CLEAN HARBORS INC - FORM 10-Q - May 4, 2016

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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, 2016
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value
 
57,552,959
(Class)
 
(Outstanding as of April 29, 2016)


CLEAN HARBORS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





CLEAN HARBORS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

 
March 31, 2016
 
December 31, 2015
ASSETS
(unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
355,345

 
$
184,708

Accounts receivable, net of allowances aggregating $28,628 and $31,426, respectively
458,301

 
496,004

Unbilled accounts receivable
31,805

 
25,940

Deferred costs
19,346

 
18,758

Inventories and supplies
154,768

 
149,521

Prepaid expenses and other current assets
44,056

 
46,265

Total current assets
1,063,621

 
921,196

Property, plant and equipment, net
1,596,872

 
1,532,467

Other assets:
 
 
 
Deferred financing costs
1,627

 
1,847

Goodwill
460,642

 
453,105

Permits and other intangibles, net
502,532

 
506,818

Other
16,381

 
15,995

Total other assets
981,182

 
977,765

Total assets
$
3,641,675

 
$
3,431,428

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
188,834

 
$
241,183

Deferred revenue
63,587

 
61,882

Accrued expenses
191,592

 
193,660

Current portion of closure, post-closure and remedial liabilities
21,497

 
20,395

Total current liabilities
465,510

 
517,120

Other liabilities:
 
 
 
Closure and post-closure liabilities, less current portion of $7,194 and $7,229, respectively
50,896

 
49,020

Remedial liabilities, less current portion of $14,303 and $13,166, respectively
117,076

 
118,826

Long-term obligations
1,631,603

 
1,382,543

Deferred taxes, unrecognized tax benefits and other long-term liabilities
260,017

 
267,637

Total other liabilities
2,059,592

 
1,818,026

Commitments and contingent liabilities (See Note 14)


 


Stockholders’ equity:
 
 
 
Common stock, $.01 par value:
 
 
 
Authorized 80,000,000; shares issued and outstanding 57,551,188 and 57,593,201
shares, respectively
576

 
576

Shares held under employee participation plan
(469
)
 
(469
)
Additional paid-in capital
733,726

 
738,401

Accumulated other comprehensive loss
(209,055
)
 
(254,892
)
Accumulated earnings
591,795

 
612,666

Total stockholders’ equity
1,116,573

 
1,096,282

Total liabilities and stockholders’ equity
$
3,641,675

 
$
3,431,428

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

1


CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

 
Three Months Ended
 
March 31,
 
2016
 
2015
Revenues:
 
 
 
Service revenues
$
530,231

 
$
596,330

Product revenues
105,852

 
136,169

Total revenues
636,083

 
732,499

Cost of revenues (exclusive of items shown separately below)
 
 
 
Service revenues
373,986

 
416,390

Product revenues
90,293

 
130,117

Total cost of revenues
464,279

 
546,507

Selling, general and administrative expenses
104,484

 
107,715

Accretion of environmental liabilities
2,505

 
2,619

Depreciation and amortization
68,902

 
68,356

(Loss) income from operations
(4,087
)
 
7,302

Other (expense) income
(350
)
 
409

Interest expense, net of interest income of $150 and $151, respectively
(18,980
)
 
(19,438
)
Loss before benefit for income taxes
(23,417
)
 
(11,727
)
Benefit for income taxes
(2,546
)
 
(4,638
)
Net loss
$
(20,871
)
 
$
(7,089
)
Loss per share:
 
 
 
Basic
$
(0.36
)
 
$
(0.12
)
Diluted
$
(0.36
)
 
$
(0.12
)
Shares used to compute loss per share - Basic
57,617

 
58,875

Shares used to compute loss per share - Diluted
57,617

 
58,875


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

2

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net loss
$
(20,871
)
 
$
(7,089
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
45,837

 
(77,403
)
Other comprehensive income (loss)
45,837

 
(77,403
)
Comprehensive income (loss)
$
24,966

 
$
(84,492
)

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


3

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
 
Three Months Ended
 
March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(20,871
)
 
$
(7,089
)
Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization
68,902

 
68,356

Allowance for doubtful accounts
1,072

 
2,204

Amortization of deferred financing costs and debt discount
872

 
819

Accretion of environmental liabilities
2,505

 
2,619

Changes in environmental liability estimates
(95
)
 
385

Deferred income taxes
7

 
(903
)
Stock-based compensation
2,093

 
1,850

Excess tax benefit of stock-based compensation
—

 
(5
)
Net tax deficiency on stock based awards
(345
)
 
(111
)
Other expense (income)
350

 
(409
)
Environmental expenditures
(3,518
)
 
(5,604
)
Changes in assets and liabilities, net of acquisitions
 
 
 
Accounts receivable and unbilled accounts receivable
35,839

 
27,065

Inventories and supplies
(2,882
)
 
22,131

Other current assets
1,838

 
374

Accounts payable
(36,195
)
 
2,623

Other current and long-term liabilities
(10,283
)
 
(29,528
)
Net cash from operating activities
39,289

 
84,777

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(75,781
)
 
(52,949
)
Proceeds from sales of fixed assets
1,273

 
760

Acquisitions, net of cash acquired
(34,993
)
 
—

Additions to intangible assets, including costs to obtain or renew permits
(512
)
 
(1,171
)
Net cash used in investing activities
(110,013
)
 
(53,360
)
Cash flows from financing activities:
 
 
 
Change in uncashed checks
(5,218
)
 
(20,268
)
Issuance of restricted shares, net of shares remitted
(1,425
)
 
(1,154
)
Repurchases of common stock
(4,998
)
 
(15,379
)
Deferred financing costs paid
(2,190
)
 
—

Payments on capital leases
—

 
(398
)
Excess tax benefit of stock-based compensation
—

 
5

Issuance of senior secured notes, including premium
250,625

 
—

Net cash from financing activities
236,794

 
(37,194
)
Effect of exchange rate change on cash
4,567

 
(7,363
)
Increase (decrease) in cash and cash equivalents
170,637

 
(13,140
)
Cash and cash equivalents, beginning of period
184,708

 
246,879

Cash and cash equivalents, end of period
$
355,345

 
$
233,739

Supplemental information:
 
 
 
Cash payments for interest and income taxes:
 
 
 
Interest paid
$
21,808

 
$
21,667

Income taxes paid (received)
5,848

 
(3,790
)
Non-cash investing and financing activities:
 
 
 
Accrual for repurchased shares
—

 
736

Property, plant and equipment accrued
14,947

 
22,832

Receivable for estimated purchase price adjustment
250

 
—

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
 
Shares Held
Under
Employee
Participation
Plan
 
 
 
Accumulated
Other
Comprehensive Loss
 
 
 
 
 
Number
of
Shares
 
$ 0.01
Par
Value
 
 
Additional
Paid-in
Capital
 
 
Accumulated
Earnings
 
Total
Stockholders’
Equity
Balance at January 1, 2016
57,593

 
$
576

 
$
(469
)
 
$
738,401

 
$
(254,892
)
 
$
612,666

 
$
1,096,282

Net loss
—

 
—

 
—

 
—

 
—

 
(20,871
)
 
(20,871
)
Other comprehensive income
—

 
—

 
—

 
—

 
45,837

 
—

 
45,837

Stock-based compensation
—

 
—

 
—

 
2,093

 
—

 
—

 
2,093

Issuance of restricted shares, net of shares remitted
62

 
1

 
—

 
(1,426
)
 
—

 
—

 
(1,425
)
Repurchases of common stock
(104
)
 
(1
)
 
—

 
(4,997
)
 
—

 
—

 
(4,998
)
Net tax deficiency on stock based awards
—

 
—

 
—

 
(345
)
 
—

 
—

 
(345
)
Balance at March 31, 2016
57,551

 
$
576

 
$
(469
)
 
$
733,726

 
$
(209,055
)
 
$
591,795

 
$
1,116,573



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


5

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, 2015, which includes the audited consolidated balance sheet as of December 31, 2015 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, 2015. There have been no material changes in these policies or their application.
Recent Accounting Pronouncements
Standards implemented
In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2015-02, Consolidation (Topic 810). The amendment provides guidance regarding amendments to the consolidation analysis. The adoption of ASU 2015-02 as of January 1, 2016 did not have an impact on the Company's consolidated financial statements.

In September 2015, FASB issued ASU 2015-16, Business Combinations (Topic 805). The amendment provides guidance to simplify the accounting for adjustments made to provisional amounts recognized in a business combination. This amendment eliminates the requirement to retrospectively account for those adjustments. The adoption of ASU 2015-16 as of January 1, 2016 did not have an impact on the Company's consolidated financial statements.
Standards to be implemented
The Company is currently 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. The amendments in this update are effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2018.

In March 2016, FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). ASU 2016-08 reduces the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance, as well as the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of Update 2014-09, Revenue from Contracts with Customers (Topic 606).

In March 2016, FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The amendment simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The amendments in this update are effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016.

In April 2016, FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). ASU 2016-10 reduces the potential for diversity in initial application, as well as the cost and complexity of applying Topic 606 both at transition and on an

6

ongoing basis. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of Update 2014-09, Revenue from Contracts with Customers (Topic 606).

(3) BUSINESS COMBINATIONS
2016 Acquisition
    
On February 3, 2016, the Company purchased an oil re-refinery facility located in Nevada from Vertex Energy, Inc. for a purchase price of $35.0 million in cash, subject to customary post-closing adjustments. The acquired facility further expands the Company's re-refinery network within its Kleen Performance Products segment.

2015 Acquisitions

Thermo Fluids Inc.

On April 11, 2015, the Company completed the acquisition of Heckmann Environmental Services, Inc. (“HES”) and Thermo Fluids Inc. (“TFI”), a wholly-owned subsidiary of HES. The acquisition was accomplished through a purchase by Safety-Kleen, Inc., a wholly-owned subsidiary of the Company, of all of the issued and outstanding shares of HES from Nuverra Environmental Solutions, Inc. HES is a holding company that does not conduct any operations. TFI provides environmental services, including used oil recycling, used oil filter recycling, antifreeze products, parts washers and solvent recycling, and industrial waste management services, including vacuum services, remediation, lab pack and hazardous waste management. The Company acquired TFI for a purchase price of $79.3 million. The acquisition was financed with cash on hand and expands the Company’s environmental services customer base while also complimenting the SK Environmental Services network and presence in the western United States. The amount of revenue from TFI included in the Company's results of operations for the three months ended March 31, 2016 was $7.8 million. Results of TFI since acquisition have been included within the SK Environmental Services segment.

The allocation of the purchase price was based on estimates of the fair value of assets acquired and liabilities assumed as of April 11, 2015. The Company believes that such information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. The Company has finalized the purchase accounting for the acquisition of TFI. The impact of the purchase price measurement period adjustments and related tax impacts recorded in the current period was not material to the consolidated financial statements and accordingly the effects have not been retrospectively applied.

The following table summarizes the recognized amounts of assets acquired and liabilities assumed at April 11, 2015 (in thousands):
 
At acquisition date April 11, 2015
 
Measurement Period Adjustments
 
At acquisition date as reported
March 31, 2016
Accounts receivable
$
7,109

 
$
192

 
$
7,301

Inventories and supplies
1,791

 
—

 
1,791

Prepaid and other current assets
1,749

 
(1,084
)
 
665

Property, plant and equipment
30,468

 
(2,827
)
 
27,641

Permits and other intangibles
20,000

 
(1,900
)
 
18,100

Current liabilities
(5,859
)
 
(25
)
 
(5,884
)
Closure and post-closure liabilities
(1,676
)
 
(657
)
 
(2,333
)
Deferred taxes, unrecognized tax benefits and other long-term liabilities
(13,081
)
 
3,907

 
(9,174
)
Total identifiable net assets
40,501

 
(2,394
)
 
38,107

Goodwill
36,591

 
4,638

 
41,229

Total
$
77,092

 
$
2,244

 
$
79,336

Pro forma revenue and earnings amounts on a combined basis as if TFI had been acquired on January 1, 2015 are immaterial to the consolidated financial statements of the Company since that date.
Other 2015 Acquisition

In December 2015, the Company acquired certain assets and assumed certain defined liabilities of a privately owned company for approximately $14.7 million in cash. That company specializes in the collection and recycling of used oil filters and

7

was a service provider to the SK Environmental Services segment prior to the acquisition. The acquired company has been integrated into the SK Environmental Services segment. In connection with this acquisition a preliminary goodwill amount of $7.4 million was recognized.

(4) INVENTORIES AND SUPPLIES
Inventories and supplies consisted of the following (in thousands):
 
March 31, 2016
 
December 31, 2015
Oil and oil products
$
36,196

 
$
33,603

Supplies and drums
79,035

 
78,132

Solvent and solutions
9,026

 
8,868

Modular camp accommodations
15,438

 
15,126

Other
15,073

 
13,792

Total inventories and supplies
$
154,768

 
$
149,521

As of March 31, 2016 and December 31, 2015, other inventories consisted primarily of cleaning fluids, such as absorbents and wipers, and automotive fluids, such as windshield washer fluid and antifreeze.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
 
March 31, 2016
 
December 31, 2015
Land
$
101,460

 
$
100,582

Asset retirement costs (non-landfill)
12,188

 
12,434

Landfill assets
140,792

 
136,624

Buildings and improvements
353,869

 
344,209

Camp equipment
158,619

 
149,361

Vehicles
529,386

 
500,619

Equipment
1,400,407

 
1,328,915

Furniture and fixtures
5,477

 
5,337

Construction in progress
131,894

 
113,657

 
2,834,092

 
2,691,738

Less - accumulated depreciation and amortization
1,237,220

 
1,159,271

Total property, plant and equipment, net
$
1,596,872

 
$
1,532,467

Interest in the amount of $1.2 million and $0.2 million was capitalized to fixed assets during the three months ended March 31, 2016 and March 31, 2015, respectively. Depreciation expense, inclusive of landfill amortization was $59.3 million and $57.4 million for the three months ended March 31, 2016 and March 31, 2015, respectively.

(6) GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in goodwill for the three months ended March 31, 2016 were as follows (in thousands):
 
 
Technical Services
 
Industrial & Field Services
 
Kleen Performance Products
 
SK Environmental Services
 
Lodging Services
 
Oil and Gas Field Services
 
Totals
Balance at January 1, 2016
 
$
49,267

 
$
105,286

 
$
49,755

 
$
216,589

 
$
32,208

 
$
—

 
$
453,105

Measurement period adjustment from prior acquisitions
 
—

 
—

 
—

 
2,095

 
—

 
—

 
2,095

Foreign currency translation and other
 
(573
)
 
1,351

 
388

 
2,170

 
2,106

 
—

 
5,442

Balance at March 31, 2016
 
$
48,694

 
$
106,637

 
$
50,143

 
$
220,854

 
$
34,314

 
$
—

 
$
460,642

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. The Company conducted the annual impairment test of goodwill for all reporting units as of December 31, 2015 and determined that no adjustment to the carrying value of goodwill for any reporting units was necessary because the fair value of each of the reporting

8

units exceeded that reporting unit's respective carrying value. The Company's next annual impairment assessment will be performed as of December 31, 2016 unless indicators arise that would require the Company to re-evaluate at an earlier date.

As of March 31, 2016 and December 31, 2015, the Company's finite-lived and indefinite-lived intangible assets consisted of the following (in thousands):
 
March 31, 2016
 
December 31, 2015
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Remaining Amortization
Period
(in years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Remaining Amortization
Period
(in years)
Permits
$
164,160

 
$
63,179

 
$
100,981

 
18.3
 
$
161,396

 
$
61,142

 
$
100,254

 
19.0
Customer and supplier relationships
379,339

 
108,612

 
270,727

 
9.7
 
374,866

 
99,463

 
275,403

 
10.1
Other intangible assets
32,856

 
24,990

 
7,866

 
1.3
 
31,416

 
22,581

 
8,835

 
1.5
Total amortizable permits and other intangible assets
576,355

 
196,781

 
379,574

 
9.6
 
567,678

 
183,186

 
384,492

 
10.0
Trademarks and trade names
122,958

 
—

 
122,958

 
Indefinite
 
122,326

 
—

 
122,326

 
Indefinite
Total permits and other intangible assets
$
699,313

 
$
196,781

 
$
502,532

 

 
$
690,004

 
$
183,186

 
$
506,818

 

Amortization expense of permits and other intangible assets was $9.6 million and $11.0 million for the three months ended March 31, 2016 and March 31, 2015, respectively.
The expected amortization of the net carrying amount of finite-lived intangible assets at March 31, 2016 was as follows (in thousands):
Years Ending December 31,
Expected Amortization
2016 (nine months)
$
29,251

2017
33,936

2018
31,156

2019
28,438

2020
25,719

Thereafter
231,074

 
$
379,574

(7) ACCRUED EXPENSES
Accrued expenses consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
March 31, 2016
 
December 31, 2015
Insurance
$
54,999

 
$
55,899

Interest
21,864

 
20,500

Accrued compensation and benefits
40,690

 
35,646

Income, real estate, sales and other taxes
36,103

 
37,095

Other
37,936

 
44,520

 
$
191,592

 
$
193,660


9

(8) CLOSURE AND POST-CLOSURE LIABILITIES
The changes to closure and post-closure liabilities (also referred to as “asset retirement obligations”) from January 1, 2016 through March 31, 2016 were as follows (in thousands):
 
Landfill
Retirement
Liability
 
Non-Landfill
Retirement
Liability
 
Total
Balance at January 1, 2016
$
32,023

 
$
24,226

 
$
56,249

Adjustments during the measurement period related to acquisitions
—

 
657

 
657

New asset retirement obligations
621

 
—

 
621

Accretion
691

 
567

 
1,258

Changes in estimates recorded to statement of operations
(283
)
 
(132
)
 
(415
)
Expenditures
(112
)
 
(391
)
 
(503
)
Currency translation and other
156

 
67

 
223

Balance at March 31, 2016
$
33,096

 
$
24,994

 
$
58,090

All of the landfill facilities included in the above were active as of March 31, 2016. There were no significant charges (benefits) in 2016 resulting from changes in estimates for closure and post-closure liabilities.
New asset retirement obligations incurred during the first three months of 2016 were discounted at the credit-adjusted risk-free rate of 6.23%.
(9) REMEDIAL LIABILITIES 
The changes to remedial liabilities for the three months ended March 31, 2016 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, 2016
$
2,327

 
$
63,613

 
$
66,052

 
$
131,992

Accretion
26

 
678

 
543

 
1,247

Changes in estimates recorded to statement of operations
71

 
(101
)
 
350

 
320

Expenditures
(26
)
 
(956
)
 
(2,033
)
 
(3,015
)
Currency translation and other
—

 
51

 
784

 
835

Balance at March 31, 2016
$
2,398

 
$
63,285

 
$
65,696

 
$
131,379

In the three months ended March 31, 2016 there were no significant charges (benefits) resulting from changes in estimates for remedial liabilities.
(10) FINANCING ARRANGEMENTS 
The following table is a summary of the Company’s financing arrangements (in thousands):
 
March 31, 2016
 
December 31, 2015
Senior unsecured notes, at 5.25%, due August 1, 2020 ("2020 Notes")
$
800,000

 
$
800,000

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

 
595,000

Long-term obligations, at par
$
1,645,000

 
$
1,395,000

Unamortized debt issuance costs and premium, net
(13,397
)
 
(12,457
)
Long-term obligations, at carrying value
$
1,631,603

 
$
1,382,543

   
At March 31, 2016 and December 31, 2015, the fair value of the Company's 2020 Notes was $814.0 million and $812.0 million, respectively, based on quoted market prices for the instrument. The fair value of the 2020 Notes is considered a Level 2 measure according to the fair value hierarchy.
On March 14, 2016, the Company issued through a private placement $250.0 million aggregate principal amount as additional notes under the indenture pursuant to which the Company previously issued on December 7, 2012, through a private placement $600.0 million aggregate principal amount of 5.125% senior unsecured notes due 2021 ("2021 Notes"). Interest payments

10

are fixed semi-annually on June 1 and December 1 of each year. At March 31, 2016 and December 31, 2015, the fair value of the Company's 2021 Notes was $853.5 million and $599.5 million, respectively, based on quoted market prices for the instrument. The fair value of the 2021 Notes is considered a Level 2 measure according to the fair value hierarchy.
The Company also maintains a revolving credit facility which as of March 31, 2016 and December 31, 2015 had no outstanding loan balances. At March 31, 2016, $156.4 million was available to borrow and outstanding letters of credit were $145.2 million. At December 31, 2015, $178.5 million was available to borrow and outstanding letters of credit were $144.6 million.
The revolving credit facility is guaranteed by all of Clean Harbors, Inc.'s (the "Parent's") domestic subsidiaries and secured by substantially all of the Parent’s and its domestic subsidiaries’ assets. Available credit for the Parent and its domestic subsidiaries is limited to 85% of their eligible accounts receivable and 100% of their cash deposited in a controlled account with the agent. Available credit for Parent’s Canadian subsidiaries is limited to 85% of their eligible accounts receivable and 100% of their cash deposited in a controlled account with the agent’s Canadian affiliate. The obligations of the Canadian subsidiaries under the revolving credit facility are guaranteed by all of Parent’s Canadian subsidiaries and secured by the accounts receivable of the Canadian subsidiaries, but the Canadian subsidiaries do not guarantee and are not otherwise responsible for the obligations of Parent or its domestic subsidiaries.

(11) 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,
 
2016
 
2015
Numerator for basic and diluted earnings per share:
 

 
 

Net loss
$
(20,871
)
 
$
(7,089
)
 
 
 
 
Denominator:
 

 
 

Basic shares outstanding
57,617

 
58,875

Dilutive shares outstanding
57,617

 
58,875

 
 
 
 
Basic loss per share:
$
(0.36
)
 
$
(0.12
)
 
 

 
 

Diluted loss per share:
$
(0.36
)
 
$
(0.12
)
As a result of the net loss reported for the three months ended March 31, 2016 and 2015, all then outstanding stock options, restricted stock awards and performance awards totaling 474,318 and 539,983, respectively, were excluded from the calculation of diluted loss per share as their inclusion would have an antidilutive effect. 

(12) ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in accumulated other comprehensive loss by component and related tax effects for the three months ended March 31, 2016 were as follows (in thousands):    
 
Foreign Currency Translation
 
Unfunded Pension Liability
 
Total
Balance at January 1, 2016
$
(252,939
)
 
$
(1,953
)
 
$
(254,892
)
Other comprehensive income before reclassifications
45,837

 
—

 
45,837

Other comprehensive income
$
45,837

 
$
—

 
$
45,837

Balance at March 31, 2016
$
(207,102
)
 
$
(1,953
)
 
$
(209,055
)
There were no reclassifications out of accumulated other comprehensive loss during the three months ended March 31, 2016 and 2015.


11

(13) STOCK-BASED COMPENSATION
Total stock-based compensation cost charged to selling, general and administrative expenses for the three months ended March 31, 2016 and March 31, 2015 was $2.1 million and $1.8 million, respectively. The total income tax benefit recognized in the consolidated statements of operations from stock-based compensation was $0.5 million for each of the three months ended March 31, 2016 and March 31, 2015.
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, 2016:
Restricted Stock
Number of Shares
 
Weighted Average
Grant-Date
Fair Value
Balance at January 1, 2016
362,618

 
$
55.79

Granted
43,771

 
$
43.87

Vested
(85,388
)
 
$
55.79

Forfeited
(15,346
)
 
$
57.20

Balance at March 31, 2016
305,655

 
$
54.01

    
As of March 31, 2016, there was $12.4 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 2.9 years. The total fair value of restricted stock vested during the three months ended March 31, 2016 and March 31, 2015 was $3.8 million and $3.2 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, return on invested capital percentage 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.

The following table summarizes information about performance stock awards for the three months ended March 31, 2016:
Performance Stock
Number of Shares
 
Weighted Average
Grant-Date
Fair Value
Balance at January 1, 2016
187,274

 
$
57.13

Vested
(8,420
)
 
$
61.90

Forfeited
(10,191
)
 
$
57.65

Balance at March 31, 2016
168,663

 
$
56.86


As of March 31, 2016, there was $0.6 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, 2016 and March 31, 2015 was $0.4 million and $0.3 million, respectively.


12

Common Stock Repurchases
On March 13, 2015, the Company's board of directors authorized the repurchase of up to $300 million of the Company's common stock. During the three months ended March 31, 2016, the Company repurchased and retired a total of 0.1 million shares of the Company's common stock for a total cost of $5.0 million. Through March 31, 2016, the Company has repurchased and retired a total of 3.5 million shares of the Company's common stock for a total cost of $182.7 million under this program. As of March 31, 2016, an additional $117.3 million remains available for repurchase of shares under the current authorized program.
(14) 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, 2016 and December 31, 2015, the Company had recorded reserves of $20.9 million and $21.9 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, 2016 and December 31, 2015, the Company also believed that it was reasonably possible that the amount of these potential liabilities could be as much as $1.8 million and $1.9 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, 2016 and December 31, 2015, the $20.9 million and $21.9 million, respectively, of reserves consisted of (i) $18.7 million and $18.9 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) $2.2 million and $3.0 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, 2016, the principal legal and administrative proceedings in which the Company was involved, or which had been terminated during 2016, were as follows:
Ville Mercier.    In September 2002, the Company acquired the stock of a subsidiary (the "Mercier Subsidiary") which owns a hazardous waste incinerator in Ville Mercier, Quebec (the "Mercier Facility"). The property adjacent to the Mercier Facility, which is also owned by the Mercier Subsidiary, is now contaminated as a result of actions dating back to 1968, when the Government of Quebec issued to a company unrelated to the Mercier Subsidiary two permits to dump organic liquids into lagoons on the property. In 1999, Ville Mercier and three neighboring municipalities filed separate legal proceedings against the Mercier Subsidiary and the Government of Quebec. In 2012, the municipalities amended their existing statement of claim to seek $2.9 million (Cdn) in general damages and $10.0 million (Cdn) 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 a 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

13

Proceedings,” the principal such legal proceedings involving Safety-Kleen which were outstanding as of March 31, 2016 were as follows:
Product Liability Cases. Safety-Kleen is named as a defendant in various lawsuits that are currently pending in various courts and jurisdictions throughout the United States, including approximately 60 proceedings (excluding cases which have been settled but not formally dismissed) as of March 31, 2016, 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 an 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 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 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, 2016. From January 1, 2016 to March 31, 2016, nine 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 129 sites which are subject to or are proposed to become subject to proceedings under federal or state Superfund laws. Of the 129 sites, two (the Wichita Facility and the BR Facility described below) involve facilities that are now owned by the Company and 127 involve third party sites to which either the Company or the prior owners of certain of the Company’s facilities shipped wastes. Of the 127 third party sites, 32 are now settled, 17 are currently requiring expenditures on remediation and 78 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. In addition to the Wichita Property and the BR Facility, Clean Harbors believes its potential liability could exceed $100,000 at 13 of the 127 third party sites.
Wichita Property.    The Company acquired in 2002 as part of the CSD assets a service center located in Wichita, Kansas (the "Wichita Property"). The Wichita Property is one of several properties located within the boundaries of a 1,400 acre state-designated Superfund site in an old industrial section of Wichita known as the North Industrial Corridor Site. Along with numerous other PRPs, the former owner executed a consent decree relating to such site with the U.S. Environmental Protection Agency (the "EPA"), and the Company is continuing an ongoing remediation program for the Wichita Property in accordance with that consent decree. The Company also acquired rights under an indemnification agreement between the former owner and an earlier owner of the Wichita Property. The Company filed suit against the earlier owner in July of 2015 to recover costs incurred during the cleanup of the property.
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 EPA issued a special notice letter to the Company related to the Devil's Swamp Lake Site ("Devil's Swamp") in East Baton Rouge Parish, Louisiana. Devil's Swamp includes a lake located downstream of an outfall ditch where wastewater and stormwater have been discharged, and Devil's Swamp is proposed to be included on the National Priorities List due to the presence of Contaminants of Concern ("COC") cited by the EPA. These COCs include substances of the kind found in wastewater and storm water discharged from the BR Facility in past operations. The EPA originally requested COC generators to submit a good faith offer to conduct a remedial investigation feasibility study directed towards the eventual remediation of the site. The Company is currently performing corrective actions at the

14

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 127 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 or 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 and McKesson, the Company does not have an indemnity agreement with respect to any of the 127 third party sites discussed above.
Federal, State and Provincial Enforcement Actions
From time to time, the Company pays fines or penalties in regulatory proceedings relating primarily to waste treatment, storage or disposal facilities. As of March 31, 2016 and December 31, 2015, there were five and six proceedings, respectively, for which the Company reasonably believed that the sanctions could equal or exceed $100,000. The Company believes that the fines or other penalties in these or any of the other regulatory proceedings will, individually or in the aggregate, not have a material effect on its financial condition, results of operations or cash flows.
(15) 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, 2016 was 10.9% compared to 39.5% for the same period in 2015. The decrease in the effective rates for the three months ended March 31, 2016 is primarily due to not recognizing income tax benefits from current operating losses related to certain Canadian entities.
As of March 31, 2016 and December 31, 2015, the Company had recorded $2.1 million of liabilities for unrecognized tax benefits and $0.4 million of interest, respectively.
Due to expiring statute of limitation periods, the Company believes that total unrecognized tax benefits will decrease by approximately $0.5 million within the next 12 months. This is the result of a pre-acquisition audit settlement for one of our foreign entities.
(16) 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. As of March 31, 2016, the Company's operations were managed in six reportable segments based primarily upon the nature of the various operations and services provided: Technical Services, Industrial and Field Services which consists of the Industrial Services and Field Services operating segments, Kleen Performance Products, SK Environmental Services, Lodging Services and Oil and Gas Field Services.

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 six reportable segments are recorded as “Corporate Items.” Corporate Items revenues consist of two different operations for which the revenues are insignificant. Corporate Items cost of revenues represents certain central services that are not allocated to

15

the six 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 six reportable segments. Performance of the segments is evaluated on several factors, of which the primary financial measure is “Adjusted EBITDA,” which consists of net loss plus accretion of environmental liabilities, depreciation and amortization, net interest expense, benefit for income taxes, other non-cash charges not deemed representative of fundamental segment results and excludes other expense (income). Transactions between the segments are accounted for at the Company’s best estimate based on similar transactions with outside customers. 
The following table reconciles third party revenues to direct revenues for the three months ended March 31, 2016 and 2015 (in thousands):
 
For the Three Months Ended March 31, 2016
 
For the Three Months Ended March 31, 2015
 
Third party revenues
 
Intersegment revenues, net
 
Corporate Items, net
 
Direct revenues
 
Third party revenues
 
Intersegment revenues, net
 
Corporate Items, net
 
Direct revenues
Technical Services
$
219,105

 
$
34,844

 
$
388

 
$
254,337

 
$
240,325

 
$
34,904

 
$
1,297

 
$
276,526

Industrial and Field Services
121,577

 
(7,466
)
 
(17
)
 
114,094

 
146,868

 
(6,561
)
 
78

 
140,385

Kleen Performance Products
67,543

 
(9,407
)
 
(1
)
 
58,135

 
96,807

 
(18,257
)
 
(1
)
 
78,549

SK Environmental Services
179,418

 
(19,114
)
 
367

 
160,671

 
160,684

 
(11,582
)
 
—

 
149,102

Lodging Services
15,645

 
264

 
21

 
15,930

 
34,104

 
164

 
17

 
34,285

Oil and Gas Field Services
32,016

 
879

 
87

 
32,982

 
53,587

 
1,332

 
9

 
54,928

Corporate Items
779

 
—

 
(845
)
 
(66
)
 
124

 
—

 
(1,400
)
 
(1,276
)
Total
$
636,083

 
$
—

 
$
—

 
$
636,083

 
$
732,499

 
$
—

 
$
—

 
$
732,499

The following table presents Adjusted EBITDA information used by management by reported segment (in thousands). The Company does not allocate interest expense, income taxes, depreciation, amortization, accretion of environmental liabilities, other non-cash charges not deemed representative of fundamental segment results, and other expense (income) to its segments.    
 
For the Three Months Ended
 
March 31,
 
2016
 
2015
Adjusted EBITDA:
 

 
 

Technical Services
$
60,398

 
$
63,401

Industrial and Field Services
2,118

 
10,309

Kleen Performance Products
4,560

 
(4,476
)
SK Environmental Services
35,495

 
27,249

Lodging Services
1,019

 
6,910

Oil and Gas Field Services
(1,394
)
 
1,403

Corporate Items
(34,876
)
 
(26,519
)
Total
$
67,320

 
$
78,277

Reconciliation to Consolidated Statements of Operations:
 

 
 

Accretion of environmental liabilities
2,505

 
2,619

Depreciation and amortization
68,902

 
68,356

(Loss) income from operations
(4,087
)
 
7,302

Other expense (income)
350

 
(409
)
Interest expense, net of interest income
18,980

 
19,438

Loss before benefit for income taxes
$
(23,417
)
 
$
(11,727
)

16

The following table presents certain assets by reportable segment and in the aggregate (in thousands):
 
March 31, 2016
 
Technical
Services
 
Industrial and Field
Services
 
Kleen Performance Products
 
SK Environmental Services
 
Lodging Services
 
Oil and Gas Field
Services
 
Corporate
Items
 
Totals
Property, plant and equipment, net
$
499,464

 
$
234,088

 
$
202,445

 
$
306,462

 
$
108,489

 
$
153,869

 
$
92,055

 
$
1,596,872

Goodwill
48,694

 
106,637

 
50,143

 
220,854

 
34,314

 
—

 
—

 
460,642

Permits and other intangible, net
73,632

 
14,215

 
139,725

 
254,230

 
7,004

 
13,726

 
—

 
502,532

Total assets
$
818,098

 
$
378,639

 
$
501,019

 
$
858,544

 
$
188,547

 
$
243,543

 
$
653,285

 
$
3,641,675

 
December 31, 2015
 
Technical
Services
 
Industrial and Field
Services
 
Kleen Performance Products
 
SK Environmental Services
 
Lodging Services
 
Oil and Gas Field
Services
 
Corporate
Items
 
Totals
Property, plant and equipment, net
$
483,425

 
$
237,660

 
$
193,855

 
$
264,539

 
$
105,208

 
$
156,286

 
$
91,494

 
$
1,532,467

Goodwill
49,267

 
105,286

 
49,755

 
216,589

 
32,208

 
—

 
—

 
453,105

Permits and other intangible, net
73,601

 
14,649

 
140,410

 
256,251

 
7,045

 
14,862

 
—

 
506,818

Total assets
$
800,060

 
$
368,858

 
$
492,483

 
$
805,488

 
$
181,357

 
$
244,210

 
$
538,972

 
$
3,431,428

The following table presents total assets by geographical area (in thousands):
 
March 31, 2016
 
December 31, 2015
United States
$
2,783,892

 
$
2,575,746

Canada
853,112

 
851,949

Other foreign
4,671

 
3,733

Total
$
3,641,675

 
$
3,431,428

(17) GUARANTOR AND NON-GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION
The 2020 Notes and the 2021 Notes are guaranteed by substantially all of the Company's subsidiaries organized in the United States. Each guarantor for the 2020 Notes and the 2021 Notes 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 of our domestic restricted subsidiaries will be released if we sell such subsidiary to an unrelated third party in accordance with the terms of the indenture which governs the notes. The 2020 Notes and the 2021 Notes are not guaranteed by the Company’s Canadian or other foreign subsidiaries. The following presents supplemental condensed consolidating financial information for the parent company, the guarantor subsidiaries and the non-guarantor subsidiaries, respectively.
As discussed further in Note 10, “Financing Arrangements,” to our consolidated financial statements included herein, during the three months ended March 31, 2016, the Parent Company issued through a private placement $250.0 million aggregate principal amount as additional notes under the 2021 Notes. In connection with this offering the proceeds were then transferred to the US Guarantor Subsidiaries and are reflected as an investment to the Parent Company in the US Guarantor subsidiaries for the period ending March 31, 2016.






17

Following is the condensed consolidating balance sheet at March 31, 2016 (in thousands):
 
Clean
Harbors, Inc.
 
U.S. Guarantor
Subsidiaries
 
Foreign
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
56,028

 
$
219,856

 
$
79,461

 
$
—

 
$
355,345

Intercompany receivables
172,776

 
283,034

 
38,065

 
(493,875
)
 
—

Accounts receivable, net
—

 
380,873

 
77,428

 
—

 
458,301

Other current assets
—

 
185,171

 
64,804

 
—

 
249,975

Property, plant and equipment, net
—

 
1,129,262

 
467,610

 
—

 
1,596,872

Investments in subsidiaries
2,832,086

 
524,500

 
—

 
(3,356,586
)
 
—

Intercompany debt receivable
—

 
278,018

 
3,701

 
(281,719
)
 
—

Goodwill
—

 
369,400

 
91,242

 
—

 
460,642

Permits and other intangibles, net
—

 
429,388

 
73,144

 
—

 
502,532

Other long-term assets
1,626

 
9,457

 
6,925

 
—

 
18,008

Total assets
$
3,062,516

 
$
3,808,959

 
$
902,380

 
$
(4,132,180
)
 
$
3,641,675

Liabilities and Stockholders’ Equity:
 

 
 

 
 

 
 

 
 

Current liabilities
$
22,124

 
$
382,100

 
$
61,286

 
$
—

 
$
465,510

Intercompany payables
288,515

 
203,542

 
1,818

 
(493,875
)
 
—

Closure, post-closure and remedial liabilities, net
—

 
152,767

 
15,205

 
—

 
167,972

Long-term obligations
1,631,603

 
—

 
—

 
—

 
1,631,603

Intercompany debt payable
3,701

 
—

 
278,018

 
(281,719
)
 
—

Other long-term liabilities
—

 
238,464

 
21,553

 
—

 
260,017

Total liabilities
1,945,943

 
976,873

 
377,880

 
(775,594
)
 
2,525,102

Stockholders’ equity
1,116,573

 
2,832,086

 
524,500

 
(3,356,586
)
 
1,116,573

Total liabilities and stockholders’ equity
$
3,062,516

 
$
3,808,959

 
$
902,380

 
$
(4,132,180
)
 
$
3,641,675



18

Following is the condensed consolidating balance sheet at December 31, 2015 (in thousands):
 
Clean
Harbors, Inc.
 
U.S. Guarantor
Subsidiaries
 
Foreign
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
11,017

 
$
83,479

 
$
90,212

 
$
—

 
$
184,708

Intercompany receivables
164,709

 
213,243

 
39,804

 
(417,756
)
 
—

Accounts receivables
—

 
404,580

 
91,424

 
—

 
496,004

Other current assets
—

 
179,969

 
60,515

 
—

 
240,484

Property, plant and equipment, net
—

 
1,082,466

 
450,001

 
—

 
1,532,467

Investments in subsidiaries
2,547,307

 
522,067

 
—

 
(3,069,374
)
 
—

Intercompany debt receivable
—

 
260,957

 
3,701

 
(264,658
)
 
—

Goodwill
—

 
367,306

 
85,799

 
—

 
453,105

Permits and other intangibles, net
—

 
435,080

 
71,738

 
—

 
506,818

Other long-term assets
1,068

 
10,274

 
6,500

 
—

 
17,842

Total assets
$
2,724,101

 
$
3,559,421

 
$
899,694

 
$
(3,751,788
)
 
$
3,431,428

Liabilities and Stockholders’ Equity:
 

 
 

 
 

 
 

 
 

Current liabilities
$
20,813

 
$
424,588

 
$
71,719

 
$
—

 
$
517,120

Intercompany payables
220,762

 
195,287

 
1,707

 
(417,756
)
 
—

Closure, post-closure and remedial liabilities, net
—

 
153,190

 
14,656

 
—

 
167,846

Long-term obligations
1,382,543

 
—

 
—

 
—

 
1,382,543

Intercompany debt payable
3,701

 
—

 
260,957

 
(264,658
)
 
—

Other long-term liabilities
—

 
239,049

 
28,588

 
—

 
267,637

Total liabilities
1,627,819

 
1,012,114

 
377,627

 
(682,414
)
 
2,335,146

Stockholders’ equity
1,096,282

 
2,547,307

 
522,067

 
(3,069,374
)
 
1,096,282

Total liabilities and stockholders’ equity
$
2,724,101

 
$
3,559,421

 
$
899,694

 
$
(3,751,788
)
 
$
3,431,428



19

Following is the consolidating statement of operations for the three months ended March 31, 2016 (in thousands):
 
Clean
Harbors, Inc.
 
U.S. Guarantor
Subsidiaries
 
Foreign
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 


Service revenues
$
—

 
$
428,477

 
$
114,023

 
$
(12,269
)
 
$
530,231

Product revenues
—

 
89,588

 
18,713

 
(2,449
)
 
105,852

   Total revenues
—

 
518,065

 
132,736

 
(14,718
)
 
636,083

Cost of revenues (exclusive of items shown separately below)
 
 
 
 
 
 
 
 


Service cost of revenues
—

 
282,964

 
103,291

 
(12,269
)
 
373,986

Product cost of revenues
—

 
79,354

 
13,388

 
(2,449
)
 
90,293

   Total cost of revenues
—

 
362,318

 
116,679

 
(14,718
)
 
464,279

Selling, general and administrative expenses
24

 
80,655

 
23,805

 
—

 
104,484

Accretion of environmental liabilities
—

 
2,290

 
215

 
—

 
2,505

Depreciation and amortization
—

 
48,695

 
20,207

 
—

 
68,902

(Loss) income from operations
(24
)
 
24,107

 
(28,170
)
 
—

 
(4,087
)
Other expense
—

 
(88
)
 
(262
)
 
—

 
(350
)
Interest (expense) income
(20,143
)
 
1,111

 
52

 
—

 
(18,980
)
Equity in earnings of subsidiaries, net of taxes
(8,771
)
 
(26,495
)
 
—

 
35,266

 
—

Intercompany interest income (expense)
—

 
5,159

 
(5,159
)
 
—

 
—

(Loss) income before (benefit) provision for income taxes
(28,938
)
 
3,794

 
(33,539
)
 
35,266

 
(23,417
)
(Benefit) provision for income taxes
(8,067
)
 
12,565

 
(7,044
)
 
—

 
(2,546
)
Net loss
(20,871
)
 
(8,771
)
 
(26,495
)
 
35,266

 
(20,871
)
Other comprehensive income
45,837

 
45,837

 
28,927

 
(74,764
)
 
45,837

Comprehensive income
$
24,966

 
$
37,066

 
$
2,432

 
$
(39,498
)
 
$
24,966


















20

Following is the consolidating statement of operations for the three months ended March 31, 2015 (in thousands):
 
Clean
Harbors, Inc.
 
U.S. Guarantor
Subsidiaries
 
Foreign
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
Service revenues
$
—

 
$
418,517

 
$
193,453

 
$
(15,640
)
 
$
596,330

Product revenues
—

 
116,536

 
23,204

 
(3,571
)
 
136,169

   Total revenues
—

 
535,053

 
216,657

 
(19,211
)
 
732,499

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

 
277,602

 
154,428

 
(15,640
)
 
416,390

Product cost of revenues
—

 
115,286

 
18,402

 
(3,571
)
 
130,117

   Total cost of revenues
—

 
392,888

 
172,830

 
(19,211
)
 
546,507

Selling, general and administrative expenses
25

 
80,984

 
26,706

 
—

 
107,715

Accretion of environmental liabilities
—

 
2,306

 
313

 
—

 
2,619

Depreciation and amortization
—

 
45,801

 
22,555

 
—

 
68,356

(Loss) income from operations
(25
)
 
13,074

 
(5,747
)
 
—

 
7,302

Other income (expense)
—

 
111

 
298

 
—

 
409

Interest (expense) income
(19,639
)
 
178

 
23

 
—

 
(19,438
)
Equity in earnings of subsidiaries, net of taxes
4,709

 
(7,029
)
 
—

 
2,320

 
—

Intercompany interest income (expense)
—

 
5,977

 
(5,977
)
 
—

 
—

(Loss) income before (benefit) provision for income taxes
(14,955
)
 
12,311

 
(11,403
)
 
2,320

 
(11,727
)
(Benefit) provision for income taxes
(7,866
)
 
7,602

 
(4,374
)
 
—

 
(4,638
)
Net (loss) income
(7,089
)
 
4,709

 
(7,029
)
 
2,320

 
(7,089
)
Other comprehensive loss
(77,403
)
 
(77,403
)
 
(50,635
)
 
128,038

 
(77,403
)
Comprehensive loss
$
(84,492
)
 
$
(72,694
)
 
$
(57,664
)
 
$
130,358

 
$
(84,492
)














    

21

Following is the condensed consolidating statement of cash flows for the three months ended March 31, 2016 (in thousands):
 
Clean
Harbors, Inc.
 
U.S. Guarantor
Subsidiaries
 
Foreign
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Net cash from (used in) operating activities
$
47,201

 
$
(3,361
)
 
$
(4,551
)
 
$
—

 
$
39,289

Cash flows used in investing activities:
 

 
 

 
 

 
 
 
 

Additions to property, plant and equipment
—

 
(64,754
)
 
(11,027
)
 
—

 
(75,781
)
Proceeds from sales of fixed assets
—

 
277

 
996

 
—

 
1,273

Acquisitions, net of cash acquired
—

 
(34,993
)
 
—

 
—

 
(34,993
)
Costs to obtain or renew permits
—

 
(465
)
 
(47
)
 
—

 
(512
)
Investment in subsidiaries
(250,625
)
 
—

 
—

 
250,625

 
—

Intercompany
—

 
(6,423
)
 
—

 
6,423

 
—

Net cash used in investing activities
(250,625
)
 
(106,358
)
 
(10,078
)
 
257,048

 
(110,013
)
 
 
 
 
 
 
 
 
 
 
Cash flows from (used in) financing activities:
 

 
 

 
 

 
 
 
 

Change in uncashed checks
—

 
(4,529
)
 
(689
)
 
—

 
(5,218
)
Issuance of restricted shares, net of shares remitted
(1,425
)
 
—

 
—

 
—

 
(1,425
)
Repurchases of common stock
(4,998
)
 
—

 
—

 
—

 
(4,998
)
Deferred financing costs paid
(2,190
)
 
—

 
—

 
—

 
(2,190
)
Issuance of senior secured notes, including premium
250,625

 
250,625

 
—

 
(250,625
)
 
250,625

Intercompany
6,423

 
—

 
—

 
(6,423
)
 
—

Net cash from (used in) financing activities
248,435

 
246,096

 
(689
)
 
(257,048
)
 
236,794

Effect of exchange rate change on cash
—

 
—

 
4,567

 
—

 
4,567

Increase (decrease) in cash and cash equivalents
45,011

 
136,377

 
(10,751
)
 
—

 
170,637

Cash and cash equivalents, beginning of period
11,017

 
83,479

 
90,212

 
—

 
184,708

Cash and cash equivalents, end of period
$
56,028

 
$
219,856

 
$
79,461

 
$
—

 
$
355,345



22

Following is the condensed consolidating statement of cash flows for the three months ended March 31, 2015 (in thousands):
 
Clean
Harbors, Inc.
 
U.S. Guarantor
Subsidiaries
 
Foreign
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Net cash (used in) from operating activities
$
(8,032
)
 
$
85,311

 
$
7,498

 
$
—

 
$
84,777

Cash flows used in investing activities:
 

 
 

 
 

 
 
 
 

Additions to property, plant and equipment
—

 
(37,670
)
 
(15,279
)
 
—

 
(52,949
)
Proceeds from sale of fixed assets
—

 
113

 
647

 
—

 
760

Costs to obtain or renew permits
—

 
—

 
(1,171
)
 
—

 
(1,171
)
Intercompany
—

 
(108,435
)
 
—

 
108,435

 
—

Net cash used in investing activities
—

 
(145,992
)
 
(15,803
)
 
108,435

 
(53,360
)
 
 
 
 
 
 
 
 
 
 
Cash flows from (used in) financing activities:
 

 
 

 
 

 
 
 
 

Change in uncashed checks
—

 
(14,694
)
 
(5,574
)
 
—

 
(20,268
)
Issuance of restricted shares, net of shares remitted
(1,154
)
 
—

 
—

 
—

 
(1,154
)
Repurchases of common stock
(15,379
)
 
—

 
—

 
—

 
(15,379
)
Excess tax benefit of stock-based compensation
5

 
—

 
—

 
—

 
5

Payments of capital leases
—

 
(164
)
 
(234
)
 
—

 
(398
)
Intercompany
108,435

 
—

 
—

 
(108,435
)
 
—

Net cash from (used in) financing activities
91,907

 
(14,858
)
 
(5,808
)
 
(108,435
)
 
(37,194
)
Effect of exchange rate change on cash
—

 
—

 
(7,363
)
 
—

 
(7,363
)
Decrease in cash and cash equivalents
83,875

 
(75,539
)
 
(21,476
)
 
—

 
(13,140
)
Cash and cash equivalents, beginning of period
1,006

 
154,147

 
91,726

 
—

 
246,879

Cash and cash equivalents, end of period
$
84,881

 
$
78,608

 
$
70,250

 
$
—

 
$
233,739

(18) SUBSEQUENT EVENTS

On April 30, 2016, the Company purchased two blending and packaging plants and related assets in New Orleans, Louisiana and Brampton, Ontario. The results of the acquired company will be included in the Kleen Performance Products Segment.


23

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 25, 2016, 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.
Overview

We are North America’s leading provider of environmental, energy and industrial services. We serve a diverse customer base, including a majority of the Fortune 500, 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 spill response, industrial cleaning and maintenance, and recycling services. Through our acquisition in December 2012 of Safety-Kleen, Inc. ("Safety-Kleen"), we are also the largest re-refiner and recycler of used oil in the world and the largest provider of parts cleaning and environmental services to commercial, industrial and automotive customers in North America.

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:

•
Technical Services - Technical Services segment results are predicated upon the demand by our customers for waste services directly attributable to waste volumes generated by them and the existence of project work contracted by the Technical Services segment and/or other segments of Clean Harbors whereby 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 inherent seasonality in the business and weather conditions, market conditions and overall levels of industrial activity, efficiency of our operations, competition and market pricing of our services and the management of our related operating costs.

•
Industrial and Field Services - Industrial and Field Services segment results are 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 pertinent. Management considers the number of plant sites where services are contracted and expected site turnaround schedules to be indicators of the businesses’ performance along with the existence of local or national events.

•
Kleen Performance Products - Kleen Performance Products results are significantly impacted by the overall market pricing and product mix associated with base and blended oil products and more specifically the published prices of Group II base oils, which historically have seen correlation with overall crude oil prices which experienced significant declines for since 2014. Costs associated with used oils, which are raw materials associated with the segment’s products, can also be volatile as was the case for much of 2015 when such costs were disconnected from market pricing of the based and blended oil products sold by the segment. Given the impact of these falling prices, we are now charging disposal rates in order to mitigate the market-derived pressure on our margins and reestablishing a profitable spread. The implementation of our closed loop model resulting in the direct sales of our renewable oil products to end customers will also impact future operating results.

•
SK Environmental Services - SK Environmental Services segment results are significantly impacted by the number of parts washers serviced by the business and the ability to attract small quantity waste producers as customers and

24

integrate them into the Clean Harbors waste network. Performance is also predicated upon the segment management’s ability to manage related costs associated with transportation and the servicing of customers and successfully managing costs associated with the collection of used oils which are then transferred to the Kleen Performance Products segment.

•
Lodging Services - Lodging Services segment results are dependent upon levels of construction and maintenance activity associated with the oil and related industries in the Oil Sands and other regions of Western Canada in which our camps and lodges operate and demand for our modular unit production. Levels of overall activity in these regions drive the demand and related pricing for lodging and camp accommodations and related services. To mitigate the decrease in demand experienced in this business, we have targeted more non-traditional markets such as schools and hospitals to offer our modular unit accommodations and related services. Given that segment's operations are located entirely in Canada, the impact of foreign currency translations which result from changes in the exchange rates between the U.S. and Canadian dollar can significantly impact the amounts associated with overall business results.

•
Oil and Gas Field Services - Oil and Gas Field Services segment results are significantly impacted by overall levels of oil and gas related exploration, drilling activity and production in North America. The levels of such exploration, drilling activity and production are largely dependent upon the number of oil rigs in operation, as well as global and North American oil prices on which such activity levels are strongly predicated. Since the third quarter of 2014, crude oil prices have declined approximately 65%. This recent oil price volatility and future price uncertainty has resulted in lower activity levels which are negatively impacting the business’ results. The majority of the segment's operations are in Canada, and therefore the impact of US to Canadian dollar foreign currency translation also significantly impacts the segment’s results.

Highlights

Total revenues for the three months ended March 31, 2016 decreased 13.2% to $636.1 million from $732.5 million in the comparable period in 2015. Decreases in total revenues were primarily related to continued weakness in crude oil markets, reductions in commodity pricing, weakening of the Canadian dollar and a slowdown in industrial production. SK Environmental Services increased total revenues in the three months ended March 31, 2016 from the comparable period in 2015 primarily due to our recent acquisitions. The weaker Canadian dollar and related effects of foreign currency translation on our Canadian business operations also negatively impacted direct revenues by approximately $12.2 million in the three months ended March 31, 2016 as compared to the comparable period in 2015. Changes in segment revenues are more fully described in our Segment Performance section below.
We reported a loss from operations for the three months ended March 31, 2016 of $4.1 million compared with income from operations of $7.3 million in the three months ended March 31, 2015. Adjusted EBITDA, which is the primary financial measure by which our segments are evaluated, decreased 14.0% to $67.3 million from $78.3 million in the three months ended March 31, 2015. Additional information, including a reconciliation of Adjusted EBITDA to net loss, appears below under the heading "Adjusted EBITDA."




25

Segment Performance

Performance of our segments is evaluated on several factors of which the primary financial measure is Adjusted EBITDA. The following table sets forth certain operating data associated with our results of operations for the three months ended March 31, 2016 and 2015 (in thousands).
 
Summary of Operations (in thousands)
 
For the Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
$
Change
 
%
Change
Third Party Revenues(1):
 
 
 
 
 
 
 
Technical Services
$
219,105

 
$
240,325

 
$
(21,220
)
 
(8.8)%
Industrial and Field Services
121,577

 
146,868

 
(25,291
)
 
(17.2)
Kleen Performance Products
67,543

 
96,807

 
(29,264
)
 
(30.2)
SK Environmental Services
179,418

 
160,684

 
18,734

 
11.7
Lodging Services
15,645

 
34,104

 
(18,459
)
 
(54.1)
Oil and Gas Field Services
32,016

 
53,587

 
(21,571
)
 
(40.3)
Corporate Items
779

 
124

 
655

 
528.2
Total
$
636,083

 
$
732,499

 
$
(96,416
)
 
(13.2)%
Direct Revenues(1):
 

 
 

 
 

 
 
Technical Services
$
254,337

 
$
276,526

 
$
(22,189
)
 
(8.0)%
Industrial and Field Services
114,094

 
140,385

 
(26,291
)
 
(18.7)
Kleen Performance Products
58,135

 
78,549

 
(20,414
)
 
(26.0)
SK Environmental Services
160,671

 
149,102

 
11,569

 
7.8
Lodging Services
15,930

 
34,285

 
(18,355
)
 
(53.5)
Oil and Gas Field Services
32,982

 
54,928

 
(21,946
)
 
(40.0)
Corporate Items
(66
)
 
(1,276
)
 
1,210

 
94.8
Total
636,083

 
732,499

 
(96,416
)
 
(13.2)
Cost of Revenues(2):
 

 
 

 
 

 
 
Technical Services
174,046

 
189,540

 
(15,494
)
 
(8.2)
Industrial and Field Services
97,417

 
114,419

 
(17,002
)
 
(14.9)
Kleen Performance Products
49,374

 
78,224

 
(28,850
)
 
(36.9)
SK Environmental Services
98,055

 
94,530

 
3,525

 
3.7
Lodging Services
13,829

 
25,760

 
(11,931
)
 
(46.3)
Oil and Gas Field Services
30,201

 
47,413

 
(17,212
)
 
(36.3)
Corporate Items
1,357

 
(3,379
)
 
4,736

 
(140.2)
Total
464,279

 
546,507

 
(82,228
)
 
(15.0)
Selling, General & Administrative Expenses:
 

 
 

 
 

 
 
Technical Services
19,893

 
23,585

 
(3,692
)
 
(15.7)
Industrial and Field Services
14,559

 
15,657

 
(1,098
)
 
(7.0)
Kleen Performance Products
4,201

 
4,801

 
(600
)
 
(12.5)
SK Environmental Services
27,121

 
27,323

 
(202
)
 
(0.7)
Lodging Services
1,082

 
1,615

 
(533
)
 
(33.0)
Oil and Gas Field Services
4,175

 
6,112

 
(1,937
)
 
(31.7)
Corporate Items
33,453

 
28,622

 
4,831

 
16.9
Total
104,484

 
107,715

 
(3,231
)
 
(3.0)
Adjusted EBITDA:
 

 
 

 
 

 
 
Technical Services
60,398

 
63,401

 
(3,003
)
 
(4.7)
Industrial and Field Services
2,118

 
10,309

 
(8,191
)
 
(79.5)
Kleen Performance Products
4,560

 
(4,476
)
 
9,036

 
(201.9)
SK Environmental Services
35,495

 
27,249

 
8,246

 
30.3
Lodging Services
1,019

 
6,910

 
(5,891
)
 
(85.3)
Oil and Gas Field Services
(1,394
)
 
1,403

 
(2,797
)
 
(199.4)
Corporate Items
(34,876
)
 
(26,519
)
 
(8,357
)
 
(31.5)
Total
$
67,320

 
$
78,277

 
$
(10,957
)
 
(14.0)%
______________________
1.
Third party revenue is revenue billed to outside customers by a particular segment. 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.


26

Direct Revenues

There are many factors which have impacted, and continue to impact, our revenues. These factors include, but are not limited to: foreign currency translation, acquisitions, general conditions of the oil and gas related industries, competitive industry pricing, the effects of fuel prices on our fuel recovery fees, and the level of emergency response projects.
Technical Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Direct revenues
$
254,337

 
$
276,526

 
$
(22,189
)
 
(8.0
)%
Technical Services direct revenues for the three months ended March 31, 2016 decreased 8.0%, or $22.2 million, from the comparable period in 2015 primarily due to decreased revenues associated with our waste disposal services whereby waste is disposed of through our incinerator and landfill facilities network. This direct revenue decrease was impacted by lower waste volumes disposed of in our landfills, which decreased 33% primarily due to lower oil and gas production waste streams as well as project delays. The utilization rate at our incinerators was 86.6% for the three months ended March 31, 2016, compared with 90.9% in the comparable period of 2015. The decrease in utilization rate in the three months ended March 31, 2016 from the comparable period in 2015 was primarily due to lower overall industrial production as well as an additional five scheduled down days in the quarter ended March 31, 2016.
Industrial and Field Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Direct revenues
$
114,094

 
$
140,385

 
$
(26,291
)
 
(18.7
)%
Industrial and Field Services direct revenues for the three months ended March 31, 2016 decreased 18.7%, or $26.3 million, from the comparable period in 2015. The decrease was primarily due to lower revenue amounts generated from industrial services work performed across Western Canada. Lower activity levels in this region which reduced customer maintenance and turnaround projects were the primary drivers of a $24.0 million decrease in revenues in this region during the three months ended March 31, 2016, from the comparable period in 2015. Inclusive in the year over year changes within this segment were also the negative impacts of foreign currency translation on our Canadian operations of approximately $2.9 million in the three months ended March 31, 2016 from the comparable period in 2015.
Kleen Performance Products
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Direct revenues
$
58,135

 
$
78,549

 
$
(20,414
)
 
(26.0
)%
Kleen Performance Products direct revenues represent third party revenues, which are earned on sales to external customers, reduced by intersegment revenues consisting of amounts paid to the SK Environmental Services segment for collections of used oil which is then further processed into manufacturing base and blended oil products sold by this segment. Direct revenues attributable to the Kleen Performance Products segment decreased 26.0%, or $20.4 million, in the three months ended March 31, 2016 from the comparable period in 2015. Decreases in base and blended pricing accounted for $27.0 million of the decrease from the comparable period in 2015. This negative impact to revenue was partially offset by the lower levels of intersegment revenue related to lower reimbursement to the SK Environmental segment for used oil. As compared to the comparable period in 2015, intersegment revenues were reduced by $8.8 million during the three months ended March 31, 2016. Inclusive in the year over year changes within this segment were also the negative impacts of foreign currency translation on our Canadian operations of approximately $1.9 million in the three months ended March 31, 2016 from the comparable period in 2015.

27

SK Environmental Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Direct revenues
$
160,671

 
$
149,102

 
$
11,569

 
7.8
%
SK Environmental Services direct revenues include intersegment revenues earned from the sale of used oil collections to the Kleen Performance Products segment. SK Environmental Services direct revenues for the three months ended March 31, 2016 increased 7.8%, or $11.6 million, from the comparable period in 2015 primarily due to increased revenues of $15.6 million from the comparable period in 2015 as a result of our recent acquisitions and incremental organic growth. This increase was partially offset by expected reductions in intersegment revenues related to the sale of used oil to the Kleen Performance Products segment due to successful management in our charge-for-oil program.
Lodging Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Direct revenues
$
15,930

 
$
34,285

 
$
(18,355
)
 
(53.5
)%
Lodging Services direct revenues for the three months ended March 31, 2016 decreased 53.5%, or $18.4 million, from the comparable period in 2015 primarily due to decreases in the occupancy rates at our lodges resulting from overall lower activity in oil related industries in Western Canada. The occupancy rate at our primary fixed lodges for the three months ended March 31, 2016 was 23%, compared to 50% in the comparable period in 2015. The decrease in demand also negatively impacted pricing consistent with overall market conditions which, combined with the lower occupancy rate, resulted in a decrease in direct revenue of $11.0 million for the three months ended March 31, 2016 from the comparable period in 2015. Direct revenues derived from our camps and catering services also decreased $7.6 million in the three months ended March 31, 2016 from the comparable period in 2015. Inclusive in the year over year changes within this segment were also the negative impacts of foreign currency translation on our Canadian operations of approximately $1.7 million in the three months ended March 31, 2016 from the comparable period in 2015.
Oil and Gas Field Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Direct revenues
$
32,982

 
$
54,928

 
$
(21,946
)
 
(40.0
)%
Oil and Gas Field Services direct revenues for the three months ended March 31, 2016 decreased 40.0%, or $21.9 million, from the comparable period in 2015 primarily due to lower levels of activity and rig counts serviced by the businesses which negatively impacted the utilization and overall pricing of our rental equipment and production services assets. Rig count serviced by the Oil and Gas Field Services segment decreased approximately 66% in the three months ended March 31, 2016 from the comparable period in 2015. Project cancellations and lower exploration budgets of our customers decreased overall activity levels in the marketplace, which also negatively impacted results in 2016. Inclusive in the year over year changes within this segment was also the negative impact of foreign currency translation on our Canadian operations of approximately $2.1 million in the three months ended March 31, 2016 from the comparable period in 2015.
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, and implementation of strategic sourcing and other cost reduction initiatives in an effort to improve our operating margins.

28

Technical Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Cost of revenues
$
174,046

 
$
189,540

 
$
(15,494
)
 
(8.2
)%
As a % of Direct Revenue
68.4
%
 
68.5
%
 
 
 
(0.1
)%
Technical Services cost of revenues for the three months ended March 31, 2016 decreased 8.2%, or $15.5 million, from the comparable period in 2015 due to decreases in transportation and fuel cost of $5.4 million, raw material costs of $3.2 million, repairs and maintenance costs of $1.4 million, labor related costs of $1.3 million and equipment rental costs of $0.9 million. As a percentage of revenues, our costs remained consistent in the three months ended March 31, 2016 as compared to the comparable period in 2015.
Industrial and Field Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Cost of revenues
$
97,417

 
$
114,419

 
$
(17,002
)
 
(14.9
)%
As a % of Direct Revenue
85.4
%
 
81.5
%
 
 
 
3.9
 %
Industrial and Field Services cost of revenues for the three months ended March 31, 2016 decreased 14.9%, or $17.0 million, from the comparable period in 2015, primarily due to decreases in labor related costs of $4.6 million, equipment rental costs of $4.4 million, transportation and fuel cost of $2.4 million and raw material costs of $0.6 million. Costs of revenues as a percentage of direct revenue increased 3.9% for the three months ended March 31, 2016 from the comparable period in 2015 primarily due to the decreased overall revenue levels experienced during the first three months of 2016 which outpaced decreases in cost structure.
Kleen Performance Products
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Cost of revenues
$
49,374

 
$
78,224

 
$
(28,850
)
 
(36.9
)%
As a % of Direct Revenue
84.9
%
 
99.6
%
 
 
 
(14.7
)%
Kleen Performance Products cost of revenues for the three months ended March 31, 2016 decreased 36.9%, or $28.9 million, from the comparable period in 2015. The decrease in costs was driven by the value of higher priced used oil inventory consumed during the first three months of 2015 in the amount of $18.0 million, which did not occur in the comparable period in 2016. In addition, there were decreases in transportation and fuel costs of $2.0 million, oil additives and other raw material costs of $1.8 million, equipment rental costs of $0.6 million and utility costs of $0.5 million. As a percentage of revenues, these costs decreased 14.7% in the three months ended March 31, 2016 from the comparable period in 2015 primarily as a result of the higher inventory cost that was realized during the first three months of 2015 that did not occur in the comparable period in 2016.
SK Environmental Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Cost of revenues
$
98,055

 
$
94,530

 
$
3,525

 
3.7
 %
As a % of Direct Revenue
61.0
%
 
63.4
%
 
 
 
(2.4
)%
SK Environmental Services cost of revenues for the three months ended March 31, 2016 increased 3.7%, or $3.5 million, from the comparable period in 2015 due to an increase in labor related costs of $6.4 million primarily due to our recent acquisitions partially offset by a decrease in oil additives and other raw material costs of $3.2 million. As a percentage of revenues, these costs decreased 2.4% in the three months ended March 31, 2016 from the comparable period in 2015. The improved margins were most significantly impacted by the lower used oil collection costs.

29

Lodging Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Cost of revenues
$
13,829

 
$
25,760

 
$
(11,931
)
 
(46.3
)%
As a % of Direct Revenue
86.8
%
 
75.1
%
 
 
 
11.7
 %
Lodging Services cost of revenues for the three months ended March 31, 2016 decreased 46.3%, or $11.9 million, from the comparable period in 2015. This change was primarily due to decreases in catering costs of $4.1 million, labor costs of $3.8 million and equipment rental costs of $1.6 million during the three months ended March 31, 2016 from the comparable period in 2015. These decreases were the result of overall lower demand for lodging segment services as overall activity in the regions in which the business operates declined. As a percentage of direct revenues, these costs increased 11.7% in the three months ended March 31, 2016 from the comparable period in 2015 as certain fixed costs incurred in the operations of our camps and lodges could not be reduced proportionate to the pricing and activity declines in the business.
Oil and Gas Field Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Cost of revenues
$
30,201

 
$
47,413

 
$
(17,212
)
 
(36.3
)%
As a % of Direct Revenue
91.6
%
 
86.3
%
 
 
 
5.3
 %
Oil and Gas Field Services cost of revenues for the three months ended March 31, 2016 decreased 36.3%, or $17.2 million, from the comparable period in 2015 primarily due to decreases in labor related costs $10.9 million, equipment rental costs of $2.1 million and transportation and fuel costs of $1.2 million. As a percentage of direct revenues, these costs increased 5.3% in the three months ended March 31, 2016 from the comparable period in 2015. This increase resulted from certain fixed costs incurred which could not be reduced proportionate to the overall lower revenue generated.
Selling, General and Administrative Expenses ("SG&A")
Selling, General and Administrative Expenses represent costs incurred in aspects of our business which are not directly attributable to the sale of our services and/or products. We strive to manage such costs commensurate with the overall performance of our segments and corresponding revenue levels. We believe that the 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.
Technical Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
SG&A
$
19,893

 
$
23,585

 
$
(3,692
)
 
(15.7
)%
As a % of Direct Revenue
7.8
%
 
8.5
%
 
 
 
(0.7
)%
Technical Services selling, general and administrative expenses for the three months ended March 31, 2016 decreased 15.7%, or $3.7 million, from the comparable period in 2015 due to decreases in variable compensation of $0.7 million, travel costs of $0.6 million and changes in estimates for environmental liabilities of $1.8 million as a result of an increase in the prior year that did not reoccur.

30

Industrial and Field Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
SG&A
$
14,559

 
$
15,657

 
$
(1,098
)
 
(7.0
)%
As a % of Direct Revenue
12.8
%
 
11.2
%
 
 
 
1.6
 %
Industrial and Field Services selling, general and administrative expenses for the three months ended March 31, 2016 decreased 7.0%, or $1.1 million, from the comparable period in 2015 primarily due to a decrease in variable compensation of $0.6 million. As a percentage of direct revenues, selling, general and administrative expense increased 1.6% in the three months ended March 31, 2016 from the comparable period in 2015 primarily due to the decreased overall revenue levels experienced during the first three months of 2016 which outpaced decreases in SG&A.
Kleen Performance Products
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
SG&A
$
4,201

 
$
4,801

 
$
(600
)
 
(12.5
)%
As a % of Direct Revenue
7.2
%
 
6.1
%
 
 
 
1.1
 %
Kleen Performance Products selling, general and administrative expenses remained consistent for the three months ended March 31, 2016 as compared to the comparable period in 2015. As a percentage of direct revenues, selling, general and administrative expense increased 1.1% in the three months ended March 31, 2016 from the comparable period in 2015 primarily due to the decreased overall revenue levels experienced during the first three months of 2016 which outpaced decreases in SG&A.
SK Environmental Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
SG&A
$
27,121

 
$
27,323

 
$
(202
)
 
(0.7
)%
As a % of Direct Revenue
16.9
%
 
18.3
%
 
 
 
(1.4
)%
SK Environmental Services selling, general and administrative expenses remained consistent for the three months ended March 31, 2016 as compared to the comparable period in 2015. As a percentage of direct revenues, selling, general and administrative expense decreased 1.4% in the three months ended March 31, 2016 from the comparable period in 2015 primarily due to the increased overall revenue levels experienced during the first three months of 2016 which outpaced increases in SG&A.
Lodging Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
SG&A
$
1,082

 
$
1,615

 
$
(533
)
 
(33.0
)%
As a % of Direct Revenue
6.8
%
 
4.7
%
 
 
 
2.1
 %
Lodging Services selling, general and administrative expenses remained consistent for the three months ended March 31, 2016 as compared to the comparable period in 2015. As a percentage of direct revenues, selling, general and administrative expense increased 2.1% in the three months ended March 31, 2016 from the comparable period in 2015 as certain fixed costs incurred in the operations of our camps and lodges could not be reduced proportionate to the pricing declines seen in the business.

31

Oil and Gas Field Services
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
SG&A
$
4,175

 
$
6,112

 
$
(1,937
)
 
(31.7
)%
As a % of Direct Revenue
12.7
%
 
11.1
%
 
 
 
1.6
 %
Oil and Gas Field Services selling, general and administrative expenses for the three months ended March 31, 2016 decreased 31.7%, or $1.9 million, in the three months ended March 31, 2016 from the comparable period in 2015 primarily due to decreases in labor costs of $0.8 million, professional fees of $0.2 million and travel costs of $0.2 million. As a percentage of direct revenues selling, general and administrative expense increased 1.6% in the three months ended March 31, 2016 from the comparable period in 2015 primarily because certain fixed costs incurred could not be reduced proportionate to the overall lower business activity.
Corporate Items
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
SG&A
$
33,453

 
$
28,622

 
$
4,831

 
16.9
%
Corporate Items selling, general and administrative expenses for the three months ended March 31, 2016 increased 16.9%, or $4.8 million in the three months ended March 31, 2016 from the comparable period in 2015 primarily due to increased severance costs of $2.7 million as well as increased changes in estimates for environmental liabilities of $1.4 million due to reductions in the prior year that did not reoccur. These increases were partially offset by cost savings initiatives of $2.0 million.
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 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 may not be comparable to similarly titled measures reported by other companies.
 
For the Three Months Ended
 
2016
 
2015
 
$
Change
 
%
Change
Adjusted EBITDA:
 

 
 

 
 

 
 
Technical Services
$
60,398

 
$
63,401

 
$
(3,003
)
 
(4.7)%
Industrial and Field Services
2,118

 
10,309

 
(8,191
)
 
(79.5)
Kleen Performance Products
4,560

 
(4,476
)
 
9,036

 
(201.9)
SK Environmental Services
35,495

 
27,249

 
8,246

 
30.3
Lodging Services
1,019

 
6,910

 
(5,891
)
 
(85.3)
Oil and Gas Field Services
(1,394
)
 
1,403

 
(2,797
)
 
(199.4)
Corporate Items
(34,876
)
 
(26,519
)
 
(8,357
)
 
(31.5)
Total
$
67,320

 
$
78,277

 
$
(10,957
)
 
(14.0)%
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 and to our board of directors and 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 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.

32

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 to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance on a standalone and a comparative basis.
The following is a reconciliation of net income to Adjusted EBITDA for the following periods (in thousands):
 
For the Three Months Ended
 
March 31,
 
2016
 
2015
Net loss
$
(20,871
)
 
$
(7,089
)
Accretion of environmental liabilities
2,505

 
2,619

Depreciation and amortization
68,902

 
68,356

Other expense (income)
350

 
(409
)
Interest expense, net
18,980

 
19,438

Benefit for income taxes
(2,546
)
 
(4,638
)
Adjusted EBITDA
$
67,320

 
$
78,277

 
Depreciation and Amortization
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Depreciation of fixed assets and landfill amortization
$
59,341

 
$
57,355

 
$
1,986

 
3.5
 %
Permits and other intangibles amortization
9,561

 
11,001

 
(1,440
)
 
(13.1
)
Total depreciation and amortization
$
68,902

 
$
68,356

 
$
546

 
0.8
 %
 
Depreciation and amortization increased $0.5 million for the three months ended March 31, 2016 from the comparable period in 2015 primarily due to a larger fixed asset base as a result of our recent acquisitions partially offset by lower amortization.
Benefit for Income Taxes
 
For the Three Months Ended
 
March 31,
 
2016 over 2015
 
2016
 
2015
 
$
Change
 
%
Change
Benefit for income taxes
$
(2,546
)
 
$
(4,638
)
 
$
2,092

 
(45.1
)%
Income tax benefit for the three months ended March 31, 2016 decreased $2.1 million as compared to the comparable period in 2015. The decrease is a primarily due to not recognizing income tax benefits from current operating losses related to certain Canadian entities. If such losses were able to be currently recognized through our estimated annual effective tax rate, the benefit for income taxes for the three months ended March 31, 2016 would have been approximately $10.4 million.    

33

Liquidity and Capital Resources 
 
For the Three Months Ended
(in thousands)
2016
 
2015
Net cash from operating activities
$
39,289

 
$
84,777

Net cash used in investing activities
(110,013
)
 
(53,360
)
Net cash from financing activities
236,794

 
(37,194
)
Net cash from operating activities
Net cash from operating activities for the three months ended March 31, 2016 was $39.3 million, a decrease of 53.7%, or $45.5 million, compared with net cash from operating activities for the comparable period in 2015. The change was primarily the result of a net increase in working capital driven by timing associated with payment of liabilities in first three months of 2016 from the comparable period in 2015 as well as increases in inventory.
Net cash used in investing activities
Net cash used in investing activities for the three months ended March 31, 2016 was $110.0 million, an increase of 106.2%, or $56.7 million, compared with cash used in investing activities for the comparable period in 2015. The change was primarily driven by an increase in cash paid for acquisitions in the first three months of 2016 and an increase in capital expenditures, which was inclusive of $21.0 million in costs related to the construction of the new incinerator at our El Dorado, Arkansas facility.
Net cash from financing activities
Net cash from financing activities for the three months ended March 31, 2016 was $236.8 million, compared with cash used for financing activities of $37.2 million for the comparable period in 2015. The change was primarily due to the issuance on March 17, 2016 of $250.0 million in aggregate principle amount of 5.125% senior notes due 2021.
Working Capital
At March 31, 2016, cash and cash equivalents totaled $355.3 million, compared to $184.7 million at December 31, 2015. At March 31, 2016, cash and cash equivalents held by our foreign subsidiaries totaled $79.5 million and were readily convertible into other foreign currencies including U.S. dollars. At March 31, 2016, the cash and cash equivalent balance for our U.S. operations was $275.9 million, and our U.S. operations had net operating cash flows of $43.8 million for the three months ended March 31, 2016. Additionally, we have a $400.0 million revolving credit facility of which approximately $156.4 million was available to borrow at March 31, 2016. Based on the above and on our current plans, we believe that our U.S. operations have adequate financial resources to satisfy their liquidity needs without being required to repatriate earnings from foreign subsidiaries. Accordingly, although repatriation to the U.S. of foreign earnings would generally be subject to U.S. income taxation, net of any available foreign tax credits, 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 $800.0 million principal amount of 5.25% senior unsecured notes due 2020 and $845.0 million principal amount of 5.125% senior unsecured notes due 2021 which were outstanding at March 31, 2016, and our $400.0 million revolving credit facility, are discussed further in Note 10, “Financing Arrangements,” to our consolidated financial statements included herein.
As of March 31, 2016, 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.

34

Common Stock Repurchase Program
On March 13, 2015, our Board of Directors authorized the repurchase of up to $300 million of our common stock. We intend to fund the repurchases through available cash resources. The repurchase program authorizes us to purchase our common stock on the open market from time to time. The share repurchases have been and will be made in a manner that complies with applicable U.S. securities laws. The number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, cash required for future business plans, trading volume and other conditions.  We have no obligation to repurchase stock under this program and may suspend or terminate the repurchase program at any time. During the three months ended March 31, 2016, we repurchased and retired a total of 0.1 million shares of our common stock for a total cost of $5.0 million. Through March 31, 2016, we have repurchased and retired a total of 3.5 million shares of our common stock for a total cost of $182.7 million under this program. As of March 31, 2016, an additional $117.3 million remains available for repurchase of shares under the current authorized program.
Environmental Liabilities
(in thousands)
March 31, 2016
 
December 31, 2015
 
$ Change
 
% Change
Closure and post-closure liabilities
$
58,090

 
$
56,249

 
$
1,841

 
3.3
 %
Remedial liabilities
131,379

 
131,992

 
(613
)
 
(0.5
)
Total environmental liabilities
$
189,469

 
$
188,241

 
$
1,228

 
0.7
 %
Total environmental liabilities as of March 31, 2016 were $189.5 million, an increase of 0.7%, or $1.2 million, compared to the liabilities as of a comparable date in 2015 primarily due to expenditures of $3.5 million partially offset by accretion of $2.5 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 2016 capital spending will be approximately $200 million. This includes the construction of the new incinerator at our El Dorado, Arkansas facility, which will likely add $50 million in 2016. However, changes in environmental regulations 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 2016 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, 2015.
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 the 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 Step II analysis of the fair value of all the elements of the reporting unit is performed to determine if and to what degree goodwill is impaired. The loss, if any, is measured as the excess of the carrying value of the goodwill over the value of the goodwill implied by the results of the Step II analysis.

We determine our reporting units by identifying the components of each operating segment, and then in some circumstances aggregate components having similar economic characteristics based on quantitative and/or qualitative factors. We have determined that, as of both December 31, 2015 and March 31, 2016, we have seven reporting units. Our Technical Services, Kleen Performance Products, SK Environmental Services, Lodging Services and Oil and Gas Field Services segments each constitute a reporting unit. Our Industrial and Field Services segment includes two separate reporting units: Industrial Services and Field Services.

We conducted our annual impairment test of goodwill for all of our reporting units to which goodwill is allocated as of December 31, 2015 and determined that no adjustment to the carrying value of goodwill for any reporting unit was then necessary. In all cases except for our Kleen Performance Products reporting unit, the estimated fair values of each reporting unit significantly exceeded their carrying values. The annual impairment test fair value for all of our reporting units is determined using an income

35

approach (a discounted cash flow analysis) which incorporates several underlying estimates and assumptions with varying degrees of uncertainty. The discounted cash flow analyses include estimated cash flows for a discrete five year future period and for a terminal period thereafter. In all instances, we corroborate our estimated fair values by also considering other factors such as the fair value of comparable companies to businesses contained in our reporting units. As part of the annual test we also perform a reconciliation of the total estimated fair values of all reporting units to our market capitalization.
During the three months ended March 31, 2016, we continued to evaluate the Kleen Performance Products reporting unit’s performance and monitor for events or changes in circumstances which might indicate that the estimated fair value of the Kleen Performance Products reporting unit was below its carrying value. No such events or changes in circumstances existed in the three months ended March 31, 2016.

Other Long-Lived Assets. As of March 31, 2016, the Oil and Gas Field Services reporting unit had other long-lived assets consisting of: property, plant and equipment, net of $153.9 million and intangible assets of $13.7 million. In consideration of the reporting unit's continued lower than historical results and overall slowdown in the oil and gas related industries, we continue to monitor the carrying value of the segment's long-lived assets and assess the risk of asset impairment. As a result of analyses performed as of March 31, 2016, we concluded that no events or circumstances have arisen which would indicate that the carrying values of the assets are not recoverable.

We will continue to evaluate all of our goodwill and other long lived assets impacted by economic downturns in oil and energy related markets in which they operate. If further economic difficulties resulting from depressed oil and gas related pricing and lower overall activity levels continue for a significant foreseeable period of time, impairments may result and be recorded relative to our long-lived assets or goodwill held by businesses impacted by the oil and gas related markets.

ITEM 3.                             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
There were no material changes in the first three months of 2016 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, 2015.

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, 2016 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, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

36

CLEAN HARBORS, INC. AND SUBSIDIARIES

PART II—OTHER INFORMATION

ITEM 1.                         LEGAL PROCEEDINGS
See Note 14, “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, 2016, 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, 2015. 
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, 2016 through January 31, 2016
15,240

 
$
41.68

 
—

 
$
122,311,562

February 1, 2016 through February 29, 2016
1,650

 
$
43.39

 
—

 
$
122,311,562

March 1, 2016 through March 31, 2016
181,118

 
$
47.03

 
104,200

 
$
117,313,619

Total
198,008

 
$
46.59

 
104,200

 
$
117,313,619

______________________
(1)
Includes 93,808 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 March 13, 2015, the Company's board of directors authorized the repurchase of up to $300 million of the Company's common stock. 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 from time to time. The stock repurchases have been and will be made in a manner that complies with applicable U.S. securities laws. The number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, cash required for future business plans, trading volume and other conditions. 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

ITEM 6.                         EXHIBITS
Item No.
 
Description
 
Location
31.1
 
Rule 13a-14a/15d-14(a) Certification of the CEO Alan S. McKim
 
Filed herewith
 
 
 
 
 
31.2
 
Rule 13a-14a/15d-14(a) Certification of the CFO Michael L. Battles
 
Filed herewith
 
 
 
 
 
32
 
Section 1350 Certifications
 
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 March 31, 2016, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Comprehensive Income (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

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 and Chief Executive Officer
 
 
 
 
Date:
May 4, 2016
 
 
 
 
 
 
 
 
By:
/s/  MICHAEL L. BATTLES
 
 
 
Michael L. Battles
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
Date:
May 4, 2016
 


39

CLEAN HARBORS INC Reports