Clean Harbors Inc (CLH) 2003 Q4 法說會逐字稿

Good day and welcome everyone to the Clean Harbors Environmental Services' fourth-quarter and year-end 2003 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). As a reminder, today's call is being recorded. With us today is the Chairman, President and Chief Executive Officer, Mr. Alan McKim, and Executive Vice President of Administration and Chief Financial Officer, Mr. Mark Burgess. At this time I would like to turn the call over to the General Counsel, Mr. Bill Geary.

Good morning. Thank you very much. In addition to Mr. McKim and Mr. Burgess being with us this morning, we also have Steve Moynihan, Senior Vice President of Planning and Development, and Gene Cookson, President of our Site Services Group. I would like to read the Safe Harbor statement before we commence our call. 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 use of the words believes, hopes, 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 under reliance on these forward-looking statements, which reflect management's opinions only as of this date, March 15, 2004.

Information on the potential factors in 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 10-K for the year ended December 31, 2003, which we expect to file with the SEC later today. 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. In addition I would like to remind you that today's discussions will include references to earnings before interest, taxes, depreciation, and amortization, or EBITDA, often referred to by the acronym, EBITDA.

EBITDA is a non-GAAP financial measure and is intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of the company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in Clean Harbors' Q4 and year-end 2003 financial results news release dated today, March 15, 2004. A copy of this can be found at the company's Web site, cleanharbors.com. A copy also has been furnished as an 8-K with the Securities and Exchange Commission. With that, I will turn the call over to Mr. Mark Burgess.

Thank you, Bill, and good morning. Because of the fundamental changes in the business throughout the year I will be focusing our discussion from a financial perspective, primarily comparing Q3 and Q4 results in 2003. Revenues in Q4 approximated $145.4 million versus $151.1 million in Q3. Revenue was approximately $4.5 million less than our guidance as a result of the deferred revenue buildup at year-end. This is created by operational bottlenecks caused by restructuring for our TSDF network in December that has subsequently been addressed. Despite the short-term issue, these operational changes in our distribution system will save the company several million dollars a year and are progressing well in Q1.

Site service revenue decreased several million dollars in Q4 due to seasonality. Fundamentally our base business was relatively solid in the quarter. We did not have any significant event business in Q4 but are experiencing some small event business in Q1. We are also seeing some incremental projects in new markets and are bullish on growth opportunities in the Gulf, Western, and Canadian regions. Technical service revenue decreased from $107.5 million in Q3 to $103 million in Q4. The shortfall is associated with the aforementioned buildup of deferred revenue and the holiday season and otherwise met our expectations.

In the quarter, incinerator volumes were up slightly, landfill volumes were flat, wastewater with slightly down and our basic run business down slightly but in line again with seasonal demand patterns. Cost of revenues decreased from $108.7 million in Q3 to $106.1 million in Q4. On a percentage of sales basis cost of revenues increased slightly from 71.9 percent to 72.9 percent. The impact of lower revenues and volumes resulted in nearly a 1.5 percent adverse impact on margin as a percentage of sales, but was offset by reduced headcount, internalization efforts, and other cost reduction initiatives.

Total headcount at the end of Q4 was approximately 3,700 versus the 4,400 we employed after the acquisition took place in September of '02 and 3,800 employees that were employed at the end of Q3. SG&A approximated $24 million in Q4 versus $26.4 million in Q3 and as a percentage of sales SG&A decreased from 17.5 percent to 15.3 percent of sales. Overall SG&A expense continues to be positively impacted by lower SG&A headcount, improves in controls on health care expenses, reduced professional fees, and reduced bonus accruals. On a go forward basis we expect SG&A to run in the $26 million range with some potential for further reductions pending our ability to continue driving cost reduction efforts.

Accretion expenses on our environmental landfill liabilities approximated $2.8 million in Q4 versus 2.7 million in Q3 and were in line with our expectations. Depreciation and amortization was $6.6 million in Q4 versus $6.8 million in Q3. We expect this expense will remain relatively constant in the future. Income from operations despite the lower revenue numbers in Q4 versus Q3 was at 6.3 million versus 6.5 million in Q3 as a result of the cost reduction initiatives. As discussed in our press release, income from operations increased by $13.4 million over the first half of the year as a result of the improvement in the business.

EBITDA in Q4 was 15.9 million in versus 16.6 million in Q3 despite the lower revenue levels. The savings that we are realizing from the cost reduction programs are broad-based and well distributed throughout our organization. Other income/expense in the quarter reflects a 9.5 million non-cash charge for the mark to market element on our preferred stock. As everyone is aware, in Q3 we realized an $8.8 million gain on this particular item. The accounting on this is quite complicated and theoretically when the stock price goes down we actually record an expense. When our stock price goes up we record income.

This number will continue to be volatile as our stock moves in the future and we want to make sure that investors understand that it is non-cash. Interest expense increased slightly from $6.1 million in Q3 to $6.2 million in Q4 as a result of slightly higher average debt balances in the quarter. Cash interest expense is roughly $5.6 million, a level that we expect to maintain in the future. Net loss per share in Q4 was 84 cents but was dramatically impacted by the non-cash charge on the embedded derivative that I just talked about. Without the impact of this charge to the embedded derivative we would've reported a net loss approximating 8 cents in the quarter versus a 9 cent loss in Q3.

On a full year-over-year basis, revenue increased from 350 million to 611 million or an increase of 75 percent. EBITDA increased from 36.4 million to 50.7 million. We reported a loss of $1.52 per share for the year versus a loss of $2.42 per share in 2002. In general the positive trends in our financials as noted by the increase in EBITDA have resulted because of the larger footprint we enjoyed from the acquisition of CSD and the significant cost improvement initiatives that were implemented throughout the year particularly in the second half of the year. Most importantly our EBITDA in Q3 and Q4 totaled 32.5 million versus Q1 and Q2 totals of $18.2 million due to the improvements just noted. From a balance sheet perspective our cash balances decreased from $13.7 million at the year-end 2002 to 3 million at the end of 2003 which compare to 6.1 million at the end of Q3.

Cash management continues to be an item that we're very, very focused on. Our totals receivables decreased from $153 million in December '02 to $125 million in Q3 to roughly $123 million in December '03. We continue to focus on receivable management and believe it will continue to be a source of cash for us in the future. We have had some successes but are striving for further improvement. We have weekly conference calls with the field to ensure that this particular item is getting the attention it deserves. Our goal in 2004 is to drive down receivables on a days on hand basis by 10 percent, which would generate over $10 million in cash for us.

Properties held for sale were $12.7 million or at the same level they were at the end of Q3. We have sold one facility subject to year-end roughly for $700,000. Our goal is obviously to sell all these properties in '04 and believe that we have the ability to, at a minimum, sell 50 percent of these. Our net property plan equipment decreased from 181 million in December of 2002 to 166 million in '03. Approximately $35 million was spent on capital this year but because of the reallocation of purchase price across fixed assets caused by our purchase accounting changes throughout the year and depreciation, or net PP&E, went down as noted.

Restricted cash grew from $60 million in December '02 to $89 million in December '03 which is really the same level that it was at in September. As previously noted the increase was required to cash collateralize letters of credit that were required in our financial assurance program. Restricted cash balances on a go forward basis we believe will remain flat given that we have already have the financial assurance program in place. Accounts Payable increased from roughly $63 million at the end of 2002 to $65 million at the end of 2003. Environment liabilities decreased from $204 million at the end of 2002 to $182 million at the year end 2003.

Balances were impacted by FAS 143 implementation to discounting of liabilities under purchase accounting and the revaluation of certain potential liabilities as disclosed in our 10-K. Environmental spending for the quarter approximated $2 million and for the year totaled $8 million versus a 2002 -- 2003 original target of $22 million. Capital spending in Q4 approximated $9 million as a result of heavy spending associated with (indiscernible) MACT (ph) compliance at our Deer Park facility which will actually take place later this year.

Our capital spending for the full year approximated $35 million in 2003 and between capital and environmental spending we're targeting to spend $35 to $40 million next year. Total funded debt increased from $173 million at the end 2002 to $183 million in Q4, which is about the same level that it was at at the end of Q3. Our revolver was funded at $35 million debt outstanding at the Q4 or approximately the same level that it was at at the end of Q3. We did a good job in managing cash this year despite the disappointing performance in the first half of the year, despite the fact that we spent $35 million in capital during the year and the fact that we had to increase our cash collateral in order to support our financial assurance requirements by $28 million a year.

We believe that the operational improvements we realized in the second half of the year along with lower spend rates on these other items on a go forward basis will put us in the position to focus on debt reduction as we go into 2004. We continue to see opportunities to reduce costs in 2004 and will continue to remain focused in the areas of headcount management, internalization of transportation disposal, and SG&A costs. We believe that we need to drive our costs down every year to meet our company's goals and we plan to accomplish this to continue the investment in capital and technology. With that, I would like to turn the call over to Alan McKim so that he can review our 2003 accomplishments in more detail and discuss our strategic objectives for 2004.

Thanks, Mark. Good morning. The fourth quarter marked the first full years since our merger, which literally has transformed Clean Harbors as a company. Acquiring the Chemical Services Division from Safety-Kleen, not only increased the size of our operational footprint but also strengthened our competitive position. We are now able to serve a number of major new geographic markets and we're better positioned to compete for business in certain industry segments where we see real opportunities for growth. Overall the merger integration process has gone very well. Operationally we achieved a tremendous amount of momentum and having addressed most of integration issues, our people are all on the same system and page, working well together.

At the same time we continue to invest in our systems and processes to lower our costs and improve our operating leverage. We also did a good job in reducing our spending related to environment liabilities. By applying our site remediation skills to a number of ongoing CSD projects, we've reduced our '03 environmental expenditure to $8 million, or less than half of what we initially estimated for the year. As Mark said, overall estimated future environmental liabilities associated with CSD's assets have declined from $204 million to $182 million. In addition we received about $4 million from the sale of redundant assets and we have assets valued at another $12 million available for sale in 2004. There are further postmerger synergies to be realized in this and other areas and I will cover these in just a minute.

As Mark said, our Q4 top line came in below our guidance of $150 million, in large part because of the $3.6 million sequential increase in deferred revenue. I would like to speak to that for a moment. As part of the merger integration we have been consolidating some of our plants to improve efficiencies. This involved considerable rerouting of waste materials to a smaller number of facilities. We view the resulting increase in deferred revenue as an unusual event that stemmed from the buildup of materials at some of those facilities during the fourth quarter.

Although we have already billed customers for most of these materials, revenue recognition policy requires that the materials are processed in our incinerator facilities or deposited in one of our landfills before we can book the revenue and profits. While this process caused a backup in Q4, it is important to optimize our routing materials going forward. We don't anticipate any problem in gradually working down the backlog in associated deferred revenues over the coming quarters. There were no significant events driven revenues for the fourth quarter as well. As Mark highlighted in his remarks, we did very well on the cost side of business in Q4.

As a result although revenues were down slightly from the sequential third-quarter, EBITDA was relatively flat and our EBITDA to sales ratio remained constant at 11 percent of sales. With a leaner organization and a lower cost structure, we are in a position to become profitable at our lower revenue rates on a go forward basis. If you compare the first half versus the second half of '03, the results of our cost-cutting and productivity initiatives became even more apparent. For the first half of 2003, revenues were $314 million, while income from operations was a loss of $640,000. For the second half of 2003, revenues were lower at $297 million, but we achieved income from operations of $12.8 million, a $13.4 million improvement over the first half of the year.

For the full year, as Mark outlined, we also made significant progress from a financial perspective, ending 2003 with a 39 percent year-over-year increase in EBITDA. Given the financial issues related to FASB 143, Sarbanes-Oxley, and purchase accounting, it took some considerable work to deliver audited financials in time for the year end reporting. Nonetheless we're making it a priority this year to improve even more on closing our books and reporting our numbers on a more timely basis. Again as a disclaimer, EBITDA is a non-GAAP metric. Please refer to the full reconciliation to GAAP results in our press release.

Operationally as we have outlined in the press release our priorities for 2004 will focus both on cost containment and revenue growth. In terms of cost, our major initiative is to reduce our outsource transportation expense. Across the organization we spent approximately $60 million in '03 for outsourced transportation services. Meanwhile we have more than $20 million in rail and rail facility assets that are significantly underutilized at this point. As a result rail is a strategic opportunity for us both to reduce our cost and grow our top line by being more competitive.

In addition to better utilization of our rail assets we are expanding our internal transportation fleet and continuing to bring on additional equipment and drivers. During the year we added an additional 35 national transportation drivers to our fleet. In addition we are focusing on taking more cost out of the business and using technology to further reduce SG&A expense. To a large extent we're working on the same kind of synergies that we are looking at when we first announced the acquisition. In 2004 we will be looking closely for ways to reduce our environmental expenditures and liabilities even further where possible.

For the full year of audited financials under our belt we're in a better position to pursue opportunities to refinance our capital structure at a more attractive cost. In the coming months we will be working to secure terms that will strengthen Clean Harbors financially and allow us to grow our business. The timing of any refinancing will ultimately depend on our success in continuing to drive revenue -- reduce costs, growing our top line in the overall debt markets. That's the background on the cost side of the equation, but the top line obviously has to be our number one priority for this year. Acquiring CSD positioned Clean Harbors as the major player in North America, which presents us with significant growth opportunities.

There is not anything more important to me or to the team than to be aggressive in capturing these opportunities for the expanded infrastructure that we now have. We have a real opportunity to expand our Site Services, our field service and industrial service business across the new geographic geographies we have added. We have been successful over the past couple of years in developing our business in some key vertical markets. So the objective is to go after these verticals in our new geographic regions as well as in several of our long-standing markets.

We have initiatives in place right now to improve our ability to work cross functionally on sales, marketing, and operations within these targeted industries. The new federal Maximum Achieved Control Technology standards, better known as MACT, continue to represent a growth opportunity for us. All of our U.S. incinerators are on the track to be MACT compliant by September '04 deadline. To meet this goal we invested more than $20 million in upgrading our Deer Park, Texas facility in 2003. Our improved cash flow from operations enabled us to make this and other capital investments without increasing our debt borrowing in the fourth quarter.

We have believed all along that the new MACT standards would be positive for Clean Harbors and initial feedback from the market confirms this view. When the September deadline rolls around we believe there is a significant likelihood that customers who own and operate their own captive incinerators will find outsourcing a more viable option than meeting the stricter standards on their own. In retrospect, 2003 was not an easy year. While we are completing our postmerger integration during the year, will remain very focused on what really drives our business, and that is certainly our customers. Over the past year we have had the privilege of meeting many of our new customers and learning more about what they want from Clean Harbors on a go forward basis.

I have no doubt that with our reduced cost structure and our more focused and streamlined organization we will be successfully meeting these customers' expectations and as a result produce substantial EBITDA growth for Clean Harbors in 2004. As far as the top line is concerned, it will take some time to generate momentum in 2004. We would expect for the first quarter, revenues to be approximately flat on a year-over-year basis. Historically the first quarter is our slowest due in large part to weather-related issues, and we expect to see similar seasonal patterns in the first quarter of this year. This concludes our prepared remarks. We would now be happy to take any questions you have, so I will turn it back to you Michelle, if you can help us.

Thank you. (OPERATOR INSTRUCTIONS). Michael Roesler of CJS Securities.

I just wanted to follow one of the things that Mark had said in his prepared statement about SG&A costs going forward, around $26 million. I'm just wondering why would that -- you planned that for Q1 or is that something that is going to play out in sort of the higher revenue quarters?

In general SG&A is a pretty fixed expense for us. So again from a guidance perspective we thought it was appropriate to give the $26 million number. We do think there is some upside as we talked about. In Q4 we were slightly below that number and there are some initiatives that are in the pipeline right now to take out further headcount as it relates to again some of these technology initiatives that Alan talked about that should move us in the right direction. But realistically we think $26 million is probably pretty fixed expense going forward.

Mark, could you just remind us what the EBITDA covenant is for Q1?

It's approximately a little bit over $11 million from where we are right now.

Getting back to the top line, could you talk about what you're seeing out there in terms of industry trends maybe on pricing and if you're starting to see any of those potential incinerator customers come to you at this point?

On the incinerator customer side we have gained some new business from customers who have shut down their capacity. We are looking at opportunities out there for future volumes as well. So we are seeing some of the impacts on -- of MACT and are enjoying some new business on the incineration front. Overall, pricing has been relatively flat for the past 12 months. I think if we look across both our bulk and run business in general I think it has been pretty consistently flat for the most part, Mike.

What was your incineration utilization in Q4?

Approximately 89 percent.

Mark, what was the operating cash flow in Q4?

Roughly $39 million. For the year it was $39 million. I don't have the number for Q4 here in front of me.

But $39 for the Year?

Yes.

That's all I had for now. Thanks.

Mark Kauffman (ph) of Lazard.

I guess if you had to go back and look over the past year and where you were, okay 18 months ago you made the acquisition. What could you attribute -- what would be your number one, two, three contenders for the miss from your original expectations? How would you weight the factors?

I think certainly on the revenue side that has been our number one issue we have been having to deal with from September of, let's say of '02, and our expectations going into this acquisition.

But basically volume?

Yes, certainly volume, both into our landfills and waste volumes in general I think has been probably our biggest disappointment, absolutely.

Okay.

I think the company has worked very, very hard in the past six months particularly to address the decline or the lack of volume that we had anticipated would have materialized. There's a couple of points here too is that last year when you look at the amount of spending that the company made, $35 million in capital expenditures, we added $28 million in restricted cash. We paid out approximately $22 million in cash for interest expense and put in $8 million investment in environmental cleanup and liabilities, $5 million in taxes, and approximately $2 million in severance. The company basically paid out $100 million last year and increased its debt by approximately $10 million in doing so. So we work very, very hard here to manage our cash, to meet the requirements of our capital investment, to lower our total outlay for environmental spending and work within the lower volume constraints that we have had to deal with here.

(technical difficulty).

Say it again please?

You had to go beyond your cost structure, the synergies that you guys originally laid out with the acquisition. You had certain synergies etc., etc., laid out in the beginning. Did you have to make further, in the process, further additions to that? I know you didn't have to do as much on the remediation side from the operations standpoint.

Absolutely. We started out a goal of getting to about 3,950 people. We accelerated even further headcount reductions to under 3,700 people. We have really focused on a wide range of areas of costs, as Mark outlined in his brief comments. So we continue to look at cost areas in the company and feel positive that even the synergies that we had outlined earlier that we could continue to drive those cost reductions and obtain those synergies.

I guess in the optimistic outlook, and this isn't yours, that economic industrial production in the U.S. were to restart really start to increase, would you be able to service that production with the levels of employment you're at currently?

The company will continue to add direct people and really focus more on our nonbillable headcount. That is where the majority of our headcount reduction has taken place. So the adding of drivers and chemists and field technicians is something that we will be doing this year as the volumes improve. We are now going into the strong part of our seasons. We have a lot of household hazardous waste days that we do across the country, a lot of remediation fieldwork tends to take place in the second and third quarters particularly. So we will be adding the resources necessary. From a plant standpoint, we have more than adequate capacity at our facilities to handle the increased volume.

David Cohen (ph) of Midwood Capital.

Mark, I was a little confused by your response to the question on the EBITDA covenant. You said around $11 million higher than where we are right now. I'm not sure what that means.

I'm sorry. Q1 results need to generate slightly over $11 million in order for us to be in compliance with our credit agreement.

And how does the covenant progression there, if you sort of looked at a trailing four quarters, say by the middle of the year?

By the end of the year we have to be at a roughly $64 million. I think the end of Q2 it's roughly $27 or $28 million in EBITDA, and so it follows that timeline.

Okay. You made a brief allusion to reduce incentive comp accrual in 2003 being beneficial to the SG&A level. I guess how much does incentive comp come down across the board say 2003 versus 2002, and what are the targets against which the management team has benchmarked in 2004?

I don't know whether I have the data that can give you a bridge between 2002 and 2003. For 2004, the incentive compensation is based on the company's internal EBITDA budget and everyone will be compensated according to what that number is.

And does the $26 million of run rate guidance of SG&A assume some sort of quarterly accrual for incentive comp?

Yes, it does.

Switching gears to the environmental spending, looking at your September Q and your expectation for full year 2004, spending was about $19 million. Is that -- I think it was actually 19.7 million. Is that still the case? You gave a number combining environmental and CAPEX spending of 35 to 40. Can you give us a breakdown there?

I don't know that we are in a position to do that but as Alan talked about, you are right. I think for Q4 -- actually our proposed environmental -- or environmental current portion for next year is slightly over $20 million. We think that is a conservative number and at the end of the day we hope that we will do better than that. And so we just thought it was appropriate to give guidance of between CAPEX and environmental spending that the number that I think everyone can expect is somewhere between 35 and 40.

And are you -- have you sort of recalibrated what that spending is based upon the success in spending less in 2003?

These numbers are updated quarterly. We take a very, very close look at both capital and environmental spending given that there is significance drains on cash and we're trying to be very responsive in making sure that we are managing the needs of the organization but at the same time minimizing any spend to the extent that is possible.

All right, thanks.

(OPERATOR INSTRUCTIONS). George Mellis (ph) of Lord, Abbott.

Just to go back to the earlier question regarding the volume disappointment in '03 which I believe is mostly landfill related, can you talk a little bit more about that and what the competition did to try to take share and what you think you can do to improve your landfill volume in '04?

Last year the company put in place a team with a leadership position forum to go after what we call our facilities project business, which is driving large projects into our eight landfills, focusing on the large long-term remediation type projects and companies that perform those services. We have seen a real improvement in opportunities in the looking out on the future, but what we saw in '03 was really more a pushing of those and delaying of some of those opportunities and actually performing of some of those projects.

I would say that as an industry the industry would say that the volumes have been down about 70 percent in the past year and a half. The so-called dirty dirt business, so the hog (ph) and haul business was off substantially, so I don't think it was just a Clean Harbors' phenomenon but something did impacted many companies out there. But what we expect is to be very aggressive in this area moving forward into '04 and beyond, and feel that we have got I think the right strategy to go after that market and to begin driving volumes back into our landfills.

Are there some pricing issues on the landfill? Is the competition -- did the competition sometime in '03 get very aggressive or am I just not reading it right?

I think pricing is aggressive when you have that kind of reduction in overall volume due to companies pushing out environmental spending very similar to what Clean Harbors did quite frankly. So yes, pricing has been very competitive. And we, early on, recognized that we needed to take a different strategy regarding pricing in some of these opportunities and I think we have seen some recent wins as a result of our change in tactics in some markets. So I think we are looking at expansion of opportunities, but also a new approach to going after some of this large project business.

So what you're doing different is that you have a new team going after large project business. Is there any other significant differences that you're doing besides that?

I think the other piece is that we are trying to control much more of the transportation. A big part of these larger projects is to provide the transportation and the on-site work and the company has substantial assets in this area that we are deploying, like our rail assets. As I mentioned, in our opening comments, that we have 18 sites that we own and we believe we can drive volume with those sites.

Great, thanks.

Michael McCormick (ph) of GGHC.

I was hopeful you take a -- if you look at your SG&A number that you reported in the fourth quarter of $23.5 million, a little under $24 million, and compare that to the deviation of the guidance of $26 million on the quarterly run rate, and could you see -- could you explain what the anomalies were for this quarter, why it would be lower?

Sure, there was roughly a $500,000 improvement in what our health care expenses ended up being versus what our expectations were. It was roughly a $300,000 improvement as it related to bonus accruals and the balance was really spread among a number of different other items, including headcount reduction and (indiscernible) professional fees.

Okay. So most of those, other than the accruals and to be continuing events, so I'm a little bit puzzled by the $26 million fixed cost for SG&A.

I think that we're trying to be more prudent in guidance here. We're trying to be conservative in the number. As I talked about earlier, hopeful that we can beat that number, but there are some increases whether its salary increases, whether it's maybe bonus accrual increases, whether there's other professional fees that we have budgeted that weren't necessarily expense items in Q4 that we again budgeted for this year. So it's a combination of those kinds of factors.

In any conversations you may have had about debt refinancing that you may have had to date, when you go to the banks or the credit facilities, what is the key stumbling block for restructure?

First of all we are in the market. We've been in the market for a long time, trying to make sure we understand when would be the best time to refinance our company. So that being said, I don't know that there's any particular stumbling blocks that would get in the way of the refinancing other than what we want to make sure that we do is when we go to the markets that there's credibility in our business plan, that our improvement has been well-documented and proven. And based on those kinds of factors, hopefully we would be in a position to refinance at rates that are better than what we have in place today.

Okay, could you give us an update on the surety that you have structured currently right now and will the restricted cash be decelerating in 2004?

It is exactly the same as the guidance we gave at the end of Q3. The program we have in place is locked in on the amount of collateral required and it's actually a three-year program. So that should be stable for the next several years.

So it will not decline?

Not unless we renegotiate that.

Are you in the process of renegotiating?

Not at this point.

Thanks, Mark.

At this point there are no further questions. Mr. McKim, do you have any closing remarks?

Should we wait just one more minute, Michelle, just to make sure that nobody else has a question they want to ask?

(OPERATOR INSTRUCTIONS)

We just want to make sure we give everybody a chance. Okay, Michelle, I guess with that we would like to thank everyone for joining us today. We look forward to updating you on our progress on our first-quarter financial results conference call. Thank you very much.

You do have a question from the line of Chris Kwan of TD Securities.

Thanks for hanging in here. I just needed a little bit of clarification of these EBITDA targets again. Could you give me those numbers? I think you mentioned 11 million a quarter or first quarter, or 64 million by the end of the year. Could you just go over those numbers again?

The number that I provided were what the EBITDA levels that we need to generate over the next year are in order to stay in compliance with our credit agreement, and for Q1 that number is slightly over $11 million. At the end of Q2 we would have to generate in the neighborhood of $27.5 to $28 million in total over the two quarters. The quarter after that would have to be in the $18 million range, and then for Q3 added onto the $27 million or $28 in the first two quarters, and then for the year we need to generate roughly $64 million in EBITDA.

Okay, as a follow-up on the pricing trends, you had mentioned you expected the pricing trends on incineration contracts to be relatively flat. Is that so far for '04, is that what you are expecting?

More reflective of what we saw looking out over the last 12 months in '03.

And how are you seeing over the next year? What is the indications on contract bookings so far?

At this point it is pretty consistent. I think year-over-year, so far after the first couple of months, I would say pricing has been relatively consistent with last year.

Okay, and then in terms of I think you said incineration capacity is around 89 percent at your facilities. How do you see that rolling out for this year? Do you hope to be significantly higher than that?

We would like to improve on our capacity utilization. We also through our investment we made in Deer Park would expect in September to increase the overall capacity of that plant by approximately 10 percent. And so we would hopefully see additional volumes now with that additional capacity at that site beginning in September.

Sorry? The 10 percent would bring the capacity there to what?

It would add about 10,000 tons of additional capacity at that particular site on an annualized basis.

Perfect, thanks a lot.

At this time there are no further questions. You may proceed with your closing remarks.

Thank you very much for joining us. We will touch base with you in the first-quarter conference call.

Ladies and gentlemen, this concludes today's conference. You may now disconnect.