View:
Download DOC
Download PDF
Download XLS
Download XBRL
Document
Table of Contents

UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM         TO       

Commission File Number 001-34223
_______________________
CLEAN HARBORS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts
 
04-2997780
(State or Other Jurisdiction of Incorporation or Organization)
 
(IRS Employer Identification No.)
42 Longwater Drive, Norwell, MA
 
02061-9149
(Address of Principal Executive Offices)
 
(Zip Code)
(781) 792-5000
(Registrant’s Telephone Number, Including area code)
_______________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value
 
56,189,898
(Class)
 
(Outstanding as of April 27, 2018)


CLEAN HARBORS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents



CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

 
March 31, 2018
 
December 31, 2017
ASSETS
(unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
186,352

 
$
319,399

Short-term marketable securities
37,792

 
38,179

Accounts receivable, net of allowances aggregating $29,145 and $27,799, respectively
551,841

 
528,924

Unbilled accounts receivable
63,375

 
35,922

Deferred costs
20,847

 
20,445

Inventories and supplies
181,438

 
176,012

Prepaid expenses and other current assets
38,177

 
35,175

Total current assets
1,079,822

 
1,154,056

Property, plant and equipment, net
1,631,648

 
1,587,365

Other assets:
 
 
 
Goodwill
492,705

 
478,523

Permits and other intangibles, net
464,635

 
469,128

Other
16,006

 
17,498

Total other assets
973,346

 
965,149

Total assets
$
3,684,816

 
$
3,706,570

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term obligations
$
4,000

 
$
4,000

Accounts payable
237,953

 
224,231

Deferred revenue
68,748

 
67,822

Accrued expenses
194,160

 
187,982

Current portion of closure, post-closure and remedial liabilities
19,823

 
19,782

Total current liabilities
524,684

 
503,817

Other liabilities:
 
 
 
Closure and post-closure liabilities, less current portion of $5,519 and $6,444, respectively
58,561

 
54,593

Remedial liabilities, less current portion of $14,304 and $13,338, respectively
108,143

 
111,130

Long-term obligations, less current portion
1,625,259

 
1,625,537

Deferred taxes, unrecognized tax benefits and other long-term liabilities
222,643

 
223,291

Total other liabilities
2,014,606

 
2,014,551

Commitments and contingent liabilities (See Note 16)


 


Stockholders’ equity:
 
 
 
Common stock, $.01 par value:
 
 
 
Authorized 80,000,000; shares issued and outstanding 56,244,601 and 56,501,190 shares, respectively
562

 
565

Additional paid-in capital
675,230

 
686,962

Accumulated other comprehensive loss
(189,153
)
 
(172,407
)
Accumulated earnings
658,887

 
673,082

Total stockholders’ equity
1,145,526

 
1,188,202

Total liabilities and stockholders’ equity
$
3,684,816

 
$
3,706,570

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

1
Table of Contents


CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

 
Three Months Ended
 
March 31,
 
2018
 
2017
Revenues:
 
 
 
Service revenues
$
619,719

 
$
560,214

Product revenues
130,059

 
128,727

Total revenues
749,778

 
688,941

Cost of revenues: (exclusive of items shown separately below)
 
 
 
Service revenues
447,649

 
391,087

Product revenues
98,776

 
105,498

Total cost of revenues
546,425

 
496,585

Selling, general and administrative expenses
115,088

 
112,221

Accretion of environmental liabilities
2,430

 
2,290

Depreciation and amortization
74,844

 
72,412

Income from operations
10,991

 
5,433

Other expense, net
(299
)
 
(1,549
)
Interest expense, net of interest income of $764 and $215, respectively
(20,270
)
 
(22,576
)
Loss before provision for income taxes
(9,578
)
 
(18,692
)
Provision for income taxes
3,053

 
2,701

Net loss
$
(12,631
)
 
$
(21,393
)
Loss per share:
 
 
 
Basic
$
(0.22
)
 
$
(0.37
)
Diluted
$
(0.22
)
 
$
(0.37
)
Shares used to compute loss per share - Basic
56,457

 
57,262

Shares used to compute loss per share - Diluted
56,457

 
57,262


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

2
Table of Contents

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)
 
Three Months Ended
 
March 31,
 
2018
 
2017
Net loss
$
(12,631
)
 
$
(21,393
)
Other comprehensive (loss) income:
 
 
 
Unrealized (losses) gains on available-for-sale securities (net of tax of $80 and $152, respectively)
(195
)
 
82

Reclassification adjustment for losses on available-for-sale securities included in net income (net of taxes of $0 and $0, respectively)
—

 
146

Foreign currency translation adjustments
(16,551
)
 
5,823

Other comprehensive (loss) income
(16,746
)
 
6,051

Comprehensive loss
$
(29,377
)
 
$
(15,342
)

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


3
Table of Contents

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months Ended
 
March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(12,631
)
 
$
(21,393
)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
 
Depreciation and amortization
74,844

 
72,412

Allowance for doubtful accounts
2,303

 
1,935

Amortization of deferred financing costs and debt discount
916

 
829

Accretion of environmental liabilities
2,430

 
2,290

Changes in environmental liability estimates
(562
)
 
102

Deferred income taxes
(5
)
 
196

Stock-based compensation
3,077

 
2,271

Other expense, net
299

 
1,549

Environmental expenditures
(2,425
)
 
(2,938
)
Changes in assets and liabilities, net of acquisitions
 
 
 
Accounts receivable and unbilled accounts receivable
(14,769
)
 
24,301

Inventories and supplies
(5,625
)
 
(2,676
)
Other current assets
(2,923
)
 
(1,277
)
Accounts payable
9,714

 
(13,609
)
Other current and long-term liabilities
(2,740
)
 
(6,873
)
 Net cash from operating activities
51,903

 
57,119

Cash flows used in investing activities:
 
 
 
Additions to property, plant and equipment
(44,242
)
 
(42,462
)
Proceeds from sale and disposal of fixed assets
798

 
1,030

Acquisitions, net of cash acquired
(120,000
)
 
(11,946
)
Proceeds from sale of business
—

 
2,018

Additions to intangible assets, including costs to obtain or renew permits
(1,245
)
 
(751
)
  Proceeds from sale of available-for-sale securities
3,264

 
243

Purchases of available-for-sale securities
(3,003
)
 
—

Net cash used in investing activities
(164,428
)
 
(51,868
)
Cash flows used in financing activities:
 
 
 
Change in uncashed checks
(3,843
)
 
(7,557
)
Proceeds from exercise of stock options
—

 
46

Tax payments related to withholdings on vested restricted stock

(548
)
 
(1,021
)
Repurchases of common stock
(14,264
)
 
(6,796
)
Deferred financing costs paid
—

 
(108
)
Principal payment on debt
(1,000
)
 
—

Net cash used in financing activities
(19,655
)
 
(15,436
)
Effect of exchange rate change on cash
(867
)
 
554

Decrease in cash and cash equivalents
(133,047
)
 
(9,631
)
Cash and cash equivalents, beginning of period
319,399

 
306,997

Cash and cash equivalents, end of period
$
186,352

 
$
297,366

Supplemental information:
 
 
 
Cash payments for interest and income taxes:
 
 
 
Interest paid
$
14,676

 
$
21,717

Income taxes paid
1,999

 
5,519

Non-cash investing activities:
 
 
 
Property, plant and equipment accrued
17,911

 
19,270

Receivable for estimated purchase price adjustment
—

 
1,972

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

4

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 
Common Stock
 
 
 
Accumulated
Other
Comprehensive Loss
 
 
 
 
 
Number
of
Shares
 
$ 0.01
Par
Value
 
Additional
Paid-in
Capital
 
 
Accumulated
Earnings
 
Total
Stockholders’
Equity
Balance at January 1, 2018
56,501

 
$
565

 
$
686,962

 
$
(172,407
)
 
$
673,082

 
$
1,188,202

Cumulative effect of change in accounting principle
—

 
—

 
—

 
—

 
(1,564
)
 
(1,564
)
Net loss
—

 
—

 
—

 
—

 
(12,631
)
 
(12,631
)
Other comprehensive loss
—

 
—

 
—

 
(16,746
)
 
—

 
(16,746
)
Stock-based compensation
—

 
—

 
3,077

 
—

 
—

 
3,077

Issuance of restricted shares, net of shares remitted and tax withholdings
24

 
—

 
(548
)
 
—

 
—

 
(548
)
Repurchases of common stock
(280
)
 
(3
)
 
(14,261
)
 
—

 
—

 
(14,264
)
Balance at March 31, 2018
56,245

 
$
562

 
$
675,230

 
$
(189,153
)
 
$
658,887

 
$
1,145,526



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


5
Table of Contents

CLEAN HARBORS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

The accompanying consolidated interim financial statements are unaudited and include the accounts of Clean Harbors, Inc. and its subsidiaries (collectively, “Clean Harbors,” the “Company” or "we") and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in the opinion of management, include all adjustments which are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Management has made estimates and assumptions affecting the amounts reported in the Company's consolidated interim financial statements and accompanying footnotes, actual results could differ from those estimates and judgments. The results for interim periods are not necessarily indicative of results for the entire year or any other interim periods. The financial statements presented herein should be read in connection with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which includes the audited consolidated balance sheet as of December 31, 2017 from which the one presented herein was derived.
(2) SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are described in Note 2, "Significant Accounting Policies," in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes in these policies or their application except for the changes described below.
Reclassifications
During the first quarter of fiscal year 2018, certain of the Company's businesses undertook a reorganization which included changes to the underlying business and management structures. The reorganization resulted in combining the Environmental Services businesses from an operational and management perspective and is expected to deepen customer relationships and allow for efficiencies across the Company's operations through the sharing of resources, namely labor and equipment which will reduce third party spend and promote the cross selling of such business offerings. In connection with this reorganization, the Company’s chief operating decision maker also requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. These changes required a reconsideration of the Company’s operating segments in the first quarter of 2018 and resulted in a change in the Company’s assessment of its operating segments. Upon reconsideration of the identification of the Company’s operating segments, the Company concluded that there are now two operating segments for disclosure in accordance with ASC 280 Segment reporting; (i) the Environmental Services segment which consists of the Company’s historical Technical Services, Industrial Services, Field Services and Oil, Gas and Lodging businesses and (ii) the Safety-Kleen segment. See Note 18, "Segment Reporting," for more information. The amounts presented for the three months ended March 31, 2017 have been recast to reflect the impact of such changes. These reclassifications and adjustments had no effect on consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of cash flows or consolidated statements of stockholders' equity for any of the periods presented.
Recent Accounting Pronouncements
Standards implemented
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method for all contracts. Results for reporting periods beginning on the date of adoption are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company's historical accounting methodology pursuant to ASC 605, Revenue Recognition (“ASC 605”). Upon adoption, a cumulative effect adjustment was not required as the majority of the Company’s contracts are recognized based on time and materials incurred and were not impacted by the new guidance. The Company has concluded that the most significant impact of the standard relates to the incremental disclosures required.
In October 2016, the FASB issued ASU 2016-16, Income Tax - Intra-Entity Transfers of Assets Other than Inventory. The amendment improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The

6
Table of Contents

Company adopted the amendment on a modified retrospective basis effective January 1, 2018. As a result of adoption, the Company recorded a cumulative effect adjustment that reduced retained earnings by $1.6 million.
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendment requires an employer to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. In addition, the amendment allows only the service cost component to be eligible for capitalization when applicable. The Company adopted the amendment in the first quarter of 2018. Adoption did not have a material impact on the Company's consolidated financial statements.
Standards to be implemented
The Company is evaluating the impact that the below standards to be implemented will have on the Company's consolidated financial statements.
In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). The amendment increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In February 2018, FASB issued ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842. The amendment clarifies that land easements are within the scope of the new leases standard (ASC 842) and introduces a new transition practical expedient allowing a company to not assess whether existing and expired land easements that were not previously accounted for as leases under current US GAAP (ASC 840) are or contain leases under ASC 842. The Company will adopt the new standard beginning on January 1, 2019. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While the Company is still continuing to assess the effect of adoption, it expects that the new standard will have a material effect on its consolidated balance sheet related to the recognition of new assets and lease liabilities. In preparation for the adoption of the guidance, the Company is in the process of implementing new software to enable the preparation of financial information.
(3) REVENUES
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Nature of Goods and Services
The Company generates services and product revenues through its Environmental Services and Safety-Kleen operating segments. The majority of the Company’s contracts are for services, which are recognized based on time and materials incurred at contractually agreed-upon rates. Product revenues are recognized when the products are delivered and control transfers to the customer. The Company’s payment terms vary by the type and location of its customers and the products or services offered. The term between invoicing and when payment is due is not significant. The Company excludes sales taxes that it collects from customers from its revenues.


7
Table of Contents

Disaggregation of Revenue

The following table presents our revenues disaggregated by revenue source (in thousands):
 
 
Three Months Ended March 31, 2018
 
 
Environmental Services
 
Safety-Kleen
 
Corporate
 
Total
Primary Geographical Markets
 
 
 
 
 
 
 
 
United States
 
$
343,972

 
$
287,642

 
$
145

 
$
631,759

Canada
 
95,716

 
22,276

 
27

 
118,019

 
 
439,688

 
309,918

 
172

 
749,778

Sources of Revenue (1)
 
 
 
 
 
 
 
 
Technical Services
 
236,306

 
—

 
—

 
236,306

Field and Emergency Response Services
 
69,935

 
—

 
—

 
69,935

Industrial Services
 
103,763

 
—

 
—

 
103,763

Oil, Gas and Lodging Services and Other
 
29,684

 
—

 
172

 
29,856

Safety-Kleen Environmental Services
 
—

 
194,161

 
—

 
194,161

Kleen Performance Products
 
—

 
115,757

 
—

 
115,757

Total third party revenues
 
$
439,688

 
$
309,918

 
$
172

 
$
749,778


 
 
Three Months Ended March 31, 2017
 
 
Environmental Services
 
Safety-Kleen
 
Corporate
 
Total
Primary Geographical Markets
 
 
 
 
 
 
 
 
United States
 
$
313,783

 
$
272,071

 
$
133

 
$
585,987

Canada
 
82,124

 
20,830

 
—

 
102,954

 
 
395,907

 
292,901

 
133

 
688,941

Sources of Revenue (1)
 
 
 
 
 
 
 
 
Technical Services
 
230,218

 
—

 
—

 
230,218

Field and Emergency Response Services
 
61,019

 
—

 
—

 
61,019

Industrial Services
 
75,068

 
—

 
—

 
75,068

Oil, Gas and Lodging Services and Other
 
29,602

 
—

 
133

 
29,735

Safety-Kleen Environmental Services
 
—

 
191,727

 
—

 
191,727

Kleen Performance Products
 
—

 
101,174

 
—

 
101,174

Total third party revenues
 
$
395,907

 
$
292,901

 
$
133

 
$
688,941

______________________
1.
All revenue except Kleen Performance Products and product sales within Safety-Kleen Environmental Services, including allied products and direct blended oil sales, are recognized over time. Kleen Performance Products and Safety-Kleen Environmental Services product revenues are recognized at a point in time.

Technical Services. Technical Services revenues are generated from fees charged for waste material management and disposal services including onsite environmental management services, collection and transportation, packaging, recycling, treatment and disposal of waste. Revenue is primarily generated by short-term projects, most of which are governed by master service agreements that are long-term in nature. These master service agreements are typically entered into with the Company's larger customers and outline the pricing and legal frameworks for such arrangements. Services are provided based on purchase orders or agreements with the customer and include prices based upon units of volume of waste, and transportation and other fees. Collection and transportation revenues are recognized over time, as the customer receives and consumes the benefits of the service as they are being performed and the Company has a right to payment for performance completed to date. The Company uses the input method to recognize revenue over time, based on time and materials incurred. Revenues for treatment and disposal of waste are recognized upon completion of treatment, final disposition in a landfill or incineration, or when the waste is shipped to a third party for processing and disposal. The Company periodically enters into bundled arrangements for the collection and transportation and disposal of waste. For such arrangements, transportation and disposal are considered distinct performance obligations and the Company allocates revenue to each based on their relative standalone selling price (i.e. the estimated price that a customer would pay

8
Table of Contents

for the services on a standalone basis). Revenues from waste that is not yet completely processed and disposed and the related costs are deferred. The revenue is recognized and the deferred costs are expensed when the related services are completed. The period between collection and transportation and the final processing and disposal ranges depending on location of the customer, but generally is measured in days.

Field and Emergency Response Services. Field Services revenues are generated from cleanup services at customer sites, including municipalities and utilities, or other locations on a scheduled or emergency response basis. Services include confined space entry for tank cleaning, site decontamination, large remediation projects, demolition, spill cleanup on land and water, railcar cleaning, product recovery and transfer and vacuum services. Additional services include filtration and water treatment services. Response services for environmental emergencies include any scale from man-made disasters such as oil spills, to natural disasters such as hurricanes. These services are provided based on purchase orders or agreements with customers and include prices generally based upon daily, hourly or job rates for equipment, materials and personnel. The Company recognizes revenue for these services over time, as the customer receives and consumes the benefits of the service as they are being performed and the Company has a right to payment for performance completed to date. The Company uses the input method to recognize revenue over time, based on time and materials incurred. The duration of such services can be over a number of hours, several days or even months for larger scale projects.

Industrial Services. Industrial Services revenues are generated from industrial and specialty services provided to refineries, mines, upgraders, chemical plants, pulp and paper mills, manufacturing facilities, power generation facilities and other industrial customers throughout North America. Services include in-plant cleaning and maintenance services, plant outage and turnaround services, decoking and pigging, chemical cleaning, high and ultra-high pressure water cleaning, pipeline inspection and coating services, large tank and surface impoundment cleaning, oilfield transport, daylighting, production services and directional boring services (previously included in Oil, Gas and Lodging service offerings) supporting drilling, completions and production programs. These services are provided based on purchase orders or agreements with the customer and include prices based upon daily, hourly or job rates for equipment, materials and personnel. The Company recognizes revenue for these services over time, as the customer receives and consumes the benefits of the service as they are being performed and the Company has a right to payment for performance completed to date. The Company uses the input method to recognize revenue over time, based on time and materials incurred.

Safety-Kleen Environmental Services. Safety-Kleen Environmental Services revenues are generated from providing parts washer services, containerized waste handling and disposal services, oil collection services, direct sales of blended oil products, and other complementary services and product sales. Containerized waste services consist of profiling, collecting, transporting and recycling or disposing of a wide variety of waste. Other complementary products and services include vacuum services, sale of allied supply products and other environmental services. Revenues from parts washer services include fees charged to customers for their use of parts washer equipment, to clean and maintain parts washer equipment and to remove and replace used cleaning fluids. Parts washer services are considered a single performance obligation due to the highly integrated and interdependent nature of the arrangement. Revenue from parts washer services is recognized over the service interval as the customer receives the benefit of the service. Collection and transportation revenues are recognized over time, as the customer receives and consumes the benefits of the service as they are being performed and the Company has a right to payment for performance completed to date. The Company uses the input method to recognize revenue over time, based on time and materials incurred. Product revenue is recognized upon the transfer of control. Control transfers when the products are delivered to the customer.

Kleen Performance Products. Kleen Performance Products revenues are generated from sales of high quality base and blended lubricating oils to third-party distributors, government agencies, fleets, railroads and industrial customers. The business also sells recycled fuel oil to asphalt plants, industrial plants, blenders, pulp and paper companies, vacuum gas oil producers and marine diesel oil producers. Revenue for oil products is recognized at a point in time, upon the transfer of control. Control transfers when the products are delivered to the customer.

Oil, Gas and Lodging Services and Other. Oil, Gas and Lodging Services and Other is primarily comprised of revenues generated from providing Oil and Gas Field Services that support upstream activities such as exploration and drilling for oil and gas companies and Lodging Services to customers in Western Canada. The Company recognizes Oil and Gas Field Services revenue over time, as the customer receives and consumes the benefits of the service as they are being performed and the Company has a right to payment for performance completed to date. The Company uses the input method to recognize revenue over time, based on time and materials incurred. Revenue for lodging accommodation services is recognized over time based on passage of time. Revenue for manufacturing services is recognized over time using a cost-to-cost measure of progress or completed units to depict the transfer of assets to the customer.


9
Table of Contents

Contract Balances
 
 
March 31, 2018
 
December 31, 2017
 
March 31, 2017
 
December 31, 2016
Receivables
 
$
551,841

 
$
528,924

 
$
480,044

 
$
496,226

Contract Assets
 
63,375

 
35,922

 
28,106

 
36,190

Contract Liabilities
 
68,748

 
67,822

 
64,379

 
64,397


The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits or deferred revenue (contract liabilities) on the Consolidated Balance Sheet. Generally, billing occurs subsequent to revenue recognition, as a right to payment is not just subject to passage of time, resulting in contract assets. Contract assets are generally classified as current. The Company sometimes receive advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period. As part of the acquisition of the Veolia Business on February 23, 2018, the Company acquired receivables and contract assets of $22.1 million and $18.7 million, respectively. Changes in the contract asset and liability balances during the three-month period ended March 31, 2018 and March 31, 2017 were not materially impacted by any other factors. The contract liability balances at the beginning of each period presented were fully recognized in the subsequent three-month period.

Remaining Performance Obligations
Remaining performance obligations represent the transaction price of orders for which work has not been performed. As of March 31, 2018, all remaining performance obligations were for contracts with an original expected length of one year or less.

Variable Consideration
The nature of the Company's contracts gives rise to certain types of variable consideration, including in limited cases volume and payment discounts. The Company estimates the amount of variable consideration to include in the estimated transaction price based on historical experience, anticipated performance and its best judgment at the time and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Variable consideration was not material in any of the periods presented.
Contract Costs
Contract costs include direct and incremental costs to obtain or fulfill a contract. The Company’s contract costs that are subject to capitalization are comprised of costs associated with parts washer services and costs associated with the treatment and disposal of waste. Parts washer costs include costs of solvent, commissions paid relating to revenue generated from parts washer services, and transportation costs associated with transferring the product picked up from the services as it is returned to the Company’s facilities or a third party site. Costs related to the treatment of waste include costs for waste receiving, drum movement and storage, waste consolidation and transportation between facilities. Deferred costs associated with parts washer services are amortized ratably over the average service interval, which ranges between seven and 14 weeks. Deferred costs related to treatment and disposal of waste are recognized when the corresponding waste is disposed of and are included in Deferred Costs within total current assets in the Company’s consolidated balance sheets. The deferred contract cost balances at the beginning of each period presented were fully recognized in cost of revenue in the subsequent three-month period.
 
(4) BUSINESS COMBINATIONS
2018 Acquisition
    
On February 23, 2018, the Company completed the acquisition of the U.S. Industrial Cleaning Business of Veolia Environmental Services North America LLC (the "Veolia Business"). The acquisition will provide significant scale and industrial services capabilities while increasing the size of the Company's existing U.S. Industrial Services business. The Company acquired the Veolia Business for a purchase price of $120.0 million subject to certain post-closing adjustments. The acquisition was financed with cash on hand. The amount of revenue from the Veolia Business included in the Company's results of operations for the period ended March 31, 2018 was $17.6 million. The amount of pre-tax income for the period ended March 31, 2018 was immaterial. During the three months ended March 31, 2018, the Company incurred acquisition-related costs of approximately $0.5 million in connection with the transaction which are included in selling, general and administrative expenses in the consolidated statements of operations.

10
Table of Contents


The allocation of the purchase price was based on preliminary estimates of the fair value of assets acquired and liabilities assumed as of February 23, 2018, as the Company is continuing to obtain information to complete its valuation of these accounts and the associated tax accounting. The components and preliminary allocation of the purchase price consist of the following amounts (in thousands):
 
At Acquisition Date
Accounts receivable, including unbilled receivables
$
40,773

Inventories and supplies
1,442

Prepaid expenses and other current assets
1,005

Property, plant and equipment
72,244

Permits and other intangibles
5,140

Current liabilities
(15,908
)
Closure and post-closure liabilities
(604
)
Total identifiable net assets
104,092

Goodwill
15,908

Total purchase price, net of cash acquired
$
120,000


The weighted average amortization period for the intangibles acquired is 8.2 years. The excess of the total purchase price, which includes the aggregate cash consideration paid in excess of the fair value of the tangible net assets and intangible assets acquired, was recorded as goodwill. The goodwill recognized is attributable to the expected operating synergies and growth potential that the Company expects to realize from this acquisition. Goodwill generated from the acquisition is deductible for tax purposes.

Pro forma revenue and earnings amounts on a combined basis as if this acquisition had been completed on January 1, 2017 are immaterial to the consolidated financial statements of the Company since that date.

2017 Acquisitions
    
On October 16, 2017, the Company acquired a division of a privately held company for $4.8 million. This acquisition provides the Company with additional fabrication and refurbishment capabilities for its fleet of trucks. The acquired division is included in the Environmental Services segment. In connection with this acquisition, there was minimal goodwill recognized.
    
On September 22, 2017, the Company acquired a privately held company which manufactures and sells parts washer machines and related equipment for $2.1 million. The acquired company is included in the Safety-Kleen operating segment. In connection with this acquisition, goodwill totaling $0.7 million was recognized.
    
On July 14, 2017, the Company acquired Lonestar West Inc. ("Lonestar"), a public company headquartered in Alberta, Canada, for approximately CAD $41.8 million, ($33.1 million USD), net of cash acquired, which included an equity payout of CAD $0.72 per share to Lonestar shareholders and the assumption of approximately CAD $21.3 million ($16.8 million USD) in outstanding debt, which Clean Harbors subsequently repaid. The acquisition is expected to support the Company's growth in the daylighting and hydro excavation services markets. In addition to increasing the size of the Company's hydro vac fleet, Lonestar's network of locations will provide the Company with direct access to key geographic markets in both the United States and Canada. The acquired company is included in the Environmental Services segment. The primary areas of the preliminary purchase price allocation that are subject to change relate to certain legal matters, income and income based taxes and residual goodwill. Measurement period adjustments are recorded in the reporting period in which the estimates are finalized and adjustment amounts are determined. In connection with this acquisition, a preliminary goodwill amount of $2.9 million was recognized.

On January 31, 2017, the Company acquired a privately held company for a purchase price of approximately $11.9 million in cash, net of cash acquired. The acquired business produces and distributes oil products and therefore complements the Company's closed loop model as it relates to the sale of its oil products. The acquired company is included in the Safety-Kleen segment. In connection with this acquisition, a goodwill amount of $5.0 million was recognized.

Pro forma financial information on a comparative basis, as if these acquisitions had been completed on January 1, 2017, is not presented as the pro forma results would not be materially different from reported trends and operations.


11
Table of Contents

(5) DISPOSITION OF BUSINESS
On June 30, 2017, the Company completed the sale of its Transformer Services business, as part of its continuous focus on improving or divesting certain non-core operations. The sale price was $45.5 million. The Transformer Services business was a non-core business previously included within the legacy Technical Services operating segment.

The following table presents income attributable to the Transformer Services business included in the Company's consolidated results of operations for the three months ended March 31, 2017 (in thousands):
 
 
Three Months Ended
 
 
March 31, 2017
Income before provision for income taxes
 
$
898


(6) INVENTORIES AND SUPPLIES
Inventories and supplies consisted of the following (in thousands):
 
March 31, 2018
 
December 31, 2017
Oil and oil products
$
59,243

 
$
58,142

Supplies and drums
97,246

 
94,242

Solvent and solutions
9,188

 
9,167

Modular camp accommodations
2,247

 
1,826

Other
13,514

 
12,635

Total inventories and supplies
$
181,438

 
$
176,012

As of March 31, 2018 and December 31, 2017, other inventories consisted primarily of parts washer components, cleaning fluids, absorbents and automotive fluids, such as windshield washer fluid and antifreeze. Supplies and drums consist primarily of drums and containers as well as critical spare parts to support the Company's incinerator and re-refinery operations.

(7) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
 
March 31, 2018
 
December 31, 2017
Land
$
124,331

 
$
121,658

Asset retirement costs (non-landfill)
14,794

 
14,593

Landfill assets
145,177

 
144,539

Buildings and improvements
421,749

 
414,384

Camp equipment
165,104

 
170,012

Vehicles
676,749

 
617,959

Equipment
1,659,335

 
1,644,102

Furniture and fixtures
5,656

 
5,708

Construction in progress
47,034

 
57,618

 
3,259,929

 
3,190,573

Less - accumulated depreciation and amortization
1,628,281

 
1,603,208

Total property, plant and equipment, net
$
1,631,648

 
$
1,587,365

Interest in the amount of $0.3 million and $0.1 million was capitalized to property, plant and equipment during the three months ended March 31, 2018 and March 31, 2017 respectively. Depreciation expense, inclusive of landfill amortization, was $65.6 million and $63.3 million for the three months ended March 31, 2018 and March 31, 2017, respectively.


12
Table of Contents

(8) GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in goodwill by segment for the three months ended March 31, 2018 were as follows (in thousands):
 
Environmental Services
 
Safety-Kleen
 
Totals
Balance at January 1, 2018
$
172,386

 
$
306,137

 
$
478,523

Increase from current period acquisition
15,908

 
—

 
15,908

Measurement period adjustments from prior period acquisitions
(9
)
 
—

 
(9
)
Foreign currency translation
(795
)
 
(922
)
 
(1,717
)
Balance at March 31, 2018
$
187,490

 
$
305,215

 
$
492,705

The Company assesses goodwill for impairment on an annual basis as of December 31, or at an interim date when events or changes in the business environment would more likely than not reduce the fair value of a reporting unit below its carrying value.

As discussed in Note 18, “Segment Reporting,” during the first quarter of fiscal year 2018 and as a result of operational and managerial changes in several of the Company’s businesses, the identification of operating segments in accordance with ASC 280, Segment Information, was changed. As a result of the Company's conclusions around the identification of operating segments, the Company also concluded that, for purposes of reviewing for potential goodwill impairment, it now has four reporting units, consisting of Environmental Sales and Service, Environmental Facilities, Kleen Performance Products and Safety-Kleen Environmental Services. The Company allocated goodwill to the newly identified reporting units using a relative fair value approach. In addition, the Company completed an assessment of any potential goodwill impairment for all reporting units immediately prior and subsequent to the reallocation and determined that no impairment existed.
As of March 31, 2018 and December 31, 2017, the Company's total finite-lived and indefinite-lived intangible assets consisted of the following (in thousands):
 
March 31, 2018
 
December 31, 2017
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Permits
$
174,867

 
$
75,493

 
$
99,374

 
$
174,721

 
$
74,347

 
$
100,374

Customer and supplier relationships
400,385

 
165,056

 
235,329

 
399,224

 
158,972

 
240,252

Other intangible assets
38,071

 
31,170

 
6,901

 
36,766

 
31,592

 
5,174

Total amortizable permits and other intangible assets
613,323

 
271,719

 
341,604

 
610,711

 
264,911

 
345,800

Indefinite lived trademarks and trade names
123,031

 
—

 
123,031

 
123,328

 
—

 
123,328

Total permits and other intangible assets
$
736,354

 
$
271,719

 
$
464,635

 
$
734,039

 
$
264,911

 
$
469,128

Amortization expense of permits and other intangible assets was $9.2 million and $9.1 million in the three months ended March 31, 2018 and March 31, 2017, respectively.
The expected amortization of the net carrying amount of finite-lived intangible assets at March 31, 2018 was as follows (in thousands):
Years Ending December 31,
Expected Amortization
2018 (nine months)
$
26,018

2019
32,247

2020
29,486

2021
27,492

2022
27,342

Thereafter
199,019

 
$
341,604



13
Table of Contents

(9) ACCRUED EXPENSES
Accrued expenses consisted of the following at March 31, 2018 and December 31, 2017 (in thousands):
 
March 31, 2018
 
December 31, 2017
Insurance
$
63,966

 
$
57,889

Interest
18,274

 
12,660

Accrued compensation and benefits
48,253

 
55,861

Income, real estate, sales and other taxes
28,803

 
27,330

Other
34,864

 
34,242

 
$
194,160

 
$
187,982

(10) CLOSURE AND POST-CLOSURE LIABILITIES
The changes to closure and post-closure liabilities (also referred to as “asset retirement obligations”) from January 1, 2018 through March 31, 2018 were as follows (in thousands):
 
Landfill
Retirement
Liability
 
Non-Landfill
Retirement
Liability
 
Total
Balance at January 1, 2018
$
32,382

 
$
28,655

 
$
61,037

Liabilities assumed in acquisition
—

 
604

 
604

New asset retirement obligations
1,053

 
—

 
1,053

Accretion
646

 
619

 
1,265

Changes in estimates recorded to statement of operations
—

 
30

 
30

Changes in estimates recorded to balance sheet
441

 
—

 
441

Expenditures
(155
)
 
(62
)
 
(217
)
Currency translation and other
(78
)
 
(55
)
 
(133
)
Balance at March 31, 2018
$
34,289

 
$
29,791

 
$
64,080

All of the landfill facilities included in the above were active as of March 31, 2018. There were no significant charges (benefits) in 2018 resulting from changes in estimates for closure and post-closure liabilities.
New asset retirement obligations incurred during the first three months of 2018 were discounted at the credit-adjusted risk-free rate of 5.66%.

(11) REMEDIAL LIABILITIES 
The changes to remedial liabilities for the three months ended March 31, 2018 were as follows (in thousands):
 
Remedial
Liabilities for
Landfill Sites
 
Remedial
Liabilities for
Inactive Sites
 
Remedial
Liabilities
(Including
Superfund) for
Non-Landfill
Operations
 
Total
Balance at January 1, 2018
$
1,800

 
$
65,342

 
$
57,326

 
$
124,468

Accretion
21

 
672

 
472

 
1,165

Changes in estimates recorded to statement of operations
—

 
(24
)
 
(568
)
 
(592
)
Expenditures
(12
)
 
(826
)
 
(1,370
)
 
(2,208
)
Currency translation and other
—

 
(9
)
 
(377
)
 
(386
)
Balance at March 31, 2018
$
1,809

 
$
65,155

 
$
55,483

 
$
122,447

In the three months ended March 31, 2018, there were no significant charges (benefits) resulting from changes in estimates for remedial liabilities.


14
Table of Contents

(12) FINANCING ARRANGEMENTS 
The following table is a summary of the Company’s financing arrangements (in thousands):
 
March 31, 2018
 
December 31, 2017
Senior secured Term Loan Agreement ("Term Loan Agreement")
$
4,000

 
$
4,000

Current portion of long-term obligations, at carrying value
$
4,000

 
$
4,000

 
 
 
 
Senior secured Term Loan Agreement due June 30, 2024
$
393,000

 
$
394,000

Senior unsecured notes, at 5.25%, due August 1, 2020 ("2020 Notes")
400,000

 
400,000

Senior unsecured notes, at 5.125%, due June 1, 2021 ("2021 Notes")
845,000

 
845,000

Long-term obligations, at par
$
1,638,000

 
$
1,639,000

Unamortized debt issuance costs and premium, net
(12,741
)
 
(13,463
)
Long-term obligations, at carrying value
$
1,625,259

 
$
1,625,537

 
 
 
 
Total current and long-term obligations, at carrying value
$
1,629,259

 
$
1,629,537

   
On April 17, 2018, the Company, and substantially all of the Company's domestic subsidiaries as guarantors, entered into the first amendment (“First Amendment”) of the Term Loan Agreement. The First Amendment (i) reduces the applicable interest rate margin for the Company’s initial term loans outstanding (the "Term Loans") under the Term Loan Agreement by 25 basis points for both Eurocurrency borrowings and base rate borrowings, and (ii) resets the six month soft call period for a repricing of the Term Loans. After giving effect to the repricing, the applicable interest rate margin for the Term Loans are 1.75% for Eurocurrency borrowings and 0.75% for base rate borrowings.
At March 31, 2018 and December 31, 2017, the fair value of the Term Loans was $398.2 million and $400.5 million, respectively, based on quoted market prices or other available market data. At March 31, 2018 and December 31, 2017, the fair value of the Company's 2020 Notes was $401.6 million and $404.6 million, respectively, based on quoted market prices for the instrument. At March 31, 2018 and December 31, 2017, the fair value of the Company's 2021 Notes was $855.3 million and $855.7 million, respectively, based on quoted market prices for the instrument. The fair values of the Term Loans, 2020 Notes and 2021 Notes are considered Level 2 measures according to the fair value hierarchy.
The Company also maintains a $400.0 million revolving credit facility under which the Company had no outstanding loan balances as of March 31, 2018 and December 31, 2017. At March 31, 2018, approximately $237.0 million was available to borrow and outstanding letters of credit were $132.9 million. At December 31, 2017, $217.8 million was available to borrow and outstanding letters of credit were $134.1 million.    

(13) LOSS PER SHARE     
The following are computations of basic and diluted loss per share (in thousands except for per share amounts):
 
Three Months Ended
 
March 31,
 
2018
 
2017
Numerator for basic and diluted loss per share:
 
 
 
Net loss
$
(12,631
)
 
$
(21,393
)
 
 
 
 
Denominator:
 
 
 
Basic shares outstanding
56,457

 
57,262

Dilutive effect of equity-based compensation awards
—

 
—

Dilutive shares outstanding
56,457

 
57,262

 
 
 
 
Basic loss per share:
$
(0.22
)
 
$
(0.37
)
 
 

 
 

Diluted loss per share:
$
(0.22
)
 
$
(0.37
)
As a result of the net loss reported for the three months ended March 31, 2018 and March 31, 2017, all then outstanding restricted stock awards and performance awards totaling 896,180 and 659,558, respectively, were excluded from the calculation of diluted loss per share as their inclusion would have an antidilutive effect. 

15
Table of Contents

(14) ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in accumulated other comprehensive loss by component and related tax effects for the three months ended March 31, 2018 were as follows (in thousands):    
 
Foreign Currency Translation
 
Unrealized Losses on Available-For-Sale Securities
 
Unfunded Pension Liability
 
Total
Balance at January 1, 2018
$
(170,575
)
 
$
(146
)
 
$
(1,686
)
 
$
(172,407
)
Other comprehensive loss before tax effects
(16,551
)
 
(115
)
 
—

 
(16,666
)
Tax effects
—

 
(80
)
 
—

 
(80
)
Other comprehensive loss
$
(16,551
)
 
$
(195
)
 
$
—

 
$
(16,746
)
Balance at March 31, 2018
$
(187,126
)
 
$
(341
)
 
$
(1,686
)
 
$
(189,153
)
    

(15) STOCK-BASED COMPENSATION
Total stock-based compensation cost charged to selling, general and administrative expenses for the three months ended March 31, 2018 and March 31, 2017 was $3.1 million and $2.3 million, respectively. The total income tax benefit recognized in the consolidated statements of operations from stock-based compensation was $0.9 million and $0.8 million for the three months ended March 31, 2018 and March 31, 2017, respectively.
Restricted Stock Awards
The following information relates to restricted stock awards that have been granted to employees and directors under the Company's equity incentive plans (the "Plans"). The restricted stock awards are not transferable until vested and the restrictions generally lapse upon the achievement of continued employment over a three-to-five-year period or service as a director until the following annual meeting of shareholders. The fair value of each restricted stock grant is based on the closing price of the Company's common stock on the date of grant and is amortized to expense over its vesting period.
    
The following table summarizes information about restricted stock awards for the three months ended March 31, 2018:
Restricted Stock
Number of Shares
 
Weighted Average
Grant-Date
Fair Value
Balance at January 1, 2018
604,933

 
$
54.23

Granted
149,200

 
$
53.43

Vested
(25,558
)
 
$
52.65

Forfeited
(6,772
)
 
$
52.65

Balance at March 31, 2018
721,803

 
$
54.13

    
As of March 31, 2018, there was $28.5 million of total unrecognized compensation cost arising from restricted stock awards under the Company's Plans. This cost is expected to be recognized over a weighted average period of 2.7 years. The total fair value of restricted stock vested during the three months ended March 31, 2018 and March 31, 2017 was $1.3 million and $1.5 million, respectively.
    
Performance Stock Awards

The following information relates to performance stock awards that have been granted to employees under the Company's Plans. Performance stock awards are subject to performance criteria established by the compensation committee of the Company's board of directors prior to or at the date of grant. The vesting of the performance stock awards is based on achieving such targets typically based on revenue, Adjusted EBITDA margin, Adjusted Free Cash Flow and Total Recordable Incident Rate. In addition, performance stock awards include continued service conditions. The fair value of each performance stock award is based on the closing price of the Company's common stock on the date of grant and is amortized to expense over the service period if achievement of performance measures is considered probable.


16
Table of Contents

The following table summarizes information about performance stock awards for the three months ended March 31, 2018:
Performance Stock
Number of Shares
 
Weighted Average
Grant-Date
Fair Value
Balance at January 1, 2018
190,129

 
$
55.63

Granted
—

 
$
—

Vested
(8,696
)
 
$
54.26

Forfeited
(7,056
)
 
$
54.64

Balance at March 31, 2018
174,377

 
$
55.74


As of March 31, 2018, there was $2.0 million of total unrecognized compensation cost arising from unvested performance stock awards deemed probable of vesting under the Company's Plans. The total fair value of performance awards vested during the three months ended March 31, 2018 and March 31, 2017 was $0.5 million and $1.4 million, respectively.

Common Stock Repurchases
On October 31, 2017, the Company's board of directors increased the size of the Company’s current share repurchase program from $300 million to $600 million. During the three months ended March 31, 2018 and March 31, 2017, the Company repurchased and retired a total of 0.3 million shares and 0.1 million shares, respectively, of the Company's common stock for a total cost of $14.3 million and $6.8 million, respectively. Through March 31, 2018, the Company has repurchased and retired a total of 5.1 million shares of the Company's common stock for a total cost of $263.1 million under this program. As of March 31, 2018, an additional $336.9 million remained available for repurchase of shares under the current authorized program.

(16) COMMITMENTS AND CONTINGENCIES
Legal and Administrative Proceedings
The Company and its subsidiaries are subject to legal proceedings and claims arising in the ordinary course of business. Actions filed against the Company arise from commercial and employment-related claims including alleged class actions related to sales practices and wage and hour claims. The plaintiffs in these actions may be seeking damages or injunctive relief or both. These actions are in various jurisdictions and stages of proceedings, and some are covered in part by insurance. In addition, the Company’s waste management services operations are regulated by federal, state, provincial and local laws enacted to regulate discharge of materials into the environment, remediation of contaminated soil and groundwater or otherwise protect the environment. This ongoing regulation results in the Company frequently becoming a party to legal or administrative proceedings involving all levels of governmental authorities and other interested parties. The issues involved in such proceedings generally relate to alleged violations of existing permits and licenses or alleged responsibility under federal or state Superfund laws to remediate contamination at properties owned either by the Company or by other parties (“third party sites”) to which either the Company or the prior owners of certain of the Company’s facilities shipped wastes.
At March 31, 2018 and December 31, 2017, the Company had recorded reserves of $19.9 million and $19.3 million, respectively, in the Company's financial statements for actual or probable liabilities related to the legal and administrative proceedings in which the Company was then involved, the principal of which are described below. At March 31, 2018 and December 31, 2017, the Company also believed that it was reasonably possible that the amount of these potential liabilities could be as much as $1.7 million and $1.8 million more, respectively. The Company periodically adjusts the aggregate amount of these reserves when actual or probable liabilities are paid or otherwise discharged, new claims arise, or additional relevant information about existing or probable claims becomes available. As of March 31, 2018 and December 31, 2017, the $19.9 million and $19.3 million, respectively, of reserves consisted of (i) $17.8 million and $17.9 million, respectively, related to pending legal or administrative proceedings, including Superfund liabilities, which were included in remedial liabilities on the consolidated balance sheets, and (ii) $2.1 million and $1.4 million, respectively, primarily related to federal, state and provincial enforcement actions, which were included in accrued expenses on the consolidated balance sheets.
As of March 31, 2018, the principal legal and administrative proceedings in which the Company was involved, or which had been terminated during 2018, were as follows:
Ville Mercier.    In September 2002, the Company acquired the stock of a subsidiary (the "Mercier Subsidiary") which owns a hazardous waste incinerator in Ville Mercier, Quebec (the "Mercier Facility"). The property adjacent to the Mercier Facility, which is also owned by the Mercier Subsidiary, is now contaminated as a result of actions dating back to 1968, when the Government of Quebec issued to a company unrelated to the Mercier Subsidiary two permits to dump organic liquids into lagoons on the property. In

17
Table of Contents

1999, Ville Mercier and three neighboring municipalities filed separate legal proceedings against the Mercier Subsidiary and the Government of Quebec. In 2012, the municipalities amended their existing statement of claim to seek $2.9 million (CAD) in general damages and $10.0 million (CAD) in punitive damages, plus interest and costs, as well as injunctive relief. Both the Government of Quebec and the Company have filed summary judgment motions against the municipalities. The parties are currently attempting to negotiate a resolution and hearings on the motions have been delayed. In September 2007, the Quebec Minister of Sustainable Development, Environment and Parks issued a Notice pursuant to Section 115.1 of the Environment Quality Act, superseding Notices issued in 1992, which are the subject of the pending litigation. The more recent Notice notifies the Mercier Subsidiary that, if the Mercier Subsidiary does not take certain remedial measures at the site, the Minister intends to undertake those measures at the site and claim direct and indirect costs related to such measures. The Company has accrued for costs expected to be incurred relative to the resolution of this matter and believes this matter will not have future material effect on its financial position or results of operations.
Safety-Kleen Legal Proceedings. On December 28, 2012, the Company acquired Safety-Kleen, Inc. ("Safety-Kleen") and thereby became subject to the legal proceedings in which Safety-Kleen was a party on that date. In addition to certain Superfund proceedings in which Safety-Kleen has been named as a potentially responsible party as described below under “Superfund Proceedings,” the principal such legal proceedings involving Safety-Kleen which were outstanding as of March 31, 2018 were as follows:
Product Liability Cases. Safety-Kleen has been named as a defendant in various lawsuits that are currently pending in various courts and jurisdictions throughout the United States, including approximately 59 proceedings (excluding cases which have been settled but not formally dismissed) as of March 31, 2018, wherein persons claim personal injury resulting from the use of Safety-Kleen's parts cleaning equipment or cleaning products. These proceedings typically involve allegations that the solvent used in Safety-Kleen's parts cleaning equipment contains contaminants and/or that Safety-Kleen's recycling process does not effectively remove the contaminants that become entrained in the solvent during their use. In addition, certain claimants assert that Safety-Kleen failed to warn adequately the product user of potential risks, including a historic failure to warn that solvent contains trace amounts of toxic or hazardous substances such as benzene.
Safety-Kleen maintains insurance that it believes will provide coverage for these product liability claims (over amounts accrued for self-insured retentions and deductibles in certain limited cases), except for punitive damages to the extent not insurable under state law or excluded from insurance coverage. Safety-Kleen also believes that these claims lack merit and has historically vigorously defended, and intends to continue to vigorously defend, itself and the safety of its products against all of these claims. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Consequently, Safety-Kleen is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of March 31, 2018. From January 1, 2018 to March 31, 2018, three product liability claims were settled or dismissed. Due to the nature of these claims and the related insurance, the Company did not incur any expense as Safety-Kleen's insurance provided coverage in full for all such claims. Safety-Kleen may be named in similar, additional lawsuits in the future, including claims for which insurance coverage may not be available.    
Superfund Proceedings
The Company has been notified that either the Company (which, since December 28, 2012, includes Safety-Kleen) or the prior owners of certain of the Company's facilities for which the Company may have certain indemnification obligations have been identified as potentially responsible parties ("PRPs") or potential PRPs in connection with 127 sites which are subject to or are proposed to become subject to proceedings under federal or state Superfund laws. Of the 127 sites, three (including the BR Facility described below) involve facilities that are now owned or leased by the Company and 124 involve third party sites to which either the Company or the prior owners of certain of the Company’s facilities shipped wastes. Of the 124 third party sites, 33 are now settled, 16 are currently requiring expenditures on remediation and 75 are not currently requiring expenditures on remediation.
In connection with each site, the Company has estimated the extent, if any, to which it may be subject, either directly or as a result of any indemnification obligations, for cleanup and remediation costs, related legal and consulting costs associated with PRP investigations, settlements, and related legal and administrative proceedings. The amount of such actual and potential liability is inherently difficult to estimate because of, among other relevant factors, uncertainties as to the legal liability (if any) of the Company or the prior owners of certain of the Company's facilities to contribute a portion of the cleanup costs, the assumptions that must be made in calculating the estimated cost and timing of remediation, the identification of other PRPs and their respective capability and obligation to contribute to remediation efforts, and the existence and legal standing of indemnification agreements (if any) with prior owners, which may either benefit the Company or subject the Company to potential indemnification obligations. The Company believes its potential liability could exceed $100,000 at 11 of the 124 third party sites.

18
Table of Contents

BR Facility.    The Company acquired in 2002 a former hazardous waste incinerator and landfill in Baton Rouge (the "BR Facility"), for which operations had been previously discontinued by the prior owner. In September 2007, the Environmental Protection Agency (the "EPA") issued a special notice letter to the Company related to the Devil's Swamp Lake Site ("Devil's Swamp") in East Baton Rouge Parish, Louisiana. Devil's Swamp includes a lake located downstream of an outfall ditch where wastewater and storm water have been discharged, and Devil's Swamp is proposed to be included on the National Priorities List due to the presence of Contaminants of Concern ("COC") cited by the EPA. These COCs include substances of the kind found in wastewater and storm water discharged from the BR Facility in past operations. The EPA originally requested COC generators to submit a good faith offer to conduct a remedial investigation feasibility study directed towards the eventual remediation of the site. The Company is currently performing corrective actions at the BR Facility under an order issued by the Louisiana Department of Environmental Quality, and has begun conducting the remedial investigation and feasibility study under an order issued by the EPA. The Company cannot presently estimate the potential additional liability for the Devil's Swamp cleanup until a final remedy is selected by the EPA.
Third Party Sites.    Of the 124 third party sites at which the Company has been notified it is a PRP or potential PRP or may have indemnification obligations, Clean Harbors has an indemnification agreement at 11 of these sites with ChemWaste, a former subsidiary of Waste Management, Inc., and at six additional of these third party sites, Safety-Kleen has a similar indemnification agreement with McKesson Corporation. These agreements indemnify the Company (which now includes Safety-Kleen) with respect to any liability at the 17 sites for waste disposed prior to the Company's (or Safety-Kleen's) acquisition of the former subsidiaries of Waste Management and McKesson which had shipped wastes to those sites. Accordingly, Waste Management or McKesson are paying all costs of defending those subsidiaries in those 17 cases, including legal fees and settlement costs. However, there can be no guarantee that the Company's ultimate liabilities for those sites will not exceed the amount recorded or that indemnities applicable to any of these sites will be available to pay all or a portion of related costs. Except for the indemnification agreements which the Company holds from ChemWaste, McKesson and one other entity, the Company does not have an indemnity agreement with respect to any of the 124 third party sites discussed above.
Federal and State Enforcement Actions
From time to time, the Company pays fines or penalties in regulatory proceedings relating primarily to waste treatment, storage or disposal facilities. As of March 31, 2018 and December 31, 2017, there were five proceedings for which the Company reasonably believes that the sanctions could equal or exceed $100,000. The Company believes that the fines or other penalties in these or any of the other regulatory proceedings will, individually or in the aggregate, not have a material effect on its financial condition, results of operations or cash flows.

(17) INCOME TAXES 
The Company records a tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. Losses from jurisdictions for which no benefit can be recognized and the income tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period. The estimated annual effective tax rate may be significantly impacted by projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.
The Company’s effective tax rate for the three months ended March 31, 2018 was (31.9)% compared to (14.5)% for the same period in 2017. The variations in the effective income tax rates for the three months ended March 31, 2018 as compared to more customary relationships between pre-tax income and the provision for income taxes were primarily due to the Company not recognizing income tax benefits from current operating losses related to certain Canadian entities in those periods.
On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Tax Act”) was signed into law, making significant changes to the federal tax law. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company recognized its best estimate of the income tax effects of the 2017 Tax Act in the financial statements included in its 2017 Annual Report on Form 10-K in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act was signed into law. During the three months ended March 31, 2018, the Company did not recognize any changes to the provisional amounts recorded in its 2017 Annual Report on Form 10-K in connection with the 2017 Tax Act. The Company is continuing to evaluate the impact of the Tax Act on its business and the consolidated financial statements and will make any adjustments to its provisional amounts in subsequent reporting periods upon obtaining, preparing or analyzing additional information affecting the income tax effects initially

19
Table of Contents

reported as a provisional amount. Any subsequent adjustment to these amounts will be recorded to tax expense in the quarter of 2018 when the analysis is complete.
As of March 31, 2018 and December 31, 2017, the Company had recorded $5.6 million and $5.1 million, respectively, of liabilities for unrecognized tax benefits and $0.4 million and $0.5 million of interest, respectively.
Due to expiring statute of limitation periods, the Company believes that total unrecognized tax benefits will decrease by $1.4 million within the next 12 months.

(18) SEGMENT REPORTING 
Segment reporting is prepared on the same basis that the Company's chief executive officer, who is the Company's chief operating decision maker, manages the business, makes operating decisions and assesses performance. During the first quarter of fiscal year 2018, certain of the Company's businesses undertook a reorganization which included changes to the underlying business and management structures. The reorganization resulted in combining the Environmental Services businesses from an operational and management perspective and is expected to deepen customer relationships and allow for efficiencies across the Company's operations through the sharing of resources, namely labor and equipment which will reduce third party spend and promote the cross selling of such business offerings. In connection with this reorganization, the Company’s chief operating decision maker also requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. These changes required a reconsideration of the Company’s operating segments in the first quarter of 2018 and resulted in a change in the Company’s assessment of its operating segments. Upon reconsideration of the identification of the Company’s operating segments, the Company concluded that there are now two operating segments for disclosure in accordance with ASC 280 Segment reporting; (i) the Environmental Services segment which consists of the Company’s historical Technical Services, Industrial Services, Field Services and Oil, Gas and Lodging businesses and (ii) the Safety-Kleen segment.

Third-party revenue is revenue billed to outside customers by a particular segment. Direct revenue is revenue allocated to the segment providing the product or service. Intersegment revenues represent the sharing of third-party revenues among the segments based on products and services provided by each segment as if the products and services were sold directly to the third-party. The intersegment revenues are shown net. The negative intersegment revenues are due to more transfers out of customer revenues to other segments than transfers in of customer revenues from other segments. The operations not managed through the Company’s operating segments described above are recorded as “Corporate Items.” Corporate Items revenues consist of two different operations for which the revenues are insignificant. Corporate Items cost of revenues represents certain central services that are not allocated to the Company's operating segments for internal reporting purposes. Corporate Items selling, general and administrative expenses include typical corporate items such as legal, accounting and other items of a general corporate nature that are not allocated to the Company’s operating segments.  
The following table reconciles third party revenues to direct revenues for the three months ended March 31, 2018 and 2017 (in thousands):
 
For the Three Months Ended March 31, 2018
 
For the Three Months Ended March 31, 2017
 
Third party revenues
 
Intersegment revenues, net
 
Corporate Items, net
 
Direct revenues
 
Third party revenues
 
Intersegment revenues, net
 
Corporate Items, net
 
Direct revenues
Environmental Services
$
439,688

 
$
31,965

 
$
794

 
$
472,447

 
$
395,907

 
$
32,069

 
$
920

 
$
428,896

Safety-Kleen
309,918

 
(31,965
)
 
11

 
277,964

 
292,901

 
(32,069
)
 
3

 
260,835

Corporate Items
172

 
—

 
(805
)
 
(633
)
 
133

 
—

 
(923
)
 
(790
)
Total
$
749,778

 
$
—

 
$
—

 
$
749,778

 
$
688,941

 
$
—

 
$
—

 
$
688,941

The primary financial measure by which the Company evaluates the performance of its segments is "Adjusted EBITDA" which consists of net loss plus accretion of environmental liabilities, depreciation and amortization, interest expense, net, provision for income taxes and excludes other expense, net. Transactions between the segments are accounted for at the Company’s best estimate based on similar transactions with outside customers.

20
Table of Contents

The following table presents Adjusted EBITDA information used by management by reported segment (in thousands):
 
For the Three Months Ended
 
March 31,
 
2018
 
2017
Adjusted EBITDA:
 

 
 

Environmental Services
$
61,417

 
$
60,190

Safety-Kleen
61,884

 
52,368

Corporate Items
(35,036
)
 
(32,423
)
Total
$
88,265

 
$
80,135

Reconciliation to Consolidated Statements of Operations:
 

 
 

Accretion of environmental liabilities
2,430

 
2,290

Depreciation and amortization
74,844

 
72,412

Income from operations
10,991

 
5,433

Other expense, net
299

 
1,549

Interest expense, net of interest income
20,270

 
22,576

Loss before provision for income taxes
$
(9,578
)
 
$
(18,692
)
The following table presents certain assets by reportable segment and in the aggregate (in thousands):
 
March 31, 2018
 
Environmental
Services
 
Safety-Kleen
 
Corporate
Items
 
Totals
Property, plant and equipment, net
$
998,340

 
$
553,308

 
$
80,000

 
$
1,631,648

Goodwill
187,490

 
305,215

 
—

 
492,705

Permits and other intangibles, net
99,401

 
365,234

 
—

 
464,635

Total assets
$
1,685,168

 
$
1,437,026

 
$
562,622

 
$
3,684,816

 
December 31, 2017
 
Environmental
Services
 
Safety-Kleen
 
Corporate
Items
 
Totals
Property, plant and equipment, net
$
927,139

 
$
582,162

 
$
78,064

 
$
1,587,365

Goodwill
172,386

 
306,137

 
—

 
478,523

Permits and other intangibles, net
97,519

 
371,609

 
—

 
469,128

Total assets
$
1,541,241

 
$
1,471,291

 
$
694,038

 
$
3,706,570

The following table presents total assets by geographical area (in thousands):
 
March 31, 2018
 
December 31, 2017
United States
$
3,002,779

 
$
2,985,394

Canada
681,901

 
721,176

Other foreign
136

 
—

Total
$
3,684,816

 
$
3,706,570

(19) GUARANTOR AND NON-GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION
The 2020 Notes and the 2021 Notes (collectively, the "Senior Unsecured Notes") and the Company's obligations under its Term Loan Agreement are guaranteed by substantially all of the Company’s subsidiaries organized in the United States. Each guarantor is a 100% owned subsidiary of Clean Harbors, Inc. and its guarantee is both full and unconditional and joint and several. The guarantees are, however, subject to customary release provisions under which, in particular, the guarantee of any domestic restricted subsidiary will be released if the Company sells such subsidiary to an unrelated third party in accordance with the terms of the indentures which govern the Senior Unsecured Notes and of the Term Loan Agreement. The Senior Unsecured Notes and the Company's obligations under its Term Loan Agreement are not guaranteed by the Company’s subsidiaries organized outside the United States. The following supplemental condensed consolidating financial information for the parent company, the guarantor

21
Table of Contents

subsidiaries and the non-guarantor subsidiaries, respectively, is presented in conformity with the requirements of Rule 3-10 of SEC Regulation S-X (“Rule 3-10”).

Following is the condensed consolidating balance sheet at March 31, 2018 (in thousands):
 
Clean
Harbors, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
51,781

 
$
99,662

 
$
34,909

 
$
—

 
$
186,352

Short-term marketable securities
—

 
—

 
37,792

 
—

 
37,792

Intercompany receivables
244,228

 
600,975

 
63,875

 
(909,078
)
 
—

Accounts receivable, net
—

 
457,231

 
94,610

 
—

 
551,841

Other current assets
—

 
265,477

 
52,050

 
(13,690
)
 
303,837

Property, plant and equipment, net
—

 
1,249,417

 
382,231

 
—

 
1,631,648

Investments in subsidiaries
3,095,335

 
535,503

 
—

 
(3,630,838
)
 
—

Intercompany debt receivable
—

 
89,947

 
21,000

 
(110,947
)
 
—

Goodwill
—

 
431,574

 
61,131

 
—

 
492,705

Permits and other intangibles, net
—

 
407,887

 
56,748

 
—

 
464,635

Other long-term assets
1,938

 
12,385

 
1,695

 
(12
)
 
16,006

Total assets
$
3,393,282

 
$
4,150,058

 
$
806,041

 
$
(4,664,565
)
 
$
3,684,816

Liabilities and Stockholders’ Equity:
 

 
 

 
 

 
 

 
 

Current liabilities
$
22,210

 
$
382,937

 
$
133,227

 
$
(13,690
)
 
$
524,684

Intercompany payables
600,287

 
306,401

 
2,390

 
(909,078
)
 
—

Closure, post-closure and remedial liabilities, net
—

 
149,316

 
17,388

 
—

 
166,704

Long-term obligations, net
1,625,259

 
—

 
—

 
—

 
1,625,259

Intercompany debt payable
—

 
21,000

 
89,947

 
(110,947
)
 
—

Other long-term liabilities
—

 
201,053

 
21,602

 
(12
)
 
222,643

Total liabilities
2,247,756

 
1,060,707

 
264,554

 
(1,033,727
)
 
2,539,290

Stockholders’ equity
1,145,526

 
3,089,351

 
541,487

 
(3,630,838
)
 
1,145,526

Total liabilities and stockholders’ equity
$
3,393,282

 
$
4,150,058

 
$
806,041

 
$
(4,664,565
)
 
$
3,684,816



22
Table of Contents

Following is the condensed consolidating balance sheet at December 31, 2017 (in thousands):
 
Clean
Harbors, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
51,638

 
$
207,777

 
$
59,984

 
$
—

 
$
319,399

Short-term marketable securities
—

 
—

 
38,179

 
—

 
38,179

Intercompany receivables
238,339

 
590,100

 
52,909

 
(881,348
)
 
—

Accounts receivable, net
—

 
433,042

 
95,882

 
—

 
528,924

Other current assets
897

 
233,602

 
52,947

 
(19,892
)
 
267,554

Property, plant and equipment, net
—

 
1,174,975

 
412,390

 
—

 
1,587,365

Investments in subsidiaries
3,112,547

 
569,568

 
—

 
(3,682,115
)
 
—

Intercompany debt receivable
—

 
92,530

 
21,000

 
(113,530
)
 
—

Goodwill
—

 
415,641

 
62,882

 
—

 
478,523

Permits and other intangibles, net
—

 
408,655

 
60,473

 
—

 
469,128

Other long-term assets
2,084

 
12,064

 
3,350

 
—

 
17,498

Total assets
$
3,405,505

 
$
4,137,954

 
$
859,996

 
$
(4,696,885
)
 
$
3,706,570

Liabilities and Stockholders’ Equity:
 

 
 

 
 

 
 

 
 

Current liabilities
$
16,954

 
$
371,135

 
$
135,620

 
$
(19,892
)
 
$
503,817

Intercompany payables
574,812

 
289,531

 
17,005

 
(881,348
)
 
—

Closure, post-closure and remedial liabilities, net
—

 
148,872

 
16,851

 
—

 
165,723

Long-term obligations, net
1,625,537

 
—

 
—

 
—

 
1,625,537

Intercompany debt payable
—

 
21,000

 
92,530

 
(113,530
)
 
—

Other long-term liabilities
—

 
201,086

 
22,205

 
—

 
223,291

Total liabilities
2,217,303

 
1,031,624

 
284,211

 
(1,014,770
)
 
2,518,368

Stockholders’ equity
1,188,202

 
3,106,330

 
575,785

 
(3,682,115
)
 
1,188,202

Total liabilities and stockholders’ equity
$
3,405,505

 
$
4,137,954

 
$
859,996

 
$
(4,696,885
)
 
$
3,706,570



23
Table of Contents

Following is the consolidating statement of operations for the three months ended March 31, 2018 (in thousands):
 
Clean
Harbors, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 


Service revenues
$
—

 
$
481,483

 
$
152,401

 
$
(14,165
)
 
$
619,719

Product revenues
—

 
121,582

 
11,450

 
(2,973
)
 
130,059

   Total revenues
—

 
603,065

 
163,851

 
(17,138
)
 
749,778

Cost of revenues (exclusive of items shown separately below)
 
 
 
 
 
 
 
 


Service cost of revenues
—

 
328,180

 
133,634

 
(14,165
)
 
447,649

Product cost of revenues
—

 
95,038

 
6,711

 
(2,973
)
 
98,776

   Total cost of revenues
—

 
423,218

 
140,345

 
(17,138
)
 
546,425

Selling, general and administrative expenses
35

 
93,843

 
21,210

 
—

 
115,088

Accretion of environmental liabilities
—

 
2,176

 
254

 
—

 
2,430

Depreciation and amortization
—

 
53,704

 
21,140

 
—

 
74,844

(Loss) income from operations
(35
)
 
30,124

 
(19,098
)
 
—

 
10,991

Other expense, net
—

 
(85
)
 
(214
)
 
—

 
(299
)
Interest (expense) income, net
(20,999
)
 
505

 
224

 
—

 
(20,270
)
Equity in earnings of subsidiaries, net of taxes
2,514

 
(20,062
)
 
—

 
17,548

 
—

Intercompany interest income (expense)
—

 
1,361

 
(1,361
)
 
—

 
—

(Loss) income before (benefit) provision for income taxes
(18,520
)
 
11,843

 
(20,449
)
 
17,548

 
(9,578
)
(Benefit) provision for income taxes
(5,889
)
 
9,101

 
(159
)
 
—

 
3,053

Net (loss) income
(12,631
)
 
2,742

 
(20,290
)
 
17,548

 
(12,631
)
Other comprehensive loss
(16,746
)
 
(16,746
)
 
(14,007
)
 
30,753

 
(16,746
)
Comprehensive loss
$
(29,377
)
 
$
(14,004
)
 
$
(34,297
)
 
$
48,301

 
$
(29,377
)
















24
Table of Contents

Following is the consolidating statement of operations for the three months ended March 31, 2017 (in thousands):
 
Clean
Harbors, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
Service revenues
$
—

 
$
443,305

 
$
131,071

 
$
(14,162
)
 
$
560,214

Product revenues
—

 
116,650

 
15,331

 
(3,254
)
 
128,727

   Total revenues
—

 
559,955

 
146,402

 
(17,416
)
 
688,941

Cost of revenues (exclusive of items shown separately below)
 
 
 
 
 
 
 
 
 
Service cost of revenues
—

 
294,145

 
111,104

 
(14,162
)
 
391,087

Product cost of revenues
—

 
96,505

 
12,247

 
(3,254
)
 
105,498

   Total cost of revenues
—

 
390,650

 
123,351

 
(17,416
)
 
496,585

Selling, general and administrative expenses
24

 
92,171

 
20,026

 
—

 
112,221

Accretion of environmental liabilities
—

 
2,055

 
235

 
—

 
2,290

Depreciation and amortization
—

 
51,900

 
20,512

 
—

 
72,412

(Loss) income from operations
(24
)
 
23,179

 
(17,722
)
 
—

 
5,433

Other expense, net
(146
)
 
(1,389
)
 
(14
)
 
—

 
(1,549
)
Interest (expense) income, net
(22,659
)
 
119

 
(36
)
 
—

 
(22,576
)
Equity in earnings of subsidiaries, net of taxes
(7,637
)
 
(21,824
)
 
—

 
29,461

 
—

Intercompany interest income (expense)
—

 
1,297

 
(1,297
)
 
—

 
—

(Loss) income before (benefit) provision for income taxes
(30,466
)
 
1,382

 
(19,069
)
 
29,461

 
(18,692
)
(Benefit) provision for income taxes
(9,073
)
 
9,637

 
2,137

 
—

 
2,701

Net loss
(21,393
)
 
(8,255
)
 
(21,206
)
 
29,461

 
(21,393
)
Other comprehensive income
6,051

 
6,051

 
5,032

 
(11,083
)
 
6,051

Comprehensive loss
$
(15,342
)
 
$
(2,204
)
 
$
(16,174
)
 
$
18,378

 
$
(15,342
)















    

25
Table of Contents

Following is the condensed consolidating statement of cash flows for the three months ended March 31, 2018 (in thousands):
 
Clean
Harbors, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Net cash from (used in) operating activities
$
143

 
$
69,536

 
$
(17,776
)
 
$
—

 
$
51,903

Cash flows used in investing activities:
 

 
 

 
 

 
 
 
 

Additions to property, plant and equipment
—

 
(37,319
)
 
(6,923
)
 
—

 
(44,242
)
Proceeds from sale and disposal of fixed assets
—

 
292

 
506

 
—

 
798

Acquisitions, net of cash acquired
—

 
(120,000
)
 
—

 
—

 
(120,000
)
Additions to intangible assets, including costs to obtain or renew permits
—

 
(1,234
)
 
(11
)
 
—

 
(1,245
)
  Proceeds from sale of available-for-sale securities
—

 
—

 
3,264

 
—

 
3,264

Purchases of available-for-sale securities
—

 
—

 
(3,003
)
 
—

 
(3,003
)
Intercompany
—

 
(15,812
)
 
—

 
15,812

 
—

Net cash used in investing activities
—

 
(174,073
)
 
(6,167
)
 
15,812

 
(164,428
)
 
 
 
 
 
 
 
 
 
 
Cash flows used in financing activities:
 

 
 

 
 

 
 
 
 

Change in uncashed checks
—

 
(3,578
)
 
(265
)
 
—

 
(3,843
)
Tax payments related to withholdings on vested restricted stock
(548
)
 
—

 
—

 
—

 
(548
)
Repurchases of common stock
(14,264
)
 
—

 
—

 
—

 
(14,264
)
Principal payment on debt
(1,000
)
 
—

 
—

 
—

 
(1,000
)
Intercompany
15,812

 
—

 
—

 
(15,812
)
 
—

Net cash used in financing activities
—

 
(3,578
)
 
(265
)
 
(15,812
)
 
(19,655
)
Effect of exchange rate change on cash
—

 
—

 
(867
)
 
—

 
(867
)
Increase (decrease) in cash and cash equivalents
143

 
(108,115
)
 
(25,075
)
 
—

 
(133,047
)
Cash and cash equivalents, beginning of period
51,638

 
207,777

 
59,984

 
—

 
319,399

Cash and cash equivalents, end of period
$
51,781

 
$
99,662

 
$
34,909

 
$
—

 
$
186,352



26
Table of Contents

Following is the condensed consolidating statement of cash flows for the three months ended March 31, 2017 (in thousands):
 
Clean
Harbors, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Net cash (used in) from operating activities
$
(1,663
)
 
$
41,144

 
$
17,638

 
$
—

 
$
57,119

Cash flows from (used in) investing activities:
 

 
 

 
 

 
 
 
 

Additions to property, plant and equipment
—

 
(33,136
)
 
(9,326
)
 
—

 
(42,462
)
Proceeds from sale and disposal of fixed assets
—

 
664

 
366

 
—

 
1,030

Acquisitions, net of cash acquired
—

 
(11,946
)
 
—

 
—

 
(11,946
)
Proceeds from sale of business
1,837

 
—

 
181

 
—

 
2,018

Additions to intangible assets, including costs to obtain or renew permits
—

 
(573
)
 
(178
)
 
—

 
(751
)
Proceeds from sale of investments
243

 
—

 
—

 
—

 
243

Intercompany
—

 
(7,771
)
 
—

 
7,771

 
—

Net cash from (used in) investing activities
2,080

 
(52,762
)
 
(8,957
)
 
7,771

 
(51,868
)
 
 
 
 
 
 
 
 
 
 
Cash flows used in financing activities:
 

 
 

 
 

 
 
 
 

Change in uncashed checks
—

 
(5,165
)
 
(2,392
)
 
—

 
(7,557
)
Proceeds from exercise of stock options
46

 
—

 
—

 
—

 
46

Tax payments related to withholdings on vested restricted stock
(1,021
)
 
—

 
—

 
—

 
(1,021
)
Repurchases of common stock
(6,796
)
 
—

 
—

 
—

 
(6,796
)
Deferred financing costs paid
(108
)
 
—

 
—

 
—

 
(108
)
Intercompany
7,771

 
—

 
—

 
(7,771
)
 
—

Net cash used in financing activities
(108
)
 
(5,165
)
 
(2,392
)
 
(7,771
)
 
(15,436
)
Effect of exchange rate change on cash
—

 
—

 
554

 
—

 
554

Increase (decrease) in cash and cash equivalents
309

 
(16,783
)
 
6,843

 
—

 
(9,631
)
Cash and cash equivalents, beginning of period
51,417

 
155,943

 
99,637

 
—

 
306,997

Cash and cash equivalents, end of period
$
51,726

 
$
139,160

 
$
106,480

 
$
—

 
$
297,366

ITEM 2.                         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
Forward-Looking Statements 
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under Item 1A, “Risk Factors,” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2018, under Item 1A, “Risk Factors,” included in Part II—Other Information in this report, and in other documents we file from time to time with the SEC.  Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

27
Table of Contents

Overview
We are North America’s leading provider of environmental, energy and industrial services. We believe we operate, in the aggregate, the largest number of hazardous waste incinerators, landfills and treatment, storage and disposal facilities ("TSDFs") in North America. We serve a diverse customer base, including Fortune 500 companies, across the chemical, energy, manufacturing and additional markets, as well as numerous government agencies. These customers rely on us to deliver a broad range of services including but not limited to end-to-end hazardous waste management, emergency response, industrial cleaning and maintenance, and recycling services. We are also the largest re-refiner and recycler of used oil in the world and the largest provider of parts cleaning and related environmental services to commercial, industrial and automotive customers in North America.
During the first quarter of fiscal year 2018, certain of our businesses undertook a reorganization which included changes to the underlying business and management structures. The reorganization resulted in combining the Environmental Services businesses from an operational and management perspective and is expected to deepen customer relationships and allow for efficiencies across our operations through the sharing of resources, namely labor and equipment which will reduce third party spend and promote the cross selling of such business offerings. In connection with this reorganization, our chief operating decision maker also requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. These changes required a reconsideration of our operating segments in the first quarter of 2018 and resulted in a change in our assessment of our operating segments. We concluded that there are now two operating segments for disclosure in accordance with ASC 280 Segment reporting; (i) the Environmental Services segment which consists of our historical Technical Services, Industrial Services, Field Services and Oil, Gas and Lodging businesses, and (ii) the Safety-Kleen segment.

Performance of our segments is evaluated on several factors of which the primary financial measure is Adjusted EBITDA as described more fully below. The following is a discussion of how management evaluates its segments in regards to other factors including key performance indicators that management uses to assess the segments’ results, as well as certain macroeconomic trends and influences that impact each reportable segment:

•
Environmental Services - Environmental Services segment results are predicated upon the demand by our customers for waste services directly attributable to waste volumes generated by them and project work for which waste handling and/or disposal is required. In managing the business and evaluating performance, management tracks the volumes of waste handled and disposed of through our owned incinerators and landfills as well as the utilization of such incinerators. Levels of activity and ultimate performance associated with this segment can be impacted by seasonality and weather conditions, market conditions and overall U.S. GDP and U.S. industrial production, efficiency of our operations, competition and market pricing of our services and the management of our related operating costs. Environmental Services results are also impacted by the demand for planned and unplanned industrial related cleaning and maintenance services at customer sites and the requirement for environmental cleanup services on a scheduled or emergency basis, including response to national events such as major oil spills, natural disasters or other events where immediate and specialized services are required.

•
Safety-Kleen - Safety-Kleen segment results are significantly impacted by the overall market pricing and product mix associated with base and blended oil products and, more specifically, the market prices of Group II base oils, which historically have correlated with overall crude oil prices. Costs incurred in connection with the collection of used oils, which are raw materials associated with the segment’s products, can also be volatile. Starting in 2015, we began charging for collection of used oils, which has allowed us to more effectively manage the profit spreads inherent in the business. The implementation of our OilPlusTM closed loop initiative resulting in the sale of our renewable oil products directly to our end customers will also impact future operating results. In addition, this segment's results are also impacted by the number of parts washers serviced by the business and the ability to attract small quantity waste producers as customers and integrate them into the Clean Harbors waste network.

Highlights

Total revenues for the three months ended March 31, 2018 were $749.8 million compared with $688.9 million for the three months ended March 31, 2017. In the three months ended March 31, 2018, our Environmental Services segment increased direct revenues 10.2% from the comparable period in 2017 primarily related to increased revenues associated with higher waste volumes disposed of in our network and emergency response work as well as $17.6 million resulting from the acquisition of the Veolia Business in the first quarter of 2018 and incremental revenues from acquisitions made in 2017 subsequent to the first quarter. In the three months ended March 31, 2018, our Safety-Kleen segment increased direct revenues 6.6% from the comparable period in 2017, as a result of improved pricing conditions related to our renewable oil products, incremental revenues generated from acquisitions,

28
Table of Contents

continued growth related to our Safety-Kleen Environmental services business and our OilPlusTM closed loop initiative. The strengthening of the Canadian dollar during the first quarter of 2018 from the comparable period in 2017 also positively impacted our consolidated revenues by $6.1 million for the three months ended March 31, 2018.
    
We reported income from operations for the three months ended March 31, 2018 of $11.0 million compared with $5.4 million in the three months ended March 31, 2017. We reported net losses for the three months ended March 31, 2018 and 2017 of $12.6 million and $21.4 million, respectively. Adjusted EBITDA, which is the primary financial measure by which our segments are evaluated, increased 10.1% to $88.3 million in the three months ended March 31, 2018 from $80.1 million in the three months ended March 31, 2017. Adjusted EBITDA results in the first quarter of 2018 were positively impacted by higher revenues as described above. Additional information, including a reconciliation of Adjusted EBITDA to net loss, appears below under the heading "Adjusted EBITDA."
Net cash from operating activities for the three months ended March 31, 2018 was $51.9 million, a decrease of $5.2 million from the comparable period in 2017. Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was $8.5 million in the three months ended March 31, 2018, which represents a $7.2 million decrease over the comparable period of 2017. The decrease in cash flows as compared to the comparable period of 2017 was most directly attributable to higher incentive cash bonus amounts paid in the first quarter of 2018 and an increase in working capital amounts excluding cash balances, offset by lower interest payments and greater levels of operating income. Additional information, including a reconciliation of adjusted free cash flow to net cash from operating activities, appears below under the heading "Adjusted Free Cash Flow."
Segment Performance
The primary financial measure by which we evaluate the performance of our segments is Adjusted EBITDA. The following table sets forth certain financial information associated with our results of operations for the three months ended March 31, 2018 and 2017 (in thousands).
 
Summary of Operations (in thousands)
 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
$
Change
 
%
Change
Direct Revenues(1):
 

 
 

 
 

 
 
Environmental Services
$
472,447

 
$
428,896

 
$
43,551

 
10.2%
Safety-Kleen
277,964

 
260,835

 
17,129

 
6.6
Corporate Items
(633
)
 
(790
)
 
157

 
N/M
Total
749,778

 
688,941

 
60,837

 
8.8
Cost of Revenues(2):
 

 
 

 
 

 
 
Environmental Services
370,560

 
327,861

 
42,699

 
13.0
Safety-Kleen
177,737

 
171,748

 
5,989

 
3.5
Corporate Items
(1,872
)
 
(3,024
)
 
1,152

 
N/M
Total
546,425

 
496,585

 
49,840

 
10.0
Selling, General & Administrative Expenses:
 

 
 

 
 

 
 
Environmental Services
40,470

 
40,845

 
(375
)
 
(0.9)
Safety-Kleen
38,343

 
36,719

 
1,624

 
4.4
Corporate Items
36,275

 
34,657

 
1,618

 
4.7
Total
115,088

 
112,221

 
2,867

 
2.6
Adjusted EBITDA:
 

 
 

 
 

 
 
Environmental Services
61,417

 
60,190

 
1,227

 
2.0
Safety-Kleen
61,884

 
52,368

 
9,516

 
18.2
Corporate Items
(35,036
)
 
(32,423
)
 
(2,613
)
 
(8.1)
Total
$
88,265

 
$
80,135

 
$
8,130

 
10.1%
_____________________
N/M = not meaningful
1.
Direct revenue is revenue allocated to the segment performing the provided service.
2.
Cost of revenue is shown exclusive of items presented separately on the statements of operations which consist of (i) accretion of environmental liabilities and (ii) depreciation and amortization.

29
Table of Contents

Direct Revenues
There are many factors which have impacted and continue to impact our revenues. These factors include, but are not limited to: overall industrial activity and growth in North America, existence of large scale environmental waste and remediation projects, general conditions of the energy related industries, competitive industry pricing, the effects of fuel prices on our fuel recovery fees, acquisitions and divestitures, the level of emergency response projects and foreign currency translation. In addition, customer efforts to minimalize hazardous waste and changes in regulation can also impact our revenues.
Environmental Services
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
Direct revenues
$
472,447

 
$
428,896

 
$
43,551

 
10.2
%
Environmental Services direct revenues for the three months ended March 31, 2018 increased $43.6 million from the comparable period in 2017. Included in the three months ended March 31, 2017 was $9.9 million of direct revenues from our Transformer Services business, which we sold on June 30, 2017. Included in the three months ended March 31, 2018 was $17.6 million of direct revenues from the Veolia Business, which we acquired on February 23, 2018, and $8.7 million from our 2017 acquisitions. Excluding those direct revenues, Environmental Services direct revenue increased $27.2 million primarily due to higher levels of revenue from emergency response services and revenues associated with waste projects and higher waste volumes disposed of in our incinerators and landfills. The utilization rate at our incinerators on a practical capacity of 561,721 tons was 87.3% for the three months ended March 31, 2018, compared with 79.2% in the comparable period of 2017. The increase in practical capacity resulted from the opening of the El Dorado, Arkansas site in February 2017. Also, the greater level of project work at our branches accounted for increases to direct revenue of $8.9 million from the comparable period in 2017. Inclusive in the change within this segment was also the positive impact of foreign currency translation on our Canadian operations of $4.4 million for the three months ended March 31, 2018 from the comparable period in 2017.
Safety-Kleen
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
Direct revenues
$
277,964

 
$
260,835

 
$
17,129

 
6.6
%
Safety-Kleen direct revenues for the three months ended March 31, 2018 increased $17.1 million from the comparable period in 2017 primarily due to more favorable pricing on oil products and growth in the business. Increased base and blended oil pricing accounted for $15.0 million of incremental direct revenue from the comparable period in 2017. Revenues generated through direct sales of blended oil and other services such as parts washer services, handling of containerized waste, vac services and sales of allied products accounted for $9.5 million of incremental revenues which more than offset a decrease in used oil collection revenues of $5.3 million. Inclusive in the change within this segment was also the positive impact of foreign currency translation on our Canadian operations of $1.6 million for the three months ended March 31, 2018 from the comparable period in 2017.
Cost of Revenues 
We believe that our ability to manage operating costs is important to our ability to remain price competitive. We continue to upgrade the quality and efficiency of our services through the development of new technology and continued modifications at our facilities, invest in new business opportunities and aggressively implement strategic sourcing and logistics solutions as well as other cost reduction initiatives in an effort to optimize our operating margins.
Environmental Services
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
Cost of revenues
$
370,560

 
$
327,861

 
$
42,699

 
13.0
%
As a % of Direct Revenue
78.4
%
 
76.4
%
 
 
 
2.0
%

30
Table of Contents

Environmental Services cost of revenues for the three months ended March 31, 2018 increased $42.7 million from the comparable period in 2017 primarily due to increases in labor related costs of $23.8 million and equipment and supply costs of $17.5 million. The incremental operating costs were driven by higher volumes of waste handled in our facilities, increased cost of certain commodity supplies such as fuel and solvents, as well as incremental costs related to repairs which needed to be made at our incinerators and our solvent recycling facility. The acquired Veolia Business also added costs in the quarter. These incremental costs negatively impacted gross margins as reflected in the cost of revenues as a percentage of revenues increasing by 200 basis points from the same period in 2017.
Safety-Kleen
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
Cost of revenues
$
177,737

 
$
171,748

 
$
5,989

 
3.5
 %
As a % of Direct Revenue
63.9
%
 
65.8
%
 
 
 
(1.9
)%
Safety-Kleen cost of revenues for the three months ended March 31, 2018 increased $6.0 million from the comparable period in 2017 primarily due to increased transportation, disposal and fuel costs of $3.2 million and increased labor related costs of $2.3 million. These increases were the result of overall growth of the business. As a percentage of direct revenues, these costs decreased 1.9% primarily as a result of greater direct revenue levels being achieved and continued margin improvement as the business drove margin expansion by successfully managing spreads between the price of base and blended oils and their input costs.
Selling, General and Administrative ("SG&A") Expenses
We strive to manage our selling, general and administrative expenses commensurate with the overall performance of our segments and corresponding revenue levels. We believe that our ability to properly align these costs with overall business performance is reflective of our strong management of the businesses and further promotes our ability to remain competitive in the marketplace.
Environmental Services
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
SG&A
$
40,470

 
$
40,845

 
$
(375
)
 
(0.9
)%
As a % of Direct Revenue
8.6
%
 
9.5
%
 
 
 
(0.9
)%
Environmental Services selling, general and administrative expenses for the three months ended March 31, 2018 decreased $0.4 million from the comparable period in 2017 due to a decrease across various other expenses categories of $2.4 million offset by increases in salary and benefit related costs of $2.0 million. As a percentage of direct revenue Environmental Services costs decreased slightly for the three months ended March 31, 2018 as compared to the same period in prior year, thereby leveraging increased revenues.
Safety-Kleen
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
SG&A
$
38,343

 
$
36,719

 
$
1,624

 
4.4
 %
As a % of Direct Revenue
13.8
%
 
14.1
%
 
 
 
(0.3
)%
Safety-Kleen selling, general and administrative expenses for the three months ended March 31, 2018 increased $1.6 million from the comparable period in 2017 primarily due to an increase in variable compensation, including commissions of $1.4 million, consistent with the increase in revenues of the business. As a percentage of direct revenue Safety-Kleen costs remained consistent for the three months ended March 31, 2018 with the comparable period in 2017.

31
Table of Contents

Corporate Items
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
SG&A
$
36,275

 
$
34,657

 
$
1,618

 
4.7
%
Corporate Items selling, general and administrative expenses for the three months ended March 31, 2018 increased $1.6 million from the comparable period in 2017 primarily due to 401(k) match costs of $1.1 million and salaries and benefits of $1.6 million due to acquisitions and our commitment to investing in our employees. These increases were partially offset by a decrease of $0.9 million in professional fees.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) 
Management considers Adjusted EBITDA to be a measurement of performance which provides useful information to both management and investors. Adjusted EBITDA should not be considered an alternative to net income (loss) or other measurements under generally accepted accounting principles ("GAAP"). Adjusted EBITDA is not calculated identically by all companies, and therefore our measurements of Adjusted EBITDA, while defined consistently and in accordance with our existing credit agreement, may not be comparable to similarly titled measures reported by other companies.
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
Adjusted EBITDA:
 

 
 

 
 

 
 
Environmental Services
$
61,417

 
$
60,190

 
$
1,227

 
2.0%
Safety-Kleen
61,884

 
52,368

 
9,516

 
18.2
Corporate Items
(35,036
)
 
(32,423
)
 
(2,613
)
 
(8.1)
Total
$
88,265

 
$
80,135

 
$
8,130

 
10.1%
We use Adjusted EBITDA to enhance our understanding of our operating performance, which represents our views concerning our performance in the ordinary, ongoing and customary course of our operations. We historically have found it helpful, and believe that investors have found it helpful, to consider an operating measure that excludes certain expenses relating to transactions not reflective of our core operations.
The information about our operating performance provided by this financial measure is used by our management for a variety of purposes. We regularly communicate Adjusted EBITDA results to our lenders since our loan covenants are based upon levels of Adjusted EBITDA achieved and to our board of directors and we discuss with the board our interpretation of such results. We also compare our Adjusted EBITDA performance against internal targets as a key factor in determining cash and equity bonus compensation for executives and other employees, largely because we believe that this measure is indicative of how the fundamental business is performing and is being managed.
We also provide information relating to our Adjusted EBITDA so that analysts, investors and other interested persons have the same data that we use to assess our core operating performance. We believe that Adjusted EBITDA should be viewed only as a supplement to the GAAP financial information. We also believe, however, that providing this information in addition to, and together with, GAAP financial information permits the foregoing persons to obtain a better understanding of our core operating performance and evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance on a standalone and a comparative basis.

32
Table of Contents

The following is a reconciliation of net loss to Adjusted EBITDA for the following periods (in thousands):
 
For the Three Months Ended
 
March 31,
 
2018
 
2017
Net loss
$
(12,631
)
 
$
(21,393
)
Accretion of environmental liabilities
2,430

 
2,290

Depreciation and amortization
74,844

 
72,412

Other expense, net
299

 
1,549

Interest expense, net
20,270

 
22,576

Provision for income taxes
3,053

 
2,701

Adjusted EBITDA
$
88,265

 
$
80,135

 
Depreciation and Amortization
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
Depreciation of fixed assets and landfill amortization
$
65,600

 
$
63,327

 
$
2,273

 
3.6
%
Permits and other intangibles amortization
9,244

 
9,085

 
159

 
1.8

Total depreciation and amortization
$
74,844

 
$
72,412

 
$
2,432

 
3.4
%
 
Depreciation and amortization for the three months ended March 31, 2018 increased $2.4 million from the comparable period in 2017, primarily due to increased volumes at our landfills which drove increased landfill amortization and incremental depreciation from acquisitions.
Provision for Income Taxes
 
For the Three Months Ended
 
March 31,
 
2018 over 2017
 
2018
 
2017
 
$
Change
 
%
Change
Provision for income taxes
$
3,053

 
$
2,701

 
$
352

 
13.0
%
The income tax provision for the three months ended March 31, 2018 increased $0.4 million as compared to the comparable period in 2017. The increase in the three months ended March 31, 2018 was primarily due to increased taxable income in the United States in fiscal year 2018 offset by the lower federal statutory rate in place in 2018 which was enacted as part of the Tax Cuts and Jobs Act signed into law in December of 2017. Our effective tax rate for the three months ended March 31, 2018 was (31.9)% compared to (14.5)% for the same period in 2017. The variations in the effective income tax rates for the three months ended March 31, 2018 as compared to more customary relationships between pre-tax income and the provision for income taxes were primarily due to not recognizing income tax benefits from current operating losses related to certain Canadian entities.
During the first quarter of 2018, we did not record $6.1 million of income tax benefits generated from losses at certain of our Canadian entities. This compares to $10.5 million of losses generated in the comparable period of 2017 which also were not recorded in that period’s income tax provision.

33
Table of Contents

Liquidity and Capital Resources 
 
Three Months Ended
(in thousands)
March 31, 2018
 
March 31, 2017
Net cash from operating activities
$
51,903

 
$
57,119

Net cash used in investing activities
(164,428
)
 
(51,868
)
Net cash used in financing activities
(19,655
)
 
(15,436
)
Net cash from operating activities
Net cash from operating activities for the three months ended March 31, 2018 was $51.9 million, a decrease of $5.2 million from the comparable period in 2017. The decrease in cash flows as compared to the comparable period of 2017 was most directly attributable to higher incentive cash bonus amounts paid in the first quarter of 2018 and an increase in working capital amounts excluding cash balances, offset by lower interest payments and greater levels of operating income. Operating cash flows for the remainder of 2018 are expected to be greater than prior year levels.
Net cash used in investing activities
Net cash used in investing activities for the three months ended March 31, 2018 was $164.4 million, an increase of $112.6 million from the comparable period in 2017. The change was primarily driven by the use of cash to fund the acquisition of the Veolia Business on February 23, 2018.
Net cash used in financing activities
Net cash used in financing activities for the three months ended March 31, 2018 was $19.7 million, an increase of $4.2 million from the comparable period in 2017. The change was primarily due to an increase in repurchases of common stock and a quarterly principal payment on our Term Loans, which were partially offset by a change in uncashed checks which resulted from the timing of payments made.
Adjusted Free Cash Flow
Management considers adjusted free cash flow to be a measurement of liquidity which provides useful information to both management and investors about our financial strength and our ability to generate cash. Additionally, adjusted free cash flow is a metric on which management incentive compensation is based. We define adjusted free cash flow as net cash from operating activities excluding cash impacts of items derived from non-operating activities, such as taxes paid in connection with divestitures, less additions to property, plant and equipment plus proceeds from sale and disposal of fixed assets. Adjusted free cash flow should not be considered an alternative to net cash from operating activities or other measurements under GAAP. Adjusted free cash flow is not calculated identically by all companies, and therefore our measurements of adjusted free cash flow may not be comparable to similarly titled measures reported by other companies.
The following is a reconciliation from net cash from operating activities to adjusted free cash flow for the following periods (in thousands):
 
Three Months Ended
 
March 31,
 
2018
 
2017
Net cash from operating activities
$
51,903

 
$
57,119

Additions to property, plant and equipment
(44,242
)
 
(42,462
)
Proceeds from sale and disposal of fixed assets
798

 
1,030

Adjusted free cash flow
$
8,459

 
$
15,687

Working Capital
At March 31, 2018, cash and cash equivalents totaled $186.4 million, compared to $319.4 million at December 31, 2017. At March 31, 2018, cash and cash equivalents held by our foreign subsidiaries totaled $26.8 million and were readily convertible into other foreign currencies including U.S. dollars. At March 31, 2018, the cash and cash equivalent balance for our U.S. operations was $159.6 million, and our U.S. operations had net operating cash flow of $64.8 million for the three months ended March 31, 2018. Additionally, we have a $400.0 million revolving credit facility of which approximately $237.0 million was available to borrow at March 31, 2018. Based on the above and on our current plans, we believe that our U.S. operations have and will continue to have adequate financial resources to satisfy their liquidity needs without being required to repatriate earnings from foreign subsidiaries. We also believe that cash held by our foreign subsidiaries will be required to fund those foreign operations. Accordingly, although

34
Table of Contents

repatriation to the U.S. of foreign earnings would generally be subject to taxation, we have not recorded any deferred tax liability related to such repatriation since we intend to permanently reinvest foreign earnings outside the U.S.
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our primary ongoing cash requirements will be to fund operations, capital expenditures, interest payments and investments in line with our business strategy. We believe our future operating cash flows will be sufficient to meet our future operating and internal investing cash needs as well as any cash needs relating to our stock repurchase program. Furthermore, our existing cash balance and the availability of additional borrowings under our revolving credit facility provide additional potential sources of liquidity should they be required.
Financing Arrangements 
The financing arrangements and principal terms of our $400.0 million principal amount of 5.25% senior unsecured notes due 2020, $845.0 million principal amount of 5.125% senior unsecured notes due 2021, and $397.0 million senior secured notes due 2024 which were outstanding at March 31, 2018, and our $400.0 million revolving credit facility, are discussed further in Note 12, “Financing Arrangements,” to our consolidated financial statements included herein. We continue to monitor our debt instruments and evaluate opportunities where it may be beneficial to refinance or reallocate the portfolio.
As of March 31, 2018, we were in compliance with the covenants of all of our debt agreements, and we believe it is reasonably likely that we will continue to meet such covenants.
Environmental Liabilities
(in thousands)
March 31, 2018
 
December 31, 2017
 
$ Change
 
% Change
Closure and post-closure liabilities
$
64,080

 
$
61,037

 
$
3,043

 
5.0
 %
Remedial liabilities
122,447

 
124,468

 
(2,021
)
 
(1.6
)
Total environmental liabilities
$
186,527

 
$
185,505

 
$
1,022

 
0.6
 %
Total environmental liabilities as of March 31, 2018 were $186.5 million, an increase of $1.0 million, compared to the liabilities as of December 31, 2017 primarily due to accretion of $2.4 million and new asset retirement obligations and liabilities assumed in acquisition of $1.7 million, partially offset by expenditures of $2.4 million and a benefit from changes in environmental liability estimates of 0.6 million.
We anticipate our environmental liabilities, substantially all of which we assumed in connection with our acquisitions, will be payable over many years and that cash flow from operations will generally be sufficient to fund the payment of such liabilities when required. However, events not anticipated (such as future changes in environmental laws and regulations) could require that such payments be made earlier or in greater amounts than currently anticipated, which could adversely affect our results of operations, cash flow and financial condition.
Capital Expenditures
We anticipate that 2018 capital spending, net of disposals, will be in the range of $170.0 million to $190.0 million. However, changes in environmental regulations or unscheduled capital needs could require us to make significant capital expenditures for our facilities and adversely affect our results of operations and cash flow.

Critical Accounting Policies and Estimates
Other than described below, there were no material changes in the first three months of 2018 to the information provided under the heading “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2017.
Goodwill. Goodwill is not amortized but is reviewed for impairment annually as of December 31 or when events or changes in the business environment indicate the carrying value of a reporting unit may exceed its fair value. This review is performed by comparing the fair value of each reporting unit to its carrying value, including goodwill. If the fair value is less than the carrying amount, a loss is recorded for the excess of the carrying value over the fair value up to the carrying amount of goodwill.
We conducted our annual impairment test of goodwill for all of our reporting units to which goodwill is allocated as of December 31, 2017 and determined that no adjustment to the carrying value of goodwill for any reporting unit was then necessary. As a result of changes in our organizational structure and resulting change in our operating segments discussed above, we concluded that, for purposes of reviewing for potential goodwill impairment as of March 31, 2018, we had four reporting units, consisting of Environmental Sales and Service, Environmental Facilities, Kleen Performance Products and Safety-Kleen Environmental Services.

35
Table of Contents

The results of operations for our Environmental Sales and Service and Environmental Facilities reporting units are included in our Environmental Services segment, and the results of operations for our SK Environmental and Kleen Performance Products reporting units are included in our Safety-Kleen segment. We allocated goodwill to our new reporting units using a relative fair value approach. Due to the change in our reporting units, we completed an assessment of any potential goodwill impairment immediately prior to and subsequent to the reorganization, which was effective January 1, 2018, and determined that no impairment existed.
ITEM 3.                             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
There were no material changes in the first three months of 2018 to the information provided under Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

ITEM 4.                             CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Based on an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this Quarterly Report on 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of March 31, 2018 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
Changes in Internal Control over Financial Reporting
     
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the quarter ending March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

36
Table of Contents

CLEAN HARBORS, INC. AND SUBSIDIARIES

PART II—OTHER INFORMATION

ITEM 1.                         LEGAL PROCEEDINGS
See Note 16, “Commitments and Contingencies,” to the financial statements included in Item 1 of this report, which description is incorporated herein by reference.
ITEM 1A.                        RISK FACTORS
During the three months ended March 31, 2018, there were no material changes from the risk factors as previously disclosed in Item 1A in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. 
ITEM 2.                         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Common Stock Repurchase Program

The following table provides information with respect to the shares of common stock repurchased by us for the periods indicated.
Period
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share (2)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3)
January 1, 2018 through January 31, 2018
1,392

 
$
54.20

 
—

 
$
351,152,555

February 1, 2018 through February 28, 2018
1,400

 
$
54.93

 
—

 
$
351,152,555

March 1, 2018 through March 31, 2018
288,051

 
$
50.89

 
280,000

 
$
336,889,042

Total
290,843

 
$
50.93

 
280,000

 
$
336,889,042

______________________
(1)
Includes 10,843 shares withheld by us from employees to satisfy employee tax obligations upon vesting of restricted stock units granted to our employees under our long-term equity incentive programs.
(2)
The average price paid per share of common stock repurchased under the stock repurchase program includes the commissions paid to brokers.
(3)
On October 31, 2017, the Company's board of directors increased the size of the Company’s current share repurchase program from $300 million to $600 million. We have funded and intend to fund the repurchases through available cash resources. The stock repurchase program authorizes us to purchase our common stock on the open market or in privately negotiated transactions periodically in a manner that complies with applicable U.S. securities laws. The number of shares purchased and the timing of the purchases has depended and will depend on a number of factors, including share price, cash required for business plans, trading volume and other conditions. During April 2018, the Company implemented a repurchase plan in accordance with Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended. Going forward repurchases will be made under the Rule 10b5-1 plan as well as open market or privately negotiated transactions as described above. We have no obligation to repurchase stock under this program and may suspend or terminate the repurchase program at any time.
ITEM 3.                         DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4.                         MINE SAFETY DISCLOSURE
Not applicable
ITEM 5.                         OTHER INFORMATION
None

37
Table of Contents

ITEM 6.                         EXHIBITS
Item No.
 
Description
 
Location
31.1
 
 
Filed herewith
 
 
 
 
 
31.2
 
 
Filed herewith
 
 
 
 
 
32
 
 
Filed herewith
 
 
 
 
 
101
 
Interactive Data Files Pursuant to Rule 405 of Regulation S-T: Financial statements from the quarterly report on Form 10-Q of Clean Harbors, Inc. for the quarter ended September 30, 2017, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Comprehensive Loss, (iv) Unaudited Consolidated Statements of Cash Flows, (v) Unaudited Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Unaudited Consolidated Financial Statements.
 
*
_______________________
*
Interactive data files are furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

38
Table of Contents

CLEAN HARBORS, INC. AND SUBSIDIARIES

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
 
 
CLEAN HARBORS, INC.
 
 
Registrant
 
 
 
 
 
By:
/s/  ALAN S. MCKIM
 
 
 
Alan S. McKim
 
 
 
Chairman, President and Chief Executive Officer
 
 
 
 
Date:
May 2, 2018
 
 
 
 
 
 
 
 
By:
/s/  MICHAEL L. BATTLES
 
 
 
Michael L. Battles
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
Date:
May 2, 2018
 


39
Exhibit


EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Alan S. McKim, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Clean Harbors, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
/s/ Alan S. McKim
 
Alan S. McKim
 
Chairman, President and Chief Executive Officer

Date: May 2, 2018



Exhibit


Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Michael L. Battles, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Clean Harbors, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
/s/ Michael L. Battles
 
Michael L. Battles
 
Executive Vice President and Chief Financial Officer

Date: May 2, 2018



Exhibit


EXHIBIT 32

CLEAN HARBORS, INC. AND SUBSIDIARIES

CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

Pursuant to 18 U.S.C. §1350, each of the undersigned certifies that, to his knowledge, this Quarterly Report on Form 10-Q for the period ended March 31, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Clean Harbors, Inc.

 
 
By:
/s/  ALAN S. MCKIM
 
 
 
Alan S. McKim
 
 
 
Chairman, President and Chief Executive Officer
 
 
 
 
Date:
May 2, 2018
 
 
 
 
 
 
 
 
By:
/s/  MICHAEL L. BATTLES
 
 
 
Michael L. Battles
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
Date:
May 2, 2018