UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March, ~~21, 2020~~27, 2021

o☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________to _________________

Commission File Number 001-33987

HERITAGE-CRYSTAL CLEAN, INC.

(Exact name of registrant as specified in its charter)


Delaware						26-0351454
State or other jurisdiction of						(I.R.S. Employer
Incorporation						Identification No.)

2175 Point Boulevard

Suite 375

Elgin, IL 60123

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (847) 836-5670

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading Symbol

Name of Exchange on which registered

Common Stock, par value $0.01 per share

HCCI

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

On April ~~28, 2020,~~30, 2021, there were outstanding ~~23,257,943 shares~~24,197,966 shares of Common Stock, $0.01 par value, of Heritage-Crystal Clean, Inc.

Table of Contents


PART I

ITEM 1. FINANCIAL STATEMENTS			4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			3332
ITEM 4. CONTROLS AND PROCEDURES			3332

PART II

~~ITEM 1. LEGAL PROCEEDINGS~~			34
~~ITEM 1A. RISK FACTORS~~			34

ITEM 6. EXHIBITS			3533

SIGNATURES			3634

PART I

ITEM 1. FINANCIAL STATEMENTS

Heritage-Crystal Clean, Inc.

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Par Value Amounts)


		March 21, 2020		December 28, 2019			March 27, 2021		January 2, 2021
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	56,938	$	60,694	Cash and cash equivalents	$	46,669	$	67,575
Accounts receivable - net	Accounts receivable - net	55,122		55,586		Accounts receivable - net	52,614		48,479
Inventory - net	Inventory - net	29,112		29,373		Inventory - net	25,530		24,978
Assets held for sale						Assets held for sale	2,446		2,446
Other current assets	Other current assets	6,062		7,104		Other current assets	5,574		8,005
Total current assets	Total current assets	147,234		152,757		Total current assets	132,833		151,483
Property, plant and equipment - net	Property, plant and equipment - net	157,931		154,911		Property, plant and equipment - net	154,747		153,016
Right of use assets	Right of use assets	88,006		89,525		Right of use assets	76,089		78,942
Equipment at customers - net	Equipment at customers - net	24,374		24,232		Equipment at customers - net	23,930		23,111
Software and intangible assets - net	Software and intangible assets - net	16,123		16,892		Software and intangible assets - net	18,484		19,576
Goodwill	Goodwill	32,990		32,997		Goodwill	35,541		35,541
Other assets						Other assets	677		0
Total assets	Total assets	$	466,658	$	471,314	Total assets	$	442,301	$	461,669

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	30,607	$	38,058	Accounts payable	$	31,017	$	29,663
Current portion of lease liabilities	Current portion of lease liabilities	22,087		20,407		Current portion of lease liabilities	18,988		19,198
Contract liabilities - net	Contract liabilities - net	2,428		2,252		Contract liabilities - net	2,235		1,983
Accrued salaries, wages, and benefits	Accrued salaries, wages, and benefits	5,110		6,771		Accrued salaries, wages, and benefits	5,201		6,647
Taxes payable	Taxes payable	7,048		6,538		Taxes payable	10,136		10,592
Other current liabilities	Other current liabilities	16,121		16,418		Other current liabilities	5,306		4,918
Total current liabilities	Total current liabilities	83,401		90,444		Total current liabilities	72,883		73,001
Lease liabilities, net of current portion	Lease liabilities, net of current portion	67,212		68,734		Lease liabilities, net of current portion	57,584		60,294
Long-term debt, less current maturities	Long-term debt, less current maturities	29,418		29,348		Long-term debt, less current maturities	0		29,656
Deferred income taxes	Deferred income taxes	18,617		17,157		Deferred income taxes	24,517		21,218
Total liabilities	Total liabilities	$	198,648	$	205,683	Total liabilities	$	154,984	$	184,169

STOCKHOLDERS' EQUITY:	STOCKHOLDERS' EQUITY:					STOCKHOLDERS' EQUITY:
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,247,912 and 23,191,498 shares issued and outstanding at March 21, 2020 and December 28, 2019, respectively		$	232	$	232
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,390,434 and 23,340,700 shares issued and outstanding at March 27, 2021 and January 2, 2021, respectively						Common stock - 26,000,000 shares authorized at $0.01 par value, 23,390,434 and 23,340,700 shares issued and outstanding at March 27, 2021 and January 2, 2021, respectively	$	234	$	233
Additional paid-in capital	Additional paid-in capital	198,305		200,583		Additional paid-in capital	201,758		201,148
Retained earnings	Retained earnings	69,473		64,182		Retained earnings	85,325		76,119
Total Heritage-Crystal Clean, Inc. stockholders' equity		268,010		264,997
Noncontrolling interest		—		634
Total equity		268,010		265,631
Total stockholders' equity						Total stockholders' equity	$	287,317	$	277,500

Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	466,658	$	471,314	Total liabilities and stockholders' equity	$	442,301	$	461,669

See accompanying notes to financial statements.

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statements of ~~Income/(Loss)~~Income

(In Thousands, Except per Share Amounts)

(Unaudited)

First Quarter Ended,
March 21,
2020 March 23,
2019
Revenues
Service revenues $ 63,757 $ 56,366
Product revenues 37,722 35,858
Rental income 5,785 3,548
Total revenues $ 107,264 $ 95,772
Operating expenses
Operating costs $ 83,250 $ 82,483
Selling, general, and administrative expenses 11,522 12,396
Depreciation and amortization 5,268 4,136
Other expense (income) - net 272 (58)
Operating income (loss) 6,952 (3,185)
Interest expense – net 214 230
Income (loss) before income taxes 6,738 (3,415)
Provision for (benefit from) income taxes 1,447 (986)
Net income (loss) 5,291 (2,429)
Income attributable to noncontrolling interest — 83
Net income (loss) attributable to Heritage-Crystal Clean, Inc. common stockholders $ 5,291 $ (2,512)
Net income (loss) per share: basic $ 0.23 $ (0.11)
Net income (loss) per share: diluted $ 0.23 $ (0.11)
Number of weighted average shares outstanding: basic 23,239 23,117
Number of weighted average shares outstanding: diluted 23,422 23,117


		First Quarter Ended,
		March 27, 2021		March 21, 2020

Revenues
	Service revenues	$	57,700	$	63,757
	Product revenues	42,266		37,722
	Rental income	5,416		5,785
Total revenues		$	105,382	$	107,264

Operating expenses
	Operating costs	$	76,771	$	83,250
	Selling, general, and administrative expenses	12,188		11,522
	Depreciation and amortization	3,782		5,268
	Other (income) expense - net	(108)		272
Operating income		12,749		6,952
Interest expense – net		324		214
Income before income taxes		12,425		6,738
Provision for income taxes		3,219		1,447

Net income		$	9,206	$	5,291

Net income per share: basic		$	0.39	$	0.23
Net income per share: diluted		$	0.39	$	0.23

Number of weighted average shares outstanding: basic		$	23,373	23,239
Number of weighted average shares outstanding: diluted		$	23,509	23,422

See accompanying notes to financial statements.

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(In Thousands, Except Share Amounts)

For the First Quarter Ended March ~~21, 2020~~27, 2021 and March ~~23, 2019~~21, 2020

(Unaudited)


First Quarter Ended,															First Quarter Ended,
March 27, 2021															March 27, 2021
																Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Total Heritage-Crystal Clean, Inc. Stockholders' Equity		Non-controlling Interest		Total Equity

Balance at January 2, 2021															Balance at January 2, 2021	23,340,700	$	233	$	201,148	$	76,119	$	277,500	$	0	$	277,500
Net income															Net income	—	—		—		9,206		9,206		—		9,206
Distribution															Distribution	—	—		—		—		—		—		0
Issuance of common stock – ESPP															Issuance of common stock – ESPP	6,072	—		122		—		122		—		122
Share-based compensation															Share-based compensation	43,662	1		1,217		—		1,218		—		1,218
Share repurchases to satisfy tax withholding obligations															Share repurchases to satisfy tax withholding obligations	—	—		(729)		—		(729)		—		(729)
Balance at March 27, 2021															Balance at March 27, 2021	23,390,434	$	234	$	201,758	$	85,325	$	287,317	$	0	$	287,317

First Quarter Ended,	First Quarter Ended,																											First Quarter Ended,
March 21, 2020	March 21, 2020																											March 21, 2020
		Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Total Heritage-Crystal Clean, Inc. Stockholders' Equity		Non-controlling Interest		Total Equity			Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Total Heritage-Crystal Clean, Inc. Stockholders' Equity		Non-controlling Interest		Total Equity

Balance at December 28, 2019	Balance at December 28, 2019	23,191,498	$	232	$	200,583	$	64,182	$	264,997	$	634	$	265,631	Balance at December 28, 2019	23,191,498	$	232	$	200,583	$	64,182	$	264,997	$	634	$	265,631
Net income	Net income	—	—		—		5,291		5,291		—		5,291		Net income	—	—		—		5,291		5,291		—		5,291
Non-controlling interest acquisition	Non-controlling interest acquisition	—	—		(2,678)		—		(2,678)		—		(2,678)		Non-controlling interest acquisition	—	—		(2,678)		—		(2,678)		—		(2,678)
Distribution	Distribution	—	—		—		—		—		(634)		(634)		Distribution	—	—		—		—		—		(634)		(634)
Issuance of common stock – ESPP	Issuance of common stock – ESPP	4,102	—		122		—		122		—		122		Issuance of common stock – ESPP	4,102	—		122		—		122		—		122
Share-based compensation	Share-based compensation	52,312	—		1,069		—		1,069		—		1,069		Share-based compensation	52,312	—		1,069		—		1,069		—		1,069
Share repurchases to satisfy tax withholding obligations	Share repurchases to satisfy tax withholding obligations	—	—		(791)		—		(791)		—		(791)		Share repurchases to satisfy tax withholding obligations	—	—		(791)		—		(791)		—		(791)
Balance at March 21, 2020	Balance at March 21, 2020	23,247,912	$	232	$	198,305	$	69,473	$	268,010	$	—	$	268,010	Balance at March 21, 2020	23,247,912	$	232	$	198,305	$	69,473	$	268,010	$	0	$	268,010

First Quarter Ended,
March 23, 2019
		Shares	Par Value Common		Additional Paid–in Capital		Retained Earnings		Total Heritage-Crystal Clean, Inc. Stockholders' Equity		Non-controlling Interest		Total Equity
Balance at December 29, 2018		23,058,584	$	231	$	197,533	$	55,819	$	253,583	$	648	$	254,231

Net (loss) income		—	—		—		(2,512)		(2,512)		83		(2,429)

Issuance of common stock – ESPP		4,975	—		111		—		111		—		111
Exercise of stock options		2,760	—		20		—		20		—		20
Share-based compensation		54,679	—		889		—		889		—		889
Share repurchases to satisfy tax withholding obligations		—	—		(644)		—		(644)		—		(644)
Balance at March 23, 2019		23,120,998	$	231	$	197,909	$	53,307	$	251,447	$	731	$	252,178

See accompanying notes to financial statements.

~~.Heritage-Crystal~~Heritage-Crystal Clean, Inc.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


		For the First Quarter Ended,							First Quarters Ended,
		March 21, 2020		March 23, 2019			March 27, 2021		March 21, 2020
Cash flows from Operating Activities:	Cash flows from Operating Activities:					Cash flows from Operating Activities:
Net income (loss)		$	5,291	$	(2,429)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income						Net income	$	9,206	$	5,291
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	5,268		4,136		Depreciation and amortization	3,782		5,268
Bad debt provision		189		249
Uncollectible provision						Uncollectible provision	474		189
Share-based compensation	Share-based compensation	1,069		889		Share-based compensation	1,218		1,069
Deferred taxes	Deferred taxes	1,459		(972)		Deferred taxes	3,299		1,459
Other, net	Other, net	(424)		(171)		Other, net	376		(424)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		275		(1,473)
Decrease in inventory		262		3,716
(Increase) decrease in accounts receivable						(Increase) decrease in accounts receivable	(4,609)		275
(Increase) decrease in inventory						(Increase) decrease in inventory	(552)		262
Decrease in other current assets	Decrease in other current assets	1,040		1,921		Decrease in other current assets	2,557		1,040
(Decrease) increase in accounts payable		(5,273)		1,531
Increase (decrease) in accounts payable						Increase (decrease) in accounts payable	1,345		(5,273)

Increase in accrued liabilities		1,110		1,781
(Decrease) increase in accrued liabilities						(Decrease) increase in accrued liabilities	(893)		1,320

Cash provided by operating activities	Cash provided by operating activities	$	10,266	$	9,178	Cash provided by operating activities	$	16,203	$	10,476

Cash flows from Investing Activities:	Cash flows from Investing Activities:					Cash flows from Investing Activities:
Capital expenditures	Capital expenditures	$	(9,842)	$	(7,579)	Capital expenditures	$	(5,411)	$	(9,842)
Proceeds from sale of assets						Proceeds from sale of assets	149		0

Business acquisitions, net of cash acquired		—		(1,973)

Cash used in investing activities	Cash used in investing activities	$	(9,842)	$	(9,552)	Cash used in investing activities	$	(5,262)	$	(9,842)

Cash flows from Financing Activities:	Cash flows from Financing Activities:					Cash flows from Financing Activities:
Proceeds from the exercise of stock options		$	—	$	20
Payment of Term Loan						Payment of Term Loan	(30,000)		0
Debt Issuance Costs						Debt Issuance Costs	(804)		0
Repayment of principal on finance leases						Repayment of principal on finance leases	(436)		(210)
Share repurchases to satisfy tax withholding obligations	Share repurchases to satisfy tax withholding obligations	(791)		(644)		Share repurchases to satisfy tax withholding obligations	(729)		(791)
Proceeds from the issuance of common stock	Proceeds from the issuance of common stock	122		111		Proceeds from the issuance of common stock	122		122
Payments of deferred and contingent consideration	Payments of deferred and contingent consideration	(199)		—		Payments of deferred and contingent consideration	0		(199)
Distributions to noncontrolling interest	Distributions to noncontrolling interest	(3,312)		—		Distributions to noncontrolling interest	0		(3,312)
Cash used in financing activities	Cash used in financing activities	$	(4,180)	$	(513)	Cash used in financing activities	$	(31,847)	$	(4,390)
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(3,756)		(887)		Net decrease in cash and cash equivalents	(20,906)		(3,756)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	60,694		43,579		Cash and cash equivalents, beginning of period	67,575		60,694
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	56,938	$	42,692	Cash and cash equivalents, end of period	$	46,669	$	56,938

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Income taxes paid	Income taxes paid	$	31	$	—	Income taxes paid	$	947	$	31
Cash paid for interest	Cash paid for interest	92		334		Cash paid for interest	108		92
Supplemental disclosure of non-cash information:	Supplemental disclosure of non-cash information:					Supplemental disclosure of non-cash information:
Payables for construction in progress	Payables for construction in progress	465		1,933		Payables for construction in progress	754		465

See accompanying notes to financial statements.

HERITAGE-CRYSTAL CLEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March ~~21, 2020~~27, 2021

(1) ORGANIZATION AND NATURE OF OPERATIONS

Heritage-Crystal Clean, Inc., a Delaware corporation and its subsidiaries (collectively the “Company”), provide parts cleaning, hazardous and non-hazardous containerized waste, used oil collection, wastewater and vacuum, antifreeze recycling and field services primarily to small and mid-sized industrial and vehicle maintenance customers. The Company owns and operates a used oil re-refinery where it re-refines used oils and sells high quality base oil for lubricants as well as other re-refinery products. The Company also has multiple locations where it dehydrates used oil. The oil processed at these locations is primarily sold as recycled fuel oil. The Company also operates multiple wastewater treatment plants and antifreeze recycling facilities at which it produces virgin-quality antifreeze. The Company's locations are in the United States and Ontario, Canada. The Company conducts its primary business operations through Heritage-Crystal Clean, LLC, its wholly owned subsidiary, and all intercompany balances have been eliminated in consolidation.

The Company has 2 reportable segments: "Environmental Services" and "Oil Business." The Environmental Services segment consists of the Company's parts cleaning, containerized waste management, wastewater and vacuum ~~truck~~ services, antifreeze recycling activities, and field services. The Oil Business segment consists of the Company's used oil collection, recycled fuel oil sales, used oil re-refining activities, and used oil filter removal and disposal services. No customer represented greater than 10% of consolidated revenues for any of the periods presented. There were no intersegment revenues. Both segments operate in the United States and, to an immaterial degree, in Ontario, Canada. As such, the Company is not disclosing operating results by geographic segment.

The Company’s fiscal year ends on the Saturday closest to December 31. The most recent fiscal year ended on ~~December 28, 2019.~~January 2, 2021. Each of the Company's first three fiscal quarters consists of twelve weeks while the last fiscal quarter consists of sixteen or seventeen weeks.

In the Company's Environmental Services segment, product revenues include sales of solvent, machines, absorbent, accessories, and antifreeze; service revenues include servicing of parts cleaning machines, ~~drum~~containerized waste removal services, wastewater and vacuum ~~truck~~ services, field services, and other services; rental income includes embedded lease income from certain of our parts cleaning contracts. In the Company's Oil Business segment, product revenues primarily consist of sales of re-refined base oil, re-refinery co-products and recycled fuel oil; service revenues include revenues from used oil collection activities, collecting and disposing of waste water and removal and disposal of used oil filters. Due to the Company's integrated business model, it is impracticable to separately present costs of tangible products and costs of services.

COVID-19 Pandemic

We are closely monitoring the spread and impact of the COVID-19 pandemic and are continually assessing its potential effects on our business and our financial performance as well as the businesses of our customers and vendors. The Company cannot predict the duration or severity of the COVID-19 pandemic, and we cannot reasonably estimate the financial impact the COVID-19 outbreak will have on our results and significant estimates going forward.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company's significant accounting policies are described in Note 2, "Summary of Significant Accounting Policies," in the Company's Annual Report on Form 10-K for the fiscal year ended ~~December 28, 2019.~~January 2, 2021. There have been no material changes in these policies or their application during the ~~first~~third quarter of fiscal ~~2020.~~2021.

Recently Issued Accounting Standards Adopted

Standard

Issuance Date

Description

Effective Date

Effect on the Financial Statements

ASU ~~2016-13, “Financial Instruments - Credit Losses~~2020-04: Reference Rate Reform (Topic ~~326): Measurement of Credit Losses on Financial Instruments.”~~848)

March 12, 2020

~~June 2016~~

~~This update modifies~~In March 2020, the ~~impairment model~~FASB issued ASU 2020-04: Reference Rate Reform which provides optional expedients and exceptions for ~~most financial assets and certain other instruments. For trade~~applying U.S. GAAP to contracts, hedging relationships, and other ~~receivables, held-to-maturity debt securities, loans~~transactions affected by the discontinuance of LIBOR or another referenced rate. The guidance may be applied to any applicable contract entered into before December 31, 2022.

The Company plans on applying the accounting standard to contracts, hedging relationships, and other ~~instruments, entities will be required to utilize~~transactions affected by the discontinuance of LIBOR on a ~~new forward-looking “expected loss” methodology that generally will result in the earlier recognition of allowance for losses.~~prospective basis.

~~December 29, 2019~~

The Company ~~adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) on December 29, 2019 and determined there was no material~~is currently evaluating the impact of this guidance on the consolidated financial ~~statements with no adjustment to retained earnings.~~statements.

(3) BUSINESS COMBINATIONS

On ~~January 28,~~March 31, 2020, the Company completed the acquisition of certain assets of Gro America (“Gro”), which has expanded our network of wastewater processing facilities and augmented our field services capabilities to better serve our customers throughout the Midwestern United States. The purchase price was $10.0 million subject to certain adjustments, including a working capital adjustment, and was allocated based on our estimates and assumptions of the approximate fair values of assets acquired and liabilities assumed on the acquisition date. Goodwill recognized from the acquisition of Gro America represents the excess of the estimated purchase consideration transferred over the estimated fair value of the assets acquired and liabilities assumed. Factors leading to goodwill being recognized consist of the Company's expectations of synergies from combining operations of Gro America and the Company as well as the value of intangible assets that are not separately recognized, such as assembled workforce. Transaction costs incurred in conjunction with the acquisition of Gro America were immaterial. The results of Gro America are consolidated into the Company’s Environmental Services segment.

On December 27, 2019, the Company acquired the remaining ownership interest in one of our subsidiaries in the amount of $2.7 million.

On October 8, 2019, ~~Heritage-Crystal Clean~~the Company completed the acquisition of certain assets of California Environmental & Litho, Inc., which ~~provide~~provided regulated waste disposal, transportation, manifesting, labeling and profiling services to printing, photographic, automotive and body shop industries in the Bay Area, Central Valley & Northern California. ~~The acquisition represents an expansion of HCC’s Environmental Services business in this geographic area while potentially providing new services and products for this market.~~ No facilities were acquired in the transaction and all service employees and activity ~~will be~~have been consolidated in existing branch territories. Total consideration for the acquisition was approximately $0.5 million. Factors leading to goodwill being recognized are the Company's expectations of synergies from combining operations of California Environmental & Litho, Inc., and the Company as well as the value of intangible assets that are not separately recognized, such as an assembled workforce.

On March 25, 2019, the Company completed the acquisition of certain assets of All Valley Disposal, Inc., an environmental services provider based in Fresno, California. Consideration for the acquisition paid at closing was $0.6 million. Contingent upon the achievement of certain business performance metrics, total consideration for the acquisition could reach a maximum of approximately ~~$1.3~~$1.0 million. Factors leading to goodwill being recognized are the Company's expectations of synergies from combining operations of All Valley Disposal, Inc., and the Company as well as the value of intangible assets that are not separately recognized, such as an assembled workforce. The results of All Valley Disposal are consolidated into the Company’s Environmental Services segment.

On February 1, 2019, the Company purchased the assets of W.S. Supplies, Inc. ("WSS") pursuant to an Asset Purchase Agreement. The Company purchased the assets of WSS to expand the Company’s Environmental Services segment in the mid-west. The purchase price was ~~set at~~ $0.5 million subject to certain adjustments, including a contingent consideration provision, and is allocated based on our estimates and assumptions of the approximate fair values of assets acquired on the acquisition date. The results of WSS are consolidated into the Company’s Environmental Services segment.

On January 11, 2019, the Company purchased the assets of the consumer division of GlyEco, Inc. ("GlyEco") pursuant to an Asset Purchase Agreement. The Company purchased the assets of GlyEco's consumer division to expand the Company’s antifreeze line of business while expanding geographically. The purchase price was ~~set at~~ $1.6 million subject to certain adjustments, including working capital adjustments, and is allocated based on our estimates and assumptions of the approximate fair values of assets acquired on the acquisition date. Factors leading to goodwill being recognized are the Company's expectations of synergies from combining operations of GlyEco and the Company as well as the value of intangible assets that are not separately recognized, such as an assembled workforce. The results of GlyEco are consolidated into the Company’s Environmental Services segment.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, net of cash acquired, related to each acquisition:


		As of March 21, 2020															As of March 27, 2021
_(thousands)	_(thousands)	California Environmental & Litho		All Valley Disposal		GlyEco		WSS		(thousands)	Gro America		California Environmental & Litho		All Valley Disposal		GlyEco		WSS

Accounts receivable	Accounts receivable	$	67	$	36	$	107	$	—	Accounts receivable	$	752	$	67	$	36	$	107	$	0
Inventory	Inventory	3		18		291		28		Inventory	0		3		18		291		28

Property, plant, & equipment	Property, plant, & equipment	15		252		746		154		Property, plant, & equipment	1,490		15		252		746		154
Equipment at customers	Equipment at customers	—		—		—		24		Equipment at customers	0		0		0		0		24
Intangible assets	Intangible assets	445		310		251		298		Intangible assets	5,300		445		310		251		298
Goodwill	Goodwill	3		384		251		—		Goodwill	2,541		3		384		251		0

Accounts payable										Accounts payable	(78)		0		0		0		0

Total purchase price, net of cash acquired	Total purchase price, net of cash acquired	$	533	$	1,000	$	1,646	$	504	Total purchase price, net of cash acquired	$	10,005	$	533	$	1,000	$	1,646	$	504
Less: working capital adjustment	Less: working capital adjustment	—		—		23		—		Less: working capital adjustment	0		0		0		23		0

Less: contingent consideration	Less: contingent consideration	120		250		—		—		Less: contingent consideration	0		120		250		0		0
Less: to be placed in escrow	Less: to be placed in escrow	—		100		—		—		Less: to be placed in escrow	0		0		100		0		0
Net cash paid	Net cash paid	$	413	$	650	$	1,623	$	504	Net cash paid	$	10,005	$	413	$	650	$	1,623	$	504

(4) REVENUE

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when our performance obligations under the terms of a contract with our customers are satisfied. Recognition occurs when the Company transfers control by completing the specified services at the point in time the customer benefits from the services performed or once our products are delivered. The Company measures progress toward complete satisfaction of a performance obligation satisfied over time using a cost-based input method. This method of measuring progress provides a faithful depiction of the transfer of goods or services because the costs incurred are expected to be substantially proportionate to the Company’s satisfaction of the performance obligation. Revenue is measured as the amount of consideration we expect to receive in exchange for completing our performance obligations. Sales tax and other taxes we collect with revenue-producing activities are excluded from revenue. In the case of contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative stand-alone selling prices of the various goods and/or services encompassed by the contract. We do not have any material significant payment terms as payment is generally due within 30 days after the performance obligation has been satisfactorily completed. The Company has elected the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less. In applying the guidance in Topic 606, there were no judgments or estimates made that the Company deems significant.

Contract Balances — Contract assets primarily relate to the Company’s rights to consideration for work completed in relation to its services performed but not billed at the reporting date. Contract liabilities primarily consist of advance payments of performance obligations yet to be fully satisfied in the period reported. Our contract liabilities and contract assets are reported in a net position at the end of each reporting period.

We disaggregate our revenue from contracts with customers by major lines of business for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

The following table disaggregates our revenue by major lines:


		For the First Quarter Ended,																							For the First Quarter Ended,
		March 21, 2020										March 23, 2019											March 27, 2021				March 21, 2020
Total Net Sales by Major Lines of Business (thousands)	Total Net Sales by Major Lines of Business (thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total		Total Net Sales by Major Lines of Business (thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total
Parts cleaning, containerized waste, & related products/services	Parts cleaning, containerized waste, & related products/services	$	40,290	$	—	$	40,290	$	38,134	$	—	$	38,134	Parts cleaning, containerized waste, & related products/services	$	38,833	$	0	$	38,833	$	40,290	$	0	$	40,290
Vacuum Services & Wastewater Treatment	Vacuum Services & Wastewater Treatment	14,618		—		14,618		13,976		—		13,976		Vacuum Services & Wastewater Treatment	13,692		0		13,692		14,618		0		14,618
Field Services	Field Services	9,623		—		9,623		3,841		—		3,841		Field Services	4,096		0		4,096		9,623		0		9,623
Antifreeze Business	Antifreeze Business	6,677		—		6,677		6,658		—		6,658		Antifreeze Business	6,988		0		6,988		6,677		0		6,677
Environmental Services - Other	Environmental Services - Other	480		—		480		403		—		403		Environmental Services - Other	441		0		441		480		0		480
Re-refinery Product Sales	Re-refinery Product Sales	—		25,436		25,436		—		24,035		24,035		Re-refinery Product Sales	0		30,054		30,054		0		25,436		25,436
Oil Collection Services & RFO	Oil Collection Services & RFO	—		3,289		3,289		—		3,962		3,962		Oil Collection Services & RFO	0		4,617		4,617		0		3,289		3,289
Oil Filter Business	Oil Filter Business	—		1,066		1,066		—		1,215		1,215		Oil Filter Business	0		1,245		1,245		0		1,066		1,066
Revenues from Contracts with Customers	Revenues from Contracts with Customers	71,688		29,791		101,479		63,012		29,212		92,224		Revenues from Contracts with Customers	64,050		35,916		99,966		71,688		29,791		101,479
Rental income	Rental income	5,765		20		5,785		3,484		64		3,548		Rental income	5,407		9		5,416		5,765		20		5,785
Total Revenues	Total Revenues	$	77,453	$	29,811	$	107,264	$	66,496	$	29,276	$	95,772	Total Revenues	$	69,457	$	35,925	$	105,382	$	77,453	$	29,811	$	107,264

The following table provides information about contract assets and contract liabilities from contracts with customers:

(thousands) March 21, 2020 December 28, 2019
Contract assets $ 68 $ 64
Contract liabilities 2,496 2,316
Contract liabilities - net $ 2,428 $ 2,252


(thousands)	March 27, 2021		January 2, 2021
Contract assets	$	80	$	72
Contract liabilities	2,315		2,054
Contract liabilities - net	$	2,235	$	1,982

During the fiscal quarter ended March ~~21, 2020,~~27, 2021, the Company recognized ~~$2.3~~$2.1 million of revenue that was included in the contract liabilities balance as of ~~December 28, 2019.~~January 2, 2021. The Company has no assets recognized from costs to obtain or fulfill a contract with a customer. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

(5) ACCOUNTS RECEIVABLE

Accounts Receivable — Net, includes amounts billed to and currently due from customers. The amounts due are stated at their net estimated realizable value. The allowance for doubtful accounts is our best estimate of the amount of probable lifetime-expected credit losses in existing accounts receivable and is determined based on our historical collections experience, age of the receivable, knowledge of the customer and the condition of the general economy and industry as a whole. The Company does not have any off-balance-sheet credit exposure related to its customers.

Accounts receivable for the first quarter ended March ~~21, 2020,~~27, 2021, and the fiscal year ended ~~December 28, 2019~~January 2, 2021 consisted of the following:


(thousands)	(thousands)	March 21, 2020		December 28, 2019		(thousands)	March 27, 2021		January 2, 2021
Trade	Trade	$	53,901	$	54,420	Trade	$	52,396	$	47,191
Less: allowance for doubtful accounts		1,644		2,221
Less: allowance for uncollectible accounts						Less: allowance for uncollectible accounts	2,553		2,502
Trade - net	Trade - net	52,257		52,199		Trade - net	49,843		44,689
Related parties	Related parties	2,309		1,560		Related parties	2,771		3,276
Other	Other	556		1,827		Other	0		514
Total accounts receivable - net	Total accounts receivable - net	$	55,122	$	55,586	Total accounts receivable - net	$	52,614	$	48,479

The following table provides the changes in the Company’s allowance for ~~doubtful~~uncollectible accounts for the first quarter ended March ~~21, 2020,~~27, 2021, and the fiscal year ended ~~December 28, 2019:~~January 2, 2021:


(thousands)	(thousands)	March 21, 2020		December 28, 2019		(thousands)	March 27, 2021		January 2, 2021
Balance at beginning of period	Balance at beginning of period	$	2,221	$	1,816	Balance at beginning of period	$	2,502	$	2,221
Provision for bad debts		189		1,486
Provision for uncollectible accounts						Provision for uncollectible accounts	474		1,919
Accounts written off, net of recoveries	Accounts written off, net of recoveries	(766)		(1,081)		Accounts written off, net of recoveries	(423)		(1,638)
Balance at end of period	Balance at end of period	$	1,644	$	2,221	Balance at end of period	$	2,553	$	2,502

(6) INVENTORY

The carrying value of inventory consisted of the following:


(thousands)	(thousands)	March 21, 2020		December 28, 2019		(thousands)	March 27, 2021		January 2, 2021
Solvents and solutions						Solvents and solutions	$	6,740	$	6,672
Used oil and processed oil	Used oil and processed oil	$	9,797	$	8,349	Used oil and processed oil	7,500		6,345
Solvents and solutions		8,443		8,694
Machines	Machines	4,619		5,440		Machines	5,364		5,704
Drums and supplies	Drums and supplies	4,238		4,697		Drums and supplies	4,269		4,423
Other	Other	2,441		2,632		Other	2,012		2,221
Total inventory	Total inventory	29,538		29,812		Total inventory	25,885		25,365
Less: machine refurbishing reserve	Less: machine refurbishing reserve	426		439		Less: machine refurbishing reserve	355		387
Total inventory - net	Total inventory - net	$	29,112	$	29,373	Total inventory - net	$	25,530	$	24,978

Inventory consists primarily of used oil, processed oil, solvents and solutions, new and refurbished parts cleaning machines, drums and supplies, and other items. Inventories are valued at the lower of first-in, first-out (FIFO) cost or net realizable value, net of any reserves for excess, obsolete, or unsalable inventory. The Company ~~routinely~~continually monitors its inventory levels at each of its locations and evaluates inventories for excess or slow-moving items. If circumstances indicate the cost of inventories exceed their recoverable value, inventories are reduced to net realizable value. The Company had 0 inventory write downs during the first quarter of fiscal ~~2020~~2021 or fiscal ~~2019.~~2020.

(7) PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following:


(thousands)	(thousands)	March 21, 2020		December 28, 2019		(thousands)	March 27, 2021		January 2, 2021
Machinery, vehicles, and equipment	Machinery, vehicles, and equipment	$	127,502	$	127,242	Machinery, vehicles, and equipment	$	139,642	$	138,496
Buildings and storage tanks	Buildings and storage tanks	71,607		71,616		Buildings and storage tanks	72,939		72,938
Land	Land	9,647		9,664		Land	5,911		5,909
Leasehold improvements	Leasehold improvements	6,523		6,523		Leasehold improvements	6,930		6,929
Construction in progress	Construction in progress	13,275		7,958		Construction in progress	9,775		8,023
Assets held for sale		—		4

Total property, plant and equipment	Total property, plant and equipment	228,554		223,007		Total property, plant and equipment	235,197		232,295
Less: accumulated depreciation	Less: accumulated depreciation	70,623		68,096		Less: accumulated depreciation	80,450		79,279
Property, plant and equipment - net	Property, plant and equipment - net	$	157,931	$	154,911	Property, plant and equipment - net	$	154,747	$	153,016

(thousands)	(thousands)	March 21, 2020		December 28, 2019		(thousands)	March 27, 2021		January 2, 2021
Equipment at customers	Equipment at customers	$	79,201	$	77,914	Equipment at customers	$	83,091	$	81,881
Less: accumulated depreciation	Less: accumulated depreciation	54,827		53,682		Less: accumulated depreciation	59,161		58,770
Equipment at customers - net	Equipment at customers - net	$	24,374	$	24,232	Equipment at customers - net	$	23,930	$	23,111

Depreciation expense for the first quarter ended March 27, 2021 and March 21, 2020 ~~and March 23, 2019~~ was ~~$4.4~~$2.5 million and ~~$3.1~~$4.4 million, respectively.

(8) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is measured as a residual amount as of the acquisition date, which in most cases results in measuring goodwill as an excess of the purchase consideration transferred plus the fair value of any noncontrolling interest in the acquiree over the fair value of the net assets acquired, including any contingent consideration. The Company tests goodwill for impairment annually in the fourth quarter and in interim periods if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company's determination of fair value requires certain assumptions and estimates, such as margin expectations, market conditions, growth expectations, expected changes in working capital, etc., regarding expected future profitability and expected future cash flows. The Company tests goodwill for impairment at each of its 2 reporting units, Environmental Services and Oil Business.

The following table shows changes to our goodwill balances by segment from ~~December 28, 2019~~January 2, 2021 to March ~~21, 2020:~~27, 2021:


_(thousands)	_(thousands)	Oil Business		Environmental Services		Total		(thousands)	Oil Business		Environmental Services		Total

Goodwill at December 28, 2019
Goodwill at January 2, 2021								Goodwill at January 2, 2021
Gross carrying amount	Gross carrying amount	$	3,952	$	32,997	$	36,949	Gross carrying amount	$	3,952	$	35,541	$	39,493
Accumulated impairment loss	Accumulated impairment loss	(3,952)		—		(3,952)		Accumulated impairment loss	(3,952)		0		(3,952)
Net book value at December 28, 2019		$	—	$	32,997	$	32,997
Net book value at January 2, 2021								Net book value at January 2, 2021	$	0	$	35,541	$	35,541

Measurement period and other adjustments		—		(7)		(7)
Goodwill at March 21, 2020

Goodwill at March 27, 2021								Goodwill at March 27, 2021
Gross carrying amount	Gross carrying amount	3,952		32,990		36,942		Gross carrying amount	$	3,952	35,541		$	39,493
Accumulated impairment loss	Accumulated impairment loss	(3,952)		—		(3,952)		Accumulated impairment loss	(3,952)		0		(3,952)
Net book value at March 21, 2020		$	—	$	32,990	$	32,990
Net book value at March 27, 2021								Net book value at March 27, 2021	$	0	$	35,541	$	35,541

The following is a summary of software and other intangible assets:


		March 21, 2020										December 28, 2019											March 27, 2021				January 2, 2021
_(thousands)	_(thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		(thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer & supplier relationships	Customer & supplier relationships	$	25,531	$	14,545	$	10,986	$	25,551	$	13,886	$	11,665	Customer & supplier relationships	$	30,860	$	18,068	$	12,792	$	30,857	$	16,934	$	13,923
Software	Software	8,229		5,033		3,196		8,093		4,887		3,206		Software	9,739		5,718		4,021		9,592		5,645		3,947
Non-compete agreements	Non-compete agreements	3,590		3,087		503		3,603		3,068		535		Non-compete agreements	3,609		3,240		369		3,607		3,212		395
Patents, formulae, and licenses	Patents, formulae, and licenses	1,769		791		978		1,769		774		995		Patents, formulae, and licenses	1,769		856		913		1,769		850		919
Other	Other	1,701		1,241		460		1,702		1,211		491		Other	1,738		1,349		389		1,738		1,346		392
Total software and intangible assets - net	Total software and intangible assets - net	$	40,820	$	24,697	$	16,123	$	40,718	$	23,826	$	16,892	Total software and intangible assets - net	$	47,715	$	29,231	$	18,484	$	47,563	$	27,987	$	19,576

Amortization expense was $1.2 million for the first quarter ended March 27, 2021, and $0.9 million for the first quarter ended March 21, ~~2020, and $1.0 million for the first quarter ended March 23, 2019.~~2020.

The weighted average useful lives of software and other intangibles are as follows:


						Weighted Average Useful Life (years)
Patents, formulae, & licenses						15
Customer and supplier relationships						1110
Software						9
Non-compete agreements						54
Other intangibles						7

The estimated amortization expense for the remainder of fiscal ~~2020~~2021 and each of the five succeeding fiscal years is as follows:


_(millions)	_(millions)		(millions)
Fiscal Year	Fiscal Year	Amortization Expense	Fiscal Year	Amortization Expense
2020		$2.6
2021	2021	3.2	2021	$3.7
2022	2022	3.0	2022	4.3
2023	2023	2.4	2023	3.8
2024	2024	0.9	2024	2.1
2025	2025	0.7	2025	1.1
2026			2026	0.5

The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, the finalization of the fair value of intangible assets that have been acquired from business combinations, disposal of intangible assets, accelerated amortization of intangible assets, and other events.

(9) ACCOUNTS PAYABLE

Accounts payable consisted of the following:


_(thousands)	_(thousands)	March 21, 2020		December 28, 2019		(thousands)	March 27, 2021		January 2, 2021
Accounts payable	Accounts payable	$	30,196	$	37,690	Accounts payable	$	30,705	$	29,263
Accounts payable - related parties	Accounts payable - related parties	411		368		Accounts payable - related parties	312		400
Total accounts payable	Total accounts payable	$	30,607	$	38,058	Total accounts payable	$	31,017	$	29,663

(10) DEBT AND FINANCING ARRANGEMENTS

Bank Credit Facility

~~The Company's~~On March 18, 2021, Heritage-Crystal Clean, LLC, (the “Company”), entered into an Amended and Restated Credit Agreement ~~("Credit Agreement"~~(the "Agreement"), by and among the Company, its parent, Heritage-Crystal Clean, Inc., and the Company’s subsidiaries identified therein and Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., and Wells Fargo Bank, National Association. The Agreement replaces the Company's previous Credit Agreement dated as of February 21, ~~2017,~~2017. During the first quarter the Company paid down its previous term loan, in full, of $30.0 million. The new Agreement provides for borrowings of up to ~~$95.0~~$100.0 million, ~~subject to~~in the ~~satisfaction of certain terms and conditions, comprised~~form of a ~~term loan~~revolving facility, of ~~$30.0~~which $15 million ~~and up to $65.0 million~~can be used in the form of ~~borrowings under~~ a ~~revolving~~Swing Line loan. The actual amount of borrowings available under the revolving loan portion of the Credit Agreement is limited by the Company's total leverage ratio. The amount available to draw at any point in time would be further reduced by any standby letters of credit issued.

Loans made under the ~~Credit~~ Agreement, as amended, may be Base Rate Loans or LIBOR Rate Loans, at the election of the ~~Company~~Borrower subject to certain exceptions. Base Rate Loans have an interest rate equal to (i) the higher of (a) the federal funds rate plus 0.5%, (b) the London Interbank Offering Rate (“LIBOR”) plus 1%, or (c) Bank of America's prime rate, plus (ii) a variable margin of between ~~0.75%~~0.50% and ~~1.75%~~1.25% depending on the Company's total leverage ratio, calculated on a consolidated basis. LIBOR rate loans have an interest rate equal to (i) the LIBOR rate plus (ii) a variable margin of between ~~1.75%~~1.50% and ~~2.75%~~2.25% depending on the Company's total leverage ratio. Amounts borrowed under the ~~Credit~~ Agreement are secured by a security interest in substantially all of the Company's tangible and intangible assets. The Company incurred $0.8 million of debt issuance costs related to the amended credit agreement.

~~On July 27, 2017,~~As of the ~~Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out~~Effective date of March 18, 2021, the ~~London Interbank Offered Rate by the end of 2021. We expect that widespread use of LIBOR will transition to alternative interest rates in the near future. Since loans made under~~effective rate on our Credit Agreement may be based on LIBOR based loans, the phasing out of LIBOR may adversely affect interest rates that could result in higher borrowing costs and higher interest expense. The Company is currently evaluating its options under our Credit Agreement, but at this time we cannot reasonably estimate the impact to our financial statements.term loan was 1.90%.

The Credit Agreement contains customary terms and provisions (including representations, covenants, and conditions) for transactions of this type. Certain covenants, among other things, restrict the Company's and its subsidiaries' ability to incur indebtedness, grant liens, make investments and sell assets. The Credit Agreement also contains customary events of default, covenants and representations and warranties. Financial covenants include:

•An interest coverage ratio (based on interest expense and EBITDA) of at least 3.5 to 1.0;

•A total leverage ratio no greater than ~~3.00~~3.0 to ~~1.00,~~1.0, provided that in the event of a permitted acquisition having an aggregate consideration equal to $10.0 million or more, at the Borrower’s election, the ~~total leverage ratio~~foregoing 3.00 to 1.00 shall be deemed to be ~~3.25~~3.50 to 1.00 for the fiscal quarter in which such permitted acquisition occurs and the three immediately following fiscal quarters and will thereafter ~~will~~ revert to 3.00 to ~~1.00; and~~

•A capital expenditures covenant limiting capital expenditures to $100.0 million plus, if the capital expenditures permitted have been fully utilized, an additional amount for the remaining term of the Credit Agreement equal to 35% of EBITDA for the thirteen “four-week” periods most recently ended immediately prior to the full utilization of such $100.0 million basket.1.00.

The Credit Agreement places certain limitations on acquisitions and the payment of dividends.

On July 27, 2017, the Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out the London Interbank Offered Rate by the end of 2021. We expect that widespread use of LIBOR will transition to alternative interest rates in the near future. Since loans made under our Credit Agreement may be LIBOR based loans, the phasing out of LIBOR may adversely affect interest rates that could result in higher borrowing costs and higher interest expense. The Company is currently evaluating its options under our Credit Agreement, but at this time we cannot reasonably estimate the impact to our financial statements.

Debt at March ~~21, 2020~~27, 2021 and ~~December 28, 2019~~January 2, 2021 consisted of the following:

(thousands) March 21, 2020 December 28, 2019
Principal amount $ 30,000 $ 30,000
Less: unamortized debt issuance costs 582 652
Long-term debt, less current maturities $ 29,418 $ 29,348


(thousands)	March 27, 2021		January 2, 2021
Principal amount	$	0	$	30,000
Less: unamortized debt issuance costs	0		344
Long-term debt, less current maturities	$	0	$	29,656

For the first ~~fiscal quarters~~quarter ended March 27, 2021, the Company recorded interest expense of $0.3 million with respect to our term loan and credit line, and related amortization of debt issuance costs. For the first quarter ended March 21, 2020, ~~and March 23, 2019,~~ the Company recorded interest expense of $0.4 million of which $0.3 million iswas with respect to our term loan, and $0.1 million related to amortization of debt issuance costs.

The Company's weighted average interest rate for all debt asthrough the first fiscal quarters of ~~March 21,~~2021, and 2020, was 2.04% and ~~March 23, 2019 was~~ 3.7% ~~and 4.5%~~, respectively.

As of March ~~21, 2020~~27, 2021 and ~~December 28, 2019,~~January 2, 2021, the Company was in compliance with all covenants under its Credit Agreement. As of March ~~21, 2020~~27, 2021 and ~~December 28, 2019,~~January 2, 2021, the Company, had ~~$1.7~~$3.9 million, ~~and $1.1 million~~for both periods of standby letters of credit issued, ~~respectively,~~ and ~~$63.3~~$96.1 million and ~~$63.9~~$61.0 million was available for borrowing under the bank credit facility, respectively. ~~We believe that the carrying value of our debt balance at March 21, 2020 approximates fair value.~~

(11) SEGMENT INFORMATION

The Company has 2 reportable segments: "Environmental Services" and "Oil Business." The Environmental Services segment consists primarily of the Company's parts cleaning, containerized waste management, wastewater and vacuum ~~truck~~ service, antifreeze recycling activities, and field services. The Oil Business segment consists primarily of the Company's used oil collection, used oil re-refining activities, and the dehydration of used oil to be sold as recycled fuel oil.

No single customer in either segment accounted for more than 10.0% of consolidated revenues in any of the periods presented. There were no intersegment revenues. Both the Environmental Services and Oil Business segments operate in the United States and, to an immaterial degree, in Ontario, Canada. As such, the Company is not disclosing operating results by geographic segment.

Segment results for the first quarters ended March ~~21, 2020,~~27, 2021, and March ~~23, 2019~~21, 2020 were as follows:


First Quarter Ended,	First Quarter Ended,																																	First Quarter Ended,
March 21, 2020
		(thousands)	Environmental Services				Oil Business				Corporate and Eliminations				Consolidated
March 27, 2021																	March 27, 2021
(thousands)																	(thousands)				Environmental Services				Oil Business				Corporate and Eliminations				Consolidated

Revenues	Revenues																			Revenues
		Service revenues	$	60,960			$	2,797			$	—			$	63,757			Service revenues		$	53,303			$	4,397			$	0			$	57,700
		Product revenues	10,728				26,994				—				37,722				Product revenues		10,747				31,519				0				42,266
		Rental income	5,765				20				—				5,785				Rental income		5,407				9				0				5,416
Total revenues	Total revenues				$	77,453			$	29,811			$	—			$	107,264		Total revenues			$	69,457			$	35,925			$	0			$	105,382
Operating expenses	Operating expenses																			Operating expenses
		Operating costs	56,404				26,846				—				83,250				Operating costs		51,880				24,891				0				76,771
		Operating depreciation and amortization	2,271				2,055				—				4,326				Operating depreciation and amortization		1,579				948				0				2,527
Profit before corporate selling, general, and administrative expenses	Profit before corporate selling, general, and administrative expenses				$	18,778			$	910			$	—			$	19,688		Profit before corporate selling, general, and administrative expenses			$	15,998			$	10,086			$	0			$	26,084
Selling, general, and administrative expenses	Selling, general, and administrative expenses												11,522				11,522			Selling, general, and administrative expenses											12,188				12,188
Depreciation and amortization from SG&A	Depreciation and amortization from SG&A												942				942			Depreciation and amortization from SG&A											1,255				1,255
Total selling, general, and administrative expenses	Total selling, general, and administrative expenses												$	12,464			$	12,464		Total selling, general, and administrative expenses											$	13,443			$	13,443
Other expense - net													272				272
Other (income) - net																	Other (income) - net												(108)				(108)
Operating income	Operating income																6,952			Operating income															12,749
Interest expense – net	Interest expense – net												214				214			Interest expense – net											324				324
Income before income taxes	Income before income taxes																$	6,738		Income before income taxes															$	12,425


First Quarter Ended,	First Quarter Ended,																																	First Quarter Ended,
March 23, 2019
		(thousands)	Environmental Services				Oil Business				Corporate and Eliminations				Consolidated
March 21, 2020																	March 21, 2020
(thousands)																	(thousands)				Environmental Services				Oil Business				Corporate and Eliminations				Consolidated

Revenues	Revenues																			Revenues
		Service revenues	$	52,875			$	3,491			$	—			$	56,366			Service revenues		$	60,960			$	2,797			$	0			$	63,757
		Product revenues	10,137				25,721				—				35,858				Product revenues		10,728				26,994				0				37,722
		Rental income	3,484				64				—				3,548				Rental income		5,765				20				0				5,785
Total revenues	Total revenues				$	66,496			$	29,276			$	—			$	95,772		Total revenues			$	77,453			$	29,811			$	0			$	107,264
Operating expenses	Operating expenses																			Operating expenses
		Operating costs	50,163				32,320				—				82,483				Operating costs		56,404				26,846				0				83,250
		Operating depreciation and amortization	1,636				1,434				—				3,070				Operating depreciation and amortization		2,271				2,055				0				4,326
Profit (loss) before corporate selling, general, and administrative expenses					$	14,697			$	(4,478)			$	—			$	10,219
Profit before corporate selling, general, and administrative expenses																	Profit before corporate selling, general, and administrative expenses				$	18,778			$	910			$	0			$	19,688
Selling, general, and administrative expenses	Selling, general, and administrative expenses												12,396				12,396			Selling, general, and administrative expenses											11,522				11,522
Depreciation and amortization from SG&A	Depreciation and amortization from SG&A												1,066				1,066			Depreciation and amortization from SG&A											942				942
Total selling, general, and administrative expenses	Total selling, general, and administrative expenses												$	13,462			$	13,462		Total selling, general, and administrative expenses											$	12,464			$	12,464
Other income - net													(58)				(58)
Operating loss																	(3,185)
Other expense - net																	Other expense - net												272				272
Operating income																	Operating income																6,952
Interest expense – net	Interest expense – net												230				230			Interest expense – net											214				214
Loss before income taxes																	$	(3,415)
Income before income taxes																	Income before income taxes																$	6,738

Total assets by segment as of March ~~21, 2020,~~27, 2021 and ~~December 28, 2019~~January 2, 2021 were as follows:

(thousands) March 21, 2020 December 28, 2019
Total Assets:
Environmental Services $ 225,308 $ 224,657
Oil Business 170,688 171,104
Unallocated Corporate Assets 70,662 75,553
Total $ 466,658 $ 471,314


(thousands)		March 27, 2021		January 2, 2021
Total Assets:
	Environmental Services	$	218,214	$	217,297
	Oil Business	165,066		160,165
	Unallocated Corporate Assets	59,021		84,207
	Total	$	442,301	$	461,669

Segment assets for the Environmental Services and Oil Business segments consist of property, plant, and equipment, right-of-use assets, intangible assets, accounts receivable, goodwill, and inventories. Assets for the corporate unallocated amounts consist of property, plant, and equipment used at the corporate headquarters as well as cash and net deferred tax assets.

(12) COMMITMENTS AND CONTINGENCIES

LEASES

Lessee

The Company leases buildings and property, railcars, machinery and equipment, ~~trailers~~ and various types of vehicles for use in our operations. Each arrangement is evaluated individually to determine if the arrangement is or contains a lease at inception. The Company has lease agreements with lease and non-lease components and we have elected to not separate lease and non-lease components for all classes of underlying assets. In addition, our lease agreements do not contain any material residual guarantees or restrictive covenants.

Leases may include variable lease payments for common area maintenance, real estate taxes, and truck lease mileage. No leases are tied to a market index rate or CPI. Variable lease payments are not included in the initial measurement of the right-of-use assets or lease liabilities, and are recorded as lease expense in the period incurred. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that we will exercise that option. We have elected not to record leases with an initial term of 12 months or less on the balance sheet and instead recognize those lease payments on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as either operating or financing leases in our Consolidated Balance Sheet.

Right-of-use assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Our ~~leased~~lease right-of-use assets are measured at the initial measurement of the lease liability, adjusted for any lease payments made prior to the lease commencement date, less any lease incentives received and other initial direct costs incurred. Our lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments.

Our leases have remaining terms ranging from less than one month to approximately 11 years and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. Our finance leases include a fleet of mobile equipment.

The components of lease expense were as follows:


		For the First Quarter Ended										For the First Quarter Ended
(thousands)	(thousands)	March 21, 2020			March 23, 2019			(thousands)	March 27, 2021			March 21, 2020
Finance lease cost:	Finance lease cost:							Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	$	322		$	—		Amortization of right-of-use assets	$	578		$	322
Interest on lease liabilities	Interest on lease liabilities	74			—			Interest on lease liabilities	112			74
Total finance lease cost	Total finance lease cost	$	396		$	—		Total finance lease cost	$	690		$	396

Operating lease cost	Operating lease cost	$	6,051		$	6,031		Operating lease cost	$	5,405		$	6,051
Short-term lease cost	Short-term lease cost	1,360			1,404			Short-term lease cost	995			1,360
Variable lease cost	Variable lease cost	1,033			1,093			Variable lease cost	702			1,033
Total lease cost	Total lease cost	$	8,444		$	8,528		Total lease cost	$	7,102		$	8,444

Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:							Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from financing leases	Operating cash flows from financing leases	$	66		$	—		Operating cash flows from financing leases	$	112		$	66
Operating cash flows from operating leases	Operating cash flows from operating leases	$	6,523		$	6,341		Operating cash flows from operating leases	$	5,760		$	6,523
Financing cash flows from financing leases	Financing cash flows from financing leases	$	210		$	—		Financing cash flows from financing leases	$	436		$	210
Right-of-use assets obtained in exchange for new finance lease liabilities	Right-of-use assets obtained in exchange for new finance lease liabilities	$	3,264		$	—		Right-of-use assets obtained in exchange for new finance lease liabilities	$	250		$	3,264
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	$	588		$	67,593		Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,820		$	588

Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)							Weighted-average remaining lease term (years)
Finance leases	Finance leases	6.6			—			Finance leases	5.9			6.6
Operating leases	Operating leases	4.9			4.9			Operating leases	4.4			4.9

Weighted-average discount rate	Weighted-average discount rate							Weighted-average discount rate
Finance leases	Finance leases	3.4		%	—		%	Finance leases	3.2		%	3.4		%
Operating leases	Operating leases	5.8		%	5.5		%	Operating leases	5.6		%	5.8		%

Future annual minimum lease payment commitments as of March ~~21, 2020~~27, 2021 were as follows:


(thousands)
Year 1	$	~~26,299~~22,826
Year 2	~~21,007~~19,275
Year 3	~~17,204~~15,078
Year 4	~~13,125~~10,827
Year 5	~~9,398~~7,325
thereafter	~~15,778~~11,308
Total minimum lease payments	$	~~102,811~~86,639
Less: imputed interest	~~13,512~~10,067
Lease liability	$	~~89,299~~76,572

Lessor

~~Lessor~~

The Company is a lessor of portions of a ~~building~~buildings and property, railcars, and equipment such as embedded leases of parts cleaning machines. Each of the Company’s leases is classified as an operating lease, and the vast majority are short-term leases. Variable lease payments include real and personal property taxes, which are based on the lessee’s pro rata portion of such amounts, and excess mileage charges which are computed as the actual miles traveled in a calendar year minus the maximum average mileage allowance as specified per the contract. Options to extend the lease beyond the original terms range from ~~day-to-day~~day-

to-day renewals to increments of ~~five-year~~five-year extensions. Options to terminate the lease range from immediate termination upon return of the asset to various written notification periods following a minimum lease term. Options for a lessee to purchase the underlying asset are not contractually specified but may be negotiated on a case-by-case basis. Significant judgments made in determining whether a contract contains a lease include assessments as to whether or not the contract conveys the right to direct the use of an identified asset. Significant judgments made in allocating consideration between lease and non-lease components include techniques applied in estimating the relative stand-alone selling prices of the lease and non-lease components of the contract in cases where a stand-alone selling price is not directly observable. ~~As of March 21, 2020, the Company is party to a contract under which it leases railcars to the related party Calumet Specialty Products Partners, L.P.~~ No leased assets are covered by residual value guarantees. The Company manages the risk associated with the residual value of leased assets through such means as performing periodic maintenance and upkeep activities and the inclusion of contractual terms that hold the lessee responsible for damage incurred to leased assets. Contained in Note 7, “Property, plant, and equipment,” are disclosures concerning the Company’s underlying assets under operating leases. The Company has made an accounting policy election to exclude from the consideration in the contract, and from variable payments not included in the consideration in the contract, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific lease revenue-producing transaction and collected by the lessor from a lessee.

The Company recognizes rental income on a straight-line basis for that portion of the consideration allocated to the embedded lease component of certain of our parts cleaning contracts. We also recognize rental income on certain subleases of railcars and portions of ~~a building~~buildings and property.

Rental income was as follows:


		For the First Quarter Ended																							First Quarter Ended,
		March 21, 2020										March 23, 2019											March 27, 2021				March 21, 2020
(thousands)	(thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total		(thousands)	Environmental Services		Oil Business		Total		Environmental Services		Oil Business		Total
Parts Cleaning	Parts Cleaning	$	5,765	$	—	$	5,765	$	3,484	$	—	$	3,484	Parts Cleaning	$	5,407	$	0	$	5,407	$	5,765	$	0	$	5,765
Railcars	Railcars	—		16		16		—		57		57		Railcars	0		0		0		0		16		16
Property	Property	—		4		4		—		7		7		Property	0		9		9		0		4		4
Total rental income	Total rental income	$	5,765	$	20	$	5,785	$	3,484	$	64	$	3,548	Total rental income	$	5,407	$	9	$	5,416	$	5,765	$	20	$	5,785

Purchase Obligations

The Company may enter into purchase obligations with certain vendors. They represent expected payments to third party service providers and other commitments entered into during the normal course of our business. These purchase obligations are generally ~~cancelable~~cancellable with or without notice, without penalty, although certain vendor agreements provide for cancellation fees or penalties depending on the terms of the contract.

The Company has purchase obligations in the form of open purchase orders ~~of $25.8~~of $16.5 million as of March ~~21, 2020,~~27, 2021, and ~~$28.3~~$20.0 million as of ~~December 28, 2019,~~January 2, 2021, primarily for used oil, solvent, machine purchases, disposal and transportation expenses, and capital expenditures.

The Company may be subject to investigations, claims or lawsuits as a result of operating its business, including matters governed by environmental laws and regulations. The Company may also be subject to tax audits in a variety of jurisdictions. When claims are asserted, the Company evaluates the likelihood that a loss will occur and records a liability for those instances when the likelihood is deemed probable and the exposure is reasonably estimable. The Company carries insurance at levels it believes are adequate to cover loss contingencies based on historical claims activity. When the potential loss exposure is limited to the insurance deductible and the likelihood of loss is determined to be probable, the Company accrues for the amount of the required deductible, unless a lower amount of exposure is estimated. As of March ~~21, 2020~~27, 2021 and ~~December 28, 2019,~~January 2, 2021, the Company had ~~accrued~~accrued $3.2 millionand $3.9 ~~million and $4.0~~ million related to loss contingencies and other contingent liabilities, respectively.

(13) INCOME TAXES

The Company deducted for federal income tax purposes accelerated "bonus" depreciation on the majority of its capital expenditures for assets placed in service in fiscal 2011 through the first quarter of ~~2020.~~2021. Therefore, the Company recorded a noncurrent deferred tax liability as to the difference between the book basis and the tax basis of those assets. As of the first quarter of fiscal ~~2020,~~2021, the Company's remaining Federal Net Operating Loss ("NOL") was ~~$19.4~~$14.4 million, which will begin to

expire in 2031. The unexpired balance on the federal NOL generated in 2011 is $0.4 million as of March 21, 2020. The Company's remaining balance of Federal NOLs recorded during 2012 - 2019 was $19.1 million as of March 21, 2020.2034. There are also state NOLs of varying amounts, dependent on each state’s conformity with bonus depreciation. The remaining deferred tax asset related to the Company's state and federal ~~NOL~~NOLs was a tax effected balance of ~~$4.7~~$3.6 million.

In December 2019, the FASB issued ASU 2019-12, (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 intends to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein. The adoption of ASU 2019-12 does not have a material effect on the Company’s financial statements.

The Company's effective tax rate for the first quarter of fiscal ~~2020~~2021 was ~~21.5%~~25.9% compared to ~~28.9%~~21.5% in the first quarter of fiscal ~~2019.~~2020. The rate ~~decrease~~increase is principally attributable to the opposing effect ~~on the tax rate from equity compensation~~of non-deductible expenses in ~~an income quarter~~a projected loss year as compared to a ~~loss quarter.~~projected income year.

The Company establishes reserves when it is more likely than not that the Company will not realize the full tax benefit of a position. The Company had a reserve of ~~$2.7~~$2.8 million for uncertain tax positions as of March ~~21, 2020.~~27, 2021. The gross unrecognized tax benefits would, if recognized, decrease the Company's effective tax rate.

(14) SHARE-BASED COMPENSATION

On February 20, 2019, the Compensation Committee and the Board of Directors of the Company adopted the 2019 Incentive Award Plan (the “2019 Plan”), to replace the Company’s 2008 Omnibus Incentive Plan (“2008 Plan”), which expired in March 2018. The 2019 Plan was approved during the second quarter of 2019 and authorizes 1,500,000 shares to be available for award grants.

Restricted Stock Compensation/Awards

Annually, the Company grants restricted shares to its Board of Directors. The shares become fully vested one year from their grant date. 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. The Company amortizes the expense over the service period, which is the fiscal year in which the award is granted. In addition, the Company may grant restricted shares to certain members of management based on their services and contingent upon continued service with the Company. The restricted shares vest over a period of approximately three years from the grant date. 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.

The following table shows a summary of restricted share grants and expense resulting from the awards:


				Compensation Expense														Compensation Expense
(thousands, except share amounts)	(thousands, except share amounts)							First Quarters Ended,						Unrecognized Expense as of,					(thousands, except share amounts)					First Quarters Ended,	Unrecognized Expense as of,
Recipient of Grant	Recipient of Grant	Grant Date	Restricted Shares	March 21, 2020		March 23, 2019		March 21, 2020		March 23, 2019		Recipient of Grant	Grant Date		Restricted Shares	March 27, 2021		March 21, 2020		March 27, 2021		March 21, 2020
Members of Management		February, 2017	146,564	$	—	$	89	$	—	$	296
Chief Executive Officer	Chief Executive Officer	February, 2017	500,000	106		205		400		1,025		Chief Executive Officer	February, 2017		500,000	$	0	$	89	$	0	$	296
Members of Management	Members of Management	February, 2018	116,958	142		136		472		1,040		Members of Management	February, 2018		116,958	0		142		0		472
Special Incentive Grant	Special Incentive Grant	April, 2018	350,000	344		163		3,084		5,192		Special Incentive Grant	April, 2018		350,000	298		344		1,354		3,084
Board of Directors		May, 2019	10,590	—		66		—		219
Members of Management	Members of Management	May, 2019	23,560	50		—		408		—		Members of Management	May, 2019		23,560	59		50		203		408
Members of Management	Members of Management	February, 2020	41,138	165		—		705		—		Members of Management	February, 2020		41,138	38		165		355		705
Board of Directors												Board of Directors	April, 2020		14,988	0		66		0		219
Chief Executive Officer												Chief Executive Officer	February, 2021		500,000	394		0		5,923		0
Members of Management												Members of Management	February, 2021		35,898	22		184		635		0

~~In February 2017, as part of Mr. Recatto's employment agreement,~~On January 8, 2021, the Company ~~granted~~and Mr. Brian Recatto entered into an amended Executive Employment Agreement (the “Amended Agreement”) which was effective on February 1, 2021. Pursuant to the Amended Agreement, we replaced in its entirety section 4.3 of the First Amendment to the Executive Employment Agreement relating to equity compensation that was effective February 1, 2017. As of February 1, 2021, Mr. Recatto received a ~~restricted stock~~one-time award of 500,000 shares of ~~common~~restricted stock, ~~which vests through~~subject to the achievement of performance criteria established by the Compensation Committee of the Board of Directors pursuant to the Company's 2019 Incentive Plan.

The award date for such Performance-Based Restricted Stock was on February 1, 2021. Such award was granted pursuant to and governed by the terms of the 2019 Incentive Plan and an award agreement in a form provided by the Company. The Performance-Based Restricted Stock one-time award of 500,000 shares received on February 1, 2021, shall vest on January ~~2021~~31, 2025 if Mr. Recatto is employed by the Company on that date, in an amount ~~based on~~determined by applying the ~~vesting table~~applicable percentages from the chart below, with the common stock price ~~increase~~increases to be determined based on the increase in the price of the Company’s common stock (if any) from the closing price of the common stock as reported by Nasdaq on the ~~employment~~amended agreement commencement date ($~~15.00)~~21.77) and the common stock price on the potential vesting date (determined by using the weighted average closing price of a share of the Company's common stock for the 90-day period ending on the vesting date). If the stock price does not increase by $5.00, then 0 shares shall vest.

During the first quarter of fiscal ~~2020,~~2021, the Company recorded approximately ~~$0.1~~$0.4 million of compensation expense related to this award. In the future, the Company expects to recognize compensation expense of approximately ~~$0.4~~$5.9 million over the remaining requisite service period, which ends January 31, ~~2021.~~2025. The fair value of this restricted stock award as of the grant date was estimated using a Monte Carlo simulation model. Key assumptions used in the Monte Carlo simulation to estimate the grant date fair value of this award are a risk-free rate of ~~1.70%~~0.29%, expected dividend yield of 0, and an expected volatility assumption of ~~41.73%~~53.07%.

Vesting Table

Increase in Stock Price From the ~~Employment~~Amended Agreement Commencement Date to the Vesting Date

Total Percentage of Restricted Stock
Shares to Be Vested

Less than $5 per share increase

—%0%

$5 per share increase

25% (vest in 125,000 shares)

$10 per share increase

50% (vest in 125,000 shares)

$15 per share increase

75% (vest in 125,000 shares)

$20 or more per share increase

100% (vest in 125,000 shares)

Provision for possible accelerated vesting of award

If the average closing price of the Company's common stock increases by the marginal levels set forth in the above vesting table for any consecutive 180 day period between the award date and final vesting date, Mr. Recatto shall become vested in 50% of the corresponding total percentage of restricted shares earned on the last day of the 180 day period.

~~Accelerated vestings achieved~~In addition, on each of December 31, 2021, December 31, 2022, and December 31, 2023, to the extent Mr. Recatto remains employed by the Company under the Amended Agreement on such date, ~~include~~Mr. Recatto shall receive a grant of restricted stock as of such date valued at Five Hundred Thousand Dollars ($500,000), with the ~~following:~~

Vesting Date Marginal Level Target Shares Fully Vested
March 14, 2018 25% 62,500
June 10, 2019 50% 62,500

number of shares of restricted stock constituting such grant determined by applying the average closing price for a share of the Company’s common stock for the 90-day period ending on such date. Such awards of Time-Based Restricted Stock shall be granted pursuant to and governed by the terms of the 2019 Incentive Plan and an award agreement in a form provided by the Company. The Time-Based Restricted Stock shall vest only if Mr. Recatto remains employed by the Company under the Amended Agreement through December 31, 2023; provided, that, upon a Change of Control of the Company (as such term is defined in the Amended Agreement), all shares of the Time-Based Restricted Stock awarded up through the date of closing of the Change in Control shall become vested, and no further award of Time-Based Restricted Stock shall be awarded. During the first quarter of fiscal 2021, the Company recorded approximately $0.1 million of compensation expense related to this award.

The following table summarizes the restricted stock activity for the first quarter ended March ~~21, 2020:~~27, 2021:


Restricted Stock (Nonvested Shares)	Restricted Stock (Nonvested Shares)	Number of Shares	Weighted Average Grant-Date Fair Value Per Share		Restricted Stock (Nonvested Shares)	Number of Shares	Weighted Average Grant-Date Fair Value Per Share
Nonvested shares outstanding at December 28, 2019		784,579	$	18.39
Nonvested shares outstanding at January 2, 2021					Nonvested shares outstanding at January 2, 2021	646,634	$	18.28
Granted	Granted	41,138	28.16		Granted	535,898	22.02
Vested	Vested	(64,408)	19.15		Vested	(35,497)	15.00
Forfeited	Forfeited	(8,088)	15.42		Forfeited	(340,754)	15.05
Nonvested shares outstanding at March 21, 2020		753,221	$	17.34
Nonvested shares outstanding at March 27, 2021					Nonvested shares outstanding at March 27, 2021	806,281	$	22.28

Employee Stock Purchase Plan

As of March ~~21, 2020,~~27, 2021, the Company had reserved ~~105,483~~73,562 shares of common stock available for purchase under the Employee Stock Purchase Plan. In the first quarter of fiscal ~~2020,~~2021, employees purchased ~~4,102~~6,072 shares of the Company’s common stock with a weighted average fair market value of ~~$31.21~~$21.11 per share.

(15) EARNINGS PER SHARE

The following table reconciles the number of shares outstanding for the first quarters of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively, to the number of weighted average basic shares outstanding and the number of weighted average diluted shares outstanding for the purposes of calculating basic and diluted earnings per share:

First Quarter Ended,
(thousands, except per share amounts) March 21, 2020 March 23, 2019
Net income (loss) $ 5,291 $ (2,429)
Less: income attributable to noncontrolling interest — 83
Net income (loss) attributable to Heritage-Crystal Clean, Inc. available to common stockholders $ 5,291 $ (2,512)
Weighted average basic shares outstanding 23,239 23,117
Dilutive shares for share–based compensation plans 183 —
Weighted average diluted shares outstanding 23,422 23,117
Number of anti–dilutive potentially issuable shares excluded from diluted shares outstanding — 248
Net income (loss) per share: basic $ 0.23 $ (0.11)
Net income (loss) per share: diluted $ 0.23 $ (0.11)


	First Quarter Ended,
(thousands, except per share amounts)	March 27, 2021		March 21, 2020
Net income	$	9,206	$	5,291

Weighted average basic shares outstanding	23,373		23,239
Dilutive shares for share–based compensation plans	136		183
Weighted average diluted shares outstanding	23,509		23,422





Net income per share: basic	$	0.39	$	0.23
Net income per share: diluted	$	0.39	$	0.23

(16) OTHER (INCOME) EXPENSE ~~(INCOME)~~ - NET

Other (income) expense ~~(income)~~ - net was ~~$0.3~~$0.1 million of ~~expense~~income for the first quarter of fiscal ~~2020,~~2021, compared to a net ~~$0.1~~$0.3 million of ~~other income~~expense in the first quarter of ~~2019.~~2020.

~~(17) SUBSEQUENT EVENTS~~

On March 31, 2020, Heritage-Crystal Clean completed the acquisition of certain assets of Gro America (“Gro”), which has expanded our network of wastewater processing facilities and augmented our field services capabilities to better serve our customers throughout the Midwestern United States. This acquisition provides the Company with a first-class centralized wastewater treatment operation in Wyoming, Michigan just outside of Grand Rapids, and adds a robust field services business with expanded service capabilities which will allow us to reduce the use of subcontractors required to complete field services projects in certain geographies. Total consideration for the acquisition was approximately $10.0 million.

~~COVID-19 Pandemic~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Disclosure Regarding Forward-Looking Statements

You should read the following discussion in conjunction with our consolidated financial statements and related notes in our Annual Report on Form 10-K filed with the SEC on March ~~3, 2020.~~2, 2021. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "aim," "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "will be," "will continue," "will likely result," "would" and other words and terms of similar meaning in conjunction with a discussion of future or estimated operating or financial performance. You should read statements that contain these words carefully, because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other “forward-looking” information. Forward-looking statements speak only as of the date of this quarterly report. Factors that could cause such differences include those described in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for fiscal ~~2019~~2020 filed with the SEC on March ~~3, 2020.~~2, 2021. Except as required under federal securities laws and the rules and regulations of the SEC, we do not have any intention, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this quarterly report, whether as a result of new information, future events or otherwise. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements included in this quarterly report or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. Certain tabular information may not foot due to rounding. Our fiscal year ends on the Saturday closest to December 31. Interim results are presented for the twelve weeks ("first quarter" or "quarter") ended March 27, 2021 and March 21, 2020, ~~and March 23, 2019,~~ respectively. "Fiscal ~~2019"~~2020" represents the 53-week period ended January 2, 2021 and "Fiscal 2021" represents the 52-week period ~~ended December 28, 2019 and "Fiscal 2020" represents the period~~ beginning ~~December 29, 2019,~~January 3, 2021, and ending on ~~December 31, 2020.~~January 1, 2022.

Overview

We provide parts cleaning, containerized waste management, used oil collection, wastewater and vacuum, ~~truck services,~~ antifreeze recycling, and field services primarily to small and medium sized industrial customers as well as vehicle maintenance customers. We own and operate a used oil re-refinery, several wastewater treatment plants and multiple antifreeze recycling facilities. We believe we are the second largest provider of industrial and hazardous waste services to small and mid-sized customers in both the vehicle maintenance and industrial services sector in North America, and we have the second largest used oil re-refining capacity in North America. Our services help our customers manage their used chemicals and liquid and solid wastes while also helping to minimize their regulatory burdens. We operate from a network of 89 branch facilities providing services to customers in 45 states and parts of Canada. We conduct business through two segments: Environmental Services and Oil Business.

Our Environmental Services segment revenues are generated primarily from providing parts cleaning, ~~services,~~ containerized waste management, wastewater and vacuum, ~~truck services,~~ antifreeze recycling, and field services. Revenues from this segment accounted for approximately ~~72%~~66% of our total Company revenues for the first quarter of fiscal ~~2020.~~2021. In the Environmental

Services segment, we define and measure same-branch revenues for a given period as the subset of all our branches that have been open and operating throughout and between the periods being compared, and we refer to these as established branches. We calculate average revenues per working day by dividing our revenues by the number of non-holiday weekdays in the applicable fiscal year or fiscal quarter.

Our Oil Business segment consists primarily of our used oil collection, used oil re-refining activities, and recycled fuel oil ("RFO") sales which together accounted for approximately ~~28%~~34% of our total Company revenues in the first quarter of fiscal ~~2020.~~2021.

Our operating costs include the costs of obtaining the materials we use in our products and services, such as used oil collected from customers or purchased from third party collectors, solvent, and other chemicals. The used solvent that we retrieve from customers in our product reuse program is accounted for as a reduction in our net cost of solvent under operating costs, whether placed in inventory or sold to a purchaser for reuse. Changes in the price of crude oil can impact operating costs indirectly as it may impact the price we pay for solvent or used oil, although we attempt to offset volatility in the oil markets by managing the spread between the costs we ~~pay for~~incur to obtain our materials and the prices we charge for our products and services. Operating costs also include transportation of solvents and waste, payments to third parties to recycle or dispose of the waste materials that we collect, and the costs of operating our re-refinery, recycling centers, ~~waste water~~wastewater treatment facilities, hubs, and

branch system including personnel costs (including commissions), facility rent, truck leases, fuel, and maintenance. Our operating costs as a percentage of ~~sales~~revenues generally increase in relation to the number of new branch openings. As new branches achieve route density and scale efficiencies, our operating costs as a percentage of ~~sales~~revenues generally decrease.

We use profit before corporate selling, general, and administrative expenses ("SG&A") as a key measure of segment profitability. We define profit before corporate SG&A expense as revenue less operating costs and depreciation and amortization from operations.

Our corporate selling, general, and administrative expenses include the costs of performing centralized business functions, including sales management at or above the regional level, business management and marketing, billing, receivables management, accounting and finance, procurement, real estate management, information technology, environmental health and safety, human resources and legal.

We operate a used oil re-refinery located in Indianapolis, Indiana, through which we recycle used oil into high quality lubricant base oil and other products. We supply the base oil to firms that produce and market finished lubricants. Our re-refinery has an annual nameplate capacity of approximately 75 million gallons of used oil feedstock, allowing it to produce approximately 49 million gallons of lubricating base oil per year when operating at full capacity.

Critical Accounting Policies

Critical accounting policies are those that are both important to the accurate portrayal of a company’s financial condition and results and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

In order to prepare financial statements that conform to accounting principles generally accepted in the United States, commonly referred to as GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.

There were no material changes during the first quarter of fiscal ~~2020~~2021 to the information provided under the heading "Critical Accounting Policies" included in our Annual Report on Form 10-K for the fiscal year ended ~~December 28, 2019.~~January 2, 2021.

Impact of the COVID-19 Pandemic on Our Business

The COVID-19 pandemic has caused significant disruption and volatility on a global scale resulting in,

among other things, an economic slowdown. In response to the COVID-19 outbreak, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. As our operations have been deemed essential, we have taken several measures to combat the COVID-19 downturn which have resulted in attenuating activity and, in some cases, required temporary closures of certain of our ~~facilities, among other impacts.~~facilities. In addition, we have taken steps to minimize the negative impact of the COVID-19 pandemic through-out our business and to protect the safety of our employees and customers. The duration of these measures is unknown and may be extended, and additional measures may be necessary. ~~Our fiscal first quarter financial results~~

do not fully reflect the adverse impact that the COVID-19 pandemic has had on our business as our business first experienced the impact of the COVID-19 economic slowdown at the end of our first fiscal quarter.

As a result of the impact of the COVID-19 outbreak, some of our customers have temporarily closed their businesses, limited our access to their businesses or have a decreased demand for our products and services due to a slowdown in the demand for their own products and or services. We believe that we will experience a material decrease in activity in both our Environmental Services and our Oil Business segments during the second quarter of fiscal 2020, but cannot determine the full extent to which the COVID-19 pandemic will impact our business and operating results at this time. The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is highly uncertain and cannot be accurately predicted and is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, and any new information that may emerge concerning the COVID-19 outbreak and the actions to contain it or treat its impact. The continued impact on our business as a result of COVID-19 pandemic could result in a material adverse effect on our business, results of operations, financial condition, prospects and the trading prices of our securities in the near-term and ~~beyond 2020.~~

~~During the second quarter we have taken several actions to combat the COVID-19 outbreak induced downturn in our business including, but not limited to, the following:~~through-out 2021.

•~~Implementation of the Company's pandemic response plan;~~

•~~Implementation of salary reductions for all levels of management;~~

•~~Planned implementation of furlough and workshare programs;~~

•~~Suspension of all material, non-essential capital expenditures;~~

•~~Suspension of mergers & acquisitions (after the acquisition we closed on March 31, 2020);~~

•~~Implementation of a hiring freeze;~~

•~~Launched a COVID-19 cleaning service; and~~

•~~Moved into a material charge position for our used oil collection service.~~

In addition to the above actions, we have taken steps to minimize the negative impact of the COVID-19 pandemic on our business and to protect the safety of our employees and customers. Entering this economic downturn, we had a strong balance sheet and were in a net-cash position which we expect will position us to take advantage of some of the opportunities that we believe will be in front of us once we emerge from this challenging time.

2827

RESULTS OF OPERATIONS

General

The following table sets forth certain operating data as a percentage of revenues for the periods indicated:


		For the First Quarter Ended,																								For the First Quarter Ended,
(thousands)	(thousands)	March 21, 2020									March 23, 2019								(thousands)			March 27, 2021						March 21, 2020

Revenues	Revenues															Revenues
Service revenues	Service revenues	$	63,757	59.4		%			$	56,366	58.9		%			Service revenues		$	57,700	54.8	%			$	63,757	59.4	%
Product revenues	Product revenues	37,722		35.2		%			35,858		37.4		%			Product revenues		42,266		40.1	%			37,722		35.2	%
Rental income	Rental income	5,785		5.4		%			3,548		3.7		%			Rental income		5,416		5.1	%			5,785		5.4	%
Total revenues	Total revenues	$	107,264	100.0		%			$	95,772	100.0		%			Total revenues		$	105,382	100.0	%			$	107,264	100.0	%
Operating expenses	Operating expenses															Operating expenses
Operating costs	Operating costs	$	83,250	77.6		%			$	82,483	86.1		%			Operating costs		$	76,771	72.9	%			$	83,250	77.6	%
Selling, general, and administrative expenses	Selling, general, and administrative expenses	11,522		10.7		%			12,396		12.9		%			Selling, general, and administrative expenses		12,188		11.6	%			11,522		10.7	%
Depreciation and amortization	Depreciation and amortization	5,268		4.9		%			4,136		4.3		%			Depreciation and amortization		3,782		3.6	%			5,268		4.9	%
Other expense (income) - net		272		0.3		%			(58)		(0.1)		%
Operating income (loss)				6,952			6.5	%			(3,185)			(3.3)	%
Other (income) expense - net																Other (income) expense - net		(108)		(0.1)	%			272		0.3	%
Operating income																Operating income		12,749		12.1	%			6,952		6.5	%
Interest expense – net	Interest expense – net			214			0.2	%			230			0.2	%		Interest expense – net			324		0.3	%			214		0.2	%
Income (loss) before income taxes				6,738			6.3	%			(3,415)			(3.6)	%
Provision for (benefit from) income taxes				1,447			1.3	%			(986)			(1.0)	%
Net income (loss)				5,291			4.9	%			(2,429)			(2.5)	%
Income attributable to noncontrolling interest				—			—	%			83			0.1	%
Net income (loss) attributable to Heritage-Crystal Clean, Inc. common stockholders				$	5,291		4.9	%			$	(2,512)		(2.6)	%
Income before income taxes																Income before income taxes		12,425		11.8	%			6,738		6.3	%
Provision for income taxes																Provision for income taxes		3,219		3.1	%			1,447		1.3	%
Net income																Net income		$	9,206	8.7	%			$	5,291	4.9	%

Revenues

Revenue for the first quarter of ~~2020~~2021 was ~~$107.3~~$105.4 million compared to ~~$95.8~~$107.3 million for the same quarter of ~~2019, an increase~~2020, a decrease of ~~$11.5~~$1.9 million, or ~~12.0%~~1.8.%. The ~~$11.5~~$1.9 million ~~increase~~decrease in revenue was mainly driven by ~~16.5% revenue growth in~~a large field services project that occurred during the ~~Environmental Services segment,~~first quarter of 2020, but did not reoccur during the first quarter of fiscal 2021, along with ~~a 1.8% increase in revenue from our Oil Business segment. The increase in revenue was driven mainly by growth~~volume declines in most of our Environmental Services segment ~~product and service lines.~~lines of business due to the negative effects of the COVID-19 pandemic, partially offset by 21% revenue growth in the Oil Business segment.

Operating costs

Operating costs ~~increased $0.8~~decreased $6.5 million, or ~~0.9%~~7.7%, during the first quarter of ~~2020~~2021 compared to the first quarter of fiscal ~~2019. The increase was~~2020 mainly due to ~~higher~~lower field services related disposal ~~cost from increased volume~~costs, and lower fleet ~~repairs,~~repair costs, partially offset by ~~lower maintenance~~higher disposal expense in our containerized waste and vacuum services businesses health ~~care costs compared to the year-ago quarter.~~and welfare costs.

We expect that in the future our operating costs in both the Environmental Services and Oil Business segments may increase or decrease depending on our product and service volumes, changes in commodity pricing, along with other factors.

Selling, general, and administrative expenses

Selling, general, and administrative expenses ~~decreased $0.9~~increased $0.7 million, or ~~7.1%~~5.9%, from the first quarter of fiscal ~~2019~~2021 to the first quarter of fiscal 2020 mainly driven by ~~lower severance, professional services,~~higher bad debt expense and ~~legal fees, partially offset by higher non-management salaries and share-based compensation.~~bank fees.

Other (income) expense ~~(income)~~ - net

~~Interest expense - net~~2020.

Interest expense - net

Interest expense - net for the first ~~quarters~~quarter of fiscal ~~2020~~2021 and fiscal ~~2019~~2020 was $0.3 million and $0.2 ~~million.~~million, respectively.

Provision for income taxes

The Company's effective income tax rate for the first quarter of fiscal ~~2020~~2021 was ~~21.5%~~25.9% compared to ~~28.9%~~21.5% in the first quarter of fiscal ~~2019.~~2020. The rate ~~decrease~~increase is principally attributable to the opposing effect ~~on the tax rate from equity compensation~~of non-deductible expenses in ~~an income quarter~~a projected loss year as compared to a ~~loss quarter.~~projected income year.

Segment Information

The following table presents revenues by reportable segment:


				For the First Quarter Ended,												Change															For the First Quarter Ended,								Change
(thousands)	(thousands)							March 21, 2020				March 23, 2019				$				%		(thousands)					March 27, 2021				March 21, 2020				$				%
Revenues:	Revenues:																					Revenues:
		Environmental Services				$	77,453			$	66,496			$	10,957			16.5	%		Environmental Services				$	69,457			$	77,453			$	(7,996)			(10.3)	%
		Oil Business				29,811				29,276				535				1.8	%		Oil Business				35,925				29,811				6,114				20.5	%
			Total	$	107,264			$	95,772			$	11,492			12.0	%		Total				$	105,382			$	107,264			$	(1,882)			(1.8)	%

In the first quarter of fiscal ~~2020,~~2021, Environmental Services revenue ~~increased by $11.0~~was $69.5 million ~~or 16.5%, from $66.5~~compared to $77.5 million induring the first quarter of fiscal ~~2019~~2020. The 10.3% decrease in revenue was mainly due to ~~$77.5~~lingering impacts of the COVID-19 pandemic as well as a large field services project which occurred during the first quarter of 2020, but did not reoccur during the first quarter of fiscal 2021. In addition, we saw volume declines in our parts cleaning and vacuum services lines of business that were partially offset by gains in our antifreeze and containerized waste lines compared to the first quarter of 2020.

During the first quarter of fiscal 2021, Oil Business revenues were a first quarter record of $35.9 million, an increase of $6.1 million, or 20.5%, compared to $29.8 million in the first quarter of fiscal 2020. The 16.5% increase in revenue was driven primarily by growth in our field services, parts cleaning, and containerized waste businesses. Our field services business accounted for 8.7 percentage points of the revenue growth for the quarter mainly due a large project that continued from the fourth quarter of 2019. Excluding the field services project, our first quarter revenue growth in the segment was 7.8%.

~~During the first quarter of fiscal 2020, Oil Business revenues were up $0.5 million, or 1.8%, to $29.8 million compared to $29.3 million in the first quarter of fiscal 2019. The~~ increase in revenue was mainly due to an 11% increase in gallons sold and an increase in our selling price offor base oil, partially offset by a decrease in the volume of base oil gallons sold. During the first quarter of fiscal 2020, we produced 10.8 million gallons of base oil at a 95.2% rate of nameplate capacity, compared to 9.4 million gallons at a 86.9% rate of nameplate capacity during the first quarter of fiscal of 2019.oil.

Segment Profit ~~(Loss)~~ Before Corporate Selling, General and Administrative Expenses ("SG&A")

The following table presents profit ~~(loss)~~ by reportable segment before corporate SG&A expense:


			For the First Quarter Ended,									Change										For the First Quarter Ended,					Change

(thousands)	(thousands)					March 21, 2020			March 23, 2019			$		%		(thousands)			March 27, 2021			March 21, 2020			$		%
Profit (loss) before corporate SG&A*
Profit before corporate SG&A*													Profit before corporate SG&A*
		Environmental Services		$	18,778		$	14,697		$	4,081		27.8%		Environmental Services		$	15,998		$	18,778		$	(2,780)		(14.8)%
		Oil Business		910			(4,478)			5,388			(120.3)%		Oil Business		10,086			910			9,176			1,008.4%
		Total		$	19,688		$	10,219		$	9,469		92.7%		Total		$	26,084		$	19,688		$	6,396		32.5%

*Includes depreciation and amortization related to operating activity but not depreciation and amortization related to corporate

selling, general, and administrative activity. For further discussion see Note 11 in our consolidated financial statements included elsewhere in this document.

Environmental Services profit before corporate SG&A expense ~~increased $4.1~~decreased $2.8 million, or ~~27.8%~~14.8%, in the first quarter of fiscal ~~2020~~2021 compared to the first quarter of fiscal ~~2019 driven~~2020. The decrease was mainly ~~by higher~~due to lower revenues, ~~and lower healthcare expenses, partially offset by~~ higher disposal ~~fleet repair,~~costs for our containerized waste and ~~depreciation expense.~~wastewater and vacuum services businesses as well as higher labor and health and welfare costs. Operating margin for first quarter of 2021 was 23.0% compared to 24.2% in the first quarter of 2020.

Oil Business profit before corporate SG&A expense increased ~~$5.4~~$9.2 million in the first quarter of fiscal ~~2020~~2021 compared to the first quarter of fiscal ~~2019.~~2020. The ~~increase in profit before corporate SG&A expense was mainly due~~higher operating margin compared to ~~better operating efficiency during~~ the first quarter of 2020 ~~while we experienced unscheduled downtime during~~was mainly due to higher base oil selling price and sales volumes, the shift from a net pay-for-oil position to a net charge-for-oil position as well as a lower third party used oil feedstock cost per gallon. Oil Business segment operating margin sharply increased to a record 28.1% in the first quarter of ~~2019 which hampered production.~~2021 compared to 3.1% in the first quarter of fiscal 2020.

3029

FINANCIAL CONDITION

Liquidity and Capital Resources

Cash and Cash Equivalents

As of March ~~21, 2020~~27, 2021 and ~~December 28, 2019,~~January 2, 2021, cash and cash equivalents were ~~$56.9~~$46.7 million and ~~$60.7~~$67.6 million, respectively. Our primary sources of liquidity are cash flows from operations and funds available to borrow under our ~~term loan and~~ revolving bank credit facility.

Debt and Financing Arrangements

~~The Company's~~On March 18, 2021, Heritage-Crystal Clean, LLC, (the “Company”), entered into an Amended and Restated Credit Agreement (the "Agreement"), by and among the Company, its parent, Heritage-Crystal Clean, Inc., and the Company’s subsidiaries identified therein and Bank of America, N.A., as ~~amended ("~~administrative agent, JPMorgan Chase Bank, N.A., and Wells Fargo Bank, National Association. The Agreement replaces the Company's previous Credit ~~Agreement")~~Agreement dated as of February 21, 2017. During the first quarter the Company paid down its previous term loan, in full, of $30.0 million. The new Agreement provides for borrowings of up to ~~$95.0~~$100.0 million, ~~subject to~~in the ~~satisfaction of certain terms and conditions, comprised~~form of a ~~term loan~~revolving facility, of ~~$30.0~~which $15 million ~~and up to $65.0 million~~can be used in the form of borrowings under the revolving loan portion. The actual amount available under the revolving loan portion of the Credit Agreement is limited by the Company's total leverage ratio. The amount available to draw at any point in time would be further reduced by any standby letters of credit issued.a Swing Line loan.

As of the Effective date of March 18, 2021, the effective rate on our revolving loan was 1.90%.

•An interest coverage ratio (based on interest expense and EBITDA) of at least 3.5 to 1.0;

•A total leverage ratio no greater than 3.0 to 1.0, provided that in the event of a permitted acquisition having an aggregate consideration equal to $10.0 million or more, at the Borrower’s election, the foregoing 3.00 to 1.00 shall be deemed to be 3.50 to 1.00 for the fiscal quarter in which such permitted acquisition occurs and the three immediately following fiscal quarters and will thereafter revert to 3.00 to 1.00.

The Credit Agreement places certain limitations on acquisitions and the payment of dividends.

On July 27, 2017, the Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out the London Interbank Offered Rate by the end of 2021. We expect that widespread use of LIBOR will transition to alternative interest rates in the near future. Since loans made under our Credit Agreement may be ~~based on~~ LIBOR based loans, the phasing out of LIBOR may adversely affect interest rates that could result in higher borrowing costs and higher interest expense. The Company is currently evaluating its options under our Credit Agreement, but at this time we cannot reasonably estimate the impact to our financial statements.

The ~~Credit Agreement contains customary terms and provisions (including representations, covenants, and conditions)~~Company's weighted average interest rate for ~~transactions of this type. Certain covenants, among other things, restrict~~all debt through the Company's and its subsidiaries' ability to incur indebtedness, grant liens, make investments and sell assets. The Credit Agreement contains customary events of default, covenants and representations and warranties. Financial covenants include:

•~~An interest coverage ratio (based on interest expense and EBITDA) of at least 3.5 to 1.0;~~

•A total leverage ratio no greater than 3.00 to 1.00, provided that in the event of a permitted acquisition having an aggregate consideration equal to $10.0 million or more, at the Borrower’s election, the total leverage ratio shall be deemed to be 3.25 to 1.00 for the fiscal quarter in which such permitted acquisition occurs and the three immediately followingfirst fiscal quarters of 2021, and ~~thereafter will revert to 3.00 to 1.00;~~

•A capital expenditures covenant limiting capital expenditures to $100.0 million plus, if the capital expenditures permitted have been fully utilized, an additional amount for the remaining term of the Agreement equal to 35% of EBITDA for the thirteen “four-week” periods most recently ended immediately prior to the full utilization of such $100.0 million basket.2020, was 2.04% and 3.7%, respectively.

~~The Company's weighted average interest rate for all debt as of March 21, 2020, and March 23, 2019 was 3.7% and 4.5%, respectively.~~

3130

We believe that our existing cash, cash equivalents, available borrowings, and other sources of financings will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. We cannot assure you that this will be the case or that our assumptions regarding revenues and expenses underlying this belief will be accurate. If, in the future, we require more liquidity than is available to us under our credit facility, we may need to raise additional funds through debt or equity offerings. Adequate funds may not be available when needed or may not be available on terms favorable to us. If additional funds are raised by issuing equity securities, dilution to existing stockholders may result. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

Summary of Cash Flow Activity


		For the First Quarter Ended,							For the First Quarter Ended,
(thousands)	(thousands)	March 21, 2020		March 23, 2019		(thousands)	March 27, 2021		March 21, 2020
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	10,266	$	9,178	Operating activities	$	16,203	$	10,476
Investing activities	Investing activities	(9,842)		(9,552)		Investing activities	(5,262)		(9,842)
Financing activities	Financing activities	(4,180)		(513)		Financing activities	(31,847)		(4,390)
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	$	(3,756)	$	(887)	Net decrease in cash and cash equivalents	$	(20,906)	$	(3,756)

The most significant items affecting the comparison of our operating activities for the first quarter of fiscal ~~2020~~2021 and the first quarter of fiscal ~~2019~~2020 are summarized below:

Net Cash Provided by Operating Activities —

•Earnings — Our increase in net income during the first quarter of ~~2020~~2021 favorably impacted our net cash provided by operating activities ~~by $7.8~~by $3.9 million ~~compared~~compared to the first quarter of ~~2019.~~2020.

•Accounts Receivable — The increase in accounts receivable had an unfavorable impact on cash provided by operating activities of $4.9 million compared to the decrease in accounts receivable during in the first quarter of fiscal 2020.

•Accounts Payable — The ~~decrease~~increase in accounts payable had ~~an unfavorable~~a favorable impact on cash provided by operating activities of $6.6 million in the first quarter of fiscal ~~2020.~~2021.

Net Cash Used in Investing Activities —

•Capital expenditures — We made capital expenditures as follows:


		For the Fiscal Years Ended,							For the First Quarters Ended,
(thousands)	(thousands)	March 21, 2020		March 23, 2019		(thousands)	March 27, 2021		March 21, 2020
Re-refinery capital improvements	Re-refinery capital improvements	$	3.1	$	0.9	Re-refinery capital improvements	$	1.1	$	3.1
Trucks and trailers						Trucks and trailers	1.5		1.4
Parts cleaning machines	Parts cleaning machines	1.4		1.0		Parts cleaning machines	1.2		0.2
Trucks and trailers		0.2		2.4
IT projects		0.1		0.4
Various other projects	Various other projects	5.1		2.9		Various other projects	1.6		5.2
Total	Total	$	9.9	$	7.6	Total	$	5.4	$	9.9

•Net Cash Used in Financing Activities — ~~The~~During the first quarter the Company ~~dispersed $2.8 million to acquire the remaining ownership interest~~paid down its previous term loan, in ~~one~~full, of ~~our subsidiaries.~~$30.0 million.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risks primarily through borrowings under our bank Credit Facility. Interest on this facility is based upon variable interest rates. Our weighted average borrowings under our Credit Facility during the first quarter of fiscal ~~2020~~2021 was ~~$30.0~~$28.9 million, and the annual effective interest rate for the Credit Facility for the first quarter of fiscal ~~2020~~2021 was 2.04~~3.7%~~%. We currently do not hedge against interest rate risk. Based on the foregoing, a hypothetical 1% increase or decrease in interest rates would have resulted in a change of $0.3 million to our interest expense in the first quarter of fiscal ~~2020.~~2021.

ITEM 4. CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that the Company's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial

Officer, as appropriate, to allow timely decisions regarding financial disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal ~~control~~controls over financial reporting during the first quarter ended March ~~21, 2020~~27, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

~~ITEM 1. LEGAL PROCEEDINGS~~

~~No change since the filing of our 10-K on March 3, 2020.~~

~~ITEM 1A. RISK FACTORS~~

There have been no changes in the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, with the exception of the risk factor mentioned below.

~~Pandemics, epidemics or other disease outbreaks may negatively impact our business operations, financial condition, liquidity, and consolidated results of operations.~~

A widespread outbreak of disease, can adversely affect the operation of our customers' businesses which could lead to a significant decline in demand for our products and services and our customers' ability to pay us for the products and services we have provided to them. A pandemic could also have significant negative impact on the operation of our vendors' and suppliers' businesses and effect their ability to provide us the products and services we rely on to conduct our business and provide products and services to our customers. A widespread outbreak could potentially result in the infection of the company's employees and diminish our ability to operate our business, service our customers or produce and sell our products. These potential negative impacts to our business could negatively impact our financial results and thereby reduce our borrowing capacity which could limit our ability to operate our business. These situations can also lead to a general downturn in the equity markets which could negatively impact the value of the company's shares as well as increase the cost to the company to raise equity capital. Any and all of the above situations could have a material adverse impact on our business, financial results of operations, and cash flows.

ITEM 6. EXHIBITS



31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

*In accordance with Regulation S-T, the XBRL-related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall be deemed to be "furnished" and not "filed."

3533

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.

HERITAGE-CRYSTAL CLEAN, INC.


Date:	~~April 29, 2020~~May 4, 2021	By:	/s/ Mark DeVita

			Mark DeVita
			Chief Financial Officer

3634


Vesting Date	Marginal Level Target	Shares Fully Vested
March 14, 2018	25%	62,500
June 10, 2019	50%	62,500