(Mark
One)
|
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 6, 2008
|
|
OR
|
|
[
]
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period
from
to
|
Delaware
|
26-0351454
|
|
State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
|
Identification
No.)
|
Large
accelerated filer
|
[
]
|
Accelerated
Filer [
]
|
|||
Non-accelerated
filer
|
[X]
|
Smaller
reporting company [
]
|
PART
I
|
|
FINANCIAL
INFORMATION
|
|
ITEM
1. FINANCIAL STATEMENTS
|
3
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
|
14
|
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
19
|
ITEM
4. CONTROL AND PROCEDURES
|
19
|
PART
II
|
|
OTHER
INFORMATION
|
|
ITEM
6. EXHIBITS
|
20
|
SIGNATURES
|
21
|
September
6, 2008
|
December
29, 2007
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 363 | $ | 479 | ||||
Accounts
receivable, net of allowance for doubtful accounts of $849
|
||||||||
and
$1,130 at September 6, 2008 and December 29, 2007,
respectively
|
15,516 | 13,446 | ||||||
Inventory
|
14,530 | 10,447 | ||||||
Deferred
income taxes
|
1,163 | - | ||||||
Prepaid
and other current assets
|
1,937 | 1,208 | ||||||
Total
Current Assets
|
33,509 | 25,580 | ||||||
Fixed
assets, net of accumulated depreciation
|
20,584 | 19,420 | ||||||
Deferred
offering costs
|
- | 1,276 | ||||||
Deferred
income taxes
|
132 | - | ||||||
Software
and intangible assets, net of accumulated amortization
|
1,956 | 1,708 | ||||||
Total
Assets
|
$ | 56,181 | $ | 47,984 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 7,003 | $ | 7,258 | ||||
Accrued
salaries, wages, and benefits
|
2,172 | 1,560 | ||||||
Taxes
payable
|
2,115 | 983 | ||||||
Other
accrued expenses
|
1,249 | 1,169 | ||||||
Total
Current Liabilities
|
12,539 | 10,970 | ||||||
Note
payable - bank
|
1,165 | 22,045 | ||||||
Total
Liabilities
|
13,704 | 33,015 | ||||||
Redeemable
Capital Units
|
- | 2,261 | ||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Preferred
members' capital
|
- | 14,704 | ||||||
Common
members' capital
|
- | 368 | ||||||
Common
stock - 15,000,000 Shares authorized at $0.01 par value,
|
||||||||
10,675,390
shares issued and outstanding at September 6, 2008
|
107 | - | ||||||
Additional
paid-in capital
|
42,493 | - | ||||||
Accumulated
deficit
|
(123 | ) | (2,364 | ) | ||||
Total
Stockholders' Equity
|
$ | 42,477 | $ | 12,708 | ||||
Total
Liabilities and Stockholders' Equity
|
$ | 56,181 | $ | 47,984 |
Third
Quarter Ended
|
First
Three Quarters Ended
|
|||||||||||||||
September
6, 2008
|
September
8, 2007
|
September
6, 2008
|
September
8, 2007
|
|||||||||||||
Sales
|
$ | 25,646 | $ | 20,967 | $ | 73,482 | $ | 60,541 | ||||||||
Cost
of sales
|
6,020 | 5,480 | 17,936 | 15,361 | ||||||||||||
Cost
of sales - inventory impairment
|
- | - | - | 2,182 | ||||||||||||
Gross
profit
|
19,626 | 15,487 | 55,546 | 42,998 | ||||||||||||
Operating
costs
|
12,523 | 10,100 | 36,640 | 29,270 | ||||||||||||
Selling,
general, and administrative expenses
|
4,278 | 3,263 | 15,042 | 9,882 | ||||||||||||
Proceeds
from contract termination
|
- | - | - | (3,000 | ) | |||||||||||
Operating
income
|
2,825 | 2,124 | 3,864 | 6,846 | ||||||||||||
Interest
expense - net
|
24 | 314 | 395 | 957 | ||||||||||||
Income
before income taxes
|
2,801 | 1,810 | 3,469 | 5,889 | ||||||||||||
Provision
for income taxes
|
1,179 | - | 3,206 | - | ||||||||||||
Net
income
|
1,622 | 1,810 | 263 | 5,889 | ||||||||||||
Preferred
return
|
- | 390 | 339 | 1,171 | ||||||||||||
Net
income (loss) available to common shareholders
|
$ | 1,622 | $ | 1,420 | $ | (76 | ) | $ | 4,718 | |||||||
Net
income (loss) per share available to common shareholders:
basic
|
$ | 0.15 | $ | 0.20 | $ | (0.01 | ) | $ | 0.66 | |||||||
Net
income (loss) per share available to common shareholders:
diluted
|
$ | 0.15 | $ | 0.20 | $ | (0.01 | ) | $ | 0.65 | |||||||
Pro
forma data:
|
||||||||||||||||
Net
income
|
$ | 1,622 | $ | 1,810 | $ | 263 | $ | 5,889 | ||||||||
Pro
forma provision for income taxes
|
- | 742 | 497 | 2,415 | ||||||||||||
Return
on preferred and mandatorily redeemable capital units
|
- | 401 | 372 | 1,206 | ||||||||||||
Pro
forma net income (loss) available to common members
|
$ | 1,622 | $ | 667 | $ | (606 | ) | $ | 2,268 | |||||||
Pro
forma net income (loss) per share: basic
|
$ | 0.15 | $ | 0.09 | $ | (0.06 | ) | $ | 0.32 | |||||||
Pro
forma net income (loss) per share: diluted
|
$ | 0.15 | $ | 0.09 | $ | (0.06 | ) | $ | 0.31 | |||||||
Number
of weighted average common shares outstanding: basic
|
10,675 | 7,182 | 9,657 | 7,176 | ||||||||||||
Number
of weighted average common shares outstanding: diluted
|
10,848 | 7,242 | 9,657 | 7,223 |
Par
|
Paid-in
|
Retained
|
||||||||||||||||||||||
Units/
|
Members'
|
Value
|
Capital
|
Earnings
|
||||||||||||||||||||
Shares
|
Capital
|
Common
|
Common
|
(Deficit)
|
Total
|
|||||||||||||||||||
Balance,
December 29, 2007
|
24 | $ | 15,072 | $ | - | $ | - | $ | (2,364 | ) | $ | 12,708 | ||||||||||||
Distribution
to preferred members
|
- | (10,887 | ) | - | - | - | (10,887 | ) | ||||||||||||||||
Tax
distributions
|
- | (425 | ) | - | - | (365 | ) | (790 | ) | |||||||||||||||
Reorganization
|
6,642 | (3,760 | ) | 66 | 3,694 | - | - | |||||||||||||||||
Income
tax benefit of reorganization
|
- | - | - | - | 2,343 | 2,343 | ||||||||||||||||||
Net
income
|
- | - | - | - | 263 | 263 | ||||||||||||||||||
Conversion
of redeemable capital units
|
564 | - | 6 | 2,256 | - | 2,262 | ||||||||||||||||||
Proceeds
from issuance of common stock, net
|
3,401 | - | 34 | 33,211 | - | 33,245 | ||||||||||||||||||
Share-based
compensation
|
68 | - | 1 | 3,332 | - | 3,333 | ||||||||||||||||||
Balance,
September 6, 2008
|
10,675 | $ | - | $ | 107 | $ | 42,493 | $ | (123 | ) | $ | 42,477 |
First
Three Quarters Ended
|
||||||||
September
6, 2008
|
September
8, 2007
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
income
|
$ | 263 | $ | 5,889 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
2,441 | 1,917 | ||||||
Bad
debt provision
|
584 | 454 | ||||||
Share-based
compensation
|
3,333 | 204 | ||||||
Non-cash
inventory charge related to contract termination
|
- | 2,182 | ||||||
Deferred
tax expense
|
1,048 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Decrease
(increase) in accounts receivables
|
(2,654 | ) | (2,339 | ) | ||||
Decrease
(increase) in inventory
|
(4,082 | ) | (2,564 | ) | ||||
Decrease
(increase) in prepaid and other current assets
|
(730 | ) | (186 | ) | ||||
Increase
(decrease) in accounts payable
|
210 | 1,093 | ||||||
Increase
(decrease) in accrued expenses
|
1,824 | 689 | ||||||
Cash
provided by operating activities
|
2,237 | 7,339 | ||||||
Cash
flows from Investing Activities:
|
||||||||
Capital
expenditures
|
(3,436 | ) | (5,612 | ) | ||||
Software
and intangible asset costs
|
(489 | ) | (126 | ) | ||||
Cash
used in investing activities
|
(3,925 | ) | (5,738 | ) | ||||
Cash
flows from Financing Activities:
|
||||||||
Deferred
offering costs
|
- | (559 | ) | |||||
Deferred
financing costs
|
- | (33 | ) | |||||
Proceeds
from issuance of common stock, net of offering costs
|
34,220 | - | ||||||
Proceeds
from note payable - bank
|
30,760 | 19,974 | ||||||
Repayments
of note payable - bank
|
(51,640 | ) | (18,679 | ) | ||||
Common
member contributions
|
- | 2 | ||||||
Distributions
to preferred members
|
(11,768 | ) | (2,375 | ) | ||||
Cash
provided by (used in) financing activities
|
1,572 | (1,670 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
(116 | ) | (69 | ) | ||||
Cash
and cash equivalents, beginning of period
|
479 | 271 | ||||||
Cash
and cash equivalents, end of period
|
$ | 363 | $ | 202 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 526 | $ | 1,104 | ||||
Payables
for construction in process
|
- | 751 | ||||||
Payables
for offering costs
|
103 | - | ||||||
Income
taxes paid
|
1,024 | - |
September
6, 2008
|
December
29, 2007
|
|||||||
Machines
|
$ | 2,494 | $ | 2,228 | ||||
Solvents
|
9,901 | 6,379 | ||||||
Drums
|
1,110 | 1,004 | ||||||
Accessories
|
1,025 | 836 | ||||||
Total
inventory
|
$ | 14,530 | $ | 10,447 |
Remainder
of 2008
|
$ | 2,669 | ||
2009
|
7,066 | |||
2010
|
5,649 | |||
2011
|
4,314 | |||
2012
|
3,562 | |||
Thereafter
|
4,449 | |||
Total
|
$ | 27,709 |
December
30, 2007
|
||||
through
|
||||
September
6, 2008
|
||||
Current:
|
||||
Federal
|
$ | 1,759 | ||
State
|
399 | |||
Total
current
|
$ | 2,158 | ||
Deferred:
|
||||
Change
in tax status
|
$ | 2,210 | ||
Federal
|
(1,017 | ) | ||
State
|
(145 | ) | ||
Total
deferred
|
$ | 1,048 | ||
Income
tax provision
|
$ | 3,206 | ||
Pro
forma tax for period prior to conversion
|
497 | |||
Total
pro forma tax provision
|
$ | 3,703 |
December
30, 2007
|
||||
through
|
||||
September
6, 2008
|
||||
Tax
at statutory federal rate
|
$ | 1,180 | ||
State
and local tax, net of federal benefit
|
164 | |||
Other
|
149 | |||
Change
in tax status
|
2,210 | |||
Earnings
for period prior to conversion
|
(497 | ) | ||
Total
income tax provision
|
$ | 3,206 | ||
Pro
forma tax for period prior to conversion
|
497 | |||
Total
pro forma tax provision
|
$ | 3,703 |
September
6, 2008
|
||||
Deferred
tax assets:
|
||||
Tax
intangible assets
|
$ | 2,272 | ||
Allowances
|
765 | |||
Accrued
other
|
728 | |||
Stock
compensation
|
1,182 | |||
Total
deferred tax asset
|
$ | 4,947 | ||
Deferred
tax liabilities:
|
||||
Prepaids
|
(360 | ) | ||
Depreciation
and amortization
|
(3,292 | ) | ||
Total
deferred tax liability
|
$ | (3,652 | ) | |
Net
deferred tax asset
|
$ | 1,295 | ||
Current
deferred tax asset
|
$ | 1,163 | ||
Noncurrent
deferred tax asset
|
132 | |||
Net
deferred tax asset
|
$ | 1,295 |
|
• Became a ‘C’
corporation through the reorganization of Heritage-Crystal Clean, LLC and
a merger of BRS-HCC Investment Co., Inc. with and into Heritage-Crystal
Clean, Inc.;
|
|
• Issued an
aggregate of 1,217,390 shares of common stock as part of the exchange of
preferred units of Heritage-Crystal Clean, LLC into common stock of
Heritage-Crystal Clean, Inc. in the
reorganization;
|
|
• Issued an
aggregate of 6,056,900 shares of common stock as part of the exchange of
common units of Heritage-Crystal Clean, LLC into common stock of
Heritage-Crystal Clean, Inc.
|
|
• Sold 2,201,100 shares of common
stock in the initial public offering, at $11.50 per share, raising
approximately $20.4 million after underwriting discounts and transaction
costs;
|
|
• Sold 1,200,000 new shares at
$11.50 per share in a direct placement, raising approximately $12.8
million after underwriting discounts and transaction
costs;
|
|
• Repaid approximately $21.3 million
of indebtedness with the proceeds raised in the initial public offering
and direct placement;
|
|
• Paid distributions of $10.9
million to preferred unit holders of Heritage-Crystal Clean, LLC as part
of the reorganization relating to an accrued return through March 11,
2008; and
|
|
• Recorded a cumulative net deferred
tax liability of $2.2 million and a corresponding charge to our provision
for income taxes upon becoming taxable as a ‘C’
corporation.
|
Options
|
|
Weighted Average
Fair |
Weighted Average |
|||||||||||||
Available
|
Number
of
|
Value
Per
|
Price
Per
|
|||||||||||||
For
Grant
|
Options
|
Option
|
Option
|
|||||||||||||
Balance
at December 29, 2007
|
- | - | - | - | ||||||||||||
Shares
reserved
|
1,902 | - | - | - | ||||||||||||
Options
granted
|
(732 | ) | 732 | $ | 3.90 | $ | 11.50 | |||||||||
Balance
at September 6, 2008
|
1,170 | 732 | $ | 3.90 | $ | 11.50 |
•
|
Volatility
of 33.23%;
|
•
|
Risk-free
interest rate of 2.76%;
|
•
|
Expected
term of 5 years;
|
•
|
No
dividend yield; and
|
•
|
Market
value per share of stock on measurement date of
$11.50.
|
Third
Quarter Ended
|
First
Three Quarters Ended
|
|||||||||||||||
September
6, 2008
|
|
September
8, 2007
|
September
6, 2008
|
September
8, 2007
|
||||||||||||
Net
income (loss) available to common shareholders
|
$ | 1,622 | $ | 1,420 | $ | (76 | ) | $ | 4,718 | |||||||
|
|
|||||||||||||||
Net
income (loss) per share available to common shareholders:
basic
|
$ | 0.15 | $ | 0.20 | $ | (0.01 | ) | $ | 0.66 | |||||||
Net
income (loss) per share available to common shareholders:
diluted
|
$ | 0.15 | $ | 0.20 | $ | (0.01 | ) | $ | 0.65 | |||||||
Pro Forma | ||||||||||||||||
Net
Income
|
$ | 1,622 | $ | 1,810 | $ | 263 | $ | 5,889 | ||||||||
Pro
forma provision for income taxes
|
- | 742 | 497 | 2,415 | ||||||||||||
Return
on perferred and mandatorily redeemable capital units
|
- | 401 | 372 | 1,206 | ||||||||||||
Pro
forma net income (loss) available to common members
|
$ | 1,622 | $ | 667 | $ | (606 | ) | $ | 2,268 | |||||||
Pro
forma net income (loss) per share: basic
|
$ | 0.15 | $ | 0.09 | $ | (0.06 | ) | $ | 0.32 | |||||||
Pro
forma net income (loss) per share: diluted
|
$ | 0.15 | $ | 0.09 | $ | (0.06 | ) | $ | 0.31 | |||||||
Number
of weighted average common shares outstanding: basic
|
10,675 | 7,182 | 9,657 | 7,176 | ||||||||||||
Diluted
shares for share-based compensation plans
|
173 | 60 | - | 47 | ||||||||||||
Number
of weighted average common shares outstanding: diluted
|
10,848 | 7,242 | 9,657 | 7,223 |
|
• Became a ‘C’
corporation through the reorganization of Heritage-Crystal Clean, LLC and
a merger of BRS-HCC Investment Co., Inc. with and into Heritage-Crystal
Clean, Inc.;
|
|
• Issued an
aggregate of 1,217,390 shares of common stock as part of the exchange of
preferred units of Heritage-Crystal Clean, LLC into common stock of
Heritage-Crystal Clean, Inc. in the
reorganization;
|
|
• Issued an
aggregate of 6,056,900 shares of common stock as part of the exchange of
common units of Heritage-Crystal Clean, LLC into common stock of
Heritage-Crystal Clean, Inc.
|
|
• Sold 2,201,100 shares of common
stock in the initial public offering, at $11.50 per share, raising
approximately $20.4 million after underwriting discounts and transaction
costs;
|
|
• Sold 1,200,000 new shares at
$11.50 per share in a direct placement, raising approximately $12.8
million after underwriting discounts and transaction
costs;
|
|
• Repaid approximately $21.3 million
of indebtedness with the proceeds raised in the initial public offering
and direct placement;
|
|
• Paid distributions of $10.9
million to preferred unit holders of Heritage-Crystal Clean, LLC as part
of the reorganization relating to an accrued return through March 11,
2008; and
|
|
• Recorded a cumulative net deferred
tax liability of $2.2 million and a corresponding charge to our provision
for income taxes upon becoming taxable as a ‘C’
corporation.
|
Third
Quarter Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Sales
|
$ | 25,646 | $ | 20,967 | $ | 4,679 | ||||||
Cost
of sales
|
6,020 | 5,480 | 540 | |||||||||
Gross
profit
|
$ | 19,626 | $ | 15,487 | $ | 4,139 | ||||||
Gross
profit as % of sales
|
77 | % | 74 | % |
First
Three Quarters Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Sales
|
$ | 73,482 | $ | 60,541 | $ | 12,941 | ||||||
Cost
of sales
|
17,936 | 15,361 | 2,575 | |||||||||
Cost
of sales - inventory impairment
|
- | 2,182 | (2,182 | ) | ||||||||
Gross
profit
|
$ | 55,546 | $ | 42,998 | $ | 12,548 | ||||||
Gross
profit as % of sales
|
76 | % | 71 | % |
Third
Quarter Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Operating
costs
|
$ | 12,523 | $ | 10,100 | $ | 2,423 | ||||||
As a
% of sales
|
49 | % | 48 | % |
First
Three Quarters Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Operating
costs
|
$ | 36,640 | $ | 29,270 | $ | 7,370 | ||||||
As a
% of sales
|
50 | % | 48 | % |
Third
Quarter Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Selling,
general & administrative
|
$ | 4,278 | $ | 3,263 | $ | 1,015 | ||||||
As a
% of sales
|
17 | % | 16 | % |
First
Three Quarters Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Selling,
general & administrative
|
$ | 15,042 | $ | 9,882 | $ | 5,160 | ||||||
As a
% of sales
|
20 | % | 16 | % |
First
Three Quarters Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Proceeds
from contract termination
|
$ | - | $ | 3,000 | $ | (3,000 | ) | |||||
As a
% of sales
|
0 | % | 5 | % |
Third
Quarter Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Interest
expense - net
|
$ | 24 | $ | 314 | $ | (290 | ) | |||||
As a
% of sales
|
0 | % | 1 | % |
First
Three Quarters Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Interest
expense - net
|
$ | 395 | $ | 957 | $ | (562 | ) | |||||
As a
% of sales
|
1 | % | 2 | % |
Third
Quarter Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Provision
for income taxes
|
$ | 1,179 | $ | - | $ | 1,179 | ||||||
As a
% of sales
|
5 | % | 0 | % |
First
Three Quarters Ended
|
||||||||||||
(Dollars
in thousands)
|
||||||||||||
September
6, 2008
|
September
8, 2007
|
Change
|
||||||||||
Provision
for income taxes
|
$ | 3,206 | $ | - | $ | 3,206 | ||||||
As a
% of sales
|
4 | % | 0 | % |
First
Three Quarters Ended
|
||||||||
(Dollars
in thousands)
|
||||||||
September
6, 2008
|
September
8, 2007
|
|||||||
Net
cash provided by (used in):
|
||||||||
Operating
activities
|
$ | 2,237 | $ | 7,339 | ||||
Investing
activities
|
(3,925 | ) | (5,738 | ) | ||||
Financing
activities
|
1,572 | (1,670 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
$ | (116 | ) | $ | (69 | ) |