Clean Harbors Inc (CLH) 2006 Q3 法說會逐字稿

Good day, everyone, and welcome to the Clean Harbors third-quarter 2006 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. (OPERATOR INSTRUCTIONS). At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Bill Geary, Executive Vice President and General Counsel of Clean Harbors. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us. On the call with me today are Chairman and Chief Executive Officer, Alan S. McKim; Senior Vice President and Treasurer, Steve Moynihan; and Executive Vice President and Chief Financial Officer, Jim Rutledge.

Before we get started, I would like to remind everyone the matters that we're discussing this morning and the information contained in the press release issued by the Company today announcing our third-quarter 2006 financial results 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, 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, November 8, 2006. 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 10-K for the year ended December 31, 2005, and our subsequent Form 10-Q's. The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in our third-quarter press release or this morning's conference call other than through the filings that will be made with the SEC concerning this reporting period.

In addition, I would like to remind you that today's discussion will include references to the acronym EBITDA, which is earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure and is intended to serve as a compliment 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 today's third quarter news release, which can be found on our website. A copy has also been furnished as an 8-K with the Securities and Exchange Commission.

Now, with that said, I would like to turn the call over to Alan McKim for our quarterly review.

Good morning, everyone. Clean Harbors had its strongest operating quarter to date in Q3. Revenues grew by approximately 20% to a record $213.9 million, which includes $8 million from our Teris acquisition that I will talk more about in a moment. This was the first time in our Company's history that we exceeded the $200 million mark for a quarter. Achieving that milestone is a real tribute to the hard work and dedication of our outstanding employees. They are the reason why we're recognized as the premier provider of environmental services and solutions in North America, and why more than 45,000 customers rely on our services.

Turning to our business segments, Technical Services extended the momentum it has shown throughout 2006. We continue to succeed at winning a variety of large-scale projects, the majority of which drive substantial volumes into our network of disposal facilities.

Incineration volumes were very strong in the quarter, achieving utilization of 91% despite scheduled maintenance that was performed at a number of our facilities. This compares with 88% in Q3 of '05. As a reminder, we expanded our available capacity by an additional 20,000 tons this year due to investments we have made at Deer Park and elsewhere.

Our landfill business grew slightly in the quarter as volumes were marginally higher than Q3 of '05. In particular, our US landfills more than offset a moderate decline at one of our Canadian locations. We have a healthy pipeline of opportunities for our landfills, and we're continuing to strengthen our logistics capabilities to be more competitive in this area. We have not yet received any benefits from our efforts in turning around the three nonperforming landfills that I've mentioned in the past.

One of the primary growth drivers in Q3 was our Site Service business. During the quarter, while we had no major emergency response event work, we did secure approximately $8 million of revenues from a variety of small-scale projects, including ongoing cleanup work in the Gulf region. Margin on these events as well as several other projects were below our typical gross margin in the quarter, due to high subcontracting costs. We realized with the high-growth we're experiencing that we need to increase our efforts in staffing and adding more resources to support this growth and to minimize subcontracting, especially on fixed-priced jobs that were won based on utilizing our own resources.

We also continued our steady geographic expansion with the opening of another site services branch. Our strategy of introducing the Clean Harbors brand into new markets has been very successful, and we continue to see significant traction in areas that have expanded during the past 12 to 18 months. The site service projects in turn supply additional volumes into our disposal facilities. We remain confident of the potential for continued growth in Site Services, considering the large and fragmented multibillion dollar market in which we operate.

At this point let me turn to the Teris acquisition, which we completed in August. Teris is truly a strategic acquisition for Clean Harbors. As we mentioned on our prior calls, Teris presence in the drum and small quantity container market ideally complements our portfolio of business. In terms of key Teris assets, they include an incineration facility in El Dorado, Arkansas, and a treatment, storage and disposable facility located in Wilmington, California.

After completing the acquisition, we immediately began the integration process to bring all of the Teris locations on to our systems and operating platforms. While this process was completed the first week of the acquisition, it will take time to train our new employees and new customers on our systems and work out any integration issues that have been encountered. We have excellent integration teams with significant experience from integrating all the other various CSD assets.

We also began a thorough review of the physical assets themselves to see what capital improvements might be necessary. The first step we took was to shut down both incinerators at El Dorado to perform a comprehensive internal evaluation. In doing so, we concluded that we needed to undertake some equipment upgrades. This resulted in the incinerators being down for more than a week's time, which we estimate caused the Company between $800,000 and $1 million in lost revenue, as well as corresponding EBITDA. This loss in EBITDA is outside of the $2 million negative EBITDA mentioned in our press release.

Our deferred revenue for the quarter increased by approximately $8 million as a result of this plant shutdown and the plant shutdown of other incinerators both in the US and Canada. We expect to work down this inventory in the coming two quarters.

Another important financial point about Teris as it relates to Q3 is the amount of operational expenses that we incurred during the quarter. We were determined to hit the ground running with the integration process. In fact, more than 40 Clean Harbors employees were on site to oversee the handover of the facility and to merge several offices around the country to ensure that this site successfully transitioned to our operating systems as rapidly and as efficiently as possible. We dedicated significant management time and resources in Q3 as well as incurring a litany of acquisition expenses, including legal fees, consulting fees, and travel fees for our integration teams, many of whom remained on site for more than several weeks.

Between the maintenance shutdown, the integration costs and negative operating performance in the quarter, we estimate that Teris created a $2 million drag on EBITDA and net income in the quarter.

Nevertheless, the Teris integration required a concerted effort across our entire organization, and we believe the results will ultimately be positive. Indeed, we exited the third quarter with Teris operations performing well, and we remain confident that the acquisition will be accretive by year end as planned. Currently, we're on track to achieve approximately $15 million in synergies in the first 12 months. One of the immediate synergies was achieved with the closing of five redundant offices.

Before turning the call over to Jim, let me touch upon another significant Q3 event. Since the acquisition of the CSD assets in late 2002, we have done an excellent job managing our environmental liabilities. We have lowered our overall estimated liability significantly, and this year's cash expenditure continues to be well below our initial estimates. This quarter's sizable reduction was primarily associated with a court settlement between unrelated third parties related to one of the locations where we may have had a potential future liability. The result of that settlement and some additional progress made at other sites was an $8 million gain for the quarter.

Lastly, investors regularly ask us about fuel cost. By consistently applying surcharges and recovery fees to lessen the impact of fuel prices, we have been able to effectively manage our fuel costs, and that situation was no different in Q3, even though fuel prices were sky high mid quarter. By quarter's end, prices retreated to more acceptable levels.

With that said, let me close by saying that we remain confident in the ability of our Company to extend this momentum and continuing to generate strong results. Our record quarterly performance in Q3 is further proof of our ability to capitalize on our unique array of diverse environmental services. In the quarters ahead, we expect to deliver top-line growth, and the progress we're making with Teris, increased margins and profitability.

Now I will turn the call over to Jim Rutledge so he can walk you through the Q3 financials and provide our guidance for Q4.

Good morning, everyone. As Alan mentioned, the Company had an outstanding third quarter, generating a record $213.9 million in revenue, which is 20% above the $178.6 million we reported in the year-ago quarter. We benefited during the quarter from solid operating excellence in both our tech and Site Services businesses as well as the incremental contribution from the Teris operations.

Gross profit for the quarter was $62.3 million, translating into a gross margin percentage of 29.1% compared with a gross margin percentage of 27.8% in Q3 '05. This sharp increase is indicative of the improved operating leverage from our higher revenues, as well as our continued progress in cost reduction.

Selling, general and administrative expenses were $26.9 million or 12.6% of revenue in Q3 2006. The benefit from the change in environmental liability estimates recorded in SG&A this quarter was $8.5 million compared to $1.4 million benefit in last year's third quarter.

Excluding these environmental credits from both quarters, SG&A would have been $35.4 million or 16.5% of revenues in Q3 2006 compared to $28.9 million or 16.2% of revenues in Q3 2005.

This increase in SG&A is primarily due to higher accrued incentive compensation costs, given the improved profitability in the quarter, costs associated with the Teris acquisition, continued expenses related to the relocation of our corporate offices to Norwell, stock-based compensation costs recorded in accordance with Financial Accounting Standard 123R and tax planning and consulting costs during the quarter.

Accretion of environmental liabilities was $2.6 million in the quarter, down slightly from Q3 2005. Depreciation and amortization expense was $11.1 million in Q3 of 2006, compared with last year's figure of $7.2 million. In Q3 of this year we incurred $2.5 million depreciation expense related to the right-down of the Company's Plaquemine, Louisiana facility, which we decided to close recently due to its lack of profitability and immaterial revenue contribution.

Q3 '06 operating income was $21.8 million, up 77% from the third quarter last year. If you take out the gains related to the environmental liabilities from both quarters, the Plaquemine expense from the current quarter and costs associated with Teris, it nets out to an operating income of approximately $17.9 million or a 64% increase in operating income, reflecting a truer comparison to last year's Q3.

EBITDA for Q3 '06 was approximately $35.4 million. This compares with $22.1 million in Q3 of 2005. The third quarter 2006 EBITDA includes the $8.5 million gain related to changes in estimated environmental liabilities that Alan mentioned, and, as Alan also highlighted, the Teris acquisition created a substantial drag on EBITDA and earnings that we are quantifying as approximately $2 million.

So, to really see how our core business performed in Q3, it is important to completely remove Teris from the equation. If you strip out the $8.2 million in Teris revenue, and the $2 million hit to EBITDA, along with the environmental benefit in the quarter, you're left with an EBITDA of $29 million on revenues of $205.5 million. This equates to an EBITDA margin of just over 14%.

Net interest expense in the quarter was $2.9 million, down from $5.9 million in the comparable quarter of '05, reflecting the favorable effect of our debt refinancing earlier this year, and, to a lesser degree, higher interest income.

Our provision for income taxes was a credit this quarter of $2.6 million. Based on the continued strong performance of the Company, we determined that it is more likely than not that we will utilize most of our NOLs, and hence, we reduced the valuation allowance on our net deferred tax asset. This resulted in a benefit of $7.4 million in our provision for income taxes and an additional credit of approximately $6 million in shareholders equity on our balance sheet.

What this means after this year is that the effective tax rate in our financials into 2007 will be in the 39% range, reflecting full taxation without the benefit of the valuation allowance. On a cash basis we expect the benefit of our NOLs in the US will last into 2007.

Net income available to common shareholders, including the after-tax impact of the various items previously mentioned, was $20.9 million or $1.02 per diluted share, based on 20.6 million average common shares outstanding during the third quarter of '06. In Q3 2005, we reported net income of $5.4 million or $0.31 per diluted share.

Turning to the balance sheet, the Company continues to generate a healthy cash flow, and our balance of cash and marketable securities was approximately $83 million at quarter's end. Total accounts receivable stood at $186.3 million on September 30th, and DSO was approximately 71 days for the quarter, excluding the effect of adding Teris. Capital expenditures approximated $9.9 million in Q3, which includes about $700,000 for Teris.

This compares with $6.3 million in capital expenditures a year ago. Including Teris, we expect our CapEx for the full year 2006 to be approximately $40 million as we continue to upgrade our facilities and accelerate our investment in several growth projects in our landfill business and transportation infrastructure.

Accounts payable balances increased from year end to $95.5 million while deferred revenue was also up at $29.4 million on September 30, 2006, primarily due to the acquisition.

Long-term debt of $120.5 million at September 30th increased by $24.7 million during the quarter, reflecting the $30 million term loan to partially fund the Teris acquisition, which was partly offset by a reduction of $6 million in our 11.25% senior notes relating to a successful excess cash flow tender offer during the quarter.

As Alan mentioned, we're steadily continuing to benefit from carefully managing our environmental liabilities and reducing our exposure in this area. At September 30th, our balance of environmental liabilities stood at $174 million. Although the Teris acquisition added $8.8 million to this total, it remains relatively flat from last year, due to the environmental credits mentioned earlier. Environmental spending during the third quarter was $1.8 million.

Moving on to our guidance, we currently expect revenue in Q4 to be in the range of $210 million to $215 million, which represents an 8.5% to 11% growth rate year over year. For a true apples-to-apples revenue comparison, I should point out that the upcoming fourth-quarter guidance assumes about $20 million in contribution from Teris, and Q4 '05 included approximately $17 million in revenue from Katrina-related work.

Turning to EBITDA, we expect EBITDA in the range of $29 million to $31 million, a 21% to 30% increase from the $23.9 million we reported in the fourth quarter of 2005.

With that, operator, would you open the call for questions, please? Operator?

(OPERATOR INSTRUCTIONS). Mark Grzymski with Needham & Company.

Congratulations on another nice quarter. Just wondering if we can go through the quarter from an incremental standpoint. It seems to me that if we also get rid of Katrina revenue that helped slightly in Q3 of last year, that you're pretty much essentially -- you are hitting at incremental EBITDA margins just still around 30%. Is that fair, Jim?

Yes. I would say if you remove the effect of the environmental and if you took the Teris out, the $2 million that we have been talking about, that's where you would be; you would be about 30% incremental EBITDA margin.

So you're essentially really utilizing your assets quite well, is a fair comment?

Absolutely. The operating leverage we're still experiencing.

Looking at Teris, what were the gross margins there in the quarter?

I don't have that exact figure in front of me, but during the quarter at an EBITDA level we were actually below breakeven there because of all these costs that we have been talking about.

So there is pretty sizable upside there, once EBITDA margins --

Absolutely.

What about cash flow for the quarter?

The free cash flow was between $11 million and $12 million during the quarter. What you'll see in -- the cash flow format that you see in the quarterly report, you'll see income from operations of roughly $15 million.

Just kind of looking at the environment right now, are you targeting any companies from an acquisition standpoint? How would you characterize the environment in general?

I won't comment. We don't have anything specific to discuss, but we continue to pursue acquisitions. We continue to experience a lot of interest with a number of companies joining with our team, and we have been looking at quite a few.

I think we did a very good job of integrating the Teris acquisition, but we still have this quarter, certainly, to get that deferred revenue down and to smooth out that operation there and to get the synergies that we anticipate to get out of that business. So that's really what we're primarily focused on right now and certainly keeping our eyes open for other opportunities that certainly are out there.

Arnie Ursaner with CJS Securities.

Again, great quarter. The first question I have is regarding the $2.5 million depreciation expense on Plaquemine, I assume that just builds right into your D&A in the quarter that you reported?

That's right.

So [when] we think about Q4 D&A, would not we in fact take that out?

That's correct.

Which kind of leads to, looking at your EBITDA guidance, again it seems to me that's a $2.5 million swing right there. When you described your SG&A --

Excuse me. Actually, we are talking about EBITDA, so before depreciation there. So that wouldn't have an impact on EBITDA change.

Right. Your SG&A -- you had several items that might be viewed as kind of one-time, things like tax planning and consulting costs and incremental accruals. Can you attempt to quantify what might be one-time items within the SG&A line?

I would say that the various consulting costs around the Teris acquisition and also with the tax work that we have done there was sizable consulting done there as well.

Also one of the big increases is with this level of revenues and profitability, our incentive compensation accruals have gone up. And obviously you raise the bar in future periods. So we are thinking, looking at it as a percentage of revenues, looking at our SG&A overall, we're kind of hoping of pushing that down into the 16% range and perhaps below that going forward.

You had a couple, as you mentioned, nonperforming landfills that impacted you or perhaps didn't contribute in Q3. Can you perhaps quantify what the hit was in Q3 and update us on what the status might be for those three for Q4?

Sure. We're behind, quite frankly, on receiving our permit for our Texas expansion. We anticipate that momentarily. We have been dealing with some final information requests on that. So, once we get that, then we certainly are going to move forward with the growth. It will not require significant capital; it's basically just a mounding permit. That will give us another million tons of capacity in the site that essentially is full.

Our Deer Trail facility -- we have, we believe, received all the necessary permits. We have completed essentially the construction on a brand-new [cell]. We have invested approximately $6 million in capital this year in Deer Trail facility and really are anticipating momentarily an approval to move forward, hopefully to begin utilizing that site for the low-level material that our permit request was made for.

I would say that the negative EBITDA, at least for the year, for those two sites is between $1.5 million and $2 million, roughly. I don't know the exact number for this quarter, but clearly those two facilities -- we had hoped in this year that we would see, particularly the latter half of this year, an improvement, and we have yet to see that in these numbers.

(OPERATOR INSTRUCTIONS). Charles Strauzer with CJS Securities.

My question has been answered.

(OPERATOR INSTRUCTIONS). Arnie Ursaner with CJS Securities.

A quick question to ask you on Teris. If I recall, your revenues at the time of acquisition I thought were running closer to $100 million. I was just trying to understand the $20 million revenue guidance for Q4 versus -- if I'm wrong on that $100 million, please just correct me. But I'm trying to understand the $20 million in relation to that.

The past 12 months was $94 million, and our thinking is $90 million because there was some intercompany revenue between the two companies prior to the acquisition. So our assumption is about $90 million. Again, there is some seasonality in the fourth quarter in our combined businesses. We think our revenue numbers are achievable, and if we can increase the level of incineration volumes, meaning throughput at Teris and some of our other sites, we certainly think we can improve on that. There is a lot of deferred revenue, as Jim mentioned, up to $29 million now. So that will have a bearing on some improvements that we could have above the guidance we gave.

So a little bit of it is sort of the integration work that is still going on, and to try to improve our overall throughput at the plant. For example, we have yet to turn on the second incinerator there because of some maintenance-related issues that we wanted to address. So if that happens and we burn down some of that deferred, than that will certainly help us as well.

Clearly, you're indicating you think Teris will be accretive by year end, since it was sort of in the $2 million negative hit in the quarter. Would it be fair to assume that it's at least a positive $2 million swing in Q4?

Yes, that's right.

I'm still trying to understand; your guidance seems quite conservative relative to some of the margin hits you incurred this quarter, some of the unusual expenses you incurred this quarter. I know you try to be conservative, but I'm just trying to understand; perhaps, is there some negative you're embedding in that that we are not thinking about, carefully enough?

No. We're giving our estimates, and we do tend to be a conservative group. But that is our guidance; that is what we see as Q4 at this point.

Robert Hoffman with Candlewood Capital.

Good morning, also congratulations. Can you give us some flavor of incinerator pricing?

We have been successful with our efforts in improving on pricing on the incineration front. That is an effort that is continuing, so I would characterize it as improving. I can't tell you quantifiably on a percentage basis what that is at this point. There's been certainly a lot of work going on with the acquisition and merging of contracts and pricing. But certainly, we feel that the market is strong. We're oversold, if you would, in our plants, and we believe that we could continue to increase pricing where appropriate, particularly for those harder-to-treat materials, at our incineration facilities.

What would cause you to not be able to increase prices? With capacity utilization getting very tight, where would the competitive pressures come from in order to not allow you to pass those price increases through?

Well, we certainly have to look at streams and alternatives, some of the waste streams and some alternatives for some type of waste streams. But we, I think, have been successful in going back to our customers and discussing with them the capital investments that we have made over the last several years to meet [NAC] and to meet the new levels of standards for operating these plants. With all the other additional costs we're incurring with homeland security and other security-related costs and insurance.

So I think (technical difficulty) you know, we're moving more towards a margin incentive program for our sales and service organization, and I think tying compensation to improvements in profitability will be key to raising prices next year.

Can you give us any flavor of what's going on with the captives? Are they more or less, or the same interested in transferring those assets or the flows to you?

Not so much in transferring assets, but clearly we're seeing opportunities in the marketplace where we're bidding on business from clients who are currently operating their own captives and looking at alternatives in the marketplace. We continue to believe that that's an opportunity for further volume increases into the industry, which I think will be positive for this industry. So nothing to report that was shut down in the third quarter, but we certainly continue to see captives contemplating closing, and we're betting on some of that work as we speak.

If a captive closes their incinerator and gives you the volume, do they give up their permit, or what is the status of their permit three years from now, if they decided to take it all back, the volumes back?

In many cases they can keep their permit; but their permits, 99% of the time, are only for their own material at that site or within their own company.

I understand that. I was just confirming that they -- in terms of risk-reward for them, if they decide to enter into a contract with you and then you were to raise prices 300% in three years, could they then go back and reopen their own incinerator?

Yes, if they kept their permit active and kept their incinerator operating or at least ready to operate, they certainly could do that.

Robert [Schwath] with J.L. Kaplan Associates.

Excluding the one-time items, it looks like the operating margin was about 8.5%. Is that correct, first off? Then, with the opportunity to improve margins, especially bringing Teris into the fold, what is the target for the operating margin, and how long do you think it might take to get there?

We tend to look at EBITDA on that basis, and I think you are roughly talking about a right margin, if you exclude the one-time items. If we were to go down to income from operations, I suspect what our target would be, would be to bring that into the double-digit percent range. Right now our target for next year in terms of EBITDA is the 15%, and beyond that, of course, we always try to raise the bar for ourselves. But right now we're focused on making next year a 15% margin year.

Al Kaschalk with Wedbush Morgan Securities.

Good morning. This is Pajef Yuvonich] for Al. We would just like to ask you a quick question, if you can elaborate on any significant contracts that we should account for in the model?

No; there are no significant events or contracts in the fourth quarter that we have today.

Mark Grzymski, Needham & Company.

I'm wondering if you can comment with the political climate sort of changing and having it be somewhat stagnant over the last six years, with this change, does that affect you in any way? Have you really put any thought into that?

We have not at this point. I don't think I would comment. Sometimes the legislation takes awhile to get through Congress and be promulgated. So I guess in the short term we certainly don't see any change. I would say that, from a regulatory enforcement standpoint, that the EPA and states have been very active, visiting both ourselves and our customers, and they have been quite rigorous, particularly focused on homeland security-related issues. I would say that, at least in the short term, we wouldn't contemplate anything significant change.

But is it fair that if certain resources are somewhat allocated back to the United States as opposed to internationally, would that benefit at all?

Absolutely. I think we're more and more focused on expanding our presence in the government sector. We have been a very small player in the DoE and the DoD market. So somewhat that has been impacted by government spending because of all the money going overseas to the war. So if there is a change in course and more money is spent here, maybe it will trickle down to the environmental spending on some of those government sites. We're focusing on growth in those areas.

From what I have heard through others, that over the last however many years, the government spending related to environmental cleanup sites, that the DoE looks at, it hasn't been that great. So I guess I would somewhat agree with that comment.

Yes.

Just getting back to that $8.4 million benefit, what portion of that was related to the settlement, and what wasn't?

The portion that relates to the settlement is in excess of the $8.5 million, approximately $10 million, and it was offset by estimates, the net effect of other estimates that we put on other environmental liabilities.

Okay. So there's actually a gain -- okay. All right. I got you. Great, thanks.

[Michael McCormick] with Gilder Gagnon.

Terrific numbers, guys. I just was wondering if you could clarify two points for me. I think you said that your tax rate '07 and beyond would be 39% on a fully loaded basis. Is that what we should be kind of forwarding out now? It may not be fully realized in '07, but is that what you consider to be your reportable tax rate and payable rate as you clean up your NOL's?

Yes, and we're actually taking the NOL's off this quarter. Next quarter, the fourth quarter of this year, you'll still see a lower rate coming through, in the vicinity of 25%, 20% to 25%. But then, beginning in 2007, then there will be no benefit in the P&L, the financial P&L for the NOL's. So hence, our fully loaded rate would be 39% going forward. By the way, I would say that the statutory rate is higher than that, if you added up our Canadian, federal and state taxes you would be 42% plus. But with some tax planning we have got that down to 39% at this point, and that is our projection.

The other question I had for you is with regard to the higher cost debt structures that you still have on your balance sheet. It looks like you did about $6 million of redemption this quarter. If you could give us an update on your status on redeeming the remainder of that?

Yes. The $90 million that's left of the 11.25% senior notes becomes callable in mid 2008, at which time we're building enough liquidity that we will call them all. The rate that it would be called at would be at 105 plus, slightly more than 105.

But we're looking for opportunities just as this one in this past quarter represented an opportunity for us. But we will be looking for opportunities to buy those back in the open market, and we can do that up to $50 million in our credit facilities.

At this time we have reached the end of our Q&A session. I will now turn the conference back over to Mr. Alan McKim for any closing or additional remarks.

Excuse me, operator. This is Bill Geary. I would like to make one clarification to Alan's earlier comments regarding Deer Trail.

The necessary permits for Deer Trail have been issued by the state of Colorado. However, Adams County, where Deer Trail is located, has challenged those. The Company has also filed a motion in Adams County Court which we believe will ultimately be determinative of the Company's position, which coincides with the state of Colorado's position, that the facility is fully permitted and able to accept waste. So the matter that Alan referred to is a court matter, which is presently pending. We have not yet received a ruling by the judge who is presiding on that facility.

With that I will turn it over to Alan for conclusionary comments.

Thanks, Bill. Again, thank you all for participating in our call this morning. We look forward to speaking with you again on our fourth-quarter conference call. Have a good day.

Thank you, everyone. That does concludes today's conference. You may now disconnect.