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CLEAN HARBORS, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 2007 TABLE OF CONTENTS
PART IV



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K

(Mark One)  

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                             to                              

COMMISSION FILE NUMBER 0-16379


CLEAN HARBORS, INC.
(Exact name of registrant as specified in its charter)


Massachusetts
(State or other jurisdiction
of incorporation or organization)
  04-2997780
(IRS Employer Identification No.)

42 Longwater Drive, Norwell, MA
(Address of principal executive offices)

 

02061-9149
(Zip Code)

(Registrant's telephone number, including area code) (781) 792-5000

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:
Title of Class
  Name of each exchange on which registered
Common Stock, $.01 par value   Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:

None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o    No ý

         Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         On June 29, 2007 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates of the registrant was approximately $818.7 million, based on the closing price of such common stock as of that date on the Nasdaq Global Select Market. Reference is made to Part III of this report for the assumptions on which this calculation is based.

         On March 5, 2008, there were outstanding 20,387,610 shares of Common Stock, $.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE

         Certain portions of the registrant's definitive proxy statement for its 2008 annual meeting of stockholders (which will be filed with the Commission not later than April 29, 2008) are incorporated by reference into Part III of this report.





CLEAN HARBORS, INC.

ANNUAL REPORT ON FORM 10-K

YEAR ENDED DECEMBER 31, 2007

TABLE OF CONTENTS

 
   
  Page
No


Part I

 

 

 

 
Item 1.   Business   1
Item 1A.   Risk Factors   22
Item 1B.   Unresolved Staff Comments   27
Item 2.   Properties   28
Item 3.   Legal Proceedings   31
Item 4.   Submission of Matters to a Vote of Security Holders   31

Part II

 

 

 

 
Item 5.   Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   32
Item 6.   Selected Financial Data   34
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   38
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   60
Item 8.   Financial Statements and Supplementary Data   62
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   134
Item 9A.   Controls and Procedures   134
Item 9B.   Other Information   137

Part III

 

 

 

 
Item 10.   Directors and Executive Officers of the Registrant   138
Item 11.   Executive Compensation   138
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   138
Item 13.   Certain Relationships and Related Transactions   138
Item 14.   Principal Accountant Fees and Services   138

Part IV

 

 

 

 
Item 15.   Exhibits and Financial Statement Schedules   139
SIGNATURES   144


Disclosure Regarding Forward-Looking Statements

        In addition to historical information, this annual 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 such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report under Item 1A, "Risk Factors." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's 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. Readers should also carefully review the risk factors described in other documents which we file from time to time with the Securities and Exchange Commission (the "SEC"), including the quarterly reports on Form 10-Q to be filed by us during 2008.


PART I

ITEM 1.    BUSINESS

        Clean Harbors, Inc., through its subsidiaries (hereafter collectively referred to as "we" or "us") is one of the largest providers of environmental services and the largest operator of non-nuclear hazardous waste treatment facilities in North America based on a 2005 industry report. We service approximately 65% of North America's commercial hazardous incineration volume and 23% of North America's hazardous landfill volume, and are the industry leader in total hazardous waste disposal facilities. We perform environmental services for a diversified industry base with over 45,000 customers, including more than 325 Fortune 500 companies, in the United States, Canada, Puerto Rico and Mexico. We perform environmental services through a network of more than 100 service locations, and we operate six incineration facilities, nine commercial landfills, six wastewater treatment operations, and 20 transportation, storage and disposal facilities ("TSDFs"), as well as six polychlorinated biphenyls ("PCB") management facilities and two oil and used oil products recycling facilities. We can provide low cost solutions to our customers due to our large scale, industry knowledge, cost cutting and productivity-enhancing initiatives, and ability to internalize our waste streams.

        The wastes that we handle 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.

        Clean Harbors, Inc. was incorporated in Massachusetts in 1980 and our principal offices are located in Norwell, Massachusetts. Shares of our common stock trade on the Nasdaq Global Select Market under the symbol "CLHB." We maintain a website at the following Internet address: http://www.cleanharbors.com. Through a link on this website to the SEC website, http://www.sec.gov, we provide free access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after electronic filing with the SEC. Our guidelines on corporate governance, the charters for our Board Committees, and our code of ethics for members of the Board of Directors, senior officers and the chief executive officer are also available on our website, and we will post on our website any waivers of, or amendments to, such code of ethics. Our website and the information contained therein or connected thereto are not incorporated by reference into this annual report.

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Industry

        According to industry reports, the hazardous waste disposal market in North America is in excess of $2.0 billion. We also service the much larger industrial maintenance market. The $2.0 billion estimate does not include the industrial maintenance market, except to the extent that the costs of disposal of hazardous wastes generated as a result of industrial maintenance are included.

        There are substantial barriers to entry into the hazardous waste management industry including high regulatory compliance costs and expertise, the arduous federal, state, provincial and local permitting processes for new disposal facilities, and the requirement for an extensive asset network, operating knowledge and major capital expenditures to purchase or construct new disposal facilities. As a result, no new hazardous waste incinerators or hazardous waste landfills have commenced commercial operations in North America in the last decade. We believe that industry fundamentals are improving. Capacity has been reduced in recent years causing stabilization in pricing, and new regulatory requirements have increased in-house disposal costs and outsourcing. Furthermore, customers are using fewer providers for their hazardous waste treatment and disposal needs as they seek to limit their outside vendors and the number of facilities in which their hazardous waste materials are disposed.

        The hazardous waste management industry was "created" in 1976 with the passage of the Resource Conservation and Recovery Act ("RCRA"). RCRA requires waste generators to distinguish between "hazardous" and "non-hazardous" wastes, and to treat, store and dispose of hazardous waste in accordance with specific regulations. This new regulatory environment, combined with strong economic growth, increased corporate concern surrounding environmental liabilities, and early-stage industry dynamics contributed to growth in the industry. The largest generators of hazardous waste materials are companies in the chemical, petrochemical, primary metals, paper, furniture, aerospace and pharmaceutical industries. Hazardous waste types processed or transported include flammables, combustibles and other organics, acids and caustics, cyanides and sulfides, solids and sludge, industrial wastewaters, items containing PCBs (such as utility transformers), and medical waste.

        In the mid to late 1990s, the hazardous waste management industry was characterized by overcapacity, minimal regulatory advances and pricing pressure. However, since 2001, over one-third of all North American commercial incineration capacity has been eliminated, and we believe that competition has been reduced through consolidation and that new regulations have increased the overall barriers to entry. Underscoring these trends, we believe that the number of major industry participants in the North American hazardous waste sector has declined from over 20 in the early 1990s to only four major participants today. Since the mid 1990s, approximately 500,000 tons of annual incineration capacity has been eliminated as eight major incinerators were deactivated, substantially increasing average capacity utilization of the incinerators which remained in operation. Additionally, the Maximum Achievable Control Technologies ("MACT") standards have been implemented, which we believe increase compliance costs and drive increased outsourcing of incineration as customers with captive (i.e., in-house and non-commercial) incinerators choose to outsource rather than make the substantial investment in their facilities which would be required to achieve compliance.

        The environmental services industry today includes a broad range of services including the following:

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        The collection and disposal of solid and hazardous wastes are subject to local, state, provincial and federal requirements and regulations, which regulate health, safety, the environment, zoning and land-use. Included in these regulations is the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), of the United States. CERCLA holds generators and transporters of hazardous substances, as well as past and present owners and operators of sites where there has been a hazardous release, strictly, jointly and severally liable for environmental cleanup costs resulting from the release or threatened release. Canadian companies are regulated under similar regulations, but the responsibility and liability associated with the waste passes from the generator to the transporter or receiver of the waste, in contrast to provisions of CERCLA.

Competitive Strengths

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Business Strategy

        Our strategy is to develop and maintain ongoing relationships with a diversified group of customers who have recurring needs for environmental services. We strive to be recognized 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 principal elements of our business strategy are to:

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Services

        We provide a wide range of environmental services and manage our business as two major segments: Technical Services and Site Services.

        Technical Services (71% of 2007 revenue). These services involve the collection, transport, treatment and disposal of hazardous and non-hazardous wastes, and include physical treatment, resource recovery, fuels blending, incineration, landfill disposal, wastewater treatment, lab chemical disposal, explosives management, and CleanPack® services. Our CleanPack® services include the collection, identification and categorization, specialized packaging, transportation and disposal of laboratory chemicals and household hazardous wastes. Our technical services are provided through a network of service centers from which a fleet of trucks or railcars is dispatched to pick up customers' wastes either on a predetermined schedule or on-demand and to deliver such wastes to permitted facilities, which are usually owned by us. Our service centers can also dispatch chemists to a customer location for the collection of chemical and laboratory waste for disposal.

        Site Services (29% of 2007 revenue). These services provide customers with highly skilled experts who utilize specialty equipment and resources to perform services at any chosen location. Under the Site Services umbrella, our Field Service crews and equipment are dispatched on a planned or

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emergency basis, and perform services such as confined space entry for tank cleaning, site decontamination, large remediation projects, selective demolition, spill cleanup, railcar cleaning, product recovery and transfer, scarifying and media-blasting and vacuum services. Additional services include used oil and oil products recycling, as well as PCB management and disposal.

        Also, as part of Site Services, Industrial Services crews focus on industrial cleaning and maintenance projects. Our Industrial Services manage hazardous, non-hazardous, wet and dry materials and specialize in chemical cleaning, hydro blasting, liquid/dry vacuuming, sodium bicarbonate blasting, line cleaning, boiler cleanouts, and steam cleaning of our customers' process equipment and systems, as well as video inspection. Additionally, specialized project work such as dewatering, and on-site material processing utilizing thermal treatment units are also performed on customers' sites. We market these services through our internal sales organizations and, in many instances, delivery of services in one area supports or leads to business in our other service lines or segments.

        The table below shows for each of the three years in the three-year period ended December 31, 2007 the total revenues contributed by our principal lines of business (in thousands):

 
  Years Ended December 31,
 
 
  2007
  2006
  2005
 
Technical Services   $ 672,213   $ 558,407   $ 472,884  
Site Services     275,815     271,092     239,218  
Other     (1,111 )   310     (932 )
   
 
 
 
    $ 946,917   $ 829,809   $ 711,170  
   
 
 
 

        Additional segment information can be found in Note 17, "Segment Reporting," to our consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data."

Technical Services

        Technical Services provides the collection, transportation and logistics management of containerized and bulk waste, as well as the categorizing, packaging and removal of laboratory chemicals for disposal (CleanPack®). Through a highly coordinated transportation fleet, we provide reliable, cost effective transportation and disposal to customers across North America. From the Technical Service Centers, we dispatch trucks to pick up customers' waste on a predetermined schedule as well as on demand, and then deliver it to one of our nearby transfer, storage and disposal facilities. From these same Technical Service Centers, we dispatch specially trained chemists to customer locations to safely collect, label and package all quantities of laboratory chemicals for disposal.

Collection, Transportation and Logistics Management

        As an integral part of our services, we collect industrial wastes from customers and transport such wastes by us to and between our facilities for treatment or bulking for shipment to final disposal locations. Customers typically accumulate waste in containers, such as 55 gallon drums, bulk storage tanks or 20 cubic yard roll-off boxes. In providing this service, we utilize a variety of specially designed and constructed tank trucks and semi-trailers as well as third party transporters, including railroads. Liquid waste is frequently transported in bulk, but may also be transported in drums. Heavier sludge or bulk solids are transported in sealed, roll-off boxes or bulk dump trailers. Our fleet is equipped with a mobile satellite monitoring system and communications network, which allows real time communication with the transportation fleet.

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Treatment and Disposal

        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. The wastes handled include substances, which are classified as "hazardous" because of their corrosive, ignitable, infectious, reactive or toxic properties, and other substances subject to federal, state and provincial environmental regulation. We provide final treatment and disposal services designed to manage hazardous and non-hazardous wastes, which cannot be otherwise economically recycled or reused.

        We operate a network of TSDFs that primarily focuses on the collection of waste from smaller to mid-size generators. These TSDFs collect, temporarily store and/or consolidate compatible waste streams for more efficient transportation to final recycling, treatment or disposal destinations. TSDFs in the United States have Part B permits under RCRA that, among other things, allow us to store waste for up to one year for bulking, treatment or transfer purposes. Larger customers typically ship directly to the end disposal sites with full truckloads of material. Depending upon the content, the material collected at the TSDFs is either disposed of at our incineration, landfill or wastewater treatment facilities, disposed of at end disposal facilities not owned by us, or recycled. Waste types processed or transferred in drums or bulk quantities include:

        We receive detailed waste profiles prepared by our customers to document the nature of the waste. A sample of the delivered waste is tested to ensure that it conforms to the customer-generated waste profile record and to select an appropriate method of treatment and disposal. Once the wastes are characterized, compatible wastes are consolidated to achieve economies in storage, handling, transportation and ultimate treatment and disposal. At the time of acceptance of a customer's waste at our facility, a unique computer "bar code" identification label is assigned to each container of waste, enabling the use of sophisticated computer systems to track and document the status, location and disposition of the waste.

        Physical Treatment.    Physical treatment methods include distillation, separation and stabilization. These methods are used to reduce the volume or toxicity of waste material or to make it suitable for further treatment, reuse, or disposal. Distillation uses either heat or vacuum to purify liquids for resale. Separation utilizes techniques such as sedimentation, filtration, flocculation and centrifugation to remove solid materials from liquids. Stabilization refers to a category of waste treatment processes designed to reduce contaminant mobility or solubility and convert waste to a more chemically stable form. Stabilization technology includes many classes of immobilization systems and applications. Stabilization is a frequent treatment method for metal-bearing wastes received at several of our facilities, which treat the waste to meet specific federal land disposal restrictions. After treatment, the waste is tested to confirm that it has been rendered non-hazardous. It can then be sent to a non-hazardous waste landfill, at significantly lower cost than disposal at a hazardous waste landfill.

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        Resource Recovery and Fuels Blending.    Resource recovery involves the treatment of wastes using various methods, which effectively remove contaminants from the original material to restore its fitness for its intended purpose and to reduce the volume of waste requiring disposal. We operate treatment systems for the reclamation and reuse of certain wastes, particularly solvent-based wastes generated by industrial cleaning operations, metal finishing and other manufacturing processes.

        Spent solvents that can be recycled are processed through thin film evaporators and other processing equipment and are distilled into usable products. Upon recovery of these products, we either return the recovered solvents to the original generator or sell them to third parties. Organic liquids and solids with sufficient heat value are blended to meet strict specifications for use as supplemental fuels for incinerators, cement kilns, industrial furnaces and other high efficiency boilers. We have installed fuels blending equipment at some TSDFs to prepare these supplemental fuels. When possible, we burn fuel blended material at our incinerators. Otherwise, we send the fuel blended material to supplemental fuel users that are licensed to accept the blended fuel material. Although we pay a fee to the users that accept this product, this disposal method is substantially less costly than other disposal methods.

        Incineration.    Incineration is the preferred method for the treatment of organic hazardous waste, because it effectively destroys the contaminants at temperatures in excess of 2,000 degrees Fahrenheit. High temperature incineration effectively eliminates organic wastes such as herbicides, halogenated solvents, pesticides, and pharmaceutical and refinery wastes, regardless of whether they are gases, liquids, sludge or solids. Federal and state incineration regulations require a destruction and removal efficiency of 99.99% for most organic wastes and 99.9999% for PCBs and dioxin.

        We have six active incineration facilities that offer a wide range of technological capabilities to customers through this network. In the United States, we operate a fluidized bed thermal oxidation unit for maximum destruction efficiency of hazardous waste with an annual capacity of 55,000 tons, and three solids and liquids-capable incineration facilities with a combined estimated annual capacity of 280,000 tons. We also operate two hazardous waste liquid injection incinerators in Canada with total annual capacity of approximately 164,000 tons.

        Our incineration facilities in Kimball, Nebraska, Deer Park, Texas, El Dorado, Arkansas and Aragonite, Utah are designed to process liquid organic wastes, sludge, solids, soil and debris. The Deer Park facility has two kilns and a rotary reactor. Our El Dorado, Arkansas incineration facility specializes in the treatment of bulk and containerized hazardous liquids, solids and sludge through two rotary kilns. Our incineration facilities in Kimball, Nebraska and Deer Park, Texas have on-site landfills for the disposal of ash and other waste material produced as a result of the incineration process.

        Our incineration facilities in Mercier, Quebec and Lambton, Ontario are liquid injection incinerators, designed primarily for the destruction of liquid organic waste. Typical waste streams include wastewater with low levels of organics and other higher concentration organic liquid wastes not amenable to conventional physical or chemical waste treatment.

        The North American hazardous waste incineration market is now served by a total of 11 major incineration facilities operated by a total of five companies. We own six of these active incineration facilities and offer a wide range of technological capabilities to our customers through this network. The primary competitors in the incineration market are Veolia Environmental Services (formerly Onyx Environmental Services), WTI (a joint venture between Von Roll America and Heritage Environmental Services), and Ross Incineration Services, Inc.

        Landfills.    Landfills are used primarily for the disposal of inorganic wastes. In the United States and Canada, we operate nine commercial landfills. Seven commercial landfills are designed and permitted for the disposal of hazardous wastes and two landfills are operated for non-hazardous industrial waste disposal and, to a lesser extent, municipal solid waste. In addition to our commercial

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landfills, we also own and operate two non-commercial landfills that only accept waste from our on-site incinerators.

        Of the seven commercial landfills used for disposal of hazardous waste, five are located in the United States, and two are located in Canada. As of December 31, 2007, the useful economic lives (for accounting purposes) of these landfills include approximately 25.2 million cubic yards of remaining capacity. This estimate of the useful economic lives of these landfills includes permitted airspace and unpermitted airspace that management believes to be probable of being permitted based on our analysis of various factors. In addition to the capacity included in the useful economic lives of these landfills, there are approximately 35.2 million cubic yards of additional unpermitted airspace capacity included in the footprints of these landfills that may ultimately be permitted. There can be no assurance that this unpermitted additional capacity will be permitted. In addition to hazardous waste landfill sites, we operate two non-hazardous industrial landfills with 2.3 million cubic yards of remaining permitted capacity. These two facilities are located in the United States and have been issued operating permits under the authority of Subtitle D of RCRA. Prior to issuance of a permit, we must demonstrate to the permitting agency that our non-hazardous industrial landfills have, and must subsequently employ, operational programs protective of the integrity of the landfill, human health and the surrounding environment. Our non-hazardous landfill facilities are permitted to accept commercial industrial waste, including wastes from foundries, demolition and construction, machine shops, automobile manufacturing, printing, metal fabrications and recycling.

        The North American hazardous waste landfill disposal market is serviced by 20 facilities owned by a total of ten companies. While most of these companies operate two or fewer facilities, we and Waste Management, Inc. have a significant share of the North American market. Other competitors include Heritage Environmental Services, Envirosource, Inc., American Ecology Corp., Wayne Disposal, Inc. / EQ and Stablex Canada.

        Wastewater Treatment.    We operate wastewater treatment facilities that offer a range of wastewater treatment technologies. These wastewater treatment operations involve processing hazardous and non-hazardous wastes through the use of physical and chemical treatment methods. The solid waste materials produced by these wastewater processing operations are then disposed of at facilities which are owned by us, or at offsite facilities owned and operated by unrelated businesses, while the treated effluent is discharged to the local sewer system under permit.

        Our wastewater treatment facilities treat a broad range of industrial liquid and semi-liquid wastes containing heavy metals, organics and suspended solids, including:

        Wastewater treatment can be economical as well as environmentally sound, by combining different wastewaters in a "batching" process that reduces costs for multiple waste stream disposal. For instance, acidic waste from one source can be neutralized with alkaline from a second source to produce a neutral solution.

        We compete against a number of competitors with multiple facilities such as Rhodia, Philip Services Corp., Siemens Water Technologies (formerly USFilter), Heritage Environment Services LLC, and Envirite, Inc. There are also a number of operators with single facilities that process high volumes of waste in niche markets such as Dupont Environmental Treatment.

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        We dispose of munitions and other explosives at our facility in Colfax, Louisiana.

        CleanPack® provides specialized handling, packaging, transportation and disposal of laboratory quantities of outdated hazardous chemicals, household hazardous wastes, and waste pesticides and herbicides. CleanPack® chemists utilize our proprietary waste management software system to support our lab pack services and complete the regulatory information required for every pick-up. The CleanPack® operation services a wide variety of customers including:

        CleanPack® chemists collect, identify, label, and package waste into Department of Transportation approved containers. Lab packed wastes are then transported to one of our facilities where the waste is consolidated for recycling, reclamation, fuels blending, aqueous treatment, incineration or secure chemical landfill. Other services provided by our CleanPack® operations include:

        Household Hazardous Waste.    We perform one-day, multi-day or mobile household hazardous waste and pesticide collection programs throughout the U.S. and Canada. These collection programs provide communities and their residents the opportunity to properly dispose of their paints, solvents, batteries, fluorescent lamps, cleaners, pesticides and other potentially hazardous materials.

        Reactive Materials Services.    Reactive materials technicians utilize specialized equipment and training to stabilize and desensitize highly reactive and potentially explosive chemicals.

        CustomPack® Services.    We provide training, technical support, and disposal services for customers with the resources and experience to package their own waste chemicals.

        Cylinder and Compressed Gas Management Services.    Cylinder teams made up of experienced, highly-trained specialists, identify, analyze, overpack, transfer, or stabilize compressed gases and leaking or damaged pressurized cylinders.

        Laboratory Move Services.    CleanPack® chemists properly and safely segregate, package, transport, and unpackage hazardous chemicals being moved from older laboratories to newer laboratories.

        Laboratory Closures Services.    CleanPack® crews perform comprehensive, site-specific chemical removal and disposal, as well as decontamination for facilities and laboratories undergoing a closure or major cleanout.

Site Services

        We provide a wide range of environmental site services to maintain industrial facilities and process equipment, as well as clean up or contain actual or threatened releases of hazardous materials into the

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environment. These services are provided to a wide range of clients including large chemical, petroleum, transportation, utility, and governmental agencies. Our strategy is to identify, evaluate, and solve customers' environmental problems, on a planned or emergency basis, by providing a comprehensive interdisciplinary response to the specific requirements of each job or project.

        Site Services is responsible for providing trained, skilled labor and specialty equipment to perform various services on a customer's site or other location. We dispatch Field Service crews and equipment on a planned or emergency basis to manage routine cleaning in hazardous environments or emergencies such as a chemical or oil spill clean up. Industrial Service crews focus on industrial cleaning and maintenance projects that typically require fast turnaround, or complex onsite material processing.

        Field Services.    We dispatch crews and equipment on a scheduled or emergency basis to perform everything from site decontamination and remediation projects to selective demolition, emergency response, spill cleanup and vacuum services. Whether the action is planned, corrective or the result of an emergency response, our multidisciplinary team of remedial action professionals provide solutions to a variety of industrial cleanup problems. Field Services performs a wide variety of services including:

        Industrial Services.    The fast turnaround of industrial cleaning and maintenance projects requires the right technologies, experience and care. Every project that Industrial Services performs incorporates techniques of chemistry, operational analysis and experience to identify the right process and procedure to satisfy customer needs. Industrial Services focuses on planned cleaning activities most often associated with plant maintenance, shutdowns, routine boiler cleanouts, heat exchangers, process vessels and tanks and includes the following services:

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Other Services

        Apollo Onsite Services.    Our Apollo Onsite Services Program is an on-site solution that allows customers to outsource all or portions of their environmental management program. The Apollo Program serves the dual purpose of not only improving customers' waste stream management, but also can make their entire environmental program safer, more cost effective and self-sufficient. Select technicians work on a customer's site in tandem with the customer to deliver proper waste transportation and disposal, lab chemical packing (CleanPack®), and can include field services and industrial services. Whether a customer requires a single field technician or a multi-person team of diversified experience, we design the right program to satisfy the customer's specific need. Apollo Onsite Services utilize a hand-in-hand, team approach that leverages our extensive resources and infrastructure, including Web-enhanced technologies and online services. Additionally, the Apollo Onsite Program leverages our transportation and disposal assets by providing incremental volumes to process at our facilities. The Apollo Onsite Services Program provides:

        Information Management Services.    Our Online Services allow customers free access to their waste information online, 24 hours per day, seven days per week. Customers can create, submit, edit and view their waste profiles; automatically receive waste tracking reports; and have the ability to view, print or download signed manifests.

Seasonality and Cyclical Nature of Business

        Our operations may be affected by seasonal fluctuations due to weather and budgetary cycles influencing the timing of customers' spending for remedial activities. Typically during the first quarter of each year there is less demand for environmental services due to the cold weather, particularly in the Northern and Midwestern United States and Canada. The main reason for this effect is reduced volumes of waste being received at our facilities and higher operating costs associated with operating in sub-freezing weather and high levels of snowfall. In addition, factory closings for the year-end holidays reduce the volume of industrial waste generated, which results in lower volumes of waste handled by us during the first quarter of the following year.

Geographical Information

        For the year ended December 31, 2007, we derived $821.9 million or 86.8% of revenues from customers located in the United States and Puerto Rico, $124.0 million or 13.1% of revenues from customers located in Canada, and less than 1.0% of revenues from customers in Mexico. For the year ended December 31, 2006, we derived approximately $712.9 million or 85.9% of revenues from customers located in the United States and Puerto Rico, approximately $116.2 million or 14.0% of revenues from customers located in Canada, and less than 1.0% of revenues from customers in Mexico.

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        As of December 31, 2007, we had property, plant and equipment, net of depreciation and amortization of $262.6 million, and permits and other intangible assets of $74.8 million. Of these totals, $31.9 million or 12.2% of property, plant and equipment and $26.5 million or 35.5% of permits and other intangible assets were in Canada, with the balance being in the United States and Puerto Rico (except for insignificant assets in Mexico).

Competitive Conditions

        The hazardous and industrial waste management industry, in which we compete, is highly competitive. The sources of competition vary by locality and by type of service rendered, with competition coming from the other major waste services companies and hundreds of privately owned firms that offer waste services. We compete against three major companies, which are Philip Services Corp., Veolia Environmental Services (formerly named Onyx Environmental Services), and Waste Management, Inc. We also compete against regional waste management companies and numerous small companies. Each of these competitors is able to provide one or more of the environmental services offered by us. In addition, we compete with many firms engaged in the transportation, brokerage and disposal of hazardous wastes through recycling, waste-derived fuels programs, thermal treatment or landfill. The principal methods of competition for all our services are price, quality, reliability of service rendered and technical proficiency in handling industrial and hazardous wastes properly. We believe that we offer a more comprehensive range of environmental services than our competitors in major portions of our service territory, that our ability to provide comprehensive services supported by unique information technologies capable of managing the customers' overall environmental program constitutes a significant competitive advantage, and that our stable ownership allows us to focus on building long-term relationships with our customers.

        Treatment and disposal operations are conducted by a number of national and regional environmental services firms. We believe that our ability to collect and transport waste products efficiently, quality of service, safety, and pricing are the most significant factors in the market for treatment and disposal services.

        For our site services, CleanPack® and onsite services, competitors include several major national and regional environmental services firms, as well as numerous smaller local firms. We believe that availability of skilled technical professional personnel, quality of performance, diversity of services and price are the key competitive factors in this service industry.

        In the United States, the original generators of hazardous waste remain liable under federal and state environmental laws for improper disposal of such wastes. Even if waste generators employ companies that have proper permits and licenses, knowledgeable customers are interested in the reputation and financial strength of the companies they use for management of their hazardous wastes. We believe that our technical proficiency and reputation are important considerations to our customers in selecting and continuing to utilize our services.

Compliance/Health and Safety

        We regard compliance with applicable environmental regulations and the health and safety of our workforce as critical components of our overall operations. We strive to maintain the highest professional standards in our compliance and health and safety activities. Our internal operating requirements are in many instances more stringent than those imposed by regulation. Our compliance program has been developed for each of our waste management facilities and service centers under the direction of our corporate staff. The compliance and health and safety staffs are responsible for facilities permitting and regulatory compliance, health and safety, field safety, compliance training, transportation compliance, and related record keeping. To ensure the effectiveness of our regulatory compliance program, our Compliance organization monitors daily operational activities and issues a

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monthly report to senior management concerning the status of environmental compliance and health and safety programs. We also have an Environmental Health and Safety Compliance Internal Audit Program designed to identify any weaknesses or opportunities for improvement in our ongoing compliance programs. We also perform periodic audits and inspections of the disposal facilities of other firms utilized by us.

        Our facilities are frequently inspected and audited by regulatory agencies, as well as by customers. Although our facilities have been cited on occasion for regulatory violations, we believe that each facility is currently in substantial compliance with applicable requirements. Major facilities and service centers have a full-time compliance or health and safety representative to oversee the implementation of our compliance program at the facility or service center. These highly trained regulatory specialists are independent from operations and report to the Senior Vice President of Compliance and Regulatory Affairs, who ultimately reports to the General Counsel.

Employees

        As of December 31, 2007, we employed approximately 4,769 active full-time employees, of which 574 employees (12%) are represented by labor unions. We believe that our relationship with our employees is satisfactory.

 
  Number of Employees
Unions in the United States:    
  International Brotherhood of Teamsters   170
  United Steelworkers' Union   184
Unions in Canada:    
  Communication, Energy and Paper Workers' Union   111
  International Brotherhood of Teamsters   97
  International Union of Operating Engineers   12
Non-union employees   4,195
   
    4,769
   

        As part of our commitment to employee safety and quality customer service, we have an extensive compliance program and a trained environmental, health and safety staff. We adhere to a risk management program designed to reduce potential liabilities to us and to our customers.

Intellectual Property

        We have invested significantly in the development of proprietary technology and also to establish and maintain an extensive knowledge of the leading technologies and incorporate these technologies into the environmental services that we offer and provide to our customers. We hold a total of four patents (which will expire in 2009, two in 2010 and 2013, respectively), and 12 trademarks in the United States, and we license software and other intellectual property from various third parties. We enter into confidentiality agreements with certain of our employees, consultants and corporate partners, and control access to software documentation and other proprietary information. We believe that we hold adequate rights to all intellectual property used in our business and that we do not infringe upon any intellectual property rights held by other parties.

Management of Risks

        We adhere to a program of risk management policies and practices designed to reduce potential liability, as well as to manage customers' ongoing environmental exposures. This program includes

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installation of risk management systems at our facilities, such as fire suppression, employee training, environmental, auditing and policy decisions restricting the types of wastes handled. We evaluate all revenue opportunities and decline those that we believe involve unacceptable risks.

        We dispose of waste at our incineration, wastewater treatment and landfill facilities, or at facilities owned and operated by other firms that we have audited and approved. Typically, we apply established technologies to the treatment, storage and recovery of hazardous wastes. We believe our operations are conducted in a safe and prudent manner and in substantial compliance with applicable laws and regulations.

Insurance and Financial Assurance

        Our insurance programs cover the potential risks associated with our multifaceted operations from two primary exposures: direct physical damage and third party liability. We maintain a casualty insurance program providing coverage for vehicles, employer's liability and commercial general liability in the aggregate amount of $55.0 million, $52.0 million and $52.0 million, respectively, per year, subject to a retention of $0.5 million per occurrence. We also have workers' compensation insurance whose limits are established by state statutes. Since the early 1980s, casualty insurance policies have typically excluded liability for pollution, which is covered under a separate pollution liability program; however, our auto liability policy does provide the first $5 million of transportation pollution insurance.

        We have pollution liability insurance policies covering potential risk in three areas: as a contractor performing services at customer sites, as a transporter of waste and for waste processing at our facilities. The contractor's pollution liability insurance has limits of $15.0 million per occurrence and $25.0 million in the aggregate, covering offsite remedial activities and associated liabilities. A $0.25 million deductible applies to this policy.

        For in-transit pollution liability, the pollution liability policy provides $45 million per occurrence and $55 million aggregate excess limits above the primary $5 million auto liability policy. The combined limits of these policies provides the company with limits of $50.0 million per occurrence and $60.0 million aggregate for sudden and accidental occurrences during transportation of waste from the time waste is picked up from a customer until its delivery to the final disposal site. A $0.5 million deductible applies to this coverage.

        Federal and state regulations require liability insurance coverage for all facilities that treat, store or dispose of hazardous waste. The Resource Conservation Recovery Act, the Toxic Substances Control Act, and comparable state hazardous waste regulations typically require hazardous waste handling facilities to maintain pollution liability insurance in the amount of $1.0 million per occurrence and $2.0 million in the aggregate for sudden occurrences, and $3.0 million per occurrence and $6.0 million in the aggregate for non-sudden occurrences. Steadfast Insurance Company insures our treatment, storage and disposal activities that meets the regulatory requirements. In addition, this policy provides excess limits above the regulatory requirements up to $30.0 million.

        Under our insurance programs, coverage is obtained for catastrophic exposures as well as those risks required to be insured by law or contract. It is our policy to retain a significant portion of certain expected losses related primarily to employee benefit, workers' compensation, commercial general and vehicle liability. Provisions for losses expected under these programs are recorded based upon our estimates of the actuarial promulgation of the aggregate liability for claims. We believe that policy cancellation terms are similar to those of other companies in other industries.

        Operators of hazardous waste handling facilities are also required by federal, state and provincial regulations to provide financial assurance for closure and post-closure care of those facilities should the facilities cease operation. Closure would include the cost of removing the waste stored at a facility which ceased operating and sending the material to another facility for disposal and the cost of

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performing certain procedures for decontamination of the facilities. The total amount of the closure and post-closure financial assurance which we have been required by regulators to provide is approximately $309.0 million for U.S. facilities and $15.7 million for Canadian facilities. We have placed the required financial assurance for closure through a qualified insurance company, Steadfast Insurance Company.

Environmental Regulation

        While our business has benefited substantially from increased governmental regulation of hazardous waste transportation, storage and disposal, the environmental services industry itself has become the subject of extensive and evolving regulation by federal, state, provincial and local authorities. We are required to obtain federal, state, provincial and local permits or approvals for each of our hazardous waste facilities. Such permits are difficult to obtain and, in many instances, extensive studies, tests, and public hearings are required before the approvals can be issued. We have acquired all operating permits and approvals now required for the current operation of our business, and have applied for, or are in the process of applying for, all permits and approvals needed in connection with continued operation and planned expansion or modifications of our operations.

        We make a continuing effort to anticipate regulatory, political and legal developments that might affect operations, but are not always able to do so. We cannot predict the extent to which any environmental legislation or regulation that may be enacted or enforced in the future may affect our operations.

Federal Regulation of Hazardous Waste

        The most significant federal environmental laws affecting us are the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund Act", the Clean Air Act, the Clean Water Act, and the Toxic Substances Control Act ("TSCA").

        RCRA.    RCRA is the principal federal statute governing hazardous waste generation, treatment, transportation, storage and disposal. Pursuant to RCRA, the U.S. Environmental Protection Agency (the "EPA") has established a comprehensive "cradle-to-grave" system for the management of a wide range of materials identified as hazardous or solid waste. States that have adopted hazardous waste management programs with standards at least as stringent as those promulgated by the EPA have been delegated authority by the EPA to administer their facility permitting programs in lieu of the EPA's program.

        Every facility that treats, stores or disposes of hazardous waste must obtain a RCRA permit from the EPA or an authorized state agency, unless a specific exemption exists, and must comply with certain operating requirements. Under RCRA, hazardous waste management facilities in existence on November 19, 1980 were required to submit a preliminary permit application to the EPA, the so-called Part A Application. By virtue of this filing, a facility obtained interim status, allowing it to operate until licensing proceedings are instituted pursuant to more comprehensive and exacting regulations (the Part B permitting process). Interim Status facilities may continue to operate pursuant to the Part A Application until their Part B permitting process is concluded.

        RCRA requires that Part B permits contain provisions for required on-site study and cleanup activities, known as "corrective action," including detailed compliance schedules and provisions for assurance of financial responsibility. See "Environmental Liabilities" under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a discussion of our environmental liabilities. See "Insurance and Financial Assurance" above for a discussion of our financial assurance requirements.

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        The Superfund Act.    The Superfund Act is the primary federal statute regulating the cleanup of inactive hazardous substance sites and imposing liability for cleanup on the responsible parties. It also provides for immediate response and removal actions coordinated by the EPA to releases of hazardous substances into the environment, and authorizes the government to respond to the release or threatened release of hazardous substances or to order responsible persons to perform any necessary cleanup. The statute provides for strict, and in certain cases, joint and several liability for these responses and other related costs, and for liability for the cost of damages to natural resources, to the parties involved in the generation, transportation and disposal of such hazardous substances. Under the statute, we may be deemed liable as a generator or transporter of a hazardous substance which is released into the environment, or as the owner or operator of a facility from which there is a release of a hazardous substance into the environment. See Note 11, "Commitments and Contingencies," to our consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data," for a description of certain such proceedings involving us.

        The Clean Air Act.    The Clean Air Act was passed by Congress to control the emissions of pollutants into the air and requires permits to be obtained for certain sources of toxic air pollutants such as vinyl chloride, or criteria pollutants, such as carbon monoxide. In 1990, Congress amended the Clean Air Act to require further reductions of air pollutants with specific targets for non-attainment areas in order to meet certain ambient air quality standards. These amendments also require the EPA to promulgate regulations, which (i) control emissions of 189 hazardous air pollutants; (ii) create uniform operating permits for major industrial facilities similar to RCRA operating permits; (iii) mandate the phase-out of ozone depleting chemicals; and (iv) provide for enhanced enforcement.

        The Clean Air Act requires the EPA, working with the states, to develop and implement regulations, which result in the reduction of volatile organic compound ("VOC") emissions and emissions of nitrogen oxides ("NOx") in order to meet certain ozone air quality standards specified by the Clean Air Act. In late 2000, the Texas Natural Resource Conservation Commission (now known as the Texas Commission on Environmental Quality, or "TCEQ") enacted new Clean Air Act Regulations dealing with the monitoring and control of emissions of NOx and VOCs. These new regulations were required because of a revision in the designation of the Houston Metropolitan Area from a serious ozone non-attainment area to a severe ozone non-attainment area. This new designation will require our Deer Park, Texas incineration facility to further reduce emissions of NOx. NOx emissions contribute to the formation of ground-level ozone, which can be harmful to human health and the environment.

        The Interim Standards of the Hazardous Waste Combustor Maximum Achievable Control Technology ("MACT") rule of the Clean Air Act Amendments were promulgated on February 13, 2002. This rule established new emission limits and operational controls on all new and existing incinerators, cement kilns, industrial boilers and light-weight aggregate kilns that burn hazardous waste-derived fuel.

        Facilities subject to the MACT rule were required to comply with the new emission standards by September 30, 2003, or they could apply for an extension with compliance being required by September 30, 2004. We submitted the required documentation of substantial compliance at all of the three U.S. incinerator facilities we then owned on or before the September 30, 2004 deadline. We made most of the capital expenditures required to achieve that compliance in the fiscal years ended December 31, 2002 through 2004; however, during the year ended December 31, 2005 there were some additional performance testing and documentation costs which totaled $0.1 million. During 2006, we acquired an additional incineration facility located in Arkansas as part of our purchase of all of the membership interests in Teris LLC. Prior to that purchase, Teris LLC had spent in excess of $30 million in order to bring that incinerator into compliance with the MACT standards.

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        Clean Water Act.    This legislation prohibits discharges into the waters of the United States without governmental authorization and regulates the discharge of pollutants into surface waters and sewers from a variety of sources, including disposal sites and treatment facilities. The EPA has promulgated "pretreatment" regulations under the Clean Water Act, which establish pretreatment standards for introduction of pollutants into publicly owned treatment works ("POTWs"). In the course of the treatment process, our wastewater treatment facilities generate wastewater, which we discharge to POTWs pursuant to permits issued by the appropriate governmental authority. We are required to obtain discharge permits and conduct sampling and monitoring programs. We believe each of our operating facilities complies in all material respects with the applicable requirements.

        In December 2000, the EPA promulgated new effluent limitations, pretreatment standards and source performance standards for centralized wastewater treatment ("CWT") facilities. CWT facilities receive and treat a wide variety of hazardous and non-hazardous wastewaters from offsite companies and discharge the treated water directly to waterways or to municipal sewer systems. The new rules set stringent limits for the discharge of metals, organic compounds and oil. All of our wastewater treatment facilities are affected by the new rules and were in substantial compliance with the discharge standards by December 2004.

        Toxic Substances Control Act.    We also operate a network of collection, treatment and field services (remediation) activities throughout North America that are regulated under provisions of the TSCA. TSCA established a national program for the management of substances classified as PCBs, which include waste PCBs as well as RCRA wastes contaminated with PCBs. The rules set minimum design and operating requirements for storage, treatment and disposal of PCB wastes. Since their initial publication, the rules have been modified to enhance the management standards for TSCA-regulated operations including the decommissioning of PCB transformers and articles; detoxification of transformer oils; incineration of PCB liquids and solids; landfill disposal of PCB solids; and remediation of PCB contamination at customer sites.

        Other Federal Laws.    In addition to regulations specifically directed at the transportation, storage, and disposal facilities, there are a number of regulations that may "pass-through" to the facilities based on the acceptance of regulated waste from affected client facilities. Each facility that accepts affected waste must comply with the regulations for that waste, facility or industry. Examples of this type of regulation are National Emission Standards for Benzene Waste Operations and National Emissions Standards for Pharmaceuticals Production. Each of our facilities addresses these regulations on a case-by-case basis determined by its ability to comply with the pass-through regulations.

        In our transportation operations, we are regulated by the U.S. Department of Transportation, the Federal Railroad Administration, the Federal Aviation Administration and the U.S. Coast Guard, as well as by the regulatory agencies of each state in which we operate or through which our vehicles pass.

        Health and safety standards under the Occupational Safety and Health Act, or "OSHA", are applicable to all of our operations. This includes both the Technical Services and Site Services operations.

State and Local Regulations

        Pursuant to the EPA's authorization of their RCRA equivalent programs, a number of states have regulatory programs governing the operations and permitting of hazardous waste facilities. Accordingly, the hazardous waste treatment, storage and disposal activities of a number of our facilities are regulated by the relevant state agencies in addition to federal EPA regulation.

        Some states classify as hazardous some wastes that are not regulated under RCRA. For example, Massachusetts considers used oil as "hazardous wastes" while RCRA does not. Accordingly, we must

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comply with state requirements for handling state regulated wastes, and, when necessary, obtain state licenses for treating, storing, and disposing of such wastes at our facilities.

        We believe that each of our facilities is in substantial compliance with the applicable requirements of federal and state laws, the regulations thereunder, and the licenses which we have obtained pursuant thereto. Once issued, such licenses have maximum fixed terms of a given number of years, which differ from state to state, ranging from three years to ten years. The issuing state agency may review or modify a license at any time during its term. We anticipate that once a license is issued with respect to a facility, the license will be renewed at the end of its term if the facility's operations are in compliance with applicable requirements. However, there can be no assurance that regulations governing future licensing will remain static, or that we will be able to comply with such requirements.

        Our wastewater treatment facilities are also subject to state and local regulation, most significantly sewer discharge regulations adopted by the municipalities which receive treated wastewater from the treatment processes. Our continued ability to operate our liquid waste treatment process at each such facility is dependent upon our ability to continue these sewer discharges.

        Our facilities are regulated pursuant to state statutes, including those addressing clean water and clean air. Local sewer discharge and flammable storage requirements are applicable to certain of our facilities. Our facilities are also subject to local siting, zoning and land use restrictions. Although our facilities occasionally have been cited for regulatory violations, we believe we are in substantial compliance with all federal, state and local laws regulating our business.

Canadian Hazardous Waste Regulation

        In Canada, the provinces retain control over environmental issues within their boundaries and thus have the primary responsibility for regulating management of hazardous wastes. The federal government regulates issues of national scope or where activities cross provincial boundaries.

        Provincial Regulations.    To a greater or lesser extent, provinces have enacted legislation and developed regulations to fit their needs. Most of Canada's industrial development and the major part of its population can be found in four provinces: Ontario, Quebec, Alberta and British Columbia. It is in these provinces that the most detailed environmental regulations are found. We operate major waste management facilities in each of these provinces, as well as waste transfer facilities in Nova Scotia and Manitoba.

        The main provincial acts dealing with hazardous waste management are:

        These pieces of legislation were developed by the provinces totally independently and, among other things, generally control the generation, characterization, transport, treatment and disposal of hazardous wastes. Regulations developed by the provinces under the relevant legislation are also developed independently, but are often quite similar in effect and sometimes in application. For example, there is some uniformity in manifest design and utilization.

        Provincial legislation also provides for the establishment of waste management facilities. In this case, the facilities are also controlled by provincial statutes and regulations governing emissions to air, groundwater and surface water and prescribing design criteria and operational guidelines.

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        On August 12, 2005, the Ontario Ministry of the Environment adopted new regulations which prohibit land disposal of untreated hazardous waste and require the waste to meet specific treatment standards prior to land disposal. Land disposal includes onsite and offsite land filling, land farming and any other form of land disposal. These requirements are similar to restrictions enacted in the United States and thus bring the Province of Ontario in closer comity with the United States regulatory scheme. The new land disposal restrictions commenced in 2007 through a phased in schedule based on specific waste streams, and will be fully implemented by the beginning of 2010.

        We are carefully analyzing the new regulations to determine the impact of the regulations on our operations in Ontario. Until this analysis is complete and we have also assessed any and all potential legal avenues of further input and/or appeal of any aspects of the regulation which we believe to be potentially negative to our operations, we will not be able to determine whether the phased-in implementation of the regulations will be materially detrimental to the financial aspects of our Ontario operations.

        Waste transporters require a permit to operate under provincial waste management regulations and are subject to the requirements of the Federal Transportation of Dangerous Goods legislation. They are required to report the quantities and disposition of materials shipped.

        Within the provincial regulations, definitions of hazardous wastes are quite similar. Wastes can be defined as hazardous based on origin or characteristic and the descriptions or parameters involved are very similar to those in effect in the United States. A major difference between the United States regulatory regime and those in Canada relates to ownership and liability. Under Canadian provincial regulations, ownership changes when waste is transferred to a properly permitted third party carrier and subsequently to an approved treatment and disposal facility. This means that the generator is no longer liable for improper handling, treatment or disposal, responsibility having been transferred to the carrier or the facility. Exceptions may occur if the carrier is working under contract to the generator or if the waste is different from that which was originally contracted among the parties.

        Canadian Federal Regulations.    The federal government has authority for those matters which are national in scope and in impact and for Canada's relations with other nations. The main federal laws governing hazardous waste management are:

        Environment Canada is the federal agency with responsibility for environmental matters and the main legislative instrument is the Canadian Environmental Protection Act. This act charges Environment Canada and Health Canada with protection of human health and the environment and seeks to control the production, importation and use of substances in Canada and to control their impact on the environment.

        The Export and Import of Hazardous Wastes Regulations under CEPA 99 control the export and import of hazardous wastes and hazardous recyclable materials. By reference, these regulations incorporate the Transportation of Dangerous Goods Act and Regulations, which address identification, packaging, marking and documentation of hazardous materials during transport. CEPA 99 requires that anyone proposing to export or import hazardous wastes or hazardous recyclable materials or to transport them through Canada notify the Minister of the Environment and obtain a permit to do so. Section 9 of CEPA 99 allows the federal government to enter into administrative agreements with the provinces and territories for the development and improvement of environmental standards. These agreements represent cooperation towards a common goal rather than a delegation of authority under CEPA 99. To facilitate the development of provincial and territorial agreements, the federal, provincial and territorial governments participate in the Canadian Council of Ministers of the Environment ("CCME"). The Council comprises the 14 environment ministers from the federal, provincial and

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territorial governments, who normally meet twice a year to discuss national environmental priorities and to determine work to be carried out under the auspices of CCME.

        Canadian Local and Municipal Regulations.    Local and municipal regulations seldom reference direct control of hazardous waste management activities. Municipal regulations and by-laws, however, control such issues as land use designation, access to municipal services and use of emergency services, all of which can have a significant impact on facility operation.

Compliance with Environmental Regulations

        We incur costs and make capital investments in order to comply with the previously discussed environmental regulations. These regulations require that we remediate contaminated sites, operate our facilities in accordance with enacted regulations, obtain required financial assurance for closure and post-closure care of our facilities should such facilities cease operations, and make capital investments in order to keep our facilities in compliance with environmental regulations.

        As further discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Environmental Liabilities," we have accrued environmental liabilities valued as of December 31, 2007, at approximately $184.5 million, substantially all of which were accrued in connection of our 2002 acquisition of the assets of the Chemical Services Division (the "CSD") of Safety-Kleen Corp. and our 2006 acquisition of Teris LLC. For the years ended December 31, 2007 and 2006, we spent $6.5 million and $7.6 million, respectively, to address environmental liabilities, almost all of the spending related to the environmental liabilities assumed as part of the acquisition of the CSD assets and Teris LLC.

        As discussed more fully above under the heading "Insurance and Financial Assurance," we are required to provide financial assurance with respect to certain statutorily required closure, post-closure and corrective action obligations at our facilities. We have placed the required financial assurance through a qualified insurance company, Steadfast Insurance Company (a unit of Zurich N.A.).

        As described in Note 11, "Commitments and Contingencies," to our consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data," we are involved in legal proceedings arising under environmental laws and regulations. Alleged failure to comply with laws and regulations may lead to the imposition of fines or the denial, revocation or delay of the renewal of permits and licenses by governmental entities. In addition, such governmental entities, as well as surrounding landowners, may claim that we are liable for environmental damages. Citizens groups have become increasingly active in challenging the grant or renewal of permits and licenses for hazardous waste facilities, and responding to such challenges has further increased the costs associated with establishing new facilities or expanding current facilities. A significant judgment against us, the loss of a significant permit or license or the imposition of a significant fine could have a material adverse effect on our business and future prospects.

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ITEM 1A.    RISK FACTORS

        An investment in our securities involves certain risks, including those we describe below. You should consider carefully these risk factors together with all of the information included or referred to in this report before investing in our securities.

Risks Relating to Our Business

        We assumed significant environmental liabilities as part of the acquisition of the CSD assets and Teris LLC, and our financial condition and results of operations would be adversely affected if we were required to pay such liabilities more rapidly or in greater amounts than now estimated.

        We have accrued environmental liabilities, valued as of December 31, 2007, at approximately $184.5 million, substantially all of which we assumed in connection with the acquisition of the CSD assets and Teris LLC. We calculate these liabilities on a present value basis in accordance with generally accepted accounting principles (which takes into consideration both the amount of such liabilities and the timing when it is projected that we will be required to pay such liabilities). We anticipate such liabilities will be payable over many years and that cash flows generated from our operations will generally 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 or their enforcement) could require that such payments be made earlier or in greater amounts than now estimated, which could adversely affect our financial condition and results of operations.

        If we are unable to obtain at reasonable cost insurance and financial assurances which are required for our operations, our business and results of operations would be adversely affected.

        We purchase insurance, occasionally post bid and performance bonds and are required to provide substantial amounts of financial assurance to governmental agencies for potential closure and post-closure care of our licensed hazardous waste treatment facilities should those facilities cease operation. Our total estimated closure and post-closure costs requiring financial assurance by regulators as of December 31, 2007, was $309.0 million for our U.S. facilities and $15.7 million for our Canadian facilities. We have placed all of the required financial assurance through a qualified insurance company, Steadfast Insurance Company (a unit of Zurich Insurance N.A.). The U.S. facilities are insured with an insurance policy written by Steadfast Insurance Company which expires in September 2009. The Canadian facilities utilize surety bonds which expire in September and October of 2008. Our ability to continue conducting our operations could be adversely affected if we should become unable to obtain sufficient insurance, surety bonds and financial assurances at reasonable cost to meet our business and regulatory requirements in the future. The availability of insurance could be affected by factors outside of our control as well as the insurers' or sureties' assessment of our risk.

        The environmental services industry in which we participate is subject to significant economic and business risks.

        Our future operating results may be affected by such factors as our ability to: utilize our facilities and workforce profitably in the face of intense price competition; maintain or increase market share in an industry which has experienced significant downsizing and consolidating; realize benefits from cost reduction programs; generate incremental volumes of waste to be handled through our facilities from existing and acquired sales offices and service centers; obtain sufficient volumes of waste at prices which produce revenue sufficient to offset the operating costs of the facilities; minimize downtime and disruptions of operations; and develop the site services business. In particular, economic downturns or recessionary conditions in North America, and increased outsourcing by North American manufacturers to plants located in countries with lower wage costs and less stringent environmental regulations, have adversely affected and may in the future adversely affect the demand for our services. The hazardous

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and industrial waste management business is also cyclical to the extent that it is dependent upon a stream of waste from cyclical industries such as the chemical and petrochemical, primary metals, paper, furniture and aerospace industries. If those cyclical industries slow significantly, the business that we receive from those industries is likely to slow.

        A significant portion of our business depends upon the demand for major remedial projects and regulatory developments over which we have no control.

        Our operations are significantly affected by the commencement and completion of major site remedial projects; cleanup of major spills or other events; seasonal fluctuations due to weather and budgetary cycles influencing the timing of customers' spending for remedial activities; the timing of regulatory decisions relating to hazardous waste management projects; changes in regulations governing the management of hazardous waste; secular changes in the waste processing industry towards waste minimization and the propensity for delays in the remedial market; and changes in the myriad of governmental regulations governing our diverse operations. We do not control such factors and, as a result, our revenue and income can vary significantly from quarter to quarter, and past financial performance for certain quarters may not be a reliable indicator of future performance for comparable quarters in subsequent years.

        Seasonality makes it harder for us to manage our business and for investors to evaluate our performance.

        Our operations may be affected by seasonal fluctuations due to weather and budgetary cycles influencing the timing of customers' spending for remedial activities. Typically during the first quarter of each calendar year there is less demand for environmental remediation due to weather related reasons, particularly in the northern and midwestern United States and Canada, and increased possibility of unplanned weather related plant shutdowns. This seasonality in our business makes it harder for us to manage our business and for investors to evaluate our performance.

        The extensive environmental regulations to which we are subject may increase our costs and potential liabilities.

        Our operations and those of others in the environmental industry are subject to extensive federal, state, provincial and local environmental requirements in both the United States and Canada. While increasing environmental regulation often presents new business opportunities for us, it often results in increased operating and compliance costs. Efforts to conduct our operations in compliance with all applicable laws and regulations, including environmental rules and regulations, require programs to promote compliance, such as training employees and customers, purchasing health and safety equipment, and in some cases hiring outside consultants and lawyers. Even with these programs, we and other companies in the environmental services industry are routinely faced with governmental enforcement proceedings which can result in fines or other sanctions and require expenditures for remedial work on waste management facilities and contaminated sites. Certain of these laws impose strict and, under certain circumstances, joint and several liability for cleanup of releases of regulated materials, and also liability for related natural resource damages.

        From time to time, we have paid fines or penalties in governmental environmental enforcement proceedings, usually involving our waste treatment, storage and disposal facilities. Although none of these fines or penalties that we have paid in the past has had a material adverse effect upon us, we might in the future be required to make substantial expenditures as a result of governmental proceedings, which would have a negative impact on our earnings. Furthermore, regulators have the power to suspend or revoke permits or licenses needed for operation of our plants, equipment, and vehicles based on, among other factors, our compliance record, and customers may decide not to use a particular disposal facility or do business with us because of concerns about our compliance record.

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Suspension or revocation of permits or licenses would impact our operations and could have a material adverse impact on financial results. Although we have never had any of our facilities' operating permits revoked, suspended or non-renewed involuntarily, it is possible that such an event could occur in the future.

        In the past, practices have resulted in releases at and from certain of our facilities, which may require investigation and, in some cases, remediation. We are currently conducting remedial activities at certain of our sites. While, based on available information, we do not believe these remedial activities will result in a material adverse effect upon our operations or financial condition, these activities or the discovery of previously unknown conditions could result in material costs.

        Future changes in environmental regulations may require us to make significant capital expenditures.

        Changes in environmental regulations can require us to make significant capital expenditures for our facilities. For example, in 2002, the EPA promulgated Interim Standards of the Hazardous Waste Combustor Maximum Achievable Control Technology ("MACT") under the Federal Clean Air Act Amendments. These standards established new emissions limits and operational controls on all new and existing incinerators, cement kilns and light-weight aggregate kilns that burn hazardous waste-derived fuels. We have spent approximately $28.9 million since September 7, 2002 in order to bring our Deer Park, Texas and Aragonite, Utah incineration facilities which we then acquired as part of the CSD assets and Kimball, Nebraska into compliance with the MACT regulations. Prior to our acquisition in August 2006 of our additional incineration facility in El Dorado, Arkansas, as part of our purchase of all the membership interests in Teris LLC, Teris LLC had spent in excess of $30 million in order to bring that facility into compliance with the MACT standards. Future environmental regulations could cause us to make significant additional capital expenditures and adversely affect our results of operations and cash flow.

        If our assumptions relating to expansion of our landfills should prove inaccurate, our results of operations and cash flow could be adversely affected.

        When we include the expansion airspace in our calculations of available airspace, we adjust our landfill liabilities to the present value of projected costs for cell closure, and landfill closure and post-closure. It is possible that any of our estimates or assumptions could ultimately turn out to be significantly different from actual results. In some cases we may be unsuccessful in obtaining an expansion permit or we may determine that an expansion permit that we previously thought was probable has become unlikely. To the extent that such estimates, or the assumptions used to make those estimates, prove to be significantly different than actual results, or our belief that we will receive an expansion permit changes adversely in a significant manner, the landfill assets, including the assets incurred in the pursuit of the expansion, may be subject to impairment testing, and lower prospective profitability may result due to increased interest accretion and depreciation or asset impairments related to the removal of previously included expansion airspace. In addition, if our assumptions concerning the expansion airspace should prove inaccurate, certain of our cash expenditures for closure of landfills could be accelerated and adversely affect our results of operations and cash flow. Future conditions might require us to make substantial write-downs in our assets, which would adversely affect our balance sheet and results of operations. We participate in a highly volatile industry with multiple competitors, several of which have taken large write-offs and asset write-downs, operated under Chapter 11 bankruptcy protection and undergone major restructuring during the past several years. Periodically, we review long-lived assets for impairment. At the end of each of 2007, 2006 and 2005, we determined based on this review that no asset write-downs were required; however, if conditions in the industry were to deteriorate significantly, we could determine that certain of our assets were impaired and we would then be required to write-off all or a portion of our costs for such assets. Any such significant write-offs would adversely affect our balance sheet and results of operations.

24


Other Risks Relating to Our Company and Common Stock

        Our substantial level of indebtedness and outstanding letters of credit could adversely affect our financial condition and ability to fulfill our obligations.

        As of December 31, 2007, we had $123.5 million of outstanding indebtedness (including capital lease obligations) and $89.7 million of outstanding letters of credit. Our substantial level of indebtedness and outstanding letters of credit may:

        If we are unable to generate sufficient cash flow from operations in the future to service our debt and fee obligations, we may be required to refinance all or a portion of our existing debt and letter of credit facilities, or to obtain additional financing and facilities. However, we may not be able to obtain any such refinancing or additional facilities on favorable terms or at all.

        The covenants in our financing agreements restrict our ability to operate our business and might lead to a default under our outstanding debt agreements.

        The agreements governing our revolving credit and letter of credit facilities and the indenture relating to our outstanding senior secured notes limit, among other things, our ability and the ability of our restricted subsidiaries to:

        As a result of these covenants, we may not be able to respond to changes in business and economic conditions and to obtain additional financing, if needed, and we may be prevented from

25



engaging in transactions that might otherwise be beneficial to us. Our revolving credit and letter of credit facilities require, and our future credit facilities may require, us to maintain specified financial ratios and satisfy certain financial condition tests. Our ability to meet these financial ratios and tests can be affected by events beyond our control, and we may not be able to meet those tests. The breach of any of these covenants could result in a default under our revolving credit and letter of credit facilities. Upon the occurrence of an event of default under our revolving credit and letter of credit facilities or future credit facilities, the lenders could elect to declare all amounts outstanding under such credit facilities, including accrued interest or other obligations, to be immediately due and payable. If amounts outstanding under such credit facilities were to be accelerated, our assets might not be sufficient to repay in full that indebtedness and our other indebtedness, including our senior secured notes.

        The instruments governing certain of our indebtedness, including the indenture governing our senior secured notes and our revolving credit and letter of credit facilities, also contain cross-default provisions. Under these provisions, a default under one instrument governing our indebtedness may constitute a default under our other instruments of indebtedness that contain cross default provisions, which could result in the related indebtedness and the indebtedness issued under other instruments becoming immediately due and payable. In such event, we would need to raise funds from alternative sources, which funds might not be available to us on favorable terms, on a timely basis or at all. Alternatively, such a default could require us to sell our assets and otherwise curtail operations to pay our creditors. The proceeds of such a sale of assets, or curtailment of operations, might not enable us to pay all of our liabilities.

        We have not paid, and do not anticipate paying for the foreseeable future, dividends on our common stock.

        We have not paid, and do not anticipate paying for the foreseeable future, any dividends on our common stock. Furthermore, our current credit agreement prohibits, and our indenture restricts, the payment by us of dividends on our common stock. We intend to retain future earnings, if any, for use in the operation and expansion of our business and payment of our outstanding debt.

        Our founder and other directors and executive officers, as a group, will be able to exercise substantial influence over matters submitted to our stockholders for approval.

        As of the February 21, 2008, Alan S. McKim, our founder and chief executive officer, together with other directors and executive officers, beneficially held approximately 15.3% of our outstanding common stock. As a result, our directors and executive officers will likely be able to exercise substantial influence over matters submitted to our stockholders for approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control even if such a change of control would benefit our other stockholders. The significant concentration of stock ownership might cause the trading price of our common stock to decline if investors were to perceive that conflicts of interest may exist or arise over any such potential transactions. Potential future sales of common stock by our directors and executive officers, and our other principal stockholders, may cause our stock price to fall.

        Future sales, or the availability for future sales, of substantial amounts of our common stock could adversely affect the market price of our common stock.

        As of February 21, 2008, Alan S. McKim, our founder and chief executive officer, beneficially held 14.3% of our then outstanding common stock, and the three other holders which have reported to us that they each beneficially own in excess of 5% of our outstanding common stock have reported that they collectively own approximately 20.8% of our outstanding common stock as of February 21, 2008. A

26



decision by one or more of these major stockholders to sell a substantial number of their shares could adversely affect the market price of our common stock. All of the approximately 20.9 million shares of our common stock which were outstanding or subject to then exercisable warrants or options as of February 21, 2008, were or, upon issuance, will be freely tradable without restriction or further registration under the Securities Act, except for the approximately 3.1 million of such shares beneficially held by our "affiliates" as that term is defined in Rule 144 under the Securities Act. The shares held by our "affiliates" include the shares beneficially held by our founder and other directors and executive officers described above. Shares beneficially owned by our affiliates may not be sold except in compliance with the registration requirements of the Securities Act or pursuant to an exemption from registration, such as Rule 144.

        The Massachusetts Business Corporation Act and our By-Laws contain certain anti-takeover provisions.

        Section 8.06 and 7.02 of the Massachusetts Business Corporation Act provide that Massachusetts corporations which are publicly-held must have a staggered board of directors and that written demand by holders of at least 40% of the outstanding shares of each relevant voting group of stockholders is required for stockholders to call a special meeting unless such corporations take certain actions to affirmatively "opt-out" of such requirements. In accordance with these provisions, our By-Laws provide for a staggered Board of Directors which consists of three classes of directors of which one class is elected each year for a three-year term, and require that written application by holders of at least 25% (which is less than the 40% which would otherwise be applicable without such a specific provision in our By-Laws) of our outstanding shares of common stock is required for stockholders to call a special meeting. In addition, our By-Laws prohibit the removal by the stockholders of a director except for cause. These provisions could inhibit a takeover of our company by restricting stockholders action to replace the existing directors or approve other actions which a party seeking to acquire us might propose. A takeover transaction would frequently afford stockholders an opportunity to sell their shares at a premium over then market prices.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        Not applicable.

27


ITEM 2.    PROPERTIES

        Our principal executive offices are in Norwell, Massachusetts where approximately 104,000 square feet are leased under arrangements expiring in 2022. There is also a regional administrative office in South Carolina. We own or lease property in 36 states, six Canadian provinces, Puerto Rico and Mexico.

        Our principal property, plant and equipment consist of land, landfill assets and buildings (primarily incinerators, wastewater treatment plants and transportation, storage and disposal facilities, or "TSDFs"), vehicles and equipment (including environmental remediation equipment). We have 49 active permitted hazardous waste or nonhazardous waste management properties, and 69 additional service centers and satellite or support locations, which occasionally move to other locations as operations and space requirements change. The incinerators, landfills, and TSDFs are our most significant properties and they are included in the Technical Services segment.

        Our properties are sufficient and suitable to our needs. The following tables set forth certain information as of December 31, 2007 regarding our properties. Substantially all of our owned operating properties are mortgaged as collateral for our loans.

Hazardous Waste Management Properties

        Included in the 49 hazardous waste management properties are six incineration locations, nine commercial landfills, six wastewater treatment plants, 20 TSDFs, and eight facilities which specialize in PCB management, oil and used oil products recycling. Some properties offer multiple capabilities. As described below under "Inactive Properties," we also own 13 closed or inactive facilities.

        Incinerators.    We own six operating incineration facilities containing a total of nine incinerators, as follows:

 
  # of
Incinerators

  Practical
Capacity
(Tons)

  Utilization
Rate
Year Ended
December 31,
2007

 
Arkansas   2   75,000   93.5 %
Nebraska   1   55,000   83.1 %
Utah   1   65,000   83.0 %
Texas   3   140,000   107.1 %
Ontario, Canada   1   91,000   75.2 %
Quebec, Canada   1   73,000   80.6 %
   
 
 
 
    9   499,000   87.2 %
   
 
 
 

        Our incinerators offer a wide range of technological capabilities to customers through this network. Incineration in the United States is provided by a fluidized bed thermal oxidation unit and three solids and liquids-capable incineration facilities. In Canada, we operate two hazardous waste liquid injection incinerators.

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        Landfills.    In the United States and Canada, we operate nine commercial landfills as follows:

 
  # of
Facilities

  Remaining
Highly Probable
Airspace
(cubic yards,
in thousands)

  Remaining
Lives
(Years)

California   2   12,022   41 and 65
Colorado   1   918   61
North Dakota   1   1,093   44
Oklahoma   1   1,138   13
Texas   1   1,204   23
Utah   1   1,818   21
Alberta, Canada   1   816   14
Ontario, Canada   1   8,513   48
   
 
   
    9   27,522    
   
 
   

        Seven of our commercial landfills are designed and permitted for the disposal of hazardous wastes and two landfills are operated for nonhazardous industrial waste disposal and, to a lesser extent, municipal solid waste. In addition to our commercial landfills, we also own and operate two non-commercial landfills that only accept waste from on-site incinerators. We own all of the landfills with the exception of the landfill in Oklahoma that is leased.

        Wastewater Treatment Plants.    We operate six facilities that offer a range of wastewater treatment technologies and customer services, as follows:

 
  # of
Facilities

  Owned
  Leased
Connecticut   1   1  
Louisiana   2   1   1
Ohio   1   1  
Tennessee   1   1  
Ontario, Canada   1   1  
   
 
 
    6   5   1
   
 
 

        Wastewater treatment consists primarily of three types of services: hazardous wastewater treatment, sludge de-watering or drying, and non-hazardous wastewater treatment.

29


        Transportation, Storage and Disposal Facilities ("TSDFs").    We operate 20 TSDFs in the United States and Canada as follows:

 
  # of Facilities
  Owned
  Leased
Arizona   1   1  
California   2   2  
Florida   1     1
Illinois   1     1
Kansas   1   1  
Louisiana   1   1  
Maryland   1   1  
Massachusetts   1   1  
North Carolina   1   1  
Ohio   1   1  
Texas   1   1  
British Columbia, Canada   1   1  
Manitoba, Canada   1   1  
Nova Scotia, Canada   1   1  
Ontario, Canada   3   2   1
Quebec, Canada   2   2  
   
 
 
    20   17   3
   
 
 

        Our TSDFs facilitate the movement of materials among our network of service centers and treatment and disposal facilities. Transportation may be accomplished by truck, rail, barge or a combination of modes, with our own assets or in conjunction with third-party transporters. Specially designed containment systems, vehicles and other equipment permitted for hazardous and industrial waste transport, together with drivers trained in transportation skills and waste handling procedures, provide for the movement of customer waste streams.

        PCB Management Facilities and Oil Storage or Recycling Capabilities.    We operate eight facilities specializing in PCB management or providing oil recycling capabilities in seven states, of which six are owned and two are leased. These facilities are the most significant properties relating to our Site Services segment.

Other Facilities and Properties

        Service Centers and Satellite Locations.    We operate 69 additional service centers and satellite or support locations of which 16 are owned and 53 are leased. These locations are aligned with one or more of our landfills, incinerators, wastewater treatment, consulting, administrative, or other treatment and disposal facilities.

        Inactive Facilities.    In addition to the active facilities and properties described above, we own a total of 13 facilities which are now closed or inactive, most of which were acquired in 2002 as part of the CSD assets due to our assumption of the remediation liabilities associated with such properties or our closure of such sites. The principal inactive facilities are a closed incinerator and landfill in Baton Rouge, Louisiana, closed incinerators in Roebuck, South Carolina, Coffeyville, Kansas and Bridgeport, New Jersey, and a closed wastewater treatment facility in Cleveland, Ohio. Prior to the sale of the CSD assets, Safety-Kleen gave notice to the applicable regulatory agencies of Safety-Kleen's intent to close the facilities, and Safety-Kleen stopped accepting wastes at Baton Rouge in 1997, at Roebuck in 1998, at Coffeyville in 2000, at Bridgeport in 2001 and at Cleveland in 1990.

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ITEM 3.    LEGAL PROCEEDINGS

        See Note 11, "Commitments and Contingencies," to our consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data," for a description of legal proceedings.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of our security holders during the fourth quarter of 2007.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

        Our common stock trades on the NASDAQ Global Select Market under the symbol CLHB. The following table sets forth the high and low sales prices of our common stock for the indicated periods as reported by NASDAQ.

2007

  High
  Low
First Quarter   $ 54.54   $ 44.16
Second Quarter     50.43     44.55
Third Quarter     53.83     42.52
Fourth Quarter     56.48     44.23
 
2006

  High
  Low
First Quarter   $ 35.99   $ 24.34
Second Quarter     40.31     26.54
Third Quarter     44.28     35.00
Fourth Quarter     48.75     40.69

        On March 5, 2008, the closing price of our common stock on the Nasdaq Global Select Market was $63.52. On February 28, 2008, there were 490 stockholders of record of our common stock, excluding stockholders whose shares were held in nominee, or "street", name. We estimate that approximately 11,934 additional stockholders held shares in street name at that date.

        We have never declared nor paid any cash dividends on our common stock, and we do not intend to pay any dividends on our common stock in the foreseeable future. We intend to retain our future earnings, if any, for use in the operation and expansion of our business and payment of our outstanding debt. In addition, our current credit agreement prohibits, and our indenture restricts, us from paying cash dividends on our common stock (see "Liquidity and Capital Resources" under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations").

32


Performance Graph

        The following graph compares the five-year return from investing $100 in each of Clean Harbors, Inc. common stock, the NASDAQ Market Index of companies, and an index of environmental services companies, compiled by CoreData. The environmental services group used by CoreData includes all companies whose listed line-of-business is SIC Code 4953 (refuse systems), and assumes reinvestment of dividends on the ex-dividend date. An index compares relative performance since a particular starting date. In this instance, the starting date is December 31, 2002, when the Company's common stock closed at $15.56 per share.

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CLEAN HARBORS, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX

GRAPHIC

ASSUMES $100 INVESTED ON JAN. 1, 2003
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2007

Securities Authorized For Issuance Under Equity Compensation Plans

        See Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters," for a description of the securities which are authorized for issuance under our equity compensation plans.

Issuer Purchases of Equity Securities

        During the fiscal quarter ended December 31, 2007, we did not repurchase any of our outstanding common stock or any other securities registered under the Securities Exchange Act of 1934, as amended.

33


ITEM 6.    SELECTED FINANCIAL DATA

        The following summary of consolidated financial information has been derived from the audited consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data," of this report and in the annual reports we have previously filed with the SEC. This information should be reviewed in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and the notes thereto included in Item 8, "Financial Statements and Supplementary Data" of this report.

 
  For the Year Ended December 31,
 
 
  2007
  2006
  2005
  2004
  2003
 
 
  (in thousands except per share amounts)

 
Income Statement Data:                                
Revenues   $ 946,917   $ 829,809   $ 711,170   $ 643,219   $ 610,969  
Cost of revenues     664,440     584,835     512,582     464,838     453,461  
Selling, general and administrative expenses     149,180     125,039     108,312     104,509     108,430  
Accretion of environmental liabilities(1)     10,447     10,220     10,384     10,394     11,114  
Depreciation and amortization     37,590     35,339     28,633     24,094     26,482  
Restructuring                     (124 )
   
 
 
 
 
 
Income from operations     85,260     74,376     51,259     39,384     11,606  
Other income (expense)(2)     135     (447 )   611     (1,345 )   (94 )
(Loss) on refinancings(3)                 (7,099 )    
Loss on early extinguishment of debt         (8,529 )            
Interest (expense), net     (13,157 )   (12,447 )   (22,754 )   (22,297 )   (23,724 )
   
 
 
 
 
 
Income (loss) before provision for income taxes, equity interest in joint venture and cumulative effect of change in accounting principle     72,238     52,953     29,116     8,643     (12,212 )
Provision for income taxes(4)     28,040     6,339     3,495     6,043     5,322  
Equity interest in joint venture         (61 )            
   
 
 
 
 
 
Income (loss) before cumulative effect of change in accounting principle     44,198     46,675     25,621     2,600     (17,534 )
Cumulative effect of change in accounting principle, net of taxes(1)                     66  
   
 
 
 
 
 
Net income (loss)     44,198     46,675     25,621     2,600     (17,600 )
Redemption of Series C Preferred Stock, dividends on Series B and C Preferred Stocks and accretion on Series C Preferred Stock(5)     206     276     279     11,798     3,287  
   
 
 
 
 
 
Net income (loss) attributable to common stockholders   $ 43,992   $ 46,399   $ 25,342   $ (9,198 ) $ (20,887 )
   
 
 
 
 
 
Basic earnings (loss) attributable to common stockholders(6)   $ 2.22   $ 2.38   $ 1.62   $ (0.65 ) $ (1.54 )
   
 
 
 
 
 
Diluted earnings (loss) attributable to common stockholders(6)   $ 2.14   $ 2.26   $ 1.45   $ (0.65 ) $ (1.54 )
   
 
 
 
 
 
Cash Flow Data:                                
Net cash from operating activities   $ 79,995   $ 61,382   $ 29,667   $ 52,460   $ 38,857  
Net cash from investing activities     (42,791 )   (98,885 )   (3,509 )   47,631     (52,998 )
Net cash from financing activities     2,724     (20,330 )   75,023     (75,775 )   5,869  
Other Financial Data:                                
Adjusted EBITDA(7)   $ 133,297   $ 119,935   $ 90,276   $ 74,744   $ 50,744  
 

34


 
  At December 31,
 
 
  2007
  2006
  2005
  2004
  2003
 
 
  (in thousands)

 
Balance Sheet Data:                                
Working capital   $ 169,585   $ 124,465   $ 100,354   $ 50,696   $ (19,575 )
Goodwill     21,572     19,032     19,032     19,032     19,032  
Total assets     769,888     670,808     614,364     504,702     540,159  
Long-term obligations (including current portion)(8)     123,483     124,561     154,291     153,129     187,119  
Redeemable preferred stock                     15,631  
Stockholders' equity(6)     202,897     173,186     115,658     11,038     7,696  

(1)
Effective January 1, 2003, we adopted Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." Accretion of environmental liabilities for the years ended December 31, 2007, 2006 and 2005, was due primarily to the implementation as of January 1, 2003 of SFAS No. 143 and accretion of the discount for the remedial liabilities assumed as part of the acquisitions of the CSD assets and Teris LLC. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Environmental Liabilities."

(2)
We had outstanding prior to June 30, 2004, 25,000 shares of Series C Convertible Preferred Stock which consisted of two components, namely, (i) non-convertible redeemable preferred stock with a 6.0% annual dividend (the "Host Contract") and (ii) an "Embedded Derivative" which reflected the right of the holders of the Series C Preferred Stock to convert into our common stock on the terms set forth in the Series C Preferred Stock. The value of the Embedded Derivative was periodically marked to market which resulted in the inclusion of gains (losses) as a component of other income (expense) of $(1.6) million and $(0.4) million for the years ended December 31, 2004 and 2003, respectively.

(3)
We repaid on June 30, 2004 our then outstanding debt, redeemed our then outstanding Series C Preferred Stock and settled the embedded derivative liability associated with our Series C Preferred Stock. For the year ended December 31, 2004, we recorded loss on refinancing of $7.1 million relating to these activities.

(4)
For fiscal year 2006, the provision includes a reversal of a $14.1 million portion of the valuation allowance.

(5)
We had outstanding prior to June 30, 2004, 25,000 shares of Series C Convertible Preferred Stock. The amount of $11.8 million for the year ended December 31, 2004 includes $9.9 million related to the redemption of that Series C Preferred Stock.

(6)
As further discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Stockholder Matters," we issued: (i) 0.4 million shares of common stock in February 2005 upon cashless exercise of previously outstanding warrants; (ii) 1.6 million shares of common stock in October 2005 upon exercise of previously outstanding warrants for an aggregate of $12.5 million; (iii) 2.3 million shares of common stock in December 2005 upon the closing of a public offering for aggregate net proceeds (after deducting the underwriters' discount and offering expenses payable by us) of $60.2 million; and (iv) 0.4 million shares of common stock in December 2007 upon exercise of previously outstanding warrants for an aggregate of $1.2 million and conversion of previously outstanding shares of Series B convertible preferred stock.

(7)
For all periods presented, "Adjusted EBITDA" consists of net income (loss) plus accretion of environmental liabilities, depreciation and amortization, net interest expense, provision for (benefit from) income taxes, non-recurring severance charges, other non-recurring refinancing-related

35


 
  Year Ended December 31,
 
 
  2007
  2006
  2005
  2004
  2003
 
Net income (loss)   $ 44,198   $ 46,675   $ 25,621   $ 2,600   $ (17,600 )
Accretion of environmental liabilities     10,447     10,220     10,384     10,394     11,114  
Depreciation and amortization     37,590     35,339     28,633     24,094     26,482  
Restructuring expense (income)                     (124 )
Loss on refinancings                 7,099      
Loss on early extinguishment of debt         8,529              
Interest expense, net     13,157     12,447     22,754     22,297     23,724  
Equity interest in joint venture         (61 )            
Provision for income taxes     28,040     6,339     3,495     6,043     5,322  
Non-recurring severance charges                 25     1,089  
Other non-recurring refinancing-related expenses                 1,326      
Change in value of embedded derivative                 1,590     379  
(Gain) loss on sale of fixed assets     (135 )   447     (26 )   (724 )   292  
Cumulative effect of change in accounting principle                     66  
Other income             (585 )        
   
 
 
 
 
 
Adjusted EBITDA   $ 133,297   $ 119,935   $ 90,276   $ 74,744   $ 50,744  
   
 
 
 
 
 

36


 
  Year Ended December 31,
 
 
  2007
  2006
  2005
  2004
  2003
 
Adjusted EBITDA   $ 133,297   $ 119,935   $ 90,276   $ 74,744   $ 50,744  
Interest expense, net     (13,157 )   (12,447 )   (22,754 )   (22,297 )   (23,724 )
Provision for income taxes     (28,040 )   (6,339 )   (3,495 )   (6,043 )   (5,322 )
Allowance for doubtful accounts     (418 )   88     (105 )   1,232     2,439  
Amortization of deferred financing costs and debt discount     1,940     1,616     1,669     2,371     2,467  
Change in environmental estimates     597     (9,582 )   (11,265 )   (3,287 )   (215 )
Deferred income taxes     (7,492 )   (6,385 )   (1,242 )   381     (620 )
Impairment of assets held for sale             281          
(Gain) loss on sale of fixed assets             (26 )   (724 )   292  
Other non-recurring refinancing-related expenses and other                 (1,351 )    
Stock-based compensation     4,799     3,387     56     35     29  
Excess tax benefit of stock-based compensation     (6,386 )   (5,239 )            
Income tax benefits related to stock option exercises     6,427     5,399     408          
Prepayment penalty         (6,146 )            
Foreign currency loss (gain) on intercompany transactions                 (88 )   996  
Changes in assets and liabilities, net of acquisition                                
  Accounts receivable     (19,142 )   (5,000 )   (25,983 )   (6,058 )   20,265  
  Other current assets     (2,693 )   (11,092 )   (686 )   2,639     2,788  
  Accounts payable     (4,603 )   (4,674 )   (804 )   9,249     2,923  
  Environmental expenditures     (6,511 )   (7,605 )   (7,243 )   (10,305 )   (7,973 )
  Other current liabilities     21,377     5,466     9,969     11,962     (6,232 )
   
 
 
 
 
 
Net cash provided by operating activities   $ 79,995   $ 61,382   $ 29,667   $ 52,460   $ 38,857  
   
 
 
 
 
 
(8)
Long-term obligations (including current portion) include borrowings under our current and former revolving credit facilities.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

        In addition to historical information, this Management's Discussion and Analysis 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 the section of this report entitled Item 1A, "Risk Factors." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's 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. Readers should also carefully review the risk factors described in other documents which we file from time to time with the SEC, including the quarterly reports on Form 10-Q to be filed by us during 2008.

Overview

        We provide a wide range of environmental services and solutions to a diversified customer base in the United States, Canada, Puerto Rico and Mexico. 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 nonhazardous 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 provides 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 customer's site or another location. These services are dispatched on a scheduled or emergency basis.

        In January 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.

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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.

        In August 2007, we acquired certain assets owned by Romic Environmental Technologies Corporation ("Romic"), which specializes in collection and recycling of both hazardous and non-hazardous waste materials, for $5.2 million in cash, a reduction of receivables owed by Romic to the Company of $0.3 million, an estimated $0.9 million of direct acquisition costs, and an estimated incremental purchase price amount of $2.2 million that is based upon 40% of revenues generated from Romic customers for the six-month period subsequent to the acquisition.

Critical Accounting Policies and Estimates

        The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities. The following are the areas that we believe require the greatest amount of judgments or estimates in the preparation of the financial statements: revenue allowance, deferred revenue, allowance for doubtful accounts, accounting for landfills, testing long-lived assets and goodwill for impairment, environmental liabilities, insurance expense, legal matters, and provision for income taxes. Our management discusses each of these critical accounting estimates with the Audit Committee of our Board of Directors prior to each release of our annual financial statements.

        Revenue Allowance.    Due to the nature of our business and the complex invoices that result from the services provided, customers may withhold payments and attempt to renegotiate amounts invoiced. Accordingly, we establish a revenue allowance to cover the estimated amounts of revenue adjustments that may need to be credited to customers' accounts in future periods. The allowance is established based on specific review of particular customers, historical trends and other relevant information. Revenues allowance estimates can differ materially from the actual adjustments but historically our allowance has been adequate.

        Deferred Revenue.    As is the customary practice in the environmental services industry, we submit a bill for services shortly after waste is collected from a customer location and prior to completion of the waste disposal process. We recognize revenue for waste disposal services only when the waste is placed into a landfill, incinerated, treated in a wastewater treatment facility or shipped to a third party for disposal. Deferred revenue, representing amounts invoiced to customers for waste not yet processed, stated on our balance sheet as of December 31, 2007 was $29.7 million. Because a large quantity of waste is on hand and in transit at the end of any month, waste from various sources is mixed subsequent to receipt, waste is received in various size containers, and the amount of waste per container can vary significantly, the calculation of deferred revenue requires the use of significant estimates such as the average revenue charged for a type of waste and the average waste volume contained within various size containers.

        Allowance for Doubtful Accounts.    We establish an allowance for doubtful accounts to cover accounts receivable that may not be collectible. In establishing the allowance for doubtful accounts, we analyze the collectibility of accounts that are large or past due. In addition, we consider historical bad debts and current economic trends in evaluating the allowance for doubtful accounts. Accounts receivable written off in subsequent periods can differ materially from the allowance for doubtful accounts provided, but historically our provision has been adequate.

        Accounting for Landfills.    We amortize landfill improvements and certain landfill related permits over their estimated useful lives. The units of consumption method is used to amortize land, landfill cell construction, asset retirement costs and remaining landfill cells and sites. We also utilize the units of consumption method to record closure and post-closure obligations for landfill cells and sites. Under

39



the units of consumption method, we include future estimated construction and asset retirement costs, as well as costs incurred to date, in the amortization base. Additionally, where appropriate, we include probable expansion airspace that has yet to be permitted in the calculation of the total remaining useful life of the landfill. This accounting method requires us to make estimates and assumptions, as described below. Any changes in our estimates will impact our income from operations prospectively from the date the changes are made.

        It is possible that any of our estimates or assumptions could ultimately turn out to be significantly different from actual results. In some cases we may be unsuccessful in obtaining an expansion permit or we may determine that an expansion permit that we previously thought was probable has become unlikely. To the extent that such estimates, or the assumptions used to make those estimates, prove to be significantly different than actual results or our belief that we will receive an expansion permit changes adversely in a significant manner, the costs of the landfill, including the costs incurred in the pursuit of the expansion, may be subject to impairment testing, as described below, and lower prospective profitability may be experienced due to increased interest accretion and depreciation or asset impairments related to the removal of previously included expansion airspace.

        Long-Lived Assets.    We periodically evaluate the net realizable value of long-lived assets, including property, plant and equipment and amortizable intangible assets, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. When indicators of potential impairment are present, the carrying values of the assets are evaluated in relation to the operating performance and estimated future discounted cash flows of the underlying business. An impairment in the carrying value of an asset is recognized whenever anticipated future cash flows (discounted) from an asset are estimated to be less than its carrying value. The amount of the impairment recognized is the difference between the carrying value of the asset and its fair value. Fair values are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

        Goodwill.    Goodwill is assessed for impairment at least annually and as triggering events occur. In making this assessment, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and market place data. There are inherent uncertainties related to these factors and management's judgment in applying them to the analysis of goodwill impairment.

        Environmental Liabilities.    We have accrued environmental liabilities, as of December 31, 2007, of approximately $184.5 million, substantially all of which we assumed as part of the acquisition 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 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.

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        The changes to closure and post-closure liabilities for the year ended December 31, 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     1,507         1,507  
Accretion     2,734     834     3,568  
Changes in estimates recorded to statement of operations     (298 )   (554 )   (852 )
Other changes in estimates recorded to balance sheet     92         92  
Settlement of obligations     (231 )   (189 )   (420 )
Currency translation, reclassifications and other     234     45     279  
   
 
 
 
Balance at December 31, 2007   $ 22,896   $ 6,833   $ 29,729  
   
 
 
 

        The $0.9 million benefit from changes in estimates above, recorded to the statement of operations, (including a $0.1 million benefit for the three months ended December 31, 2007) was due to: (i) an increase in utilization of a facility thus avoiding projected near-term closure ($0.6 million), (ii) a decrease in the 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 December 31, 2007.

        As of December 31, 2007, we had recorded discounted remedial liabilities of $154.8 million. We also estimate that it is "reasonably possible" as that term is defined in SFAS No. 5 ("more than remote but less than likely"), that the amount of such remedial liabilities could be up to $22.7 million greater than such $154.8 million.

        The changes to remedial liabilities for the year ended December 31, 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     258     4,246     2,375     6,879  
Changes in estimates recorded to statement of operations     (60 )   (3,776 )   5,285     1,449  
Settlement of obligations     (235 )   (3,450 )   (2,406 )   (6,091 )
Currency translation, reclassifications and other     802     105     1,936     2,843  
   
 
 
 
 
Balance at December 31, 2007   $ 5,682   $ 88,619   $ 60,458   $ 154,759  
   
 
 
 
 

        The net $1.4 million detriment from changes in estimates recorded to selling, general and administrative expenses on the consolidated statement of operations primarily includes: (i) proposed legal settlements and regulatory compliance obligations of $6.0 million, offset by (ii) revised estimates based on new site information ($3.3 million), and (iii) the discounting effect of delays in certain

41


remedial projects ($1.1 million). This includes a $3.0 million detriment for the three months ended December 31, 2007.

        Insurance Expense.    It is our policy to retain a significant portion of certain expected losses related primarily to workers' compensation, health insurance, comprehensive general and vehicle liability. Accruals are established for incurred losses based on information that is known at the time. Recording health insurance expense requires that estimates be made of the cost of health benefits to be provided in future periods. Actual expenditures required in future periods can differ materially from accruals established based on estimates.

        Legal Matters.    As described in Note 11, "Commitments and Contingencies," to the financial statements included in Item 8, "Financial Statements and Supplemental Data," we are subject to legal proceedings which relate to the acquisition of the CSD assets and Teris LLC or which have arisen in the ordinary course of business. Accruals are established for legal matters when, in our opinion, it is probable that a liability exists and the liability can be reasonably estimated. As of December 31, 2007, we had reserves of $32.6 million (substantially all of which we had established as part of the purchase price for the CSD assets) relating to our potential liabilities in connection with such legal proceedings which were then pending or anticipated. We also estimate that it is "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 $3.8 million greater than such $32.6 million. Because all of our reasonably possible additional losses relating to legal proceedings relate to remedial liabilities, the reasonably possible additional losses for legal liabilities are reflected in the tables of reasonably possible additional losses under the heading "Environmental Liabilities" below. Estimates of the cost to settle disputes are adjusted as facts emerge. Actual expenses incurred in future periods can differ materially from accruals established. Substantially all of our legal proceedings liabilities are environmental liabilities and, as such, are included in the tables of changes to remedial liabilities disclosed under "Environmental Liabilities."

        Provision for Income Taxes.    We are required to estimate the provision for income taxes, including the current tax expense together with assessing temporary differences resulting from differing treatments of assets and liabilities for tax and financial accounting purposes. These differences together with net operating loss carryforwards and tax credits are recorded as deferred tax assets or liabilities on the balance sheet. An assessment must then be made of the likelihood that the deferred tax assets will be recovered from future taxable income.

        In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. We 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, we also recorded an increase to our deferred tax assets of $4.7 million and a $0.4 million decrease to the valuation allowance. FIN 48 requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently affect our operating results. Prior to the adoption of FIN 48, we recorded liabilities related to uncertain tax positions based upon Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies."

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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 this report.

 
  Percentage of Total Revenues
Year Ended December 31,

 
 
  2007
  2006
  2005
  2004
  2003
 
Revenues   100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues (exclusive of items shown separately below):   70.1   70.4   72.1   72.3   74.2  
Selling, general and administrative expenses   15.8   15.1   15.2   16.2   17.8  
Accretion of environmental liabilities   1.1   1.2   1.5   1.6   1.8  
Depreciation and amortization   4.0   4.3   4.0   3.8   4.3  
   
 
 
 
 
 
Income from operations   9.0   9.0   7.2   6.1   1.9  
Other income (expense)     (0.1 ) 0.1   (0.2 )  
Loss on early extinguishment of debt     (1.0 )      
(Loss) on refinancings         (1.1 )  
Interest (expense) net   (1.4 ) (1.5 ) (3.2 ) (3.5 ) (3.9 )
   
 
 
 
 
 
Income (loss) before provision for income taxes   7.6   6.4   4.1   1.3   (2.0 )
Provision for income taxes   2.9   0.8   0.5   0.9   0.9  
   
 
 
 
 
 
Net income (loss)   4.7 % 5.6 % 3.6 % 0.4 % (2.9 )%
   
 
 
 
 
 

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 years ended December 31, 2007, 2006 and 2005. See Footnote 7 under Item 6, "Selected Financial Data," for a description of the calculation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss) and net cash provided by operating activities. 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. 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. This table and subsequent discussions should be read in conjunction with Item 8, "Financial Statements and

43



Supplementary Data," of this report and in particular Note 17, "Segment Reporting," to such financial statements.

 
  2007
  2006(1)
  2005(1)
 
Revenues:                    
  Technical Services   $ 672,213   $ 558,407   $ 472,884  
  Site Services     275,815     271,092     239,218  
  Corporate Items     (1,111 )   310     (932 )
   
 
 
 
    Total     946,917     829,809     711,170  
   
 
 
 
Cost of Revenues:                    
  Technical Services     453,660     376,788     327,559  
  Site Services     205,020     200,305     179,734  
  Corporate Items     5,760     7,742     5,289  
   
 
 
 
    Total     664,440     584,835     512,582  
   
 
 
 
Selling, General and Administrative Expenses:                    
  Technical Services     60,771     58,272     48,011  
  Site Services     24,751     26,044     22,047  
  Corporate Items     63,658     40,723     38,254  
   
 
 
 
    Total     149,180     125,039     108,312  
   
 
 
 
Adjusted EBITDA:                    
  Technical Services     157,782     123,347     97,314  
  Site Services     46,044     44,743     37,437  
  Corporate Items     (70,529 )   (48,155 )   (44,475 )
   
 
 
 
    Total(2)   $ 133,297   $ 119,935   $ 90,276  
   
 
 
 

(1)
Certain reclassifications have been made to conform to the current year presentation.

(2)
See Footnote 7 under Item 6, "Selected Financial Data," for a discussion of Adjusted EBITDA.

Year ended December 31, 2007 versus Year ended December 31, 2006

Revenues

        Total revenues for 2007 increased $117.1 million to $946.9 million from $829.8 million for 2006. Technical Services revenues for 2007 increased $113.8 million to $672.2 million from $558.4 million for 2006. The primary increases in Technical Services revenues consisted of increases in the volume and pricing of waste processed through our facilities of $44.8 million and $16.0 million, respectively. The remaining $46.3 million of the increase consisted of transportation, labor and materials revenue attributable to new business from the Teris LLC acquisition in 2006 and the Romic acquisition in 2007, as well as existing base and project business holding strong across all regions. Also contributing to the increase was $6.5 million due to the strengthening of the Canadian dollar.

        Site Services revenues for 2007 increased $4.7 million to $275.8 million from $271.1 million for 2006. Large emergency response jobs performed by Site Services during 2007 accounted for $6.9 million of our outside revenues, that were partially offset by intercompany transactions of $1.1 million, resulting in direct revenue of $5.8 million, or 2.1% of Site Services revenues. Large emergency response jobs accounted for $27.1 million of our outside revenues in 2006 primarily relating to U.S. gulf region hurricane clean up responses, that were partially offset by intercompany transactions of $2.7 million, resulting in direct revenue of $24.4 million, or 9.0% of Site Services revenues. The lack of large emergency response projects relating to hurricane clean up projects in 2007 resulted in a decrease of

44



$18.6 million from 2006. All other Site Services revenues increased $23.3 million, or 9.4%, for 2007 compared to 2006. Revenues from large remedial and planned projects increased $11.3 million, and revenues from metal and oil recycling activities improved $7.2 million in 2007. Base business in the West region increased by $3.7 million in 2007 from new operational departments and improved business at existing locations. Our Midwest region as well as transportation and container revenues increased, but were offset by decreases in base business in the Northeast and South regions. Positive foreign exchange added $0.6 million for 2007 as compared to 2006.

        Corporate Items revenues decreased $1.4 million for 2007 to $(1.1) million from $0.3 million for 2006. This decrease resulted primarily from increased intercompany costs at our inactive waste handling facilities; these increases were largely offset by compensating decreases in external costs.

        There are many factors which have impacted, and continue to impact, our revenues. These factors include, but are not limited to: 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 overcapacity. These factors also adversely influence our ability to raise prices and increase revenues.

Cost of Revenues

        Total cost of revenues for 2007 increased $79.6 million to $664.4 million, compared to $584.8 million for 2006. As a percentage of revenues, cost of revenues in 2007 decreased 0.3% to 70.2% from 70.5% in 2006.

        Technical Services cost of revenues increased $76.9 million to $453.6 million in 2007 from $376.7 million for 2006. Cost of revenues for Technical Services increased $3.9 million due to an unfavorable foreign exchange fluctuation relating to the strength of the Canadian dollar. Costs increased $25.3 million in employee labor and related costs, $11.6 million in building, equipment and vehicle repairs and rentals, $8.6 million in increased materials and supplies expense, $6.0 million in outside disposal costs, $4.8 million in outside transportation and rail expense primarily associated with large waste projects, $4.1 million in major maintenance costs at our incinerators, $2.5 million in utilities and fuel costs, $2.5 million increase in taxes and insurance, $2.3 million increase in transportation fees, $2.2 million increase in subcontractor costs, $2.2 million increase in costs associated with processing inventory, and $0.9 million increase in travel costs.

        Site Services cost of revenues for 2007 increased $4.6 million to $205.0 million from $200.4 million for 2006. During 2007, large emergency response projects performed by Site Services accounted for $4.1 million of our cost of revenues, or 2.0% of Site Services cost of revenues for 2007. In 2006, several large emergency response jobs primarily relating to U.S. gulf region hurricane clean up responses accounted for $16.5 million of our cost of revenues or 8.2% of Site Services cost of revenues for 2006. Primarily due to the lack of hurricane related response projects in 2007 resulted in a decrease of $12.4 million in large emergency response costs from 2006. All other Site Services cost of revenues increased $17.0 million, or 9.2%, for 2007 compared to 2006. Direct labor and related costs increased $8.0 million due to increased business levels and an offset to our efforts to reduce subcontract labor costs. Equipment rentals and transportation costs increased $6.1 million, materials and supplies costs increased $3.6 million, travel expenses increased $1.5 million, outside disposal expenses increased $0.8 million, and taxes and insurance costs increased $0.7 million in support of increased base business levels. These increases were offset by decreased subcontractor costs of $4.4 million due to less reliance on outside services in 2007 as compared to 2006, particularly in the Northeast and South regions. Foreign exchange impacted cost of revenues negatively by $0.5 million in 2007.

        Corporate Items cost of revenues decreased $1.9 million to $5.8 million in 2007 from $7.7 million for 2006. This change arose primarily from an increased allocation of centrally contracted insurance costs from the Corporate Items segment to Site Services and Technical Services. Some increased costs

45



associated with a former operating unit absorbed into our inactive facilities were offset by lower external costs in this category.

        We believe that our ability to manage operating costs is important 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 sourcing initiatives. We plan to continue to focus on achieving cost savings relating to purchased goods and services through a strategic sourcing initiative. No assurance can be given that our efforts to reduce future operating expenses will be successful.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses for 2007 increased $24.1 million to $149.2 million from $125.1 million in 2006.

        Technical Services selling, general and administrative costs increased $2.4 million to $60.7 million from $58.3 million for 2006 due to an unfavorable foreign exchange fluctuation of $0.3 million relating to the strength of the Canadian dollar, $5.6 million increase in salary, bonus, and employee benefit costs, and a $0.8 million increase in office and computer expenses, offset by a $1.4 million decrease in marketing and professional fees and a $3.0 million decrease from changes in environmental liability estimates.

        Site Services selling, general and administrative expenses for 2007 decreased $1.3 million to $24.8 million from $26.1 million in 2006 primarily due to $1.7 million in reduced salary and related costs, and a decrease from changes in environmental liability estimates of $0.7 million, offset by increased marketing and professional fees of $1.2 million.

        Corporate Items selling, general and administrative expenses for 2007 increased $23.0 million to $63.7 million from $40.7 million due to favorable changes in environmental liability estimates of $13.6 million in 2006, $3.4 million in additional salary costs (including severance payments), $3.2 million of additional foreign exchange losses, and a $2.8 million increase in health insurance costs.

Adjusted EBITDA Contribution

        The combined Adjusted EBITDA contribution by segments for 2007 increased $13.4 million to $133.3 million from $119.9 million for 2006. The Technical Services contribution increased $34.5 million, the Site Services contribution improved $1.4 million, and the Corporate Items cost decreased $22.5 million. The combined Adjusted EBITDA contribution was derived from revenues of $946.9 million and $829.8 million, net of cost of revenues of $664.4 million and $584.8 million and selling, general and administrative expenses of $149.2 million and $125.1 million for the years ended December 31, 2007 and 2006, respectively.

Accretion of Environmental Liabilities (see Closure and Post-Closure Liabilities below)

        Accretion of environmental liabilities for 2007 and 2006 was similar at $10.4 million and $10.2 million, respectively.

Depreciation and Amortization

        Depreciation and amortization expense of $37.6 million for 2007 increased $2.3 million from $35.3 million for 2006. The increase was primarily due to depreciation of assets acquired as part of Teris LLC of $2.8 million and Romic of $0.3 million, a $0.3 million expense in connection with an insurance loss deductible, increased amortization of software and other development costs of $1.0 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

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increases were offset by the third quarter 2006 impairment of assets and permits associated with the voluntary Chapter 11 petition of our Plaquemine, Louisiana facility, which amounted to $2.6 million.

Loss on Early Extinguishment of Debt

        During 2006 we redeemed $58.5 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 to loss on early extinguishment of debt, an aggregate of $8.5 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 $6.1 million prepayment penalties required by the Indenture in connection with such redemption.

Interest (Expense), Net

        Interest expense, net of interest income, increased $0.8 million to $13.2 million for 2007 from $12.4 million for 2006. The increase was primarily due to a $1.9 million increase related to the $30.0 million term loan issued on August 18, 2006, offset by a $0.5 million increase in capitalized interest and a $0.7 increase in interest received on deposits held in Canadian money market funds.

Income Taxes

        Income tax expense for 2007 increased $21.7 million to $28.0 million from $6.3 million for 2006. Income tax expense for 2007 consisted primarily of Canadian taxes of $3.2 million and state income tax expense of $6.9 million and a federal income tax expense of $17.9 million. The 2007 tax expense included a benefit of $0.8 million from the reversal of a portion of the valuation allowance against our U.S. net deferred tax asset and $1.9 million from adjustments of the prior year's estimated attributes. Income tax expense for 2006 consisted primarily of Canadian taxes of $4.6 million and state income tax expense of $2.4 million and a federal tax benefit of ($0.7) million. The tax expense included a benefit of $14.1 million from the reversal of a portion of the valuation allowance against our U.S. net deferred tax asset. We had no federal net operating loss carryforwards at December 31, 2007, compared with $9.2 million at December 31, 2006. We had $29.1 million and $37.7 million of state net operating loss carryovers at December 31, 2007 and December 31, 2006, respectively. Federal and state net operating losses carryforwards as of December 31, 2006 consisted of $3.4 million of excess tax benefits related to the exercise of stock options, in prior years. In 2007, benefits in the amount of $3.0 million were recorded directly to Accumulated Paid-in Capital. The total of $6.4 million did therefore not effect our current year provision.

        SFAS No. 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. Based upon our cumulative operating results, and an assessment of our expected future results of operations, during the third quarter of 2006, we determined that it had become more likely than not that we would be able to realize a substantial portion of our U.S. net operating loss carryforward tax assets prior to their expiration and realize the benefit of other net deferred tax assets. The key factors affecting our decision to release the valuation in the third quarter of 2006 included: results for the nine-month period ended September 30, 2006, exceeding projections, the number of consecutive quarters of profitability, additional verification of the success of our business plan and cost savings initiatives, and evaluation and verification of the accretive nature of the Teris LLC acquisition which was completed in the third quarter of 2006. During fiscal 2006, we reversed a total of $17.7 million of US deferred tax asset valuation allowance, of which $9.9 million related to the utilization of prior year NOLs including $2.5 million of NOLs attributable to tax deductions related to the exercise of non-qualified stock options. As of December 31, 2007, we had a remaining valuation allowance of approximately $10.0 million consisting of $8.6 million of foreign tax

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credits and $1.4 million of federal and state net operating loss carryforwards related to tax deductions for the exercise of non-qualified stock options.

        In connection with the reversal of a portion of the valuation allowance, we also recorded, in accordance Financial Accounting Standard 109, Accounting For Income Taxes, a $7.3 million adjustment to our deferred taxes associated with the 2002 acquisition of the CSD assets. Such amount was credited to the carrying value of the CSD non-current intangible assets, as there was no goodwill associated with such acquisition.

        We are subject to income taxes in both the U.S. and foreign jurisdictions, and to examination by U.S. federal and state as well as foreign tax authorities. While it is often difficult to predict the final outcome or timing of resolution of any particular tax matter, we believe that our tax reserves reflect the more likely than not outcome of known tax contingencies.

        We 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, we also recorded an increase to our deferred tax assets of $4.7 million and a $0.4 million decrease to the valuation allowance.

        Included in the balance at December 31, 2007 and January 1, 2007, were $45.3 million and $38.7 million, respectively, of unrecognized tax benefits that, if recognized, would affect the annual effective income tax rate.

        Management has elected to continue its policy of recognizing interest and penalties related to income tax matters as a component of income tax expense. The liability for unrecognized tax benefits as of December 31, 2007, included accrued interest and penalties of $13.8 million and $4.0 million, respectively. Tax expense for the year ended December 31, 2007 included interest and penalties of $4.8 million and $2.2 million respectively.

Net Income

        Net income for 2007 was $44.2 million and included a charge of $0.6 million related to changes in our environmental liabilities estimates. Net income for 2006 was $46.7 and included a benefit of $9.6 million related to a change in our estimated environmental liabilities and an $8.5 million loss on extinguishment of debt.

Conversion of Series B Preferred Stock

        As more fully described below under "Stockholder Matters," all of our remaining outstanding shares of Series B Preferred Stock were converted into common stock on December 28, 2007. For each of 2007 and 2006, dividends of $0.3 million were paid on our Series B Preferred Stock.

Year ended December 31, 2006 versus Year ended December 31, 2005

Revenues

        Total revenues for 2006 increased $118.6 million to $829.8 million from $711.2 million for 2005. Technical Services revenues for 2006 increased $85.5 million to $558.4 million from $472.9 million for 2005. Increases in Technical Services revenues consisted of a $45.2 million increase in the volume of waste processed through our facilities, primarily resulting from increased volumes of large quantity waste projects business. The improvement was also attributable to a $9.8 million increase in large waste project transportation business and a $6.6 million increase due to the strengthening of the Canadian dollar in 2006 as compared to 2005. The remaining $23.9 million increase was composed of strong base business and project work across all regions. The Teris acquisition contributed $23.0 million of the increase included in the preceding Technical Services revenue figures.

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        Site Services revenues for 2006 increased $31.9 million to $271.1 million from $239.2 million for 2005. In 2005, Site Services began work on several large emergency response projects related to U.S. gulf region hurricane clean up projects. During 2006 Site Services completed work on those projects and recorded less revenue in 2006 than in 2005 for those projects. In total for 2006, Site Services recorded for large emergency response jobs $27.1 million in outside revenues, which were partially offset by intercompany transactions of $2.7 million, resulting in direct revenue of $24.4 million, or 9.0% of Site Services revenues. In 2005, Site Services recorded for large emergency response projects $39.6 million of outside revenue, offset by intercompany transactions of $5.7 million, resulting in direct revenue $33.9 million, or 14.2% of our direct revenues for 2005. Direct revenue related to large emergency response projects therefore decreased $9.5 million from 2005 to 2006. All other Site Services revenues increased $41.4 million, or 20.2%, for 2006 as compared to 2005. Large remedial and planned projects represented an increase of $14.1 million. Growth in the South region due to small and mid-sized projects as well as new departments added $11.6 million in 2006 as compared to 2005. The recycling facilities group represented $9.4 million of this increase due to improved revenue related to the strength of commodities pricing and new business. Other areas of improvement included the North and West regions, offset by reduced revenues in the Mid-West region. Positive foreign exchange added $0.9 million for 2006 as compared to 2005. Corporate Items revenues increased $1.2 million for 2006 to $0.3 million from $(0.9) million for 2005. This increase resulted mainly from reduced intercompany costs at our inactive waste handling facilities.

        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 overcapacity. These factors adversely influenced our ability to raise prices and increase revenues.

Cost of Revenues

        Total cost of revenues for 2006 increased $72.2 million to $584.8 million, compared to $512.6 million for 2005. As a percentage of revenues, combined cost of revenues in 2006 decreased 1.6% to 70.5% from 72.1% in 2005. Technical Services cost of revenues increased $49.2 million to $376.8 million from $327.6 million for 2005. Cost of revenues for Technical Services increased $4.1 million due to an unfavorable foreign exchange fluctuation relating to the strength of the Canadian dollar. Costs increased by $17.2 million in outside transportation and rail expense primarily associated with large waste projects, $12.2 million in employee labor and related costs, $8.6 million in increased materials and supplies expense, $6.2 million in building, equipment and vehicle repairs and rentals, $2.4 million in utilities and fuel costs, $1.8 million in major maintenance at our incinerators, $0.6 million in travel expense, $0.6 million increase in change in estimate, $0.5 million in increased royalties, and $0.2 million in increased outside disposal costs in the year ended December 31, 2006, as compared to 2005. These increases were partially offset by a $2.4 million decrease in costs associated with processing inventory, $1.6 million decrease in subcontracting, $0.9 million decrease in fees and discharge costs and $0.3 million in outside laboratory fees.

        Site Services cost of revenues for 2006 increased $20.6 million to $200.3 million from $179.7 million for 2005. As discussed above, activity for large emergency response projects relating to U.S. gulf region hurricane clean up projects lessened in 2006 from 2005. As a result, total costs related to large emergency response projects declined to $16.5 million or 8.2% of Site Services cost of revenues in 2006 from $21.2 million of our cost of revenues, or 11.8% of cost of revenues for 2005. All other Site Services cost of revenues increased $25.3 million, or 15.9%, for 2006 compared to 2005. Materials and supplies costs increased $11.4 million, primarily from increased product acquisition costs in our recycling and chemical sales group. Subcontracting costs increased $5.9 million, direct labor and related costs increased $5.6 million, equipment rental and related transportation costs increased $5.4 million

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and travel expenses increased $0.7 million in support of increased overall business levels. These increases were offset by a decrease in outside disposal of $4.2 million as disposal project waste was internalized. Corporate Items cost of revenues increased $2.4 million to $7.7 million in 2006 from $5.3 million for 2005. This increase related primarily to a $1.6 million change in estimate credit for financial assurance in 2005. In 2006, increased insurance and property tax expense of $3.6 million were offset by lower employee benefit costs of $1.9 million, and lower payroll taxes, license and other costs of $0.9 million.

        We believe that our ability to manage operating costs is important 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, continued modifications and upgrades at our facilities, and implementation of strategic sourcing initiatives. We plan to continue to focus on achieving cost savings relating to purchased goods and services through the strategic sourcing initiative. No assurance can be given that our efforts to manage future operating expenses will be successful.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses for 2006 increased $16.8 million to $125.1 million from $108.3 million in 2005. Technical Services selling, general and administrative costs increased $10.3 million to $58.3 million from $48.0 million for 2005 due to an unfavorable foreign exchange fluctuation of $0.6 million relating to the strength of the Canadian dollar, $6.9 million increase in salary, bonus and employee benefit costs, $3.3 million increase in change in estimate of environmental liabilities offset by a $0.5 million decrease in professional fees. Site Services selling, general and administrative expenses for 2006 increased $4.1 million to $26.1 million from $22.0 million in 2005. Sales, administrative and field salaries, benefits and incentive compensation increased $3.4 million from 2005 to 2006 and environmental costs increased $0.6 million. Corporate Items selling, general and administrative expenses for 2006 increased $2.4 million to $40.7 million from $38.3 million in 2005 due to $5.4 million in additional payroll, stock-based and incentive compensation, and an additional $0.9 million in professional services, offset by a $3.6 million net increase in favorable changes in estimates in environmental liabilities and $0.2 million net reduction in other costs.

Adjusted EBITDA Contribution

        The combined adjusted EBITDA contribution by segments for 2006 increased $29.6 million to $119.9 million from $90.3 million for 2005. The Technical Services contribution increased $26.0 million, the Site Services contribution improved $7.2 million, and the Corporate Items cost decreased $3.6 million. The combined adjusted EBITDA contribution was derived from revenues of $829.8 million and $711.2 million, net of cost of revenues of $584.8 million and $512.6 million and selling, general and administrative expenses of $125.1 million and $108.3 million for the years ended December 31, 2006 and 2005, respectively.

Accretion of Environmental Liabilities (see Closure and Post Closure Liabilities below)

        Accretion of environmental liabilities for 2006 and 2005 was similar at $10.2 million and $10.4 million, respectively.

Depreciation and Amortization

        Depreciation and amortization expense of $35.3 million for 2006 increased $6.7 million from $28.6 million for 2005. This increase resulted primarily from a $2.6 million impairment of permits and other long-lived assets at the Plaquemine, Louisiana facility, $2.1 million related to the acquired assets of Teris LLC, $1.5 million related to changes in estimates and increased volumes at landfill sites, and $0.4 million connected with the write-down of leasehold improvements at former corporate offices.

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Other Income (Expense)

        For 2005, other income consisted primarily of a $0.6 million gain related to the settlement of an insurance claim.

Loss on Early Extinguishment of Debt

        During 2006 we redeemed $58.5 million principal amount of outstanding Senior Secured Notes and paid prepayment penalties and accrued interest through the redemption dates. In connection with such redemptions, we recorded to loss on early extinguishment of debt, an aggregate of $8.5 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 $6.1 million prepayment penalties required by the Indenture in connection with such redemptions.

Interest (Expense), Net

        Interest expense, net of interest income, decreased $10.4 million to $12.4 million for 2006 from $22.8 million for 2005. The decrease was primarily due to the redemption of $52.5 million of Senior Secured Notes on January 12, 2006, the reduction of fees related to our Synthetic Letter of Credit facility and $1.9 million of interest that was capitalized, effectively reducing net interest expense in 2005, relating to a capital project to comply with air emission standards at our Deer Park incineration facility.

        We amended and restated on December 1, 2005 our existing Revolving Credit and Synthetic Letter of Credit Facilities. As a result of that amendment and restatement, the fees which we pay with respect to our new $50.0 million Synthetic Letter of Credit Facility were reduced as of December 1, 2005 from the 5.35% per annum which was payable under our former $90.0 million Synthetic Letter of Credit Facility to 3.10% per annum, and approximately $40.0 million of letters of credit previously outstanding under our Synthetic Letter of Credit Facility (for which we had paid fees of 5.35% per annum) were replaced by letters of credit issued under our Revolving Credit Facility (for which we pay fees of 1.50% per annum). In addition, during the first quarter of 2006, we redeemed $52.5 million principal amount of our outstanding 11.25% senior secured notes due 2012 and paid a prepayment penalty of $5.9 million and accrued interest of $2.9 million in connection with such redemption. Concurrently with such redemption of $52.5 million of our outstanding 11.25% senior secured notes, the fees payable under our new $50.0 million Synthetic Letter of Credit Facility were reduced from 3.10% per annum to 2.85% per annum. Furthermore, we repurchased on October 24, 2006, $6.0 million principal amount of our outstanding 11.25% senior secured notes in connection with an excess cash flow offer made in accordance with the requirements of the indenture under which the senior secured notes were issued.

Income Taxes

        Income tax expense for 2006 increased $2.8 million to $6.3 million from $3.5 million for 2005. Income tax expense for 2006 consisted primarily of Canadian taxes of $4.6 million and state income tax expense of $2.4 million and a federal tax benefit of ($0.7) million. The tax expense includes a benefit of $14.1 million from the reversal of a portion of the valuation allowance against our U.S. net deferred tax asset. Income tax expense for 2005 consisted primarily of Canadian taxes of $2.3 million, federal alternative minimum tax of $0.4 million, and state income tax expense of $0.8 million. We had $9.2 million and $47.4 million of federal net operating loss carryforwards at December 31, 2006 and December 31, 2005, respectively. We had $37.7 million and $43.0 million of state net operating loss carryovers at December 31, 2006 and December 31, 2005, respectively.

        SFAS No. 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, at December 31, 2005, our U.S. net

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operating losses ("NOLs") and other deferred tax assets were fully offset by a valuation allowance primarily because we believed that it was more likely than not that some portion or all of the deferred tax assets would not be realized. Based upon our cumulative operating results, and an assessment of our expected future results of operations, during the third quarter of 2006, we determined that it had become more likely than not that we would be able to realize a substantial portion of our U.S. net operating loss carryforward tax assets prior to their expiration and realize the benefit of other net deferred tax assets. The key factors affecting our decision to release the valuation in the third quarter of 2006 included: results for the nine-month period ended September 30, 2006, exceeding projections, the number of consecutive quarters of profitability, additional verification of the success of our business plan and cost savings initiatives, and evaluation and verification of the accretive nature of the Teris LLC acquisition which was completed in the third quarter of 2006. During fiscal 2006, we reversed a total of $17.7 million of US deferred tax asset valuation allowance of which $9.9 million related to the utilization of prior year NOLs including $2.5 million of NOLs attributable to tax deductions related to the exercise of non-qualified stock options. As of December 31, 2006, we have a remaining valuation allowance of approximately $12.4 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.

        In connection with the reversal of a portion of the valuation allowance, we also recorded, in accordance Financial Accounting Standard 109, Accounting For Income Taxes, an adjustment for $7.3 million to our deferred taxes associated with the 2002 CSD acquisition. Such amount was credited to the carrying value of the CSD non-current intangible assets, as there was no goodwill associated with such acquisition.

        We are subject to income taxes in both the U.S. and foreign jurisdictions, and to examination by U.S. federal and state as well as foreign tax authorities. While it is often difficult to predict the final outcome or timing of resolution of any particular tax matter, we believe that our tax reserves reflect the probable outcome of known tax contingencies.

        During 2006, we re-evaluated the 2004 restructuring of our Canadian operations. In connection with this re-evaluation, we identified certain additional tax contingencies. Although such contingencies are not deemed probable, our management estimates that it is reasonably possible that such tax contingencies could result in additional tax liabilities of approximately $7.0 million exclusive of interest at December 31, 2006.

        In connection with our acquisition of the CSD assets in 2002, we fair valued certain preacquisition tax contingencies and established tax reserves for potential tax assessments and statutory interest related to the acquisition. The amount of such contingencies was $13.7 million and was increased to $15.6 and $14.4 million in 2006 and 2005, respectively. The increase of $1.2 in 2006 and $0.7 million in 2005 was for statutory interest related to these potential assessments. Should we reduce the $13.7 million in tax contingencies in future periods, either as the result of changes in our estimates or settlements, the effect of those reductions will be recorded as a decrease in acquisition related intangible assets, rather than a tax provision benefit. Reductions associated with the statutory interest recorded in 2005 and 2006, or statutory interest recorded in future periods, would be a tax provision benefit.

Net Income

        Net income for 2006 was $46.7 and included a benefit of $9.6 million related to a change in our estimated environmental liabilities and an $8.5 million loss on extinguishment of debt. Net income for 2005 was $25.6 million and included a benefit of $11.3 million related to a change in our estimated environmental liabilities and an insurance settlement gain of $1.9 million.

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Redemption of Series C Redeemable Preferred Stock and Dividends and Accretion on Preferred Stock

        We redeemed 25,000 shares of Series C Preferred Stock on June 30, 2004. For each of 2006 and 2005, redemption of Series C Redeemable Preferred Stock and dividends and accretion on preferred stocks included dividends on our Series B Preferred Stock of $0.3 million.

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 December 31, 2007, cash and cash equivalents were $119.5 million, marketable securities were $0.9 million, and funds available to borrow under the Revolving Facility were $30.2 million.

        We intend to use our existing cash and cash equivalents, marketable securities and cash flow from operations to provide for our working capital needs, for additional contingent purchase price associated with the Romic acquisition, and to fund 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. We have accrued environmental liabilities as of December 31, 2007 of approximately $184.5 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.

        We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our primary ongoing cash requirements will be to fund operations, capital expenditures, and investments in line with the business strategy. Our primary sources of liquidity are internally generated cash flows and borrowings under our revolving credit facility. The first quarter of each fiscal year is typically a quarter with heavier cash usage; however, we believe our future operating cash flows will be sufficient to meet our future operating and investing cash needs. Furthermore, our ability to obtain equity financing, as well as availability of additional borrowings under our revolving credit facility, provide additional potential sources of liquidity should they be required.

        For the year ended December 31, 2007, we had a net increase of cash of $80.0 million from our operating activities. We reported net income for the period of $44.2 million. In addition, non-cash expenses during this period were $47.3 million. These non-cash expenses consisted primarily of $37.6 million for depreciation and amortization, $10.4 million for the accretion of environmental liabilities, a reduction of $7.5 million of deferred income taxes, $4.8 million for stock based compensation, $1.9 million for amortization of deferred financing costs and debt discount, $0.6 million reduction in change in environmental liabilities, and a reduction of $0.4 million in allowance for doubtful accounts. Net use of cash for working capital purposes totaled $11.5 million and consisted primarily of a $19.1 million increase in accounts receivable, $6.5 million of environmental expenditures, an increase of $2.9 million in other assets, a decrease of $4.6 million in accounts payable, and a $1.9 million increase in supplies inventory, offset by a $15.7 million increase in income tax payable, an increase of $6.2 million in other accrued expenses, and a decrease in unbilled receivables of $1.6 million.

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        For the year ended December 31, 2007, we used $42.8 million of net cash in our investing activities. Uses of cash totaled $47.5 million and consisted primarily of additions to property, plant, and equipment of $36.5 million, acquisition costs of $7.4 million, purchases of marketable securities of $2.3 million, and costs associated to obtain or renew permits and intangibles of $1.3 million. Sources of cash totaled $4.8 million, and consisted of $3.2 million from the sales of marketable securities, $0.9 million in proceeds from an insurance claim, and $0.6 million in proceeds from the sale of fixed assets.

        For the year ended December 31, 2007, our financing activities resulted in a net cash increase of $2.7 million and consisted primarily of $6.4 million in excess tax benefit of stock-based compensation, $2.8 million from the exercise of stock options and warrants, and proceeds from the employee stock purchase plan of $1.2 million, partially offset by a $5.9 million decrease in uncashed checks, $1.5 million payments on capital leases, and $0.2 million in dividends on preferred stock.

        For the year ended December 31, 2006, we generated approximately $61.4 million of cash from operating activities. We reported net income for the period of $46.7 million. In addition, we reported non-cash expenses during this period totaling $37.5 million. These non-cash expenses consisted primarily of $35.3 million of depreciation and amortization, accretion of environmental liabilities of $10.2 million, $3.4 million of stock-based compensation, a $2.4 million write-off of deferred financing costs and debt discount and $1.5 million of amortization of deferred financing costs. Other reductions of non-cash expense consisted primarily of $6.4 million of deferred income tax benefit and $9.6 million of reductions in environmental liability estimates. Uses of cash for working capital purposes totaled $30.2 million, reducing cash flow from operations by the same amount, and consisted primarily of an increase in accounts receivable of $5.0 million, an increase in unbilled accounts receivable of $5.7 million, environmental expenditures of $7.6 million and a decrease in accounts payable of $4.7 million. These uses of cash were partially offset by sources of cash from working capital that totaled $7.5 million and consisted of increases in deferred revenue of $3.9 million, income tax payable of $2.7 million, and other assets of $0.9 million.

        For the year ended December 31, 2006, we used $98.9 million of cash in our investing activities. Sources of cash totaled $51.3 million and consisted of sales of restricted investments of $3.5 million, proceeds from the sale of assets of $2.0 million, proceeds from an insurance claim of $0.4 million and sales of marketable securities of $45.4 million. Cash used in investing activities totaled $150.1 million and consisted of the purchase price for Teris LLC of $51.5 million, purchases of property, plant and equipment of $40.7 million, purchases of marketable securities of $55.6 million, and costs associated with the renewal of permits of $2.3 million.

        The purchase price was subject to post-closing adjustments based upon the amount by which Teris' net working capital as of the closing date exceeded or was less than $10.3 million and the amount by which capital spending incurred year-to-date by Teris exceeded or was less than the budgeted spending. Any adjustments to such estimate will result in a reduction or increase in the purchase price which will affect liquidity.

        For the year ended December 31, 2006, our financing activities resulted in a net use of cash of $20.3 million. This use consisted primarily of principal payments on our debt of $58.5 million, offset by $30.0 million in proceeds from our term loan, the exercise of stock options and warrants of $7.6 million and the excess tax benefit of stock based compensation of $5.2 million.

        At December 31, 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

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$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 each of them are discussed further in Note 10, "Financing Arrangements," to our financial statements included in Item 8 of this report. At December 31, 2007, under the Revolving Facility, we had no borrowings outstanding and $39.8 million of letters of credit outstanding, and had approximately $30.2 available to borrow.

        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 period's 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 Indenture's requirement to make Excess Cash Flow Offers in respect of Excess Cash Flow earned in subsequent twelve-month periods will remain in effect.

        As discussed in Note 12, "Income Taxes," to our financial statements included in Item 8 of this report, we have significant liabilities associated with potential tax liabilities and related interest and penalties aggregating $50.1 million. 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, which related to unrecognized tax benefits for which the statute of limitations might expire without examination by the respective taxing authority; however, we do not believe material cash payments will be required in the next 12 months.

Contractual Obligations

        The following table has been included to assist the reader in analyzing our debt and similar obligations as of December 31, 2007 and our ability to meet such obligations (in thousands):

 
   
  Payments Due by Period
Contractual Obligations

  Total
  Less than
1 year

  1-3 years
  4-5 years
  After 5 years
Closure, post-closure and remedial liabilities   $ 444,386   $ 19,207   $ 38,790   $ 29,550   $ 356,839
Pension funding     3,910     278     581     673     2,378
Long-term debt     121,518         30,000     91,518    
Interest on long-term obligations     52,695     10,611     21,054     21,030    
Capital leases     3,070     1,375     1,041     632     22
Operating leases     104,929     22,650     37,196     19,334     25,749
   
 
 
 
 
Total contractual obligations   $ 730,508   $ 54,121   $ 128,662   $ 162,737   $ 384,988
   
 
 
 
 

Note: As we are not able to reasonably estimate when we would make any cash payments to settle uncertain tax position liabilities, such amounts have not been included in the table above.

55


        The undiscounted value of closure, post closure and remedial liabilities of $444.4 million is equivalent to the present value of $184.5 million based on discounting of $169.7 million and the remainder of $90.2 million to be accrued for closure and post-closure liabilities over the remaining site lives.

        The following table has been included to assist the reader in understanding other contractual obligations we had as of December 31, 2007 and our ability to meet these obligations (in thousands):

 
   
  Payments Due by Period
Other Commercial Commitments

  Total
  Less than
1 year

  1-3 years
  4-5 years
  After 5 years
Standby letters of credit   $ 89,657   $ 88,938   $ 350   $ 369   $
   
 
 
 
 
Total commercial commitments   $ 89,657   $ 88,938   $ 350   $ 369   $
   
 
 
 
 

        We obtained substantially all of the standby letters of credit described in the above table as security for financial assurance obligations which we have been required to provide to regulatory bodies for the hazardous waste facilities and which would be called only in the event that we failed to satisfy closure, post-closure and other obligations under the permits issued by those regulatory bodies for such licensed facilities. As further discussed in Note 10, "Financing Arrangements," to our financial statements included in Item 8 of this report, we initially obtained substantially all of the standby letters of credit described in the above table under the $90.0 million Synthetic LC Facility established under our Original Credit Agreement dated June 30, 2004, and on December 1, 2005, we replaced approximately $40.0 million of those outstanding standby letters of credit with letters of credit issued under the $70.0 million Revolving Facility established under our Amended Credit Agreement dated December 1, 2005. Under our Amended Credit Agreement, Bank of America, N.A., will issue at our request up to $50.0 million of letters of credit under the Revolving Facility established under that Agreement and Credit Suisse will issue at our request up to $50.0 million of letters of credit under the $50.0 million Synthetic LC Facility established under that Agreement. If any of the letters of credit issued under those facilities were to be called and we failed to satisfy on a timely basis our reimbursement obligations to the issuers of those letters of credit, Bank of America, N.A., and/or Credit Suisse would be entitled, as the administrative agents for the lenders under those facilities, to exercise their rights as secured creditors on substantially all of the assets of Clean Harbors, Inc. and our U.S. subsidiaries.

        Except for our obligations under operating leases and letters of credit described above under "Contractual Obligations" and performance obligations incurred in the ordinary course of business, we are not now party to any off-balance sheet arrangements involving guarantee, contingency or similar obligations to entities whose financial statements are not consolidated with our results and that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors in our securities.

        We anticipate that 2008 capital spending will be between $55.0 million and $60.0 million, of which $2.6 million relates to complying with environmental regulations. However, changes in environmental regulations can require us to make significant capital expenditures for our facilities and adversely affect our results of operations and cash flow. For example, in 2002, the EPA promulgated Interim Standards of the Hazardous Waste Combustor Maximum Achievable Control Technology ("MACT") under the Federal Clean Air Act Amendments. These standards established new emissions limits and operational

56


controls on all new and existing incinerators, cement kilns and light-weight aggregate kilns that burn hazardous waste-derived fuels. We have spent approximately $28.9 million since September 7, 2002 in order to bring our Deer Park, Texas and Aragonite, Utah incineration facilities which we then acquired as part of the CSD assets and Kimball, Nebraska into compliance with the MACT regulations. During 2006, we acquired an additional incineration facility located in Arkansas as part of our purchase of all of the membership interests in Teris LLC. Prior to that purchase, Teris LLC had spent in excess of $30 million in order to bring that incinerator into compliance with the MACT standards.

        As of December 31, 2007, we had a total of $9.4 million invested in "auction rate securities". Auction rate securities are generally long-term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at predetermined calendar intervals, generally every 28 days. This mechanism generally allows existing investors to rollover their holdings and continue to own their respective securities or liquidate their holdings by selling their securities at par value. As of March 10, 2008, we held approximately $8.5 million in auction rate securities as we had reinvested $0.85 million of auction rate securities held at year end into money market funds. During the first quarter of 2008, auctions failed for the balance of our auction rate securities totaling $8.5 million, and we are now earning interest on such securities at a higher rate than on similar securities from which auctions have cleared. An auction failure means that those parties then wishing to sell such securities could not because the amount of securities then offered for sale exceeded the purchase orders.

        We have the ability and intent to hold our remaining auction rate securities until a successful auction occurs and the securities are liquidated at par value. However, due to the current uncertainties in the market, there is no assurance that auctions for the remaining auction rate securities in our portfolio will succeed at the next interest reset date, and therefore our ability to liquidate our investments in such securities in the near term may be limited. All of our auction rate securities are currently rated AAA, the highest rating by the agencies, and consist of obligations of various issuers collateralized by student loans which are substantially backed by the federal government. We believe we will be able to liquidate our investment in auction rate securities during this year without material impact. However, because of the failed auctions which have occurred, and until there is a successful auction for them, $8.5 million of our investment in auction rate securities has been reclassified from current to non-current assets on our balance sheet as of December 31, 2007. If the issuers are unable to successfully close future auctions and the credit ratings deteriorate, we may in the future be required to record an impairment on these investments. Based on our expected operating cash flows and other sources of cash, we do not anticipate the credit impact on the auction rate securities market will affect our ability to execute our current operating plan.

Stockholder Matters

        On May 18, 2005, Clean Harbors, Inc. filed Restated Articles of Organization with the Massachusetts Secretary of State. As of the date of these Restated Articles of Organization, the Series B Convertible Preferred Stock was the only series of preferred stock which then remained authorized and outstanding. As a result of the filing, the authorized shares of common stock increased from 20,000,000 to 40,000,000, the authorized shares of Series A Convertible Preferred Stock decreased from 894,585 to zero and the authorized shares of Series C Convertible Preferred Stock decreased from 25,000 to zero. The current authorized number of shares is 40,000,000 for common stock and 1,080,415 for preferred stock (of which 156,416 have been designated as Series B Convertible Preferred Stock).

        As discussed in Note 14, "Stockholders' Equity," to our financial statements included in Item 8 of this report, we issued on June 30, 2004, warrants to purchase 2.8 million shares of our common stock and paid $0.4 million of cash in lieu of warrants for certain other conversion rights of the holders of

57



our previously outstanding Series C Preferred Stock. The warrants provide for an exercise price of $8.00 per common share and an expiration date of September 10, 2009. As of December 31, 2004, there were 2,775,000 warrants outstanding. On February 11, 2005, warrants for 717,060 shares were exercised in a cashless exercise that resulted in the issuance of 420,571 shares of common stock and cancellation of 296,489 warrants as payment of the exercise price of the issued shares. In October 2005, warrants for an aggregate of 1,559,250 shares were exercised for $12.5 million in cash. In December 2007, warrants for an aggregate of 150,000 shares were exercised for $1.2 million in cash. As of December 31, 2007 and 2006, warrants for an aggregate of 348,690 shares and 498,690 shares, respectively, remained outstanding.

        On February 16, 1993, we issued 112,000 shares of Series B Convertible Preferred Stock, $0.01 par value ("Series B Preferred Stock"), for the acquisition of our Spring Grove facility. The liquidation value of each share of Series B Preferred Stock was the liquidation preference of $50.00 plus accrued but unpaid dividends. Series B Preferred Stock might be converted by the holder into common stock at a conversion rate which, as of December 31, 2006, was equal to $16.45 per share and was subject to customary antidilution adjustments. There was no expiration date associated with the conversion option. Subject to the conversion rights of the holders of the Series B Preferred Stock, we had the option to redeem the Series B Preferred Stock at the liquidation preference plus any accrued but unpaid dividends with no redemption premium provided the redemption occurred after August 16, 2001. On October 19, 2004, 42,000 shares of Series B Preferred Stock were converted into 127,680 shares of common stock. On November 29, 2005, 1,000 shares of Series B Preferred Stock were converted into 3,040 shares of common stock. As of each of December 31, 2006 and 2005, we had 69,000 shares of Series B Preferred Stock outstanding. On December 28, 2007, we issued an aggregate of 209,200 shares of common stock, $.01 par value, in connection with the conversion (at the holders' elections) of all of the remaining previously outstanding 68,810 shares of Series B Preferred Stock.

        During the period that shares of Series B Preferred Stock were outstanding, dividends were 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 could elect to pay dividends in cash or in common stock with a market value equal to the amount of the dividends payable. During the three years ended December 31, 2007, we paid in cash all dividends on the Series B Preferred Stock.

New Accounting Pronouncements

        Information regarding our assessment of new accounting pronouncements can be found in Note 3, "Significant Accounting Policies," to the consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data." The most significant of such information is as follows:

        In December 2006, the FASB issued FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements ("FSP EITF 00-19-2") which provides guidance on the accounting for registration payment arrangements. FSP EITF 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. A registration payment arrangement is defined in FSP EITF 00-19-2 as an arrangement with both of the following characteristics: (1) the arrangement specifies that the issuer will endeavor (a) to file a registration statement for the resale of specified financial instruments and/or for the resale of equity shares that are issuable upon exercise or conversion of specified financial instruments and for that registration statement to be declared effective by the Securities and Exchange Commission within a specified grace period, and/or (b) to maintain the effectiveness of the registration statement for a specified period of time (or in perpetuity); and (2) the arrangement requires the issuer to transfer consideration to the counterparty if the registration statement for the resale of the financial instrument or instruments subject to the arrangement is not declared effective or if effectiveness of the

58



registration statement is not maintained. FSP EITF 00-19-2 is effective for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to December 21, 2006. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of FSP EITF 00-19-2, this guidance shall be effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. The adoption of FSP EITF 00-19-2 on January 1, 2007 did not have an impact on our financial position or results of operations.

        In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("FAS 157"). FAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. FAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. FAS 157 does not expand or require any new fair value measures, however the application of this statement may change current practice. The requirements of FAS 157 are effective for fiscal years beginning after November 15, 2007. However, the FASB has deferred the implementation of SFAS 157 by one year for certain non-financial assets and liabilities, for which SFAS 157 will be effective for the fiscal year beginning January 1, 2009. Our management is evaluating the effect that adoption of FAS 157 will have on our financial position and results of operations.

        In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("FAS 159"). This statement, which is expected to expand fair value measurement, permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective beginning in the first quarter of 2008. Management is assessing the impact FAS 159 may have on our financial position and results of operations.

        In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS 141R") and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51 ("SFAS 160"). SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 141R and SFAS 160 are effective for us beginning in the first quarter of fiscal 2009. Early adoption is not permitted. We are evaluating the impact that SFAS 141R and SFAS 160 will have on our financial position and results of operations.

59


ITEM 7A.    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 December 31, 2007 (in thousands):

Scheduled Maturity Dates

  2008
  2009
  2010
  2011
  2012
  Thereafter
  Total
Senior Secured Notes   $   $   $   $   $ 91,518   $   $ 91,518
Capital Lease Obligations     1,251     907     479     113     21         2,771
   
 
 
 
 
 
 
    $ 1,251   $ 907   $ 479   $ 113   $ 91,539   $   $ 94,289
   
 
 
 
 
 
 
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, we had at December 31, 2007 (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 December 31, 2007, we had: (i) no borrowings and $39.8 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, 2007, 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%. Had the interest rate on our variable borrowings been 10% higher, we would have reported decreased net income of $0.2 million for each of the years ended December 31, 2007 and 2006.

        We are subject to market risks associated with our investment in auction rate securities which aggregated $8.5 million as of December 31, 2007. Auction rate securities are generally long-term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at predetermined calendar intervals, generally every 28 days. This mechanism generally allows existing investors to rollover their holdings and continue to own their respective securities or liquidate their holdings by selling their securities at par value. Our investments in auction rate securities consist of obligations of various issuers collateralized by student loans which are substantially backed by the federal government. In February 2008 uncertainties in the credit markets prevented the Company and other investors from liquidating their holdings of auction rate securities because the amount of securities submitted for sale then exceeded the amount of purchase orders. We are uncertain as to when the liquidity issues relating to these investments will improve, and accordingly classified these securities as non-current as of December 31, 2007. If the markets for these investments deteriorate, we may in the future be required to record an impairment on these investments.

        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 years

60



ended December 31, 2007 and 2006, total foreign currency losses were $2.9 million and gains were $0.3 million, respectively, primarily between U.S. and Canadian dollars. The Canadian subsidiaries transact approximately 21.7% 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 years ended December 31, 2007 and 2006, the U.S. dollar fell 15.2% and rose 0.7%, respectively against the Canadian dollar, resulting in foreign currency exchange losses of $2.9 million and exchange gains of $0.4 million, respectively.

        Exchange rate movements also affect the translation of Canadian generated profits and losses into U.S. dollars. The average exchange rate for the years ended December 31, 2007 and 2006, was 1.07 and 1.14 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 $1.0 million and $1.1 million for the years ended December 31, 2007 and 2006, respectively ($2.1 million loss arising from balance sheet translation, offset by $1.1 million gain arising from income statement translation and $2.7 million loss arising from balance sheet translation, offset by $1.6 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 $1.0 million and $1.1 million for the years ended December 31, 2007 and 2006, respectively ($2.1 million gain arising from balance sheet translation, offset by $1.1 million loss arising from income statement translation and $2.7 million gain from balance sheet translation, offset by a $1.6 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.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Clean Harbors, Inc.
Norwell, Massachusetts

        We have audited the accompanying consolidated balance sheets of Clean Harbors, Inc. and subsidiaries (the "Company") as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Clean Harbors, Inc. and subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

        As discussed in Notes 3, 12 and 15, the Company adopted (i) FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, effective January 1, 2007; and (ii) Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective January 1, 2006.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2008 expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 10, 2008

62



CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

(dollars in thousands)

 
  As of December 31,
 
  2007
  2006
Current assets:            
  Cash and cash equivalents   $ 119,538   $ 73,550
  Marketable securities     850     10,240
  Accounts receivable, net of allowances aggregating $6,105 and $4,271, respectively     193,126     169,581
  Unbilled accounts receivable     14,703     16,078
  Deferred costs     7,359     7,140
  Prepaid expenses and other current assets     10,098     9,451
  Supplies inventories     22,363     20,101
  Deferred tax assets     11,491     9,238
  Properties held for sale     910     7,440
   
 
    Total current assets     380,438     322,819
   
 
Property, plant and equipment:            
  Land     22,273     15,873
  Asset retirement costs (non-landfill)     1,438     1,415
  Landfill assets     29,925     11,399
  Buildings and improvements     112,469     105,190
  Vehicles     22,854     25,192
  Equipment     274,619     249,981
  Furniture and fixtures     1,454     1,400
  Construction in progress     18,702     24,950
   
 
      483,734     435,400
Less—accumulated depreciation and amortization     221,133     191,274
   
 
      262,601     244,126
   
 
Other assets:            
  Long-term investments     8,500    
  Deferred financing costs     5,881     7,206
  Goodwill     21,572     19,032
  Permits and other intangibles, net of accumulated amortization of $36,443 and $30,386, respectively     74,809     65,743
  Investment in joint venture         2,208
  Deferred tax assets     12,176     6,388
  Other     3,911     3,286
   
 
      126,849     103,863
   
 
    Total assets   $ 769,888   $ 670,808
   
 

The accompanying notes are an integral part of these consolidated financial statements.

63


CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

LIABILITIES AND STOCKHOLDERS' EQUITY

(dollars in thousands)

 
  As of December 31,
 
  2007
  2006
Current liabilities:            
  Uncashed checks   $ 5,489   $ 11,083
  Current portion of capital lease obligations     1,251     1,391
  Accounts payable     81,309     81,432
  Deferred revenue     29,730     29,409
  Other accrued expenses     65,789     56,999
  Current portion of closure, post-closure and remedial liabilities     18,858     13,707
  Income taxes payable     8,427     4,333
   
 
    Total current liabilities     210,853     198,354
   
 
Other liabilities:            
  Closure and post-closure liabilities, less current portion of $5,527 and $2,035, respectively     24,202     23,520
  Remedial liabilities, less current portion of $13,331 and $11,672, respectively     141,428     136,173
  Long-term obligations     120,712     120,522
  Capital lease obligations, less current portion     1,520     2,648
  Unrecognized tax benefits and other long-term liabilities     68,276     16,405
   
 
    Total other liabilities     356,138     299,268
   
 
Commitments and contingent liabilities            
Stockholders' equity:            
  Preferred stock, $.01 par value:            
    Series B convertible preferred stock: authorized 0 and 156,416 shares; issued and outstanding 0 and 69,000 shares, respectively (liquidation preference of $3.5 million)         1
  Common stock, $.01 par value:            
    Authorized 40,000,000 shares; issued and outstanding 20,327,533 and 19,685,002 shares, respectively     203     197
  Treasury stock     (1,170 )  
  Additional paid-in capital     166,653     151,691
  Accumulated other comprehensive income     17,498     8,939
  Accumulated earnings     19,713     12,358
   
 
    Total stockholders' equity     202,897     173,186
   
 
    Total liabilities and stockholders' equity   $ 769,888   $ 670,808
   
 

The accompanying notes are an integral part of these consolidated financial statements.

64



CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

 
  For the years ended December 31,
 
 
  2007
  2006
  2005
 
Revenues   $ 946,917   $ 829,809   $ 711,170  
Cost of revenues (exclusive of items shown separately below)     664,440     584,835     512,582  
Selling, general and administrative expenses     149,180     125,039     108,312  
Accretion of environmental liabilities     10,447     10,220     10,384  
Depreciation and amortization     37,590     35,339     28,633  
   
 
 
 
Income from operations     85,260     74,376     51,259  
Other income (expense)     135     (447 )   611  
Loss on early extinguishment of debt         (8,529 )    
Interest expense, net of interest income of $4,023, $3,589, and $1,403, respectively     (13,157 )   (12,447 )   (22,754 )
   
 
 
 
Income before provision for income taxes and equity interest in joint venture     72,238     52,953     29,116  
Provision for income taxes     28,040     6,339     3,495  
Equity interest in joint venture         (61 )    
   
 
 
 
Net income     44,198     46,675     25,621  
Dividends on Series B Preferred Stock     206     276     279  
   
 
 
 
Net income attributable to common stockholders   $ 43,992   $ 46,399   $ 25,342  
   
 
 
 
Earnings per share:                    
  Basic income attributable to common stockholders   $ 2.22   $ 2.38   $ 1.62  
   
 
 
 
  Diluted income attributable to common stockholders   $ 2.14   $ 2.26   $ 1.45  
   
 
 
 

Weighted average common shares outstanding

 

 

19,827

 

 

19,526

 

 

15,629

 
   
 
 
 
Weighted average common shares outstanding plus potentially dilutive common shares     20,630     20,657     17,717  
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

65



CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  For the years ended December 31,
 
 
  2007
  2006
  2005
 
Cash flows from operating activities:                    
  Net income (loss)   $ 44,198   $ 46,675   $ 25,621  
  Adjustments to reconcile net income to net cash from operating activities:                    
    Depreciation and amortization     37,590     35,339     28,633  
    Allowance for doubtful accounts     (418 )   88     (105 )
    Amortization of deferred financing costs and debt discount     1,940     1,616     1,669  
    Accretion of environmental liabilities     10,447     10,220     10,384  
    Changes in environmental liability estimates     597     (9,582 )   (11,265 )
    Deferred income taxes     (7,492 )   (6,385 )   (1,242 )
    Impairment of assets held for sale         207     281  
    (Gain) loss on sale of fixed assets and assets held for sale     (135 )   240     (26 )
    Stock-based compensation     4,799     3,387     56  
    Excess tax benefit of stock-based compensation     (6,386 )   (5,239 )    
    Income tax benefits related to stock option exercises     6,427     5,399     408  
    Investment in joint venture         (61 )    
    Write-off of deferred financing costs and debt discount         2,383      
    Changes in assets and liabilities:                    
      Accounts receivable     (19,142 )   (5,000 )   (25,983 )
      Other current assets     (2,693 )   (11,092 )   (686 )
      Accounts payable     (4,603 )   (4,674 )   (804 )
      Environmental expenditures     (6,511 )   (7,605 )   (7,243 )
      Other current liabilities     21,377     5,466     9,969  
   
 
 
 
      Net cash from operating activities     79,995     61,382     29,667  
   
 
 
 
Cash flows from investing activities:                    
  Additions to property, plant and equipment     (36,528 )   (40,668 )   (19,455 )
  Acquisitions, net of cash acquired     (7,410 )   (51,492 )    
  Costs to obtain or renew permits     (1,302 )   (2,348 )   (1,872 )
  Cost of restricted investments purchased             (3,469 )
  Proceeds from sales of restricted investments         3,469      
  Purchase of available-for-sale securities     (2,310 )   (55,628 )    
  Sales of marketable securities     3,200     45,388     16,800  
  Proceeds from sales of fixed assets and assets held for sale     615     2,010     987  
  Proceeds from insurance claim     944     384     3,500  
   
 
 
 
    Net cash from investing activities   $ (42,791 ) $ (98,885 ) $ (3,509 )
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

66


CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

 
  For the years ended December 31,
 
 
  2007
  2006
  2005
 
Cash flows from financing activities:                    
  Change in uncashed checks   $ (5,916 ) $ 3,128   $ 1,435  
  Proceeds from exercise of stock options     1,647     2,354     4,470  
  Proceeds from exercise of warrants     1,200         12,474  
  Excess tax benefit of stock-based compensation     6,386     5,239      
  Dividend payments on preferred stock     (206 )   (276 )   (279 )
  Deferred financing costs paid     (32 )   (983 )   (2,055 )
  Proceeds from employee stock purchase plan     1,169     801     569  
  Payments on capital leases     (1,455 )   (2,111 )   (1,815 )
  Other     (69 )        
  Principal payments on debt         (58,482 )    
  Proceeds from term loan to finance acquisition         30,000      
  Proceeds from issuance of common stock, net             60,224  
   
 
 
 
    Net cash from financing activities     2,724     (20,330 )   75,023  
   
 
 
 
Effect of exchange rate change on cash     6,060     (1,066 )   187  
   
 
 
 
Increase (decrease) in cash and cash equivalents     45,988     (58,899 )   101,368  
Cash and cash equivalents, beginning of year     73,550     132,449     31,081  
   
 
 
 
Cash and cash equivalents, end of year   $ 119,538   $ 73,550   $ 132,449  
   
 
 
 

Supplemental information:

 

 

 

 

 

 

 

 

 

 
Cash payments for interest and income taxes:                    
  Interest paid   $ 14,648   $ 17,761   $ 22,888  
  Income taxes paid     13,941     5,356     3,455  
Non-cash investing and financing activities:                    
  Property, plant and equipment accrued     4,792     3,600     2,606  
  Capital lease obligations         142     2,785  
  Restricted stock grant             1,100  

The accompanying notes are an integral part of these consolidated financial statements.

67


CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

 
  Series B
Preferred Stock

   
   
   
   
   
   
   
   
 
 
  Common Stock
   
   
   
   
   
   
 
 
   
   
  Accumulated
Other
Comprehensive
Income

  Restricted
Stock
Unearned
Compensation

   
   
 
 
  Number of
Shares

  $0.01 Par
Value

  Number of
Shares

  $0.01 Par
Value

  Additional
Paid-in
Capital

  Comprehensive
Income

  Accumulated
Earnings
(Deficit)

  Total
Stockholders'
Equity

 
Balance at December 31, 2004   70   $ 1   14,327   $ 143   $ 62,165         $ 8,667   $   $ (59,938 ) $ 11,038  
  Net income                   $ 25,621             25,621     25,621  
  Foreign currency translation                     1,306     1,306             1,306  
  Minimum pension liability adjustment                     (228 )   (228 )           (228 )
                             
                         
  Comprehensive income                   $ 26,699                  
                             
                         
  Series B preferred stock dividends                 (279 )                     (279 )
  Conversion of Series B preferred stock   (1 )     3                                
  Exercise of warrants         1,979     20     12,454                       12,474  
  Issuance of common stock, net of issuance costs of $554         2,300     23     60,201                       60,224  
  Restricted stock grant                 1,100               (1,100 )        
  Amortization of unearned compensation                               56         56  
  Exercise of stock options         702     7     4,462                       4,469  
  State tax benefit on exercise of stock options                 408                       408  
  Employee stock purchase plan         42     1     568                       569  
   
 
 
 
 
       
 
 
 
 
Balance at December 31, 2005   69   $ 1   19,353   $ 194   $ 141,079         $ 9,745   $ (1,044 ) $ (34,317 ) $ 115,658  
  Net income                   $ 46,675             46,675     46,675  
  Foreign currency translation                     (638 )   (638 )           (638 )
  Minimum pension liability adjustment (net of deferred taxes of $19)                     35     35             35  
  FAS 158 adoption (net of deferred taxes of $113) (note 16)                         (203 )           (203 )
                             
                         
  Comprehensive income                   $ 46,072                  
                             
                         
  Other                 (6 )                     (6 )
  Series B preferred stock dividends                 (276 )                     (276 )
  Stock-based compensation         41         3,387                       3,387  
  Adoption of FAS No. 123(R)                 (1,044 )             1,044          
  Exercise of stock options         261     3     2,351                       2,354  
  Tax benefit on exercise of stock options                 5,399                       5,399  
  Employee stock purchase plan         30         801                       801  
   
 
 
 
 
       
 
 
 
 
Balance at December 31, 2006   69   $ 1   19,685   $ 197   $ 151,691         $ 8,939   $   $ 12,358   $ 173,186  
   
 
 
 
 
       
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

68


CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

(in thousands)

 
  Series B
Preferred Stock

   
   
   
   
   
   
   
   
 
 
  Common Stock
   
   
   
   
   
   
 
 
   
   
   
  Accumulated
Other
Comprehensive
Income

   
   
 
 
  Number of
Shares

  $0.01 Par
Value

  Number of
Shares

  $0.01 Par
Value

  Treasury
Stock

  Additional
Paid-in
Capital

  Comprehensive
Income

  Accumulated
Earnings

  Total
Stockholders'
Equity

 
Balance at December 31, 2006   69   $ 1   19,685   $ 197   $   $ 151,691         $ 8,939   $ 12,358   $ 173,186  
  Net income                       $ 44,198         44,198     44,198  
  Foreign currency translation                         8,786     8,786         8,786  
  Minimum pension liability adjustment (net of deferred taxes of $127)                         (227 )   (227 )       (227 )
                                   
                   
  Comprehensive income                       $ 52,757              
                                   
                   
  FIN 48 cumulative effect adjustment (see Note 12)                                   (36,843 )   (36,843 )
  Other                     (69 )                 (69 )
  Series B preferred stock dividends                     (206 )                 (206 )
  Conversion of Series B preferred stock (see Note 14)   (69 )   (1 ) 210     2         (1 )                  
  Exercise of warrants         150     2         1,198                   1,200  
  Stock-based compensation         56             4,799                   4,799  
  Issuance of restricted shares, net of shares remitted (see Note 15)         23         (1,170 )                     (1,170 )
  Exercise of stock options         173     2         1,645                   1,647  
  Tax benefit on exercise of stock options                     6,427                   6,427  
  Employee stock purchase plan         31             1,169                   1,169  
   
 
 
 
 
 
       
 
 
 
Balance at December 31, 2007     $   20,328   $ 203   $ (1,170 ) $ 166,653         $ 17,498   $ 19,713   $ 202,897  
   
 
 
 
 
 
       
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

69



CLEAN HARBORS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) OPERATIONS

        Clean Harbors, Inc., through its subsidiaries (collectively, the "Company"), is managed in two operating segments, Technical Services and Site Services, which provide a wide range of environmental services and solutions to a diversified customer base in the United States, Canada, Puerto Rico and Mexico. The Company's shares of common stock trade on the Nasdaq Global Select Market under the symbol: CLHB. The Company is one of the largest providers of environmental services and the largest operator of hazardous waste treatment facilities in North America. The Company has a network of more than 100 service locations, including 49 active hazardous waste management properties. These properties include six incineration facilities, nine commercial landfills, six wastewater treatment facilities, 20 treatment, storage and disposal facilities ("TSDFs"), and eight locations specializing in PCB management and oil storage and recycling. Some properties offer multiple capabilities. In addition, the Company has 69 service centers, satellite and support locations and corporate and regional offices. These properties are located in 36 states, six Canadian provinces, Puerto Rico and Mexico.

(2) BUSINESS COMBINATIONS

        In August 2007, the Company acquired certain assets owned by Romic Environmental Technologies Corporation ("Romic"), which specialized in the collection and recycling of both hazardous and non-hazardous waste materials, for a preliminary purchase price of $8.6 million. The purchase price was subject to contingency adjustment equal to 40% of revenues generated from Romic customers for the six-month period subsequent to the acquisition. An estimate of such amount is included in the preliminary purchase price summarized below.

        The calculation of the estimated purchase price and the summary of assets acquired and liabilities assumed is as follows (in thousands):

 
  As of
December 31,
2007

Preliminary Purchase Price      
  Cash consideration   $ 5,210
  Net amount due to Romic for revenues generated from former Romic customers     2,154
  Acquisition costs     878
  Reduction of existing Romic receivables     308
   
    Total purchase price, including contingency   $ 8,550
   
Summary of net assets acquired      
  Other current assets   $ 61
  Equipment     693
  Customer list and other intangibles     7,796
   
    Total assets acquired     8,550
   
  Liabilities assumed    
   
    Net assets acquired   $ 8,550
   

70


CLEAN HARBORS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2) BUSINESS COMBINATIONS (Continued)

        Management has determined the preliminary purchase price allocation based on estimates of the fair values of the tangible and intangible assets acquired. No liabilities were assumed. An estimate of $7.4 million has been calculated as negative goodwill, which represents the excess of the fair value of the net assets acquired over the purchase price. In accordance with SFAS No. 141, negative goodwill has been proportionally allocated to equipment ($0.6 million) and customer lists and other intangibles ($6.8 million). The intangible assets are being amortized over their useful lives of 3.6 years to 11 years or a weighted average period of 8 years. The purchase price and related allocation is preliminary and may be revised as a result of any changes in the contingent consideration.

        On August 18, 2006, the Company purchased, all of the membership interests in Teris LLC for $50.0 million in cash and $1.9 million in direct acquisition costs. By acquiring all of the membership interests in Teris LLC, the Company indirectly acquired ownership of two licensed hazardous waste management facilities. These facilities consist of an incineration facility located in El Dorado, Arkansas, which has an annual practical capacity of 26,400 drums and 1.8 million gallons of bulk liquids, and a transportation, storage and disposal facility located in Wilmington, California. In order to finance the acquisition and pay the related transaction expenses, the Company utilized $24.6 million of available cash and borrowed $30.0 million through a term loan issued under the Company's existing credit agreement.

        Management determined the final purchase price allocation, which was not materially different from the preliminary purchase price allocation, based on estimates of the fair values of the tangible assets acquired and liabilities assumed. These estimates were arrived at utilizing recognized valuation techniques. Negative goodwill of $11.6 million was proportionally allocated to property, plant and equipment ($11.1 million) and the investment in joint venture ($0.5 million).

        The following is the final summary of assets acquired and liabilities assumed after all purchase price adjustments:

 
   
 
Current assets   $ 26,736  
Property, plant and equipment     55,214  
Other assets     426  
Investment in Ensco Caribe joint venture     2,196  
   
 
  Total assets acquired     84,572  
Other current liabilities     (21,469 )
Closure, post-closure and remedial liabilities     (11,191 )
   
 
  Total liabilities assumed     (32,660 )
   
 
  Net assets acquired   $ 51,912  
   
 

        The following unaudited pro forma summary presents information as if Teris had been acquired at the beginning of the periods presented with financing obtained as described above and assumes that there were no other changes in the Company's operations. The pro forma information does not necessarily reflect the actual results that would have occurred had the Company and Teris been

71


CLEAN HARBORS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2) BUSINESS COMBINATIONS (Continued)


combined during the periods presented, nor is it necessarily indicative of the future results of operations of the combined companies.

(dollars in thousands, except share data)

  For the year ended
December 31, 2006

  For the year ended
December 31, 2005

 
Pro forma revenues   $ 888,982   $ 805,676  
Pro forma net income (loss) available to common stockholders   $ 39,486   $ (38,203 )
Pro forma basic earnings per share   $ 2.02   $ (2.44 )
Pro forma diluted earnings per share   $ 1.92   $ (2.44 )

        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 this transaction was to further improve the Company's ability to service customers in Puerto Rico, leverage the Company's 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 part of a step acquisition of Ensco Caribe, which also included the Company's original investment in Ensco Caribe as part of the acquisition of Teris LLC. Therefore, the fair value of the original investment of $2.2 million was determined as part of the purchase price allocation for 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 $2.5 million, which has been recorded as goodwill. The results of operations and assets and liabilities of Ensco Caribe, Inc. are now consolidated and reported within the Company's consolidated financial statements.

        The Romic acquisition completed in 2007 was not material to the Company's results of operations for 2007 on a proforma basis.

        On February 8, 2008 the Company signed definitive agreements to acquire two solvent recycling facilities for $12.5 million in cash plus the assumption of approximately $3.0 million of environmental liabilities. The Company anticipates receiving the governmental approvals and closing the acquisitions by the end of March 2008. The Company anticipates that these acquisitions will broaden the services it can offer to customers and enhance its market share in the solvent recycling business.

72


CLEAN HARBORS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(3) SIGNIFICANT ACCOUNTING POLICIES

        The accompanying consolidated financial statements of the Company reflect the application of certain significant accounting policies as described below:

        The accompanying consolidated statements include the accounts of Clean Harbors, Inc. and its majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

        The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is reasonably assured. Revenue is recognized net of estimated allowances. Due to the nature of the business and the complex invoices that result from the services provided, customers may withhold payments and attempt to renegotiate amounts invoiced. Accordingly, management establishes a revenue allowance to cover the estimated amounts of revenue that may need to be credited to customers' accounts in future periods. The Company records a provision for revenue allowances based on specific review of particular customers, historical trends and other relevant information.

        The Company provides a wide range of environmental services through two segments: Technical Services and Site Services. Technical Services involve: (i) services for collection, transportation and logistics management; (ii) services for the categorizing, packaging and removal of laboratory chemicals (CleanPack®); and (iii) services related to the treatment and disposal of hazardous wastes. Site Services involve a wide range of services to maintain industrial facilities and process equipment, as well as clean up or contain actual or threatened releases of hazardous materials into the environment. Revenues for all services with the exception of services for the treatment and disposal of hazardous waste are recorded as services are rendered. Revenues for disposing of hazardous waste are recognized upon completion of wastewater treatment, landfill or incineration of the waste at a Company-owned site or when the waste is shipped to a third party for processing and disposal. Revenues from waste that is not yet completely processed and the related costs are deferred until services are completed. Revenue is recognized on contracts with retainage when services have been rendered and collectability is reasonably assured.

        Concentration of credit risks in accounts receivable is limited due to the large number of customers comprising the Company's customer base throughout North America. The Company performs periodic credit evaluations of its customers and generally does not require collateral. The Company establishes an allowance for uncollectible accounts based on specific review of particular balances and customers, the credit risk applicable to particular customers, historical trends and other relevant information.

        In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with Statement of

73


CLEAN HARBORS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(3) SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 effective January 1, 2007.

        There are two major components of income tax expense, current and deferred. Current income tax expense approximates cash to be paid or refunded for taxes for the applicable period. Deferred tax assets and liabilities are determined based upon the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. Deferred tax expense or benefit is the result of changes between deferred tax assets and liabilities.

        A valuation allowance is established when, based on an evaluation of objective verifiable evidence, it is more likely than not that some portion or all of deferred tax assets will not be realized.

        Basic EPS is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all potentially dilutive common shares that were outstanding during the period.

        The Company's operations are managed in two segments: Technical Services and Site Services. The Company operates within the United States, Puerto Rico, Canada and Mexico and no individual customer accounts for more than 5% of revenues.

        The Company classifies all highly liquid instruments purchased with maturities of less than three months to be cash equivalents.

        The Company's cash management program with its revolving credit lender allows for the maintenance of a zero balance in the U.S. bank disbursement accounts that are used to issue vendor and payroll checks. The checks are covered from cash, at the Company's discretion, deposited into such accounts or from availability under the revolving line of credit when the checks are presented for payment. The program can result in checks outstanding in excess of bank balances in the disbursement accounts. When checks are presented to the bank for payment, cash deposits in amounts sufficient to fund the checks are made from funds provided by other accounts, or under the terms of the Company's revolving credit facility. Therefore, until checks are presented for payment, there is no right of offset by the bank and the Company continues to have control over cash relating to both released as well as unreleased checks. As such checks that have been written to vendors or employees but have not yet been presented for payment at the Company's bank, are classified as uncashed checks and added back to cash balances.

74


CLEAN HARBORS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(3) SIGNIFICANT ACCOUNTING POLICIES (Continued)

        The Company has classified its marketable securities as available-for-sale and, accordingly, carries such securities at fair value. Unrealized gains and losses are reported, net of tax, as a component of stockholders' equity. Marketable securities at December 31, 2007 consisted of 9.4 million of auction rate securities, which then consisted of readily marketable auction rate securities held, of which $0.85 million was then classified under marketable securities and $8.5 million was then classified under long-term investments. Should market conditions deteriorate for an extended period of time and the Company be unable to liquidate these investments, management may be required to record an impairment charge.

        On a regular basis, the Company evaluates its accounts receivable and establishes the allowance for doubtful accounts based on an evaluation of historical bad debts, customer concentration, customer credit ratings, current economic trends and changes in customer payment patterns.

        The Company recognizes unbilled accounts receivable for service and disposal transactions rendered but not invoiced to the customer by the end of the period.

        Supplies inventories consist primarily of supplies and repair parts expected to be used in the operating cycle, which are stated at the lower of cost or market. The Company periodically reviews its inventories for obsolete or unsaleable items and adjusts its carrying value to reflect estimated realizable values.

        From time to time the Company identifies properties that are no longer needed for its operations. These properties are transferred to properties held for sale at the lower of their net book value or current estimated market value less estimated selling costs when they meet the following criteria: (i) management, having the authority to approve the action, commits to a plan to sell the assets; (ii) the assets are available for immediate sale in their present condition, subject only to conditions that are usual and customary for the sale of such assets; (iii) the Company is actively searching for a buyer; (iv) the assets are being marketed at a price that is reasonable in relation to their current fair value; (v) actions necessary to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn; and (vi) the sale is probable and the transfer is expected to qualify for recognition as a completed sale within one year.

        In 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 and therefore reclassified $6.9 million to land. As of December 31, 2007, there were three remaining properties classified as properties held for sale.

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(3) SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Property, plant and equipment are stated at cost and include amounts capitalized under capital lease obligations. Expenditures for major renewals and improvements which extend the life of the asset are capitalized. Items of an ordinary repair or maintenance nature, are charged directly to operating expense as incurred. During the construction and development period of an asset, the costs incurred, including applicable interest costs, are classified as construction-in-progress. In addition, the Company capitalizes applicable interest costs associated with partially-constructed assets, primarily included in landfill assets. Interest in the amount of $1.2 million, $0.7 million and $0.1 million was capitalized to fixed assets during the years ended December 31, 2007, 2006 and 2005, respectively. Depreciation and amortization expense was $31.4 million, $26.4 million and $23.1 million for the years ended December 31, 2007, 2006 and 2005, respectively.

        Depreciation and amortization of other property, plant and equipment is provided on a straight-line basis over their estimated useful lives. Leasehold improvements are capitalized and amortized over the shorter of the life of the asset or the lease term.

        The Company depreciates and amortizes the cost of these assets, using the straight-line method as follows:

Asset Classification

  Estimated Useful Life
Capitalized software   3 years
Buildings and building improvements   2-40 years
Land improvements   5 years
Leasehold improvements   2-10 years
Vehicles   3-12 years
Equipment   3-20 years
Furniture and fixtures   5-8 years

        Upon retirement or other disposition, the cost and related accumulated depreciation of the assets are removed from the accounts and any resulting gain or loss is reflected in other income (expense).

        The Company recognizes an impairment in the carrying value of long-lived assets when the expected future discounted cash flows derived from the assets are less than its carrying value. For the year ended December 31, 2006 the Company recorded a $0.6 million impairment charge related to long-lived assets at the Plaquemine, Louisiana facility. For the years ended December 31, 2007 and 2005, the Company recorded no impairment charge related to long-lived assets.

        Goodwill, permits and other intangible assets are stated at cost. Goodwill is not amortized. Permits relating to landfills are amortized on a consumption unit basis. All other permits are amortized over periods ranging from 5 to 30 years on a straight line basis. Permits consist of the value of permits acquired in a business combination and direct costs related to obtaining such permits including legal fees, site surveys, engineering costs and other expenses. In addition, legal costs incurred in connection with defending the Company's right to accept certain waste under a validly issued permit are also capitalized. (See Note 11, "Commitments and Contingencies—Deer Trail, Colorado Facility"). Other

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(3) SIGNIFICANT ACCOUNTING POLICIES (Continued)

intangibles consist primarily of customer lists and property rights to a rail spur which are amortized over 11 years and 3.6 years, respectively.

        Amortization expense was $5.0 million, $7.1 million (including a $2.0 million impairment charge for the Plaquemine, Louisiana Facility) and $5.3 million for the years ended December 31, 2007, 2006 and 2005, respectively.

        For the year ended December 31, 2006, the Company recorded a $2.0 million impairment charge related to the Plaquemine, Louisiana facility (see Note 11, "Commitments and Contingencies—Plaquemine, Louisiana Facility"). There were no impairment charges during the years ended December 31, 2007 and 2005.

        On an annual basis as of December 31, the Company performs goodwill impairment tests by comparing the book value of goodwill to its implied fair value. The implied fair value of goodwill is assigned to all three reporting units; Technical Services, Site Services and Facilities. The Company incurred no impairment of goodwill as a result of the annual goodwill impairment tests in 2007, 2006 and 2005.

        The Company leases rolling stock, rail cars, equipment, real estate and office equipment under operating leases. Certain real estate leases contain rent holidays and rent escalation clauses. Most of the Company's real estate lease agreements include renewal periods at the Company's option. For its operating leases, the Company recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased assets.

        Deferred financing costs are amortized over the life of the related debt instrument. Amortization expense is included in interest expense in the statements of operations.

        The fair value of the Company's debt is based on quoted market price. (See Note 10, "Financing Arrangements").The estimated fair value of cash and cash equivalents, restricted cash, receivables, and trade payables approximate their carrying value due to the short maturity of these instruments. The fair value of marketable securities, which consist of auction rate securities, is par value, at which they trade.

        Landfill accounting—The Company amortizes landfill improvements, and certain landfill related permits over their estimated useful lives. The units of consumption method is used to amortize land, landfill cell construction, asset retirement costs and remaining landfill cells and sites. The Company also utilizes the units of consumption method to record closure and post-closure obligations for landfill cells and sites. Under the units of consumption method, the Company includes future estimated construction and asset retirement costs, as well as costs incurred to date, in the amortization base. Additionally, where appropriate, the Company includes probable expansion airspace that has yet to be permitted in the calculation of the total remaining useful life of the landfill.

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        Landfill assets—Landfill assets include the costs of landfill site acquisition, preparation and improvement. These amounts are recorded at cost, which includes capitalized interest as applicable. Landfill assets, net of amortization, are combined with management's estimate of the costs required to complete construction of the landfill to determine the amount to be amortized over the remaining estimated useful economic life of a site. Amortization of landfill assets is recorded on a units-of-consumption basis, such that the landfill assets should be completely amortized at the date the landfill ceases accepting waste. Changes in estimated costs to complete construction are applied prospectively to the amortization rate.

        Amortization of cell construction costs and accrual of cell closure obligations—Landfills are typically comprised of a number of cells, which are constructed within a defined acreage (or footprint). The cells are typically discrete units, which require both separate construction and separate capping and closure procedures. Cell construction costs are the costs required to excavate and construct the landfill cell. These costs are typically amortized on a units-of-consumption basis, such that they are completely amortized when the specific cell ceases accepting waste. In some instances, the Company has landfills that are engineered and constructed as "progressive trenches." In progressive trench landfills, a number of contiguous cells form a progressive trench. In those instances, the Company amortizes cell construction costs over the airspace within the entire trench, such that the cell construction costs will be fully amortized at the end of the trench useful life.

        The design and construction of a landfill does not create a landfill asset retirement obligation. Rather, the asset retirement obligation for cell closure (the cost associated with capping each cell) is incurred in relatively small increments as waste is placed in the landfill. Therefore, the cost required to construct the cell cap is capitalized as an asset retirement cost and a liability of an equal amount is established, based on the discounted cash flow associated with each capping event, as airspace is consumed. Spending for cell capping is reflected as a change in liabilities within operating activities in the statement of cash flows.

        Landfill final closure and post-closure liabilities—The Company has material financial commitments for the costs associated with requirements of the U.S. Environmental Protection Agency (the "EPA") and the comparable regulatory agency in Canada for landfill final closure and post-closure activities. In the United States, the landfill final closure and post-closure requirements are established under the standards of the EPA, and are implemented and applied on a state-by-state basis. Estimates for the cost of these activities are developed by the Company, based on an evaluation of site-specific facts and circumstances, including the Company's interpretation of current regulatory requirements and proposed regulatory changes. Such estimates may change in the future due to various circumstances including, but not limited to, permit modifications, changes in legislation or regulations, technological changes and results of environmental studies.

        Final closure costs include the costs required to cap the final cell of the landfill (if not included in cell closure) and the costs required to dismantle certain structures for landfills and other landfill improvements. In addition, final closure costs include regulation-mandated groundwater monitoring, leachate management and other costs incurred in the closure process. Post-closure costs include substantially all costs that are required to be incurred subsequent to the closure of the landfill, including, among others, groundwater monitoring and leachate management. Regulatory post-closure periods are generally 30 years after landfill closure. Final closure and post-closure obligations are

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accrued on a units-of-consumption basis, such that the present value of the final closure and post-closure obligations are fully accrued at the date the landfill discontinues accepting waste.

        Once determined, closure and post-closure costs incurred are increased for inflation (2.57% and 2.17% for closure and post-closure liabilities incurred in the years ended December 31, 2007 and 2006, respectively). The Company uses an inflation rate published by the U.S. Department of Labor, Bureau of Labor Statistics that excludes the more volatile items of food and energy. Closure and post-closure costs are discounted at the Company's credit-adjusted risk-free interest rate (9.0% and 9.25% for closure and post-closure liabilities incurred in the years ended December 31, 2007 and 2006, respectively). For the asset retirement obligations incurred in the years ended December 31, 2007 and 2006, the Company estimated its credit-adjusted risk-free interest rate by adjusting the then current yield based on market prices of its 11.25% Senior Secured Notes then outstanding by the difference between the yield of a U.S. Treasury Note of the same duration as the Senior Secured Notes and the yield on the 30-year U.S. Treasury Bond.

        For landfills purchased, the Company assessed and recorded the present value of the estimated closure and post-closure liability based upon the estimated final closure and post-closure costs and the percentage of airspace consumed as of the purchase date. Thereafter, the difference between the liability recorded at the time of acquisition and the present value of total estimated final closure and post-closure costs to be incurred is accrued prospectively on a units-of-consumption basis over the estimated useful economic life of the landfill.

        Landfill capacity—Landfill capacity, which is the basis for the amortization of landfill assets and for the accrual of final closure and post-closure obligations, represents total permitted airspace plus unpermitted airspace that management believes is probable of ultimately being permitted based on established criteria. The Company applies a comprehensive set of criteria for evaluating the probability of obtaining a permit for future expansion airspace at existing sites, which provides management a sufficient basis to evaluate the likelihood of success of unpermitted expansions. Those criteria are as follows:

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CLEAN HARBORS, INC. AND SUBSIDIARIES

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(3) SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Exceptions to the criteria set forth above may be approved through a landfill-specific approval process that includes approval from the Company's Chief Financial Officer and review by the Audit Committee of the Board of Directors. As of December 31, 2007, there were three unpermitted expansions included in the Company's landfill accounting model, which represented 32.3% of the Company's remaining airspace at that date. As of December 31, 2007, none of the expansions were considered exceptions to the Company's established criteria. As of both December 31, 2006 and 2005, one expansion represented an exception to the Company's established criteria and had been approved by the Audit Committee of the Board of Directors. Had the Company not included the unpermitted airspace for the expansion exception in highly probable airspace, operating expense for the years ended December 31, 2006 and 2005 would have been higher by $646 thousand and $576 thousand, respectively.

        As of December 31, 2007, the Company had 11 active landfill sites (including the Company's two non-commercial landfills), which have estimated remaining lives (based on anticipated waste volumes and remaining highly probable airspace) as follows:

 
   
   
  Remaining Highly Probable Airspace
(cubic yards) (in thousands)

Facility Name

   
  Remaining
Lives
(Years)

  Location
  Permitted
  Unpermitted
  Total
Altair   Texas   23   1,204     1,204
Buttonwillow   California   41   9,290     9,290
Deer Park   Texas   22   565     565
Deer Trail   Colorado   61   918     918
Grassy Mountain   Utah   21   452   1,366   1,818
Kimball   Nebraska   20   425     425
Lambton   Ontario   48   665   7,847   8,512
Lone Mountain   Oklahoma   13   1,138     1,138
Ryley   Alberta   14   816     816
Sawyer   North Dakota   44   1,093     1,093
Westmorland   California   65   2,732     2,732
           
 
 
            19,298   9,213   28,511
           
 
 

        The Company had 1.5 million cubic yards of permitted, but not highly probable, airspace as of December 31, 2007. Permitted, but not highly probable, airspace is permitted airspace the Company currently does not expect to utilize; therefore, this airspace has not been included in the above table.

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CLEAN HARBORS, INC. AND SUBSIDIARIES

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(3) SIGNIFICANT ACCOUNTING POLICIES (Continued)

        The following table presents the remaining highly probable airspace from January 1, 2005 through December 31, 2007 (in thousands of cubic yards):

 
  2007
  2006
  2005
 
Remaining capacity at January 1,   28,040   29,001   28,454  
Addition of highly probable airspace   1,328     1,200  
Consumed   (857 ) (961 ) (653 )
   
 
 
 
Remaining capacity at December 31,   28,511   28,040   29,001  
   
 
 
 

        Non-landfill closure costs include costs required to dismantle and decontaminate certain structures and other costs incurred during the closure process. Post-closure costs, if required, include associated maintenance and monitoring costs as required by the closure permit. Post-closure periods are performance-based and are not generally specified in terms of years in the closure permit, but may generally range from 10 to 30 years or more.

        The Company records its non-landfill closure and post-closure liability by: (i) estimating the current cost of closing a non-landfill facility and the post closure care of that facility, if required, based upon the closure plan that the Company is required to follow under its operating permit, or in the event the facility operates with a permit that does not contain a closure plan, based upon legally enforceable closure commitments made by the Company to various governmental agencies; (ii) using probability scenarios as to when in the future operations may cease; (iii) inflating the current cost of closing the non-landfill facility on a probability weighted basis using the inflation rate to the time of closing under each probability scenario; and (iv) discounting the future value of each closing scenario back to the present using the credit-adjusted risk-free interest rate. Non-landfill closure and post-closure obligations arise when the Company commences operations.

        Remedial liabilities, including Superfund liabilities, include the costs of removal or containment of contaminated material, the treatment of potentially contaminated groundwater and maintenance and monitoring costs necessary to comply with regulatory requirements. Most of the Company's remedial liabilities relate to the active and inactive hazardous waste treatment and disposal facilities which were acquired in the last five years as well as 35 Superfund sites owned by third parties for which the Company agreed to indemnify certain remedial liabilities owed or potentially owed by the Sellers of the CSD assets and payable to government entities. The Company performed extensive due diligence to estimate accurately the aggregate liability for remedial liabilities to which the Company became potentially liable as a result of the acquisitions. The Company's estimate of remedial liabilities involved an analysis of such factors as: (i) the nature and extent of environmental contamination (if any); (ii) the terms of applicable permits and agreements with regulatory authorities as to cleanup procedures and whether modifications to such permits and agreements will likely need to be negotiated; (iii) the cost of performing anticipated cleanup activities based upon current technology; and (iv) in the case of Superfund and other sites where other parties will also be responsible for a portion of the cleanup costs, the likely allocation of such costs and the ability of such other parties to pay their share.

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(3) SIGNIFICANT ACCOUNTING POLICIES (Continued)

Remedial liabilities and on-going operations are reviewed quarterly and adjustments are made as necessary.

        The Company periodically evaluates potential remedial liabilities at sites that it owns or operates or to which the Company or the Sellers of the CSD assets (or the respective predecessors of the Company or the Sellers) transported or disposed of waste, including 59 Superfund sites as of December 31, 2007. The Company periodically reviews and evaluates sites requiring remediation, including Superfund sites, giving consideration to the nature (i.e., owner, operator, arranger, transporter or generator) and the extent (i.e., amount and nature of waste hauled to the location, number of years of site operations or other relevant factors) of the Company's (or the Sellers') alleged connection with the site, the extent (if any) to which the Company believes it may have an obligation to indemnify cleanup costs in connection with the site, the regulatory context surrounding the site, the accuracy and strength of evidence connecting the Company (or the Sellers) to the location, the number, connection and financial ability of other named and unnamed PRPs and the nature and estimated cost of the likely remedy. Where the Company concludes that it is probable that a liability has been incurred and an amount can be estimated, a provision is made, based upon management's judgment and prior experience, of such estimated liability.

        Remedial liabilities are inherently difficult to estimate. Estimating remedial liabilities requires that the existing environmental contamination be understood. There is a risk that the actual quantities of contaminants differ from the results of the site investigation, and there is a risk that contaminants exist that have not been identified by the site investigation. In addition, the amount of remedial liabilities recorded is dependent on the remedial method selected. There is a risk that funds will be expended on a remedial solution that is not successful, which could result in the additional incremental costs of an alternative solution. Such estimates, which are subject to change, are subsequently revised if and when additional or new information becomes available.

        Remedial liabilities are discounted only when the timing of the payments is estimable and the amounts are determinable. The Company's experience has been that the timing of the payments is not usually estimable and therefore, generally, remedial liabilities are not discounted. However, under purchase accounting, acquired liabilities are recorded at fair value, which requires taking into consideration inflation and discount factors. Accordingly, as of the respective acquisition dates, the Company recorded the remedial liabilities assumed as part of the acquisition of the CSD assets and Teris LLC at their fair value, which was calculated by inflating costs in current dollars using an estimate of future inflation rates as of the acquisition date until the expected time of payment, then discounting the payment to its present value using a risk-free discount rate as of the acquisition date. Subsequent to the acquisition, discounts were and will be applied to the environmental liabilities as follows:

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        The Company records claims for recovery from third parties relating to remedial liabilities only when realization of the claim is probable. The gross remedial liability is recorded separately from the claim for recovery on the balance sheet. At December 31, 2007 and 2006, the Company had recorded no such claims.

        The components of accumulated other comprehensive income were as follows (in thousands):

 
  December 31,
 
 
  2007
  2006
  2005
 
Cumulative translation adjustment of foreign currency statements   $ 18,121   $ 9,335   $ 9,973  
Unfunded pension liability (net of deferred taxes of $127, $94 and 0 respectively)     (623 )   (396 )   (228 )
   
 
 
 
    $ 17,498   $ 8,939   $ 9,745  
   
 
 
 

        Foreign subsidiary balances are translated according to the provisions of SFAS No. 52, Foreign Currency Translation. The Company has operations in both Canada and Mexico. The functional currency of each foreign subsidiary is its respective local currency. Assets and liabilities are translated to U.S. dollars at the exchange rate in effect at the balance sheet date and revenue and expenses at the average exchange rate for the period. Gains and losses from the translation of the consolidated financial statements of the foreign subsidiaries into U.S. dollars are included in stockholders' equity as a component of other comprehensive income. Gains and losses resulting from foreign currency transactions are recognized in the consolidated statements of operations. Recorded balances that are denominated in a currency other than the functional currency are remeasured to the functional currency using the exchange rate at the balance sheet date.

        The Company utilizes letters of credit to provide collateral assurance to regulatory authorities that certain funds will be available for closure of Company facilities. In addition, the Company utilizes letters of credit to provide collateral for casualty insurance programs, to provide collateral for the vehicle lease line and to provide collateral for a transportation permit. As of December 31, 2007 and 2006, the Company had outstanding letters of credit in an aggregate amount of $89.7 million and $95.5 million, respectively.

        The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions, which are evaluated on an on-going basis, that affect the amounts reported in the Company's consolidated financial statements and accompanying notes. Management bases its estimates

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(3) SIGNIFICANT ACCOUNTING POLICIES (Continued)

on historical experience and on various other assumptions it believes to be reasonable at the time under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and reported amounts of revenues and expenses. Actual results could differ from those estimates and judgments.

        On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123(R)") using the modified prospective method. SFAS No. 123(R) requires companies to recognize compensation cost relating to share-based payment transactions in their financial statements based upon the fair value of the equity or liability instruments issued and is recognized over the service period. Outstanding prior awards that were unvested as of January 1, 2006 are recognized as compensation cost, using the provisions of SFAS 123, over the remaining requisite service period.

        Prior to the adoption of SFAS No. 123(R), the Company included all tax benefits associated with equity-based compensation as operating cash flows in the Statement of Cash Flows. SFAS No. 123(R) requires any reduction in taxes payable resulting from tax deductions that exceed the recognized tax benefit associated with compensation expense (excess tax benefits) to be classified as financing cash flows. The Company included $6.4 million and $5.2 million of excess tax benefits in its cash flows from financing activities for the years ended December 31, 2007 and 2006, respectively.

        The Company accounts for the assets acquired and liabilities assumed in a business combination based on fair value estimates as of the date of acquisition. These estimates are revised during the allocation period as necessary if, and when, information regarding contingencies becomes available to further define and quantify assets acquired and liabilities assumed. The allocation period generally does not exceed one year. To the extent contingencies such as preacquisition environmental matters, litigation and related legal fees are resolved or settled during the allocation period, such items are included in the revised allocation of the purchase price. After the allocation period, the effect of changes in these contingencies is included in income from operations in the periods in which the adjustments are determined. The company accrues any estimated additional purchase price related to contingent consideration if the contingency is reasonable assured.

        The Company has made reclassifications in its 2006 Consolidated Balance Sheet to (i) reclass income tax receivable of $0.2 million to prepaid expenses and other current assets, (ii) reclass accrued disposal costs of $3.1 million to other accrued expenses and (iii) reclass accrued pension cost of $0.8 million to unrecognized tax benefits and other long-term liabilities to conform prior year information to the current period presentation. In addition, the Company reclassed certain expenses related to segment reporting (see Note 17, "Segment Reporting") to conform prior year information to the current period presentation.

        In December 2006, the FASB issued FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements ("FSP EITF 00-19-2") which provides guidance on the accounting for

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(3) SIGNIFICANT ACCOUNTING POLICIES (Continued)

registration payment arrangements. FSP EITF 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. A registration payment arrangement is defined in FSP EITF 00-19-2 as an arrangement with both of the following characteristics: (1) the arrangement specifies that the issuer will endeavor (a) to file a registration statement for the resale of specified financial instruments and/or for the resale of equity shares that are issuable upon exercise or conversion of specified financial instruments and for that registration statement to be declared effective by the Securities and Exchange Commission within a specified grace period, and/or (b) to maintain the effectiveness of the registration statement for a specified period of time (or in perpetuity); and (2) the arrangement requires the issuer to transfer consideration to the counterparty if the registration statement for the resale of the financial instrument or instruments subject to the arrangement is not declared effective or if effectiveness of the registration statement is not maintained. FSP EITF 00-19-2 is effective for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to December 21, 2006. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of FSP EITF 00-19-2, this guidance shall be effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. The adoption of FSP EITF 00-19-2 on January 1, 2007 did not have an impact on the Company's financial position or results of operations.

        In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("FAS 157"). FAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. FAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. FAS 157 does not expand or require any new fair value measures, however the application of this statement may change current practice. The requirements of FAS 157 are effective for fiscal years beginning after November 15, 2007. However, the FASB has deferred the implementation of SFAS 157 by one year for certain non-financial assets and liabilities, for which SFAS 157 will be effective for the fiscal year beginning January 1, 2009. Management is evaluating the effect that adoption of FAS 157 will have on the Company's financial position and results of operations.

        In February 2007, the FASB issued Statement No. 159, The Fair Value Option For Financial Assets and Financial Liabilities ("FAS 159"). This statement, which is expected to expand fair value measurement, permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective beginning in the first quarter of 2008. Management is currently evaluating whether to adopt fair value option permitted under this statement, including assessing the impact FAS 159 may have on the Company's financial position and results of operations.

        In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS 141R") and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51 ("SFAS 160"). SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 141R and SFAS 160 are effective for the Company beginning in the first quarter of fiscal 2009. Early adoption is not permitted. Management is currently evaluating the impact that SFAS 141R and SFAS 160 will have on its financial position and results of operations.

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(4) INVESTMENTS

        As of December 31, 2007, the Company's investments included $0.85 million of auction rate securities classified as marketable securities and $8.5 million classified as non-current, available for sale securities on the balance sheet. Auction rate securities are generally long-term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at predetermined calendar intervals, generally every 28 days. This mechanism generally allows existing investors to rollover their holdings and continue to own their respective securities or liquidate their holdings by selling their securities at par value. The Company generally invests in these securities for short periods of time as part of its cash management program. Subsequent to December 31, 2007, the Company reinvested $0.85 million of auction rate securities held at December 31, 2007 in cash equivalent instruments. In February 2008 uncertainties in the credit markets prevented the Company and other investors from liquidating their holdings of auction rate securities because the amount of securities submitted for sale then exceeded the amount of purchase orders. Accordingly, the Company still holds $8.5 million of auction rate securities, which are classified as long-term securities on the Company's balance sheet as of December 31, 2007, and is now earning interest on such securities at a higher rate than similar securities for which auctions have cleared. These investments consist of obligations of various issuers collateralized by student loans which are substantially backed by the federal government.

        We are uncertain as to when the liquidity issues relating to these investments will improve. Accordingly we classified these securities as non-current as of December 31, 2007.

        For the year ended December 31, 2007, the Company had no unrealized gain or loss on these securities. The Company determines the appropriate classification of its marketable securities and long term investments at the date of purchase and reevaluates such classification as of each balance sheet date.

(5) LANDFILL ASSETS

        Changes to landfill assets from January 1, 2006 through December 31, 2007 were as follows (in thousands):

 
  2007
  2006
 
Balance at January 1,   $ 11,399   $ 7,599  
Asset retirement costs     1,507     1,480  
Capital additions     15,726     3,721  
Changes in estimates of landfill closure and post-closure liabilities     92     (1,399 )
Currency translation     1,201     (2 )
   
 
 
Balance at December 31,   $ 29,925   $ 11,399  
   
 
 

        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 $1.42, $1.90, and $0.39 per cubic yard for the years ended December 31, 2007, 2006, and 2005, respectively. The decrease in the 2007 amortization rate resulted primarily from a reduction in cell closure cost estimates based on a

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(5) LANDFILL ASSETS (Continued)


re-evaluation of the landfill closure liabilities in the prior year. Amortization totaled $1.2 million, $1.8 million and $0.3 million for the years ended December 31, 2007, 2006 and 2005, respectively.

(6) INTANGIBLE ASSETS

        Below is a summary of amortizable intangible assets at December 31, 2007 and 2006 (in thousands):

 
  2007
  2006
 
  Cost
  Accumulated
Amortization

  Net
  Cost
  Accumulated
Amortization

  Net
Permits   $ 98,391   $ 30,902   $ 67,489   $ 91,193   $ 26,092   $ 65,101
Customer lists and other intangible assets     12,861     5,541     7,320     4,936     4,294     642
   
 
 
 
 
 
    $ 111,252   $ 36,443   $ 74,809   $ 96,129   $ 30,386   $ 65,743
   
 
 
 
 
 

        Below is a summary of the expected amortization for intangible assets for the years ending December 31, (in thousands):

 
  Expected
Amortization

2008   $ 4,947
2009     4,478
2010     4,222
2011     3,741
2012     3,534
Thereafter     53,887
   
    $ 74,809
   

(7) OTHER ACCRUED EXPENSES

        Other accrued expenses consisted of the following (in thousands):

 
  2007
  2006
Insurance   $ 12,984   $ 10,250
Interest     5,367     4,769
Accrued disposal costs     2,998     3,058
Accrued compensation and benefits     19,938     19,538
Other items     24,502     19,384
   
 
    $ 65,789   $ 56,999
   
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(8) CLOSURE AND POST-CLOSURE LIABILITIES

        The changes to closure and post-closure liabilities from January 1, 2006 through December 31, 2007 were as follows (in thousands):

 
  Landfill
Retirement
Liability

  Non-Landfill
Retirement
Liability

  Total
 
Balance at January 1, 2006   $ 18,068   $ 5,554   $ 23,622  
Acquisitions         198     198  
New asset retirement obligations     1,480     (13 )   1,467  
Accretion     2,546     800     3,346  
Changes in estimates recorded to statement of operations     (826 )   378     (448 )
Other changes in estimates recorded to balance sheet     (1,399 )   186     (1,213 )
Settlement of obligations     (1,004 )   (406 )   (1,410 )
Currency translation, reclassifications and other     (7 )       (7 )
   
 
 
 
Balance at December 31, 2006     18,858     6,697     25,555  
New asset retirement obligations     1,507         1,507  
Accretion     2,734     834     3,568  
Changes in estimates recorded to statement of operations     (298 )   (554 )   (852 )
Other changes in estimates recorded to balance sheet     92         92  
Settlement of obligations     (231 )   (189 )   (420 )
Currency translation, reclassifications and other     234     45     279  
   
 
 
 
Balance at December 31, 2007   $ 22,896   $ 6,833   $ 29,729  
   
 
 
 

        The $0.9 million benefit from changes in estimates above, recorded to the statement of operations, was due to: (i) an increase in utilization of a facility thus avoiding projected near-term closure ($0.6 million), (ii) a decrease in the 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 above were active as of December 31, 2007.

        Rates used to accrue closure and post-closure costs 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, each open cell within that landfill and for each accrual category, and are recalculated each year. During the years ended December 31, 2007, and 2006, asset retirement obligations were accrued at an average rate of $1.76 and $1.54 per cubic yard, respectively. The difference in the accrual rate of asset retirement obligations resulted from differences in the individual rates for the cells used during the respective year.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(8) CLOSURE AND POST-CLOSURE LIABILITIES (Continued)

        Anticipated payments (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):

Year ending December 31,

   
 
2008   $ 5,863  
2009     7,567  
2010     9,051  
2011     2,065  
2012     1,422  
Thereafter     218,888  
   
 
Undiscounted closure and post-closure liabilities     244,856