UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 

x                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURTIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

 

OR

 

o                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSTION PERIOD FROM         TO

 

Commission File Number 0-16379

 


 

CLEAN HARBORS, INC.

(Exact name of registrant as specified in its charter)

 

Massachusetts

 

04-2997780

(State of Incorporation)

 

(IRS Employer Identification No.)

 

 

 

42 Longwater Drive, Norwell, MA

 

02061-9149

(Address of Principal Executive Offices)

 

(Zip Code)

 

(781) 792-5000

(Registrant’s Telephone Number, Including area code)

 


 

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 twelve 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  x   No  o

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

Non-accelerated filer o

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock, $.01 par value

 

19,900,868

(Class)

 

(Outstanding at November 7, 2007)

 

 



 

CLEAN HARBORS, INC.

 

QUARTERLY REPORT ON FORM 10-Q

 

TABLE OF CONTENTS

 

PART I: FINANCIAL INFORMATION

 

ITEM 1: Financial Statements

 

Consolidated Balance Sheets

 

Consolidated Statements of Operations

 

Consolidated Statements of Cash Flows

 

Consolidated Statements of Stockholders’ Equity

 

Notes to Consolidated Financial Statements

 

 

 

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

 

 

 

ITEM 4: Controls and Procedures

 

 

 

PART II: OTHER INFORMATION

 

 

 

Items No. 1 through 6

 

Signatures

 

 



 

CLEAN HARBORS, INC. AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

ASSETS

 

(in thousands)

 

 

 

September 30,
2007

 

December 31,
 2006

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

91,856

 

$

73,550

 

Marketable securities

 

11,250

 

10,240

 

Accounts receivable, net of allowance for doubtful accounts of $1,344 and $1,703 respectively

 

181,826

 

169,581

 

Unbilled accounts receivable

 

25,229

 

16,078

 

Deferred costs

 

7,499

 

7,140

 

Prepaid expenses and other current assets

 

7,034

 

9,451

 

Supplies inventories

 

22,933

 

20,101

 

Deferred tax assets

 

9,343

 

9,238

 

Properties held for sale

 

908

 

7,440

 

Total current assets

 

357,878

 

322,819

 

Property, plant and equipment:

 

 

 

 

 

Land

 

22,276

 

15,873

 

Asset retirement costs (non-landfill)

 

1,437

 

1,415

 

Landfill assets

 

24,145

 

11,399

 

Buildings and improvements

 

108,376

 

105,190

 

Vehicles

 

27,391

 

25,192

 

Equipment

 

264,053

 

249,981

 

Furniture and fixtures

 

1,419

 

1,400

 

Construction in progress

 

26,064

 

24,950

 

 

 

475,161

 

435,400

 

Less—accumulated depreciation and amortization

 

217,476

 

191,274

 

 

 

257,685

 

244,126

 

Other assets:

 

 

 

 

 

Deferred financing costs

 

6,325

 

7,206

 

Goodwill

 

21,655

 

19,032

 

Permits and other intangibles, net of accumulated amortization of $35,126 and $30,386, respectively

 

72,781

 

65,743

 

Investment in joint venture

 

 

2,208

 

Deferred tax assets

 

11,752

 

6,388

 

Other

 

4,652

 

3,286

 

 

 

117,165

 

103,863

 

Total assets

 

$

732,728

 

$

670,808

 

 

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

 

1



 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

(in thousands except per share amounts)

 

 

 

September 30,
2007

 

December 31,
 2006

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Uncashed checks

 

$

4,724

 

$

11,083

 

Current portion of capital lease obligations

 

1,014

 

1,391

 

Accounts payable

 

83,434

 

81,432

 

Deferred revenue

 

30,092

 

29,409

 

Other accrued expenses

 

55,333

 

56,999

 

Current portion of closure, post-closure and remedial liabilities

 

15,803

 

13,707

 

Income taxes payable

 

12,046

 

4,333

 

Total current liabilities

 

202,446

 

198,354

 

Other liabilities:

 

 

 

 

 

Closure and post-closure liabilities, less current portion of $4,655 and $2,035, respectively

 

24,085

 

23,520

 

Remedial liabilities, less current portion of $11,148 and $11,672, respectively

 

140,189

 

136,173

 

Long-term obligations, less current maturities

 

120,678

 

120,522

 

Capital lease obligations, less current portion

 

2,045

 

2,648

 

Tax contingencies and other long-term liabilities

 

65,102

 

16,405

 

Total other liabilities

 

352,099

 

299,268

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $.01 par value:

 

 

 

 

 

Series B convertible preferred stock; authorized 156,416 shares; issued and outstanding 68,810 and 69,000 shares, respectively (liquidation preference of $3,500)

 

1

 

1

 

Common stock, $.01 par value:

 

 

 

 

 

Authorized 40,000,000 shares; issued and outstanding 19,881,032 and 19,685,002 shares, respectively

 

199

 

197

 

Treasury stock

 

(571

)

 

Additional paid-in capital

 

158,022

 

151,691

 

Accumulated other comprehensive income

 

17,388

 

8,939

 

Accumulated earnings

 

3,144

 

12,358

 

Total stockholders’ equity

 

178,183

 

173,186

 

Total liabilities and stockholders’ equity

 

$

732,728

 

$

670,808

 

 

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

 

2



 

CLEAN HARBORS, INC. AND SUBSIDIARIES

 

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

245,507

 

$

213,903

 

$

689,239

 

$

597,960

 

Cost of revenues (exclusive of items shown separately below)

 

169,007

 

151,606

 

485,893

 

418,928

 

Selling, general and administrative

 

38,092

 

26,880

 

107,643

 

90,487

 

Accretion of environmental liabilities

 

2,715

 

2,580

 

7,743

 

7,633

 

Depreciation and amortization

 

9,814

 

11,063

 

27,801

 

26,296

 

Income from operations

 

25,879

 

21,774

 

60,159

 

54,616

 

Other income (expense)

 

61

 

(111

)

62

 

(273

)

Loss on early extinguishment of debt

 

 

 

 

(8,290

)

Interest income

 

1,166

 

953

 

2,713

 

2,727

 

Interest expense

 

(4,188

)

(4,207

)

(12,614

)

(12,030

)

Income before provision for (benefit from) income taxes and equity interest in joint venture

 

22,918

 

18,409

 

50,320

 

36,750

 

Provision for (benefit from) income taxes

 

9,978

 

(2,585

)

22,691

 

1,579

 

Equity interest in joint venture

 

 

(11

)

 

(11

)

Net income

 

12,940

 

21,005

 

27,629

 

35,182

 

Dividends on Series B Preferred Stock

 

69

 

69

 

206

 

207

 

Net income attributable to common stockholders

 

$

12,871

 

$

20,936

 

$

27,423

 

$

34,975

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic income attributable to common stockholders

 

$

0.65

 

$

1.07

 

$

1.39

 

$

1.79

 

Diluted income attributable to common stockholders

 

$

0.63

 

$

1.02

 

$

1.33

 

$

1.70

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

19,840

 

19,587

 

19,788

 

19,488

 

Weighted average common shares outstanding plus potentially dilutive common shares

 

20,686

 

20,607

 

20,715

 

20,641

 

 

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

 

3



 

CLEAN HARBORS, INC. AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

 

 

 

Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

27,629

 

$

35,182

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

27,801

 

26,296

 

Allowance for doubtful accounts

 

212

 

334

 

Amortization of deferred financing costs and debt discount

 

1,462

 

1,174

 

Accretion of environmental liabilities

 

7,743

 

7,633

 

Changes in environmental estimates

 

(2,289

)

(9,839

)

Deferred income taxes

 

(5,055

)

(6,435

)

Stock-based compensation

 

2,903

 

2,460

 

(Gain) loss on sale of fixed assets and assets held for sale

 

(62

)

64

 

Impairment of assets held for sale

 

 

209

 

Investment in joint venture

 

 

(11

)

Gain on insurance settlement

 

 

(184

)

Write-off of deferred financing costs and debt discount

 

 

2,383

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(8,408

)

(4,061

)

Other current assets

 

(10,526

)

(9,207

)

Accounts payable

 

193

 

7,310

 

Other current liabilities

 

13,081

 

2,977

 

Environmental expenditures

 

(4,901

)

(5,194

)

Net cash from operating activities

 

49,783

 

51,091

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property, plant and equipment

 

(23,814

)

(30,331

)

Acquisitions, net of cash acquired

 

(7,192

)

(52,097

)

Costs to obtain or renew permits

 

(986

)

(822

)

Proceeds from sales of fixed assets and assets held for sale

 

503

 

1,190

 

Proceeds from sales of restricted investments

 

 

3,469

 

Proceeds from insurance claim

 

 

384

 

Sale of marketable securities

 

 

35,054

 

Purchase of available-for-sale securities

 

(1,010

)

(45,353

)

Net cash from investing activities

 

(32,499

)

(88,506

)

Cash flows from financing activities:

 

 

 

 

 

Change in uncashed checks

 

(6,739

(3,245

)

Proceeds from exercise of stock options

 

1,303

 

2,124

 

Deferred financing costs paid

 

(32

)

(968

)

Proceeds from employee stock purchase plan

 

850

 

573

 

Dividend payments on preferred stock

 

(206

)

(207

)

Payments on capital leases

 

(1,163

)

(1,648

)

Other

 

(69

)

 

Excess tax benefit of stock-based compensation

 

1,536

 

3,021

 

Proceeds from term loan to finance acquisition

 

 

30,000

 

Principal payments on debt

 

 

(52,500

)

Net cash from financing activities

 

(4,520

(22,850

)

Effect of exchange rate change on cash

 

5,542

 

706

 

Increase (decrease) in cash and cash equivalents

 

18,306

 

(59,559

)

Cash and cash equivalents, beginning of period

 

73,550

 

132,449

 

Cash and cash equivalents, end of period

 

$

91,856

 

$

72,890

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

Cash payments for interest and income taxes:

 

 

 

 

 

Interest paid

 

$

11,156

 

$

15,780

 

Income taxes paid

 

9,868

 

1,268

 

Non-cash investing and financing activities:

 

 

 

 

 

Property, plant and equipment accrued

 

$

4,387

 

$

2,686

 

Capital lease obligations

 

 

107

 

 

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

 

4



 

CLEAN HARBORS, INC. AND SUBSIDIARIES

 

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

(in thousands)

 

 

 

Series B
Preferred Stock

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number
of
Shares

 

$ 0.01
Par
Value

 

Number
of
Shares

 

$ 0.01
Par
Value

 

Treasury
Stock

 

Additional
Paid-in
Capital

 

Comprehensive
Income

 

Accumulated
Other
Comprehensive
Income

 

Accumulated
Earnings

 

Total
Stockholder’s
Equity

 

Balance at January 1, 2007

 

69

 

$

1

 

19,685

 

$

197

 

$

 

$

151,691

 

 

 

$

8,939

 

$

12,358

 

$

173,186

 

Net income

 

 

 

 

 

 

 

$

27,629

 

 

27,629

 

27,629

 

Foreign currency translation

 

 

 

 

 

 

 

8,449

 

8,449

 

 

8,449

 

Comprehensive income

 

 

 

 

 

 

 

$

36,078

 

 

 

 

FIN 48 cumulative effect
adjustment (see Note 10)

 

 

 

 

 

 

 

 

 

 

(36,843

)

(36,843

)

Other

 

 

 

 

 

 

(69

)

 

 

 

 

(69

)

Series B preferred stock dividends

 

 

 

 

 

 

(206

)

 

 

 

 

(206

)

Stock-based compensation

 

 

 

30

 

 

 

2,903

 

 

 

 

 

2,903

 

Conversion of Series B preferred stock

 

 

 

1

 

 

 

 

 

 

 

 

 

Issuance of restricted shares, net of shares remitted (see Note 12)

 

 

 

12

 

 

(571

)

 

 

 

 

 

(571

)

Exercise of stock options

 

 

 

131

 

2

 

 

1,301

 

 

 

 

 

1,303

 

Tax benefit on exercise of stock options

 

 

 

 

 

 

1,552

 

 

 

 

 

1,552

 

Employee stock purchase plan

 

 

 

22

 

 

 

850

 

 

 

 

 

850

 

Balance at September 30, 2007

 

69

 

$

1

 

19,881

 

$

199

 

$

(571

)

$

158,022

 

 

 

$

17,388

 

$

3,144

 

$

178,183

 

 

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

 

5



 

CLEAN HARBORS, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(1) BASIS OF PRESENTATION

 

The accompanying consolidated interim financial statements include the accounts of Clean Harbors, Inc. and its wholly-owned subsidiaries (collectively, “Clean Harbors” or the “Company”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of management, include all adjustments which, except as described elsewhere herein, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The financial statements presented herein should be read in connection with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

The Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) on January 1, 2007. See Note 10, “Income Taxes” for further discussion on the impact to the financial statements.

 

Certain reclassifications have been made to Note 13, “Segment Reporting” prior year information to conform to the current year presentation.

 

 (2) ACQUISITIONS

 

On January 3, 2007, Ensco Caribe, Inc., a Puerto Rico corporation (“Ensco Caribe”) then owned 50% by Clean Harbors El Dorado, LLC (“CH El Dorado”) and 50% by Ochoa Industrial Sales Corporation (“Ochoa”), redeemed the 50% stock ownership of Ochoa for $3.0 million, of which $300,000 was placed in escrow for a period of 14 months as security for the representations and warranties of Ochoa. Immediately after the redemption, Ensco Caribe was 100% owned by CH El Dorado, the name “Ensco Caribe, Inc.” was changed to “Clean Harbors Caribe, Inc.”, and the Puerto Rico operations of Clean Harbors Environmental Services, Inc. were transferred to Clean Harbors Caribe, Inc. The primary reasons for the acquisition of Ensco Caribe was to further improve the Company’s ability to service customers on the island, 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 a step acquisition as the original investment in Ensco Caribe was acquired as part of the acquisition of Teris LLC in August 2006. Therefore, the fair value of the original investment of $2.1 million was determined as part of the purchase price allocation of the Teris LLC assets and liabilities. The New Investment was allocated based on the fair value of assets acquired and liabilities assumed as of January 3, 2007. The total purchase price of $5.1 million reflected an excess of purchase price over fair value of the net assets acquired of approximately $2.6 million, which has been recorded as goodwill.

 

On August 3, 2007, the Company acquired certain assets owned by Romic Environmental Technologies Corporation (“Romic”), including rolling stock, customer lists, other tangibles and leasehold interests in two service centers located in Irwindale, California, and Clackamas, Oregon. The purchase price consists of the appraised value of the rolling stock and personal property plus 40% of the revenues generated from Romic customers for the six-month period following the closing of the transaction. At closing, the Company paid $3.2 million and the final purchase price will be determined after the six-month period expires. On August 22, 2007, the Company also acquired a lease for $2.0 million from Romic for a rail site in Redwood City, California. The Company estimates the total contingent portion of the purchase price, based on Romic revenues, to be $4.0 million, $2.0 million of which was paid at closing and $2.0 million, which will be paid from existing cash balances or cash provided from operations. The Company may also purchase additional equipment at its discretion. The acquisition expanded the Company’s presence in the West Coast of the United States. The acquisition was deemed not material.

 

The total estimated purchase price, excluding the $2.0 million for contingent revenues for the remainder of the six-month run-out period and any potential equipment purchases, was allocated to Romic’s tangible and intangible assets acquired based on the estimated fair values of such assets. As of September 30, 2007, a preliminary estimate of $2.9 million has been recorded for customer relationships classified as “Other intangibles”. The purchase price and allocation is preliminary and will be revised for the contingent payment based on revenue generated for the next four months, adjustments made to the purchase price and revisions of preliminary estimates of fair values as to other intangible assets. The preliminary calculation of the estimated purchase price, excluding the contingency, and the allocation of the estimated purchase price allocation among the assets acquired were as follows:

 

6



 

 

 

As of
September 30,
2007

 

Preliminary Purchase Price

 

 

 

Cash paid at closing

 

$

3,211

 

Additional cash paid for transfer of rail lease

 

2,000

 

Estimated acquisition costs

 

845

 

Total purchase price, excluding contingency

 

$

6,056

 

 

 

 

Acquired
Assets as of
September 30,
2007

 

Preliminary allocation

 

 

 

Property, plant and equipment

 

$

1,101

 

Permits and other intangibles

 

4,955

 

Assets acquired

 

$

6,056

 

 

During the third quarter of 2007, the Company finalized the purchase price allocation related to acquiring all the membership interests of Teris, LLC. Under the purchase method of accounting, the total purchase price is allocated to Teris’ net tangible assets based on their fair values as of the completion of the acquisition. It was determined that no value existed for intangible assets. The calculation of the purchase price and the allocation of the purchase price allocation among the assets acquired and liabilities assumed were as follows (in thousands):

 

 

 

Final as of
September 30,
2007

 

As of
December 31,
2006

 

Purchase Price

 

 

 

 

 

Cash consideration

 

$

52,700

 

$

52,700

 

Acquisition costs

 

1,912

 

1,894

 

Amount due from the seller for purchase price adjustments

 

(2,700

)

(3,095

)

Total purchase price

 

$

51,912

 

$

51,499

 

 

 

 

 

 

 

Allocation

 

 

 

 

 

Current assets

 

$

26,736

 

$

26,615

 

Property, plant and equipment (*)

 

55,214

 

54,031

 

Other assets

 

426

 

451

 

Investment in joint venture

 

2,196

 

2,146

 

Current closure, post-closure and remedial liabilities (*)

 

(1,221

)

(2,963

)

Other current liabilities

 

(21,469

)

(22,387

)

Closure, post-closure and remedial liabilities, long term (*)

 

(9,970

)

(6,394

)

Net assets acquired

 

$

51,912

 

$

51,499

 

 


* The $1.2 million increase in property, plant and equipment consists primarily of the $1.8 million increase in current and long term closure, post-closure and remedial liabilities partially offset by a decrease in other current liabilities. The $1.8 million increase is the result of all adjustments and an increase in the estimate recorded at December 31, 2006 after obtaining during the quarter, all the necessary information on remedial costs of the facility.

 

Negative goodwill has been calculated at $11.6 million, which represents the excess of the fair value of the net assets acquired and liabilities assumed over the purchase price. In accordance with SFAS No. 141, negative goodwill has been proportionally allocated to property, plant and equipment ($11.1 million) and the investment in joint venture ($0.5 million).

 

(3) LANDFILL ASSETS

 

Changes to landfill assets for the nine-month period ended September 30, 2007 were as follows (in thousands):

 

7



 

 

 

2007

 

Balance at January 1, 2007

 

$

11,399

 

Asset retirement costs

 

1,098

 

Capital additions

 

10,274

 

Changes in estimates of landfill closure and post-closure liabilities

 

233

 

Currency translation, reclassifications and other

 

1,141

 

Balance at September 30, 2007

 

$

24,145

 

 

Rates used to amortize landfill assets are calculated based upon the dollar value of estimated final liabilities, the surveyed remaining airspace of the landfill, and the time estimated to consume the remaining airspace. Consequently, rates vary for each landfill and for each asset category, and are recalculated each year. Landfill assets were amortized at average rates of $2.40 and $2.20 per cubic yard for the three- and nine-month periods ended September 30, 2007 and $2.56 and $2.57 per cubic yard for the three- and nine-month period ended September 30, 2006. The decrease in the 2007 amortization rate resulted primarily from a reduction in cell closure cost estimates based on a re-evaluation of the landfill closure liabilities. Amortization totaled $0.6 million and $1.4 million for the three- and nine-month periods ended September 30, 2007 and $0.9 million and $2.0 million for the three- and nine-month periods ended September 30, 2006, respectively.

 

(4) CLOSURE AND POST-CLOSURE LIABILITIES

 

The changes to closure and post-closure liabilities for the nine months ended September 30, 2007 were as follows (in thousands):

 

 

 

Landfill
Retirement
Liability

 

Non-Landfill
Retirement
Liability

 

Total

 

Balance at January 1, 2007

 

$

18,858

 

$

6,697

 

$

25,555

 

New asset retirement obligations

 

1,098

 

 

1,098

 

Accretion

 

2,004

 

616

 

2,620

 

Changes in estimate recorded to statement of operations

 

(287

)

(486

)

(773

)

Other changes in estimates recorded to balance sheet

 

233

 

 

233

 

Payments

 

(117

)

(143

)

(260

)

Currency translation, reclassifications and other

 

223

 

44

 

267

 

Balance at September 30, 2007

 

$

22,012

 

$

6,728

 

$

28,740

 

 

The $0.8 million benefit from changes in estimates above, recorded to the statement of operations, (including $0.1 million recorded in the third quarter of 2007) was due to:  (i) an increase in utilization of a facility thus avoiding projected near-term closure, ($0.5 million), (ii) decreasing a cell closure cost estimate for a full cell, ($0.1 million), and (iii) delayed timing of completing cell closure for a landfill cell, ($0.2 million). All of the landfill facilities included in the amounts shown above were active as of September 30, 2007.

 

Anticipated payments at September 30, 2007 (based on current estimated costs) and anticipated timing of necessary regulatory approvals to commence work on closure and post-closure activities for each of the next five years and thereafter are as follows (in thousands):

 

Periods ending December 31,

 

 

 

Remaining three months of 2007

 

$

445

 

2008

 

5,002

 

2009

 

7,421

 

2010

 

9,224

 

2011

 

2,027

 

Thereafter

 

209,259

 

Undiscounted closure and post-closure liabilities

 

233,378

 

Less: Reserves to be provided (including discount of $122.6 million) over remaining site lives

 

(204,638

)

Present value of closure and post-closure liabilities

 

$

28,740

 

 

8



 

New asset retirement obligations incurred in 2007 are being discounted at the credit-adjusted risk-free rate of 9.0% and inflated at a rate of 2.57%.

 

(5) REMEDIAL LIABILITIES

 

The changes to remedial liabilities for the nine months ended September 30, 2007 were as follows (in thousands):

 

 

 

Remedial
Liabilities for
Landfill Sites

 

Remedial
Liabilities for
Inactive Sites

 

Remedial
Liabilities
(Including
Superfund) for
Non-Landfill
Operations

 

Total

 

Balance at January 1, 2007

 

$

4,917

 

$

91,494

 

$

51,434

 

$

147,845

 

Adjustment due to final purchase price allocation

 

 

 

1,834

 

1,834

 

Accretion

 

177

 

3,190

 

1,756

 

5,123

 

Changes in estimate recorded to statement of operations

 

(51

)

(4,002

)

2,537

 

(1,516

)

Payments

 

(103

)

(2,655

)

(1,883

)

(4,641

)

Currency translation, reclassifications and other

 

403

 

101

 

2,188

 

2,692

 

Balance at September 30, 2007

 

$

5,343

 

$

88,128

 

$

57,866

 

$

151,337

 

 

The $1.5 million net benefit indicated above from changes in estimate includes $0.5 million for the three months ended September 30, 2007. The net $1.5 million benefit from changes in estimates recorded to selling, general and administrative expenses on the consolidated statement of operations includes: (i) less costly or alternative remedial plans based on new site information, ($3.8 million); (ii) proposed legal settlement for the Plaquemine facility (see Note 8, “Commitments and Contingencies”) and regulatory compliance obligations, $2.9 million; and (iii) the discounting effect of delays in certain remedial projects, ($0.6 million).

 

Anticipated payments at September 30, 2007 (based on current estimated costs) and anticipated timing of necessary regulatory approvals to commence work on remedial activities for each of the next five years and thereafter are as follows (in thousands):

 

Periods ending December 31,

 

 

 

Remaining three months of 2007

 

$

2,660

 

2008

 

10,675

 

2009

 

12,049

 

2010

 

11,566

 

2011

 

13,999

 

Thereafter

 

141,442

 

Undiscounted remedial liabilities

 

192,391

 

Less: Discount

 

(41,054

)

Total remedial liabilities

 

$

151,337

 

 

The anticipated payments for long-term maintenance range from $5.4 million to $9.9 million per year over the next five years. Spending on one-time projects for the next five years ranges from $1.5 million to $4.7 million per year with an average expected payment of $3.2 million per year. Legal and Superfund liabilities payments are expected to be between $1.0 million and $3.3 million per year for the next five years. These estimates are reviewed at least quarterly and adjusted as additional information becomes available.

 

(6) OTHER ACCRUED EXPENSES

 

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

 

9



 

 

 

September 30,
2007

 

December 31,
2006

 

Insurance

 

$

13,222

 

$

10,250

 

Interest

 

2,762

 

4,769

 

Accrued compensation and benefits

 

15,377

 

19,538

 

Other items

 

23,972

 

19,384

 

 

 

$

55,333

 

$

53,941

 

 

(7) FINANCING ARRANGEMENTS

 

The following table is a summary of the Company’s financing arrangements (in thousands):

 

 

 

September 30,
2007

 

December 31,
2006

 

Senior Secured Notes, bearing interest at 11.25%, collateralized by a second-priority lien on substantially all of the Company’s assets within the United States except for accounts receivable (maturity date of July 15, 2012)

 

$

91,518

 

$

91,518

 

Term Loan with a financial institution, bearing interest at the U.S. prime rate (8.03% at September 30, 2007) plus 1.5%, or the Eurodollar rate (5.50% at September 30, 2007) plus 2.50%, collateralized by a first-priority lien (second priority as to accounts receivable) on substantially all of the Company’s assets within the United States (maturity date of December 1, 2010)

 

30,000

 

30,000

 

Less unamortized issue discount

 

840

 

996

 

Long-term obligations

 

$

120,678

 

$

120,522

 

 

The fair value of the Senior Secured Notes at September 30, 2007 and December 31, 2006 was $97.0 million and $98.4 million, respectively.

 

The Company issued the Senior Secured Notes on June 30, 2004, and established the Revolving Facility and a $50.0 million synthetic letter of credit facility (the “Synthetic LC Facility”) on December 1, 2005, under an amended and restated loan and security agreement (the “Amended Credit Agreement”) which the Company then entered into with the lenders under the Company’s loan and security agreement dated June 30, 2004 (the “Original Credit Agreement”).

 

At September 30, 2007, the Company had outstanding $91.5 million of Senior Secured Notes, a $70.0 million Revolving Facility, a $50.0 million Synthetic LC Facility, and a $30.0 million term loan (the “Term Loan”). The financing arrangements and principal terms of each are discussed further in the Company’s 2006 Annual Report on Form 10-K. There have not been any material changes in our terms and conditions during the first nine months of 2007.

 

At September 30, 2007, the Company had no borrowings and $39.4 million of letters of credit outstanding under its Revolving Facility, and the Company had approximately $30.6 million available to borrow. At September 30, 2007, letters of credit outstanding under the Company’s Synthetic LC facility were $49.9 million.

 

The Indenture under which the Company’s Senior Secured Notes are outstanding provides for certain covenants, the most restrictive of which requires the Company, within 120 days after the close of each twelve-month period ending on June 30 of each year (beginning June 30, 2005 and ending on June 30, 2011) to apply an amount equal to 50% of the period’s Excess Cash Flow (as defined below) to either prepay, repay, redeem or purchase the Company’s first-lien obligations under the Revolving Facility, Synthetic LC Facility or Capital Lease Obligations or to make offers (“Excess Cash Flow Offers”) to repurchase all or part of the then outstanding Senior Secured Notes at an offering price equal to 104% of their principal amount plus accrued interest. “Excess Cash Flow” is defined in the Indenture as consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) less interest expense, all taxes paid or accrued in the period, capital expenditures made in cash during the period, and all cash spent on environmental monitoring, remediation or relating to our environmental liabilities.

 

The Company offered, on August 15, 2007, to repurchase up to $19.2 million principal amount of the Senior Secured Notes at a price equal to 104% of the principal amount thereof, plus accrued interest. This offer, which expired on September 17, 2007, was not accepted by any holders of Senior Secured Notes.

 

10



 

No portion of the Company’s Excess Cash Flow earned through June 30, 2007, is required to be included in the amount of Excess Cash Flow earned in subsequent periods. However, the 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.

 

Under the Amended Credit Agreement, the Company is required to maintain certain financial covenants as follows:

 

 

 

September 30, 2007

 

Covenant

 

Requirement
per Facility

 

Leverage ratio

 

< 2.35 to 1

 

Interest coverage ratio

 

> 2.85 to 1

 

Fixed charge coverage ratio

 

> 1 to 1

 

 

As of September 30, 2007, the Company was in compliance with the covenants under all the Company’s debt agreements.

 

(8) COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

The Company’s waste management services are regulated by federal, state, provincial and local laws enacted to regulate discharge of materials into the environment, remediation of contaminated soil and groundwater or otherwise protect the environment. This ongoing regulation results in the Company frequently becoming a party to judicial or administrative proceedings involving all levels of governmental authorities and other interested parties. The issues involved in such proceedings generally relate to applications for permits and licenses by the Company and conformity with legal requirements, alleged violations of existing permits and licenses or requirements to clean up contaminated sites. At September 30, 2007, the Company was involved in various proceedings, including legal proceedings related to the acquisition of CSD assets, legal proceedings related to CSD assets, third party superfund sites and state enforcement actions, the principal of which are described in Note 9, “Legal Proceedings” to the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, or below with respect to proceedings which have either arisen or as to which are material or changes in applicable reserve amounts have occurred since that Note 9 was completed in March 2007.

 

Legal Proceedings Related to Acquisition of CSD Assets

 

Effective September 7, 2002 (the “Closing Date”), the Company purchased from Safety-Kleen Services, Inc. and certain of its domestic subsidiaries (collectively, the “Sellers”) substantially all of the assets of the Chemical Services Division (the “CSD”) of Safety-Kleen Corp. The Company purchased the CSD assets pursuant to a sale order (the “Sale Order”) issued by the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) which had jurisdiction over the Chapter 11 proceedings involving the Sellers, and the Company therefore took title to the CSD assets without assumption of any liability (including pending or threatened litigation) of the Sellers except as expressly provided in the Sale Order. However, under the Sale Order (which incorporated by reference certain provisions of the Acquisition Agreement between the Company and Safety-Kleen Services, Inc.), the Company became subject as of the Closing Date to certain legal proceedings which are now either pending or threatened involving the CSD assets. As of September 30, 2007, the Company had reserves of $27.6 million (substantially all of which the Company had established as part of the purchase price for the CSD assets) relating to the Company’s estimated potential liabilities in connection with such legal proceedings. At December 31, 2006, the Company estimated that it was “reasonably possible” as that term is defined in SFAS No. 5 (“more than remote but less than likely”), that the amount of such total liabilities could be up to $3.1 million greater than the $25.1 million reserve balance at December 31, 2006. The Company believes that as of September 30, 2007, there has been no material change in the reasonably possible amount of $3.1 million. The Company periodically adjusts the aggregate amount of such reserves when such potential liabilities are paid or otherwise discharged or additional relevant information becomes available. Substantially all of the Company’s legal proceedings liabilities are environmental liabilities and, as such, are included in the tables of changes to remedial liabilities disclosed as part of Note 5, “Remedial Liabilities.”

 

Ville Mercier Legal Proceedings. The CSD assets included a subsidiary (the “Mercier Subsidiary”) which owns and operates a hazardous waste incinerator in Ville Mercier, Quebec (the “Mercier Facility”). A property owned by the Mercier Subsidiary adjacent to the current Mercier Facility is now contaminated as a result of actions dating back to 1968, when the Quebec government issued to the previous owner of the Mercier Facility two permits to dump organic liquids into lagoons on

 

11



 

the property. By 1972, groundwater contamination had been identified, and the Quebec government provided an alternate water supply to the municipality of Ville Mercier.

 

In 1999, Ville Mercier and three neighboring municipalities filed separate legal proceedings against the Mercier Subsidiary and certain related companies together with certain former officers and directors, as well as against the Government of Quebec. The lawsuits assert that the defendants are jointly and severally responsible for the contamination of groundwater in the region, which the plaintiffs claim was caused by contamination from the former Ville Mercier lagoons and which they claim caused each municipality to incur additional costs to supply drinking water for their citizens since the 1970’s and early 1980’s. The four municipalities claim a total of $1.6 million (CDN) as damages for additional costs to obtain drinking water supplies and seek an injunctive order to obligate the defendants to remediate the groundwater in the region. The Quebec Government also sued the Mercier Subsidiary to recover approximately $17.4 million (CDN) of alleged past costs for constructing and operating a treatment system and providing alternative drinking water supplies.

 

On September 26, 2007 the Minister of Sustainable Development, Environment and Parks issued a Notice pursuant to Section 115.1 of the Environment Quality Act, superceding Notices issued in 1992, which are the subject of the pending litigation. The more recent Notice notifies the Mercier Subsidiary that, if the Mercier Subsidiary does not take certain remedial measures at the site, the Minister intends to undertake those measures at the site and claim direct and indirect costs related to such measures. The Mercier Subsidiary continues to assert that it has no responsibility for the matter and will contest any action by the Ministry to impose costs for remedial measures on the Mercier Subsidiary.

 

At September 30, 2007 and December 31, 2006, the Company had accrued $13.2 million and $11.2 million, respectively, for remedial liabilities and associated legal costs relating to the Ville Mercier Legal Proceedings. The increase in 2007 resulted primarily from a foreign exchange rate adjustment due to the strengthening of the Canadian dollar.

 

Indemnification of Certain CSD Superfund Liabilities. The Company’s agreement with the Sellers under the Acquisition Agreement and the Sale Order to indemnify the Sellers against certain cleanup costs payable to governmental entities under federal and state Superfund laws now relate primarily to: (i) two properties included in the CSD assets which are either now subject or proposed to become subject to Superfund proceedings; (ii) certain potential liabilities which the Sellers might incur in the future in connection with an incinerator formerly operated by Marine Shale Processors, Inc. to which the Sellers shipped hazardous wastes; and (iii) 35 Superfund sites owned by third parties where the Sellers have been designated as Potentially Responsible Parties (“PRPs”). As described below, there are also six other Superfund sites owned by third parties where the Sellers have been named as PRPs or potential PRPs and for which the Sellers have sent demands for indemnity to the Company since the Closing Date, now including the Marine Shale Processors, Inc. site. In the case of the two properties referenced above which were included in the CSD assets, the Company is potentially directly liable for cleanup costs under applicable environmental laws because of its ownership and operation of such properties since the Closing Date. In the case of Marine Shale Processors and the 35 other third party sites referenced above, the Company does not have direct liability for cleanup costs but may have an obligation to indemnify the Sellers, to the extent provided in the Acquisition Agreement and the Sale Order, against the Sellers’ share of such cleanup costs which are payable to governmental entities.

 

Federal and state Superfund laws generally impose strict, and in certain circumstances, joint and several liability for the costs of cleaning up Superfund sites not only upon the owners and operators of such sites, but also upon persons or entities which in the past have either generated or shipped hazardous wastes which are present on such sites. The Superfund laws also provide for liability for damages to natural resources caused by hazardous substances at such sites. Accordingly, the Superfund laws encourage PRPs to agree to share in specified percentages of the aggregate cleanup costs for Superfund sites by entering into consent decrees, settlement agreements or similar arrangements. Non-settling PRPs may be liable for any shortfalls in government cost recovery and may be liable to other PRPs for equitable contribution. Under the Superfund laws, a settling PRP’s financial liability could increase if the other settling PRPs were to become insolvent or if additional or more severe contamination were discovered at the relevant site. In estimating the amount of those Sellers’ liabilities at those Superfund sites where one or more of the Sellers has been designated as a PRP and as to which the Company believes that it has potential liability under the Acquisition Agreement and the Sale Order, the Company therefore reviewed any existing consent decrees, settlement agreements or similar arrangements with respect to those sites and the Sellers’ negotiated volumetric share of liability (where applicable), and also took into consideration the Company’s prior knowledge of the relevant sites and the Company’s general experience in dealing with the cleanup of Superfund sites.

 

Properties Included in CSD Assets. The CSD assets which the Company acquired include an active service center located at 2549 North New York Street in Wichita, Kansas (the “Wichita Property”). The Wichita Property is one of several

 

12



 

properties located within the boundaries of a 1,400 acre state-designated Superfund site in an old industrial section of Wichita known as the North Industrial Corridor Site. Along with numerous other PRPs, the Sellers executed a consent decree relating to such site with the U.S. Environmental Protection Agency (the “EPA”), and the Company is continuing its ongoing remediation program for the Wichita Property in accordance with that consent decree. Also included within the CSD assets which the Company acquired are rights under an indemnification agreement between the Sellers and a prior owner of the Wichita Property, which the Company anticipates but cannot guarantee will be available to reimburse certain such cleanup costs.

 

The CSD assets also include a former hazardous waste incinerator and landfill in Baton Rouge, Louisiana (“BR Facility”) undergoing remediation pursuant to an order issued by the Louisiana Department of Environmental Quality. In December 2003, the Company received an information request from the EPA pursuant to the Superfund Act concerning the Devil’s Swamp Lake Site (“Devil’s Swamp Site”) in East Baton Rouge Parish, Louisiana. On March 8, 2004, the EPA proposed to list Devil’s Swamp on the National Priorities List for further investigations and possible remediation. Devil’s Swamp includes a lake located downstream of an outfall ditch where wastewaters and stormwaters have been discharged from the BR Facility, as well as extensive swamplands adjacent to it. Contaminants of concern (“COCs”) cited by the EPA as a basis for listing the site include substances of the kind found in wastewaters discharged from the BR Facility in past operations. While the Company’s ongoing corrective actions at the BR Facility may be sufficient to address the EPA’s concerns, there can be no assurance that additional action will not be required and that the Company will not incur material costs. In September 2007 the EPA sent Special Notice Letters to certain generators of waste materials containing COCs that had shipped the COCs to the BR Facility in the past and that EPA believes may be liable under Superfund laws, requiring those generators to submit a good faith offer to conduct a remedial investigation feasibility study directed towards the eventual remediation of the Devil’s Swamp Site. The Company cannot now estimate the Company’s potential liability for Devil’s Swamp; accordingly, the Company has accrued no liability for remediation of Devil’s Swamp beyond what was already accrued pertaining to the ongoing corrective actions and amounts sufficient to cover certain estimated legal fees and related expenses.

 

Marine Shale Processors. A portion of the reserves which the Company maintained as of September 30, 2007 for potential legal liabilities associated with the CSD assets relates to Marine Shale Processors, Inc. located in Amelia, Louisiana (“Marine Shale Site”). On May 11, 2007, the EPA and the LDEQ issued a Special Notice to the Company, seeking a good faith offer to address site remediation at the former Marine Shale incinerator facility. Other PRPs also received Special Notices, and the other PRPs and the Company have formed a group (the “Site Group”) and common counsel for the Site Group has been chosen. The Site Group will make a good faith settlement offer to the EPA on November 29, 2007. Although the Company was never a customer of Marine Shale and does not believe that it is liable for the Sellers’ liability as a customer at the Marine Shale Site, the Company has elected to join with the Site Group and participate in further negotiations with the EPA and LDEQ regarding a remedial investigation feasibility study directed towards the eventual remediation of the Marine Shale Site. As of September 30, 2007, the amount of the Company’s remaining reserves relating to the Marine Shale Site was $3.6 million.

 

Third Party Superfund Sites. Prior to the Closing Date, the Sellers had generated or shipped hazardous wastes, which are present on an aggregate of 35 sites owned by third parties, which have been designated as federal or state Superfund sites and at which the Sellers, along with other parties, had been designated as PRPs. Under the Acquisition Agreement and the Sale Order, the Company agreed with the Sellers that it would indemnify the Sellers against the Sellers’ share of the cleanup costs payable to governmental entities in connection with those 35 sites, which were listed in Exhibit A to the Sale Order (the “Listed Third Party Sites”). At 29 of the Listed Third Party Sites, the Sellers had addressed, prior to the Company’s acquisition of the CSD assets in September 2002, the Sellers’ cleanup obligations to the federal and state governments and to other PRPs by entering into consent decrees or other settlement agreements or by participating in ongoing settlement discussions or site studies and, in accordance therewith, the PRP group is generally performing or has agreed to perform the site remediation program with government oversight. With respect to two of those 29 Listed Third Party Sites, certain developments have occurred since the Company’s purchase of the CSD assets as described in the following four paragraphs. Of the remaining Listed Third Party Sites, the Company, on behalf of the Sellers are contesting with the governmental entities and PRP groups involved the liability at two sites, have settled the Sellers’ liability at two sites, and plan to fund participation by the Sellers as settling PRPs at two sites. In addition, the Company has confirmed that the Sellers were ultimately not named as PRPs at one site. With respect to all of the 35 Listed Third Party Sites, the Company had reserves of $4.6 million and $4.9 million at September 30, 2007 and December 31, 2006 respectively.

 

With respect to one of those 35 sites (the “Helen Kramer Landfill Site”), the Sellers had entered (prior to the Sellers commencing their bankruptcy proceeding in June 2000) into settlement agreements with certain members of the PRP group

 

13



 

which agreed to perform the cleanup of that site in accordance with consent decrees with governmental entities, in return for which the Sellers received a conditional release from such governmental entities. Following the Sellers’ commencement of their bankruptcy proceeding, the Sellers failed to satisfy their payment obligations to those PRPs under those settlement agreements.

 

In November 2003, certain of those PRPs made a demand directly on the Company for the Sellers’ share of the cleanup costs incurred by the PRPs with respect to the Helen Kramer Landfill Site. However, at a hearing in the Bankruptcy Court on January 6, 2004 on a motion by those PRPs seeking an order that the Company was liable to such PRPs under the terms of the Sale Order, the Bankruptcy Court declined to hear the motion on the ground that those PRPs (which are not governmental entities) have no right to seek direct payment from the Company for any portion of the cleanup costs which they have incurred in connection with that site. The Sellers have never made an indemnity request upon the Company for any obligations relating to that site. The PRPs indicated their intention to pursue additional recourse against the Company, but the Company filed in February 2005 a complaint with the Bankruptcy Court seeking declaratory relief that the injunction in the Sale Order is operative against those PRPs’ efforts to proceed directly against the Company and seeking sanctions against those PRPs for violating that injunction.

 

In October 2005, the Bankruptcy Court granted the PRPs’ motion to dismiss the count of the Company’s complaint seeking sanctions against them for contempt, but the remaining counts of the Company’s complaint seeking declaratory relief remain to be resolved. In November 2005, the PRPs filed a counterclaim for declaratory relief that the Company is liable to them for the Seller’s obligations to them. On March 22, 2006, the PRPs moved for summary judgment on all counts, but the Court declined to grant that motion on July 24, 2006. The case was tried before the court on October 18 and 19, 2007, and the parties will submit post-trial legal briefs in November following which the Court will issue its judgment. At present, the Company estimates that its potential exposure of incurring a loss from this litigation ranges from zero (if the Company ultimately prevails on the merits) to approximately $3.2 million (if the Court rules against the Company). The Company has not recorded any liability for this matter on the basis that such liability is currently neither probably nor estimable.

 

On May 2, 2007, the Company received from the EPA a Request for Information pertaining to the Casmalia Resources Hazardous Waste Management Facility (the “Casmalia Site”) in Santa Barbara County, California. The Casmalia Site was one of the 35 Sites for which the Company agreed to indemnify the Sellers for liability to a governmental entity. According to the notice, 65 parties entered into Consent Decrees with EPA that were entered by the U.S. District Court for the Central District of California on June 27, 1997. According to EPA, it is now seeking financial contributions from others, including transporters and other persons who arranged for disposal at the former landfill, that may be liable for waste shipments into the Casmalia Site. At this time, EPA is not seeking any financial contribution from the Company, but it is seeking information about the extent to which, if at all, the Sellers transported or arranged for disposal of waste at the Casmalia Site. At this time, the Company does not know what, if any, exposure it has under its indemnity arrangement with the Sellers, and the Sellers have not made any demand for indemnity. The Company has not recorded any liability for this matter on the basis that such liability is currently neither probably nor estimable.

 

Other Legal Proceedings Related to CSD Assets

 

Plaquemine, Louisiana Facility. In addition to the legal proceedings related to the acquisition of the CSD assets described above, subsequent to the acquisition in September 2002 various plaintiffs which are represented by the same law firm have filed five lawsuits based in part upon allegations relating to ownership and operation of a deep injection well facility near Plaquemine, Louisiana which Clean Harbors Plaquemine, LLC (“CH Plaquemine”), one of the Company’s subsidiaries, acquired as part of the CSD assets.

 

On October 17, 2006, CH Plaquemine (which operated at a loss during the past two years prior to that date) ceased operations and filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the District of Massachusetts, Eastern division. On December 28, 2006, the Mass. Bankruptcy Court transferred the venue of the CH Plaquemine bankruptcy case to the U.S. Bankruptcy Court for the Middle District of Louisiana, located in Baton Rouge, where such case is now pending. The Company believes that the filing of that Chapter 11 petition by CH Plaquemine will have no adverse effect on the Company’s other operations.

 

On September 13, 2007, the Bankruptcy Court approved a global settlement of the five lawsuits described above and another, non-material suit filed by one of the plaintiffs in such lawsuits, pursuant to which CH Plaquemine has conditionally agreed to settle all of the pending lawsuits, subject to certain contingencies and court proceedings which must still take place before the settlement can be consummated. Among the conditions to the settlement is that the Bankruptcy Court approve as fair and reasonable a class action settlement of one of the five lawsuits described above which was filed as a class action, and that CH Plaquemine successfully confirm a plan of reorganization that incorporates the terms of the settlement. It is anticipated that the class action settlement documents and a plan of reorganization and disclosure statement will be filed in November 2007. The Company recorded a liability of $2.1 million during the three months ended September 30, 2007 pertaining to this potential settlement.

 

14



 

Deer Trail, Colorado Facility. Since April 5, 2006 the Company has been involved in various legal proceedings which have arisen as a result of the issuance by the Colorado Department of Public Health and Environment (“CDPHE”) of a radioactive materials license (“RAD License”) to a Company subsidiary, Clean Harbors Deer Trail, LLC (“CHDT”) to accept certain low level radioactive materials known as “NORM/TENORM” wastes for disposal. Adams County, Colorado, the county where the CHDT facility is located, filed suit in Denver County District Court and Adams County District Court against CDPHE seeking to vacate the CDPHE’s grant of the RAD license to CHDT. The CDPHE is represented by the Colorado Attorney General in the proceedings. Clean Harbors entered both cases as an intervenor in support of the State’s position. On or about May 5, 2006 Denver District Court ruled in favor of the State and the Company and issued an order dismissing the county’s complaint. On or about July 31, 2006, the Adams County District Court also ruled against the county and dismissed the county’s complaint. Adams County appealed both rulings.

 

On or about December 12, 2006 the City and County of Denver notified the Company that the city intended to award it a contract to dispose of certain debris at the CHDT facility from a project known as the “Denver Radium Streets Project”. Clean Harbors’ Deer Trail facility has been designated by the Rocky Mountain Low-Level Radioactive Waste Compact (“Compact”) as a Regional Facility.   Accordingly, it is the only facility in the three-state Compact Region’s jurisdiction (Colorado, New Mexico, Nevada) qualified to accept this material for disposal. On December 18, 2006 the original shipment of material from that project was received followed by subsequent shipments on February 14 and 15, 2007. All material received was in accordance with the facility’s State of Colorado Radioactive Materials License and Federal Compact Designation.

 

On or about February 16, 2007, the CHDT facility received a vaguely worded Notice of Violation (“NOV”) from Adams County, Colorado, presumably as a result of the facility’s accepting the low-level radioactive debris from the Denver Radium Streets Project in accordance with the facility’s RAD License. Since that time the facility has continued to accept material from that project in reliance on guidance issued by the CDPHE that the facility is duly licensed to accept that material.

 

The Company’s position is that the NOV issued by Adams County is null and void ab initio as it is in conflict with the RAD License issued by the CDPHE pursuant to Colorado state law and the Regional Facility Designation issued by the Compact pursuant to both federal law and the laws of Colorado. The Company will continue to contest the actions of Adams County and will continue to lawfully accept all materials authorized by its permits, licenses, and Compact Designation.

 

On April 25, 2007,  Adams County filed an action against the Company essentially asserting grounds that the County has asserted in prior proceedings. The Company continues to believe that the grounds asserted by the County are factually and legally baseless and will contest the complaint vigorously.

 

On October 4, 2007, the Colorado Court of Appeals unanimously ruled against the county and affirmed the rulings by the Denver District and Adams County District Courts dismissing the county’s original complaints against CDPHE’s issuance of the RAD License. The Company has not recorded any liability for this matter on the basis that such liability is currently neither probable nor estimable.

 

Legal Proceedings Not Related to CSD Assets

 

In addition to the legal proceedings relating to the CSD assets, the Company is also involved in certain legal proceedings related to environmental matters which have arisen for other reasons.

 

Superfund Sites Not Related to CSD Acquisition. The Company has been named as a PRP at 29 sites that are not related to the CSD acquisition. Fourteen of these sites involve two subsidiaries which the Company acquired from ChemWaste, a former subsidiary of Waste Management, Inc. As part of that acquisition, ChemWaste agreed to indemnify the Company with respect to any liability of those two subsidiaries for waste disposed of before the Company acquired them. Accordingly, Waste Management is paying all costs of defending those two subsidiaries in those 14 cases, including legal fees and settlement costs.

 

The Company’s subsidiary which owns the Bristol, Connecticut facility is involved in one of the 29 Superfund sites. As part of the acquisition of that facility, the seller and its now parent company, Cemex, S.A., agreed to indemnify the Company with respect to any liability for waste disposed of before the Company acquired the facility, which would include any liability arising from Superfund sites.

 

15



 

Eleven of the 29 Superfund sites involve subsidiaries acquired by the Company which had been designated as PRPs with respect to such sites prior to its acquisition of such subsidiaries. Some of these sites have been settled, and the Company believes its ultimate liability with respect to the remaining such sites will not be material to its result of operations, cash flow from operations or financial position.

 

In July 2006, the Company was informed of its involvement at a state Superfund site in Niagara Falls, New York where it may have incurred liability for past waste shipments. No indemnification exists for this site. In February 2007, the New York State Department of Environmental Conservation issued an official Notice Letter pertaining to this site. The Company increased the reserve by $0.5 million during the nine months ended September 30, 2007 pertaining to this potential liability.

As of September 30, 2007 and December 31, 2006, the Company had reserves of $0.6 million and $0.1 million, respectively, for cleanup of Superfund sites not related to the CSD acquisition or the Teris acquisition described below at which either the Company or a predecessor has been named as a PRP. However, there can be no guarantee that the Company’s ultimate liabilities for these sites will not materially exceed this amount or that indemnities applicable to any of these sites will be available to pay all or a portion of related costs.

 

State and Provincial Enforcement Actions

 

El Dorado, Arkansas Facility. As part of its operating permits, Clean Harbors El Dorado, LLC has an on-site inspector from the Arkansas Department of Environmental Quality (the “ADEQ”) who conducts routine inspections of facility operations on a regular basis. As a result of these routine inspections, and a November, 2006 Compliance Evaluation Inspection, the ADEQ alleged several violations of the facility’s permit and Arkansas regulations, and proposed a penalty of $261 thousand. The facility worked with the ADEQ in an effort to resolve or rectify many of the alleged violations, and has successfully negotiated in July 2007, a Consent Administrative Order wherein the facility is required to pay $85 thousand in cash, agreed to fund a Supplemental Environmental Project (“SEP”) for the El Dorado public schools by paying $17 thousand to an education foundation, and agreed to fund a SEP by paying $29 thousand to clean up laboratory chemicals in Arkansas schools, in order to settle all of the matters. The Company funded the cash component of the settlement during the third quarter of 2007.

 

Aragonite, Utah Facility. Clean Harbors Aragonite, LLC agreed to a Stipulation and Consent Order on July 20, 2007 with the Utah Department of Environmental Quality (the “UDEQ”) to finally settle alleged violations from inspections conducted from October 2005 through September 2006. The facility has agreed to pay a total of $147 thousand, comprised of $100 thousand in cash, a SEP to provide hazardous waste management and disposal services for a local school district and state university valued at $22 thousand, and $25 thousand to purchase and donate for a brush fire truck to the local county for brush and wild fire fighting purposes. The facility has one year to perform the SEP, or alternatively, to pay $47 thousand in cash instead.

 

London, Ontario Facility. Clean Harbors Canada, Inc., had received a summons from the Ontario Ministry of Labour alleging a number of regulatory offenses as a result of a fire in October 2003 at the subsidiary’s waste transfer facility in London, Ontario. The Company filed a motion in the Ontario Court of Justice to dismiss the charges on constitutional grounds. On October 16, 2006 the Court ruled in favor the Company’s motion and on November 22, 2006 the Crown appealed the Court’s ruling quashing all charges. On October 23, 2007 the Ontario Superior Court of Justice issued a ruling on the Crown’s appeal and upheld the lower court ruling quashing the charges. The company has not recorded any liability for this matter on the basis that such liability is neither probable nor estimable.

 

Thorold Fire

 

On February 19, 2007, an explosion and fire occurred at the Company’s Thorold facility in Ontario during non-business hours destroying a storage warehouse and damaging several nearby buildings on site. No employee casualties or injuries were reported. The Company has established business operations at alternative facilities to ensure business continuity and minimize disruption to its customers. The Company continues to evaluate the financial impact resulting from this incident and currently believes the Company is adequately insured and therefore does not expect to incur a material loss from this incident. On October 23, 2007 the Ontario Environment Ministry announced that it had concluded its investigation into the fire and that there were no grounds to initiate action against the Company. This action by the Environment Ministry followed a prior pronouncement by the provincial Ministry of Health that there were no long term health impacts from the fire. As of September 30, 2007, the Company had recognized $0.8 million of expenses in income from operations relating to the Thorold explosion and fire.

 

16



 

(9) LOSS ON EARLY EXTINGUISHMENT OF DEBT

 

On January 12, 2006, the Company redeemed $52.5 million principal amount of outstanding Senior Secured Notes and paid prepayment penalties and accrued interest through the redemption date. In connection with such redemption the Company recorded during the nine months ended September 30, 2006, to loss on early extinguishment of debt, an aggregate of $8.3 million, consisting of $1.8 million unamortized financing costs, $0.6 million of unamortized discount on the Senior Secured Notes, and the $5.9 million prepayment penalty required by the Indenture in connection with such redemption.

 

(10) INCOME TAXES

 

The income tax expense for the third quarter of 2007 was based on the estimated effective tax rate for the year. The effective tax rate increased in 2007 as compared to the same period in 2006 primarily related to a reduction in the benefit realized from the utilization of net operating loss carryforwards and the inclusion of interest and penalties on tax contingencies for uncertain tax positions in 2007.

 

SFAS 109, “Accounting for Income Taxes,” requires that a valuation allowance be established when, based on an evaluation of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, as of September 30, 2007, the Company had a valuation allowance of approximately $12.1 million related to foreign tax credits, certain state net operating loss carryforwards and federal and state net operating loss carryforwards related to tax deductions for the exercise of non-qualified stock options.

 

The Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) on January 1, 2007. As a result of the implementation of FIN 48, tax contingencies increased $41.9 million for uncertain tax positions, of which $36.8 million was accounted for as a decrease to retained earnings. In addition, to reflect the federal and state tax benefits upon the implementation of FIN 48, the Company also recorded an increase to the Company’s deferred tax assets of $4.7 million and a $0.4 million decrease to the valuation allowance.

 

As of the date of adoption of FIN 48 and after the impact of recognizing the increase in the tax contingencies noted above, the Company’s unrecognized tax benefits totaled $57.5 million consisting of $47.6 million of unrecognized tax benefit, $8.0 million of interest and $1.9 million of penalties, which are recorded on the Company’s consolidated balance sheet as “Other long-term liabilities”. The $57.5 million includes $15.6 million of contingencies previously recognized on the Company’s consolidated balance sheet at December 31, 2006. Included in the balance at January 1, 2007, were $38.7 million of unrecognized tax benefits that, if recognized, would affect the annual effective income tax rate.

 

The Company has elected to continue its policy of recognizing interest and/or penalties related to income tax matters as a component of income tax expense. As a result, changes in Other long-term liabilities since the adoption of FIN48 on January 1, 2007, for the nine-month period ended September 30, 2007 were as follows (in thousands):

 

 

 

2007

 

Balance as of January 1, 2007

 

$

57,508

 

Interest and penalties accrued

 

4,172

 

Foreign currency translation

 

2,691

 

Balance as of September 30, 2007

 

$

64,371

 

 

The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2003 through 2006. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. The Company may also be subject to examinations by state and local revenue authorities for calendar years 2002 through 2006. The Company is currently not under examination by the IRS, state, local or foreign jurisdictions.

 

The Company does not anticipate that total unrecognized tax benefits other than adjustments for additional accruals for interest and penalties and foreign currency translation, will change significantly prior to September 30, 2008.

 

17



 

(11) EARNINGS PER SHARE

 

The following is a reconciliation of basic and diluted income per share computations (in thousands except for per share amounts):

 

 

 

Three Months Ended September 30, 2007

 

Three Months Ended September 30, 2006

 

 

 

Income

 

Shares

 

Per Share
Amount

 

Income

 

Shares

 

Per Share
Amount

 

Basic income attributable to common stockholders before effect of dilutive securities

 

$

12,871

 

19,840

 

$

0.65

 

$

20,936

 

19,587

 

$

1.07

 

Effect of dilutive securities

 

69

 

846

 

(0.02

)

69

 

1,020

 

(0.05

)

Diluted income attributable to common stockholders

 

$

12,940

 

20,686

 

$

0.63

 

$

21,005

 

20,607

 

$

1.02

 

 

 

 

Nine Months Ended September 30, 2007

 

Nine Months Ended September 30, 2006

 

 

 

Income

 

Shares

 

Per Share
Amount

 

Income

 

Shares

 

Per Share
Amount

 

Basic income attributable to common stockholders before effect of dilutive securities

 

$

27,423

 

19,788

 

$

1.39

 

$

34,975

 

19,488

 

$

1.79

 

Effect of dilutive securities

 

206

 

927

 

(0.06

)

207

 

1,153

 

(0.09

)

Diluted income attributable to common stockholders

 

$

27,629

 

20,715

 

$

1.33

 

$

35,182

 

20,641

 

$

1.70

 

 

For the three and nine-month periods ended September 30, 2007 and 2006, the dilutive effect of all outstanding warrants, options and Series B Preferred Stock is included in the above calculations. For each of the three- and nine-month periods ended September 30, 2007 and 2006, the dilutive effects of 50 thousand and 70 thousand outstanding performance stock awards, respectively, were excluded from the above calculation as the attainment of the performance criteria was not considered probable.

 

(12) STOCK-BASED COMPENSATION

 

The following table summarizes the total number and type of awards granted during the three and nine-month periods ended of 2007 and 2006, respectively, as well as the related weighted-average grant-date fair values:

 

 

 

Three Months Ended
September 30, 2007

 

Three Months Ended
September 30, 2006

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Stock options

 

 

$

 

3,833

 

$

25.95

 

Restricted stock awards

 

4,558

 

44.52

 

1,500

 

38.76

 

Performance stock awards

 

 

$

 

 

$

 

Total awards

 

4,558

 

 

 

5,333

 

 

 

 

 

 

Nine Months Ended
September 30, 2007

 

Nine Months Ended
September 30, 2006

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Stock options

 

20,500

 

$

26.13

 

21,833

 

$

22.13

 

Restricted stock awards

 

6,058

 

44.74

 

4,100

 

 

35.57

 

Performance stock awards

 

50,598

 

 

52.30

 

71,292

 

 

31.73

 

Common stock awards

 

5,200

 

$

46.74

 

3,000

 

$

29.37

 

Total awards

 

82,356

 

 

 

100,225

 

 

 

 

18



 

The performance stock awards granted in 2007 are subject to achieving predetermined revenue and EBITDA targets by December 31, 2008 and also include continued service conditions. If the Company does not achieve the performance goals by the end of 2008, the shares will be forfeited in their entirety. For the three- and nine-month periods ended September 30, 2007, no compensation has been recorded for these awards as management does not currently believe that it is probable these performance targets will be achieved. During the nine months ended September 30, 2007, $571 thousand was recorded as treasury stock for 11,850 shares of the Company’s common stock that employees had remitted to the Company as payment for payroll taxes previously paid by the Company on the employees’ behalf primarily in connection with the employees’ vesting of certain performance stock awards.

 

The Company recorded stock-based compensation costs of $0.9 million and $2.9 million for the quarter and year-to-date ending 2007 and $0.9 million and $2.5 million for the quarter and year-to-date ending 2006, respectively.

 

 (13) SEGMENT REPORTING

 

The Company has two reportable segments: Technical Services and Site Services. Performance of the segments is evaluated on several factors, of which the primary financial measure is operating income before interest, taxes, depreciation, amortization, restructuring, severance charges, other refinancing-related expenses, (gain) loss on disposal of assets held for sale, other (income) expense, and loss on refinancing (“Adjusted EBITDA Contribution”). Transactions between the segments are accounted for at the Company’s estimate of fair value based on similar transactions with outside customers.

 

The operations not managed through the Company’s two operating segments are presented herein as “Corporate Items.” Corporate Items revenues consist of two different operations where the revenues are insignificant. Corporate Items cost of revenues represents certain central services that are not allocated to the segments for internal reporting purposes. Corporate Items selling, general and administrative expenses include typical corporate items such as legal, accounting and other items of a general corporate nature that are not allocated to the Company’s two segments.

 

The following table reconciles third party revenues to direct revenues for the three- and nine-month periods ended September 30, 2007 and 2006 (in thousands). Outside or Third party revenue is revenue billed to our customers by a particular segment. Direct revenue is the revenue allocated to the segment performing the provided service. The Company analyzes results of operations based on direct revenues because the Company believes that these revenues and related expenses best reflect the manner in which operations are managed. Certain reporting units have been reclassified to conform to the current year presentation.

 

 

 

For the Three Months Ended September 30, 2007

 

 

 

Technical
Services

 

Site
Services

 

Corporate
Items

 

Total

 

Third party revenues

 

$

170,757

 

$

74,736

 

$

14

 

$

245,507

 

Intersegment revenues

 

30,926

 

5,764

 

142

 

36,832

 

Gross revenues

 

201,683

 

80,500

 

156

 

282,339

 

Intersegment expenses

 

(26,704

)

(9,627

)

(501

)

(36,832

)

Direct revenues

 

$

174,979

 

$

70,873

 

$

(345

)

$

245,507

 

 

 

 

For the Three Months Ended September 30, 2006

 

 

 

Technical
Services

 

Site
Services

 

Corporate
Items

 

Total

 

Third party revenues

 

$

137,750

 

$

75,255

 

$

898

 

$

213,903

 

Intersegment revenues

 

24,087

 

5,921

 

196

 

30,204

 

Gross revenues

 

161,837

 

81,176

 

1,094

 

244,107

 

Intersegment expenses

 

(20,044

)

(9,215

)

(945

)

(30,204

)

Direct revenues

 

$

141,793

 

$

71,961

 

$

149

 

$

213,903

 

 

19



 

 

 

For the Nine Months Ended September 30, 2007

 

 

 

Technical
Services

 

Site
Services

 

Corporate
Items

 

Total

 

Third party revenues

 

$

475,633

 

$

213,579

 

$

27

 

$

689,239

 

Intersegment revenues

 

129,924

 

16,529

 

566

 

147,019

 

Gross revenues

 

605,557

 

230,108

 

593

 

836,258

 

Intersegment expenses

 

(118,068

)

(27,493

)

(1,458

)

(147,019

)

Direct revenues

 

$

487,489

 

$

202,615

 

$

(865

)

$

689,239

 

 

 

 

For the Nine Months Ended September 30, 2006

 

 

 

Technical
Services

 

Site
Services

 

Corporate
Items

 

Total

 

Third party revenues

 

$

390,849

 

$

207,141

 

$

(30

)

$

597,960

 

Intersegment revenues

 

70,186

 

21,608

 

426

 

92,220

 

Gross revenues

 

461,035

 

228,749

 

396

 

690,180

 

Intersegment expenses

 

(58,856

)

(33,230

)

(134

)

(92,220

)

Direct revenues

 

$

402,179

 

$

195,519

 

$

262

 

$

597,960

 

 

The following table presents information used by management by reported segment (in thousands). The Company does not allocate interest expense, income taxes, depreciation, amortization, accretion of environmental liabilities, non-recurring severance charges, (gain) loss on disposal of assets held for sale, other (income) expense, and loss on refinancing to segments.

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

Technical Services

 

43,568

 

29,689

 

110,187

 

88,589

 

Site Services

 

13,141

 

10,993

 

34,007

 

33,357

 

Corporate Items

 

(18,301

)

(5,265

)

(48,491

)

(33,401

)

Total

 

38,408

 

35,417

 

95,703

 

88,545

 

 

 

 

 

 

 

 

 

 

 

Reconciliation to Consolidated Statement of Operations:

 

 

 

 

 

 

 

 

 

Accretion of environmental liabilities

 

2,715

 

2,580

 

7,743

 

7,633

 

Depreciation and amortization

 

9,814

 

11,063

 

27,801

 

26,296

 

Income from operations

 

25,879

 

21,774

 

60,159

 

54,616

 

Other (income) expense

 

(61

)

111

 

(62

)

273

 

Loss on early extinguishment of debt

 

 

 

 

8,290

 

Interest expense, net of interest income

 

3,022

 

3,254

 

9,901

 

9,303

 

Income before provision for income taxes

 

$

22,918

 

$

18,409

 

$

50,320

 

$

36,750

 

 

The following table presents intangible assets by reported segment (in thousands):

 

 

 

September 30,
2007

 

December 31,
2006

 

Intangible assets:

 

 

 

 

 

Technical Services

 

 

 

 

 

Goodwill

 

$

21,507

 

$

18,884

 

Permits, net

 

69,037

 

61,497

 

Customer profile database, net

 

 

584

 

 

 

90,544

 

80,965

 

Site Services

 

 

 

 

 

Goodwill

 

148

 

148

 

Permits, net

 

3,744

 

3,604

 

Customer profile database, net

 

 

58

 

 

 

3,892

 

3,810

 

 

 

$

94,436

 

$

84,775

 

 

20



 

The following table presents total assets by reported segment (in thousands):

 

 

 

September 30,
2007

 

December 31,
2006

 

Technical Services

 

$

451,227

 

$

346,220

 

Site Services

 

39,321

 

36,656

 

Corporate Items

 

242,180

 

287,932

 

Total

 

$

732,728

 

$

670,808

 

 

(14) GUARANTOR AND NON-GUARANTOR SUBSIDIARIES

 

On June 30, 2004, $150.0 million of Senior Secured Notes were issued by the parent company, Clean Harbors, Inc., and were guaranteed by all of the parent’s material subsidiaries organized in the United States. The notes are not guaranteed by the Company’s Canadian and Mexican subsidiaries. The following presents condensed consolidating financial statements for the parent company, the guarantor subsidiaries and the non-guarantor subsidiaries, respectively.

 

Following is the condensed consolidating balance sheet at September 30, 2007 (in thousands):

 

 

 

Clean
Harbors, Inc.

 

U.S. Guarantor
Subsidiaries

 

Foreign
Non-Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

287

 

$

50,349

 

$

41,220

 

$

 

$

91,856

 

Intercompany receivables

 

33,470

 

 

60,643

 

(94,113

)

 

Other current assets

 

11,274

 

211,228

 

34,177

 

 

256,679

 

Property, plant and equipment, net

 

 

228,366

 

29,319

 

 

257,685

 

Investments in subsidiaries

 

321,510

 

114,872

 

91,654

 

(528,036

)

 

Intercompany note receivable

 

 

120,495

 

3,701

 

(124,196

)

 

Other long-term assets

 

24,979

 

66,624

 

34,905

 

 

126,508

 

Total assets

 

$

391,520

 

$

791,934

 

$

295,619

 

$

(746,345

)

$

732,728

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

44,110

 

$

120,118

 

$

21,401

 

$

 

$

185,629

 

Intercompany payables

 

 

94,113

 

 

(94,113

)

 

Closure, post-closure and remedial liabilities

 

 

159,985

 

20,092

 

 

180,077

 

Long-term obligations

 

120,678

 

 

 

 

120,678

 

Capital lease obligations

 

 

2,518

 

541

 

 

3,059

 

Other long-term liabilities

 

44,848

 

 

20,254

 

 

65,102

 

Intercompany note payable

 

3,701

 

 

120,495

 

(124,196

)

 

Total liabilities

 

213,337

 

376,734

 

182,783

 

(218,309

)

554,545

 

Stockholders’ equity

 

178,183

 

415,200

 

112,836

 

(528,036

)

178,183

 

Total liabilities and stockholders’ equity

 

$

391,520

 

$

791,934

 

$

295,619

 

$

(746,345

)

$

732,728

 

 

21



 

Following is the condensed consolidating balance sheet at December 31, 2006 (in thousands):

 

 

 

Clean
Harbors, Inc.

 

U.S. Guarantor
Subsidiaries

 

Foreign
Non-Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

822

 

$

44,854

 

$

27,874

 

$

 

$

73,550

 

Intercompany receivables

 

39,602

 

 

5,773

 

(45,375

)

 

Other current assets

 

10,127

 

206,845

 

23,059

 

 

240,031

 

Property, plant and equipment, net

 

 

219,024

 

25,102

 

 

244,126

 

Investments in subsidiaries

 

253,877

 

56,757

 

91,654

 

(402,288

)

 

Investment in joint venture

 

 

2,208

 

 

 

2,208

 

Intercompany note receivable

 

 

102,986

 

3,701

 

(106,687

)

 

Other long-term assets

 

20,799

 

62,991

 

27,103

 

 

110,893

 

Total assets

 

$

325,227

 

$

695,665

 

$

204,266

 

$

(554,350

)

$

670,808

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

27,818

 

$

133,558

 

$

21,880

 

$

 

$

183,256

 

Intercompany payables

 

 

45,375

 

 

(45,375

)

 

Closure, post-closure and remedial liabilities

 

 

156,751

 

16,649

 

 

173,400

 

Long-term obligations

 

120,522

 

 

 

 

120,522

 

Capital lease obligations

 

 

3,511

 

528

 

 

4,039

 

Other long-term liabilities

 

 

 

16,405

 

 

16,405

 

Intercompany note payable

 

3,701

 

 

102,986

 

(106,687

)

 

Total liabilities

 

152,041

 

339,195

 

158,448

 

(152,062

)

497,622

 

Stockholders’ equity

 

173,186

 

356,470

 

45,818

 

(402,288

)

173,186

 

Total liabilities and stockholders’ equity

 

$

325,227

 

$

695,665

 

$

204,266

 

$

(554,350

)

$

670,808

 

 

22



 

Following is the consolidating statement of operations for the three months ended September 30, 2007 (in thousands):

 

 

 

Clean
Harbors, Inc.

 

U.S. Guarantor
Subsidiaries

 

Foreign
Non-Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

 

$

210,638

 

$

34,769

 

$

100

 

$

245,507

 

Cost of revenues

 

 

147,526

 

21,381

 

100

 

169,007

 

Selling, general and administrative expenses

 

 

31,164

 

6,928

 

 

38,092

 

Accretion of environmental liabilities

 

 

2,453

 

262

 

 

2,715

 

Depreciation and amortization

 

 

8,425

 

1,389

 

 

9,814

 

Income from operations

 

 

21,070

 

4,809

 

 

25,879

 

Other income (expense)

 

 

56

 

5

 

 

61

 

Interest income (expense)

 

(3,478

)

52

 

404

 

 

(3,022

)

Equity in earnings of subsidiaries

 

27,114

 

5,738

 

 

(32,852

)

 

Intercompany dividend income (expense)

 

 

 

3,275