Clean Harbors Inc (CLH) 2002 Q4 法說會逐字稿

Good day, everyone and welcome to the Clean Harbors environmental services fourth quarter and year-end 2002 results conference call. Today's call is being recorded.

With us is the Chairman, President and Chief Executive Officer, Mr. Alan McKim and Senior Vice President and Chief Financial Officer, Mr. Roger Koenecke.

At this time, we'd like to turn the call over to Mr. Bill Geary, General Counsel, to read the Safe Harbor passage. Please go ahead, sir.

Good morning. Thank you, David.

Matters we are discussing this morning that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements including predictions, estimates, expectations and other forward-looking statements generally identifiable by the words believes, expects, anticipates, plans to, estimates, projects or similar expressions are subject to risks and uncertainties that could cause actual results to differ materially. Accordingly, participants in today's call are cautioned not to place undue reliance on these forward-looking statements which reflect management's opinions only as of this date, April 1, 2003.

Information on the potential factors and detailed risks that could affect the company's actual results of operations is included in the company's filings with the SEC, including, but not limited to, our form 10Q for the quarter ended September 30, 2002 and our form 10K for the year 2002, which will be filed with the SEC on or about April 8. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made during today's conference call other than through the filings which will be made with the SEC concerning this reporting period.

With that, let me turn the call over to Alan S. McKim, Chairman and Chief Executive Officer.

Good morning, thank you, Bill.

Also joining us today is Steve Moynihan, our Senior Vice President of Planning and Development and Gene Cookson, the President of our new Site Services business.

Early this morning, Clean Harbors reported its fourth quarter 2002 financial results. Anyone who needs a copy of the release, please visit our website. The purpose of today's call is to update you on our numbers for the fourth quarter.

As we mentioned in our press release, we have filed a notification with the SEC to extend the filing date for the filing of our 10K. We now anticipate filing our 10K on or before April 8.

As we have said since we closed the CSD acquisition, and as everyone on this call knows well, the nature of the CSD acquisition was an enormously complicated transaction and as we work through the year-end audit of this momentous year, the first since the CSD acquisition, we're taking every measure to ensure that the accounting for that transaction satisfies the numerous new aspects of today's rigorous accounting standards. We reported fourth quarter results today including earnings per share of 29 cents and EBITDA of $18.3 million. Both of these results are either within or exceed the guidance we provided on our March 13th call.

For the purposes of today's call, we're not going to focus on the factors behind our fourth quarter performance which we covered on the previous call. In a moment, Roger will take you through the P&L and balance sheet for the quarter.

Two things that I do want to discuss briefly is the reduction of our environmental liabilities and our series C preferred stock. On our last call, we told investors that the auditors were looking at substantially lowering our environmental liabilities by approximately $43 million. In the process of reviewing these liabilities, we determined, and our auditors agreed, that they may need to be lowered even further. The resulting new reduction of $63 million consists of $23 million due to changes in estimates based on better current information and $40 million resulting from discounts to arrive at a fair value under purchase accounting. This assessment was based, amongst other items, on our expected environmental liabilities capital expenditure over the next several years. The $23 million reduction of actual anticipated spending also reaffirms our confidence in our ability to successfully manage these environmental liabilities at a cost lower than anticipated.

As previously discussed, our five-year anticipated spending for these liabilities remain just under $100 million. As we announced on our last call, our auditors determined that purchase accounting procedures will require us to discount certain environmental liabilities assumed as part of the CSD purchase price. The approximate reduction of the environmental liabilities as a result of the discount factor was $40 million.

On the March 13th call, we discussed that the discounting of environmental liabilities may result in as much as an $8 million noncash accretion expense on an annual basis. As a result of the final audited numbers, this additional accretion expense is now approximately $4 million. The total reduction in the environmental liabilities has also reduced the stated purchase price for the CSD which has resulted in an annual reduction of depreciation to approximately $28 million in 2003 or a $4 million reduction from our previous estimate.

Overall, we are very pleased with the dramatic reduction in liabilities. At the same time it essentially lowers the cost of acquiring the Chemical Services Division by $63 million.

The second issue announced in our release this morning was associated with our Series C preferred stock. As a result of the audit process, we determined that our Series C preferred stockholders option to convert their preferred shares into the company's common stock must be accounted for separately from the fair value of the preferred stock without the conversion feature. This determination did not have a material effect on financial results for the fourth quarter or full year 2002.

At this point, I'd like to turn the call over to Roger Koenecke, our Chief Financial Officer.

Thank you, Alan and good morning.

As many of you know, Q4 marked our first full quarter with the Chemical Services Division and all the results for the quarter reflect that and make comparisons with the prior year when the business was very different, very difficult. Q4 2002 revenues were $153.3 million versus revenues of $75.8 million in Q4 last year.

As some of you recall, last year's fourth quarter revenue included incremental revenue of approximately $14.4 million from large exempt business, resulting primarily from responses to the anthrax crisis and World Trade Center events. Without this incremental revenue, last year's Q4 would have been approximately $61 million. The old Clean Harbors business has been integrated with that from the CSD acquisition, making precise comparisons difficult, but we believe the contribution of the old Clean Harbors business in the fourth quarter of 2002 was approximately $60 million, leaving $93 million as the contribution from the acquired CSD division. Of this $93 million, $66 million was generated in the U.S. and $27 million in Canada.

The company will now report two business segments, technical services and site services. Technical services includes collection, transportation and logistics management of waste. In addition to industrial waste streams, this would include the categorization and special packaging in transported laboratory chemicals and household hazardous waste, which, we refer to it by our trade name, as CleanPack.

Whereas site services includes industrial maintenance, site and facility decontamination, emergency response, remediation activities, PCB disposal, waste oil disposal and various other services. It also will include the facilities that are involved in the inflection of processing PCBs and used oils. Technical services revenue for Q4 2002 was $118 million and site services was $35 million.

Gross margin as a percent of sales was 28% compared to 36.2% for the same quarter in 2001. The change reflects the impact of the different business mix as well as the minimal impact from higher margin event businesses -- excuse me, emergency event activities in 2002.

Selling and general administrative expenses were $24.8 million or 16.2% in the fourth quarter of 2002 compared to 17.2% in the prior year, reflecting the synergies that we have attained to date in the combined businesses. Interest expense was $5.2 million.

Net income and earnings per share. Net income was $4.9 million in Q4 2002 compared to $3.8 million in Q4 a year ago. Earnings per share of 29 cents compares with 27 cents last year.

Turning to a few of the balance sheet items that may be of interest, on the debt picture, the revolver as of December 31st, was $17.7 million. Our long-term debt was $155 million.

As Alan mentioned, the redeemable preferred stock will now have a balance sheet number of $13.5 million. The approximate $9 million decrease represents the option, the value of the option to convert, which is now classified in other long-term liabilities. Going forward, that redeemable preferred, now reported as $13.5 million, will be accreted and grow to the $25 million redemption amount after seven years. That, in fact, will be an accretion and it was in the fourth quarter of $381,000. And for the year 2003, approximately $1.3 million spread evenly over the quarters. That flows through the balance sheet, however in determining net income available to common shareholders for purposes of earnings per share, it is -- it is deducted.

The two instruments, the value of the option to convert as well as the -- the preferred instrument itself will be marked to market price, periodically. That had a minor impact in the quarter and is the $129,000 that shows up on the income statement as other income and expense.

Offsetting the liabilities is the cash and cash equivalent balance of $13.7 million as of December 31, 2002. There was restricted cash of $60.5 million. The availability under the company's revolvers were $63.5 million.

Capital spending and environmental spending. On the capital spending for the fourth quarter was approximately $4.5 million. Environmental spending was approximately 3.5.

As Alan mentioned, the environmental projections for spending over the next five years have remained at approximately that $100 million amount, broken down by year it's relatively even. 2003 is in that low $20 million range, approximately $22 million followed by $25 in 2004, $21 in 2005, $17 in 2006 and $14 million in 2007.

Other brief item of note, as far as when you look and when you see the details of the balance sheet in the 10 k, in receivables, there remains approximately $7.5 million of initial receivables received from CSD. That is subject to settlement when we go through the initial working capital adjustment. If you look at the receivable balance excluding that, the DSO of the company is now approximately 80 days.

With that, Alan, I'll turn the call back to you.

Okay. Thank you, Roger.

I'd now like to review our outlook for Q1 in '03. As we've mentioned on the March 13th call, because of seasonality, Q1 is traditionally the slowest quarter for Clean Harbors, taken into account the integration process and the effort of some harsh winter months and continued economic softness, we are reaffirming our previously announced guidance of revenues of $140 to $150 million. Based on our current expectations and market conditions, we are reiterating our guidance of 2003 revenues in the range of $670 to $680 million. The company remains focused on its previously announced goal of $115 million in EBITDA.

During the first quarter, we adopted accounting rule SFAS 143, which requires companies to record liabilities for asset retirement. Because we have not yet determined the full effect of this accounting standard on all of the Clean Harbors assets, we will not be providing EPS guidance for the year. Until the first quarter announcement- first quarter earnings announcement. That concludes our prepared remarks. We will now take your questions. David, if you could open up the floor to questions, please.

Thank you, Mr. McKim..

Today's question and answer session will be conducted electronically. In order to ask a question, please press the star key followed by the digit 1 on your touch-tone telephone.

In order to give everyone a chance to ask a question today, please limit yourself to one question and one follow-up question. If you are on a speaker phone, please disable your mute function before posing your question.

Again, please press star one for questions and we will pause for just a moment to give everyone a chance to signal.

And we'll take our first question today from Michael Roesler at CJS securities.

Good morning.

Good morning, Michael.

Alan, in terms of the environmental liabilities for the $23 million piece, was that [INAUDIBLE] just one or two sites or was that a sort of across-the-board? And were there any legal settlements involved?

It really was a, you know, a review across-the-board of all the sites and I -- I would say that, you know, certainly one of the reasons for the delay from our prior call and -- in getting to where we are today with the audited numbers was reviewing in very detail all of the sites that are involved, both legal, superfund, remediation, closed sites as well.

Were there any legal settlements involved with that?

Bill Geary, do you know if the legal settlements involved in that?

Yes, there is one superfund site in South Carolina where we have entered into a settlement with the State of South Carolina. That settlement has been filed with the Federal District Court for South Carolina in Columbia for a 30-day comment period. So, that did result in a reduction of what had been previously reserved for that site.

And just then the one follow-up, Alan. Sort of looking at your business over the course of 2003, what would prevent you from getting to the type of margins that we see in other, you know, maybe more solid waste oriented companies, particularly on the gross margin side?

I -- I think certainly looking at all the pricing and making sure that the consistency of all of our pricing and contracts is -- is -- is -- well, making sure that everything is consistent now that we've merged all the data together. There's been a tremendous effort on the sales part and many others within the organization to sit and meet with customers to make sure that, you know, all the information is probably in the system today and there's still more work to do on that, but -- but -- but clearly I see that as an opportunity improve on our margins as well as capturing cost recoveries for the fuel surcharges, the insurance costs and other security-related expenditures that the company is bearing right now in getting -- getting those surcharges passed on to our clients is another big issue.

Okay, I will get back to you.

Okay, Mike.

Next we go to Kevin Denny at H.D. Brous.

Good morning, gentlemen.

Good morning.

Can I get an update on how the pricing increase in the incineration business is going to date? Are you seeing a better than the 65% that you had used as a benchmark for looking at it based on the Clean Harbors stand alone increase last year?

I'm sorry, I didn't understand the 65% number, Kevin.

You know, we're all looking at it with a rate of about 65% in being accepted. Is that still about where you are right now?

that - I think you're touching on the recovery fee and that's -- that's the fuel surcharge and insurance surcharge that we have been passing along. Clean Harbors historically has been able to pass along to its customers that surcharge at about 70% success rate.

There were some contracts and some selected customers that we had to actually increase prices rather than having the surcharge as a stand-alone flexible fee. And over the last several weeks and months, we've been working with many of the customers that we now are doing business with as a result of the acquisition and we are tracking that weekly. We are seeing, you know, equal amount of successes now and we expect by June to get up to that 70% range and -- and get to the majority of the new customers that we're taking on.

Great, I think what more people might be focused on, and I'm sorry, I might be breaking up, I'm on a cell phone, but the pricing increase in the incineration business, what kind of success are you having there?

Oh, well, certainly on the incineration side, you know we have -- we have been communicating with customers across -- well, all areas of our customers, both regional as well as different sizes of accounts, you know, whether it's our distributors, our -- our direct customers, our largest accounts and smallest accounts. We have been communicating with them the fact that under these new MAC standards that all of our - ourselves and our competitors are required to meet the substantial capital investment and therefore we are raising our incineration pricing. And I -- I think for the most part, you know, we have been successful in the combination between the recovery fee as well as increasing selective prices on incineration and -- I think it's probably soon -- too soon to tell exactly where that is all going to shake out because we just started in early February, late January, so we're now starting to invoice customers those highest rates and, you know, working through some of those issues, but, you know, clearly that's a -- that's a program that we're moving forward with and expect to be successful with this year.

And just so that everyone understands, most of the surcharge increase is in the guidance and most of any increase related to incineration is not?

Yeah, essentially that's true.

Okay, thanks, guys.

Yep, Kevin.

We will take our next question today from Shannon Collins at Falcon Funds.

Good morning.

Good morning.

Can you walk through the cash again with me, I was -- you went through that kind of fast. I just wanted to make sure I got the numbers right.

Roger, would you take him through the cash?

The cash balances?

Yeah.

Yes. The cash and cash equivalents are $13.7 million.

Okay.

The restricted cash is $60.5 million.

Okay.

The availability was $63.5 million.

Okay. And $13.7 million on the revolver drawn?

The revolver was 17.7.

Okay. And I noticed in your last Q there was a line item for uncashed checks. Is there a similar line item at the end of the year?

There will be. Essential that's the checks in float. We have a copy of a draft key here, give me a second, we will get you the number.

Okay. Okay. And while you're looking for that, the availability -- can you tell us what that looks like as of today?

I don't have -- it is obviously come down during the lower quarter and we will be posting some additional letters of credit here shortly so it will come down further. I think other than that, it will, sort of, go down differentially until we release the Q. But the availability is not an issue today.

As far as the uncashed checks, the balance is $7.2 million.

Okay, great. And are you giving guidance for EBITDA for the first quarter?

No, we have not been giving guidance. We need to really take a look at this 143 implication and -- and it's just really -- we're going to -- we're gonna make sure that we have everything right before we come out with our guidance.

And based on your -- on your debt agreements, there is an EBITDA covenant in there and my understanding was that it was 14 -- roughly 14.5 for the fourth quarter and then went up significantly in the first quarter of '03. Do you know what the target is for that number for the first quarter?

Steve, I think you have a number of $11 million plus if I'm not mistaken?

I'm not quite sure what the question was.

The question was is what's the minimum EBITDA number for the first quarter to meet covenants?

I'm sorry...be about 13.6.

13, okay.

Okay.

Again, please limit yourself to one question and one follow-up question. We'll go next to Kevin Casey at Casey Capital.

Hi, this is Kevin at Casey capital. I'm calling about the 10K delay is that just for the repricing of the convertible?

Yes, it is. The - I mean the K - it will - essentially we've been at the printer with the K. We've gone through a number of drafts. You know people worked tremendously hard to try to get the K filed at the same time last night, but we need a couple more days to plug in the additional information on the convert.

That, unfortunately, though, the impact is small, even the small impact changes numbers in a number of places and we also have an obligation then, to get the final printer's proof draft to our Board of Directors and others and give them quality days to give it a quality read before we actually officially file it. So, we will be turning those printer's drafts, getting it to our Board members and hopefully we will get it filed on or about the 8th.

Okay. And then -- in the first quarter, or year to date, the price increases and surcharges, how is that coming along?

The -- I think as I mentioned earlier, the surcharges, you know, we -- we're continuous to see improvements there month after month and we expect to be able to implement that surcharge across as many customers as we can by June. We're hoping to get to that 70% range. And in regarding the price increases on incineration, we have certainly begun the implementation of that in February, early February, and are continuously moving that across our entire customer base as we speak. So, I think it's still soon to tell exactly what the hit rate will be on that, but we're encouraged by what we're -- we're getting right now in the market.

All right, great, thanks.

Okay.

We'll go next to Bill Brady of Presido Management.

Gentlemen, I'm still a little confused on the - by about 143. You maintained guidance for 2003 EBITDA of $115 million but you're now saying you're -- the $2 to $2.06 earnings per share is -- could be different because of shares of FASB 143.

Yeah. Maybe Steve or Roger, I'm in New York, but Steve or Roger if you could you explain the implications of 143 just briefly?

I can explain the complications of what we must go through.

Essentially if you look at the environmental liabilities as they are recorded now, we have a discount in there at our risk-free rate. The first impact as you need to split out those environmental liabilities, really look at just those that relate to asset retirement obligations, primarily those are closure and post-closure. And you would discount those at a credit adjusted rate, which in our case we have not yet not finally determined, but because of the last financing could be in the 12 to 14% range. That will drive the number down, that would increase -- well, depending upon the smaller balance and the rate, it may or may not increase accretion, but will impact depreciation.

Going the other way, we need to look at all of our sites that we, in the past and others in our industry have looked at that permits being indefinitely renewable it requires you to make a probability assessment on a number of scenarios, when you might surrender the permit, if you were to surrender the permit, what would be the closure post-closure obligation and apply the same accounting to it. That could move the number in the same direction. It is just a ton of details of running those scenarios. It [INAUDIBLE] would be potentially accretion and offset by some depreciation.

So, when will you have done this...

We've been at that process -- we will need to have it completed by the time we file our first quarter Q.

Won't be until the middle of May?

That's correct.

You're -- you're suspending earnings per share guidance until the middle of May?

Yes, we need to go through this analysis, Bill, before we can, you know, further explain earnings per share. There's an awful lot of moving targets here, as you can tell based on, you know, the timing of the release last night or early this morning and some of the other last-minute issues that we dealt with to get the audit complete. This has been a very, very complex transaction and we want to give out good information as quickly as we can as it's available but, you know, there are a couple of additional moving parts here that we need to resolve on 143.

And we'll go next to Alan Metrani at Copper Beach Capital.

Hi, thank you. Just so I understand, I didn't want to ask this, but in hearing the last question, the FAS 143, most of the garbage companies, the solid waste companies, Steven, this is a noncash issue. I just want to understand. Right? It pulls down earnings potentially by a couple of pennies for you guys since you're more leveraged over many fewer shares, probably a little more, but this is a noncash issue, is that correct?

Absolutely, it's a noncash exercise.

Okay. Thank you. Also, as it relates to the receivables, the $7.5 million you said that are out there for the Safety-Kleen, which, I guess, are gonna be contested, when do you expect to resolve that?

I guess Roger or Steve, you can chime in here, but I would tell you that, you know, we are working together with the folks at Safety-Kleen. We'll be continuously working on all of the issues with the working capital over the coming days and certainly our goal, you know, within the next couple of weeks is to get final resolution to that and -- and try to get that behind us by the -- by the end of April.

And we'll take a follow-up question from Michael Roesler at CJS Securities.

Alan, historically you've had about 9, 10% of your cost of goods sold as disposal paid to third parties. Can you just give a sence of what that was in Q4? And what your expectation might be for the rest of this year?

Well, I don't have the number here myself, but I can just tell you that our national account organization particularly is working very hard to get all of the new CSD facilities approved for use by our large accounts. We have, you know, we follow the customer restrictions that they put on us and how waste is routed and how it's disposed. And so we're working very closely with our customers. So, outside of maybe some local disposal for industrial and nonhazardous waste, I think we have been very successful in internalizing essentially all of the waste except for this waste that is being restricted from being internalized and -- and so I think this year will be a big push to -- to get the remaining piece of that business, you know, internalized, Mike.

And Alan, just so you know, it was 2.2%.

2.2%? Okay.

Okay, and maybe you could just sort of walk us through where we are on the debt side again it sort of went by quickly, and maybe the expected draw-down in the near future.

Roger, could you do that one?

Again, where we are or where we were? At the end of the year?

How about both?

Both.

Again, I think since we're not giving any guidance on the quarter, I would prefer to wait and do the where the revolver stands and the rest of the pieces at that time, too, other than - I didn't want to alert all that we do have an obligation to post some additional letters of credit for the financial assurance which we talked about in our last filing. That will be happening here over the course of the second quarter and that will draw down on that availability number.

And we will take a follow-up question from Kevin Denny at H.D. Brous.

Okay, could we focus quickly on the synergies and get a sense for where you are, where you expect to be in the first quarter and could the $60 million that you talk about on the last call prove conservative?

Steve, why don't you take us through the synergy number?

Sure. I think as we mentioned last time, the initial synergy number that we had for, excuse me, 2003 was -- was $50 million.

The main area that we're well ahead of, of course, is in the head count whereas at the end of the year, or right about now, actually, we're about 4,000 people. Our goal was 3950. So, out of the $34 million total that we expected to achieve between 2003 and 2004, we expect to now get about $30 million of that in 2003, which is really a $10 million increase from where we were before.

In addition to the synergies that we had talked about previously, we do have a lot of different initiatives going on here, both from an obviously a cost savings standpoint, but also different market initiatives. So I think the 60 is the number we still continue to feel very good at and there is some upside to that in 2003.

Great. And then just one follow-up. When you looked at the full year '03 revenue guidance of 670 to 680, how much of that are you using as a plug for business that just comes up for site services type related events?

You're asking about what the plug is in on that number?

Yes.

Typically Clean Harbors averaged around $20 to $25 million year an event. And, you know, this year with -- certainly the size and the scope of the combined company now that, number is, you know, probably 40 to $50 million roughly in number. But, again, those are not events, necessarily, as it relates to emergency response. They -- they somewhat are larger projects that would feed waste into our landfills or incinerators, and you will see those under our site services business unit reporting moving forward.

Thanks a lot.

Okay.

And we'll go to Steve Friedman with [Beerstein] Capital.

Yeah, hi. Just wondering if you could you talk a little bit about your plans or anyone else's in the industries of bringing on new capacity for the incinerators?

It's a great question.

We've actually, you know, we've seen a number of customers show interest in working with us more strategically who have incinerators running today and maybe be looking at having us manage that waste and having some of those sites either closed or have them operated by others. So, we're seeing some movement going on in the private sector. There is about 100 incinerators that operate today. We've seen notifications that approximately 20 of those will be closing and probably 5 of those, at this point, have already closed. So, we expect about 15 additional and captive incinerators to close and we -- we think that will certainly help improve on volumes through all of our -- through the commercial incinerator market.

On adding new capacity, clearly we do not see any activities out there of permitting or building, constructing any new commercial capacity and we would anticipate, you know, if someone was to try to do that a five to eight-year time horizon.

Why the long time horizon?

To go through the permitting effort. You know, not -- not only with the local community, but, you know, various state and -- and federal regulators as well as, you know, $100 million minimum capital investment and -- and then time construction. You're -- you know, you really haven't seen anything new being built in 10 years, but it's a five to eight-year minimum time frame.

And at this point, no one's really started that process as far as you --

Not that we're aware of. I think that we would have probably, you know, heard some of that.

Okay, great, thank you very much.

Okay.

Bye.

And we'll take our next question from John Gibbons at Odem Partners.

Hi gentlemen. I'm wondering if you can just give me some idea - give us some idea in last year, what you think the nonrecurring G&A costs were for all the things you discussed in this conference call and the one earlier in March, i.e. extra accounting, extra consulting, extra research, extra legal?

Roger, do you want to take that one?

The -- yeah, one second, the -- the numbers that we had disclosed for the third quarter that showed nonrecurring charges is that, for example, you saw there was only another $800,000 that was charged in the fourth quarter. Those things primarily relate to the outside type of activities, consultant things. That will be not going forward. It's very difficult to assess the impact of the just integration process. Obviously we've had everyone in every functional area working significant overtime, travel and associated training costs. It is all embedded in there. We really haven't had an effective way to sort of pull out the pieces. But it was significant in the quarter.

Can I ask, too, just a follow-up, obviously you will disclose your audit costs in your proxy. I would presume that those would also drop as a consequence in 2003. Do you have any idea what that has been for 2002?

I -- I get a -- I get a progress report where they stand on their hours versus budget. I would agree with you. I think both they and us are -- would look to a significant decrease next year.

Obviously this has been almost three audits in one, you're doing the year-end, you're doing the opening, you have all of these unusual transactions for our FASBs and other pronouncements that everybody is dealing with. And we've sort of hit the perfect storm, it seems that each one that comes out is more or less is applying to our business.

We are getting all of those issues behind us one by one and coming to consensus on what the appropriate accounting should be. All of that work will be - should be a cake walk in comparison to the literally hundreds of hours we've spent on various topics this year.

You said...

We'll go next to Alan Metrani at Copper Beach Capital.

Hi. Thanks. Just a follow up again on the receivables, to understand. Do you expect the receivables to peak this quarter and to be working them down every quarter from here on?

Yes, absolutely. Steve mentioned the -- the DSO was 80 days or Roger mentioned that.

Prior to the acquisition for the -- for the year prior to the acquisition or so, the company had worked very hard to get our DSO to 60 days and that's certainly with the field services business, you know, being a substantial amount of our business back then. So...moving forward, you know, we believe we can get our DSO down to that 60-day level again. Today, that would be worth approximately $30 million in cash to us and it is clearly one of my top priorities, is to get that trend back on track and to capture our -- our receivables.

Thank you.

And Alan, just for your reference and the others, when we compute that, we compute it on the billed and the unbilled receivables. So, as the - just the basic data files behind the invoicing, as customers become familiar with new invoicing formats and different descriptions on - on line line item charges, that will help just naturally as well.

Okay. If I could ask one other. The allowance for doubtful accounts, did you boost that this past year? I'm looking at Safety-Kleen's customers and what's the balance right now?

Yes, we did. The balance increased to about $2.4 million. There is also some allowances if you - or reserves for credit adjustments, et cetera, beyond that number. So, we certainly did increase it at a rate we think would cover this new business that we have taken on.

And we'll take a follow-up from Michael Roesler at CJS Securities.

Alan, can you just update us a little bit on the financial constraints at some of your smaller, public competitors. Have you seen any change in the available business to you, based on that?

You know, part of our -- our reduction in -- in top line that we talked about a couple of weeks ago was associated with many of our -- or several of our larger broker or distributor clients who are having some financial difficulties. And, you know, we're certainly trying to work with them and deal with some of the receivable issues, but I think it's safe to say that we are seeing a reduction in volume from them as we, you know, continue to focus on DSO with them.

But is that -- is there an opportunity there, I mean where does the waste go?

It -- it certainly can go our competitors, maybe even at a higher cost, you know, some of our competitors are giving a little more credit where we might be less, you know, willing to give more credit. I think the company over the years has historically done a very good job of managing its receivables from customers with bad credit or potential bankruptcies and so, you know, we've been very conservative in some of the credit terms we've given to some of the companies maybe prior to the acquisition that had a lot more credit available to them.

And at what point of the availability do you go after the customer?

Well, I think certainly at any time, but I think first and foremost, we're trying to work closely with our customers which -- which in this case certainly are our competitors. And, you know, that's a balancing act to how to keep those relationships working and, you know, we want to respect that business relationship and help them through their financial difficulties and I -- you know, I -- I think, you know, our preference is to work through them since it's their accounts. But that's certainly an option for us.

Due to time constraints, we'll be taking one final question. We'll be going to Bill Brady at Presidio Management.

A couple of questions, I noticed that your tax rate was about 24%. Is that indicative of what it would be this year and give us some tax guidance?

Sure Bill, this is Steve Moynihan.

What we had used before in the old guidance, of course, was a 40% tax rate, the 24% is actually primarily Canadian. So, it's really more, in 2003, a -- a different mix of Canadian tax issues versus U.S.

uh-huh.

But we have a lot of U.S. net operating loss carry forwards. We do not have that in Canada.

Next year, without the effect of FAS 143, we would have expected a tax rate of about 20% total. But again, you know, we'll have to wait and see what the affect of FAS 143 is. Without that, we would have expected a tax rate of 20%.

Your guidance of $2.00 to $2.06 was -

At 40%, yes.

Also, I missed the distribution of the hundred million in environmental liabilities spending out to 2007. Could you go through that again?

Yes, in 2003, $22 million. 2004, $25. Followed by $21, $17 and $14.

And that concludes today's question and answer session.

At this time, I'd like to hand the call back over to our speakers if you have additional or closing remarks.

Thank you for joining us today. As a reminder, we'll be presenting at the Deutsche Banc conference later this morning at 11:00 A.M. If you'd like to listen, you can access the webcast by visiting the Investor Relations section of our website. Beyond that, we look forward to speaking with you when we report Q1 results in May.

Thank you very much.

Thank you for your participation in today's conference and you may disconnect at this time.