days duringlower volumes of waste streams. In the third quarternine months ended September 30, 2020, the Company generated $88.9 million of 2019. The increase in servicedirect revenues from COVID-19 related revenues in the quarter resulted, in part, from a higher frequency of emergency response work associateddecontamination services, which partially offset these direct revenue decreases. Additionally, direct revenues at our incinerator facilities increased by $20.7 million when compared to the same period in 2019 due to higher value waste streams. Utilization at our incinerator facilities remained consistent with Field and Emergency Response Services offset by lower Industrial Services revenues.the prior year at 84%. Also includedimpacting the year over year change in the changedirect revenues within this segment was the negative impact of foreign currency translation on our Canadian operations of $1.1$4.2 million.
Environmental Services direct revenues for the nine months ended September 30, 2019 increased $88.7 million from the comparable period in 2018. Higher service related revenues and higher priced waste streams disposed of in our network of facilities contributed to the increase in direct revenues in the nine months ended September 30, 2019. Higher value waste streams at our incinerator facilities drove an average price per ton increase of approximately 14%. The utilization rate at our incinerators on an annual practical capacity of 561,721 tons was 83.1% for the nine months ended September 30, 2019, compared with 86.9% in the comparable period of 2018. The decrease in utilization rate in the nine months ended September 30, 2019 from the comparable period in 2018 was primarily due to a high number of down days at our Deer Park facility during the first quarter which was attributable to a fire at a neighboring facility. The increase in Field and Emergency Response Services revenues in the nine months ended September 30, 2019 resulted from increased emergency response related work as well as overall growth in Field Services. Industrial Services revenues partially offset this increase as turnaround related services in 2019 were lower than the comparable period in the prior year. Also included in the change within this segment was the negative impact of foreign currency translation on our Canadian operations of $9.5 million.Safety-Kleen
| | | | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 | | September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
| (in thousands, except percentages) | 2019 | | 2018 | | $
Change | | %
Change | | 2019 | | 2018 | | $ Change | | % Change | (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | |
Change | | %
Change |
| | Direct revenues | $ | 306,145 |
| | $ | 300,885 |
| | $ | 5,260 |
| | 1.7 | % | | $ | 884,606 |
| | $ | 873,284 |
| | $ | 11,322 |
| | 1.3 | % | Direct revenues | $ | 251,640 | | | $ | 306,145 | | | $ | (54,505) | | | (17.8) | % | | $ | 759,408 | | | $ | 884,606 | | | $ | (125,198) | | | (14.2) | % |
Safety-Kleen direct revenues for the three months ended September 30, 2019 increased $5.32020 decreased $54.5 million from the comparable period in 2018. This increase was primarily2019. Reduced demand for oil related products and our core services continued to drive lower levels of direct revenues within this segment. Base oil sales decreased $24.9 million from the comparable period in 2019 due to growthlower sales volume and lower pricing, while blended oil sales decreased approximately $15.4 million from the comparable period in the Safety Kleen branch network’s2019, principally due to lower sales volumes. Decreased demand for Safety-Kleen's core service offerings including handling ofcontributed to the decline in direct revenues as containerized waste and vacuum services which accounted for $5.0decreased $15.4 million of incremental revenues from the comparable period in 2018. This growth2019. Recycled fuel oil and refinery byproducts sales also decreased $11.4 million, driven by both lower sales volume and lower pricing, and parts washer service
revenues decreased $6.3 million due to lower demand. Given the impact of COVID-19 on our customers, these decreases were expected. Partially offsetting these decreases was a $15.9 million increase in direct revenues was driven by both higher service volumes and pricing. Higherfrom used motor oil collections due to pricing increases on these services despite lower volumes of blended oil sales, primarily from our direct lube oil program, also drove an incremental $2.4 million of direct revenues. These increases were partially offset by a decreasecollected in base oil sales of $2.9 million, primarily driven by a reduction in base oil pricing in response to lower demand across the base oil market.current period. The impact of foreign currency translation on our Safety-Kleen Canadian operations was minimal.
Safety-Kleen direct revenues for the nine months ended September 30, 2019 increased $11.32020 decreased $125.2 million from the comparable period in 2018. The Safety-Kleen branch network's2019. Reduced demand for oil related products and core service offerings accounted for $17.9 million of incremental revenues in 2019
due to higher service volumesservices resulting from lower automotive travel and pricing. Higher volumes of blendedcustomer shutdowns, arising from the COVID-19 pandemic, drove these lower direct revenue levels. Base oil sales primarily from our direct lube oil program, and increased pricing of used motor oil collections contributed $10.4decreased $52.8 million and $3.6 million, respectively, to the growth in direct revenues from the comparable period in 2018. These increases were partially offset by a $15.6 million decrease in base2019 due to lower volume and lower pricing, and blended oil sales decreased $33.5 million due to reductionslower volumes. Decreased demand for Safety-Kleen's core service offerings contributed to the decline in direct revenues as containerized waste and vacuum services decreased $33.0 million from the comparable period in 2019. Recycled fuel oil and refinery byproducts decreased $29.5 million, driven by lower volumes and, to a lesser extent, lower pricing, experiencedand parts washer service revenues decreased by $15.0 million, from the comparable period in 2019, in responsedue to lower demand across the base oil market and lower base oil volumes, most significantly seenparticularly in the first quarter of 2019. Also includedlast two fiscal quarters. Partially offsetting these decreases was a $31.2 million increase in the change within this segment was the negativedirect revenue from used motor oil collections due to pricing increases on these services. The impact of foreign currency translation on our Safety-Kleen Canadian operations of $3.5 million.was minimal. Slow incremental improvements in the demand for the segment's core service offerings are expected to continue into the fourth quarter if national and state reopening plans continue to prove successful.
Cost of Revenues
We believe that our ability to manage operating costs is important to our ability to remain price competitive. We continue to upgrade the quality and efficiency of our services through the development of new technology and continued modifications at our facilities, invest in new business opportunities and aggressively implement strategic sourcing and logistics solutions as well as other cost reduction initiatives, while also continuing to optimize our management and operating structure in an effort to maintain and increase operating margins.
| | | | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 | | September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
| (in thousands, except percentages) | 2019 | | 2018 | | Change | | %
Change | | 2019 | | 2018 | | Change | | % Change | (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | |
Change | | %
Change |
| Cost of revenues | $ | 417,954 |
| | $ | 395,949 |
| | $ | 22,005 |
| | 5.6 | % | | $1,203,367 | | $1,168,349 | | $ | 35,018 |
| | 3.0 | % | Cost of revenues | $ | 350,072 | | | $ | 417,954 | | | $ | (67,882) | | | (16.2) | % | | $ | 1,084,450 | | | $ | 1,203,367 | | | $ | (118,917) | | | (9.9) | % |
| As a % of Direct Revenues | 71.2 | % | | 72.9 | % | | (1.7 | )% | |
| | 72.5 | % | | 74.4 | % | | (1.9 | )% | |
| |
| As a % of Direct revenues | | As a % of Direct revenues | 66.3 | % | | 71.2 | % | | (4.9) | % | | 68.2 | % | | 72.5 | % | | (4.3) | % | |
Environmental Services cost of revenues for the three months ended September 30, 2019 increased $22.02020 decreased $67.9 million from the comparable period in 2018 primarily due2019, including a $24.4 million decrease to increased equipment and supply costs of $9.7 million, labor and benefits related costs, including travel costs, a $23.1 million decrease to equipment and supply costs and an $18.8 million decrease in external transportation, disposal and fuel costs. These decreases were attributable to lower direct revenues and successful cost control initiatives, as well as an $8.5 million benefit from the employee retention credit and subsidies recorded in the third quarter of $6.9 million2020 under the CARES Act and transportationCEWS which helped defray certain labor and outside disposalbenefits costs and is reflected in the decrease to labor and benefits related costs identified above. Absent this benefit, cost of $2.5 million. These increases are expected with the increase in direct revenues. Asrevenues as a percentage of direct revenues these costs have decreasedstill improved 3.3% primarily due to higher utilization at our incinerators and greateran operational focus on better leverage of our fixed costs during the three months ended September 30, 2019.employee and asset bases resulting in lower third party transportation, subcontractor and equipment rental spending.
Environmental Services cost of revenues for the nine months ended September 30, 2019 increased $35.02020 decreased $118.9 million from the comparable period in 2018 primarily due2019, including a $45.7 million decrease to increased labor and benefits related costs, of $12.4including travel costs, a $36.9 million decrease to external transportation, disposal and fuel costs and a $34.9 million decrease to equipment and supply costs. These decreases were mainly attributable to lower direct revenues and successful cost control initiatives, as well as a $17.5 million benefit from the employee retention credits and subsidies recorded in 2020 under the CARES Act and CEWS which is reflected in the reduction to labor and benefits related costs above. Absent this benefit, cost of $11.5 million and transportation and outside disposal costs of $5.0 million. These costs decreasedrevenues as a percentage of direct revenues still improved 3.3% primarily due to greateran operational focus on better leverage of our fixed costs duringemployee and asset bases resulting in lower third party transportation, subcontractor and equipment rental spending. In the nine months ended September 30, 2019.future, we expect continued benefits from our operational focus on better leverage of our employee and asset bases.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 |
| (in thousands, except percentages) | 2019 | | 2018 | | Change | | %
Change | | 2019 | | 2018 | | Change | | % Change |
| Cost of revenues | $ | 189,190 |
| | $ | 183,112 |
| | $ | 6,078 |
| | 3.3 | % | | $ | 558,609 |
| | $ | 542,343 |
| | $ | 16,266 |
| | 3.0 | % |
| As a % of Direct Revenues | 61.8 | % | | 60.9 | % | | 0.9 | % | |
| | 63.1 | % | | 62.1 | % | | 1.0 | % | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
| (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | |
Change | | %
Change |
| Cost of revenues | $ | 154,729 | | | $ | 189,190 | | | $ | (34,461) | | | (18.2) | % | | $ | 489,358 | | | $ | 558,609 | | | $ | (69,251) | | | (12.4) | % |
| As a % of Direct revenues | 61.5 | % | | 61.8 | % | | (0.3) | % | | | | 64.4 | % | | 63.1 | % | | 1.3 | % | | |
Safety-Kleen cost of revenues for the three months ended September 30, 2019 increased $6.12020 decreased $34.5 million from the comparable period in 2018 primarily due to increased2019, including a $13.9 million decrease in costs of oil additives and other raw materials, a $10.0 million decrease in labor and benefits related costs, including travel costs and a $6.6 million decrease in transportation, disposal and fuel costs. These decreases were mainly attributable to lower direct revenues, as well as a $1.8 million benefit related to the employee retention credits and subsidies recorded in the third quarter of $3.8 million2020 under the CARES Act and transportationCEWS which is reflected in the decrease in labor and disposalbenefits related costs above. Absent this benefit, costs of $1.1 million, offset by a reduction in raw material costs of $2.3 million. The remaining cost increase was spread across various expense categories. The overall increase in cost of revenues was consistent with the growth of our core service offerings. Cost as a percentage of direct revenues remainedwere relatively consistent with the comparable period of 2018.prior year.
Safety-Kleen cost of revenues for the nine months ended September 30, 2019 increased $16.32020 decreased $69.3 million from the comparable period in 2018 primarily due to increased2019, including a $30.1 million decrease in costs of oil additives and other raw materials, an $18.1 million decrease in labor and benefits related costs, of $7.1including travel costs and a $15.6 million raw materialdecrease in transportation, disposal and fuel costs. These decreases were mainly attributable to lower direct revenues, as well as a $6.7 million benefit related to employee retention credits and subsidies recorded in 2020 under the CARES Act and CEWS which is reflected in the decrease in labor and benefits related costs above. Absent this benefit, costs of $3.8 million and transportation and disposal costs of $2.0 million. These increases in cost of revenues were consistent with the growth of our core service offerings and blended oil sales. The remaining cost increase was spread across various expense categories. Costs as a percentage of direct revenues increased over the comparable period of 2018 due to these2.2%. This increase resulted from certain fixed costs which outpacedcould not be reduced proportionate to the growthoverall lower business activity, partially offset by an operational focus on cost reductions, specifically in direct revenues.transportation and subcontractor costs.
Selling, General and Administrative Expenses
We strive to manage our selling, general and administrative ("SG&A") expenses commensurate with the overall performance of our segments and corresponding revenue levels. We believe that our ability to properly align these costs with
business performance is reflective of our strong management of the businesses and further promotes our ability to remain competitive in the marketplace.
| | | | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 | | September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
(in thousands, except percentages) | 2019 | | 2018 | |
Change | | % Change | | 2019 | | 2018 | |
Change | | %
Change | (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | |
Change | | %
Change |
| SG&A expenses | $ | 47,260 |
| | $ | 44,612 |
| | $ | 2,648 |
| | 5.9 | % | | $ | 126,567 |
| | $ | 128,857 |
| | $ | (2,290 | ) | | (1.8 | )% | SG&A expenses | $ | 37,044 | | | $ | 47,260 | | | $ | (10,216) | | | (21.6) | % | | $ | 118,945 | | | $ | 126,567 | | | $ | (7,622) | | | (6.0) | % |
| As a % of Direct Revenues | 8.1 | % | | 8.2 | % | | (0.1 | )% | |
| | 7.6 | % | | 8.2 | % | | (0.6 | )% | |
| |
| As a % of Direct revenues | | As a % of Direct revenues | 7.0 | % | | 8.1 | % | | (1.1) | % | | 7.5 | % | | 7.6 | % | | (0.1) | % | |
Environmental Services SG&A expenses for the three months ended September 30, 2019 increased $2.62020 decreased $10.2 million from the comparable period in 20182019. This decrease in SG&A expenses was primarily dueattributable to increases in salary, benefitslower direct revenues and variable compensationtherefore lower sales related costs, such as travel and other selling related costs, as well as a $1.5 million benefit related to the employee retention credits and subsidies recorded in the third quarter of 2020 under the CARES Act and CEWS which were consistent with the growth of the business for the three months ended September 30, 2019helped to defray labor and benefits related costs. Absent these benefits, Environmental Services SG&A expenses as compared to September 30, 2018. As a percentage of direct revenue, SG&A costsrevenues remained relatively consistent with the comparable period in 2018. We expect this trend to continue for the remainder of the year as revenues continue to exceed prior year levels.2019.
Environmental Services SG&A expenses for the nine months ended September 30, 20192020 decreased $2.3$7.6 million from the comparable period in 20182019 primarily due to lower direct revenues and therefore lower sales related costs, such as travel and other selling related costs, as well as a $5.8 million benefit in labor and benefits related costs related to the employee retention credits and subsidies recorded in 2020 under the CARES Act and CEWS. Also contributing to the period comparison are a $5.5 million favorable resolution of a litigation matter and a $5.4 million reduction in bad debt expense resulting from the recovery of certain trade receivables of $5.4 million, both of which were fully reservedrecorded in 2018. These decreases were partially offset by increases in salary, benefitsthe first quarter of 2019, and variable compensation related costs of $7.2 million, which were consistent withfavorably impacted the growth of the businessSG&A expenses for the nine months ended September 30, 20192019. Absent these nonrecurring transactions, Environmental Services SG&A expenses as compared to September 30, 2018.a percentage of direct revenues remained relatively consistent with the comparable period in 2019.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 |
| (in thousands, except percentages) | 2019 | | 2018 | |
Change | | % Change | | 2019 | | 2018 | |
Change | | %
Change |
| SG&A expenses | $ | 35,629 |
| | $ | 38,271 |
| | $ | (2,642 | ) | | (6.9 | )% | | $ | 110,419 |
| | $ | 116,486 |
| | $ | (6,067 | ) | | (5.2 | )% |
| As a % of Direct Revenues | 11.6 | % | | 12.7 | % | | (1.1 | )% | |
| | 12.5 | % | | 13.3 | % | | (0.8 | )% | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
| (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | |
Change | | %
Change |
| SG&A expenses | $ | 28,150 | | | $ | 35,629 | | | $ | (7,479) | | | (21.0) | % | | $ | 93,552 | | | $ | 110,419 | | | $ | (16,867) | | | (15.3) | % |
| As a % of Direct revenues | 11.2 | % | | 11.6 | % | | (0.4) | % | | | | 12.3 | % | | 12.5 | % | | (0.2) | % | | |
Safety-Kleen SG&A expenses for the three and nine months ended September 30, 20192020 decreased $2.6$7.5 million and $6.1$16.9 million, respectively, from the comparable periods in 20182019. These decreases were primarily dueattributable to decreaseslower direct revenues and therefore lower sales related costs, as well as a reduction in payrolllabor and variable compensationbenefit related costs resulting from lower headcountof $0.7 million and cost saving initiatives implemented by$4.1 million for the business in recent periods. Asthree and nine months ended September 30, 2020, respectively, attributable to employee retention credits and subsidies under the CARES Act and CEWS. Absent these benefits, Safety-Kleen SG&A expenses as a percentage of direct revenue, SG&A expenses decreased fromrevenues for the three and nine months ended September 30, 2020 were relatively consistent with the comparable periods in 2018 as a result of lower costs and increased revenues generated by the business.prior year.
| | | | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 | | September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
| (in thousands, except percentages) | 2019 | | 2018 | | $ Change | | % Change | | 2019 | | 2018 | | $
Change | | %
Change | (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | |
Change | | %
Change |
| SG&A expenses | $ | 39,412 |
| | $ | 38,336 |
| | $ | 1,076 |
| | 2.8 | % | | $ | 124,047 |
| | $ | 116,959 |
| | $ | 7,088 |
| | 6.1 | % | SG&A expenses | $ | 41,350 | | | $ | 39,412 | | | $ | 1,938 | | | 4.9 | % | | $ | 127,193 | | | $ | 124,047 | | | $ | 3,146 | | | 2.5 | % |
Corporate Items SG&A expenses for the three months ended September 30, 20192020 increased $1.1$1.9 million from the comparable period in 2018 primarily2019 due to increaseda $3.3 million change in an environmental remedial liability estimate for an inactive site recorded in the third quarter of 2020 and a $1.6 million increase in stock-based compensation expensecompensation. These increases were partially offset by an overall decrease of $0.9 million. Included$0.8 million in this change of Corporate Items SG&A expense was an increase inlabor and benefits related costs, offsetpredominately driven by employee retention credits and subsidies under the CARES Act and CEWS, and a decrease in variable compensation.travel and real estate related expenses of $0.8 million and $0.4 million respectively, due to cost reduction initiatives. The remaining expense reductions offsetting the noted increases were spread across various cost components.
Corporate Items SG&A expenses for the nine months ended September 30, 20192020 increased $7.1$3.1 million from the comparable period in 20182019 primarily due to our increased investment in our employees. During the nine months ended September 30, 2019, salary, benefits and variable compensation relatedmarketing expenses of $3.9 million to expand brand awareness, increased severance costs increased by $8.9of $3.4 million and stock-based compensation increased by $3.9a $3.3 million from the comparable periodchange in 2018.an environmental remedial liability estimate for an inactive site. These increases were partially offset by a $3.4$2.1 million reduction in professional fees.
labor costs from employee retention credits and subsidies recorded in 2020 under the CARES Act and CEWS, a $1.9 million decrease in stock-based compensation and decreases in travel and real estate related expenses of $1.4 million and $1.0 million, respectively. The remaining expense reductions offsetting the noted increases were spread across various cost components.
Adjusted EBITDA
Management considers Adjusted EBITDA to be a measurement of performance which provides useful information to both management and investors. Adjusted EBITDA should not be considered an alternative to net income or other measurements under generally accepted accounting principles ("GAAP"). Adjusted EBITDA is not calculated identically by all companies and therefore our measurements of Adjusted EBITDA, while defined consistently and in accordance with our existinghistorical credit agreement, may not be comparable to similarly titled measures reported by other companies.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
| (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | |
Change | | %
Change |
| Adjusted EBITDA: | | | | | | | | | | | | | | | |
| Environmental Services | $ | 140,854 | | | $ | 121,658 | | | $ | 19,196 | | | 15.8 | % | | $ | 387,851 | | | $ | 329,036 | | | $ | 58,815 | | | 17.9 | % |
| Safety-Kleen | 68,761 | | | 81,326 | | | (12,565) | | | (15.5) | | | 176,498 | | | 215,578 | | | (39,080) | | | (18.1) | |
| Corporate Items | (48,444) | | | (46,371) | | | (2,073) | | | (4.5) | | | (145,108) | | | (136,513) | | | (8,595) | | | (6.3) | |
| Total | $ | 161,171 | | | $ | 156,613 | | | $ | 4,558 | | | 2.9 | % | | $ | 419,241 | | | $ | 408,101 | | | $ | 11,140 | | | 2.7 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 |
| (in thousands, except percentages) | 2019 | | 2018 | | $
Change | | %
Change | | 2019 | | 2018 | | $
Change | | %
Change |
| Adjusted EBITDA: | |
| | |
| | |
| | | | | | | | | | |
| Environmental Services | $ | 121,658 |
| | $ | 102,419 |
| | $ | 19,239 |
| | 18.8 | % | | $ | 329,036 |
| | $ | 273,035 |
| | $ | 56,001 |
| | 20.5 | % |
| Safety-Kleen | 81,326 |
| | 79,502 |
| | 1,824 |
| | 2.3 |
| | 215,578 |
| | 214,455 |
| | 1,123 |
| | 0.5 |
|
| Corporate Items | (46,371 | ) | | (40,644 | ) | | (5,727 | ) | | (14.1 | ) | | (136,513 | ) | | (118,387 | ) | | (18,126 | ) | | (15.3 | ) |
| Total | $ | 156,613 |
| | $ | 141,277 |
| | $ | 15,336 |
| | 10.9 | % | | $ | 408,101 |
| | $ | 369,103 |
| | $ | 38,998 |
| | 10.6 | % |
We use Adjusted EBITDA to enhance our understanding of our operating performance, which represents our views concerning our performance in the ordinary, ongoing and customary course of our operations. We historically have found it helpful, and believe that investors have found it helpful, to consider an operating measure that excludes certain expenses relating to transactions not reflective of our core operations.
The information about our operating performance provided by this financial measure is used by our management for a variety of purposes. We regularly communicate Adjusted EBITDA results to our lenders since our loan covenants are based upon levels of Adjusted EBITDA achieved and to our board of directors and we discuss with the board our interpretation of such results. We also compare our Adjusted EBITDA performance against internal targets as a key factor in determining cash and stock bonus compensation for executives and other employees, largely because we believe that this measure is indicative of how the fundamental business is performing and is being managed.
We also provide information relating to our Adjusted EBITDA so that analysts, investors and other interested persons have the same data that we use to assess our core operating performance. We believe that Adjusted EBITDA should be viewed only as a supplement to the GAAP financial information. We also believe, however, that providing this information in addition to, and together with, GAAP financial information permits the users of our financial statements to obtain a better understanding of our core operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance on a standalone and a comparative basis.
The following is a reconciliation of net income to Adjusted EBITDA for the following periods (in thousands, except percentages): |
| | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Net income | $ | 36,369 |
| | $ | 31,089 |
| | $ | 73,589 |
| | $ | 49,205 |
|
| Accretion of environmental liabilities | 2,490 |
| | 2,450 |
| | 7,624 |
| | 7,328 |
|
| Depreciation and amortization | 73,756 |
| | 73,082 |
| | 223,328 |
| | 220,686 |
|
| Other expense (income), net | 427 |
| | 996 |
| | (1,992 | ) | | 449 |
|
| Loss on early extinguishment of debt | 6,119 |
| | 2,469 |
| | 6,119 |
| | 2,469 |
|
| Interest expense, net of interest income | 19,702 |
| | 19,916 |
| | 59,681 |
| | 60,955 |
|
| Provision for income taxes | 17,750 |
| | 11,275 |
| | 39,752 |
| | 28,011 |
|
| Adjusted EBITDA | $ | 156,613 |
|
| $ | 141,277 |
|
| $ | 408,101 |
|
| $ | 369,103 |
|
| As a % of Direct Revenues | 17.6 | % | | 16.8 | % | | 16.1 | % | | 15.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Net income | $ | 54,910 | | | $ | 36,369 | | | $ | 95,505 | | | $ | 73,589 | |
| Accretion of environmental liabilities | 2,822 | | | 2,490 | | | 8,149 | | | 7,624 | |
| Depreciation and amortization | 74,470 | | | 73,756 | | | 221,497 | | | 223,328 | |
| | | | | | | |
| Other (income) expense, net | (2,268) | | | 427 | | | 597 | | | (1,992) | |
| Loss on early extinguishment of debt | — | | | 6,119 | | | — | | | 6,119 | |
| Loss on sale of businesses | 118 | | | — | | | 3,376 | | | — | |
| Interest expense, net of interest income | 17,407 | | | 19,702 | | | 54,848 | | | 59,681 | |
| Provision for income taxes | 13,712 | | | 17,750 | | | 35,269 | | | 39,752 | |
| Adjusted EBITDA | $ | 161,171 | | | $ | 156,613 | | | $ | 419,241 | | | $ | 408,101 | |
| As a % of Direct revenues | 20.7 | % | | 17.6 | % | | 17.9 | % | | 16.1 | % |
Depreciation and Amortization
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 |
| (in thousands, except percentages) | 2019 | | 2018 | | $
Change | | %
Change | | 2019 | | 2018 | | $ Change | | % Change |
| Depreciation of fixed assets and amortization of landfills and finance lease | $ | 65,335 |
| | $ | 64,938 |
| | $ | 397 |
| | 0.6 | % | | $ | 196,729 |
| | $ | 194,729 |
| | $ | 2,000 |
| | 1.0 | % |
| Permits and other intangibles amortization | 8,421 |
| | 8,144 |
| | 277 |
| | 3.4 |
| | 26,599 |
| | 25,957 |
| | 642 |
| | 2.5 |
|
| Total depreciation and amortization | $ | 73,756 |
| | $ | 73,082 |
| | $ | 674 |
| | 0.9 | % | | $ | 223,328 |
| | $ | 220,686 |
| | $ | 2,642 |
| | 1.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
| (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | | Change | | % Change |
| Depreciation of fixed assets and amortization of landfills and finance leases | $ | 64,913 | | | $ | 65,335 | | | $ | (422) | | | (0.6) | % | | $ | 193,935 | | | $ | 196,729 | | | $ | (2,794) | | | (1.4) | % |
| Permits and other intangibles amortization | 9,557 | | | 8,421 | | | 1,136 | | | 13.5 | % | | 27,562 | | | 26,599 | | | 963 | | | 3.6 | % |
| Total depreciation and amortization | $ | 74,470 | | | $ | 73,756 | | | $ | 714 | | | 1.0 | % | | $ | 221,497 | | | $ | 223,328 | | | $ | (1,831) | | | (0.8) | % |
Depreciation and amortization for the three months ended September 30, 20192020 increased by $0.7 million from the comparable period in 2018 primarily due to an increase in capital spending.
the acceleration of amortization associated with a landfill permit. Depreciation and amortization for the nine months ended September 30, 2019 increased by $2.6 million2020 decreased from the comparable periodperiods in 20182019 primarily due to incremental depreciation from increased capital spending and acquisitions, partially offset by lower volumes at our landfills in 2019, which reduced landfill amortization.
Loss on Early Extinguishment of Debtcertain assets becoming fully depreciated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 |
| (in thousands, except percentages) | 2019 | | 2018 | | $ Change | | % Change | | 2019 | | 2018 | | $ Change | | % Change |
| Loss on early extinguishment of debt | $ | 6,119 |
| | $ | 2,469 |
| | $ | 3,650 |
| | 147.8 | % | | $ | 6,119 |
| | $ | 2,469 |
| | $ | 3,650 |
| | 147.8 | % |
During the three and nine months ended September 30, 2019, we recorded a $6.1 million loss on early extinguishment of debt in connection with the extinguishment of the $845.0 million of unsecured senior notes due 2021 which were repaid during the current quarter using the funds from the issuance of $545.0 million of unsecured senior notes due 2027 and $300.0 million of unsecured senior notes due 2029 and some available cash. During the three and nine months ended September 30, 2018, we recorded a $2.5 million loss on early extinguishment of debt in connection with the extinguishment of $400.0 million of senior unsecured notes which were refinanced in connection with an Incremental Facility Amendment to our Term Loan Agreement during the third quarter of 2018. The losses on early extinguishment of debt consisted of amounts paid in excess of par in order to extinguish the debt prior to maturity of $2.7 million and $1.2 million for the 2019 and 2018 transactions, respectively, and non-cash expenses related to the write-off of unamortized financing costs of $3.4 million and $1.3 million for the 2019 and 2018 transactions, respectively. For additional information regarding our financing arrangements, see Note 11, "Financing Arrangements" to the accompanying unaudited consolidated financial statements.
Provision for Income Taxes
| | | | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | 2019 over 2018 | | September 30, | | 2019 over 2018 | | September 30, | | 2020 over 2019 | | September 30, | | 2020 over 2019 |
| (in thousands, except percentages) | 2019 | | 2018 | | $
Change | | %
Change | | 2019 | | 2018 | | $ Change | | % Change | (in thousands, except percentages) | 2020 | | 2019 | |
Change | | %
Change | | 2020 | | 2019 | |
Change | | %
Change |
| Provision for income taxes | $ | 17,750 |
| | $ | 11,275 |
| | $ | 6,475 |
| | 57.4 | % | | $ | 39,752 |
| | $ | 28,011 |
| | $ | 11,741 |
| | 41.9 | % | Provision for income taxes | $ | 13,712 | | | $ | 17,750 | | | $ | (4,038) | | | (22.7) | % | | $ | 35,269 | | | $ | 39,752 | | | $ | (4,483) | | | (11.3) | % |
The provision for income taxes for the three and nine months ended September 30, 2019 increased $6.52020 decreased $4.0 million and $11.7$4.5 million, respectively, from the comparable periods in 2018. The2019, despite an increase in the three and nine months ended September 30, 2019 was primarily due to increased taxable income in the United States. The increase in the three months ended September 30, 2019 as compared to the same period in 2018 was also driven by tax benefits recorded in the third quarter of 2018 resulting from filing amended returnsbefore provision for prior periods.income taxes. Our effective tax rate also decreased from 32.8% and 35.1%, respectively for the three and nine months ended September 30, 2019 was 32.8%to 20.0% and 35.1%, respectively, compared to 26.6% and 36.3%27.0%, respectively for the same periods in 2018.2020.
ForIn recent years, we have incurred losses in certain Canadian operations and have not recognized any tax benefits on those losses. In the three and nine months ended September 30, 2020, these Canadian operations were profitable, and we were able to recognize a portion of those unrecorded tax benefits. As a comparison, for the nine months ended September 30, 2019, we did not recordour tax losses in Canada generated $4.8 million of income tax benefits generated from losses at certainwhich we did not recognize in the income tax provision, as compared to taxable income in Canada for the nine months ended September 30, 2020, which resulted in the recognition of $2.9 million in tax benefits. Decreased taxable income in the remainder of our Canadian entities. This compares to $6.6entities further reduced our provision for income taxes which was partially offset by an increase in taxable income in the United States. The provision for income taxes and the effective tax rate were also impacted by the release of $1.1 million of incomeuncertain tax benefits generatedliabilities in the comparable periodthird quarter of 2018 which also were not recorded in that period's income tax provision.2020.
Liquidity and Capital Resources
| | | | Nine Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| (in thousands) | 2019 | | 2018 | (in thousands) | 2020 | | 2019 |
| Net cash from operating activities | $ | 284,675 |
| | $ | 247,215 |
| Net cash from operating activities | $ | 317,432 | | | $ | 284,675 | |
| Net cash used in investing activities | (187,109 | ) | | (299,482 | ) | Net cash used in investing activities | (160,296) | | | (187,109) | |
| Net cash used in financing activities | (44,132 | ) | | (50,414 | ) | Net cash used in financing activities | (51,975) | | | (44,132) | |
Net cash from operating activities
Net cash from operating activities for the nine months ended September 30, 20192020 was $284.7$317.4 million, an increase of $37.5$32.8 million from the comparable period in 2018.2019. The increase in operating cash flows from the comparable period of 20182019 was most predominantly attributable to greater levelsdeferring the payment of operating incomecertain payroll taxes amounting to approximately $23.2 million as allowed for under the CARES Act, the refund of $7.7 million associated with prior year amended tax returns previously under audit and improvements in working capital,the receipt of $10.5 million associated with the CEWS subsidy, partially offset by increased environmental expenditures. We believe that net cash from operating activities for 2019 will continue to improve year-over-year as we continue to generate higher earnings.a $13.6 million increase in interest payments.
Net cash used in investing activities
Net cash used in investing activities for the nine months ended September 30, 20192020 was $187.1$160.3 million, a decrease of $112.4$26.8 million from the comparable period in 2018. The change was primarily driven by a decrease2019. Net cash used in investing activities decreased most notably due to decreases in cash paid for additions to property, plant and equipment and acquisitions, which was greater during the nine months ended September 30, 2018 dueoffset by an increase in cash paid for available-for-sale securities. As noted earlier, in response to the acquisition of the Veolia Business on February 23, 2018. This decrease was partially offset by increaseduncertainty surrounding COVID-19, we reduced our 2020 planned capital expenditure levels, net of disposals, which we expect to be approximately $200.0 million by the end of 2019.spending.
Net cash used in financing activities
Net cash used in financing activities for the nine months ended September 30, 20192020 was $52.0 million, compared to $44.1 million a decrease of $6.3 million fromfor the comparable period in 2018. The change in net cash used in financing activities2019. This increase of $7.8 million was primarilymostly due to a decreasean increase in repurchases of common stock of $23.2 million, partially offset by an increasea decrease in deferred financing costs and premium paid to issue the unsecured senior notes in 2019 as comparedrelated to the deferred financing costs paid as a result2019 refinancing of the expansion of our Term Loan in 2018.long term debt. For additional information regarding our financing activities, see Note 11, "Financing Arrangements"Arrangements," to the accompanying unaudited consolidated financial statements.
Adjusted Free Cash Flow
Management considers adjusted free cash flow to be a measurement of liquidity which provides useful information to both management, creditors and investors about our financial strength and our ability to generate cash. Additionally, adjusted free cash flow is a metric on which a portion of management incentive compensation is based. We define adjusted free cash flow as net cash
from operating activities, excludingless additions to property, plant and equipment plus proceeds from sales or disposals of fixed assets. We exclude cash impacts of items derived from non-operating activities such as taxes paid in connection with divestitures less additionsand in the current period have also excluded cash paid in connection with the purchase of our corporate headquarters and certain capital improvements to property, plant and equipment plus proceeds from sales or disposals of fixed assets.the site as these expenditures are considered one-time in nature. Adjusted free cash flow should not be considered an alternative to net cash from operating activities or other measurements under GAAP. Adjusted free cash flow is not calculated identically by all companies, and therefore our measurements of adjusted free cash flow may not be comparable to similarly titled measures reported by other companies.
The following is a reconciliation of net cash from operating activities to adjusted free cash flow for the following periods (in thousands): | | | | Nine Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2019 | | 2018 | | 2020 | | 2019 |
| Net cash from operating activities | $ | 284,675 |
| | $ | 247,215 |
| Net cash from operating activities | $ | 317,432 | | | $ | 284,675 | |
| Additions to property, plant and equipment | (174,533 | ) | | (150,722 | ) | Additions to property, plant and equipment | (150,357) | | | (174,533) | |
| Purchase and capital improvements of corporate headquarters | | Purchase and capital improvements of corporate headquarters | 21,080 | | | — | |
| Proceeds from sale and disposal of fixed assets | 8,948 |
| | 6,111 |
| Proceeds from sale and disposal of fixed assets | 7,307 | | | 8,948 | |
| Adjusted free cash flow | $ | 119,090 |
| | $ | 102,604 |
| Adjusted free cash flow | $ | 195,462 | | | $ | 119,090 | |
Working Capital
At September 30, 2019,2020, cash and cash equivalents and marketable securities totaled $329.1$532.3 million, compared to $279.4$414.4 million at December 31, 2018.2019. At September 30, 2019,2020, cash and cash equivalents held by our foreign subsidiaries totaled $68.1$113.8 million and were readily convertible into other currencies including U.S. dollars. At September 30, 2019,2020, the cash and cash equivalents and marketable securities balance for our U.S. operations was $261.0$418.6 million, and our U.S. operations had net operating cash flows of $276.0$256.1 million for the nine months ended September 30, 2019.2020. Additionally, we have a $400.0 million revolving credit facility of which approximately $231.1$249.1 million was available to borrow at September 30, 2019.2020. Based on the above and on our current plans, we believe that our U.S. operations have and will continue to have adequate financial resources to satisfy their current liquidity needs.
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our primary ongoing cash requirements will be to fund operations, capital expenditures, interest payments and investments in line with our business strategy. We believe our future operating cash flows will be sufficient to meet our future operating and internal investing cash needs as well as any cash needs relating to our stock repurchase program. Furthermore, our existing cash balance and the availability of additional borrowings under our revolving credit facility provide additional potential sources of liquidity should they be required.
Financing Arrangements
Financing arrangements are discussed in Note 11, “Financing Arrangements,” to our unaudited consolidated financial statements included in this report. As discussed therein, we refinancedthe Company maintains a portion$400.0 million revolving credit facility, the expiration of our debt portfolio in Julywhich has been extended from November 1, 2021 to October 28, 2025 through an amended and restated credit facility executed on October 28, 2020. The Company had approximately $249.1 million available to borrow and outstanding letters of credit were $123.5 million at September 30, 2020. At December 31, 2019, whereby the $845.0approximately $229.2 million was available to borrow and outstanding letters of previously outstanding 5.125% unsecured senior notes due 2021credit were replaced by $545.0 million of 4.875% unsecured senior notes due 2027 and $300.0 million of 5.125% unsecured senior notes due 2029.$146.9 million. We continue to monitor our debt instruments and evaluate opportunities where it may be beneficial to refinance or reallocate the portfolio.
As of September 30, 2019,2020, we were in compliance with the covenants of all our debt agreements, and we believe it is reasonably likely that we will continue to meet such covenants.
Common Stock Repurchases Pursuant to Publicly Announced Plan
The Company's common stock repurchases are made pursuant to the previously authorized board approved plan to repurchase up to $600.0 million of the Company's common stock. During the three and nine months ended September 30, 2020, the Company repurchased and retired a total of approximately 0.4 million and 0.7 million shares, respectively, of the Company's common stock for total costs of approximately $22.2 million and $39.5 million, respectively. During the three and nine months ended September 30, 2019, the Company repurchased and retired a total of approximately 0.1 million and 0.2 million shares, respectively, of the Company's common stock for total costs of approximately $5.1 million and $16.4 million, respectively.
Through September 30, 2020, the Company has repurchased and retired a total of approximately 6.6 million shares of its common stock for approximately $354.9 million under this program. As of September 30, 2020, an additional $245.1 million remained available for repurchase of shares under this program.
Environmental Liabilities
| | | (in thousands, except percentages) | September 30, 2019 | | December 31, 2018 | | $ Change | | % Change | (in thousands, except percentages) | September 30, 2020 | | December 31, 2019 | | Change | | % Change |
| Closure and post-closure liabilities | $ | 74,159 |
| | $ | 69,931 |
| | $ | 4,228 |
| | 6.0 | % | Closure and post-closure liabilities | $ | 84,216 | | | $ | 75,651 | | | $ | 8,565 | | | 11.3 | % |
| Remedial liabilities | 117,269 |
| | 121,017 |
| | (3,748 | ) | | (3.1 | ) | Remedial liabilities | 115,567 | | | 114,173 | | | 1,394 | | | 1.2 | |
| Total environmental liabilities | $ | 191,428 |
| | $ | 190,948 |
| | $ | 480 |
| | 0.3 | % | Total environmental liabilities | $ | 199,783 | | | $ | 189,824 | | | $ | 9,959 | | | 5.2 | % |
Total environmental liabilities as of September 30, 20192020 were $191.4$199.8 million, an increase of $0.5$10.0 million compared to December 31, 20182019. This increase was primarily due to accretion of $7.6$8.1 million, changesa $4.5 million increase in environmental liability estimates recordedthe closure and post-closure liabilities associated with one commercial landfill for which the Company has initiated closure plans and increases to the balance sheetremedial liabilities of $3.8$3.3 million and new asset retirement obligations$1.8 million for an inactive site and liabilities assumed in acquisitions of $1.9 million,Superfund site, respectively, resulting from receiving updated regulatory remediation requirements. These increases were partially offset by expenditures of $12.8$8.8 million.
We anticipate our environmental liabilities, substantially all of which we assumed in connection with our acquisitions, will be payable over many years and that cash flow from operations will generally be sufficient to fund the payment of such liabilities when required. However, events not anticipated (such as future changes in environmental laws and regulations) could require that such payments be made earlier or in greater amounts than currently anticipated, which could adversely affect our results of operations, cash flow and financial condition.
Capital Expenditures
Capital expenditures in the first nine months of 2020 were $150.4 million as compared to $174.5 million in the same period of 2019. The decrease was primarily due to planned reductions in spending in response to the uncertainty surrounding COVID-19 offset by the purchase of our corporate headquarters in January 2020. We anticipate that 20192020 capital spending, net of disposals, will be in the range of $190.0$176.0 million to $210.0 million.$196.0 million, inclusive of the $21.1 million already spent on the purchase and capital improvements of our corporate headquarters. However, unanticipated changes in environmental regulations could require us to make significant capital expenditures for our facilities and adversely affect our results of operations and cash flow.
Critical Accounting Policies and Estimates
ThereOther than as described below, there were no material changes in the first nine months of 20192020 to the information provided under the heading “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2018. New accounting policies adopted2019.
Goodwill and Other Long-Lived Assets. Goodwill is reviewed for impairment annually as of December 31 or when events or changes in the business environment (triggering events) indicate the carrying value of a reporting unit may exceed its fair value. This review is performed by comparing the fair value of each reporting unit to its carrying value, including goodwill. If the fair value is less than the carrying amount, a loss is recorded for the excess of the carrying value over the fair value up to the carrying amount of goodwill.
We determine our reporting units by identifying the components of each operating segment, and then in some circumstances aggregate components having similar economic characteristics based on quantitative and/or qualitative factors. As of September 30, 2020 and December 31, 2019, we continue to have four reporting units, consisting of Environmental Sales and Service, Environmental Facilities, Safety-Kleen Oil and Safety-Kleen Environmental Services.
We conducted our annual impairment test of goodwill for all of our reporting units to which goodwill was allocated as of December 31, 2019 and determined that no adjustment to the carrying value of goodwill for any reporting unit was then necessary. In all cases the estimated fair value of each reporting unit significantly exceeded its carrying value.
Our long-lived assets are carried on our financial statements based on their cost less accumulated depreciation or amortization. Long-lived assets with finite lives are reviewed for impairment whenever events or changes in circumstances ("triggering events") indicate that their carrying value may not be entirely recoverable. When such factors and circumstances exist, management compares the projected undiscounted future cash flows associated with the related asset or group of assets to the respective carrying amounts. The impairment loss, if any, would be measured as the excess of the carrying amount over the fair value of the asset and is recorded in the period in which the determination is made.
During the three month periods ended March 31, 2020, June 30, 2020 and September 30, 2020, we considered the actual and expected future impacts of COVID-19 and the overall decline in oil demand and pricing, partially driven by the global response to COVID-19, and concluded that no triggering event had occurred. This conclusion was based on a qualitative analysis incorporating (i) the significant excess fair value that previously existed in each reporting unit, (ii) an assessment of the actual operations of the Company during the quarternine months ended September 30, 2020 and (iii) an assessment of the current and long-term performance of the Company given expectations that the effects on the operations and cash flows of each reporting unit arising from these disruptions will be short lived.
We will continue to evaluate our goodwill and other long-lived assets impacted by economic downturns. The market conditions which could lead to such future impairments are describedcurrently most prevalent for assets supporting our oil and gas field services and lodging services operations within the Environmental Sales & Services reporting unit and goodwill associated with our Safety-Kleen Oil reporting unit.
Our assumptions with respect to future cash flows and conclusions with respect to asset impairments could be impacted by changes arising from (i) a further significant deterioration in Note 2, "Significant Accounting Policies,"market conditions arising from COVID-19, (ii) a sustained period of economic and industrial slowdowns resulting from social distancing guidelines and/or larger scale economic shutdowns, (iii) continued reduced demand for base and blended oil products and an inability to price our unaudited consolidatedoil related products and services to maintain profitability, (iv) inability to scale our operations and implement cost reduction efforts in light of reduced demand or (v) a further decline in our share price for a sustained period of time. These factors, among others, could significantly impact the impairment analysis and may result in future goodwill or asset impairment charges that, if incurred, could have a material adverse effect on our financial statements included in this report.condition and results of operations.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ThereOther than the draw down on March 31, 2020, of $150.0 million from our available borrowings under our revolving credit facility, which had been repaid in full as of September 30, 2020, there were no material changes in the first nine months of 20192020 to the information provided under Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2019.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of September 30, 20192020 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the quarternine months ended September 30, 20192020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result of the COVID-19 pandemic, certain employees of the Company began working remotely in March 2020, and some continue to work remotely through September 30, 2020. These changes to the working environment did not have a material effect on the Company’s internal control over financial reporting. We will continue to monitor the impact of COVID-19 on our internal control over financial reporting.
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART II—OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
See Note 16, “Commitments and Contingencies,” to the unaudited consolidated financial statements included in Item 1 of this report, which description is incorporated herein by reference.
ITEM 1A. RISK FACTORS
DuringExcept as set forth below, during the nine months ended September 30, 2019,2020, there were no material changes from the risk factors as previously disclosed in Item 1A in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2019 other than the update described below.
Natural disasters or other catastrophic events, including pandemics, could negatively affect our business, financial condition and results of operations.
Natural disasters such as hurricanes, tornados or earthquakes or other catastrophic events including public health threats or outbreaks of communicable diseases including the recent novel coronavirus pandemic could negatively affect our operations and financial performance. The impact of such events could include physical damage to one or more of our facilities or equipment, the temporary lack of an adequate workforce in a market and the temporary disruption in rail or truck transportation services upon which we rely. These events could prevent or delay shipments from suppliers or to customers and reduce both volumes and revenue. Weather conditions and other event driven special projects also cause interim variations in our results. These events could adversely impact the ability of the Company's suppliers and customers to conduct business activities and could ultimately do so for an indefinite period of time. As a result, we may be required to suspend operations in some or all of our locations, which could have a material adverse effect on our business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Common Stock Repurchase Program
The following table provides information with respect to the shares of common stock repurchased by us for the periods indicated.
|
| | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) |
| July 1, 2019 through July 31, 2019 | 1,071 |
| | $ | 70.53 |
| | — |
| | $ | 294,800,437 |
|
| August 1, 2019 through August 31, 2019 | 33,857 |
| | 74.79 |
| | 30,000 |
| | 292,561,400 |
|
| September 1, 2019 through September 30, 2019 | 40,132 |
| | 75.62 |
| | 38,000 |
| | 289,683,588 |
|
| Total | 75,060 |
| | $ | 75.17 |
| | 68,000 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (3) |
| July 1, 2020 through July 31, 2020 | 12,352 | | | $ | 58.30 | | | — | | | $ | 267,346 | |
| August 1, 2020 through August 31, 2020 | 41,562 | | | 62.26 | | | 38,316 | | | 264,952 | |
| September 1, 2020 through September 30, 2020 | 365,614 | | | 54.43 | | | 363,977 | | | 245,149 | |
| Total | 419,528 | | | 55.32 | | | 402,293 | | | |
________________
(1) Includes 17,235 shares withheld by us from employees to satisfy employee tax obligations upon vesting of restricted stock granted to our employees under the Company's equity incentive plans.
(2) The average price paid per share of common stock repurchased under the stock repurchase program includes the commissions paid to brokers.
(3) Our board of directors has authorized the repurchase of up to $600.0 million of our common stock. We have funded and intend to fund the repurchases through available cash resources. The stock repurchase program authorizes us to purchase our common stock on the open market or in privately negotiated transactions periodically in a manner that complies with applicable U.S. securities laws. The number of shares purchased and the timing of the purchases has depended and will depend on several factors, including share price, cash required for business plans, trading volume and other conditions. During April 2018, we implemented a repurchase plan in accordance with Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended. On March 19, 2020, we cancelled this Rule 10b5-1 plan. All future repurchases will be made in the open market or privately negotiated transactions as described above or upon the execution of a new Rule 10b5-1 plan, if implemented. We have no obligation to repurchase stock under this program and may suspend or terminate the repurchase program at any time.
| |
(1) | Includes 7,060 shares withheld by us from employees to satisfy employee tax obligations upon vesting of restricted stock units granted to our employees under the Company's equity incentive plans. |
| |
(2) | The average price paid per share of common stock repurchased under the stock repurchase program includes the commissions paid to brokers. |
| |
(3) | Our board of directors has authorized the repurchase of up to $600.0 million of our common stock. We have funded and intend to fund the repurchases through available cash resources. The stock repurchase program authorizes us to purchase our common stock on the open market or in privately negotiated transactions periodically in a manner that complies with applicable U.S. securities laws. The number of shares purchased and the timing of the purchases has depended and will depend on several factors, including share price, cash required for business plans, trading volume and other conditions. During April 2018, we implemented a repurchase plan in accordance with Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended. Future repurchases will be made under the Rule 10b5-1 plan as well as open market or privately negotiated transactions as described above. We have no obligation to repurchase stock under this program and may suspend or terminate the repurchase program at any time. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4.MINE SAFETY DISCLOSURE
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6.EXHIBITS
|
| | | | | | | | | | | | | |
| Item No. | | Description | | Location |
| 31.1 | | | | Filed herewith |
| | | | |
| 31.2 | | | | Filed herewith |
| | | | |
| 32 | | | | Filed herewith |
| | | | |
| 101 | | Interactive Data Files Pursuant to Rule 405 of Regulation S-T: Financial statements from the quarterly report on Form 10-Q of Clean Harbors, Inc. for the quarter ended September 30, 2019,2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Cash Flows, (v) Unaudited Consolidated Statements of Stockholders’ Equity and (vi) Notes to Unaudited Consolidated Financial Statements. | | * |
| | | | |
| 104 | | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019,2020, formatted in iXBRL and contained in Exhibit 101. | | |
_______________________
* Interactive data files are furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
| |
* | Interactive data files are furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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 |
| | |
| | By: | /s/ ALAN S. MCKIM |
| | | Alan S. McKim |
| | | Chairman, President and Chief Executive Officer |
| | | |
| Date: | November 4, 2020 | CLEAN HARBORS, INC. | |
| | Registrant | |
| | |
| By: | | By: | /s/ ALAN S. MCKIM |
| | | Alan S. McKim |
| | | Chairman, President and Chief Executive Officer |
| | | |
Date: | October 30, 2019 | | |
| | | |
| | By: | /s/ MICHAEL L. BATTLES |
| | | Michael L. Battles |
| | | Executive Vice President and Chief Financial Officer |
| | |
| Date: | October 30, 2019November 4, 2020 | |