CLH-6.30.2012-Q2
Table of Contents

UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012
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 001-34223
_______________________
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No 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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 

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
 
53,356,666
(Class)
 
(Outstanding as of August 6, 2012)



CLEAN HARBORS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 
Page No.
 
 
PART I: FINANCIAL INFORMATION
 
 
 
ITEM 1: Unaudited Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents



CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

(in thousands)

 
 
June 30,
2012
 
December 31,
2011
 
 
(unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
296,758

 
$
260,723

Marketable securities
 
9,701

 
111

Accounts receivable, net of allowances aggregating $11,239 and $12,683, respectively
 
397,453

 
449,553

Unbilled accounts receivable
 
30,173

 
29,385

Deferred costs
 
7,273

 
5,903

Prepaid expenses and other current assets
 
49,763

 
73,349

Supplies inventories
 
57,782

 
56,242

Deferred tax assets
 
16,605

 
16,602

Total current assets
 
865,508

 
891,868

Property, plant and equipment:
 
 
 
 
Land
 
37,171

 
37,185

Asset retirement costs (non-landfill)
 
2,544

 
2,529

Landfill assets
 
61,056

 
58,466

Buildings and improvements
 
193,717

 
189,445

Camp equipment
 
130,340

 
110,242

Vehicles
 
259,315

 
231,980

Equipment
 
768,502

 
729,154

Furniture and fixtures
 
3,988

 
3,759

Construction in progress
 
39,641

 
24,522

 
 
1,496,274

 
1,387,282

Less—accumulated depreciation and amortization
 
541,234

 
483,335

Total property, plant and equipment, net
 
955,040

 
903,947

Other assets:
 
 
 
 
Long-term investments
 
4,326

 
4,245

Deferred financing costs
 
12,152

 
13,607

Goodwill
 
135,962

 
122,392

Permits and other intangibles, net of accumulated amortization of $80,000 and $72,544, respectively
 
138,622

 
139,644

Other
 
10,604

 
10,100

Total other assets
 
301,666

 
289,988

Total assets
 
$
2,122,214

 
$
2,085,803


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

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Table of Contents

CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

LIABILITIES AND STOCKHOLDERS’ EQUITY

(in thousands)

 
 
June 30,
2012
 
December 31,
2011
 
 
(unaudited)
 
 
Current liabilities:
 
 
 
 
Current portion of capital lease obligations
 
$
6,322

 
$
8,310

Accounts payable
 
172,657

 
178,084

Deferred revenue
 
32,015

 
32,297

Accrued expenses
 
130,526

 
147,992

Current portion of closure, post-closure and remedial liabilities
 
19,801

 
15,059

Total current liabilities
 
361,321

 
381,742

Other liabilities:
 
 
 
 
Closure and post-closure liabilities, less current portion of $6,407 and $3,885, respectively
 
29,140

 
30,996

Remedial liabilities, less current portion of $13,394 and $11,174, respectively
 
118,563

 
124,146

Long-term obligations
 
523,481

 
524,203

Capital lease obligations, less current portion
 
4,482

 
6,375

Unrecognized tax benefits and other long-term liabilities
 
124,327

 
117,354

Total other liabilities
 
799,993

 
803,074

 
 
 
 
 
Stockholders’ equity:
 
 
 
 
Common stock, $.01 par value:
 
 
 
 
Authorized 80,000,000; shares issued and outstanding 53,319,029 and 53,182,859
 shares, respectively
 
533

 
532

Shares held under employee participation plan
 
(469
)
 
(469
)
Additional paid-in capital
 
504,667

 
497,919

Accumulated other comprehensive income
 
29,076

 
31,353

Accumulated earnings
 
427,093

 
371,652

Total stockholders’ equity
 
960,900

 
900,987

Total liabilities and stockholders’ equity
 
$
2,122,214

 
$
2,085,803


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

2

Table of Contents

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands except per share amounts)

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
Revenues
 
$
523,118

 
$
447,235

 
$
1,095,140

 
$
882,197

Cost of revenues (exclusive of items shown separately below)
 
367,623

 
307,754

 
767,938

 
620,331

Selling, general and administrative expenses
 
66,794

 
58,254

 
137,553

 
113,048

Accretion of environmental liabilities
 
2,505

 
2,407

 
4,921

 
4,796

Depreciation and amortization
 
38,663

 
26,936

 
75,494

 
52,396

Income from operations
 
47,533

 
51,884

 
109,234

 
91,626

Other (expense) income
 
(75
)
 
2,868

 
(374
)
 
5,767

Interest expense, net of interest income of $215 and $402 for the quarter and year-to-date ended 2012 and $302 and $546 for the quarter and year-to-date ended 2011, respectively
 
(10,968
)
 
(10,642
)
 
(22,240
)
 
(17,120
)
Income before provision for income taxes
 
36,490

 
44,110

 
86,620

 
80,273

Provision for income taxes
 
13,064

 
14,954

 
31,179

 
28,387

Net Income
 
$
23,426

 
$
29,156

 
$
55,441

 
$
51,886

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.44

 
$
0.55

 
$
1.04

 
$
0.98

Diluted
 
$
0.44

 
$
0.55

 
$
1.04

 
$
0.97

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
53,308

 
52,939

 
53,268

 
52,869

Weighted average common shares outstanding plus potentially dilutive common shares
 
53,505

 
53,362

 
53,497

 
53,261


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

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Table of Contents

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2012
 
2011
 
2012
 
2011
Net income
 
$
23,426

 
$
29,156

 
$
55,441

 
$
51,886

Other comprehensive income:
 
 
 
 
 
 
 
 
Unrealized losses on available-for-sale securities (net of taxes of $43 and $83 for the quarter and year-to-date 2012 and $37 and $178 for the quarter and year-to-date 2011, respectively)
 
(947
)
 
(1,545
)
 
(584
)
 
(791
)
Foreign currency translation adjustments
 
(16,510
)
 
4,671

 
(1,693
)
 
20,398

Other comprehensive (loss) income
 
(17,457
)
 
3,126

 
(2,277
)
 
19,607

Comprehensive income
 
$
5,969

 
$
32,282

 
$
53,164

 
$
71,493


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


4

Table of Contents

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
 
 
Six Months Ended
 
 
June 30,
 
 
2012
 
2011
Cash flows from operating activities:
 
 
 
 
Net income
 
$
55,441

 
$
51,886

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
 
Depreciation and amortization
 
75,494

 
52,396

Allowance for doubtful accounts
 
405

 
402

Amortization of deferred financing costs and debt discount
 
753

 
898

Accretion of environmental liabilities
 
4,921

 
4,796

Changes in environmental liability estimates
 
(3,095
)
 
(773
)
Deferred income taxes
 
(510
)
 
819

Stock-based compensation
 
3,616

 
2,880

Excess tax benefit of stock-based compensation
 
(1,122
)
 
(1,617
)
Income tax benefit related to stock option exercises
 
1,121

 
1,617

Other expense (income)
 
374

 
(2,413
)
Environmental expenditures
 
(3,787
)
 
(5,564
)
Changes in assets and liabilities, net of acquisitions
 
 
 
 
Accounts receivable
 
54,117

 
18,063

Other current assets
 
15,657

 
(5,252
)
Accounts payable
 
(16,904
)
 
(33,024
)
Other current and long-term liabilities
 
(10,707
)
 
(9,485
)
Net cash from operating activities
 
175,774

 
75,629

Cash flows from investing activities:
 
 
 
 
Additions to property, plant and equipment
 
(82,971
)
 
(65,460
)
Proceeds from sales of fixed assets
 
3,886

 
4,891

Acquisitions, net of cash acquired
 
(43,039
)
 
(205,922
)
Additions to intangible assets, including costs to obtain or renew permits
 
(953
)
 
(1,066
)
Purchase of marketable securities
 
(10,517
)
 

Proceeds from sales of marketable securities
 

 
388

Other
 
5,120

 

Net cash used in investing activities
 
(128,474
)
 
(267,169
)
Cash flows from financing activities:
 
 
 
 
Change in uncashed checks
 
(9,496
)
 
13,746

Proceeds from exercise of stock options
 
98

 
783

Remittance of shares, net
 
(1,216
)
 
(1,807
)
Proceeds from employee stock purchase plan
 
3,130

 
1,556

Deferred financing costs paid
 
(21
)
 
(8,099
)
Payments on capital leases
 
(3,833
)
 
(3,316
)
Distribution of cash earned on employee participation plan
 
(38
)
 
(189
)
Excess tax benefit of stock-based compensation
 
1,122

 
1,617

Issuance of senior secured notes, including premium
 

 
261,250

Net cash from financing activities
 
(10,254
)
 
265,541

Effect of exchange rate change on cash
 
(1,011
)
 
1,365

Increase in cash and cash equivalents
 
36,035

 
75,366

Cash and cash equivalents, beginning of period
 
260,723

 
302,210

Cash and cash equivalents, end of period
 
$
296,758

 
$
377,576

 
 
 
 
 
Supplemental information:
 
 
 
 
Cash payments for interest and income taxes:
 
 
 
 
Interest paid
 
$
21,812

 
$
11,551

Income taxes paid
 
4,219

 
26,454

Non-cash investing and financing activities:
 
 
 
 
Property, plant and equipment accrued
 
$
26,885

 
$
24,586

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



CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 
Common Stock
 
Shares Held
Under
Employee
Participation
Plan
 
 
 
Accumulated
Other
Comprehensive
Income
 
 
 
 
 
Number
of
Shares
 
$ 0.01
Par
Value
 
 
Additional
Paid-in
Capital
 
 
Accumulated
Earnings
 
Total
Stockholders’
Equity
Balance at January 1, 2012
53,183

 
$
532

 
$
(469
)
 
$
497,919

 
$
31,353

 
$
371,652

 
$
900,987

Net income

 

 

 

 

 
55,441

 
55,441

Other comprehensive loss

 

 

 

 
(2,277
)
 

 
(2,277
)
Stock-based compensation
71

 

 

 
3,616

 

 

 
3,616

Issuance of restricted shares, net of shares remitted
(18
)
 

 

 
(1,216
)
 

 

 
(1,216
)
Exercise of stock options
18

 
1

 

 
97

 

 

 
98

Net tax benefit on exercise of stock
options
65

 

 

 
1,121

 

 

 
1,121

Employee stock purchase plan

 

 

 
3,130

 

 

 
3,130

Balance at June 30, 2012
53,319

 
$
533

 
$
(469
)
 
$
504,667

 
$
29,076

 
$
427,093

 
$
960,900


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


6

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CLEAN HARBORS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

The accompanying consolidated interim financial statements include the accounts of Clean Harbors, Inc. and its subsidiaries (collectively, “Clean Harbors” or the “Company”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in the opinion of management, include all adjustments which 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 or any other interim periods. The financial statements presented herein should be read in connection with the financial statements included in the Company’s Current Report on Form 8-K filed on July 16, 2012.

During the quarter ended March 31, 2012, the Company re-assigned certain departments among its segments to support management reporting changes. Accordingly, the Company re-allocated shared departmental costs among its segments. The Company has recast the prior year segment information to conform to the current year presentation. See Note 14, “Segment Reporting.”

In preparing the accompanying unaudited consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after June 30, 2012, until the issuance of the financial statements.

(2) RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as of the specified effective dates. Management believes that the impact of recently issued accounting pronouncements will not have a material impact on the Company’s financial position, results of operations or cash flows, or do not apply to the Company’s operations.

In June 2011, the FASB issued ASU 2011-5 Comprehensive Income (Topic 220) — Presentation of Comprehensive Income. The new guidance revises the manner in which entities present comprehensive income in their financial statements. ASU 2011-5 requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. This guidance required a change in the presentation of the financial statements and required retrospective application. In December 2011, the FASB deferred certain provisions of the ASU that relate to presentation of reclassification adjustments. The Company retrospectively adopted this guidance utilizing two separate but consecutive statements to report the components of other comprehensive income, and recast the financial statements for the years ending 2011, 2010 and 2009 in the Company's Current Report on Form 8-K filed on July 16, 2012. This standard had no impact on the Company's financial position, results of operations or cash flows.

In September 2011, the FASB issued ASU 2011-08 Goodwill and Other (Topic 350) which amends the guidance on testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step 1 of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. The ASU does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. In addition, the ASU does not amend the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, it does revise the examples of events and circumstances that an entity should consider. The Company adopted this standard on January 1, 2012. This standard did not have a material impact on the Company's financial statements.

In May 2011, the FASB issued ASU 2011-04 Fair Value Measurement (Topic 820). The ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop a single, converged fair value framework. While the ASU is largely consistent with existing fair value measurement principles in U.S. GAAP, it expands existing disclosure requirements for fair value measurements and makes other amendments to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards ("IFRS"). The Company adopted this standard on January 1, 2012. The standard did not have a material impact on the Company's financial statements.

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Table of Contents

(3) BUSINESS COMBINATIONS

Acquisitions during the third quarter of 2011

During the quarter ended September 30, 2011, the Company acquired (i) certain assets of a Canadian public company which is engaged in the business of providing geospatial, line clearing and drilling services in Canada and the United States; (ii) all of the outstanding stock of a privately owned U.S. company which specializes in treating refinery waste streams primarily in the United States; and (iii) all of the outstanding stock of a privately owned Canadian company which manufactures modular buildings. The combined purchase price for the three acquisitions was approximately $142.1 million, including the assumption and payment of debt of $25.2 million, and post-closing adjustments of $4.5 million based upon the assumed target amounts of working capital.

The following table summarizes the recognized amounts of identifiable assets acquired and liabilities assumed (in thousands). The Company has finalized the acquisition accounting of the identified acquired assets and liabilities, except for the completion of the intangible assets, current liabilities and remedial liability valuations. The Company expects to finalize the valuations of these exceptions as soon as practicable but no later than one year after the acquisition date. Final determination of the fair value may result in further adjustments to the value of the intangible assets, current liabilities and remedial liabilities.
 
At Acquisition Dates (As reported at March 31, 2012)
 
Measurement Period Adjustments
 
At Acquisition Dates (As Adjusted)
Current assets (i)
$
41,491

 
$

 
$
41,491

Property, plant and equipment
62,969

 

 
62,969

Customer relationships and other intangibles
23,371

 

 
23,371

Other assets
1,671

 

 
1,671

Current liabilities
(22,117
)
 
(1,286
)
 
(23,403
)
Asset retirement obligations and remedial liabilities
(200
)
 

 
(200
)
Other liabilities
(2,419
)
 

 
(2,419
)
Total identifiable net assets
104,766

 
(1,286
)
 
103,480

Goodwill (ii)
37,368

 
1,286

 
38,654

Total
$
142,134

 
$

 
$
142,134


(i)
The preliminary fair value of the financial assets acquired includes customer receivables with a preliminary aggregate fair value of $21.4 million. Combined gross amounts due were $22.1 million.
 
(ii)
Goodwill represents the excess of the fair value of the net assets acquired over the purchase price. Goodwill of $13.3 million, $11.4 million and $14.0 million has been assigned to the Oil and Gas Field Services segment, the Technical Services segment, and the Industrial Services segment, respectively, and will not be deductible for tax purposes.

Management has determined the preliminary purchase price allocations based on estimates of the fair values of all tangible and intangible assets acquired and liabilities assumed. Such amounts are subject to adjustment based on the additional information necessary to determine fair values.
The following unaudited pro forma combined summary data presents information as if the third quarter acquisitions had been acquired at the beginning of 2011 and assumes that there were no material, non-recurring pro forma adjustments directly attributable to the acquisitions. The pro forma information does not necessarily reflect the actual results that would have occurred had the Company and those three acquisitions been combined during the periods presented, nor is it necessarily indicative of the future results of operations of the combined companies (in thousands).
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30, 2011
 
June 30, 2011
Pro forma combined revenues
$
483,164

 
$
965,633

Pro forma combined net income
$
30,093

 
$
57,063


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Peak

On June 10, 2011, the Company acquired 100% of the outstanding common shares of Peak Energy Services Ltd. (“Peak”) (other than the 3.15% of Peak’s outstanding common shares which the Company already owned) in exchange for approximately CDN $158.7 million in cash (CDN $0.95 for each Peak share) and the assumption and payment of Peak net debt of approximately CDN $37.5 million. The total acquisition price, which includes the previous investment in Peak shares referred to above, was CDN $200.2 million, or U.S. $205.1 million based on an exchange rate of 0.976057 CDN $ to one U.S. $ on June 10, 2011.

During the three months ended June 30, 2012, the Company finalized the purchase accounting for the acquisition of Peak. The following table summarizes the amounts of identifiable assets acquired and liabilities assumed at June 10, 2011 (in thousands).
 
 
At June 10, 2011
(As reported at March 31, 2012)
 
Measurement
Period
Adjustments
 
At June 10,
2011
(As adjusted)
Current assets (i)
 
$
45,222

 
$

 
$
45,222

Property, plant and equipment
 
151,574

 

 
151,574

Identifiable intangible assets
 
14,731

 
(2,394
)
 
12,337

Other assets
 
7,640

 
369

 
8,009

Current liabilities
 
(29,013
)
 
228

 
(28,785
)
Asset retirement obligations
 
(103
)
 

 
(103
)
Other liabilities
 
(10,077
)
 
(1,264
)
 
(11,341
)
Total identifiable net assets
 
179,974

 
(3,061
)
 
176,913

Goodwill (ii)
 
25,159

 
3,061

 
28,220

Total
 
$
205,133

 
$

 
$
205,133

_______________________
(i)
The fair value of the financial assets acquired includes customer receivables with a fair value of $33.3 million. The gross amount due was $34.7 million.

(ii)
Goodwill, which is attributable to expected operating and cross-selling synergies, will not be deductible for tax purposes. Goodwill of $12.9 million and $15.3 million has been recorded in the Oil and Gas Field Services and Industrial Services segments, respectively.
The following unaudited pro forma combined summary data presents information as if Peak had been acquired at the beginning of 2011 and assumes that there was no material, non-recurring pro forma adjustment directly attributable to the acquisition. The pro forma information does not necessarily reflect the actual results that would have occurred had the Company and Peak been combined during the periods presented, nor is it necessarily indicative of the future results of operations of the combined companies (in thousands).
 
For the Three Months Ended
For the Six Months Ended
 
June 30, 2011
June 30, 2011
Pro forma combined revenues
$
476,738

$
977,430

Pro forma combined net income
$
22,698

$
53,738


(4) FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, receivables, trade payables, auction rate securities and long-term debt. The estimated fair value of cash equivalents, receivables, trade payables and accrued liabilities approximate their carrying value due to the short maturity of these instruments. The carrying value of the cash equivalents and accrued liabilities is Level 2 in the fair value hierarchy.

Marketable Securities and Auction Rate Securities

As of June 30, 2012, the Company held certain marketable securities and auction rate securities that are required to be measured at fair value on a recurring basis. The fair value of marketable securities is recorded based on quoted market prices. The auction rate securities are classified as available for sale and the fair value of these securities as of June 30, 2012 was estimated

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utilizing a probability discounted cash flow analysis (“DCF”). Management considered, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time these securities are expected to have a successful auction. The auction rate securities were also compared, when possible, to other observable market data with similar characteristics to the securities held by the Company.

The significant unobservable inputs used in the fair value measurement of the Company's auction rate securities are the cumulative probability of earning the maximum rate until maturity, the cumulative probability of principal return prior to maturity, the cumulative probability of default, the liquidity risk premium and the recovery rate in default. Generally interrelationships are such that a change in the assumption used for the cumulative probability of principal return prior to maturity is accompanied by a directionally similar change in the assumptions used for the cumulative probability of earning the maximum rate until maturity and a directionally opposite change in the assumptions used for the cumulative probability of default and the liquidity risk premium. The recovery rate in default is somewhat independent and based upon the securities' specific underlying assets and published recovery rate indices. Changes in the unobservable input variables would be unlikely to cause material changes in the fair value of the auction rate securities.

As of June 30, 2012, all of the Company’s auction rate securities continue to have AAA underlying ratings. The underlying assets of the Company’s auction rate securities are student loans, which are substantially insured by the Federal Family Education Loan Program. The Company attributes the $0.4 million decline in the fair value of the securities from the original cost basis to external liquidity issues rather than credit issues. The Company assessed the decline in value to be temporary because it does not intend to sell and it is more likely than not that the Company will not have to sell the securities before their maturity.

During the six months ended June 30, 2012 and 2011, the Company recorded an unrealized pre-tax gain of $0.1 million and an unrealized pre-tax loss of $0.1 million, respectively, on its auction rate securities, which was included in accumulated other comprehensive income. As of June 30, 2012, the Company continued to earn interest on its auction rate securities according to their stated terms with interest rates resetting generally every 28 days.

    
The Company’s assets measured at fair value on a recurring basis at June 30, 2012 and December 31, 2011 were as follows (in thousands):

June 30, 2012
 
 
 
 
 
 
 
 
 
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance at
June 30,
2012
Auction rate securities
 
$

 
$

 
$
4,326

 
$
4,326

Marketable securities
 
$
9,701

 
$

 


 
$
9,701


December 31, 2011
 
 
 
 
 
 
 
 
 
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance at
December 31,
2011
Auction rate securities
 
$

 
$

 
$
4,245

 
$
4,245

Marketable securities
 
$
111

 
$

 
$

 
$
111



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The following table presents the changes in the Company’s auction rate securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2012 and 2011 (in thousands):

 
 
Three Months Ended
 
 
June 30,
 
 
2012
 
2011
Balance at April 1,
 
$
4,245

 
$
5,379

Unrealized gains (losses) included in other comprehensive income
 
81

 
(68
)
Balance at June 30,
 
$
4,326

 
$
5,311



 
 
Six Months Ended
 
 
June 30,
 
 
2012
 
2011
Balance at January 1,
 
$
4,245

 
$
5,437

Unrealized gains (losses) included in other comprehensive income
 
81

 
(126
)
Balance at June 30,
 
$
4,326

 
$
5,311


Senior Secured Notes

The fair value of the Company’s currently outstanding notes is based on quoted market prices and was $527.1 million at June 30, 2012 and $538.5 million at December 31, 2011. The notes fair value is Level 2 in the fair value hierarchy.

(5) GOODWILL AND OTHER INTANGIBLE ASSETS

The changes to goodwill for the six months ended June 30, 2012 were as follows (in thousands):
 
 
2012
Balance at January 1, 2012
 
$
122,392

Acquired from acquisitions
 
8,666

Increase from adjustments related to the acquisitions during the measurement period
 
5,352

Currency translation and other
 
(448
)
Balance at June 30, 2012
 
$
135,962


    
Below is a summary of amortizable other intangible assets (in thousands):
 
 
June 30, 2012
 
December 31, 2011
 
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Amortization
Period
(in years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Amortization
Period
(in years)
Permits
 
$
109,273

 
$
47,481

 
$
61,792

 
16.7
 
$
106,939

 
$
45,629

 
$
61,310

 
17.9
Customer relationships
 
87,299

 
21,904

 
65,395

 
7.3
 
83,721

 
17,650

 
66,071

 
7.9
Other intangible assets
 
22,050

 
10,615

 
11,435

 
3.7
 
21,528

 
9,265

 
12,263

 
5.3
 
 
$
218,622

 
$
80,000

 
$
138,622

 
9.0
 
$
212,188

 
$
72,544

 
$
139,644

 
10.0

The aggregate amortization expense for the three and six months ended June 30, 2012 was $3.5 million and $7.3 million, respectively. The aggregate amortization expense for the three and six months ended June 30, 2011 was $2.9 million and $5.8 million, respectively.


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Below is the expected future amortization for the net carrying amount of finite lived intangible assets at June 30, 2012 (in thousands):
Years Ending December 31,
 
Expected
Amortization
2012 (six months)
 
$
7,298

2013
 
10,140

2014
 
9,183

2015
 
8,652

2016
 
8,778

Thereafter
 
91,403

 
 
$
135,454


(6) ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):
 
 
June 30,
2012
 
December 31,
2011
Insurance
 
$
24,840

 
$
21,712

Interest
 
15,515

 
15,434

Accrued disposal costs
 
2,058

 
2,455

Accrued compensation and benefits
 
42,562

 
56,029

Income, real estate, sales and other taxes
 
17,252

 
14,863

Other
 
28,299

 
37,499

 
 
$
130,526

 
$
147,992


(7) CLOSURE AND POST-CLOSURE LIABILITIES

The changes to closure and post-closure liabilities (also referred to as “asset retirement obligations”) for the six months ended June 30, 2012 were as follows (in thousands):
 
 
Landfill
Retirement
Liability
 
Non-Landfill
Retirement
Liability
 
Total
Balance at January 1, 2012
 
$
25,764

 
$
9,117

 
$
34,881

New asset retirement obligations
 
1,330

 

 
1,330

Accretion
 
1,414

 
528

 
1,942

Changes in estimates recorded to statement of income
 

 
298

 
298

Other changes in estimates recorded to balance sheet
 
(2,064
)
 
15

 
(2,049
)
Expenditures
 
(653
)
 
(209
)
 
(862
)
Currency translation and other
 
(9
)
 
16

 
7

Balance at June 30, 2012
 
$
25,782

 
$
9,765

 
$
35,547


All of the landfill facilities included in the above were active as of June 30, 2012.

New asset retirement obligations incurred in 2012 are being discounted at the credit-adjusted risk-free rate of 8.56% and inflated at a rate of 1.02%.

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(8) REMEDIAL LIABILITIES
 
The changes to remedial liabilities for the six months ended June 30, 2012 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, 2012
 
$
5,600

 
$
78,449

 
$
51,271

 
$
135,320

Accretion
 
136

 
1,726

 
1,117

 
2,979

Changes in estimates recorded to statement of income
 
(49
)
 
(1,172
)
 
(2,172
)
 
(3,393
)
Expenditures
 
(42
)
 
(1,750
)
 
(1,133
)
 
(2,925
)
Currency translation and other
 
(5
)
 
1

 
(20
)
 
(24
)
Balance at June 30, 2012
 
$
5,640

 
$
77,254

 
$
49,063

 
$
131,957


(9) FINANCING ARRANGEMENTS
 
The following table is a summary of the Company’s financing arrangements (in thousands):
 
 
 
June 30,
2012
 
December 31,
2011
 
 
 
 
 
Senior secured notes, at 7.625%, due August 15, 2016
 
$
520,000

 
$
520,000

Revolving credit facility, due May 31, 2016
 

 

Unamortized notes premium and discount, net
 
3,481

 
4,203

Long-term obligations
 
$
523,481

 
$
524,203

   
At June 30, 2012, the revolving credit facility had no outstanding loans, $163.5 million available to borrow and $86.5 million of letters of credit outstanding. There have been no changes to the revolving credit facility since December 31, 2011.

The financing arrangements and principal terms of the senior secured notes and the revolving credit facility are discussed further in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

On July 13, 2012, the Company redeemed $30.0 million principal amount of the $520.0 million aggregate principal amount of the Company's 7.625% senior secured notes (the “2016 notes”) which were outstanding on June 30, 2012 in accordance with the terms of the 2016 notes. On July 16, 2012, the Company commenced a tender offer to purchase any and all of the $490.0 million aggregate principal amount of 2016 notes which remained outstanding following such partial redemption. On July 30, 2012, the Company purchased the $339.1 million principal amount of 2016 notes which had been tendered on or prior to 5:00 p.m., New York City time, on July 27, 2012, and called for redemption on August 15, 2012 the $150.9 million principal amount of 2016 notes which had not by then been tendered. The Company financed that purchase and call for redemption of 2016 notes through a private placement of $800.0 million aggregate principal amount of 5.25% senior unsecured notes due 2020 (the “new notes”) which the Company also completed on July 30, 2012. The Company intends to use the approximately $262.8 million of remaining net proceeds from such private placement of the new notes to finance potential future acquisitions and for general corporate purposes.

In connection with the tender offer and redemption of the 2016 notes described above, the Company will record an aggregate $26.5 million loss on early extinguishment of debt, which consists of $21.2 million of purchase, consent and redemption fees and non-cash expenses of $5.3 million, of which $8.8 million related to unamortized financing costs offset partially by $3.5 million of unamortized net premium.

The principal terms of the new notes are as follows:

The new notes will mature on August 1, 2020.  The new notes will bear interest at a rate of 5.25% per annum, computed on the basis of a 360-day year composed of twelve 30-day months and payable semi-annually on August 1 and February 1 of each year, commencing on February 1, 2013. 

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The Company may redeem some or all of the new notes at any time on or after August 1, 2016 upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on August 1 of the year set forth below, plus, in each case, accrued and unpaid interest, if any, to the date of redemption: 
Year
 
Percentage
 
2016
 
102.625
%
2017
 
101.313
%
2018 and thereafter
 
100.000
%
 
At any time prior to August 1, 2015, the Company may also redeem up to 35% of the aggregate principal amount of all new notes issued under the indenture (whether on July 30, 2012 or thereafter pursuant to an issuance of additional new notes under the indenture) at a redemption price of 105.250% of the principal amount, plus any accrued and unpaid interest, using proceeds from certain equity offerings, and may also redeem some or all of the new notes at a redemption price of 100% of the principal amount plus a make-whole premium and any accrued and unpaid interest. Holders may require the Company to repurchase the new notes at a purchase price equal to 101% of the principal amount, plus any accrued and unpaid interest, upon a change of control of the Company.
 
The new notes are guaranteed by substantially all the Company's current and future domestic restricted subsidiaries. The new notes are the Company's and the guarantors' senior unsecured obligations ranking equally with the Company's and the guarantors' existing and future senior unsecured obligations and senior to any future indebtedness that is expressly subordinated to the new notes and the guarantees. The new notes and the guarantees will rank effectively junior in right of payment to the Company's and the guarantors' secured indebtedness (including loans and reimbursement obligations in respect of outstanding letters of credit) under the Company's revolving credit facility and capital lease obligations to the extent of the value of the assets securing such secured indebtedness. The new notes are not guaranteed by the Company's Canadian or other foreign subsidiaries, and the new notes will be structurally subordinated to all indebtedness and other liabilities, including trade payables, of the Company's subsidiaries that are not guarantors of the new notes.
 
(10) INCOME TAXES
 
The Company’s effective tax rate for the three and six months ended June 30, 2012 was 35.8% and 36.0%, respectively, compared to 33.9% and 35.4% for the same period in 2011.
 
As of June 30, 2012, the Company had recorded $36.2 million of liabilities for unrecognized tax benefits and $28.1 million of interest and penalties. As of December 31, 2011, the Company had recorded $36.2 million of liabilities for unrecognized tax benefits and $26.8 million of interest and penalties.
 
The Company believes that it is reasonably possible that total unrecognized tax benefits and related reserves will decrease by approximately $63.1 million within the next twelve months as a result of the lapse of the statute of limitations. The $63.1 million (which includes interest and penalties of $27.9 million) is primarily related to a historical Canadian debt restructuring transaction and, if realized, will be recorded in earnings and therefore will impact the effective income tax rate.


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(11) EARNINGS PER SHARE
 
The following is a reconciliation of basic and diluted earnings per share computations (in thousands except for per share amounts):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2012
 
2011
 
2012
 
2011
Numerator for basic and diluted earnings per share:
 
 

 
 

 
 

 
 

Net Income
 
$
23,426

 
$
29,156

 
$
55,441

 
$
51,886

 
 
 
 
 
 
 
 
 
Denominator:
 
 

 
 

 
 

 
 

Basic shares outstanding
 
53,308

 
52,939

 
53,268

 
52,869

Dilutive effect of equity-based compensation awards
 
197

 
423

 
229

 
392

Dilutive shares outstanding
 
53,505

 
53,362

 
53,497

 
53,261

 
 
 
 
 
 
 
 
 
Basic earnings per share:
 
$
0.44

 
$
0.55

 
$
1.04

 
$
0.98

 
 
 

 
 

 
 

 
 

Diluted earnings per share:
 
$
0.44

 
$
0.55

 
$
1.04

 
$
0.97


For the three- and six-month periods ended June 30, 2012, the dilutive effect of all then outstanding options, restricted stock and performance awards is included in the above calculations except for 65 thousand outstanding performance stock awards for which the performance criteria were not attained at that time. For the three- and six-month periods ended June 30, 2011, the above calculations include the dilutive effects of all then outstanding options, restricted stock, and performance awards except for 70 thousand outstanding performance stock awards for which the performance criteria were not attained at that time.

(12) STOCK-BASED COMPENSATION

The following table summarizes the total number and type of awards granted during the six-month period ended June 30, 2012, as well as the related weighted-average grant-date fair values:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2012
 
June 30, 2012
 
 
Shares
 
Weighted Average
Grant-Date
Fair Value
 
Shares
 
Weighted Average
Grant-Date
Fair Value
Restricted stock awards
 
27,760

 
$
57.35

 
75,267

 
$
63.65

Performance stock awards
 
400

 
$
54.84

 
69,119

 
$
67.26

Total awards
 
28,160

 
 

 
144,386

 
 


Certain performance stock awards granted in March 2012 and June 2012 are subject to achieving three performance goals including predetermined revenue, EBITDA and total reportable incident rate targets for a specified period of time as well as service conditions.  As of June 30, 2012, based on year-to-date results of operations, management has not determined that it is probable that the performance targets for the 2012 performance awards will be achieved by December 31, 2013. As a result, the Company recognized no expense during the three and six months ended June 30, 2012 related to the 2012 performance stock awards.

(13) COMMITMENTS AND CONTINGENCIES
 
Legal and Administrative 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 legal 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

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existing permits and licenses, or alleged responsibility arising under federal or state Superfund laws to remediate contamination at properties owned either by the Company or by other parties (“third party sites”) to which either the Company or prior owners of certain of the Company’s facilities shipped wastes.
 
At June 30, 2012 and December 31, 2011, the Company had recorded reserves of $30.5 million and $30.3 million, respectively, in the Company’s financial statements for actual or probable liabilities related to the legal and administrative proceedings in which the Company was then involved, the principal of which are described below. At June 30, 2012 and December 31, 2011, the Company also believed that it was reasonably possible that the amount of these potential liabilities could be as much as $2.7 million more. The Company periodically adjusts the aggregate amount of these reserves when these actual or probable liabilities are paid or otherwise discharged, new claims arise, or additional relevant information about existing or probable claims becomes available. As of June 30, 2012, the $30.5 million of reserves consisted of (i) $27.1 million related to pending legal or administrative proceedings, including Superfund liabilities, which were included in remedial liabilities on the consolidated balance sheets and (ii) $3.4 million primarily related to federal and state enforcement actions, which were included in accrued expenses on the consolidated balance sheets.
 
As of June 30, 2012, the principal legal and administrative proceedings in which the Company was involved were as follows:
 
Ville Mercier.  In September 2002, the Company acquired the stock of a subsidiary (the “Mercier Subsidiary”) which owns a hazardous waste incinerator in Ville Mercier, Quebec (the “Mercier Facility”). The property adjacent to the Mercier Facility, which is also owned by the Mercier Subsidiary, is now contaminated as a result of actions dating back to 1968, when the Government of Quebec issued to a company unrelated to the Mercier Subsidiary two permits to dump organic liquids into lagoons on the property. In 1999, Ville Mercier and three neighboring municipalities filed separate legal proceedings against the Mercier Subsidiary and the Government of Quebec claiming a total of $1.6 million 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 Quebec Minister of Sustainable Development, Environment and Parks issued a Notice pursuant to Section 115.1 of the Environment Quality Act, superseding Notices issued in 1992, which are the subject of the pending litigation. The Mercier Subsidiary continues to assert that it has no responsibility for the groundwater contamination in the region and will contest any action by the Ministry to impose costs for remedial measures on the Mercier Subsidiary. The Company also continues to pursue settlement options. At June 30, 2012 and December 31, 2011, the Company had accrued $13.6 million and $13.3 million, respectively, for remedial liabilities relating to the Ville Mercier legal proceedings.
 
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, the county where the CHDT facility is located, filed two suits against the CDPHE in Colorado effectively seeking to invalidate the license. On December 16, 2011, the parties to the lawsuits described above reached an Agreement in Principle (“AIP”) to resolve all outstanding disputes. The AIP requires additional approvals by County and State authorities before a final settlement and dismissal of the lawsuits can be finalized. The Company has not recorded any liability for this matter on the basis that such liability is currently neither probable nor estimable.
 
Superfund Proceedings
 
The Company has been notified that either the Company or the prior owners of certain of the Company’s facilities for which the Company may have certain indemnification obligations have been identified as potentially responsible parties (“PRPs”) or potential PRPs in connection with 67 sites which are subject to or are proposed to become subject to proceedings under federal or state Superfund laws. Of the 67 sites, two involve facilities that are now owned by the Company and 65 involve third party sites to which either the Company or the prior owners shipped wastes. In connection with each site, the Company has estimated the extent, if any, to which it may be subject, either directly or as a result of any such indemnification provisions, for cleanup and remediation costs, related legal and consulting costs associated with PRP investigations, settlements, and related legal and administrative proceedings. The amount of such actual and potential liability is inherently difficult to estimate because of, among other relevant factors, uncertainties as to the legal liability (if any) of the Company or the prior owners of certain of the Company’s facilities to contribute a portion of the cleanup costs, the assumptions that must be made in calculating the estimated cost and timing of remediation, the identification of other PRPs and their respective capability and obligation to contribute to remediation efforts, and the existence and legal standing of indemnification agreements (if any) with prior owners, which may either benefit the Company or subject the Company to potential indemnification obligations.

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The Company’s potential liability for cleanup costs at the two facilities now owned by the Company and at 35 (the “Listed Third Party Sites”) of the 65 third party sites arose out of the Company’s 2002 acquisition of substantially all of the assets (the “CSD assets”) of the Chemical Services Division of Safety-Kleen Corp. As part of the purchase price for the CSD assets, the Company became liable as the owner of these two facilities and also agreed to indemnify the prior owners of the CSD assets against their share of certain cleanup costs for the Listed Third Party Sites payable to governmental entities under federal or state Superfund laws. Of the 35 Listed Third Party Sites, seven are currently requiring expenditures on remediation, 13 are now settled, and 15 are not currently requiring expenditures on remediation. The status of one of the facilities now owned by the Company (the BR Facility) and one of the Listed Third Party Sites (the Casmalia site) are further described below. There are also two third party sites at which the Company has been named a PRP as a result of its acquisition of the CSD assets but disputes that it has any cleanup or related liabilities; one such site (the Marine Shale site) is described below. The Company views any liabilities associated with the Marine Shale site and the other third party site as excluded liabilities under the terms of the CSD asset acquisition, but the Company is working with the EPA on a potential settlement. In addition to the CSD related Superfund sites, there are certain of the other third party sites which are not related to the Company’s acquisition of the CSD assets, and certain notifications which the Company has received about other third party sites.
  
BR Facility.  The Company acquired in 2002 as part of the CSD assets a former hazardous waste incinerator and landfill in Baton Rouge (the “BR Facility”), for which operations had been previously discontinued by the prior owner. In September 2007, the United States Environmental Protection Agency (the “EPA”) issued a special notice letter to the Company related to the Devil’s Swamp Lake Site (“Devil’s Swamp”) in East Baton Rouge Parish, Louisiana. Devil’s Swamp includes a lake located downstream of an outfall ditch where wastewater and stormwater have been discharged, and Devil’s Swamp is proposed to be included on the National Priorities List due to the presence of Contaminants of Concern (“COC”) cited by the EPA. These COCs include substances of the kind found in wastewater and storm water discharged from the BR Facility in past operations. The EPA originally requested COC generators to submit a good faith offer to conduct a remedial investigation feasibility study directed towards the eventual remediation of the site. The Company is currently performing corrective actions at the BR Facility under an order issued by the Louisiana Department of Environmental Quality (the “LDEQ”), and has begun conducting the remedial investigation and feasibility study under an order issued by the EPA. The Company cannot presently estimate the potential additional liability for the Devil’s Swamp cleanup until a final remedy is selected by the EPA.
 
Casmalia Site.  At one of the 35 Listed Third Party Sites, the Casmalia Resources Hazardous Waste Management Facility (the “Casmalia site”) in Santa Barbara County, California, the Company received from the EPA a request for information in May 2007. In that request, the EPA is seeking information about the extent to which, if at all, the prior owner transported or arranged for disposal of waste at the Casmalia site. The Company has not recorded any liability for this 2007 notice on the basis that such transporter or arranger liability is currently neither probable nor estimable.
 
Marine Shale Site.  On May 11, 2007, the EPA and the LDEQ issued a special notice to the Company and other PRPs, seeking a good faith offer to address site remediation at the former Marine Shale facility. Certain of the former owners of the CSD assets were major customers of Marine Shale, but the Marine Shale site was not included as a Listed Third Party Site in connection with the Company’s acquisition of the CSD assets and the Company was never a customer of Marine Shale. Although the Company believes that it is not liable (either directly or under any indemnification obligation) for cleanup costs at the Marine Shale site, the Company elected to join with other parties which had been notified that are potentially PRPs in connection with Marine Shale site to form a group (the “Site Group”) to retain common counsel and participate in further negotiations with the EPA and the LDEQ directed towards the eventual remediation of the Marine Shale site. The Site Group made a good faith settlement offer to the EPA on November 29, 2007, and negotiations among the EPA, the LDEQ and the Site Group with respect to the Marine Shale site are ongoing. At June 30, 2012 and December 31, 2011, the amount of the Company’s reserves relating to the Marine Shale site was $3.9 million and $3.8 million, respectively.
 
Certain Other Third Party Sites.  At 15 of the 65 third party sites, the Company has an indemnification agreement with ChemWaste, a former subsidiary of Waste Management, Inc. and the prior owner. The agreement indemnifies the Company with respect to any liability at the 15 sites for waste disposed prior to the Company’s acquisition of the sites. Accordingly, Waste Management is paying all costs of defending those subsidiaries in those 15 cases, including legal fees and settlement costs. However, there can be no guarantee that the Company’s ultimate liabilities for these sites will not exceed the amount recorded or that indemnities applicable to any of these sites will be available to pay all or a portion of related costs. The Company does not have an indemnity agreement with respect to any of the other remaining 65 third party sites not discussed above. However, the Company believes that its additional potential liability, if any, to contribute to the cleanup of such remaining sites will not, in the aggregate, exceed $100,000.
 
Other Notifications.  Between September 2004 and May 2006, the Company also received notices from certain of the prior owners of the CSD assets seeking indemnification from the Company at five third party sites which are not included in the

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third party sites described above that have been designated as Superfund sites or potential Superfund sites and for which those prior owners have been identified as PRPs or potential PRPs. The Company has responded to such letters asserting that the Company has no obligation to indemnify those prior owners for any cleanup and related costs (if any) which they may incur in connection with these five sites. The Company intends to assist those prior owners by providing information that is now in the Company’s possession with respect to those five sites and, if appropriate, to participate in negotiations with the government agencies and PRP groups involved. The Company has also investigated the sites to determine the existence of potential liabilities independent from the liability of those former owners, and concluded that at this time the Company is not liable for any portion of the potential cleanup of the five sites and therefore has not established a reserve.
 
Federal, State and Provincial Enforcement Actions
 
From time to time, the Company pays fines or penalties in regulatory proceedings relating primarily to waste treatment, storage or disposal facilities. As of June 30, 2012 and December 31, 2011, there were two and four proceedings, respectively, for which the Company reasonably believed that the sanctions could equal or exceed $100,000. The Company believes that the fines or other penalties in these or any of the other regulatory proceedings, individually or in the aggregate, will not have a material adverse effect on its financial condition, results of operations or cash flows.
 
Other Contingencies
 
In December 2010, the Company paid $10.5 million to acquire a minority interest in a privately-held company. Subsequent to the purchase of those securities but prior to December 31, 2010, the privately-held company exercised its irrevocable call right for those shares and tendered payment for a total of $10.5 million. The Company is disputing the fair value asserted by the privately-held company and believes that the shares had a fair value on the date of the exercise of the call right greater than the amount tendered. Due to the exercise of the irrevocable call right, the Company did not own those shares of that privately-held company as of December 31, 2010, and accordingly has recorded the $10.5 million in prepaid expenses and other current assets. The potential recovery of any additional amount depends upon several contested factors, and is considered a gain contingency and therefore has not been recorded in the Company’s consolidated financial statements. At June 30, 2012, the Company still had $10.5 million recorded in prepaid expenses and other current assets.

(14) SEGMENT REPORTING
 
During the quarter ended March 31, 2012, the Company re-assigned certain departments among its segments to support management reporting changes. Accordingly, the Company re-allocated shared departmental costs among its segments. The Company has recast the prior year segment information to conform to the current year presentation.

The Company’s operations are managed in four reportable segments: Technical Services, Field Services, Industrial Services and Oil and Gas Field Services. Performance of the segments is evaluated on several factors, of which the primary financial measure is “Adjusted EBITDA,” which consists of net income plus accretion of environmental liabilities, depreciation and amortization, net interest expense, and provision for income taxes. Also excluded is other income as this amount is not considered part of usual business operations. 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 four operating segments are recorded as “Corporate Items.” Corporate Items revenues consist of two different operations for which the revenues are insignificant. Corporate Items cost of revenues represents certain central services that are not allocated to the four operating 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 four operating segments.
 

18

Table of Contents

The following table reconciles third party revenues to direct revenues for the three- and six-month periods ended June 30, 2012 and 2011 (in thousands). Third party revenue is revenue billed to outside 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.
 
 
For the Three Months Ended June 30, 2012
 
 
Technical
Services
 
Field
Services 
 
Industrial
Services
 
Oil and Gas
Field
Services
 
Corporate
Items
 
Totals
Third party revenues
 
$
229,502

 
$
62,553

 
$
149,642

 
$
81,091

 
$
330

 
$
523,118

Intersegment revenues, net
 
7,724

 
(3,485
)
 
(7,835
)
 
4,118

 
(522
)
 

Direct revenues
 
$
237,226

 
$
59,068

 
$
141,807

 
$
85,209

 
$
(192
)
 
$
523,118


 
 
For the Three Months Ended June 30, 2011
 
 
Technical
Services
 
Field
Services 
 
Industrial
Services
 
Oil and Gas
Field
Services
 
Corporate
Items
 
Totals
Third party revenues
 
$
215,747

 
$
59,505

 
$
115,013

 
$
56,673

 
$
297

 
$
447,235

Intersegment revenues, net
 
6,901

 
(5,461
)
 
(3,567
)
 
2,591

 
(464
)
 

Direct revenues
 
$
222,648

 
$
54,044

 
$
111,446

 
$
59,264

 
$
(167
)
 
$
447,235


 
 
For the Six Months Ended June 30, 2012
 
 
Technical
Services
 
Field
Services 

 
Industrial
Services
 
Oil and Gas
Field
Services
 
Corporate
Items
 
Totals
Third party revenues
 
$
439,469

 
$
114,363

 
$
309,738

 
$
230,539

 
$
1,031

 
$
1,095,140

Intersegment revenues, net
 
17,278

 
(7,778
)
 
(15,371
)
 
6,666

 
(795
)
 

Direct revenues
 
$
456,747

 
$
106,585

 
$
294,367

 
$
237,205

 
$
236

 
$
1,095,140


 
 
For the Six Months Ended June 30, 2011
 
 
Technical
Services
 
Field
Services 
 
Industrial
Services
 
Oil and Gas
Field
Services
 
Corporate
Items
 
Totals
Third party revenues
 
$
411,763

 
$
111,196

 
$
227,895

 
$
131,007

 
$
336

 
$
882,197

Intersegment revenues, net
 
10,247

 
(7,618
)
 
(7,046
)
 
5,391

 
(974
)
 

Direct revenues
 
$
422,010

 
$
103,578

 
$
220,849

 
$
136,398

 
$
(638
)
 
$
882,197



19

Table of Contents

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, and other income to its segments.
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30,
 
June 30,
 
 
2012
 
2011
 
2012
 
2011
Adjusted EBITDA:
 
 

 
 

 
 

 
 

Technical Services
 
$
66,717

 
$
63,823

 
$
117,542

 
$
111,502

Field Services
 
7,588

 
8,220

 
9,892

 
12,209

Industrial Services
 
34,935

 
27,401

 
69,592

 
51,697

Oil and Gas Field Services
 
7,810

 
6,974

 
46,209

 
20,686

Corporate Items
 
(28,349
)
 
(25,191
)
 
(53,586
)
 
(47,276
)
Total
 
$
88,701

 
$
81,227

 
$
189,649

 
$
148,818

 
 
 
 
 
 
 
 
 
Reconciliation to Consolidated Statements of Income:
 
 

 
 

 
 

 
 

Accretion of environmental liabilities
 
$
2,505

 
$
2,407

 
$
4,921

 
$
4,796

Depreciation and amortization
 
38,663

 
26,936

 
75,494

 
52,396

Income from operations
 
47,533

 
51,884

 
109,234

 
91,626

Other expense (income)
 
75

 
(2,868
)
 
374

 
(5,767
)
Interest expense, net of interest income
 
10,968

 
10,642

 
22,240

 
17,120

Income before provision for income taxes
 
$
36,490

 
$
44,110

 
$
86,620

 
$
80,273


20

Table of Contents

The following table presents assets by reported segment and in the aggregate (in thousands):
 
 
 
June 30,
2012
 
December 31,
2011
Property, plant and equipment, net
 
 

 
 

Technical Services
 
$
311,447

 
$
308,118

Field Services
 
34,643

 
30,296

Industrial Services
 
284,960

 
254,469

Oil and Gas Field Services
 
266,709

 
267,987

Corporate Items
 
57,281

 
43,077

Total property, plant and equipment, net
 
$
955,040

 
$
903,947

Intangible assets:
 
 

 
 

Technical Services
 
 

 
 

Goodwill
 
$
45,577

 
$
44,410

Permits and other intangibles, net
 
80,168

 
81,605

Total Technical Services
 
125,745

 
126,015

Field Services
 
 

 
 

Goodwill
 
2,232

 
2,232

Permits and other intangibles, net
 
1,127

 
1,204

Total Field Services
 
3,359

 
3,436

Industrial Services
 
 

 
 

Goodwill
 
51,976

 
45,444

Permits and other intangibles, net
 
24,296

 
19,701

Total Industrial Services
 
76,272

 
65,145

Oil and Gas Field Services
 
 

 
 

Goodwill
 
36,177

 
30,306

Permits and other intangibles, net
 
33,031

 
37,134

Total Oil and Gas Field Services
 
69,208

 
67,440

Total
 
$
274,584

 
$
262,036


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

 
 
June 30,
2012
 
December 31,
2011
Technical Services
 
$
604,781

 
$
604,904

Field Services
 
43,442

 
37,850

Industrial Services
 
394,180

 
345,202

Oil and Gas Field Services
 
371,338

 
429,938

Corporate Items
 
708,473

 
667,909

Total
 
$
2,122,214

 
$
2,085,803

 
The following table presents the total assets by geographical area (in thousands):
 
 
 
June 30,
2012
 
December 31,
2011
United States
 
$
1,144,546

 
$
1,119,491

Canada
 
977,668

 
961,936

Other foreign
 

 
4,376

Total
 
$
2,122,214

 
$
2,085,803


21

Table of Contents

(15) GUARANTOR AND NON-GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION

As of June 30, 2012, the Company had outstanding $520.0 million aggregate principal amount of 7.625% senior secured notes due 2016 issued by the parent company, Clean Harbors, Inc.  The 2016 notes were guaranteed by substantially all of the parent’s subsidiaries organized in the United States. Each guarantor is a wholly-owned subsidiary of the Company and its guarantee was both full and unconditional and joint and several.  The 2016 notes were not guaranteed by the Company’s Canadian or other foreign subsidiaries. There will no impact on this footnote as a result of the issuance of the new notes discussed further in Note 9, "Financing Arrangements." The following presents supplemental condensed consolidating financial information for the parent company, the guarantor subsidiaries and the non-guarantor subsidiaries, respectively.

Following is the condensed consolidating balance sheet at June 30, 2012 (in thousands):
 
 
Clean
Harbors, Inc.
 
U.S. Guarantor
Subsidiaries
 
Foreign
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets:
 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
94,960

 
$
138,482

 
$
63,316

 
$

 
$
296,758

Intercompany receivables
 
324,405

 

 
122,618

 
(447,023
)
 

Other current assets
 
26,294

 
332,701

 
209,755

 

 
568,750

Property, plant and equipment, net
 

 
417,583

 
537,457

 

 
955,040

Investments in subsidiaries
 
1,138,424

 
473,506

 
91,751

 
(1,703,681
)
 

Intercompany debt receivable
 

 
472,279

 
3,701

 
(475,980
)
 

Other long-term assets
 
12,328

 
111,993

 
177,345

 

 
301,666

Total assets
 
$
1,596,411

 
$
1,946,544

 
$
1,205,943

 
$
(2,626,684
)
 
$
2,122,214

Liabilities and Stockholders’ Equity:
 
 

 
 

 
 

 
 

 
 

Current liabilities
 
$
18,580

 
$
227,821

 
$
114,920

 
$

 
$
361,321

Intercompany payables
 

 
447,023

 

 
(447,023
)
 

Closure, post-closure and remedial liabilities, net
 

 
126,245

 
21,458

 

 
147,703

Long-term obligations
 
523,481

 

 

 

 
523,481

Capital lease obligations, net
 

 
357

 
4,125

 

 
4,482

Intercompany debt payable
 
3,701

 

 
472,279

 
(475,980
)
 

Other long-term liabilities
 
89,749

 
7,727

 
26,851

 

 
124,327

Total liabilities
 
635,511

 
809,173

 
639,633

 
(923,003
)
 
1,161,314

Stockholders’ equity
 
960,900

 
1,137,371

 
566,310

 
(1,703,681
)
 
960,900

Total liabilities and stockholders’ equity
 
$
1,596,411

 
$
1,946,544

 
$
1,205,943