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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION MARCH 28, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NO. 0-16379
CLEAN HARBORS, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2997780
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
325 WOOD ROAD, 02184
BRAINTREE, MASSACHUSETTS (Zip Code)
(Address of principal executive
offices)
(617) 849-1800 EXT. 4454
(Registrant's telephone number):
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
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 twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to thisForm 10-K. [_]
On February 1, 1996, the aggregate market value of the voting stock of the
registrant held by nonaffiliates of the registrant was $17,569,599. Reference
is made to Part III of this report for the assumptions on which this
calculation is based.
On March 14, 1996, there were outstanding 9,567,547 shares of Common Stock,
$.01 par value.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement for its 1996
annual meeting of stockholders (which is expected to be filed with the
Commission not later than April 30, 1996) are incorporated by reference into
part III of this report.
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PART I
ITEM 1. BUSINESS
Clean Harbors, Inc., through its subsidiaries (collectively, the "Company"),
provides a wide range of industrial waste management services to a diversified
customer base across the United States. The Company was incorporated in
Massachusetts in 1980. The principal offices of the Company are located in
Braintree, Massachusetts.
The Company is one of the largest providers of industrial waste management
services in the Northeast and Mid-Atlantic regions of the United States, with
a growing presence in the Central, Midwest and Southern regions. The Company
seeks to be recognized by customers as the premier supplier of a broad range
of value-added industrial waste management services based upon quality,
responsiveness, customer service, variety of risk containment systems, and
cost effectiveness.
The Company currently maintains a network of service centers and sales
offices located in 24 states and Puerto Rico, and operates 12 waste management
facilities. The service centers interface with the customers, and perform a
variety of environmental remediation and hazardous waste management
activities, utilizing the waste management facilities to store, treat and
dispose of waste. The Company also provides analytical testing and engineering
services which complement its primary services and permit it to offer complete
solutions to its customers' complex environmental requirements. The Company's
principal customers are chemical, petroleum, transportation, utility and
industrial firms, other waste management companies and government agencies.
Intensified levels of federal and state environmental regulation and
enforcement have been a major factor in increasing the demand for the
Company's services. The Company believes that its success is attributable in
large part to customers' confidence in the Company's ability to comply with
these regulations and to manage effectively the risks involved in providing
these services. As part of its commitment to employee safety and quality
customer service, the Company has an extensive compliance program and a
trained environmental, health and safety staff. The Company follows a risk
management program designed to reduce potential liabilities for the Company
and its customers.
BUSINESS STRATEGY
The Company's strategy is to develop and maintain an ongoing relationship
with a diversified group of customers who have recurring needs for multiple
services in managing their environmental exposure.
In order to maintain and enhance its leading position in the industrial
waste management industry, the Company has implemented a strategy of internal
growth through the increased utilization of existing facilities, the addition
of new sales offices and service centers, and the development of new waste
management services. In addition, the Company achieves external growth through
strategic acquisitions.
Increased Utilization of Waste Management Facilities. The Company currently
has 12 waste management facilities which represent a substantial investment in
permits, plants and equipment. These facilities provide the Company with
significant operating leverage. There are opportunities to expand capacity at
these facilities by modifying the terms of the existing permits and by adding
capital equipment and new technology. Through selected permit modifications,
the Company can expand the range of treatment services which it offers to its
customers without the large capital investment necessary to acquire or build
new waste management facilities. The Company believes that permits for new
industrial waste management facilities will become increasingly difficult to
obtain, thereby placing new entrants and weaker competitors at a disadvantage.
Sales Office/Service Center Expansion. The Company opens sales offices in
attractive target markets in order to expand the Company's service areas.
Sales personnel focus on selling Transportation, Treatment, Disposal and
CleanPack services to the local market, with operational support from the
District Logistics Office located
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closest to the "new" market area. The District Logistics Office is responsible
for delivering disposal and CleanPack services to the "new" market area by
utilizing existing capacity in the transportation fleet by utilizing backhauls
from existing routes. As demand at a particular sales office reaches a
sufficient level for Field Services, Emergency Response or Remedial work, the
sales office can be upgraded to a service center by the addition of service
personnel and equipment. The Company's sales offices and service centers
direct waste into the Company's waste management facilities. This allows the
Company to expand its service areas with low risk capital investment and to
maximize throughput with minimal incremental cost by obtaining additional
wastes to be handled by the Company's service centers and waste management
facilities.
New Waste Management Services. Industrial waste generators are demanding
alternatives to traditional waste disposal methods in order to increase
recycling and reclamation and to minimize the end disposal of hazardous waste
into the environment. The Company utilizes its technological expertise and
innovation to improve and expand the range of services which it offers to its
customers. The Company has commercialized a hazardous waste treatment system,
the Clean Extraction System ("CES"), to extract toxic compounds from
industrial wastewaters by utilizing non-toxic liquid carbon dioxide at high
pressures. CES offers for certain wastewater streams a recycling alternative
to incineration or injection into deep underground wells.
Occasionally, companies primarily operating in other industries or engaged
in research and development have sought to join with the Company to evaluate
the commercial potential of a particular technology or process for solving
environmental problems. In May 1994, the Company signed a development
agreement with Molten Metal Technology, Inc. of Waltham, Massachusetts
("MMT"), an environmental technology company developing an innovative,
proprietary processing technology known as Catalytic Extraction Processing
("CEP"). CEP utilizes a molten metal bath as a catalyst and solvent to break
down the molecular structure of various hazardous wastes into its elements.
With the addition of various other elements, industrial compounds are made
into products for reuse as a raw material by the feedstock generator or for
sale to other industrial users. Development of the CEP system pursuant to the
agreement is subject to a number of conditions, including the execution of
definitive agreements, and no assurances can be given that the proposed CEP
unit will be successfully developed.
In May 1995, the Company acquired a newly constructed hazardous waste
incinerator in Kimball, Nebraska, to incinerate liquid and solid wastes which
are not suitable for treatment in the CES. These actions to develop new waste
management services are expected to reduce the Company's dependence on outside
disposal vendors.
In November 1995, the Company entered into a Reciprocal Marketing and
Business Development Agreement with Rochem Separation Systems, Inc.
("Rochem"), the California based subsidiary of Rochem, A.G., owner of the
patented disc tube membrane module reverse osmosis system known as DTM
("DTM"). Rochem holds the exclusive U.S. rights to market and sell DTM, which
is compatible with Clean Harbors' Clean Extraction System ("CES") Technology.
Under the terms of the Agreement, Rochem and Clean Harbors will jointly
market, sell, install and support or operate DTM and CES technology to
customers throughout the United States. Clean Harbors also has the right to
negotiate an exclusive license with Rochem for new applications of DTM
technology developed during the term of the Agreement.
Capitalization on Industry Consolidation. The Company believes that its
large industrial customers will ultimately require a comprehensive range of
waste treatment capabilities, field services, industrial maintenance services
and emergency response services to be provided by a select number of service
providers. This trend will put smaller operators at a competitive disadvantage
due to their size and limited financial resources. To respond to its
customers' needs, the Company has increased the range of waste management
services it offers and has followed a strategy of acquiring companies in
existing, contiguous and new market areas. Since its formation in 1980, the
Company has completed 14 acquisitions which have significantly expanded the
Company's market share. Acquisitions within the Company's existing areas of
operation serve to capture incremental market share, while geographic
expansion creates new market opportunities. The Company continues to
investigate and discuss other potential acquisitions of permitted facilities
in order to enhance
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service to its existing customer base and expand its customer base to include
new regional customers as well as waste generators with operations in several
regions.
ACQUISITIONS
The Company has made seven acquisitions since January 1, 1989. The Company
also recently expanded its Chicago waste management facility onto an adjoining
site formerly occupied by Chemical Waste Management, Inc., which will allow
the Company to offer new waste treatment services in the Midwest region.
DATE OF
ACQUISITION ACQUISITION PURCHASE PRICE
----------- ------------------------------------------------- --------------
1989 ChemClear Inc., a publicly-traded company in the
business of treating liquid and semi-liquid
hazardous and nonhazardous industrial wastes at
treatment plants in Baltimore, Maryland;
Cleveland, Ohio; Chicago, Illinois; and Chester,
Pennsylvania $27.6 million
1989 Murphy's Waste Oil Service, Inc., the operator of
a waste oil treatment and storage facility in
Woburn, Massachusetts $0.2 million
1992 Connecticut Treatment Corporation, the operator
of a hazardous waste storage and treatment
facility in Bristol, Connecticut $2.4 million
1992 Mr. Frank, Inc., a Chicago-based transportation
and environmental services company serving
industrial companies primarily in Illinois,
Indiana and Michigan $2.2 million
1993 Spring Grove Resource Recovery, Inc., the
operator of a hazardous waste storage and
treatment facility in Cincinnati, Ohio $7.0 million
1994 The assets of a hazardous and nonhazardous oil
reclamation facility located near Richmond,
Virginia $0.4 million
1995 The assets of a newly constructed hazardous waste
incinerator located in Kimball, Nebraska $5.2 million
Prior to closing any acquisition, the Company attempts to investigate
thoroughly the current and contingent liabilities of the company or assets to
be acquired, including potential liabilities arising from noncompliance with
environmental laws by prior owners for which the Company, as a successor
owner, might become responsible. The Company also seeks to minimize the impact
of potential liabilities by obtaining indemnities and warranties from the
sellers which may be supported by deferring payment of or by escrowing a
portion of the purchase price. See "Legal Proceedings" below for a description
of the indemnities which the Company has received in connection with past
acquisitions.
SERVICES PROVIDED BY THE COMPANY
SERVICES
The principal services provided by the Company fit within three categories:
treatment and disposal of industrial wastes ("Treatment and Disposal"); field
services provided at customer sites ("Field Services"); and specialized
repackaging, treatment and disposal services for laboratory chemicals and
household hazardous wastes ("CleanPacks"). The Company markets these services
on an integrated basis and, in many instances, services in one area of the
business support or lead to a project undertaken in another area.
In addition to these three principal services, the Company also provides
technical services such as analytical testing and engineering services and
personnel training. Such technical services primarily support the Company's
principal services, although technical services are also offered to a limited
extent on a stand-alone commercial basis.
The Company currently maintains a network of 12 waste management facilities,
complemented by service centers, district logistic office and sales offices in
24 states and Puerto Rico. The service centers and sales offices accommodate
sales personnel who develop and maintain contact with the Company's customers.
Customers are generally covered by "Agents of Business" (Account Managers,
CleanPack and Field Specialists, inside
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Service Representatives) who are responsible for order taking, handling
customer inquiries and other administrative tasks. Account managers utilize
the expertise of product specialists in order to evaluate the scope of a
potential job, quote a job and ultimately detail the work order, including
personnel and equipment necessary to complete the job. The service centers and
logistic offices also serve as depots for the specialized equipment and
trained technical personnel which respond to customers' waste management
requirements. The Company utilizes a "hub and spoke" organization where
service centers, logistic offices and sales offices feed waste disposal
business into the Company's 12 waste management facilities. Waste which cannot
be treated at those facilities is sent to other final disposal sites.
As an integral part of the Company's services, industrial wastes are
collected from customers and transported by the Company to and between its
facilities for treatment or bulking for shipment to final disposal locations.
Customers typically accumulate waste in containers, such as 55-gallon drums,
or in bulk in storage tanks or 20-cubic yard roll-off boxes. In providing this
service, the Company utilizes a variety of specially designed and constructed
tank trucks and semi-trailers, as well as other third-party transporters,
including railroads. Liquid waste is frequently transported in bulk, but may
also be transported in drums. Heavier sludges or bulk solids are transported
in sealed, roll-off boxes or bulk dump trailers.
TREATMENT AND DISPOSAL
The Company transports, treats and disposes of industrial wastes for
commercial and industrial customers, health care providers, educational and
research organizations, other waste management companies and governmental
entities. The wastes handled include substances which are classified as
"hazardous" because of their corrosive, ignitable, infectious, reactive or
toxic properties, and other substances subject to federal and state
environmental regulation. Waste types processed or transferred in drums or
bulk quantities include:
.flammables, combustibles and other organics,
.acids and caustics,
.cyanides and sulfides,
.solids and sludges,
.industrial wastewaters,
.items containing PCBs, such as utility transformers and electrical light
ballasts,
.medical waste,
.other regulated wastes, and
.nonhazardous industrial waste.
The Company receives a detailed waste profile sheet prepared by the customer
to document the nature of the customer's waste. A representative sample of the
delivered waste is screened to ensure that it conforms to the customer's waste
profile record and to select an appropriate method of treatment and disposal.
Once the wastes are characterized, compatible groups are consolidated to
achieve economies in storage, handling, transportation and ultimate treatment
and disposal. At the time of acceptance of a customer's waste at the Company's
facility, a unique computer "bar code" identification character is assigned to
each container of waste, enabling the Company to use sophisticated computer
systems to track and document the status, location and disposition of the
waste.
Wastewater Treatment. The Company's treatment operations involve processing
hazardous wastes through the use of physical, chemical, thermal or other
methods. The solid waste materials produced by these wastewater processing
operations are then disposed of off-site at facilities owned and operated by
unrelated businesses.
The Company treats a broad range of industrial liquid and semi-liquid wastes
containing heavy metals, organics and suspended solids, including:
.acids and caustics,
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.ammonias, sulfides, and cyanides,
.heavy metals, ink wastes, and plating solutions,
.landfill leachates and scrubber waters, and
.oily wastes and water soluble coolants.
Wastewater treatment can be economical as well as environmentally sound, by
combining different wastewaters in a "batching" process that reduces costs for
multiple waste stream disposal. Acidic waste from one source can be
neutralized with alkaline from a second source to produce a neutral solution.
Physical Treatment. Physical treatment methods include distillation,
separation and stabilization. These methods are used to reduce the volume or
toxicity of waste material or to make it suitable for further treatment,
reuse, or disposal. Distillation uses either heat or vacuum to purify liquids
for resale. Separation utilizes techniques such as sedimentation, filtration,
flocculation and centrifugation to remove solid materials from liquids.
Stabilization refers to a category of waste treatment processes designed to
reduce contaminant mobility or solubility and convert waste to a more
chemically stable form. Stabilization technology includes many classes of
immobilization systems and applications. Examples include low-temperature
processes such as adding a sand-like cement material, and high-temperature
processes such as vitrification. Stabilization is a frequent treatment method
for metal-bearing wastes received at several Company facilities, which treat
the waste to meet specific federal land disposal restrictions. After
treatment, the waste is tested to confirm that it has been rendered
nonhazardous. It can then be sent to a nonhazardous waste landfill, at
significantly lower cost than disposal at a hazardous waste landfill.
Thermal Treatment. Thermal treatment refers to processes that use high
temperature combustion the principal means of waste destruction. In May 1995,
the Company acquired a newly constructed, state-of-the-art hazardous waste
incinerator in Kimball, Nebraska, which uses a fluidized bed thermal oxidation
unit for maximum destruction efficiency of hazardous waste. The Company also
operates an incinerator at its Braintree facility which was previously used to
destroy medical waste. In late 1991, approvals were granted to allow the
Braintree incinerator to destroy nonhazardous wastes which were previously
sent to landfills or municipal incinerators. It also generates steam which is
used in steam distillation equipment for reclaiming solvents. Other waste
residues are incinerated in off-site facilities, such as the Nebraska
hazardous waste incinerator, and in similar facilities owned and operated by
other companies.
Resource Recovery. Resource recovery involves the treatment of wastes using
various methods which will effectively remove contaminants from the original
material to restore its fitness for its intended purpose, and to reduce the
volume of waste requiring disposal. In conjunction with recent regulatory
provisions restricting the burial of various types of hazardous wastes, the
Company substantially upgraded its existing facilities for the reclamation and
reuse of certain wastes, particularly solvent-based wastes generated by
industrial cleaning operations, metal finishing and other manufacturing
processes.
Spent solvents that can be recycled are processed through thin film
evaporators and other processing equipment and are distilled into clean,
usable products. Upon recovery of these products, the Company either returns
the recovered solvents to the original generator or sells them to third
parties.
Organic liquids and solids with sufficient heat value are blended to meet
strict specifications for use as supplemental fuels for cement kilns,
industrial furnaces and other high-efficiency boilers. The Company has
installed fuels blending equipment at its Chicago and Cincinnati plants to
prepare these supplemental fuels. The Company has established relationships
with a number of supplemental fuel users that are licensed to accept the
blended fuel material. Although the Company pays a fee to the users who accept
this product, this disposal method is substantially less costly than other
disposal methods.
Clean Extraction System. The Clean Extraction System ("CES") is a hazardous
waste treatment system commercialized by the Company which extracts organic
compounds from industrial wastewater. CES uses carbon dioxide that has been
compressed at high pressure into a liquid. Under these "supercritical"
conditions,
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carbon dioxide acts as a powerful solvent for most commonly occurring
contaminants. CES uses supercritical carbon dioxide as a solvent to remove
organic contaminants, such as gasoline, acetone, methylene chloride,
pesticides and other chemicals, from industrial wastewater called "lean
water." Lean water is generated by oil companies, utilities, and manufacturers
of specialty chemicals and pharmaceuticals.
The CES was installed at the Company's Baltimore facility, and began
commercial operation in June 1992. The system includes specialized
pretreatment and post-treatment systems and techniques, in addition to a
central extractor unit, to maximize extraction efficiency. In the Baltimore
CES, wastewater receives chemical and physical pretreatment before entering a
central extractor unit. The wastewater is fed into the top of a 40-foot tall
pressurized chamber, and flows down through a stack of perforated plates as a
continual supply of liquefied carbon dioxide rises from the bottom of the
chamber. As the wastewater and carbon dioxide mix, organic contaminants
separate from the water and dissolve in the carbon dioxide. The liquid carbon
dioxide flows from the top of the chamber into a decompression vessel. As the
pressure decreases, the carbon dioxide vaporizes into a gas, leaving the
organic contaminants at the bottom of the vessel, where they are collected.
The concentrated organics can be recycled or burned as a supplemental fuel for
resource recovery. The cleansed water flows from the bottom of the chamber,
through a series of decompression and post-treatment tanks. After treatment,
the cleansed water is discharged to the City of Baltimore sewer treatment
works.
This process enables the Company to handle a broad range of complex,
difficult to treat organic and inorganic "lean waters" formerly sent to other
companies for disposal. CES offers the Company's industrial customers, such as
chemical or pharmaceutical companies, an attractive recycling alternative to
disposal of their "lean water" by incineration or injection into deep
underground wells. Current treatment capacity is between six and ten million
gallons per year, depending on the characteristics of the wastewater being
treated.
Disposal. After treatment of industrial wastes at the Company's facilities,
the hazardous waste residues (such as sludges) which remain after such
treatment are disposed of in facilities operated by third parties. The Company
also arranges for the disposal of its customers' hazardous wastes which cannot
be treated at Company-owned facilities. Wastes which cannot be disposed of in
the Nebraska hazardous waste incinerator, which the Company acquired in May
1995, are sent to other incinerators, landfills, and disposal facilities
operated by third parties. These arrangements are typically made before the
Company accepts waste. Although the Company's transfer facilities are licensed
to store waste, such storage is typically for a short period of time before
the waste is sent for ultimate disposal. On occasion, a service center may
also arrange to ship a customer's waste directly to another disposal company,
such as a landfill or incinerator, if the size of the waste shipment or its
characteristics are such that the waste does not need to pass through one of
the Company's own waste management facilities. As the volume of waste handled
by the Company has grown, the Company has negotiated favorable disposal
arrangements with numerous companies. The Company is not dependent on any one
disposal company, and the loss of any particular outlet for disposal of waste
would not have a material impact on the Company.
The Company's wastewater treatment operations are dependent upon access to
publicly owned treatment works and to hazardous or nonhazardous waste
landfills for the disposal of its byproduct wastes. Generally, the Company has
not experienced significant difficulty in obtaining the necessary permits from
local sewer authorities.
FIELD SERVICES
The Company provides a wide range of environmental field services to
maintain industrial facilities and process equipment, as well as clean up or
contain actual or threatened releases of hazardous materials into the
environment. These services are provided primarily to large chemical,
petroleum, transportation, utility, industrial and waste management companies,
and to governmental agencies. The Company's strategy is to identify, evaluate,
and solve its customers' environmental problems, on a planned or emergency
basis, by providing a comprehensive interdisciplinary response to the specific
requirements of each project.
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Industrial Maintenance. Many of the Company's customers have a recurring
need to clean equipment and facilities periodically in order to continue
operations, maintain and improve operating efficiencies of their plants, and
satisfy safety requirements. Industrial maintenance involves chemical
cleaning, hydroblasting, vacuuming, and other methods to remove deposits from
process equipment, such as paint booths and plating lines, and storage
facilities for material used in the manufacturing or production process, such
as feedstocks, chemicals, fuels, paints, oils, inks, metals and many other
items. Service centers are equipped with specialty equipment, such as high
volume pumps, pressure washers, nonsparking and chemical resistant tools, and
a variety of personal protective equipment, to perform maintenance services
quickly, usually during "off periods" to minimize downtime from production.
Project Management. An increasingly important area of the Company's
operations is the management of complex environmental remediation projects.
These projects may include surface remediation, groundwater restoration, site
and facility decontamination, and emergency response. An interdisciplinary
team of managers, chemists, engineers, and compliance experts design and
implement result-oriented remedial programs, incorporating both off-site
removal and on-site treatment, as needed. The remedial projects group
functions as a single source management team, relieving the customer of the
administrative and operational burdens associated with environmental
remediation. As a full-service environmental services company, providing waste
transportation and disposal, field services, industrial maintenance and
CleanPack services, the Company eliminates the need for multiple
subcontractors.
These projects vary widely in scope, duration and revenue, and they are
typically performed under service agreements between the customer and the
Company. Environmental remediation projects may be undertaken in conjunction
with or lead to contracts for additional remediation work or for hazardous
waste management services, and typically involve the Company's analytical
laboratory and engineering group.
Surface Remediation. Surface remediation projects arise in two principal
areas: the planned cleanup of hazardous waste sites and the cleanup of
accidental spills and discharges of hazardous materials, such as those
resulting from transportation and industrial accidents. In addition, some
surface remediation projects involve the cleanup and maintenance of industrial
lagoons, ponds and other surface impoundments on a recurring basis. In all of
these cases, an extremely broad range of hazardous substances may be
encountered.
Surface remediation projects generally require considerable interaction
among engineering, project management and analytical services. Following the
selection of the preferred remedial alternative, the project team identifies
the processes and equipment for cleanup. Simultaneously, the Company's health
and safety staff develops a site safety plan for the project. Remedial
approaches usually include physical removal, mechanical dewatering,
stabilization or encapsulation.
Groundwater Restoration. The Company's groundwater restoration services
typically involve response to above-ground spills, leaking underground tanks
and lines, hazardous waste landfills and leaking surface impoundments.
Groundwater restoration efforts often require complex recovery systems,
including recovery drains or wells, air strippers, biodegradation or carbon
filtration systems, and containment barriers. These systems and technologies
can be used individually or in combination to remove a full range of floating
or dissolved organic compounds from groundwater. The Company internally
designs and fabricates most mobile or fixed site groundwater treatment
systems.
Site and Facility Decontamination. Site and facility decontamination
involves the cleanup and restoration of buildings, equipment and other sites
and facilities that have been contaminated by exposure to hazardous materials
during a manufacturing process, or by fires, process malfunctions, spills or
other accidents. The Company's projects have included decontamination of
electrical generating stations, electrical and electronics components,
transformer vaults and commercial, educational, industrial, laboratory,
research and manufacturing facilities.
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Emergency Response. The Company undertakes environmental remediation
projects on both a planned and emergency basis. Emergency response actions may
develop into planned remedial action projects when soil, groundwater,
buildings, or facilities are extensively contaminated. The Company has
established specially trained emergency response teams which operate on a 24-
hour basis from service centers covering 24 states and Puerto Rico. Many of
the Company's remediation activities result from a response to an emergency
situation by one of its response teams. These incidents can result from
transportation accidents involving chemical substances, fires at chemical
facilities or hazardous waste sites, transformer fires or explosions involving
PCBs, and other unanticipated developments when the substances involved pose
an immediate threat to public health or the environment, such as possible
groundwater contamination.
Emergency response projects require trained personnel, equipped with
protective gear and specialized equipment, prepared to respond promptly
whenever these situations occur. To meet the staffing requirements for
emergency response projects, the Company relies in part upon a network of
trained personnel who are available on a contract basis for specific project
assignments. The Company's health and safety specialists and other skilled
personnel closely supervise these projects during and subsequent to the
cleanup. The steps performed by the Company include rapid response,
containment and control procedures, analytical testing and assessment,
neutralization and treatment, collection, and transportation of the substances
to an appropriate treatment or disposal facility.
CLEANPACKS
The Company provides specialized repackaging, treatment and disposal
services for laboratory chemicals and household hazardous wastes. Such
chemicals and wastes are put into CleanPacks, which are packages smaller than
a 55-gallon drum, generally less than five gallons or 50 pounds. The Company
offers generators of CleanPack quantity waste the same economical and
environmentally sound disposal services that have been offered for years to
large industrial generators. The CleanPack operation services a wide variety
of customers, including:
.engineering and research and development divisions of industrial
companies,
.college, university and high school labs,
.EPA labs and Veterans Administration facilities,
.hospitals and medical care labs,
.state and local municipalities, and
.tens of thousands of residents through household hazardous waste
collection days.
The Company provides a team of qualified personnel with science degrees and
special training to collect, label and package waste at the customer's site.
CleanPacks are then transported to one of the Company's facilities for
consolidation into full-size containers, which are then sent for further
treatment or disposal as part of the Company's treatment and disposal services
described above. As described above, disposal options include reclamation,
fuels blending, incineration, aqueous treatment, and a secure chemical
landfill.
TECHNICAL SERVICES
Technical services consist primarily of analytical testing, engineering
services and personnel training. Many of the Company's principal services as
described above involve the selection and application of various technologies.
The Company's analytical testing laboratories perform a wide range of
quantitative and qualitative analyses to determine the existence, nature,
level, and extent of contamination in various media. The Company's engineering
staff identifies, evaluates and implements the appropriate environmental
solution.
Engineering and Analytical Services. The Company provides technical support
services to complement its primary service lines. For example, if the Company
is engaged to perform an entire environmental remediation project, it will
first perform a site or situation assessment. A site assessment begins with
the determination of the existence of contamination. If present, the nature
and extent of the contamination is defined by gathering
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samples and then analyzing them in order to establish or verify the nature and
extent of the contaminants. The Company's engineering staff then develops,
evaluates and presents alternative solutions to remedy the particular
situation. Often treatment systems are completely designed, engineered and
fabricated by the Company in house. It then implements the mitigation and
decontamination program mutually selected by the customer and the Company.
These services are also provided if a customer requires an analysis with
respect to certain material, or if a customer is searching for an appropriate
solution to an environmental problem or if an environmental assessment is
required to allow a transfer of property.
The Company operates an EPA-qualified and state-certified analytical testing
laboratory in Braintree, Massachusetts which tests samples provided by
customers to identify and quantify toxic pollutants in virtually every
component of the environment. The laboratory staff evaluates the properties of
a given material, selects appropriate analytical methods, and executes a
laboratory work plan that results in a comprehensive technical report. In
early 1996, the Company relocated the laboratory from its headquarter offices
to its waste handling facility in Braintree.
The Company also maintains laboratories at its waste management facilities
to identify and characterize waste materials prior to acceptance for treatment
and disposal, and operates mobile laboratory facilities for field use in
emergency response and remedial action situations.
Personnel Training. The Company provides comprehensive personnel training
programs for its own employees and those of its customers on a commercial
basis. Such programs are designed to promote safe work practices under
potential hazardous environmental conditions, whether or not toxic chemicals
are present, in compliance with stringent regulations promulgated under the
federal Resource Conservation and Recovery Act of 1976 ("RCRA") and the
federal Occupational Safety and Health Act ("OSHA"). The Company's Technical
Training Center at its Kingston, Massachusetts facility includes a 2,000
gallon tank for confined space entry, exit, and extraction, an air-system
demonstration maze, respirator fit testing room, leak and spill response
equipment, and a layout of a mock decontamination zone, all designed to
fulfill the requirements of OSHA Hazardous Waste and Emergency Response
Standard.
CUSTOMERS
The Company's sales efforts are directed toward establishing and maintaining
relationships with businesses which have ongoing requirements for one or more
of the Company's services. The Company's customer list includes many of the
largest United States industrial companies. In addition, the Company's
customers include most of the major utilities in the Northeast and Mid-
Atlantic regions. The Company's customers are primarily chemical, petroleum,
transportation, utility and industrial firms, other waste management companies
and government agencies. Management believes that the Company's diverse
customer base, in terms of number, industry and geographic location, as well
as its large presence in New England, provide it with a recurring stream of
revenue. The Company estimates that in excess of 80% of its revenues are
derived from previously served customers with recurring needs for the
Company's services. The Company believes the loss of any single customer would
not have a material adverse effect on the Company's financial condition or
results of operations.
The Company's customer base is diverse, and generally not concentrated in
particular industries, such as the petroleum or defense sectors, where
business activity may be cyclical. In addition to serving industrial customers
such as utilities, railroads, pipelines, pharmaceutical manufacturers, and
chemical companies, the Company serves health care and educational
institutions, federal, state and local governmental bodies, and thousands of
small quantity generators who have recurring needs for multiple services in
managing their environmental exposure.
Under applicable environmental laws and regulations, generators of hazardous
wastes retain potential legal liability for the proper treatment of such
wastes through and including their ultimate disposal. In response to
9
these potential liability concerns, many large generators of industrial wastes
and other purchasers of waste management services (such as general contractors
on major remediation projects) have increasingly sought to decrease the number
of providers of such services that they utilize. Waste management companies
which are selected as "approved vendors" by such large generators and other
purchasers are firms, such as the Company, that possess comprehensive
collection, recycling, treatment, transportation, disposal and waste tracking
capabilities and have the expertise and financial capacity necessary to comply
with applicable environmental laws and regulations. By becoming an "approved
vendor" of a large waste generator or other purchaser, the Company becomes
eligible to provide waste management services to the various plants and
projects of such generator or purchaser which are located in the Company's
service areas. However, in order to obtain such "approved vendor" status, it
may be necessary for the Company to bid against other qualified competitors in
terms of the services and pricing to be provided. Furthermore, large
generators or other purchasers of waste management services often periodically
audit the Company's facilities and operations to ensure that the Company's
waste management services to such customers are being performed in compliance
with applicable laws and regulations and with other criteria established by
the Company and by such customers.
COMPLIANCE/HEALTH & SAFETY
The Company regards compliance with applicable environmental regulations as
a critical component of its overall operations, both from the standpoint of
the health and safety of its employees and as a service to its customers. The
Company strives to maintain the highest professional standards in its
compliance activities; its internal operating requirements are in many
instances more stringent than those imposed by regulation. The Company's
compliance program has been developed for each of its operational facilities
and service centers under the direction of the Company's corporate compliance
and health and safety staff. The compliance staff is composed of approximately
45 full-time employees who are responsible for facilities permitting and
regulatory compliance, health and safety, field safety, compliance training,
transportation compliance, and related record keeping. The Company also
performs periodic audits and inspections of the disposal facilities of other
firms utilized by the Company.
The Company's treatment, storage and recovery facilities are frequently
inspected and audited by regulatory agencies, as well as by customers.
Although the Company's facilities have been cited on occasion for regulatory
violations, the Company believes that each facility is currently in
substantial compliance with applicable requirements. Major facilities and
service centers have a full-time compliance or health and safety
representative to oversee the implementation of the Company's compliance
program at the facility or service center. These highly-trained regulatory
specialists are independent from operations and report to corporate compliance
and health & safety directors, who in turn report directly to the Chief
Executive Officer.
MANAGEMENT OF RISKS
The Company follows a program of risk management policies and practices
designed to reduce potential liability, as well as to manage customers'
ongoing regulatory responsibilities. This program includes installation of
risk management systems at the facilities, such as fire suppression, employee
training, environmental auditing, and policy decisions restricting the types
of wastes handled. The Company evaluates all revenue opportunities and
declines those which it believes involve unacceptable risks. The Company
avoids handling high-hazard waste such as explosives, and frequently utilizes
specialty subcontractors to handle any such materials when discovered at a job
site.
The Company only disposes of its wastes at facilities owned and operated by
firms which the Company has approved as prudent and financially sound.
Typically, the Company applies established technologies to the treatment,
storage and recovery of hazardous wastes. The Company believes its operations
are conducted in a safe and prudent manner and in substantial compliance with
applicable laws and regulations.
10
INSURANCE
The Company's present insurance programs cover the potential risks
associated with its multifaceted operations from two primary exposures: direct
physical damage and third-party liability. The Company maintains a casualty
insurance program providing coverage for vehicles, workers' compensation,
employer's liability, and comprehensive general liability in the aggregate
amount of $30,000,000 per year, subject to a retention of $250,000 per
occurrence, except on general liability where the retention is $500,000 per
occurrence. The workers' compensation limits are established by state
statutes. Since the early 1980s, casualty insurance policies have typically
excluded liability for pollution, which is covered under a separate pollution
liability program.
The Company has pollution liability insurance policies covering the
Company's potential risk in three areas: as a contractor performing services
at customer sites; as a transporter of waste; and while it handles waste at
the Company's facilities. The Company has contractor's liability insurance of
$10,000,000 per occurrence and $10,000,000 in the aggregate, covering off-site
remedial activities and associated liabilities. Lloyds of London provides
pollution liability coverage for waste in-transit with single occurrence and
aggregate liability limits of $29,000,000. This Lloyds of London policy covers
liability in excess of $1,000,000 for pollution caused by sudden and
accidental occurrences during transportation of waste and at the Company's
facilities, from the time waste is picked up from a customer until its
delivery to the final disposal site. The Company's $30,000,000 excess
automobile liability insurance provides additional coverage for any in-transit
pollution losses from accidents over and above the Lloyds of London coverage,
so that it has a total of $59,000,000 of in-transit coverage.
Federal and state regulations require liability insurance coverage for all
facilities that treat, store, or dispose of hazardous waste. In 1989, the
Company established a captive insurance company pursuant to the Federal Risk
Retention Act of 1986. This company qualifies as a licensed insurance company
and is authorized to write professional liability and pollution liability
insurance for the Company and its operating subsidiaries. RCRA and comparable
state hazardous waste regulations typically require hazardous waste handling
facilities to maintain pollution liability insurance in the amount of
$1,000,000 per occurrence and $2,000,000 in the aggregate per year for sudden
occurrences and $3,000,000 per occurrence and $6,000,000 in the aggregate per
year for non-sudden occurrences. Currently, the Company uses its captive
insurance company to provide (i) the first $1,000,000 of insurance against
liability from sudden occurrences at its facilities, with the excess coverage
provided by Lloyds of London, and (ii) the full policy limits of insurance for
non-sudden occurrences.
Operators of hazardous waste handling facilities are also required by
federal and state regulations to provide financial assurance that certain
funds will be available for closure and post closure care of those facilities,
should the facility cease operation. For example, closure would include the
cost of removing the waste stored at a facility which ceased operating, and
sending the material to another company for disposal. The Company utilizes its
captive insurance company to provide such financial assurance for the waste
management facilities it currently owns, with the exception of the Kimball
incinerator which has closure insurance provided by a commercial insurer.
The Company's ability to continue conducting its industrial waste management
operations could be adversely affected if the Company should become unable to
obtain sufficient insurance to meet its business and regulatory requirements
in the future. The availability of insurance may also be influenced by
developments within the insurance industry, although other businesses in the
industrial waste management industry would be similarly impacted by such
developments.
Under the Company's insurance programs, coverage is obtained for
catastrophic exposures as well as those risks required to be insured by law or
contract. It is the policy of the Company to retain a significant portion of
certain expected losses related primarily to workers' compensation, physical
loss to property, and comprehensive general and vehicle liability. Provisions
for losses expected under these programs are recorded
11
based upon the Company's estimates of the aggregate liability for claims. The
Company has been successful in negotiating lower premiums recently, due in
part to its favorable historical loss experience. The cancellation terms
applicable to the Company are similar to those of other companies in other
industries.
COMPETITION
The Company competes with numerous large and small companies, each of which
is able to provide one or more of the industrial waste management services
offered by the Company and some of which have access to greater financial
resources. The Company believes it offers a more comprehensive range of
industrial waste management services than its competitors in major portions of
its service territory. The Company also believes that its ability to market
and provide its services on an integrated basis constitutes a significant
competitive advantage for the Company.
The Company's competitive position with respect to its treatment and
disposal services is enhanced by the proximity of its facilities to hazardous
waste generators and the barriers to market entry provided by capital and
licensing requirements. However, treatment, recovery and disposal operations
are conducted by a number of national and regional waste management firms. The
Company believes that physical proximity of treatment and disposal facilities,
comprehensiveness of services, safety, quality and efficiency of services, and
pricing are the most significant factors in the market for treatment and
disposal services.
In field services, the Company's competitors include major national and
regional environmental services firms which have environmental remediation
staffs. The availability of skilled technical professional personnel, quality
of performance, diversity of services and, to a certain extent, price, are the
key competitive factors.
EMPLOYEES
As of February 1, 1996, the Company employed 1,438 people on a regular
basis. None of the Company's employees is subject to a collective bargaining
agreement, and the Company believes that its relationship with its employees
is satisfactory.
ITEM 2. PROPERTIES
The properties of the Company consist primarily of its 12 waste management
facilities and 17 service centers, various environmental remediation
equipment, and a fleet of approximately 1,000 registered pieces of
transportation equipment. Most service center locations are leased, and
occasionally move to other locations as operations grow and space requirements
increase. The 12 waste management facilities are described below. All of these
facilities are owned by the Company, except (i) the Chicago hazardous waste
management facility which is leased under a lease which (with extensions)
expires September 2020, (ii) the Woburn, Massachusetts waste oil treatment and
storage facility which is leased under a lease which (with extensions) expires
February 2004, and (iii) the Virginia waste oil treatment and storage facility
which is leased under a lease which (with extensions) expires February 2002.
Hazardous Waste Management Facilities. The Company currently maintains nine
hazardous waste management facilities at which it processes, treats and
temporarily stores hazardous wastes for later resale, reuse or off-site
treatment or disposal. Every facility that treats, stores or disposes of
hazardous wastes must obtain a license from the federal EPA or an authorized
state agency and must comply with certain operating requirements. See
"Environmental Regulation-Federal Regulation of Hazardous Waste" below for a
description of licenses issued under the RCRA. All nine hazardous waste
management facilities are subject to RCRA licensing. Eight of the nine
facilities have been issued RCRA Part B licenses, one of which is under
appeal.
Two of the facilities described above are waste oil treatment and storage
facilities which are subject to RCRA licensing because some petroleum
products, such as gasoline, are considered hazardous waste under federal law
or are located in a state which regulates waste oil as a hazardous waste. In
order to handle a variety
12
of waste oil and petroleum products and support its field service activities
in the Northeast and Mid-Atlantic regions, the Company has obtained RCRA
licenses for those two facilities.
The Company has made substantial modifications and improvements to the
physical plant and treatment and process equipment at its treatment
facilities. These modifications are consistent with the Company's strategy to
upgrade the quality and efficiency of treatment services, to expand the range
of services provided and to ensure regulatory compliance and operating
efficiencies at these facilities. Major features of this program are the
addition of new treatment systems, such as the CES in Baltimore, expansion of
analytical testing laboratories, drum storage and processing facilities, and
equipment rearrangement and replacement to improve operating efficiency.
Braintree, MA. The Braintree facility is located just south of Boston. The
facility is primarily engaged in drummed waste processing and consolidation,
solvent recovery, transformer decommissioning, PCB storage and processing,
blending of waste used as supplemental fuel by industrial furnaces,
pretreatment of waste to stabilize it before it is sent to landfills, and
incineration of small quantities of nonhazardous waste. The facility continues
to operate under a state Interim Hazardous Waste Facility License issued by
the Massachusetts Department of Environmental Protection ("DEP") in 1981. The
Company acquired the facility in 1985. In June 1992, the DEP approved the
Company's application for a final Hazardous Waste Facility License, and issued
a final Part B license for a five-year term. The Town of Braintree and two
adjoining communities have appealed the DEP's decision to issue the final Part
B license, and requested an adjudicatory hearing before the DEP, which is the
normal appeal process. The appeal is an administrative proceeding before the
DEP, and the facility will continue to operate normally pursuant to its state
license and Interim Status authority under RCRA while the DEP considers the
appeal. In the fall of 1995 the two adjoining communities withdrew their
appeals. The Company is confident the review will result in confirmation of
the license as granted. The authority from the federal EPA to handle PCBs is
not impacted by the towns' appeal of the Part B license.
Natick, MA. The Natick, Massachusetts facility is located just west of
Boston. Its primary services are collecting CleanPacks and repackaging the
small quantities of laboratory and household chemicals into 55-gallon drum
quantities, consolidating wastes for shipment to other Company facilities or
third parties for further treatment or disposal, and serving as a transfer
station for the Northeast region. The facility has a state Hazardous Waste
Facility License (the state equivalent of a Part B license), which was renewed
in October 1994 for a five-year term. The facility is also authorized by the
federal EPA to handle PCBs.
Chicago, IL. The Chicago, Illinois facility is located on the south side of
Chicago, on Lake Calumet. It provides treatment of nonhazardous and hazardous
industrial wastewaters, drummed waste processing and consolidation, and
transfer and repackaging of laboratory chemicals into CleanPacks. In November
1993, the Illinois EPA issued a Part B license for a ten-year term, which
significantly expanded the waste handling and storage capacity of the
facility. In November 1995, the permit was modified to include the assets
acquired from ChemWaste Management, Inc. ("ChemWaste"). The new license
increased drum storage capacity and allows handling of material destined for
blending of waste used as supplemental fuel by industrial furnaces,
pretreatment of waste to stabilize it before it is sent to landfills, and rail
shipment of hazardous and nonhazardous waste.
As an alternative to making the needed improvements to its own site, the
Company in November 1995 acquired assets from ChemWaste on an adjoining leased
site, together with the existing improvements, in exchange for sharing the
costs of dismantling an existing hazardous waste incinerator and cleaning up
the adjoining site. The existing improvements on the ChemWaste site, and those
improvements recently constructed on the site by the Company, will allow the
Company to develop new product lines not currently handled at the Company's
existing facility. Under the sharing arrangement with ChemWaste, the Company
could over a period of 15 years be required to contribute up to a maximum of
$2,000,000 for dismantling and decontaminating the incinerator and other
equipment and up to a maximum of $7,000,000 for studies and cleanup of the
site. Any additional costs beyond those contemplated by the sharing
arrangement during this time period would be borne by ChemWaste. In addition,
the Company entered into a five year disposal services
13
agreement with Chemical Waste Management in connection with the acquisition of
the assets on the adjacent site. Pursuant to the terms of the disposal
services agreement, the Company has agreed to use best efforts to deliver
waste materials to ChemWaste facilities for disposal subject to certain
customer preferences, scheduling and other considerations.
Cleveland, OH. The Cleveland, Ohio facility is located south of downtown
Cleveland. It is a wastewater treatment facility that treats nonhazardous and
hazardous industrial wastewaters, and serves as a transfer station for various
types of containerized hazardous and nonhazardous waste. The facility is not
subject to Part B licensing requirements, since its on-site wastewater
treatment activities are regulated pursuant to the Clean Water Act, and
therefore are exempt from RCRA.
Baltimore, MD. The Baltimore, Maryland facility is located adjacent to
Interstate 95 in central Baltimore. It provides treatment of nonhazardous and
hazardous industrial aqueous wastes, drummed waste processing, pretreatment of
waste to stabilize it before it is sent to landfills, and transfer of
CleanPacks. It is the only commercial hazardous waste treatment facility in
Maryland. The facility has a state Controlled Hazardous Substances permit (the
state equivalent of a Part B license), which was issued in 1987. In 1990, the
Company received a permit modification to expand the range of waste streams
the facility can accept and to install the CES, which allows the facility to
treat a wide range of hazardous wastewaters contaminated with gasoline,
chlorinated solvents and many other organic contaminants, which were formerly
sent to other companies for incineration. In 1992, the Maryland Department of
the Environment issued a new Controlled Hazardous Substances permit for a
three-year term, which significantly expanded the waste handling and storage
capacity of the facility. The new permit also allows handling of CleanPacks
and material destined for fuels-blending, pretreatment of waste to stabilize
it before it is sent to landfills, and rail shipment of hazardous and
nonhazardous waste. In June, 1995 the Company submitted a permit renewal
application which allows operations to continue until the renewal application
is approved.
Bristol, CT. In July 1992, the Company acquired Connecticut Treatment
Corporation, located in Bristol, Connecticut, approximately 20 miles southwest
of Hartford. It provides hazardous wastewater treatment, drummed waste
processing and consolidation, and transfer of CleanPacks. This facility also
offers two specialized services: equipment "de-manufacturing," such as
dismantling outdated computers, and treatment of special categories of
hazardous wastewaters known as "listed" wastewaters resulting from industrial
processes such as electroplating.
The Bristol facility has a Part B license issued by the federal EPA and the
Connecticut Department of Environmental Protection. The license was issued in
1987 and expired in 1991. A new license was applied for and the facility
continued to operate while the EPA and DEP reviewed the renewal application.
The Company also applied for approval to expand the number of hazardous waste
codes allowed to be handled, expand container storage capacity from 1,000
drums to 3,500 drums, and add eight tanks for storage of sludge and
stabilization materials. In April 1995, the DEP issued a renewal of the
license, with the additions requested by the Company. The term of the license
is five years.
The Bristol facility also treats hazardous industrial wastewater, and has a
permit to discharge to the publicly owned sewage treatment works an average of
50,000 gallons per day of treated water. These treatment activities are
licensed by the Connecticut DEP pursuant to the Clean Water Act, and are not
subject to Part B licensing requirements. In 1990 the Company's predecessor
applied for renewal and modification of its Clean Water Act license, to allow
construction of additional tanks for wastewater treatment and installation of
new wastewater treatment technologies, such as reverse osmosis and
ultrafiltration. The discharge limit would remain at 50,000 gallons average
per day. In April 1995, a 5 year permit renewal was issued by DEP.
Cincinnati, OH. In February 1993, the Company acquired Spring Grove Resource
Recovery, Inc. ("Spring Grove"), located north of downtown Cincinnati, Ohio.
It provides hazardous wastewater treatment, drummed waste processing and
consolidation, pretreatment of waste to stabilize it before it is sent to
landfills, and transfer of CleanPacks. The facility holds a state Hazardous
Waste Facility Installation and Operation permit (RCRA
14
Part B) which was renewed in December 1993 for a five-year term. The facility
is also authorized to handle PCBs. On March 31, 1994, the Ohio EPA approved
the Company's application for a revised, comprehensive state permit that
expands the range of waste that may be received and treated at the facility
and allows installation of sophisticated equipment for handling and processing
material to be sent to boilers and industrial furnaces and used as
supplemental fuel. In May 1995, the Ohio Hazardous Waste Facility Board
approved the transfer of the facility hazardous waste permit from the former
owner of the facility to Clean Harbors.
Kimball, NE. In May 1995, the Company acquired a newly constructed hazardous
waste incinerator in Kimball, Nebraska from Ecova Corporation, an affiliate of
Amoco Oil Company. The Kimball facility includes a 45,000 ton-per-year
fluidized bed thermal oxidation unit for maximum destruction efficiency of
hazardous waste. It is a new, state-of-the-art facility staffed with a highly
trained and motivated workforce. The construction of the incinerator and its
operation have received widespread support in the local community. The
incinerator has a RCRA Part B license issued by the Nebraska Department of
Environmental Quality ("NDEQ"). In December 1994, the NDEQ approved commercial
operation at 75% of capacity. The incinerator will be authorized to operate at
100% capacity upon issuance of a final Air Operating Permit which is expected
to be issued by NDEQ in mid 1996.
The incinerator is located on a 600 acre site, which includes a landfill for
disposal of incinerator ash. If the chemical composition of the ash meets the
permit requirements, which is subject to verification before it is landfilled
on-site, the ash will be classified as "delisted", meaning it will no longer
be regulated as a hazardous waste under federal and state laws. No other
commercial incineration facility in the United States is currently permitted
to delist ash. Although the ash will be classified as nonhazardous, the
landfill has been constructed to meet RCRA Subtitle C standards, which are the
same stringent requirements as for landfills designed to handle hazardous
waste.
The acquisition of this facility responds to a developing trend within the
hazardous waste management industry: many generators of industrial waste
prefer to treat hazardous waste, rather than bury it, because of concerns
about the long-term liability associated with landfill disposal of the residue
which results from incineration of the generator's hazardous waste.
Conventional incinerators produce a "slag" which is regulated as a hazardous
waste. The residue from the Kimball treatment facility, in contrast, is ash
rather than slag. The ash meets the standards set by NDEQ for "delisting" and
is therefore deemed to be non-hazardous.
During September 1995, the Kimball treatment facility entered a new,
expanded phase of operations as a result of two actions by Federal and State
regulators. The United States Environmental Protection Agency ("EPA")
authorized the facility to begin accepting wastes generated at sites being
remediated pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA," also known as the "Superfund Act"). The
EPA authorization to begin accepting wastes generated at CERCLA sites allows
the Company to be directly involved in the safe treatment and disposal of
wastes from Federal cleanup efforts including Superfund sites, a large portion
of the incineration marketplace. Prior to obtaining CERCLA approval, the
Kimball facility was limited to accepting hazardous wastes regulated by RCRA.
RCRA waste materials are made up of the same constituents as CERCLA wastes,
but are generated from various ongoing industrial operations rather than
Federal cleanup activities at specific locations or Federal Superfund sites.
In a separate action, the NDEQ approved the use of the facility's on-site
landfill for disposal of ash residue as well as residues from the facility's
air pollution control system. The facility now has all approvals necessary to
fully use its waste disposal capacity.
The Company believes that the facility offers capabilities which will be
very attractive to its major customers. In particular, the facility is
expected to have operating costs lower than most other incinerators, given the
minimal acquisition cost to the Company and its unique ability to dispose of
delisted ash on-site, which will save on the cost of shipping ash to another
company for landfilling. The Company expects to realize significant savings by
using the Kimball facility to incinerate waste previously sent to other
incinerators. Since the incinerator is a new facility, many of the Company's
customers will visit the facility for a comprehensive audit of its operations
before they will approve the site for disposal of their hazardous waste. As a
result,
15
considerable time is needed to complete the audit and approval process before
the Company can begin shipping waste to the facility. As of December 31, 1995,
over fifty large customers had audited and approved the facility, and
approvals from another dozen customers were pending.
As part of the acquisition, the Company agreed to make royalty payments to
Ecova Corporation through 2004, based on the number of tons processed at the
facility.
Waste Oil Treatment and Storage Facilities. The Company has four waste oil
treatment and storage facilities: two in Massachusetts, one in Maine, and one
in Virginia. The Massachusetts facilities are located in Kingston and Woburn,
in the Boston area. The Kingston facility has a state recycling permit and is
able to store oil collected from various activities, ranging from routine
cleaning of oil storage terminals to oil spill cleanups. The facility is also
used for maintenance activities and for training of employees of the Company
and third-party customers. The Woburn facility is a waste oil storage and
transfer facility, and received a Part B license in October 1993 for a five-
year term.
The facility in South Portland, Maine is a petroleum reclamation facility
that handles most of the waste oil received by the Company, which comes
primarily from the Company's remediation activities. It has a municipal sewer
user permit allowing the discharge of water separated from oil. The Company
also owns another property in South Portland located on Main Street. It has a
license to store virgin oil, but it also is permitted for the temporary
storage and transfer of containerized hazardous waste.
The Virginia facility is located near Richmond, and was acquired in
September 1994. The facility is able to store oil and gasoline-contaminated
wastewaters collected from various activities, ranging from routine cleaning
of oil storage terminals to oil spill cleanups. The facility operates under
RCRA interim status pending the final submittal and review of its application
for a Part B license.
ENVIRONMENTAL REGULATION
While the Company's business has benefited substantially from increased
governmental regulation of hazardous waste transportation, storage and
disposal, the industrial waste management industry itself has become the
subject of extensive and evolving regulation by federal, state and local
authorities. The Company makes a continuing effort to anticipate regulatory,
political and legal developments that might affect its operations, but is not
always able to do so. The Company cannot predict the extent to which any
environmental legislation or regulation that may be enacted or enforced in the
future may affect its operations.
On December 21, 1995, the EPA proposed to amend its regulations in the RCRA
by establishing constituent-specific exit levels for low-risk solid wastes
that are designated as hazardous because they are listed, or have been mixed
with, derived from, or contain listed hazardous wastes. Under the proposal,
generators of listed hazardous wastes that meet the self-implementing exit
levels would no longer be subject to the hazardous waste management system
under Subtitle C of RCRA as listed hazardous wastes. The proposed rulemaking,
referred to as the Hazardous Waste Identification Rule ("HWIR"), establishes a
risk-based "floor" to hazardous waste listings that will encourage pollution
prevention, waste minimization, and the development of innovative waste
treatment technologies. If passed, the HWIR may impact the Company's
incinerator in Kimball, since many wastes which are currently required to be
managed as a hazardous waste may no longer require incineration at a RCRA
incineration unit such as Kimball.
The Company is required to obtain federal, state and local licenses or
approvals for each of its hazardous waste facilities. Such licenses are
difficult to obtain and, in many instances, extensive studies, tests, and
public hearings are required before the approvals can be issued. The Company
has acquired or is in the process of applying for all operating licenses and
approvals required for the current operation of its business and has applied
for or is in the process of applying for all licenses and approvals needed in
connection with planned expansion or modifications of its operations.
16
FEDERAL REGULATION OF HAZARDOUS WASTE
The most significant federal environmental laws affecting the Company are
RCRA, the Superfund Act and the Clean Water Act.
RCRA. RCRA is the principal federal statute governing hazardous waste
generation, treatment, transportation, storage and disposal. Pursuant to RCRA,
the EPA has established a comprehensive, "cradle-to-grave" system for the
management of a wide range of materials identified as hazardous waste. States,
such as Massachusetts, Connecticut, Illinois, Maryland, Ohio and Nebraska,
that have adopted hazardous waste management programs with standards at least
as stringent as those promulgated by the EPA, have been authorized by the EPA
to administer their facility permitting programs in lieu of the EPA's program.
Every facility that treats, stores or disposes of hazardous waste must
obtain a RCRA license from the EPA or an authorized state agency and must
comply with certain operating requirements. Under RCRA, hazardous waste
management facilities in existence on November 19, 1980 were required to
submit a preliminary license application to the EPA, the so-called Part A
Application. By virtue of this filing, a facility obtained Interim Status,
allowing it to operate until licensing proceedings are instituted pursuant to
more comprehensive and exacting regulations (the Part B licensing process).
Interim Status facilities may continue to operate pursuant to the Part A
Application until their Part B licensing process is concluded. Of the
Company's 12 waste management facilities, nine are subject to RCRA licensing;
of the nine, only the Virginia waste oil facility operates under interim
status. The other eight have been issued Part B licenses, one of which is
under appeal.
RCRA requires that Part B licenses contain provisions for required on-site
study and cleanup activities, known as "corrective action," including detailed
compliance schedules and provisions for assurance of financial responsibility.
The EPA estimates that there are approximately 4,300 facilities that treat,
store or dispose of hazardous wastes, which can be compelled to take
corrective action when necessary. Some facilities are very large and have
extensive contamination problems which rival the largest Superfund sites.
Other facilities have relatively minor environmental problems. Still others
will not need remedial action at all. It is the EPA's policy to compel
corrective action at the "worst sites first." As a result, the EPA has
developed a system for assessing the relative environmental cleanup priority
of RCRA facilities, called the National Corrective Action Prioritization
System, with a High, Medium or Low ranking for each facility. Although several
facilities of its competitors have been assessed a High cleanup priority, none
of the Company's RCRA facilities have been assessed as a High priority.
The Company has begun RCRA corrective action investigations at its Part B
licensed facilities in Braintree, Natick, Bristol, Chicago, and Woburn. The
Company is also involved in site studies at its non-RCRA facilities in
Cleveland, Ohio; Kingston, Massachusetts; and on Main Street in South
Portland, Maine. The Company spent approximately $790,000 on corrective action
at the foregoing facilities in 1995. The Company does not expect that
corrective action will be required at its Richmond, Virginia waste oil
facility.
The Company is also involved in a RCRA corrective action investigation at a
site in Chester, Pennsylvania owned by Philadelphia Electric Company ("PECO").
The site consists of approximately 30 acres which PECO has leased to various
companies over the years. In 1989, the Company acquired by merger a public
company named ChemClear Inc., which operated a hazardous waste treatment
facility on approximately eight acres of the Chester site leased from PECO.
The Company ceased operations at the Chester site, decontaminated the plant
and equipment, engaged an independent engineer to certify closure, and
obtained final approval from the Pennsylvania regulatory authorities,
certifying final closure of the facility. In 1993, the EPA ordered PECO to
perform a RCRA corrective action investigation at the Chester site. PECO asked
the Company to participate in the site studies, and in October 1994, the
Company agreed to be responsible for seventy-five percent of the cost of these
studies, which is estimated to be in the range of $1,000,000 to $2,000,000, by
performing field service work and analytical services required to complete the
site studies and providing other environmental services to PECO at discounted
rates.
17
While the final scopes of the work to be performed at these facilities have
not yet been agreed upon, the Company believes, based upon information known
to date about the nature and extent of contamination at these sites, that such
costs will not have a material effect on its results of operations or its
competitive position, and that it will be able to finance from operating
revenues any additional corrective action required at its facilities.
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate.
The Bristol, Connecticut and Cincinnati, Ohio facilities were acquired from
a subsidiary of Southdown, Inc. Southdown Inc. has agreed to indemnify the
Company against any costs incurred or liability arising from contamination on-
site, including the cost of corrective action, or waste disposed of off-site,
including any liability under the Superfund Act, at those facilities.
The Superfund Act. The Superfund Act provides for immediate response and
removal actions coordinated by the EPA to releases of hazardous substances
into the environment, and authorizes the government to respond to the release
or threatened release of hazardous substances or to order persons responsible
for any such release to perform any necessary cleanup. The statute assigns
joint and several liability for these responses and other related costs,
including the cost of damage to natural resources, to the parties involved in
the generation, transportation and disposal of such hazardous substances.
Under the statute, the Company may be deemed liable as a generator or
transporter of a hazardous substance which is released into the environment,
or as the owner or operator of a facility from which there is a release of a
hazardous substance into the environment. See also "Business--Legal
Proceedings."
Clean Water Act. This legislation prohibits discharges to the waters of the
United States without governmental authorization. The EPA has promulgated
"pretreatment" regulations under the Clean Water Act, which establish
pretreatment standards for introduction of pollutants into publicly owned
treatment works. In the course of its treatment process, the Company's
wastewater treatment facilities generate waste water which they discharge to
publicly owned treatment works pursuant to permits issued by the appropriate
governmental authority. The Clean Water Act also serves to create business
opportunities for the Company in that it may prevent industrial users from
discharging their untreated wastewaters to the sewer. If these industries
cannot meet their discharge specifications, then they may utilize the services
of an off-site pretreatment facility such as those of the Company.
Other Federal Laws. Company operations are also subject to the Toxic
Substances Control Act ("TSCA"), pursuant to which the EPA regulates over
60,000 commercially produced chemical substances, including the proper
disposal of PCBs. TSCA has established a comprehensive regulatory program for
PCBs, under the jurisdiction of the EPA, which oversees the storage, treatment
and disposal of PCBs at the Company's facilities in Braintree and Natick,
Massachusetts; Cincinnati, Ohio; and Bristol, Connecticut. Under the Clean Air
Act, the EPA also regulates emissions into the air of potentially harmful
substances. In its transportation operations, the Company is regulated by the
U.S. Department of Transportation, the Federal Railroad Administration, and
the U.S. Coast Guard, as well as by the regulatory agencies of each state in
which it operates or through which its trucks pass. Health and safety
standards under the Occupational Safety and Health Act are also applicable.
STATE AND LOCAL REGULATIONS
Pursuant to the EPA's authorization of their RCRA equivalent programs,
Massachusetts, Connecticut, Illinois, Maryland, Ohio, and Nebraska have
regulatory programs governing the operations and permitting of hazardous waste
facilities. Accordingly, the hazardous waste treatment, storage and disposal
activities of the Company's Braintree, Natick, Woburn, Bristol, Chicago,
Baltimore, Cincinnati, and Kimball facilities are regulated by the relevant
state agencies in addition to federal EPA regulation.
Some states, such as Connecticut and Massachusetts, classify as hazardous
some wastes which are not regulated under RCRA. For example, Massachusetts
considers PCBs and used oil as "hazardous wastes," while RCRA does not.
Accordingly, the Company must comply with state requirements for handling
state regulated
18
wastes, and when necessary obtain state licenses for treating, storing, and
disposing of such wastes at its facilities.
The Company believes that each of its facilities is in substantial
compliance with the applicable requirements of RCRA and state laws and
regulations. Ten of the Company's twelve waste management facilities have been
issued final licenses; the one for the Braintree facility is under appeal. The
Richmond facility operates under interim status. Final action on the South
Portland waste oil storage permit is expected in the Spring of 1996. Once
issued, such licenses have maximum fixed terms of a given number of years,
which differ from state to state, ranging from three years to ten years. The
issuing state agency may review or modify a license at any time during its
term. The Company anticipates that once a license is issued with respect to a
facility, the license will be renewed at the end of its term if the facility's
operations are in compliance with applicable requirements. However, there can
be no assurance that regulations governing future licensing will remain
static, or that the Company will be able to comply with such requirements.
The Company's wastewater treatment facilities are also subject to state and
local regulation, most significantly sewer discharge regulations adopted by
the municipalities which receive treated wastewater from the treatment
processes. The Company's continued ability to operate its liquid waste
treatment process at each such facility is dependent upon its ability to
continue these sewer discharges.
The Company's facilities are regulated pursuant to state statutes, including
those addressing clean water and clean air. Local sewer discharge and
flammable storage requirements are applicable to certain of the Company's
facilities. The Company's facilities are subject to local siting, zoning and
land use restrictions. Although the Company's facilities occasionally have
been cited for regulatory violations, the Company believes it is in
substantial compliance with all federal, state and local laws regulating its
business.
ITEM 3. LEGAL PROCEEDINGS
In April 1988, the Board of Selectmen of Braintree, Massachusetts, approved
a cease and desist order with respect to the handling of flammable materials
stored at the Company's Braintree facility. The Board concluded that, when the
Company purchased the land on which the Braintree facility is located, a
license for the storage of flammable liquids was not conveyed as an incident
of ownership. The Company petitioned the Massachusetts Land Court for a
declaratory judgment that either the Company possesses such a license by
operation of law or that the statute requiring the license is pre-empted by
the pervasive state regulation of hazardous waste facilities. In March 1994,
the Land Court issued a favorable ruling, concluding that the statute is pre-
empted by state hazardous waste laws and regulations and no local flammable
storage license is required. The town has appealed this ruling, and has asked
the Company to stipulate certain facts with respect to the other issues of the
case so that a final appealable order can be issued by the Land Court. The
Company has agreed to the stipulation but the Town has taken no further
action.
In December 1991, the Company was asked to respond to an emergency cleanup
after a motor vehicle struck a utility pole near the State University of New
York at New Paltz, causing an electrical surge to overheat transformers which
discharged toxic chemicals throughout various student dormitories and
classroom buildings. The Company was hired by the State University of New York
to perform technical supervisory and laboratory work for the cleanup. The
actual work of cleaning the buildings was performed over approximately 15
months by other contractors hired by the State of New York. In March 1993, a
group of students sued the Dormitory Authority of the State of New York
("DASNY") claiming that they were exposed to toxic chemicals when DASNY
allowed them to reoccupy the buildings after the accident and prior to a
complete removal of the toxic chemicals, causing them increased risk of future
illnesses. DASNY denied the students' claims but elected to sue the Company
along with 16 other third-party defendants claiming that if DASNY is liable to
the students, these third-party defendants should indemnify DASNY. The Company
was hired by the State University of New York to perform representative
sampling for toxic chemicals but, according to its contract, was not
responsible for decisions as to when students should reoccupy the buildings.
Nevertheless, in June 1994, the Company and the 16 other third parties were
served with a third-party complaint filed in the Ulster
19
County Superior Court by DASNY. In January 1996, the trial judge ruled that
the plaintiffs were not entitled to proceed as a class action for the medical
cost claims, but were entitled to class action status for personal property
losses. Since the personal property losses resulted directly from the
explosions and fire, and occurred prior to the Company's involvement, the
Company does not believe that it will incur any material liability as a result
of this lawsuit. The Company has not received notice that the plaintiffs will
appeal the trial judge's ruling.
Certain Company subsidiaries have transported or generated waste sent to
sites which have been designated state or federal Superfund sites. As a
result, the Company has been named as a potentially responsible party ("PRP")
in a number of lawsuits arising from the disposal of wastes at 20 state and
federal Superfund sites.
Eleven of these sites involve two subsidiaries which the Company acquired
from ChemWaste, which is a wholly-owned subsidiary of WMX Technologies, Inc.
As part of the acquisition, ChemWaste agreed to indemnify the Company with
respect to any liability of its Natick and Braintree subsidiaries for waste
disposed of before the Company acquired them. Accordingly, ChemWaste is paying
all costs of defending the Company's Natick and Braintree subsidiaries in
these cases, including legal fees and settlement costs.
The Company's subsidiary which owns the Bristol, Connecticut facility is
involved in one Superfund site. As part of the acquisition of the Bristol and
Cincinnati, Ohio facilities, the seller and its parent company, Southdown,
Inc., agreed to indemnify the Company with respect to any liability for waste
disposed of before the Company acquired the facilities, which would include
any liability arising from Superfund sites.
With respect to the other Superfund sites at which the Company believes it
may face liability, the Company has established reserves or escrows which it
believes are appropriate. Therefore, the Company believes that any future
settlement costs arising from any or all of the 20 Superfund sites will not be
material to the Company's operations or financial position. Management
routinely reviews each Superfund site in which the Company's subsidiaries are
involved, considers each subsidiary's role at each site and its relationship
to the other PRPs at the site, the quantity and content of the waste it
disposed of at the site, and the number and financial capabilities of the
other PRPs at the site. Based on reviews of the various sites and currently
available information, and management's judgment and prior experience with
similar situations, expense accruals are provided by the Company for its share
of future site cleanup costs, and existing accruals are revised as necessary.
As of December 31, 1995, the Company had accrued environmental costs of
$405,000 for cleanup of Superfund sites. Superfund legislation permits strict
joint and several liability to be imposed without regard to fault, and, as a
result, one PRP might be required to bear significantly more than its
proportional share of the cleanup costs if other PRPs do not pay their share
of such costs.
Five of the 20 sites involve former subsidiaries of ChemClear Inc. One of
the five sites is the Strasburg Landfill site in Pennsylvania. The Company and
two other parties identified as PRPs received an order from the EPA in 1989 to
perform certain emergency measures at the site. The Company responded by
installing a leachate treatment and discharge system and repairing the
landfill slope. Since early 1990, the Company has spent approximately $400,000
in complying with the EPA order. In 1992, the EPA issued its Record of
Decision for the site which proposes recapping and revegetating the landfill
and installing certain air emission and leachate treatment systems. In January
1993, the Company and eight other PRPs submitted to the EPA a Response to
Notice Letter, which recommended additional study be performed at the site by
the PRP group and that a final remedy be based on the additional data
developed during the study. In July 1995, the PRP group received a reply from
the EPA, which declined to accept the good faith offer submitted by the nine
PRPs in January 1993. The EPA advised the PRP group that it planned to utilize
Superfund monies to design and implement the remedy specified in the Record of
Decision for the site, and initiate a cost recovery action for its past costs
in the amount of approximately $6,000,000. The EPA indicated that the future
remediation costs are estimated to be $11,000,000. In their October 1995
response to the EPA, the PRPs have indicated their willingness to accept the
EPA's offer to engage in alternative dispute resolution to settle the claim
for past costs. In January 1996, the Company and 16 other PRP's signed a
standstill and tolling agreement with the EPA which allows for settlement
discussions to take place up to July 15, 1996. In February 1996, the Company
filed suit in
20
the U.S. District Court for the Eastern District of Pennsylvania against
certain PRP's in order to preserve its claims for cost recovery and
contribution against those parties. The Company believes its ultimate exposure
in this case will not have a material impact on its financial position or
results of operations.
Mr. Frank, Inc., which was acquired by the Company in July 1992, is involved
in three Superfund sites, as a transporter of waste generated by others prior
to the Company's purchase of Mr. Frank, Inc. The Company acquired Mr. Frank,
Inc. in exchange for 233,000 shares of the Company's common stock, of which
33,222 shares were deposited into an escrow account to be held as security for
the sellers' agreement to indemnify the Company against potential liabilities,
including environmental liabilities arising from prior ownership and operation
of Mr. Frank, Inc.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock began trading publicly in the over-the-counter
market on November 24, 1987 and was added to the NASDAQ National Market System
effective December 15, 1987. The Company's common stock trades on The Nasdaq
Stock Market under the symbol: CLHB. The following table sets forth the high
and low sales prices of the Company's common stock for the indicated periods
as reported by NASDAQ.
1994 HIGH LOW
- ---- ------ ------
First Quarter..................................................... $9.25 $6.625
Second Quarter.................................................... 8.25 6.625
Third Quarter..................................................... 8.125 5.75
Fourth Quarter.................................................... 7.25 3.625
1995 HIGH LOW
- ---- ------ ------
First Quarter..................................................... $5.125 $3.375
Second Quarter.................................................... 5.50 3.125
Third Quarter..................................................... 4.250 3.00
Fourth Quarter.................................................... 3.875 2.375
On February 1, 1996 there were 920 holders of record of the Company's common
stock, excluding stockholders whose shares were held in nominee name.
The Company has never declared nor paid any cash dividends on its common
stock. In February 1993, the Board of Directors authorized the issuance of up
to 156,416 shares designated as Series B Convertible Preferred Stock, with a
cumulative dividend of 7% during the first year and 8% thereafter, payable
either in cash or by the issuance of shares of common stock. 112,000 shares of
Series B Convertible Preferred Stock (the "Preferred Stock") were issued on
February 16, 1993 in partial payment of the purchase price for Spring Grove.
Except for payment of dividends on the Preferred Stock, the Company intends to
retain all earnings for use in the Company's business and therefore does not
anticipate paying any cash dividends on its common stock in the foreseeable
future. The Company's bank credit agreements contain financial covenants which
may effectively restrict or limit the payment of dividends other than
Preferred Stock dividends. See Note 9 to the Consolidated Financial Statements
in Item 8 of this report.
Dividends on the Company's Preferred Stock are payable on the 15th day of
January, April, July and October, at the rate of $1.00 per share, per quarter;
112,000 shares are outstanding. Under the terms of the
21
Preferred Stock, the Company can elect to pay dividends in cash or in common
stock with a market value equal to the amount of the dividend payable. The
Company elected to pay the October 15, 1995 and the January 15, 1996 dividends
in common stock. The market value of the common stock as of the October 1,
1995 and January 1, 1996 record dates of such dividends was $3.8375 and
$2.6125, respectively. Accordingly, the Company has issued 72,058 shares of
common stock to the holders of the Preferred Stock. The Company anticipates
that the Preferred Stock dividends payable through 1996 will be paid in common
stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial information should be reviewed
in conjunction with Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 8--Financial Statements and
Supplementary Data of this report.
Change of Fiscal Year. In 1992, the Company elected to change its fiscal
year to coincide with the calendar year. Prior to the change, the Company's
fiscal year ended on February 28. As a result, the Company had a ten-month
transition period, from March 1, 1991 to December 31, 1991, between fiscal
years. The change in fiscal year creates a reporting period which is
consistent with various federal and state agencies which regulate the
Company's business, and allows better comparability of the Company's results
to other publicly traded environmental services companies.
Extraordinary Item. During the third quarter of 1994, the Company completed
a public offering of $50,000,000 of 12.50% Senior Notes, and used the net
proceeds to prepay substantially all of the Company's debt, in order to
refinance debt which had a 13.25% interest rate. The Company also wanted to
reduce its reliance on floating rate bank debt, by extending the average life
of its long-term debt and obtaining longer-term capital at an attractive fixed
interest rate. The refinancing resulted in approximately $2,043,000 of expense
relating to the early retirement of the outstanding debt, and an extraordinary
charge of $1,220,000 ($.13 per share), net of income tax benefit, for
redemption premiums paid to the holders of the prepaid debt and for the write-
off of deferred financing costs.
Nonrecurring Charges. During the fourth quarter of 1995, the Company
recorded a $4,247,000 nonrecurring charge in connection with the reengineering
of the Company's operations and the write-off of a non-performing asset, as
well as the anticipated losses on the sale of certain non-core properties.
Under the reengineering program, the Company has closed or downsized small,
satellite offices; reduced employment levels; downsized its laboratory staff
and relocated the laboratory to its waste handling facility in Braintree,
Massachusetts; and will be relocating its corporate headquarters to a new
location in Braintree, Massachusetts in the Spring of 1996. The components of
the nonrecurring charge are as follows:
Severance and related costs..................................... $1,097,000
Write-off of non-performing asset............................... 1,110,000
Real estate related charges..................................... 2,040,000
----------
$4,247,000
During the fourth quarter of 1994, the Company renegotiated its lease on its
corporate headquarters in Quincy, Massachusetts, such that the lease would
terminate on or before December 31, 1995. The Company relocated its corporate
headquarters to Braintree, Massachusetts in the spring of 1995. In addition,
the Company has vacated laboratory space it rents in Bedford, Massachusetts,
and is subleasing the space. As a result, the Company recorded a one-time,
noncash charge of $1,035,000 before taxes for the write-off of leasehold
improvements at the two locations.
22
TWELVE-MONTH YEAR TEN-MONTH
ENDED DECEMBER 31, PERIOD ENDED
------------------------------------- DECEMBER 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Revenues.................... $209,250 $207,073 $200,114 $176,193 $127,473
Cost of revenues.......... 156,779 146,132 134,525 116,473 85,921
Selling, general and
administrative expenses.. 39,574 38,910 42,296 35,923 23,856
Depreciation and
amortization of
intangible assets........ 10,081 10,250 10,319 8,884 6,601
Nonrecurring charges...... 4,247 1,035 -- -- --
-------- -------- -------- -------- --------
Income (loss) from
operations............... (1,431) 10,746 12,974 14,913 11,095
Interest expense (net).... 8,657 7,432 7,198 7,064 5,925
-------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes and extraordinary
item..................... (10,088) 3,314 5,776 7,849 5,170
Provision for (benefit
from) income taxes....... (3,195) 1,619 2,645 2,774 1,567
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item....... (6,893) 1,695 3,131 5,075 3,603
Extraordinary loss related
to early retirement of
debt, net of income tax
benefit of $823.......... -- 1,220 -- -- --
-------- -------- -------- -------- --------
Net income (loss)....... $(6,893) $ 475 $ 3,131 $ 5,075 $ 3,603
======== ======== ======== ======== ========
Net income (loss) per common
and common equivalent share
before extraordinary item.. $ (.77) $ .13 $ .28 $ .52 $ .37
======== ======== ======== ======== ========
Extraordinary item.......... $ -- $ (.13) -- -- --
======== ======== ======== ======== ========
Net income (loss) per common
and common equivalent
share...................... $ (.77) $ .00 $ .28 $ .52 $ .37
======== ======== ======== ======== ========
Weighted average number of
common and common
equivalent shares
outstanding................ 9,475 9,635 9,884 9,743 9,739
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital............. $ 11,697 $ 20,814 $ 18,320 $ 15,487 $ 14,529
Total assets................ $178,316 $159,875 $167,358 $153,939 $138,844
Long-term debt, less current
portion.................... $ 70,391 $ 60,465 $ 62,507 $ 64,565 $ 63,381
Stockholders' equity........ $ 60,374 $ 67,326 $ 67,371 $ 58,065 $ 50,787
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operating
data associated with the Company's results of operations. This table and
subsequent discussions should be read in conjunction with Item 6--Selected
Financial Data and Item 8--Financial Statements and Supplementary Data of this
report.
PERCENTAGE OF TOTAL REVENUES
----------------------------------------
TWELVE-MONTH YEAR TEN-MONTH
ENDED DECEMBER 31, PERIOD ENDED
-------------------------- DECEMBER 31,
1995 1994 1993 1992 1991
----- ----- ----- ----- ------------
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues:
Disposal costs paid to third
parties............................ 15.4 13.5 15.4 18.2 20.6
Other costs......................... 59.5 57.1 51.8 47.9 46.8
----- ----- ----- ----- -----
Total cost of revenues............ 74.9 70.6 67.2 66.1 67.4
Selling, general and administrative
expenses............................. 18.9 18.8 21.1 20.4 18.7
Depreciation and amortization of
intangible assets.................... 4.9 4.9 5.2 5.0 5.2
Nonrecurring charges.................. 2.0 0.5 -- -- --
----- ----- ----- ----- -----
Income (loss) from operations....... (0.7) 5.2 6.5 8.5 8.7
Interest expense (net)................ 4.1 3.6 3.6 4.0 4.7
----- ----- ----- ----- -----
Income (loss) before provision for
income taxes and extraordinary
item............................... (4.8) 1.6 2.9 4.5 4.0
Provision for (benefit from) income
taxes................................ (1.5) 0.8 1.3 1.6 1.2
----- ----- ----- ----- -----
Income (loss) before extraordinary
item................................. (3.3) 0.8 1.6 2.9 2.8
Extraordinary loss from early
retirement of debt................... -- 0.6 -- -- --
----- ----- ----- ----- -----
Net income (loss)................... (3.3)% 0.2% 1.6% 2.9% 2.8%
===== ===== ===== ===== =====
GENERAL
As part of its growth strategy, the Company seeks to expand into additional
service areas by opening new service centers and sales offices, and by
acquiring additional hazardous waste management facilities. In 1992, the
Company made two acquisitions (Connecticut Treatment Corporation and Mr.
Frank, Inc.). In 1993, the Company made one acquisition (Spring Grove Resource
Recovery, Inc.) and opened two service centers in Waukegan, Illinois and
Portsmouth, New Hampshire and eight sales offices. In 1994, the Company made
one acquisition (the Richmond, Virginia oil reclamation facility), closed the
Portsmouth, New Hampshire service center to reduce overhead, and opened two
new service centers in Lake Charles, Louisiana and Charleston, South Carolina.
In 1995, the Company made one acquisition (the Kimball, Nebraska incinerator),
expanded its Chicago facility onto the adjacent site, closed its service
centers in Bangor, Maine; Shrewsbury, Massachusetts; and Waukegan, Illinois,
and opened two new service centers in Denver, Colorado and Houston, Texas.
Sales offices may become service centers as business around a sales office
develops and the Company adds staff and equipment to support the increasing
level of business. A sales office will become a service center by relocating
to larger space and adding field technicians and personnel to service
customers. As its sales territories evolve, the Company will relocate sales
personnel from one area to another, and close sales offices while opening
others in areas with growth potential. The Company currently has sales offices
and service centers in 24 states and Puerto Rico.
The Company's operations are subject to seasonal fluctuations. Typically
during the first quarter there is less demand for environmental remediation
due to the cold weather, particularly in the Northeast and Midwest
24
regions. In addition, factory closings for the year-end holidays reduce the
volume of industrial waste generated, which results in lower volumes of waste
handled by the Company during the first quarter of the following year.
Customer spending for environmental remediation services is also influenced by
budgetary cycles and constraints, and remediation projects are typically fewer
in the first quarter of the budget year, with more projects occurring in
subsequent quarters as customers seek to complete budgeted projects before the
end of the year.
The Company analyzes its results of operations based on the geographical
locations of its service centers. The Company believes this method of analysis
is appropriate because geographical areas differ in types of customers; the
scope and maturity of the Company's operations; the Company's investments in
facilities and the number of service centers and sales offices; degree of
competition; and local economic and regulatory conditions.
The following table sets forth for the periods indicated the Company's
revenues by region, based upon the locations of its service centers, as of
December 31, 1995.
NUMBER OF
SERVICE
REGION CENTERS 1995 1994 1993
- ------ --------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, UNAUDITED)
Northeast................... 7 $ 82,779 39% $ 82,391 40% $ 84,906 42%
Mid-Atlantic................ 9 66,318 32% 70,861 34% 63,894 32%
Central..................... 3 34,912 17% 29,847 14% 26,044 13%
Midwest..................... 3 25,241 12% 23,974 12% 25,270 13%
--- -------- --- -------- --- -------- ---
Total..................... 22 $209,250 100% $207,073 100% $200,114 100%
=== ======== === ======== === ======== ===
The Company continues to expand its Mid-Atlantic region as it penetrates the
southern part of the country, by expanding its network of sales offices and
service centers. With its new service centers and sales offices in the
southern states of South Carolina, Georgia, Tennessee, Louisiana, and Texas,
the Company expects its business in that region to expand in 1996. The Company
may decide to form a new southern region so it can analyze and report on its
results of operations in that developing area.
The Company also analyzes its revenues on a product line basis based upon
the type of principal services provided. The principal services provided by
the Company fit within three categories: treatment and disposal of industrial
wastes ("Treatment and Disposal"); field services provided at customer sites
("Field Services"); and specialized repackaging, treatment and disposal
services for laboratory chemicals and household hazardous wastes ("CleanPack
Services").
TYPE OF SERVICE 1995 1994 1993
- --------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS; UNAUDITED)
Treatment and Disposal................ $ 92,005 44% $ 84,523 41% $ 90,181 45%
Field Services........................ 87,898 42% 94,360 46% 80,940 40%
CleanPack Services.................... 29,347 14% 28,190 13% 28,993 15%
-------- --- -------- --- -------- ---
Total............................... $209,250 100% $207,073 100% $200,114 100%
======== === ======== === ======== ===
1995 COMPARED WITH 1994
Revenues. Revenues for 1995 were $209,250,000, a new Company record. During
1994, the Company received approximately $7,000,000 of revenue from its
leading role in the cleanup of a large oil spill from a barge off the coast of
Puerto Rico. Excluding the revenue from that event last year, the Company's
base business grew approximately 5% from 1994 to 1995.
25
Treatment and disposal services revenue increased 9% from 1994 to 1995,
reversing a two year period of declining revenue in this product line. The
decline was due to a variety of secular trends impacting both price and
volume: competitive industry pricing; continuing efforts by generators of
hazardous waste to reduce the amount of hazardous waste they produce; and
shipment by generators of waste direct to the ultimate treatment or disposal
location. The Company has responded to these industry trends in several ways,
primarily by modernizing the Company's facilities to offer more
technologically advanced waste treatment alternatives, such as the Kimball
incinerator in Nebraska and the Clean Extraction System in Baltimore and by
acquiring treatment and disposal facilities that expand the Company's product
lines. For example, during 1995, the Company completed the installation of an
automated fuels blending operation at its Cincinnati waste treatment plant,
which establishes the Company in the fuels blending business for the first
time.
Field services revenue increased only slightly from 1994 to 1995, excluding
the Puerto Rico oil spill revenue. CleanPack revenue increased 4% from 1994 to
1995. While the Company has protected its market share in existing regions and
established new business relationships in the newer regions, significant price
competition has impacted revenue growth.
The Company is expanding its service capabilities in the Gulf Coast and
Southern regions of the United States. During 1995, the Company opened service
centers in Georgia and Kentucky, and expanded its new service centers in
Colorado and Texas, by adding staff and equipment to support the increasing
level of business in the newer regions. The Company expects to introduce new
waste management capabilities in the Midwest region with the significant
expansion of its Chicago facility. The Company also expects its revenues in
all four regions and all three product lines to benefit from the acquisition
of the Kimball incinerator.
Cost of Revenues. One of the largest components of cost of revenues is the
cost of sending waste to other companies for disposal. The Company has been
able to upgrade the quality and efficiency of its waste treatment services
through the development of new technology, strategic acquisitions, and
continued modifications and upgrades at its facilities. Although these actions
reduced the Company's dependence on outside disposal vendors such as landfills
and incinerators, to which the Company sends waste for ultimate disposal, the
increasingly competitive nature of the hazardous waste industry has
significantly reduced the margins earned on waste sent to outside disposal.
The Company also experienced an increase in the volume of field service work
which involved direct shipments to disposal facilities owned by third parties.
As a result, the Company's outside disposal costs increased to 15.4% of
revenue in 1995 from 13.9% of revenue in 1994 (calculated excluding revenue
from the Puerto Rico oil spill, which had no outside disposal costs). These
factors support the Company's decision to acquire the Kimball incinerator, in
order to reduce the Company's reliance on third-party disposal outlets, and
capture the gross margin being paid to vendors.
Since the Kimball incinerator is a new facility, and a recent entrant to the
incineration marketplace, volumes are growing slowly due to the time required
for customers to audit and approve the facility and begin shipping waste to
it. As a result, the incinerator experienced a loss from operations of
approximately $1,500,000 during 1995. The Company expects the volumes of waste
processed to increase during 1996, now that CERCLA approval has been obtained
and the on-site landfill is in operation.
The Company has begun cost savings plans to reduce operating costs as a
percentage of revenue during 1996. Through reengineering, a two-year long
effort which began in January 1994, the Company has significantly reduced its
cost structure while improving service quality and competitiveness in the
marketplace. The reengineering and cost control efforts have identified over
$10,000,000 in potential cost reductions which are expected to be realized in
1996. These savings will be achieved through introducing new computer systems
to strengthen the Company's business processes, exiting non-core businesses,
and reducing both the number of offices and the amount of rented space. The
Company believes that cost reductions will enable the Company to return to
profitability in 1996.
The nonrecurring charge of $4,247,000 resulted primarily from the
reengineering program, which identified more efficient methods of servicing
customers as well as certain assets and field locations which are
26
no longer integral to the Company's operations. Included in the charge are
$2,400,000 of non-cash items. The Company has reorganized and reduced its
workforce to reflect these operational changes, and reduced