Clean Harbors, Inc. — Fiscal 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual report; fourth-quarter data is presented as unaudited supplemental information. Clean Harbors provides environmental, energy and industrial services across North America through six reportable segments: Technical Services, Industrial and Field Services, Kleen Performance Products, SK Environmental Services, Lodging Services, and Oil and Gas Field Services.
Financial Performance and Position
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $3,275.1 million | $3,401.6 million | Down 3.7% |
| Income from operations | $187.6 million | $111.8 million | Up $75.8 million |
| Net income (loss) | $44.1 million | $(28.3) million | Returned to profitability |
| Diluted EPS | $0.76 | $(0.47) | Improved |
| Adjusted EBITDA | $504.2 million | $521.9 million | Down 3.4% |
| Cash flow from operations | $396.4 million | $297.4 million | Up 33.3% |
| Capital expenditures | $257.2 million | $257.6 million | Approximately flat |
| Cash and equivalents | $184.7 million | $246.9 million | Down $62.2 million |
| Long-term obligations, carrying value | $1,382.5 million | $1,380.1 million | Approximately flat |
Margins: Operating margin was approximately 5.7%, compared with 3.3% in 2014. Net margin was approximately 1.3%, compared with negative 0.8% in 2014. Adjusted EBITDA margin was approximately 15.4%, compared with 15.3% in 2014.
Debt and liquidity: The company had $1.395 billion of senior unsecured notes at par, consisting of $800 million of 5.25% notes due 2020 and $595 million of 5.125% notes due 2021. The $400 million revolving credit facility had no outstanding borrowings and approximately $178.5 million of availability at year-end. Letters of credit outstanding totaled $144.6 million, primarily supporting regulatory financial assurance.
Cash deployment: Investing cash outflows were $350.6 million, including $94.3 million for acquisitions and $257.2 million for property, plant and equipment. Financing cash outflows were $90.2 million, including $73.3 million of share repurchases. Approximately $122.3 million remained available under the $300 million repurchase authorization.
Material Changes Versus 2014
- Revenue declined primarily because of lower oil prices, reduced Canadian oil-and-gas activity, lower base-oil pricing, and approximately $108.3 million of adverse foreign-currency translation.
- Industrial and Field Services revenue increased 40.4% to $957.3 million, aided by approximately $306.6 million of emergency-response revenue, including avian-flu and oil-spill projects.
- Technical Services revenue declined 5.0% to $991.4 million; landfill waste volumes fell 28.6%, while incinerator utilization remained high at 90.9%.
- Kleen Performance Products revenue declined 27.5% to $386.8 million, reflecting lower oil-product prices and volumes. Segment Adjusted EBITDA fell 37.6% to $32.2 million.
- SK Environmental Services revenue increased 1.0% to $674.1 million and Adjusted EBITDA rose 22.9% to $140.1 million, supported by cost reductions and the Thermo Fluids acquisition.
- Lodging Services revenue fell 48.3% to $89.1 million; primary fixed-lodge occupancy declined to 33% from 61%.
- Oil and Gas Field Services revenue fell 42.0% to $175.9 million; serviced rig count declined approximately 32%, and segment Adjusted EBITDA was negative $0.8 million.
- Income from operations benefited from a smaller goodwill impairment charge: $32.0 million in 2015 versus $123.4 million in 2014. The 2015 charge fully impaired Oil and Gas Field Services goodwill.
- Foreign-currency translation produced a $144.1 million other comprehensive loss in 2015, reducing stockholders’ equity and contributing to the decline in total assets.
Fourth-Quarter 2015 Snapshot
| Metric | Q4 2015 | Q4 2014 |
|---|---|---|
| Revenue | $713.0 million | $845.0 million |
| Income from operations | $25.5 million | $57.5 million |
| Net income | $0.6 million | $27.4 million |
| Diluted EPS | $0.01 | $0.46 |
Guidance, Outlook, Risks and Unusual Items
- Management expected 2016 capital spending below $200 million, excluding approximately $45–$50 million for the El Dorado, Arkansas incinerator project.
- The new El Dorado incinerator was expected to become commercially operational by the end of 2016 and add approximately 70,000 tons of annual capacity.
- Management continued to identify depressed oil and gas prices, lower rig counts, project cancellations, customer budget reductions and Canadian economic weakness as significant operating pressures.
- The company announced a planned carve-out of the Oil and Gas Field Services and Lodging Services segments into a standalone public company. Completion remained subject to market conditions, tax and financing structure, regulatory approvals, debt-covenant compliance, securities filings and board approval; timing and completion were not assured.
- Environmental liabilities totaled $188.2 million on a present-value basis, including $56.2 million of closure and post-closure liabilities and $132.0 million of remedial liabilities. Management estimated reasonably possible additional remedial liabilities of up to $23.6 million.
- Closure and post-closure obligations requiring regulatory financial assurance totaled $429.5 million for U.S. facilities and $38.9 million for Canadian facilities. The company had secured required assurance, including $81.8 million of letters of credit provided to insurers and sureties.
- The company was identified as a potentially responsible party or potential indemnitor at 128 Superfund sites. Legal and administrative reserves totaled $21.9 million; reasonably possible additional liabilities were estimated at up to $1.9 million.
- Safety-Kleen faced approximately 58 product-liability proceedings. The filing states that ultimate aggregate exposure could not be determined with assurance, although insurance covered settled or dismissed claims during 2015.
- On February 3, 2016, after year-end, the company acquired a Nevada re-refinery for $35.0 million in cash, subject to customary adjustments.
- Management stated that the company was in compliance with its debt covenants at year-end and believed operating cash flow, cash balances and revolver availability were adequate for anticipated needs.
Most Important Facts for Investors to Verify
- Whether oil and gas market weakness further affects Lodging Services, Oil and Gas Field Services, Industrial Services and goodwill or long-lived asset valuations.
- Whether the planned segment carve-out proceeds, its final structure, financing, tax consequences and effect on consolidated results.
- Actual 2016 capital spending, completion and economics of the El Dorado incinerator, and resulting capacity utilization.
- Cash generation after capital expenditures, acquisitions, environmental expenditures, debt interest and share repurchases.
- The adequacy and renewal terms of insurance, surety bonds and letters of credit supporting environmental financial-assurance requirements.
- Changes in environmental, Superfund, product-liability and other legal exposures relative to recorded reserves.
- The sensitivity of Kleen Performance Products to base-oil prices, used-oil acquisition costs and the sustainability of its reported cost reductions.
- Whether the high tax rate, foreign losses, valuation allowances and permanently reinvested foreign earnings create future cash-tax or repatriation impacts.