HeritageCrystal Clean Inc. (HCCI) filed Quarterly Report for the period ended 2009-09-12.
HERITAGE-CRYSTAL CLEAN LLC headquartered in Elgin Illinois is a privately-held marketing and sales Company that concentrates on servicing the automotive repair commercial and industrial marketplaces primarily in the Midwest and Eastern States. Heritagecrystal Clean Inc. has a market cap of $133.4 million; its shares were traded at around $12.58 with a P/E ratio of 33.7 and P/S ratio of 1.2.
Highlight of Business Operations:
For the third fiscal quarter of 2009, sales decreased $3.3 million, or 12.9%, to $22.3 million from $25.6 million for the third fiscal quarter of 2008. For the first three quarters of 2009, sales decreased $5.1 million, or 6.9%, to $68.4 million from $73.5 million for the first three quarters of 2008. The U.S. recession continues to have an adverse effect on our ability to grow as we have in the past. Current customers are generating less waste for disposal due to reduced business activity and continue to be cautious on all of their spending. We have, however, seen a flattening of the decline in our sales in the third fiscal quarter of 2009 compared to the second fiscal quarter of 2009 and continued to increase our customer count. We believe that with continued net new customer gains, we will be in a strong position to resume our growth if our customers return to their historic levels of activity.
At the end of the third fiscal quarter of 2009, we were operating 58 branch locations compared with 54 at the end of the third fiscal quarter of 2008. There were 54 branches that were in operation during both the third fiscal quarter of 2009 and third fiscal quarter of 2008, which experienced a decline in same-branch sales of $3.8 million, or 14.8%. Excluding the 4 branches in this group that gave up customers to new branch openings, the remaining 50 branches experienced a decline in same-branch sales of $3.0 million, or 13.1%. On a year-to-date basis, same-branch sales declined $6.2 million, or 8.5% for these same 54 branches. Excluding the 4 branches in this group that gave up customers to new branch openings, the remaining 50 branches experienced a decline in same-branch sales of $4.5 million, or 6.8%.
For the first three quarters of 2009, total cost of sales increased $0.4 million, or 2.2%, to $18.3 million from $17.9 million for the first three quarters of 2008. On a percentage-of-sales basis, the cost of sales are 2.3% higher for the first three quarters of 2009 than it was in 2008. Although our cost structure has returned to normal levels seen prior to 2008, we recorded costs of approximately $1.0 million during the first quarter of 2009 that was related to the declining crude oil prices. This decline in crude oil prices reduced the carrying value to the lower of cost or market of our solvent held at our locations for use in our service programs. Additionally, we have not received the same benefit in first three quarters of 2009 as we did in first three quarters of 2008 when we sold reuse products at prices far in excess of their carrying value.
For the first three quarters of 2009, operating costs decreased $0.5 million, or 1.4%, to $36.1 million from $36.6 million for the first three quarters of 2008. Although certain cost cutting measures such as workforce efficiencies were taken earlier this year to compensate for the decline in sales, operating costs as a percentage-of-sales increased 2.9% due to the reduced leveraging of fixed costs. Additionally, we incurred branch labor, collection truck and facility costs that are associated with new branches opened early in the year. Diesel fuel cost decreased as energy prices were lower in the first three quarters of 2009 as compared to the first three quarters of 2008.
For the first three quarters of 2009, selling, general and administrative expenses decreased $3.3 million, or 22.0%, to $11.7 million from $15.0 million for the first three quarters of 2008. The decrease was due to $3.2 million of expense for employee stock options which were granted at the time of our initial public offering in March 2008 and vested immediately along with the vesting of certain Key Employee Membership Interest Trust “KEMIT” units in the first three quarters of 2008. Additionally, in the first three quarters of 2009, the allocation of the MIP bonuses was reduced because of its alignment with the profitability of operations. This was partially offset by the fact that in the first three quarters of 2009, we incurred nine periods of public company costs compared to only six periods in the first three quarters of 2008.
For the first three quarters of 2009, provision for income taxes decreased $2.3 million, or 71.9%, to $0.9 million from $3.2 million for the first three quarters of 2008. In connection with our initial public offering in March 2008, we changed our parent company legal structure from a limited liability company to a ‘C corporation. As a limited liability company, we were not subject to federal or state corporate income taxes and as such had not incurred any historical taxes. For comparison purposes, we have presented pro forma net loss, which reflects income taxes assuming we had been a corporation since the time of our formation and assuming tax rates equal to the rates that would have been in effect had we been required to report tax expense in such years (see note 9 in the Notes to the Financial Statements for more details). A one-time charge to earnings of $2.2 million was recorded in the first quarter of fiscal 2008 reflecting the net deferred tax assets and deferred tax liabilities at the time of the reorganization of the LLC to a ‘C corporation. We also recorded a one-time deferred tax asset due to the change in tax status of $2.3 million in March 2008.
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