CLEAN HARBORS, INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(in thousands)
|
|
September 30,
2007
|
|
December 31,
2006
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
91,856
|
|
$
|
73,550
|
|
Marketable securities
|
|
11,250
|
|
10,240
|
|
Accounts receivable, net of allowance for
doubtful accounts of $1,344 and $1,703 respectively
|
|
181,826
|
|
169,581
|
|
Unbilled accounts receivable
|
|
25,229
|
|
16,078
|
|
Deferred costs
|
|
7,499
|
|
7,140
|
|
Prepaid expenses and other current assets
|
|
7,034
|
|
9,451
|
|
Supplies inventories
|
|
22,933
|
|
20,101
|
|
Deferred tax assets
|
|
9,343
|
|
9,238
|
|
Properties held for sale
|
|
908
|
|
7,440
|
|
Total current assets
|
|
357,878
|
|
322,819
|
|
Property, plant and equipment:
|
|
|
|
|
|
Land
|
|
22,276
|
|
15,873
|
|
Asset retirement costs (non-landfill)
|
|
1,437
|
|
1,415
|
|
Landfill assets
|
|
24,145
|
|
11,399
|
|
Buildings and improvements
|
|
108,376
|
|
105,190
|
|
Vehicles
|
|
27,391
|
|
25,192
|
|
Equipment
|
|
264,053
|
|
249,981
|
|
Furniture and fixtures
|
|
1,419
|
|
1,400
|
|
Construction in progress
|
|
26,064
|
|
24,950
|
|
|
|
475,161
|
|
435,400
|
|
Lessaccumulated depreciation and
amortization
|
|
217,476
|
|
191,274
|
|
|
|
257,685
|
|
244,126
|
|
Other assets:
|
|
|
|
|
|
Deferred financing costs
|
|
6,325
|
|
7,206
|
|
Goodwill
|
|
21,655
|
|
19,032
|
|
Permits and other intangibles, net of
accumulated amortization of $35,126 and $30,386, respectively
|
|
72,781
|
|
65,743
|
|
Investment in joint venture
|
|
|
|
2,208
|
|
Deferred tax assets
|
|
11,752
|
|
6,388
|
|
Other
|
|
4,652
|
|
3,286
|
|
|
|
117,165
|
|
103,863
|
|
Total assets
|
|
$
|
732,728
|
|
$
|
670,808
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
1
LIABILITIES AND STOCKHOLDERS EQUITY
(in thousands except per share
amounts)
|
|
September 30,
2007
|
|
December 31,
2006
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Uncashed checks
|
|
$
|
4,724
|
|
$
|
11,083
|
|
Current portion of capital lease
obligations
|
|
1,014
|
|
1,391
|
|
Accounts payable
|
|
83,434
|
|
81,432
|
|
Deferred revenue
|
|
30,092
|
|
29,409
|
|
Other accrued expenses
|
|
55,333
|
|
56,999
|
|
Current portion of closure, post-closure
and remedial liabilities
|
|
15,803
|
|
13,707
|
|
Income taxes payable
|
|
12,046
|
|
4,333
|
|
Total current liabilities
|
|
202,446
|
|
198,354
|
|
Other liabilities:
|
|
|
|
|
|
Closure and post-closure liabilities, less
current portion of $4,655 and $2,035, respectively
|
|
24,085
|
|
23,520
|
|
Remedial liabilities, less current portion
of $11,148 and $11,672, respectively
|
|
140,189
|
|
136,173
|
|
Long-term obligations, less current
maturities
|
|
120,678
|
|
120,522
|
|
Capital lease obligations, less current
portion
|
|
2,045
|
|
2,648
|
|
Tax contingencies and other long-term
liabilities
|
|
65,102
|
|
16,405
|
|
Total other liabilities
|
|
352,099
|
|
299,268
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
Preferred stock, $.01 par value:
|
|
|
|
|
|
Series B convertible preferred stock;
authorized 156,416 shares; issued and outstanding 68,810 and 69,000 shares,
respectively (liquidation preference of $3,500)
|
|
1
|
|
1
|
|
Common stock, $.01 par value:
|
|
|
|
|
|
Authorized 40,000,000 shares; issued and
outstanding 19,881,032 and 19,685,002 shares, respectively
|
|
199
|
|
197
|
|
Treasury stock
|
|
(571
|
)
|
|
|
Additional paid-in capital
|
|
158,022
|
|
151,691
|
|
Accumulated other comprehensive income
|
|
17,388
|
|
8,939
|
|
Accumulated earnings
|
|
3,144
|
|
12,358
|
|
Total stockholders equity
|
|
178,183
|
|
173,186
|
|
Total liabilities and stockholders equity
|
|
$
|
732,728
|
|
$
|
670,808
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
2
CLEAN HARBORS, INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
245,507
|
|
$
|
213,903
|
|
$
|
689,239
|
|
$
|
597,960
|
|
Cost of revenues (exclusive of items shown
separately below)
|
|
169,007
|
|
151,606
|
|
485,893
|
|
418,928
|
|
Selling, general and administrative
|
|
38,092
|
|
26,880
|
|
107,643
|
|
90,487
|
|
Accretion of environmental liabilities
|
|
2,715
|
|
2,580
|
|
7,743
|
|
7,633
|
|
Depreciation and amortization
|
|
9,814
|
|
11,063
|
|
27,801
|
|
26,296
|
|
Income from operations
|
|
25,879
|
|
21,774
|
|
60,159
|
|
54,616
|
|
Other income (expense)
|
|
61
|
|
(111
|
)
|
62
|
|
(273
|
)
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
(8,290
|
)
|
Interest income
|
|
1,166
|
|
953
|
|
2,713
|
|
2,727
|
|
Interest expense
|
|
(4,188
|
)
|
(4,207
|
)
|
(12,614
|
)
|
(12,030
|
)
|
Income before provision for (benefit from) income
taxes and equity interest in joint venture
|
|
22,918
|
|
18,409
|
|
50,320
|
|
36,750
|
|
Provision for (benefit from) income taxes
|
|
9,978
|
|
(2,585
|
)
|
22,691
|
|
1,579
|
|
Equity interest in joint venture
|
|
|
|
(11
|
)
|
|
|
(11
|
)
|
Net income
|
|
12,940
|
|
21,005
|
|
27,629
|
|
35,182
|
|
Dividends on Series B Preferred Stock
|
|
69
|
|
69
|
|
206
|
|
207
|
|
Net income attributable to common
stockholders
|
|
$
|
12,871
|
|
$
|
20,936
|
|
$
|
27,423
|
|
$
|
34,975
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic income attributable to common
stockholders
|
|
$
|
0.65
|
|
$
|
1.07
|
|
$
|
1.39
|
|
$
|
1.79
|
|
Diluted income attributable to common
stockholders
|
|
$
|
0.63
|
|
$
|
1.02
|
|
$
|
1.33
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
19,840
|
|
19,587
|
|
19,788
|
|
19,488
|
|
Weighted average common shares outstanding
plus potentially dilutive common shares
|
|
20,686
|
|
20,607
|
|
20,715
|
|
20,641
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
3
CLEAN HARBORS, INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Nine Months
Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
|
$
|
27,629
|
|
$
|
35,182
|
|
Adjustments to reconcile net income to net
cash from operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
27,801
|
|
26,296
|
|
Allowance for doubtful accounts
|
|
212
|
|
334
|
|
Amortization of deferred financing costs
and debt discount
|
|
1,462
|
|
1,174
|
|
Accretion of environmental liabilities
|
|
7,743
|
|
7,633
|
|
Changes in environmental estimates
|
|
(2,289
|
)
|
(9,839
|
)
|
Deferred income taxes
|
|
(5,055
|
)
|
(6,435
|
)
|
Stock-based compensation
|
|
2,903
|
|
2,460
|
|
(Gain) loss on sale of fixed assets and
assets held for sale
|
|
(62
|
)
|
64
|
|
Impairment of assets held for sale
|
|
|
|
209
|
|
Investment in joint venture
|
|
|
|
(11
|
)
|
Gain on insurance settlement
|
|
|
|
(184
|
)
|
Write-off of deferred financing costs and
debt discount
|
|
|
|
2,383
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
(8,408
|
)
|
(4,061
|
)
|
Other current assets
|
|
(10,526
|
)
|
(9,207
|
)
|
Accounts payable
|
|
193
|
|
7,310
|
|
Other current liabilities
|
|
13,081
|
|
2,977
|
|
Environmental expenditures
|
|
(4,901
|
)
|
(5,194
|
)
|
Net cash from operating activities
|
|
49,783
|
|
51,091
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
(23,814
|
)
|
(30,331
|
)
|
Acquisitions, net of cash acquired
|
|
(7,192
|
)
|
(52,097
|
)
|
Costs to obtain or renew permits
|
|
(986
|
)
|
(822
|
)
|
Proceeds from sales of fixed assets and
assets held for sale
|
|
503
|
|
1,190
|
|
Proceeds from sales of restricted
investments
|
|
|
|
3,469
|
|
Proceeds from insurance claim
|
|
|
|
384
|
|
Sale of marketable securities
|
|
|
|
35,054
|
|
Purchase of available-for-sale securities
|
|
(1,010
|
)
|
(45,353
|
)
|
Net cash from investing activities
|
|
(32,499
|
)
|
(88,506
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
Change in uncashed checks
|
|
(6,739
|
)
|
(3,245
|
)
|
Proceeds from exercise of stock options
|
|
1,303
|
|
2,124
|
|
Deferred financing costs paid
|
|
(32
|
)
|
(968
|
)
|
Proceeds from employee stock purchase plan
|
|
850
|
|
573
|
|
Dividend payments on preferred stock
|
|
(206
|
)
|
(207
|
)
|
Payments on capital leases
|
|
(1,163
|
)
|
(1,648
|
)
|
Other
|
|
(69
|
)
|
|
|
Excess tax benefit of stock-based
compensation
|
|
1,536
|
|
3,021
|
|
Proceeds from term loan to finance
acquisition
|
|
|
|
30,000
|
|
Principal payments on debt
|
|
|
|
(52,500
|
)
|
Net cash from financing activities
|
|
(4,520
|
)
|
(22,850
|
)
|
Effect of exchange rate change on cash
|
|
5,542
|
|
706
|
|
Increase (decrease) in cash and cash
equivalents
|
|
18,306
|
|
(59,559
|
)
|
Cash and cash equivalents, beginning of
period
|
|
73,550
|
|
132,449
|
|
Cash and cash equivalents, end of period
|
|
$
|
91,856
|
|
$
|
72,890
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest and income
taxes:
|
|
|
|
|
|
Interest paid
|
|
$
|
11,156
|
|
$
|
15,780
|
|
Income taxes paid
|
|
9,868
|
|
1,268
|
|
Non-cash investing and financing
activities:
|
|
|
|
|
|
Property, plant and equipment accrued
|
|
$
|
4,387
|
|
$
|
2,686
|
|
Capital lease obligations
|
|
|
|
107
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
4
CLEAN HARBORS, INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)
|
|
Series B
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
$ 0.01
Par
Value
|
|
Number
of
Shares
|
|
$ 0.01
Par
Value
|
|
Treasury
Stock
|
|
Additional
Paid-in
Capital
|
|
Comprehensive
Income
|
|
Accumulated
Other
Comprehensive
Income
|
|
Accumulated
Earnings
|
|
Total
Stockholders
Equity
|
|
Balance at
January 1, 2007
|
|
69
|
|
$
|
1
|
|
19,685
|
|
$
|
197
|
|
$
|
|
|
$
|
151,691
|
|
|
|
$
|
8,939
|
|
$
|
12,358
|
|
$
|
173,186
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,629
|
|
|
|
27,629
|
|
27,629
|
|
Foreign currency
translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,449
|
|
8,449
|
|
|
|
8,449
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,078
|
|
|
|
|
|
|
|
FIN 48 cumulative
effect
adjustment (see Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,843
|
)
|
(36,843
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
(69
|
)
|
Series B preferred
stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
(206
|
)
|
|
|
|
|
|
|
(206
|
)
|
Stock-based
compensation
|
|
|
|
|
|
30
|
|
|
|
|
|
2,903
|
|
|
|
|
|
|
|
2,903
|
|
Conversion of
Series B preferred stock
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
restricted shares, net of shares remitted (see Note 12)
|
|
|
|
|
|
12
|
|
|
|
(571
|
)
|
|
|
|
|
|
|
|
|
(571
|
)
|
Exercise of stock
options
|
|
|
|
|
|
131
|
|
2
|
|
|
|
1,301
|
|
|
|
|
|
|
|
1,303
|
|
Tax benefit on
exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
1,552
|
|
|
|
|
|
|
|
1,552
|
|
Employee stock
purchase plan
|
|
|
|
|
|
22
|
|
|
|
|
|
850
|
|
|
|
|
|
|
|
850
|
|
Balance at
September 30, 2007
|
|
69
|
|
$
|
1
|
|
19,881
|
|
$
|
199
|
|
$
|
(571
|
)
|
$
|
158,022
|
|
|
|
$
|
17,388
|
|
$
|
3,144
|
|
$
|
178,183
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
5
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying consolidated interim financial
statements include the accounts of Clean Harbors, Inc. and its
wholly-owned subsidiaries (collectively, Clean Harbors or the Company) and
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission and, in the opinion of management, include all
adjustments which, except as described elsewhere herein, are of a normal
recurring nature, necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. The results
for interim periods are not necessarily indicative of results for the entire
year. The financial statements presented herein should be read in connection
with the financial statements included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2006.
The Company adopted FASB
Interpretation 48,
Accounting for
Uncertainty in Income Taxes
(FIN 48) on January 1, 2007. See
Note 10, Income Taxes for further discussion on the impact to the financial
statements.
Certain
reclassifications have been made to Note 13, Segment Reporting prior year
information to conform to the current year presentation.
(2) ACQUISITIONS
On January 3, 2007, Ensco Caribe, Inc., a
Puerto Rico corporation (Ensco Caribe) then owned 50% by Clean Harbors El
Dorado, LLC (CH El Dorado) and 50% by Ochoa Industrial Sales Corporation (Ochoa),
redeemed the 50% stock ownership of Ochoa for $3.0 million, of which
$300,000 was placed in escrow for a period of 14 months as security for
the representations and warranties of Ochoa. Immediately after the redemption,
Ensco Caribe was 100% owned by CH El Dorado, the name Ensco Caribe, Inc.
was changed to Clean Harbors Caribe, Inc., and the Puerto Rico
operations of Clean Harbors Environmental Services, Inc. were transferred
to Clean Harbors Caribe, Inc. The primary reasons for the acquisition of
Ensco Caribe was to further improve the Companys ability to service customers
on the island, leverage the Companys existing waste collection and disposal
capabilities in Puerto Rico and capitalize on the site services and emergency
response capabilities of the Ensco Caribe operations.
The Company has accounted for this transaction (the New
Investment) as a step acquisition as the original investment in Ensco Caribe
was acquired as part of the acquisition of Teris LLC in August 2006. Therefore,
the fair value of the original investment of $2.1 million was determined as
part of the purchase price allocation of the Teris LLC assets and liabilities.
The New Investment was allocated based on the fair value of assets acquired and
liabilities assumed as of January 3, 2007. The total purchase price of $5.1
million reflected an excess of purchase price over fair value of the net assets
acquired of approximately $2.6 million, which has been recorded as goodwill.
On August 3, 2007, the Company acquired certain
assets owned by Romic Environmental Technologies Corporation (Romic),
including rolling stock, customer lists, other tangibles and leasehold
interests in two service centers located in Irwindale, California, and
Clackamas, Oregon. The purchase price consists of the appraised value of the
rolling stock and personal property plus 40% of the revenues generated from
Romic customers for the six-month period following the closing of the
transaction. At closing, the Company paid $3.2 million and the final purchase
price will be determined after the six-month period expires. On August 22,
2007, the Company also acquired a lease for $2.0 million from Romic for a rail
site in Redwood City, California. The Company estimates the total contingent
portion of the purchase price, based on Romic revenues, to be $4.0 million,
$2.0 million of which was paid at closing and $2.0 million, which will be paid
from existing cash balances or cash provided from operations. The Company may
also purchase additional equipment at its discretion. The acquisition expanded
the Companys presence in the West Coast of the United States. The acquisition
was deemed not material.
The total estimated purchase price, excluding the $2.0
million for contingent revenues for the remainder of the six-month run-out period
and any potential equipment purchases, was allocated to Romics tangible and
intangible assets acquired based on the estimated fair values of such assets. As
of September 30, 2007, a preliminary estimate of $2.9 million has been recorded
for customer relationships classified as Other intangibles. The purchase
price and allocation is preliminary and will be revised for the contingent
payment based on revenue generated for the next four months, adjustments made
to the purchase price and revisions of preliminary estimates of fair values as
to other intangible assets. The preliminary calculation of the estimated
purchase price, excluding the contingency, and the allocation of the estimated
purchase price allocation among the assets acquired were as follows:
6
|
|
As of
September 30,
2007
|
|
Preliminary Purchase Price
|
|
|
|
Cash paid at closing
|
|
$
|
3,211
|
|
Additional cash paid for transfer of rail
lease
|
|
2,000
|
|
Estimated acquisition costs
|
|
845
|
|
Total purchase price, excluding contingency
|
|
$
|
6,056
|
|
|
|
Acquired
Assets as of
September 30,
2007
|
|
Preliminary allocation
|
|
|
|
Property, plant and equipment
|
|
$
|
1,101
|
|
Permits and other intangibles
|
|
4,955
|
|
Assets acquired
|
|
$
|
6,056
|
|
During the third quarter of 2007, the Company
finalized the purchase price allocation related to acquiring all the membership
interests of Teris, LLC. Under the purchase method of accounting, the total
purchase price is allocated to Teris net tangible assets based on their fair
values as of the completion of the acquisition. It was determined that no value
existed for intangible assets. The calculation of the purchase price and the
allocation of the purchase price allocation among the assets acquired and
liabilities assumed were as follows (in thousands):
|
|
Final as of
September 30,
2007
|
|
As of
December 31,
2006
|
|
Purchase Price
|
|
|
|
|
|
Cash consideration
|
|
$
|
52,700
|
|
$
|
52,700
|
|
Acquisition costs
|
|
1,912
|
|
1,894
|
|
Amount due from the seller for purchase
price adjustments
|
|
(2,700
|
)
|
(3,095
|
)
|
Total purchase price
|
|
$
|
51,912
|
|
$
|
51,499
|
|
|
|
|
|
|
|
Allocation
|
|
|
|
|
|
Current assets
|
|
$
|
26,736
|
|
$
|
26,615
|
|
Property, plant and equipment (*)
|
|
55,214
|
|
54,031
|
|
Other assets
|
|
426
|
|
451
|
|
Investment in joint venture
|
|
2,196
|
|
2,146
|
|
Current closure, post-closure and remedial
liabilities (*)
|
|
(1,221
|
)
|
(2,963
|
)
|
Other current liabilities
|
|
(21,469
|
)
|
(22,387
|
)
|
Closure, post-closure and remedial
liabilities, long term (*)
|
|
(9,970
|
)
|
(6,394
|
)
|
Net assets acquired
|
|
$
|
51,912
|
|
$
|
51,499
|
|
*
The $1.2 million increase in property, plant and equipment consists primarily
of the $1.8 million increase in current and long term closure, post-closure and
remedial liabilities partially offset by a decrease in other current
liabilities. The $1.8 million increase is the result of all adjustments and an
increase in the estimate recorded at December 31, 2006 after obtaining during
the quarter, all the necessary information on remedial costs of the facility.
Negative
goodwill has been calculated at $11.6 million, which represents the excess of
the fair value of the net assets acquired and liabilities assumed over the
purchase price. In accordance with SFAS No. 141, negative goodwill has been
proportionally allocated to property, plant and equipment ($11.1 million) and
the investment in joint venture ($0.5 million).
(3) LANDFILL ASSETS
Changes to landfill assets for the nine-month period
ended September 30, 2007 were as follows (in thousands):
7
|
|
2007
|
|
Balance at January 1, 2007
|
|
$
|
11,399
|
|
Asset retirement costs
|
|
1,098
|
|
Capital additions
|
|
10,274
|
|
Changes in estimates of landfill closure
and post-closure liabilities
|
|
233
|
|
Currency translation, reclassifications and
other
|
|
1,141
|
|
Balance at September 30, 2007
|
|
$
|
24,145
|
|
Rates used to amortize
landfill assets are calculated based upon the dollar value of estimated final
liabilities, the surveyed remaining airspace of the landfill, and the time
estimated to consume the remaining airspace. Consequently, rates vary for each
landfill and for each asset category, and are recalculated each year. Landfill
assets were amortized at average rates of $2.40 and $2.20 per cubic yard for
the three- and nine-month periods ended September 30, 2007 and $2.56 and $2.57
per cubic yard for the three- and nine-month period ended September 30, 2006. The
decrease in the 2007 amortization rate resulted primarily from a reduction in
cell closure cost estimates based on a re-evaluation of the landfill closure
liabilities. Amortization totaled $0.6 million and $1.4 million for
the three- and nine-month periods ended September 30, 2007 and
$0.9 million and $2.0 million for the three- and nine-month periods
ended September 30, 2006, respectively.
(4) CLOSURE AND POST-CLOSURE LIABILITIES
The changes to closure and post-closure liabilities
for the nine months ended September 30, 2007 were as follows (in thousands):
|
|
Landfill
Retirement
Liability
|
|
Non-Landfill
Retirement
Liability
|
|
Total
|
|
Balance at January 1, 2007
|
|
$
|
18,858
|
|
$
|
6,697
|
|
$
|
25,555
|
|
New asset retirement obligations
|
|
1,098
|
|
|
|
1,098
|
|
Accretion
|
|
2,004
|
|
616
|
|
2,620
|
|
Changes in estimate recorded to statement
of operations
|
|
(287
|
)
|
(486
|
)
|
(773
|
)
|
Other changes in estimates recorded to
balance sheet
|
|
233
|
|
|
|
233
|
|
Payments
|
|
(117
|
)
|
(143
|
)
|
(260
|
)
|
Currency translation, reclassifications and
other
|
|
223
|
|
44
|
|
267
|
|
Balance at September 30, 2007
|
|
$
|
22,012
|
|
$
|
6,728
|
|
$
|
28,740
|
|
The $0.8 million benefit from changes in estimates above, recorded to
the statement of operations, (including $0.1 million recorded in the third
quarter of 2007) was due to: (i) an
increase in utilization of a facility thus avoiding projected near-term
closure, ($0.5 million), (ii) decreasing a cell closure cost estimate for
a full cell, ($0.1 million), and (iii) delayed timing of completing cell
closure for a landfill cell, ($0.2 million). All of the landfill facilities
included in the amounts shown above were active as of September 30, 2007.
Anticipated payments at September 30, 2007 (based on current estimated
costs) and anticipated timing of necessary regulatory approvals to commence
work on closure and post-closure activities for each of the next five years and
thereafter are as follows (in thousands):
Periods ending December 31,
|
|
|
|
Remaining three months of 2007
|
|
$
|
445
|
|
2008
|
|
5,002
|
|
2009
|
|
7,421
|
|
2010
|
|
9,224
|
|
2011
|
|
2,027
|
|
Thereafter
|
|
209,259
|
|
Undiscounted closure and post-closure
liabilities
|
|
233,378
|
|
Less: Reserves to be provided (including
discount of $122.6 million) over remaining site lives
|
|
(204,638
|
)
|
Present value of closure and post-closure
liabilities
|
|
$
|
28,740
|
|
8
New asset retirement obligations incurred in 2007
are being discounted at the credit-adjusted risk-free rate of 9.0% and inflated
at a rate of 2.57%.
(5) REMEDIAL LIABILITIES
The changes to remedial liabilities for the nine
months ended September 30, 2007 were as follows (in thousands):
|
|
Remedial
Liabilities for
Landfill Sites
|
|
Remedial
Liabilities for
Inactive Sites
|
|
Remedial
Liabilities
(Including
Superfund) for
Non-Landfill
Operations
|
|
Total
|
|
Balance at January 1, 2007
|
|
$
|
4,917
|
|
$
|
91,494
|
|
$
|
51,434
|
|
$
|
147,845
|
|
Adjustment due to final purchase price
allocation
|
|
|
|
|
|
1,834
|
|
1,834
|
|
Accretion
|
|
177
|
|
3,190
|
|
1,756
|
|
5,123
|
|
Changes in estimate recorded to statement
of operations
|
|
(51
|
)
|
(4,002
|
)
|
2,537
|
|
(1,516
|
)
|
Payments
|
|
(103
|
)
|
(2,655
|
)
|
(1,883
|
)
|
(4,641
|
)
|
Currency translation, reclassifications and
other
|
|
403
|
|
101
|
|
2,188
|
|
2,692
|
|
Balance at September 30, 2007
|
|
$
|
5,343
|
|
$
|
88,128
|
|
$
|
57,866
|
|
$
|
151,337
|
|
The $1.5 million net benefit indicated above from
changes in estimate includes $0.5 million for the three months ended September
30, 2007. The net $1.5 million benefit from changes in estimates recorded to
selling, general and administrative expenses on the consolidated statement of
operations includes: (i) less costly or alternative remedial plans based
on new site information, ($3.8 million); (ii) proposed legal settlement for the
Plaquemine facility (see Note 8, Commitments and Contingencies) and
regulatory compliance obligations, $2.9 million; and (iii) the discounting
effect of delays in certain remedial projects, ($0.6 million).
Anticipated payments at September 30, 2007 (based on
current estimated costs) and anticipated timing of necessary regulatory
approvals to commence work on remedial activities for each of the next five
years and thereafter are as follows (in thousands):
Periods ending December 31,
|
|
|
|
Remaining three months of 2007
|
|
$
|
2,660
|
|
2008
|
|
10,675
|
|
2009
|
|
12,049
|
|
2010
|
|
11,566
|
|
2011
|
|
13,999
|
|
Thereafter
|
|
141,442
|
|
Undiscounted remedial liabilities
|
|
192,391
|
|
Less: Discount
|
|
(41,054
|
)
|
Total remedial liabilities
|
|
$
|
151,337
|
|
The anticipated payments for long-term maintenance
range from $5.4 million to $9.9 million per year over the next five years.
Spending on one-time projects for the next five years ranges from $1.5 million
to $4.7 million per year with an average expected payment of $3.2 million per
year. Legal and Superfund liabilities payments are expected to be between
$1.0 million and $3.3 million per year for the next five years. These
estimates are reviewed at least quarterly and adjusted as additional
information becomes available.
(6) OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following (in
thousands):
9
|
|
September 30,
2007
|
|
December 31,
2006
|
|
Insurance
|
|
$
|
13,222
|
|
$
|
10,250
|
|
Interest
|
|
2,762
|
|
4,769
|
|
Accrued compensation and benefits
|
|
15,377
|
|
19,538
|
|
Other items
|
|
23,972
|
|
19,384
|
|
|
|
$
|
55,333
|
|
$
|
53,941
|
|
(7) FINANCING ARRANGEMENTS
The following table is a summary of the Companys
financing arrangements (in thousands):
|
|
September 30,
2007
|
|
December 31,
2006
|
|
Senior Secured Notes, bearing interest at
11.25%, collateralized by a second-priority lien on substantially all of the
Companys assets within the United States except for accounts receivable
(maturity date of July 15, 2012)
|
|
$
|
91,518
|
|
$
|
91,518
|
|
Term Loan with a financial institution,
bearing interest at the U.S. prime rate (8.03% at September 30, 2007) plus
1.5%, or the Eurodollar rate (5.50% at September 30, 2007) plus 2.50%,
collateralized by a first-priority lien (second priority as to accounts receivable)
on substantially all of the Companys assets within the United States
(maturity date of December 1, 2010)
|
|
30,000
|
|
30,000
|
|
Less unamortized issue discount
|
|
840
|
|
996
|
|
Long-term obligations
|
|
$
|
120,678
|
|
$
|
120,522
|
|
The fair value of the Senior
Secured Notes at September 30, 2007 and December 31, 2006 was $97.0 million and
$98.4 million, respectively.
The Company issued the
Senior Secured Notes on June 30, 2004, and established the Revolving
Facility and a $50.0 million synthetic letter of credit facility (the Synthetic
LC Facility) on December 1, 2005, under an amended and restated loan and
security agreement (the Amended Credit Agreement) which the Company then
entered into with the lenders under the Companys loan and security agreement
dated June 30, 2004 (the Original Credit Agreement).
At September 30, 2007,
the Company had outstanding $91.5 million of Senior Secured Notes, a $70.0
million Revolving Facility, a $50.0 million Synthetic LC Facility, and a $30.0
million term loan (the Term Loan). The financing arrangements and principal
terms of each are discussed further in the Companys 2006 Annual Report on Form
10-K. There have not been any material changes in our terms and conditions
during the first nine months of 2007.
At September 30, 2007,
the Company had no borrowings and $39.4 million of letters of credit
outstanding under its Revolving Facility, and the Company had approximately
$30.6 million available to borrow. At September 30, 2007, letters of
credit outstanding under the Companys Synthetic LC facility were $49.9
million.
The
Indenture under which the Companys Senior Secured Notes are outstanding
provides for certain covenants, the most restrictive of which requires the
Company, within 120 days after the close of each twelve-month period ending on
June 30 of each year (beginning June 30, 2005 and ending on
June 30, 2011) to apply an amount equal to 50% of the periods Excess Cash
Flow (as defined below) to either prepay, repay, redeem or purchase the Companys
first-lien obligations under the Revolving Facility, Synthetic LC Facility or
Capital Lease Obligations or to make offers (Excess Cash Flow Offers) to
repurchase all or part of the then outstanding Senior Secured Notes at an
offering price equal to 104% of their principal
amount plus accrued interest. Excess Cash
Flow is defined in the Indenture as consolidated earnings before interest,
taxes, depreciation and amortization (EBITDA) less interest expense, all
taxes paid or accrued in the period, capital expenditures made in cash during the period, and all cash spent on environmental monitoring, remediation
or relating to our environmental liabilities.
The Company offered, on August 15, 2007, to
repurchase up to $19.2 million principal amount of the Senior Secured Notes at
a price equal to 104% of the principal amount thereof, plus accrued interest. This
offer, which expired on September 17, 2007, was not accepted by any holders of
Senior Secured Notes.
10
No
portion of the Companys Excess Cash Flow earned through June 30, 2007, is
required to be included in the amount of Excess Cash Flow earned in subsequent
periods. However, the Indentures requirement to make Excess Cash Flow Offers
in respect of Excess Cash Flow earned in subsequent twelve-month periods will
remain in effect.
Under the Amended Credit Agreement, the Company is
required to maintain certain financial covenants as follows:
|
|
September 30, 2007
|
|
Covenant
|
|
Requirement
per Facility
|
|
Leverage ratio
|
|
< 2.35 to 1
|
|
Interest coverage ratio
|
|
> 2.85 to 1
|
|
Fixed charge coverage ratio
|
|
> 1 to 1
|
|
As of September 30, 2007, the Company was in
compliance with the covenants under all the Companys debt agreements.
(8) COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Companys waste
management services are regulated by federal, state, provincial and local laws
enacted to regulate discharge of materials into the environment, remediation of
contaminated soil and groundwater or otherwise protect the environment. This
ongoing regulation results in the Company frequently becoming a party to
judicial or administrative proceedings involving all levels of governmental
authorities and other interested parties. The issues involved in such
proceedings generally relate to applications for permits and licenses by the
Company and conformity with legal requirements, alleged violations of existing
permits and licenses or requirements to clean up contaminated sites. At
September 30, 2007, the Company was involved in various proceedings, including
legal proceedings related to the acquisition of CSD assets, legal proceedings
related to CSD assets, third party superfund sites and state enforcement
actions, the principal of which are described in Note 9, Legal Proceedings to
the Companys audited financial statements included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2006, or below with respect
to proceedings which have either arisen or as to which are material or changes
in applicable reserve amounts have occurred since that Note 9 was
completed in March 2007.
Legal Proceedings
Related to Acquisition of CSD Assets
Effective September 7,
2002 (the Closing Date), the Company purchased from Safety-Kleen Services,
Inc. and certain of its domestic subsidiaries (collectively, the Sellers)
substantially all of the assets of the Chemical Services Division (the CSD)
of Safety-Kleen Corp. The Company purchased the CSD assets pursuant to a sale
order (the Sale Order) issued by the Bankruptcy Court for the District of
Delaware (the Bankruptcy Court) which had jurisdiction over the Chapter 11
proceedings involving the Sellers, and the Company therefore took title to the
CSD assets without assumption of any liability (including pending or threatened
litigation) of the Sellers except as expressly provided in the Sale Order.
However, under the Sale Order (which incorporated by reference certain
provisions of the Acquisition Agreement between the Company and Safety-Kleen
Services, Inc.), the Company became subject as of the Closing Date to certain
legal proceedings which are now either pending or threatened involving the CSD
assets. As of September 30, 2007, the Company had reserves of $27.6 million
(substantially all of which the Company had established as part of the purchase
price for the CSD assets) relating to the Companys estimated potential
liabilities in connection with such legal proceedings. At December 31, 2006,
the Company estimated that it was reasonably possible as that term is defined
in SFAS No. 5 (more than remote but less than likely), that the amount of
such total liabilities could be up to $3.1 million greater than the $25.1
million reserve balance at December 31, 2006. The Company believes that as of
September 30, 2007, there has been no material change in the reasonably
possible amount of $3.1 million. The Company periodically adjusts the aggregate
amount of such reserves when such potential liabilities are paid or otherwise
discharged or additional relevant information becomes available. Substantially
all of the Companys legal proceedings liabilities are environmental
liabilities and, as such, are included in the tables of changes to remedial
liabilities disclosed as part of Note 5, Remedial Liabilities.
Ville Mercier Legal Proceedings.
The CSD assets included a subsidiary (the Mercier
Subsidiary) which owns and operates a hazardous waste incinerator in Ville
Mercier, Quebec (the Mercier Facility). A property owned by the Mercier
Subsidiary adjacent to the current Mercier Facility is now contaminated as a
result of actions dating back to 1968, when the Quebec government issued to the
previous owner of the Mercier Facility two permits to dump organic liquids into
lagoons on
11
the
property. By 1972, groundwater contamination had been identified, and the
Quebec government provided an alternate water supply to the municipality of
Ville Mercier.
In 1999, Ville Mercier
and three neighboring municipalities filed separate legal proceedings against
the Mercier Subsidiary and certain related companies together with certain
former officers and directors, as well as against the Government of Quebec. The
lawsuits assert that the defendants are jointly and severally responsible for
the contamination of groundwater in the region, which the plaintiffs claim was
caused by contamination from the former Ville Mercier lagoons and which they
claim caused each municipality to incur additional costs to supply drinking
water for their citizens since the 1970s and early 1980s. The four
municipalities claim a total of $1.6 million (CDN) as damages for additional
costs to obtain drinking water supplies and seek an injunctive order to
obligate the defendants to remediate the groundwater in the region. The Quebec
Government also sued the Mercier Subsidiary to recover approximately $17.4
million (CDN) of alleged past costs for constructing and operating a treatment
system and providing alternative drinking water supplies.
On September 26, 2007 the
Minister of Sustainable Development, Environment and Parks issued a Notice
pursuant to Section 115.1 of the Environment Quality Act, superceding Notices
issued in 1992, which are the subject of the pending litigation. The more
recent Notice notifies the Mercier Subsidiary that, if the Mercier Subsidiary
does not take certain remedial measures at the site, the Minister intends to
undertake those measures at the site and claim direct and indirect costs
related to such measures. The Mercier Subsidiary continues to assert that it
has no responsibility for the matter and will contest any action by the
Ministry to impose costs for remedial measures on the Mercier Subsidiary.
At September 30, 2007 and
December 31, 2006, the Company had accrued $13.2 million and $11.2
million, respectively, for remedial liabilities and associated legal costs
relating to the Ville Mercier Legal Proceedings. The increase in 2007 resulted
primarily from a foreign exchange rate adjustment due to the strengthening of
the Canadian dollar.
Indemnification of Certain CSD
Superfund Liabilities.
The
Companys agreement with the Sellers under the Acquisition Agreement and the
Sale Order to indemnify the Sellers against certain cleanup costs payable to
governmental entities under federal and state Superfund laws now relate
primarily to: (i) two properties included in the CSD assets which are either
now subject or proposed to become subject to Superfund proceedings; (ii)
certain potential liabilities which the Sellers might incur in the future in
connection with an incinerator formerly operated by Marine Shale Processors,
Inc. to which the Sellers shipped hazardous wastes; and (iii) 35 Superfund
sites owned by third parties where the Sellers have been designated as
Potentially Responsible Parties (PRPs). As described below, there are also
six other Superfund sites owned by third parties where the Sellers have been
named as PRPs or potential PRPs and for which the Sellers have sent demands for
indemnity to the Company since the Closing Date, now including the Marine Shale
Processors, Inc. site. In the case of the two properties referenced above which
were included in the CSD assets, the Company is potentially directly liable for
cleanup costs under applicable environmental laws because of its ownership and
operation of such properties since the Closing Date. In the case of Marine
Shale Processors and the 35 other third party sites referenced above, the
Company does not have direct liability for cleanup costs but may have an
obligation to indemnify the Sellers, to the extent provided in the Acquisition
Agreement and the Sale Order, against the Sellers share of such cleanup costs
which are payable to governmental entities.
Federal
and state Superfund laws generally impose strict, and in certain circumstances,
joint and several liability for the costs of cleaning up Superfund sites not
only upon the owners and operators of such sites, but also upon persons or
entities which in the past have either generated or shipped hazardous wastes
which are present on such sites. The Superfund laws also provide for liability
for damages to natural resources caused by hazardous substances at such sites.
Accordingly, the Superfund laws encourage PRPs to agree to share in specified
percentages of the aggregate cleanup costs for Superfund sites by entering into
consent decrees, settlement agreements or similar arrangements. Non-settling
PRPs may be liable for any shortfalls in government cost recovery and may be
liable to other PRPs for equitable contribution. Under the Superfund laws, a
settling PRPs financial liability could increase if the other settling PRPs
were to become insolvent or if additional or more severe contamination were
discovered at the relevant site. In estimating the amount of those Sellers
liabilities at those Superfund sites where one or more of the Sellers has been
designated as a PRP and as to which the Company believes that it has potential
liability under the Acquisition Agreement and the Sale Order, the Company
therefore reviewed any existing consent decrees, settlement agreements or
similar arrangements with respect to those sites and the Sellers negotiated
volumetric share of liability (where applicable), and also took into
consideration the Companys prior knowledge of the relevant sites and the
Companys general experience in dealing with the cleanup of Superfund sites.
Properties Included in CSD Assets.
The CSD assets which
the Company acquired include an active service center located at 2549 North New
York Street in Wichita, Kansas (the Wichita Property). The Wichita Property
is one of several
12
properties
located within the boundaries of a 1,400 acre state-designated Superfund site
in an old industrial section of Wichita known as the North Industrial Corridor
Site. Along with numerous other PRPs, the Sellers executed a consent decree
relating to such site with the U.S. Environmental Protection Agency (the EPA),
and the Company is continuing its ongoing remediation program for the Wichita
Property in accordance with that consent decree. Also included within the CSD
assets which the Company acquired are rights under an indemnification agreement
between the Sellers and a prior owner of the Wichita Property, which the
Company anticipates but cannot guarantee will be available to reimburse certain
such cleanup costs.
The CSD assets also
include a former hazardous waste incinerator and landfill in Baton Rouge,
Louisiana (BR Facility) undergoing remediation pursuant to an order issued by
the Louisiana Department of Environmental Quality. In December 2003, the
Company received an information request from the EPA pursuant to the Superfund
Act concerning the Devils Swamp Lake Site (Devils Swamp Site) in East Baton
Rouge Parish, Louisiana. On March 8, 2004, the EPA proposed to list Devils
Swamp on the National Priorities List for further investigations and possible
remediation. Devils Swamp includes a lake located downstream of an outfall
ditch where wastewaters and stormwaters have been discharged from the BR
Facility, as well as extensive swamplands adjacent to it. Contaminants of
concern (COCs) cited by the EPA as a basis for listing the site include
substances of the kind found in wastewaters discharged from the BR Facility in
past operations. While the Companys ongoing corrective actions at the BR
Facility may be sufficient to address the EPAs concerns, there can be no
assurance that additional action will not be required and that the Company will
not incur material costs. In September 2007 the EPA sent Special Notice Letters
to certain generators of waste materials containing COCs that had shipped the
COCs to the BR Facility in the past and that EPA believes may be liable under
Superfund laws, requiring those generators to submit a good faith offer to
conduct a remedial investigation feasibility study directed towards the
eventual remediation of the Devils Swamp Site. The Company cannot now estimate
the Companys potential liability for Devils Swamp; accordingly, the Company
has accrued no liability for remediation of Devils Swamp beyond what was
already accrued pertaining to the ongoing corrective actions and amounts
sufficient to cover certain estimated legal fees and related expenses.
Marine
Shale Processors.
A portion of the reserves which the Company
maintained as of September 30, 2007 for potential legal liabilities associated
with the CSD assets relates to Marine Shale Processors, Inc. located in Amelia,
Louisiana (Marine Shale Site). On May 11, 2007, the EPA and the LDEQ issued a
Special Notice to the Company, seeking a good faith offer to address site
remediation at the former Marine Shale incinerator facility. Other PRPs also
received Special Notices, and the other PRPs and the Company have formed a
group (the Site Group) and common counsel for the Site Group has been chosen.
The Site Group will make a good faith settlement offer to the EPA on November
29, 2007. Although the Company was never a customer of Marine Shale and does
not believe that it is liable for the Sellers liability as a customer at the
Marine Shale Site, the Company has elected to join with the Site Group and
participate in further negotiations with the EPA and LDEQ regarding a remedial
investigation feasibility study directed towards the eventual remediation of
the Marine Shale Site. As of September 30, 2007, the amount of the Companys
remaining reserves relating to the Marine Shale Site was $3.6 million.
Third
Party Superfund Sites.
Prior to the Closing Date, the Sellers
had generated or shipped hazardous wastes, which are present on an aggregate of
35 sites owned by third parties, which have been designated as federal or state
Superfund sites and at which the Sellers, along with other parties, had been
designated as PRPs. Under the Acquisition Agreement and the Sale Order, the
Company agreed with the Sellers that it would indemnify the Sellers against the
Sellers share of the cleanup costs payable to governmental entities in
connection with those 35 sites, which were listed in Exhibit A to the Sale Order
(the Listed Third Party Sites). At 29 of the Listed Third Party Sites, the
Sellers had addressed, prior to the Companys acquisition of the CSD assets in
September 2002, the Sellers cleanup obligations to the federal and state
governments and to other PRPs by entering into consent decrees or other
settlement agreements or by participating in ongoing settlement discussions or
site studies and, in accordance therewith, the PRP group is generally
performing or has agreed to perform the site remediation program with
government oversight. With respect to two of those 29 Listed Third Party Sites,
certain developments have occurred since the Companys purchase of the CSD
assets as described in the following four paragraphs. Of the remaining Listed
Third Party Sites, the Company, on behalf of the Sellers are contesting with
the governmental entities and PRP groups involved the liability at two sites,
have settled the Sellers liability at two sites, and plan to fund
participation by the Sellers as settling PRPs at two sites. In addition, the
Company has confirmed that the Sellers were ultimately not named as PRPs at one
site. With respect to all of the 35 Listed Third Party Sites, the Company had
reserves of $4.6 million and $4.9 million at September 30, 2007 and December
31, 2006 respectively.
With respect to one of those 35 sites (the Helen
Kramer Landfill Site), the Sellers had entered (prior to the Sellers
commencing their bankruptcy proceeding in June 2000) into settlement agreements
with certain members of the PRP group
13
which
agreed to perform the cleanup of that site in accordance with consent decrees
with governmental entities, in return for which the Sellers received a
conditional release from such governmental entities. Following the Sellers
commencement of their bankruptcy proceeding, the Sellers failed to satisfy
their payment obligations to those PRPs under those settlement agreements.
In
November 2003, certain of those PRPs made a demand directly on the Company for
the Sellers share of the cleanup costs incurred by the PRPs with respect to
the Helen Kramer Landfill Site. However, at a hearing in the Bankruptcy Court
on January 6, 2004 on a motion by those PRPs seeking an order that the Company
was liable to such PRPs under the terms of the Sale Order, the Bankruptcy Court
declined to hear the motion on the ground that those PRPs (which are not
governmental entities) have no right to seek direct payment from the Company
for any portion of the cleanup costs which they have incurred in connection
with that site. The Sellers have never made an indemnity request upon the
Company for any obligations relating to that site. The PRPs indicated their
intention to pursue additional recourse against the Company, but the Company
filed in February 2005 a complaint with the Bankruptcy Court seeking
declaratory relief that the injunction in the Sale Order is operative against
those PRPs efforts to proceed directly against the Company and seeking
sanctions against those PRPs for violating that injunction.
In October 2005, the Bankruptcy
Court granted the PRPs motion to dismiss the count of the Companys complaint
seeking sanctions against them for contempt, but the remaining counts of the
Companys complaint seeking declaratory relief remain to be resolved. In
November 2005, the PRPs filed a counterclaim for declaratory relief that the
Company is liable to them for the Sellers obligations to them. On March 22,
2006, the PRPs moved for summary judgment on all counts, but the Court declined
to grant that motion on July 24, 2006. The case was tried before the court on
October 18 and 19, 2007, and the parties will submit post-trial legal briefs in
November following which the Court will issue its judgment. At present, the
Company estimates that its potential exposure of incurring a loss from this
litigation ranges from zero (if the Company ultimately prevails on the merits)
to approximately $3.2 million (if the Court rules against the Company). The
Company has not recorded any liability for this matter on the basis that such
liability is currently neither probably nor estimable.
On May 2, 2007, the
Company received from the EPA a Request for Information pertaining to the
Casmalia Resources Hazardous Waste Management Facility (the Casmalia Site) in
Santa Barbara County, California. The Casmalia Site was one of the 35 Sites for
which the Company agreed to indemnify the Sellers for liability to a
governmental entity. According to the notice, 65 parties entered into Consent
Decrees with EPA that were entered by the U.S. District Court for the Central
District of California on June 27, 1997. According to EPA, it is now seeking
financial contributions from others, including transporters and other persons
who arranged for disposal at the former landfill, that may be liable for waste
shipments into the Casmalia Site. At this time, EPA is not seeking any
financial contribution from the Company, but it is seeking information about
the extent to which, if at all, the Sellers transported or arranged for
disposal of waste at the Casmalia Site. At this time, the Company does not know
what, if any, exposure it has under its indemnity arrangement with the Sellers,
and the Sellers have not made any demand for indemnity. The Company has not
recorded any liability for this matter on the basis that such liability is
currently neither probably nor estimable.
Other Legal
Proceedings Related to CSD Assets
Plaquemine, Louisiana
Facility
.
In addition to the
legal proceedings related to the acquisition of the CSD assets described above,
subsequent to the acquisition in September 2002 various plaintiffs which are
represented by the same law firm have filed five lawsuits based in part upon
allegations relating to ownership and operation of a deep injection well
facility near Plaquemine, Louisiana which Clean Harbors Plaquemine, LLC (CH
Plaquemine), one of the Companys subsidiaries, acquired as part of the CSD
assets.
On October 17, 2006, CH Plaquemine (which operated at
a loss during the past two years prior to that date) ceased operations and
filed a voluntary petition for relief under chapter 11 of the United States
Bankruptcy Code in the U.S. Bankruptcy Court for the District of Massachusetts,
Eastern division. On December 28, 2006, the Mass. Bankruptcy Court transferred
the venue of the CH Plaquemine bankruptcy case to the U.S. Bankruptcy Court for
the Middle District of Louisiana, located in Baton Rouge, where such case is
now pending. The Company believes that the filing of that Chapter 11 petition
by CH Plaquemine will have no adverse effect on the Companys other operations.
On September 13, 2007, the Bankruptcy Court approved a
global settlement of the five lawsuits described above and another,
non-material suit filed by one of the plaintiffs in such lawsuits, pursuant to
which CH Plaquemine has conditionally agreed to settle all of the pending
lawsuits, subject to certain contingencies and court proceedings which must
still take place before the settlement can be consummated. Among the conditions
to the settlement is that the Bankruptcy Court approve as fair and reasonable a
class action settlement of one of the five lawsuits described above which was
filed as a class action, and that CH Plaquemine successfully confirm a plan of
reorganization that incorporates the terms of the settlement. It is anticipated
that the class action settlement documents and a plan of reorganization and
disclosure statement will be filed in November 2007. The Company recorded a liability
of $2.1 million during the three months ended September 30, 2007 pertaining to
this potential settlement.
14
Deer Trail, Colorado Facility.
Since
April 5, 2006 the Company has been involved in various legal proceedings which
have arisen as a result of the issuance by the Colorado Department of Public
Health and Environment (CDPHE) of a radioactive materials license (RAD
License) to a Company subsidiary, Clean Harbors Deer Trail, LLC (CHDT) to
accept certain low level radioactive materials known as NORM/TENORM wastes
for disposal. Adams County, Colorado, the county where the CHDT facility is
located, filed suit in Denver County District Court and Adams County District
Court against CDPHE seeking to vacate the CDPHEs grant of the RAD license to
CHDT. The CDPHE is represented by the Colorado Attorney General in the
proceedings. Clean Harbors entered both cases as an intervenor in support of
the States position. On or about May 5, 2006 Denver District Court ruled in
favor of the State and the Company and issued an order dismissing the countys
complaint. On or about July 31, 2006, the Adams County District Court also
ruled against the county and dismissed the countys complaint. Adams County
appealed both rulings.
On or about December 12,
2006 the City and County of Denver notified the Company that the city intended
to award it a contract to dispose of certain debris at the CHDT facility from a
project known as the Denver Radium Streets Project. Clean Harbors Deer Trail
facility has been designated by the Rocky Mountain Low-Level Radioactive Waste
Compact (Compact) as a Regional Facility.
Accordingly, it is the only facility in the three-state Compact Regions
jurisdiction (Colorado, New Mexico, Nevada) qualified to accept this material
for disposal. On December 18, 2006 the original shipment of material from that
project was received followed by subsequent shipments on February 14 and 15,
2007. All material received was in accordance with the facilitys State of
Colorado Radioactive Materials License and Federal Compact Designation.
On or about February 16,
2007, the CHDT facility received a vaguely worded Notice of Violation (NOV)
from Adams County, Colorado, presumably as a result of the facilitys accepting
the low-level radioactive debris from the Denver Radium Streets Project in
accordance with the facilitys RAD License. Since that time the facility has
continued to accept material from that project in reliance on guidance issued
by the CDPHE that the facility is duly licensed to accept that material.
The Companys position is that the NOV issued by
Adams County is null and void ab initio as it is in conflict with the RAD
License issued by the CDPHE pursuant to Colorado state law and the Regional
Facility Designation issued by the Compact pursuant to both federal law and the
laws of Colorado. The Company will continue to contest the actions of Adams
County and will continue to lawfully accept all materials authorized by its
permits, licenses, and Compact Designation.
On April 25, 2007,
Adams County filed an action against the Company essentially asserting
grounds that the County has asserted in prior proceedings. The Company
continues to believe that the grounds asserted by the County are factually and
legally baseless and will contest the complaint vigorously.
On October 4, 2007, the Colorado Court of Appeals
unanimously ruled against the county and affirmed the rulings by the Denver
District and Adams County District Courts dismissing the countys original
complaints against CDPHEs issuance of the RAD License. The Company has not
recorded any liability for this matter on the basis that such liability is
currently neither probable nor estimable.
Legal Proceedings
Not Related to CSD Assets
In addition to the legal proceedings relating to the
CSD assets, the Company is also involved in certain legal proceedings related
to environmental matters which have arisen for other reasons.
Superfund Sites Not Related to CSD
Acquisition.
The
Company has been named as a PRP at 29 sites that are not related to the CSD
acquisition. Fourteen of these sites involve two subsidiaries which the Company
acquired from ChemWaste, a former subsidiary of Waste Management, Inc. As part
of that acquisition, ChemWaste agreed to indemnify the Company with respect to
any liability of those two subsidiaries for waste disposed of before the
Company acquired them. Accordingly, Waste Management is paying all costs of
defending those two subsidiaries in those 14 cases, including legal fees and
settlement costs.
The Companys
subsidiary which owns the Bristol, Connecticut facility is involved in one of
the 29 Superfund sites. As part of the acquisition of that facility, the seller
and its now parent company, Cemex, S.A., agreed to indemnify the Company with
respect to any liability for waste disposed of before the Company acquired the
facility, which would include any liability arising from Superfund sites.
15
Eleven of the 29
Superfund sites involve subsidiaries acquired by the Company which had been
designated as PRPs with respect to such sites prior to its acquisition of such
subsidiaries. Some of these sites have been settled, and the Company believes
its ultimate liability with respect to the remaining such sites will not be
material to its result of operations, cash flow from operations or financial
position.
In July 2006, the Company
was informed of its involvement at a state Superfund site in Niagara Falls, New
York where it may have incurred liability for past waste shipments. No
indemnification exists for this site. In February 2007, the New York State
Department of Environmental Conservation issued an official Notice Letter
pertaining to this site. The Company increased the reserve by $0.5 million
during the nine months ended September 30, 2007 pertaining to this potential
liability.
As of September 30, 2007 and December 31, 2006,
the Company had reserves of $0.6 million and $0.1 million, respectively, for
cleanup of Superfund sites not related to the CSD acquisition or the Teris
acquisition described below at which either the Company or a predecessor has
been named as a PRP. However, there can be no guarantee that the Companys
ultimate liabilities for these sites will not materially exceed this amount or
that indemnities applicable to any of these sites will be available to pay all
or a portion of related costs.
State and
Provincial Enforcement Actions
El Dorado, Arkansas Facility.
As part of its operating permits,
Clean Harbors El Dorado, LLC has an
on-site inspector from the Arkansas Department of Environmental Quality (the ADEQ)
who conducts routine inspections of facility operations on a regular basis. As
a result of these routine inspections, and a November, 2006 Compliance
Evaluation Inspection, the ADEQ alleged several violations of the facilitys
permit and Arkansas regulations, and proposed a penalty of $261 thousand. The
facility worked with the ADEQ in an effort to resolve or rectify many of the
alleged violations, and has successfully negotiated in July 2007, a Consent
Administrative Order wherein the facility is required to pay $85 thousand in
cash, agreed to fund a Supplemental Environmental Project (SEP) for the El
Dorado public schools by paying $17 thousand to an education foundation, and
agreed to fund a SEP by paying $29 thousand to clean up laboratory chemicals in
Arkansas schools, in order to settle all of the matters. The Company funded the
cash component of the settlement during the third quarter of 2007.
Aragonite, Utah Facility.
Clean Harbors Aragonite, LLC agreed to a
Stipulation and Consent Order on July 20, 2007 with the Utah Department of
Environmental Quality (the UDEQ) to finally settle alleged violations from
inspections conducted from October 2005 through September 2006. The facility
has agreed to pay a total of $147 thousand, comprised of $100 thousand in cash,
a SEP to provide hazardous waste management and disposal services for a local
school district and state university valued at $22 thousand, and $25 thousand
to purchase and donate for a brush fire truck to the local county for brush and
wild fire fighting purposes. The facility has one year to perform the SEP, or
alternatively, to pay $47 thousand in cash instead.
London,
Ontario Facility.
Clean Harbors Canada, Inc., had received a
summons from the Ontario Ministry of Labour alleging a number of regulatory
offenses as a result of a fire in October 2003 at the subsidiarys waste
transfer facility in London, Ontario. The Company filed a motion in the Ontario
Court of Justice to dismiss the charges on constitutional grounds. On October
16, 2006 the Court ruled in favor the Companys motion and on November 22, 2006
the Crown appealed the Courts ruling quashing all charges. On October 23, 2007
the Ontario Superior Court of Justice issued a ruling on the Crowns appeal and
upheld the lower court ruling quashing the charges. The company has not
recorded any liability for this matter on the basis that such liability is
neither probable nor estimable.
Thorold Fire
On February 19,
2007, an explosion and fire occurred at the Companys Thorold facility in
Ontario during non-business hours destroying a storage warehouse and damaging
several nearby buildings on site. No employee casualties or injuries were
reported. The Company has established business operations at alternative
facilities to ensure business continuity and minimize disruption to its
customers. The Company continues to evaluate the financial impact resulting
from this incident and currently believes the Company is adequately insured and
therefore does not expect to incur a material loss from this incident. On October
23, 2007 the Ontario Environment Ministry announced that it had concluded its
investigation into the fire and that there were no grounds to initiate action
against the Company. This action by the Environment Ministry followed a prior
pronouncement by the provincial Ministry of Health that there were no long term
health impacts from the fire. As of September 30, 2007, the Company had
recognized $0.8 million of expenses in income from operations relating to the
Thorold explosion and fire.
16
(9) LOSS ON EARLY EXTINGUISHMENT OF DEBT
On January 12, 2006, the Company redeemed $52.5
million principal amount of outstanding Senior Secured Notes and paid
prepayment penalties and accrued interest through the redemption date. In
connection with such redemption the Company recorded during the nine months
ended September 30, 2006, to loss on early extinguishment of debt, an aggregate
of $8.3 million, consisting of $1.8 million unamortized financing costs,
$0.6 million of unamortized discount on the Senior Secured Notes, and the
$5.9 million prepayment penalty required by the Indenture in connection
with such redemption.
(10) INCOME TAXES
The income tax expense for the third quarter of 2007
was based on the estimated effective tax rate for the year. The effective tax
rate increased in 2007 as compared to the same period in 2006 primarily related
to a reduction in the benefit realized from the utilization of net operating
loss carryforwards and the inclusion of interest and penalties on tax
contingencies for uncertain tax positions in 2007.
SFAS 109,
Accounting
for Income Taxes
, requires that a valuation allowance be
established when, based on an evaluation of available evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Accordingly, as of September 30, 2007, the Company had a valuation
allowance of approximately $12.1 million related to foreign tax credits,
certain state net operating loss carryforwards and federal and state net
operating loss carryforwards related to tax deductions for the exercise of
non-qualified stock options.
The Company adopted FASB
Interpretation 48,
Accounting for
Uncertainty in Income Taxes
(FIN 48) on January 1, 2007. As a
result of the implementation of FIN 48, tax contingencies increased $41.9
million for uncertain tax positions
,
of which $36.8 million was
accounted for as a decrease to retained earnings. In addition, to reflect the
federal and state tax benefits upon the implementation of FIN 48, the Company
also recorded an increase to the Companys deferred tax assets of $4.7 million
and a $0.4 million decrease to the valuation allowance.
As of the date of adoption
of FIN 48 and after the impact of recognizing the increase in the tax
contingencies noted above, the Companys unrecognized tax benefits totaled
$57.5 million consisting of $47.6 million of unrecognized tax benefit,
$8.0 million of interest and $1.9 million of penalties, which are
recorded on the Companys consolidated balance sheet as Other long-term
liabilities. The $57.5 million includes $15.6 million of contingencies
previously recognized on the Companys consolidated balance sheet at December
31, 2006. Included in the balance at January 1, 2007, were $38.7 million
of unrecognized tax benefits that, if recognized, would affect the annual
effective income tax rate.
The Company has elected to continue its policy of
recognizing interest and/or penalties related to income tax matters as a
component of income tax expense. As a result, c
hanges in Other long-term liabilities since
the adoption of FIN48 on January 1, 2007, for the nine-month period ended
September 30, 2007 were as follows (in thousands):
|
|
2007
|
|
Balance as of January 1, 2007
|
|
$
|
57,508
|
|
Interest and penalties accrued
|
|
4,172
|
|
Foreign currency translation
|
|
2,691
|
|
Balance as of September 30, 2007
|
|
$
|
64,371
|
|
The Company files U.S.
federal income tax returns as well as income tax returns in various states and
foreign jurisdictions. The Company may be subject to examination by the
Internal Revenue Service (IRS) for calendar years 2003 through 2006.
Additionally, any net operating losses that were generated in prior years and
utilized in these years may also be subject to examination by the IRS. The Company
may also be subject to examinations by state and local revenue authorities for
calendar years 2002 through 2006. The Company is currently not under
examination by the IRS, state, local or foreign jurisdictions.
The Company does not anticipate that total
unrecognized tax benefits other than adjustments for additional accruals for
interest and penalties and foreign currency translation, will change
significantly prior to September 30, 2008.
17
(11) EARNINGS PER SHARE
The following is a reconciliation of basic and diluted
income per share computations (in thousands except for per share amounts):
|
|
Three Months Ended September 30, 2007
|
|
Three Months Ended September 30, 2006
|
|
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
|
Basic income attributable to common
stockholders before effect of dilutive securities
|
|
$
|
12,871
|
|
19,840
|
|
$
|
0.65
|
|
$
|
20,936
|
|
19,587
|
|
$
|
1.07
|
|
Effect of dilutive securities
|
|
69
|
|
846
|
|
(0.02
|
)
|
69
|
|
1,020
|
|
(0.05
|
)
|
Diluted income attributable to common
stockholders
|
|
$
|
12,940
|
|
20,686
|
|
$
|
0.63
|
|
$
|
21,005
|
|
20,607
|
|
$
|
1.02
|
|
|
|
Nine Months Ended September 30, 2007
|
|
Nine Months Ended September 30, 2006
|
|
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
|
Basic income attributable to common
stockholders before effect of dilutive securities
|
|
$
|
27,423
|
|
19,788
|
|
$
|
1.39
|
|
$
|
34,975
|
|
19,488
|
|
$
|
1.79
|
|
Effect of dilutive securities
|
|
206
|
|
927
|
|
(0.06
|
)
|
207
|
|
1,153
|
|
(0.09
|
)
|
Diluted income attributable to common
stockholders
|
|
$
|
27,629
|
|
20,715
|
|
$
|
1.33
|
|
$
|
35,182
|
|
20,641
|
|
$
|
1.70
|
|
For the three and
nine-month periods ended September 30, 2007 and 2006, the dilutive effect of
all outstanding warrants, options and Series B Preferred Stock is included
in the above calculations. For each of the three- and nine-month periods ended
September 30, 2007 and 2006, the dilutive effects of 50 thousand and 70
thousand outstanding performance stock awards, respectively, were excluded from
the above calculation as the attainment of the performance criteria was not
considered probable.
(12) STOCK-BASED
COMPENSATION
The following table summarizes the total number and
type of awards granted during the three and nine-month periods ended of 2007
and 2006, respectively, as well as the related weighted-average grant-date fair
values:
|
|
Three Months Ended
September 30, 2007
|
|
Three Months Ended
September 30, 2006
|
|
|
|
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Stock options
|
|
|
|
$
|
|
|
3,833
|
|
$
|
25.95
|
|
Restricted stock awards
|
|
4,558
|
|
44.52
|
|
1,500
|
|
38.76
|
|
Performance stock awards
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Total awards
|
|
4,558
|
|
|
|
5,333
|
|
|
|
|
|
Nine Months Ended
September 30, 2007
|
|
Nine Months Ended
September 30, 2006
|
|
|
|
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Stock options
|
|
20,500
|
|
$
|
26.13
|
|
21,833
|
|
$
|
22.13
|
|
Restricted stock awards
|
|
6,058
|
|
44.74
|
|
4,100
|
|
|
35.57
|
|
Performance stock awards
|
|
50,598
|
|
|
52.30
|
|
71,292
|
|
|
31.73
|
|
Common stock awards
|
|
5,200
|
|
$
|
46.74
|
|
3,000
|
|
$
|
29.37
|
|
Total awards
|
|
82,356
|
|
|
|
100,225
|
|
|
|
18
The performance
stock awards granted in 2007 are subject to achieving predetermined revenue and
EBITDA targets by December 31, 2008 and also include continued service
conditions. If the Company does not achieve the performance goals by the end of
2008, the shares will be forfeited in their entirety. For the three- and
nine-month periods ended September 30, 2007, no compensation has been recorded
for these awards as management does not currently believe that it is probable
these performance targets will be achieved. During the nine months ended
September 30, 2007, $571 thousand was recorded as treasury stock for 11,850
shares of the Companys common stock that employees had remitted to the Company
as payment for payroll taxes previously paid by the Company on the employees
behalf primarily in connection with the employees vesting of certain
performance stock awards.
The Company recorded stock-based compensation costs
of $0.9 million and $2.9 million for the quarter and year-to-date ending 2007
and $0.9 million and $2.5 million for the quarter and year-to-date ending 2006,
respectively.
(13) SEGMENT REPORTING
The Company has
two reportable segments: Technical Services and Site Services. Performance of
the segments is evaluated on several factors, of which the primary financial
measure is operating income before interest, taxes, depreciation, amortization,
restructuring, severance charges, other refinancing-related expenses, (gain)
loss on disposal of assets held for sale, other (income) expense, and loss on
refinancing (Adjusted EBITDA Contribution). Transactions between the segments
are accounted for at the Companys estimate of fair value based on similar
transactions with outside customers.
The operations not
managed through the Companys two operating segments are presented herein as Corporate
Items. Corporate Items revenues consist of two different operations where the
revenues are insignificant. Corporate Items cost of revenues represents certain
central services that are not allocated to the segments for internal reporting
purposes. Corporate Items selling, general and administrative expenses include
typical corporate items such as legal, accounting and other items of a general
corporate nature that are not allocated to the Companys two segments.
The following table reconciles third party revenues
to direct revenues for the three- and nine-month periods ended September 30,
2007 and 2006 (in thousands). Outside or Third party revenue is revenue billed
to our customers by a particular segment. Direct revenue is the revenue
allocated to the segment performing the provided service. The Company analyzes
results of operations based on direct revenues because the Company believes
that these revenues and related expenses best reflect the manner in which
operations are managed. Certain reporting units have been reclassified to
conform to the current year presentation.
|
|
For the Three Months Ended September
30, 2007
|
|
|
|
Technical
Services
|
|
Site
Services
|
|
Corporate
Items
|
|
Total
|
|
Third party revenues
|
|
$
|
170,757
|
|
$
|
74,736
|
|
$
|
14
|
|
$
|
245,507
|
|
Intersegment revenues
|
|
30,926
|
|
5,764
|
|
142
|
|
36,832
|
|
Gross revenues
|
|
201,683
|
|
80,500
|
|
156
|
|
282,339
|
|
Intersegment expenses
|
|
(26,704
|
)
|
(9,627
|
)
|
(501
|
)
|
(36,832
|
)
|
Direct revenues
|
|
$
|
174,979
|
|
$
|
70,873
|
|
$
|
(345
|
)
|
$
|
245,507
|
|
|
|
For the Three Months Ended September 30, 2006
|
|
|
|
Technical
Services
|
|
Site
Services
|
|
Corporate
Items
|
|
Total
|
|
Third party revenues
|
|
$
|
137,750
|
|
$
|
75,255
|
|
$
|
898
|
|
$
|
213,903
|
|
Intersegment revenues
|
|
24,087
|
|
5,921
|
|
196
|
|
30,204
|
|
Gross revenues
|
|
161,837
|
|
81,176
|
|
1,094
|
|
244,107
|
|
Intersegment expenses
|
|
(20,044
|
)
|
(9,215
|
)
|
(945
|
)
|
(30,204
|
)
|
Direct revenues
|
|
$
|
141,793
|
|
$
|
71,961
|
|
$
|
149
|
|
$
|
213,903
|
|
19
|
|
For the Nine Months Ended September 30, 2007
|
|
|
|
Technical
Services
|
|
Site
Services
|
|
Corporate
Items
|
|
Total
|
|
Third party revenues
|
|
$
|
475,633
|
|
$
|
213,579
|
|
$
|
27
|
|
$
|
689,239
|
|
Intersegment revenues
|
|
129,924
|
|
16,529
|
|
566
|
|
147,019
|
|
Gross revenues
|
|
605,557
|
|
230,108
|
|
593
|
|
836,258
|
|
Intersegment expenses
|
|
(118,068
|
)
|
(27,493
|
)
|
(1,458
|
)
|
(147,019
|
)
|
Direct revenues
|
|
$
|
487,489
|
|
$
|
202,615
|
|
$
|
(865
|
)
|
$
|
689,239
|
|
|
|
For the Nine Months Ended September 30, 2006
|
|
|
|
Technical
Services
|
|
Site
Services
|
|
Corporate
Items
|
|
Total
|
|
Third party revenues
|
|
$
|
390,849
|
|
$
|
207,141
|
|
$
|
(30
|
)
|
$
|
597,960
|
|
Intersegment revenues
|
|
70,186
|
|
21,608
|
|
426
|
|
92,220
|
|
Gross revenues
|
|
461,035
|
|
228,749
|
|
396
|
|
690,180
|
|
Intersegment expenses
|
|
(58,856
|
)
|
(33,230
|
)
|
(134
|
)
|
(92,220
|
)
|
Direct revenues
|
|
$
|
402,179
|
|
$
|
195,519
|
|
$
|
262
|
|
$
|
597,960
|
|
The following table
presents information used by management by reported segment (in thousands). The
Company does not allocate interest expense, income taxes, depreciation,
amortization, accretion of environmental liabilities, non-recurring severance
charges, (gain) loss on disposal of assets held for sale, other (income)
expense, and loss on refinancing to segments.
|
|
For the Three Months
Ended September 30,
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
Technical Services
|
|
43,568
|
|
29,689
|
|
110,187
|
|
88,589
|
|
Site Services
|
|
13,141
|
|
10,993
|
|
34,007
|
|
33,357
|
|
Corporate Items
|
|
(18,301
|
)
|
(5,265
|
)
|
(48,491
|
)
|
(33,401
|
)
|
Total
|
|
38,408
|
|
35,417
|
|
95,703
|
|
88,545
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to Consolidated Statement of
Operations:
|
|
|
|
|
|
|
|
|
|
Accretion of environmental liabilities
|
|
2,715
|
|
2,580
|
|
7,743
|
|
7,633
|
|
Depreciation and amortization
|
|
9,814
|
|
11,063
|
|
27,801
|
|
26,296
|
|
Income from operations
|
|
25,879
|
|
21,774
|
|
60,159
|
|
54,616
|
|
Other (income) expense
|
|
(61
|
)
|
111
|
|
(62
|
)
|
273
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
8,290
|
|
Interest expense, net of interest income
|
|
3,022
|
|
3,254
|
|
9,901
|
|
9,303
|
|
Income before provision for income taxes
|
|
$
|
22,918
|
|
$
|
18,409
|
|
$
|
50,320
|
|
$
|
36,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents intangible assets by
reported segment (in thousands):
|
|
September 30,
2007
|
|
December 31,
2006
|
|
Intangible assets:
|
|
|
|
|
|
Technical Services
|
|
|
|
|
|
Goodwill
|
|
$
|
21,507
|
|
$
|
18,884
|
|
Permits, net
|
|
69,037
|
|
61,497
|
|
Customer profile database, net
|
|
|
|
584
|
|
|
|
90,544
|
|
80,965
|
|
Site Services
|
|
|
|
|
|
Goodwill
|
|
148
|
|
148
|
|
Permits, net
|
|
3,744
|
|
3,604
|
|
Customer profile database, net
|
|
|
|
58
|
|
|
|
3,892
|
|
3,810
|
|
|
|
$
|
94,436
|
|
$
|
84,775
|
|
20
The following table presents total assets by reported
segment (in thousands):
|
|
September 30,
2007
|
|
December 31,
2006
|
|
Technical Services
|
|
$
|
451,227
|
|
$
|
346,220
|
|
Site Services
|
|
39,321
|
|
36,656
|
|
Corporate Items
|
|
242,180
|
|
287,932
|
|
Total
|
|
$
|
732,728
|
|
$
|
670,808
|
|
(14) GUARANTOR AND
NON-GUARANTOR SUBSIDIARIES
On June 30, 2004,
$150.0 million of Senior Secured Notes were issued by the parent company,
Clean Harbors, Inc., and were guaranteed by all of the parents material
subsidiaries organized in the United States. The notes are not guaranteed by
the Companys Canadian and Mexican subsidiaries. The following presents
condensed consolidating financial statements for the parent company, the
guarantor subsidiaries and the non-guarantor subsidiaries, respectively.
Following is the
condensed consolidating balance sheet at September 30, 2007 (in thousands):
|
|
Clean
Harbors, Inc.
|
|
U.S. Guarantor
Subsidiaries
|
|
Foreign
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
287
|
|
$
|
50,349
|
|
$
|
41,220
|
|
$
|
|
|
$
|
91,856
|
|
Intercompany receivables
|
|
33,470
|
|
|
|
60,643
|
|
(94,113
|
)
|
|
|
Other current assets
|
|
11,274
|
|
211,228
|
|
34,177
|
|
|
|
256,679
|
|
Property, plant and equipment, net
|
|
|
|
228,366
|
|
29,319
|
|
|
|
257,685
|
|
Investments in subsidiaries
|
|
321,510
|
|
114,872
|
|
91,654
|
|
(528,036
|
)
|
|
|
Intercompany note receivable
|
|
|
|
120,495
|
|
3,701
|
|
(124,196
|
)
|
|
|
Other long-term assets
|
|
24,979
|
|
66,624
|
|
34,905
|
|
|
|
126,508
|
|
Total assets
|
|
$
|
391,520
|
|
$
|
791,934
|
|
$
|
295,619
|
|
$
|
(746,345
|
)
|
$
|
732,728
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
44,110
|
|
$
|
120,118
|
|
$
|
21,401
|
|
$
|
|
|
$
|
185,629
|
|
Intercompany payables
|
|
|
|
94,113
|
|
|
|
(94,113
|
)
|
|
|
Closure, post-closure and remedial
liabilities
|
|
|
|
159,985
|
|
20,092
|
|
|
|
180,077
|
|
Long-term obligations
|
|
120,678
|
|
|
|
|
|
|
|
120,678
|
|
Capital lease obligations
|
|
|
|
2,518
|
|
541
|
|
|
|
3,059
|
|
Other long-term liabilities
|
|
44,848
|
|
|
|
20,254
|
|
|
|
65,102
|
|
Intercompany note payable
|
|
3,701
|
|
|
|
120,495
|
|
(124,196
|
)
|
|
|
Total liabilities
|
|
213,337
|
|
376,734
|
|
182,783
|
|
(218,309
|
)
|
554,545
|
|
Stockholders equity
|
|
178,183
|
|
415,200
|
|
112,836
|
|
(528,036
|
)
|
178,183
|
|
Total liabilities and stockholders equity
|
|
$
|
391,520
|
|
$
|
791,934
|
|
$
|
295,619
|
|
$
|
(746,345
|
)
|
$
|
732,728
|
|
21
Following is the
condensed consolidating balance sheet at December 31, 2006 (in thousands):
|
|
Clean
Harbors, Inc.
|
|
U.S. Guarantor
Subsidiaries
|
|
Foreign
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
822
|
|
$
|
44,854
|
|
$
|
27,874
|
|
$
|
|
|
$
|
73,550
|
|
Intercompany receivables
|
|
39,602
|
|
|
|
5,773
|
|
(45,375
|
)
|
|
|
Other current assets
|
|
10,127
|
|
206,845
|
|
23,059
|
|
|
|
240,031
|
|
Property, plant and equipment, net
|
|
|
|
219,024
|
|
25,102
|
|
|
|
244,126
|
|
Investments in subsidiaries
|
|
253,877
|
|
56,757
|
|
91,654
|
|
(402,288
|
)
|
|
|
Investment in joint venture
|
|
|
|
2,208
|
|
|
|
|
|
2,208
|
|
Intercompany note receivable
|
|
|
|
102,986
|
|
3,701
|
|
(106,687
|
)
|
|
|
Other long-term assets
|
|
20,799
|
|
62,991
|
|
27,103
|
|
|
|
110,893
|
|
Total assets
|
|
$
|
325,227
|
|
$
|
695,665
|
|
$
|
204,266
|
|
$
|
(554,350
|
)
|
$
|
670,808
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
27,818
|
|
$
|
133,558
|
|
$
|
21,880
|
|
$
|
|
|
$
|
183,256
|
|
Intercompany payables
|
|
|
|
45,375
|
|
|
|
(45,375
|
)
|
|
|
Closure, post-closure and remedial
liabilities
|
|
|
|
156,751
|
|
16,649
|
|
|
|
173,400
|
|
Long-term obligations
|
|
120,522
|
|
|
|
|
|
|
|
120,522
|
|
Capital lease obligations
|
|
|
|
3,511
|
|
528
|
|
|
|
4,039
|
|
Other long-term liabilities
|
|
|
|
|
|
16,405
|
|
|
|
16,405
|
|
Intercompany note payable
|
|
3,701
|
|
|
|
102,986
|
|
(106,687
|
)
|
|
|
Total liabilities
|
|
152,041
|
|
339,195
|
|
158,448
|
|
(152,062
|
)
|
497,622
|
|
Stockholders equity
|
|
173,186
|
|
356,470
|
|
45,818
|
|
(402,288
|
)
|
173,186
|
|
Total liabilities and stockholders equity
|
|
$
|
325,227
|
|
$
|
695,665
|
|
$
|
204,266
|
|
$
|
(554,350
|
)
|
$
|
670,808
|
|
22
Following is the consolidating statement of operations
for the three months ended September 30, 2007 (in thousands):
|
|
Clean
Harbors, Inc.
|
|
U.S. Guarantor
Subsidiaries
|
|
Foreign
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
210,638
|
|
$
|
34,769
|
|
$
|
100
|
|
$
|
245,507
|
|
Cost of revenues
|
|
|
|
147,526
|
|
21,381
|
|
100
|
|
169,007
|
|
Selling, general and administrative
expenses
|
|
|
|
31,164
|
|
6,928
|
|
|
|
38,092
|
|
Accretion of environmental liabilities
|
|
|
|
2,453
|
|
262
|
|
|
|
2,715
|
|
Depreciation and amortization
|
|
|
|
8,425
|
|
1,389
|
|
|
|
9,814
|
|
Income from operations
|
|
|
|
21,070
|
|
4,809
|
|
|
|
25,879
|
|
Other income (expense)
|
|
|
|
56
|
|
5
|
|
|
|
61
|
|
Interest income (expense)
|
|
(3,478
|
)
|
52
|
|
404
|
|
|
|
(3,022
|
)
|
Equity in earnings of subsidiaries
|
|
27,114
|
|
5,738
|
|
|
|
(32,852
|
)
|
|
|
Intercompany dividend income (expense)
|
|
|
|
|
|
3,275
|
|
(3,275
|
)
|
|
|
Intercompany interest income (expense)
|
|
|
|
3,183
|
|
(3,183
|
)
|
|
|
|
|
Income before provision for income taxes
|
|
23,636
|
|
30,099
|
|
5,310
|
|
(36,127
|
)
|
22,918
|
|
Provision for income taxes
|
|
10,696
|
|
316
|
|
(1,034
|
)
|
|
|
9,978
|
|
Net income
|
|
$
|
12,940
|
|
$
|
29,783
|
|
$
|
6,344
|
|
$
|
(36,127
|
)
|
$
|
12,940
|
|
Following is the consolidating statement of operations
for the three months ended September 30, 2006 (in thousands):
|
|
Clean
Harbors, Inc.
|
|
U.S. Guarantor
Subsidiaries
|
|
Foreign
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
185,047
|
|
$
|
28,397
|
|
$
|
459
|
|
$
|
213,903
|
|
Cost of revenues
|
|
|
|
133,785
|
|
17,362
|
|
459
|
|
151,606
|
|
Selling, general and administrative
expenses
|
|
|
|
21,981
|
|
4,899
|
|
|
|
26,880
|
|
Accretion of environmental liabilities
|
|
|
|
2,357
|
|
223
|
|
|
|
2,580
|
|
Depreciation and amortization
|
|
|
|
9,846
|
|
1,217
|
|
|
|
11,063
|
|
Income from operations
|
|
|
|
17,078
|
|
4,696
|
|
|
|
21,774
|
|
Other income (expense)
|
|
(2
|
)
|
(97
|
)
|
(12
|
)
|
|
|
(111
|
)
|
Interest income (expense)
|
|
(3,953
|
)
|
510
|
|
189
|
|
|
|
(3,254
|
)
|
Equity in earnings of subsidiaries
|
|
27,015
|
|
4,799
|
|
|
|
(31,814
|
)
|
|
|
Intercompany dividend income (expense)
|
|
|
|
|
|
3,052
|
|
(3,052
|
)
|
|
|
Intercompany interest income (expense)
|
|
|
|
2,945
|
|
(2,945
|
)
|
|
|
|
|
Income before provision for income taxes
|
|
23,060
|
|
25,235
|
|
4,980
|
|
(34,866
|
)
|
18,409
|
|
Provision for (benefit from) income taxes
|
|
2,055
|
|
(6,319
|
)
|
1,679
|
|
|
|
(2,585
|
)
|
Equity interest of joint venture
|
|
|
|
(11
|
)
|
|
|
|
|
(11
|
)
|
Net income
|
|
$
|
21,005
|
|
$
|
31,565
|
|
$
|
3,301
|
|
$
|
(34,866
|
)
|
$
|
21,005
|
|
23
Following is the consolidating statement of operations
for the nine months ended September 30, 2007 (in thousands):
|
|
Clean
Harbors, Inc.
|
|
U.S. Guarantor
Subsidiaries
|
|
Foreign
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
594,864
|
|
$
|
98,450
|
|
$
|
(4,075
|
)
|
$
|
689,239
|
|
Cost of revenues
|
|
|
|
426,097
|
|
63,871
|
|
(4,075
|
)
|
485,893
|
|
Selling, general and administrative
expenses
|
|
|
|
85,740
|
|
21,903
|
|
|
|
107,643
|
|
Accretion of environmental liabilities
|
|
|
|
7,021
|
|
722
|
|
|
|
7,743
|
|
Depreciation and amortization
|
|
|
|
23,152
|
|
4,649
|
|
|
|
27,801
|
|
Income from operations
|
|
|
|
52,854
|
|
7,305
|
|
|
|
60,159
|
|
Other income (expense)
|
|
|
|
69
|
|
(7
|
)
|
|
|
62
|
|
Interest income (expense)
|
|
(10,334
|
)
|
(517
|
)
|
950
|
|
|
|
(9,901
|
)
|
Equity in earnings of subsidiaries
|
|
59,184
|
|
6,373
|
|
|
|
(65,557
|
)
|
|
|
Intercompany dividend income (expense)
|
|
|
|
|
|
9,313
|
|
(9,313
|
)
|
|
|
Intercompany interest income (expense)
|
|
|
|
9,009
|
|
(9,009
|
)
|
|
|
|
|
Income before provision for income taxes
|
|
48,850
|
|
67,788
|
|
8,552
|
|
(74,870
|
)
|
50,320
|
|
Provision for income taxes
|
|
21,221
|
|
617
|
|
853
|
|
|
|
22,691
|
|
Net income
|
|
$
|
27,629
|
|
$
|
67,171
|
|
$
|
7,699
|
|
$
|
(74,870
|
)
|
$
|
27,629
|
|
Following is the consolidating statement of
operations for the nine months ended September 30, 2006 (in thousands):
|
|
Clean
Harbors, Inc.
|
|
U.S. Guarantor
Subsidiaries
|
|
Foreign
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
511,589
|
|
$
|
90,232
|
|
$
|
(3,861
|
)
|
$
|
597,960
|
|
Cost of revenues
|
|
|
|
364,731
|
|
58,058
|
|
(3,861
|
)
|
418,928
|
|
Selling, general and administrative
expenses
|
|
|
|
76,093
|
|
14,394
|
|
|
|
90,487
|
|
Accretion of environmental liabilities
|
|
|
|
6,973
|
|
660
|
|
|
|
7,633
|
|
Depreciation and amortization
|
|
|
|
22,734
|
|
3,562
|
|
|
|
26,296
|
|
Income from operations
|
|
|
|
41,058
|
|
13,558
|
|
|
|
54,616
|
|
Other income (expense)
|
|
|
|
(213
|
)
|
(60
|
)
|
|
|
(273
|
)
|
Loss on early extinguishment of debt
|
|
(8,290
|
)
|
|
|
|
|
|
|
(8,290
|
)
|
Interest income (expense)
|
|
(10,770
|
)
|
1,070
|
|
397
|
|
|
|
(9,303
|
)
|
Equity in earnings of subsidiaries
|
|
58,205
|
|
11,788
|
|
|
|
(69,993
|
)
|
|
|
Intercompany dividend income (expense)
|
|
|
|
|
|
9,065
|
|
(9,065
|
)
|
|
|
Intercompany interest income (expense)
|
|
|
|
8,745
|
|
(8,745
|
)
|
|
|
|
|
Income before provision for income taxes
|
|
39,145
|
|
62,448
|
|
14,215
|
|
(79,058
|
)
|
36,750
|
|
Provision for (benefit from) income taxes
|
|
3,963
|
|
(5,994
|
)
|
3,610
|
|
|
|
1,579
|
|
Equity interest in joint venture
|
|
|
|
(11
|
)
|
|
|
|
|
(11
|
)
|
Net income
|
|
$
|
35,182
|
|
$
|
68,453
|
|
$
|
10,605
|
|
$
|
(79,058
|
)
|
$
|
35,182
|
|
24
Following is the condensed consolidating statement of
cash flows for the nine months ended September 30, 2007 (in thousands):
|
|
Clean
Harbors, Inc.
|
|
U.S. Guarantor
Subsidiaries
|
|
Foreign
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
63,469
|
|
$
|
41,934
|
|
$
|
9,937
|
|
$
|
(65,557
|
)
|
$
|
49,783
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
|
(20,819
|
)
|
(2,995
|
)
|
|
|
(23,814
|
)
|
Costs to obtain or renew permits
|
|
|
|
(984
|
)
|
(2
|
)
|
|
|
(986
|
)
|
Proceeds from sales of fixed assets
|
|
|
|
208
|
|
295
|
|
|
|
503
|
|
Cost of available-for-sale securities
|
|
(1,010
|
)
|
|
|
|
|
|
|
(1,010
|
)
|
Acquisition Costs
|
|
(7,192
|
)
|
|
|
|
|
|
|
(7,192
|
)
|
Investment in subsidiaries
|
|
(59,184
|
)
|
(6,373
|
)
|
|
|
65,557
|
|
|
|
Net cash from investing activities
|
|
(67,386
|
)
|
(27,968
|
)
|
(2,702
|
)
|
65,557
|
|
(32,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Change in uncashed checks
|
|
|
|
(5,910
|
)
|
(829
|
)
|
|
|
(6,739
|
)
|
Proceeds from exercise of stock options
|
|
1,303
|
|
|
|
|
|
|
|
1,303
|
|
Deferred financing costs incurred
|
|
(32
|
)
|
|
|
|
|
|
|
(32
|
)
|
Proceeds from employee stock purchase plan
|
|
850
|
|
|
|
|
|
|
|
850
|
|
Dividend payments on preferred stock
|
|
(206
|
)
|
|
|
|
|
|
|
(206
|
)
|
Payments of capital leases
|
|
|
|
(1,007
|
)
|
(156
|
)
|
|
|
(1,163
|
)
|
Other
|
|
(69
|
)
|
|
|
|
|
|
|
(69
|
)
|
Excess tax benefit of stock-based
compensation
|
|
1,536
|
|
|
|
|
|
|
|
1,536
|
|
Interest (payments) / received
|
|
|
|
10,223
|
|
(10,223
|
)
|
|
|
|
|
Dividends (paid) received
|
|
|
|
(11,777
|
)
|
11,777
|
|
|
|
|
|
Net cash from financing activities
|
|
3,382
|
|
(8,471
|
)
|
569
|
|
|
|
(4,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate change on cash
|
|
|
|
|
|
5,542
|
|
|
|
5,542
|
|
Increase (decrease) in cash and cash
equivalents
|
|
(535
|
)
|
5,495
|
|
13,346
|
|
|
|
18,306
|
|
Cash and cash equivalents, beginning of
period
|
|
822
|
|
44,854
|
|
27,874
|
|
|
|
73,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
287
|
|
$
|
50,349
|
|
$
|
41,220
|
|
$
|
|
|
$
|
91,856
|
|
25
Following is the condensed consolidating statement of
cash flows for the nine months ended September 30, 2006 (in thousands):
|
|
Clean
Harbors, Inc.
|
|
U.S. Guarantor
Subsidiaries
|
|
Foreign
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
124,803
|
|
$
|
(10,826
|
)
|
$
|
7,107
|
|
$
|
(69,993
|
)
|
$
|
51,091
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
|
(26,808
|
)
|
(3,523
|
)
|
|
|
(30,331
|
)
|
Increase in permits
|
|
|
|
(822
|
)
|
|
|
|
|
(822
|
)
|
Acquisition costs
|
|
(52,097
|
)
|
|
|
|
|
|
|
(52,097
|
)
|
Sales of marketable securities
|
|
1,650
|
|
33,404
|
|
|
|
|
|
35,054
|
|
Purchase of available-for-sale securities
|
|
(11,750
|
)
|
(33,603
|
)
|
|
|
|
|
(45,353
|
)
|
Proceeds from sale of fixed assets and
assets held for sale
|
|
|
|
1,190
|
|
|
|
|
|
1,190
|
|
Proceeds from sale of stock outstanding
|
|
3,469
|
|
|
|
|
|
|
|
3,469
|
|
Proceeds from insurance claims
|
|
384
|
|
|
|
|
|
|
|
384
|
|
Investment in subsidiaries
|
|
(58,205
|
)
|
(11,788
|
)
|
|
|
69,993
|
|
|
|
Net cash from investing activities
|
|
(116,549
|
)
|
(38,427
|
)
|
(3,523
|
)
|
69,993
|
|
(88,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Change in uncashed checks
|
|
|
|
(2,131
|
)
|
(1,114
|
)
|
|
|
(3,245
|
)
|
Proceeds from exercise of stock options
|
|
2,124
|
|
|
|
|
|
|
|
2,124
|
|
Dividend payments on preferred stock
|
|
(207
|
)
|
|
|
|
|
|
|
(207
|
)
|
Excess tax benefit from stock-based
compensation
|
|
3,021
|
|
|
|
|
|
|
|
3,021
|
|
Deferred financing costs incurred
|
|
(968
|
)
|
|
|
|
|
|
|
(968
|
)
|
Proceeds from employee stock purchase plan
|
|
573
|
|
|
|
|
|
|
|
573
|
|
Payments of capital leases
|
|
|
|
(1,453
|
)
|
(195
|
)
|
|
|
(1,648
|
)
|
Dividends (paid) received
|
|
|
|
(11,810
|
)
|
11,810
|
|
|
|
|
|
Borrowing on term loan
|
|
30,000
|
|
|
|
|
|
|
|
30,000
|
|
Principal payments on debt
|
|
(52,500
|
)
|
|
|
|
|
|
|
(52,500
|
)
|
Net cash from financing activities
|
|
(17,957
|
)
|
(15,394
|
)
|
10,501
|
|
|
|
(22,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate change on cash
|
|
|
|
|
|
706
|
|
|
|
706
|
|
Increase (decrease) in cash and cash
equivalents
|
|
(9,703
|
)
|
(64,647
|
)
|
14,791
|
|
|
|
(59,559
|
)
|
Cash and cash equivalents, beginning of
period
|
|
10,391
|
|
110,649
|
|
11,409
|
|
|
|
132,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
688
|
|
$
|
46,002
|
|
$
|
26,200
|
|
$
|
|
|
$
|
72,890
|
|
(15)
PROPERTIES HELD FOR SALE
During the quarter ended June 30, 2007, management
determined that due to changes in circumstances regarding the sale of certain
property, such property no longer met the criteria for classification as an
asset held for sale. As a result, as of September 30, 2007, the Company reclassified
$6.9 million, previously classified as Properties held for sale through March
31, 2007, to land.
26
ITEM 2.
|
|
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forward-Looking Statements
In addition to historical information, this quarterly
report contains forward-looking statements, which are generally identifiable by
use of the words believes, expects, intends, anticipates, plans to, estimates,
projects, or similar expressions. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 16, 2007 under the heading Risk Factors and in
other documents we file from time to time with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect managements opinions only as of the
date hereof. We undertake no obligation to revise or publicly release the
results of any revision to these forward-looking statements.
Overview
We provide a wide range of environmental services
and solutions to a diversified customer base in the United States, Puerto Rico,
Mexico and Canada. Throughout North America, we perform environmental services
through a network of service locations, and operate incineration facilities,
commercial landfills, wastewater treatment operations, and transportation,
storage and disposal facilities, as well as polychlorinated biphenyls (PCB)
management facilities and oil and used oil products recycling facilities. We
seek to be recognized by customers as the premier supplier of a broad range of
value-added environmental services based upon quality, responsiveness, customer
service, information technologies, breadth of product offerings and cost
effectiveness.
The wastes handled include materials that are
classified as hazardous because of their unique properties, as well as other
materials subject to federal and state environmental regulation. We provide
final treatment and disposal services designed to manage hazardous and
non-hazardous wastes, which cannot be economically recycled or reused. We
transport, treat and dispose of industrial wastes for commercial and industrial
customers, health care providers, educational and research organizations, other
environmental services companies and governmental entities.
Our Technical Services segment collects and transports
containerized and bulk waste; performs categorization, specialized repackaging,
treatment and disposal of laboratory chemicals and household hazardous wastes,
which are referred to as CleanPack® services; and offers Apollo Onsite
Services, which customize environmental programs at customer sites. This is
accomplished through the network of service centers where a fleet of trucks,
rail or other transport is dispatched to pick up customers waste either on a
pre-determined schedule or on demand, and then to deliver waste to a permitted
facility. From the service centers, chemists can also be dispatched to a
customer location for the collection of chemical waste for disposal.
Our Site Services segment
provide highly skilled experts utilizing specialty equipment and resources to
perform services, such as industrial maintenance, surface remediation,
groundwater restoration, site and facility decontamination, emergency response,
site remediation, PCB disposal and oil disposal at the customers site or
another location. These services are dispatched on a scheduled or emergency
basis.
On August 18, 2006, we purchased all of the
membership interests in Teris LLC. As a result of that purchase, we acquired a
hazardous waste incineration facility in Arkansas and a licensed transportation,
storage and disposal facility in California. The final purchase price for Teris
was $51.9 million.
On January 3, 2007, Ensco Caribe, Inc., a
Puerto Rico corporation (Ensco Caribe) then owned 50% by Clean Harbors El
Dorado, LLC (CH El Dorado) and 50% by Ochoa Industrial Sales Corporation (Ochoa),
redeemed the 50% stock ownership of Ochoa for $3.0 million, of which
$300,000 was placed in escrow for a period of 14 months as security for
the representations and warranties of Ochoa. Immediately after the redemption,
Ensco Caribe was 100% owned by CH El Dorado, the name Ensco Caribe, Inc.
was changed to Clean Harbors Caribe, Inc., and the Puerto Rico
operations of Clean Harbors Environmental Services, Inc. were transferred
to Clean Harbors Caribe, Inc.
On August 3, 2007, we acquired certain assets owned
by Romic Environmental Technologies Corporation (Romic), including rolling
stock, customer lists, other tangibles and leasehold interests in two service
centers located in Irwindale, California, and Clackamas, Oregon. The purchase
price consists of the appraised value of the rolling stock and personal
property plus 40% of the revenues generated from Romic customers for the
six-month period following the closing of the transaction. At closing, we paid
$3.2 million and the final purchase price will be determined after the
six-month period expires. On August 22,
2007, we also acquired a lease for $2.0 million from Romic for a rail site in
Redwood City, California. We estimate
the total contingent portion of the purchase price, based on Romic revenues, to
be $4.0 million, $2.0 million of which was paid at closing and $2.0 million,
which will be paid from existing cash balances or cash provided from
operations.
27
Environmental Liabilities
We have accrued environmental liabilities, as of
September 30, 2007, of approximately $180.1 million, substantially all of
which we assumed as part of the acquisition of CSD assets in September 2002 and
Teris LLC in August 2006. We anticipate such liabilities will be payable over
many years and that cash flows generated from operations will be sufficient to
fund the payment of such liabilities when required. However, events not now
anticipated (such as future changes in environmental laws and regulations)
could require that such payments be made earlier or in greater amounts than
currently anticipated.
Closure and
Post-closure Liabilities
The changes to closure and post-closure liabilities
for the nine months ended September 30, 2007 were as follows (in thousands):
|
|
Landfill
Retirement
Liability
|
|
Non-Landfill
Retirement
Liability
|
|
Total
|
|
Balance at January 1, 2007
|
|
$
|
18,858
|
|
$
|
6,697
|
|
$
|
25,555
|
|
New asset retirement obligations
|
|
1,098
|
|
|
|
1,098
|
|
Accretion
|
|
2,004
|
|
616
|
|
2,620
|
|
Changes in estimate recorded to statement
of operations
|
|
(287
|
)
|
(486
|
)
|
(773
|
)
|
Other changes in estimates recorded to
balance sheet
|
|
233
|
|
|
|
233
|
|
Payments
|
|
(117
|
)
|
(143
|
)
|
(260
|
)
|
Currency translation, reclassifications and
other
|
|
223
|
|
44
|
|
267
|
|
Balance at September 30, 2007
|
|
$
|
22,012
|
|
$
|
6,728
|
|
$
|
28,740
|
|
The net $0.8 million benefit from changes in estimates
recorded to the statement of operations was due to: (i) an increase in
utilization of a facility thus avoiding projected near-term closure, ($0.5
million), (ii) decreasing a cell closure cost estimate for a full cell,
($0.1 million), and (iii) delaying timing of completing cell closure for a
landfill cell, ($0.2 million).
Remedial Liabilities
The changes to remedial liabilities for the nine
months ended September 30, 2007 were as follows (in thousands):
|
|
Remedial
Liabilities for
Landfill Sites
|
|
Remedial
Liabilities for
Inactive Sites
|
|
Remedial
Liabilities
(Including
Superfund) for
Non-Landfill
Operations
|
|
Total
|
|
Balance at January 1, 2007
|
|
$
|
4,917
|
|
$
|
91,494
|
|
$
|
51,434
|
|
$
|
147,845
|
|
Adjustment due to final purchase price
allocation
|
|
|
|
|
|
1,834
|
|
1,834
|
|
Accretion
|
|
177
|
|
3,190
|
|
1,756
|
|
5,123
|
|
Changes in estimate recorded to statement
of operations
|
|
(51
|
)
|
(4,002
|
)
|
2,537
|
|
(1,516
|
)
|
Payments
|
|
(103
|
)
|
(2,655
|
)
|
(1,883
|
)
|
(4,641
|
)
|
Currency translation, reclassifications and
other
|
|
403
|
|
101
|
|
2,188
|
|
2,692
|
|
Balance at September 30, 2007
|
|
$
|
5,343
|
|
$
|
88,128
|
|
$
|
57,866
|
|
$
|
151,337
|
|
The $1.5 million net benefit indicated above from
changes in estimate includes $0.5 million for the three months ended September
30, 2007. The net $1.5 million benefit from changes in estimates recorded to
selling, general and administrative expenses on the consolidated statement of
operations includes: (i) less costly or alternative remedial plans based
on new site information, ($3.8 million); (ii) new legal settlement (see Note 8,
Commitments and Contingencies) and regulatory
28
compliance obligations, $2.9
million; and (iii) the discounting effect of delays in certain remedial
projects, ($0.6 million).
Results of Operations
The following table sets forth for the periods
indicated certain operating data associated with our 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 our Annual Report on Form 10-K for the year ended
December 31, 2006 and Item 1, Financial Statements, in this report.
|
|
Percentage of Total Revenues
|
|
|
|
For the Three Months
Ended
September 30,
|
|
For the Nine Months
Ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost of revenues (exclusive of items shown
separately below):
|
|
68.8
|
|
70.9
|
|
70.5
|
|
70.1
|
|
Selling, general and administrative
expenses
|
|
15.5
|
|
12.6
|
|
15.6
|
|
15.1
|
|
Accretion of environmental liabilities
|
|
1.2
|
|
1.2
|
|
1.2
|
|
1.3
|
|
Depreciation and amortization
|
|
4.0
|
|
5.2
|
|
4.0
|
|
4.4
|
|
Income from operations
|
|
10.5
|
|
10.1
|
|
8.7
|
|
9.1
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
(1.4
|
)
|
Interest (expense), net of interest income
|
|
(1.2
|
)
|
(1.5
|
)
|
(1.4
|
)
|
(1.6
|
)
|
Income before provision for income taxes
|
|
9.3
|
|
8.6
|
|
7.3
|
|
6.1
|
|
Provision for (benefit from) income taxes
|
|
4.0
|
|
(1.2
|
)
|
3.3
|
|
0.2
|
|
Net income
|
|
5.3
|
%
|
9.8
|
%
|
4.0
|
%
|
5.9
|
%
|
Earnings before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA)
We define Adjusted EBITDA (a measure not defined under
generally accepted accounting principles) as the term EBITDA as defined in
our current credit agreement and indenture for covenant compliance purposes.
This definition is net income (loss) plus accretion of environmental
liabilities, depreciation and amortization, net interest expense, provision for
(benefit from) income taxes, severance charges, other refinancing-related
expenses, gain (loss) on sale of fixed assets, loss on early extinguishment of
debt, and cumulative effect of change in accounting principle, net of tax.
Our management considers Adjusted EBITDA to be a
measurement of performance which provides useful information to both management
and investors. Adjusted EBITDA should not be considered an alternative to net
income or loss or other measurements under accounting principles generally
accepted in the United States. Because Adjusted EBITDA is not calculated
identically by all companies, our measurements of Adjusted EBITDA may not be
comparable to similarly titled measures reported by other companies.
29
The following is a reconciliation of net income to
Adjusted EBITDA for the nine-month periods ended September 30, 2007 and
2006:
|
|
2007
|
|
2006
|
|
Net income
|
|
$
|
27,629
|
|
$
|
35,182
|
|
Accretion of environmental liabilities
|
|
7,743
|
|
7,633
|
|
Depreciation and amortization
|
|
27,801
|
|
26,296
|
|
Interest expense, net
|
|
9,901
|
|
9,303
|
|
Provision for income taxes
|
|
22,691
|
|
1,579
|
|
Other (income) loss
|
|
(62
|
)
|
273
|
|
Loss on early extinguishment of debt
|
|
|
|
8,290
|
|
Equity interest in joint venture
|
|
|
|
(11
|
)
|
Adjusted EBITDA
|
|
$
|
95,703
|
|
$
|
88,545
|
|
The following reconciles Adjusted EBITDA to cash
provided for operations for the nine-month periods ended September 30, 2007 and
2006:
|
|
2007
|
|
2006
|
|
Adjusted EBITDA
|
|
$
|
95,703
|
|
$
|
88,545
|
|
Interest expense, net
|
|
(9,901
|
)
|
(9,303
|
)
|
Provision for income taxes
|
|
(22,691
|
)
|
(1,579
|
)
|
Allowance for doubtful accounts
|
|
212
|
|
334
|
|
Amortization of deferred financing costs
and debt discount
|
|
1,462
|
|
1,174
|
|
Change in environmental estimates
|
|
(2,289
|
)
|
(9,839
|
)
|
Gain on insurance settlement
|
|
|
|
(184
|
)
|
Deferred income taxes
|
|
(5,055
|
)
|
(6,435
|
)
|
Stock-based compensation
|
|
2,903
|
|
2,460
|
|
Loss on early extinguishment of debt
|
|
|
|
(5,907
|
)
|
Changes in assets and liabilities
|
|
|
|
|
|
Accounts receivable
|
|
(8,408
|
)
|
(4,061
|
)
|
Other current assets
|
|
(10,526
|
)
|
(9,207
|
)
|
Accounts payable
|
|
193
|
|
7,310
|
|
Other current liabilities
|
|
13,081
|
|
2,977
|
|
Environmental expenditures
|
|
(4,901
|
)
|
(5,194
|
)
|
Net cash provided by operating activities
|
|
$
|
49,783
|
|
$
|
51,091
|
|
Segment data
Performance of our segments is evaluated on several
factors of which the primary financial measure is Adjusted EBITDA. The
following table sets forth certain operating data associated with our results
of operations and summarizes Adjusted EBITDA contribution by operating segment
for the three- and nine-month periods ended September 30, 2007 and 2006
(in thousands). We consider the Adjusted EBITDA contribution from each
operating segment to include revenue attributable to each segment less
operating expenses, which include cost of revenues and selling, general and administrative
expenses. Revenue attributable to each segment is generally external or direct
revenue from third party customers. Certain income or expenses of a
non-recurring or unusual nature are not included in the operating segment
Adjusted EBITDA contribution. This table and subsequent discussions should be
read in conjunction with Item 6, Selected Financial Data, and Item 8, Financial
Statements and Supplementary Data and in particular Note 22, Segment
Reporting of our Annual Report on Form 10-K for the year ended
December 31, 2006 and Item 1, Financial Statements and in particular
Note 13, Segment Reporting in this report.
30
|
|
Summary of Operations
|
|
|
|
For the Three Months
Ended September 30,
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Direct Revenues:
|
|
|
|
|
|
|
|
|
|
Technical Services
|
|
$
|
174,979
|
|
$
|
141,793
|
|
$
|
487,489
|
|
$
|
402,179
|
|
Site Services
|
|
70,873
|
|
71,961
|
|
202,615
|
|
195,519
|
|
Corporate Items
|
|
(345
|
)
|
149
|
|
(865
|
)
|
262
|
|
Total
|
|
245,507
|
|
213,903
|
|
689,239
|
|
597,960
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
Technical Services
|
|
116,115
|
|
95,962
|
|
331,963
|
|
270,348
|
|
Site Services
|
|
51,294
|
|
53,686
|
|
150,388
|
|
142,818
|
|
Corporate Items
|
|
1,598
|
|
1,958
|
|
3,542
|
|
5,762
|
|
Total
|
|
169,007
|
|
151,606
|
|
485,893
|
|
418,928
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General & Administrative
Expenses:
|
|
|
|
|
|
|
|
|
|
Technical Services
|
|
15,296
|
|
16,142
|
|
45,339
|
|
43,242
|
|
Site Services
|
|
6,438
|
|
7,282
|
|
18,220
|
|
19,344
|
|
Corporate Items
|
|
16,358
|
|
3,456
|
|
44,084
|
|
27,901
|
|
Total
|
|
38,092
|
|
26,880
|
|
107,643
|
|
90,487
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
Technical Services
|
|
43,568
|
|
29,689
|
|
110,187
|
|
88,589
|
|
Site Services
|
|
13,141
|
|
10,993
|
|
34,007
|
|
33,357
|
|
Corporate Items
|
|
(18,301
|
)
|
(5,265
|
)
|
(48,491
|
)
|
(33,401
|
)
|
Total
|
|
$
|
38,408
|
|
$
|
35,417
|
|
$
|
95,703
|
|
$
|
88,545
|
|
Three months ended September 30, 2007
versus the three months ended September 30, 2006
Revenues
Total
revenues for the three months ended September 30, 2007 increased $31.6 million
to $245.5 million from $213.9 million for the comparable period in 2006.
Technical Services revenues for the three months ended September 30, 2007
increased $33.3 million to $175.0 million from $141.7 million for the comparable
period in 2006. The primary increases in Technical Services revenues consisted
of increases in the volume and pricing of waste processed through our
facilities of $15.5 million and $3.7 million, respectively. The remainder of
the increase consisting of transportation, labor and materials revenue was
attributable to new business from the Teris LLC acquisition in 2006, the Romic
acquisition in 2007, and strong waste project business contributing $2.2
million. Contributing to the increase was $1.9 million due to the strengthening
of the Canadian dollar.
Site Services revenues
for the three months ended September 30, 2007 decreased $1.2 million to $70.8
million from $72.0 million for the comparable period in 2006. Site Services direct revenue related to large
emergency response projects for the third quarter of 2007 was zero as compared
to $4.5 million, or 6.3% of direct revenue for this segment in the same period
of 2006. Base Site Services revenue increased $3.3 million from the third
quarter of 2006 compared to the third quarter of 2007. This increase in base
revenue is attributed to opening new site services offices in the West Region,
new Industrial Services office in the Mid-West, and new remedial services
branches in Canada, and our South and West Regions. Increased PCB/Oil volumes and increased oil
and metal pricing led to improved revenues in 2007. Overall remedial project
revenue was down $0.5 million in the third quarter of 2007 as compared to the
third quarter of 2006. Base project and
emergency response work in the South and Northeast regions was down $3.7
million in 2007 compared to the same quarter of 2006.
There are many factors which have impacted, and
continue to impact, our revenues. These factors include: the level of emergency
response projects; competitive industry pricing; continued efforts by
generators of hazardous waste to reduce the amount of hazardous waste they
produce; significant consolidation among treatment and disposal companies; and
industry-wide capacity utilization. These factors adversely influence our
ability to raise prices and increase revenues.
31
Cost of Revenues
Total cost of revenues for the three months ended
September 30, 2007 increased $17.4 million to $169.0 million compared to $151.6
million for the comparable period in 2006. Technical Services cost of revenues
increased $20.2 million to $116.1 million from $95.9 million for the comparable
period in 2006. Cost of revenue increases for Technical Services are in line
with increased business volumes associated with the Teris LLC and Romic acquisitions,
strong base business, as well as increased throughput at our facilities. As a
result, the specific cost increases were: $6.2 million in employee labor and
related costs, $3.5 million in building and equipment repairs and maintenance
expense, $2.7 million in outside transportation and rail costs, $2.5 million in
materials and supplies costs, $1.1 million in deferred cost, $0.9 million in
outside disposal costs, $0.6 million in transportation and discharges fees,
$0.5 million in utility expense, $0.4 million in downtime and turnaround costs,
$0.4 million in subcontractor costs, $0.3 million in travel expenses as well as
$1.1 million due to an unfavorable foreign exchange fluctuation relating to the
Canadian dollar.
Site Services cost of revenues for the three months
ended September 30, 2007 decreased $2.4 million to $51.3 million from $53.7
million for the comparable period in 2006. Cost of revenues for the third
quarter of 2007 related to the performance of large emergency response projects
decreased by $3.3 million to $0.0 million in 2007, as compared to $3.3 million
for comparable period of 2006. Non-event Site Services labor and related costs
in the third quarter of 2007 increased $1.9 million due to increased overall
volume. Vehicle expense and equipment rental and repair increased $0.9 million,
and travel expenses increased $0.5 million largely due to industrial services
projects and $0.1 million due to an unfavorable foreign exchange fluctuation
relating to the Canadian dollar. Offsetting these increases were decreases in
subcontractor costs of $2.6 million
as requirements for subcontract labor in the third quarter of 2006 for
several mid-sized emergency response projects in the Northeast Region were not
required in the same period of 2007 and a reduction of $0.5 million in outside
disposal and transportation costs.
We believe that our ability to manage operating costs
is an important factor in our ability to remain price competitive. We continue
to upgrade the quality and efficiency of our waste treatment services through
the development of new technology and continued modifications and upgrades at
our facilities, and implementation of strategic initiatives. We plan to
continue to focus on achieving cost savings relating to purchased goods and
services through the strategic sourcing initiative. However, we cannot assure
that our efforts to manage future operating expenses will be successful.
Selling, General and Administrative
Expenses
Total selling, general and administrative expenses for
the three months ended September 30, 2007 increased $11.2 million to $38.1
million from $26.9 million for the comparable period in 2006. Technical
Services selling, general and administrative expenses for the three months
ended September 30, 2007 decreased $0.8 million to $15.3 million from $16.1
million for the comparable period in 2006 due to a $2.4 million decrease from
changes in environmental liability estimates partially offset by increased
headcount and related labor costs due to the Romic acquisition and as required
to support business growth.
Site Services selling, general and administrative
expenses decreased $0.9 million to $6.4 million for the three-month period
ended September 30, 2007 from $7.3 million for the corresponding period of the
preceding year. The decrease was due to a $0.5 million reduction in salary and
related expenses from sales and administrative support, and a decrease from changes
in environmental liability estimates of $0.4 million.
Corporate Items selling, general and administrative
expenses for the three months ended September 30, 2007 increased $12.9 million
to $16.4 million from $3.5 million for the comparable period in 2006. A
reduction in benefits from changes in environmental liability estimates, primarily
related to Marine Shale, accounted for $10.4 million of the cost increase. Higher
foreign exchange losses of $1.0 million, and higher salary, health insurance
and legal costs accounted for the remaining increase.
32
Accretion of Environmental Liabilities
Accretion of environmental liabilities for the
three-month periods ended September 30, 2007 and 2006 was similar at $2.7
million and $2.6 million, respectively.
Depreciation and Amortization
Depreciation and amortization expense for the three
months ended September 30, 2007 decreased $1.3 million to $9.8 million
from $11.1 million for the comparable period in 2006. The net decrease was
primarily due to the 2006 impairment of assets and permits associated with the
voluntary Chapter 11 petition of our Plaquemine, LA facility, which amounted to
$2.6 million. Increased depreciation of assets acquired from Teris at our El
Dorado location accounted for the offset.
Interest Expense, Net
Interest expense net of
interest income for the three months ended September 30, 2007 decreased $0.3
million to $3.0 million from $3.3 for the comparable period in 2006. This was
primarily due to $0.4 million increase related to the $30.0 million Term Loan
issued on August 18, 2006, offset by $0.4 million increase in capitalized
interest and $0.3 million increase in interest received on deposits held in
Canadian funds.
Income Taxes
Income
tax expense for the three months ended September 30, 2007 increased $12.6
million to $10.0 million from ($2.6) million for the comparable period in 2006.
Income tax expense for the third quarter of 2007 consisted of a current tax
benefit relating to the Canadian operations of $1.7 million, federal income tax
of $8.5 million, a state income tax expense of $1.7 million, and interest and
penalties related to tax contingencies of $1.5 million. Income tax expense for
the three months ended September 30, 2006 consisted of a current tax
expense relating to the Canadian operations of $2.0 million, including
withholding taxes, federal income tax benefit of ($6.3) million, and a state
income tax expense of $1.7 million relating to profitable operations in certain
legal entities.
The
effective tax rate for the three months ended September 30, 2007 was 43.5%
compared to (14.0%) for the comparable period in 2006. The increase in the
effective tax rate was primarily related to no benefit being recognized from
the reversal of a valuation allowance for net operating loss carryforwards and
the inclusion of interest and penalties on tax contingencies for uncertain tax
positions (FIN 48) in 2007 as compared to the same period in 2006.
SFAS
109, Accounting for Income Taxes, requires that a valuation allowance be
established when, based on an evaluation of available evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Accordingly, as of September 30, 2007 and December 31, 2006, we had a
valuation allowance of approximately $12.1 million and $12.4 million,
respectively. The allowance relates to foreign tax credits, certain state net
operating loss carryforwards and federal and state net operating loss carryforwards
related to tax deductions for the exercise of non-qualified stock options.
Adjusted EBITDA Contribution
The total combined Adjusted EBITDA contribution by
segment for the three months ended September 30, 2007 increased $3.0 million to
$38.4 million from $35.4 million for the comparable period in 2006. The
Technical Services contribution increased $13.9 million, the Site Services
contribution increased $2.1 million and Corporate Items costs increased $13.0
million. The total combined Adjusted EBITDA contribution was comprised of
revenues of $245.5 million and $213.9 million, net of cost of revenues of
$169.0 million and $151.6 million and selling, general and administrative
expenses of $38.1 million and $26.9 million for the three-month periods ended
September 30, 2007 and 2006, respectively.
Nine months ended September 30, 2007
versus the nine months ended September 30, 2006
Revenues
Total revenues for the nine months ended September
30, 2007 increased $91.2 million to $689.2 million from $598.0 million for the
comparable period in 2006. Technical Services revenues for the nine months
ended September 30, 2007 increased $85.3 million to $487.5 million from $402.2
million for the comparable period in 2006.
The primary increases in
33
Technical Services revenues
consisted of increases in the volume and pricing of waste processed through our
facilities of $40.9 million and $8.3 million, respectively. The remainder of
the increase consisting of transportation, labor and materials revenue was
attributable to new business from the Teris LLC acquisition in 2006, the Romic
acquisition in 2007, strong waste project business contributing $3.3 million. Contributing
to the increase was $2.1 million due to the strengthening of the Canadian
dollar.
Site
Services revenues for the nine months ended September 30, 2007 increased $7.1
million to $202.6 million from $195.5 million for the comparable period in
2006. Site Services direct revenue
related to large emergency response projects declined $15.6 million resulting
in 1% of direct revenue for this segment in 2007 as compared to 9.1% of direct
revenue in 2006. Base Site Services revenue increased $22.3 million from the
first three quarters of 2006 compared to the same period of 2007. This increase was due to the opening of a new
Industrial Services office in the Mid-West, new Site Services departments in
the West Region, increased large project work in the Industrial Services group,
increased revenues from large engineering projects, improved PCB/Oil volumes
and increased oil and metal pricing, and strong growth in Canada. These improvements were offset by $4.5
million of lower base business volumes in the South region.
Corporate
Items revenues for the nine months ended September 30, 2007 decreased $1.2
million to $(0.9) million from $0.3 million for the comparable period in 2006. This
decrease results primarily from higher inter-company disposal costs connected
with remedial and maintenance projects on closed and idled operations. Activities
previously recorded under Corporate Items management have been transferred to
operating segments.
There are many factors which have impacted, and
continue to impact, our revenues. These factors include: the level of emergency
response projects; competitive industry pricing; continued efforts by
generators of hazardous waste to reduce the amount of hazardous waste they
produce; significant consolidation among treatment and disposal companies and
industry-wide capacity utilization. These factors adversely influence our
ability to raise prices and increase revenues.
Cost of Revenues
Total
cost of revenues for the nine months ended September 30, 2007 increased $66.9
million to $485.9 million compared to $419.0 million for the comparable period
in 2006. Technical Services cost of revenues increased $61.6 million to $332.0
million from $270.4 million for the comparable period in 2006. Cost of revenue increases
for Technical Services are in line with increased business volumes associated
with the Teris LLC and Romic acquisitions, strong base business, as well as
increased throughput at our facilities. As a result, the specific cost
increases were: $21.6 million in employee labor and related costs, $9.2 million
in building and equipment repairs and maintenance expense, $9.2 million in
materials and supplies costs, $4.8 million in outside transportation and rail
costs, $3.0 million in outside disposal costs, $2.9 million in subcontractor
costs, $2.5 million in transportation and discharges fees, $1.8 million in
downtime and turnaround costs, $1.8 million in utility expense, $1.5 million in
taxes and insurance, $1.2 million in deferred cost, $0.6 million in travel
expenses as well as $1.4 million due to an unfavorable foreign exchange
fluctuation relating to the Canadian dollar.
Site Services cost of revenues increased $7.6 million
to $150.4 million from $142.8 million for the comparable period in 2006.
Cost
of revenues for the three quarters of 2007 related to the performance of large
emergency response jobs decreased by $9.1 million to $1.8 million in 2007, as
compared to $10.9 million for comparable period of 2006.
Non-event Site Services cost of revenue
increased $6.1 million in labor and related costs, particularly in the large
growth regions and industrial services, $4.6 million in materials and supplies
primarily from increased recyclable material and chemical costs, $4.3 million in vehicle expense and equipment
rental due to added volume, $1.7 million in outside transportation and disposal
from added volume and $1.3 million in travel expenses as more large projects
were performed away from our base offices. Increased insurance costs added $0.5
million to 2007 costs as compared to 2006 and an unfavorable foreign
exchange fluctuation relating to the Canadian dollar increases costs by $0.1
million. Offsetting these increases was
a decrease of $2.2 million for subcontracted services as requirements for
subcontract labor in 2006 for several large projects and mid-sized emergency
response projects in the Northeast Region were not required in 2007.
Corporate Items cost of revenues for the nine months
ended September 30, 2007 decreased $2.3 million to $3.5 million from
$5.8 million for the comparable period in 2006.
The decrease
resulted primarily from a higher internal allocation of general insurance costs
of $1.3 million in 2007, with the balance of the decrease arising from the
offset to higher intercompany disposal costs discussed in the Revenue section.
We believe that our ability to manage operating costs
is an important factor in our ability to remain price competitive.
34
We continue to upgrade the
quality and efficiency of our waste treatment services through the development
of new technology and continued modifications and upgrades at our facilities,
and implementation of strategic initiatives. We plan to continue to focus on
achieving cost savings relating to purchased goods and services through the
strategic sourcing initiative. However, we cannot assure that our efforts to
manage future operating expenses will be successful.
Selling, General and Administrative
Expenses
Total
selling, general and administrative expenses for the nine months ended
September 30, 2007 increased $17.1 million to $107.6 million from $90.5 million
for the comparable period in 2006. Technical Services selling, general and
administrative
expenses
for the nine months ended September 30, 2007 increased $2.0 million to $45.3
million from $43.3 million for the comparable period in 2006 primarily due to
increased headcount and related labor costs due to the Teris and Romic
acquisitions as well as increasing business levels. This increase was partially
offset by a $2.1 million decrease in changes in environmental liability
estimates.
Site Services selling, general and administrative
expenses decreased $1.1 million to $18.2 million for the nine-month period
ended September 30, 2007 from $19.3 million for the corresponding period
of the preceding year. The reduction in costs in 2007 is attributed to reduced
changes in environmental liability estimates as compared to 2006 and reduced
costs for travel and incentive compensation in our major emergency response
department.
Corporate Items selling, general and administrative
expenses for the nine months ended September 30, 2007 increased $16.2 million
to $44.1 million from $27.9 million for the comparable period in 2006.
A
reduction in benefits from changes in environmental liability estimates,
primarily related to Marine Shale, accounted for $10.2 million of the cost
increase. Higher foreign exchange losses of $2.0 million, and higher salary,
$1.9 million, health insurance, $1.9 million, severance, $1.7 million, and legal
costs, $0.6 million, offset by a decrease in accrued incentive compensation,
$2.5 million, accounted for the remaining increase.
Accretion of Environmental
Liabilities
Accretion of environmental liabilities for the
nine-month periods ended September 30, 2007 and 2006 was similar at $7.7
million and $7.6 million, respectively.
Depreciation and Amortization
Depreciation and amortization expense for the nine
months ended September 30, 2007 increased $1.5 million to $27.8 million
from $26.3 million for the comparable period in 2006. The increase was
primarily due to depreciation of assets acquired as part of Teris LLC of $2.8
million, a $0.3 million expense in connection with an insurance loss
deductible, software and other development costs of $0.5 million, a net
increase in depreciation associated with landfill consumption of $0.3 million,
and other net increases of $0.2 million arising mainly from additional office
equipment purchases.
These increases were offset by the 2006 impairment
of assets and permits associated with the voluntary Chapter 11 petition of our
Plaquemine, LA facility, which amounted to $2.6 million.
Loss on Early Extinguishment of Debt
On
January 12, 2006, we redeemed $52.5 million principal amount of
outstanding Senior Secured Notes and paid prepayment penalties and accrued
interest through the redemption date. In connection with such redemption, we
recorded during the period ended September 30, 2006, to loss on early
extinguishment of debt, an aggregate of $8.3 million, consisting of the
$1.8 million unamortized portion of such financing costs, $0.6 million of
unamortized discount on the Senior Secured Notes and the $5.9 million
prepayment penalty required by the Indenture in connection with such
redemption.
Interest Expense, Net
Interest expense, net of interest income for the nine
months ended September 30, 2007, increased $0.6 million to $9.9 million
from $9.3 million for the comparable period in 2006. The increase was primarily
due to $1.9 million increase related to the $30.0 million Term Loan issued on
August 18, 2006, offset by $1.3 million decrease in capitalized interest.
35
Income Taxes
Income tax expense for
the nine months ended September 30, 2007 increased $21.1 million to $22.7
million from $1.6 million for the comparable period in 2006. Income tax expense
for the third quarter of 2007 consisted of a current tax benefit relating to
the Canadian operations of $0.8 million, federal income tax of $15.7 million, a
state income tax expense of $3.6 million, and interest and penalties related to
tax contingencies of $4.2 million. Income tax expense for the third quarter of
2006 consisted primarily of a current tax expense relating to the Canadian
operations of $3.9 million, including withholding taxes, a net federal tax
benefit of ($4.7) million, and a state income tax expense of $2.4 million
relating to profitable operations in certain legal entities.
The effective tax rate
for the nine months ended September 30, 2007 was 45.1% compared to 4.3% for the
comparable period in 2006. The increase in the effective tax rate was primarily
related to no benefit being recognized from the reversal of a valuation
allowance for operating loss carryforwards and the inclusion of interest and
penalties on tax contingencies for uncertain tax positions (FIN 48) in 2007
as compared to the same period in 2006.
SFAS 109, Accounting for Income Taxes, requires that
a valuation allowance be established when, based on an evaluation of available
evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Accordingly, as of both September 30, 2007 and
December 31, 2006, we had a valuation allowance of approximately $12.1 million
and $12.4 million, respectively. The allowance relates to foreign tax
credits, certain state net operating loss carryforwards and federal and state
net operating loss carryforwards related to tax deductions for the exercise of
non-qualified stock options.
Adjusted EBITDA Contribution
The total combined Adjusted
EBITDA contribution by segment for the nine months ended September 30, 2007
increased $7.2 million to $95.7 million from $88.5 million for the
comparable period in 2006. The contribution of Technical Services increased
$21.7 million and Site Services contribution increased $0.6 million, offset by
an increase in Corporate Items costs of $15.1 million. The total combined
Adjusted EBITDA contribution was comprised of revenues of $689.2 million and
$598.0 million, net of cost of revenues of $485.9 million and $419.0 million
and selling, general and administrative expenses of $107.6 million and $90.5
million for the nine-month periods ended September 30, 2007 and 2006,
respectively.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from
operations, existing cash, marketable securities, and funds available to borrow
under our Revolving Facility. As of September 30, 2007, cash and cash
equivalents were $91.9 million, marketable securities were $11.3 million, and
funds available to borrow under the Revolving Facility were $30.6 million.
We intend to use our existing cash, marketable
securities and cash flow from operations to provide for our working capital needs,
for the Romic acquisition, and to fund recurring capital expenditures. We
anticipate that our cash flow provided by operating activities will provide the
necessary funds on a short and long-term basis to meet operating cash
requirements. In addition, we project that we will continue to meet our debt
covenant requirements for the foreseeable future. We have accrued environmental
liabilities as of September 30, 2007 of approximately $180.1 million,
substantially all of which we assumed in connection with the acquisitions of
the CSD assets in September 2002 and Teris LLC in August 2006. We anticipate
such liabilities will be payable over many years and that cash flow from
operations will generally be sufficient to fund the payment of such liabilities
when required. However, events not anticipated (such as future changes in
environmental laws and regulations) could require that such payments be made
earlier or in greater amounts than currently anticipated, which could adversely
affect our results of operations, cash flow and financial condition.
Cash
flows for the nine months ended September 30, 2007
For the nine months ended
September 30, 2007, we had a net increase of cash of $49.8 million from our
operating activities. We reported net income for the period of $27.6 million.
In addition, we reported non-cash expenses during this period totaling $32.7
million. These non-cash expenses consisted primarily of $27.8 million for
depreciation and amortization, $1.3 million for amortization of deferred
financing costs, $7.7 million for the accretion of environmental liabilities,
$2.9 million for stock based compensation, a reduction of $5.1 million of
deferred income taxes, and a reduction of $2.3 million in our environmental
liability estimate. Net use of cash for working capital purposes totaled $10.6
million and
36
consisted primarily of a $8.4
million increase in accounts receivable, a $8.8 million increase in unbilled
receivables, a $2.6 million increase in supplies inventory, a $0.9 million
increase in other assets, offset by an increase in income tax payable of $16.8
million, $4.9 million in environmental expenditures, a decrease of $3.7 million
in other accrued expenses, and a decrease in prepaid expenses and other current
assets of $2.0 million.
For the nine months ended September
30, 2007, we used $32.5 million of net cash in our investing activities. Uses
of cash totaled $33.1 million and consisted primarily of acquisition costs of
$7.2 million, additions to property, plant, and equipment of $23.8 million,
$1.0 million in the purchase of available-for-sale securities and costs
associated to obtain or renew permits and intangibles of $1.0 million. Sources
of cash totaled $0.5 million and consisted of proceeds from sale of fixed
assets.
For the nine months ended September 30, 2007, our
financing activities resulted in a net cash decrease of $4.5 million and
consisted primarily of $6.7 million decrease in uncashed checks, $1.3 million
in proceeds from exercising stock options, $1.5 million in excess tax benefit
of stock-based compensation and $0.9 million increase in proceeds from employee
stock purchase plan, partially offset by $1.2 million payments on capital
leases.
We expect the trends of the first nine months to
continue for the remainder of the year and to generate additional positive cash
flow during the 4
th
quarter
.
Cash flows for the nine months
ended September 30, 2006
For the nine months ended September 30, 2006, we
generated approximately $51.1 million of cash from operating activities.
We reported net income for the period of $35.2 million. In addition, we
reported non-cash expenses during this period totaling $24.1 million.
These non-cash expenses consisted primarily of $26.3 million for depreciation
and amortization, accretion of environmental liabilities of $7.6 million,
$2.5 million of stock-based compensation, a $2.4 million write-off of
deferred financing costs and debt discount, other reductions of non-cash
expense consisting primarily of $6.4 million of deferred income tax, $9.8 million
of changes in environmental liability estimates and $1.1 million of
amortization of deferred financing costs. Uses of cash for working capital
purposes totaled $8.1 million, reducing cash flow from operations by the same
amount, and consisted primarily of a decrease in accounts receivable of $4.1
million, a decrease in unbilled accounts receivable of $6.3 million, a decrease
in environmental expenditures of $5.2 million and a decrease in other accrued
expenses of $3.1 million. These uses of cash were partially offset by sources
of cash from working capital that totaled $14.3 million and consisted primarily
of an increase in accounts payable of $7.3 million, an increase in deferred
revenue of $4.0 million and an increase in income tax payable of $2.2 million.
For
the nine-month period ended September 30, 2006, we used $88.5 million of cash
in our investing activities. Sources of cash totaled $50.2 million and
consisted of sales of restricted investments of $3.5 million, proceeds from the
sale of assets of $1.2 million, proceeds from an insurance claim of $0.4
million and sales of marketable securities of $45.2
million. Cash used in investing activities
totaled $138.7 million and consisted of the acquisition of Teris LLC of $52.1
million, purchases of property, plant and equipment of $30.3 million, purchases
of marketable securities of $55.5 million and costs associated with the renewal
of permits of $0.8 million.
For the nine-month period ended September 30, 2006,
our financing activities resulted in a net use of cash of $22.9 million.
This use consisted primarily of principal payments on our debt of $52.5
million, offset by $30.0 million in proceeds from our Term Loan.
Financing Arrangements
At September 30, 2007, we had outstanding $91.5
million of eight-year Senior Secured Notes due 2012 (the Senior Secured Notes),
a $70.0 million revolving credit facility (the Revolving Facility), a $50.0
million synthetic letter of credit facility (the Synthetic LC Facility), and
a $30.0 million term loan (the Term Loan). The financing arrangements and
principal terms of the each are discussed further in our 2006 Annual Report on
Form 10-K. There have not been any material
37
changes in our terms and conditions
during the first nine months of 2007.
The Indenture under which our Senior Secured Notes
are outstanding provides for certain covenants, the most restrictive of which
requires us, within 120 days after the close of each twelve-month period ending
on June 30 of each year (beginning June 30, 2005 and ending on
June 30, 2011) to apply an amount equal to 50% of the periods Excess Cash
Flow (as defined below) to either prepay, repay, redeem or purchase our
first-lien obligations under the Revolving Facility , Synthetic LC Facility or
Capital Lease Obligations or to make offers (Excess Cash Flow Offers) to
repurchase all or part of the then outstanding Senior Secured Notes at an
offering price equal to 104% of their principal amount plus accrued interest. Excess
Cash Flow is defined in the Indenture as consolidated earnings before
interest, taxes, depreciation and amortization (EBITDA) less interest
expense, all taxes paid or accrued in the period, capital expenditures made in
cash during the period, and all cash spent on environmental monitoring,
remediation or relating to our environmental liabilities.
We offered, on August 15, 2007, to repurchase up to
$19.2 million principal amount of the Senior Secured Notes at a price equal to
104% of the principal amount thereof, plus accrued interest. This offer, which
expired on September 17, 2007, was not accepted by any holders of Senior
Secured Notes. No portion of our Excess Cash Flow earned through June 30,
2007, is required to be included in the amount of Excess Cash Flow earned in
subsequent comparable annual periods. However, the Indentures requirement to
make Excess Cash Flow Offers in respect of Excess Cash Flow earned in
subsequent twelve-month periods will remain in effect
Liquidity Impacts of Uncertain Tax Positions
As discussed in Note 10, Income Taxes, we have
significant contingent liabilities associated with potential tax liabilities
and related interest and penalties. These liabilities are classified as Other
long-term liabilities in our Consolidated Balance Sheet in accordance with the
provision of FIN 48 adopted on January 1, 2007 because of the uncertainties
involved. We are not able to reasonably estimate when we would make any cash
payments to settle these liabilities; however, we do not believe material cash
payments will be required in the next 12 months.
Stockholder Matters
Dividends on the Series B Preferred Stock are
payable on the 15th day of January, April, July and October, at the rate
of $1.00 per share, per quarter. Under the terms of the Series B Preferred
Stock, we can elect to pay dividends in cash or in common stock with a market
value equal to the amount of the dividends payable. The dividends due on
January 15, April 15 and July 15, 2007 and during 2006 were paid in cash.
On February 22, 2007, 190 shares of Series B
Preferred Stock were converted into 578 shares of Common Stock. As of September
30, 2007, the Company had 68,810 shares of Series B Preferred Stock
outstanding.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are subject to market risk on the interest that we
pay on our debt due to changes in the general level of interest rates. Our
philosophy in managing interest rate risk is to borrow at fixed rates for
longer time horizons to finance non-current assets and to borrow (to the
extent, if any, required) at variable rates for working capital and other
short-term needs. The following table provides information regarding our fixed
rate borrowings at September 30, 2007 (in thousands):
38
|
|
Three
Months
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Maturity Dates
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Notes
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
91,518
|
|
$
|
91,518
|
|
Capital Lease Obligations
|
|
551
|
|
1,236
|
|
660
|
|
478
|
|
113
|
|
21
|
|
3,059
|
|
|
|
$
|
551
|
|
$
|
1,236
|
|
$
|
660
|
|
$
|
478
|
|
$
|
113
|
|
$
|
91,539
|
|
$
|
94,577
|
|
Weighted average interest rate on fixed
rate borrowings
|
|
11.5
|
%
|
11.5
|
%
|
11.5
|
%
|
11.5
|
%
|
11.5
|
%
|
11.5
|
%
|
|
|
In addition to the fixed rate borrowings described
in the above table, at September 30, 2007, we had (i) a revolving facility
(the Revolving Facility) which allows us to borrow or obtain letters of
credit for up to $70.0 million, based upon a formula of eligible accounts
receivable, (ii) a $50.0 million synthetic letter of credit facility (the Synthetic
LC Facility) which allows us to have issued up to $50.0 million of additional
letters of credit, and (iii) a $30.0 million term loan (the Term Loan). At September 30, 2007, we had:
(i) no borrowings and $39.4 million of letters of credit outstanding under
the Revolving Facility and (ii) $49.9 million of letters of credit
outstanding under the Synthetic LC Facility. Borrowings outstanding under the
Revolving Facility bear interest at an annual rate of either the U.S. or
Canadian prime rate (depending on the currency of the underlying loan), or the
Eurodollar rate plus 1.50%, and we are required to pay fees at an annual rate
of 1.5% on the amount of letters of credit outstanding under the
Revolving Facility and an unused line fee of
0.125% per annum on the unused portion of the Revolving Facility. As of
December 31, 2006, we were required to pay a quarterly participation fee
at the annual rate of 2.85% on the $50.0 million maximum amount of the Synthetic LC Facility and a quarterly fronting fee at an annual rate of 0.30% of
the average daily aggregate amount of letters of credit outstanding under the
Synthetic LC Facility. The Term Loan bears interest, at our option, at either
the Eurodollar rate plus 2.5% or the U.S. prime rate plus 1.5%.
Historically, we have not entered into derivative or
hedging transactions, nor have we entered into transactions to finance
off-balance sheet debt. We view our investment in our Canadian and Mexican
subsidiaries as long-term; thus, we have not entered into any hedging
transactions between the Canadian dollar and the U.S. dollar or between the
Mexican peso and the U.S. dollar. During the three- and nine-month periods ended
September 30, 2007, total foreign currency losses were $1.0 million and $2.7
million, respectively, primarily between U.S. and Canadian dollars. During the
three- and nine-month periods ended September 30, 2006, total foreign currency
gains were less than $0.1 million and losses were $0.8 million, respectively,
primarily between U.S. and Canadian dollars. Our Canadian subsidiaries transact
approximately 21.3% of their business in U.S. dollars and at any period end
have cash on deposit in U.S. dollars and outstanding U.S. dollar accounts
receivable related to these transactions. These cash and receivable accounts
are vulnerable to foreign currency translation gains or losses. During the
three- and nine-month periods ended September 30, 2007, the U.S.
dollar fell 3.8% and 12.4%, respectively against the Canadian dollar, resulting
in foreign currency exchange losses of $1.0 million and $2.8 million,
respectively. During the three- and nine-month periods ended
September 30, 2006, the U.S. dollar fell 0.4% and rose 4.1%,
respectively against the Canadian dollar, resulting in a foreign currency
exchange gain of less than $0.1 million and loss of $0.7 million, respectively.
Exchange rate movements also affect the translation
of Canadian generated profits and losses into US dollars. The average exchange
rate for the nine-month periods ended September 30, 2007 and 2006 was 1.10 and
1.19 Canadian dollars to the U.S. dollar, respectively. Had the Canadian dollar
been 10.0% stronger against the U.S. dollar, we would have reported decreased
net income by approximately $1.2 million and $1.6 million for the nine-month
periods ended September 30, 2007 and 2006, respectively ($1.9 million loss
arising from balance sheet translation, offset by $0.7 million gain arising
from income statement translation and $2.6 million loss arising from balance
sheet translation, offset by 1.0 million gain arising from income statement
translation respectively). Had the Canadian dollar been 10.0% weaker against
the U.S. dollar, we would have reported increased net income by approximately
$1.2 million and $1.6 million for the nine-month periods ended September
30, 2007 and 2006, respectively ($1.9 million gain arising from balance sheet
translation, offset by $0.7 million loss arising from income statement
translation and $2.6 million gain from balance sheet translation, offset by a
$1.0 million loss arising from income statement translation respectively). We
are subject to minimal market risk arising from purchases of commodities since
no significant amount of commodities are used in the treatment of hazardous
waste.
ITEM
4. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as of the end of
39
the period covered by this
Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures, as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e), were effective as
of the end of the period covered by this Quarterly Report.
Based on an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, there has been no change in our internal control over
financial reporting during our last fiscal quarter, identified in connection
with that evaluation, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
40
CLEAN HARBORS, INC. AND SUBSIDIARIES
PART IIOTHER INFORMATION
Item 1
Legal Proceedings
See Note 8, Commitments and Contingencies, to the
financial statements included in this report, which description is incorporated
herein by reference.
Item 1A
Risk Factors
During the three months ended
September 30, 2007, there were no material changes from the risk factors as
previously disclosed in Item 1A in the Companys Annual Report on Form 10-K for
the year ended December 31, 2006.
Item 2
Unregistered Sale
of Equity Securities and Use of Proceeds
None.
Item 3
Defaults Upon
Senior Debt
None.
Item 4
Submission of
Matters to a Vote of Security Holders
None.
Item 5
Other Information
None
Item 6
Exhibits
Item No.
|
|
Description
|
|
Location
|
31
|
|
Rule 13a-14a/15d-14(a) Certifications
|
|
Filed herewith.
|
32
|
|
Section 1350
Certifications
|
|
Filed herewith.
|
41
CLEAN HARBORS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
|
|
CLEAN HARBORS, INC.
|
|
|
Registrant
|
|
|
|
|
|
|
By:
|
/s/ ALAN
S. MCKIM
|
|
|
|
Alan S. McKim
President and Chief Executive Officer
|
|
|
|
|
Date: November 9, 2007
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
JAMES M. RUTLEDGE
|
|
|
|
James M. Rutledge
Executive Vice President and
Chief Financial Officer
|
Date:
November 9, 2007
42
Clean Harbors (MM) (NASDAQ:CLHB)
Historical Stock Chart
From May 2024 to Jun 2024
Clean Harbors (MM) (NASDAQ:CLHB)
Historical Stock Chart
From Jun 2023 to Jun 2024