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Item 7. Management’s Discussion and Analysis

2021-02-24 compared with 2020-02-26 · 222 added, 178 removed, 286 unchanged (58% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are North America’s leading provider of environmental, energy and industrial services supporting our customers in finding environmentally responsible solutions to further their sustainability goals in today's world.

We are North America’s leading provider of environmental and industrial services supporting our customers in finding environmentally responsible solutions to further their sustainability goals in today's world.

Everywhere industry meets the environment, we strive to provide eco-friendly products and services that protect and restore North America's natural environment.

We believe we operate, in the aggregate, the largest number of hazardous waste incinerators, landfills and treatment, storage and disposal facilities ("TSDFs") in North America.

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(i) the Environmental Services segment and (ii) the Safety-Kleen segment.

Performance of our segments is evaluated on several factors of which the primary financial measure is Adjusted EBITDA as described more fully below.

Performance of our segments is evaluated on several factors of which the primary financial measure is Adjusted EBITDA, as reconciled to our net income and described more fully below.

The following is a discussion of how management evaluates its segments including key performance indicators that management uses to assess the segments’ results, as well as certain macroeconomic trends and influences that impact each reportable segment:

• Environmental Services - Environmental Services segment results are predicated upon the demand by our customers for waste services directly attributable to waste volumes generated by them and project work for which waste handling and/or disposal is required.

In managing the business and evaluating performance, management tracks the volumes and mix of waste handled and disposed of through our owned incinerators and landfills, as well as utilization of such incinerators, labor and billable hours and equipment among other key metrics.

In managing the business and evaluating performance, management tracks the volumes and mix of waste handled and disposed of through our incinerators, TSDFs and landfills, as well as utilization of such incinerators, labor and billable hours and equipment among other key metrics.

Levels of activity and ultimate performance associated with this segment can be impacted by several factors including overall U.S.

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Environmental Services results are also impacted by the demand for planned and unplanned industrial related cleaning and maintenance services at customer sites and for environmental cleanup services on a scheduled or emergency basis, including response to national events such as major chemical spills, natural disasters or other events where immediate and specialized services are required.

As a result of the recent coronavirus ("COVID-19") pandemic, the business has also seen increased demand for contagion disinfection, decontamination and disposal response services.

• Safety-Kleen - Safety-Kleen segment results are impacted by an array of core service and product offerings that serve to attract small quantity waste producers as customers and integrate them into the Clean Harbors waste network.

Core service offerings include parts washer services, containerized waste services, vac services, used motor oil collection and contract blending and packaging services.

Key performance indicators tracked by the Company relative to these services include the number of parts washer services performed and pricing and volume of used motor oil and waste collected.

Results from these services are primarily driven by the overall number of parts washers placed at customer sites and volumes of waste collected, as well as the demand for and frequency of other offered services.

These factors can be impacted by overall economic conditions in the marketplace, especially in the automotive related area.

In addition to its core service offerings, Safety-Kleen offers high quality recycled base and blended oil products to end users including fleet customers, distributors and manufacturers of oil products.

Key performance indicators tracked by the Company relative to these services include the number of parts washers placed and services performed and pricing and volume of used motor oil and waste collected.

Results from these services are primarily driven by the overall number of parts washers placed and services performed at customer sites and volumes of waste collected, as well as the demand for and frequency of other offered services.

These factors can be impacted by overall economic conditions in the marketplace, especially in the automotive and manufacturing related areas.

Both the overall market price of oil and regulations that change the number of potential outlets for used motor oil, including the International Maritime Organization's 2020 regulation, impact the premium the segment can charge for used motor oil collections.

In addition to its core service offerings, Safety-Kleen also offers high quality, eco-friendly recycled base and blended oil products to end users including fleet customers, distributors and manufacturers of oil products.

Other product offerings include automotive related fluids and shop supplies.

Relative to its oil related products, management tracks the Company's volumes and relative percentages of base and blended oil sales along with various pricing metrics associated with the commodity driven marketplace.

The segment’s results are significantly impacted by overall market pricing and product mix associated with base and blended oil products and, more specifically, the market prices of Group II base oils.

Costs incurred in connection with the collection of used oil and other raw materials associated with the segment’s oil related products can also be volatile.

The segment’s revenues are significantly impacted by overall market pricing and product mix associated with base and blended oil products.

The segment's results are impacted by the Company's ability to manage the pricing for used oil collections with the overall market pricing for base and blended oil products.

Costs incurred in connection with the collection of used oil and other raw materials associated with the segment’s oil related products can also fluctuate.

Our OilPlus ® closed loop initiative, which results in the sale of our renewable oil products directly to our end customers, may also be impacted by changes in customer demand for high-quality, environmentally responsible recycled oil.

Total revenues for 2019 increased 3.4% to $3.4 billion , compared with $3.3 billion in 2018 .

Our Environmental Services segment increased direct revenues $95.9 million in 2019 compared with 2018 due to greater activity at our sales and service branches and improvements in average pricing which was driven by a more profitable mix of waste streams across our incinerator network.

Direct revenues recorded by Safety-Kleen increased $16.8 million in 2019 compared to 2018 as a result of continued growth across Safety-Kleen’s core service offerings and higher volumes of blended oil sales.

Foreign currency

translation of our Canadian operations negatively impacted our consolidated direct revenues by $12.9 million in 2019 as compared to 2018 .

Impacts of COVID-19

Corporate Response

In response to the COVID-19 pandemic, the Company created a dedicated crisis response team to proactively monitor and respond to Company and customer operations, implement plans to execute on opportunities from COVID-19 related decontamination services and enhance health and safety measures for all our employees as well as customers to which we have provided these services.

Health and safety is our #1 priority.

Our commitment to ensuring the health and safety of our employees, particularly those performing COVID-19 decontamination services for our customers is a pillar of our overall corporate culture.

During the pandemic, we have been able to successfully supply our employees with appropriate personal protective equipment ("PPE") for use in servicing our customers in the field and working at our operational and administrative facilities.

To support the safety of all of our employees and operations, early precautionary measures were implemented including actively monitoring and reporting employee illness, acquiring and maintaining adequate levels of PPE inventory, suspending non-essential travel, limiting the number of employees attending meetings and reducing the number of people at our locations at any one time.

In an effort to contain COVID-19, governments have enacted various measures, including orders to close non-essential businesses and personal and commercial travel restrictions.

Operations at our facilities complied with government ordered shutdowns and reopening plans.

The COVID-19 pandemic continues to be an evolving situation.

We continue to monitor changes in the various locations in which we operate and adapt our protocols accordingly as well as on a proactive basis wherever possible.

Impact on Our Financial Statements and Business Operations

The COVID-19 pandemic has resulted in economic disruption.

The Company's financial results for the year ended December 31, 2020 were significantly impacted by the COVID-19 pandemic.

In the latter half of March 2020 and throughout the remainder of the year, we were measurably impacted by an overall slowdown in economic activity which included temporary closures at some of our customer sites and rising general uncertainty about future economic activity.

As we began to see the increased levels of operations at our customers during the third and fourth quarters of 2020, our financial results, including direct revenues and Adjusted EBITDA, improved for both segments when compared to the second quarter of 2020.

In our Environmental Services segment, lower activity levels during 2020 and shutdowns of customers' operations decreased the level of our services that were required and the quantities of commercial and industrial waste disposed of throughout our network of facilities.

Lower demand for oil and overall price declines in the global oil market, resulting from COVID-19, negatively impacted the level of environmental services we provided to our customers in that market.

We continue to see significant demand for disinfecting, decontamination and disposal related emergency response services specifically in response to COVID-19.

The Company completed nearly 14,000 projects responding specifically to the risk of COVID-19, amounting to $120.4 million of direct revenues during the year ended December 31, 2020.

Although uncertain as to the prevalence of such services in 2021, we do expect demand for these COVID-19 response services to continue.

The increased level of this emergency response work, however, did not overcome the decline in Company revenues lost due to the impacts of the COVID-19 pandemic.

We expect that the services provided by our Safety-Kleen segment will continue to be impacted by less automotive related travel and any temporary customer shutdowns reducing demand for Safety-Kleen core services and products.

We have observed declining demand in the primary sectors impacting this business including the overall automotive sector, as consumer activity lags historical levels across the United States and Canada.

Lower oil related demand and price declines in the global oil market, exacerbated by COVID-19 impacts, reduced revenues generated by the business in 2020.

In response to the impact on the Safety-Kleen business and in particular the reduced availability of used motor oils which are utilized as feedstock in our re-refining processes and reduced demand for base and blended oil products, we temporarily shuttered nearly half of the total production capacity of our oil re-refineries in April 2020.

However, by the end of 2020, our re-refinery production capacity has returned to mid-2019 levels.

The Company considered the impact of COVID-19 on the assumptions and estimates used in the preparation of the financial statements and did not identify any significant changes in estimates.

Specifically, management concluded that there had not been any triggering events requiring further assessment of asset impairments and that our goodwill and indefinite lived intangible assets were valued appropriately based on our annual evaluation as of December 31, 2020.

Management also assessed the extent to which the current macroeconomic events brought about by COVID-19 and significant declines in oil demand may have impacted the valuation of expected credit losses on accounts receivable and certain inventory items or resulted in modifications to any significant contracts.

Ultimately the results of these assessments did not have a material impact on the Company's estimates as of December 31, 2020.

Impact of Government Programs

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law in response to the widespread economic impact of the COVID-19 pandemic.

On April 11, 2020, the Canadian federal government enacted the COVID-19 Emergency Response Act, No.2, which implemented the Canada Emergency Wage Subsidy ("CEWS").

Since the establishment of these programs, management has considered and analyzed the Company's eligibility under such government programs.

Most significantly, the Company applied for certain employee retention credits under the CARES Act and the wage subsidy under the CEWS.

Although the Company did implement certain cost reduction plans associated with labor in the second quarter of 2020, these government programs allowed our workforce to remain stable during the temporary slowdown in activity.

The table below summarizes the benefit of these government programs recorded in the statement of operations for the year ended December 31, 2020 (in thousands):

For the year ended December 31, 2020

Environmental Services Safety-Kleen Corporate Items Total

Cost of revenues $ 20,827 $ 7,665 $ 611 $ 29,103

Selling, general and administrative expenses 6,276 4,534 2,370 13,180

Total $ 27,103 $ 12,199 $ 2,981 $ 42,283

In addition to the credits and subsidies outlined above, which do not require any repayment to be made by the Company, the CARES Act also allows for the deferral of payment related to certain payroll taxes.

In total, we deferred the remittance of the employer portion of federal payroll tax withholdings of $35.4 million during the year ended December 31, 2020, which will be required to be paid in two equal installments in the fourth quarters of 2021 and 2022.

Total direct revenues for 2020 decreased 7.9% to $3.1 billion, compared with $3.4 billion in 2019.

Our Environmental Services segment direct revenues decreased $99.8 million in 2020 compared with 2019 primarily due to lower demand for our industrial and technical related services.

Lower overall economic activity due to the COVID-19 pandemic most notably reduced the demand for industrial turnaround, environmental remediation and waste disposal projects.

This decrease was partially offset by increased emergency response decontamination services in the wake of the COVID-19 pandemic.

Direct revenues recorded by Safety-Kleen decreased $167.9 million in 2020 compared to 2019, predominately due to lower demand across the Safety-Kleen portfolio of products and core services also resulting from overall lower economic activity, customer shutdowns as well as lower oil demand and pricing driven by the COVID-19 pandemic.

Increased direct revenues from used motor oil collection partially offset these decreases in the Safety-Kleen segment.

Foreign currency translation of our Canadian operations negatively impacted our consolidated direct revenues by $3.8 million in 2020 as compared to 2019.

Income from operations in 2020 was $251.3 million, compared with $229.5 million in 2019.

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Adjusted EBITDA, which is the primary financial measure by which our segments are evaluated, increased 2.8% to $555.3 million in 2020 from $540.3 million in 2019.

The increased level of Adjusted EBITDA in 2019 was primarily attributable to higher revenue amounts as described above and improved operating margins.

Our relatively consistent levels of Adjusted EBITDA in 2020, despite the notable decline in direct revenues, can be attributed to cost reduction strategies put in place by the Company, improved mix of revenue generating services and benefits received from the government programs discussed above.

Additional information regarding Adjusted EBITDA, which is a non-GAAP measure, including a reconciliation of Adjusted EBITDA to net income, appears below under "Adjusted EBITDA."

Net cash from operating activities for 2020 was $430.6 million, an increase of $17.4 million from 2019.

Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was $208.5 million in 2019 , which represented a $13.2 million increase over 2018 primarily due to greater levels of operating income and lower levels of working capital, which was due in part to a change in timing of interest payments associated with the debt refinancing completed in the third quarter of 2019.

These increases were partially offset by increased capital and environmental spending.

Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was $265.0 million in 2020, which represented a $56.5 million increase over 2019 primarily due to higher earnings, lower capital expenditures, and benefits received from the government programs discussed above.

Additional information regarding adjusted free cash flow, which is a non-GAAP measure, including a reconciliation of adjusted free cash flow to net cash from operating activities, appears below under " Adjusted Free Cash Flow ."

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Summary of Operations

For the years ended December 31,

2019 over 2018

2018 over 2017

For the years ended December 31, 2020 over 2019 2019 over 2018

2020 2019 2018 $ Change % Change $ Change % Change

Direct Revenues (1) :

Environmental Services $ 2,137,306 $ 2,237,068 $ 2,141,194 $ (99,762) (4.5)% $ 95,874 4.5%

Corporate Items

Safety-Kleen 1,010,202 1,178,129 1,161,282 (167,927) (14.3) 16,847 1.5

Corporate Items (3,411) (3,007) (2,173) (404) N/M (834) N/M

Total 3,144,097 3,412,190 3,300,303 (268,093) (7.9) 111,887 3.4

Cost of Revenues (2) :

Environmental Services 1,459,572 1,620,038 1,576,705 (160,466) (9.9) 43,333 2.7

Corporate Items

Safety-Kleen 658,116 749,407 725,734 (91,291) (12.2) 23,673 3.3

Corporate Items 20,063 18,374 3,112 1,689 N/M 15,262 N/M

Total 2,137,751 2,387,819 2,305,551 (250,068) (10.5) 82,268 3.6

Selling, General and Administrative Expenses:

Environmental Services 157,774 170,746 183,633 (12,972) (7.6) (12,887) (7.0)

Safety-Kleen 122,914 146,344 153,519 (23,430) (16.0) (7,175) (4.7)

Corporate Items 170,356 166,964 166,595 3,392 2.0 369 0.2

Total 451,044 484,054 503,747 (33,010) (6.8) (19,693) (3.9)

Adjusted EBITDA:

Environmental Services 519,960 446,284 380,856 73,676 16.5 65,428 17.2

Safety-Kleen 229,172 282,378 282,029 (53,206) (18.8) 349 0.1

Corporate Items (193,830) (188,345) (171,880) (5,485) (2.9) (16,465) (9.6)

Total $ 555,302 $ 540,317 $ 491,005 $ 14,985 2.8% $ 49,312 10.0%

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Direct Revenues

There are many factors which have impacted and continue to impact our revenues.

These factors include, but are not limited to:

overall industrial activity and growth in North America, existence or non-existence of large scale environmental waste and remediation projects, competitive industry pricing, impacts of acquisitions and divestitures, the level of emergency response projects, base and blended oil pricing, market changes relative to the collection of used oil, the number of parts washers placed at customer sites and foreign currency translation.

There are many factors which have impacted and continue to impact our revenues, including a significant impact on our revenue resulting from COVID-19 as discussed in Impacts of COVID-19 above.

Other factors include, but are not limited to:

overall industrial activity and growth in North America, existence or non-existence of large scale environmental waste and remediation projects, competitive industry pricing, miles driven and related lubricant demand, impacts of acquisitions and divestitures, the level of emergency response projects, base and blended oil demand and pricing, market changes relative to the collection of used oil, the number of parts washers placed at customer sites and foreign currency translation.

In addition, customer efforts to minimalize hazardous waste and changes in regulation can also impact our revenues.

Environmental Services

For the years ended December 31,

2019 over 2018

2018 over 2017

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018

Direct revenues $ 2,137,306 $ 2,237,068 $ 2,141,194 $ (99,762) (4.5) % $ 95,874 4.5 %

Environmental Services direct revenues for the year ended December 31, 2020 decreased $99.8 million from the comparable period in 2019 driven primarily by lower demand for our industrial and technical related services, partially offset by COVID-19 emergency response decontamination services.

Lower economic activity throughout the COVID-19 pandemic

reduced the demand for industrial and technical related services as customers postponed and/or reduced the levels of industrial turnarounds, environmental remediation projects and other waste disposal services.

In addition, direct revenues at our landfill facilities decreased $4.4 million when compared with the same period in the prior year due to lower volumes of waste streams, partially offset by pricing increases.

In the year ended December 31, 2020, the Company generated $120.4 million of direct revenues from COVID-19 related emergency response decontamination services, which partially offset the above direct revenue decreases.

Additionally, direct revenues at our incinerator facilities increased by $29.1 million when compared to 2019 due to disposal of higher value waste streams.

Utilization at our incinerator facilities remained relatively consistent with the prior year at 84%.

Also impacting the year over year change in direct revenues within this segment was the negative impact of foreign currency translation on our Canadian operations of $3.1 million.

Environmental Services direct revenues for the year ended December 31, 2019 increased $95.9 million from the comparable period in 2018.

Greater levels of activity at our sales and service branches and improved average pricing for

disposal of waste streams at our incinerators drove this increase in 2019 .

Greater levels of activity at our sales and service branches and improved average pricing for disposal of waste streams at our incinerators drove this increase in 2019.

Service related revenues increased, in part, due to $15.1 million of emergency response work associated with Field and Emergency Response revenue streams during 2019, compared to $9.8 million during 2018.

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A mix of higher priced waste streams resulted in an increase in direct revenues from our incinerator facilities year over year.

Average price per ton increased approximately 11% from the prior year for a $35.1 million increase in direct revenues in 2019.

Average price per ton increased approximately 11% from the prior year resulting in a $35.1 million increase in direct revenues in 2019.

These increases were partially offset by a decrease in Industrial Services revenue as we continue to focus on selecting higher margin turnaround projects.

Also impacting the year over year change in direct revenues within this segment was the negative impact of foreign currency translation on our Canadian operations of $9.3 million.

Environmental Services direct revenues for the year ended December 31, 2018 increased $283.7 million from the comparable period in 2017 .

Included in the current year revenues was $154.0 million of direct revenues from the Veolia Business, which we acquired on February 23, 2018.

Excluding the impacts from the Veolia Business, Environmental Services direct revenues increased $129.5 million primarily due to greater levels of activity at our sales and service branches and increased levels of disposal related revenues from improved pricing conditions and mix associated with waste streams at our incinerators in 2018.

For the year ended December 31, 2018 , landfill volumes increased slightly as compared to 2017 .

The utilization rate at our incinerators was 86.7% on a practical capacity of 561,721 tons for the year ended December 31, 2018 , compared with 87.6% on a practical capacity of 561,721 tons in 2017 .

The decrease in utilization rates in 2018 was impacted by a slightly higher number of down days at our facilities during 2018 ;

however, impacts on the profitability of the business from an increase in down days was more than offset by improved pricing conditions and an increase in volumes of higher margin waste streams received in 2018 .

The impact of foreign currency translation on our Canadian operations within the Environmental Services segment was minimal in the year ended December 31, 2018 as compared to 2017 .

For the years ended December 31,

2019 over 2018

2018 over 2017

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018

Direct revenues $ 1,010,202 $ 1,178,129 $ 1,161,282 $ (167,927) (14.3) % $ 16,847 1.5 %

Safety-Kleen direct revenues for the year ended December 31, 2020 decreased $167.9 million from the comparable period in 2019.

Customer shut downs and overall lower automotive travel in response to the COVID-19 pandemic reduced the demand for oil related products and core services provided by the Safety-Kleen business in 2020.

Base oil direct revenues decreased $69.2 million from the comparable period in 2019 due to lower volumes, and to a lesser extent lower prices.

Lower volumes also drove a $43.1 million decrease in blended oil direct revenues in 2020.

Decreased demand for Safety-Kleen's core service offerings contributed to the decline in direct revenues as containerized waste and vacuum services revenue decreased $44.6 million from the comparable period in 2019.

Recycled fuel oil and refinery byproducts revenue decreased $36.4 million, driven by lower volumes and pricing, and lower demand for parts washer services contributed $19.0 million to the overall revenue decrease.

Partially offsetting these decreases was a $41.1 million increase in direct revenue from used motor oil collections due to pricing increases on these services despite lower collection volumes.

The impact of foreign currency translation on our Safety-Kleen Canadian operations was minimal.

Slow incremental improvements in the demand for the segment's core service offerings are expected to continue as national and state vaccination plans prove successful.

Safety-Kleen direct revenues for the year ended December 31, 2019 increased $16.8 million from the comparable period in 2018 primarily due to growth in the business’ core service offerings and increased blended oil volumes.

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These increases were partially offset by a $17.5 million decrease in base oil sales due to reductions in pricing experienced in 2019 in response to lower demand across the base oil market and lower base oil volumes, most significantly seen in the first quarter of 2019.

Sales of recycled fuel oil and refinery bi-products decreased by $12.3 million from prior year due to a reduction in volume.

Sales of recycled fuel oil and refinery byproducts decreased by $12.3 million from prior year due to a reduction in volume.

In 2019, parts washer services were relatively consistent with the prior year.

Also included in the change within this segment was the negative impact of foreign currency translation on our Canadian operations of $3.4 million.

Safety-Kleen direct revenues for the year ended December 31, 2018 increased $73.4 million from the comparable period in 2017 primarily due to more favorable pricing on oil products and growth in the business’ core service offerings.

Revenues generated through our core service offerings such as handling of containerized waste and vac services, parts washer services as well as sales of automotive and industrial cleaning products accounted for $21.3 million of incremental revenues.

Increased base and blended volumes and oil pricing accounted for $34.7 million of incremental direct revenues from the comparable period in 2017.

Sales of contract packaging and blending services, refinery bi-products and recycled fuel oil also increased by $38.9 million from the comparable period in 2017 .

These increases were partially offset by a decrease in used motor oil collection revenues of $19.5 million as market pricing for these services was negatively impacted as crude oil prices generally rose throughout the earlier parts of 2018 .

The impact of foreign currency translation on our Canadian operations within the Safety-Kleen segment was minimal in the year ended December 31, 2018 as compared to 2017 .

Cost of Revenues

We believe that our ability to manage operating costs is important to our ability to remain price competitive.

We continue to upgrade the quality and efficiency of our services through the development of new technology and continued modifications at our facilities, invest in new business opportunities and aggressively implement strategic sourcing and logistics solutions as well as other cost reduction initiatives while also continuing to optimize our management and operating structure in an effort to

maintain and increase operating margins.

These strategic cost saving actions help to reduce the impacts of naturally rising costs such as labor and other core operating costs across our businesses.

well as other cost reduction initiatives while also continuing to optimize our management and operating structure in an effort to maintain and increase operating margins.

Environmental Services

For the years ended December 31,

2019 over 2018

2018 over 2017

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018

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As a % of Direct revenues 68.3 % 72.4 % 73.6 % (4.1) % (1.2) %

Environmental Services cost of revenues increased $43.3 million for the year ended December 31, 2019 , however these costs decreased as a percentage of direct revenue due to a mix of higher priced waste streams in our incineration network, which increased profitability, and the results of ongoing cost reduction projects, including site consolidations.

Environmental Services cost of revenues for the year ended December 31, 2020 decreased $160.5 million from the comparable period in 2019.

The overall reduction in costs was comprised of a $64.5 million decrease to labor and benefits related costs, including travel costs, a $50.8 million decrease to external transportation, disposal and fuel costs and a $43.9 million decrease to equipment and supply costs.

These decreases were mainly attributable to lower direct revenues and successful cost control initiatives, as well as a $20.8 million benefit from the employee retention credits and subsidies recorded in 2020 under the CARES Act and CEWS which is reflected in the reduction to labor and benefit related costs above.

Absent the benefit of these government programs, cost of revenues as a percentage of direct revenues still improved 3.2% primarily due to a favorable mix of revenues and certain cost reduction strategies which provided better leverage of our employee and asset bases and drove lower external transportation, equipment rental and subcontractor spending.

Environmental Services cost of revenues increased $43.3 million for the year ended December 31, 2019, although these costs decreased as a percentage of direct revenue due to a mix of higher priced waste streams in our incineration network, which increased profitability, and the results of ongoing cost reduction projects, including site consolidations.

The overall cost increase was due to compensation and benefits related costs, equipment and supply costs and transportation, outside disposal and fuel costs which increased $20.4 million, $11.4 million and $3.9 million, respectively.

The incremental operating costs were commensurate with greater activity levels in 2019.

Environmental Services cost of revenues for the year ended December 31, 2018 increased $202.9 million from the comparable period in 2017 .

The acquired Veolia Business had cost of revenues of $131.2 million in the year ended December 31, 2018 .

Excluding these costs, Environmental Services cost of revenues for the year ended December 31, 2018 increased $71.7 million, however these costs as a percentage of direct revenues decreased slightly over the comparable period of 2017, due to a more favorable mix of waste streams in our incineration network which increased profitability.

The overall cost increase was due to labor and benefit related costs, transportation, disposal and fuel costs, and equipment, supply and various other expenses of $45.4 million, $16.2 million and $10.0 million, respectively.

The incremental operating costs were commensurate with greater activity levels in 2018 and overall inflationary pressure across several cost categories including certain commodity supplies such as fuel and other supplies.

For the years ended December 31,

2019 over 2018

2018 over 2017

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018

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As a % of Direct revenues 65.1 % 63.6 % 62.5 % 1.5 % 1.1 %

Safety-Kleen cost of revenues for the year ended December 31, 2020 decreased $91.3 million from the comparable period in 2019.

The overall reduction in costs was comprised of a $37.7 million decrease in costs of oil additives and other raw materials, a $23.2 million decrease in labor and benefits related costs, including travel costs and a $21.7 million decrease in transportation, disposal and fuel costs.

These decreases were mainly attributable to lower direct revenues and cost reduction strategies, as well as a $7.7 million benefit related to employee retention credits and subsidies recorded in 2020 under the CARES Act and CEWS which is reflected in the decrease in labor and benefits related costs above.

Absent the benefit of these government programs, costs of revenues as a percentage of direct revenues increased 2.3%.

This increase resulted from certain labor and benefits related costs and operating costs which were not reduced proportionate to the overall lower business activity, including the costs incurred while temporarily shuttering certain re-refineries.

These costs were partially offset by reductions in transportation costs and other cost reduction strategies.

Safety-Kleen cost of revenues for the year ended December 31, 2019 increased $23.7 million from the comparable period in 2018.

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Increased logistics costs, largely due to weather at the beginning of the year, also negatively impacted costs as a percentage of direct revenues.

The overall cost increase was due to higher compensation and benefits related costs of $8.5 million, raw material costs associated with blended oil products of $5.5 million and transportation, disposal and fuel costs of $2.7 million.

The overall cost increase was due to higher labor and benefits related costs of $8.5 million, raw material costs associated with blended oil products of $5.5 million and transportation, disposal and fuel costs of $2.7 million.

These increases were in line with the overall growth of our core service offerings and blended oil sales.

Safety-Kleen cost of revenues for the year ended December 31, 2018 increased $35.4 million from the comparable period in 2017 , however these costs decreased as a percentage of revenue due to our effective management of the spread between used oil input costs and base oil pricing, as well as the implementation of new pricing strategies, which generated greater levels of direct revenue.

The overall cost increase was primarily due to increased costs of raw materials associated with oil products of $15.8 million, increased transportation, disposal and fuel costs of $12.3 million and labor related costs of $6.3 million.

These increases were in line with the overall growth of the business and increased costs of commodities.

Selling, General and Administrative Expenses

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Environmental Services

For the years ended December 31,

2019 over 2018

2018 over 2017

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018

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As a % of Direct revenues 7.4 % 7.6 % 8.6 % (0.2) % (1.0) %

Environmental Services SG&A expenses for the year ended December 31, 2020 decreased $13.0 million from the comparable period in 2019 primarily due to lower direct revenues and therefore lower costs, such as travel and other selling related costs, as well as a $6.3 million benefit in labor and benefits related costs related to the employee retention credits and subsidies recorded in 2020 under the CARES Act and CEWS.

Partially offsetting these year over year reductions was a $5.5 million favorable resolution of a litigation matter and recovery of certain trade receivables of $5.4 million, both of which were recorded in the first quarter of 2019 and favorably impacted the SG&A expenses for the year ended December 31, 2019.

Absent the impacts from the 2020 employee retention credits and 2019 litigation and receivable matters, Environmental Services SG&A expenses as a percentage of direct revenues remained relatively consistent with the comparable period in 2019.

Environmental Services SG&A expenses for the year ended December 31, 2019 decreased $12.9 million from the comparable period in 2018 and SG&A as a percentage of direct revenue decreased as well.

The primary driver of these decreases relates to certain trade receivables which were reserved for in 2018 and subsequently recovered in 2019, generating a favorable difference of nearly $13.0 million.

The primary driver of these decreases related to certain trade receivables which were reserved for in 2018 and subsequently recovered in 2019, generating a favorable difference of nearly $13.0 million.

The favorable resolution of a litigation matter further reduced SG&A expenses by $5.5 million in 2019.

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Excluding the recovery of trade receivables and litigation impacts, 2019 SG&A expenses as a percentage of direct revenues still improved over the prior year.

Environmental Services SG&A expenses for the year ended December 31, 2018 increased $21.3 million from the comparable period in 2017 , however as a percentage of direct revenues, these costs remained consistent between the two periods.

The increase in SG&A expenses was primarily due to increases in salary, benefits and variable compensation related costs of $14.7 million and bad debt expense of $7.0 million, partially offset by cost reductions across various expense categories.

The increases in salary, benefits and variable compensation are in line with the growth of the business in 2018 as compared to 2017 .

For the years ended December 31,

2019 over 2018

2018 over 2017

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018

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As a % of Direct revenues 12.2 % 12.4 % 13.2 % (0.2) % (0.8) %

Safety-Kleen SG&A expenses for the year ended December 31, 2020 decreased $23.4 million from the comparable period in 2019.

These decreases were primarily attributable to lower direct revenues and therefore lower sales related costs, as well as a reduction in labor and benefit related costs of $4.5 million for the year ended December 31, 2020 attributable to employee retention credits and subsidies under the CARES Act and CEWS.

Absent the benefit of these government programs, Safety-Kleen 2020 SG&A expenses as a percentage of direct revenues remained relatively consistent with the comparable period in the prior year.

Safety-Kleen SG&A expenses for the year ended December 31, 2019 decreased $7.2 million from the comparable period in 2018 and SG&A as a percentage of direct revenues decreased as well.

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A reduction in legal related costs of $1.6 million also contributed to the overall decrease in SG&A expenses.

Safety-Kleen SG&A expenses for the year ended December 31, 2018 increased $5.8 million from the comparable period in 2017 , however these costs decreased as a percentage of direct revenues, as the additional direct revenues outpaced incremental SG&A expenses.

The overall increase in SG&A expenses was primarily due to increased salaries, benefits and variable compensation of $5.7 million as we continue to grow the business.

Corporate Items

For the years ended December 31,

2019 over 2018

2018 over 2017

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018

SG&A expenses $ 170,356 $ 166,964 $ 166,595 $ 3,392 2.0 % $ 369 0.2 %

Corporate Items SG&A expenses for the year ended December 31, 2020 increased by $3.4 million when compared to 2019 primarily due to increased marketing expenses of $3.8 million to expand brand awareness, increased investment in our technology infrastructure of $3.8 million and a $3.3 million change in an environmental remedial liability estimate for an inactive site.

These costs were partially offset by a $4.1 million decrease in travel and real estate related expenses and a $2.4 million reduction in labor costs for the employee retention credit and subsidies recorded under the CARES Act and CEWS.

Corporate Items SG&A expenses for the year ended December 31, 2019 were consistent with the comparable period in 2019.

Continued investment in our employees increased our compensation and benefits related costs by $6.6 million and stock-based compensation increased by $1.0 million due to the achievement of certain performance metrics associated with performance based awards.

performance based awards.

These costs were offset by a $6.9 million reduction in legal and consulting fees due to cost saving initiatives.

Corporate Items SG&A expenses for the year ended December 31, 2018 increased $20.1 million from the comparable period in 2017 primarily due to increased salaries and benefits resulting from continued commitments to investing in our employees and variable compensation totaling $14.8 million, as well as increased stock-based compensation of $4.3 million primarily attributable to the achievement of performance metrics associated with performance based awards in 2018 .

Incremental costs associated with the acquired Veolia Business also contributed to the increased costs.

Adjusted EBITDA

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We also compare our Adjusted EBITDA performance against internal targets as a key factor in determining cash and equity bonus compensation for executives and other employees, largely because we believe that this measure is indicative of how the fundamental business is performing and is being managed.

We also utilize this measure when benchmarking our Company against our nearest competitors.

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.

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We also believe, however, that providing this information in addition to, and together with, GAAP financial information provides a better understanding of our core operating performance and how management evaluates and measures our performance.

The following is a reconciliation of net income to Adjusted EBITDA for the following periods (in thousands, except percentages):

The following is a reconciliation of net income to Adjusted EBITDA for the following years (in thousands, except percentages):

For the years ended December 31,

2020 2019 2018

Net income $ 134,837 $ 97,740 $ 65,636

Accretion of environmental liabilities 11,051 10,136 9,806

Depreciation and amortization 292,915 300,725 298,625

Other (income) expense, net

Other expense (income), net 290 (2,897) 4,510

Loss on early extinguishment of debt — 6,131 2,488

Gain on sale of businesses

Interest expense, net

Provision (benefit) for income taxes

Loss (gain) on sale of businesses 3,376 (687) —

Interest expense, net of interest income 73,120 78,670 81,094

Provision for income taxes 39,713 50,499 28,846

Adjusted EBITDA $ 555,302 $ 540,317 $ 491,005

As a % of Direct revenues 17.7 % 15.8 % 14.9 %

Beginning in the first quarter of 2021, we expect to revise our calculation of reported Adjusted EBITDA to add stock-based compensation, a non-cash item, to other charges which are added back to GAAP net income for purposes of calculating Adjusted EBITDA.

We are making this change in order to be more consistent with how certain of our peer group companies report their non-GAAP results, to align with how management will evaluate the operating performance of the Company and performance metrics for certain incentive compensation awards expected to be issued in 2021 and beyond, and to be consistent with the definition of “Adjusted EBITDA” now used for covenant compliance purposes in our outstanding financing agreements as amended to date.

The amount added back each period is expected to match the line item for stock-based compensation as recorded on the Company's GAAP consolidated statements of cash flows.

In the future, when we report our results, all relevant prior period Adjusted EBITDA amounts will be recast to provide comparative information.

Depreciation and Amortization

For the years ended December 31,

2019 over 2018

2018 over 2017

(in thousands, except percentages)

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018 Change % Change Change % Change

Depreciation of fixed assets and amortization of landfills and finance leases $ 257,131 $ 265,531 $ 264,254 $ (8,400) (3.2) % $ 1,277 0.5 %

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Total depreciation and amortization $ 292,915 $ 300,725 $ 298,625 $ (7,810) (2.6) % $ 2,100 0.7 %

Depreciation and amortization for the year ended December 31, 2019 remained relatively consistent with the same period in the prior year.

Depreciation and amortization for the year ended December 31, 2018 increased $10.2 million from the comparable period in 2017 , primarily due to incremental depreciation from acquisitions and a slight increase in volumes at our landfills that drove higher landfill amortization.

Other Income (Expense), net

For the years ended December 31,

2019 over 2018

2018 over 2017

(in thousands, except percentages)

Other income (expense), net

For the year ended December 31, 2019 , other income (expense), net increased $7.4 million from the comparable period in 2018 primarily due to insurance proceeds received in 2019 and smaller comparative losses recognized on sales or disposals of fixed assets.

Other income (expense), net increased $1.6 million from 2017 to 2018 primarily due to smaller losses recognized on sales or disposals of fixed assets in 2018 .

Depreciation and amortization for the year ended December 31, 2020 decreased from the comparable period in 2019 due to certain assets becoming fully depreciated, slightly offset by an increase in amortization of finance lease right-of-use assets.

Depreciation and amortization for the year ended December 31, 2019 remained relatively consistent with the comparable period in 2018.

Other (Expense) Income, net

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018 Change % Change Change % Change

Other (expense) income, net $ (290) $ 2,897 $ (4,510) $ (3,187) (110.0) % $ 7,407 (164.2) %

For the year ended December 31, 2020, other (expense) income, net decreased $3.2 million from the comparable period in 2019 primarily due to insurance proceeds received in 2019 which did not recur in 2020.

Other (expense) income, net increased $7.4 million from 2018 to 2019 primarily due to insurance proceeds received in 2019 and smaller comparative losses recognized on sales or disposals of fixed assets.

Loss on Early Extinguishment of Debt

For the years ended December 31,

2019 over 2018

2018 over 2017

(in thousands, except percentages)

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018 Change % Change Change % Change

Loss on early extinguishment of debt $ — $ (6,131) $ (2,488) $ 6,131 (100.0) % $ (3,643) 146.4 %

During the year ended December 31, 2019 , we recorded a $6.1 million loss on early extinguishment of debt in connection with the extinguishment of $845.0 million of unsecured senior notes due 2021 which were repaid during the current year.

During the year ended December 31, 2018, we recorded a $2.5 million loss on early extinguishment of debt in connection with the extinguishment of the remaining $400.0 million previously outstanding senior unsecured notes.

During the year ended December 31, 2017, we recorded a $7.9 million loss on early extinguishment of debt in connection with the extinguishment of $400.0 million of the previously outstanding senior unsecured notes.

During the year ended December 31, 2020, we did not record a loss on early extinguishment of debt.

During the year ended December 31, 2019, we recorded a $6.1 million loss on early extinguishment of debt in connection with the extinguishment of $845.0 million of unsecured senior notes due in 2021 which were repaid during 2019.

During the year ended December 31, 2018, we recorded a $2.5 million loss on early extinguishment of debt in connection with the extinguishment of the $400.0 million of previously outstanding senior unsecured notes.

The losses recognized in each of these years consisted of amounts paid in excess of par in order to extinguish the debt prior to maturity and non-cash expenses related to the write-off of unamortized financing costs.

For additional information regarding our financing arrangements, see Note 11, "Financing Arrangements," under Item 8, "Financial Statements and Supplementary Data," of this report.

Gain on Sale of Businesses

For the years ended December 31,

2019 over 2018

2018 over 2017

(in thousands, except percentages)

Gain on sale of businesses

(Loss) Gain on Sale of Businesses

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018 Change % Change Change % Change

(Loss) gain on sale of businesses $ (3,376) $ 687 $ — $ (4,063) N/M $ 687 N/M

During the year ended December 31, 2020, we recorded a $3.4 million loss on the sale of non-core businesses within our Environmental Services segment.

During the year ended December 31, 2019, we recorded a $0.7 million gain on the sale of a non-core business within our Environmental Services segment.

During the year ended December 31, 2017, we recorded a $30.7 million gain on the sale of our Transformer Services business which had been part of our Environmental Services segment.

For additional information regarding these gains on sale of businesses, see Note 5, "Disposition of Businesses," under Item 8, "Financial Statements and Supplementary Data," of this report.

Provision (Benefit) for Income Taxes

For the years ended December 31,

2019 over 2018

2018 over 2017

(in thousands, except percentages)

Provision (benefit) for income taxes

For the year ended December 31, 2019, provision for income taxes increased $21.7 million from the comparable period in 2018 due to higher earnings in the United States and the impact from a nonrecurring $9.8 million benefit recognized in 2018 related to the filing of then current and amended prior year tax returns in that year.

Provision for Income Taxes

For the years ended December 31, 2020 over 2019 2019 over 2018

(in thousands, except percentages) 2020 2019 2018 Change % Change Change % Change

Provision for income taxes $ 39,713 $ 50,499 $ 28,846 $ (10,786) (21.4) % $ 21,653 75.1%

For the year ended December 31, 2020, the provision for income taxes decreased $10.8 million from the comparable period in 2019, despite an increase in income before provision for income taxes, largely due to the release of a valuation allowance on certain companies in Canada and amended federal and state returns filed.

The effective tax rate for 2020 was 22.8% as compared to 34.1% in the prior year.

The income tax benefit in 2017 was primarily driven by impacts from the enactment of the Tax Cuts and Jobs Act (the "Tax Act") signed into law in December 2017.

Impacts of the Tax Act resulted in a net benefit of $93.0 million being recorded in 2017.

Excluding the impacts of the Tax Act, a provision of $51.0 million would have been recognized.

For the year ended December 31, 2019, provision for income taxes increased $21.7 million from the comparable period in 2018, due to higher earnings in the United States and the impact from a nonrecurring $9.8 million benefit recognized in 2018 related to the filing of then current and amended prior year tax returns.

The effective tax rate for 2019 was 34.1% as compared to 30.5% in 2018.

Liquidity and Capital Resources

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Net cash from operating activities for the year ended December 31, 2020 was $430.6 million, an increase of $17.4 million compared to the year ended December 31, 2019.

The increase was most notably impacted by increased income levels and deferring the payment of certain employer payroll taxes amounting to $35.4 million as allowed for under the CARES Act, partially offset by a $26.1 million increase in income taxes paid, net of refunds.

Net cash from operating activities for the year ended December 31, 2019 was $413.2 million, an increase of $40.0 million compared to the year ended December 31, 2018.

The increase was most directly attributable to greater levels of operating income and lower working capital, partially offset by an increase in environmental spending.

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Refinancing this debt changed the timing of our related interest payments from June and December to January and July.

Net cash from operating activities for the year ended December 31, 2018 was $373.2 million , an increase of $87.5 million compared to the year ended December 31, 2017 .

The increase was most directly attributable to greater levels of operating income, lower interest payments and a reduction in environmental expenditures, which was offset by higher working capital levels due to overall growth in our business.

Net cash used in investing activities

Net cash used in investing activities for the year ended December 31, 2020 was $199.5 million, a decrease of $18.4 million compared to the year ended December 31, 2019, most notably due to decreases in cash paid for acquisitions and additions to property, plant and equipment.

These overall cash decreases were partially offset by an increase in net purchases of marketable securities.

Current year cash paid for additions to property, plant and equipment included the $21.1 million purchase and capital improvements of our corporate headquarters.

Net cash used in investing activities for the year ended December 31, 2019 was $217.9 million, a decrease of $131.8 million compared to the year ended December 31, 2018.

This decrease was due to less cash used to fund acquisitions in 2019 and an increase in net proceeds from sales of marketable securities, partially offset by $26.8 million of increased capital expenditure levels, net of proceeds, primarily due to 2019 investments in facility upgrades and landfill spending.

Net cash used in investing activities for the year ended December 31, 2018 was $349.7 million , an increase of $146.4 million compared to the year ended December 31, 2017 .

The change was primarily driven by the 2018 use of cash to fund acquisitions, increased capital expenditure levels net of proceeds primarily related to sales of manufacturing assets in Western Canada, a reduction in net purchases of marketable securities and the lack in 2018 of proceeds from sale of a business, which occurred in 2017 with the Transformer Services divestiture.

Net cash used in financing activities

Net cash used in financing activities for the year ended December 31, 2019 was $53.4 million , a decrease of $57.6 million compared to the year ended December 31, 2018 .

The decrease was primarily driven by a $50.0 million reduction in net principal payments on debt obligations in 2019 and a $23.7 million decrease in repurchases of common stock, partially offset by increased outflows for deferred financing costs associated with debt refinancing activities in 2019 of $6.1 million, tax payments related to withholdings on vested restricted stock of $4.2 million and changes in uncashed checks of $3.8 million.

Net cash used in financing activities for the year ended December 31, 2020 was $88.9 million, an increase of $35.5 million compared to the year ended December 31, 2019.

The primary reason for the increase in 2018 was the increase in funds used for the net pay down of debt obligations totaling $55.8 million which occurred during the year.

Offsetting this increase was decreased outflows related to stock repurchases of $3.9 million, premiums paid on the extinguishment of debt of $4.8 million, and changes in uncashed checks of $5.8 million.

The increase was primarily driven by a $53.4 million increase in cash paid to repurchase common stock, partially offset by a $9.1 million change related to uncashed checks and a $7.9 million reduction in deferred financing costs paid.

Net cash used in financing activities for the year ended December 31, 2019 was $53.4 million, a decrease of $57.6 million compared to the year ended December 31, 2018.

The decrease was primarily driven by a $50.0 million reduction in net principal payments on debt obligations in 2019 and a $23.7 million decrease in repurchases of common stock, partially offset

by increased outflows for deferred financing costs associated with debt refinancing activities in 2019 of $6.1 million, tax payments related to withholdings on vested restricted stock of $4.2 million and changes in uncashed checks of $3.8 million.

Adjusted Free Cash Flow

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For the years ended December 31,

2020 2019 2018

Net cash from operating activities $ 430,597 $ 413,192 $ 373,210

Additions to property, plant and equipment (196,256) (216,324) (193,344)

Purchase and capital improvements of corporate headquarters 21,080 — —

Proceeds from sale and disposal of fixed assets 9,623 11,655 15,445

Tax liability on sale of business

Adjusted free cash flow $ 265,044 $ 208,523 $ 195,311

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At December 31, 2020, cash and cash equivalents and marketable securities totaled $571.0 million, compared to $414.4 million at December 31, 2019.

At December 31, 2019 , cash and cash equivalents held by foreign subsidiaries totaled $74.5 million and were readily convertible into other currencies including U.S.

At December 31, 2020, cash and cash equivalents held by our Canadian subsidiaries totaled $143.7 million.

At December 31, 2020, the cash and cash equivalents and marketable securities balance for our U.S.

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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.

We believe our future operating cash flows will be sufficient to meet our future operating and internal investing cash needs.

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 $545.0 million principal amount of 4.875% senior unsecured notes due 2027 and $300.0 million principal amount of 5.125% senior unsecured notes due 2029, and $734.7 million senior secured notes due 2024 which were outstanding at December 31, 2019 , and our $400.0 million revolving credit facility, are discussed further in Note 12, “Financing Arrangements,” to our consolidated financial statements included in Item 8 of this report.

Terms of our $545.0 million of 4.875% senior unsecured notes due 2027, $300.0 million of 5.125% senior unsecured notes due 2029 and $727.2 million senior secured notes due 2024 which were outstanding at December 31, 2020, and our $400.0 million revolving credit facility, are discussed further in Note 11, “Financing Arrangements,” to our consolidated financial statements included in Item 8 of this report.

We continue to monitor our debt instruments and evaluate opportunities where it may be beneficial to refinance or reallocate the portfolio.

As of December 31, 2020, we were in compliance with the covenants of all of our debt agreements, and we believe we will continue to meet such covenants.

Environmental Liabilities

As of December 31,

2019 over 2018

(in thousands)

As of December 31, 2020 over 2019

(in thousands) 2020 2019 Change % Change

Closure and post-closure liabilities $ 87,926 $ 75,651 $ 12,275 16.2 %

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Total environmental liabilities $ 202,739 $ 189,824 $ 12,915 6.8 %

Total environmental liabilities as of December 31, 2019 were $189.8 million , a decrease of $1.1 million compared to December 31, 2018.

This decrease was primarily due to expenditures of $18.7 million , partially offset by accretion of $10.1 million , changes in environmental liability estimates recorded to the consolidated balance sheet of $3.9 million and new asset retirement obligations and liabilities assumed in acquisitions of $2.9 million.

Total environmental liabilities as of December 31, 2020 were $202.7 million, an increase of $12.9 million compared to December 31, 2019.

This increase was primarily due to annual accretion of $11.1 million and changes in environmental liability

estimates resulting in charges to the consolidated statement of income of $10.7 million, partially offset by expenditures of $12.4 million made during 2020.

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.

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Conversely, the development of new treatment technologies or other circumstances may arise in the future which may reduce amounts ultimately paid.

During 2019 , 2018 and 2017 , we recognized a net benefit of $0.3 million , net charge of $2.1 million and net benefit of $0.2 million , respectively, for changes in estimates of recorded environmental liabilities.

Generally, we recognize benefits primarily due to the successful introduction of new technology for remedial activities, favorable results from environmental studies of the on-going remediation, including favorable regulatory approvals and lower project costs realized by utilizing internal labor and equipment.

In 2018 , the net increase in our environmental liabilities from changes in estimates recorded to the consolidated statement of operations was $2.1 million and primarily related to an increase in projected cleanup costs at third party Superfund sites where we are a potentially responsible party.

Contractual Obligations

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Payments due in

After 5 years

Total Less than

1 year 1-3 years 4-5 years After 5 years

Closure, post-closure and remedial liabilities (1)

Current and long-term obligations, at par

Interest on current and long-term obligations (2)

Finance leases

$ 455,838 $ 27,659 $ 54,692 $ 28,095 $ 345,392

Current and long-term debt, at par 1,572,161 7,535 15,070 704,556 845,000

Interest on current and long-term debt (2)

384,930 65,389 130,349 95,414 93,778

Operating leases 172,768 45,341 66,643 35,720 25,064

Finance leases 73,113 8,407 17,253 15,821 31,632

Total contractual obligations $ 2,658,810 $ 154,331 $ 284,007 $ 879,606 $ 1,340,866

___________________________________________

(1) The undiscounted value of closure, post-closure and remedial liabilities of $458.4 million is equivalent to the present value of $189.8 million based on discounting of $178.5 million and the undiscounted remainder of $90.1 million to be accrued for closure and post-closure liabilities over the remaining site lives.

(1) The undiscounted value of closure, post-closure and remedial liabilities of $455.8 million is equivalent to a present value of $202.7 million based on discounting of $179.3 million and the undiscounted remainder of $73.8 million to be accrued for closure and post-closure liabilities over the remaining site lives.

(2) Interest on our variable-rate $727.2 million senior secured term loans was calculated based on the effective interest rate of that debt as of December 31, 2020.

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In 2020, our capital expenditures, net of disposals, were $186.6 million.

We anticipate that 2020 capital spending, net of disposals, will be in the range of $215.0 million to $240.0 million, inclusive of $20.0 million to $25.0 million for the purchase of our corporate headquarters in January 2020 and some expected capital improvements to that facility during 2020.

However, unanticipated 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.

We anticipate that 2021 capital spending, net of disposals, will be in the range of $185.0 million to $205.0 million.

Unanticipated 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

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These amounts are amortized under the units-of-consumption method such that the asset is completely amortized when the landfill ceases accepting waste.

Changes in the determination of when the landfill will cease accepting waste, either through a business decision by management, determination that expansion capacity should no longer be considered probable or changes in estimates on annual airspace consumption, will impact the amortization expense of the landfill assets.

Landfill Capacity.

Landfill capacity, which is the basis for the amortization of landfill assets and for the accrual of final closure and post-closure obligations, represents total permitted airspace plus unpermitted airspace that management believes is probable of ultimately being permitted based on established criteria.

Our management applies the following criteria for evaluating the probability of obtaining a permit for future expansion airspace at existing sites, which provides management a basis to evaluate the likelihood of success of unpermitted expansions:

Personnel are actively working to obtain the permit or permit modifications (land use, state and federal) necessary for expansion of an existing landfill, and progress is being made on the project.

Management expects to submit the application within the next year and to receive all necessary approvals to accept waste within the next five years.

At the time the expansion is included in management's estimate of the landfill's useful economic life, it is probable that the required approvals will be received within the normal application and processing time periods for approvals in the jurisdiction in which the landfill is located.

We have a legal right to use or obtain the right to use the land associated with the expansion plan through title or lease.

There are no significant known political, technical, legal or business restrictions or other issues that could impair the success of such expansion.

Management is committed to pursuing the expansion which is supported by a complete financial feasibility analysis which demonstrates that the expansion will have a positive financial and operational impact.

Additional airspace and related additional costs, including permitting, final closure and post-closure costs have been estimated based on the conceptual design of the proposed expansion.

As of December 31, 2020, there were no unpermitted expansions included in management's landfill calculation.

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In the United States, the landfill final closure and post-closure requirements are established under the standards of the EPA, and are implemented and applied on a state-by-state basis.

We develop estimates for the cost of these

activities based on our evaluation of site-specific facts and circumstances, such as the existence of structures and other landfill improvements that would need to be dismantled, the amount of groundwater monitoring and leachate management expected to be performed and the length of the post-closure period as determined by the applicable regulatory agency.

We develop estimates for the cost of these activities based on our evaluation of site-specific facts and circumstances, such as the existence of structures and other landfill improvements that would need to be dismantled, the amount of groundwater monitoring and leachate management expected to be performed and the length of the post-closure period as determined by the applicable regulatory agency.

Included in our cost estimates are our interpretation of current regulatory requirements and proposed regulatory changes.

Such estimates may change in the future due to various circumstances including, but not limited to, permit modifications, changes in legislation or regulations, technological changes and results of environmental studies.

These cost estimates may change in the future due to various circumstances including, but not limited to, permit modifications, changes in legislation or regulations, technological changes and results of environmental studies.

We perform zero-based reviews of these estimated liabilities based upon a planned schedule, typically every five years or sooner if the occurrence of a significant event is likely to change the timing or amount of the currently estimated expenditures.

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Regulatory post-closure periods are generally 30 years after landfill closure.

Final closure and post-closure obligations are accrued on a units-of-consumption basis, such that the present value of the final closure and post-closure obligations are fully accrued at the date the landfill discontinues accepting waste.

Final closure and post-closure obligations are accrued on a units-of-consumption basis, such that the present value of the final

closure and post-closure obligations are fully accrued at the date the landfill discontinues accepting waste.

Non-Landfill Closure and Post-Closure Liabilities.

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The balance of our remedial liabilities at December 31, 2020 and 2019 was $114.8 million and $114.2 million, respectively.

See Note 11, "Remedial Liabilities," to our consolidated financial statements included in Item 8 of this report for the changes to the remedial liabilities during the years ended December 31, 2019 and 2018 .

Remedial liabilities are obligations to investigate, alleviate and/or eliminate the effects of a release (or threat of a release) of hazardous substances into the environment and may also include corrective action under RCRA.

Our remediation obligations can be further characterized as legal, Superfund, long-term maintenance and one-time projects.

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Upon demonstration of the effectiveness of the alternative technology and applicable regulatory approval, we update our estimated cost of remediating the affected sites.

See Note 10, "Remedial Liabilities," to our consolidated financial statements included in Item 8 of this report for the changes to the remedial liabilities during the years ended December 31, 2020 and 2019.

The changes in our estimates have not been material.

Goodwill and Other Long-Lived Assets .

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As of December 31, 2020, we have four reporting units, consisting of Environmental Sales and Service, Environmental Facilities, Safety-Kleen Oil and Safety-Kleen Environmental Services.

We conducted our annual impairment test of goodwill for all of our reporting units to which goodwill was allocated as of December 31, 2019 and determined that no adjustment to the carrying value of goodwill for any reporting unit was then necessary.

We conducted our annual impairment test of goodwill for all of our reporting units as of December 31, 2020 and determined that no adjustment to the carrying value of goodwill for any reporting unit was then necessary.

In all cases the estimated fair value of each reporting unit significantly exceeded its carrying value.

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Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually as of December 31, or when events or changes in the business environment indicate that the carrying value may be impaired.

If the fair value of the asset is less than the carrying amount, we perform a quantitative test to determine the fair value.

The impairment loss, if any, is measured as the excess of the carrying value of the asset over its fair value.

This review is performed by comparing the fair value of indefinite lived intangible asset to its carrying value.

We measure fair value for our indefinite lived intangible assets using an income approach (a discounted cash flow analysis) which incorporates several estimates and assumptions with varying degrees of uncertainty, including estimates of future cash flows associated with the intangible assets.

If the fair value is less than the carrying value, the impairment loss is measured as the excess of the carrying value of the asset over its fair value.

The estimated fair values of the indefinite-lived intangibles exceeded their carrying values at December 31, 2020.

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We concluded that no events or circumstances have arisen during 2020 which would indicate that the carrying values of those asset groups are not recoverable.

We will continue to evaluate all of our goodwill and other long-lived assets impacted by economic downturns most predominantly in the oil and gas related markets in which we operate.

If further economic difficulties resulting from depressed oil and gas related pricing and lower overall activity levels, particularly in our Canadian operations, continue for a significant foreseeable period of time and thus future operating results are significantly less than current expectations, additional impairment charges may be recognized.

The market conditions which could lead to such future impairments are currently most prevalent in our Oil and Gas Field Services and Lodging Services operations within the Environmental Sales & Services reporting unit.

We will continue to evaluate all of our goodwill and other long-lived assets impacted by economic downturns, including the impact of COVID-19 on our operations.

The market conditions which could lead to such future impairments are currently most prevalent in Oil and Gas Field Services and Lodging Services operations within our Environmental Sales & Services reporting unit and in our Safety-Kleen Oil reporting unit.

Our future cash flow assumptions and conclusions with respect to goodwill and asset impairments could be impacted by changes arising from (i) a further significant deterioration in market conditions arising from COVID-19, (ii) a sustained period

of economic and industrial slowdowns resulting from social distancing guidelines and/or larger scale economic shutdowns, (iii) continued reduced demand for base and blended oil products and an inability to price our oil related products and services to maintain profitability, (iv) inability to scale our operations and implement cost reduction efforts in light of reduced demand or (v) a significant decline in our share price for a sustained period of time.

These factors, among others, could significantly impact the impairment analysis and may result in future goodwill or asset impairment charges that, if incurred, could have a material adverse effect on our financial condition and results of operations.

Legal Matters.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis