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Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-03-01 · 163 added, 157 removed, 336 unchanged (49% of the section changed)

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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 in North America.

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

We serve over 300,000 customers, including the majority of Fortune 500 companies, across various markets including chemical and manufacturing, as well as numerous government agencies.

These customers rely on us to deliver a broad range of services including but not limited to end-to-end hazardous waste management, emergency response, industrial cleaning and maintenance and recycling services.

We are also the largest re-refiner and recycler of used oil in North America and the largest provider of parts cleaning and related environmental services to commercial, industrial and automotive customers in North America.

These customers rely on us to safely deliver a broad range of services including but not limited to end-to-end hazardous waste management, emergency response, industrial cleaning and maintenance and recycling services.

We are also a leading provider of parts cleaning and related environmental services to general manufacturing, automotive and commercial customers in North America and largest re-refiner and recycler of used oil in North America.

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.

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These results are driven by the volumes of waste collected from these customers, the overall number of parts washers placed at customer sites and the demand for and frequency of other offered services.

In managing the business and evaluating performance, management tracks the volumes and mix of waste handled and disposed of or recycled, generally through our incinerators, treatment, storage and disposal facilities ("TSDFs") and landfills, the utilization rates of our incinerators, equipment and workforce, including billable hours, and number of parts washer services performed, pricing realized by our business and peer companies as well as other key metrics.

In managing the business and evaluating performance, management tracks the volumes and mix of waste handled and disposed of or recycled, generally through our incinerators, TSDFs and landfills, the utilization rates of our incinerators, equipment and workforce, including billable hours, and the number of parts washer services performed and pricing realized by our business and peer companies as well as other key metrics.

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

industrial production, economic conditions in the chemical, manufacturing and automotive markets including efforts and economic incentives to reshore operations to the U.S., available capacity at waste disposal outlets, weather conditions, efficiency of our operations, technology, changing regulations, competition, market pricing of our services, costs incurred to deliver our services and the management of our related operating costs.

• Safety-Kleen Sustainability Solutions - Safety-Kleen Sustainability Solutions segment results are impacted by our customers' demand for high-quality, environmentally responsible recycled oil products and their demand for our related service and product offerings.

Safety-Kleen Sustainability Solutions offers high quality recycled base and blended oil products, including our KLEEN+ brand of Group II+ base oils, to end users including fleet customers, distributors and manufacturers of oil products.

Segment results are impacted by overall demand, market pricing and the mix of our oil product sales.

Segment results are also predicated on the demand for Safety-Kleen Sustainability Solutions' other product and service offerings including collection services for used oil, used oil filters and other automotive fluids.

These fluid collections are used as feedstock in our oil re-refining to produce our base and blended oil products and our recycled automotive related fluid products or are integrated into the Clean Harbors' recycling and disposal network.

industrial production, economic conditions in the general manufacturing, chemical and automotive markets, including efforts and economic incentives to increase domestic operations, available capacity at waste disposal outlets, weather conditions, efficiency of our operations, technology, changing regulations, competition, market pricing of our services, costs incurred to deliver our services and the management of our related operating costs.

• Safety-Kleen Sustainability Solutions - Safety-Kleen Sustainability Solutions ("SKSS") segment results are impacted by our customers' demand for high-quality, environmentally responsible recycled oil products and their demand for our related service and product offerings.

SKSS offers high quality recycled base and blended oil products and other automotive and industrial lubricants to end users including fleet customers, distributors, manufacturers of oil products and industrial plants.

Segment results are impacted by market pricing, overall demand and the mix of our oil products sales.

Segment results are also predicated on the demand for other SKSS product and service offerings including collection services for used oil, used oil filters and other automotive fluids.

The used oil collected is used as feedstock in our oil re-refining to produce our base and blended oil products and other hydraulic oils, lubricants and recycled fuel oil or are integrated into the Clean Harbors' recycling and disposal network.

In operating the business and evaluating performance, management tracks the volumes and relative percentages of base and blended oil sales along with various pricing metrics associated with the commodity driven margin between product pricing and the overall costs associated with the collection of used oil.

Levels of activity and ultimate performance associated with this segment can be impacted by economic conditions in the automotive services and manufacturing markets, efficiency of our operations, technology, weather conditions, changing regulations, competition and the management of our related operating costs.

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 and can be impacted by global events and their relative

impact on commodity products and pricing.

The overall market price of oil and regulations that change the possible usage of used oil, including the International Maritime Organization's 2020 regulation ("IMO 2020") and other regulations related to the burning of used motor oil as a fuel, impact the premium the segment can charge for used oil collections.

Total direct revenues for 2022 increased 35.8% or $1.4 billion to $5.2 billion, compared with $3.8 billion in 2021.

Our Environmental Services segment direct revenues increased $1.1 billion in 2022 compared with 2021 driven by both organic growth in the segment and growth from the acquisition of HydroChemPSC.

Environmental Services saw nearly 20% organic growth from 2021 to 2022 due to continued demand for our disposal network capabilities and services as well as pricing initiatives designed to recover increased operating costs.

Direct revenues recorded by Safety-Kleen Sustainability Solutions increased $221.6 million in 2022 compared to 2021 primarily due to higher pricing of our base and blended oil products.

Levels of activity and ultimate performance associated with this segment can be impacted by economic conditions in the manufacturing and automotive services markets, efficiency of our operations, technology, weather conditions, changing regulations, competition and the management of our related operating costs.

The overall market price of oil and regulations that change the possible usage of used oil or burning of used oil as a fuel, impact the premium the segment can charge for used oil collections.

Total direct revenues for 2023 increased 4.7% or $242.5 million to $5,409.2 million, compared with $5,166.6 million in 2022.

Our Environmental Services segment direct revenues increased $339.7 million or 8.1% in 2023 compared with 2022 driven by continued growth across all our service offerings, most predominately in our Safety-Kleen branches' core environmental services offerings and our industrial service offerings, including the incremental revenues from the acquisition of Thompson Industrial on March 31, 2023.

Direct revenues recorded by our SKSS Segment decreased $97.1 million in 2023 compared to 2022 primarily due lower market-based pricing on our base oil product sales despite higher volumes sold.

The SKSS Segment increased the pricing on our collection of used oil services, which partially offset the impact of the lower base oil pricing on direct revenues.

Foreign currency translation of our Canadian operations negatively impacted our consolidated direct revenues by $23.3 million in 2023 as compared to 2022.

In 2022, our business continued to see costs increase in both the Environmental Services and Safety-Kleen Sustainability Solutions segments when compared to the prior year given the increase in business levels and revenue mix, as well as inflationary pressures seen across several cost categories and supply chain constraints.

Supply chain challenges for additives and other materials used in the oil re-refining process have delayed production, added costs and shifted the product mix within our Safety-Kleen Sustainability Solutions segment.

Similarly within the Environmental Services segment, supply chain challenges have delayed fleet and equipment delivery, increasing rental and external transportation costs.

Strategic decisions made in connection with these challenges drove increased investment in certain supplies related inventory resulting in higher working capital balances.

We believe that this investment will help to mitigate future potential supply chain constraints.

Also to combat inflationary pressures across both segments and our Corporate operations in 2022, we executed upon cost control initiatives, to the greatest extent possible, as well as strategic pricing initiatives with customers.

Income from operations in 2022 increased 82.5% to $634.7 million, compared with $347.9 million in 2021.

Income from operations in 2023 was $612.4 million as compared with $634.7 million in 2022.

We reported net income in 2023 and 2022 of $377.9 million and $411.7 million, respectively.

Adjusted EBITDA, which is the primary financial measure by which we evaluate our segments, increased 51.1% to $1,022.1 million in 2022 from $676.6 million in 2021.

This improved performance was driven by the increased revenue levels in both segments noted above, including the acquisition of HydroChemPSC, focused pricing initiatives in the Environmental Services segment, strong spread management as it relates to the pricing of base oil products and used motor oil collection services in the Safety-Kleen Sustainability Services segment.

Cost control initiatives across the entire Company, which were aided by the ability to leverage our fixed costs structure particularly relative to general and administrative costs also drove this increase.

Adjusted EBITDA, which is the primary financial measure by which we evaluate our segments was $1,012.6 million in 2023 and $1,022.1 million in 2022, a decrease driven by the results of the SKSS Segment, which was largely offset by continued growth in our Environmental Services segment.

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 2023 was $734.6 million, an increase of $108.3 million from 2022.

Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was $289.9 million in 2022, which represented a $36.4 million decrease over 2021.

This decrease is due to $116.6 million of additional spend on property, plant and equipment net of proceeds from sale and disposal of fixed assets in 2022 driven by increased spend on the new incinerator being built in Kimball, Nebraska as well as the HydroChemPSC operations.

Higher working capital balances, which developed as a result of the significant growth we saw across the business, also contributed to the cash flow change, however greater levels of operating income partially offset these decreases in adjusted free cash flow.

Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was $321.9 million in 2023, which represented a $32.0 million increase over 2022.

This increase is due to incremental net cash generated by operating activities, partially offset by higher spend on property plant and equipment, net of proceeds from the sale and disposal of fixed assets.

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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Environmental Services (3)

24.4 % 22.8 % 21.8 % 1.6 % 1.0 %

Safety-Kleen Sustainability Solutions (3)

Corporate Items N/M N/M N/M N/M N/M

19.3 % 30.8 % 29.4 % (11.5) % 1.4 %

Corporate Items (4)

(4.8) % (4.6) % (5.5) % (0.2) % 0.9 %

Total 18.7 % 19.8 % 17.8 % (1.1) % 2.0 %

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(2) Cost of revenue is shown exclusive of items presented separately on the consolidated statements of operations, which consist of (i) accretion of environmental liabilities and (ii) depreciation and amortization.

(3) Calculated as a percentage of individual segment direct revenue.

(4) Calculated as a percentage of total Company revenue.

Direct Revenues

There are many factors which have impacted and continue to impact our revenues including, but not limited to:

overall levels of industrial activity and economic 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 services, captive incinerator closures, government infrastructure investment, weather related events, base and blended oil pricing, market changes relative to the collection of used oil, our ability to manage the spread between oil product prices and prices for the collection of used oil, the number of parts washers placed at customer sites and foreign currency translation.

There are many factors which can impact our revenues including, but not limited to:

overall levels of industrial activity and economic growth in North America, competitive industry pricing, overall market incineration capacity including captive incineration closures, impacts of acquisitions and divestitures, the level of emergency response services, government infrastructure investment, existence or non-existence of large scale environmental waste and remediation projects, weather related events, the number of parts washers placed at customer sites, miles driven and related lubricant demand, base and blended oil pricing, market supply for base oil products, market changes relative to the collection of used oil, our ability to manage the spread between oil product prices, and prices for the collection of used oil and foreign currency translation.

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

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Direct revenues $ 4,511,442 $ 4,171,706 $ 3,032,454 $ 339,736 8.1 % $ 1,139,252 37.6 %

Environmental Services direct revenues for the year ended December 31, 2022 increased $1,139.3 million from the comparable period in 2021, split almost equally between organic growth of the legacy operations and incremental revenues from the HydroChemPSC operations.

Environmental Services direct revenues for the year ended December 31, 2023 increased $339.7 million from the comparable period in 2022 due to growth across our service offerings.

Revenue from our Safety-Kleen branches' core service offerings increased $113.9 million as both demand and pricing increased for our containerized waste, parts washer and vacuum services.

Revenue from our industrial services operations grew $107.9 million due to contributions from the acquisition of Thompson Industrial on March 31, 2023 coupled with growth of the legacy industrial service offerings.

Technical services revenue increased $68.6 million with contributions across our portfolio of waste disposal services more than offsetting slightly lower utilization at our incinerators.

Landfill volumes and pricing both increased in 2023 and pricing for our incineration benefitted 2023 as well.

Utilization at our incinerators for 2023 was 84% as compared to 86% in the prior year due to unplanned outages for required maintenance and significant weather events earlier in 2023.

Field and emergency response service revenues increased $34.6 million from 2022.

The Canadian operations of the Environmental Services segment were negatively impacted by $18.5 million due to foreign currency translation.

Environmental Services direct revenues for the year ended December 31, 2022 increased $1,139.3 million from the comparable period in 2021, split almost equally between growth of the legacy operations and incremental revenues from the HydroChemPSC operations acquired on October 8, 2021.

More specifically, direct revenues of our industrial service offerings increased $605.1 million, most predominately in revenue streams associated with the HydroChemPSC operations.

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The Canadian operations of the Environmental Services segment were negatively impacted by $19.4 million due to foreign currency translation.

Environmental Services direct revenues for the year ended December 31, 2021 increased $396.6 million from the comparable period in 2020.

The Environmental Services segment benefitted from $166.1 million of direct revenues contributed by the HydroChemPSC operations since the acquisition on October 8, 2021.

Excluding the HydroChemPSC revenues, Environmental Services revenues increased by $230.5 million or 8.7%, driven primarily by higher demand throughout our portfolio of services, including technical, industrial and base field services, and higher value waste streams at our incinerator and landfill facilities.

The revenue growth across these aspects of the Environmental Services segment was partially offset by lower demand for our decontamination services in 2021, which decreased $65.0 million from 2020.

Direct revenues for our technical services increased $146.9 million from 2020 to 2021 primarily due to revenues for waste disposal services at our incinerators, TSDFs and recycle centers.

Pricing and mix drove the increase in our incinerator facilities with utilization slightly increasing from 84% to 85%.

Revenues related to our legacy industrial services increased $70.9 million predominately due to increased demand for industrial cleanings as overall economic activity continued to improve and industrial cleaning services previously delayed due to the impacts of COVID-19 were executed upon.

Revenues related to base field services, excluding HydroChemPSC and COVID-19 decontamination services, increased $42.0 million, as demand for these services increased.

Safety-Kleen core service offering revenues increased $16.7 million from the comparable period in 2020 due to higher demand and improved pricing for our containerized waste and vacuum services partially offset by lower revenues for parts washer services.

The Canadian operations of the Environmental Services segment were positively impacted by $27.6 million due to foreign currency translation.

Safety-Kleen Sustainability Solutions

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Direct revenues $ 897,263 $ 994,392 $ 772,813 $ (97,129) (9.8) % $ 221,579 28.7 %

Safety-Kleen Sustainability Solutions direct revenues for the year ended December 31, 2022 increased $221.6 million from the comparable period in 2021.

SKSS direct revenues for the year ended December 31, 2023 decreased $97.1 million from the comparable period in 2022.

Base oil sales revenues decreased $97.6 million due to lower pricing despite an 8% increase in the volume sold during 2023.

Revenues from contract packaging also decreased $18.0 million and revenues from recycled fuel oil and refinery byproducts decreased $12.2 million.

Blended oil sales revenues increased $19.5 million, a 23% increase in gallons sold, which offset the lower pricing of these products.

Revenues from the collection of used oil increased $14.1 million driven by higher pricing for these services.

The Canadian operations of the SKSS segment were negatively impacted by $4.8 million in 2023 due to foreign currency translation.

SKSS direct revenues for the year ended December 31, 2022 increased $221.6 million from the comparable period in 2021.

The overall growth was largely driven by a $154.1 million increase in base oil revenue predominately due to higher pricing across slightly lower volumes sold.

Revenues from recycled fuel oil and refinery byproducts increased $53.1 million and revenues from blended oil sales increased $30.0 million due to higher pricing which more than offset lower volumes sold relative to these products.

During 2022, the volume of used oil collected increased in line with the expansion of our network through two acquisitions, (see Note 4, "Business Combinations," to our consolidated financial statements included in Item 8 of this report), however, revenue from the collection of used oil decreased $10.0 million.

This decrease in revenues from used oil collections is expected given the inverse correlation between movements in base oil pricing and the market prices associated with our used oil collection services.

The Canadian operations of the Safety-Kleen Sustainability Solutions segment were negatively impacted by $6.7 million in 2022 due to foreign currency translation.

Safety-Kleen Sustainability Solutions direct revenues for the year ended December 31, 2021 increased $264.9 million from the comparable period in 2020 predominately due to higher pricing and volume of base and blended oil product sales, partially offset by a reduction in direct revenues from used motor oil collections.

Base oil sale direct revenues increased $232.3 million while blended oil direct revenues increased $42.8 million from the prior year.

Revenues from contract blending and packaging increased $15.9 million, mainly due to increased demand, and revenues from recycled fuel oil and refinery byproducts increased $12.3 million due to pricing increases.

Revenues from used motor oil collection services decreased $30.0 million due to lower service fees charged for these services despite an increase in collection volumes from the prior year.

The pricing decrease on our used motor oil collection services is in line with expectations given the inverse correlation between movements in base oil pricing and the market prices for used oil collection services.

The impact of foreign currency translation was a $7.1 million benefit to our Safety-Kleen Sustainability Solutions' Canadian operations in 2021.

The Canadian operations of the SKSS segment were negatively impacted by $6.7 million in 2022 due to foreign currency translation.

Cost of Revenues

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We continue to experience the current macroeconomic inflationary pressures across several cost categories, but most notably related to internal and external labor, transportation, general supplies and energy related costs.

We aim to manage these increases through constant cost monitoring as well as our overall customer pricing strategies designed to offset the negative inflationary impacts on our margins.

We continue to upgrade the quality and efficiency of our services through the development of new technology and continued modifications and expansion at our facilities, invest in new business opportunities and aggressively implement strategic sourcing and logistics solutions in the face of these inflationary pressures, while also continuing to optimize our management and operating structure in an effort to manage our operating margins.

We aim to manage these increases through constant cost monitoring and a focus on cost saving areas, including lowering employee turnover, as well as our overall customer pricing strategies designed to offset the negative inflationary impacts on our margins.

We continue to upgrade the quality and efficiency of our services through the development of new technology and continued modifications and expansion at our facilities.

We invest in new business opportunities and aggressively implement strategic sourcing and logistics solutions in the face of inflationary pressures, while also continuing to optimize our management and operating structure in an effort to manage our operating margins.

Environmental Services

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As a % of Direct revenues 67.9 % 69.6 % 69.5 % (1.7) % 0.1 %

Environmental Services cost of revenues for the year ended December 31, 2023 increased $160.1 million from the comparable period in 2022, but as a percentage of revenues, these costs improved 1.7%.

Overall, labor and benefit related costs increased $126.1 million, equipment and supply costs increased $23.4 million and external transportation, vehicle and fuel related costs increased $6.8 million.

These cost increases were generally commensurate with the revenue growth in the business, however better leverage of our costs drove the cost improvement as a percentage of revenues.

Environmental Services cost of revenues for the year ended December 31, 2022 increased $796.2 million from the comparable period in 2021 primarily due to the increase in direct revenues noted above, including additional costs from the HydroChemPSC operations.

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These increases were driven by a combination of overall business growth, including the addition of HydroChemPSC, and inflationary pressures.

Environmental Services cost of revenues for the year ended December 31, 2021 increased $367.7 million from the comparable period in 2020;

however, excluding the incremental costs from the operations of the HydroChemPSC acquisition and the $17.9 million reduction in benefits recognized under the government programs which had been enacted in the U.S.

Canada in response to the COVID-19 pandemic (the “Government Programs”), these costs increased $220.5 million or 12.7%.

Costs as a percentage of revenues, excluding the impacts of HydroChemPSC and the Government Programs, increased 2.3% primarily due to the mix of services being performed, including lower decontamination services, as well as inflationary pressures across several cost categories including incentive compensation.

More specifically, excluding HydroChemPSC and the Government Programs, equipment and supply costs increased $80.5 million, labor and benefits related costs, including incentive compensation, increased $74.8 million and transportation, vehicle and fuel related costs increased $54.7 million.

Safety-Kleen Sustainability Solutions

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As a % of Direct revenues 72.0 % 61.9 % 62.7 % 10.1 % (0.8) %

Safety-Kleen Sustainability Solutions cost of revenues for the year ended December 31, 2022 increased $130.6 million from 2021 and as a percentage of revenue continued to improve.

The cost of raw materials used in production of our oil products increased $74.5 million, more than half of which was due to increased costs to obtain used oil through our used oil collection services.

The increase in base oil pricing has resulted in a correlating increase in the cost we now pay for used oil feedstock.

SKSS cost of revenues for the year ended December 31, 2023 increased $31.0 million from 2022 and as a percentage of revenues, these costs increased 10.1%, mainly driven by the reduced revenue discussed above.

Overall, external transportation, rail, vehicle and fuel costs increased $23.5 million, labor and benefit related costs increased $11.8 million and equipment and supply costs increased $5.5 million.

Cost of materials, including oil additives and other raw materials decreased by $16.2 million mainly driven by a lower cost of obtaining used oil though our oil collection services.

The remaining cost spread across various cost categories.

SKSS cost of revenues for the year ended December 31, 2022 increased $130.6 million from the comparable period in 2021 and as a percentage of revenue continued to improve.

The cost of raw materials used in production of our oil products

increased $74.5 million, more than half of which was due to increased costs to obtain used oil through our used oil collection services.

The increase in base oil pricing resulted in a correlating increase in the cost we paid for used oil feedstock.

Other primary costs that contributed to the overall increase include external transportation, vehicle and fuel costs which increased $25.3 million, labor and benefit related costs, including travel, which increased $9.7 million and equipment and supply costs which increased $2.8 million.

Safety-Kleen Sustainability Solutions cost of revenues for the year ended December 31, 2021 increased $109.8 million from the comparable period in 2020 predominately due to the revenue growth experienced by the business.

As a percentage of revenues these costs decreased 11.1%.

This margin improvement was largely driven by the increased pricing of our products which outpaced the relative cost of revenues as the business successfully managed its spread and capitalized on these favorable market conditions.

Production efficiencies also led to this lower cost structure as our re-refineries had greater utilization and output in 2021 as compared to 2020 when certain of the re-refineries were temporarily shuttered for a portion of the year.

Overall, significant increases were noted in the cost of oil additives and other raw materials, including the costs associated with used motor oil collected, which increased $64.9 million, transportation, vehicle and fuel costs which increased $25.4 million and labor and benefits related costs which increased $21.9 million.

Selling, General and Administrative Expenses

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As a % of Direct revenues 7.7 % 7.6 % 8.8 % 0.1 % (1.2) %

Environmental Services SG&A expenses for the year ended December 31, 2022 increased $49.7 million from the comparable period in 2021, however improved 1.2% as a percentage of revenues driven by leveraging our SG&A base in the midst of the revenue growth discussed above.

Environmental Services SG&A expenses for the year ended December 31, 2023 increased $31.1 million from the comparable period in 2022, but remained relatively consistent as a percentage of revenues by maintaining leverage of our SG&A base in the midst of the revenue growth discussed above.

Overall, labor and benefit related costs, including travel, increased $32.0 million primarily driven by incremental headcount, including the acquisitions occurring during the periods, and higher incentive compensation.

Environmental Services SG&A expenses for the year ended December 31, 2022 increased $49.7 million from the comparable period in 2021, but improved 1.2% as a percentage of revenues driven by leveraging our SG&A base in the midst of the revenue growth discussed above.

Increased labor and benefits related cost, including travel, of $35.4 million was the largest contributor to the overall cost increase, predominantly due to the addition of the HydroChemPSC business operations, investments in our employees and higher incentive compensation.

The remaining increases were spread across various other cost categories.

Environmental Services SG&A expenses for the year ended December 31, 2021 increased $35.1 million from the comparable period in 2020.

Excluding the incremental costs from the operations of HydroChemPSC, these costs increased $21.2 million, or 9.2%, primarily due to a $7.5 million reduction in benefits recognized under the Government Programs when compared to the prior year, as well as the overall growth in the business, with the most significant increase in labor and benefits related costs.

Excluding HydroChemPSC and the reduction in the benefits from the Government Programs in both periods, SG&A expenses as a percentage of revenues were relatively consistent at 8.9% in 2021 as compared to 9.1% in 2020.

Safety-Kleen Sustainability Solutions

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As a % of Direct revenues 8.7 % 7.3 % 7.9 % 1.4 % (0.6) %

Safety-Kleen Sustainability Solutions SG&A expenses for the year ended December 31, 2022 increased $12.0 million from the comparable period in 2021 primarily due to a $9.9 million increase in labor and benefit costs, including travel, as we expanded our sales team for the segment and made other incremental workforce investments to support its growth.

SKSS SG&A expenses for the year ended December 31, 2023 increased $5.3 million from the comparable period in 2022 and as a percentage of revenues these costs increased mainly due to the revenue reductions discussed above.

Higher labor and benefit costs of $3.5 million and a $1.1 million increase in a remedial liability estimate in 2023 drove the overall cost increase.

The higher labor and benefit costs were primarily driven by the expanded sales team established in late 2022 which remained relatively consistent through 2023.

SKSS SG&A expenses for the year ended December 31, 2022 increased $12.0 million from the comparable period in 2021 primarily due to a $9.9 million increase in labor and benefit costs, including travel, as we expanded our sales team for the segment and made other incremental workforce investments to support its growth.

The remaining increases were spread across various cost categories.

As a percentage of revenue, these costs improved slightly when compared to the same period in the prior year.

Safety-Kleen Sustainability Solutions SG&A expenses for the year ended December 31, 2021 increased $11.0 million from the comparable period in 2020 primarily due to the overall growth in the business, with the most significant increase in labor and benefits related costs.

Safety-Kleen Sustainability Solutions SG&A expenses as a percentage of revenue improved 1.9% most notably due to a $1.8 million environmental liability charge for a Superfund site recorded in the second quarter of 2020 which did not recur in 2021.

Corporate Items

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We manage our Corporate SG&A expenses commensurate with the overall total Company performance and direct revenue levels.

Generally, as revenues increase, we would expect some increase in these costs, however as a percentage of revenue these costs have remained relatively consistent in 2022, 2021 and 2020.

As a percentage of revenue these costs remained relatively consistent in 2023 after a decrease from 2021 to 2022.

In total, Corporate Items SG&A expenses increased by $7.3 million in 2023;

Overall cost increases include a $23.3 million increase in labor, benefits and travel related expenses, including incentive compensation, driven by investments in our workforce, and an $8.0 million increase from higher stock-based compensation costs.

The increase in stock-based compensation expense is driven by the timing of grants issued in 2022 and higher expense associated with the achievement of performance metrics.

Overall grants for 2022 were slightly lower than 2021.

Additional drivers of the overall increase in Corporate Items SG&A include a $6.7 million increase in cyber security information technology related costs and a $2.2 million closure reserve estimate increase for an inactive non-landfill site.

however, as noted above, these costs remained relatively consistent as a percentage of revenues.

In general, the overall cost increase was driven by higher labor and benefit related expenses, professional fees and cybersecurity/ information technology costs of $5.6 million, $3.9 million and $3.2 million, respectively, partially offset by lower stock-based compensation expense of $6.1 million.

Corporate Items SG&A expenses for the year ended December 31, 2022 increased by $27.7 million in 2021.

Overall cost increases included a $23.3 million increase in labor, benefits and travel related expenses, including incentive compensation, driven by investments in our workforce, and an $8.0 million increase from higher stock-based compensation costs.

The increase in stock-based compensation expense was driven by the timing of grants issued in 2022 and higher expense associated with the achievement of performance metrics.

Overall grants for 2022 were slightly lower than for 2021.

Additional drivers of the overall increase in Corporate Items SG&A included a $6.7 million increase in cybersecurity information technology related costs and a $2.2 million closure reserve estimate increase for an inactive non-landfill site.

Partially offsetting these cost increases were a reduction in professional fees of $6.8 million and a reduction in severance costs of $6.0 million, both related to costs from the acquisition of HydroChemPSC in 2021 which did not recur in 2022.

Additionally, in 2022 we recognized the $3.0 million breakup fee received for the termination of the proposed asset acquisition from Vertex Energy, Inc.

Corporate Items SG&A expenses for the year ended December 31, 2021 increased by $40.9 million when compared to 2020.

Overall cost increases include a $20.4 million increase in labor and benefits related expenses, including incentive compensation, a $15.0 million increase in professional fees related to the acquisition of HydroChemPSC and some strategic initiative projects, an increase in severance costs of $3.2 million and a $2.7 million increase of cyber-security information technology related costs.

Partially offsetting these increases was a $3.3 million charge related to an environmental remediation liability for an inactive site recorded in 2020 which did not recur in 2021 and a $3.1 million decrease in marketing expenses.

Additionally, in 2022 we recognized a $3.0 million breakup fee received for the termination of the proposed asset acquisition from Vertex Energy, Inc.

Adjusted EBITDA

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Loss on early extinguishment of debt 2,880 422 —

(Gain) loss on sale of businesses (8,864) — 3,376

Gain on sale of business — (8,864) —

Interest expense, net of interest income 108,595 107,663 77,657

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Total depreciation and amortization $ 365,761 $ 347,594 $ 298,135 $ 18,167 5.2 % $ 49,459 16.6 %

Depreciation and amortization for the year ended December 31, 2022 increased $49.5 million from the comparable period in 2021 predominately due to the depreciation and amortization of the HydroChemPSC tangible and intangible assets which were acquired in the fourth quarter of 2021 as well as increased depreciation and amortization associated with the acquisition completed in the second quarter of 2022.

Depreciation and amortization for the year ended December 31, 2023 increased $18.2 million from the comparable period in 2022 due to incremental depreciation and amortization associated with the Thompson Industrial assets acquired on March 31, 2023 and increased finance lease and landfill amortization in the period.

For additional information regarding the acquired balances, see Note 4, "Business Combinations," to our consolidated financial statements included in Item 8 of this report.

Depreciation and amortization for the year ended December 31, 2021 increased $5.2 million from the comparable period in 2020 due to the incremental depreciation and amortization of $12.3 million associated with the HydroChemPSC tangible and intangible assets.

This increase was partially offset by decreases from the prior year related to accelerating a landfill permit amortization in 2020 and certain assets becoming fully amortized.

Gain (Loss) on Sale of Businesses

Depreciation and amortization for the year ended December 31, 2022 increased $49.5 million from the comparable period in 2021 predominately due to the depreciation and amortization of the HydroChemPSC tangible and intangible assets as well as increased depreciation and amortization associated with the acquisition completed in the second quarter of 2022.

Other Income (Expense), net

For the years ended December 31, 2023 over 2022 2022 over 2021

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Change Change %

Gain (loss) on sale of businesses $ 8,864 $ — $ (3,376) $ 8,864 100.0 % $ 3,376 (100.0) %

During the years ended December 31, 2022 and December 31, 2020, we recorded a $8.9 million gain and a $3.4 million loss, respectively, on the sale of non-core lines of businesses within our Environmental Services segment.

No businesses were sold during the year ended December 31, 2021.

For additional information regarding the gain on sale of business in 2022, see Note 5, "Disposition of Business," to our consolidated financial statements included in Item 8 of this report.

Other income (expense), net $ 2,315 $ 2,472 $ (515) $ (157) (6.4) % $ 2,987 (580.0) %

For the year ended December 31, 2023, other income (expense), net remained relatively consistent with the comparable period in 2022.

For the year ended December 31, 2022, other income (expense), net increased $3.0 million primarily due to gains recognized on the sale of fixed assets in 2022.

Loss on Early Extinguishment of Debt

For the years ended December 31, 2023 over 2022 2022 over 2021

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Change Change %

Other income (expense), net $ 2,472 $ (515) $ (290) $ 2,987 (580.0) % $ (225) 77.6 %

For the year ended December 31, 2022, other income (expense), net increased $3.0 million from 2021 primarily due to gains recognized on the sale of fixed assets.

For the year ended December 31, 2021, other income (expense) remained relatively consistent with the prior year.

Loss on early extinguishment of debt $ (2,880) $ (422) $ — $ (2,458) 582.5 % $ (422) 100.0 %

For the year ended December 31, 2023, loss on early extinguishment of debt increased $2.5 million from the comparable period in 2022 due to losses recognized for the repayment of Term Loans due in 2024 and repricing of the Term Loans due in 2028.

For additional information regarding our current portfolio of long-term debt and related significant activity, see Note 12, "Financing Arrangements," to our consolidated financial statements included in Item 8 of this report.

Gain on Sale of Business

For the years ended December 31, 2023 over 2022 2022 over 2021

(in thousands, except percentages) 2023 2022 2021 Change %

Change Change %

Gain on sale of business $ — $ 8,864 $ — $ (8,864) 100.0 % $ 8,864 100.0 %

During the year ended December 31, 2022, we recognized an $8.9 million gain on the sale of a non-core line of business within our Environmental Services segment.

For additional information regarding the gain on sale of business in 2022, see Note 5, "Disposition of Business," to our consolidated financial statements included in Item 8 of this report.

Interest Expense, Net of Interest Income

For the years ended December 31, 2023 over 2022 2022 over 2021

(in thousands, except percentages) 2023 2022 2021 Change %

Change Change %

Interest expense, net of interest income $ 108,595 $ 107,663 $ 77,657 $ 932 0.9 % $ 30,006 38.6 %

Interest expense, net of interest income for the year ended December 31, 2023 remained relatively consistent with the comparable period in 2022 as higher interest rates on our portfolio of debt obligations were partially offset by recognizing an $8.3 million benefit from settling certain interest rate swaps in January 2023 and higher interest income realized, generally on our cash investments.

The effective interest rates on our long-term debt for the years ended December 31, 2023 and December 31, 2022 were 5.19% and 4.05%, respectively.

Interest expense, net of interest income, increased $30.0 million in 2022 when compared to 2021.

This increase was primarily due to the incremental interest associated with the $1.0 billion of secured senior term loans issued in October 2021 in connection with the acquisition of HydroChemPSC.

Increases in the variable rates on our existing debt during the period was offset by increased interest income and capitalized interest.

As we exit 2023, the effective rate on our debt is approximately 5.34% given the current interest rate environment and our portfolio of long-term debt and related interest rate swaps.

For additional information regarding our current portfolio of long-term debt, see Note 12, "Financing Arrangements," to our consolidated financial statements included in Item 8 of this report.

Provision for Income Taxes

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Effective tax rate 24.9 % 23.5 % 24.6 % 1.4 % (1.1) %

For the year ended December 31, 2022, the provision for income taxes increased $59.8 million from the comparable period in 2021, largely due to the increase in pre-tax earnings.

The effective tax rate for 2022 was 23.5% which is relatively consistent with the 2021 effective tax rate of 24.6%.

For the year ended December 31, 2023, the provision for income taxes was relatively consistent with the comparable period in 2022 despite a decrease in pre-tax earnings.

The effective tax rate for 2023 was 24.9% which is higher than the 2022 effective tax rate of 23.5% primarily due to the utilization of unbenefited losses in 2022, which reduced the effective tax rate in that period.

For the year ended December 31, 2022, provision for income taxes increased $59.8 million from the comparable period in 2021, largely due to the increase in pre-tax earnings.

The effective tax rate for 2021 was 24.6% as compared to 22.8% in 2020.

The 2022 and 2021 effective tax rates have benefited from the utilization of previously unbenefited losses in certain of our Canadian entities for which we had previously recognized valuation allowances.

The effective tax rate for 2022 was 23.5% which is relatively consistent with the 2021 effective tax rate of 24.6%.

The 2022 and 2021 effective tax rates benefited from the utilization of previously unbenefited losses in certain of our Canadian entities for which we had previously recognized valuation allowances.

These entities had historically generated operating losses but began to generate profits due to discrete events, including government subsidies and the gain on sale of a business, but more recently due to operational profits.

As of December 31, 2022, these net operating losses have been nearly fully utilized and the remaining valuation allowance, which was nominal, was released.

As such, the effective tax rate for 2023 is expected to increase.

As of December 31, 2022, these net operating losses were fully utilized and any remaining valuation allowance, which was nominal, was released.

Liquidity and Capital Resources

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

We monitor our actual needs and forecasted cash flows, our liquidity and our capital resources, enabling us to plan our present needs and fund items that may arise during the year as a result of changing business conditions or opportunities.

or opportunities.

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.

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Net cash from operating activities

Net cash from operating activities for the year ended December 31, 2023 was $734.6 million as compared to $626.2 million for year ended December 31, 2022.

This $108.3 million increase in operating cash flows was attributable to improvement in working capital balances, partially offset by higher cash paid for income taxes, environmental expenditures and interest.

Net cash from operating activities for the year ended December 31, 2022 was $626.2 million, an increase of $80.2 million compared to the year ended December 31, 2021.

The operating cash flows were most notably impacted by greater levels of operating income partially offset by an increase in working capital caused by the recent significant growth in the business, strategic inventory management and higher payments for interest, income taxes and incentive compensation.

With approximately 30% of our debt being subject to variable interest rates during 2022, the LIBOR rate increases during the year, as well as a full year of interest payments for the incremental debt issued in October of 2021, have resulted in the increase in interest payments when compared to the prior year.

With approximately 30% of our debt being subject to variable interest rates during 2022, the LIBOR rate increases during the year, as well as a full year of interest payments for the incremental debt issued in October of 2021, resulted in the increase in interest payments when compared to the prior year.

The increased tax payments were attributable to increased profits.

Net cash from operating activities for the year ended December 31, 2021 was $546.0 million, an increase of $115.4 million compared to the year ended December 31, 2020.

The increase in operating cash flows was most notably impacted by the increase in operating income in 2021 when compared to 2020 and improved working capital management in 2021 offsetting higher cash taxes and payroll taxes paid in 2021.

Cash income taxes paid, net of refunds, increased $12.1 million due to a $7.7 million tax refund received in 2020 associated with prior year amended returns previously under audit and higher pre-tax net income in 2021.

Additionally, starting in the second quarter of 2020, we deferred certain US payroll tax remittances under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

For the year ended December 31, 2020, we had deferred a total of $35.4 million.

In 2021, we both remitted our normal 2021 US payroll taxes and half of the US payroll taxes we had previously deferred in 2020.

In addition, HydroChemPSC had also elected this payroll deferral in 2020 and upon acquisition, and we recognized $11.4 million of accrued 2020 payroll taxes and we repaid half prior to the end of 2021.

The remaining payroll taxes deferred in 2020 under the CARES Act by both Clean Harbors and HydroChemPSC were remitted in 2022.

Net cash used in investing activities

Net cash used in investing activities for the year ended December 31, 2023 was $575.1 million, an increase of $186.1 million compared to the year ended December 31, 2022.

Amounts spent on additions to property, plant and equipment, net of proceeds from the sale and disposal of fixed assets increased $76.4 million, primarily driven by incremental spend on the new incinerator being built in Kimball, Nebraska.

Total spending in 2023 related to the construction of the new incinerator was $82.6 million compared to $44.9 million spent on the project in 2022.

Also contributing to the overall increase in cash used in investing activities was a $40.9 million cash outflow from the net purchase of marketable securities in 2023 compared to a $18.8 million cash inflow from the net sale of marketable securities in 2022.

Cash paid for acquisitions, net of cash acquired reflected an increase of $33.3 million due to the acquisition of Thompson Industrial in 2023 for $110.9 million compared to $86.3 million paid for acquisitions in 2022.

The cash flows in 2022 also include $16.8 million of proceeds from the sale of a business which didn't recur in 2023.

Net cash used in investing activities for the year ended December 31, 2022 was $388.9 million, a decrease of $1,118.7 million compared to the year ended December 31, 2021.

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Amounts spent on additions to property, plant and equipment, net of proceeds from the sale and disposal of fixed assets increased $116.6 million which partially offset these decreases.

The higher spend on property, plant and equipment was driven by incremental spend on the new incinerator being built in Kimball, Nebraska as well as for the HydroChemPSC operations.

The higher spending on property, plant and equipment was driven by incremental spend on the new incinerator being built in Kimball, Nebraska as well as for the HydroChemPSC operations.

Total spend in 2022 related to the construction of the new incinerator in Kimball, Nebraska was $44.9 million.

Net cash used in investing activities for the year ended December 31, 2021 was $1,507.6 million, an increase of $1,308.1 million compared to the year ended December 31, 2020.

This increase was due to the acquisition of HydroChemPSC for $1.23 billion in 2021.

Absent this significant investing cash outflow in 2021, the increase in net cash used in investing was $77.7 million most notably due to a $45.6 increase in additions to property, plant and equipment and a $21.2 million increase in net purchases of marketable securities.

Net cash (used in) from financing activities

Net cash used in financing activities for the year ended December 31, 2022 was $187.3 million as compared to net cash from financing activities of $898.2 million for the year ended December 31, 2021.

The primary drivers of this change were the $995.0 million of cash received in 2021 from the issuance of debt, net of discount, which did not recur in 2022, and the $108.1 million of higher principal payments of long term debt in 2022.

Net cash used in financing activities for the year ended December 31, 2023 was $208.9 million as compared to $187.3 million for the year ended December 31, 2022.

The total increase of $21.6 million during 2023 is due to $8.3 million of incremental debt repayments, $6.3 million of incremental deferred financing costs paid and a $5.0 million increase in withholdings paid for taxes on vested restricted stock.

For more information on the debt transactions during the year, refer to Note 12, "Financing Arrangements" to our consolidated financial statements included in Item 8 of this report.

The increase in the withholdings paid on vested restricted stock is due to the higher share prices at vesting during 2023.

Net cash from financing activities for the year ended December 31, 2022 was $187.3 million, as compared to net cash from financing activities of $898.2 million for the year ended December 31, 2021.

The primary drivers of this change were the

$995.0 million of cash received in 2021 from the issuance of debt, net of discount, which did not recur in 2022, and the $108.1 million of higher principal payments of long term debt in 2022.

In addition to $10.0 million of incremental principal payments required for the aforementioned debt, in November 2022 we also repaid $100.0 million of long term debt due in 2024.

Partially offsetting these were higher deferred financing costs paid in 2021 associated with the debt issuance.

Net cash from financing activities for the year ended December 31, 2021 was $898.2 million, as compared to net cash used in financing activities of $88.9 million for the year ended December 31, 2020.

The primary driver of this change was the $995.0 million of cash received from the issuance of debt, net of discount.

This cash inflow was partially offset by related

higher deferred financing costs paid in 2021.

In addition, cash paid for repurchases of common stock in 2021 decreased $20.4 million.

Adjusted Free Cash Flow

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Additions to property, plant and equipment (422,300) (345,056) (241,856)

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

Proceeds from sale and disposal of fixed assets 9,650 8,779 22,156

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At December 31, 2023, cash and cash equivalents held by our Canadian subsidiaries totaled $75.9 million.

At December 31, 2022, the cash and cash equivalents and marketable securities balance for our U.S.

operations was $517.2 million, and our U.S.

operations had net cash from operating activities of $455.3 million for the year ended December 31, 2022.

We also maintain a $400.0 million revolving credit facility, of which approximately $288.6 million was available to borrow at December 31, 2022.

The cash and cash equivalents and marketable securities balance for our U.S.

operations was $368.8 million at December 31, 2023.

operations had net operating cash inflows of $657.1 million for the year ended December 31, 2023.

We also maintain a $400.0 million revolving credit facility, of which, as of December 31, 2023, approximately $265.7 million was available to borrow under the facility, with letters of credit of $134.3 million outstanding.

Material Capital Requirements

Capital Expenditures

In 2022, our capital expenditures, net of disposals, were $336.3 million.

We anticipate that 2023 capital spending, net of disposals, will be in the range of $400.0 million to $420.0 million, including approximately $90.0 million of capital spending for our new incinerator in Kimball, Nebraska.

In 2023, our capital expenditures were $412.7 million.

We anticipate that 2024 capital spending, net of disposals, will be in the range of $395.0 million to $415.0 million.

This projected amount is inclusive of capital expenditures of approximately $65.0 million to finish the Kimball, Nebraska incinerator project and $15.0 million to $20.0 million for a strategic project in Baltimore, Maryland.

We anticipate that the capital spending will be funded by cash from our operations.

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.

In 2022, we continued with the construction of our new incinerator at our Kimball, Nebraska facility, which we intend to complete in early 2025.

The current capital expenditure estimate for this project is approximately $180.0 million, of which $44.9 million was spent in 2022.

As of December 30, 2022, a total of $52.1 million has been spent on the project.

In 2023, capital spending on the construction of our new incinerator at our Kimball, Nebraska facility was approximately $82.6 million.

Total spending on the project through December 31, 2023, was $134.7 million.

We expect the remaining spending for this project to be approximately $65.0 million and we anticipate it will be complete in late 2024.

We have increased the total expected spend on the project to incorporate enhancements including more direct burn bays and specialized lines designed to process incremental high hazard waste.

On February 2, 2024, the Company signed an agreement with Gryphon Investors, Inc.

to acquire HEPACO, a leading provider of specialized environmental and emergency response services in the Eastern United States, for $400.0 million in cash, subject to working capital and other adjustments.

The Company intends to fund the acquisition with a combination of available cash and incremental borrowings under our term loan facility.

Financing Arrangements

As of December 31, 2022, our financing arrangements included (i) $614.0 million of senior secured term loans due 2024 ("2024 Term Loans"), (ii) $545.0 million of 4.875% senior unsecured notes due 2027, (iii) $990.0 million of senior secured term loans due 2028 ("2028 Term Loans") and (iv) $300.0 million of 5.125% senior unsecured notes due 2029.

We also maintain our $400.0 million revolving credit facility, of which nothing was owed as of December 31, 2022.

As of December 31, 2023, our financing arrangements included (i) $545.0 million of 4.875% unsecured senior notes due 2027, (ii) $980.0 million of secured senior term loans due 2028, (iii) $300.0 million of 5.125% unsecured senior notes due 2029 and (iv) $500.0 million of 6.375% unsecured senior notes due 2031.

As noted above, we also maintain our $400.0 million revolving credit facility with no amounts owed as of December 31, 2023.

The material terms of these arrangements are discussed further in Note 12, “Financing Arrangements,” to our consolidated financial statements included in Item 8 of this report.

In January 2023, we issued $500.0 million principal amount of 6.375% senior notes due 2031.

The net proceeds of the issuance, along with a $114.0 million borrowing under our existing revolving credit facility and cash on hand, were used to repay the aggregate principal balance of our 2024 Term Loans.

After taking these transactions into account, in 2023, we expect to use available cash to pay $10.0 million in principal payments on the 2028 Term Loans and an estimated $110.0 million in interest payments on the entire portfolio of financing arrangements.

This estimate assumes that variable rates remain consistent with the rates as of December 31, 2022.

In 2024, we expect to pay $10.0 million in principal payments on the secured senior term loans and approximately $120 million interest payments on the entire portfolio of financing arrangements, assuming the variable rate remains consistent throughout 2024.

We expect that future payments of interest will continue to be funded through cash flows from operations and any principal payments will either be funded through available cash from operations or through available financing alternatives.

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Total environmental liabilities $ 229,843 $ 235,091 $ (5,248) (2.2) %

Total environmental liabilities as of December 31, 2022 were $235.1 million, an increase of $24.1 million compared to December 31, 2021.

This increase was primarily due to annual accretion of $12.9 million, new liabilities, including those assumed through acquisition of $11.9 million, and changes in environmental liability estimates resulting in charges to the consolidated statement of operations and balance sheet of $8.3 million and $5.0 million, respectively.

Expenditures of $13.9 million made during 2022 partially offset these increases in the environmental liabilities.

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 be sufficient to fund the payment of such liabilities when required.

Total environmental liabilities as of December 31, 2023 were $229.8 million, a decrease of $5.2 million compared to December 31, 2022.

This decrease was primarily due to expenditures of $29.0 million made during 2023 and decreases in environmental liability estimates recorded to the consolidated balance sheet of $2.1 million.

These decreases were partially offset by annual accretion of $13.7 million, changes in environmental liability estimates resulting in charges to the consolidated statement of operations of $4.8 million and new liabilities, including those recognized as a result of recent acquisitions of $6.7 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.

We have included a schedule of our expected payments as of December 31, 2023, in Note 10, “Closure and Post-closure Liabilities" and Note 11, "Remedial Liabilities,” to our consolidated financial statements included in Item 8 of this report.

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As of December 31, 2023, there were $134.3 million outstanding letters of credit.

See Note 12, "Financing Arrangements," to our consolidated financial statements included in Item 8 of this report for further discussion of our standby letters of credit and other financing arrangements.

See Note 12, "Financing Arrangements," to the accompanying financial statements included in Item 8 of this report for further discussion of our standby letters of credit and other financing arrangements.

Critical Accounting Estimates

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We believe the estimates set forth below may involve a higher degree of judgment and complexity in their application than our other accounting estimates and represent the critical accounting estimates used in the preparation of our consolidated financial statements.

Our accounting policies related to these estimates are discussed in Note 2, "Significant Accounting Policies," to our consolidated financial statements included in Item 8 of this report.

Our accounting

policies related to these estimates are discussed in Note 2, "Significant Accounting Policies," to our consolidated financial statements included in Item 8 of this report.

We believe our judgments related to these accounting estimates are appropriate.

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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 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 accelerate accrual of these costs.

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 accelerate accrual of these costs.

Non-Landfill Closure and Post-Closure Liabilities.

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Our cost estimates are calculated using internal sources as well as input from third-party experts.

We estimate when future operations will cease and inflate the current cost of closing the non-landfill facility using the

appropriate inflation rate and then discounting the future value to arrive at an estimated present value of closure and post-closure costs.

We estimate when future operations will cease and inflate the current cost of closing the non-landfill facility using the appropriate inflation rate and then discounting the future value to arrive at an estimated present value of closure and post-closure costs.

The estimates for non-landfill closure and post-closure liabilities are inherently uncertain due to the possibility that permit and regulatory requirements will change in the future, impacting the estimation of total costs and the timing of the expenditures.

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We routinely review and evaluate the sites for which we have established estimated environmental liabilities reserves to determine if there should be changes in the established reserves.

The changes in estimates are reflected as adjustments in the ordinary course of business in the period when we determine that an adjustment is appropriate as new information becomes available.

The changes in

estimates are reflected as adjustments in the ordinary course of business in the period when we determine that an adjustment is appropriate as new information becomes available.

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

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Acquisitions.

In accordance with the acquisition method of accounting, the purchase price paid for an acquisition is allocated to the assets and liabilities acquired based upon their estimated fair values as of the acquisition date, with the excess of

the purchase price over the net assets acquired recorded as goodwill.

Intangible assets acquired in a business combination may consist of patents, trademarks and tradenames, developed technology, customer relationships and other intangibles.

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We have a significant amount of goodwill associated with previous acquisitions.

We conducted our annual impairment test of goodwill as of December 31, 2022 in which we assessed the recoverability of the goodwill associated with our Environmental Sales and Service, Environmental Facilities and Safety-Kleen Sustainability Solutions reporting units.

We compared the fair value of the reporting units to their respective carrying values and determined that no adjustments to the carrying value of goodwill were necessary.

We conducted our annual impairment test of goodwill as of December 31, 2023 in which we assessed the recoverability of the goodwill associated with our reporting units.

For each reporting unit, we compared the reporting unit's fair value to its respective carrying value and determined that no adjustments to the carrying value of goodwill were necessary.

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

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When no amount within a range of estimates is more likely, the minimum is accrued.

As of December 31, 2022, we had reserves of $37.1 million consisting of (i) $24.1 million related to pending legal or administrative proceedings, including Superfund liabilities, which were included in remedial

liabilities on the consolidated balance sheets and (ii) $13.0 million primarily related to legal claims as well as federal, state and provincial enforcement actions, which were included in accrued expenses on the consolidated balance sheets.

As of December 31, 2023, we had reserves of $32.4 million consisting of (i) $25.0 million related to pending legal or administrative proceedings, including Superfund liabilities, which were included in remedial liabilities on the consolidated balance sheets and (ii) $7.4 million primarily related to legal claims as well as federal, state and provincial enforcement actions, which were included in accrued expenses on the consolidated balance sheets.

The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution.

1 unchanged sentence

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